(13) obligations with respect to letters of credit issued in the ordinary course of business and securing obligations for trade payables to the extent such letters of credit are not drawn and have not remained outstanding for more than 180 days from the date of issuance (including letters of credit issued in substitution therefor);
(14) Indebtedness of a Person incurred and outstanding on or prior to the date on which such Person was acquired by the Company or any Restricted Subsidiary of the Company or merged into the Company or a Restricted Subsidiary of the Company in accordance with the terms of the Indenture;provided that such Indebtedness is not incurred in connection with or in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate, such acquisition or merger; andprovided, further, that after giving pro forma effect to such incurrence of Indebtedness the Company would have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of this covenant;
(15) Indebtedness of the Company or any Restricted Subsidiary to the extent the proceeds of such Indebtedness are deposited and used to defease the notes as described under “—Legal Defeasance and Covenant Defeasance” or “—Satisfaction and Discharge”;
(16) the incurrence by the Company or any Restricted Subsidiary of the Company of Contribution Indebtedness; and (17) the incurrence by the Company or any Restricted Subsidiary of the Company of additional Indebtedness, together with the amount of any other outstanding Indebtedness incurred pursuant to this clause
(17), in an aggregate principal amount (or accreted value, as applicable) not to exceed $20.0 million (or the equivalent thereof, at the time of incurrence, in the applicable foreign currency).
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(2) make loans or advances to the Company or any of its Restricted Subsidiaries; or
(3) sell, lease, transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) any agreement in effect on or entered into on the date of the Indenture, including, without limitation, the Credit Agreement and any agreement governing Hedging Obligations entered into with respect to Indebtedness under the Credit Agreement (as amended, modified, restated, renewed, increased, supplemented, refunded, replaced or refinanced in accordance with this clause (1)) so long as the encumbrances and restrictions under such agreement governing the Hedging Obligations are no more restrictive than those under such Credit Agreement, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements;provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of the Indenture;
(2) the Indenture, the notes and the related Guarantees to be issued on the date of the Indenture and the Exchange Notes and the related Guarantees to be issued in exchange therefor pursuant to the registration rights agreement;
(3) applicable law, rule, regulation or order;
(4) any instrument governing Indebtedness (including Acquired Debt) or Capital Stock of the Company or any of its Restricted Subsidiaries or of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, including any amendments, modifications, restatements, renewals, supplements, refundings, replacements or refinancings of any such agreements or instruments,provided that the amendments, modifications, restatements, renewals, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, than those contained in the agreements governing such original agreement or instrument,provided, further, that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred;
(5) customary non-assignment or subletting provisions in leases, licenses or contracts entered into in the ordinary course of business;
(6) capital leases or purchase money obligations for property acquired or leased in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of the preceding paragraph;
(7) any Purchase Money Note or other Indebtedness or contractual requirements incurred with respect to a Qualified Receivables Transaction relating exclusively to a Receivables Entity that, in the good faith determination of the Board of Directors of the Company, are necessary to effect such Qualified Receivables Transaction;
(8) any agreement for the sale or other disposition of assets or Capital Stock of a Restricted Subsidiary permitted under the Indenture that restricts the sale of assets, distributions, loans or transfers by that Restricted Subsidiary pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness,provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
(10) leases or licenses entered into in the ordinary course of business that impose restrictions solely on the property so leased;
(11) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant described above under the caption “—Liens” that limit the right of the debtor to dispose of the assets subject to such Liens;
(12) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements;provided that such restrictions apply only to the assets or property subject to such joint venture;
(13) restrictions on cash or other deposits or net worth under contracts or leases entered into in the ordinary course of business; and
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(14) any agreement relating to a sale and leaseback transaction or Capital Lease Obligation otherwise permitted by the Indenture, but only on the assets subject to such transaction or lease and only to the extent that such restrictions or encumbrances are customary with respect to a sale and leaseback transaction or a capital lease.
Merger, Consolidation or Sale of Assets
Neither Co-Issuer may, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not such Co-Issuer is the surviving corporation) or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person; unless:
(1) either: (a) such Co-Issuer is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than such Co-Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is a corporation or limited liability company organized or existing under the laws of the United States, any state of the United States or the District of Columbia and assumes all of the obligations of such Co-Issuer under the notes, the Indenture and the registration rights agreement pursuant to agreements reasonably satisfactory to the trustee;provided that at all times at least one Co-Issuer shall be a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia;
(2) immediately after such transaction no Default or Event of Default exists; and
(3) (a) such Co-Issuer or the Person formed by or surviving any such consolidation or merger (if other than such Co-Issuer), or to which such sale, assignment, transfer, conveyance or other disposition has been made will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, (a) be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “—Incurrence of Indebtedness” or (b) have a Fixed Charge Coverage Ratio equal to or greater than the Fixed Charge Coverage Ratio of such Co-Issuer immediately prior to such transaction.
