economy generally and developments in the market, that are beyond our control. Also, additional debt financing or the sale of additional equity securities may adversely affect the market price of our securities. If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail Royal Wolf’s growth by delaying new customer service center openings or expansion of its lease fleet.
Following Mr. Valenta’s introduction, management of Mobile Services Group, Inc., with Mr. Valenta’s participation, negotiated with Triton Holding regarding the possible acquisition of one or both of these businesses, but the negotiations were unsuccessful. Triton Holding subsequently sold its U.S. and U.K. portable storage container businesses to Mobile Mini, Inc., a publicly held competitor of Mobile Services Group, Inc. Mr. Valenta never discussed with Mr. Skinner, or anyone else at Triton Holding, our IPO.IPO or any possible initial business combination or other transaction by us on this or any other occasion. Mr. Valenta has not spoken with Mr. Skinner since January 2006, when discussions broke off between Mobile Services Group, Inc. and Triton Holding. None of our other officers or directors previously was acquainted or had any connection with Mr. Skinner. There also is no affiliation between us and RWA or our respective officers, directors or affiliates. Prior to Mr. Baxter’s unsolicited telephone call to Mr. Valenta on April 11, 2006, none of our directors or officers had any contacts or dealings with Mr. Baxter or any of Royal Wolf’s other officers, directors affiliates or representatives. We are not aware thatrepresentatives, and Mr. Baxter or Mr. Skinner took anyno actions preliminary or otherwise, regarding a possible transaction with us prior to his telephone call to Mr. Valenta on April 11, 2006. We are not aware if Mr. Skinner may have taken any actions regarding a possible transaction with us prior to or after his call to Mr. Baxter in March 2006 or Mr. Baxter’s telephone call to Mr. Valenta.Valenta on April 11, 2006. No finder’s fee or other compensation has been or will be paid to Mr. Skinner in connection or related to our acquisition of RWA, and we do not have, and have never had, any contracts or agreements with Mr. Skinner.
Mr. Baxter has advised us that the purpose of his telephone call to Mr. Valenta on April 11, 2006 was to find out more about our business plan. During the telephone call, Mr. Valenta explained to Mr. Baxter that he had extensive experience in the portable services industry, and that we intended to focus our search for an initial business combination on companies in the specialty financing industry. Mr. Baxter discussed briefly with Mr. Valenta Royal Wolf’s plans to introduce new products and seek to acquire businesses or assets in Australia in order to grow Royal Wolf and position it for a possible sale or other strategic transaction. Mr. Baxter indicated, however, that Royal Wolf was not for sale and was perhaps a year away from considering any strategic transaction.
Following April 11, 2006, Mr. Valenta had several follow-on telephone calls with Mr. Baxter. During these calls, Mr. Valenta became interested in the possibility of acquiring Royal Wolf in our initial business combination and asked Mr. Baxter to share with us more information regarding Royal Wolf’s business and prospects. Mr. Baxter initially expressed reluctance to share confidential information based upon his previous advice that Royal Wolf was perhaps a year away from considering a possible strategic transaction, but he eventually agreed to do so. On May 2, 2006, we executed a non-disclosure agreement with Royal Wolf and began exchanging information with RWA.
On May 8 and 9, 2006, Mr. Valenta met in the Sydney, Australia, offices of Equity Partners Management Pty Limited, or Equity Partners, the private equity sponsor and majority shareholder of RWA, with Mr. Baxter, Dr. Richard Peter Gregson, Managing Director of Equity Partners, Mr. Rajeev Dhawan, Executive Director of Equity Partners, Paul Henry Jeffery, Non-Executive Director of RWA and James Warren, Chief Operating Officer of RWA. The representatives discussed their respective companies and the valuation parameters of a potential transaction. Following this meeting, Mr. Valenta advised Mr. Baxter that we were interested in continuing discussions relating to a possible acquisition of RWA.
On May 11, 2006, we convened a telephonic meeting of our board of directors at which, among other things, management reviewed with our directors the status of our discussions with RWA regarding a possible acquisition of RWA. At the meeting, management conveyed its preliminary view that Royal Wolf was a leading company in its sector and geographic market with a strong management team and significant growth potential.
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Over the next several days, Messrs. Baxter and Dhawan and Mr. Peter McCann, Chief Financial Officer of RWA, had several communications with Mr. Valenta regarding our preliminary due diligence requests and a due diligence timetable.
On May 15, 2006, we delivered a preliminary non-binding indication of interest to Messrs. Gregson and Dhawan. After several subsequent communications between Messrs. Dhawan and Baxter and Mr. Valenta, on May 23, 2006, we delivered a revised non-binding indication of interest, which was executed on May 26, 2006.
On June 26, 2006, we engaged LaRue, Corrigan and McCormick LLP, or LCM, to review the audit work papers of Royal Wolf’s auditors and undertake other specific financial accounting due dililgencediligence procedures.
On July 3, 2006, LCM began its due diligence procedures at Equity Partners’ headquarters in Sydney, Australia. On July 7, 2006, we engaged Ernst & Young LLP Australia to perform tax due diligence and advise us
37
with respect to structuring of the possible acquisition. During these procedures, management of Royal Wolf provided us with the following financial estimates and summary projections for Royal Wolf’s fiscal year ending June 30, 2007. These summary projections were provided in connection with the valuation of the transaction only, and these results may not actually be obtained. For this reason, stockholders should not place undue reliance upon such projections:
| | | | | | | | | | | | | | | | |
| | Year Ending June 30, 2007(1) | | Year Ending June 30, 2006(1) | | | Year Ending June 30, 2007(1) | | Year Ending June 30, 2006(1) | |
| | (In millions) | | (In millions) | | | (In millions) | | (In millions) | |
|
Revenue | | $ | 67.6 | | | $ | 48.8 | | | $ | 67.6 | | | $ | 48.8 | |
Revenue growth | | | 38.7 | % | | | 23.7 | % | | | 38.5 | % | | | 23.7 | % |
EBITDA(2) | | $ | 10.7 | | | $ | 5.2 | | | $ | 10.7 | | | $ | 5.2 | |
Margin | | | 15.8 | % | | | 10.0 | % | | | 15.8 | % | | | 10.7 | % |
Net capital expenditures | | $ | 6.2 | | | | | | | $ | 6.2 | | | $ | 5.6 | |
Number of containers | | | 17,027 | | | | 16,739 | | | | 17,027 | | | | 16,739 | |
| | |
(1) | | Translated at exchange rate of 0.7239 AUD to USD |
|
(2) | | Excludes transaction costs |
On July 10, 2006, we engaged Barnes & Wenden as our Australian legal counsel in connection with the acquisition.
On July 11, 2006, Mr. Valenta and John O. Johnson, our Chief Operating Officer, met with senior managers of Royal Wolf at the offices of Equity Partners to review our preliminary due diligence findings and discuss various aspects of a possible acquisition. Over the course of approximately one week, succeeding drafts of a non-binding term sheet were prepared in response to comments and suggestions of the parties and their respective counsel, with management and counsel for both companies engaging in numerous telephonic conferences and negotiating sessions. On July 18, 2006, we engaged Consulting Earth Scientists, an environmental services firm, to conduct environmental site assessments on each of the leased facilities of RWA.
On July 28, 2006, our board of directors met to discuss the proposed acquisition of RWA. Present at the meeting were all of our directors, as well as Mr. Johnson, Marc Perez, our Controller, and Alan B. Spatz of Troy & Gould Professional Corporation, our corporate counsel. Prior to the meeting, financial, operational and descriptive information about Royal Wolf was sent to each of our directors. Messrs. Valenta and Johnson described Royal Wolf’s business and operations and the structure of the possible acquisition, and led a discussion among the directors and our outside counsel. Messers. Valenta and Johnson indicated that their due diligence and theon-site presentation by Royal Wolf’s management reinforced their preliminary view expressed in the May 11 board meeting, and they recommended proceeding with the possible acquisition on this basis. Following the discussion, our board of directors directed Messrs. Valenta and Johnson to continue pursuing the acquisition as outlined and to keep the board of directors apprised of their progress.
Following the July 28, 2006 board meeting, our management and legal advisors continued to negotiate with representatives of RWA. On August 3, 2006, we signed a non-binding term sheet by which RWA granted us an exclusive period extending through August 31, 2006 to perform more in-depth due diligence and to discuss the
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terms of a definitive acquisition agreement. Several conversations took place over the next several days between us, RWA and our respective legal advisors regarding the outline of a definitive acquisition agreement.
From August 14 to August 16, 2006, Mr. Johnson was present in Sydney, Australia, to conduct further due diligence with respect to potential tax and corporate structure with Ernst & Young LLP Australia, to review the legal due diligence with Mr. Barnes of Barnes & Wenden and the environmental due diligence with Consulting Earth Scientists, and to continue to evaluate financial and accounting information of Royal Wolf. During this same three-day period, several negotiations were held between Barnes & Wenden and counsel to the sellers, resulting in the preparation of a draft definitive acquisition agreement.
On August 29, 2006, a special meeting of our board of directors was convened in Glendale, California, at which our board reviewed the internal valuation analyses of Royal Wolf prepared by our management and discussed the various terms of the draft definitive acquisition agreement. Representatives of the sellers also were present at the beginning of the meeting, and presented Royal Wolf’s 2007 business plan and answered questions posed by our
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directors prior to the directors’ deliberations regarding approval of the acquisition. After further review and discussion, the acquisition agreement was unanimously approved by our board of directors, subject to modifications to be negotiated to address the directors’ comments on the draft agreement.
Additional negotiations regarding adjustments to the definitive acquisition agreement took place in person on August 30, 2006 and telephonically over the several days after that, which discussions resulted in the preparation of the proposed final definitive agreement.
On September 1, 2006, a telephonic meeting of our board took place at which the board was updated regarding ongoing developments and approved the final modifications to the terms of the acquisition agreement.
The parties signed the original acquisition agreement on September 12, 2006. On September 12, 2006, we issued a press release and filed a Current Report onForm 8-K announcing the signing of the acquisition agreement and certain other matters.
The original acquisition agreement was amended in certain immaterial respects by amendments entered into on January 19 and March 9, 2007, respectively.
Amended Acquisition Agreement
The original acquisition agreement, as amended, entitled the management shareholders and Equity Partners to terminate the agreement if, among other things, we did not obtain Securities and Exchange Commission clearance to mail this proxy statement by February 26, 2007 or the acquisition was not approved by our stockholders by March 26, 2007.
Our board of directors met on February 20, 2007. At the meeting, our management briefed our board on the status of the Securities and Exchange Commission proxy statement review. Our management reported that it appeared increasingly unlikely that we would complete the proxy statement review process by the deadline set forth in the original acquisition agreement, and that the RWA shareholders were becoming concerned about the delay in the proxy statement review process and the implications for the acquisition. Also at the February 20, 2007 meeting, our board of directors approved a non-binding term sheet from Bison Capital to provide mezzanine financing in connection with the Royal Wolf acquisition, and authorized our management to sign the term sheet.
As the February 26, 2007 deadline approached for mailing this proxy statement, we informed the management shareholders and Equity Partners that we did not anticipate completing the Securities and Exchange Commission proxy statement review process by the deadline, and that we would need an extension of the deadlines relating to the mailing of this proxy statement and approval of the acquisition by our stockholders. Equity Partners informed us that it was not willing to consider any extension of the deadlines unless we agreed that our previous deposits of $1,005,000 in connection with the acquisition were no longer refundable under any circumstance if the closing did not occur by the March 26, 2007 deadline. Equity Partners also indicated that it was willing to extend the deadlines for not more than 14 days, and only if we agreed to amendments to the original acquisition agreement that would have:
| | |
| • | Increased the acquisition consideration payable by us in cash at the closing by approximately $2.36 million; |
| | |
| • | Required us to pay approximately $591,000 of the additional cash consideration as a nonrefundable deposit in addition to our prior $1,005,000 deposits; and |
| | |
| • | Reduced the amount of the acquisition consideration to be retained in escrow following the closing to satisfy the sellers’ indemnification obligations from $5.5 million to approximately $2.5 million. |
Our management informed Equity Partners and the management shareholders that we were willing to consider its suggested changes to the economic terms of the original acquisition agreement, but that a14-day extension of the deadlines for obtaining Securities and Exchange Commission clearance to mail this proxy statement and stockholder approval of the acquisition would not allow sufficient time to complete the proxy statement review process with the Securities and Exchange Commission, mail the definitive proxy statement, and convene the special meeting of our stockholders a reasonable number of days after the final proxy statement was furnished to them. Equity Partners indicated, however, that it had several other unidentified potential buyers for Royal Wolf and that it believed that Royal Wolf’s current value exceeded the value of the acquisition consideration that we had agreed to
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pay under the original acquisition agreement. Equity Partners also told us that Royal Wolf would be the first portfolio company sold by Equity Partners, and that it desired to complete the sale soon in order to facilitate the formation and funding of its second private equity fund. For these reasons, according to Equity Partners, it was not willing to grant us an extension in excess of 14 days from the original deadlines under the original acquisition agreement.
Based upon Equity Partners’ position that it was unwilling to postpone the sale of its RWA shares for more than 14 days, our management undertook to consider whether we should abandon the Royal Wolf acquisition altogether, forfeit our deposits of $1,005,000, and undertake to seek to identify another possible initial business combination. Our management also considered possible means of avoiding abandoning the acquisition.
On March 1, 2007, Mr. Valenta contacted Douglas B. Trussler of Bison Capital to discuss with him the status of the Securities and Exchange Commission proxy statement review process and our management’s conclusion that we were not likely to be able to meet the deadlines set forth in the original acquisition agreement. Mr. Valenta also discussed with Mr. Trussler the fact that Equity Partners was unwilling to give us a sufficient extension of the time to complete the proxy statement review process and present the Royal Wolf acquisition to a vote of our stockholders, and whether Bison Capital might be willing to participate in our acquisition of Royal Wolf in an effort to resolve these matters.
Bison Capital is a Los Angeles-based private equity firm affiliated with General Electric Corporation, or GE. Ronald F. Valenta has known Douglas B. Trussler, one of the founders of Bison Capital, since 1999, when Mr. Trussler was employed by Windward Capital Management LLC, an affiliate of Windward Capital Partners II, L.P., a private equity fund. In April 2000, Mr. Valenta, the founder, Chief Executive Officer and a shareholder of Mobile Storage Group, Inc., and other Mobile Storage shareholders sold a majority interest in Mobile Storage Group, Inc. to Windward Capital Partners II, L.P. Mr. Trussler subsequently left Windward Capital Partners II, L.P. in December 2000 to found Bison Capital in May 2001. James K. Hunt, the other co-founder of Bison Capital, was appointed by Windward Capital Partners II, L.P. to the board of directors of Mobile Storage Group, Inc. in 2002.
Messrs. Valenta and Trussler have kept in contact since their direct involvement in the investment by Windward Capital Partners II, L.P. in Mobile Storage Group, Inc. In May 2006, in one such contact, Mr. Valenta informed Mr. Trussler that we had recently raised approximately $70 million in our IPO, and that we were seeking to identify our initial business combination. Mr. Trussler indicated that Bison Capital might have an interest in financing a potential acquisition, or providing financing to a business that we might acquire, given that Bison Capital was in the business of providing such financing and given Mr. Trussler’s successful dealings with Mr. Valenta in connection with Windward Capital’s investment in Mobile Storage Group, Inc.
In September 2006, Mr. Valenta contacted Mr. Trussler to discuss with him our recently announced proposal to acquire Royal Wolf and to determine whether Bison Capital might have an interest in providing mezzanine financing at or after the transaction. Mr. Valenta informed Mr. Trussler that, although we had sufficient cash to complete the purchase of Royal Wolf without financing, we may be interested in establishing a relationship with Bison Capital or its affiliates as a long-term capital partner. Following the discussion between Messrs. Valenta and Trussler, Bison Capital submitted to us a preliminary non-binding indication of the terms of possible mezzanine financing for the Royal Wolf acquisition, and in October 2006 Mr. Trussler visited the Royal Wolf facilities in Australia. Bison Capital subsequently submitted a non-binding letter of intent to provide acquisition financing to Royal Wolf, which we entered into after the February 20, 2007 meeting of our board of directors described above. As part of its due diligence relating to the letter of intent, Bison Capital revisited Royal Wolf in February 2007. On March 1, 2007, not long after that visit, as described above, Mr. Valenta contacted Mr. Trussler to discuss the Securities and Exchange Commission proxy statement review process and timing relative to the commitments in our original acquisition agreement to purchase Royal Wolf.
In his discussions with Mr. Valenta on March 1, 2007, Mr. Trussler indicated to Mr. Valenta that, based upon Bison Capital’s prior due diligence and familiarity with Royal Wolf, Bison Capital might be willing to buy Equity Partners’ RWA shares if we would commit to repurchase the RWA shares from Bison Capital on economic and other terms satisfactory to Bison Capital and if we subsequently received stockholder approval of the Royal Wolf acquisition. Mr. Trussler indicated that the transaction would have to be consistent with Bison Capital’s usual investment criteria, and that Mr. Valenta, personally, would have to agree to buy all or a portion of Bison Capital’s
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RWA shares if we were not able to do so for any reason. Mr. Trussler suggested as a possible structure that the original acquisition agreement be assigned by us to Bison Capital, and that we and Bison Capital work jointly with the shareholders of Royal Wolf to seek their consent to the assignment and to the terms and provisions of the restructured acquisition.
Following the March 1, 2007 discussion between Mr. Valenta and Mr. Trussler, our management continued to discuss with Bison Capital the possible terms on which it might be willing to participate in the Royal Wolf acquisition as set forth in draft term sheets circulated between us and our legal advisors and Bison Capital and its legal advisors.
On March 6, 2007, at a meeting of our board of directors called for this purpose, our management briefed our directors on the discussions with Bison Capital and the possible restructuring of the acquisition agreement to accomplish an extension of the various deadlines under the acquisition agreement with Bison Capital’s participation. At the meeting, our management discussed the costs and other disadvantages to us and our stockholders of abandoning the Royal Wolf acquisition and seeking another initial business combination, including the risk that we could not identify and negotiate another initial business combination, complete the Securities and Exchange Commission proxy statement review process, and present the alternative business combination to our stockholders before April 5, 2008, the date by which we must dissolve our company if we have not completed our initial business combination. Management and our board also discussed the risks associated with proceeding with the acquisition of Royal Wolf on the terms proposed by Equity Partners, including the fact that management, in consultation with Troy & Gould, our outside counsel, believed that we would require more than 14 days to complete the proxy statement review process with the Securities and Exchange Commission. Mr. Valenta and Mr. Johnson reported to our board that they continued to believe that Royal Wolf was an attractive initial business combination, and that we should proceed with the acquisition, if feasible. At the March 6, 2007 meeting, our board authorized management to develop a proposal to accomplish the Royal Wolf acquisition, but on a schedule that would allow us time to complete the proxy statement review process, including any additional review that might be necessitated by any changes in the terms and provisions of the original acquisition agreement.
On March 9, 2007, our board of directors met to consider our management’s discussions with Equity Partners and Bison Capital. Our management explained that Equity Partners and the management shareholders were entitled under the original acquisition agreement to terminate the acquisition agreement given the passage of the February 26, 2007 deadline for obtaining Securities and Exchange Commission clearance to mail this proxy statement, but that they were willing not to terminate the acquisition agreement if we would agree to make our deposits nonrefundable. After discussion, our board authorized our management to enter into an amendment to the acquisition agreement making our $1,005,000 of deposits nonrefundable if the closing does not occur. We entered into such an amendment later that same day.
On March 13, 2007, John O. Johnson, our Chief Operating Officer, traveled to Australia to address with the RWA shareholders the possibility of restructuring the acquisition with Bison Capital’s participation. Over the following two days, March 14 and March 15, 2007, Mr. Johnson, with the participation by telephone and email of our other management and legal advisors in the U.S. and Australia, negotiated with the RWA shareholders the terms of the possible restructured acquisition. During his meetings in Australia, Royal Wolf management also furnished Mr. Johnson with updated internal projected results of operations of Royal Wolf for the twelve months ended December 31, 2006 and the twelve months ending December 31, 2007, and discussed with Mr. Johnson recent developments and the current status of Royal Wolf’s business and operations.
The RWA management team provided us, at our request, with trailing twelve month December 31, 2006 financials as well as projected December 31, 2007 numbers so that we could more accurately compare them with our U.S. comparable companies that use a calendar year end period. These summary projections were provided in
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connection with our management’s evaluation of the transaction only, and these results may not actually be obtained. For this reason, stockholders should not place undue reliance upon such projections:
| | | | | | | | |
| | Projected Dec. 31, 2007(1) | | | Actual TTM Dec. 31, 2006(1) | |
| | (In millions) | | | (In millions) | |
|
Revenue | | $ | 79.8 | | | $ | 62.1 | |
Revenue growth | | | 28.5 | % | | | 23.7 | % |
EBITDA(2) | | $ | 13.8 | | | $ | 8.1 | |
Margin | | | 17.3 | % | | | 13.1 | % |
Net capital expenditures | | $ | 20.3 | | | | 17.5 | |
Number of containers | | $ | 22,288 | | | $ | 17,808 | |
| | |
(1) | | Translated at exchange rate of 0.788 AUD to USD. TTM means Trailing Twelve Months. |
| | |
(2) | | Excludes transaction costs and transaction-related ESOP conversion costs. |
On March 15, 2007, Bison Capital submitted to our management a term sheet outlining an agreement in principle under which Bison Capital or its affiliate would agree on not later than March 29, 2007 to purchase all of the RWA shares of Equity Partners and a portion of the management shareholders’ RWA shares for consideration equivalent in all material respects to the aggregate acquisition consideration that we originally agreed to as set forth in the original acquisition agreement. Under the term sheet, we would agree at a subsequent closing to be held after completion of the proxy statement review process, and assuming that the acquisition is approved by our stockholders, to purchase the remaining RWA shares held by the management shareholders and a portion of the RWA shares owned by Bison Capital and its affiliates, such that we would own, directly or indirectly, approximately 86.2% of the outstanding capital stock of RWA as of the subsequent closing and Bison Capital or its affiliates would own, directly or indirectly, not less than 13.8% of the outstanding RWA shares. The subsequent closing would be subject to the closing condition relating to approval of the acquisition by our stockholders as contemplated by the original acquisition agreement, as well as new closing conditions relating to the maintenance of Royal Wolf’s existing credit facilities with ANZ and our agreement to cause GFN Australasia to sell and issue approximately $15.7 million of senior subordinated promissory notes to Bison Capital or its affiliates at the subsequent closing.
Later in the day on March 15, 2007, our management arranged a conference telephone call with our board of directors to discuss the terms of the Bison Capital term sheet. At the meeting, our board discussed the prospects for avoiding the termination of the original acquisition agreement without Bison Capital’s participation, the terms and provisions of the Bison Capital term sheet, including the funding to be provided by Bison Capital and its affiliates to accomplish the purchase of the RWA shares prior to March 30, 2007 and the purchase price that would be payable by us for those shares at the subsequent closing, our payment of costs and expenses, including legal fees and expenses, incurred by Bison Capital and its affiliates in connection with these transactions, the terms of the subordinated indebtedness to be issued by GFN Australasia, and the terms of Mr. Valenta’s agreement to make whole Bison Capital and its affiliates if we do not purchase the RWA shares. Our board also discussed the need for updated due diligence and valuation analyses from our management prior to approving a definitive amended acquisition agreement. During the March 15, 2007 conference call, our board agreed that our management should seek to negotiate an amended acquisition agreement for Royal Wolf on the terms outlined in the Bison Capital term sheet, and directed management to update its due diligence and prepare an updated analysis of the fair value of Royal Wolf in order to present these updates at a subsequent meeting of our board tentatively scheduled for approximately one week later on March 23, 2007.
Over the weekend following March 15 and throughout the week of March 19, our management, together with our legal advisors at Troy & Gould in the U.S. and Barnes & Wenden in Australia, negotiated with Equity Partners, the management shareholders, Bison-GE, and their respective legal advisors the terms and provisions of the restructured acquisition and prepared drafts of the related legal documentation. As a result of these negotiations, it was agreed, among other things, that the original acquisition agreement would be amended as set forth in the amended acquisition agreement, that we and Bison-GE would enter into the shareholders agreement, and that Mr. Valenta would enter into the backup purchase agreement with Bison-GE and the management shareholders.
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Our board of directors met on March 23, 2007 to review and consider the terms and provisions of the definitive amended acquisition agreement, the shareholders agreement, the backup purchase agreement, and related agreements, and to hear from our management regarding its updated due diligence and valuation analyses. At the March 23, 2007 meeting, our management summarized for the directors the events since the meeting of our board of directors held on March 15, 2007. A representative of Troy & Gould, our U.S. legal advisor, summarized for the directors the material terms and provisions of the draft amended acquisition agreement, including the changes from the terms and provisions of the original acquisition agreement. The Troy & Gould representative and our management also summarized the terms and provisions of the proposed shareholders agreement and Mr. Valenta’s backup purchase agreement. Mr. Johnson presented to the directors our management’s updated financial and valuation analyses and discussed changes from the original financial and valuation analyses considered by our board of directors in connection with its evaluation and approval of the original acquisition agreement. Following discussion, our board of directors directed management to proceed to try and finalize the amended acquisition agreement and related agreements along the lines discussed at the meeting and to respond to the directors’ questions and comments at a follow-on board meeting tentatively scheduled for Monday, March 26, 2007. At the meeting on March 23, 2007, our management also discussed with our board of directors the advisability of seeking from Mr. Valenta an increase in his line of credit from $2,000,000 to $3,000,000. Mr. Valenta indicated that he was willing to agree to the increase, and our board determined to table the matter until the next board meeting.
Our management and our legal advisors here in the U.S. and Australia continued to work over the weekend of March 24 and March 25 and on Monday, March 26, 2007, to further revise the amended acquisition agreement and related agreements prior to the follow-on board meeting.
Our board of directors met in the afternoon of Monday, March 26, 2007, to review the final terms and provisions of the amended acquisition agreement and related documents and consider our management’s final valuation analysis. A representative of Troy & Gould also participated in the meeting and summarized the final terms of the amended acquisition agreement and related agreements, including any changes from the terms considered by the directors at the March 23, 2007 board meeting. After review and consideration, our board of directors unanimously approved the amended acquisition agreement and related agreements and authorized our management to finalize and execute and deliver the agreements on our behalf, subject to any modifications deemed appropriate by our management in consultation with our legal advisors in the U.S. and Australia. Our board established April 20, 2007 as the new record date and May 29, 2007 as the new meeting date for the special meeting of our stockholders. At the meeting, our board of directors also authorized an increase in the line of credit from Mr. Valenta to $3,000,000.
Over the next several days, our management and legal advisors finalized the amended acquisition agreement and related agreements, and on March 29, 2007 the parties signed the amended acquisition agreement, and we and Mr. Valenta signed an amendment to his line of credit agreement to increase the line of credit to $3,000,000. On March 30, 2007, we issued a press release and filed a Current Report onForm 8-K relating to the signing of the amended acquisition agreement and the establishment of the new record date and meeting date for the special meeting of stockholders.
Our Board of Directors’ Reasons for the Approval of the Acquisition
Based upon its evaluation, our board of directors has unanimously approved our acquisition of RWA and determined that it is in the best interests of us and our stockholders. Our board of directors also believes that the acquisition is fair to us and our stockholders. No fairness opinion was sought or obtained by our board of directors in making its determinations.
In the prospectus relating to our IPO, we stated our intention to focus our pursuit of a business combination on targets in the specialty finance industry and in areas where our management has significant expertise. We believe that the RWA acquisition meets these investment objectives.
Our board of directors also considered a wide variety of other factors in connection with its evaluation of the acquisition. In light of the complexity of those factors, our board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its
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decision. In addition, individual members of our board of directors may have given different weight to different factors.
Our board of directors considered the nature of RWA’s business and assets, its current capitalization anand resulting operating losses, the extent of the liabilities to be assumed and the factors below, in addition to the factors discussed in the section entitled “Risk Factors” described beginning on page 18,20, in reaching its conclusion that the acquisition agreement is fair to and in the best interests of GFN’s stockholders and to approve the acquisition and enter into the acquisition agreement.
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In considering the acquisition, our board of directors gave considerable weight to the following positive factors:
Royal Wolf’s established business, strong management team, record of growth and potential for future growth
Our board of directors considered it to be important that our initial business combination target have an established business and significant growth potential. Royal Wolf has been in business since 1995, has strong current business operations and is a market leader in the Australian domestic portable storage and container industries. It has achieved significant historical growth, both internally and through acquisitions, and has in place its infrastructure to support additional growth with minimal additional overhead investments. Royal Wolf has been successful in developing new applications for portable containers, and has grown revenues from $28.3$30.8 million in fiscal 2003 to $48.8$53.1 million in fiscal 2006 (which figures are based upon an exchange rate of .7239 Australian Dollar to 1 U.S. Dollar).and $62.1 million for the twelve months ended December 31, 2006. Royal Wolf also has completed three businessfour acquisitions since December 2005, demonstrating its ability to grow through acquisitions. Our board of directors believes that Royal Wolf will be able to continue to grow domestically within Australia, because:
| | |
| • | Royal Wolf has customer service centers in each state in Australia; |
|
| • | Royal Wolf has average monthly lease container utilization rates of between 81% and 91%; and |
|
| • | Royal Wolf has over 12,000 active customers in numerous industries. |
Our board also believes that Royal Wolf can grow by expanding into new geographic markets in the Asia-Pacific, and that our capital resources may be used to facilitate this growth.
The experience of our management
Our board of directors considered the experience of our management in building and consolidating specialty finance businesses in the U.S. and Europe. Mr. Valenta, in particular, has extensive management experience in the portable storage industry that lends itself to the planned growth of Royal Wolf’s business and operations.
The experience of Royal Wolf’s management
Another important criteria to our board of directors was that the company have a seasoned management team. Royal Wolf’s management has extensive experience in the container, transportation and portable storage industries. Mr. Robert Allan and Mr. Warren each have more than 30 years of experience managing companies in related industries and more than ten years each as Regional Directors ofU.S.-based container leasing companies. Mr. McCann has nearly three years of experience at Royal Wolf, and many of Royal Wolf’s operating managers also have long tenure with Royal Wolf or other companies in the portable storage and container industry. The management team has demonstrated its ability to grow both internally and through acquisition and is capable of managing this industry segment globally for us.
Royal Wolf’s ability to execute its business plan after the acquisition using its own financing resources, since part of the cash held in our trust account may be used to pay our stockholders who exercise their conversion rights
Our board of directors considered the fact that our stockholders may exercise their conversion rights in connection with the acquisition, and thereby reduce the amount of cash available to us following the acquisition. If the acquisition is completed, a portion of the funds held in the trust account established at the time of our IPO will be
44
used to pay the cash portion for the acquisition and costs of the acquisition, which we estimate will be approximately $48.7$43.0 million, and to repay the outstanding principal balance, which we estimate will be $2,000,000,$3,000,000, plus accrued interest, under our line of credit with Mr. Valenta. This amount includes the deposits of $1,005,000 made in connection with the acquisition. Based upon the amount of funds held in the trust account as of December 31, 2006,February 28, 2007, this would leave available in the trust account after the acquisition a maximum of approximately $15.9$22.0 million, assuming no exercise of conversion rights, and a minimum of approximately $2.7$8.8 million, assuming the maximum conversion rights are exercised. Our board of directors
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believes that Royal Wolf will be able to fully implement its business plan, even if not all the funds currently in the trust account are available to us after the acquisition.
Financial results
Our board of directors reviewed Royal Wolf’s historical revenue and profitability. Royal Wolf achieved $48.8 million(1)$53.1 million in revenue for the fiscal year ended June 30, 2006. Royal Wolf’s gross profit on an absolute basis improved from $13.5 million(1) to $16.7 million(1) from 2004 to 2006, although it declined as a percentage of revenue in 2006, because of new product introductions. This improvement reflects the operating leverage in Royal Wolf’s business model, the overhead structure being utilized more efficiently, and a $0.5 million(1)million reduction in depreciation due to a revision of the useful lives and residual values of certain fixed assets. This is supported by bothrevenues and operating profit for the trailing twelve months ended December 31, 2006 of $62.1 million and $4.9 million, respectively, and gross profit for the current year-to-date revenues and the resulting operating profit, which on an annualized basis meets or exceeds the summary projections that RWA management provided to us as described above.same period of $22.7 million. Our board of directors also considered Royal Wolf’s historic lack of profitability, which is attributable to its leveraged capital structure and investment in infrastructure.
Favorable industry dynamics
Our board of directors considered positive long-term capital spending trends in Australia, such as the growing demand for portable services in the mining and construction industries. Our board of directors believes that similar trends underway in developing Asia-Pacific markets are favorable to the expansion of Royal Wolf’s business into new geographic markets.
Competitive position and acceptance of its services
Royal Wolf’s leading market share in Australia, reputation in its industry and among its clients, and its involvement in high-profile projects were considered by our board of directors to be favorable factors in approving the acquisition.
Barriers to entry
Duplicating Royal Wolf’s nationwide consumer service center network would require a large cadre of experienced industry personnel, which we believe is not readily available to a potential entrant in the Australian portable storage industry and represents a competitive advantage of Royal Wolf.
Regulatory environment of the industry
Royal Wolf’s business currently is not subject to burdensome regulatory requirements, although these requirements are subject to future change and could worsen. We believe that Royal Wolf has satisfactory regulatory compliance procedures in place.
Costs associated with effecting the business combination
Our board of directors determined that the transactions costs of acquiring RWA would beare of the same order of magnitude as would be encountered with other possible business combinations, including business combinations with much smaller companies.and reasonable in relation to the total acquisition consideration. In determining that the transaction costs are reasonable, our board of directors also considered the costs to us of abandoning the Royal Wolf acquisition. A favorable factor was that RWA’s historical financial statements were audited in accordance with practices applicable to Australian private companies by a reputable and experienced accounting firm, and that RWA was able to furnish the financial and other information
45
required for the preparation of this proxy statement in accordance with Securities and Exchange Commission requirements.
Bison-GE’s participation in the amended acquisition agreement
Under the original acquisition agreement approved by our board of directors, we were to own after the closing all of the equity interest in Royal Wolf. Although our board considered seeking acquisition financing from third parties such as Bison Capital, it did not consider seeking an equity partner to acquire a minority interest in Royal Wolf. In our negotiations with Bison Capital that led to Bison-GE’s participation in the amended acquisition agreement, we proposed to pay the purchase price of Bison-GE’s RWA shares, as with the RWA shares to be purchased from the management shareholders, all in cash at the closing, consistent with the structure of the original acquisition agreement. Based, however, upon its own due diligence and evaluation of the business, operations and prospects of Royal Wolf, Bison-GE negotiated for the right to retain a minority equity interest in Royal Wolf by receiving 13.8% of the capital stock of GFN Australasia in payment of a portion of the purchase price payable by us at the closing for Bison-GE’s RWA shares. Bison-GE agreed that the GFN Australasia’s shares would be valued for this purpose at the same price that we agreed to pay the RWA shareholders under the original acquisition agreement. Our board of directors considered Bison Capital’s insistence on acquiring a significant equity interest in Royal Wolf on the same terms that we had agreed to in the original acquisition agreement as supporting our board’s conclusion that Royal Wolf is an attractive initial business combination and that the acquisition is fair to us and our stockholders.
The terms of the acquisition agreement contain customary provisions for transactions of this type.
Our board of directors believes that the acquisition agreement contains customary provisions for transactions of this type, including customary representations and warranties, non-compete, and indemnification and escrow provisions in our
(1) Translated at exchange rate of .7239 AUD to USD
38
favor. It was important to our board of directors that the acquisition agreement include these customary provisions to protect us against the risks associated with possible unknown liabilities or similar potential problems at Royal Wolf. The sellers’ willingness to agree to an escrow of a portion of the acquisition consideration to satisfy potential indemnification claims by us was viewed favorably by our board.
Material Negative Factors Considered by Our Board of Directors
Our board of directors believes that each of the above factors supports its determination and recommendation to approve the acquisition. Notwithstanding these positive factors, our board of directors also considered negative factors and potential risks in its deliberations, including the following:
| | |
| • | The risks relating to Royal Wolf’s business set out in this proxy statement in the section entitled “Risk Factors” beginning on page 19;20; |
| | |
| • | The fact that Royal Wolf has no current business or operations in the U.S. or outside of Australia was perceived as more difficult to manage than a U.S. domestic operation and that Royal Wolf had operations throughout Australia but had no business presence beyond that marketplace; |
| | |
| • | The fact that Royal Wolf currently wasis unprofitable, hadhas experienced fluctuations in its operating income and has not been able to achieve consistent or improved operating margins even with increasingyear-over-year revenues. While revenues grew substantially, Royal Wolf experienced net losses for the last two fiscal years and a slight decline in the gross margin for the year ended June 30, 2006. The losses in the most recent fiscal year were primarily attributable to higher costs from the introduction of several new products during the fiscal year, coupled with the higher interest expense and debt load. In our directors’ view, this was offset by the strong revenue increase in those products in the later part of the fiscal year along with the interim periods. In addition, the annual revenues of the business asset purchases that were made in 2006 were not fully reflected in the previous financial statements. Our board of directors also took into consideration the view of our management that Royal Wolf’s branch infrastructure was underutilized; |
| | |
| • | The fact that Royal Wolf’s container sales business wasis maturing and wasis not likely to grow at the same rate as its other businesses. Royal Wolf appearedappears to have captured much of the market opportunity, but hadhas been under-capitalized over the past three years. With our focus on a better capital structure, theour board of directors believed |
46
| | |
| | believes that we will be able to create more leasing or acquisition opportunities, which is historically a higher margin business, thereby increasing gross margins; and |
| | |
| • | The fact that we will own indirectly 86.2%, rather than all, of the RWA shares at the closing of the acquisition; |
| | |
| • | The fact that the deposit and termination provisions of the acquisition agreement maywill result in our forfeiture of substantial deposits ortotaling $1,005,000 if the terminationacquisition is not completed for any reason; |
| | |
| • | That delays in meeting the deadlines set forth in the original acquisition agreement for obtaining stockholder approval and other matters made it necessary to seekBison-GE’s participation to allow more time to present the acquisition to vote of our stockholders, and the increased acquisition consideration and additional transaction costs associated with the amended acquisition agreement as compared to the original acquisition agreement; and |
| | |
| • | The provisions of the acquisitionshareholders agreement, if there are delaysincluding the fact thatBison-GE may require us to purchase its 13.8% of the GFN Australasia shares in completing the acquisition.future at a price specified in the shareholders agreement. |
Our board of directors gave no particular weight to the foregoing negative factors, but believes that they are outweighed by the positive factors it considered. Our board of directors did not consider other possible negative factors, or consider further these negative factors.
Due Diligence and Valuation
Several members of our management or board of directors have extensive experience in due diligence evaluations of acquisition targets and in valuing companies. Ronald A. Valenta, our Chief Executive Officer and a director, has been a board member of ten other companies in a number of industries, and has extensive experience in the portable services industry and as a private investor. John O. Johnson, our Chief Operating Officer, has extensive experience as an investment analyst, investment banker and financial advisor. Other members of the board, including David Connell and James Roszak, are experienced in the investment, securities and capital management industries.
In determining to approve the original acquisition agreement relating to RWA,Royal Wolf, as well as the amended acquisition agreement, our board of directors relied on financial, industry, customer, capital markets (equity valuations), product, business and legal information relating to Royal Wolf compiled by our management and upon the advice of our legal advisors, Troy & Gould Professional Corporation in the U.S. and Barnes & Wenden in Australia, and our due diligence advisors, Ernst & Young LLP
39
Australia as to tax and structuring matters, La Rue, Corrigan and McCormick LLP as to accounting matters, and Consulting Earth Scientists as to environmental matters. In addition to reviewing financial information of RWA and the portable storage and container industry, in general, our board of directors reviewed publicly-available information of companies with business and operations that the board considered to be similar to those of Royal Wolf and publicly-available information related to acquisition or merger transactions similar to the acquisition. None of the companies reviewed were identical to RWA, nor were any of the transactions reviewed identical to the acquisition. In fact, the companies reviewed are all based in the U.S., whereas Royal Wolf is based and operates exclusively in Australia. Our board of directors nonetheless believes that such companies and transactions were relevant in analyzing the acquisition, because they involved companies that operate primarily in the portable storage and container industry and because we are aU.S.-based company. Stockholders should note that analyses of comparable companies and comparable transactions are not purely mathematical, but involve subjective business judgments concerning the differences between those companies and transactions and Royal Wolf and the acquisition.
Further, the estimates contained in these analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses or assets neither purport to be appraisals nor do they necessarily reflect the prices at which businesses or assets may actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty, and cannot anticipate future events. Management believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors collectively, could
47
create an incomplete and misleading view of the process underlying the analyses performed by management in connection with the preparation of its conclusion.
Our board of directors did not rely on any single analysis or upon any one particular set of industry information in evaluating the acquisition, but reviewed the totality of the information presented to it, including, among other items, the valuation analyses done by our management. Further, based on our board of directors’ belief that its members have the skill and experience to properly evaluate the acquisition, our board determined that obtaining a valuation or fairness opinion was unnecessary.
Valuation Analyses
The following is a summary of the material financial analyses performed by our management in connection with the acquisition. We performed the valuation analysis in accordance with our undertaking in the prospectus relating to our IPO that the business acquired by us in our initial business combination would have a fair market value equal to at least 80% of our net assets at the time of the transaction, including the funds held in the trust account. Based upon our total net assets, including funds held in the trust account, of approximately $65$68 million as of September 30,December 31, 2006, 80% of our net assets at the time of the transaction is approximately $52$54 million. The following summary does not purport to be a complete description of the financial analyses performed by our management, and the order of analyses described below does not necessarily represent the relative importance or weight given to those analyses by our management. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data and currency exchange notes as they existed on or before August 29, 2006March 1, 2007 and is not necessarily indicative of current market conditions.
In performing its analyses, our management relied on projections for Royal Wolf as provided by its management as summarized below and above in this section under “Background:”
| | | | | | | | |
| | Actual Year Ended June 30, 2006 | | | Year Ending June 30, 2007(1) | |
| | (In millions, except %) | |
|
Revenue | | $ | 48.8 | | | $ | 67.6 | |
Revenue growth(2) | | | 23.7 | % | | | 38.7 | % |
EBITDA(3) | | $ | 5.2 | | | | 10.7 | |
Margin | | | 10 | % | | | 15.8 | % |
Net capital expenditures | | $ | | | | | 6.2 | |
Number of containers | | $ | 16,739 | | | | 17,027 | |
| | | | | | | | |
| | Projected Dec. 31, 2007(1) | | | Actual TTM Dec. 31, 2006(1) | |
| | (In millions) | | | (In millions) | |
|
Revenue | | $ | 79.8 | | | $ | 62.1 | |
Revenue growth | | | 28.5 | % | | | 23.7 | % |
EBITDA(2) | | $ | 13.8 | | | $ | 8.1 | |
Margin | | | 17.3 | % | | | 13.1 | % |
Net capital expenditures | | $ | 20.3 | | | | 17.5 | |
Number of containers | | $ | 22,288 | | | $ | 17,808 | |
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| | |
(1) | | Translated at exchange rate of 0.72390.788 AUD to USD and TTM is equal to Trailing Twelve Months |
| | |
(2) | | Revenue growth percentage is 2007 FYE projected versus 2006 FYE actual. The estimated revenue growth is based upon anticipated benefits of new products, increased large government salesExcludes transaction costs and full-year benefit of 2006 acquisitions.transaction related ESOP conversion costs |
| | |
(3) | | Excludes transaction costs |
No assurance can be made that the Royal Wolf projections our management used in its analyses will be achieved. Further, Royal Wolf did not publicly disclose internal management projections of the type provided to our management in connection with our management’s analysis of the acquisition, and the projections utilized were not prepared with intent for public disclosure or prepared in accordance with generally accepted accounting principles, the published guidelines of the Securities and Exchange Commission or the American Institute of Certified Public Accountants’ guidelines for projections or forecasts. These fiscal and calendar 2007 projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including without limitation, factors related to general economic and industry conditions and competitive activity and the following:
| | |
| • | Continued market penetration and customer acceptance of Royal Wolf’s full product range; |
|
| • | Full-year benefit from Royal Wolf’s newer products introduced during the 2006 fiscal year; |
|
| • | Integration and full-year benefits from competitor fleet acquisitions made during January through June of 2006; and |
|
| • | Selling, general and administrative expense savings driven by restructuring of Royal Wolf’s facilities operations. |
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Actual results could vary significantly from those set forth in the projections used by our management. For all of these reasons, stockholders should not place undue reliance on these projections.
Our management used the following valuation methodologies:
| | |
| • | Discounted cash flow, or DCF, analysis; |
| | |
| • | Comparable companies analysis; and |
|
| • | Precedent transactions. |
The following factors, among others, were considered in determining Royal Wolf’s earning power for each methodology employed:
| | |
| • | Revenue and EBITDA for the yeartwelve months ended June 30,December 31, 2006; |
| | |
| • | Revenue and earnings before interest, taxes, depreciation and amortization, or EBITDA, with EBITDA adjusted to exclude certain non-recurring costs, including transactions costs to be incurred by Royal Wolf in connection with the acquisition, provided by Royal Wolf’s management, for the last twelve-month period, or LTM, ended June 30,December 31, 2006; |
| | |
| • | June 30,December 31, 2007 FYEcalendar year projections provided to the board of directors by RWA; and |
| | |
| • | Projections beyond June 30,December 31, 2007, up to and including the fiscal year ending June 30, 2010, as prepared by our management team with assistance of Royal Wolf’s management (such extended projections were used only in the DCF analysis); including revenue and adjusted EBITDA estimates. |
Although not necessary in order to evaluate the satisfaction of the 80% test, our board of directors considered the relative valuation multiples implied by the actual total consideration to be paid by us compared to both historical and projected revenues and EBITDA for Royal Wolf. This comparison formed a part of our board of director’s determination that the purchase price was fair to us and our shareholders. The resulting implied multiples for Royal
41
Wolf from this analysis were as follows, assuming $85$100.745 million aggregate consideration (based upon the 0.72390.788 exchange rate utilized in the board presentation) and that the aggregate consideration equals EV:
| | | | |
| | At $85 Million
| |
| | Aggregate
| |
| | Consideration | |
|
• EV to LTM FYDecember 31, 2006 — Actual revenue | | | 1.74x1.62x | |
• EV to FYDecember 31, 2007 — Management projected revenue | | | 1.26x | |
• EV to LTM FYDecember 31, 2006 — Actual adjusted EBITDA | | | 10.90x12.43x | |
• EV to FYDecember 31, 2007 — Management projected adjusted EBITDA | | | 7.94x7.3x | |
“EV” means “enterprise value.” For public companies referenced herein, EV is the fully diluted equity value plus straight and convertible debt, less cash, options and warrant proceeds. “LTM” means last twelve months, “FY” means fiscal year, and “EBITDA” means earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure that is used because of its wide acceptance as a measure of operating profitability and financial performance before nonoperating expenses (interest and taxes) and non-cash charges (depreciation and amortization), exclusive of transaction costs.
The expected aggregate value or enterprise value at closing represents 7.97.3 times Royal Wolf’s EBITDA and 1.3 times Royal Wolf’s projected revenues for the fiscalcalendar year ended June 30,December 31, 2007. Our management and board of directors relied upon that the projected adjusted 2007 EBITDA amount more than the actual adjusted 2006December 31, 2007 EBITDA, because they believed that the financial results in 2006 and 2005 were adversely impacted by certain factors, such as the introduction of several new products at one time combined with heavy infrastructure costs and buildout, which they considered to be unusual events or not likely to recur at the same levels. In addition, fiscalcalendar year 2007 will include the full benefits of the competitor fleet acquisitions made during that latermiddle part of fiscal year 2006. This is further supported by both
49
Further, the trailingaggregate consideration and the projected results for the twelve months ending December 31, 2007 and beyond will be positively impacted by increased container fleet spending of almost $7 million over the year-to-date revenues and the resulting operating profit, which is on an annualized basis meets or exceeds the summary projections thatprevious forecast as Royal Wolf’s management provided to us as described above.
Wolf shifts its emphasis toward rental/hire stream revenue.
As part of its analysis regarding the fairness of the Royal Wolf acquisition to us and our stockholders, our management compared the multiples in the table above with those of other selected comparable public companies and with selected comparable transactions (see “Selected Companies Analysis” and “Selected Transactions Analysis” below”).
Discounted Cash Flow Analysis.
Management utilized a discounted cash flow analysis, an income valuation approach, for the purpose of calculating the present value of projected future cash flows of Royal Wolf.
A discounted cash flow analysis estimates present value based upon a company’s projected future unlevered after-tax free cash flow, typically for a period of five years, discounted at a rate of return reflecting risks inherent in its business and capital structure. Unlevered free cash flow represents the amount of cash generated and available for principal, interest and dividend payments as well as for growth capital investments after providing for ongoing business operations. To account for the value of the enterprise at the end of the projection period and beyond, a terminal value is calculated and discounted to the present and then added to the value of the discounted unlevered free cash flows derived from the projections.
While the discounted cash flow analysis is the most scientific of the methodologies used, it is dependent on projections and is further dependent on numerous industry-specific and macroeconomic factors.
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The discounted cash flow analysis determines a net present value of future cash flows (including a theoretical terminal value) of Royal Wolf. This analysis starts with a net cash flow for each year of the projection period (through 2010) equal to Royal Wolf’s EBITDA less cash taxes, capital expenditures and changes in working capital, which we refer to as unlevered free cash flows. In addition, a terminal value is computed in 2010 as a multiple of 2010 EBITDA using the range of the low to the mean (7x to 9x) of the public comparable LTM EBITDA multiples. The annual net cash flow and terminal value are converted into a present value as of June 30, 2006 using a discount rate of 15% to 20%, which our management believed to be a reasonably conservative range based upon the risk characteristics of Royal Wolf. Cash balances are added and debt balances are subtracted as of June 30, 2006 from the present value to arrive at net equity value of Royal Wolf.
In using the 15% to 20% discount rate, management first considered the long-term interest rates on risk-free securities, generally considered to be those obligations backed by the full faith and credit of the U.S. government. To this “risk free” rate, management added a premium to reflect the fact that an investment in Royal Wolf is not without risk(s) and would represent the risks of an investment in equity securities, as well as the specific risks of an investment in Royal Wolf, including these described under the caption “Risk Factors” in this proxy statement. The determination of the discount rate is an estimate only, based upon required rates of return that management has witnessed in similar transactions in which it participated either as an investor or as an advisor, and in some cases as an informed observer of transactions completed by other parties. While the estimate of the discount rate involves certain subjective judgements, it should be noted that utilizing higher discount rates would result in lower net present values.
Our
The combined management teams extended the summary fiscal year 2007 projections provided by Royal Wolf as set forth abovepreviously reviewed to forecast free cash flows for the business over the five-year period from 2006 through 2010. The projections represented Royal Wolf management’s judgementjudgment as of the date the information was provided to us (late June 2006),as well as our management’s view of these projections and our management’s extension of these projections,experience with similar businesses in the US and UK, and incorporated the following principal assumptions:
| | |
| • | Revenue:Revenue Growth: Revenue growth did not include acquisitions or changes to the current business model, but was adjusted to reflect the current run rateThe gross revenue grew by virtue of several new products, new government contracts and additional Royal Wolfincreased fleet inventory spending and asset purchases, as follows:especially in the rental/hire pool, the full run rate of acquisitions made at the end of the previous fiscal year, a |
50
| | |
| | 5% rate increase in FY 2008 and the introduction of a damage waiver program in FY 2008 which had a lag affect into 2009. These assumptions produced the resulting percentage increases in revenue: |
| | | | | | | | | | | | | | |
2007 | | | 2008 | | | 2009 | | | 2010 | |
| 38.7 | % | | | 13.4 | % | | | 11.5 | % | | | 10 | % |
| | | | | | | | | | | | | | |
2007 | | | 2008 | | | 2009 | | | 2010 | |
|
| 37.9 | % | | | 10.7 | % | | | 20.9 | % | | | 12.6 | % |
| | |
| • | Gross margins:Margins: GrossOur gross margins not include changes towere changed primarily reflecting the mix between salesdramatic increase in fleet inventory spending during the last 5 months that should continue and rental streamextend into 2008 as evidenced by the increased fleet spending and were expected to remain constantchange of mix. The rate increase and the damage waiver will impact the margins as follows:no new branches and only marginal direct or fixed costs will be added during the coming year. |
| | | | | | | | | | | | | | |
2007 | | | 2008 | | | 2009 | | | 2010 | |
| 38 | % | | | 38 | % | | | 38 | % | | | 38 | % |
| | | | | | | | | | | | | | |
2007 | | | 2008 | | | 2009 | | | 2010 | |
|
| 38.2 | % | | | 41.0 | % | | | 40.4 | % | | | 43.5 | % |
| | |
| • | Costs:Input costs were inflation adjusted based on Royal Wolf management’s inflation estimates, but lower than revenue growth as a result of the impact of leveraging the sales/leasing growth against the infrastructure put into place in2004-2006. These exclude the one-time costs incurred during the purchase to payout the ESOP and transaction expenses. |
Management believes these assumptions to be reasonable based upon its knowledge of the industry and its due diligence with respect to Royal Wolf’s business operations.
Our management discounted Royal Wolf’s future free cash flows through 2010 using discount rates reflecting RWA’s weighted-average cost of capital ranging from 15% to 20% and a terminal-year EBITDA of $22.5$28 million multiplied by a terminable-year EBITDA multiple of 7 to 9 times, which is within the low to mid-point of public comparable valuations. This resulted in an estimated enterprise value of Royal Wolf inThe Board determined the relevant range of $66.7 million to $99.1value under this methodology was between $92.7 million and an average enterprise value$143.1 million with a mean of $82.9$117.9 million.
Selected Companies Analysis.
Our management utilized the selected comparable company analysis, a market valuation approach, for the purposes of compiling guidelines for comparable company statistics and developing valuation metrics based on prices at which stocks of similar companies are trading in a public market.
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Our management reviewed and compared financial information of Royal Wolf to corresponding financial information, ratios and public market multiples for the publicly-traded companies that were selected because they have operations that we considered reasonably similar to the operations of Royal Wolf. All three of these companies, however, are profitable and larger than Royal Wolf, and our management and board of directors did not do a comparison of these companies to Royal Wolf based on either profitability or asset size. While our management did not necessarily include all companies or businesses that could be deemed comparable to Royal Wolf and all of the companies are of greater (and some are substantially greater) size than Royal Wolf, our management believes that this list provides the most meaningful information from which to imply a valuation for the Royal Wolf transaction. Additionally, for these selected companies, while not comparable to Royal Wolf based solely on size or net income, were considered by management to be comparable based on industry profile, and because the stock of these companies are generally widely held and actively traded, they were believed by management to present a reasonable indication of how investors value companies in the storage container and modular/container building sectors. The companies our management selected for its analyses were:
| | |
• Mobile Mini Inc. | | Nasdaq NMS — MINI |
• Williams-Scotsman | | Nasdaq NMS — WLSC |
• McGrath Rentcorp | | Nasdaq NMS — MGRC |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Enterprise Value / | |
| | Last Twelve Months(1) | | | LTM
| | | FY1
| | | LTM
| | | FY1
| |
Company | | Revenue | | | EBITDA | | | Revenue | | | Revenue | | | EBITDA | | | EBITDA | |
|
Mobile Mini, Inc. | | $ | 254.6 | | | $ | 110.7 | | | | 5.1x | | | | 4.7x | | | | 11.7x | | | | 11.0x | |
McGrath Rentcorp | | $ | 274.0 | | | $ | 125.1 | | | | 3.5x | | | | 3.5x | | | | 7.7x | | | | 7.7x | |
Williams Scotsman International, Inc. | | $ | 678.8 | | | $ | 217.5 | | | | 2.6x | | | | 2.6x | | | | 8.1x | | | | 7.9x | |
High | | | | | | | | | | | 5.1x | | | | 4.7x | | | | 11.7x | | | | 11.0x | |
Mean | | | | | | | | | | | 3.7x | | | | 3.6x | | | | 9.1x | | | | 8.9x | |
Median | | | | | | | | | | | 3.5x | | | | 3.5x | | | | 8.1x | | | | 7.9x | |
Low | | | | | | | | | | | 2.6x | | | | 2.6x | | | | 7.7x | | | | 7.7x | |
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Enterprise Value / | |
| | Last Twelve Months(1) | | | LTM
| | | FRY1
| | | LTM
| | | FRY1
| |
Company | | Revenue | | | EBITDA | | | Revenue | | | Revenue | | | EBITDA | | | EBITDA | |
|
Mobile Mini, Inc. | | $ | 273.4 | | | $ | 119.3 | | | | 4.7 | x | | | 4.0 | x | | | 10.7 | x | | | 9.2 | x |
McGrath Rentcorp | | $ | 267.1 | | | $ | 119.3 | | | | 3.4 | x | | | 3.0 | x | | | 7.2 | x | | | 6.7 | x |
Williams Scotsman International, Inc. | | $ | 680.8 | | | $ | 228.74 | | | | 2.6 | x | | | 2.4 | x | | | 7.7 | x | | | 7.0 | x |
High | | | | | | | | | | | 4.7 | x | | | 4.0 | x | | | 10.7 | x | | | 9.2 | x |
Mean | | | | | | | | | | | 3.6 | x | | | 3.1 | x | | | 8.5 | x | | | 7.6 | x |
Median | | | | | | | | | | | 3.4 | x | | | 3.0 | x | | | 7.7 | x | | | 7.0 | x |
Low | | | | | | | | | | | 2.6 | x | | | 246 | x | | | 7.2 | x | | | 6.7 | x |
| | |
(1) | | Source: Company SEC filings & CapitalIQ. |
Our management calculated and compared financial information and various financial market multiples and ratios of the selected companies based on historical information it obtained from Securities and Exchange Commission filings and consensus estimates from publicly available sources reporting such data. With respect to Royal Wolf and each of the selected companies, our management calculated:
| | |
| • | EV as a multiple of actual fiscalCalendar year December 31, 2006 and management projected Calendar year December 31, 2007 revenue; and |
| | |
| • | EV as a multiple of actual fiscalCalendar year December 31, 2006 and management projected Calendar year December 31, 2007 EBITDA. |
Historical LTM financial results utilized by our management for purposes of this analysis were based upon information contained in the applicable company’s most recent publicly available financial statements prior to AugustMarch 1, 2006.2007. For the selected companies, LTM refers to the last twelve-month period available from the most recently publicly available financial information prior to AugustMarch 1, 2006.2007. “FY1” refers to the first fiscal year to be completed after August 2006March 2007.
All companies were selected because they served the modular building or container rental/leasing markets. However, all of the companies operate exclusively or primarily in the U.S. and all are profitable and have substantially more assets than Royal Wolf. As a result, any conclusions from this analysis must involve complex considerations and judgments concerning differences in financial and operating characteristics of the companies selected and other factors that would affect the market values of publicly-traded companies. At the lower end of the range of value indicated by one measurement, LTM EV to EBITDA, the fair value of Royal Wolf is less than 80% of our net assets as of September 30, 2006.December 31, 2007.