In no event shall the Company or MSG enter into any transaction that results in, or otherwise permit, MSG to cease being a Restricted Subsidiary of the Company. For purposes of this covenant, the sale, assignment, transfer, conveyance, lease or other disposition of all or substantially all of the properties and assets of one or more Restricted Subsidiaries of any Co-Issuer, which properties and assets, if held by such Co-Issuer instead of such Restricted Subsidiaries, would constitute all or substantially all of the properties and assets of such Co-Issuer on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of such Co-Issuer.
Upon any transfer, consolidation or merger in accordance with the foregoing, the successor entity in such transaction shall succeed to and (except in the case of a lease) be substituted for, and may exercise every right and power of, such Co-Issuer under the Indenture and the registration rights agreement with the same effect as if such successor entity had been named therein as a Co-Issuer, and (except in the case of a lease) such Co-Issuer shall be released from the obligations under the notes, the Indenture and the registration rights agreement except with respect to any obligations that arise from, or are related to, such transaction.
Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve “all or substantially all” of the property or assets of a Person.
Notwithstanding the preceding clause (3), (x) any Restricted Subsidiary may consolidate with, merge into, sell, assign, convey, lease or otherwise transfer all or part of its properties and assets to any Co-Issuer or to any Guarantor and (y) a Co-Issuer may merge with an Affiliate incorporated solely for the purpose of reincorporating such Co-Issuer in another jurisdiction so long as such jurisdiction is the United States, any state of the United States or the District of Columbia.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of any Co-Issuer (each, an “Affiliate Transaction”), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted
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Subsidiary than those that would have been obtained in a comparable transaction in arm’s-length dealings by the Company or such Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors of the Company set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members, if any, of the Board of Directors of the Company; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $20.0 million, a written opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an independent accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) reasonable and customary (a) directors’ fees and indemnification and similar arrangements, (b) employee, officer or director loans, advances, salaries, bonuses and employment, non-competition and confidentiality agreements (including indemnification arrangements), and (c) compensation, confidentiality or employee benefit arrangements (including stock option plans) and incentive arrangements with any officer, director or employee entered into in the ordinary course of business (including customary benefits thereunder);
(2) transactions between or among the Company and its Restricted Subsidiaries (other than a Receivables Entity);
(3) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or indirectly, an Equity Interest in, or controls, such Person;
(4) the pledge of Equity Interests of Unrestricted Subsidiaries to support the Indebtedness thereof;
(5) issuances and sales of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company or the receipt of the proceeds of capital contributions in respect of Equity Interests;
(6) Restricted Payments permitted by the provisions of the Indenture described above under the caption “Restricted Payments” or Permitted Investments (other than pursuant to clause (3) of such definition);
(7) sales or other transfers or dispositions of accounts receivable and other related assets customarily transferred in an asset securitization transaction involving accounts receivable to a Receivables Entity in a Qualified Receivables Transaction, and acquisitions of Permitted Investments in connection with a Qualified Receivables Transaction;
(8) transactions pursuant to agreements or other arrangements, each as in effect on the date of the Indenture, as described in this registration statement in the section entitled “Certain Relationships and Related Party Transactions” and as the same may be amended, modified or replaced from time to time so long as such amendment, modification or replacement is no less favorable to the Company and the Restricted Subsidiaries in any material respect than the original agreement or arrangement in effect on the date of the Indenture;
(9) payments made by the Company or any Restricted Subsidiary to any Principal Related Party for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures, which payments are approved by a majority of the disinterested members, if any, of the Board of Directors of the Company in good faith; and
(10) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture that are fair to the Company and its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company, or are on terms at least as favorable as would reasonably have been entered into at such time with an unaffiliated party.
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Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted Subsidiary of the Company to be an Unrestricted Subsidiary (other than MSG) if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph (or clause (13) of the second paragraph) of the covenant described above under the caption “—Restricted Payments” or under one or more clauses of the definition of Permitted Investments, as determined by the Company. Such designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default.
All Subsidiaries of Unrestricted Subsidiaries shall be automatically deemed to be Unrestricted Subsidiaries. All designations of Subsidiaries as Unrestricted Subsidiaries and revocations thereof must be evidenced by filing with the trustee resolutions of the Board of Directors of the Company and an Officers’ Certificate certifying compliance with the foregoing provisions.