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The results of these analyses are summarized in the following tables:
| | | | | | | | | | | | | | | | | | | | |
| | Mean | | | Median | | | Range | | | Valuation Range(2) | | | Transaction | |
| | | | | | | | | | | (In Millions) | | | | |
|
Selected Companies: | | | | | | | | | | | | | | | | | | | | |
EV to Revenue | | | | | | | | | | | | | | | | | | | | |
LTM(x) | | | 3.7 | | | | 3.5 | | | | 2.6 to 5.1 | | | $ | 126.9 to $248.9 | | | | 1.76x | |
Estimated 2006(1) | | | 3.6 | | | | 3.5 | | | | 2.6 to 4.7 | | | $ | 175.8 to $317.7 | | | | 1.26x | |
EV to EBITDA | | | | | | | | | | | | | | | | | | | | |
LTM(x) | | | 8.1 | | | | 9.1 | | | | 7.7 to 11.7 | | | $ | 40.4 to $60.8 | | | | 10.90x | |
Estimated 2006(1) | | | 7.9 | | | | 8.9 | | | | 7.7 to 11.1 | | | $ | 82.4 to $118.8 | | | | 7.94x | |
| | | | | | | | | | | | | | | | | | | | |
| | Mean | | | Median | | | Range | | | Valuation Range(2) | | | Transaction | |
| | | | | | | | | | | (In Millions) | | | | |
|
Selected Companies: | | | | | | | | | | | | | | | | | | | | |
EV to Revenue | | | | | | | | | | | | | | | | | | | | |
LTM12/31/07(x) | | | 3.6 | | | | 3.4 | | | | 2.6 to 4.7 | | | $ | 161.5 to $291.87 | | | | 1.62x | |
Projected Calendar Year 2007(1) | | | 3.1 | | | | 3.0 | | | | 2.4 to 4.0 | | | $ | 191.5 to $319.2 | | | | 1.26x | |
EV to EBITDA | | | | | | | | | | | | | | | | | | | | |
LTM 12/31/07(x) | | | 8.5 | | | | 7.7 | | | | 7.2 to 10.7 | | | $ | 58.3 to $86.7 | | | | 12.43x | |
Projected Calendar Year 2007(1) | | | 7.6 | | | | 7.0 | | | | 6.7 to 9.2 | | | $ | 92.5 to $126.96 | | | | 7.3x | |
| | |
(1) | | Because of differences inProjected calendar year end between12/31/07 is used as a date comparison to the public companies with fiscal years ending December 31 and Royal Wolf with a June 30 fiscal year, the “Estimated 2006” data for Royal Wolf will be for the year ended June 30, 2007.Forward Year |
| | |
(2) | | Translated at exchange rate of 0.72390.788 AUD to USD. |
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In evaluating the results of the comparable company analysis, management placed more reliance on the valuation results using the estimated 2006 Calendar revenues and EBITDA for Royal Wolf than the LTM numbers. This is because management believes that the financial results in LTMCalendar 2006 were adversely impacted by factors such as the introduction of several new products at one time combined with heavy infrastructure costs and buildout, which management considered to be unusual or not likely to recur. In addition, estimated 20062007 will include the full benefits of the competitor fleet acquisitions made in future by Royal Wolf during that lattermiddle part of LTM 2006.
The Bond determined the relevant range of values for this methodology was between $99.7 million and $139.6 million with a mean of $119.7 million.
Selected Transactions Analysis.
The comparable transactions analysis generally provides the widest range of value due to the varying importance of an acquisition to a buyer (e.g., a strategic buyer might be willing to pay more than a financial buyer) and potential differences in the transaction process (e.g., the competitiveness at the time among potential buyers).
Our management also analyzed certain available information relating to merger and acquisition transactions involving companies that were selected because they have operations or operated in sectors that management considered reasonably similar to the operations of Royal Wolf. In addition, many of these companies are profitable and larger than Royal Wolf, and only limited financial information of some of these companies was available to management. Our management and board of directors did not do a comparison to Royal Wolf based on profitability or asset size. This group of sellers consisted solely of private companies, although the buyers in two of the transactions were public companies. No other comparable public transactions were relevant. Multiples used in this analysis were derived from both public and non-public data. Because of the private nature of the transactions, only pieces of each transaction were available, and our management used the group averages of multiples of revenues and EBITDA to EV. The transactions are, however, in the opinion of our management and based upon its general knowledge of the industry and the companies, a representative sampling and are comparable to the Royal Wolf acquisition, and no other announced transactions were considered. Our management analyzed the following transactions:
| | | | | | | | | | |
Date Target | | Target Date | | Acquirer Deal | | Deal Value Implied EV / | | Nature of Acquirer
| Implied EV / |
Acquiror | | Effective | | Value | | Sales | | | EBITDA |
|
Mobile Storage Group, Inc. Welsh, Carson, Anderson & Stowe | | 07/11/06 | | $608.5 | | | 2.8x | | | 9.1x |
Royal Wolf Portable Storage Inc. Mobile Mini Inc. (NasdaqNM:MINI) | | 03/13/06 | | $48.5 | | | 2.8x | | | 8.5x |
Waco International Limited Asia Opportunity Fund, J.P. Morgan Partners | | 01/17/06 | | $893.3 | | | 1.5x | | | — |
Skanska Modul AB 3i Group plc (LSE:III) | | 11/28/05 | | $45.0 | | | 0.8x | | | — |
Baker Tanks, Inc. Lightyear Capital, LLC , Lightyear Fund, L.P. | | 10/17/05 | | $500.0 | | | — | | | 8.8x
|
HIGH | | 2.8x | | | | | | | | 9.1x |
MEAN | | |
8/04/06 | | Pac Van, Inc | | Mobile Office Acquisition Corp | | $ | 100 million2.0x | | | Private |
8/04/06 | | Mobile Storage Group, inc | | Welsh, Carson, Anderson & Stowe | | $ | 608.5 million | | | Private |
3/13/06 | | Royal Wolf Portable Storage8.8x |
| Mobile Mini Inc. | | $ | 48.5 millionHARMONIC MEAN | | | Public |
3/06/06 | | Comark Building Systems | | Carlyle Group | | $ | — | | | Private |
1/17/06 | | Waco International Limited | | Asia Opportunity Fund/JP Morgan | | $ | 893.3 million2.2x | | | Private8.8x |
12/01/05 | | Bennett’s Trailer Company | | New Acton Mobile Industries | | $ | —MEDIAN | | | Private |
11/28/05 | | Skanska Modul AB | | 3i Group plc | | $ | 45 million | | | Private |
10/17/05 | | Baker Tanks, Inc | | Lightyear Capital, LLC | | $ | 500 million2.2x | | | Private8.8x |
10/05/05 | | A-One Storage, LLC | | Mobile Mini, Inc. | | $ | 7 millionLOW | | | Public |
3/04/05 | | Mobile Space, Inc. | | Williams Scotsman, Inc. | | $ | — | | | Public | 0.8x | | | 8.5x |
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The list of recently publicly-announced acquisitions set forth above is not an exhaustive list of comparable acquisitions in the portable storage container and modular building and office rental/leasing industry. The transactions are, however, in the opinion of our management, a representative list of companies that were deemed comparable and no other announced transactions were considered.
Our management reviewed these transactions identified in order to compare the total transaction value to the EBITDA based on latest twelve months of operations (“LTM EBITDA”) of the respective acquired companies. The
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multiples were applied both to Royal Wolf’s LTMCalendar 2006 EBITDA and estimated 2006December 31 EBITDA(1) using publicly-available information, which is necessarily limited because of many of the above companies are privately held. All data were provided from publicly available sources reporting such data. The table below excluding transactions where observations were not available, summarizes the mean, median, and range of the set of selected comparable acquisition and merger transactions:
| | | | |
| | Implied
|
| | Transaction Multiple: |
| | LTM
| | LTM
|
| | Revenue(x) | | EBITDA(x) |
|
Mean | | 1.7 | | 8.3 |
Median | | 1.7 | | 8.8 |
Range | | .8 - 2.8 | | 6.9 - 9.1 |
| | | | |
| | Implied
|
| | Transaction Multiple: |
| | LTM
| | LTM
|
| | Revenue(x) | | EBITDA(x) |
|
Mean | | 2.0 | | 8.8 |
Median | | 2.2 | | 8.8 |
Range | | .8 - 2.8 | | 8.5 - 9.1 |
| | | | |
| | Valuation Range(2) |
| | (In millions) |
| | LTM
| | LTM
|
| | Revenue | | EBITDA |
|
| | $39.0 - $136.6 | | $35.9 - $47.3 |
| | | | |
| | Estimated 2006(1)
| | Estimated 2006(1)
|
| | Revenue | | EBITDA |
|
| | $54.1 - $189.3 | | $73.8 - $97.4 |
| | | | |
| | Valuation Range(2) |
| | (In millions) |
| | LTM
| | LTM
|
| | Revenue | | EBITDA |
|
Mean | | $124.2 | | $71.3 |
Range | | $49.7 - $173.9 | | $68.8-$73.7 |
| | | | |
| | Estimated 2007(1) | | Estimated 2007(1) |
| | Revenue | | EBITDA |
|
Mean | | $159.6 | | $121.4 |
Range | | $63.8-$223.4 | | $117.3-$125.6 |
| | |
(1) | | Because of differences in year-end between the public companies with fiscal years ending December 31 and Royal Wolf with a June 30 fiscal year, the “Estimated 2006”2007” date for Royal Wolf will be for the calendar year ended June 30,December 31, 2007. |
| | |
(2) | | Translated at exchange rate of 0.72390.788 AUD to USD |
Although the selected transactions were used for comparison purposes, none of the selected transactions nor the companies involved in them was either identical or directly comparable to the acquisition. Further, all multiples for the selected transactions were based on public information available at the time of each transaction, and do not take into account differing market and other conditions during which the selected transaction occurred. In addition, each transaction involved companies with differing financial and operating characteristics, potential for synergies, and other factors which would necessarily affect the transaction multiples. As a result, any conclusions from this analysis must involve complex considerations and judgments concerning differences in financial and operating characteristics of the companies selected, the timing of the transaction, and other factors that would affect the market values of merger and acquisition transactions. The entire range of fair value indicated by the measurements based upon LTM revenues and EBITDA is below 80% of our net assets as of September 30, 2006. However, in evaluating the results of the selected transactions analysis, managementManagement placed more reliance on valuation results using estimated 20062007 revenues and EBITDA for Royal Wolf than LTM numbers. This is because management believes that the financial results in LTM 2006 were adversely impacted by factors such as the introduction of several new products at one time and heavy infrastructure costs and buildout, which they considered to be unusual or not likely to recur. In addition, estimated 2006 will include the full benefits of the competitor fleet acquisitions made by Royal Wolf during that latterthe middle part of LTM 2006.
The Board determined the relevant range of value under this methodology was between $61 million and $139.6 million with a mean of $100.3 million.
Satisfaction of 80% requirement
We represented in the prospectus relating to our IPO that the business acquired by us in our initial business combination would have a fair market value equal to at least 80% of our net assets at the time of the transaction,
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including the funds held in the trust account. Based on the financial analysis it used generally in evaluating and
54
approving the acquisition, our board of directors determined that the acquisition of Royal Wolf meets this requirement.
Our board of directors has determined that the fair market value of the assets being purchased is between approximately $75$90 million and $95$120 million. This determination is based on the foregoing valuation analyses and an analysis of Royal Wolf’s current and projected revenue and EBITDA, as compared to other publicly-traded businesses of a similar nature and the acquisition multiples for other similar transactions in the storage container and modular building/office rental/leasing industry that have recently been publicly announced or completed. In addition, a leveraged buyout/discounted cash flow analysis was performed to determine the present economic value of the assets being acquired. The range of the fair market value exceeds $52$54 million, which is 80% of our net asset value of approximately $65$68 million as of September 30,December 31, 2006.
The terms of the acquisition were determined based upon arm’s-length negotiations between us and the sellers, who had no prior dealings with us or our officers or directors. Under the circumstances, our board of directors believes that the total consideration for the acquisition appropriately reflects the fair market value of RWA. In light of the financial background and experience of several members of our management and board of directors, our board also believes it is qualified to determine whether the acquisition of RWA meets this requirement. Our board of directors did not seek or obtain an opinion of an outside fairness or valuation advisor as to whether the acquisition is fair, from a financial point of view, to our stockholders or the 80% test has been met.
Some of the valuation methods utilized by our management and board of directors in evaluating the Royal Wolf acquisition indicated that the fair value of Royal Wolf may be below 80% of our net assets. However, the valuation methods that indicated this possibility were based primarily on capitalizing revenues and earnings for Royal Wolf for LTM 2006. Our board of directors believe this understates the true value of Royal Wolf, because they believe that the financial results in LTM 2006 were adversely impacted by factors such as the introduction of several new products at one time and heavy infrastructure costs and buildout, which they considered to be unusual or not likely to recur. In addition, estimated 2007 results include the full benefits of the competitor fleet acquisitions made by Royal Wolf during that latter part of 2006. Our board of directors determined based upon our management’s valuation analyses that the fair value of Royal Wolf was between $75 million and $95 million, which exceeded 80%, or $52 million, of our net assets as of September 30, 2006. The board’s determination was based primarily upon valuation analyses utilizing the projected results of operations of Royal Wolf for fiscal 2007. Some of the valuation results produced by analyses utilizing Royal Wolf’s actual fiscal 2006 results indicated that the fair value of Royal Wolf may be below 80% of our net assets. It is possible that stockholders could challenge our board’s determination, in which event we could be subject to possible stockholder claims and could incur substantial costs and expenses in defending such claims. The time and attention of our management and board of directors also could be diverted from the management and operation of our business in the event of claims by our stockholders.
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Interests of Our Directors and Officers in the Acquisition
When you consider the recommendation of our board of directors “FOR” approval of the acquisition, you should keep in mind that our officers and directors have interests in the acquisition that are different from, or in addition to, your interests as a stockholder. In particular:
| | |
| • | If the acquisition is not completed and we fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will be required to liquidate. In that event, the 1,875,000 shares of common stock held by our officers and directors that were acquired prior to the IPO for an aggregate purchase price of $250,000 will be worthless, because our officers and directors have waived all rights to receive any liquidation proceeds with respect to such shares. As of February 22,March 23, 2007, the aggregate market value of the shares of our common stock owned by our officers and directors was $14,812,500.$14,306,250. |
| | |
| • | Ronald F. Valenta, our Chief Executive Officer and a director, and John O. Johnson, our Chief Operating Officer, own warrants to purchase an aggregate of 1,477,833 shares of our common stock that they acquired for an aggregate purchase price of $1,400,000, which also will become worthless upon our liquidation. As of February 22,March 23, 2007, the aggregate market value of these warrants was $2,586,208.$1,921,183. |
| | |
| • | Mr. Valenta has made available to us a line of credit under which we may borrow from him from time to time up to $2,000,000$3,000,000 at an annual interest rate equal to 8%. Our borrowings under the line of credit have been and will continue to be used by us to pay operating expenses, including deposits and expenses relating to the acquisition. At February 28, 2007, the outstanding amount of principal and accrued interest under the line of credit was $1,317,050. We will continue to borrow funds under the line of credit to pay expenses through the completion of the acquisition. If the acquisition is completed, Mr. Valenta will be repaid all outstanding principal and accrued interest under the line of credit. If, on the other hand, the acquisition or other business combination is not completed and we are required to liquidate as described above, Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amount owed to him under the line of credit. |
| | |
| • | All of our current officers and directors will continue to serve as such following the acquisition. In addition, Robert Allan, the Chief Executive Officer of Royal Wolf, will be deemed to be one of our officers following the acquisition and Peter McCann and James Warren, Royal Wolf’s Chief Financial Officer and Chief Operating Officer, respectively, will be key employees. At present, we do not compensate our officers or directors other than Charles E. Barrantes, our Executive Vice President and Chief Financial Officer, whose employment commenced on September 11, 2006. We will have employment agreements |
55
| | |
| | with only Messrs. Barrantes and Allan. 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 that he is employed on the last day of such year. Mr. Allan receives a base annual salary of $234,360$236,400 and is eligible to receive an performance annual bonus not to exceed $78,120$78,800 based upon the achievement of specified performance indicators. Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our board of directors that they will continue to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA of $40 million. If the acquisition is completed, we may modify the compensation to our officers and directors based upon the advice and recommendations of a compensation committee of our board of directors to be established. Except as described above, there is no current understanding or arrangement with respect to any future compensation to our officers or directors. |
| | |
| • | As an inducement toBison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement withBison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase fromBison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta,Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement. |
Except as set forth above, none of our officers or directors or their associates has any interest in the acquisition.
4856
THE ACQUISITION AGREEMENT
On September 12, 2006, we entered into the original acquisition agreement, which is referred to in Australia as a share sale deed, with Equity Partners and the management shareholders under which we agreed to purchase from them all of the shares of capital stock of RWA. On March 29, 2007, we entered into the amended acquisition agreement with Equity Partners,Bison-GE and the management shareholders. References in this proxy statement to the acquisition agreement mean the amended acquisition agreement, unless the context indicates otherwise.
The following is a summary of selected provisions of the acquisition agreement, as amended, which is referred to in Australia as a share sale deed.agreement. While we believe this description covers the material terms of the acquisition agreement, it may not contain all of the information that is important to you and is qualified in its entirety by reference to the acquisition agreement attached as ANNEX A to this proxy statement. We urge you to read the acquisition agreement in its entirety.
The acquisition agreement contains representations, warranties, covenants and other agreements that we, GFN Australasia and the sellersother parties made to one another. The assertions embodied in those representations, warranties, covenants and other agreements are qualified by information in confidential disclosure schedules that the sellers have delivered in connection with signing the acquisition agreement. We have included selected disclosure schedules as part of ANNEX A to this proxy statement. With the possible exception of these included schedules. We do not believe that the disclosure schedules contain information that materially modifies the acquisition agreement or that otherwise is material to a stockholder’s understanding of the proposed acquisition. Information concerning the subject matter of the representations, warranties, covenants and other agreements may have changed since the date of the acquisition agreement, which subsequent information may or may not be fully reflected in our public disclosures.
Structure of Acquisition
The acquisition agreement provides that GFN Australasia Finance Pty Limited will acquire all of the outstanding shares of capital stock of RWA Holdings Pty Limited from the shareholders of RWA.
Listing on AMEX
Following the acquisition, our common stock, warrants and units will continue to be listed for trading on the American Stock Exchange.
Closing and Effective Time of the Acquisition
In connection with the execution of the amended acquisition agreement on March 29, 2007,Bison-GE purchased 80% of the outstanding capital stock of RWA, consisting of all of the capital stock of RWA owned by Equity Partners and approximately 50% of the capital stock of RWA owned by the management shareholders. The purchase consideration for the RWA shares was equivalent to the consideration that we had previously agreed to pay to these sellers under the terms of the original acquisition agreement. This consideration was determined as described below under “Acquisition Consideration; Payment of Consideration.”
The closing of our acquisition of the acquisitionRWA shares from Bison-GE and the management shareholders will take place on the last day of the month in which the conditions to closing have been satisfied or waived, or such other date and time as we and the sellersparties agree. We expect to close the acquisition on MarchMay 31, 2007, assuming it is approved at the special meeting on March 26,May 29, 2007.
Acquisition Consideration; Payment of Consideration
The purchase price for the RWA shares will be $58.4 million, plus $876,500 per month from March 29, 2007 until the closing. The purchase price includes deposits of $1,005,000 previously paid by us in connection with the acquisition, referred to in clause (i). If the acquisition is not completed for any reason, we will forfeit the deposits. We will pay the purchase price of the RWA shares, less the deposits, by a combination of cash and issuance of shares of capital stock of GFN Australasia constituting 13.8% of the outstanding capital stock of GFN Australasia immediately following the acquisition. Assuming the closing occurs on May 31, 2007, the aggregate acquisition consideration will be approximately $101.2 million, including a total of $2.4 million in cash payable by us in two
57
equal installments on the first and second anniversaries of the closing in exchange for anon-compete covenant. The aggregate consideration for Royal Wolf also includes the indebtedness under Royal Wolf’s existing credit facilities with ANZ. There was $37.9 million, including accrued interest, outstanding under the facilities as of February 28, 2007. The actual amount outstanding as of the closing will be different, but will in no event exceed $39.4 million of principal.
The purchase price of the RWA shares, excluding any amount attributable to the increase in price after March 29, 2007, is $91.0equivalent to the amount paid byBison-GE to acquire the RWA shares in connection with the signing of the acquisition agreement. This amount was equal to the acquisition consideration that we had originally agreed to pay to these sellers under the original acquisition agreement, which was $91.8 million, subject to certain adjustments called for in the original acquisition agreement as follows:
| | | | |
Aggregate acquisition consideration | | $ | 91,802,000 | |
Add: | | | | |
Container rental equipment | | | 6,987,000 | |
Less: | | | | |
Net tangible assets | | | (935,000 | ) |
Other, net | | | (314,000 | ) |
| | | | |
Aggregate adjusted consideration | | | 97,540,000 | |
Less: | | | | |
Non-compete covenant | | | (2,364,000 | ) |
Assumed bank debt | | | (37,858,000 | ) |
| | | | |
Net acquisition consideration | | $ | 57,318,000 | |
| | | | |
| | |
| • | Container Rental Equipment. If the gross amount of container rental equipment at the closing was greater than the specified amount, the purchase price was to be increased by the amount of such excess, and if the gross amount of container rental equipment at the closing was less than the specified amount, the purchase price was to be decreased by the amount of such deficiency. Gross container rental equipment of $43,928,000 was greater than the specified amount of $36,941,000 by $6,987,000. |
| | |
| • | Net Tangible Assets. If the total assets less all intangibles and liabilities of Royal Wolf, excluding the amount required to cash out outstanding options, the bonus to the former chairman and costs and expenses of the acquisition iswere less than $2,109,000$2,128,000 at the closing, the aggregate consideration willwas to be decreased by the amount of the shortfall. |
If the acquisition would have closed at December 31, 2006, the adjustment for net tangible assets would have been:
| | | | |
Total assets | | $ | 63,333,000 | |
Less: | | | | |
Intangible assets | | | 4,004,000 | |
Total liabilities | | | 58,521,000 | |
| | | | |
Net tangible assets | | | 808,000 | |
Threshold | | | 2,109,000 | |
| | | | |
Reduction in aggregate consideration | | $ | (1,301,000 | ) |
| | | | |
| | |
| • | Working Capital. If the current assets (excluding cash and deposits relating to a specified contract) less the current liabilities (excluding interest bearing debt, other than in relation to assets acquired by Royal Wolf in satisfaction of its obligations under a specified contract, if awarded, finance leases, overdrafts and bank |
49
| | |
| | vendor financing) is less than $1,694,000, the aggregate consideration will decrease by the amount of the shortfall.shortfall, or $935,000. |
If the acquisition would have closed at December 31, 2006, the adjustment for working capital would have been:
| | | | |
Current assets | | $ | 18,897,000 | |
Current liabilities | | | 21,942,000 | |
Less: | | | | |
Bank overdraft | | | 2,221,000 | |
Bank vendor (receivable) financing | | | 514,000 | |
Secured bank loan | | | 2,524,000 | |
Finance leases | | | 487,000 | |
| | | | |
| | | 16,196,000 | |
| | | | |
Working capital | | | 2,701,000 | |
| | | | |
Threshold | | | 1,694,000 | |
| | | | |
Reduction in aggregate consideration | | $ | 1,007,000 | |
| | | | |
Senior Subordinated Indebtedness
| | |
| • | Container Rental Equipment. If gross amount of container rental equipment at the closing is greater than the specified amount, the purchase price will be increased by the amount of such excess, and if the gross amount of container rental equipment at the closing is less than the specified amount, the purchase price will be decreased by the amount of such deficiency. At December 31, 2006, Royal Wolf had gross amount of container rental equipment of $39,639,000, which was greater than the specified amount of $36,720,000 by $2,919,000. |
In conjunction with, and as a condition to Bison-GE’s obligations to sell the RWA shares to us at the closing, we have agreed to issue to Bison Capital or its affiliate $15.76 million of senior subordinated promissory notes of GFN Australasia. The senior subordinated notes will be sold by GFN Australasia at par. We will use the proceeds from the issuance of the senior subordinated promissory notes to augment Royal Wolf’s working capital and for general corporate purposes, which may include future acquisitions. Neither we nor Royal Wolf has any understanding or commitment with respect to any such future acquisition.
| | |
| • | Acquisition Costs. If Royal Wolf incurs costs and expenses in making any business acquisitions after the date of the acquisition agreement but prior to the consummation of this acquisition, the purchase price will be reduced by the amount of such costs and expenses incurred. |
|
| • | Container Lease. If the outstanding balance at the closing owing under a particular container lease program exceeds certain specified amounts, the aggregate consideration will be reduced by the amount of such excess. |
We have paidUpon the sellers deposits of $1,005,000. If the closing occurs, the deposits will be applied to reduce the amounts payable to the sellers at the closing. If the closing does not occur, the deposits are refundable to us only in circumstances where the sellers fail to comply with their obligations to use reasonable efforts to satisfy the conditions to completionsale of the acquisition or the acquisition has not been completed by March 31, 2007 notwithstanding that the following closing conditions were timely satisfied:
| | |
| • | Our preliminary proxy statement relating to the special meeting was filed with the Securities and Exchange Commission within three business days after we received from KPMG its signed audit reports with respect to Royal Wolf’s audited financial statements included in this proxy statement; |
|
| • | This proxy statement was cleared by the Securities and Exchange Commission by February 26, 2007; |
|
| • | Our shareholders approved the acquisition by March 26, 2007; and |
|
| • | The Treasurer of the Commonwealth of Australia issued notice by not later than November 30, 2006 that it does not object to the acquisition. |
Of the aggregate consideration in the acquisition,senior subordinated promissory notes, we will pay Bison Capital in cash a fee of $315,000 and will grant to Bison Capital seven-year warrants to purchase 500,000 shares of common stock of our company at an initial exercise price of $8.00 per share. The warrants will contain customary antidilution provisions for stock splits and stock dividends. The warrants also will contain so-called exercise price-type antidilution adjustments that would be triggered by our future sales of common stock or common stock equivalents at a price below the sellers at the closing cash in the amount of $86.5 million, as adjusted by the consideration adjustments and less the net debt of Royal Wolf as of the closing date. Based upon the consideration adjustments and the net debt of Royal Wolf as of December 31, 2006, we estimate that the cash payable by us will be approximately $48.7 million. The actual cash payable at the closing will be different. The remaining $3.9 million of consideration will consist of $1.6 million of sharesthen-current market price of our common stock, subject to certain exceptions.
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The senior subordinated promissory notes will bear interest at the annual rate of 13.5%, payable quarterly in arrears. The notes may not be prepaid prior to the second anniversary of their issuance. Thereafter, the notes may be issuedprepaid at a declining price of 102% during the third year, 101% during the fourth year, and 100% thereafter.
The senior subordinated notes will mature 66 months from the date of issuance, subject to oneour right to extend the scheduled maturity date by up to an additional 12 months. If, during the66-month period ending on the scheduled maturity date, our 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), we will pay Bison Capital on the scheduled maturity date a premium of $900,000 in cash and the above-referenced warrants held by Bison Capital will terminate to the extent they were not previously exercised. The premium payable by us will be reduced by any gain realized by Bison Capital from any prior exercise of the sellerswarrants and a totalsale of $2.3 millionthe underlying warrant shares. The premium will be payable in cash in two equal installmentsby us on the first and second anniversariesscheduled maturity date, whether or not the notes have been paid by us on or before (or after) that date.
ANZ Credit Facilities
The aggregate consideration for Royal Wolf includes the indebtedness under Royal Wolf’s existing credit facilities with ANZ. There was $37.9 million, including accrued interest, of indebtedness outstanding under the ANZ facilities of February 28, 2007. The actual amount outstanding as of the closing for a non-compete covenant from the sellers. Our shares of common stock to be issued to the sellers will be valued for this purpose based upon the averagedifferent, but will in no event exceed $39.4 million of principal. The material terms of the closing sale pricesANZ credit facilities are described under the caption “Management’s Discussion and Analysis of our common stock as reported on the American Stock Exchange during the 20 trading days ending two days prior to the closingFinancial Condition and Results of the acquisition. Based upon the $7.90 closing sale price of our common stock as reported on the American Stock Exchange on February 22, 2007, we would issue approximately 202,500 shares at the closing.
Net debtOperations of Royal Wolf is defined to include the following:— Current Financing Arrangements” elsewhere in this proxy statement.
| | |
| • | The aggregate amount of outstanding indebtedness for borrowed money and finance leases ($34.6 million at December 31, 2006); |
| | |
| • | The aggregate principal amount owed on the non-convertible notes held by one of the sellers ($5.6 million at December 31, 2006); |
| | |
| • | Amount of outstanding, deferred purchase price, consulting or non-compete or earn-out payment obligations under acquisition agreements; |
|
| • | Declared but undistributed dividends or other distributions; |
|
| • | The amounts required to cancel outstanding options; |
|
| • | Amounts owing in relation to a lease relating to 12 refrigerated containers; |
|
| • | Costs and expenses incurred by the sellers of negotiating, preparing and executing the acquisition agreement that are paid by Royal Wolf; |
|
| • | The outstanding bonus amount agreed to be paid to a former chairman of Royal Wolf; and |
|
| • | Any premium paid in relation to insurance obtained to support warranties of the sellers in the acquisition agreement. |
Net debt does not include the following:
| | |
| • | Moneys owing to suppliers in the ordinary course of business; |
|
| • | Amounts owing under any operating leases; |
|
| • | Any off-balance sheet debt disclosed by the sellers before the acquisition agreement in relation to the lease for 70 curtainsider containers, and any liabilities associated with that lease; and |
|
| • | Any amounts owing by Royal Wolf in relation to any assets acquired in satisfaction of its obligations under specified contract, less any deposits and other amounts received by Royal Wolf in relation to the contract. |
Warranties
The acquisition agreement contains warranties of each of us, GFN Australasia and the sellers, includingBison-GE,relating, among other things, to:
| | |
| • | Proper corporate organization and similar corporate matters; and |
| | |
| • | The authorization, performance and enforceability of the acquisition agreement.agreement; and |
| | |
| • | Ownership of RWA shares; |
The acquisition agreement also contains representations and warranties of Equity Partners and the sellersmanagement shareholders relating, among other things, to:
| | |
| • | No conflict or breach of any material contracts; |
| | |
| • | Liquidation, insolvency or defaults of any of the sellers; |
|
| • | Ownership of Royal Wolf shares; and |
| | |
| • | No option, right to acquire or encumbrance of or affecting the shares; |
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The acquisition agreement also contains representations and warranties of Equity Partners and the sellersmanagement shareholders relating to Royal Wolf, including:
| | |
| • | Proper corporate organization and similar corporate matters of RWA and its subsidiaries; |
|
| • | No insolvency event; |
|
| • | Subsidiaries; |
|
| • | Shares; shares in the subsidiaries; no issuance of dividends; |
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| • | Lack of any other subsidiary, partnership, joint venture or unincorporated association, or any other business entity; |
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| • | Title to and ownership of properties and assets, including intellectual property rights; |
|
| • | Accuracy, maintenance and possession of records; |
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| • | Financial information; |
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| | |
| • | Compliance; required filings; |
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| • | Tax matters; |
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| • | Litigation; |
|
| • | Environmental matters; |
|
| • | Labor matters; |
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| • | Material contracts; |
|
| • | Insurance; and |
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| • | Leased property. |
Covenants
We and
The parties to the sellersacquisition agreement have each agreed to take such actions as are necessary, proper or advisable to consummate the acquisition. The sellers have agreed, to the extent within their respective powers as shareholders of Royal Wolf and through their board representation, to continue the management and conduct of business of Royal Wolf and its subsidiaries in the ordinary course prior to the closing and not to take the following actions without our prior written consent or except in accordance with Royal Wolf’s budget:
| | |
| • | Enter into, terminate or alter any term of any material contract or commitment with a value equal to or greater than $78,120;$78,800; |
| | |
| • | Incur any material liability of $39,060$39,400 or more outside the ordinary course of the business; |
| | |
| • | Dispose of, agree to dispose of, encumber or grant an option over any of its assets outside the ordinary course of the business; |
| | |
| • | Hire or terminate any senior employee or alter the terms of employment of any senior employee whose salary package is valued at $117,180$118,200 or more; |
| | |
| • | Allot or issue or agree to allot or issue any share or any security convertible into any share; |
|
| • | Declare or pay any dividends or make any other distribution of assets or profits; |
|
| • | Alter or agree to alter the constitution; or |
|
| • | Pass any special resolution. |
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Conditions to Closing of the Acquisition
The completion of the acquisition is conditioned upon our stockholders approving the acquisition no later than March 26,at the special meeting, or otherwise by September 1, 2007. Notwithstanding their approval, if the holders of 20% or more of our IPO shares exercise their conversion rights, the acquisition cannot be completed.
In addition, the completion of the acquisition is conditioned upon, among other things:
| | |
| • | Obtaining consents of the landlords under certain Royal Wolf leases and of the parties to certain other Royal Wolf contracts including the licensor of the “Royal Wolf” name and trademark; |
|
| • | The absence of any event that has a material adverse effect on the assets, liabilities or profitability of Royal Wolf from June 30, 2006 to the closing;Wolf’s EBITDA over any12-month period; |
| | |
| • | CancellationANZ and Bison Capital entering into a subordination agreement with respect to the senior subordinated promissory notes of all outstanding optionsGFN Australasia to purchase shares in RWAbe issued to Bison Capital at the closing of the acquisition; and RWA’s repurchase of certain outstanding shares of RWA; |
| | |
| • | The terminationANZ consenting to the transactions contemplated under the acquisition agreement to the extent required in order to maintain Royal Wolf’s existing ANZ credit facility in place following the acquisition, or the existence of a shareholders’ agreement among the sellers and RWA governing the operation of Royal Wolf; |
|
| • | Termination of the employment agreement between Royal Wolf and Michael P. Baxter with Mr. Baxter’s waiver of all claims against Royal Wolf as a result of the termination; and |
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| • | Amendment of the employment agreements between Royal Wolf and each of Robert Allan, Peter McCann and James Warrenanother credit facility acceptable to eliminate references to any shareholders agreement and share option plans, and confirmation by these individuals that Royal Wolf is not in default under such agreements and that they have no claims against Royal Wolf other than as provided in such agreements.Bison-GE. |
If permitted under applicable law, either we orany of the sellersparties may waive any inaccuracies in the representations and warranties made to us or the sellersother parties contained in the acquisition agreement and waive compliance with any agreements or conditions for thetheir benefit of us or the sellers contained in the acquisition agreement. We cannot assure you that any or
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all of the conditions will be satisfied or waived. The conditions that the acquisition be approved by our stockholders and that the holders of fewer than 20% of our IPO shares exercise their conversion rights cannot be waived. We may waive one or more of the closing conditions if we deem it advisable to do so.
Indemnification and Escrow Provisions
Each
Equity Partners and each of the sellersmanagement shareholders has agreed to indemnify usBison-GE against claims (as defined) due to breach of the seller’stheir warranties, subject to certain limitations. The sellersAt the closing of our acquisition of Royal Wolf, Bison-GE will assign to us these indemnification rights. Equity Partners and the management shareholders will have no liability for a claim unless the amount of the claim is at least $15,624$15,800 and until the aggregate of all claims in excess of $15,624$15,800 exceeds $292,950,$296,300, in which event we can claim the whole amount, not just the amount in excess of $292,950. The sellers$296,300. They also will have no liability for breach of warranty unless the claim arises within 18 months after the date of the acquisition agreement (five years after the date of the acquisition agreement for breach of certain warranties relating to corporate organization, outstanding shares and share capitalization, compliance with legal requirements, tax, and the environment).
At or before the closing, $5.5 million of the cash considerationpaid or payable by us to Equity Partners and the sellersmanagement shareholders will be deposited in a separate bank account requiring signatures of us and Equity Partners and the sellersmanagement shareholders for withdrawals. The purpose of this account is to provide a source of funds to pay the sellers’ indemnification obligations. The acquisition agreement provides that 25% of these funds will be released to Equity Partners and the sellers 12 months after the closingmanagement shareholders on September 1, 2007 and the balance will be released to the sellers 18 months from the closing,them on March 31, 2008, in each case, subject to any paid or pending indemnity claims by us. In addition, the shares of our common stock issued to one of the sellers is intended to serve a source of repayment for indemnity claims, and will be subject to restrictions on transfer for similar12-month and18-month periods. The acquisition agreement provides that these funds and shares can be released prior to such12-month dates if Equity Partners and18-month periods if the sellersmanagement shareholders obtain warranty insurance in such amount and on such other terms as we may approve.
RWA Management Guarantees
The management shareholders are companies formed by Paul Jeffrey, James Warren, Michael Baxter and Peter McCann to hold their shares of RWA. Under the acquisition agreement, each of these individuals has agreed to personally guarantee the obligations under the acquisition agreement of his management shareholder company.
Shareholders Agreement
As part of the purchase price of the RWA shares, we will issue to Bison-GE 13.8% of the capital stock of GFN Australasia. At the closing under the acquisition agreement, we and Bision-GE will enter into a shareholders agreement setting forth our rights and obligations with respect to our respective shares of GFN Australasia. A copy of the shareholders agreement is attached to this proxy statement as ANNEX B.
Under the shareholders agreement, Bison-GE will have the option at any time after two years from the closing to require us to purchase its GFN shares. The purchase price for the shares would be the greatest of the following:
| | |
| • | 8.25 times EBITDA of Royal Wolf, as increased to include payments by Royal Wolf to us for expenses, less “net debt” (as defined); |
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| • | A specified multiple (based upon the market price of our common stock as a multiple of our consolidated EBITDA), which is referred to as the “GFC trading multiple,” multiplied by EBITDA of Royal Wolf, less “net debt”; and |
| | |
| • | The purchase price that Bison-GE paid for its shares. |
We will have the right at any time prior to the third anniversary of the closing to require Bison-GE to sell to us its GFN Australasia shares at a price equal to 2.75 times the purchase price that Bison-GE paid for those shares, provided that Bison-GE has not previously exercised its right to require us to purchase its shares as described above.
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We will have a second option to purchase Bison-GE’s shares after three years from the closing for a purchase price equal to the greater of:
| | |
| • | 8.75 multiplied by EBITDA of Royal Wolf, as increased to include payments by Royal Wolf to us for expenses, less “net debt”; and |
| | |
| • | The GFC trading multiple multiplied by EBITDA of Royal Wolf, less the “net debt.” |
If we fail to purchase Bison-GE’s shares upon exercise of the foregoing rights, the applicable purchase price multiples will increase.
In the shareholders agreement, we will agree that, without the consent of Bison-GE, we will not:
| | |
| • | Sell or transfer material assets outside of the ordinary course of business; |
| | |
| • | Appoint or remove an auditor; |
| | |
| • | Enter into a related-party transaction, provided that we may pay up to $1 million per year for expenses of related parties (which amount is subject to reduction to not less than $500,000 if we make other acquisitions); |
| | |
| • | Issue, pledge or redeem any shares (other than for senior debt); |
| | |
| • | Change the nature of the business; or |
| | |
| • | Merge or consolidate with any person. |
We will agree in the shareholders agreement to indemnify Bison-GE for substantially any matter occurring in connection with its acquisition of the RWA shares upon the signing of the acquisition agreement and the sale of the RWA shares to us at the closing, excluding matters involving a breach of representation, warranty or agreement by Bison-GE or Bison-GE’s willful misconduct as determined by a court.
We also will agree in the shareholders agreement that we will make any acquisitions of Royal Wolf competitive businesses in the geographic area east of Vietnam, south of Guam and west of Hawaii solely through Royal Wolf. Bison-GE will agree that we are not restricted in making acquisitions outside of this geographic area, and that Bison-GE will have no right to participate in such other acquisitions. As a result of the covenants described above, Bison-GE will have veto power over any in-market acquisitions by Royal Wolf that requires financing from us.
Backup Purchase Agreement
As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders. Under the backup purchase agreement, Mr. Valenta, as trustee of The Ronald Valenta Revocable Offshore Trust, has agreed that, if the acquisition is terminated for any reason, a wholly owned entity to be formed by him for this purpose will purchase all of the RWA shares held by Bison-GE and the management shareholders at the same price as would have been payable by us under the amended acquisition agreement. The purchase price to the management shareholders will be payable in cash. The purchase price to Bison-GE will be payable by a combination of cash and a 30% equity interest in the entity formed by Mr. Valenta to make the purchase and which will own and operate Royal Wolf following the purchase. Mr. Valenta’s entity also will issue to Bison-GE approximately $15.76 million of senior subordinated promissory notes of the entity on the same terms and provisions of the GFN Australasia senior subordinated promissory notes that we otherwise would have issued to Bison-GE under the amended acquisition agreement. A copy of the backup purchase agreement is attached to this proxy statement as ANNEX C.
Consulting and Employment Agreements
In connection with the acquisition, Michael Baxter, the executive director and a founder of Royal Wolf, will enter into a360-day consulting agreement pursuant to which he will agree to provide consulting services relating to
53
the transition of ownership of Royal Wolf until March 31, 2008 for total fee of approximately $39,060.$39,400. A copy of Mr. Baxter’s consulting agreement is included as part of ANNEX A to this proxy statement.
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Robert Allan, James Warren and Peter McCann, the three principal executives of Royal Wolf, will continue to serve in these capacities following the acquisition under their existing employment agreements. The employment agreements will continue indefinitely, unless terminated upon six months’ notice by either party in the case of Mr. Allan and three months’ notice in the cases of Messrs. McCann and Warren, or unless an individual’s employment is terminated by Royal Wolf for “cause” (as defined). Messrs. Allan, McCann and Warren are entitled under their respective agreements to a base annual salary of $234,360, $195,300$236,400, $197,000 and $175,770,$177,300, respectively, and to an annual performance bonus based upon the achievement of specified performance indicators not to exceed $78,120, $27,342$78,800, $27,600 and $117,195,$118,200, respectively. The maximum annual performance bonuses are subject to increase annually based upon consumer price index increases. The agreements provide for no severance or similar payments, except that Royal Wolf may pay six months’ compensation to Mr. Allan and three months’ compensation to either Mr. McCann or Mr. Warren in lieu of providing notice of termination of their employment as described above.
Termination
The sellers
We or Bison-GE may terminate the acquisition agreement if we do not obtain Securities and Exchange Commission clearance of this preliminary proxy statement by February 26, 2007 or the acquisition is not approved by our stockholders at the special meeting, or otherwise by March 26,September 1, 2007. EitherAny party may terminate the acquisition agreement if any of the other closing conditions are not satisfied by March 17, 2007,29, 2008, provided that it such party has used reasonable efforts to satisfy its conditions and kept the other party informed of its progress in satisfying its conditions.
Fees and Expenses
All fees and expenses incurred by us in connection with the acquisition agreement and the transactions contemplated thereby will be paid by the party incurring such expenses,us, whether or not the acquisition is consummated. If the acquisition is consummated, we also will pay at the closing under the acquisition agreement all direct,out-of-pocket fees and expenses, including legal fees and expenses, incurred by Bison-GE and its affiliates in connection with the amended acquisition agreement and the transactions contemplated thereby. All fees and expenses incurred by the management shareholders will be borne by them; however, any transaction fees of the sellers that arewere paid by Royal Wolf will bewere included in the calculation of Royal Wolf’s net debt as of the signing of this amended acquisition agreement and reducereduced the cash consideration in the acquisitionpaid by Bison-GE accordingly.
No finder’s fees will be paid in connection with the acquisition.
Confidentiality; Access to Information
Royal Wolf will afford to us and our financial advisors, accountants, counsel and other representatives prior to the completion of the acquisition reasonable access during normal business hours, upon reasonable notice, to all of its respective properties, books, records and personnel to obtain all information concerning the business, provided that we do so in a manner that does not disrupt the business of Royal Wolf.
Non-compete Covenants
The sellers
Equity Partners or the management shareholders have agreed that following the closing, within Australia or New Zealand, they will not:
| | |
| • | Engage in a business that competes with Royal Wolf for a period of five years after the closing; |
|
| • | Solicit, canvass, approach or accept an approach from a person who was at any time during the 12 months ending on the closing a customer of Royal Wolf with a view to obtaining their business that is in competition with the business of Royal Wolf for a period of four years after the closing; |
|
| • | Interfere with the relationship between Royal Wolf and its customers, employees or suppliers for a period of three years after the closing; |
|
| • | Induce or help to induce a Royal Wolf employee to leave their employment for a period of two years after the closing; or |
|
| • | Disclose or use to their advantage or to Royal Wolf’s disadvantage, itself or by any of its subsidiaries, agents, or representatives, any of the trade secrets or any confidential information relating to Royal Wolf or its business at any time after the closing. |
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The acquisition agreement provides that the consideration for these covenants is $2.4 million, payable by us in two equal installments on the first and second annual anniversaries of the closing.
Amendment
The acquisition agreement may be further amended by the parties thereto only by writing signed on behalf of each of the parties.
Regulatory Matters
The acquisition is subject to review by the Treasurer of the Commonwealth of Australia, which issued its notice of non-objection on September 29, 2006.Australia. The acquisition is not subject to any regulatory approvals in the U.S.
Tax Consequences
There will be no tax consequences to our stockholders resulting from the acquisition, except to the extent they exercise their conversion rights.
A stockholder who exercises conversion rights will generally be required to recognize capital gain or loss upon the conversion, if such shares were held as a capital asset on the date of the acquisition. This gain or loss will be measured by the difference between the amount of cash received and the stockholder’s tax basis in the converted shares. The gain or loss will be short-term gain or loss if the acquisition closes as scheduled, but may be long-term gain or loss if the closing is postponed.
Finder’s Fees
No finder’s feesfee will be paid in connection with the acquisition.
Accounting Treatment
The acquisition will be accounted for as a reverse acquisition and equity recapitalization, with us treated as the “acquired” company for financial reporting purposes. The acquisition consideration paid to the sellers will be reflected as a distribution to them, and will result in a reduction in stockholders’ equity.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet combines our historical audited balance sheet as of December 31, 2006 and the historical unaudited balance sheet of Royal Wolf as of December 31, 2006, giving effect to the acquisition as if it had occurred on December 31, 2006.
The following unaudited pro forma condensed combined statements of operations combine (i) the historical audited statements of operations of us and the unaudited statements of operations of Royal Wolf for the twelve months ended December 31, 2006, giving effect to the acquisition as if it had occurred on January 1, 2006. The unaudited statements of operations of Royal Wolf for the twelve months ended December 31, 2006 were derived by combining the results for the six-month period from January 1, 2006 to June 30, 2006 with the period from July 1, 2006 to December 31, 2006, as Royal Wolf’s fiscal year end is June 30. In addition, all unaudited pro forma condensed combined financial information presented for Royal Wolf has been adjusted to conform with U.S. GAAP and converted into U.S. dollars at the average exchange rate during the periods in the pro forma income statements and at the exchange rate at December 31, 2006 for the pro forma balance sheets. The conversion using these historical exchange rates would result in different U.S. dollar amounts from those appearing elsewhere in this proxy statement due to the more current January 12, 2007 exchange rate used elsewhere in this proxy statement.
The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the acquisition, are factually supportable and, in the case of the pro forma income statements, have a recurring impact.
The following information should be read in conjunction with the pro forma condensed combined financial statements:
| | |
| • | Accompanying notes to the unaudited pro forma condensed combined statements; |
| | |
| • | Separate historical financial statements of Royal Wolf for the periods ended June 30, 2006 included elsewhere in this proxy statement; and |
| | |
| • | Our separate historical financial statements for the year ended December 31, 2006, which are not included in this proxy statement but can be obtained as described in the section “Where You Can Find More Information.” |
The unaudited pro forma condensed combined balance sheet at December 31, 2006 and unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2006 have been prepared using two different levels of approval of the acquisition by our stockholders, as follows:
| | |
| • | Assuming No Conversions: This presentation assumes none of our stockholders exercises their conversion rights; and |
|
| • | Assuming Maximum Conversions: This presentation assumes that 19.99% of our stockholders exercise their conversion rights. |
This information to aid you in your analysis of the financial aspects of the acquisition. The unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the acquisition taken place on the dates noted, or the future financial position or operating results of the combined company.
For accounting purposes, pursuant to paragraphs 16 and 17 of Statement of Financial Accounting Standards (“SFAS”) No. 141,Business Combinations, the acquisition has been treated as a reverse acquisition, with Royal Wolf as the larger operating entity recognized as the accounting acquirer and us, the legal acquirer, as the acquired company. A reverse acquisition occurs if a company other than the legal acquirer is deemed to be the “accounting acquirer” in a business combination effected by the issuance of equity interests. In addition, the merger of Royal Wolf, a private operating company, into us, a nonoperating public corporation with nominal net assets, would be viewed as a capital transaction in substance, rather than as a business combination. That is, the transaction is equivalent to Royal Wolf issuing stock for our net monetary assets, accompanied by a recapitalization. Accordingly, our assets and liabilities have been presented at their historical cost, and no goodwill or other intangible assets have been recorded, nor has there been an increase in stockholders’ equity as a result of the business combination. The consideration paid by us for the equity interests of Royal Wolf will be reflected as a distribution to the sellers.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 2006
Assuming No Conversions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Pro Forma
| | Pro Forma
| | | | | | | Pro Forma
| | Pro Forma
| |
| | GFN | | Royal Wolf | | Adjustments | | Combined | | | GFN | | Royal Wolf | | Adjustments | | Combined | |
| | (In thousands except share data) | | | (In thousands except share data) | |
|
ASSETS | Current assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash | | $ | 38 | | | $ | 484 | | | $ | 68,055 | (a) | | $ | 19,464 | | | $ | 38 | | | $ | 484 | | | $ | 68,055 | (a) | | $ | 24,839 | |
| | | | | | | | | | | (47,733 | )(b) | | | | | | | | | | | | | | | (42,358 | )(b) | | | | |
| | | | | | | | | | | (1,380 | )(b) | | | | | | | | | | | | | | | (1,380 | )(b) | | | | |
Cash held in trust account | | | 68,055 | | | | — | | | | (68,055 | )(a) | | | — | | | | 68,055 | | | | — | | | | (68,055 | )(a) | | | — | |
Other current assets | | | 19 | | | | 19,077 | | | | — | | | | 19,096 | | | | 19 | | | | 19,077 | | | | — | | | | 19,096 | |
| | | | | | | | | | | | | | | | | | |
Total current assets | | | 68,112 | | | | 19,561 | | | | (49,113 | ) | | | 38,560 | | | | 68,112 | | | | 19,561 | | | | (43,738 | ) | | | 43,935 | |
Property and equipment, net | | | 3 | | | | 39,447 | | | | — | | | | 39,450 | | | | 3 | | | | 39,447 | | | | — | | | | 39,450 | |
Intangible assets, net | | | — | | | | 3,785 | | | | 2,368 | (b) | | | 6,853 | | | | — | | | | 3,785 | | | | 2,368 | (b) | | | 7,010 | |
| | | | | | | | | | | 700 | (b) | | | | | | | | | | | | | | | 857 | (b) | | | | |
Other assets | | | 1,013 | | | | 549 | | | | (811 | )(b) | | | 751 | | | | 1,013 | | | | 549 | | | | (811 | )(b) | | | 751 | |
| | | | | | | | | | | | | | | | | | |
Total assets | | $ | 69,128 | | | $ | 63,342 | | | $ | (46,856 | ) | | $ | 85,614 | | | $ | 69,128 | | | $ | 63,342 | | | $ | (41,324 | ) | | $ | 91,146 | |
| | | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade accounts payable | | $ | 462 | | | $ | 11,809 | | | $ | — | | | $ | 12,271 | | | $ | 462 | | | $ | 11,809 | | | $ | — | | | $ | 12,271 | |
Accrued expenses | | | 77 | | | | 3,126 | | | | — | | | | 3,903 | | | | 77 | | | | 3,126 | | | | 857 | (b) | | | 4,060 | |
| | | | | | | | | | | 700 | (b) | | | | | |
Other current liabilities | | | 3,258 | | | | 7,719 | | | | (1,380 | )(b) | | | 9,597 | | | | 3,258 | | | | 7,719 | | | | (1,380 | )(b) | | | 9,597 | |
| | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 3,797 | | | | 22,654 | | | | (680 | ) | | | 25,771 | | | | 3,797 | | | | 22,654 | | | | (523 | ) | | | 25,928 | |
| | | | | | | | | | | | | | | | | | |
Long term liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notes payable | | | — | | | | 34,781 | | | | 8,631 | (b) | | | 43,412 | | | | — | | | | 34,781 | | | | 14,975 | (b) | | | 49,756 | |
Non-compete payable | | | — | | | | — | | | | 2,368 | (b) | | | 2,368 | | |
Other long term liabilities | | | — | | | | 1,609 | | | | — | | | | 1,609 | | | | — | | | | 1,609 | | | | — | | | | 1,609 | |
| | | | | | | | | | | | | | | | | | |
Total long term liabilities | | | — | | | | 36,390 | | | | 10,999 | | | | 47,389 | | | | — | | | | 36,390 | | | | 14,975 | | | | 51,365 | |
| | | | | | | | | | | | | | | | | | |
Common stock subject to possible conversion, 1,724,138 shares at conversion value | | | 13,168 | | | | — | | | | (13,168 | )(b) | | | — | | | | 13,168 | | | | — | | | | (13,168 | )(b) | | | — | |
| | | | | | | | | | | | | | | | | | |
Minority interest | | | | — | | | | — | | | | 6,771 | (b) | | | 6,771 | |
Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 1 | | | | 3,591 | | | | (3,591 | )(b) | | | 1 | | | | 1 | | | | 3,591 | | | | (3,591 | )(b) | | | 1 | |
Retained earnings | | | 453 | | | | 707 | | | | (453 | )(b) | | | 1,035 | | | | 453 | | | | 707 | | | | (453 | )(b) | | | (2,465 | ) |
| | | | | | | | | | | 328 | (b) | | | | | | | | | | | | | | | 328 | (b) | | | | |
| | | | | | | | | | | | (3,500 | )(b) | | | | |
Additional paid-in capital | | | 51,709 | | | | — | | | | 1,579 | (b) | | | 11,418 | | | | 51,709 | | | | — | | | | (6,771 | )(b) | | | 9,546 | |
| | | | | | | | | | | | (488 | )(c) | | | | |
| | | | | | | | | | | | 13,168 | (b) | | | | |
| | | | | | | | | | | (183 | )(c) | | | | | | | | | | | | | | | 447 | (b) | | | | |
| | | | | | | | | | | 13,168 | (b) | | | | | | | | | | | | | | | 3,500 | (b) | | | | |
| | | | | | | | | | | (54,855 | )(b) | | | | | | | | | | | | | | | (52,019 | )(b) | | | | |
| | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 52,163 | | | | 4,298 | | | | (44,007 | ) | | | 12,454 | | | | 52,163 | | | | 4,298 | | | | (49,379 | ) | | | 7,082 | |
| | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 69,128 | | | $ | 63,342 | | | $ | (46,856 | ) | | $ | 85,614 | | | $ | 69,128 | | | $ | 63,342 | | | $ | (41,324 | ) | | $ | 91,146 | |
| | | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements
5766
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 2006
Assuming Maximum Conversions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Pro Forma
| | Pro Forma
| | | | | | | Pro Forma
| | Pro Forma
| |
| | GFN | | Royal Wolf | | Adjustments | | Combined | | | GFN | | Royal Wolf | | Adjustments | | Combined | |
| | (In thousands except share data) | | | (In thousands except share data) | |
|
ASSETS | Current assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash | | $ | 38 | | | $ | 484 | | | $ | 68,055 | (a) | | $ | 6,296 | | | $ | 38 | | | $ | 484 | | | $ | 68,055 | (a) | | $ | 11,671 | |
| | | | | | | | | | | (47,733 | )(b) | | | | | | | | | | | | | | | (42,358 | )(b) | | | | |
| | | | | | | | | | | (1,380 | )(b) | | | | | | | | | | | | | | | (1,380 | )(b) | | | | |
| | | | | | | | | | | (13,168 | )(b) | | | | | | | | | | | | | | | (13,168 | )(b) | | | | |
Cash held in trust account | | | 68,055 | | | | — | | | | (68,055 | )(a) | | | — | | | | 68,055 | | | | — | | | | (68,055 | )(a) | | | — | |
Other current assets | | | 19 | | | | 19,077 | | | | — | | | | 19,096 | | | | 19 | | | | 19,077 | | | | — | | | | 19,096 | |
| | | | | | | | | | | | | | | | | | |
Total current assets | | | 68,112 | | | | 19,561 | | | | (62,281 | ) | | | 25,392 | | | | 68,112 | | | | 19,561 | | | | (56,906 | ) | | | 30,767 | |
Property and equipment, net | | | 3 | | | | 39,447 | | | | — | | | | 39,450 | | | | 3 | | | | 39,447 | | | | — | | | | 39,450 | |
Intangible assets, net | | | — | | | | 3,785 | | | | 2,368 | (b) | | | 6,853 | | | | — | | | | 3,785 | | | | 2,368 | (b) | | | 7,010 | |
| | | | | | | | | | | 700 | (b) | | | | | | | | | | | | | | | 857 | (b) | | | | |
Other assets | | | 1,013 | | | | 549 | | | | (811 | )(b) | | | 751 | | | | 1,013 | | | | 549 | | | | (811 | )(b) | | | 751 | |
| | | | | | | | | | | | | | | | | | |
Total assets | | $ | 69,128 | | | $ | 63,342 | | | $ | (60,024 | ) | | $ | 72,446 | | | $ | 69,128 | | | $ | 63,342 | | | $ | (54,492 | ) | | $ | 77,978 | |
| | | | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade accounts payable | | $ | 462 | | | $ | 11,809 | | | $ | — | | | $ | 12,271 | | | $ | 462 | | | $ | 11,809 | | | $ | — | | | $ | 12,271 | |
Accrued expenses | | | 77 | | | | 3,126 | | | | — | | | | 3,903 | | | | 77 | | | | 3,126 | | | | 857 | (b) | | | 4,060 | |
| | | | | | | | | | | 700 | (b) | | | | | |
Other current liabilities | | | 3,258 | | | | 7,719 | | | | (1,380 | )(b) | | | 9,597 | | | | 3,258 | | | | 7,719 | | | | (1,380 | )(b) | | | 9,597 | |
| | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 3,797 | | | | 22,654 | | | | (680 | ) | | | 25,771 | | | | 3,797 | | | | 22,654 | | | | (523 | ) | | | 25,928 | |
| | | | | | | | | | | | | | | | | | |
Long term liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notes payable | | | — | | | | 34,781 | | | | 8,631 | (b) | | | 43,412 | | | | — | | | | 34,781 | | | | 14,975 | (b) | | | 49,756 | |
Non-compete payable | | | — | | | | — | | | | 2,368 | (b) | | | 2,368 | | |
Other long term liabilities | | | — | | | | 1,609 | | | | — | | | | 1,609 | | | | — | | | | 1,609 | | | | — | | | | 1,609 | |
| | | | | | | | | | | | | | | | | | |
Total long term liabilities | | | — | | | | 36,390 | | | | 10,999 | | | | 47,389 | | | | — | | | | 36,390 | | | | 14,975 | | | | 51,365 | |
| | | | | | | | | | | | | | | | | | |
Common stock subject to possible conversion, 1,724,138 shares at conversion value | | | 13,168 | | | | — | | | | (13,168 | )(b) | | | — | | | | 13,168 | | | | — | | | | (13,168 | )(b) | | | — | |
| | | | | | | | | | | | | | | | | | |
Minority interest | | | | — | | | | — | | | | 6,771 | (b) | | | 6,771 | |
Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 1 | | | | 3,591 | | | | (3,591 | )(b) | | | 1 | | | | 1 | | | | 3,591 | | | | (3,591 | )(b) | | | 1 | |
Retained earnings | | | 453 | | | | 707 | | | | (453 | )(b) | | | 1,035 | | | | 453 | | | | 707 | | | | (453 | )(b) | | | (2,465 | ) |
| | | | | | | | | | | 328 | (b) | | | | | | | | | | | | | | | 328 | (b) | | | | |
| | | | | | | | | | | | (3,500 | )(b) | | | | |
Additional paid-in capital | | | 51,709 | | | | — | | | | 1,579 | (b) | | | (1,750 | ) | | | 51,709 | | | | — | | | | (6,771 | )(b) | | | (3,622 | ) |
| | | | | | | | | | | | (488 | )(c) | | | | |
| | | | | | | | | | | | 447 | (b) | | | | |
| | | | | | | | | | | (183 | )(c) | | | | | | | | | | | | | | | 3,500 | (b) | | | | |
| | | | | | | | | | | (54,855 | )(b) | | | | | | | | | | | | | | | (52,019 | )(b) | | | | |
| | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 52,163 | | | | 4,298 | | | | (57,175 | ) | | | (714 | ) | | | 52,163 | | | | 4,298 | | | | (62,547 | ) | | | (6,086 | ) |
| | | | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 69,128 | | | $ | 63,342 | | | $ | (60,024 | ) | | $ | 72,446 | | | $ | 69,128 | | | $ | 63,342 | | | $ | (54,492 | ) | | $ | 77,978 | |
| | | | | | | | | | | | | | | | | | |
See notes to unaudited pro forma condensed combined financial statements
5867
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Twelve Months Ended December 31, 2006
Assuming No Conversions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Pro Forma
| | Pro Forma
| | | | | | | Pro Forma
| | Pro Forma
| |
| | GFN | | Royal Wolf | | Adjustments | | Combined | | | GFN | | Royal Wolf | | Adjustments | | Combined | |
| | (In thousands except share and per share data) | | | (In thousands except share and per share data) | |
|
Revenue | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | |
Cost of sales | | | — | | | | 36,792 | | | | — | | | | 36,792 | | | | — | | | | 36,792 | | | | — | | | | 36,792 | |
| | | | | | | | | | | | | | | | | | |
Gross margin | | | — | | | | 22,697 | | | | — | | | | 22,697 | | | | — | | | | 22,697 | | | | — | | | | 22,697 | |
Operating expenses | | | 1,171 | | | | 14,663 | | | | — | | | | 15,834 | | | | 1,171 | | | | 14,663 | | | | 3,250 | (h) | | | 19,084 | |
Depreciation and amortization | | | — | | | | 3,158 | | | | 1,100 | (e) | | | 4,258 | | | | — | | | | 3,158 | | | | 1,134 | (e) | | | 4,292 | |
| | | | | | | | | | | | | | | | | | |
Operating (loss)/income | | | (1,171 | ) | | | 4,876 | | | | (1,100 | ) | | | 2,605 | | | | (1,171 | ) | | | 4,876 | | | | (4,384 | ) | | | (679 | ) |
Interest income | | | (1,889 | ) | | | — | | | | 935 | (g) | | | (954 | ) | | | (1,889 | ) | | | — | | | | 672 | (g) | | | (1,217 | ) |
Interest expense | | | 21 | | | | 3,292 | | | | 845 | (d) | | | 4,285 | | | | 21 | | | | 3,292 | | | | 1,519 | (d) | | | 5,029 | |
| | | | | | | | | | | 127 | (f) | | | | | | | | | | | | | | | 197 | (f) | | | | |
Other expenses | | | — | | | | 39 | | | | — | | | | 39 | | | | — | | | | 39 | | | | — | | | | 39 | |
| | | | | | | | | | | | | | | | | | |
Total other expenses/(income) | | | (1,868 | ) | | | 3,331 | | | | 1,907 | | | | 3,370 | | | | (1,868 | ) | | | 3,331 | | | | 2,388 | | | | 3,851 | |
| | | | | | | | | | | | | | | | | | |
Income/(loss) before provision for income taxes | | | 697 | | | | 1,545 | | | | (3,007 | ) | | | (765 | ) | |
Income/(loss) before provision for income taxes and minority interest | | | | 697 | | | | 1,545 | | | | (6,772 | ) | | | (4,530 | ) |
Provision/(credit) for income taxes | | | 240 | | | | 757 | | | | (945 | )(h) | | | 52 | | | | 240 | | | | 757 | | | | (2,062 | )(i) | | | (1,065 | ) |
Minority interest | | | | — | | | | — | | | | 478 | (j) | | | 478 | |
| | | | | | | | | | | | | | | | | | |
Net income/(loss) | | $ | 457 | | | $ | 788 | | | $ | (2,062 | ) | | $ | (817 | ) | | $ | 457 | | | $ | 788 | | | $ | (4,232 | ) | | $ | (2,987 | ) |
| | | | | | | | | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | $ | (0.08 | ) | | | | | | | | | | | | | | $ | (0.28 | ) |
| | | | | | |
Diluted | | | | | | | | | | | | | | $ | (0.08 | ) | | | | | | | | | | | | | | $ | (0.28 | ) |
| | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | | 10,696,000 | (i) | | | | | | | | | | | | | | | 10,500,000 | (k) |
| | | | | | |
Diluted | | | | | | | | | | | | | | | 10,696,000 | (i) | | | | | | | | | | | | | | | 10,500,000 | (k) |
| | | | | | |
See notes to unaudited pro forma condensed combined financial statements
5968
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Twelve Months Ended December 31, 2006
Assuming Maximum Conversions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Pro Forma
| | Pro Forma
| | | | | | | Pro Forma
| | Pro Forma
| |
| | GFN | | Royal Wolf | | Adjustments | | Combined | | | GFN | | Royal Wolf | | Adjustments | | Combined | |
| | (In thousands except share and per share data) | | | (In thousands except share and per share data) | |
|
Revenue | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | | | $ | — | | | $ | 59,489 | |
Cost of sales | | | — | | | | 36,792 | | | | — | | | | 36,792 | | | | — | | | | 36,792 | | | | — | | | | 36,792 | |
| | | | | | | | | | | | | | | | | | |
Gross margin | | | — | | | | 22,697 | | | | — | | | | 22,697 | | | | — | | | | 22,697 | | | | — | | | | 22,697 | |
Operating expenses | | | 1,171 | | | | 14,663 | | | | — | | | | 15,834 | | | | 1,171 | | | | 14,663 | | | | 3,250 | (h) | | | 19,084 | |
Depreciation and amortization | | | — | | | | 3,158 | | | | 1,100 | (e) | | | 4,258 | | | | — | | | | 3,158 | | | | 1,134 | (e) | | | 4,292 | |
| | | | | | | | | | | | | | | | | | |
Operating (loss)/income | | | (1,171 | ) | | | 4,876 | | | | (1,100 | ) | | | 2,605 | | | | (1,171 | ) | | | 4,876 | | | | (4,384 | ) | | | (679 | ) |
Interest income | | | (1,889 | ) | | | — | | | | 1,580 | (g) | | | (309 | ) | | | (1,889 | ) | | | — | | | | 1,317 | (g) | | | (572 | ) |
Interest expense | | | 21 | | | | 3,292 | | | | 845 | (d) | | | 4,285 | | | | 21 | | | | 3,292 | | | | 1,519 | (d) | | | 5,029 | |
| | | | | | | | | | | 127 | (f) | | | | | | | | | | | | | | | 197 | (f) | | | | |
Other expenses | | | — | | | | 39 | | | | — | | | | 39 | | | | — | | | | 39 | | | | — | | | | 39 | |
| | | | | | | | | | | | | | | | | | |
Total other expenses/(income) | | | (1,868 | ) | | | 3,331 | | | | 2,552 | | | | 4,015 | | | | (1,868 | ) | | | 3,331 | | | | 3,033 | | | | 4,496 | |
| | | | | | | | | | | | | | | | | | |
Income/(loss) before provision for income taxes | | | 697 | | | | 1,545 | | | | (3,652 | ) | | | (1,410 | ) | |
Income/(loss) before provision for income taxes and minority interest | | | | 697 | | | | 1,545 | | | | (7,417 | ) | | | (5,175 | ) |
Provision/(credit) for income taxes | | | 240 | | | | 757 | | | | (1,167 | )(h) | | | (170 | ) | | | 240 | | | | 757 | | | | (2,284 | )(i) | | | (1,287 | ) |
Minority interest | | | | — | | | | — | | | | 537 | (j) | | | 537 | |
| | | | | | | | | | | | | | | | | | |
Net income/(loss) | | $ | 457 | | | $ | 788 | | | $ | (2,485 | ) | | $ | (1,240 | ) | | $ | 457 | | | $ | 788 | | | $ | (4,596 | ) | | $ | (3,351 | ) |
| | | | | | | | | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | $ | (0.14 | ) | | | | | | | | | | | | | | $ | (0.38 | ) |
| | | | | | |
Diluted | | | | | | | | | | | | | | $ | (0.14 | ) | | | | | | | | | | | | | | $ | (0.38 | ) |
| | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | | 8,972,000 | (i) | | | | | | | | | | | | | | | 8,776,000 | (k) |
| | | | | | |
Diluted | | | | | | | | | | | | | | | 8,972,000 | (i) | | | | | | | | | | | | | | | 8,776,000 | (k) |
| | | | | | |
See notes to unaudited pro forma condensed combined financial statements
6069
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(Amounts in thousands, except share data)
For purposes of these unaudited pro forma condensed combined financial statements, we have assumed the acquisition consideration at December 31, 2006 to be:
| | | | |
Unadjusted acquisition consideration(1) | | $ | 91,954 | |
Transaction costs | | | 1,295 | |
Adjustments: | | | | |
Container rental equipment | | | 2,950 | |
Net tangible assets | | | (1,315 | ) |
Working capital | | | 1,019 | |
| | | | |
Adjusted acquisition consideration | | $ | 95,903 | |
| | | | |
| | | | |
Acquisition consideration(1) | | $ | 100,911 | |
Transaction costs | | | 1,600 | |
| | | | |
Total acquisition consideration | | $ | 102,511 | |
| | | | |
| | |
(1) | | AUD $116,500 converted at exchange rate onAssumes that the business combination closed in sixty days as of December 31, 2006 |
The adjustedtotal acquisition consideration will be satisfied as follows:
| | | | | | | | |
Cash from trust account | | $ | 47,733 | | | $ | 42,358 | |
Deposit paid to Royal Wolf sellers | | | 811 | | | | 811 | |
Contemplated financing: | | | | | | | | |
Amended revolver | | | 27,626 | | | | 34,417 | |
Mezzanine financing | | | 15,786 | | |
Mezzanine financing (including 500,000 warrants with an estimated value of $447) | | | | 15,786 | |
| | | | | | |
| | | 43,412 | | | | 50,203 | |
| | | | | | |
Non-compete agreement | | | 2,368 | | | | 2,368 | |
Issuance of our common stock | | | 1,579 | | |
Issuance of shares of capital stock of GFN Australasia, resulting in minority interest of 13.8% | | | | 6,771 | |
| | | | | | |
| | $ | 95,903 | | | $ | 102,511 | |
| | | | | | |
Adjustments included in the column under the heading “Pro Forma Adjustments” include adjustments:
(a) To record the reclassification of funds held in trust by Continental Stock Transfer & Trust Company;
(b) Of $47,733$42,358 to reflect the cash payment portion of the acquisition (net of $811 deposit paid); $1,380 to reflect the payment for deferred underwriters commission; $2,368 to reflect the contractual consideration payable for non-compete agreement that will be entered into with the sellers; $700$857 to reflect the estimated deferred financing costs; $8,631$14,975 to reflect the adjustment for the contemplated financing of a portion of the acquisition consideration ($27,62634,417 in a refinanced revolver, and $15,786$15,339 in new mezzanine financing)debt); $447 representing the estimated value of 500,000 warrants issued in connection with the mezzanine financing; $13,168 (i) assuming no conversions to reflect the increase in equity, and (ii) assuming maximum conversions to reflect the payment in cash to our converting stockholders; $3,591 to reflect the reclassification of Royal Wolf’s common stock to additional paid-in capital; $453 to reflect the elimination of our retained earnings; $328 to increase Royal Wolf’s retained earnings for direct costs of the acquisition incurred through December 31, 2006; $1,579$3,500 to record Royal Wolf stock option payouts; $6,771 to record minority interest of shares of our common stock that we will issue to one of the sellers;13.8%; and $54,855$52,019 to reflect the offset to capital of the foregoing adjustments under the reverse acquisition application of the equity recapitalization method of accounting;
(c) To reflect the estimated direct costs of the acquisition subsequent to December 31, 2006;
6170
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS — (Continued)
(d) To adjust interest expense to 8.0% on the amended revolver and 13.0%13.5% (plus amortization of discount) on the mezzanine financing based upon athe contemplated financing, as follows:
| | | | | | | | | | | | | | | | |
| | Twelve months ended December 31, 2006 | | | Twelve months ended December 31, 2006 | |
| | No Conversions | | Maximum Conversions | | | No Conversions | | Maximum Conversions | |
|
Estimated interest on contemplated financing: | | | | | | | | | | | | | | | | |
Amended revolver | | $ | 2,117 | | | $ | 2,117 | | | $ | 2,637 | | | $ | 2,637 | |
Mezzanine financing | | | 1,965 | | | | 1,965 | | | | 2,119 | | | | 2,119 | |
| | | | | | | | | | |
| | | 4,082 | | | | 4,082 | | | | 4,756 | | | | 4,756 | |
| | | | | | | | | | |
Other interest — financing leases | | | 55 | | | | 55 | | | | 55 | | | | 55 | |
| | | | | | | | | | |
Estimated interest related to Royal Wolf | | | 4,137 | | | | 4,137 | | | | 4,811 | | | | 4,811 | |
Interest expense recorded | | | 3,292 | | | | 3,292 | | | | 3,292 | | | | 3,292 | |
| | | | | | | | | | |
Pro forma adjustment | | $ | 845 | | | $ | 845 | | | $ | 1,519 | | | $ | 1,519 | |
| | | | | | | | | | |
The contemplated financing is based on our undertaking of the financial market and preliminary discussions with potential lenders;
(e) To reflect the amortization over two years of the non-compete intangible asset;
(f) To reflect amortization expense over five and one-half years of the estimated deferred financing costs;
(g) To adjust interest income based on reduction of cash in trust after acquisition; and
(h) To record the Royal Wolf stock option payouts;
(i) To adjust provision for income taxes based on adjustment of stock option payouts, interest income, interest expense and amortization expense.expense; and
(i)(j) To record the minority interest effect of 13.8% on the combined statements of income; and
(k) Weighted average shares outstanding are comprised of the following:
| | | | | | | | | | | | | | | | |
| | For the twelve months ended December 31, 2006 | | | For the twelve months ended December 31, 2006 | |
| | No Conversion | | Maximum Conversion | | | No Conversion | | Maximum Conversion | |
|
Common stock issued to initial stockholder | | | 1,875,000 | | | | 1,875,000 | | | | 1,875,000 | | | | 1,875,000 | |
Common stock issued in connection with the IPO | | | 7,500,000 | | | | 7,500,000 | | | | 7,500,000 | | | | 7,500,000 | |
Common stock issued in connection with underwriters’ over-allotment option | | | 1,125,000 | | | | 1,125,000 | | | | 1,125,000 | | | | 1,125,000 | |
Common stock issued to one seller of Royal Wolf | | | 196,000 | | | | 196,000 | | |
Common stock converted to cash | | | — | | | | (1,724,000 | ) | | | — | | | | (1,724,000 | ) |
| | | | | | | | | | |
| | | 10,696,000 | | | | 8,972,000 | | | | 10,500,000 | | | | 8,776,000 | |
| | | | | | | | | | |
| | |
| | As a result of the net loss reflected in the unaudited pro forma condensed combined statements of income, basic and diluted shares used are the same. |
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OTHER INFORMATION ABOUT US
Business of General Finance Corporation
We were incorporated on October 14, 2005, to effect an acquisition, capital stock exchange, asset acquisition or other similar business combination with an operating business. Prior to executing the acquisition agreement relating to the acquisition of Royal Wolf, our efforts were limited to organizational activities, completion of our IPO and the evaluation of possible business combinations, including the acquisition.
GFN Australasia Finance Pty Limited, or GFN Australasia, is a newly formed company organized by us under the laws of Australia and wholly owned subsidiary of GFN Australasia Holdings Pty Ltd, which is a newly formed company organized by us under the laws of Australia and our wholly owned subsidiary. GFN Australasia and GFN Australasia Holdings Pty Ltd were formed by us for the sole purpose of facilitating our acquisition of RWA, and have not engaged in any business other than in connection with the acquisition.
GFN Australasia’s mailing address is c/o Robert Barnes, Level 2, 222 Clarence Street, Sydney, New South Wales, Australia 2000, and its telephone number is 001-612-9266-0077.
Our business plan and strategy disclosed in our IPO prospectus is to seek to identify, acquire and consolidate under our holding company specialty finance businesses in the U.S., Europe and Asia. Ronald F. Valenta, our Chief Executive Officer, has successfully executed a similar strategy as the Chief Executive Officer and later the Chairman of the Board of Mobile Storage Group. Royal Wolf is a leading specialty finance company in Australia that we believe has a strong and deep management team and is well-positioned for significant growth domestically in Australia. We also believe Royal Wolf can serve as a both a rental services platform for expansion throughout the Asia-Pacific region and potentially the core management team for the global container leasing segment of our business. If we complete the Royal Wolf acquisition, our present strategy is to seek to acquire other equipment leasing companies in North America, Asia and Europe and to consider acquisitions of other companies in the special finance business. We also will continue Royal Wolf’s strategy of consolidating small equipment leasing companies in the region. Before we entered into the acquisition agreement, we entered into confidentiality agreements and conducted preliminary due diligence with respect to a number of other possible initial business combinations. We and Royal Wolf also previously entered into a confidentiality agreement and conducted preliminary due diligence with respect to one smaller Australian equipment leasing company that Royal Wolf considered to be a suitable acquisition for it. We are not in current discussions or negotiations, or currently conducting due diligence, regarding any of the entities with which we signed confidentiality agreements prior to entering into the Royal Wolf acquisition agreement, and neither we nor Royal Wolf has any present understandings, arrangements or commitments with respect to any possible future acquisition. There is no assurance that we or Royal Wolf will be able to identify, negotiate or complete any future acquisitions, or, if completed that any such acquisitions will be successful.
Offering Proceeds Held in Trust
The registration statement relating to our IPO was declared effective on April 5 2006, and we completedthe closing of the sale of our IPO securities occurred on April 11, 2006. The net proceeds of the offering, after payment of underwriting discounts and expenses, were approximately $65.55 million. Of that amount, $65 million was placed in the trust account and invested in government securities. The remaining proceeds, along with proceeds of $700,000 from the private placement of
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units to our officers and directors, were used by us to pay the underwriting
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discount (excluding the contingent underwriting discount) of $4,830,000 and other offering expenses in connection with our IPO as follows:
| | | | |
| | | | |
• Legal fees and expenses | | $ | 331,650 | |
• Printing and engraving expenses | | | 96,059 | |
• Accounting fees and expenses | | | 30,600 | |
• SEC registration fee | | | 23,928 | |
• NASD filing fee | | | 20,850 | |
• AMEX filing fee | | | 78,125 | |
• Initial Trustee’s fee | | | 1,000 | |
• Miscellaneous expenses | | | 12,505 | |
| | | | |
Total other offering expenses | | $ | 594,717 | |
| | | | |
The actual total offering expenses of $5,424,717 were $44,717 in excess of the estimated offering expenses of $5,380,000, as set forth in the prospectus relating to our IPO. These amounts include the contingent underwriting discount of $1,380,000. The primary reasons for this excess was the net result of greater than estimated printing and engraving expenses ($46,059), accounting fees and expenses ($5,600) and AMEX filing fee ($13,125); somewhat offset by less than estimated legal fees and expenses ($18,350), miscellaneous expenses ($1,693) and SEC registration fee ($24). The funds in the trust account will not be released to us until the earlier of the completion of a business combination or our liquidation. The trust account contained approximately $68.1$67.8 million as of December 31, 2006.February 28, 2007. We will pay the cash portion of the acquisition consideration payable at the closing with a portion of the net proceeds of our IPO held in the trust account. Any remaining net proceeds in the trust account, less any amounts payable to our stockholders who exercise their conversion rights and after the payment of a contingent underwriting discount to the underwriters of our IPO, will be released to us for use in our business without further restriction. The maximum contingent underwriting discount is $1,380,000, which is subject to reduction by $0.16 per share for each IPO share that is converted in connection with the acquisition. The released funds will be used by us to repay our outstanding indebtedness to Mr. Valenta under the line of credit agreement and for working capital and general corporate purposes, including possible acquisitions, and there will be no further restrictions on our use of such funds.
Our expenses during the search for a target business were paid from, initially, the $250,000 proceeds received from the sale of common stock to officers and directors prior to the IPO and, subsequently, from borrowings under the line of credit described below provided by Mr. Valenta. Our actual expenses incurred since the IPO totaled $1,163,000 through December 31, 2006, and have been primarily for costs related to the proposed business combination with Royal Wolf ($784,000), accounting ($35,000), legal ($49,000) and other professional expenses ($23,000), liability insurance ($57,000), payroll and related ($72,000), Board fees ($36,000), printing and filing fees ($27,000) and dues and subscriptions ($4,000).
Line of Credit Agreement
We have a limited recourse revolving line of credit with Ronald F. Valenta, a director and our Chief Executive Officer, pursuant to which we may from time to time borrow up to $2,000,000$3,000,000 outstanding at any time. The limited recourse revolving line of credit terminates upon the earliest to occur of completion of a business combination, the liquidation of the company and April 5, 2008, except that advances may be made after April 5, 2008 solely to pay reasonable costs and expenses in connection with the liquidation of any company. The limited recourse revolving line of credit bears interest at the rate of 8% per annum and has no recourse against the funds in the trust account. Without the consent of Mr. Valenta, the limited recourse line of credit may only be used for ordinary and reasonable operating costs and expenses, including our SEC reporting obligations, the audit and review of our financial statements, identifying and investigating potential targets for a business combination, negotiating and closing the business combination, legal and other professional fees and expenses, fees, salaries and compensation for directors, officers, employees, consultants and advisors, and insurance premiums, and the reasonable cost and expenses in connection with the liquidation of the company if a business combination is not consummated.
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At February 28, 2007, the outstanding amountamounts of principal and accrued interest under the line of credit were $1,280,000 and $37,050 respectively, leaving additionaland we have available credit of $720,000.$1,720,000. Borrowings under the line of credit will become due and payable upon the first to occur of our initial business combination, an “event of default” (as defined), our liquidation or dissolution, and April 5, 2008, provided, however, that Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amounts outstanding under the line of credit. Subject to this limitation on recourse to the funds in the trust account, amounts outstanding under the line of credit may be repaid in whole or in pat at any time without penalty or premium. Neither Mr. Valenta nor our other officers or directors has any obligation to provide us any additional financing.
Liquidation If No Business Combination
Our certificate of incorporation provides that we must liquidate as soon as practicable if we do not complete a business combination by October 5, 2007, or by April 5, 2008 if certain extension criteria have been satisfied.
In connection with such liquidation, we will distribute pro rata to the holders of our IPO shares the amount in the trust account, including any earned interest (net of taxes on such interest). Our directors and officers who acquired their shares of our common stock prior to our IPO have waived their rights to participate in any liquidation distribution with respect to these shares of common stock. There also will be no distribution from the trust account with respect to our warrants.
If we fail to complete the acquisition of Royal Wolf and if we also fail by October 5, 2007 to enter into an agreement in principle or a definitive agreement with respect to another business combination, or having done so we fail to complete the business combination by April 5, 2008, we will dissolve and liquidate as soon as practicable pursuant to Section 275 of the Delaware General Corporation Law.
We currently anticipate that our dissolution and liquidation would proceed in approximately the following manner:
| | |
| • | Our board of directors will convene and adopt a specific plan of dissolution and liquidation, which it will then vote to recommend to our stockholders; at such time it will also cause to be prepared a preliminary proxy statement setting out our plan of dissolution and liquidation as well as the board’s recommendation of the plan; |
|
| • | We will then promptly file our preliminary proxy statement with the Securities and Exchange Commission; |
|
| • | If the Securities and Exchange Commission does not review the preliminary proxy statement, then, approximately ten days following the filing of the preliminary proxy statement, we will mail the definitive proxy statement to our stockholders, and approximately thirty days following the mailing of such definitive proxy statement, we will convene a meeting of our stockholders, at which they will vote on our plan of dissolution and liquidation; and |
|
| • | If the Securities and Exchange Commission does review the preliminary proxy statement, we currently estimate that we will receive their comments approximately thirty days after the filing of the proxy statement; we will then mail the definitive proxy statement to our stockholders following the conclusion of the comment and review process (the length of which we cannot predict with any certainty and which may be substantial) and we will convene a meeting of our stockholders at which they will vote on our plan of dissolution and liquidation. |
We cannot liquidate the trust account unless and until our stockholders approve our plan of dissolution and liquidation in accordance with the procedures described above. Accordingly, there will be a delay (which may be substantial) beyond October 5, 2007 or April 5, 2008, as the case may be, in our liquidation and the distribution to our public stockholders of the funds in our trust account as part of any plan of dissolution and liquidation.
Our stockholders holding IPO shares will be entitled to receive funds from the trust account only in the event of our liquidation or if they exercise their conversion rights in connection with the acquisition of Royal Wolf or other business combination completed by us. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account.
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We expect that all costs associated with implementing our dissolution and liquidation of our assets held in our trust account will be funded by borrowings under our $2,000,000$3,000,000 limited recourse line of credit provided by our Chief Executive Officer, Ronald F. Valenta, which permits borrowings for this purpose. We currently anticipate that the costs of our dissolution and liquidation will not exceed $50,000. The line of credit bears interest at 8% and, as of February 28, 2007, we have borrowed $1,280,000, leaving us the capacity to borrow an additional $720,000.$1,720,000. Also at February 28, 2007, we had current accounts payable and accrued expenses of approximately $337,500.$351,400. We cannot assure you that we will have sufficient funds to cover the costs of our dissolution and liquidation and, if funds available to us outside the trust account are insufficient to pay the costs of our dissolution and liquidation, we will be required to use funds held in the trust account to pay such costs.
Based upon the funds held in the trust account as of December 31, 2006,February 28, 2007, the per-share liquidation price as of that date would have been approximately $7.80,$7.82, or $0.20$0.18 less than theper-unit offering price of $8.00 in our IPO. This compares to the closing sale prices of our common stock of $7.90$7.63 as reported on the American Stock Exchange on February 22,March 23, 2007. Our stockholders should verify the market price of our common stock prior to selling any common stock in the public market, since they may be able to receive greater proceeds from exercising their conversion rights than from selling their shares assuming that the acquisition is completed. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors, and there is no assurance that the actual per-share liquidation price will not be less than $7.80$7.82 due to such claims.
We cannot assure you that third parties will not seek to recover from the assets distributed to our public stockholders any amounts owed to them by us. Creditors may seek to interfere with the distribution of the trust account pursuant to federal or state creditor and bankruptcy laws, which could delay the actual distribution of such funds or reduce the amount ultimately available for distribution to our public stockholders. If we are forced to file a bankruptcy case or an involuntary bankruptcy case is filed against us which is not dismissed, the funds held in our trust account will be subject to applicable bankruptcy law and may be included in our bankruptcy estate and senior to claims of our public stockholders. Any distributions received by stockholders in our dissolution could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders in our dissolution. To the extent bankruptcy claims deplete the trust account, we cannot assure you we will be able to return to our public stockholders the liquidation amounts due to them. Any claims by creditors could cause additional delays in the distribution of trust funds to the public stockholders beyond the time periods required to comply with the Delaware General Corporation Law’s procedures and federal securities laws and regulations.
All claim by creditors and other third parties must be paid or provided for prior to any distributions to any stockholders upon dissolution and acquisition, and under the Delaware General Corporation Law, our stockholders could be liable for any claims against the corporation to the extent of the distribution received by them after dissolution. We anticipate that all payments to any creditors will be funded from the limited recourse line of credit provided by Mr. Valenta, which provides for such payments. However, if we do not have sufficient funds for those purposes, the amounts distributed to our public stockholders may be less than the estimate of $7.80 per share described above. If we dissolve and liquidate prior to the consummation of a business combination, Mr. Valenta has agreed, pursuant to a written agreement executed in connection with the IPO, that he will be personally liable to ensure that the proceeds in the trust account are not reduced by the claims of various vendors that are owed money by us for services rendered or products sold to us and target businesses who have entered into written agreements with us and who have not waived all of their rights to make claims against the proceeds in the trust account. Some of our creditors, including our legal counsel and our independent public accounting firm (for certain non-attest services rendered and subsequently paid) have waived in writing their rights to make claims against the proceeds in the trust account. Amounts owing to these creditors totaled $113,300$134,300 at February 28, 2007. Other creditors have not been willing to waive such rights, and we cannot assure you that there will be no claims of creditors against the
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proceeds in the trust account at the time of any dissolution and liquidation. Amounts owing to these creditors totaled $224,200$217,100 at February 28, 2007. 2007 as set forth in the following table:
| | | | |
Creditor | | Amount Owed | |
|
Ernst & Young LLP | | $ | 62,800 | |
Bowne & Co. | | | 56,400 | |
Royal Wolf (reimbursable fees and expenses) | | | 42,600 | |
Barnes & Wenden | | | 28,900 | |
American Stock Exchange | | | 21,500 | |
Continental Stock Transfer & Trust Company | | | 2,100 | |
Vintage Filings, Inc. | | | 1,300 | |
AT&T | | | 1,000 | |
LaRue, Corrigan & McCormick LLP | | | 400 | |
Intercall | | | 100 | |
| | | | |
| | $ | 217,100 | |
| | | | |
At February 28, 2007, we had borrowed $1,280,000 under our $2,000,000$3,000,000 line of credit provided by Mr. Valenta, leaving additionaland we have available credit of $720,000.$1,720,000. Mr. Valenta also has agreed under his indemnification agreement to satisfy all such claims by our creditors, and our board of directors would have a fiduciary obligation to seek indemnification from Mr. Valenta. As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the acquisition agreement is terminated for any reason, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. If the Royal Wolf acquisition is not completed and we dissolve and liquidate, the satisfaction of Mr. Valenta’s obligations under the backup purchase agreement could make it difficult, or impossible, for Mr. Valenta to satisfy his indemnity obligations to us. If Mr. Valenta were not to have the financial abilityable financially to indemnify us, and if pursuing indemnification therefore would be futile and costly, our board of directors might
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determine not to seek to enforce our rights to indemnification. If Mr. Valenta were unable financially to satisfy all claims of our creditors, his indemnification agreement may not effectively mitigate the risk of creditors’ claims reducing the amounts in the trust account.
Under Sections 280 through 282 of the Delaware General Corporation Law, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. Pursuant to Section 280, if the corporation complies with certain procedures intended to ensure that it makes reasonable provision for all claims against it, including a60-day notice period during which any third-party claims can be brought against the corporation, a90-day period during which the corporation may reject any claims brought, and an additional150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of each such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. Although we will seek stockholder approval to liquidate the trust account to our public stockholders as part of our plan of dissolution and liquidation, we will seek to conclude this process as soon as possible and as a result do not intend to comply with those procedures. As a result, our stockholders would potentially be liable for any claims to the extent of distributions received by them in connection with our dissolution and any liability of our stockholders may extend beyond the third anniversary of the dissolution.
Our stockholders holding IPO shares will be entitled to receive funds from the trust account only in the event of our liquidation or if they exercise their conversion rights in connection with the acquisition or other business combination completed by us. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account.
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INFORMATION ABOUT ROYAL WOLF
Business Overview
RWA Holdings Pty Limited, or RWA, is a company organized under the laws of Australia and a holding company for Royal Wolf Trading Australia Pty Limited, its principal operating subsidiary acquired in December 2003 and its only other subsidiary, Hi-Tech Pty Limited, which is engaged in the same business and activities as Royal Wolf Trading Australia Pty Limited. RWA engages in no significant business activities apart from its ownership of Royal Wolf Trading Australia Pty Limited and Hi-Tech Pty Limited. RWA and its subsidiaries are collectively referred to in this proxy statement as “Royal Wolf.”
The mailing address of RWA is Suite 201, Level 2, 22-28 Edgeworth David Avenue, Hornsby, Hi-Tech, New South Wales, Australia 2077, and its telephone number is 011-612-9482-3466. Royal Wolf maintains a website at www.royalwolf.com.au. The information maintained or made available by Royal Wolf on its website is not part of this proxy statement.
The shareholders from whom GFN Australasia will acquire the shares of RWA are
Bison-GE, Equity Partners Two Pty Limited, Cetro Pty Limited, FOMJ Pty Limited, FOMM Pty Limited, TCWE Pty Limited. They, along with Paul Jeffery, James Warren, Michael Baxter and Peter McCann, who constitute the majority of the directors and executive officers of RWA, are the sellers referred to in this proxy statement. The sellersmanagement shareholders approved the acquisition by virtue of their execution of the acquisition agreement, and no further action by the RWA shareholders is needed for approval of the acquisition.
Business Overview
Royal Wolf leases and sells portable storage containers, portable container buildings and freight containers in Australia. We are not aware of any published third-party analysis of the Australian portable container market. Based, however, upon its own internal analysis, including discussions with its customers and competitors and informal observations about the size of container fleets on site at competitors’ locations and in container depots and listed in telephone directories in each major metropolitan area, Royal Wolf’s management believes that Royal Wolf is the market leader in Australia for container-based storage and accommodation products. Royal Wolf currently has more than 150 employees and operates 15 customer service centers located in every state in Australia. It is the only portable container lease and sales company represented in all major business centers in Australia and, as such, is the only company with a nationally integrated infrastructure and work force.
Royal Wolf serves both small to mid-size retail customers and large corporate customers in the following sectors: road and rail; moving and storage; mining and defense; and portable buildings. Royal Wolf’s present revenue mix is approximately 69% sales and 31% leasing.
Royal Wolf’s products include the following.
Portable Storage Containers: Royal Wolf leases and sells portable containers foron-site storage by retail outlets and manufacturers, local councils and government departments, farming and agricultural concerns, building and construction companies, clubs and sporting associations, mine operators and individual customers. Royal Wolf’s portable storage products include general purpose-dry storage containers, refrigerated containers and hazardous goods containers in a range of standard and modified sizes, designs and storage capacities.
The amount and percent of Royal Wolf’s total sales and leasing revenues attributable to the market for the fiscal year ended June 30, 2006 were as follows:
| | | | | | | | |
| | U.S.$ | | | Percent | |
| | (In millions) | | | | |
|
Sales revenues | | $ | 21.4 | | | | 42 | % |
Leasing revenues | | $ | 7.5 | | | | 15 | % |
Containers in lease fleet | | | 8,988 | | | | 66 | % |
| | | | | | | | |
| | U.S.$ | | | Percent | |
| | (In millions) | | | | |
|
Sales revenues | | $ | 21.6 | | | | 42 | % |
Leasing revenues | | $ | 7.6 | | | | 15 | % |
Containers in lease fleet | | | 8,988 | | | | 66 | % |
Portable Container Buildings: Royal Wolf leases and sells portable container buildings for use as site offices, housing accommodations and for other purposes. Royal Wolf entered the portable building market in August 2005 with 20’and20’ and 40’ portable buildings manufactured from steel container platforms, which it markets primarily to mine operators, construction companies and the general public.
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The amount and percent of Royal Wolf’s total sales and leasing revenues attributable to the market for the fiscal year ended June 30, 2006 were as follows:
| | | | | | | | |
| | U.S.$ | | | Percent | |
| | (In millions) | | | | |
|
Sales revenues | | $ | 3.7 | | | | 7 | % |
Leasing revenues | | $ | 5.5 | | | | 11 | % |
Containers in lease fleet | | | 4,205 | | | | 31 | % |
Freight Containers: Royal Wolf also 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, domestic 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.
The amount and percent of Royal Wolf’s total sales and leasing revenues attributable to the market for the fiscal year ended June 30, 2006 were as follows:
| | | | | | | | |
| | U.S.$ | | | Percent | |
| | (In millions) | | | | |
|
Sales revenues | | $ | 3.9 | | | | 8 | % |
Leasing revenues | | $ | 0.3 | | | | 1 | % |
Containers in lease fleet | | | 400 | | | | 3 | % |
History
Royal Wolf Trading Australia Pty Ltd, RWA’s principal operating subsidiary, was founded in mid-1995 as an Australian subsidiary of Triton Holdings Limited. Triton is headquartered in the U.S. with business activities that include Triton Container International, the world’s largest lessor of marine cargo containers to the international shipping industry.
Royal Wolf Trading Australia Pty Ltd’s business initially consisted of selling used shipping containers from third party container depots. With internal Triton financing, it entered the retail container leasing and sales market in 1997 through its acquisition of AA Shipping, a Melbourne-based container leasing and sales business. The acquisition more than doubled the company’s fleet of containers for lease and provided the company with its first retail facility in Australia and a platform from which to grow nationally.
In late 2003, the senior management team completed a management buyout of the company with backing from Equity Partners Two Pty Limited, an Australian private equity firm, and local banks.
During 2004 and 2005, Royal Wolf made significant investments in its customer service center infrastructure and its personnel in preparation for new product introductions that were made in August 2005, possible subsequent acquisitions of competing businesses, and in the organic growth of its existing programs.
Since December 2005, Royal Wolf has completed four acquisitions as follows:
| | |
| • | In December 2005, Royal Wolf acquired the assets of Cairns-based Cape Containers for a purchase price of $641,000.$647,000. This purchase resulted in the acquisition of 173 portable storage units and the related customer base; |
| | |
| • | In March 2006, Royal Wolf purchased the remaining shares of Royal Wolf-Hi Tech, a Newcastle-based joint venture, for $655,000,$660,000, which added a further 676 portable storage units to the Royal Wolf lease fleet; |
| | |
| • | In April 2006, Royal Wolf acquired the assets of Melbourne-based Australian Container Network, or ACN, for $4.3 million. This acquisition added a further 891 units to Royal Wolf’s lease fleet and eliminated the second-largest portable storage supplier in Melbourne (next to Royal Wolf) from the market; and |
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| | |
| • | In August 2006, Royal Wolf purchased container units from Townsville-based Bohle Containers for $155,000.$156,000. This was a small but strategically important transaction that added a further 57 units to Royal Wolf’s lease fleet. |
These acquisitions contributed to the 17,473 total units in Royal Wolf’s lease fleet as of September 30, 2006.
Portable Storage Container Market
The use of shipping containers, known as “containerization,” is an important element of the logistics revolution that changed cargo handling in the last half of the 20th century. The trailer transport of shipping containers began in North America during the mid-1950s and spread internationally during the late 1960s and early 1970s. The world’s fleet of ocean-borne and domestic/overland freight containers recently surpassed the 15 million TEU mark, having grown by almost 1 million TEU in the preceding year, according to figures in the latest annual World Container Census (2002), produced by Containerisation International (part of the Informa Publishing Group) per theWorld Container News April 2002edition. The census survey presents a detailed snapshot of world container inventories as of the middle of 2001, together with a comparison with earlier years and some forecasting. Figures show that the maritime component of the fleet number 14.5 million TEU at mid-2001, and the domestic or regional fleet at 750,000 units. It is the majority of which are standard 20’ and 40’ steel general purpose containers. Container ownership is predominantly divided between shipping lines and international and domestic container leasing companies. Other container information and references, are contained or referenced to in the following sources:
http://en.wikipedia.org/wiki/Containerization
http://www.reference.com/browse/wiki/Containerization
http://www.spiegel.de/international/spiegel/0,1518,386799,00.html
Although the foregoing industry information is several years old, we are not aware of any changes in the portable storage container market that would be adverse to this information.
The domestic portable storage, freight and accommodation container market slowly emerged with the maturing of the international cargo container business during the mid-1980s. As containers were removed from international service due to retirement or surplus inventory, alternate uses were developed.
The retired cargo containers initially were utilized primarily for packaging of one-way shipments, for project work, or for use as cheap storage on farms or construction sites. By the late 1980s, retired containers that were previously sold in an “as-is” condition were being refurbished into secure portable storage containers that were leased or sold to customers.
Through the 1990s, new uses for containers were developed that involved converting or customizing a refurbished cargo container for a particular application, such as a workshop or site office. Containers offer a relatively inexpensive and plentiful building template that is durable, cuttable, movable and long lasting. During this period, containerization was also gaining market acceptance in Australia as a means of more securely transporting freight by road and rail, gradually replacing older and less efficient forms of freight transportation such as trucks and rail wagons.
Since the mid-1990s, the domestic container industry in Australia has developed into a stable market structure with set competitive models analogous to the marine container business 20 or 25 years ago. Marine containerization displaced less efficient and more expensive specialized equipment. In the same way, portable storage, freight and accommodation containers are increasingly being substituted for more expensive, less flexible, purpose-built space. We believe that there are many more uses for portable storage, freight and accommodation containers still to be developed. Containers provide a simple solution that displace more expensive, less flexible, purpose-built space. Containers also provide a relatively cheap and plentiful building template that is strong, cuttable, movable andlong-lasting. As containers continue to gain market acceptance, new use for Royal Wolf’s products are being developed. Some examples being:
| | |
| • | As rapid deployment storage for the military, emergency services, and disaster relief; |
|
| • | As portable work camps for the mining and resources industry, including accommodations, ablution and kitchen containers; |
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| | |
| • | As low-cost accommodations for remote communities and caravan parks; |
|
| • | As offices, workshops or storerooms in a growing range of sizes and configurations; |
|
| • | As an economical alternative to fixed-site mini storage; and |
|
| • | As cost-effective farm storage for cattle feed, farm equipment, fertilizers, and other items. |
Part of Royal Wolf’s market opportunity is to develop and service these new applications. During the fiscal year ended June 30, 2006 and the six months ended June 30, 2005, Royal Wolf expended approximately $305,000$308,000 and $49,000, respectively, on product development relating to new container applications. Such expenditures were negligible in the fiscal year ended December 31, 2004.
We are not aware of any published third-party analysis of the Australian portable container market. Based, however, upon its own internal analysis, Royal Wolf’s management estimates that the portable storage market in Australia currently generates annual revenues of approximately U.S. $150 million, with an estimated 60% derived from sales of portable storage containers. Royal Wolf’s management anticipates that, as the market matures, rental revenue will account for an increasing proportion of the total revenue. This analysis was based upon management’s observations of the following:
| | |
| • | Senior management informal estimates and internal surveys (see tables below) of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf General Managers, senior marketing management, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 regional yellow pages, and discussions with corporate customers and suppliers of used boxes such as wholesalers, shipping lines, and container fleet lessors; and |
| | |
| • | Informal estimates of competitor rental fleet and sale volumes were converted into annual revenue numbers using the following formula: |
| | |
| • | Rental revenues: number of containers in rental fleet at an assumed industry-wide utilization rate of 75% times the average standard 20’ container rental rate for the region times 365 days. Management’s estimate of the 75% industry-wide container utilization rate was determined by discounting Royal Wolf’s actual historical utilization rate, which management believes is higher than the average utilization rate in the industry based upon its informal observations and its own ability to efficiently distribute and rehire fleet due to its national branch infrastructure. The competitor utilization rate was internally generated by conversations with corporate customers and larger users, as well as suppliers of used boxes and conversations with competitors. The 20’ foot sales rate was determined by Royal Wolf management after discussions with wholesalers, shipping lines, and container leasing companies, as well as its own experience in selling boxes year to date. We have no independent corroboration of this information, and there is no assurance that this internally-generated information is accurate or complete; and |
| | |
| • | Sales revenues: number of containers sold annually times average standard 20’ Container retail sale price for the region. |
The portable 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 portable storage in Australia, we believe that a number of factors suggest that the market will continue to grow:
| | |
| • | The level of knowledge among potential customers regarding the availability and benefits of containerized storage in key Australian markets, such as the construction and mining industries, is still low; |
|
| • | Suppliers and customers continue to develop further uses for portable containers, thereby broadening the market for portable containers; and |
|
| • | As the market leader in Australia, Royal Wolf has consistently achieved organic growth and based, in part, on growth in the market as a whole. |
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Royal Wolf’s competition in this market is regionalized and highly fragmented. In most locations, Royal Wolf competes with several mid-sized to large-sized regional competitors, including SimplyContainers, Macfield, GE Seaco and ANL CGM, as well as smaller, full and part-time operators. Local competitors are regionally focused, and are usually more capital-constrained. In general, most are therefore heavily reliant on monthly sales performance, have slowly growing rental fleets and limited ability to transact larger deals.
The following table summarizes information about Royal Wolf and its principal competitors in the portable storage container market:
| | | | | | | | |
| | | | | Estimated
| |
| | Scope of
| | | Lease
| |
Competitor | | Operations | | | Containers | |
|
Royal Wolf | | | National | | | | 17000 | |
GE Seaco | | | National | | | | 7000 | |
Simply Containers | | | Regional | | | | 7000 | |
Macfield | | | Regional | | | | 7000 | |
ANL CGM | | | Regional | | | | 2000 | |
The foregoing table summarizes information regarding Royal Wolf and its principal competitors in the portable buildings market. This information was compiled by management based upon senior management informal estimates and internal surveys of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf general managers and senior marketing personnel, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 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.
Portable Buildings Market
The portable buildings market in Australia is estimated to have generated revenue totalling $760 million in the year ending June 2006, of which approximately $450 million(1) relates to the markets in which Royal Wolf offers a competing product. 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%. |
Within the engineering, construction and resources market, portable buildings are used for site offices, toilet and shower facilities, and worker housing and temporary accommodation blocks. This market is influenced by trends in public and private sector spending on infrastructure, generally, and, particularly, mine development and road and pipeline construction.
Demand from the non-residential buildings market principally stems from the demand for work sheds, site offices, industrial garages and temporary warehousing. Demand can be significantly affected by special projects such as the 2000 Olympic Games and 2006 Commonwealth Games hosted in Australia.
The recreation and holiday market is increasingly becoming an important source of demand, particularly for the supply of fitted out cabins to be used as rental accommodations and second homes on purchased blocks of land. Growth in demand has been driven by growth in disposable income and increased leisure time associated with an aging population.
We believe that the portable buildings market will grow over the medium term, driven in part by a cyclical expansion in the mining and construction markets. We also believe that differentiation and new portable building
(1) Source — IBISWorld Industry Report — Prefabricated Metal Building Manufacturing in Australia — C2911 30th March 2006. This Report may be obtained for a fee by contacting IBIS World Pty. Ltd.
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products such as the hazardous materials unit and containerized portable office and portable housing units introduced by Royal Wolf in 2005 will act as a stimulus for longer-term growth in the market as older style products are replaced.
The lease and sale of containerized portable buildings have major advantages over traditional portable buildings in terms of transportability, security and flexibility. We believe that Royal Wolf’s launch of its portable buildings line of products in late 2005 represents a significant new market and growth opportunity for Royal Wolf.
In the portable buildings markets, Royal Wolf competes with three or four other large participants who manufacture their own units and most of whom offer units for both lease and sale to customers. These competitors include Coats, ATCO, Ausco, Nomad and Fleetwood. At present, Royal Wolf has a negligible 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 summarizes information regarding Royal Wolf and its principal competitors in the portable buildings market. This information was compiled by management using the IBIS Report previously referenced, as well as and senior management informal estimates and internal surveys of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf general managers and senior marketing personnel, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 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.
| | | | | | | | |
| | | | | Estimated
| |
| | Scope of
| | | Lease
| |
Competitor | | Operations | | | Buildings | |
|
Coates | | | National | | | | 22000 | |
Ausco | | | National | | | | 15000 | |
Nomad | | | National | | | | 10000 | |
Atco | | | National | | | | 8500 | |
Royal Wolf | | | National | | | | 500 | |
Freight Container Market
Based upon its own internal analysis, RWA’s management estimates that the freight container market in Australia generates approximately $29 million in aggregate annual lease and sales revenues. The rate of growth in this industry has been slow compared with the portable container storage and portable buildings market, which reflects the relative maturity of this industry.
Although there is potential for growth in the freight container market as more road and rail carriers recognize the efficiencies of containerization, Royal Wolf’s present strategy is to maintain rather than grow its container fleet investment and dependence upon this sector of its business activities. Competitors include MacField, GESeaco, Cronos, and Simply Containers.
The following table summarizes information regarding Royal Wolf and its principal competitors in the freight container market. The information in the table below was derived from Royal Wolf senior management informal estimates and internal surveys of competitor rental fleet size and annual sales volumes involving the regional Royal Wolf general managers and senior marketing personnel, and, where possible, external information such as competitor newsletters, information memoranda on buy-side opportunities, placement of advertising in the approximately 40 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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| | | | | | | | |
| | | | | Estimated
| |
| | Scope of
| | | Lease
| |
Competitor | | Operations | | | Containers | |
|
Macfield | | | National | | | | 3500 | |
Royal Wolf | | | National | | | | 2400 | |
Cronos | | | National | | | | 1250 | |
Simply Containers | | | National | | | | 1250 | |
Leasing versus Sale
Royal Wolf’s business model is focused on both the leasing and sale of its products.
Monthly lease rates typically range from approximately $64 to $110 (higher for portable buildings and more specialized containers). Average monthly lease fleet utilization has historically ranged from 81% to 91%. Lease contracts range from30-day short-term leases to long-term leases with a minimum commitment ranging fromtwo-to-five years and average more than twelve months.
Royal Wolf has a strong and scaleable lease platform with significant geographical reach and a recognizable brand identity. Royal Wolf’s lease fleet has grown from 8,171 units in June 2003 to approximately 16,000 units in June 2006.
Economics of container rental model
Royal Wolf estimates that its container lease fleet products have economic lives of up to 30 years. Customers typically request the products by size or intended application, not by age or condition. As a result, standardized products historically have generated comparable lease rates throughout their useful lives.
Sales activity
Historically, capital constraints have limited the extent to which Royal Wolf has been able to grow its lease fleet, so Royal Wolf has pursued a hybrid model — funding growth in the lease fleet through container sales. Sales not only help fund Royal Wolf’s lease fleet growth, but also provide a vehicle for profitably disposing of surplus or aging lease fleet equipment. Royal Wolf has enjoyed a consistent sale market for its products, with sales averaging 12,000 or more units each year since 2003.
Branch network
Royal Wolf leases and sells its products from an Australia-wide network of 15 Customer Service Centers, or CSCs, the largest branch network in Australia of any company in the business of selling and leasing portable storage containers. Royal Wolf is represented in all major locations, and 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 approximatelytwo-to-five acres with a sales office, forklifts and all-weather container repair workshop. CSC office staffing ranges from two to 15 people and consists of a Branch Manager supported by the appropriate level of sales, operations and administrative personnel. Yard and workshop staffing usually ranges between one and 12 people and can consist of welders, spray painters, boilermakers, forklift drivers and production supervisors. CSC inventory holding ranges between 100 and 500 containers at any one time, depending on market size and throughput demand.
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The following illustrates Royal Wolf’S existing CSC locations:
Products
Royal Wolf is the only container company in Australia with both the national presence and product range capable of servicing all sectors of the domestic rental & sales market. The Company’s key products include:
| | |
Portable storage containers: | | 10’, 20’ & 40’ general purpose units |
| | Mini Cube units |
| | Dangerous Goods containers |
| | Refrigerated containers |
Portable container buildings: | | Site offices & Cabins |
| | Workforce accommodation unit |
| | Luxury accommodation unit |
| | Ablutions block |
Freight Containers: | | Curtain-side containers |
| | 20’ & 40’ Hi-cube containers |
| | 20’ & 40’ two pallet-wide containers |
| | Side-opening door containers |
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Customers
Royal Wolf has a broad base of over 12,000 active customers, with no single customer constituting more than 3% of the Company’s annual revenue for the fiscal year ended June 30, 2006. 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. In order to minimize the effect from a financial downturn in any particular industry sector, the Company spreads its business activities across the largest number of customers and widest number of industry sectors possible.
Royal Wolf provides its customers a solutions-orientated 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, control and engineering expertise, plus nationally linked fleet management and accounting systems. Royal Wolf is the largest and only truly national supplier of container products in Australia, and the only container company with the scale, capacity and geographical spread to service a full range of customers; from small local accounts right through to the largest national corporations.
Employees
As of June 30, 2006, Royal Wolf employed approximately 167 persons on a full-time basis, including employees of its CSC locations, as follows:
| | |
| • | Operations — 49; |
|
| • | Sales — 36; |
|
| • | Production — 35; |
|
| • | Management — 20; |
|
| • | Finance — 19; and |
|
| • | Support — 8. |
None of Royal Wolf’s employees are covered by a collective bargaining agreement. Royal Wolf’s management believes its relationship with its employees is good. Royal Wolf has never experienced any material labor disruption, and its management is not aware of any efforts or plans to organize its employees.
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 and print media advertising, phone sales and cold calling, web-site, word of mouth, walk-ins and direct mail.
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The customer hiring or buying process is being driven by customer awareness of the products combined with moderate price shopping. Typical customers may shop two, perhaps three suppliers, but they do not spend much time doing it — the value of the transaction being relatively low to the value of their time. The key is for Royal Wolf to be one of the suppliers that a potential customer calls.
Product Procurement
Royal Wolf purchasesout-of-service marine cargo containers from a wide variety of international shipping lines and container leasing companies, plus new container products directly from container manufacturers in China. Royal Wolf is the largest buyer of both new and used container products for the Australian market.
The majority of used containers purchased are standard 20’ and 40’ units which Royal Wolf converts, refurbishes and customizes. Royal Wolf also purchases new containers directly from container manufacturers.
Each of the following material suppliers was the source of 5% or more of Royal Wolf’s container purchases during the fiscal year ended June 30, 2006:
| | | | |
Nanton CIMC | | | 22 | % |
Triton Container | | | 18 | % |
Shanghai Baoshan | | | 12 | % |
GlobeStar Shipping | | | 6 | % |
TAL International Container | | | 6 | % |
Florens Container | | | 5 | % |
Royal Wolf purchases new container products under purchase orders issued to container manufacturers, which the manufacturers may or may not accept or be able to fill. Royal Wolf has no contracts with any supplier. There are several alternative sources of supply of containers, and Royal Wolf is not dependant upon 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 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.
Fleet Management
Royal Wolf regularly needs to re-locate containers between its CSCs to meet peaks in regional demand and optimize individual CSC inventory levels. Royal Wolf has close relationships with the national road and rail haulage companies that enable it to transport the majority of containers interstate at attractive rates.
Royal Wolf’s management information systems are instrumental to our fleet management and targeted marketing efforts. Fleet information is updated daily at branch level which provides management with on-line access to utilization, leasing and sale fleet unit levels and revenues by branch or geographic region.
Growth Strategy and Opportunities
Royal Wolf’s experienced senior management team has demonstrated consistent execution of its growth strategy and has successfully positioned Royal Wolf to capitalize on further growth opportunities. With average monthly lease fleet utilization exceeding 80%, reliable sales revenues, expanding market opportunity for its growing product range, acquisition and new site development strategies, we believe Royal Wolf is well-positioned to continue its growth while leveraging its existing infrastructure to enhance margins.
The principal components of Royal Wolf’s growth strategy include:
| | |
| • | Lease fleet growth through rate increases, utilization and volume growth; |
|
| • | Potential to implement transport services to improve service and access pick up/ drop off benefits; |
|
| • | In-market acquisitions; |
|
| • | Geographic expansion — Regional and Asia/Pacific; |
|
| • | Complementary products; |
|
| • | Further penetration of mining industry; and |
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| | |
| • | Further penetration of defence industries |
The container storage and portable building industry is a relative young industry in Australia, the youth of the market presenting significant growth opportunities for Royal Wolf. Although container use for portable storage, domestic freight movement and portable building applications is increasing, there are still considerably more uses for containers still to be developed. Royal Wolf’s market opportunity is to fully develop and service these applications, part of the attraction being that public awareness of these products is still relatively low.
Regulatory Matters
Royal Wolf must comply with various federal, state and local environmental, transportation, health and safety laws and regulations in connection with its operations. Royal Wolf believes that it is in substantial compliance with these laws and regulations. In addition to compliance costs, Royal Wolf may incur costs related to alleged environmental damage associated with past or current properties owned or leased by it. Royal Wolf believes that its liability, if any, for any environmental remediation will not have a material adverse effect on its 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 Royal Wolf’s business or operations in the future.
Trademarks
Royal Wolf is a party to a licensing agreement with Triton CSA International B.V. 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 surrounding islands in the Pacific Islands region. The license was entered into in December 2003 in connection with RWA’s purchase of Royal Wolf from Triton in consideration of a nominal $1.00 payment by Royal Wolf. The license is royalty-free to Royal Wolf and exclusive within this territory. The license will continue in perpetuity as long as Royal Wolf continues to use the “Royal Wolf” name and trademark as the exclusive name for its business and mark for its products, subject to the termination provisions of the license. The license may be terminated by the licensor upon 30 days notice in the event Royal Wolf breaches its obligations under the license. The license 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 the consent of the licensor, and obtainingwe have obtained the licensor’s consent is a condition to our obligations to complete the acquisition of Royal Wolf. Royal Wolf has represented to us that it believes that it is in compliance with the agreement and 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.
Legal Proceedings
Currently, Royal Wolf is not involved in any material lawsuits or claims arising out of the normal course of our business. The nature of the Royal Wolf’s business is such that disputes can occasionally arise with vendors including suppliers and subcontractors, and customers over warranties, contract specifications and contract interpretations among other things. Royal Wolf assesses these matters on acase-by-case basis as they arise. Reserves are established, as required, based on its assessment of its exposure. Royal Wolf has insurance policies to cover general liability and workers compensation related claims. In the opinion of Royal Wolf’s management, the ultimate amount of liability not covered by insurance, if any, under pending litigation and claims will not have a material adverse effect on Royal Wolf’s financial position or operating results.
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INFORMATION ABOUT THE SELLERS
Equity Partners and the Management Shareholders
Prior to March 29, 2007, the shareholders of RWA consisted of the management shareholders and one other shareholder, Equity Partners Two Pty Limited, an Australian private equity firm, or Equity Partners. Pursuant to the acquisition agreement, Bison-GE acquired all of the RWA shares owned by Equity Partners and approximately 50% of the RWA shares owned by the management shareholders for purchase consideration equivalent to the consideration that was originally negotiated by us with Equity Partners and the management shareholders. The terms of our original acquisition agreement to purchase all of the RWA shares were determined by arm’s-length negotiations between us and Equity Partners and the management shareholders. We had no affiliation or relationship with Royal Wolf or any of its affiliates prior the signing of the original acquisition agreement.
The address of Equity Partners and the management shareholders is c/o RWA, Suite 201, Level 2,22-28 Edgeworth David Avenue, Hornsby, Hi-Tech, New South Wales, Australia 2077, and their telephone number there is011-612-9482-3466.
Bison-GE
Bison Capital Australia LP, or Bison-GE, is a Delaware limited partnership. Bison-GE is affiliated with Bison Capital Management, LLC, or Bison Capital, a private equity firm, and GE Asset Management Incorporated on behalf of the General Electric Pension Trust, which are affiliates of General Electric Corporation, or GE.
Bison Capital is a Los Angeles-based private equity firm. Ronald F. Valenta has known Douglas B. Trussler, one of the founders of Bison Capital, since 1999, when Mr. Trussler was employed by Windward Capital Management LLC, an affiliate of Windward Capital Partners II, L.P., a private equity fund. In April 2000, Mr. Valenta, the founder, Chief Executive Officer and a shareholder of Mobile Storage Group, Inc., and other Mobile Storage shareholders sold a majority interest in Mobile Storage Group, Inc. to Windward Capital Partners II, L.P. Mr. Trussler subsequently left Windward Capital Partners II, L.P. in December 2000 to found Bison Capital in May 2001. James K. Hunt, the other co-founder of Bison Capital, was appointed by Windward Capital Partners II, L.P. to the board of directors of Mobile Storage Group, Inc. in 2002.
During Mr. Valenta’s tenure as the founder, Chief Executive Officer and a shareholder of Mobile Storage Group, Inc., Mobile Storage Group, Inc. obtained equipment financing from a financing affiliate of GE, acquired lease fleets from GE-affiliated container companies and purchased containers from GE affiliates. All of the dealings between Mobile Storage Group, Inc. and GE affiliates were on an arm’s-length basis in the regular course of business of Mobile Storage Group, Inc. Other than as described above, neither we nor our directors, officers or other affiliates have any relationships with GE, Bison-GE, or GE’s other affiliates.
We arranged for Bison-GE’s purchase of the RWA shares as an accommodation to enable us to avoid the possible termination of the original acquisition agreement and permit us time to complete the proxy review process by the Securities and Exchange Commission and present the proposed Royal Wolf acquisition to a vote of our stockholders. The terms of Bison-GE’s participation and the other terms of the amended acquisition agreement and related agreements were determined by arm’s-length negotiations among the parties. Except as described above, we had no affiliation or relationship with Bison-GE or any of its affiliates prior to the signing of the amended acquisition agreement.
Bison-GE’s address is c/o Bison Capital Asset Management LLC, 10877 Wilshire Boulevard, Suite 1520, Los Angeles, California 90024, and its telephone number is(310) 260-6570.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ROYAL WOLF
You should read the following discussion and analysis of Royal Wolf’s consolidated financial condition and results of operations together with Royal Wolf’s “Selected Historical Consolidated Financial Information” and consolidated financial statements and notes thereto that appear elsewhere in this proxy statement. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements.