Additional Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries (other than a Receivables Entity) acquire or create another Domestic Subsidiary after the date of the Indenture or an Immaterial Subsidiary ceases to qualify as an Immaterial Subsidiary, then that newly acquired or created Domestic Subsidiary or such former Immaterial Subsidiary shall on the date on which it was acquired, created or ceased to so qualify become a Guarantor and promptly execute a supplemental indenture pursuant to which such Subsidiary will guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any, and interest and Additional Interest, if any, on the notes on a senior basis;provided that any Domestic Subsidiary that constitutes an Immaterial Subsidiary need not become a Guarantor until such time as it ceases to be an Immaterial Subsidiary. In addition, if any of the Company’s Foreign Subsidiaries or Immaterial Subsidiaries guarantee any Indebtedness of any Co-Issuer or any Guarantor, such Foreign Subsidiary or Immaterial Subsidiary, as the case may be, shall simultaneously become a Guarantor and promptly execute a supplemental indenture pursuant to which such Person will guarantee, on a joint and several basis, the prompt payment of the principal of, premium, if any, and interest and Additional Interest, if any, on the notes on a senior basis and to the same extent as such Person’s guarantee of such other Indebtedness. The foregoing provisions shall not apply to Subsidiaries that have been properly designated as Unrestricted Subsidiaries in accordance with the Indenture for so long as they continue to constitute Unrestricted Subsidiaries. Each Guarantee will be limited to an amount not to exceed the maximum amount that can be guaranteed by that Guarantor without rendering the Guarantee, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the notes unless such consideration is offered to be paid and is paid to all Holders of the notes that consent, waive or agree to amend the Indenture or the notes in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Reports
The Company will furnish to the trustee and, upon request, to beneficial owners of, and prospective investors (that are qualified institutional buyers as defined in Rule 144A under the Securities Act or non-U.S. persons (as defined in Regulation S under the Securities Act)) in, the notes a copy of all of the information and reports referred to in clauses (1) and (2) below:
(1) (a) within 90 days of the end of each fiscal year, annual audited financial statements for such fiscal year (along with customary comparative results) and (b), within 45 days of the end of each of the first three fiscal
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quarters of every fiscal year, unaudited financial statements for the interim period as of, and for the period ending on, the end of such fiscal quarter (along with comparative results for the corresponding interim period in the prior year), in each case, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” with respect to the periods presented and, with respect to the annual information only, a report on the annual financial statements by the Company’s certified independent accountants (all of the foregoing financial information to be prepared on a basis substantially consistent with the corresponding financial information included in this registration statement or the then applicable Commission requirements);
(2) within 10 Business Days of the occurrence of an event required to be therein reported, such other reports containing substantially the same information required to be contained in a Current Report on Form 8-K under the Exchange Act (other than Items 3.01 (Notice of delisting or failure to satisfy a continued listing rule or standard; transfer of listing), 3.02 (Unregistered sales of equity securities) and 5.04 (Temporary suspension of trading under registrant’s employee benefit plans) thereof).
If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by this covenant will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
The Company will:
(1) hold a quarterly conference call to discuss the information contained in the annual and quarterly reports required under clause (1) of the first paragraph of this covenant (the “Financial Reports”) not later than five Business Days from the time the Company furnishes such reports to the trustee;
(2) no fewer than three Business Days prior to the date of the conference call required to be held in accordance with clause (1) above, issue a press release to the appropriate U.S. wire services announcing the time and date of such conference call and directing the beneficial owners of, and prospective investors in, the notes and securities analysts to contact an individual at the Company (for whom contact information shall be provided in such press release) to obtain the financial reports and information on how to access such conference call; and
(3) (A) (x) maintain a non-public website to which beneficial owners of, and prospective investors in, the notes and securities analysts are given access and to which the reports required by this covenant are posted along with, as applicable, details on the time and date of the conference call required by clause (1) of this paragraph and information on how to access that conference call and (y) distribute via electronic mail such reports and conference call details to beneficial owners of, and prospective investors in, the notes and securities analysts who request to receive such distributions or (B) file such reports electronically with the Commission through its Electronic Data Gathering, Analysis and Retrieval System (or any successor system).
In addition, the Company shall furnish to the holders of the notes and to securities analysts and prospective investors, upon their request, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as the notes are not freely transferable under the Securities Act.
The Company shall be entitled to require certification as to a person’s bona fide status as a beneficial owner, prospective investor or securities analyst, as applicable, prior to distributing to such person the reports and other information to be provided by the Company.
Events of Default
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Additional Interest, if any, with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if any, on the notes;
(3) failure by the Company or any of its Restricted Subsidiaries for 30 days or more to comply with the provisions described under the captions “—Certain Covenants—Merger, Consolidation or Sale of Assets” and “Repurchase at the Option of Holders—Change of Control.”