The historical consolidated financial results of Royal Wolf described below are presented in Australian dollars.
Royal Wolf
Royal Wolf was formed by a management buyout with Equity Partners in December of 2003. The original and ongoing capital structure reflects the leveraged nature of the balance sheet as a result of the management buyout, and the large debt service payments for interest impaired Royal Wolf’s results of operations, significantly contributing to the net losses experienced during the year ended June 30, 2006 and six months ended June 30, 2005. Operating cash flow was utilized to grow the rental fleet from under 12,000 to 17,000 units currently as well as invested into product development and the addition of CSCs to deliver a full geographic venue for product across all of the states in Australia. However, the capital constraints of the buyout limited Royal Wolf’s opportunity to further grow its rental fleet. During 2004 and 2005, the growth of fleet inventory and working capital requirements were financed with additional indebtedness.
The last half of 2005 and the first six months of 2006 were marked by several product introductions such as a hazardous materials container unit, a containerized portable office unit and a containerized portable housing unit. The sales of these products was initially slow, and has increased during the last nine months leading to record level revenues and gross margin for the fiscal year ended June 30, 2006. The infrastructure requirements having been met, additional sales and leasing revenues were and are the objective of the management team along with acquiring and integrating local acquisitions which should provide additional synergies in future periods.
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In 2005, Royal Wolf changed its financial reporting year-end date from December 31 to June 30. The periods compared in the following tables and in the following description of Royal Wolf’s “Results of Operations” are the twelve months ended June 30, 2006, the six months ended June 30, 2005, and the twelve months ended December 31, 2004. The results of operations for all periods have been derived from Royal Wolf’s audited historical financial statements and accompanying notes contained elsewhere in this proxy statement.
| | | | | | | | | | | | |
| | 12 Months
| | | 6 Months
| | | 12 Months
| |
| | Ended
| | | Ended
| | | Ended
| |
| | June 30, 2006 | | | June 30, 2005 | | | December 31, 2004 | |
| | (In millions of Australian dollars) | |
|
Revenues: | | | | | | | | | | | | |
Leasing | | $ | 17.5 | | | $ | 7.7 | | | $ | 14.2 | |
Sale: | | | | | | | | | | | | |
New units | | | 6.8 | | | | 0.4 | | | | — | |
Rental equipment | | | 30.8 | | | | 13.3 | | | | 29.5 | |
Other | | | 12.3 | | | | 5.5 | | | | 8.5 | |
| | | | | | | | | | | | |
Total revenues | | | 67.4 | | | | 26.9 | | | | 52.2 | |
Cost of Revenues: | | | | | | | | | | | | |
Leasing | | | 4.5 | | | | 2.4 | | | | 4.7 | |
Sale: | | | | | | | | | | | | |
New units | | | 5.0 | | | | 0.3 | | | | — | |
Rental equipment | | | 23.5 | | | | 9.6 | | | | 20.0 | |
Other | | | 11.4 | | | | 4.3 | | | | 8.9 | |
| | | | | | | | | | | | |
Gross profit | | | 23.0 | | | | 10.3 | | | | 18.6 | |
| | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | |
Selling, general and administrative | | | 20.3 | | | | 9.3 | | | | 14.9 | |
Financial expenses (net) | | | 3.5 | | | | 1.0 | | | | 3.1 | |
Other | | | — | | | | 0.2 | | | | 0.1 | |
| | | | | | | | | | | | |
Profit (loss) before income taxes | | | (0.8 | ) | | | (0.2 | ) | | | 0.5 | |
Income tax (benefit) | | | (0.5 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Net profit (loss) | | $ | (0.3 | ) | | $ | (0.2 | ) | | $ | 0.5 | |
| | | | | | | | | | | | |
The following table sets forth certain income and expenditure items as a percentage of total revenues for the periods indicated:
| | | | | | | | | | | | |
| | 12 Months
| | | 6 Months
| | | 12 Months
| |
| | Ended
| | | Ended
| | | Ended
| |
| | June 30, 2006 | | | June 30, 2005 | | | December 31, 2004 | |
|
Revenues: | | | | | | | | | | | | |
Leasing | | | 25.9 | % | | | 28.6 | % | | | 27.2 | % |
Sales: | | | | | | | | | | | | |
New units | | | 10.2 | % | | | 1.5 | % | | | 0.0 | % |
Rental equipment | | | 45.6 | % | | | 49.4 | % | | | 56.5 | % |
Delivery, installation and other | | | 18.3 | % | | | 20.5 | % | | | 16.3 | % |
| | | | | | | | | | | | |
Total revenues | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | 12 Months
| | | 6 Months
| | | 12 Months
| |
| | Ended
| | | Ended
| | | Ended
| |
| | June 30, 2006 | | | June 30, 2005 | | | December 31, 2004 | |
|
Cost of sales and services: | | | | | | | | | | | | |
Leasing | | | 6.5 | % | | | 8.9 | % | | | 9.0 | % |
Sales: | | | | | | | | | | | | |
New units | | | 7.4 | % | | | 1.1 | % | | | 0.0 | % |
Rental equipment | | | 34.8 | % | | | 35.7 | % | | | 38.3 | % |
Other | | | 17.1 | % | | | 16.0 | % | | | 17.1 | % |
| | | | | | | | | | | | |
Gross profit | | | 34.0 | % | | | 38.3 | % | | | 35.6 | % |
Selling, general and administrative expenses | | | 30.1 | % | | | 34.6 | % | | | 28.5 | % |
Financial expenses (net) | | | 5.2 | % | | | 3.8 | % | | | 5.9 | % |
Other operating expenses | | | 0.0 | % | | | 0.6 | % | | | 0.3 | % |
| | | | | | | | | | | | |
Profit (loss) before income taxes | | | (1.3 | )% | | | (0.7 | )% | | | 0.9 | % |
Income tax (benefit) | | | (0.8 | )% | | | (0.0 | )% | | | 0.0 | % |
| | | | | | | | | | | | |
Net profit (loss) | | | (0.5 | )% | | | (0.7 | )% | | | 0.9 | % |
| | | | | | | | | | | | |
Results of Operations
Twelve Months Ended June 30, 2006 Compared with the Six Months Ended June 30, 2005 (Annualized)
Revenues for the twelve months ended June 30, 2006 were $67.4 million, a $13.6 million or 25.3% increase from revenues of $53.8 million in the annualized six-month period ended June 30, 2005. The increase resulted from a $4.2 million or 15.8% increase in sales of rental equipment, a $6.0 million increase in sales of new products, and a $2.1 million or 13.6% increase in leasing revenue. Other revenues, which consist primarily of revenues derived from the delivery and installation of Royal Wolf’s products, increased by $1.3 million or 11.8% from annualized six-month period of 2005. The foregoing increases include approximately $2.2 million of additional revenues generated by the assets that Royal Wolf acquired since December 2005.
The increases in revenues from sales and leasing are largely due to the continued growth in the industries that Royal Wolf serves, Royal Wolf’s penetration of those markets, and the enhanced capability of Royal Wolf to modify its containers, thereby increasing the potential market and uses of its products. The increase in sales of new products is primarily attributable to the launch of new products in late 2005.
The increase in leasing revenues for the year ended June 30, 2006 resulted primarily from an increase in the number of products Royal Wolf had available for lease during the year and, to a lesser extent, to the increased utilization of the available products and increased rental rates. During the year ended June 30, 2006, the number of products available for lease increased by approximately 3,800 units, of which approximately 1,700 units were acquired through the three acquisitions of businesses that Royal Wolf completed during the second half of the year. The increased number of products available during the current year is expected to continue to result in higher leasing revenues. Average core fleet utilization also contributed to increased leasing revenues, as the utilization rate for the year ended June 30, 2006 increased by approximately 3% from the same period of the prior year to approximately 88%. The average monthly rental rate for the year ended June 30, 2006 was up approximately 3% from the same period of the prior year.
Other revenues, including delivery and installation revenues, increased by $1.3 million for the year ended June 30, 2006 from the annualized six-month period ended June 30, 2005. The foregoing increase was primarily the result of significant additional revenues derived from delivery and installation activities, which increases were partially offset by a decrease in revenues from storage, repairs, commission and other miscellaneous items related to the acquisition of the remaining shares in the Royal Wolf Hi-Tech joint venture company in March 2006 and other operational changes.
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Cost of revenues for the twelve months ended June 30, 2006 were $44.4 million, a $11.2 million or 33.7% increase from cost of revenues for the annualized six-month period ended June 30, 2005. The increase resulted from a $4.3 million or 22.4% increase in cost of sales of rental equipment, a $4.4 million increase in cost of sales of new products; offset by a $0.3 million or 6.3% decrease in leasing revenue cost of sales. Other revenue cost of sales, which consist primarily of cost of revenues derived from the delivery and installation of Royal Wolf’s products, increased by $2.8 million or 32.6% from annualized six-month period of 2005.
Gross profit for the year ended June 30, 2006 was $23.0 million, a $2.4 million or 11.7% increase from the annualized six month period ended June 30, 2005 due to the increase in revenues. Gross profit margin as a percentage of sales decreased from 38.3% for the annualized six month period ended June 30, 2005 to 34.0% in 2006 due to overall competitive pricing pressures and lower margins on revenues generated from the sale of the company’s containers. The decrease in gross margins in sales activities was partially offset by in increase in the gross margin percentage in leasing activities. Leasing gross profit for the year increased by $2.4 million while leasing gross profit margin percentage increased by an additional 5.5% on an absolute basis. Of the increased leasing gross profit, $0.7 million related to the impact of the reduction in depreciation charge in 2006 due to revision of asset useful lives and residual values of container assets
Selling, general and administrative expenses for the year ended June 30, 2006 increased approximately $1.7 million, or 9.1%, to $20.3 million from $18.6 million for the annualized six-month period ended June 30, 2005. The following table gives a further breakdown by category:
| | | | | | | | | | | | |
| | 12 Months Ended
| | | 12 Months Ended
| | | | |
| | June 30,
| | | June 30,
| | | Increase
| |
| | 2006 | | | 2005 | | | (Decrease) | |
|
Manpower | | $ | 9.9 | | | $ | 9.6 | | | $ | 0.3 | |
Rent | | | 0.3 | | | | 0.1 | | | | 0.2 | |
CSC operating costs | | | 3.1 | | | | 3.9 | | | | (0.8 | ) |
Business promotion | | | 1.1 | | | | 0.7 | | | | 0.4 | |
Travel and meals | | | 0.9 | | | | 0.8 | | | | 0.1 | |
IT and Telco | | | 0.6 | | | | 0.5 | | | | 0.1 | |
Professional costs | | | 1.0 | | | | 1.0 | | | | 0.0 | |
Other | | | 0.9 | | | | 0.5 | | | | 0.4 | |
Other depreciation and amortization | | | 2.5 | | | | 1.5 | | | | 1.0 | |
| | | �� | | | | | | | | | |
| | $ | 20.3 | | | $ | 18.6 | | | $ | 1.7 | |
| | | | | | | | | | | | |
This increase is primarily due to employee-related costs of $0.3 million from the increased number of employees resulting from both the additional businesses Royal Wolf acquired during 2006 and from additional employees hired by Royal Wolf as it positioned itself for future growth at various of its customer service centers; and increased rent expense of $0.2 million due to the growth as a result of acquiring additional premises through business acquisition.
The increases in headcount were as follows:
| | | | |
|
Corporate Division — National Mining & Defense | | | 2 | |
| | | | |
Customer Service Centers | | | | |
NSW | | | 4 | (acquisitions) |
Victoria | | | 8 | (acquisitions) |
Western Australia | | | 5 | |
Queensland | | | 9 | |
Northern Territory | | | 2 | |
| | | | |
| | | 30 | |
| | | | |
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The additional persons employed by Royal Wolf as a result of acquisitions (including 2 at Queensland) occurred primarily during the last quarter of the year ended June 30, 2006.
Royal Wolf incurred additional business promotional expenses directed at new products of $0.4 million through greater yellow pages, newspapers and direct marketing costs. Other depreciation and amortization were greater in the year ended June 30, 2006 by $1.0 million primarily from additional container hire assets and increased infrastructure capital expenditures on branch display/showrooms, equipment, leasehold improvements and management information systems. These increases were offset somewhat by more efficient operations at customer service centers (CSC) which resulted in reduced costs of $0.8 million.
Financial expenses for the year ended June 30, 2006 increased by $1.5 million or 75.0% to $3.5 million from $2.0 million in the annualized six-month period of June 30, 2005 due primarily to an increase in the amount borrowed during the year ended June 30, 2006 and to an increase in the rate of interest paid by Royal Wolf for some of the outstanding debt. As of June 30, 2006, Royal Wolf had $46.1 million of interest bearing indebtedness outstanding, compared to $38.4 million outstanding as of June 30, 2005. In addition, during the year ended June 2006, Royal Wolf refinanced $10.0 million of indebtedness that bore interest at a rate of 7% per annum with indebtedness that bears interest at an annual rate of 15%.
The net loss for the year ended June 30, 2006 of $0.3 million is slightly less than the annualized $0.4 million for the six months ended June 30, 2005 primarily as a result of increased revenues and profitability from both leasing revenues and rental equipment sales and the benefit from the utilization of previously unrecognized deferred income tax assets. This increased profitability in 2006 was substantially offset by higher selling, general and administrative expenses incurred for growth positioning and increased financial expenses. Royal Wolf has been highly leveraged as a result of its management buyout in 2003.
Six Months Ended June 30, 2005 (Annualized) Compared with the Twelve Months Ended December 31, 2004
Revenues for the annualized six-month period ended June 30, 2005 were $53.8 million, a $1.6 million or 3.1% increase from revenues of $52.2 million in the twelve months ended December 31, 2004. The increase resulted from a $2.9 million or 9.8% decrease in sales of rental equipment, a $0.8 million increase in sales of new equipment, a $1.2 million or 8.5% increase in leasing revenue, and a $2.5 million or 29.4% increase in delivery, installation and other miscellaneous revenues from the twelve months ended December 31, 2004.
The decreases in sales of rental equipment is a result of the annualization process not taking into account the fact that the December six months is usually higher than the first six months. The corresponding increase in delivery and installation revenues are largely due to continued growth in the industry Royal Wolf serves and the enhanced capability of Royal Wolf’s container modification business. In addition, in the six-month annualized period ended June 30, 2005, Royal Wolf introduced new products for sale that were not offered in year ended December 31, 2004.
Leasing revenues increased due to an increase of an average for the periods of approximately 700 units on rent and to higher utilization rates and rental rates. Average core fleet utilization of leasing products for the six-month period ended June 30, 2005 decreased by approximately 1% to approximately 83% compared to the twelve months ended December 31, 2004. The average monthly rental rate for the six months ended June 30, 2005 was up approximately 7% from the twelve months ended December 31, 2004.
Other revenue, which includes revenues primarily from delivery and installation services, as well as revenues from storage, repairs, commission and other miscellaneous items, increased by $2.5 million in the annualized six-month period ended June 30, 2005 over the twelve month period ended December 31, 2004 due primarily to increased modification work activities, which are more time and labor intensive.
Cost of revenues for the annualized six-month period ended June 30, 2005 were $33.2 million, a $0.4 million or 1.2% decrease from cost of revenues for the twelve month period ended December 31, 2004. The decrease resulted from a $0.8 million or 4.0% decrease in cost of sales of rental equipment, a $0.6 million increase in cost of sales of new products, and a $0.1 million or 2.1% increase in leasing revenue cost of sales. Other revenue cost of sales, which consist primarily of cost of revenues derived from the delivery and installation of Royal Wolf’s products, decreased by $0.3 million or 3.4% from twelve months ended December 31, 2004.
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Gross profit for the annualized six-month period ended June 30, 2005 was $20.6 million, a $2.0 million or 10.8% increase from the twelve months ended December 31, 2004. Gross profit margin percentage from the sales of rental equipment decreased in the annualized six-month period ended June 30, 2005 to 27.8% from 32.2% in the twelve months ended December 31, 2004. Gross margin as a percentage of sales increased primarily as leasing gross profits for the annualized six-month period ended June 30, 2005 increased by $1.1 million and the gross profit margin percentage on the company’s leasing activities increased by 1.9% on an absolute basis.
Selling, general and administrative expenses for the annualized six-month period ended June 30, 2005 increased approximately $3.7 million, or 24.8%, to $18.6 million from $14.9 million for the year ended December 31, 2004. the following table gives a further breakdown by category:
| | | | | | | | | | | | |
| | 12 Months Ended
| | | 12 Months Ended
| | | | |
| | June 30,
| | | December 31,
| | | Increase
| |
| | 2006 | | | 2004 | | | (Decrease) | |
|
Manpower | | $ | 9.6 | | | $ | 7.5 | | | $ | 2.1 | |
Rent | | | 0.1 | | | | 0.1 | | | | 0.0 | |
CSC operating costs | | | 3.9 | | | | 2.6 | | | | 1.3 | |
Business promotion | | | 0.7 | | | | 0.5 | | | | 0.2 | |
Travel and meals | | | 0.8 | | | | 0.7 | | | | 0.1 | |
IT and Telco | | | 0.5 | | | | 0.7 | | | | (0.2 | ) |
Professional costs | | | 1.0 | | | | 0.7 | | | | 0.3 | |
Other | | | 0.5 | | | | 0.0 | | | | 0.5 | |
Other depreciation and amortization | | | 1.5 | | | | 2.1 | | | | (0.6 | ) |
| | | | | | | | | | | | |
| | $ | 18.6 | | | $ | 14.9 | | | $ | 3.7 | |
| | | | | | | | | | | | |
Selling, general and administrative expense for the annualized six-month period ended June 30, 2005 increased approximately $3.7 million or 24.8% to $18.6 million from $14.9 million for the year ended December 31, 2004. This increase is primarily associated with increased employee-related costs of $2.1 million and expansion of the customer service center infrastructure of $1.3 million, as Royal Wolf prepared for the launch of the new products and the full year impact of post management buyout operation.
The increases in headcount were as follows:
| | | | |
|
Corporate Division | | | | |
Road & Rail | | | 3 | |
Removalist | | | 1 | |
National Mining & Defense | | | 2 | |
| | | | |
| | | 6 | |
| | | | |
Customer Service Centers | | | | |
NSW | | | 8 | |
Victoria | | | 13 | |
Western Australia | | | 3 | |
South Australia | | | 1 | |
Queensland | | | 5 | |
Northern Territory | | | 5 | |
| | | | |
| | | 35 | |
| | | | |
Operations | | | 2 | |
| | | | |
| | | 43 | |
| | | | |
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Financial expenses for the annualized six-month period ended June 30, 2005 decreased by $1.1 million or 35.5% to $2.0 million from $3.1 million in the twelve month period ended December 31, 2004 due primarily to an exchange gain of $0.7m.
The net loss for the annualized six months ended June 30, 2005 of $0.4 million compares unfavorably to a net profit of $0.5 million for the year ended December 31, 2004 primarily as a result of higher selling, general and administrative expenses incurred for growth positioning, offset somewhat by reduced financial expenses. Royal Wolf has been highly leveraged as a result of its management buyout in 2003.
Liquidity and Capital Resources
Cash Flow for Fiscal 2006, 2005 and 2004
During 2004, 2005 and 2006, Royal Wolf’s principal sources of funds consisted of cash generated from its operations, borrowings (including core debt and a non-converting note) from Australia and New Zealand Banking Group Limited, or ANZ, Royal Wolf’s prime bankers, funds received from the issuance of B Class Notes and A Class shares of stock. Royal Wolf also financed a smaller portion of its capital requirements through finance leases and lease-purchase contracts.
Cash flow from operating activities of $5.8 million in 2004, $1.9 million in 2005 and $14.0 million in 2006 were largely generated by the rental of units from Royal Wolf’s lease fleet, the associated delivery and installation services from rental and sales activities and other products. The decrease in cash flow from operating activities for the six months ended June 30, 2005 was substantially the result of increased purchases of inventories and a decrease in payables. Other factors that contributed to the decrease in net cash provided by operating activities from 2004 to 2005 included increases in selling, general and administrative expense as Royal Wolf made significant investments in CSC infrastructure improvements and headcount growth in preparation for new product introduction and expanded operations.
Cash flow used in investing activities was $13.1 million in 2004, $13.1 million in 2005 and $25.9 million in 2006. Royal Wolf’s primary capital expenditures during these periods were for the discretionary purchase of new and used container fleet units for the lease fleet and units purchased through acquisitions of assets of complimentary businesses. During the twelve months ended June 30, 2006, funds expended in investing activities included the acquisition of assets of three complementary businesses, consisting of the following: In December 2005, Royal Wolf acquired the assets of Cairns-based Cape Containers for a purchase price of $0.8 million; in March 2006 Royal Wolf purchased the remaining 50% interest in Royal Wolf- Hi Tech, a Newcastle-based joint venture in which it already owned a 50% equity interest, for $1.1 million; and in April 2006, Royal Wolf acquired the assets of Melbourne-based Australian Container Network for $5.7 million. The purchase price of each of the foregoing acquisitions was paid by means of borrowings from ANZ.
Other capital expenditures included purchases of additional products for the lease fleet in the amounts of $12.0 million, $7.7 million and $18.1 million in 2004, 2005 and 2006, respectively, and capital expenditures of $1.3 million, $1.9 million and $1.1 million in 2004, 2005 and 2006, respectively, for branch display/showrooms, equipment, leasehold improvements and management information systems.
Net cash provided by financing activities was $5.0 million in 2004, $12.4 million in 2005, and $9.9 million in 2006. Net cash provided by financing activities for the three years consisted of net borrowings under Royal Wolf’s ANZ credit facility, term loans, notes and vendor financing arrangements, which were used to supplement cash flow from operating activities in the funding of capital expenditures, as well as the fleet purchases as described above.
Royal Wolf has also funded its liquidity needs through rental agreements and non-recourse loans involving its customers and Royal Wolf’s banks. In August 2004, Royal Wolf entered into two rental agreements with K&S Freighters Pty Limited, or K&S, with a total equipment value of approximately $2.0 million. The rental agreements have a term of five years and three years (with an option to extend for two years) and are funded in the form of an undisclosed principal/agency arrangement with BankWest (Royal Wolf’s bankers in 2004). Under these agreements, K&S pays a monthly rental until the end of the rental agreements, and BankWest bear 100% of the credit risk of the transaction. Royal Wolf has the option to purchase the equipment either upon the expiration of the rental term for $1, or if K&S defaults, for the amount shown as the amortized principal amount outstanding to BankWest. The
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rental agreement is assignable to Royal Wolf if BankWest’s debt is extinguished in full before the expiration of the lease term. The assignability of the rental agreement is applicable to both K&S transactions, where there is a five-year rental agreement but BankWest’s debt is extinguished in full inside the five-year period. The transactions between Royal Wolf and K&S apply to (i) a 70 curtainsider transaction in which BankWest’s debt is scheduled to be repaid full within 49 months, and (ii) a 12 Reefer transaction, in which BankWest’s debt is scheduled to be paid off in 58 months. At the end of these periods, the rental agreement will be assigned to Royal Wolf to receive full benefit of the remaining rental payments.
Royal Wolf has also entered into a $0.9 million non-recourse transaction with Wridgways Australia Limited, or Wridgways, a publicly-listed company in the moving and storage industry that is one of Royal Wolf’s five largest customers. The transaction is essentially a non-recourse loan from ANZ that Royal Wolf used to purchase 300 high cube containers. Royal Wolf then leased those containers to Wridgways using ANZ-specific leasing documentation. There is approximately $76,000 in surplus cash above the monthly P&I non-recourse payment due to RWA over the60-month term, which is excess cash sweep. The containers are reflected as an asset on Royal Wolf’s balance sheet, subject to depreciation. The loan bears interest at a rate of 8.85%per annum and is amortized over a period of five years. ANZ has a security interest (a mortgage) in the lease agreement between Royal Wolf and Wridgways.
Current Financing Arrangements
Pursuant to a five-year senior debt facility, dated December 17, 2004, as amended,Australia and New Zealand Banking Group (“ANZ”) has extended the following credit facilities to Royal Wolf:
Bank Overdraft. Royal Wolf has a bank overdraft facility of $1.0m to cover normal working capital needs. Interest on bank overdrafts is charged at the prevailing market rates, which is effectively the Australian bank bill reference rate (“BBSW”) plus 1.65%, on the amount outstanding from time to time. At June 30, 2006, the bank overdraft balance was $0.9 million, all due during fiscal year 2007.
Receivables Financing Facility. Royal Wolf has an accounts receivables working capital facility that allows the company, subject to certain terms, to access up to $7.5 million. The facility bears interest at a variable rate equal to base rate plus 1.65% per annum and a monthly fee of $5,000. At June 30, 2006, the receivables financing facility balance was $1.2 million, all due during fiscal year 2007.
Secured Bank Loans. ANZ has agreed to make up to $43.0 million of secured bank loans available to Royal Wolf. The bank loans are payable either in December 2009 or June 2011 with various levels of loan amortization payment obligations. The availability of the secured loans is subject to annual review. The loans bear interest at the banks’ prime rates plus 1.10% - 1.35%, with interest payable quarterly. The bank loans are secured by a first ranking fixed and floating charge over the assets and undertakings of Royal Wolf. Under the terms of the Facility Agreement with ANZ, Royal Wolf is required to ensure compliance with numerous covenants in relation to various financial ratios, including consolidated interest coverage; consolidated reworked adjusted leverage; and consolidated debt service coverage. All of Royal Wolf’s containers are subject to the bank’s liens and are therefore restricted within the shores of Australia. At June 30, 2006, the secured bank loan balance was $23.9 million, of which $5.8 million is due during fiscal year 2007 and $18.1 million is due during fiscal years2008-2010.
The significant covenants of the ANZ credit facilities are as follows:
Financial Reports:
Annually
| | |
| • | The consolidated audited financial statements as soon as they are available, but not later than 120 days after the end of each financial year. |
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| • | The consolidated annual projected balance sheet, profit and loss and cash flow forecast at the start of each financial year for the ensuing 12 months. |
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| | |
| • | The annual certificate signed by two Directors certifying compliance with consolidated financial undertakings as soon as it is available, but not later than 120 days after the end of each financial year. |
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| • | The consolidated CAPEX (Capital Expenditure) budget detailing non-discretionary and discretionary CAPEX at the start of each financial year for the ensuing 12 months. |
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| • | Board approved business plan/budget for the ensuing 12 months, as soon as they are available but no later than 15 days before June 30 each year for consolidated entities. |
Quarterly
| | |
| • | The consolidated management accounts (balance sheet and profit and loss accounts) within 30 days after the end of each financial quarter (i.e., March, June, September, December). |
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| • | The consolidated aged debtor, creditor and stock listings to be provided as soon as they are available but not later than 30 days after the end of each financial quarter (i.e., March, June, September, and December). |
Financial Covenants
(a) Consolidated Interest Cover: The consolidated interest cover ratio for each financial quarter on a rolling12-month basis will not, as at the compliance dates, be less than:
| | |
| • | 1.75:1 as at March 31, 2006. |
|
| • | 2.00:1 as at June 30, 2006, and thereafter. |
(b) Consolidated Adjusted Gearing Ratio: The consolidated adjusted gearing ratio for each financial year will not, as at the compliance date, exceed:
| | |
| • | 2.50:1 as at June 30, 2006, and thereafter. |
(c) Consolidated Debt Services Cover: The consolidated debt service cover for each financial quarter on a rolling12-month basis as shown below will not, as at the compliance date, fall below:
| | |
| • | 01.75:1 as at March 31, 2006, and thereafter. |
Other Covenants
| | |
| • | Dividend payments are not to be made without prior written consent from ANZ. |
|
| • | All containers are to be restricted within the shores of Australia and the company’s Lease/Rental documentation should include this limitation. Any movement of containers outside the shores of Australia will require ANZ’s prior written consent. |
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| • | Any additional off or on balance sheet liabilities are not to be made without prior written consent from ANZ. |
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| • | Detailed schedule of containers with following information as soon as they are available, but no later than 30 days after the end of each financial month: |
| | |
| • | Held for hire/lease outlining type, number, acquisition cost and book value. |
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| • | Held for sale outlining type, number, acquisition cost and book value. |
| | |
| • | A review of Royal Wolf’s inventory management systems to be conducted as at June 30 each year as part of the general audit. a copy of the report to be provided within 120 days. |
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| • | Provision of loans or advances to directors, shareholders, related or associated companies is not to be made without prior written consent from ANZ. |
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| • | Fair market value of orderly liquidated value of leased/hire containers is to be undertaken by a valuer appointed by and acceptable to Australia and New Zealand Banking Group as at June 30 of each year. |
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| | |
| • | No interest or repayments to be paid to Equity Partners and ANZ Private Equity without written consent from ANZ. |
B Class Notes
In December 2003, Royal Wolf issued $4.1 million of B Class Notes to Equity Partners Two Pty Limited, as Trustee of Equity Partners 2 Trust, in connection with the management buyout of the company. The holders of these 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. The B Class Notes are unsecured obligations that mature upon the occurrence of a sale event or as agreed between the B Class Note holders and Royal Wolf. Interest is either paid annually or compounds on a semi-annual basis. Under the senior debt facility agreement with ANZ, any payment of interest to the B Class Note holders must be approved by ANZ. In the event of a liquidation of Royal Wolf, the holders of B Class Notes rank above all shareholders and behind the holder of Royal Wolf’s non-convertible note, and are entitled to the proceeds of liquidation to the extent of the face value of the notes and any accumulated interest. At June 30, 2006, the B Class Notes balance (all noncurrent) was $6.7 million.
Non-Convertible Note
In September 2005, Royal Wolf issued a five-year, $10.0 million Non-Convertible Note to ANZ. The note bears interest at a rate of 15% per annum, with interest either paid annually or compounded on an annual basis. The Non-Convertible Note could mature earlier upon the occurrence of a sale event or as agreed between the issuer and Royal Wolf. In the event of a liquidation of Royal Wolf, ANZ, as the holder of the non-convertible note, ranks above all shareholders and ahead of the holders of B Class Notes, and therefore is entitled to the proceeds of liquidation to the extent of the face value of the notes and any accumulated interest. At June 30, 2006, the Non-Convertible Note balance (all noncurrent) was $10.9 million.
The significant covenants of the Non-Convertible Note are as follows:
The issuer covenants that in respect of Royal Wolf (unless the Noteholder has given the Issuer its prior written consent to a variation to these covenants), if no moneys are owing under the ANZ Senior Debt Facility:
(a) Consolidated Interest Cover. The consolidated interest cover ratio for each financial quarter on a rolling12-month basis will not, as at the compliance dates, be less than:
| | | | |
Quarter ended: | | Covenant value: |
|
December 2005 | | | 0 | .85:1 |
March 2006 | | | 1 | .25:1 |
June 2006 | | | 1 | .5:1 |
September 2006, and thereafter | | | 2 | .00 |
| | |
| • | Consolidated Reworked Adjusted Gearing Ratio: The consolidated reworked adjusted gearing ratio for each financial year will not, as at the compliance date, exceed 2.00:1 as at June 30, 2006: and 1.50:1 as at June 30, 2007. |
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| • | Consolidated Debt Service Cover Ratio: The consolidated debt service cover ratio for each financial quarter on a rolling12-month basis, as shown below, will not, as at the compliance date, fall below: |
| | | | |
Quarter ended: | | Covenant value: |
|
December 2005 | | | 1 | .75 |
March 2006, and thereafter | | | 2 | .00 |
| | |
| • | Consolidated actual revenue at the end of each financial quarter (i.e., March, June, September and December) will be within 90% of the budgeted consolidated revenue. |
In the opinion of management of Royal Wolf and our management, Royal Wolf’s cash from operations, current working capital position and its existing credit facilities will be sufficient to meet Royal Wolf’s operating cash requirements for the fiscal year ending June 30, 2007. However, we will require the consent of ANZ to the transactions contemplated under the acquisition agreement to the extent required to maintain its credit facilities for
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following the business combination with Royal Wolf.acquisition, or enter into another credit facility acceptable to Bison-GE. In our discussionsdiscussion with ANZ, it has indicated its
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willingness to maintain these credit facilities. Further, GFN Australasia, our Australian subsidiary, may seek to obtain third-partyas a condition of the acquisition agreement, contemplates obtaining from Bison Capital, subordinated debt financing in order to (i) refinanceaugment Royal Wolf’s existing 15% B Class Notesworking capital and Non-Convertible Note, and (ii) provide additional growth capital to Royal Wolf.for general corporate purposes, which may include future acquisitions. It is our intention to maintain the existing credit facility with ANZ. We are currently in discussions with ANZ regarding amending certain of the provisions of the existing facility, although no assurance can be givencontemplated that the terms will be amended. If we are able to obtain subordinated or reorganized debt financing on the terms that we expect, the subordinated debt would have a minimum five-yearfive and one-half year term, bear interest of approximately 12% to 13%at 13.5% per annum, and provide the lender with 500,000 warrants to purchase shares of our common stock.stock at an initial exercise price of $8.00 per share. We also expect that the covenants in the subordinated debt will be similar to the terms of the ANZ credit facility, that the subordinated debt holders will place limitations on our indebtedness and cash distributions, and that there will be an intercreditor agreement between the holders of the subordinated debt and ANZ. We have not, however, entered into any agreements regarding the subordinated debt, and no assurance can be given that we will be able to obtain third-party financing, that the amount of any third-party financing will be sufficient for the foregoing purposes, or that the terms of any such third-party financing will be similar to the terms described above.
Except as described above, Royal Wolf is not a party to any off-balance sheet arrangements and does not engage in trading activities involving non-exchange traded contracts. In addition, Royal Wolf has no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of Royal Wolf’s assets. Royal Wolf is in compliance with all covenants regarding any financing arrangements.
The following is a summary of Royal Wolf’s contractual obligations as of June 30, 2006:
| | | | | | | | | | | | | | | | | | | | |
| | Payment Due by Fiscal Year Ending June 30, | |
| | | | | | | | 2008-
| | | 2011-
| | | | |
Contractual Obligations | | Total | | | 2007 | | | 2010 | | | 2013 | | | 2014 and Thereafter | |
| | (In thousands) | |
|
Facility leases | | $ | 2,126 | | | $ | 2,126 | | | $ | — | | | $ | — | | | $ | — | |
Finance leases/arrangements, including interest | | | 2,736 | | | | 1,096 | | | | 1,640 | | | | — | | | | — | |
Bank indebtedness and term loans — principal | | | 23,930 | | | | 5,831 | | | | 18,099 | | | | — | | | | — | |
Bank indebtedness and term loans — interest | | | 4,168 | | | | 1,860 | | | | 2,308 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | 28,098 | | | | 7,691 | | | | 20,407 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 32,960 | | | $ | 10,913 | | | $ | 22,047 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
Impact of Inflation
Royal Wolf believes that inflation has not had a material effect on its business.
Seasonality
Although demand from certain specific customer segments can be seasonal, Royal Wolf’s operations as a whole are not seasonal to any significant extent. Royal Wolf experiences a reduction in sales volumes to general industry 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.
Critical Accounting Policies and Estimates
General
Royal Wolf’s financial reports for 2006, 2005 and 2004 are general-purpose financial reports, which was prepared in accordance with the requirements of the Corporations Act 2001 (the Act) and Australian accounting
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standards adopted by the Australian Accounting Standards Board, or AASB. International Financial Reporting Standards, or IFRSs, form the basis of Australian accounting standards adopted by the AASB, and for the purpose of this report are called Australian equivalents to IFRS, or AIFRS, to distinguish from previous Australian generally accepted accounting principles. The date of transition to AIFRS is for periods commencing on or after January 1,
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2005, with a transition date on or after January 1, 2004 (due to restatement of comparatives). On January 20, 2005, ASIC issued a Subsection 340(1) Order granting the Company and its controlled entity relief from paragraph 323D(2)(b) of the Act and allowing a ‘transitional’ financial year of six months from January 1, 2005 to June 30, 2005, with each financial year thereafter being twelve months long. Consequently, due to the change in year end, Royal Wolf was required to adopt AIFRS from the accounting period ending June 30, 2005, with comparatives for the year ended December 31, 2004 and transition balance sheet at January 1, 2004 restated. The transition date to AIFRS is the same date it would have been had Royal Wolf not changed its year end to June 30. This, therefore, did not represent an early adoption of AIFRS.
The preparation of a financial report in conformity with Australian accounting standards 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 by each entity in the consolidated entity.
The U.S. Securities and Exchange Commission defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Royal Wolf’s significant accounting policies are described in Note 1 to the Notes to Royal Wolf’s Consolidated Financial Statements for the year ended June 30, 2006. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However the following policies are considered to be critical within the Securities and Exchange Commission definition:
Revenue
Revenue is generally realized or realizable and earned when all of the following criteria have been met:
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| • | persuasive evidence of an arrangement exists; |
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| • | delivery has occurred; |
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| • | the seller’s price to the customer is fixed or determinable; and |
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| • | collectability is reasonable assured. |
Sale and modification of containers
Revenue from the sale and modification of containers is recognised based on invoiced amounts and is recognised in the income statement (net of returns, discounts and allowances) when the significant risks and rewards of ownership have been transferred to the buyer and it 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. No revenue is recognised if there is significant uncertainty regarding recovery of the consideration due, the amount cannot be measured reliably, 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 recorded based on the amount and term prescribed in the lease hire agreement. No revenue is recognised if there is significant uncertainty regarding recovery of the rental payments due.
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Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The residual value, the useful life and the depreciation method
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applied to an asset are reassessed at least annually. The estimated useful lives in the current and comparative periods are as follows:
| | | | |
| | 2005 | | 2006 |
|
Property, plant and equipment | | | | |
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 years (20% residual) | | 10 - 25 years (20% residual) |
Leased containers for hire (used) | | 10 years (20% residual) | | 10 - 25 years (20% residual) |
Leased containers for hire (new) | | 25 years (20% residual) | | 10 - 30 years (20-30% residual) |
Impairment of 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 is no longer amortized but is tested annually for impairment. For goodwill assets that have an indefinite useful life, the recoverable amount is estimated at each balance sheet date. Royal Wolf assesses whether goodwill and intangibles with indefinite useful lives are impaired, which assessment occurs at least annually. 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. Intangible assets are tested for impairment where an indicator of impairment arises. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. Negative goodwill arising on an acquisition is recognized directly in profit or loss.
Goodwill acquired has been allocated to one single cash-generating unit, being RWA. Goodwill has been assessed as having an infinite useful life and accordingly is not amortized. This asset is tested for impairment annually using the value in use model. Goodwill 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, and the business and assets of Cape Containers Pty Limited and Australian Container Network Pty Limited.
Trade and Other Receivables
Trade and other receivables are stated as amortized cost less impairment losses. The recoverable amount of the consolidated entity’s receivables carried at amortized 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. Impairment of receivables is not recognized until objective evidence is available that a loss event has occurred. Receivables are individually assessed for impairment.
Inventories
Inventories are stated at the lower of cost and 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.
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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.
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Revision of accounting estimates — Container for hire depreciation
The preparation of the financial statements 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.
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 financial year, Royal Wolf revised upwards the useful life of containers for hire. The financial impact of the revision results in depreciation expense for the year ended June 30, 2006 being $696,023 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 and existing containers and purchase of new containers.
Foreign currency risk
Royal Wolf faces transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the unit’s measurement currency. The currency giving rise to this risk is primarily U.S. Dollars.
Royal Wolf has a bank account denominated in U.S. Dollars, into which 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.
Royal Wolf 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.
It is Royal Wolf’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximize hedge effectiveness. At June 30, 2006, Royal Wolf had hedged 100% of its foreign currency purchases for which firm commitments existed at the balance sheet date, extending to November 2006.
Issued standards not early adopted (AIFRS)
The following standards and amendments were available for early adoption but have not been applied by Royal Wolf in the consolidated financial statements:
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| • | AASB 7Financial instruments: Disclosure(August 2005) replacing the presentation requirements of financial instruments in AASB 132. AASB 7 is applicable for annual reporting periods beginning on or after January 1, 2007; |
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| • | AASB 2005-9Amendments to Australian Accounting Standards (September 2005) requires that liabilities arising from the issue of financial guarantee contracts are recognized in the balance sheet. AASB 2005-9 is applicable for annual reporting periods beginning on or after January 1, 2006; |
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| • | AASB 2005-10Amendments to Australian Accounting Standards (September 2005) makes consequential amendments to AASB 132Financial Instruments: Disclosures and Presentation, AASB 101Presentation of Financial Statements, AASB 114Segment Reporting, AASB 117Leases, AASB 139Financial Instruments: Recognition and Measurement, AASB 1First-time Adoption of Australian Equivalents to International |
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| | |
| | Financial Reporting Standards, arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after January 1, 2007. |
Royal Wolf plans to adopt AASB 7, AASB 2005-9 and AASB 2005-10 in the 2007 financial year.
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The initial application of AASB 7 and AASB 205-10 is not expected to have an impact on the consolidated financial results of Royal Wolf as the standard and the amendment are concerned only with disclosures.
The initial application of AASB 2005-9 could have an impact on the consolidated financial results of Royal Wolf as the amendment could result in liabilities being recognized for financial guarantee contracts that have been provided by Royal Wolf. However, the quantification of the impact is not known or reasonably estimable in the current financial year as an exercise to quantify the financial impact has not been undertaken by Royal Wolf to date.
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DIRECTORS AND MANAGEMENT FOLLOWING THE ACQUISITION
All of our current officers and directors will continue to serve as such following the acquisition. In addition, Robert Allan, the Chief Executive Officer of Royal Wolf, will be deemed to be one of executive our officers following the acquisition. Following the acquisition, therefore, our directors and executive officers will be as follows:
| | | | | | |
Name | | Age | | Position |
|
Ronald F. Valenta | | | 48 | | | Chief Executive Officer, Secretary and Director |
John O. Johnson | | | 45 | | | Chief Operating Officer |
Charles E. Barrantes | | | 54 | | | Executive Vice President and Chief Financial Officer |
Marc Perez | | | 42 | | | Controller |
Robert Allan | | | 50 | | | Chief Executive Officer, Royal Wolf Trading Australia Pty Limited |
Lawrence Glascott | | | 72 | | | Chairman of the Board of Directors |
David M. Connell | | | 62 | | | Director |
Manuel Marrero | | | 49 | | | Director |
James B. Roszak | | | 65 | | | Director |
Ronald F. Valentahas served as a director and as our Chief Executive Officer, Chief Financial Officer and Secretary since our inception. 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, anot-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. Johnsonhas 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, 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. Barrantesbecame our Executive Vice President and Chief Financial Officer on September 11, 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 pain 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.
Marc Perezhas served as our Controller since November 2005. Mr. Perez has served as the controller for Portoshred, LLC, a mobile document destruction company, since September 2005. Prior to joining Portoshred,
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Mr. Perez served as controller for Portosan Company, LLC, a portable sanitation services company, from 2000 through September 2005. Prior to joining Portosan, Mr. Perez was a controller for Waste Management, Inc., a provider of comprehensive waste and environmental services in North America, from 1997 to 2000. Mr. Perez began his career out of college in 1988 with Browning Ferris Industries, a sanitation removal company and served as its controller until 1997.
Robert Allanhas been the Chief Executive Officer of Royal Wolf Trading Australia Pty Limited since February, 2006 and will continue in that capacity following the acquisition. As such, he will be deemed to be one of our executive officers. 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 Glascotthas been the Chairman of the Board of Directors of the Company since November 2005. Mr. Glascott has served as a director of 99¢ Only Stores since 1996 where he currently serves 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. Connellhas been a director of the company since November 2005. Mr. Connell founded Cornerstone Management Partners, LLC, a consulting and advisory firm, in 1998. Prior to establishing Cornerstone Management 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 4500 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 World Communications, Inc., which later merged and became Keystone Communications, a leading satellite communications service provider.
Manuel Marrerohas been a director of the company 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., and 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. Precision Specialty Metals is 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. Roszakhas been a director of the company since November 2005. Mr. Roszak has been a director of National RV Holdings, Inc. since June 2003 and his term expires in 2006. 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 1062 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 active as a Board of Trustees member of Chapman University.
In addition to Robert Allan, who will be deemed to be one of our executive officers following the acquisition, Peter McCann and James Warren, the Chief Financial Officer and Chief Operating Officer, respectively, of Royal Wolf, will be key employees of ours.
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Peter McCann, age 40, has served as the Chief Financial Officer of Royal Wolf since 2004. From 2002 until joining Royal Wolf, he was the Chief Financial Officer of Strathfield Group Limited, a consumer electronics company, and from 2000 until 2002 was the General Manager-Finance of Qantas Airways Limited, a commercial airline company. Mr. McCann has nearly 10 years of experience as a chief financial officer in both public and private companies and is a Chartered Accountant.
James Warren, age 55, has served as Chief Operating Officer of Royal Wolf since 1998. From 1985 until joining Royal Wolf, he was a Managing Director of Trans America Leasing, an intermodal container leasing company. From 1976 until 1985, he served in the same capacity with Flexi Van, also an intermodal container leasing company. Mr. Warren has over 21 years of operating experience in the container and shipping industries.
Employment Agreements
On September 11, 2006, we entered into an employment agreement with Charles E. Barrantes, under which he agrees to serve as our Executive Vice President and Chief Financial Officer. Under the employment agreement, Mr. Barrantes will receive a base annual salary of $200,000, and will be eligible to receive an annual bonus each fiscal year of up to 35% of his base salary, provided the he is employed on the last day of such year. We will 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 commons stock on the date of grant), vest in five equal annual installments and expire ten years from the date of grant. The options are subject to stockholder approval of the 2006 Stock Option Plan on or prior to August 28, 2007.
Mr. Barrantes employment agreement will terminate upon his death or in the event of his physical or mental disability which 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. Mr. Barrantes will be entitled to a lump-sum severance payment of six months’ base salary if, prior to the later of August 31, 2007 or six months from the completion of our first business combination, we terminate his employment without “cause” or he terminates his employment for “good reason” (each, as defined).
Robert Allan serves as Chief Executive Officer of Royal Wolf Trading Pty Limited under an employment agreement that will continue indefinitely, unless terminated by Mr. Allan or Royal Wolf Trading Pty Limited upon at least six months’ notice. Under his employment agreement, Mr. Allan receives a base annual salary of $234,360$236,400 and is eligible to receive an annual performance bonus not to exceed $78,120$78,800 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.
Director and Executive Compensation
Ronald F. Valenta, our Chief Executive Officer and Secretary, John O. Johnson, our Chief Operating Officer, and Marc Perez, our Controller, are not currently compensated for their services; and both Mr. Valenta and Mr. Johnson have advised our board of directors that they will continue to serve in these capacities without compensation until at least the earliest of June 30, 2008 or such time as Royal Wolf achieves annualized EBITDA of $20 million or we achieve a company-wide total annualized EBITDA of $40 million.
In addition to the 22,500 shares acquired by each of the directors prior to the offering, at present we pay each of our non-employee directors $1,500 for each meeting they attend. We also reimburse all of our officers and directors forout-of-pocket expenses incurred by them in connection with their activities on our behalf. If the acquisition is
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completed, we may modify the compensation to our officers and directors based upon the advice and recommendations of the Compensation Committee of our board of directors. Except as described above, there is no current understanding or arrangement with respect to any compensation to our officers or directors.
Director Independence
The American Stock Exchange requires that a majority of our board 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, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.
A majority of the directors on our board are “independent directors.” Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Audit Committee
Our board of directors has established an audit committee. 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 responsible for the appointment, compensation, retention, oversight and work of our independent auditor.
The audit committee consists of James B. Roszak, as chairman, Manuel Marrero and Lawrence Glascott, each of whom is an independent director and is “financially literate” under the American Stock Exchange listing standards and 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. The American Stock Exchange listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. In addition, 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 of background that results in the individual’s financial sophistication.
Nominating Committee
Our board of directors has established a Nominating Committee. The Nominating Committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors.
The Nominating Committee consists of Manuel Marrero, as chairman, David M. Connell and James B. Roszak, each of whom is an independent director under the American Stock Exchange listing standards.
Compensation Committee
Our board of directors has established a Compensation Committee. The Compensation Committee is responsible for overseeing our executive compensation program.
The Compensation Committee consists of David M. Connell, as chairman, Manuel Marrero and James B. Roszak, each of whom is an independent director under the American Stock Exchange listing standards.
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that govern all aspects of our business.
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Conflicts of Interest
You should be aware of the following potential conflicts of interest on the part of our directors and certain officers:
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| • | Neither our directors nor Mr. Valenta or Mr. Johnson is required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities. |
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| • | In the course of their other business activities, our officers and directors may become aware of investment and business opportunities that may be appropriate for presentation to us and the other entities with which they are affiliated. Our management may have conflicts of interest in determining to which entity a particular business opportunity should be presented. |
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| • | Our officers and directors may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those in which our company intends to engage. |
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| • | Ronald F. Valenta, our Chief Executive Officer and Secretary, is the non-executive Chairman of the Board of Directors of Mobile Services Group, Inc. and Chairman of the Board of Directors of Port-O-Shred LLC and the managing member of Portosan, LLC. While none of our other existing stockholders has any affiliation with a specialty finance company, they may have such an affiliation in the future. |
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| • | As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the Royal Wolf acquisition is not approved at the special meeting, or otherwise is not completed by April 3, 2008, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement. Mr. Valenta entered into the backup purchase agreement as an accommodation to us in order to facilitate our acquisition of Royal Wolf, and we believe that it presents no current conflict of interest on Mr. Valenta’s part. In the event, however, that the Royal Wolf acquisition is not completed and Mr. Valenta acquires Royal Wolf pursuant to the backup purchase agreement, it is possible that Royal Wolf could compete in Australia or other geographic markets with another specialty finance company that we might acquire pursuant to a possible alternative initial business combination. |
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
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| • | the corporation could financially undertake the opportunity; |
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| • | the opportunity is within the corporation’s line of business; and |
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| • | it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. |
Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above mentioned conflicts will be resolved in our favor.
To minimize potential conflicts of interest which may arise from multiple corporate affiliations, each of our officers and directors has agreed, until the earliest of a business combination, our liquidation or such time as he ceases to be an officer or director, to present to our company prior to any other entity, any business opportunity which may reasonably be required to be presented to our company under Delaware law, subject to any pre-existing fiduciary obligations he might have.
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In connection with the vote required for any business combination, our existing stockholders have agreed to vote their shares of common stock they owned prior to this offering in accordance with the majority of the shares of our common stock sold in this offering voted by the public stockholders. In addition, our officers and directors have agreed to waive their rights to participate in any liquidation from the trust account, but only with respect to those shares of common stock acquired prior to this offering. Any common stock acquired by our existing stockholders, officers and directors in the offering or aftermarket will be considered part of the holdings of the public stockholders. Except with respect to the conversion rights afforded to public stockholders, our existing stockholders, officers and directors will have the same rights as other public stockholders with respect to such shares, including voting rights in connection with a potential business combination. Therefore, they may vote such share on a proposed business combination any way they choose.
Summary Compensation Table
At present, we do not compensate any of our officers other than Mr. Barrantes, our Executive Vice President and Chief Financial Officer, whose employment commenced on September 11, 2006. Following the acquisition,
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Robert Allan, the Chief Executive Officer of Royal Wolf, will be deemed to be one of our executive officers, and Peter McCann and James Warren may be deemed to be key employees.
The following table sets forth summary information concerning the compensation paid by us or Royal Wolf Trading Pty Limited, as the case may be, during the last three years ended June 30, 2006 to our executive officers and key employees following the acquisition:
| | | | | | | | | | | | | | |
Name | | Title | | Year | | Salary | | Bonus |
|
Charles E. Barrantes | | Chief Financial Officer | | | 2006 | (1) | | $ | 62,121 | | | $ | — | |
Robert Allan | | Chief Executive Officer, | | | 2006 | | | $ | 176,036 | | | $ | 7,421 | |
| | Royal Wolf Trading Australia Pty | | | 2005 | | | $ | 150,875 | | | $ | 19,802 | |
| | Limited | | | 2004 | (2) | | $ | 6,800 | | | $ | — | |
Peter McCann | | Chief Financial Officer, Royal Wolf | | | 2006 | | | $ | 203,112 | | | $ | 26,311 | |
| | Trading Australia Pty Limited | | | 2005 | | | $ | 195,300 | | | $ | 7,421 | |
| | | | | 2004 | (3) | | $ | 24,537 | | | $ | — | |
James Warren | | Chief Operating Officer, Royal Wolf | | | 2006 | | | $ | 189,832 | | | $ | 39,060 | |
| | Trading Australia Pty Limited | | | 2006 | | | $ | 183,582 | | | $ | 105,462 | |
| | | | | 2004 | | | $ | 175,770 | | | $ | 66,107 | |
| | | | | | | | | | | | | | |
Name | | Title | | Year | | Salary | | Bonus |
|
Charles E. Barrantes | | Chief Financial Officer | | | 2006 | (1) | | $ | 65,482 | (2) | | $ | — | |
Robert Allan | | Chief Executive Officer, | | | 2006 | | | $ | 177,568 | | | $ | 7,486 | |
| | Royal Wolf Trading Australia Pty | | | 2005 | | | $ | 152,188 | | | $ | 19,974 | |
| | Limited | | | 2004 | (3) | | $ | 6,859 | | | $ | — | |
Peter McCann | | Chief Financial Officer, Royal Wolf | | | 2006 | | | $ | 204,880 | | | $ | 26,540 | |
| | Trading Australia Pty Limited | | | 2005 | | | $ | 197,000 | | | $ | 7,486 | |
| | | | | 2004 | (4) | | $ | 24,750 | | | $ | — | |
James Warren | | Chief Operating Officer, Royal Wolf | | | 2006 | | | $ | 191,484 | | | $ | 39,400 | |
| | Trading Australia Pty Limited | | | 2006 | | | $ | 185,180 | | | $ | 106,380 | |
| | | | | 2004 | | | $ | 177,300 | | | $ | 66,682 | |
| | |
(1) | | Mr. Barrantes joined us in September 2006. |
| | |
(2) | | Includes $3,361 of reimbursed medical premiums. |
| | |
(3) | | Mr. Allan joined Royal Wolf in April 2004. |
| | |
(3)(4) | | Mr. McCann joined Royal Wolf in May 2004. |
99109
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the beneficial ownership of our common stock as of February 22,April 20, 2007, the record date for the special meeting, by:
| | |
| • | Each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; |
|
| • | Each of our current executive officers and directors; and |
|
| • | All of our current executive officers and directors as a group; and |
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 | | Percent of Class | | | | | | | | | | | |
| | Number
| | Before the
| | After the
| | Number
| | Percent
| | |
Name | | of Shares | | Acquisition(1) | | Acquisition(1) | | of Shares | | of Class | | |
|
Ronald F. Valenta(2) | | | 1,410,000 | | | | 13.4 | % | | | 13.2 | % | | | 1,410,000 | | | | 13.4 | % | | | |
John O. Johnson | | | 356,250 | | | | 3.4 | % | | | 3.3 | % | |
John O. Johnson(3) | | | | 356,250 | | | | 3.4 | % | | | |
James B. Roszak | | | 22,500 | | | | (* | ) | | | (* | ) | | | 22,500 | | | | (* | ) | | | |
Lawrence Glascott | | | 22,500 | | | | (* | ) | | | (* | ) | | | 22,500 | | | | (* | ) | | | |
Manuel Marrero | | | 22,500 | | | | (* | ) | | | (* | ) | | | 22,500 | | | | (* | ) | | | |
David M. Connell | | | 22,500 | | | | (* | ) | | | (* | ) | | | 22,500 | | | | (* | ) | | | |
Marc Perez | | | 18,750 | | | | (* | ) | | | (* | ) | | | 18,750 | | | | (* | ) | | | |
Fir Tree, Inc.(3) | | | 898,525 | | | | 8.6 | % | | | 8.4 | % | |
Fir Tree, Inc.(4) | | | | 898,525 | | | | 8.6 | % | | | |
535 Fifth Avenue, 31st Floor New York, NY 10017 | | | | | | | | | | | | | | | | | | |
The Baupost Group, L.L.C.(4) | | | 538,700 | | | | 5.1 | % | | | 5.0 | % | |
Gilder, Gagnon, Howe & Co. LLC(5) | | | | 1,076,540 | | | | 10.3 | % | | | |
1775 Broadway, 25th Floor | | | | | | | | | | |
New York, New York 10019 | | | | | | | | | | |
The Baupost Group, L.L.C.(6) | | | | 538,700 | | | | 5.1 | % | | | |
10 St. James Avenue, Suite 2000 | | | | | | | | | | | | | | | | | | |
Boston, Massachusetts 02116 | | | | | | | | | | | | | | | | | | |
All officers and directors as a group (eight persons)(5) | | | 1,875,000 | | | | 17.9 | % | | | 17.5 | % | |
Olawalu Holdings, LLC(7) | | | | 642,000 | | | | 6.11 | % | | | |
2863 S. Western Avenue | | | | | | | | | | |
Palos Verdes, California 90275 | | | | | | | | | | |
All officers and directors as a group (eight persons)(8) | | | | 1,875,000 | | | | 17.9 | % | | | |
| | |
(1) | | Based upon 10,500,000 shares of our common stock outstanding on February 22,April 20, 2007. Of the aggregate consideration for the acquisition, $1.6 million will be paid to one of the sellers in shares of our common stock. Our shares will be valued for this purpose based upon the average of the closing sale prices of our common stock as reported on the American Stock Exchange during the 20 trading days ending two days prior to the closing of the acquisition. Based upon the closing sale price of our common stock as reported on the American Stock Exchange on February 22, 2007 of $7.90, we would issue approximately 202,500 shares to the seller. The percentage ownership “After the Acquisition” reflects the issuance of these shares. |
| | |
(2) | | Mr. Valenta’s business address is c/o General Finance Corporation, 260 South Los Robles, Suite 217, Pasadena, California 91101. The shares shown exclude the shares referred to in note (7), below, as well as 1,168,466 shares subject to our warrants held by Mr. Valenta. |
| | |
(3) | | The shares shown exclude 309,367 shares subject to our warrants held by Mr. Johnson. |
| | |
(4) | | Fir Tree, Inc. is the investment manager of both Fir Tree Recovery Master Fund, L.P., a Cayman Islands exempted limited partnership, and Sapling, LLC, a Delaware limited liability company. Fir Tree Recovery may direct the vote and disposition of 271,894 of the shares shown. Fir Tree Value Master Fund, LP, a Cayman Islands exempted limited partnership, as the sole member of Sapling, LLC, may direct the vote and disposition of the 626,631 of the shares shown. Information is based upon a Schedule 13G filed with respect to our company with the Securities Exchange Commission on April 11, 2006. Based upon a review of other filings with the Securities and Exchange Commission, we have reason to believe that Jeffrey Tannenbaum, the President of Fir Tree, Inc., may be deemed to be a control person of Sapling, LLC and Fir Tree Recovery Master Fund, L.P. |
100110
| | |
(4)(5) | | Information is based upon a Schedule 13G filed with respect to our company filed with the Securities and Exchange Commission on March 12, 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 23,720 shares as to which Gilder, Gagnon, Howe & Co. LLC has sole voting power and 1,076,540 shares as to which it shares voting and investment power. Of these 1,076,540 shares, 930,380 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, 102,440 shares are held in accounts of its partners and 33,720 shares are held in its profit-sharing plan. |
| | |
(6) | | Information is based upon a Schedule 13G with respect to our company filed with the Securities and Exchange Commission on February 13, 2007. The Baupost Group, L.L.C. is a registered investment advisor, of which SAK Corporation, a Massachusetts corporation, is the Manager. Seth A. Klarman is the sole director of SAK Corporation and a control person of The Baupost Group, L.L.C., and as such may be deemed to beneficially own the shares shown. The shares shown include shares purchased on behalf of various investment limited partnerships. |
| | |
(7) | | Information is based upon a Schedule 13G with respect to our company filed on February 27, 2007 with the Securities and Exchange Commission. Olawalu Holdings, LLC, or Olawalu, is a Hawaiian limited liability company, of which Mr. 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 Mr. 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 has no 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. |
| | |
(5)(8) | | Excludes Robert Allan, the Chief Executive Officer of Royal Wolf, who will be deemed to be one of our executive officers after the acquisition, and Peter McCann and James Warren, the Chief Financial Officer and the Chief Operating Officer, respectively, of Royal Wolf, who may be deemed to be key employees following the acquisition. Mr. Allan owns 400 shareshares of our common stock. None of the other individuals owns beneficially any shares of our common stock. The shares shown exclude a total of 1,477,833 shares subject to our warrants held by our directors and executive officers. |
STOCKHOLDER PROPOSALS
Regardless as to whether our acquisition of Royal Wolf is approved, our 2007 annual meeting of stockholders will be held on or about May 8, 2007, unless the date is changed by our board of directors. Any stockholder who intends to have a proposal considered for inclusion in the proxy statement to be distributed by us in connection with the 2007 annual meeting must submit the proposal to us within a reasonable time“reasonable time” (within the meaning ofRule 14a-8(e)(2) under the Securities Exchange Act of 1934), and in no event more than 20 days, before we begin to print and mail our proxy materials for the annual meeting, which we anticipate will be on or about 30 days prior to the meeting date. The proposal must also comply with the other terms and conditions ofRule 14a-8 of the Securities Exchange Act of 1934 in order to be included in our proxy statement. A proposal that a stockholder intends to present at the annual meeting but does not desire to include in our proxy statement pursuant toRule 14a-8 will be considered untimely unless it is received by us not less than 60 days nor more than 90 days prior to the date of the annual meeting (provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the annual meeting is given by us to our stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made). The proposal must also contain the information that is specified in Article I, Section 15 of our bylaws. All proposals described in this paragraph should be sent to Ronald F. Valenta, our Chief Executive Officer and Secretary, at General Finance Corporation, 260 South Los Robles, Suite 217, Pasadena, California 91101.
111
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to our IPO, we issued an aggregate of 1,875,000 shares of common stock to certain of our current officers and directors as set forth above under “Beneficial Ownership of Securities” at a purchase price of approximately $0.134 per share. These shares are being held in escrow with Continental Stock Transfer & Trust Company, as escrow agent, pursuant to an escrow agreement between us, our officers and directors and the escrow agent. These shares will not be transferable by our officers and directors, except to their spouses, children or trusts established for their benefit, and will only be released from escrow upon the earlier of one year after the completion of our initial business combination or the completion of a transaction after our initial business combination that results in our stockholders having the right to exchange their shares for cash or other securities.
We currently have an unsecured limited recourse line of credit agreement with Ronald J. Valenta, our Chief Executive Officer and a director, under which we can borrow up to $2,000,000$3,000,000 from time to time at an annual interest rate of 8%. At February 28, 2007, the outstanding amount of principal and accrued interest under the line of credit was $1,317,050. Borrowings under the line of credit will become due and payable upon the first to occur of our initial business combination, an “event of default” (as defined), our liquidation or dissolution, and April 5, 2008, provided, however, that Mr. Valenta will have no recourse against the funds held in the trust account for repayment of any amounts outstanding under the line of credit. Subject to this limitation on recourse to the funds in the trust account, amounts outstanding under the line of credit may be repaid in whole or in pat at any time without penalty or premium. Neither Mr. Valenta nor our other officers or directors has any obligation to provide us any additional financing.
101
As an inducement to Bison-GE and the management shareholders to enter into the acquisition agreement, Mr. Valenta has entered into a backup purchase agreement with Bison-GE and the management shareholders under which he agrees that, if the Royal Wolf acquisition is not approved at the special meeting, or otherwise is not completed by April 3, 2008, he will purchase from Bison-GE and the management shareholders all of the RWA shares at a purchase price equivalent to the purchase price payable by us under the acquisition agreement. The terms of the backup purchase agreement were determined by arm’s-length negotiations among Mr. Valenta, Bison-GE and the management shareholders. Mr. Valenta will not be entitled to a fee or other compensation for the agreeing to the backup purchase agreement.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities and Exchange Commission as required by the Securities Exchange Act of 1934, as amended. You may read and copy reports, proxy statements and other information filed by us with the Securities and Exchange Commission at the Securities and Exchange Commission public reference room located at Judiciary Plaza, 100 F Street, N.E., Room 1024, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at1-800-732-0330. You may also obtain copies of the materials described above at prescribed rates by writing to the Securities and Exchange Commission, Public Reference Section, 100 F Street N.E., Washington, D.C. 20549. You also may access information on us at the Securities and Exchange Commission web site containing reports, proxy statements and other information at: http://www.sec.gov.
If you would like additional copies of this proxy statement or the proxy card, or if you have questions about the acquisition, you should contact, orally or in writing:
| | | | |
John O. Johnson | | OR | | MacKenzie Partners, Inc. |
Chief Operating Officer | | | | 105 Madison Avenue |
General Finance Corporation | | | | New York, New York 10016 |
260 South Robles, Suite 217 | | | | Telephone: (800)322-2885 |
Pasadena, California 91101 | | | | |
Telephone:(626) 584-9722 | | | | |
102112
INDEX TO FINANCIAL STATEMENTS
| | | | |
| | Page |
|
RWA HOLDINGS PTY LIMITED | | | | |
As of and for the year ended June 30, 2006, the six months ended June 30, 2005, and the year ended December 31, 2004: | | | | |
| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED | | | | |
As of and for the year ended December 31, 2003: | | | | |
| | | F-58 | |
| | | F-59 | |
| | | F-60 | |
| | | F-61 | |
| | | F-62 | |
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP | | | | |
As of and for the year ended June 30, 2005 and the nine months ended March 31, 2006 and 2005 (unaudited): | | | | |
| | | F-81 | |
| | | F-82 | |
| | | F-83 | |
| | | F-85 | |
F-1
Independent audit report to the members of RWA Holdings Pty Limited
The Board of Directors
RWA Holdings Pty Limited
We have audited the accompanying consolidated balance sheets of RWA Holdings Pty Limited and subsidiaries as of June 30, 2006 and 2005, and December 31, 2004, and the related consolidated income statements, statements of recognized income and expense, and cash flows for the periods then ended. These consolidated 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 auditing standards generally accepted in Australia and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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, 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 financial position of RWA Holdings Pty Limited and subsidiaries as of June 30, 2006 and 2005, and December 31, 2004, and the results of their operations and their cash flows for the periods then ended, in conformity with Australian equivalents to International Financial Reporting Standards.
Australian equivalents to International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 27 to the consolidated financial statements.
As discussed in Note 1(w), the accompanying consolidated financial statements as of June 30, 2006 and 2005, and December 31, 2004 and for each of the periods in the two and a half year period ended June 30, 2006 have been restated.
/s/ KPMG
Sydney, Australia
October 20, 2006
F-2
RWA Holdings Pty Limited Financial Report
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | | | 2006
| | | 2005
| | | 2004
| |
| | Note | | | 12 Months | | | 6 Months | | | 12 Months | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Revenue | | | | | | | | | | | | | | | | |
Sale and modification of containers | | | | | | | 46,097 | | | | 17,534 | | | | 35,463 | |
Hire of containers | | | | | | | 21,290 | | | | 9,339 | | | | 16,756 | |
| | | | | | | | | | | | | | | | |
Total revenue | | | | | | | 67,387 | | | | 26,873 | | | | 52,219 | |
| | | | | | | | | | | | | | | | |
Other income | | | 3 | | | | 35 | | | | 18 | | | | 31 | |
Changes in inventories of finished goods and WIP | | | | | | | (3,475 | ) | | | (1,936 | ) | | | 1,740 | |
Purchases of finished goods and consumables used | | | | | | | (40,243 | ) | | | (14,687 | ) | | | (34,437 | ) |
Employee benefits expense | | | | | | | (10,157 | ) | | | (4,794 | ) | | | (7,525 | ) |
Depreciation and amortisation expense | | | | | | | (4,480 | ) | | | (2,041 | ) | | | (3,943 | ) |
Other expenses | | | 4 | | | | (6,411 | ) | | | (2,820 | ) | | | (4,568 | ) |
| | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 2,656 | | | | 613 | | | | 3,517 | |
| | | | | | | | | | | | | | | | |
Financial income | | | 6 | | | | 552 | | | | 429 | | | | 118 | |
Financial expenses | | | 6 | | | | (4,064 | ) | | | (1,457 | ) | | | (3,252 | ) |
| | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (3,512 | ) | | | (1,028 | ) | | | (3,134 | ) |
| | | | | | | | | | | | | | | | |
Share of profit of associate | | | 11 | | | | — | | | | 172 | | | | 92 | |
| | | | | | | | | | | | | | | | |
Profit/(loss) before tax | | | | | | | (856 | ) | | | (243 | ) | | | 475 | |
Income tax benefit | | | 7 | | | | 525 | | | | 30 | | | | 4 | |
| | | | | | | | | | | | | | | | |
Profit/(loss) after tax | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
Equity holders of the parent | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | |
The income statements are to be read in conjunction with the notes of the financial statements
set out on pages F-7 to F-56.
F-3
RWA Holdings Pty Limited Financial Report
For the year ended 30 June 2006
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | | | | 2006
| | | 2005
| | | 2004
| |
| | Note | | | 12 Months | | | 6 Months | | | 12 Months | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Net income/(loss) recognised directly in equity | | | | | | | — | | | | — | | | | — | |
Profit/(loss) for the period | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | |
Total recognised income and expense for the period | | | 19 | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
Equity holders of the parent | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
| | | | | | | | | | | | | | | | |
The statements of recognised income and expense are to be read in conjunction with the notes of the financial statements set out on pages F-7 to F-56.
F-4
RWA Holdings Pty Limited Financial Report
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | Note | | | 30 June 2006 | | | 30 June 2005 | | | 31 December 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
ASSETS |
Cash and cash equivalents | | | 8 | | | | 777 | | | | 695 | | | | 3 | |
Trade and other receivables | | | 9 | | | | 10,206 | | | | 7,876 | | | | 7,024 | |
Inventories | | | 10 | | | | 7,498 | | | | 4,023 | | | | 2,140 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 18,481 | | | | 12,594 | | | | 9,167 | |
| | | | | | | | | | | | | | | | |
Receivables | | | 9 | | | | 775 | | | | 839 | | | | 1,194 | |
Investments accounted for using the equity method | | | 11 | | | | — | | | | 427 | | | | 255 | |
Property, plant and equipment | | | 12 | | | | 3,599 | | | | 3,306 | | | | 1,812 | |
Container hire fleet | | | 13 | | | | 38,491 | | | | 25,779 | | | | 22,447 | |
Intangible assets | | | 14 | | | | 5,060 | | | | 4,207 | | | | 4,515 | |
| | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 47,925 | | | | 34,558 | | | | 30,223 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | | | 66,406 | | | | 47,152 | | | | 39,390 | |
| | | | | | | | | | | | | | | | |
|
LIABILITIES |
Trade and other payables | | | 15 | | | | 12,509 | | | | 8,228 | | | | 11,530 | |
Interest-bearing loans and borrowings | | | 16 | | | | 8,939 | | | | 2,778 | | | | 1,425 | |
Current tax liability | | | | | | | — | | | | — | | | | 791 | |
Employee benefits | | | 17 | | | | 962 | | | | 801 | | | | 444 | |
Provisions | | | 18 | | | | 300 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 22,710 | | | | 11,807 | | | | 14,190 | |
| | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
Interest bearing loans and borrowings | | | 16 | | | | 37,194 | | | | 30,175 | | | | 20,614 | |
Deferred tax liabilities | | | 7 | | | | 824 | | | | 119 | | | | 119 | |
Employee benefits | | | 17 | | | | 567 | | | | 227 | | | | 308 | |
Provisions | | | 18 | | | | 282 | | | | 8 | | | | 8 | |
| | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 38,867 | | | | 30,529 | | | | 21,049 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 61,577 | | | | 42,336 | | | | 35,239 | |
| | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,829 | | | | 4,816 | | | | 4,151 | |
| | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
Issued capital | | | 19 | | | | 4,550 | | | | 4,550 | | | | 3,672 | |
Retained earnings/(accumulated losses) | | | 19 | | | | (65 | ) | | | 266 | | | | 479 | |
Reserves | | | 19 | | | | 344 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,829 | | | | 4,816 | | | | 4,151 | |
| | | | | | | | | | | | | | | | |
The balance sheets are to be read in conjunction with the notes of the financial statements
set out on pages F-7 toF-56.
F-5
RWA Holdings Pty Limited Financial Report
For the year ended 30 June 2006
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June 2006
| | | 30 June 2005
| | | 31 December 2004
| |
| | Note | | | 12 Months | | | 6 Months | | | 12 Months | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Cash flows from operating activities | | | | | | | | | | | | | | | | |
Cash receipts from customers | | | | | | | 71,375 | | | | 29,238 | | | | 56,324 | |
Cash paid to suppliers and employees | | | | | | | (54,343 | ) | | | (25,334 | ) | | | (49,584 | ) |
| | | | | | | | | | | | | | | | |
Cash generated from operations | | | | | | | 17,032 | | | | 3,904 | | | | 6,740 | |
Interest paid | | | | | | | (3,041 | ) | | | (1,270 | ) | | | (1,721 | ) |
Income taxes received/(paid) | | | | | | | — | | | | (759 | ) | | | 781 | |
| | | | | | | | | | | | | | | | |
Net cash from operating activities | | | 25 | | | | 13,991 | | | | 1,875 | | | | 5,800 | |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | |
Proceeds from sale of property, plant and equipment | | | | | | | 70 | | | | 24 | | | | 74 | |
Interest received | | | | | | | 209 | | | | 104 | | | | 118 | |
Acquisition of subsidiary, net of cash acquired | | | 24 | | | | (6,490 | ) | | | — | | | | — | |
Acquisition of property, plant and equipment | | | 12 | | | | (1,119 | ) | | | (1,937 | ) | | | (1,254 | ) |
Acquisition of container hire fleet | | | 13 | | | | (18,073 | ) | | | (7,725 | ) | | | (12,003 | ) |
Acquisition of intangible assets | | | 14 | | | | (496 | ) | | | (25 | ) | | | (70 | ) |
Payment of deferred purchase consideration | | | | | | | — | | | | (3,500 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Net cash from investing activities | | | | | | | (25,899 | ) | | | (13,059 | ) | | | (13,135 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | |
Payment of finance lease liabilities | | | | | | | (756 | ) | | | (385 | ) | | | (1,910 | ) |
Proceeds from borrowings | | | | | | | 24,736 | | | | 12,987 | | | | 19,682 | |
Repayment of borrowings | | | | | | | (14,116 | ) | | | (1,071 | ) | | | (12,755 | ) |
Proceeds from calls made on shares | | | | | | | — | | | | 878 | | | | — | |
| | | | | | | | | | | | | | | | |
Net cash from financing activities | | | | | | | 9,864 | | | | 12,409 | | | | 5,017 | |
| | | | | | | | | | | | | | | | |
Net increase / (decrease) in cash and cash equivalents | | | | | | | (2,044 | ) | | | 1,225 | | | | (2,318 | ) |
Cash and cash equivalents at beginning of period | | | | | | | 695 | | | | (530 | ) | | | 1,788 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at 30 June | | | 8 | | | | (1,349 | ) | | | 695 | | | | (530 | ) |
| | | | | | | | | | | | | | | | |
The statements of cash flows are to be read in conjunction with the notes of the financial statements
set out on pages F-7 to F-56.
F-6
RWA Holdings Pty Limited Financial Report
| |
1. | Significant accounting policies |
RWA Holdings Pty Limited (the ‘company’) is a proprietary company domiciled in Australia.
The consolidated financial report of the company for the financial year ended 30 June 2006 comprise the company and its subsidiaries (together referred to as the ’consolidated entity’) and the consolidated entity’s interest in associates.
The financial report was authorised for issue by the directors on 20 October 2006.
Change in year end
On 20 January 2005 the Australian Securities and Investments Commission (ASIC) issued a Subsection 340(1) Order granting the company and its controlled entity relief from paragraph 323D(2)(b) of the Act and allowing a ‘transitional’ financial year of six months from 1 January 2005 to 30 June 2005, with each financial year thereafter being twelve months long. Consequently, comparative amounts for the income statement, changes in equity, cash flows and related notes are not entirely comparable.
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(a) | Statement of compliance |
The financial report has been prepared in accordance with the requirements of Australian Accounting Standards (‘AASBs’) adopted by the Australian Accounting Standards Board (‘AASB’). International Financial Reporting Standards (‘IFRSs’) form the basis of AASBs, and for the purpose of this report are called Australian equivalents to IFRS (‘AIFRS’) to distinguish from previous Australian generally accepted accounting principles (“AGAAP”). The financial reports of the consolidated entity also comply with IFRSs and interpretations adopted by the International Accounting Standards Board.
The financial report is presented in Australian dollars.
Issued standards not early adopted
The following standards and amendments were available for early adoption but have not been applied by the consolidated entity in these financial statements:
| | |
| • | AASB 7Financial instruments: Disclosure(August 2005) replacing the presentation requirements of financial instruments in AASB 132. AASB 7 is applicable for annual reporting periods beginning on or after 1 January 2007; |
|
| • | AASB 2005-9Amendments to Australian Accounting Standards(September 2005) requires that liabilities arising from the issue of financial guarantee contracts are recognised in the balance sheet. AASB 2005-9 is applicable for annual reporting periods beginning on or after 1 January 2006; |
|
| • | AASB 2005-10Amendments to Australian Accounting Standards(September 2005) makes consequential amendments to AASB 132Financial Instruments: Disclosures and Presentation, AASB 101Presentation of Financial Statements, AASB 114Segment Reporting, AASB 117Leases, AASB 139Financial Instruments: Recognition and Measurement, AASB 1First-time Adoption of Australian Equivalents to International Financial Reporting Standards, arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after 1 January 2007. |
The consolidated entity plans to adopt AASB 7, AASB 2005-9 and AASB 2005-10 in the 2007 financial year.
F-7
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
The initial application of AASB 7 and AASB 2005-10 is not expected to have an impact on the financial results of the consolidated entity as the standard and the amendment are concerned only with disclosures.
The initial application of AASB 2005-9 could have an impact on the financial results of the company and the consolidated entity as the amendment could result in liabilities being recognised for financial guarantee contracts that have been provided by the company and the consolidated entity. However, the quantification of the impact is not known or reasonably estimable in the current financial year as an exercise to quantify the financial impact has not been undertaken by the company and the consolidated entity to date.
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 asavailable-for-sale.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 (updated by CO 05/641 effective 28 July 2005 and CO 06/51 effective 31 January 2006) and in accordance with that Class Order, amounts in the financial report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated.
The preparation of a financial report in conformity with Australian Accounting Standards 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 by each entity in the consolidated entity.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised 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 in the application of Australian Accounting Standards 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 note 1(v).
The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report. The accounting policies have been applied consistently by all entities in the consolidated entity.
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(c) | Basis of consolidation |
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
(ii) Associates
Associates are those entities in which the company has significant influence, but not control, over the financial and operating policies. The consolidated financial statements includes the consolidated entity’s share of the total
F-8
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the consolidated entity’s share of losses exceeds its interest in an associate, the consolidated entity’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated entity has incurred legal or constructive obligations or made payments on behalf of an associate.
The consolidated entity’s investment in its associate is accounted for under the equity method of accounting in the consolidated financial statements. The financial statements of the associate are used by the consolidated entity to apply the equity method of accounting. The reporting dates of the associate and the consolidated entity are identical and both use consistent accounting policies.
The investment in the associate is carried in the balance sheet at cost plus post-acquisition changes in the consolidated entity’s share of net assets of the associate, less any impairment in value. The income statement reflects the consolidated entity’s share of the results of operations of the associate. Where there has been a change recognised directly in the associate’s equity, the consolidated entity recognises its share of any changes and discloses this, when applicable in the statement of changes in equity.
(iii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.
Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the consolidated entity’s interest in the entity with adjustments made to the ‘Investments accounted for under the equity method’ and ‘Share of profit of associate’ accounts.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are consumed or sold by the associates and jointly controlled entities or, if not consumed or sold by the associate or jointly controlled entity, when the consolidated entity’s interest in such entities is disposed of.
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(d) | Foreign currency transactions |
Transactions in foreign currencies are translated at the foreign exchange rate ruling 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 ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. 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 ruling at the dates the fair value was determined.
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(e) | Derivative financial instruments |
The consolidated entity 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 consolidated entity 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 recognised 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 recognised immediately in profit or loss.
F-9
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
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(f) | Property, plant and equipment |
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy (l)). The cost of self-constructed assets includes the cost of materials, direct labour, 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 consolidated entity recognises 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 consolidated entity and the cost of the item can be measured reliably. All other costs are recognised in the income statement 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 consolidated entity are classified as finance leases. Other leases are classified as operating leases.
Finance 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 capitalised 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. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Operating leases
Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property. Where leases have fixed rate increases, these increases are accrued and amortised over the entire lease period, yielding a constant periodic expense for the entire term of the lease.
(iv) Depreciation
Depreciation is charged to the income statement on a straight line basis over the estimated useful lives 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.
F-10
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
The estimated useful lives in the current and comparative periods are as follows:
| | | | |
| | 2004-2005 | | 2006 |
|
Property, plant and equipment | | | | |
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 years (20% residual) | | 10 - 25 years (20% residual) |
Leased containers for hire (used) | | 10 years (20% residual) | | 10 - 25 years (20% residual) |
Leased containers for hire (new) | | 25 years (20% residual) | | 10 - 30 years (20-30% residual) |
The consolidated entity has a container hire fleet primarily consisting of refurbished, modified and manufactured shipping containers that are held long term and leased to customers under short-term operating lease agreements with varying terms. Depreciation is provided using the straight-line method over the units’ 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 realisable value. The consolidated entity 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 capitalised when it is probable that future economic benefits in excess of the originally assessed performance of the asset will flow to the consolidated entity in future years, otherwise, 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 recognised as the depreciated cost at date of disposal.
(i) Goodwill
Business combinations prior to 1 January 2004
Goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP.
Business combinations since 1 January 2004
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 amortised but is tested annually for impairment (see accounting policy (l)). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. Negative goodwill arising on an acquisition is recognised directly in profit or loss.
F-11
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
(ii) Other intangible assets
Other intangible assets that are acquired by the consolidated entity are stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (l)).
Expenditure on development activities, whereby research findings are assigned to a plan or design for the production of new or substantially improved products and processes is capitalised if the product or process is technically and commercially feasible and the consolidated entity has sufficient resources to complete the development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate portion of overheads. Other development expenditure is recognised in the income statement as an expense when incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy l).
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.
(iii) Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
(iv) Amortisation
Amortisation is charged to the income statement on a 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 amortised from the date they are available for use.
The estimated useful lives in the current and comparative periods are as follows:
| | |
• Goodwill | | indefinite |
• Software | | 3 years |
• Development assets | | 5 years or the products expected life cycle, as appropriate |
| |
(i) | Trade and other receivables |
Trade and other receivables are stated at amortised cost less impairment losses (see accounting policy (l)).
Inventories are stated at the lower of cost and net realisable value. Net realisable 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 realisable value.
Costs are assigned to individual items of stock on the basis of specific identification, and include expenditure incurred in acquiring the inventories and bringing them to their existing condition and location.
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(k) | Cash and cash equivalents |
Cash and cash equivalents comprise cash balances and short term deposits. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
F-12
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
The carrying amounts of the consolidated entity’s assets, other than inventories (see accounting policy (j)) and deferred tax assets (see accounting policy (s)), 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 (see accounting policy(l(i))).
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 recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement, unless an asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss.
Impairment losses recognised 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 consolidated entity’s receivables carried at amortised 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.
Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. Receivables are individually assessed for impairment.
The recoverable amount of the consolidated entity’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) Reversals of impairment
Impairment losses, other than in respect of goodwill, are reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimate used to determine the recoverable amount.
An impairment loss in respect of goodwill is not reversed.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
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(m) | Interest bearing borrowings |
Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and
F-13
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.
(i) Defined contribution superannuation funds
Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the income statement as incurred.
(ii) Long-term service benefits
The consolidated entity’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 on-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 consolidated entity’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 consolidated entity expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax.
(iv) Share-based payment transactions
Certain directors and senior officers have been granted options over the ordinary shares of RWA Holdings Pty Limited. Details of the interests of the directors and top five remunerated officers of the consolidated entity have been disclosed in the Directors’ report.
The employee share option plan allows consolidated entity employees to acquire shares of the Company with both the company and employees having the option to settle with a cash equivalent. The fair value of options granted is recognised as an employee expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The liability is remeasured at each balance sheet date and at settlement date.
The fair value of the options granted is measured using a binomial option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The volatility of the asset value is based upon the volatility of listed companies with a similar profile to the consolidated entity.
A provision is recognised in the balance sheet when the consolidated entity 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.
F-14
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| |
(p) | Trade and other payables |
Trade and other payables are stated at their amortised cost. Trade payables are non-interest bearing and are normally settled within 60 day terms.
Revenue is generally realised or realisable and earned when all of the following criteria have been met:
| | |
| • | persuasive evidence of an arrangement exists; |
|
| • | delivery has occurred; |
|
| • | 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 recognised based on invoiced amounts and is recognised in the income statement (net of returns, discounts and allowances) when the significant risks and rewards of ownership have been transferred to the buyer and it 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. No revenue is recognised if there is significant uncertainty regarding recovery of the consideration due, the amount cannot be measured reliably, 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 recorded based on the amount and term prescribed in the lease hire agreement. No revenue is recognised if there is significant uncertainty regarding recovery of the rental payments due.
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 balance date was $565,000 (2005: $489,000, 2004: 470,000), and is included in trade and other payables.
Net financing costs comprise 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 recognised in the income statement (see accounting policy (e)). Borrowing costs are expensed as incurred and included in net financing costs.
Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established. The interest expense component of finance lease payments is recognised in the income statement using the effective interest method.
F-15
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
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 balance sheet 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 following temporary differences are not provided for: initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation 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 utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax consolidated group with effect from 24 December 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is RWA Holdings Pty Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ’separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries is assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution or distribution.
The Company recognises deferred tax assets arising from unused tax losses of the tax consolidated group to the extent that it is probable that future taxable profits of the tax consolidated group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only.
F-16
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity.
The head entity in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote.
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(t) | 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.
A segment is a distinguishable component of the consolidated entity that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
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(v) | Accounting estimates and judgments |
Management discussed with the Audit Committee the development, selection and disclosure of the consolidated entity’s critical accounting policies and estimates and the application of these policies and estimates. 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 recognised 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 judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
F-17
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised 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 financial year, the consolidated entity revised upwards the useful life of containers for hire as outlined in note 1(f)(iv). The financial impact of the revision results in depreciation expense for the current year being $696,023 less than it would have been if the previous useful life estimate had been applied. The effect on net income for the year is an increase of $487,216. 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(l) contains information about the assumptions and their risk factors relating to goodwill impairment. In note 20 detailed analysis is given of the foreign exchange exposure of the consolidated entity and risks in relation to foreign exchange movements.
Impairment of goodwill and intangibles with indefinite useful lives
The consolidated entity assesses whether goodwill and intangibles with indefinite useful lives are impaired at least annually in accordance with the accounting policy in note 14. 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.
| |
(w) | Correction of prior period errors |
Where a material prior period error is discovered in a subsequent financial period such errors are corrected retrospectively by restating the comparative amounts for the prior periods presented in which the error occurred. If the error occurred before the earliest prior period presented, the opening balances of assets, liabilities and equity for the earliest prior period presented are restated.
In the year ended 30 June 2006 an error was identified in the originally issued financial statements for the year ended 30 June 2006 relating to the treatment of deferred tax assets and liabilities at 30 June 2006 and at the date of acquisition of Royal Wolf Trading Australia Limited on 24 December 2003, and the subsequent recognition of the impact of tax base step up elections under AASB112Income Taxeson transition to Australian Equivalents to International Financial Reporting Standards at 1 January 2004. In addition, a trademark with a fair value of $398,000 subsumed within goodwill under previous GAAP has been reflected in the transition balance sheet at 1 January 2004 along with an associated deferred tax liability of $119,000. Accordingly, the opening balances at transition on 1 January 2004 have been amended and the impact of the adjustments reflected in the restated comparative information for the year ended 31 December 2004 and six months ended 30 June 2005 and restated current year information for the year ended 30 June 2006.
The impact of this is to reduce goodwill by $1,003,000, increase trademarks within intangible assets by $398,000 and reduce deferred tax liabilities by $605,000 at 1 January 2004, with no impact on retained earnings.
Australian Accounting Standards require any recognition of the benefit of deferred tax not recognised on a business combination entered into before the transition to AIFRS under the transition rules in AASB1 to be deducted from goodwill by means of a write off through the income statement. The goodwill impairment expense for the year ended 30 June 2006 is therefore increased by $907,000 (period ended 30 June 2005: $127,000; year
F-18
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
ended 31 December 2004: $547,000). The tax benefit in the year ended 30 June 2006 is reduced by $2,046,000 (period ended 30 June 2005: $29,000; year ended 31 December 2004: tax expense reduced by $519,000).
The impact on the balance sheet and income statement at and for the periods ended 30 June 2006, 30 June 2005 and 31 December is illustrated below
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Restated
| |
| | | | | 30 June
| | | | | | 30 June
| |
| | Note | | | 2006 | | | Restatement | | | 2006 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Current assets | | | | | | | 18,481 | | | | — | | | | 18,481 | |
| | | | | | | | | | | | | | | | |
Other non-current assets | | | | | | | 42,865 | | | | — | | | | 42,865 | |
Deferred tax assets | | | | | | | 127 | | | | (127 | ) | | | — | |
Intangible assets | | | | | | | 7,246 | | | | (2,186 | ) | | | 5,060 | |
| | | | | | | | | | | | | | | | |
Total non current assets | | | | | | | 50,238 | | | | (2,313 | ) | | | 47,925 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | | | 68,719 | | | | (2,313 | ) | | | 66,406 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 22,710 | | | | — | | | | 22,710 | |
| | | | | | | | | | | | | | | | |
Deferred tax liability | | | | | | | — | | | | 824 | | | | 824 | |
Other non-current liabilities | | | | | | | 38,043 | | | | — | | | | 38,043 | |
| | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 38,043 | | | | 824 | | | | 38,867 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 60,753 | | | | 824 | | | | 61,577 | |
| | | | | | | | | | | | | | | | |
Net assets | | | | | | | 7,966 | | | | (3,137 | ) | | | 4,829 | |
| | | | | | | | | | | | | | | | |
Total equity | | | | | | | 7,966 | | | | (3,137 | ) | | | 4,829 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Restated
| |
| | | | | 30 June
| | | | | | 30 June
| |
| | Note | | | 2006 | | | Restatement | | | 2006 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Results from operating activities | | | | | | | 3,563 | | | | (907 | ) | | | 2,656 | |
Net financing costs | | | | | | | (3,512 | ) | | | — | | | | (3,512 | ) |
| | | | | | | | | | | | | | | | |
Profit/(loss) before tax | | | | | | | 51 | | | | (907 | ) | | | (856 | ) |
Income tax benefit | | | | | | | 2,571 | | | | (2,046 | ) | | | 525 | |
| | | | | | | | | | | | | | | | |
Profit/(loss) after tax | | | | | | | 2,622 | | | | (2,953 | ) | | | (331 | ) |
| | | | | | | | | | | | | | | | |
F-19
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Restated
| |
| | | | | 30 June
| | | | | | 30 June
| |
| | Note | | | 2005 | | | Restatement | | | 2005 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Current assets | | | | | | | 12,594 | | | | — | | | | 12,594 | |
| | | | | | | | | | | | | | | | |
Other non-current assets | | | | | | | 30,351 | | | | — | | | | 30,351 | |
Deferred tax assets | | | | | | | — | | | | — | | | | — | |
Intangible assets | | | | | | | 5,486 | | | | (1,279 | ) | | | 4,207 | |
| | | | | | | | | | | | | | | | |
Total non current assets | | | | | | | 35,837 | | | | (1,279 | ) | | | 34,558 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | | | 48,431 | | | | (1,279 | ) | | | 47,152 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 11,807 | | | | — | | | | 11,807 | |
| | | | | | | | | | | | | | | | |
Deferred tax liability | | | | | | | 1,214 | | | | (1,095 | ) | | | 119 | |
Other non-current liabilities | | | | | | | 30,410 | | | | — | | | | 30,410 | |
| | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 31,624 | | | | (1,095 | ) | | | 30,529 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 43,431 | | | | (1,095 | ) | | | 42,336 | |
| | | | | | | | | | | | | | | | |
Net assets | | | | | | | 5,000 | | | | (184 | ) | | | 4,816 | |
| | | | | | | | | | | | | | | | |
Total equity | | | | | | | 5,000 | | | | (184 | ) | | | 4,816 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Restated
| |
| | | | | 30 June
| | | | | | 30 June
| |
| | Note | | | 2005 | | | Restatement | | | 2005 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Results from operating activities | | | | | | | 740 | | | | (127 | ) | | | 613 | |
Net financing costs | | | | | | | (1,028 | ) | | | — | | | | (1,028 | ) |
Share of profit of associate | | | | | | | 172 | | | | — | | | | 172 | |
| | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (116 | ) | | | (127 | ) | | | (243 | ) |
Income tax benefit | | | | | | | 59 | | | | (29 | ) | | | 30 | |
| | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (57 | ) | | | (156 | ) | | | (213 | ) |
| | | | | | | | | | | | | | | | |
F-20
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Restated
| |
| | | | | 31 December
| | | | | | 31 December
| |
| | Note | | | 2004 | | | Restatement | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Current assets | | | | | | | 9,167 | | | | — | | | | 9,167 | |
| | | | | | | | | | | | | | | | |
Other non-current assets | | | | | | | 25,708 | | | | — | | | | 25,708 | |
Deferred tax assets | | | | | | | 625 | | | | (625 | ) | | | — | |
Intangible assets | | | | | | | 5,667 | | | | (1,152 | ) | | | 4,515 | |
| | | | | | | | | | | | | | | | |
Total non current assets | | | | | | | 32,000 | | | | (1,777 | ) | | | 30,223 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | | | 41,167 | | | | (1,777 | ) | | | 39,390 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 14,190 | | | | — | | | | 14,190 | |
| | | | | | | | | | | | | | | | |
Deferred tax liability | | | | | | | 1,868 | | | | (1,749 | ) | | | 119 | |
Other non-current liabilities | | | | | | | 20,894 | | | | 36 | | | | 20,930 | |
| | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 22,762 | | | | (1,713 | ) | | | 21,049 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 36,952 | | | | (1,713 | ) | | | 35,239 | |
| | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,215 | | | | (64 | ) | | | 4,151 | |
| | | | | | | | | | | | | | | | |
Total equity | | | | | | | 4,215 | | | | (64 | ) | | | 4,151 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Restated
| |
| | | | | 31 December
| | | | | | 31 December
| |
| | Note | | | 2004 | | | Restatement | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Results from operating activities | | | | | | | 4,064 | | | | (547 | ) | | | 3,517 | |
Net financing costs | | | | | | | (3,134 | ) | | | | | | | (3,134 | ) |
Share of profit of associate | | | | | | | 92 | | | | — | | | | 92 | |
| | | | | | | | | | | | | | | | |
Profit before tax | | | | | | | 1,022 | | | | (547 | ) | | | 475 | |
Income tax benefit/(expense) | | | | | | | (515 | ) | | | 519 | | | | 4 | |
| | | | | | | | | | | | | | | | |
Profit after tax | | | | | | | 507 | | | | (28 | ) | | | 479 | |
| | | | | | | | | | | | | | | | |
The consolidated entity operates predominantly in one segment, being the sale and leasing of freight containers and container based storage and accommodation products and within one geographical segment, being Australia.
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006
| | | 2005
| | | 2004
| |
| | 12 Months | | | 6 Months | | | 12 Months | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Net gain on disposal of property, plant and equipment | | | 28 | | | | 17 | | | | 28 | |
Bad debts recovered | | | 7 | | | | 1 | | | | 3 | |
| | | | | | | | | | | | |
| | | 35 | | | | 18 | | | | 31 | |
| | | | | | | | | | | | |
F-21
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Restated
| | Restated
| | Restated
| | | Restated
| | Restated
| | Restated
| |
| | 30 June
| | 30 June
| | 31 December
| | | 30 June
| | 30 June
| | 31 December
| |
| | 2006
| | 2005
| | 2004
| | | 2006
| | 2005
| | 2004
| |
| | 12 Months | | 6 Months | | 12 Months | | | 12 Months | | 6 Months | | 12 Months | |
| | A$’000 | | A$’000 | | A$’000 | | | A$’000 | | A$’000 | | A$’000 | |
|
Cost of sales | | | 43,718 | | | | 16,623 | | | | 32,697 | | | | 43,718 | | | | 16,623 | | | | 32,697 | |
| | | | | | | | | | | | | | |
Other expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Operating lease payments | | | 1,174 | | | | 464 | | | | 793 | | | | 1,174 | | | | 464 | | | | 793 | |
Sundry occupancy costs | | | 143 | | | | 48 | | | | 77 | | | | 143 | | | | 48 | | | | 77 | |
Business promotion expenses | | | 1,148 | | | | 329 | | | | 495 | | | | 1,148 | | | | 329 | | | | 495 | |
Travel & accommodation | | | 859 | | | | 416 | | | | 676 | | | | 859 | | | | 416 | | | | 676 | |
IT & telecommunications | | | 559 | | | | 269 | | | | 662 | | | | 559 | | | | 269 | | | | 662 | |
Bad & doubtful debts | | | 234 | | | | 91 | | | | 55 | | | | 234 | | | | 91 | | | | 55 | |
Office supplies | | | 435 | | | | 208 | | | | 321 | | | | 435 | | | | 208 | | | | 321 | |
Inventory write-down | | | 146 | | | | 97 | | | | 34 | | | | 146 | | | | 97 | | | | 34 | |
Other | | | 1,713 | | | | 898 | | | | 1,455 | | | | 1,713 | | | | 898 | | | | 1,455 | |
| | | | | | | | | | | | | | |
�� | | | | 6,411 | | | | 2,820 | | | | 4,568 | |
| | | 6,411 | | | | 2,820 | | | | 4,568 | | | | | | | | |
| | | | | | | | |
| |
5. | Auditors’ remuneration |
| | | | | | | | | | | | |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006
| | | 2005
| | | 2004
| |
| | 12 Months | | | 6 Months | | | 12 Months | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Audit services | | | | | | | | | | | | |
Auditors of the Company | | | | | | | | | | | | |
KPMG Australia | | | | | | | | | | | | |
Audit and review of financial reports | | | 99 | | | | 95 | | | | 73 | |
| | | | | | | | | | | | |
Other services | | | | | | | | | | | | |
Auditors of the Company | | | | | | | | | | | | |
KPMG Australia | | | | | | | | | | | | |
Other assurance services | | | — | | | | 18 | | | | — | |
Taxation services | | | 20 | | | | — | | | | 35 | |
| | | | | | | | | | | | |
| | | 20 | | | | 18 | | | | 35 | |
| | | | | | | | | | | | |
F-22
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006
| | | 2005
| | | 2004
| |
| | 12 Months | | | 6 Months | | | 12 Months | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Interest income | | | 209 | | | | 104 | | | | 118 | |
Net gain on remeasurement of interest rate swap at fair value through profit or loss | | | 293 | | | | — | | | | — | |
Net foreign exchange gain | | | 50 | | | | 325 | | | | — | |
| | | | | | | | | | | | |
Financial income | | | 552 | | | | 429 | | | | 118 | |
| | | | | | | | | | | | |
Interest expense | | | 4,034 | | | | 1,296 | | | | 2,862 | |
Net foreign exchange loss | | | — | | | | — | | | | 390 | |
Net loss on remeasurement of forward exchange contracts at fair value through profit or loss | | | 30 | | | | — | | | | — | |
Net loss on remeasurement of interest rate swap at fair value through profit or loss | | | — | | | | 161 | | | | — | |
| | | | | | | | | | | | |
Financial expenses | | | 4,064 | | | | 1,457 | | | | 3,252 | |
| | | | | | | | | | | | |
Net financing costs | | | 3,512 | | | | 1,028 | | | | 3,134 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006
| | | 2005
| | | 2004
| |
Recognised in the Income Statement | | 12 Months | | | 6 Months | | | 12 Months | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Current tax benefit | | | | | | | | | | | | |
Current year | | | — | | | | (30 | ) | | | (4 | ) |
Adjustments for prior years | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
| | | — | | | | (30 | ) | | | (4 | ) |
| | | | | | | | | | | | |
Deferred tax expense | | | | | | | | | | | | |
Origination and reversal of temporary differences | | | 382 | | | | 127 | | | | 547 | |
Benefit from utilisation of unrecognised deferred tax assets | | | (907 | ) | | | (127 | ) | | | (547 | ) |
| | | | | | | | | | | | |
| | | (525 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Total income tax benefit in income statement | | | (525 | ) | | | (30 | ) | | | (4 | ) |
| | | | | | | | | | | | |
Numerical reconciliation between tax expense and pre-tax net profit | | | | | | | | | | | | |
Profit / (loss) before tax | | | (856 | ) | | | (243 | ) | | | 479 | |
Income tax using the domestic corporation tax rate of 30% | | | (256 | ) | | | (73 | ) | | | 144 | |
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 | | | 272 | | | | 38 | | | | 164 | |
Non-deductible expenses | | | 366 | | | | 132 | | | | 235 | |
Decrease in income tax expense due to: | | | | | | | | | | | | |
Benefit from utilisation of unrecognised deferred tax asset | | | (907 | ) | | | (127 | ) | | | (547 | ) |
| | | | | | | | | | | | |
Income tax benefit on pre-tax net profit | | | (525 | ) | | | (30 | ) | | | (4 | ) |
| | | | | | | | | | | | |
F-23
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Assets | | | Liabilities | | | Net | |
| | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| |
| | 2006 | | | 2005 | | | 2004 | | | 2006 | | | 2005 | | | 2004 | | | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Property, plant and equipment | | | — | | | | — | | | | | | | | (1,997 | ) | | | (572 | ) | | | (321 | ) | | | (1,997 | ) | | | (572 | ) | | | (321 | ) |
Interest bearing loans and borrowings | | | 125 | | | | 48 | | | | — | | | | — | | | | — | | | | — | | | | 125 | | | | 48 | | | | — | |
Employee benefits | | | 368 | | | | 276 | | | | 214 | | | | — | | | | — | | | | — | | | | 368 | | | | 276 | | | | 214 | |
Other items | | | 65 | | | | 270 | | | | 410 | | | | (119 | ) | | | (119 | ) | | | (119 | ) | | | (54 | ) | | | 151 | | | | 291 | |
Tax value of loss carry-forwards | | | 734 | | | | 885 | | | | 731 | | | | — | | | | — | | | | — | | | | 734 | | | | 885 | | | | 731 | |
Deferred tax valuation allowance | | | — | | | | (907 | ) | | | (1,034 | ) | | | — | | | | — | | | | — | | | | — | | | | (907 | ) | | | (1,034 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax assets / (liabilities) | | | 1,292 | | | | 572 | | | | 321 | | | | (2,116 | ) | | | (691 | ) | | | (440 | ) | | | (824 | ) | | | (119 | ) | | | (119 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following:
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Tax losses | | | — | | | | 885 | | | | 731 | |
Temporary differences | | | — | | | | 22 | | | | 303 | |
| | | | | | | | | | | | |
| | | — | | | | 907 | | | | 1,034 | |
| | | | | | | | | | | | |
Deferred tax assets were not recognised in respect of these tax losses and temporary differences on the basis that it was not probable that the RWA Holdings Pty Limited tax consolidated group would generate sufficient taxable profit for the losses to be utilised and the deferred tax assets would reverse in the same periods as deferred tax liabilities.
| |
8. | Cash and cash equivalents |
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Bank balances | | | 20 | | | | 777 | | | | 695 | | | | 3 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | 777 | | | | 695 | | | | 3 | |
Bank overdrafts repayable on demand | | | 16 | | | | (2,126 | ) | | | — | | | | (533 | ) |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents in the statement of cash flows | | | | | | | (1,349 | ) | | | 695 | | | | (530 | ) |
| | | | | | | | | | | | | | | | |
F-24
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| |
9. | Trade and other receivables |
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Current | | | | | | | | | | | | | | | | |
Trade receivables | | | | | | | 9,298 | | | | 6,637 | | | | 6,136 | |
Less: Impairment losses | | | | | | | (177 | ) | | | (102 | ) | | | (85 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | 9,121 | | | | 6,535 | | | | 6,051 | |
Receivables from related parties | | | | | | | — | | | | 74 | | | | 89 | |
Lease receivable | | | 20 | | | | 335 | | | | 180 | | | | 165 | |
Loan to related entity | | | | | | | — | | | | 260 | | | | — | |
Fair value derivatives | | | | | | | 132 | | | | — | | | | — | |
Other receivables and prepayments | | | | | | | 618 | | | | 827 | | | | 719 | |
| | | | | | | | | | | | | | | | |
| | | | | | | 10,206 | | | | 7,876 | | | | 7,024 | |
| | | | | | | | | | | | | | | | |
Non-current | | | | | | | | | | | | | | | | |
Lease receivable | | | 20 | | | | 775 | | | | 839 | | | | 934 | |
Loan to related entity | | | | | | | — | | | | — | | | | 260 | |
| | | | | | | | | | | | | | | | |
| | | | | | | 775 | | | | 839 | | | | 1,194 | |
| | | | | | | | | | | | | | | | |
The loan to the related entity was non-interest bearing and was repaid on 30 March 2006.
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Finished goods | | | 6,979 | | | | 3,740 | | | | 2,140 | |
Work in progress | | | 519 | | | | 283 | | | | — | |
| | | | | | | | | | | | |
| | | 7,498 | | | | 4,023 | | | | 2,140 | |
| | | | | | | | | | | | |
| |
11. | Investments accounted for using the equity method |
| |
(a) | Investments in associates |
The consolidated entity accounts for investments in associates using the equity method.
The consolidated entity had the following investment in associates:
| | |
Name of associate company: | | Royal Wolf Hi-Tech Pty Limited |
Principal activities: | | Sale, hire and modification of containers |
Reporting date: | | 30 June |
Ownership interest: | | 100% (2005: 50%; 2004: 50%) On 30 March 2006, the remaining 50% in Royal Wolf Hi-Tech Pty Limited was acquired by Royal Wolf Trading Australia Pty Limited — refer to the acquisitions of subsidiaries note 24. |
F-25
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Royal Wolf Hi-Tech Pty Limited did not have any capital or other commitments contracted but not provided for or payable (including operating lease commitments) at 30 June 2005. Royal Wolf Hi-Tech Pty Limited did not have any contingent liabilities at 30 June 2005, 31 December 2004. The following is summarized financial information of Royal Wolf Hi-Tech Pty Limited:
| | | | | | | | |
| | Restated
| | | Restated
| |
| | 30 June
| | | 31 December
| |
| | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | |
|
Revenues (100%) | | | 1,506 | | | | 1,558 | |
Gross profit (100%) | | | 1,342 | | | | 1,092 | |
Pretax profit (100%) | | | 491 | | | | 262 | |
Profit (100%) | | | 344 | | | | 184 | |
Share of associates net profit recognised | | | 172 | | | | 92 | |
Current assets (100%) | | | 492 | | | | 502 | |
Noncurrent assets (100%) | | | 1,180 | | | | 938 | |
| | | | | | | | |
Total assets (100%) | | | 1,672 | | | | 1,440 | |
| | | | | | | | |
Current liabilities (100%) | | | 644 | | | | 852 | |
Noncurrent liabilities (100%) | | | 174 | | | | 78 | |
| | | | | | | | |
Total liabilities (100%) | | | 818 | | | | 930 | |
Net assets as reported by associate (100%) | | | 854 | | | | 510 | |
Share of associate’s net assets equity accounted | | | 427 | | | | 255 | |
Results of associates | | | | | | | | |
Carrying value of investment in associate at beginning of year | | | 255 | | | | 163 | |
Share of associate profit before income tax | | | 246 | | | | 131 | |
Share of income tax expense | | | (74 | ) | | | (39 | ) |
| | | | | | | | |
Carrying value of investment in associate at end of year | | | 427 | | | | 255 | |
| | | | | | | | |
F-26
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| |
12. | Property, plant and equipment |
| | | | | | | | |
| | | | | Plant and
| |
| | | | | Equipment,
| |
| | | | | Fixtures
| |
| | Note | | | and Fittings | |
| | | | | A$’000 | |
|
Cost | | | | | | | | |
Balance at 1 January 2004 (restated) | | | | | | | 1,151 | |
Acquisitions | | | | | | | 1,254 | |
Disposals | | | | | | | (69 | ) |
| | | | | | | | |
Balance at 31 December 2004 (restated) | | | | | | | 2,336 | |
| | | | | | | | |
Balance at 1 January 2005 (restated) | | | | | | | 2,336 | |
Acquisitions | | | | | | | 1,937 | |
Disposals | | | | | | | (35 | ) |
| | | | | | | | |
Balance at 30 June 2005 (restated) | | | | | | | 4,238 | |
| | | | | | | | |
Balance at 1 July 2005 (restated) | | | | | | | 4,238 | |
Acquisitions | | | | | | | 1,119 | |
Acquisitions through business combinations | | | 24 | | | | 326 | |
Disposals | | | | | | | (107 | ) |
| | | | | | | | |
Balance at 30 June 2006 (restated) | | | | | | | 5,576 | |
| | | | | | | | |
F-27
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | |
| | Plant and
| |
| | Equipment,
| |
| | Fixtures and
| |
| | Fittings | |
| | A$’000 | |
|
Depreciation and impairment losses | | | | |
Balance at 1 January 2004 (restated) | | | — | |
Depreciation charge for the period | | | (557 | ) |
Disposals | | | 33 | |
| | | | |
Balance at 31 December 2004 (restated) | | | (524 | ) |
| | | | |
Balance at 1 January 2005 (restated) | | | (524 | ) |
Depreciation charge for the period | | | (436 | ) |
Disposals | | | 28 | |
| | | | |
Balance at 30 June 2005 (restated) | | | (932 | ) |
| | | | |
Balance at 1 July 2005 (restated) | | | (932 | ) |
Depreciation charge for the period | | | (1,110 | ) |
Disposals | | | 65 | |
| | | | |
Balance at 30 June 2006 (restated) | | | (1,977 | ) |
| | | | |
Carrying amounts | | | | |
At 1 January 2004 (restated) | | | 1,151 | |
| | | | |
At 31 December 2004 (restated) | | | 1,812 | |
| | | | |
At 1 January 2005 (restated) | | | 1,812 | |
| | | | |
At 30 June 2005 (restated) | | | 3,306 | |
| | | | |
At 1 July 2005 (restated) | | | 3,306 | |
| | | | |
At 30 June 2006 (restated) | | | 3,599 | |
| | | | |
F-28
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| |
13. | Container for hire fleet |
| | | | | | | | | | | | | | |
| | Note | | A$’000 | | | Note | | A$’000 | |
|
Cost | | | | | | | | | | | | | | | | |
Balance at 1 January 2004 (restated) | | | | | | | 17,451 | | | | | | | | 17,451 | |
Acquisitions | | | | | | | 12,003 | | | | | | | | 12,003 | |
Transfers to inventory | | | | | | | (5,448 | ) | | | | | | | (5,448 | ) |
| | | | | | |
Balance at 31 December 2004 (restated) | | | | | | | 24,006 | | | | | | | | 24,006 | |
| | | | | | |
Balance at 1 January 2005 (restated) | | | | | | | 24,006 | | | | | | | | 24,006 | |
Acquisitions | | | | | | | 7,725 | | | | | | | | 7,725 | |
Transfers to inventory | | | | | | | (3,826 | ) | | | | | | | (3,826 | ) |
| | | | | | |
Balance at 30 June 2005 (restated) | | | | | | | 27,905 | | | | | | | | 27,905 | |
| | | | | | |
Balance at 1 July 2005 (restated) | | | | | | | 27,905 | | | | | | | | 27,905 | |
Acquisitions | | | | | | | 18,073 | | | | | | | | 18,073 | |
Acquisitions through business combinations | | | 24 | | | | 6,829 | | | | 24 | | | | 6,829 | |
Transfers to inventory | | �� | | | | | (11,337 | ) | | | | | | | (11,337 | ) |
| | | | | | |
Balance at 30 June 2006 (restated) | | | | | | | 41,470 | | | | | | | | 41,470 | |
| | | | | | |
Depreciation and impairment losses | | | | | | | | | | | | | | | | |
Balance at 1 January 2004 (restated) | | | | | | | — | | | | | | | | — | |
Depreciation charge for the period | | | | | | | (2,408 | ) | | | | | | | (2,408 | ) |
Transfers to inventory | | | | | | | 849 | | | | | | | | 849 | |
| | | | | | |
Balance at 31 December 2004 (restated) | | | | | | | (1,559 | ) | | | | | | | (1,559 | ) |
| | | | | | |
Balance at 1 January 2005 (restated) | | | | | | | (1,559 | ) | | | | | | | (1,559 | ) |
Depreciation charge for the period | | | | | | | (1,272 | ) | | | | | | | (1,272 | ) |
Transfers to inventory | | | | | | | 705 | | | | | | | | 705 | |
| | | | | | |
Balance at 30 June 2005 (restated) | | | | | | | (2,126 | ) | | | | | | | (2,126 | ) |
| | | | | | |
Balance at 1 July 2005 (restated) | | | | | | | (2,126 | ) | | | | | | | (2,126 | ) |
Depreciation charge for the period | | | | | | | (1,978 | ) | | | | | | | (1,978 | ) |
Transfers to inventory | | | | | | | 1,125 | | | | | | | | 1,125 | |
| | | | | | |
Balance at 30 June 2006 (restated) | | | | | | | 2,979 | | | | | | | | 2,979 | |
| | | | | | |
Carrying amounts | | | | | | | | | | | | | | | | |
At 1 January 2004 (restated) | | | | | | | 17,451 | | | | | | | | 17,451 | |
| | | | | | |
At 31 December 2004 (restated) | | | | | | | 22,447 | | | | | | | | 22,447 | |
| | | | | | |
At 1 January 2005 (restated) | | | | | | | 22,447 | | | | | | | | 22,447 | |
| | | | | | |
At 30 June 2005 (restated) | | | | | | | 25,779 | | | | | | | | 25,779 | |
| | | | | | |
At 1 July 2005 (restated) | | | | | | | 25,779 | | | | | | | | 25,779 | |
| | | | | | |
At 30 June 2006 (restated) | | | | | | | 38,491 | | | | | | | | 38,491 | |
| | | | | | |
F-29
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | Software | | | Goodwill | | | Trademarks | | | Other | | | Total | |
| | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Cost | | | | | | | | | | | | | | | | | | | | |
Balance at 1 January 2004 (restated) | | | 944 | | | | 581 | | | | 398 | | | | — | | | | 1,923 | |
Acquisitions through business combinations | | | — | | | | 3,500 | | | | — | | | | — | | | | 3,500 | |
Other acquisitions | | | 70 | | | | — | | | | — | | | | — | | | | 70 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at 31 December 2004 (restated) | | | 1,014 | | | | 4,081 | | | | 398 | | | | — | | | | 5,493 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at 1 January 2005 (restated) | | | 1,014 | | | | 4,081 | | | | 398 | | | | — | | | | 5,493 | |
Acquisitions | | | 25 | | | | — | | | | — | | | | — | | | | 25 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at 30 June 2005 (restated) | | | 1,039 | | | | 4,081 | | | | 398 | | | | — | | | | 5,518 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at 1 July 2005 (restated) | | | 1,039 | | | | 4,081 | | | | 398 | | | | — | | | | 5,518 | |
Acquisitions through business combinations | | | — | | | | 1,749 | | | | — | | | | — | | | | 1,749 | |
Other acquisitions | | | 133 | | | | — | | | | — | | | | 363 | | | | 496 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at 30 June 2006 (restated) | | | 1,172 | | | | 5,830 | | | | 398 | | | | 363 | | | | 7,763 | |
| | | | | | | | | | | | | | | | | | | | |
Amortisation and impairment losses | | | | | | | | | | | | | | | | | | | | |
Balance at 1 January 2004 (restated) | | | — | | | | — | | | | — | | | | — | | | | — | |
Amortisation for the period | | | (431 | ) | | | — | | | | — | | | | — | | | | (431 | ) |
Write off on utilisation of unrecognised tax assets arising from business combinations prior to transition to AIFRS | | | — | | | | (547 | ) | | | — | | | | — | | | | (547 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at 31 December 2004 (restated) | | | (431 | ) | | | (547 | ) | | | — | | | | — | | | | (978 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at 1 January 2005 (restated) | | | (431 | ) | | | (547 | ) | | | — | | | | — | | | | (978 | ) |
Amortisation for the period | | | (206 | ) | | | — | | | | — | | | | — | | | | (206 | ) |
Write off on utilisation of unrecognised tax assets arising from business combinations prior to transition to AIFRS | | | — | | | | (127 | ) | | | — | | | | — | | | | (127 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at 30 June 2005 (restated) | | | (637 | ) | | | (674 | ) | | | — | | | | — | | | | (1,311 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at 1 July 2005 (restated) | | | (637 | ) | | | (674 | ) | | | — | | | | — | | | | (1,311 | ) |
Amortisation for the period | | | (464 | ) | | | — | | | | — | | | | (21 | ) | | | (485 | ) |
Write off on utilisation of unrecognised tax assets arising from business combinations prior to transition to AIFRS | | | — | | | | (907 | ) | | | — | | | | — | | | | (907 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at 30 June 2006 (restated) | | | (1,101 | ) | | | (1,581 | ) | | | — | | | | (21 | ) | | | (2,703 | ) |
| | | | | | | | | | | | | | | | | | | | |
F-30
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | Software | | | Goodwill | | | Trademarks | | | Other | | | Total | |
| | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Carrying amounts | | | | | | | | | | | | | | | | | | | | |
At 1 January 2004 (restated) | | | 944 | | | | 581 | | | | 398 | | | | — | | | | 1,923 | |
| | | | | | | | | | | | | | | | | | | | |
At 31 December 2004 (restated) | | | 583 | | | | 3,534 | | | | 398 | | | | — | | | | 4,515 | |
| | | | | | | | | | | | | | | | | | | | |
1 January 2005 (restated) | | | 583 | | | | 3,534 | | | | 398 | | | | — | | | | 4,515 | |
| | | | | | | | | | | | | | | | | | | | |
30 June 2005 (restated) | | | 402 | | | | 3,407 | | | | 398 | | | | — | | | | 4,207 | |
| | | | | | | | | | | | | | | | | | | | |
1 July 2005 (restated) | | | 402 | | | | 3,407 | | | | 398 | | | | — | | | | 4,207 | |
| | | | | | | | | | | | | | | | | | | | |
30 June 2006 (restated) | | | 71 | | | | 4,249 | | | | 398 | | | | 342 | | | | 5,060 | |
| | | | | | | | | | | | | | | | | | | | |
Goodwill
Goodwill acquired has been allocated to one single cash generating unit, being the consolidated entity. Goodwill is not amortised but tested for impairment annually using the value in use model. Goodwill 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, and the business and assets of Cape Containers Pty Limited and Australian Container Network Pty Limited (refer Note 24).
The recoverable amount of the RWA Holdings Pty Limited cash-generating unit is based on value in use calculations. Those calculations use cash flow projections based on actual operating results and the 5 year budget. Cash flows for a further5-year period are extrapolated using a 5% growth rate, which the directors consider appropriate because this is a long-term business. A pre-tax discount rate of 13.7% has been used in discounting the projected cash flows.
Software
Software assets are capitalised at cost. This intangible asset has been assessed as having a finite useful life, and is amortised using the straight-line method over a period of 3 years (refer accounting policy (h)(iv)).
Trademarks
Trademarks are capitalised 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 capitalised at cost. This intangible asset has been assessed as having a finite useful life, and is amortised using the straight-line method over a period of 5 years (refer accounting policy (h)(iv)).
F-31
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| |
15. | Trade and other payables |
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Trade payables | | | | | | | 10,565 | | | | 5,870 | | | | 4,023 | |
Other payables | | | | | | | 1,349 | | | | 1,708 | | | | 1,611 | |
Unearned revenue | | | | | | | 565 | | | | 489 | | | | 470 | |
Deferred consideration for controlled entity | | | | | | | — | | | | — | | | | 3,500 | |
Fair value derivative | | | 20 | | | | 30 | | | | 161 | | | | — | |
Related party — other payable | | | | | | | — | | | | — | | | | 1,926 | |
| | | | | | | | | | | | | | | | |
| | | | | | | 12,509 | | | | 8,228 | | | | 11,530 | |
| | | | | | | | | | | | | | | | |
| |
16. | Interest bearing loans and borrowings |
This note provides information about the contractual terms of the consolidated entity’s interest bearing loans and borrowings. For more information about the consolidated entity’s exposure to interest rate and foreign currency risk, refer note 20.
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June
| | | 30 June
| | | 31 December
| |
| | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Current liabilities | | | | | | | | | | | | | | | | |
Bank overdraft | | | 8 | | | | 2,126 | | | | — | | | | 533 | |
Current portion of bank loans | | | | | | | 5,831 | | | | 1,939 | | | | — | |
Other loans | | | | | | | 73 | | | | 20 | | | | 343 | |
Current portion of finance lease liabilities | | | | | | | 909 | | | | 819 | | | | 549 | |
| | | | | | | | | | | | | | | | |
| | | | | | | 8,939 | | | | 2,778 | | | | 1,425 | |
| | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
Bank loan | | | | | | | 18,099 | | | | 22,364 | | | | 14,489 | |
Non-convertible notes | | | | | | | 10,898 | | | | — | | | | — | |
B class notes | | | | | | | 6,654 | | | | 5,422 | | | | 4,051 | |
Finance lease liabilities | | | | | | | 1,543 | | | | 2,389 | | | | 2,074 | |
| | | | | | | | | | | | | | | | |
| | | | | | | 37,194 | | | | 30,175 | | | | 20,614 | |
| | | | | | | | | | | | | | | | |
F-32
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Financing facilities
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Bank overdraft | | | 1,020 | | | | 2,000 | | | | 1,000 | |
Invoice financing facility | | | 7,500 | | | | — | | | | — | |
Secured bank loans | | | 42,962 | | | | 29,280 | | | | 30,800 | |
| | | | | | | | | | | | |
| | | 51,482 | | | | 31,280 | | | | 31,800 | |
| | | | | | | | | | | | |
Facilities utilised at reporting date | | | | | | | | | | | | |
Bank overdraft | | | 934 | | | | — | | | | 533 | |
Invoice financing facility | | | 1,192 | | | | — | | | | — | |
Secured bank loans | | | 35,349 | | | | 24,303 | | | | 14,489 | |
| | | | | | | | | | | | |
| | | 37,475 | | | | 24,303 | | | | 15,022 | |
| | | | | | | | | | | | |
Facilities not utilised at reporting date | | | | | | | | | | | | |
Bank overdraft | | | 86 | | | | 2,000 | | | | 467 | |
Invoice financing facility | | | 6,308 | | | | — | | | | — | |
Secured bank loans | | | 7,613 | | | | 4,977 | | | | 16,311 | |
| | | | | | | | | | | | |
| | | 14,007 | | | | 6,977 | | | | 16,778 | |
| | | | | | | | | | | | |
Financing arrangements
Bank overdrafts
The bank overdrafts of the consolidated entity are secured by a floating charge over the consolidated entity’s assets. Interest on bank overdrafts is charged at the prevailing market rates.
Invoice financing facility
The invoice finance facility of the consolidated entity 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 debtors ledger. Interest is charged at the bank’s prime rate plus 1.65%.
Bank loans
Bank loans are denominated in Australian dollars. The bank loans amount in current liabilities comprises the portion of the consolidated entity’s bank loan payable within one year. The non-current bank loans are payable on or before 2010 on an equal instalment basis, and are subject to annual review. The loans bear interest at the Australian bank bill reference rate (“BBSW”) plus 1.10% - 1.35% (2005: 1.10%, 2004: 1.35%), payable monthly. Bank loans are secured by lease assets in the container fleet with a written down value of $18,143,000 (2005: $7,994,000, 2004: Nil) and are due and payable over the next five years. In the event of default, the assets revert to the bank.
Finance leases and hire purchase contracts
The consolidated entity’s lease liabilities are secured by the leased assets of $526,000 (2005: $601,000, 2004: 638,000). In the event of default, the assets revert to the lessor.
F-33
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
B class notes
Holders of B Class Notes are entitled to receive cumulative interest of 15% per annum on the issue price of their notes. These notes do not give their holders any voting rights at shareholders’ meetings.
In the event of winding up of the Company, the holders of B Class Notes rank above all shareholders, but not the holders of non-convertible notes and are entitled to the proceeds of liquidation only to the extent of the face value of the notes and any accumulated interest.
Non-convertible notes
Holders of Non-convertible notes are entitled to receive cumulative interest of 15% per annum on the issue price of their notes. These notes do not give their holders any voting rights at shareholders’ meetings.
In the event of winding up of the Company, the holders of non-convertible notes rank above all shareholders and are entitled to the proceeds of liquidation only to the extent of the face value of the notes and any accumulated interest.
Finance lease liabilities
Finance lease liabilities of the consolidated entity are payable as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2006
| | | 2005
| | | 2004
| |
| | Restated | | | Restated | | | Restated | |
| | Minimum
| | | | | | | | | Minimum
| | | | | | | | | Minimum
| | | | | | | |
| | Lease
| | | | | | | | | Lease
| | | | | | | | | Lease
| | | | | | | |
| | Payments | | | Interest | | | Principal | | | Payments | | | Interest | | | Principal | | | Payments | | | Interest | | | Principal | |
| | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Less than one year | | | 1,096 | | | | 187 | | | | 909 | | | | 1,081 | | | | 262 | | | | 819 | | | | 770 | | | | 221 | | | | 549 | |
Between one and five years | | | 1,640 | | | | 97 | | | | 1,543 | | | | 2,666 | | | | 277 | | | | 2,389 | | | | 2,342 | | | | 268 | | | | 2,074 | |
More than five years | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2,736 | | | | 284 | | | | 2,452 | | | | 3,747 | | | | 539 | | | | 3,208 | | | | 3,112 | | | | 489 | | | | 2,623 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The consolidated entity has finance leases and hire purchase contracts for various motor vehicles, containers and other assets. These leases have no terms of renewal or purchase options nor escalation clauses.
Under the terms of the Facility Agreement with Australia and New Zealand Banking Group Limited the consolidated entity undertakes to ensure compliance with covenants in relation to various financial ratios including consolidated interest cover; consolidated reworked adjusted gearing; and consolidated debt service cover.
F-34
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Current | | | | | | | | | | | | |
Liability for annual leave | | | 775 | | | | 801 | | | | 444 | |
Liability for long service leave | | | 187 | | | | — | | | | — | |
| | | | | | | | | | | | |
| | | 962 | | | | 801 | | | | 444 | |
| | | | | | | | | | | | |
Non Current | | | | | | | | | | | | |
Liability for long service leave | | | 257 | | | | 119 | | | | 272 | |
Cash settled transactions | | | 310 | | | | 108 | | | | 36 | |
| | | | | | | | | | | | |
| | | 567 | | | | 227 | | | | 308 | |
| | | | | | | | | | | | |
Total employee benefits | | | 1,529 | | | | 1,028 | | | | 752 | |
| | | | | | | | | | | | |
Defined contribution superannuation funds
The consolidated entity makes contributions to a defined contribution superannuation fund. The amount recognised as an expense was $789,000 for the financial year ended 30 June 2006 (2005: $321,000 (6 months), 2004: $613,000 (12 months)).
Share based payments
The consolidated entity has 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.
Options issued under the ESOP will vest in accordance with time frames specified individually per director or senior executive. No other conditions are precedent to the options vesting.
Other relevant terms and conditions applicable to the options granted under the ESOP include
| | |
| • | the exercise price for the options is nil for most employees, with one employee having options exercisable at $0.50 per share |
|
| • | the options expire on the expiry date or the termination date of the employee, whichever is the earlier |
|
| • | upon exercise, the nil price and $0.50 options will be settled in the unissued ordinary shares of RWA Holdings Pty Limited |
|
| • | the nil price options can be settled in cash at the option of the company or the holder and are only exercisable on an exercising or realisation event (see below) |
F-35
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
The number and weighted average exercise prices of share options is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Weighted
| | | | | | | | | | | | Weighted
| | | | |
| | Average
| | | | | | Weighted
| | | | | | Average
| | | | |
| | Exercise
| | | Number of
| | | Average
| | | Number of
| | | Exercise
| | | Number of
| |
| | Price
| | | Options
| | | Exercise Price
| | | Options
| | | Price
| | | Options
| |
| | 12 Months
| | | 12 Months
| | | 6 Months
| | | 6 Months
| | | 12 Months
| | | 12 Months
| |
| | 2006 | | | 2006 | | | 2005 | | | 2005 | | | 2004 | | | 2004 | |
|
Outstanding at the beginning of the period | | A$ | 0.08 | | | | 438,582 | | | A$ | 0.08 | | | | 452,982 | | | | N/A | | | | — | |
Granted during the period | | | — | | | | 17,682 | | | | — | | | | — | | | A$ | 0.08 | | | | 452,982 | |
Cancelled during the period | | | — | | | | (17,865 | ) | | | — | | | | — | | | | — | | | | — | |
Exercised during the period | | A$ | 0.50 | | | | (14,400 | ) | | A$ | 0.50 | | | | (14,400 | ) | | | — | | | | — | |
Expired during the period | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding at the end of the period | | A$ | 0.08 | | | | 423,999 | | | A$ | 0.08 | | | | 438,582 | | | A$ | 0.08 | | | | 452,982 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Exercisable at the end of the period | | | — | | | | 212,929 | | | | — | | | | 126,832 | | | | — | | | | 144,697 | |
The outstanding balance at 30 June 2006 is represented by:
| | |
| • | 363,117 options over ordinary shares with an exercise price of nil, exercisable as above until 31 August 2014, or earlier as appropriate |
|
| • | 43,200 options over ordinary shares with an exercise price of $0.50, exercisable as above until 17 May 2009, or earlier as appropriate |
|
| • | 17,682 options over ordinary shares with an exercise price of nil, exercisable as above until 19 Aug 2015, or earlier as appropriate |
The expiry dates for the share options outstanding at 30 June 2006 is between 3 and 9 years (2005: 4 and 9 years).
The nil price options if vested can be converted to ordinary shares in the company in the event of the issuance of a prospectus for the public listing of the company (an “exercising event”) or the sale of the company (a “realisation event”). Both the company and the holder have the option of settling the options in cash based on the issue price or market value of shares in the company.
During the year ended 30 June 2006, 17,682 options (2005: Nil, 2004: 452,982) were granted over ordinary shares.
During year ended 30 June 2006, 14,400 options (2005: 14,400, 2004: Nil) were exercised over ordinary shares already on issue.
During year ended 30 June 2006, 17,865 options (2005: Nil, 2004: Nil) were cancelled over ordinary shares.
The fair value of the options granted is measured using a binomial option pricing method, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest. The volatility of the asset value is based upon the volatility of listed companies with a similar profile to the consolidated entity.
F-36
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Fair value of share options and assumptions:
| | | | | | | | | | | | |
| | Key Mgmt
| | | Key Mgmt
| | | Key Mgmt
| |
| | Personnel
| | | Personnel
| | | Personnel
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
|
Fair value at measurement date | | A$ | 1.086 | | | A$ | 0.695 | | | A$ | 0.575 | |
| | | | | | | | | | | | |
Share value | | A$ | 1.25 | | | A$ | 0.77 | | | A$ | 0.65 | |
Weighted average exercise price | | A$ | 0.08 | | | A$ | 0.08 | | | A$ | 0.08 | |
Expected volatility (based on volatility of similar but listed organisations) | | | 29.7 | % | | | 28.8 | % | | | 28.1 | % |
Option life (based on date options are expected to be exercised) | | | 2.25 yrs | | | | 3.25 years | | | | 3.75 years | |
Risk free rate (based on Australian Government Bonds) | | | 5.79 | % | | | 5.10 | % | | | 5.16 | % |
| | | | | | | | | | | | |
| | Leasehold
| | | | | | | |
| | Makegood
| | | Deferred
| | | | |
| | Costs | | | Consideration | | | Total | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Balance at 1 January 2004 (restated) | | | — | | | | — | | | | — | |
Provisions made during the year | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | |
Balance at 31 December 2004 (restated) | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | |
Balance at 1 January 2005 (restated) | | | 8 | | | | — | | | | 8 | |
Provisions made during the year | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Balance at 30 June 2005 (restated) | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | |
Balance at 1 July 2005 (restated) | | | 8 | | | | — | | | | 8 | |
Provisions made during the year | | | — | | | | 574 | | | | 574 | |
| | | | | | | | | | | | |
Balance at 30 June 2006 (restated) | | | 8 | | | | 574 | | | | 582 | |
| | | | | | | | | | | | |
Balance at 30 June 2006 (restated) | | | | | | | | | | | | |
Current | | | — | | | | 300 | | | | 300 | |
Non-current | | | 8 | | | | 274 | | | | 282 | |
| | | | | | | | | | | | |
| | | 8 | | | | 574 | | | | 582 | |
| | | | | | | | | | | | |
Leasehold makegood costs
An obligation exists to restore a leasehold site after a fit-out at the head office location in Hornsby. The basis for accounting is set out in note (o) of the significant accounting policies.
The expected cost for the restoration is estimated at $10,000, and is expected to occur in 2009. This amount has been discounted using Australian government bond rates with similar maturities (2006: 5.8%, 2005: 5.2%, 2004: 5.2%).
F-37
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Deferred consideration
Deferred purchase consideration consists of consideration relating to the purchase of the business and assets of Australian Container Network Pty Limited.
For further information on the acquisition of Australian Container Network Pty Limited refer note 24.
Reconciliation of movement in capital and reserves attributable to equity holders of the parent
| | | | | | | | | | | | | | | | |
| | | | | Retained
| | | | | | | |
| | | | | Earnings/
| | | Asset
| | | | |
| | Share
| | | Accumulated
| | | Revaluation
| | | Total
| |
| | Capital | | | Losses | | | Reserve | | | Equity | |
| | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Balance at 1 January 2004 (restated) | | | 3,672 | | | | — | | | | — | | | | 3,672 | |
Total recognised income and expense | | | — | | | | 479 | | | | — | | | | 479 | |
| | | | | | | | | | | | | | | | |
Balance at 31 December 2004 (restated) | | | 3,672 | | | | 479 | | | | — | | | | 4,151 | |
| | | | | | | | | | | | | | | | |
Balance at 1 January 2005 (restated) | | | 3,672 | | | | 479 | | | | — | | | | 4,151 | |
Call on issued shares | | | 878 | | | | — | | | | — | | | | 878 | |
Total recognised income and expense | | | — | | | | (213 | ) | | | — | | | | (213 | ) |
| | | | | | | | | | | | | | | | |
Balance at 30 June 2005 (restated) | | | 4,550 | | | | 266 | | | | — | | | | 4,816 | |
| | | | | | | | | | | | | | | | |
Balance at 1 July 2005 (restated) | | | 4,550 | | | | 266 | | | | — | | | | 4,816 | |
Total recognised income and expense | | | — | | | | (331 | ) | | | — | | | | (331 | ) |
Revaluation of assets on acquisition of controlled entity | | | — | | | | — | | | | 344 | | | | 344 | |
| | | | | | | | | | | | | | | | |
Balance at 30 June 2006 (restated) | | | 4,550 | | | | (65 | ) | | | 344 | | | | 4,829 | |
| | | | | | | | | | | | | | | | |
Share capital
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
2,160,000 Ordinary Shares | | | 1,080 | | | | 1,080 | | | | 1,080 | |
4,322,590 A Class Shares | | | 3,470 | | | | 3,470 | | | | 2,592 | |
100 Class C Shares | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
| | | 4,550 | | | | 4,550 | | | | 3,672 | |
| | | | | | | | | | | | |
Movement in A Class Shares paid up value | | | | | | | No. ’000 | | | A$ | ’000 | |
| | | | | | | | | | | | |
At 1 January 2005 | | | | | | | 4,323 | | | | 2,592 | |
During 2005, the consolidated entity took up a call of 20.3 cents per share | | | | | | | — | | | | 878 | |
| | | | | | | | | | | | |
At 30 June 2005 | | | | | | | 4,323 | | | | 3,470 | |
| | | | | | | | | | | | |
F-38
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
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, subject to the B Class Note holders receiving their return. The number of ordinary shares received on conversion of each C Class share is determined by reference to a profit formula.
| |
20. | Financial instruments |
Exposure to credit, interest rate and currency risks arises in the normal course of the consolidated entity’s business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates.
Credit risk
The consolidated entity trades only with recognised, creditworthy third parties.
It is the consolidated entity’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures.
In addition, receivable balances are monitored on an ongoing basis with the result that the consolidated entity’s exposure to bad debts is not significant.
For transactions that are not denominated in the measurement currency of the relevant operating unit, the consolidated entity does not offer credit terms without the specific approval of the Head of Credit Control.
With respect to credit risk arising from the other financial assets of the consolidated entity, which comprise cash and cash equivalents,available-for-sale financial assets and certain derivative instruments, the consolidated entity’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the
F-39
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
carrying amount of these instruments. As the counter party for derivative instruments is nearly always a bank, the Board has assessed this as a low risk.
There are no significant concentrations of credit risk within the consolidated entity.
Interest rate risk
The consolidated entity’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations.
The consolidated entity’s policy is to manage its interest cost using a mix of fixed and variable rate debt.
To manage this mix in a cost-efficient manner, the consolidated entity enters into interest rate swaps, in which the consolidated entity 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 are designated to hedge changes in the interest rate of its commercial bill liability. The secured loan and interest rate swap have the same critical terms, including expiry dates. All movements in the fair values of these hedges are taken directly to the income statement.
At 30 June 2006, after taking into account the effect of interest rate swaps, 80.2% (2005: 72.7%, 2004: 97.6%) of the consolidated entity’s borrowings are at a fixed rate of interest.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Effective
| | | | | | | | | | | | | | | | |
| | | | | Interest
| | | | | | | | | | | | | | | | |
| | | | | Rate
| | | < 1
| | | 1-2
| | | 2-5
| | | >5
| | | | |
30 June 2006 (Restated) | | Note | | | % | | | Year | | | Years | | | Years | | | Years | | | Total | |
| | | | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Fixed rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lease receivable | | | 9 | | | | 18.1 | % | | | 335 | | | | 380 | | | | 395 | | | | — | | | | 1,110 | |
Finance lease liabilities | | | 16 | | | | 9.0 | % | | | (909 | ) | | | (1,104 | ) | | | (439 | ) | | | — | | | | (2,452 | ) |
Other loans | | | 16 | | | | 4.2 | % | | | (73 | ) | | | — | | | | — | | | | — | | | | (73 | ) |
Non-convertible notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (10,898 | ) | | | (10,898 | ) |
B class notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (6,654 | ) | | | (6,654 | ) |
Variable rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | 8 | | | | 3.3 | % | | | 777 | | | | — | | | | — | | | | — | | | | 777 | |
Bank loans | | | 16 | | | | BBSW + 1.10 | % | | | (4,396 | ) | | | (1,665 | ) | | | (10,737 | ) | | | — | | | | (16,798 | ) |
Interest rate swap | | | 9 | | | | 6.0 | % | | | 132 | | | | — | | | | — | | | | — | | | | 132 | |
Bank overdrafts | | | 16 | | | | BBSW + 1.65 | % | | | (2,126 | ) | | | — | | | | — | | | | — | | | | (2,126 | ) |
Commercial bills | | | 16 | | | | 6.9 | % | | | (1,367 | ) | | | (1,425 | ) | | | (4,340 | ) | | | — | | | | (7,132 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | (7,627 | ) | | | (3,814 | ) | | | (15,121 | ) | | | (17,552 | ) | | | (44,114 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-40
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Effective
| | | | | | | | | | | | | | | | |
| | | | | Interest
| | | | | | | | | | | | | | | | |
| | | | | Rate
| | | < 1
| | | 1-2
| | | 2-5
| | | >5
| | | | |
30 June 2005 (Restated) | | Note | | | % | | | Year | | | Years | | | Years | | | Years | | | Total | |
| | | | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Fixed rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lease receivable | | | 9 | | | | 18.1 | % | | | 180 | | | | 216 | | | | 623 | | | | — | | | | 1,019 | |
Finance lease liabilities | | | 16 | | | | 9.2 | % | | | (819 | ) | | | (893 | ) | | | (1,496 | ) | | | — | | | | (3,208 | ) |
Other loans | | | 16 | | | | 3.8 | % | | | (20 | ) | | | — | | | | — | | | | — | | | | (20 | ) |
B class notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (5,422 | ) | | | (5,422 | ) |
Variable rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | 8 | | | | 3.5 | % | | | 695 | | | | — | | | | — | | | | — | | | | 695 | |
Bank loans | | | 16 | | | | BBSW + 1.10 | % | | | (859 | ) | | | (869 | ) | | | (7,336 | ) | | | — | | | | (9,064 | ) |
Commercial bills | | | 16 | | | | 5.7 | % | | | (1,080 | ) | | | (3,980 | ) | | | (10,179 | ) | | | — | | | | (15,239 | ) |
Interest rate swap | | | 15 | | | | 5.9 | % | | | (161 | ) | | | — | | | | — | | | | — | | | | (161 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | (2,064 | ) | | | (5,526 | ) | | | (18,388 | ) | | | (5,422 | ) | | | (31,400 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Effective
| | | | | | | | | | | | | | | | |
| | | | | Interest
| | | | | | | | | | | | | | | | |
| | | | | Rate
| | | <1
| | | 1-2
| | | 2-5
| | | >5
| | | | |
31 December 2004 (Restated) | | Note | | | % | | | Year | | | Years | | | Years | | | Years | | | Total | |
| | | | | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Fixed rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lease receivable | | | 9 | | | | 18.1 | % | | | 165 | | | | 197 | | | | 737 | | | | — | | | | 1,099 | |
Finance lease liabilities | | | 16 | | | | 9.2 | % | | | (549 | ) | | | (677 | ) | | | (1,397 | ) | | | — | | | | (2,623 | ) |
Other loans | | | 16 | | | | 3.8 | % | | | (343 | ) | | | — | | | | — | | | | — | | | | (343 | ) |
B class notes | | | 16 | | | | 15.0 | % | | | — | | | | — | | | | — | | | | (4,051 | ) | | | (4,051 | ) |
Variable rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalent | | | 8 | | | | 3.51 | % | | | 3 | | | | — | | | | — | | | | — | | | | 3 | |
Bank overdraft | | | 8 | | | | ANZ Ref Rate — 1.0 | % | | | (533 | ) | | | — | | | | — | | | | — | | | | (533 | ) |
Commercial bills | | | 16 | | | | 5.7 | % | | | — | | | | (3,479 | ) | | | (11,010 | ) | | | — | | | | (14,489 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | (1,257 | ) | | | (3,959 | ) | | | (11,670 | ) | | | (4,051 | ) | | | (20,937 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency risk
The consolidated entity has transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the unit’s measurement currency. The currency giving rise to this risk is primarily U.S. Dollars.
The consolidated entity has a bank account denominated in US Dollars, into which 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 consolidated entity 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
F-41
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
on a general cash flow hedge basis. The forward currency contracts and options are always in the same currency as the hedged item.
It is the consolidated entity’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness. At 30 June 2006, the consolidated entity had hedged 100% of its foreign currency purchases for which firm commitments existed at the balance sheet date, extending to November 2006.
Forecasted transactions
The consolidated entity classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and states them at fair value. The net fair value of forward exchange contracts used as hedges of forecasted transactions at 30 June 2006 was nil (2005: nil, 2004: nil). The Company does not have any forward exchange contracts hedging forecasted transactions.
Recognised assets and liabilities
Changes in 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 are recognised in the income statement. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognised as part of ’net financing costs’ (see note 6). The fair value of forward exchange contracts used as economic hedges of monetary assets and liabilities in foreign currencies at 30 June 2006 was $30,493 (2005: nil) for the consolidated entity recognised in fair value derivatives.
Sensitivity analysis
In managing interest rate and currency risks the consolidated entity aims to reduce the impact of short-term fluctuations on the consolidated entity’s earnings. Over the longer-term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings.
At 30 June 2006, it is estimated that a general increase of one percentage point in interest rates would decrease the consolidated entity’s profit before tax by approximately $93,000 (2005: $12,000, 2004: $5,000). Interest rate swaps have been included in this calculation.
It is estimated that a general increase of one percentage point in the value of the AUD against other foreign currencies would have decreased the consolidated entity’s profit before tax by approximately $307,000 for the year ended 30 June 2006 (2005: $122,000, 2004: $113,000), based on the actual transactions incurred in U.S. Dollars. The forward exchange contracts have been included in this calculation.
F-42
RWA Holdings Pty Limited Financial Report
Notes to the consolidated financial statements — (Continued)
Fair values
The fair values together with the carrying amounts shown in the balance sheet are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Carrying
| | | | | | Carrying
| | | | | | Carrying
| | | | |
| | | | | Amount
| | | Fair Value
| | | Amount
| | | Fair Value
| | | Amount
| | | Fair Value
| |
| | | | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| | | Restated
| |
| | | | | 30 June
| | | 30 June
| | | 30 June
| | | 30 June
| | | 31 December
| | | 31 December
| |
| | Note | | | 2006 | | | 2006 | | | 2005 | | | 2005 | | | 2004 | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Cash and cash equivalents | | | 8 | | | | 777 | | | | 777 | | | | 695 | | | | 695 | | | | 3 | | | | 3 | |
Trade and other receivables | | | 9 | | | | 9,739 | | | | 9,739 | | | | 7,362 | | | | 7,362 | | | | 6,770 | | | | 6,770 | |
Receivable from related party | | | 9 | | | | — | | | | — | | | | 74 | | | | 74 | | | | 89 | | | | 89 | |
Lease receivable | | | 9 | | | | 1,110 | | | | 1,110 | | | | 1,019 | | | | 1,019 | | | | 1,099 | | | | 1,099 | |
Loan to related entity | | | 9 | | | | — | | | | — | | | | 260 | | | | 260 | | | | 260 | | | | 260 | |
Interest rate swap | | | 9 | | | | 132 | | | | 132 | | | | (161 | ) | | | (161 | ) | | | — | | | | — | |
Bank overdraft | | | 16 | | | | (2,126 | ) | | | (2,126 | ) | | | — | | | | — | | | | (533 | ) | | | (533 | ) |
Trade and other payables | | | 15 | | | | (12,479 | ) | | | (12,479 | ) | | | (8,067 | ) | | | (8,067 | ) | | | (11,530 | ) | | | (11,530 | ) |
Other loan | | | 16 | | | | (73 | ) | | | (73 | ) | | | (20 | ) | | | (20 | ) | | | (343 | ) | | | (343 | ) |
Finance lease liabilities | | | 16 | | | | (2,452 | ) | | | (2,452 | ) | | | (3,208 | ) | | | (3,208 | ) | | | (2,623 | ) | | | (2,623 | ) |
Bank loans | | | 16 | | | | (18,838 | ) | | | (18,838 | ) | | | (9,064 | ) | | | (9,064 | ) | | | — | | | | — | |
Commercial bills | | | 16 | | | | (5,092 | ) | | | (5,092 | ) | | | (15,239 | ) | | | (15,239 | ) | | | (14,489 | ) | | | (14,489 | ) |
Forward exchange contracts | | | 15 | | | | (30 | ) | | | (30 | ) | | | — | | | | — | | | | — | | | | — | |
Non-convertible notes | | | 16 | | | | (10,898 | ) | | | (10,898 | ) | | | — | | | | — | | | | — | | | | — | |
B class notes | | | 16 | | | | (6,654 | ) | | | (6,654 | ) | | | (5,422 | ) | | | (5,422 | ) | | | (4,051 | ) | | | (4,051 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | (46,884 | ) | | | (46,884 | ) | | | (31,771 | ) | | | (31,771 | ) | | | (25,348 | ) | | | (25,348 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Estimation of fair values
The following summarises 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.
F-43
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.
Interest rates used for determining fair value
The entity uses the government yield curve as of 30 June 2006 plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows:
| | | | | | |
| | 30 June
| | 30 June
| | 31 December
|
| | 2006 | | 2005 | | 2004 |
|
Derivatives | | 6.0% | | 6.0% | | N/A |
Loans and borrowings | | 4.2% - 15.0% | | 3.8% - 15.0% | | 3.8% - 15.0% |
Leases | | 9.0% | | 9.2% | | 9.2% |
Receivables | | 18.1% | | 18.1% | | 18.1% |
Leases as lessee
The consolidated entity leases various office equipment and other facilities under operating leases. The leases have an average period of between one and four 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 financial year ended 30 June 2006, $1,174,000 was recognised as an expense in the income statement in respect of operating leases (2005 (restated): $464,000, 2004 (restated): $793,000)
Non-cancellable operating lease rentals are payable as follows:
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Less than one year | | | 2,602 | | | | 2,323 | | | | 2,549 | |
Between one and five years | | | 2,576 | | | | 1,725 | | | | 2,004 | |
More than five years | | | 452 | | | | — | | | | — | |
| | | | | | | | | | | | |
| | | 5,630 | | | | 4,048 | | | | 4,553 | |
| | | | | | | | | | | | |
F-44
Leases as lessor
The consolidated entity leases containers 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 1 and 2 years. All leases include a clause to enable upward revision of the rental charge.
The consolidated entity 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:
| | | | | | | | | | | | |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006 | | | 2005 | | | 2004 | |
| | A$’000 | | | A$’000 | | | A$’000 | |
|
Less than one year | | | 493 | | | | 165 | | | | 52 | |
Between one and five years | | | 917 | | | | 1 | | | | — | |
More than five years | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
| | | 1,410 | | | | 166 | | | | 52 | |
| | | | | | | | | | | | |
During the financial year ended 30 June 2006, $21,290,000 was recognised as income from the hire of containers in the income statement in respect of operating leases (2005: $9,339,000, 2004: $16,756,000).
| |
22. | Capital and other commitments |
There were no other commitments or contingencies of the consolidated entity for capital or otherwise not already disclosed elsewhere in the financial statements.
| |
23. | Consolidated entities |
| | | | | | | | | | | | | | | | |
| | | | | County of
| | | Ownership Interest | |
Subsidiaries | | Note | | | Incorporation | | | 2006 | | | 2004 - 2005 | |
|
Royal Wolf Trading Australia Pty Limited | | | | | | | Australia | | | | 100 | % | | | 100 | % |
Royal Wolf Hi-Tech Pty Limited | | | 24 | | | | Australia | | | | 100 | % | | | 50 | % |
RWA Holdings Pty Limited is the ultimate Australian parent entity and ultimate parent entity of the consolidated entity.
| |
24. | Acquisitions of subsidiaries |
During the year the consolidated entity acquired the following businesses:
| | |
| • | Royal Wolf Hi-Tech Pty Limited |
|
| • | Australian Container Network Pty Ltd |
|
| • | Cape Containers Pty Limited |
On 30 March 2006, the consolidated entity acquired the remaining 50% of the shares in Royal Wolf Hi-Tech Pty Limited which it did not already own for $839,000 satisfied in cash. The company sells, hires and modifies containers. In the three months to 30 June 2006 the subsidiary contributed net loss of $26,000 to the consolidated net profit for the year. If the acquisition had occurred on 1 July 2005, consolidated entity revenue would have been $69,563,000 (unaudited) and net loss would have been $409,000 (unaudited). The consolidated entity previously acquired the initial 50% shares in Royal Wolf Hi-Tech Pty Limited. Goodwill of $132,000 has been recognised in respect of this initial acquisition.
On 16 December 2005, the consolidated entity acquired the business and assets of Cape Containers Pty Limited for $820,000 satisfied in cash. The company sells, and hires shipping containers. In the six months to 30 June 2006 the subsidiary contributed net profit of $92,000 to the consolidated net profit for the year. If the
F-45
acquisition had occurred on 1 July 2005, consolidated entity revenue would have been $67,962,000 (unaudited) and net loss would have been $264,000 (unaudited).
On 28 April 2006, the consolidated entity acquired the business and assets of Australian Container Network Pty Ltd for $5.5 million, of which $4.9 million was satisfied in cash. The consolidated entity has recognised a provision for the $0.6 million deferred consideration extending to August 2007. The company sells and hires containers. In the two months to 30 June 2006 the subsidiary contributed net profit of $67,000 to the consolidated net profit for the year. If the acquisition had occurred on 1 July 2005, consolidated entity revenue would have been $71,222,000 (unaudited) and net profit would have been $4,000 (unaudited).
The acquisitions had the following effect on the consolidated entity’s assets and liabilities.
Acquiree’s net assets at the acquisition date
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Royal Wolf Hi-Tech | | | Australian Container Network | | | Cape Containers | |
| | | | | | | | Fair
| | | | | | | | | Fair
| | | | | | | | | Fair
| | | | |
| | | | | Recog-
| | | Value
| | | | | | Recog-
| | | Value
| | | | | | Recog-
| | | value
| | | | |
| | | | | nised
| | | Adjust-
| | | Carrying
| | | nised
| | | Adjust-
| | | Carrying
| | | nised
| | | Adjust-
| | | Carrying
| |
| | Note | | | Values | | | ments | | | Amounts | | | Values | | | ments | | | Amounts | | | Values | | | ments | | | Amounts | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Property, plant and equipment | | | | | | | 129 | | | | 31 | | | | 98 | | | | 195 | | | | 23 | | | | 172 | | | | 2 | | | | — | | | | 2 | |
Container hire fleet | | | | | | | 1,768 | | | | 742 | | | | 1,026 | | | | 4,416 | | | | 2,707 | | | | 1,709 | | | | 645 | | | | 169 | | | | 476 | |
Inventories | | | | | | | 105 | | | | 31 | | | | 74 | | | | 555 | | | | 169 | | | | 386 | | | | — | | | | — | | | | — | |
Trade and other receivables | | | | | | | 232 | | | | — | | | | 232 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Cash and cash equivalents | | | | | | | 100 | | | | — | | | | 100 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Interest-bearing loans and borrowings | | | | | | | (501 | ) | | | — | | | | (501 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Deferred tax liability | | | | | | | (241 | ) | | | (241 | ) | | | — | | | | (870 | ) | | | (870 | ) | | | — | | | | (51 | ) | | | (51 | ) | | | — | |
Trade and other payables | | | | | | | (243 | ) | | | — | | | | (243 | ) | | | — | | | | — | | | | — | | | | (18 | ) | | | — | | | | (18 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net identifiable assets and liabilities | | | | | | | 1,349 | | | | 563 | | | | 786 | | | | 4,296 | | | | 2,029 | | | | 2,267 | | | | 578 | | | | 118 | | | | 460 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill on acquisitions | | | 14 | | | | 298 | | | | | | | | | | | | 1,209 | | | | | | | | | | | | 242 | | | | | | | | | |
Consideration paid, satisfied in cash* | | | | | | | 839 | | | | | | | | | | | | 4,931 | | | | | | | | | | | | 820 | | | | | | | | | |
Deferred consideration accrued | | | | | | | — | | | | | | | | | | | | 574 | | | | | | | | | | | | — | | | | | | | | | |
Cash (acquired) | | | | | | | (100 | ) | | | | | | | | | | | — | | | | | | | | | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash outflow | | | | | | | 739 | | | | | | | | | | | | 4,931 | | | | | | | | | | | | 820 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
* | | Includes legal fees amounting to $105,000 |
Goodwill has arisen on the acquisitions because of customer relationships that did not meet the criteria for recognition as an intangible asset at the date of acquisition.
F-46
| |
25. | Reconciliation of cash flows from operating activities |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Restated
| | Restated
| | Restated
| | | | | Restated
| | Restated
| | Restated
| |
| | | | 30 June
| | 30 June
| | 31 December
| | | | | 30 June
| | 30 June
| | 31 December
| |
| | | | 2006
| | 2005
| | 2004
| | | | | 2006
| | 2005
| | 2004
| |
| | Note | | 12 Months | | 6 Months | | 12 Months | | | Note | | 12 Months | | 6 Months | | 12 Months | |
| | | | A$’000 | | A$’000 | | A$’000 | | | | | A$’000 | | A$’000 | | A$’000 | |
|
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Profit/(loss) for the period | | | | | | | (331 | ) | | | (213 | ) | | | 479 | | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
Adjustments for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gain on sale of property, plant and equipment | | | | | | | (28 | ) | | | (17 | ) | | | (28 | ) | | | | | | | (28 | ) | | | (17 | ) | | | (28 | ) |
Foreign exchange (gain) / loss | | | | | | | (50 | ) | | | (325 | ) | | | 390 | | | | | | | | (50 | ) | | | (325 | ) | | | 390 | |
Unrealised loss on forward exchange contracts | | | | | | | 30 | | | | — | | | | — | | | | | | | | 30 | | | | — | | | | — | |
Unrealised gain on interest rate swap | | | | | | | (293 | ) | | | — | | | | — | | | | | | | | (293 | ) | | | — | | | | — | |
Depreciation and amortisation | | | | | | | 4,480 | | | | 2,041 | | | | 3,943 | | | | | | | | 4,480 | | | | 2,041 | | | | 3,943 | |
Share of associates net profit | | | | | | | — | | | | (172 | ) | | | (92 | ) | | | | | | | — | | | | (172 | ) | | | (92 | ) |
Investment income | | | | | | | (209 | ) | | | (104 | ) | | | (118 | ) | | | | | | | (209 | ) | | | (104 | ) | | | (118 | ) |
Interest expense | | | | | | | 4,034 | | | | 1,457 | | | | 3,252 | | | | | | | | 4,034 | | | | 1,457 | | | | 3,252 | |
Income tax (benefit) / expense | | | | | | | (525 | ) | | | (30 | ) | | | (4 | ) | | | | | | | (525 | ) | | | (30 | ) | | | (4 | ) |
Cash settled share based payment expenses | | | | | | | 203 | | | | 72 | | | | 36 | | | | | | | | 203 | | | | 72 | | | | 36 | |
| | | | | | | | | | | | | | |
Operating profit before changes in working capital and provisions | | | | | | | 7,311 | | | | 2,709 | | | | 7,858 | | | | | | | | 7,311 | | | | 2,709 | | | | 7,858 | |
(Increase) / decrease in trade and other receivables | | | | | | | (2,377 | ) | | | (592 | ) | | | (1,325 | ) | | | | | | | (2,377 | ) | | | (592 | ) | | | (1,325 | ) |
(Increase) / decrease in inventories | | | | | | | 6,611 | | | | (452 | ) | | | 3,910 | | | | | | | | 6,611 | | | | (452 | ) | | | 3,910 | |
Increase / (decrease) in trade and other payables | | | | | | | 4,412 | | | | 1,963 | | | | (3,747 | ) | | | | | | | 4,412 | | | | 1,963 | | | | (3,747 | ) |
Increase / (decrease) in provisions and employee benefits | | | | | | | 1,075 | | | | 276 | | | | 44 | | | | | | | | 1,075 | | | | 276 | | | | 44 | |
| | | | | | | | | | | | | | |
| | | | | | | 17,032 | | | | 3,904 | | | | 6,740 | | | | | | | | 17,032 | | | | 3,904 | | | | 6,740 | |
Interest (paid)/recieved | | | | | | | (3,041 | ) | | | (1,270 | ) | | | (1,721 | ) | |
Interest (paid)/received | | | | | | | | (3,041 | ) | | | (1,270 | ) | | | (1,721 | ) |
Income taxes paid | | | | | | | — | | | | (759 | ) | | | 781 | | | | | | | | — | | | | (759 | ) | | | 781 | |
| | | | | | | | | | | | | | |
Net cash from operating activities | | | | | | | 13,991 | | | | 1,875 | | | | 5,800 | | | | | | | | 13,991 | | | | 1,875 | | | | 5,800 | |
| | | | | | | | | | | | | | |
Transactions with key management personnel
No director has entered into a material contract with the Company or the consolidated entity and there were no material contracts involving directors’ interests.
In addition to their salaries, the consolidated entity also provides non-cash benefits to key management personnel. Executive directors also participate in the consolidated entity’s share option plan (refer Note 17).
F-47
Key management personnel compensation
The key management personnel compensations included in “employee benefits expense” in the income statements are as follows:
| | | | | | | | | | | | |
| | Restated
| | | Restated
| | | Restated
| |
| | 30 June
| | | 30 June
| | | 31 December
| |
| | 2006
| | | 2005
| | | 2004
| |
| | 12 Months | | | 6 Months | | | 12 Months | |
| | A$ | | | A$ | | | A$ | |
|
Short-term employee benefits | | | 1,613,765 | | | | 932,509 | | | | 1,342,148 | |
Other long term benefits | | | — | | | | — | | | | — | |
Post-employment benefits | | | 175,040 | | | | 98,820 | | | | 148,107 | |
Termination benefits | | | — | | | | — | | | | — | |
Share based payment | | | 92,675 | | | | 31,243 | | | | 17,643 | |
| | | | | | | | | | | | |
| | | 1,881,480 | | | | 1,062,572 | | | | 1,507,898 | |
| | | | | | | | | | | | |
Non-key management personnel disclosures
Identity of related parties
The Consolidated entity has a related party relationship with its associates (see note 11), and with its key management personnel.
Associates
During the financial year ended 30 June 2005, associates purchased goods from the consolidated entity in the amount of $549,852 and sold goods to the consolidated entity in the amount of $4,576 and at 30 June 2005 associates owed the consolidated entity $334,021. Transactions with associates are priced on an arm’s length basis. During the financial year ended 30 June 2006, the consolidated entity repaid a loan of $260,000 received from one of its associates. No dividends were received from associates in the 2006 or 2005 financial year.
Other related parties
Key management personnel related parties
A number of key management persons of the Company, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of these entities.
A number of these entities transacted with the Company or its subsidiaries in the reporting period. The terms and conditions of the transactions with the other related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.
The aggregate amounts recognised during the year relating to other related parties were as follows:
| | | | | | | | | | | | | | | | | | |
Key Management Person
| | | | | | | 30 June
| | | 30 June
| | | 31 December
| |
Related Party | | Transaction | | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | | | A$ | | | A$ | | | A$ | |
|
RW Logistic Pty Limited | | Sales revenue | | | (i | ) | | | — | | | | 45,191 | | | | 3,195,014 | |
RW Logistic Pty Limited | | Inventory purchases | | | (i | ) | | | — | | | | 2,142,536 | | | | 1,311,593 | |
| | |
(i) | | While the Company itself has no interest in RW Logistic Pty Limited, this entity is related through common shareholders and directorships |
| |
27. | Reconciliation to U.S. GAAP |
The Group’s consolidated financial statements have been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRSs) for the periods ended 30 June 2006, 30 June 2005 and
F-48
31 December 2004, which, as applied by the Group, differ in certain material respects from accounting standards generally accepted in the United States of America (U.S. GAAP). The effects of the application of U.S. GAAP to net profit and shareholders’ equity are set out in the tables below:
RECONCILIATION OF NET PROFIT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | 30 June
| | | 30 June
| | | 31 Dec
| |
| | | | | 2006
| | | 2005
| | | 2004
| |
| | Note | | | 12 Months | | | 6 Months | | | 12 Month | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Net profit / (loss) after tax as reported in the audited financial statements under AIFRS (restated) | | | | | | | (331 | ) | | | (213 | ) | | | 479 | |
Write-off of development costs | | | 1 | | | | (304 | ) | | | — | | | | — | |
Share based payment expense | | | 3 | | | | (47 | ) | | | (16 | ) | | | (94 | ) |
Step-up on acquisition | | | 4 | | | | 19 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss according to US GAAP before tax impact of adjustments | | | | | | | (663 | ) | | | (229 | ) | | | 385 | |
Tax effect on US GAAP adjustment | | | 2 | | | | 91 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net income/(loss) under US GAAP | | | | | | | (572 | ) | | | (229 | ) | | | 385 | |
| | | | | | | | | | | | | | | | |
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | 30 June
| | | 30 June
| | | 31 Dec
| |
| | Note | | | 2006 | | | 2005 | | | 2004 | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Total equity under AIFRS (restated) | | | | | | | 4,829 | | | | 4,816 | | | | 4,151 | |
Writeoff of development costs | | | 1 | | | | (304 | ) | | | — | | | | — | |
Tax effect on US GAAP adjustment | | | 2 | | | | 91 | | | | — | | | | — | |
Share based payments expense | | | 3 | | | | (157 | ) | | | (110 | ) | | | (94 | ) |
Step-up on acquisition | | | 4 | | | | (325 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Shareholders’ equity under U.S. GAAP | | | | | | | 4,134 | | | | 4,706 | | | | 4,057 | |
| | | | | | | | | | | | | | | | |
F-49
RECONCILIATION OF 30 JUNE 2006 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | U.S. GAAP
| | | | |
| | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Revenue | | | | | | | | | | | | | | | | |
Sale and modification of containers | | | | | | | 46,097 | | | | — | | | | 46,097 | |
Hire of containers | | | | | | | 21,290 | | | | — | | | | 21,290 | |
| | | | | | | | | | | | | | | | |
Total revenue | | | | | | | 67,387 | | | | — | | | | 67,387 | |
| | | | | | | | | | | | | | | | |
Other income | | | | | | | 35 | | | | — | | | | 35 | |
Changes in inventories of finished goods and WIP | | | | | | | (3,475 | ) | | | — | | | | (3,475 | ) |
Purchases of finished goods and consumables used | | | 4 | | | | (40,243 | ) | | | 9 | | | | (40,234 | ) |
Employee benefits expense | | | 3 | | | | (10,157 | ) | | | (47 | ) | | | (10,204 | ) |
Depreciation and amortisation expense | | | 4 | | | | (4,480 | ) | | | 912 | | | | (3,568 | ) |
Other expenses | | | 1 | | | | (6,411 | ) | | | (304 | ) | | | (6,715 | ) |
| | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 2,656 | | | | 570 | | | | 3,226 | |
| | | | | | | | | | | | | | | | |
Financial income | | | | | | | 552 | | | | — | | | | 552 | |
Financial expenses | | | | | | | (4,064 | ) | | | — | | | | (4,064 | ) |
| | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (3,512 | ) | | | — | | | | (3,512 | ) |
| | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (856 | ) | | | 570 | | | | (286 | ) |
| | | | | | | | | | | | | | | | |
Income tax benefit/(expense) | | | 2,4 | | | | 525 | | | | (811 | ) | | | (286 | ) |
| | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (331 | ) | | | (241 | ) | | | (572 | ) |
| | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
Equity holders of the parent | | | | | | | (331 | ) | | | (241 | ) | | | (572 | ) |
| | | | | | | | | | | | | | | | |
F-50
RECONCILIATION OF 30 JUNE 2005 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | U.S. GAAP
| | | | |
| | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Revenue | | | | | | | | | | | | | | | | |
Sale and modification of containers | | | | | | | 17,534 | | | | — | | | | 17,534 | |
Hire of containers | | | | | | | 9,339 | | | | — | | | | 9,339 | |
| | | | | | | | | | | | | | | | |
Total revenue | | | | | | | 26,873 | | | | — | | | | 26,873 | |
| | | | | | | | | | | | | | | | |
Other income | | | | | | | 18 | | | | — | | | | 18 | |
Changes in inventories of finished goods and WIP | | | | | | | (1,936 | ) | | | — | | | | (1,936 | ) |
Purchases of finished goods and consumables used | | | | | | | (14,687 | ) | | | — | | | | (14,687 | ) |
Employee benefits expense | | | 3 | | | | (4,794 | ) | | | (16 | ) | | | (4,810 | ) |
Depreciation and amortisation expense | | | | | | | (2,041 | ) | | | 127 | | | | (1,914 | ) |
Other expenses | | | | | | | (2,820 | ) | | | — | | | | (2,820 | ) |
| | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 613 | | | | 111 | | | | 724 | |
| | | | | | | | | | | | | | | | |
Financial income | | | | | | | 429 | | | | — | | | | 429 | |
Financial expenses | | | | | | | (1,457 | ) | | | — | | | | (1,457 | ) |
| | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (1,028 | ) | | | — | | | | (1,028 | ) |
| | | | | | | | | | | | | | | | |
Share of profit of associate | | | | | | | 172 | | | | — | | | | 172 | |
| | | | | | | | | | | | | | | | |
Loss before tax | | | | | | | (243 | ) | | | 111 | | | | (132 | ) |
Income tax benefit/(expense) | | | | | | | 30 | | | | (127 | ) | | | (97 | ) |
| | | | | | | | | | | | | | | | |
Loss after tax | | | | | | | (213 | ) | | | (16 | ) | | | (229 | ) |
| | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
Equity holders of the parent | | | | | | | (213 | ) | | | (16 | ) | | | (229 | ) |
| | | | | | | | | | | | | | | | |
F-51
RECONCILIATION OF 31 DECEMBER 2004 INCOME STATEMENT TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | U.S. GAAP
| | | | |
| | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Revenue | | | | | | | | | | | | | | | | |
Sale and modification of containers | | | | | | | 35,463 | | | | — | | | | 35,463 | |
Hire of containers | | | | | | | 16,756 | | | | — | | | | 16,756 | |
| | | | | | | | | | | | | | | | |
Total revenue | | | | | | | 52,219 | | | | — | | | | 52,219 | |
| | | | | | | | | | | | | | | | |
Other income | | | | | | | 31 | | | | — | | | | 31 | |
Changes in inventories of finished goods and WIP | | | | | | | 1,740 | | | | — | | | | 1,740 | |
Purchases of finished goods and consumables used | | | | | | | (34,437 | ) | | | — | | | | (34,437 | ) |
Employee benefits expense | | | 3 | | | | (7,525 | ) | | | (94 | ) | | | (7,619 | ) |
Depreciation and amortisation expense | | | | | | | (3,943 | ) | | | 547 | | | | (3,396 | ) |
Other expenses | | | | | | | (4,568 | ) | | | — | | | | (4,568 | ) |
| | | | | | | | | | | | | | | | |
Results from operating activities | | | | | | | 3,517 | | | | 453 | | | | 3,970 | |
| | | | | | | | | | | | | | | | |
Financial income | | | | | | | 118 | | | | — | | | | 118 | |
Financial expenses | | | | | | | (3,252 | ) | | | — | | | | (3,252 | ) |
| | | | | | | | | | | | | | | | |
Net financing costs | | | | | | | (3,134 | ) | | | — | | | | (3,134 | ) |
| | | | | | | | | | | | | | | | |
Share of profit of associate | | | | | | | 92 | | | | — | | | | 92 | |
| | | | | | | | | | | | | | | | |
Profit before tax | | | | | | | 475 | | | | 453 | | | | 928 | |
Income tax benefit | | | 7 | | | | 4 | | | | (547 | ) | | | (543 | ) |
| | | | | | | | | | | | | | | | |
Profit/(loss) after tax | | | | | | | 479 | | | | (94 | ) | | | 385 | |
| | | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | | |
Equity holders of the parent | | | | | | | 479 | | | | (94 | ) | | | 385 | |
| | | | | | | | | | | | | | | | |
F-52
RECONCILIATION OF 30 JUNE 2006 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | U.S. GAAP
| | | | |
| | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | 777 | | | | — | | | | 777 | |
Trade and other receivables | | | | | | | 10,206 | | | | — | | | | 10,206 | |
Inventories | | | 4 | | | | 7,498 | | | | (20 | ) | | | 7,478 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 18,481 | | | | (20 | ) | | | 18,461 | |
| | | | | | | | | | | | | | | | |
Receivables | | | | | | | 775 | | | | — | | | | 775 | |
Property, plant and equipment | | | 4 | | | | 3,599 | | | | (19 | ) | | | 3,580 | |
Container hire fleet | | | 4 | | | | 38,491 | | | | (451 | ) | | | 38,040 | |
Intangible assets | | | 1,6 | | | | 5,060 | | | | (304 | ) | | | 4,756 | |
| | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 47,925 | | | | (774 | ) | | | 47,151 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | | | 66,406 | | | | (794 | ) | | | 65,612 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Trade and other payables | | | | | | | 12,509 | | | | — | | | | 12,509 | |
Interest-bearing loans and borrowings | | | | | | | 8,939 | | | | — | | | | 8,939 | |
Employee benefits | | | | | | | 962 | | | | — | | | | 962 | |
Provisions | | | | | | | 300 | | | | — | | | | 300 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 22,710 | | | | — | | | | 22,710 | |
| | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
Interest bearing loans and borrowings | | | | | | | 37,194 | | | | — | | | | 37,194 | |
Deferred tax liabilities | | | 4 | | �� | | 824 | | | | (256 | ) | | | 568 | |
Employee benefits | | | 3 | | | | 567 | | | | 157 | | | | 724 | |
Provisions | | | | | | | 282 | | | | — | | | | 282 | |
| | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 38,867 | | | | (99 | ) | | | 38,768 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 61,577 | | | | (99 | ) | | | 61,478 | |
| | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,829 | | | | (695 | ) | | | 4,134 | |
| | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
Issued capital | | | | | | | 4,550 | | | | | | | | 4,550 | |
Accumulated losses | | | 1-4,6 | | | | (65 | ) | | | (351 | ) | | | (416 | ) |
Reserves | | | 4 | | | | 344 | | | | (344 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,829 | | | | (695 | ) | | | 4,134 | |
| | | | | | | | | | | | | | | | |
F-53
RECONCILIATION OF 30 JUNE 2005 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | U.S. GAAP
| | | | |
| | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | 695 | | | | — | | | | 695 | |
Trade and other receivables | | | | | | | 7,876 | | | | — | | | | 7,876 | |
Inventories | | | | | | | 4,023 | | | | — | | | | 4,023 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 12,594 | | | | — | | | | 12,594 | |
| | | | | | | | | | | | | | | | |
Receivables | | | | | | | 839 | | | | — | | | | 839 | |
Investments accounted for using the equity method | | | | | | | 427 | | | | — | | | | 427 | |
Property, plant and equipment | | | | | | | 3,306 | | | | — | | | | 3,306 | |
Container hire fleet | | | | | | | 25,779 | | | | — | | | | 25,779 | |
Intangible assets | | | 6 | | | | 4,207 | | | | — | | | | 4,207 | |
| | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 34,558 | | | | — | | | | 34,558 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | | | 47,152 | | | | — | | | | 47,152 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Trade and other payables | | | | | | | 8,228 | | | | — | | | | 8,228 | |
Interest-bearing loans and borrowings | | | | | | | 2,778 | | | | — | | | | 2,778 | |
Employee benefits | | | | | | | 801 | | | | — | | | | 801 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 11,807 | | | | — | | | | 11,807 | |
| | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
Interest bearing loans and borrowings | | | | | | | 30,175 | | | | — | | | | 30,175 | |
Deferred tax liabilities | | | | | | | 119 | | | | — | | | | 119 | |
Employee benefits | | | 3 | | | | 227 | | | | 110 | | | | 337 | |
Provisions | | | | | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 30,529 | | | | 110 | | | | 30,639 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 42,336 | | | | 110 | | | | 42,446 | |
| | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,816 | | | | (110 | ) | | | 4,706 | |
| | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
Issued capital | | | | | | | 4,550 | | | | — | | | | 4,550 | |
Retained profits | | | 3,6 | | | | 266 | | | | (110 | ) | | | 156 | |
| | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,816 | | | | (110 | ) | | | 4,706 | |
| | | | | | | | | | | | | | | | |
F-54
RECONCILIATION OF 31 DECEMBER 2004 BALANCE SHEET TO U.S. GAAP (IN AU$’000)
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | U.S. GAAP
| | | | |
| | Note | | | AIFRS | | | Adjustments | | | U.S. GAAP | |
| | | | | A$’000 | | | A$’000 | | | A$’000 | |
|
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | 3 | | | | — | | | | 3 | |
Trade and other receivables | | | | | | | 7,024 | | | | — | | | | 7,024 | |
Inventories | | | | | | | 2,140 | | | | — | | | | 2,140 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | | | | | 9,167 | | | | — | | | | 9,167 | |
| | | | | | | | | | | | | | | | |
Receivables | | | | | | | 1,194 | | | | — | | | | 1,194 | |
Investments accounted for using the equity method | | | | | | | 255 | | | | — | | | | 255 | |
Property, plant and equipment | | | | | | | 1,812 | | | | — | | | | 1,812 | |
Container hire fleet | | | | | | | 22,447 | | | | — | | | | 22,447 | |
Intangible assets | | | 6 | | | | 4,515 | | | | — | | | | 4,515 | |
| | | | | | | | | | | | | | | | |
Total non-current assets | | | | | | | 30,223 | | | | — | | | | 30,223 | |
| | | | | | | | | | | | | | | | |
Total assets | | | | | | | 39,390 | | | | — | | | | 39,390 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Trade and other payables | | | | | | | 11,530 | | | | — | | | | 11,530 | |
Interest-bearing loans and borrowings | | | | | | | 1,425 | | | | — | | | | 1,425 | |
Current tax liability | | | | | | | 791 | | | | — | | | | 791 | |
Employee benefits | | | | | | | 444 | | | | — | | | | 444 | |
| | | | | | | | | | | | | | | | |
Total current liabilities | | | | | | | 14,190 | | | | — | | | | 14,190 | |
| | | | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | | | | |
Interest bearing loans and borrowings | | | | | | | 20,614 | | | | — | | | | 20,614 | |
Deferred tax liabilities | | | | | | | 119 | | | | — | | | | 119 | |
Employee benefits | | | 3 | | | | 308 | | | | 94 | | | | 402 | |
Provisions | | | | | | | 8 | | | | — | | | | 8 | |
| | | | | | | | | | | | | | | | |
Total non-current liabilities | | | | | | | 21,049 | | | | 94 | | | | 21,143 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | | | | | | 35,239 | | | | 94 | | | | 35,333 | |
| | | | | | | | | | | | | | | | |
Net assets | | | | | | | 4,151 | | | | (94 | ) | | | 4,057 | |
| | | | | | | | | | | | | | | | |
Equity | | | | | | | | | | | | | | | | |
Issued capital | | | | | | | 3,672 | | | | — | | | | 3,672 | |
Retained earnings | | | 3,6 | | | | 479 | | | | (94 | ) | | | 385 | |
| | | | | | | | | | | | | | | | |
Total equity attributable to equity holders of the parent | | | | | | | 4,151 | | | | (94 | ) | | | 4,057 | |
| | | | | | | | | | | | | | | | |
| |
1. | Development expenditure |
Under AIFRS, the group capitalises certain development expenditure as described in more detail in accounting policy note 1(h)(ii) to the consolidated financial statements. U.S. GAAP required such costs to be expensed as incurred.
Under U.S. GAAP research and development costs are expensed as incurred. Under AIFRS, certain development costs are capitalised. This increases other expenses presented in accordance with U.S. GAAP by $304,000 in the year ended 30 June 2006, and reduces the intangible assets at 30 June 2006 by the same amount.
F-55
| |
2. | Tax effect of U.SU.S. GAAP adjustments |
This item represents the tax effect of the adjustments in Note 1 at the Australian corporation tax rate of 30%. This reduces the income tax benefit presented in accordance with U.S. GAAP in the year ended 30 June 2006 by $91,000, and increases deferred tax assets at 30 June 2006 by the same amount.
| |
3. | Share based payments expense |
AIFRSs grant a transitional exemption for the calculation of share based payments expense, in that compensation expense for shares and options that were granted between 1 January 2002 and 31 December 2004 that had vested by 1 January 2005 need not be recognised. The same exemption does not apply under U.S. GAAP, and accordingly an adjustment is required to calculate the fair value of the options that had vested prior to 1 January 2005. This has increased employee benefits expense presented in accordance with U.S. GAAP by $47,000 in the 12 months to 30 June 2006 (6 months to 30 June 2005 $16,000; 12 months to 31 December 2004 $94,000) and increased the employee benefit liability for cash settled share based payments by $157,000 at 30 June 2006 ( 30 June 2005 $110,000; 31 December 2004 $94,000). For further details on the employee share option plan and cash settled transactions, refer note 17. This adjustment has no tax impact.
Additional disclosures required by SFAS 123R are as follows: Liability at 30 June 2006 is $468,000; 30 June 2005 $218,000; 31 December 2004 $130,000. Compensation expense for the 12 months to 30 June 2006 $250,000; 6 months ended 30 June 2005 $88,000; 12 months to 31 December 2004 $130,000. Amount recognised for changes in fair value are $180,000 for twelve months to 30 June 2006; and $36,000 for six months to 30 June 2005.
The total compensation cost related to non vested awards not yet recognised is $63,000 and this will be recognised over a period of 1.2 years.
| |
4. | Step acquisition of Royal Wolf Hi-Tech |
Under AIFRS, in accounting for the step acquisition of a controlling interest in an entity which was formerly treated as an associate and equity accounted, the assets and liabilities acquired are adjusted to fair value at the date control is obtained and the entity is consolidated. This gives rise to an asset revaluation reserve equating to the increase in fair value of net assets held from the original acquisition date to the date control is obtained. Under U.S. GAAP, the accounting for such a step acquisition requires a fair value adjustment for the relevant proportion of the net assets acquired to achieve control (in this case 50%) to be recognised. The resulting adjustment to conform with U.S. GAAP reduces the net assets acquired by $378,000 at 30 March 2006 and reduces the revaluation reserve recorded under AIFRS to nil. At 30 June 2006, net assets are reduced by $325,000, being a reduction in container assets of $451,000, a reduction in plant and equipment of $19,000, a reduction in inventory of $20,000, a reduction in asset revaluation reserve of $344,000 and a reduction in deferred tax liability of $165,000.
Net profit for the 12 months ended 30 June 2006 is increased by $19,000, as a result of reduced depreciation of $5,000 a reduction in the taxation charge of $5,000 and reduction in cost of goods sold of $9,000.
| |
5. | Reconciliation of cash flows |
Under AIFRS bank overdrafts are classified as cash and cash equivalents (see Note 8). Under US GAAP bank overdrafts are not classified as cash and cash equivalents for the purposes of statement of cash flows. Movements in bank overdrafts are classified for US GAAP purposes as financing cash flows. For U.S. GAAP purposes, cash balances are $777,000 at 30 June 2006, $695,000 at 30 June 2005, and $3,000 at 31 December 2004. Under U.S. GAAP financing cash flows are an inflow of $11,990,000 for the year ending 30 June 2006, $11,876,000 for the six months ending 30 June 2005 and $5,550,000 for the year ending 31 December 2004. Further, due to the fact that development costs are expensed for U.S. GAAP but capitalised for AIFRS, an adjustment of $304,000 is made to reduce operating cash inflows to $13,687,000 and increase investing cash outflows to $26,203,000 for the year ending 30 June 2006.
F-56
| |
6. | Utilisation of deferred tax assets not recognised in a prior business combination |
Under AIFRS, the recognition of a benefit arising from deferred tax assets and losses not recognised at the time of a business combination requires a credit to income tax expense and associated charge to goodwill amortisation. Under USGAAP, the credit recognised is adjusted against goodwill directly.
On 12 September 2006 the current shareholders entered into a Share Sale Deed with General Finance Corporation (GFC), a US based company with no substantial operations, for the sale of all of the issued capital of the company. There are certain conditions precedent that need to be satisfied before the transaction can complete. It is anticipated that the transaction will complete during the first quarter of calendar year 2007.
The aggregate consideration for the acquisition is USD$87.4 million, which is subject to adjustment relating to the levels of the consolidated entity’s working capital, net tangible assets and container rental equipment, and outstanding obligations under a certain container lease program, as well as the costs and expenses incurred by the consolidated entity in connection with any acquisitions completed prior to the closing. The aggregate consideration will increase by USD$570,000 if the preliminary proxy statement has not been cleared by the U.S. Securities and Exchange Commission (SEC) by January 17, 2007 and by an additional USD$570,000 if clearance has not been obtained by February 17, 2007.
Of the aggregate consideration, the acquirer will pay the shareholders of the company at the closing cash in the amount of USD$83.6 million, as adjusted by the consideration adjustments, less the net debt of the consolidated entity as of the closing of the acquisition and increased if the proxy statement has not been cleared by the SEC by certain dates. The remaining USD$3.8 million of consideration will consist of USD$1.5 million of shares of common stock in GFC and a total of USD$2.3 million payable in cash in two equal instalments following the closing for a non-compete covenant from the company’s shareholders.
F-57
INDEPENDENT AUDITORS’ REPORT
The Board of Directors
Royal Wolf Trading Australia Pty Limited
We have audited the accompanying statement of financial position of Royal Wolf Trading Australia Pty Limited (the Company) as of December 31, 2003, and the related statements of financial performance and cash flows for the year then ended, all expressed in Australian dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Australia and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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, 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 financial position of Royal Wolf Trading Australia Pty Limited as of December 31, 2003, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in Australia to the extent set out in note 1 to the financial statements.
Accounting principles generally accepted in Australia vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 25 to the financial statements.
As discussed in note 24, the accompanying financial statements as at December 31, 2003 and for the year ended December 31, 2003 have been restated.
/s/ KPMG
Sydney, Australia
October 20, 2006
F-58
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
FOR THE YEAR ENDED 31 DECEMBER 2003
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | AUD $ | |
|
Revenues from sale and rental of goods | | | | | | | 39,062,025 | |
Other revenue | | | | | | | 4,579,061 | |
| | | | | | | | |
Total Revenue | | | 2 | | | | 43,641,086 | |
Purchases of finished goods including movements in inventory | | | | | | | (14,977,167 | ) |
Employee expenses | | | | | | | (6,270,525 | ) |
Container repair costs | | | | | | | (3,742,995 | ) |
Repositioning, transport and storage costs | | | | | | | (3,170,501 | ) |
Leasing expenses | | | | | | | (1,722,047 | ) |
Borrowing costs | | | 3 | | | | (2,198,074 | ) |
Depreciation and amortisation expenses | | | 3 | | | | (2,468,571 | ) |
CSC yard costs | | | | | | | (1,189,385 | ) |
Office rent, supplies and training costs | | | | | | | (794,518 | ) |
Travel expenses | | | | | | | (505,581 | ) |
Advertising expenses | | | | | | | (514,834 | ) |
Communication expenses | | | | | | | (388,456 | ) |
Professional fees | | | | | | | (334,671 | ) |
Data processing expenses | | | | | | | (350,429 | ) |
Other expenses from ordinary activities | | | | | | | (522,016 | ) |
Correction of fundamental errors | | | 24 | | | | (1,634,440 | ) |
Share of net profits of investment accounted for using the equity method | | | 11 | | | | 66,500 | |
| | | | | | | | |
Profit from ordinary activities before related income tax expense | | | | | | | 2,923,376 | |
Income tax charge relating to ordinary activities | | | | | | | (1,085,932 | ) |
Correction of income tax related fundamental errors | | | 24 | | | | 773,077 | |
| | | | | | | | |
Total income tax expense relating to ordinary activities | | | 5 | (a) | | | (312,855 | ) |
| | | | | | | | |
Net profit | | | | | | | 2,610,521 | |
| | | | | | | | |
The statement of financial performance is to be read in conjunction with the notes to the financial statements set out on pages F-61 to F-79.
F-59
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
AS AT 31 DECEMBER 2003
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | AUD $ | |
|
Current assets | | | | | | | | |
Cash assets | | | 6 | | | | 1,788,171 | |
Receivables | | | 7 | | | | 5,204,625 | |
Inventories | | | 8 | | | | 3,879,561 | |
Other | | | 9 | | | | 1,206,013 | |
| | | | | | | | |
Total current assets | | | | | | | 12,078,370 | |
| | | | | | | | |
Non-current assets | | | | | | | | |
Property, plant & equipment | | | 10 | | | | 19,547,044 | |
Deferred tax assets | | | 5 | (c) | | | 942,348 | |
Investments accounted for using the equity method | | | 11 | | | | 162,500 | |
Intangible assets | | | 12 | | | | 1,475,517 | |
Other non current assets | | | 13 | | | | 710,849 | |
| | | | | | | | |
Total non-current assets | | | | | | | 22,838,258 | |
| | | | | | | | |
Total assets | | | | | | | 34,916,628 | |
| | | | | | | | |
Current liabilities | | | | | | | | |
Payables | | | 14 | | | | 9,850,866 | |
Interest bearing liabilities | | | 15 | | | | 788,297 | |
Current tax liabilities | | | | | | | 793,793 | |
Provisions | | | 16 | | | | 582,051 | |
| | | | | | | | |
Total current liabilities | | | | | | | 12,015,007 | |
| | | | | | | | |
Non-current liabilities | | | | | | | | |
Interest bearing liabilities | | | 15 | | | | 15,437,785 | |
Deferred tax liabilities | | | 5 | (b) | | | 942,348 | |
Provisions | | | 16 | | | | 133,522 | |
| | | | | | | | |
Total non-current liabilities | | | | | | | 16,513,655 | |
| | | | | | | | |
Total liabilities | | | | | | | 28,528,662 | |
| | | | | | | | |
Net assets | | | | | | | 6,387,966 | |
| | | | | | | | |
Equity | | | | | | | | |
Contributed equity | | | 17 | | | | 6,035,409 | |
Retained earnings | | | 18 | | | | 352,557 | |
| | | | | | | | |
Total equity | | | | | | | 6,387,966 | |
| | | | | | | | |
The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages F-61 to F-79.
F-60
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
FOR THE YEAR ENDED 31 DECEMBER 2003
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | AUD $ | |
|
Cash flows from operating activities | | | | | | | | |
Cash receipts in the course of operations | | | | | | | 38,227,988 | |
Cash payments in the course of operations | | | | | | | (25,430,781 | ) |
Interest received | | | | | | | 36,774 | |
Borrowing costs paid | | | | | | | (2,198,074 | ) |
| | | | | | | | |
Net cash provided by operating activities | | | 21 | | | | 10,635,907 | |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Proceeds on disposal of non current assets | | | | | | | 87,227 | |
Payments for property plant and equipment | | | | | | | (12,482,892 | ) |
| | | | | | | | |
Net cash used in investing activities | | | | | | | (12,395,665 | ) |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Finance lease payments | | | | | | | (5,330,080 | ) |
Loan and promissory note repayments | | | | | | | (5,995,202 | ) |
Proceeds from new borrowings | | | | | | | 14,535,753 | |
Loan establishment costs | | | | | | | (450,849 | ) |
| | | | | | | | |
Net cash provided by financing activities | | | | | | | 2,759,622 | |
| | | | | | | | |
Net increase in cash held | | | | | | | 999,864 | |
Cash at beginning of year | | | | | | | 788,307 | |
| | | | | | | | |
Cash at end of year | | | 6 | | | | 1,788,171 | |
| | | | | | | | |
The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages F-61 to F-79.
F-61
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
FOR THE YEAR ENDED 31 DECEMBER 2003
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| |
1. | Statement of significant accounting policies |
This financial report is prepared in Australian dollars. The financial report was approved by the directors on October 20, 2006. The significant policies that have been adopted in the preparation of this financial report are:
a) Basis of preparation
The financial report is a general purpose financial report, which has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.
It has been prepared on the accrual basis of accounting as defined AASB 1001,Accounting Policies,using on the historical cost convention and except where stated, does not take into account changing money values or fair values of non-current assets. The accounting policies have been consistently applied and, except where there is a change in accounting policy, are consistent with those of the previous year.
The financial statements as at 31st December 2003 have been prepared on a going concern basis.
b) Revenue recognition
Revenues are recognised at fair value of the consideration received net of the amount of goods and services tax (GST) payable to the taxation authority.
Revenue from sale of goods is recognised (net of returns, discounts and allowances) when control of the goods passes to the customer, which is when the customer takes delivery of the goods.
Revenue from rental of goods is recognised in the period earned.
Unearned revenue arises when transport charges for the return retrieval of a hire container or containers is billed in advance, while the actual retrieval has not yet occurred as the container is still on hire.
Interest revenue is recognised as it accrues.
c) Borrowing costs
Borrowing costs include interest charges and the amortisation of ancillary costs incurred in connection with arrangement of borrowings. Interest charges are expensed when incurred. Ancillary costs incurred in connection with the arrangement of borrowings are capitalised and amortised over the life of the borrowings.
d) Goods and services tax
Revenues, 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 an item 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 statement of financial position.
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, which are recoverable from, or payable to, the ATO are classified as operating cash flows.
F-62
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
e) Income tax
The company adopts the liability method of tax effect accounting whereby the income tax expense is based on the operating profit adjusted for any permanent differences.
Timing differences, which arise due to the different accounting periods in which items of revenue and expense account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable.
Future income tax benefits are not brought to account unless realisation of the asset is assured beyond any reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of the realisation of the benefit.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
f) Property, plant and equipment
Plant and equipment is brought to account at cost, less, where applicable, any accumulated depreciation. The carrying amount of plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount for these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the employment of these assets and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts. If the carrying amount of a non-current asset exceeds its recoverable amount, the asset is written down to the lower amount. The write down is expensed in the reporting period in which it occurs.
The costs incurred for initial restoration performed on containers before becoming operational in the lease stock are capitalised and depreciated over the useful lives of the containers.
All property, plant and equipment, excluding freehold land, are depreciated over their useful lives to the company. Assets are depreciated from the date of acquisition. Depreciation rates and methods are reviewed annually for appropriateness. When changes are made, adjustments are reflected prospectively in current and future periods only.
The depreciation method and useful lives used for each class of property, plant and equipment are as follows:
| | | | |
| | Life | | Method |
|
Plant and equipment | | 3 - 10 years | | straight line |
Motor vehicles | | 3 - 10 years | | straight line |
Furniture and fittings | | 5 - 10 years | | straight line |
Containers on hire | | 10 years | | straight line (20% residual) |
Leased containers on hire (used) | | 10 years | | straight line (20% residual) |
Leased containers on hire (new) | | 25 years | | straight line (20% residual) |
g) Inventories
Inventories, which consist primarily of containers held for sale, are measured at the lower of cost or net realisable value. Costs are assigned on a first in first out basis and include direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenses.
F-63
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
h) Receivables
The collectability of debts is assessed at balance date and specific provision is made for any doubtful accounts.
i) Investments
Investments accounted for using the equity method are carried at the lower of the equity accounted amount and recoverable amount. The company’s equity accounted share of the Associates’ net profit or loss is recognised in the consolidated statement of financial performance from the date significant influence commences until the date significant influence ceases. Other movements in reserves are recognised directly in consolidated reserves.
j) Employee benefits
Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, long service leave, annual leave and time in lieu which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Unvested sick leave entitlements have not been recognised as it is considered that sick leave taken in the future will not be greater than the entitlements that will accrue in the future.
Contributions are made by the company to employee superannuation funds and are charged as expenses when incurred.
k) Goodwill
Goodwill is initially recorded at the amount by which the purchase price for a business exceeds the fair value attributed to its net assets at the date of acquisition. Purchased goodwill is amortised on a straight line basis over the period of 20 years. The balance is reviewed annually and any balance representing future benefits considered unlikely to be realised is written off. In assessing the recoverable amount, future cash flows are not discounted.
l) Foreign currency transactions and balances
Foreign currency transactions during the period are converted to Australian currency at the rates of exchange applicable at the dates of transactions. Amounts receivable and payable in foreign currencies at balance date are converted to the rates of exchange ruling at that date.
The gains and losses from conversion of short-term assets and liabilities, whether realised or unrealised, are included in operating profit before income tax as they arise.
m) Leases
Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the company, are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values.
Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the entity will obtain ownership of the asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.
F-64
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
n) Revisions of accounting estimates
Revisions to accounting estimates are recognised prospectively in current and future periods only.
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
2. Revenue from ordinary activities | | | | | | | | |
Sale of goods revenue from operating activities | | | | | | | 25,972,618 | |
Rental of goods revenue from operating activities | | | | | | | 13,089,407 | |
| | | | | | | | |
| | | | | | | 39,062,025 | |
| | | | | | | | |
Other revenues: | | | | | | | | |
From operating activities | | | | | | | | |
Interest | | | | | | | 36,774 | |
From outside operating activities | | | | | | | | |
Gross proceeds from sale of non current assets | | | | | | | 87,227 | |
Net foreign currency gain | | | | | | | 4,455,060 | |
| | | | | | | | |
Total revenues from other activities | | | | | | | 4,579,061 | |
| | | | | | | | |
Total revenue | | | | | | | 43,641,086 | |
| | | | | | | | |
3. Profit from ordinary activities before income tax expense | | | | | | | | |
a) Individually significant revenues / (expenses) included in profit from ordinary activities before income tax expense | | | | | | | | |
Net foreign currency gain | | | | | | | 4,455,060 | |
Correction of fundamental errors | | | 24 | | | | (1,634,440 | ) |
b) Profit from ordinary activities before income tax expense has been arrived at after charging/(crediting) the following items | | | | | | | | |
Depreciation of property, plant and equipment | | | | | | | 2,361,795 | |
Amortisation of goodwill | | | | | | | 106,776 | |
Borrowing Costs | | | | | | | 2,198,074 | |
Employee leave entitlements | | | | | | | 341,442 | |
Movement in inventory provision | | | | | | | 148,444 | |
Movement in provision for doubtful debts | | | | | | | (67,620 | ) |
Net gain on disposal of property, plant and equipment | | | | | | | 3,180 | |
Net foreign currency gain | | | | | | | (4,455,060 | ) |
Correction of fundamental errors | | | 24 | | | | 1,634,440 | |
4. Auditor’s remuneration | | | | | | | | |
Auditors of the company — KPMG: | | | | | | | | |
Audit services | | | | | | | 60,000 | |
Taxation services | | | | | | | 112,616 | |
Other services | | | | | | | 4,000 | |
| | | | | | | | |
| | | | | | | 176,616 | |
| | | | | | | | |
F-65
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
5. Taxation | | | | | | | | |
a) Income tax expense | | | | | | | | |
Prima facie income tax expense calculated at 30% on the profit from ordinary activities | | | | | | | (877,013 | ) |
Decrease in income tax benefit due to: | | | | | | | | |
Amortisation of goodwill | | | | | | | (32,033 | ) |
Sundry items | | | | | | | (158,750 | ) |
Prior year under provision | | | | | | | (18,136 | ) |
| | | | | | | | |
Income tax expense relating to ordinary activities before correction of fundamental errors | | | | | | | (1,085,932 | ) |
| | | | | | | | |
Correction of income tax related fundamental errors — current year | | | 24 | (ii) | | | (138,842 | ) |
— prior year | | | 24 | (i) | | | 48,840 | |
— prior year | | | 24 | (ii) | | | 863,079 | |
| | | | | | | | |
| | | | | | | 773,077 | |
| | | | | | | | |
Total income tax expense relating to ordinary activities | | | | | | | (312,855 | ) |
| | | | | | | | |
b) Deferred tax liabilities | | | | | | | | |
Provision for deferred income tax | | | | | | | | |
Provision for deferred income tax comprises the estimated expense at the applicable rate of 30% on the following items: | | | | | | | | |
Difference in depreciation and amortisation of property, plant and equipment for accounting and income tax purposes | | | | | | | 942,348 | |
| | | | | | | | |
| | | | | | | 942,348 | |
| | | | | | | | |
c) Deferred tax assets | | | | | | | | |
Future income tax benefit | | | | | | | | |
Future income tax benefit comprises the estimated future benefit at the applicable rate of 30% on the following items: | | | | | | | | |
Unrealised exchange losses not currently deductible | | | | | | | 36,227 | |
Provisions and accrued employee entitlements not currently deductible | | | | | | | 449,032 | |
Withholding tax accrual | | | | | | | 530,405 | |
Sundry items | | | | | | | 65,526 | |
Deferred tax assets not recognized | | | | | | | (138,842 | ) |
| | | | | | | | |
| | | | | | | 942,348 | |
| | | | | | | | |
6. Cash assets | | | | | | | | |
Cash at bank and on hand | | | | | | | 1,788,171 | |
| | | | | | | | |
F-66
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
7. Receivables | | | | | | | | |
Current | | | | | | | | |
Trade debtors | | | | | | | 5,109,138 | |
Provision for doubtful trade debtors | | | | | | | (129,594 | ) |
| | | | | | | | |
| | | | | | | 4,979,544 | |
Other debtors | | | | | | | 40,270 | |
Receivables from related entities | | | | | | | 184,811 | |
| | | | | | | | |
| | | | | | | 5,204,625 | |
| | | | | | | | |
8. Inventories | | | | | | | | |
Stock on hand | | | | | | | 3,998,561 | |
Provision for diminution in value | | | | | | | (119,000 | ) |
| | | | | | | | |
| | | | | | | 3,879,561 | |
| | | | | | | | |
9. Other current assets | | | | | | | | |
Prepayments | | | | | | | 424,537 | |
Income tax receivable | | | 24 | | | | 781,476 | |
| | | | | | | | |
| | | | | | | 1,206,013 | |
| | | | | | | | |
10. Property, plant and equipment | | | | | | | | |
Plant and equipment | | | | | | | | |
At cost | | | | | | | 3,055,315 | |
Accumulated depreciation | | | | | | | (1,105,041 | ) |
| | | | | | | | |
| | | | | | | 1,950,274 | |
Motor Vehicles | | | | | | | | |
At cost | | | | | | | 286,972 | |
Accumulated depreciation | | | | | | | (141,920 | ) |
| | | | | | | | |
| | | | | | | 145,052 | |
Owned containers on hire | | | | | | | | |
At cost | | | | | | | 19,517,682 | |
Accumulated depreciation | | | | | | | (3,549,454 | ) |
| | | | | | | | |
| | | | | | | 15,968,228 | |
Leased containers on hire | | | | | | | | |
At cost | | | | | | | 1,600,307 | |
Accumulated depreciation | | | | | | | (116,817 | ) |
| | | | | | | | |
| | | | | | | 1,483,490 | |
Total property, plant and equipment | | | | | | | 19,547,044 | |
| | | | | | | | |
F-67
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Reconciliations | | | | | | | | |
Reconciliations of the carrying amounts for each class of plant and equipment are set out below: | | | | | | | | |
Plant and equipment | | | | | | | | |
Carrying amount at beginning of year | | | | | | | 893,507 | |
Additions | | | | | | | 1,588,247 | |
Disposals | | | | | | | (57,271 | ) |
Depreciation | | | | | | | (474,209 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 1,950,274 | |
| | | | | | | | |
Motor vehicles | | | | | | | | |
Carrying amount at beginning of year | | | | | | | 131,985 | |
Additions | | | | | | | 117,649 | |
Disposals | | | | | | | (26,776 | ) |
Depreciation | | | | | | | (77,806 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 145,052 | |
| | | | | | | | |
Owned containers on hire | | | | | | | | |
Carrying amount at beginning of year | | | | | | | 3,937,150 | |
Additions | | | | | | | 7,461,995 | |
Transfers from leased containers | | | | | | | 7,591,395 | |
Transfers to inventory | | | | | | | (2,402,226 | ) |
Depreciation | | | | | | | (620,086 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 15,968,228 | |
| | | | | | | | |
Leased containers on hire | | | | | | | | |
Carrying amount at beginning of year | | | | | | | 7,493,597 | |
Additions | | | | | | | 3,315,001 | |
Transfers to owned containers | | | | | | | (7,591,395 | ) |
Transfers to inventory | | | | | | | (544,019 | ) |
Depreciation | | | | | | | (1,189,694 | ) |
| | | | | | | | |
Carrying amount at end of year | | | | | | | 1,483,490 | |
| | | | | | | | |
11. Investments accounted for using the equity method | | | | | | | | |
The company has a 50% interest in Royal Wolf Hi-Tech Pty Limited, (the “Associate”) being a company that sells, hires and modifies shipping containers. Royal Wolf Hi-Tech Pty limited has a balance date of 30 June | | | | | | | | |
Results of Associate | | | | | | | | |
The company’s share of the Associate’s result consists of: | | | | | | | | |
Revenue from ordinary activities | | | | | | | 1,056,578 | |
Expenses from ordinary activities | | | | | | | (990,078 | ) |
| | | | | | | | |
Net profit — accounted for using the equity method | | | | | | | 66,500 | |
F-68
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Movements in carrying amount of investment | | | | | | | | |
Carrying amount of investments in Associates at beginning of year | | | | | | | 96,000 | |
Share of Associates’ net profit | | | | | | | 66,500 | |
Dividends received from Associate | | | | | | | — | |
| | | | | | | | |
Carrying amount of investments in Associates at end of year | | | | | | | 162,500 | |
| | | | | | | | |
The Associate has no future commitments for capital expenditure | | | | | | | | |
12. Intangible assets | | | | | | | | |
Goodwill: | | | | | | | | |
At cost | | | | | | | 2,135,528 | |
Accumulated amortization | | | | | | | (660,011 | ) |
| | | | | | | | |
| | | | | | | 1,475,517 | |
| | | | | | | | |
13. Other non-current assets | | | | | | | | |
Loan to related party | | | | | | | 260,000 | |
Loan establishment costs | | | | | | | | |
At cost | | | | | | | 450,849 | |
Accumulated amortisation | | | | | | | — | |
| | | | | | | | |
| | | | | | | 450,849 | |
| | | | | | | | |
| | | | | | | 710,849 | |
| | | | | | | | |
14. Payables | | | | | | | | |
Trade creditors | | | | | | | 6,004,574 | |
Accruals | | | | | | | 3,441,646 | |
Unearned income | | | | | | | 404,646 | |
| | | | | | | | |
| | | | | | | 9,850,866 | |
| | | | | | | | |
15. Interest bearing liabilities | | | | | | | | |
Current | | | | | | | | |
Bank loan | | | | | | | 540,000 | |
Other loan | | | | | | | 113,928 | |
Lease liability | | | | | | | 134,369 | |
| | | | | | | | |
| | | | | | | 788,297 | |
| | | | | | | | |
Non-current | | | | | | | | |
Bank loan | | | | | | | 12,040,000 | |
Other loan — parent entity | | | | | | | 1,955,753 | |
Lease liability | | | | | | | 1,442,032 | |
| | | | | | | | |
| | | | | | | 15,437,785 | |
| | | | | | | | |
F-69
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Financing arrangements | | | | | | | | |
Facilities available at balance date | | | | | | | | |
Finance leases | | | | | | | 4,576,401 | |
Secured bank loans | | | | | | | 13,500,000 | |
| | | | | | | | |
| | | | | | | 18,076,401 | |
Facilities utilised at reporting date | | | | | | | | |
Finance leases | | | | | | | 1,576,401 | |
Secured bank loans | | | | | | | 12,580,000 | |
| | | | | | | | |
| | | | | | | 14,156,401 | |
Facilities not utilised at reporting date | | | | | | | | |
Finance leases | | | | | | | 3,000,000 | |
Secured bank loans | | | | | | | 920,000 | |
| | | | | | | | |
| | | | | | | 3,920,000 | |
Secured bank loans
Bank loans are denominated in Australian dollars. The 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 2008 in varying instalments with a balloon payment at the end, and are subject to annual review. The loans bear interest at the Bank Bill Swap Bid Rate (“BBSY”) as published daily by Reuters plus a margin of 1.75%, payable monthly. Bank loans are secured by a guarantee from RWA Holdings Pty Limited (the parent entity) and are due and payable over the next five years.
Finance leases
The company’s lease liabilities are payable over the next five years and are secured by leased assets of $333,384. The lease liabilities bear interest at a weighted average rate of 11.8%. In the event of default, the assets revert to the lessor.
Other loan — parent entity
The balance payable to the parent entity is an unsecured loan, with no specified repayment terms. Interest is payable at a rate of 15%.
Loan covenants
Under the terms of the Senior Loan Facility agreement with Bank of Western Australia Limited the company undertakes to ensure compliance with covenants in relation to Financial Ratios; Minimum Gross Fixed Assets; Minimum Consolidated Net Worth; Container Utilisation Ratio and Book Value over the term of the agreement. The loan covenant measurement dates are 31 March, 30 June, 30 September and 31 December in each year, commencing 31 March 2004.
F-70
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Current | | | | | | | | |
Employee entitlements | | | | | | | 582,051 | |
| | | | | | | | |
Non current | | | | | | | | |
Employee entitlements | | | | | | | 133,522 | |
| | | | | | | | |
Employee entitlements have been calculated using the following weighted averages | | | | | | | | |
Assumed rate of increase in wages and salary rates | | | | | | | 10 | % |
Settlement term (years) | | | | | | | 5 | |
The company contributes to defined contribution superannuation plans. During the year the company paid $599,341 to defined contribution plans. The employer contributions outstanding at balance date were $602. The total number of employees at balance date is 80.
| | | | | | | | |
| | | | | Restated
| |
| | Note | | | 2003 | |
| | | | | $ | |
|
Share capital | | | | | | | | |
6,035,409 fully paid ordinary shares | | | | | | | 6,035,409 | |
| | | | | | | | |
Ordinary Shares
Holders of Ordinary Shares are entitled to one vote per share at shareholders’ meetings.
In the event of winding up of the Company, ordinary shareholders rank after all creditors and are fully entitled to any proceeds of liquidation.
| | | | | | | | |
Accumulated losses at beginning of year | | | | | | | (2,257,964 | ) |
Net profit before correction of prior year fundamental errors | | | 24 | | | | 3,333,042 | |
Correction of prior year fundamental errors | | | 24 | | | | (722,521 | ) |
| | | | | | | | |
Retained earnings at end of year | | | | | | | 352,557 | |
| | | | | | | | |
F-71
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
a) Finance lease payment and hire purchase commitments
| | | | | | | | |
Finance lease commitments are payable: | | | | | | | | |
Within one year | | | | | | | 313,170 | |
One year or later and no later than five years | | | | | | | 1,980,487 | |
| | | | | | | | |
| | | | | | | 2,293,657 | |
Less: Future lease finance charges | | | | | | | (717,256 | ) |
| | | | | | | | |
| | | | | | | 1,576,401 | |
Lease liabilities provided for in the financial statements: | | | | | | | | |
Current | | | 15 | | | | 134,369 | |
Non-current | | | 15 | | | | 1,442,032 | |
| | | | | | | | |
Total lease liability | | | | | | | 1,576,401 | |
b) Non-cancellable operating lease expense commitments
| | | | |
Future operating lease commitments not provided for in the financial statements and payable: | | | | |
Within one year | | | 2,291,952 | |
One year or later and no later than five years | | | 695,825 | |
| | | | |
| | | 2,987,777 | |
| | | | |
The company leases various office equipment and other facilities under operating leases. The leases have an average period of between one and four 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.
c) Non-cancellable operating lease receivable commitments
| | | | |
Future operating lease rentals receivable: | | | | |
Within one year | | | 1,221,685 | |
One year or later and no later than five years | | | — | |
| | | | |
| | | 1,221,685 | |
| | | | |
The company leases containers 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.
All leases include a clause to enable upward revision of the rental charge.
The company has no other lessor relationships apart from those relating to the rental of containers.
The company operates predominately in a single industry, being the sale and leasing of freight containers and container based storage and accommodation products, and one geographical segment, being Australia.
F-72
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | |
| | Restated
| |
| | 2003
| |
| | $ | |
|
21. Notes to the statement of cash flows | | | | |
a) Reconciliation of cash | | | | |
For the purpose of the statement of cash flows, cash includes cash on hand and at bank. Cash as at the end of the financial year is reconciled to the related items in the statement of financial position as follows: | | | | |
Cash on hand and at bank | | | 1,788,171 | |
| | | | |
b) Reconciliation of net profit from ordinary activities after income tax to net cash provided by operating activities: | | | | |
Net profit | | | 2,610,521 | |
Add/(less) non cash items: | | | | |
Net gain on disposal of property, plant and equipment | | | (3,180 | ) |
Amortisation | | | 106,776 | |
Depreciation | | | 2,361,795 | |
Share of Associates’ net profit | | | (66,500 | ) |
Unrealised exchange gain | | | (120,755 | ) |
| | | | |
Net cash provided by operating activities before change in assets and liabilities | | | 4,888,657 | |
Changes in assets and liabilities: | | | | |
Decrease in current receivables | | | 134,818 | |
Decrease in current inventories | | | 1,554,400 | |
Increase in other assets | | | (232,631 | ) |
Increase in deferred tax assets | | | (229,288 | ) |
Increase in payables | | | 3,647,993 | |
Increase in income taxes payable | | | 793,793 | |
Decrease in deferred tax liabilities | | | (241,432 | ) |
Increase in provisions for employee entitlements | | | 319,597 | |
| | | | |
Net cash provided by operating activities | | | 10,635,907 | |
| | | | |
Directors
The names of each person holding the position of director of the company during the financial year are as follows:
Mr. Gregory Baker
Mr. Michael Baxter
Mr. Robert Carey
Mr. Norman Fricker
Mr. Randolph Gilbert
Mr. Richard Gregson
Mr. Paul Jeffery
Mr. Peter Johnson
F-73
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
Mr. Robert Skinner
Mr. James Warren
Apart from the details disclosed in this note, no director has entered into a material contract with the company since the end of the previous financial year and there were no material contracts involving directors’ interests subsiding at year end.
Directors’ remuneration
The number of directors whose income from the company or any related party falls within the following bands:
| | | | |
| | 2003
| |
| | No. | |
|
$ 0 - $ 9,999 | | | 5 | |
$ 10,000 - $ 19,999 | | | 1 | |
$ 70,000 - $ 79,999 | | | 1 | |
$150,000 - $159,999 | | | 1 | |
$320,000 - $329,999 | | | 1 | |
$350,000 - $359,999 | | | 1 | |
| | | | |
Total income paid or payable to all Directors from the company or any related party | | $ | 908,879 | |
| | | | |
Directors’ shareholdings
The relevant interests of directors and their director related entities in shares of the company at year end are as follows
| | | | |
| | Number Held
| |
| | 2003 | |
|
Ordinary shares | | | Nil | |
Other transactions with the company
From time to time directors of the company or their director-related entities may sell or purchase goods from the company. These purchases are on the same terms and conditions as those entered into by other company employees except that directors may not purchase on credit terms.
Interest in Associate
During the year, sales of $10,329 were made to the Associate and purchases of $556,674 were made from the Associate. At the end of the period, $184,811 was due and payable by the Associate, and $25 was due and payable to the Associate.
Parent entity
On 24 December 2003 the entire share capital of the company was acquired by RWA Holdings Pty Limited, a company incorporated in Australia for cash consideration of $5.8 million with payments of up to a further $3.5 million contingent on future events. Details of balances due to the parent entity are shown in note 15.
F-74
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
The company may enter into forward foreign exchange contracts, as appropriate, to hedge anticipated foreign currency purchases expected in the next 24 months within Board approved limits. The amount of anticipated future purchases is forecast in light of current conditions in foreign markets, commitments to suppliers and experience. The company held no contracts at balance date.
(i) As a result of an error, adjustments from earlier years in respect of underpayment of withholding tax on lease arrangements of $1,634,440 with a tax effect of a benefit of $48,840 have been recorded during the financial year ended 31 December 2003.
(ii) As a result of an error in prior years identified after the approval and filing of the statutory financial statements for the year ended 31 December 2003, a net deferred tax liability of $863,079 was incorrectly included in arriving at the total net deferred tax liability. This has been adjusted in these financial statements for the year ended 31 December 2003. The impact of this adjustment on the restated taxation charge for the year is an increase of $138,842.
The restated financial information for the financial year ended 31 December 2003 is presented below as if the fundamental error for tax related adjustments had not been made:
| | | | |
| | 2003
| |
| | $
| |
| | Restated | |
|
Profit from ordinary activities before related income tax expense | | | 4,557,816 | |
Total income tax expense relating to ordinary activities before effect of errors | | | (1,085,932 | ) |
Correction of fundamental error relating to current year taxation charge (see (ii) above) | | | (138,842 | ) |
| | | | |
Restated income tax charge relating to ordinary activities | | | (1,224,774 | ) |
| | | | |
Net profit from ordinary activities after income tax expense attributable to members of the company | | | 3,333,042 | |
| | | | |
Accumulated losses at beginning of year — as previously reported | | | (2,257,964 | ) |
Correction of withholding tax on lease arrangements, net of $48,840 of tax (see (i) above) | | | (1,585,600 | ) |
| | | | |
Correction of opening deferred tax liability (see (ii) above) | | | 863,079 | |
| | | | |
Correction of fundamental errors, net of tax | | | (722,521 | ) |
| | | | |
Restated accumulated losses at beginning of year | | | (2,980,485 | ) |
Restated net profit from ordinary activities after income tax expense | | | 3,333,042 | |
| | | | |
Restated retained earnings at end of year | | | 352,557 | |
| | | | |
Total equity | | | 6,387,966 | |
| | | | |
| |
25. | Reconciliation to U.S. GAAP |
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (AGAAP) to the extent described in note 1 which, as applied by the Company, differ in certain significant
F-75
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
respects from U.S. GAAP. The effects of the application of U.S. GAAP to net profit and shareholders’ equity are set out in the tables below:
RECONCILIATION OF NET PROFIT TO U.S. GAAP (IN AU$)
| | | | |
| | 31 December
| |
| | 2003 | |
| | A$ | |
|
Net profit after tax under AGAAP (restated) | | | 2,610,521 | |
Correction of prior period errors (net of tax) | | | 722,521 | |
Amortisation of goodwill | | | 106,776 | |
Straight lining of leases | | | (372 | ) |
| | | | |
Net income under U.S. GAAP | | | 3,439,446 | |
| | | | |
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO U.S. GAAP (IN AU$)
| | | | |
| | 31 December
| |
| | 2003 | |
| | A$ | |
|
Total equity under AGAAP (restated) | | | 6,387,966 | |
Amortisation of goodwill | | | 213,553 | |
Goodwill and intangible asset adjustments through impact of push-down accounting | | | (829,519 | ) |
Straight lining of leases | | | (5,310 | ) |
| | | | |
Shareholders’ equity under U.S. GAAP | | | 5,766,690 | |
| | | | |
RECONCILIATION OF SHAREHOLDERS’ EQUITY TO U.S. GAAP (IN AU$)
| | | | |
| | 31 December
| |
| | 2003 | |
| | A$ | |
|
Opening shareholders’ equity at 1 January 2003 under U.S. GAAP | | | 2,327,244 | |
Net income under U.S. GAAP | | | 3,439,446 | |
| | | | |
Closing shareholders’ equity at 31 December 2003 | | | 5,766,690 | |
| | | | |
F-76
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
RECONCILIATION OF INCOME STATEMENT TO U.S. GAAP (IN AU$)
| | | | | | | | | | | | | | | | |
| | | | | Restated
| | | U.S. GAAP
| | | | |
| | Note | | | AGAAP | | | Adjustments | | | U.S. GAAP | |
| | | | | A$ | | | A$ | | | A$ | |
|
Revenues from sale and rental of goods | | | | | | | 39,062,025 | | | | — | | | | 39,062,025 | |
Other revenue | | | | | | | 4,579,061 | | | | — | | | | 4,579,061 | |
| | | | | | | | | | | | | | | | |
Total Revenue | | | | | | | 43,641,086 | | | | — | | | | 43,641,086 | |
Purchases of finished goods including movements in inventory | | | | | | | (14,977,167 | ) | | | — | | | | (14,977,167 | ) |
Employee expenses | | | | | | | (6,270,525 | ) | | | — | | | | (6,270,525 | ) |
Container repair costs | | | | | | | (3,742,995 | ) | | | — | | | | (3,742,995 | ) |
Repositioning, transport and storage costs | | | | | | | (3,170,501 | ) | | | — | | | | (3,170,501 | ) |
Leasing expenses | | | | | | | (1,722,047 | ) | | | (372 | ) | | | (1,722,419 | ) |
Borrowing costs | | | | | | | (2,198,074 | ) | | | — | | | | (2,198,074 | ) |
Depreciation and amortisation expenses | | | | | | | (2,468,571 | ) | | | 106,776 | | | | (2,361,795 | ) |
CSC yard costs | | | | | | | (1,189,385 | ) | | | — | | | | (1,189,385 | ) |
Office rent, supplies and training costs | | | | | | | (794,518 | ) | | | — | | | | (794,518 | ) |
Travel expenses | | | | | | | (505,581 | ) | | | — | | | | (505,581 | ) |
Advertising expenses | | | | | | | (514,834 | ) | | | — | | | | (514,834 | ) |
Communication expenses | | | | | | | (388,456 | ) | | | — | | | | (388,456 | ) |
Professional fees | | | | | | | (334,671 | ) | | | — | | | | (334,671 | ) |
Data processing expenses | | | | | | | (350,429 | ) | | | — | | | | (350,429 | ) |
Other expenses from ordinary activities | | | | | | | (522,016 | ) | | | — | | | | (522,016 | ) |
Correction of fundamental errors | | | | | | | (1,634,440 | ) | | | 1,634,440 | | | | — | |
Share of net profits of investment accounted for using the equity method | | | | | | | 66,500 | | | | — | | | | 66,500 | |
| | | | | | | | | | | | | | | | |
Profit from ordinary activities before related income tax expense | | | | | | | 2,923,376 | | | | 1,740,844 | | | | 4,664,220 | |
Income tax charge relating to ordinary activities | | | | | | | (1,085,932 | ) | | | (138,842 | ) | | | (1,224,774 | ) |
Correction of income tax related fundamental errors | | | | | | | 773,077 | | | | (773,077 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Total income tax expense relating to ordinary activities | | | | | | | (312,855 | ) | | | (911,919 | ) | | | (1,224,774 | ) |
| | | | | | | | | | | | | | | | |
Net profit | | | | | | | 2,610,521 | | | | 828,925 | | | | 3,439,446 | |
| | | | | | | | | | | | | | | | |
F-77
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
RECONCILIATION OF BALANCE SHEET TO U.S. GAAP (IN AU$)
| | | | | | | | | | | | |
| | Restated
| | | U.S. GAAP
| | | | |
| | AGAAP | | | Adjustments | | | U.S. GAAP | |
| | A$ | | | A$ | | | A$ | |
|
Current assets | | | | | | | | | | | | |
Cash assets | | | 1,788,171 | | | | — | | | | 1,788,171 | |
Receivables | | | 5,204,625 | | | | — | | | | 5,204,625 | |
Inventories | | | 3,879,561 | | | | — | | | | 3,879,561 | |
Other | | | 1,206,013 | | | | — | | | | 1,206,013 | |
| | | | | | | | | | | | |
Total current assets | | | 12,078,370 | | | | — | | | | 12,078,370 | |
| | | | | | | | | | | | |
Non-current assets | | | | | | | | | | | | |
Property, plant & equipment | | | 19,547,044 | | | | — | | | | 19,547,044 | |
Deferred tax assets | | | 942,348 | | | | (942,348 | ) | | | — | |
Investments accounted for using the equity method | | | 162,500 | | | | — | | | | 162,500 | |
Intangible assets | | | 1,475,517 | | | | (496,566 | ) | | | 978,951 | |
Other non current assets | | | 710,849 | | | | (185,225 | ) | | | 525,624 | |
| | | | | | | | | | | | |
Total non-current assets | | | 22,838,258 | | | | (1,624,139 | ) | | | 21,214,119 | |
| | | | | | | | | | | | |
Total assets | | | 34,916,628 | | | | (1,624,139 | ) | | | 33,292,489 | |
| | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
Payables | | | 9,850,866 | | | | 5,310 | | | | 9,856,176 | |
Interest bearing liabilities | | | 788,297 | | | | — | | | | 788,297 | |
Current tax liabilities | | | 793,793 | | | | — | | | | 793,793 | |
Provisions | | | 582,051 | | | | — | | | | 582,051 | |
| | | | | | | | | | | | |
Total current liabilities | | | 12,015,007 | | | | 5,310 | | | | 12,020,317 | |
| | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | |
Interest bearing liabilities | | | 15,437,785 | | | | (185,225 | ) | | | 15,252,560 | |
Deferred tax liabilities | | | 942,348 | | | | (822,948 | ) | | | 119,400 | |
Provisions | | | 133,522 | | | | — | | | | 133,522 | |
| | | | | | | | | | | | |
Total non-current liabilities | | | 16,513,655 | | | | (1,008,173 | ) | | | 15,505,482 | |
| | | | | | | | | | | | |
Total liabilities | | | 28,528,662 | | | | (1,002,863 | ) | | | 27,525,799 | |
| | | | | | | | | | | | |
Net assets | | | 6,387,966 | | | | (621,276 | ) | | | 5,766,690 | |
| | | | | | | | | | | | |
Equity | | | | | | | | | | | | |
Contributed equity | | | 6,035,409 | | | | | | | | 6,035,409 | |
Retained profits/(accumulated losses) | | | 352,557 | | | | (621,276 | ) | | | (268,719 | ) |
| | | | | | | | | | | | |
Total equity | | | 6,387,966 | | | | (621,276 | ) | | | 5,766,690 | |
| | | | | | | | | | | | |
Amortisation of goodwill
Under AGAAP, goodwill is required to be amortised over a period not exceeding 20 years. Under U.S. GAAP (SFAS 142, Goodwill and Other Intangible Assets) however, goodwill amortisation was required to cease for
F-78
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
financial years commencing on or after 15 December, 2001. The result is a net adjustment of $213,553 to increase goodwill and shareholder’s equity at 31 December 2003. This increases the retained earnings at 1 January 2003 by $106,777, and increases net profit after tax for the 12 months ending 31 December 2003 and retained earnings at 31 December 2003 by a further $106,776. There is no tax impact of this adjustment.
Straight lining of leases
Under U.S. GAAP, leases with fixed price increases included in the terms and conditions are accrued and expensed evenly across the term of the lease. This is not a requirement of AGAAP. This has increased operating expenses by $372 for the year ending 31 December 2003, and reduced the opening balance of retained earnings by $4,938, in total reducing shareholders equity by $5,310 with no significant impact on tax charge.
Correction of errors
As further described in Note 24, under AGAAP, fundamental errors were corrected in the current period. U.S. GAAP requires restatement of comparatives for prior year errors with amounts related to periods prior to the earliest period presented reflected as an adjustment to opening retained earnings. The result is an increase in profit before income tax of $1,634,440 and increase in tax charge of $911,919 in the statement of financial performance for the year ended 31 December 2003, increasing opening retained earnings by $722,521.
Loan establishment costs
Under AGAAP loan establishment costs are shown separately as an asset in the statement of financial position. Under U.S. GAAP, loan establishment costs paid to the lender of $185,225 are deducted from the related non-current interest bearing liability of $12,040,000.
Deferred taxes
Under AGAAP deferred tax liabilities and assets are shown separately as an asset in the statement of financial position. Under U.S. GAAP deferred tax liabilities and assets are shown net where the amounts relate to the same taxable entity and jurisdiction.
Acquisition of the company by RWA Holdings Pty Limited
Under U.S. GAAP, purchase accounting adjustments at parent company level are pushed down to the acquired entity where substantially all the ownership changes as a result of a business combination. The purchase price for the company was $5,766,690 with up to a further $3,500,000 being payable dependent on future profit performance of the company.
Push down accounting is not required under AGAAP. The application of push down accounting under U.S. GAAP gives rise to the recognition of separable intangible assets of $398,000, and associated deferred tax liability of $119,400, a reduction in deferred tax liabilities of $1,518,817 due to tax base adjustments, a deferred tax valuation allowance of $1,518,817 and goodwill of $580,951 in the company. The original carrying amount of goodwill related to prior acquisitions of $1,689,070 is eliminated as part of the push down adjustments.
| |
26. | Events subsequent to balance date |
On 12 September 2006 the current shareholders of the parent entity, RWA Holdings Pty Limited, entered into a Share Sale Deed with General Finance Corporation (GFC), a US based company with no substantial operations, for the sale of all of the issued capital of the company. There are certain conditions precedent that need to be satisfied
F-79
ROYAL WOLF TRADING AUSTRALIA PTY LIMITED
A.B.N. 38 069 244 417
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
before the transaction can complete. It is anticipated that the transaction will complete during the first quarter of calendar year 2007.
The aggregate consideration for the acquisition is USD$87.4 million, which is subject to adjustment relating to the levels of the company’s working capital, net tangible assets and container rental equipment, and outstanding obligations under a certain container lease program, as well as the costs and expenses incurred by the company in connection with any acquisitions completed prior to the closing. The aggregate consideration will increase by USD$570,000 if the preliminary proxy statement has not been cleared by the U.S. Securities and Exchange Commission (SEC) by January 17, 2007 and by an additional USD$570,000 if clearance has not been obtained by February 17, 2007.
Of the aggregate consideration, the acquirer will pay the shareholders of the parent entity at the closing cash in the amount of USD$83.6 million, as adjusted by the consideration adjustments, less the net debt of the company as of the closing of the acquisition and increased if the proxy statement has not been cleared by the SEC by certain dates. The remaining USD$3.8 million of consideration will consist of USD$1.5 million of shares of common stock in GFC and a total of USD$2.3 million payable in cash in two equal instalments following the closing for a non-compete covenant from the parent entity’s shareholders.
F-80
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
INDEPENDENT AUDIT REPORT
TO THE PARTNERS OF
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
Scope
We have audited the financial report of Australian Container Network Pty Ltd as Nominee for ACN Partnership for the financial year ended 30 June 2005 comprising the Income Statement, Balance Sheet, Statement of Cash Flows and notes to the financial statements.
The partners are responsible for the financial report and have determined that the accounting policies used and described in Note 1 to the financial statements are appropriate to meet the needs of the partners. We have conducted an independent audit of this financial report in order to express an opinion on it to the partners. No opinion is expressed as to whether the accounting policies used, and described in Note 1, are appropriate to the needs of the partners.
Our audit has been conducted in accordance with Australian Auditing Standards and the standards of the Public Company Accounting Oversight Board (United States) to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements and the partnership agreement so as to present a view which is consistent with our understanding of the partnership’s financial position, the results of their operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the financial report of Australian Container Network Pty Ltd as Nominee for ACN Partnership:
(i) gives a true and fair view of the partnership’s financial position as at 30 June 2005 and of its performance for the financial year ended on that date; and
(ii) complies with Accounting Standards in Australia; and
(iii) other mandatory professional requirements.
PITCHER PARTNERS
/s/ A R FITZPATRICK
A R FITZPATRICK
| | |
Partner | Melbourne | 20 February 2007 |
F-81
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2005
| | | | | | | | | | | | | | | | | | | | |
| | FOR THE NINE MONTHS ENDED
| | | | | | | | | | |
| | MARCH 31, | | | | | | | | | | |
| | 2006
| | | 2005
| | | | | | 2005
| | | 2004
| |
| | $ | | | $ | | | Notes | | | $ | | | $ | |
| | (Unaudited) | | | | | | | | | (Unaudited) | |
|
Revenue | | | | | | | | | | | | | | | | | | | | |
Sales revenue | | | 2,124,550 | | | | 1,939,861 | | | | 2 | | | | 2,671,720 | | | | 2,332,870 | |
Other income | | | 1,441,418 | | | | 1,260,519 | | | | 2 | | | | 1,645,738 | | | | 1,464,086 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 3,565,968 | | | | 3,200,380 | | | | | | | | 4,317,458 | | | | 3,796,956 | |
Cost of Sales | | | (2,493,091 | ) | | | (2,329,436 | ) | | | | | | | (3,103,609 | ) | | | (2,708,745 | ) |
Marketing expenses | | | (43,105 | ) | | | (32,663 | ) | | | | | | | (40,048 | ) | | | (27,206 | ) |
Administrative expenses | | | (580,584 | ) | | | (494,638 | ) | | | | | | | (742,906 | ) | | | (624,211 | ) |
Other expenses | | | (123,976 | ) | | | (77,155 | ) | | | | | | | (102,376 | ) | | | (136,194 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | (3,240,756 | ) | | | (2,933,892 | ) | | | | | | | (3,988,939 | ) | | | (3,496,356 | ) |
Finance costs | | | (63,754 | ) | | | (36,800 | ) | | | 3 | | | | (104,196 | ) | | | (40,065 | ) |
| | | | | | | | | | | | | | | | | | | | |
Profit before income tax expense | | | 261,458 | | | | 229,688 | | | | | | | | 224,323 | | | | 260,535 | |
Income tax | | | — | | | | — | | | | 1 | (i) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Profit from continuing operations | | | 261,458 | | | | 229,688 | | | | | | | | 224,323 | | | | 260,535 | |
| | | | | | | | | | | | | | | | | | | | |
The accompanying notes form part of these financial statements.
F-82
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
| | | | | | | | | | | | | | | | |
| | AS AT
| | | | | | | | | | |
| | MARCH 31,
| | | | | | | | | | |
| | 2006
| | | | | | 2005
| | | 2004
| |
| | $ | | | Notes | | | $ | | | $ | |
| | (Unaudited) | | | | | | | | | (Unaudited) | |
|
CURRENT ASSETS | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | 200 | | | | 4 | | | | 100 | | | | 19,379 | |
Trade receivables | | | 759,109 | | | | 5 | | | | 457,712 | | | | 417,560 | |
Inventories | | | 390,529 | | | | 6 | | | | 754,245 | | | | 365,248 | |
Other | | | 26,906 | | | | | | | | 29,848 | | | | 29,162 | |
| | | | | | | | | | | | | | | | |
TOTAL CURRENT ASSETS | | | 1,176,744 | | | | | | | | 1,241,905 | | | | 831,349 | |
| | | | | | | | | | | | | | | | |
NON-CURRENT ASSETS | | | | | | | | | | | | | | | | |
Receivables | | | 1,323 | | | | 5 | | | | 1,323 | | | | 1,323 | |
Financial assets at cost | | | 4 | | | | 7 | | | | 4 | | | | 4 | |
Plant and equipment | | | 1,865,982 | | | | 8 | | | | 1,361,360 | | | | 1,113,328 | |
Intangible assets | | | 1,039 | | | | 9 | | | | 18,048 | | | | 18,048 | |
| | | | | | | | | | | | | | | | |
TOTAL NON-CURRENT ASSETS | | | 1,868,348 | | | | | | | | 1,380,735 | | | | 1,132,703 | |
| | | | | | | | | | | | | | | | |
TOTAL ASSETS | | | 3,045,092 | | | | | | | | 2,622,640 | | | | 1,964,052 | |
| | | | | | | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
Trade and other payables | | | 348,774 | | | | 10 | | | | 528,412 | | | | 452,559 | |
Short term borrowings | | | 903,118 | | | | 11 | | | | 717,142 | | | | 342,668 | |
Provisions | | | 28,496 | | | | 12 | | | | 30,313 | | | | 25,744 | |
| | | | | | | | | | | | | | | | |
TOTAL CURRENT LIABILITIES | | | 1,280,388 | | | | | | | | 1,275,867 | | | | 820,971 | |
| | | | | | | | | | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
Long term borrowings | | | 987,937 | | | | 11 | | | | 726,124 | | | | 564,259 | |
Provisions | | | — | | | | 12 | | | | 29,875 | | | | 20,991 | |
| | | | | | | | | | | | | | | | |
TOTAL NON-CURRENT LIABILITIES | | | 987,937 | | | | | | | | 755,999 | | | | 585,250 | |
| | | | | | | | | | | | | | | | |
TOTAL LIABILITIES | | | 2,268,325 | | | | | | | | 2,031,866 | | | | 1,406,221 | |
| | | | | | | | | | | | | | | | |
NET ASSETS | | | 776,767 | | | | | | | | 590,774 | | | | 557,831 | |
| | | | | | | | | | | | | | | | |
PARTNERS’ FUNDS | | | | | | | | | | | | | | | | |
Current accounts | | | 776,767 | | | | 14 | | | | 590,774 | | | | 557,831 | |
| | | | | | | | | | | | | | | | |
TOTAL PARTNERS’ FUNDS | | | 776,767 | | | | | | | | 590,774 | | | | 557,831 | |
| | | | | | | | | | | | | | | | |
The accompanying notes form part of these financial statements.
F-83
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2005
| | | | | | | | | | | | | | | | | | | | |
| | FOR THE NINE MONTHS
| | | | | | | | | | |
| | ENDED MARCH 31, | | | | | | | | | | |
| | 2006
| | | 2005
| | | | | | 2005
| | | 2004
| |
| | $ | | | $ | | | Notes | | | $ | | | $ | |
| | (Unaudited) | | | | | | | | | (Unaudited) | |
CASH FLOW FROM OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Receipts from customers | | | 3,589,241 | | | | 3,527,964 | | | | | | | | 4,599,569 | | | | 4,000,642 | |
Payments to suppliers and employees | | | (2,433,450 | ) | | | (2,821,295 | ) | | | | | | | (3,751,418 | ) | | | (3,291,005 | ) |
Interest Paid | | | (33,971 | ) | | | (26,016 | ) | | | | | | | (104,196 | ) | | | (40,065 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 1,121,820 | | | | 680,653 | | | | 19 | (b) | | | 743,955 | | | | 669,572 | |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOW FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Proceeds from sale of plant and equipment | | | — | | | | 163,540 | | | | | | | | 313,443 | | | | 418,088 | |
Payment for plant and equipment | | | (890,832 | ) | | | (439,344 | ) | | | | | | | (908,950 | ) | | | (614,169 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (890,832 | ) | | | (275,804 | ) | | | | | | | (595,507 | ) | | | (196,081 | ) |
| | | | | | | | | | | | | | | | | | | | |
CASH FLOW FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
(Increase)/decrease in loans to directors | | | 78,638 | | | | 83,249 | | | | | | | | 68,342 | | | | 19,333 | |
Repayment of borrowings/Lease repayments | | | (301,606 | ) | | | (286,809 | ) | | | | | | | (35,758 | ) | | | (385,935 | ) |
Partnership distributions paid | | | (226,520 | ) | | | (229,688 | ) | | | | | | | (224,323 | ) | | | (260,535 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in financing activities | | | (449,488 | ) | | | (433,248 | ) | | | | | | | (191,739 | ) | | | (627,137 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease in cash held | | | (218,500 | ) | | | (28,399 | ) | | | | | | | (43,291 | ) | | | (153,646 | ) |
Cash at beginning of financial year | | | 51,227 | | | | 79,626 | | | | | | | | 19,379 | | | | 173,025 | |
| | | | | | | | | | | | | | | | | | | | |
Cash at end of financial year | | | (167,273 | ) | | | 51,227 | | | | 19 | (a) | | | (23,912 | ) | | | 19,379 | |
| | | | | | | | | | | | | | | | | | | | |
The accompanying notes form part of these financial statements.
F-84
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
FOR THE YEAR ENDED 30 JUNE 2005 AND 30 JUNE 2004 (UNAUDITED)
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board.
This financial report of Australian Container Network Pty Ltd as Nominee for ACN Partnership is prepared in accordance with Australian Accounting Standards at 30 June 2005. The entity has evaluated the key differences in accounting policies that are expected to arise from adopting Australian Equivalents of International Financial Reporting Standards (AIFRS) and the key differences are considered immaterial. The transition date for first-time adoption of AIFRS is 1 July 2004.
The financial report has been prepared on an accruals basis and is based on historical costs. It does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair value of the consideration given in exchange for assets.
The following is a summary of the material accounting policies adopted by the entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.
(a) Revenue
Revenue from sale of goods is recognised upon the delivery of goods to customers.
Revenue from the rendering of a service, most commonly hiring of containers is recognised upon the delivery of the container to the customers and is charged monthly in arrears.
Interest revenue is recognised when it is received.
Other revenue is recognised when the right to receive the revenue has been established.
All revenue is stated net of the amount of goods and services tax (GST).
(b) Inventories
Inventories are measured at the lower of cost and net realisable value. Costs incurred in bringing each container to its present location and condition are accounted for as follows:
Work-in-progress — cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity.
Container stocks — actual purchase cost is allocated to each container on the basis of physical identification.
(c) Plant and Equipment
Each class of plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation.
Plant and equipment
Plant and equipment is measured on the cost basis.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to present values in determining recoverable amounts.
F-85
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
Depreciation
The depreciable amount of all fixed assets are depreciated over their estimated useful lives to the entity commencing from the time the asset is held ready for use.
Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.
Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.
Finance Leases
Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the entity are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the entity will obtain ownership of the asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.
Operating leases
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.
Lease incentives received under operating leases are recognised as a liability. Lease payments received reduced the liability.
(d) Intangibles
Goodwill
Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Formation costs
Formation costs are initially recorded at the purchase price. Formation costs are amortised on a straight line basis over the period of 20 years. The balances are reviewed annually and any balance representing future benefits the realisation of which is considered to be no longer probable are written off.
(e) Employee Benefits
Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled.
(f) Impairment of assets
Assets with an indefinite useful life are not amortised but are tested annually for impairment in accordance with AASB 136. Assets subject to annual depreciation or amortisation are reviewed for impairment whenever
F-86
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
events or circumstances arise that indicate that the carrying amount of the asset may be impaired. An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and value in use.
(g) Comparative Figures
The partnership was audited for the first time for the financial year ended 30 June 2004. A qualified audit opinion was issued in relation to the 2004 financial statements relating to unaudited opening balances as at 1 July 2003 resulting in a qualified audit opinion being given as to the operating result for the 2004 year. As such, 2004 comparatives relating to the income statement and supporting notes to the accounts are unaudited.
(h) Financial Instruments
Classification
The company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss, loans and receivables,held-to-maturity investments, andavailable-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date.
(i) Income tax
The entity is a partnership for accounting and income tax purposes. Under Australian Taxation Law the individual partner entity is assessed on its share of partnership taxable income. It is possible that the taxation liability will vary from partner to partner depending on individual circumstances. Therefore it is not appropriate to include an income tax expense or liability in the partnership accounts.
NOTE 2: REVENUE
| | | | | | | | | | | | |
Operating activities | | | | | | | | | |
|
- sale of goods | | | | | | | 2,671,720 | | | | 2,332,870 | |
- container hire revenue | | | | | | | 1,643,005 | | | | 1,373,439 | |
- interest | | | 2 | (a) | | | 603 | | | | 3,720 | |
- other revenue | | | | | | | 2,130 | | | | 86,927 | |
| | | | | | | | | | | | |
Total Revenue | | | | | | | 4,317,458 | | | | 3,796,956 | |
| | | | | | | | | | | | |
(a) Interest from: | | | | | | | | | | | | |
- other persons | | | | | | | 603 | | | | 3,720 | |
| | | | | | | | | | | | |
| | | | | | | 603 | | | | 3,720 | |
| | | | | | | | | | | | |
F-87
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 3: PROFIT FROM CONTINUING ACTIVITIES
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
Profit/(losses) before income tax has been determined after: | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Interest paid: | | | | | | | | | | | | |
- other persons | | | | | | | 59,883 | | | | 40,065 | |
Finance lease charges | | | | | | | 115,606 | | | | 69,871 | |
| | | | | | | | | | | | |
Total finance costs | | | | | | | 175,489 | | | | 109,936 | |
Depreciation of non-current assets | | | | | | | | | | | | |
- Plant and equipment | | | | | | | 32,696 | | | | 32,474 | |
- Hire stock | | | | | | | 386,014 | | | | 366,023 | |
- Motor vehicles | | | | | | | 25,820 | | | | 30,022 | |
Amortisation of non-current assets: | | | | | | | | | | | | |
- goodwill | | | | | | | — | | | | 1,001 | |
| | | | | | | | | | | | |
- Goodwill amortisation | | | | | | | — | | | | 1,001 | |
Bad debts: | | | | | | | | | | | | |
- trade debtors | | | | | | | 22,501 | | | | 12,281 | |
- bad debts recovered | | | | | | | (1,744 | ) | | | (2,643 | ) |
| | | | | | | | | | | | |
Bad and doubtful debts | | | | | | | 20,757 | | | | 9,638 | |
| | | | | | | | | | | | |
Rental expense on operating leases | | | | | | | | | | | | |
- minimum lease payments | | | | | | | 71,293 | | | | 69,871 | |
| | | | | | | | | | | | |
Rental expense on operating leases | | | | | | | 71,293 | | | | 69,871 | |
Foreign currency translation losses (gains) | | | | | | | (386 | ) | | | (7,001 | ) |
Net loss/(gain) on disposal of non-current assets | | | | | | | | | | | | |
- Plant and equipment | | | | | | | (97,054 | ) | | | (139,514 | ) |
| | | | | | | | | | | | |
NOTE 4: CASH AND CASH EQUIVALENTS
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
Cash on hand | | | | | | | 100 | | | | 100 | |
Cash at bank | | | | | | | — | | | | 19,279 | |
| | | | | | | | | | | | |
| | | | | | | 100 | | | | 19,379 | |
| | | | | | | | | | | | |
F-88
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 5: RECEIVABLES
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
CURRENT | | | | | | | | | | | | |
Trade debtors | | | | | | | 456,537 | | | | 417,560 | |
Other debtors | | | | | | | 1,175 | | | | — | |
| | | | | | | | | | | | |
| | | | | | | 457,712 | | | | 417,560 | |
| | | | | | | | | | | | |
NON-CURRENT | | | | | | | | | | | | |
Amounts receivable from: | | | | | | | | | | | | |
- associated companies | | | | | | | 1,323 | | | | 1,323 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
CURRENT | | | | | | | | | | | | |
Work in progress at cost | | | | | | | 17,576 | | | | — | |
Finished goods at cost | | | | | | | 736,669 | | | | 365,248 | |
| | | | | | | | | | | | |
| | | | | | | 754,245 | | | | 365,248 | |
| | | | | | | | | | | | |
NOTE 7: FINANCIAL ASSETS AT COST
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
NON CURRENT | | | | | | | | | | | | |
- Unlisted shares | | | | | | | 4 | | | | 4 | |
| | | | | | | | | | | | |
(a) Classification | | | | | | | | | | | | |
The carrying amounts of the above financial assets are classified as follows: | | | | | | | | | | | | |
Designated at fair value on initial recognition | | | | | | | 4 | | | | 4 | |
| | | | | | | | | | | | |
| | | | | | | 4 | | | | 4 | |
| | | | | | | | | | | | |
F-89
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 8: PLANT AND EQUIPMENT
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
Hire Container | | | | | | | | | | | | |
At cost | | | | | | | 2,443,277 | | | | 2,021,887 | |
Less accumulated depreciation | | | | | | | (1,314,423 | ) | | | (1,074,189 | ) |
| | | | | | | | | | | | |
| | | | | | | 1,128,854 | | | | 947,698 | |
| | | | | | | | | | | | |
Plant and Equipment | | | | | | | | | | | | |
Plant and equipment | | | | | | | | | | | | |
At cost | | | | | | | 166,813 | | | | 91,560 | |
Less accumulated depreciation | | | | | | | (78,588 | ) | | | (78,825 | ) |
| | | | | | | | | | | | |
| | | | | | | 88,225 | | | | 12,735 | |
Motor vehicles | | | | | | | | | | | | |
At cost | | | | | | | 227,772 | | | | 196,616 | |
Less accumulated depreciation | | | | | | | (112,874 | ) | | | (87,054 | ) |
| | | | | | | | | | | | |
| | | | | | | 114,898 | | | | 109,562 | |
Office equipment | | | | | | | | | | | | |
At cost | | | | | | | 14,515 | | | | 16,189 | |
Less accumulated depreciation | | | | | | | (6,325 | ) | | | (6,286 | ) |
| | | | | | | | | | | | |
| | | | | | | 8,190 | | | | 9,903 | |
Computer equipment | | | | | | | | | | | | |
At cost | | | | | | | 60,782 | | | | 90,905 | |
Less accumulated depreciation | | | | | | | (39,589 | ) | | | (57,475 | ) |
| | | | | | | | | | | | |
| | | | | | | 21,193 | | | | 33,430 | |
| | | | | | | | | | | | |
Total plant and equipment | | | | | | | 1,361,360 | | | | 1,113,328 | |
| | | | | | | | | | | | |
(a) Movements in Carrying Amounts
Movement in the carrying amounts for each class of plant and equipment between the beginning and the end of the current financial year
| | | | | | | | | | | | | | | | |
| | Hire containers
| | | Plant & equipment
| | | Motor vehicles
| | | Office equipment
| |
2005 | | $ | | | $ | | | $ | | | $ | |
|
Balance at the beginning of the year | | | 947,698 | | | | 12,735 | | | | 109,562 | | | | 9,903 | |
Additions | | | 783,558 | | | | 83,151 | | | | 31,156 | | | | 1,649 | |
Disposals | | | (216,389 | ) | | | — | | | | — | | | | — | |
Depreciation expense | | | (386,014 | ) | | | (7,661 | ) | | | (25,820 | ) | | | (3,362 | ) |
| | | | | | | | | | | | | | | | |
Carrying amount at end of year | | | 1,128,854 | | | | 88,225 | | | | 114,898 | | | | 8,190 | |
| | | | | | | | | | | | | | | | |
F-90
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | Computer equipment
| | | Total
| |
2005 | | $ | | | $ | |
|
Balance at the beginning of the year | | | 33,430 | | | | 1,113,328 | |
Additions | | | 9,436 | | | | 908,950 | |
Disposals | | | — | | | | (216,389 | ) |
Depreciation expense | | | (21,673 | ) | | | (444,530 | ) |
| | | | | | | | |
Carrying amount at the end of the year | | | 21,193 | | | | 1,361,360 | |
| | | | | | | | |
NOTE 9: INTANGIBLE ASSETS
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
Goodwill at cost | | | | | | | 20,000 | | | | 20,000 | |
Less accumulated impairment losses | | | | | | | (2,991 | ) | | | (2,991 | ) |
| | | | | | | | | | | | |
| | | | | | | 17,009 | | | | 17,009 | |
Formation costs at cost | | | | | | | 1,039 | | | | 1,039 | |
| | | | | | | | | | | | |
| | | | | | | 18,048 | | | | 18,048 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
CURRENT | | | | | | | | | | | | |
Unsecured liabilities | | | | | | | | | | | | |
Trade creditors | | | | | | | 383,490 | | | | 273,257 | |
Sundry creditors and accruals | | | | | | | 144,922 | | | | 179,302 | |
| | | | | | | | | | | | |
| | | | | | | 528,412 | | | | 452,559 | |
| | | | | | | | | | | | |
F-91
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
CURRENT | | | | | | | | | | | | |
Unsecured liabilities | | | | | | | | | | | | |
Amounts payable to: | | | | | | | | | | | | |
- partner related parties | | | | | | | 183,060 | | | | 147,661 | |
| | | | | | | | | | | | |
Secured liabilities | | | | | | | | | | | | |
Bank overdrafts | | | | | | | 24,012 | | | | — | |
Bank loans | | | | | | | 210,591 | | | | — | |
Hire purchase liability | | | 13 | | | | 299,479 | | | | 195,007 | |
| | | | | | | | | | | | |
| | | | | | | 534,082 | | | | 195,007 | |
| | | | | | | | | | | | |
| | | | | | | 717,142 | | | | 342,668 | |
| | | | | | | | | | | | |
NON-CURRENT | | | | | | | | | | | | |
Secured liabilities | | | | | | | | | | | | |
Bank loans | | | | | | | 172,100 | | | | 90,054 | |
Hire purchase liability | | | 13 | | | | 554,024 | | | | 474,205 | |
| | | | | | | | | | | | |
| | | | | | | 726,124 | | | | 564,259 | |
| | | | | | | | | | | | |
There was a Registered Mortgage Debenture over the whole of Australian Container Network Pty Ltd As Nominee For The ACN Partnership assets including goodwill and uncalled capital and called but unpaid capital together with relative insurance policy assigned to the National Australia Bank Limited.
Deed of Priority.
Letter of Subordination.
Guarantee and Indemnity for $675,000.00 given by the partner entities and related individuals supported by a Registered Mortgage Debenture over the assets of the partner entities.
The above security was subsequently released upon the sale of the partnership business. Refer Subsequent Events Note 16.
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
CURRENT | | | | | | | | | | | | |
Employee benefits | | | (a | ) | | | 30,313 | | | | 25,744 | |
| | | | | | | | | | | | |
NON-CURRENT | | | | | | | | | | | | |
Employee benefits | | | (a | ) | | | 29,875 | | | | 20,991 | |
| | | | | | | | | | | | |
(a) Aggregate employee benefits liability | | | | | | | 60,188 | | | | 46,735 | |
| | | | | | | | | | | | |
F-92
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
NOTE 13: CAPITAL AND LEASING COMMITMENTS
| | | | | | | | | | | | |
| | Note | | | 2005 | | | 2004 | |
|
(a) Hire purchase commitments | | | | | | | | | | | | |
Payable | | | | | | | | | | | | |
- not later than one year | | | | | | | 349,143 | | | | 234,723 | |
- later than one year and not later than five years | | | | | | | 604,687 | | | | 517,968 | |
| | | | | | | | | | | | |
Minimum hire purchase payments | | | | | | | 953,830 | | | | 752,691 | |
Less future finance charges | | | | | | | (100,327 | ) | | | (83,479 | ) |
| | | | | | | | | | | | |
Total hire purchase liability | | | | | | | 853,503 | | | | 669,212 | |
| | | | | | | | | | | | |
Represented by: | | | | | | | | | | | | |
Current liability | | | 11 | | | | 299,479 | | | | 195,007 | |
Non-current liability | | | 11 | | | | 554,024 | | | | 474,205 | |
| | | | | | | | | | | | |
| | | | | | | 853,503 | | | | 669,212 | |
| | | | | | | | | | | | |
(b) Operating lease commitments | | | | | | | | | | | | |
Non-cancellable operating leases contracted for but not capitalised in the financial statements: | | | | | | | | | | | | |
Payable | | | | | | | | | | | | |
- not later than one year | | | | | | | 28,300 | | | | 27,309 | |
- later than one year and not later than five years | | | | | | | 68,481 | | | | 8,864 | |
| | | | | | | | | | | | |
| | | | | | | 96,781 | | | | 36,173 | |
| | | | | | | | | | | | |
Partners’ current accounts
| | | | | | | | | | | | |
| | For the Nine
| | | | | | | |
| | Months Ended
| | | | | | | |
| | March 31, 2006 | | | | | | | |
| | (Unaudited) | | | | | | | |
|
Koleet Pty Ltd | | | | | | | | | | | | |
Opening Balance | | | 253,350 | | | | 224,399 | | | | 137,554 | |
Share of profits | | | 87,153 | | | | 74,774 | | | | 86,845 | |
Drawings | | | (25,000 | ) | | | (45,823 | ) | | | — | |
| | | | | | | | | | | | |
Closing Balance | | | 315,503 | | | | 253,350 | | | | 224,399 | |
| | | | | | | | | | | | |
Caraft Pty Ltd | | | | | | | | | | | | |
Opening Balance | | | 113,844 | | | | 135,049 | | | | 48,204 | |
Share of profits | | | 87,153 | | | | 74,774 | | | | 86,845 | |
Drawings | | | (25,212 | ) | | | (95,979 | ) | | | — | |
| | | | | | | | | | | | |
Closing Balance | | | 175,785 | | | | 113,844 | | | | 135,049 | |
| | | | | | | | | | | | |
Wellest Pty Ltd | | | | | | | | | | | | |
Opening Balance | | | 223,580 | | | | 198,384 | | | | 111,539 | |
Share of profits | | | 87,152 | | | | 74,775 | | | | 86,845 | |
Drawings | | | (25,253 | ) | | | (49,579 | ) | | | — | |
| | | | | | | | | | | | |
Closing Balance | | | 285,479 | | | | 223,580 | | | | 198,384 | |
| | | | | | | | | | | | |
| | | 776,767 | | | | 590,774 | | | | 557,832 | |
| | | | | | | | | | | | |
F-93
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| |
NOTE 15: | RECONCILIATION OF U.SU.S. GAAP |
The Partnership’s financial statements have been prepared in accordance with Australian equivalents to International Financial Reporting Standard (AIFRSs) for the year ended 30 June 2005. The partners have considered whether the financial statements prepared on this basis differ materially from accounting standards generally accepted in the United States of America (U.S. GAAP). It was determined that the effects of the application of U.S. GAAP to net profit and partners’ equity was immaterial and therefore a reconciliation has not been considered necessary.
| |
NOTE 16: | EVENTS SUBSEQUENT TO REPORTING DATE |
The business of Australian Container Network partnership was purchased by Royal Wolf Trading Australia Pty Ltd on 28 April 2006. As part of the agreement Royal Wolf Trading Australia Pty Ltd purchased selected assets and assumed employee liabilities of the partnership together with the business trading name.
| |
NOTE 17: | PARTNERSHIP DETAILS |
The registered office of the nominee company is:
Australian Container Network Pty Ltd
C/- Pitcher Partners
Level 19, 15 William Street
Melbourne Vic 3000
| |
NOTE 18: | PARTNERS’ AND EXECUTIVES’ REMUNERATION |
| | | | | | | | | | | | | | | | |
| | Salary, fees and
| | | | | | | | | | |
2005 | | non-monetary benefits | | | Super-annuation | | | Equity | | | TOTAL | |
|
PARTNERS | | | | | | | | | | | | | | | | |
Sebastian Cavarra | | | 59,881 | | | | 4,500 | | | | — | | | | 64,381 | |
Wendy Cavarra | | | 87,060 | | | | 6,660 | | | | — | | | | 93,720 | |
Joe Kolenda | | | 57,476 | | | | 4,500 | | | | — | | | | 61,976 | |
Peter Welsh | | | 57,476 | | | | 4,500 | | | | — | | | | 61,976 | |
| | | | | | | | | | | | | | | | |
| | | 261,893 | | | | 20,160 | | | | — | | | | 282,053 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Salary, fees and
| | | | | | | | | | |
2004 | | non-monetary benefits | | | Super-annuation | | | Equity | | | TOTAL | |
|
PARTNERS | | | | | | | | | | | | | | | | |
Sebastian Cavarra | | | 54,074 | | | | 4,050 | | | | — | | | | 58,124 | |
Wendy Cavarra | | | 65,978 | | | | 4,410 | | | | — | | | | 70,388 | |
Joe Kolenda | | | 54,441 | | | | 4,050 | | | | — | | | | 58,491 | |
Peter Welsh | | | 51,276 | | | | 4,050 | | | | — | | | | 55,326 | |
| | | | | | | | | | | | | | | | |
| | | 225,769 | | | | 16,560 | | | | — | | | | 242,329 | |
| | | | | | | | | | | | | | | | |
F-94
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| |
NOTE 19: | CASH FLOW INFORMATION |
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine
| | | | | | | | | | |
| | Months Ended | | | | | | | | | | |
| | March
| | | March
| | | | | | | | | | |
| | 2006
| | | 2005
| | | | | | 2005
| | | 2004
| |
| | $ | | | $ | | | Note | | | $ | | | $ | |
| | (Unaudited) | | | | | | | | | | |
|
(a) Reconciliation of cash | | | | | | | | | | | | | | | | | | | | |
For the purposes of the statement of cash flows, cash includes cash on hand and at call deposits with banks or financial institutions, investments in money market instruments maturing within less than two months and net of bank overdrafts. | | | | | | | | | | | | | | | | | | | | |
Cash at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the statement of financial position as follows: | | | | | | | | | | | | | | | | | | | | |
Cash on hand | | | 200 | | | | 100 | | | | | | | | 100 | | | | 100 | |
Cash at bank | | | — | | | | 51,127 | | | | | | | | — | | | | 19,279 | |
Bank overdrafts | | | (168,719 | ) | | | — | | | | | | | | (24,012 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | (168,519 | ) | | | 51,227 | | | | | | | | (23,912 | ) | | | 19,379 | |
(b) Reconciliation of cash flow from operations with profit from ordinary activities after income tax | | | | | | | | | | | | | | | | | | | | |
Profit from ordinary activities after income tax | | | 261,458 | | | | 229,688 | | | | | | | | 224,323 | | | | 260,535 | |
Non-cash flows in profit from ordinary activities Amortisation | | | — | | | | — | | | | | | | | — | | | | 1,952 | |
Depreciation | | | 402,780 | | | | 117,337 | | | | | | | | 444,530 | | | | 428,519 | |
Net (gain)/loss on disposal of property, plant and equipment | | | 20,000 | | | | — | | | | | | | | (97,054 | ) | | | (139,514 | ) |
Lease/HP charges | | | 8,619 | | | | — | | | | | | | | 78,980 | | | | 66,783 | |
New leases entered into | | | 684,674 | | | | 364,513 | | | | | | | | 433,705 | | | | 592,466 | |
Changes in assets and liabilities | | | | | | | | | | | | | | | | | | | | |
Increase in receivables | | | (303,587 | ) | | | 13,871 | | | | | | | | (38,977 | ) | | | (13,494 | ) |
Increase in other assets | | | 9,579 | | | | 445 | | | | | | | | (1,861 | ) | | | (5,234 | ) |
Increase in inventories | | | 22,952 | | | | (115,016 | ) | | | | | | | (388,997 | ) | | | (55,526 | ) |
increase/(decrease) in payables | | | (13,151 | ) | | | 69,815 | | | | | | | | 75,853 | | | | (513,649 | ) |
Increase in provisions | | | 28,496 | | | | — | | | | | | | | 13,453 | | | | 46,735 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from operations | | | 1,121,820 | | | | 680,653 | | | | | | | | 743,955 | | | | 669,573 | |
| | | | | | | | | | | | | | | | | | | | |
F-95
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| |
NOTE 20: | FINANCIAL INSTRUMENTS |
(a) Interest rate risk
The partnership’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted
| |
| | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2005
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
|
(i) Financial assets | | | | | | | | | | | | | | | | | | | | |
Cash | | | — | | | | — | | | | 100 | | | | 100 | | | | — | |
Trade and other receivables | | | — | | | | — | | | | 457,712 | | | | 457,712 | | | | — | |
Receivables — other related parties | | | — | | | | — | | | | 1,323 | | | | 1,323 | | | | — | |
Unlisted shares | | | — | | | | — | | | | 4 | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total financial assets | | | — | | | | — | | | | 459,139 | | | | 459,139 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted
| |
| | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2005
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
|
(ii) Financial liabilities | | | | | | | | | | | | | | | | | | | | |
Bank overdraft | | | 24,012 | | | | — | | | | — | | | | 24,012 | | | | 12.1 | |
Trade creditors | | | — | | | | — | | | | 383,490 | | | | 383,490 | | | | — | |
Other creditors | | | — | | | | — | | | | 8,238 | | | | 8,238 | | | | — | |
Bank and other loans | | | 382,691 | | | | — | | | | — | | | | 382,691 | | | | 8.3 | |
Payable — director & director related parties | | | — | | | | 183,060 | | | | — | | | | 183,060 | | | | 15.0 | |
Hire purchase | | | — | | | | — | | | | 853,503 | | | | 853,503 | | | | 7.7 | |
| | | | | | | | | | | | | | | | | | | | |
Total financial liabilities | | | 406,703 | | | | 183,060 | | | | 1,245,231 | | | | 1,834,994 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted
| |
| | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2004
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
|
(iii) Financial assets | | | | | | | | | | | | | | | | | | | | |
Cash | | | 19,279 | | | | — | | | | 100 | | | | 19,379 | | | | 11.9 | |
Trade and other receivables | | | — | | | | — | | | | 417,560 | | | | 417,560 | | | | — | |
Receivables — other related parties | | | — | | | | — | | | | 1,323 | | | | 1,323 | | | | — | |
Unlisted shares | | | — | | | | — | | | | 4 | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total financial assets | | | 19,279 | | | | — | | | | 418,987 | | | | 438,266 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
F-96
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted
| |
| | Floating
| | | Fixed interest
| | | | | | Total carrying
| | | average
| |
| | interest
| | | rate maturing in:
| | | Non-interest
| | | amount as per
| | | effective
| |
2004
| | rate
| | | Over 1 to 5 Years
| | | bearing
| | | the balance sheet
| | | interest rate
| |
Financial Instruments | | $ | | | $ | | | $ | | | $ | | | % | |
|
(iv) Financial liabilities | | | | | | | | | | | | | | | | | | | | |
Trade creditors | | | — | | | | — | | | | 273,257 | | | | 273,257 | | | | — | |
Other creditors | | | — | | | | — | | | | 72,803 | | | | 72,803 | | | | — | |
Bank and other loans | | | — | | | | — | | | | 90,054 | | | | 90,054 | | | | 10.8 | |
Payable — director & director related parties | | | — | | | | — | | | | 147,661 | | | | 147,661 | | | | 15.0 | |
Hire purchase | | | — | | | | — | | | | 669,212 | | | | 669,212 | | | | 7.7 | |
| | | | | | | | | | | | | | | | | | | | |
Total financial liabilities | | | — | | | | — | | | | 1,252,987 | | | | 1,252,987 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount of those assets, net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statements.
The entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the entity.
The net fair value of financial assets and financial liabilities approximates their carrying values as disclosed in the statement of financial position and notes to the financial statements.
The net fair value of listed investments have been valued at the quoted market bid price at balance date adjusted for transaction costs expected to be incurred. For other assets and other liabilities the net fair value approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form other than listed investments, forward exchange contracts and interest rate swaps. Financial assets where the carrying amount exceeds net fair values have not been written down as the entity intends to hold these assets to maturity.
Aggregate net fair values and carrying amounts of financial assets and financial liabilities at balance date
| | | | | | | | | | | | | | | | |
| | 2005 | | | 2004 | |
| | Carrying Amount
| | | Net Fair Value
| | | Carrying Amount
| | | Net Fair Value
| |
| | $ | | | $ | | | $ | | | $ | |
|
Financial assets | | | | | | | | | | | | | | | | |
Financial assets at fair value through profit and loss | | | 4 | | | | — | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | 4 | | | | — | | | | 4 | | | | — | |
| | | | | | | | | | | | | | | | |
F-97
AUSTRALIAN CONTAINER NETWORK PTY LTD AS NOMINEE FOR ACN PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | |
| | 2005 | | | 2004 | |
| | Carrying Amount
| | | Net Fair Value
| | | Carrying Amount
| | | Net Fair Value
| |
| | $ | | | $ | | | $ | | | $ | |
|
Financial liabilities | | | | | | | | | | | | | | | | |
Other loans and amounts due | | | 1,236,194 | | | | — | | | | 759,266 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | 1,236,194 | | | | — | | | | 759,266 | | | | — | |
| | | | | | | | | | | | | | | | |
F-98
Annex A
Share sale deed
relating to shares in RWA Holdings Pty Limited
| | | |
| | | Deed of Variation (No. 3) |
| | | |
| | | to the Share Sale Deed relating to shares in RWA Holdings Pty Limited |
| | | |
| | | |
| | | |
| | | Equity Partners Two Pty Limited (in its capacity as trustee of Equity Partners 2 Trust) |
| | | FOMM Pty Limited |
| | | FOMJ Pty Limited |
| | | Cetro Pty Limited |
| | | TWCE Pty Limited |
| | | Michael Paul Baxter |
| | | James Harold Warren |
| | | Paul Henry Jeffery |
| | | Peter Linden McCann |
| | | GFN Australasia Finance Pty Limited |
| | | General Finance Corporation |
| | | Bison Capital Australia LP |
| | | |
Equity Partners Two Pty Limited (in its capacity as trustee of Equity Partners 2 Trust)(Equity Partners)
Cetro Pty Limited
FOMJ Pty Limited
FOMM Pty Limited
TCWE Pty Limited
(together theManagement Vendors)
The persons listed in Schedule 2(Guarantors)
GFN Australasia Finance Pty Limited(Purchaser)
General Finance Corporation(GFC)
AURORA PLACE, 88 PHILLIP STREET, SYDNEY
NSW 2000, DX 117 SYDNEY
TEL: +61 2 9921 8888 FAX: +61 2 9921 8123
www.minterellison.com
Share sale deedDeed of Variation (No. 3)
| | | | |
Details | | | A-1A-3 | |
Agreed terms | | | A-2A-5 | |
1. Defined terms & interpretation | | | A-2 | |
1.1 Defined terms | | | A-2 | |
1.2 Interpretation | | | A-8 | |
1.3 Headings | | | A-9A-5 | |
2. ConditionsVariation | | | A-9 | |
2.1 Conditions | | | A-9 | |
2.2 Waiver of Conditions | | | A-10 | |
2.3 Conduct of the parties | | | A-10 | |
2.4 Failure of Condition and termination | | | A-10 | |
2.5 Extent of obligation to Fulfil Conditions | | | A-11 | |
2.6 GFC Shareholder Approval | | | A-11A-5 | |
3. Continued operation of the Share Sale Deed as amended and purchaserestated | | | A-11 | |
3.1 Agreement to sell and purchase Sale Shares | | | A-11A-5 | |
4. Fair Value and Purchase Price | | | A-11 | |
4.1 Fair Value | | | A-11 | |
4.2 Amount | | | A-11 | |
4.3 Deposit | | | A-12 | |
4.4 Adjustments | | | A-12 | |
4.5 Cash and scrip components of Purchase Price | | | A-13 | |
4.6 Net Debt | | | A-14 | |
4.7 Reimbursement for acquisitions | | | A-14 | |
4.8 Cleared funds | | | A-14 | |
4.9 K & S Lease (Curtainsiders) | | | A-15 | |
4.10 Additional Amount | | | A-15 | |
5. Escrow
| | | A-15 | |
5.1 Management Vendors Escrow | | | A-15 | |
5.2 Equity Partners Escrow | | | A-16 | |
5.3 Escrow of GFC Consideration Shares | | | A-16 | |
5.4 Interest | | | A-18 | |
5.5 Warranty insurance | | | A-18 | |
6. Completion
| | | A-18 | |
6.1 Time and place | | | A-18 | |
6.2 Obligations of the Vendors | | | A-18 | |
6.3 Obligations of the Purchaser and GFC | | | A-19 | |
6.4 Simultaneous actions at Completion | | | A-19 | |
6.5 Records | | | A-20 | |
6.6 Information and Assistance Following Completion | | | A-20 | |
7. Completion Accounts
| | | A-20 | |
7.1 Completion Accounts | | | A-20 | |
7.2 Basis of preparation | | | A-20 | |
7.3 Access to information | | | A-20 | |
7.4 Review of Completion Accounts | | | A-20 | |
A-i
| | | | |
7.5 Dispute Resolution Procedure | | | A-20 | |
7.6 Costs | | | A-21 | |
8. Obligations before Completion
| | | A-21 | |
8.1 Continuity of business | | | A-21 | |
8.2 Access to Business and Records | | | A-22 | |
8.3 Purchaser’s obligations | | | A-22 | |
8.4 Notice of Change | | | A-22 | |
8.5 SEC Proxy Filing | | | A-22 | |
9. Warranties and Indemnities
| | | A-23 | |
9.1 Warranties by Vendors | | | A-23 | |
9.2 Application of the Warranties | | | A-23 | |
9.3 Disclosure | | | A-24 | |
9.4 Acknowledgments | | | A-24 | |
9.5 No reliance | | | A-24 | |
9.6 Financial limits on Claims | | | A-25 | |
9.7 Time limits on Claims | | | A-25 | |
9.8 Maximum aggregate liability for Claims | | | A-25 | |
9.9 Duty to mitigate | | | A-25 | |
9.10 Rights of the Purchaser | | | A-25 | |
9.11 Benefits or credits received by the Company or the Purchaser | | | A-26 | |
9.12 Warranty payments | | | A-26 | |
9.13 Trade Practices Act | | | A-26 | |
9.14 Financial forecasts | | | A-26 | |
9.15 Additional limitations | | | A-26 | |
9.16 Vendors’ Tax Indemnity | | | A-27 | |
9.17 Limits to recovery | | | A-27 | |
9.18 Good faith negotiations in relation to disclosure of material items between signing and Completion | | | A-27 | |
10. K&S Lease Indemnity
| | | A-27 | |
11. ADF Contract
| | | A-28 | |
12. Environmental audit report
| | | A-28 | |
13. GFC Undertaking
| | | A-28 | |
14. Guarantee
| | | A-28 | |
14.1 Guarantee and indemnity | | | A-28 | |
14.2 Enforcement against guarantors | | | A-29 | |
14.3 Continuing Guarantee | | | A-29 | |
14.4 Principal Obligations | | | A-29 | |
14.5 Obligations Absolute and Unconditional | | | A-29 | |
14.6 Winding-up or Bankruptcy of Management Vendor
| | | A-30 | |
14.7 Indemnity in Respect of Management Vendors’ Obligations | | | A-30 | |
14.8 Payment under Indemnity | | | A-30 | |
14.9 General Application of Indemnity | | | A-30 | |
15. Restraint
| | | A-30 | |
15.1 Definitions | | | A-30 | |
15.2 Prohibited activities | | | A-30 | |
A-ii
| | | | |
15.3 Duration of prohibition | | | A-31 | |
15.4 Geographic application of prohibition | | | A-31 | |
15.5 Interpretation | | | A-31 | |
15.6 Exceptions | | | A-31 | |
15.7 Acknowledgments | | | A-32 | |
15.8 Payment of Restraint Amount | | | A-32 | |
16. Representations by the Purchaser and GFC
| | | A-32 | |
16.1 Representations | | | A-32 | |
16.2 Application of representations by the Purchaser and GFC | | | A-32 | |
17. Equity Partners limitation of liability
| | | A-33 | |
17.1 Limited capacity | | | A-33 | |
17.2 Limited rights to sue | | | A-33 | |
17.3 Exceptions | | | A-33 | |
17.4 Limitation on authority | | | A-33 | |
18. GST
| | | A-33 | |
18.1 Interpretation | | | A-33 | |
18.2 GST gross up | | | A-33 | |
18.3 Reimbursements | | | A-33 | |
18.4 Tax invoice | | | A-33 | |
19. Announcements
| | | A-34 | |
19.1 Announcements | | | A-34 | |
19.2 Equity Partners exception | | | A-34 | |
20. Notices and other communications
| | | A-34 | |
20.1 Service of notices | | | A-34 | |
20.2 Effective on receipt | | | A-34 | |
21. Miscellaneous
| | | A-35A-5 | |
21.1 Vendors’ Representatives | | | A-35 | |
21.2 Alterations | | | A-35 | |
21.3 Approvals and consents | | | A-35 | |
21.4 Assignment | | | A-35 | |
21.54.1 Costs | | | A-35A-5 | |
21.6 Stamp duty and other duties | | | A-35 | |
21.7 Survival | | | A-35 | |
21.84.2 Counterparts | | | A-35A-5 | |
21.9 No merger | | | A-35 | |
21.104.3 Entire agreement | | | A-36A-5 | |
21.11 Further action | | | A-36 | |
21.12 Severability | | | A-36 | |
21.13 Waiver | | | A-36 | |
21.144.4 Governing law and jurisdiction | | | A-36 | |
21.15 Specific performance | | | A-36 | |
22. Trusts
| | | A-36 | |
Schedule 1 — Shareholdings and Respective Proportions
| | | | |
Schedule 2 — Guarantors
| | | | |
| | | | |
A-iii
| | | | |
Schedule 3 — Directors and Secretaries to resign and to be appointed
| | | | |
Schedule 4 — Title and Capacity Warranties
| | | A-37 | |
Schedule 5 — Business Warranties
| | | A-38 | |
Schedule 6 — Leased Premises
| | | | |
Schedule 7 — Intellectual Property Rights
| | | | |
Schedule 8 — Due Diligence Index
| | | | |
Schedule 9 — Accounts
| | | | |
Schedule 10 — K&S Lease (Curtainsiders)
| | | | |
Schedule 11 — K&S Lease (Reefers)
| | | | |
Schedule 12 — Worked examples of Purchase Price adjustments
| | | A-48 | |
Schedule 13 — Michael Baxter Consultancy Agreement
| | | A-55A-5 | |
Signing page | | | A-45A-6 | |
Annexure A — Amended and Restated Share Sale Deed
A-ivA-2
Details
Date
Parties
Parties
| | |
Name | | Equity Partners Two Pty Limited (as trustee of Equity Partners 2 Trust) |
ACN | | 093 766 280 |
Short form name | | Equity Partners |
Notice details | | Level 12, 60 Margaret Street, Sydney NSW 2000 Facsimile 02 8298 5150 Attention Rajeev Dhawan |
| | |
Name | | FOMM Pty Limited (as trustee of the FOMM Trust) |
ACN | | 106 818 231 |
Notice details | | 66 Lucinda Avenue, Wahroonga NSW 2076 Facsimile 02 9482 3477 Attention Michael Baxter |
| | |
Name | | FOMJ Pty Limited (as trustee of the FOMJ Trust) |
ACN | | 106 818 222 |
Notice details | | 10 Sofala Avenue, Riverview NSW 2066 Facsimile 02 9482 3477 Attention James Warren |
| | |
Name | | Cetro Pty Limited (as trustee of the FOMP Trust) |
ACN | | 002 109 668 |
Notice details | | Level 2, 57 Grosvenor Street, Neutral Bay NSW 2089 Facsimile 02 9981 7145 Attention Paul Jeffery |
| | |
Name | | TCWE Pty Limited (as trustee of the McCann Family Trust) |
ACN | | 109 083 105 |
Notice details | | 9 Bunyana Avenue, WAHROONGAWahroonga NSW 2076 Facsimile 02 9482 3477 Attention Peter McCann |
together the Management Vendors | | |
| | |
Name | | Each person listed in Schedule 2Michael Paul Baxter |
Short form nameNotice details | | 66 Lucinda Avenue, Wahroonga NSW 2076 Facsimile 02 9482 3477 |
| | |
Name | | Each aJames Harold Warren |
Notice details | | 10 Sofala Avenue, Riverview NSW 2066 Facsimile 02 9482 3477 |
| | |
Name | | GuarantorPaul Henry Jefferyand collectively, the |
Notice details | | 8/1150 Pittwater Road, Collaroy NSW 2107 Facsimile 02 9482 3477 |
| | |
Name | | GuarantorsPeter Linden McCann |
Notice details | | 9 Bunyana Avenue, Wahroonga NSW 2076 Facsimile 02 9482 3477 |
| | |
Name | | GFN Australasia Finance Pty Limited |
ACN | | 121 227 790 |
Short form name | | Purchaser |
Notice details | | C/- General Finance Corporation, 260 So. Los Robles Avenue, Suite #217 Pasadena, California 91101 Facsimile +1 626 795 8090 Attention: Mr Ronald F Valenta |
| | |
Name | | General Finance Corporation |
Short form name | | GFC |
Notice details | | 260 So. Los Robles Avenue, Suite #217 Pasadena, California 91101 Facsimile +1 626 795 8090 Attention: Mr Ronald F Valenta |
A-3
| | |
Name | | Bison Capital Australia LP(a limited partnership incorporated in accordance with the laws of Delaware, United States of America) |
Incorporation number | | 33-1158464 |
Short form name | | Bison-GE |
Notice details | | 10877 Wilshire Blvd. Suite 1520, Los Angeles, CA 90024 United States of America Facsimile (310) 260 6576 Attention: Douglas B Trussler — Managing Member |
A-4
Background
A The parties to this deed (other than Bison-GE) are parties to a Share Sale Deed dated 12 September 2006 (as amended on 19 January 2007 and on 9 March 2007) relating to shares in RWA Holdings Pty Limited(Share Sale Deed).
B The parties have agreed to amend and restate the Share Sale Deed in accordance with the terms of this deed so that as and from the date of this deed it is in the form of the document contained inAnnexure Ato this deed (Amended and Restated Share Sale Deed).
Agreed terms
1. Defined terms & interpretation
In this deed, unless the context otherwise requires:
(a) a word or expression defined in the Share Sale Deed has the meaning given to it in the Amended and Restated Share Sale Deed;
(b) clauses 1.2 and 1.3 of the Amended and Restated Share Sale Deed apply to this deed, to the extent relevant, as if specifically incorporated in this deed; and
(c) to the extent of any inconsistency between this deed and the Amended and Restated Share Sale Deed, this deed will prevail.
2. Variation
(a) (a) On and with effect from the date of this deed, the Share Sale Deed is amended and restated so that on and from the date of this deed the Share Sale Deed shall be in the form of the document contained inAnnexure Ato this deed.
(b) The parties acknowledge and agree that the rights and obligations of the parties (other than Bison-GE) under the Share Sale Deed are now as set out in Amended and Restated Share Sale Deed.
(c) The parties acknowledge and agree that by its execution of this deed Bison-GE has assumed the rights and obligations under the Share Sale Deed that it is expressed to have under the Amended and Restated Share Sale Deed.
(d) Bison-GE agrees to be included as a party to the Amended and Restated Share Sale Deed and agrees to assume all of the rights and obligations applying to it as set out in the Amended and Restated Share Sale Deed.
3. Continued operation of the Share Sale Deed as amended and restated
Subject to the terms of this deed, the parties agree that the Share Sale Deed will continue in full force and effect in accordance with the terms of the document contained inAnnexure Ato this deed.
4. Miscellaneous
4.1 Costs
Save to the extent otherwise provided for in the Amended and Restated Share Sale Deed, each party must pay its own costs and expenses incurred in connection with the preparation and execution of this deed.
4.2 Counterparts
This deed may be executed in counterparts. All executed counterparts constitute one document.
4.3 Entire agreement
This deed constitutes the entire agreement between the parties in connection with its subject matter and supersedes all previous agreements or understandings between the parties in connection with its subject matter.
4.4 Governing law and jurisdiction
This deed is governed by the law of New South Wales and each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of New South Wales.
A-5
Signing page
EXECUTED as a deed.
| | |
ExecutedbyEquity Partners Two Pty Limited in its capacity as trustee of Equity Partners 2 Trust | | |
/s/ Richard Peter Gregson | | /s/ Quentin Jones |
Signature of director | | Signature of director/company secretary (Please delete as applicable) |
Richard Peter Gregson | | Quentin Jones |
Name of director (print) | | Name of director/company secretary (print) |
| | |
ExecutedbyFOMM Pty Limited (as trustee of the FOMM Trust) | | |
| | |
Signature of sole director and sole company secretary | | who states that he or she is the sole director and the sole company secretary of the company. |
Michael Baxter | | |
Name of sole director and sole company secretary (print) | | |
| | |
ExecutedbyFOMJ Pty Limited (as trustee of the FOMJ Trust) | | |
| | |
Signature of sole director and sole company secretary | | who states that he or she is the sole director and the sole company secretary of the company. |
James H. Warren | | |
Name of sole director and sole company secretary (print) | | |
| | |
ExecutedbyCetro Pty Limited in its capacity as trustee of the FOMP Trust | | |
| | |
Signature of director | | Signature of director/company secretary (Please delete as applicable) |
Peter Henry Jeffrey | | |
Name of director (print) | | Name of director/company secretary (print) |
| | |
ExecutedbyTCWE Pty Limited (as trustee of the McCann Family Trust) | | |
| | /s/ Alexandra Merton-McCann |
Signature of director | | Signature of director/company secretary (Please delete as applicable) |
Peter McCann | | Alexandra Merton-McCann |
Name of director (print) | | Name of director/company secretary (print) |
SignedbyMichael Paul Baxterin the presence of | | |
| | /s/ Michael Paul Baxter |
Signature of witness | | Michael Paul Baxter |
Gregory Brian Baxter | | |
Name of witness (print) | | |
SignedbyJames Harold Warrenin the presence of | | |
| | /s/ James Harold Warren |
Signature of witness | | James Harold Warren |
A-6
| | |
Yuka Yamasaki | | |
| | |
Name of witness (print) | | |
SignedbyPaul Henry Jefferyin the presence of | | |
| | |
| | |
/s/ Jonathan Roy Blaker
| | /s/ Paul Henry Jeffrey
|
Signature of witness | | Paul Henry Jeffrey |
| | |
| | |
/s/ Jonathan Roy Blaker
| | |
Name of witness (print) | | |
SignedbyPeter Linden McCannin the presence of | | |
| | |
| | |
/s/ Gregory Brian Baker
| | |
Signature of witness | | |
| | |
| | |
/s/ Gregory Brian Baker | | /s/ Peter Linden McCann |
| | |
Name of witness (print) | | Peter Linden McCann |
| | |
| | |
ExecutedbyGFN Australasia Finance Pty Limited | | |
| | |
| | |
/s/ John O. Johnson
| |
|
Signature of director | | Signature of director/company secretary (Please delete as applicable) |
| | |
| | |
/s/ John O. Johnson
| |
|
Name of director | | Director/company secretary (print) |
| | |
| | |
ExecutedbyGeneral Finance Corporation | | |
| | |
| | |
/s/ John O. Johnson
| | |
Signature of director | | |
| | |
| | |
John O. Johnson | | |
| | |
| | |
Name of director | | |
BISON CAPITAL AUSTRALIA, L.P.
by
BISON CAPITAL AUSTRALIA GP, LLC,
a Delaware limited liability company
| | |
By: | /s/ Douglas B. Trussler | |
Name: Douglas B. Trussler
Its: Manager
A-7
Annexure A
Amended and Restated Share Sale Deed
Annexure to Deed of Variation (No. 3)
(As amended by Deeds of Variation dated
19 January 2007, 9 March 2007 and 30 March 2007)
Share sale deed
relating to shares in RWA Holdings Pty
Limited
Equity Partners Two Pty Limited (in its capacity as trustee of Equity Partners
2 Trust)(Equity Partners)
Cetro Pty Limited
FOMJ Pty Limited
FOMM Pty Limited
TCWE Pty Limited
(together theManagement Vendors)
The persons listed in Schedule 2(Guarantors)
GFN Australasia Finance Pty Limited(GFN)
General Finance Corporation(GFC)
Bison Capital Australia LP(Bison-GE)
AURORA PLACE, 88 PHILLIP STREET, SYDNEY
NSW 2000, DX 117 SYDNEY TEL: +61 2 9921 8888 FAX: +61 2 9921 8123
www.minterellison.com
A-1
Share sale deed
| | | | |
Details | | A-6 |
Agreed terms | | A-8 |
1. | | Defined terms & interpretation | | A-8 |
1.1 | | Defined terms | | A-8 |
1.2 | | Interpretation | | A-15 |
1.3 | | Headings | | A-16 |
2. | | Conditions | | A-16 |
2.1 | | Conditions to First Completion | | A-16 |
2.2 | | Conditions to Second Completion | | A-17 |
2.3 | | Benefit and Waiver of Conditions | | A-18 |
2.4 | | Conduct of the parties | | A-18 |
2.5 | | Failure of Condition and termination | | A-19 |
2.6 | | Extent of obligation to Fulfil Conditions | | A-20 |
2.7 | | GFC Stockholder Approval | | A-20 |
3. | | Sale and purchase | | A-20 |
3.1 | | Agreement to sell and purchase First Tranche Sale Shares | | A-20 |
3.2 | | Agreement to sell and purchase Second Tranche Sale Shares | | A-20 |
4. | | Fair Value and Purchase Price | | A-20 |
4.1 | | Fair Value | | A-20 |
4.2 | | First Tranche Amount | | A-21 |
4.3 | | Second Tranche Amount | | A-21 |
4.4 | | Deposit | | A-21 |
4.5 | | Adjustments | | A-21 |
4.6 | | Purchase Price | | A-23 |
4.7 | | Net Debt | | A-23 |
4.8 | | Cleared funds | | A-23 |
4.9 | | K & S Lease (Curtainsiders) | | A-23 |
4.10 | | Maximum amount payable by Bison-GE | | A-23 |
5. | | Escrow | | A-24 |
5.1 | | Management Vendors Escrow | | A-24 |
5.2 | | Equity Partners Escrow | | A-24 |
5.3 | | Interest | | A-25 |
5.4 | | Effect of Second Completion | | A-25 |
6. | | Completion | | A-25 |
6.1 | | First Completion — Time and place | | A-25 |
6.2 | | First Completion — Obligations of the Vendors | | A-25 |
6.3 | | Second Completion — Time and place | | A-26 |
6.4 | | Second Completion — Obligations of the Management Vendors | | A-26 |
6.5 | | Obligations of the Purchaser | | A-26 |
6.6 | | Simultaneous actions at Completion | | A-27 |
6.7 | | Records | | A-27 |
6.8 | | Information and Assistance Following Completion | | A-27 |
A-2
| | | | |
7. | | Completion Accounts | | A-28 |
7.1 | | Completion Accounts | | A-28 |
7.2 | | Basis of preparation | | A-28 |
7.3 | | Access to information | | A-28 |
7.4 | | Review of Completion Accounts | | A-28 |
7.5 | | Dispute Resolution Procedure | | A-28 |
7.6 | | Costs | | A-29 |
8. | | Obligations before First Completion | | A-29 |
8.1 | | Continuity of business | | A-29 |
8.2 | | Notice of Change | | A-30 |
8.3 | | SEC Proxy Filing | | A-30 |
9. | | Warranties and Indemnities | | A-31 |
9.1 | | Warranties by Vendors and Bison-GE | | A-31 |
9.2 | | Vendors’ Indemnity | | A-31 |
9.3 | | Application of the Warranties | | A-31 |
9.4 | | Disclosure | | A-32 |
9.5 | | Acknowledgments | | A-32 |
9.6 | | No reliance | | A-32 |
9.7 | | Financial limits on Claims | | A-33 |
9.8 | | Time limits on Claims | | A-33 |
9.9 | | Maximum aggregate liability for Claims | | A-33 |
9.10 | | Duty to mitigate | | A-34 |
9.11 | | Rights of the Purchaser | | A-34 |
9.12 | | Benefits or credits received by the Company or the Purchaser | | A-34 |
9.13 | | Warranty payments | | A-34 |
9.14 | | Trade Practices Act | | A-34 |
9.15 | | Financial forecasts | | A-34 |
9.16 | | Additional limitations | | A-35 |
9.17 | | Vendors’ Tax Indemnity | | A-35 |
9.18 | | Limits to recovery | | A-35 |
9.19 | | Good faith negotiations in relation to disclosure of material items between signing and Completion | | A-36 |
9.20 | | Effect of Second Completion | | A-36 |
10. | | K&S Lease Indemnity | | A-36 |
11. | | ADF Contract | | A-37 |
12. | | Environmental audit report | | A-37 |
13. | | GFC Undertaking | | A-37 |
14. | | Guarantee | | A-37 |
14.1 | | Guarantee and indemnity | | A-37 |
14.2 | | Enforcement against guarantors | | A-37 |
14.3 | | Continuing Guarantee | | A-37 |
14.4 | | Principal Obligations | | A-37 |
14.5 | | Obligations Absolute and Unconditional | | A-38 |
14.6 | | Winding-up or Bankruptcy of Management Vendor | | A-38 |
14.7 | | Indemnity in Respect of Management Vendors’ Obligations | | A-38 |
A-3
| | | | |
14.8 | | Payment under Indemnity | | A-38 |
14.9 | | General Application of Indemnity | | A-39 |
15. | | Restraint | | A-39 |
15.1 | | Definitions | | A-39 |
15.2 | | Prohibited activities | | A-39 |
15.3 | | Duration of prohibition | | A-39 |
15.4 | | Geographic application of prohibition | | A-40 |
15.5 | | Interpretation | | A-40 |
15.6 | | Exceptions | | A-40 |
15.7 | | Acknowledgments | | A-40 |
15.8 | | Payment of Restraint Amount | | A-40 |
16. | | Representations by the Purchaser and GFC | | A-41 |
16.1 | | Representations | | A-41 |
16.2 | | Application of representations by the Purchaser and GFC | | A-41 |
17. | | Equity Partners limitation of liability | | A-41 |
17.1 | | Limited capacity | | A-41 |
17.2 | | Limited rights to sue | | A-41 |
17.3 | | Exceptions | | A-42 |
17.4 | | Limitation on authority | | A-42 |
18. | | GST | | A-42 |
18.1 | | Interpretation | | A-42 |
18.2 | | GST gross up | | A-42 |
18.3 | | Reimbursements | | A-42 |
18.4 | | Tax invoice | | A-42 |
19. | | Announcements | | A-42 |
19.1 | | Announcements | | A-42 |
20. | | Notices and other communications | | A-43 |
20.1 | | Service of notices | | A-43 |
20.2 | | Effective on receipt | | A-43 |
21. | | Miscellaneous | | A-43 |
21.1 | | Vendors’ Representatives | | A-43 |
21.2 | | Alterations | | A-43 |
21.3 | | Approvals and consents | | A-43 |
21.4 | | Assignment | | A-43 |
21.5 | | Costs | | A-43 |
21.6 | | Stamp duty and other duties | | A-44 |
21.7 | | Survival | | A-44 |
21.8 | | Counterparts | | A-44 |
21.9 | | No merger | | A-44 |
21.10 | | Entire agreement | | A-44 |
21.11 | | Further action | | A-44 |
21.12 | | Severability | | A-44 |
21.13 | | Waiver | | A-44 |
21.14 | | Governing law and jurisdiction | | A-44 |
21.15 | | Specific performance | | A-44 |
A-4
| | | | |
22. | | Trusts | | A-44 |
23. | | Certain Covenants | | A-44 |
23.1 | | Senior Subordinated Notes | | A-44 |
23.2 | | Bison-GE Expenses | | A-45 |
23.3 | | GFC Trust Account | | A-45 |
Schedule 1 — Shareholdings and Respective Proportions | | A-46 |
Schedule 2 — Guarantors | | A-47 |
Schedule 3 — Directors and Secretaries to resign and to be appointed | | A-47 |
Schedule 4 — Title and Capacity Warranties | | A-47 |
Schedule 5 — Business Warranties | | A-48 |
Schedule 6 — Leased Premises | | A-55 |
Schedule 7 — Intellectual Property Rights | | A-56 |
Schedule 8 — Due Diligence Index | | A-57 |
Schedule 9 — Accounts | | A-58 |
Schedule 10 — K&S Lease (Curtainsiders) | | A-59 |
Schedule 11 — K&S Lease (Reefers) | | A-60 |
Schedule 12 — Worked examples of Purchase Price adjustments | | A-61 |
Schedule 13 — Michael Baxter Consultancy Agreement | | A-62 |
Schedule 14 — Bison-GE/GFN Shareholders Agreement | | A-63 |
Schedule 15 — Bison-GE/Management Vendors Shareholders Agreement | | A-64 |
Schedule 16 — Legal Opinion | | A-65 |
Schedule 17 — Subscription deed | | A-67 |
Signing page | | A-68 |
A-5
Details
| | |
Date | | 12 September 2006 |
|
Parties | | |
|
Name | | Equity Partners Two Pty Limited (as trustee of Equity Partners 2 Trust) |
ACN | | 093 766 280 |
Short form name | | Equity Partners |
Notice details | | Level 12, 60 Margaret Street Sydney NSW 2000 Facsimile 02 8298 5150 Attention Rajeev Dhawan |
|
Name | | FOMM Pty Limited (as trustee of the FOMM Trust) |
ACN | | 106 818 231 |
Notice details | | 66 Lucinda Avenue, Wahroonga NSW 2076 Facsimile 02 9482 3477 Attention Michael Baxter |
|
Name | | FOMJ Pty Limited (as trustee of the FOMJ Trust) |
ACN | | 106 818 222 |
| | |
Notice details | | 10 Sofala Avenue, Riverview NSW 2066 Facsimile 02 9482 3477 Attention James Warren |
| | |
Name | | Cetro Pty Limited (as trustee of the FOMP Trust) |
ACN | | 002 109 668 |
| | |
Notice details | | Level 2, 57 Grosvenor Street, Neutral Bay NSW 2089 Facsimile 02 9981 7145 Attention Paul Jeffery |
| | |
Name | | TCWE Pty Limited (as trustee of the McCann Family Trust) |
ACN | | 109 083 105 |
Notice details | | 9 Bunyana Avenue WAHROONGA NSW 2076 Facsimile 02 9482 3477 Attention Peter McCann |
together theManagement Vendors
| | |
Name | | Each person listed in Schedule 2 |
Short form name | | Each aGuarantorand collectively, theGuarantors |
|
Name | | GFN Australasia Finance Pty Limited |
ACN | | 121 227 790 |
|
Short form name | | GFN |
| | |
Notice details | | C/- General Finance Corporation, 260 So. Los Robles Avenue, Suite #217 Pasadena, California 91101 Facsimile +1 626 795 8090 Attention: Mr Ronald F Valenta |
A-6
| | |
Name | | General Finance Corporation |
Short form name | | GFC |
| | |
Notice details | | 260 So. Los Robles Avenue, Suite #217 Pasadena, California 91101 Facsimile +1 626 795 8090 Attention: Mr Ronald F Valenta |
| | |
Name | | Bison Capital Australia LP(a limited partnership incorporated in accordance with the laws of Delaware, United States of America) |
Incorporation number | | 33-1158464 |
Short form name | | Bison-GE |
Notice details | | 10877 Wilshire Blvd. Suite 1520, Los Angeles, CA 90024 United States of America |
|
| | Facsimile (310) 260 6576 Attention: Douglas B Trussler — Managing Member |
Background
A As at the date of this deed, the issued shares in the Company are held by the Original Vendors as set out in Schedule 1.
B The Company owns all the issued shares in Royal Wolf Trading Australia Pty Limited. Royal Wolf Trading Australia Pty Limited owns all the issued shares in Royal Wolf Hi-Tech Pty Limited.
C The PurchaserGFN is a wholly owned subsidiary of GFC.
D The Original Vendors have agreed to sell the First Tranche Sale Shares to Bison-GE and the Purchaser hasManagement Vendors and Bison-GE have agreed to purchase,sell the Second Tranche Sale Shares to GFN in each case on the terms and conditions set out in this deed.
E The fair market value of the Group is equal to the enterprise value of the Group and is equal to the total amount payable by GFN on acquiring all of the PurchaserSecond Tranche Sale Shares under this agreement which is $115,000,000 (plus, if relevant, the Additional Amount)A$116,500,000.00 comprised of the following:
(i) the amount of the Net Debt;
(ii) the Purchase Price; and
(iii) the Restraint Amount referred to in clause 15.1(c).
F Each Guarantor owns or controls a Management Vendor. The Purchaser hasPurchasers have entered into this deed at the request of the Guarantors and each Guarantor has agreed to guarantee the obligations of the relevant Management Vendor in accordance with this deed.
A-7
Agreed terms
| |
1. | Defined terms & interpretation |
1. Defined terms & interpretation
1.1 Defined terms
In this deed:
Additional Amounthas the meaning in clause 4.10.
Accountsmeans the consolidated balance sheet of the Group as at the Accounts Date and the consolidated profit and loss statement and consolidated statement of cash flows of the Group for the financial year ended on the Accounts Date together with the notes to, and the reports of the directors in respect of, those accounts copies of which are included as Schedule 9.
Accounts Datemeans 30 June 2006.
ADF Contractmeans the Australian Defence Force Urban Operations Training Facility Contract(s) tendered for by the Group but not yet, as at the date of this deed, been awarded.
ANZ Facilitymeans:
(a) the senior debt facility dated 17 December 2004 between Royal Wolf Trading, Australia and New Zealand Banking Group Limited (“ANZ”(’ANZ’) and others as varied in accordance with several Variation Letters from ANZ to the Company, including on 13 June 2006;
(b) the Non Convertible Note facility between the Company, Australia and New Zealand Banking Group Limited and others; and
(c) any other moneys owing by the Group to ANZ.
Authorisationsmeans any consent, licence, approval, notarisation, registration, permission or authorisation.
Associated Personmeans, in relation to a Vendor, a company controlled by that Vendor and, in relation to a Guarantor, means a company controlled by that Guarantor or that Guarantor’s spouse.
A-2
Backup Purchase Agreementmeans the agreement to be entered into between Ronald F Valenta, Bison-GE and the Management Vendors before the First Completion Date, in the form agreed by Bison-GE and the Management Vendors.
B Class Notesmeans the non-convertible notes issued by the Company to Equity Partners under the terms of the shareholders agreement governing the affairs of the Company.
Bison-GE Completion Amountmeans the sum of (i) through (iv) below:
(i) US$45,000,000; plus
(ii) Interest on US$45,000,000 for the period from First Completion Date to Second Completion Date calculated at the rate of 18% per annum on daily rests (but not capitalised); plus
(iii) to the extent paid by Bison-GE, the Restraint Amount (in US$) plus interest on that amount for the period from the date the Restraint Amount, or any portion thereof, is paid by Bison-GE to Second Completion Date calculated at the rate of 18% per annum on daily rests (but not capitalised); plus
(iv) 2.5% of the sum of the amounts determined pursuant to paragraphs (i), (ii) and (iii) above if Second Completion takes place within 6 months of First Completion or 3% of those amounts if Second Completion takes place more than 6 months after First Completion.
Bison-GE Completion Paymentmeans, collectively, the sum of (a) (i) cash in the amount of the Bison-GE Completion Amount, minus (ii) the U.S. dollar equivalent of the Retained Interest, minus, (iii) any interest earned by Bison-GE on that portion of the US$45,000,000 not paid at the First Completion from the First Completion Date to the date paid to the Vendors, and (b) the Retained Interest.
Bison-GE Maximum Amountmeans A$55,178,792.
A-8