(4) failure by the Company or any of its Restricted Subsidiaries for 60 days after written notice by the trustee or Holders of at least 25% in principal amount of the then outstanding notes to comply with any of the other
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covenants or agreements in the Indenture;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of such Indebtedness at final maturity prior to the expiration of the grace period provided in such Indebtedness (a “Payment Default”); or
(b) results in the acceleration of such Indebtedness prior to its Stated Maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $12.5 million or more;
(6) failure by the Company or any of its Restricted Subsidiaries to pay final judgments entered by a court or courts of competent jurisdiction (not subject to appeal) aggregating in excess of $12.5 million (net of any amounts covered by a reputable and creditworthy insurance company), which judgments are not paid, discharged or stayed for a period of 60 days after the date on which the right to appeal has expired;
(7) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee; and
(8) certain events of bankruptcy, insolvency or reorganization described in the Indenture with respect to any Co-Issuer, any of their Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization, with respect to the Co-Issuers, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding notes, by notice in writing to the trustee and the Co-Issuers, may declare all the notes to be due and payable. Subject to the provisions of the Indenture relating to the duties of the trustee, in case an Event of Default shall occur and be continuing, the trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders of notes, unless such Holders shall have offered to the trustee reasonable indemnity against any loss, liability or expense. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. In the event of a declaration of acceleration of the Notes because an Event of Default described in clause (5) under “Events of Default” has occurred and is continuing, the declaration of acceleration of the Notes shall be automatically annulled if the event of default or payment default triggering such Event of Default pursuant to clause (5) shall be remedied or cured by the Co-Issuers or a Restricted Subsidiary or waived by the holders of the relevant Indebtedness within 30 days after the declaration of acceleration with respect thereto and if (1) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction and (2) all existing Events of Default, except nonpayment of principal, premium, interest or Additional Interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived. In the event of an Event of Default pursuant to clause (3) or (4) caused solely by a breach of the specified covenant resulting from the existence of an unknown Default under another covenant, such Event of Default shall be deemed remedied or cured by the Co-Issuers if the underlying Default is promptly remedied upon becoming known to the Co-Issuers. The trustee may withhold from Holders of the notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, premium, interest or Additional Interest. Except to enforce the right to receive payment of principal, premium, if any, or interest or Additional Interest, if any, when due, no Holder of a note may pursue any remedy with respect to the Indenture, the notes or any Guarantee unless:
| | (1) | such holder has previously given the trustee notice that an Event of Default is continuing; |
| | | |
| | (2) | holders of at least 25% in aggregate principal amount of the then outstanding notes have requested the trustee to pursue the remedy; |
| | | |
| | (3) | such holders have offered the trustee reasonable security or indemnity against any loss, liability or expense; |
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| | (4) | the trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and |
| | | |
| | (5) | holders of a majority in aggregate principal amount of the then outstanding notes have not given the trustee a direction inconsistent with such request within such 60-day period. The Holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may, on behalf of the Holders of all of the notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture, except a continuing Default or Event of Default in the payment of principal of, or interest or premium or Additional Interest, if any, on the notes. |
The Co-Issuers are required to deliver to the trustee annually, within 120 days after the end of the Company’s fiscal year, an Officers’ Certificate regarding compliance with the Indenture. Within five Business Days of becoming aware of any Default or Event of Default, the Co-Issuers are required to deliver to the trustee a written notice specifying such Default or Event of Default and what action the Co-Issuers are taking or propose to take with respect thereto, unless such default shall have been previously cured or waived.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Co-Issuers or any Guarantor, as such, will have any liability for any obligations of the Co-Issuers or the Guarantors under the notes, the Indenture, the Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Co-Issuers may, at their option and at any time, elect to have all of their obligations discharged with respect to the outstanding notes and to have each Guarantor’s obligations discharged with respect to its Guarantee (“Legal Defeasance”) except for:
(1) the rights of Holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Additional Interest, if any, on such notes when such payments are due from the trust referred to below;
(2) the Co-Issuers’ obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and the Co-Issuers’ and the Guarantors’ obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Co-Issuers may, at their option and at any time, elect to have the obligations of the Co-Issuers and the Guarantors released with respect to certain covenants that are described in the Indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “—Events of Default” will no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) (a) the Co-Issuers must irrevocably deposit with the trustee, in trust, for the benefit of the Holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank or firm of independent public accountants, to pay the principal of, or interest and premium and Additional Interest, if any, on the outstanding notes on the Stated Maturity or on the applicable redemption date, as the case may be, (b) the Co-Issuers must specify whether the notes are being defeased to maturity or to a particular redemption date and (c) the trustee must have, for the benefit of the Holders, a valid, perfected, exclusive security interest in the trust;
(2) in the case of Legal Defeasance, the Co-Issuers have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) the Co-Issuers have received from, or there has been
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published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Co-Issuers have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) the deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Co-Issuers or any Guarantor is a party or by which the Co-Issuers or any Guarantor is bound (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowing) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Co-Issuers or any of their Subsidiaries are a party or by which the Co-Issuers or any of their Subsidiaries are bound;
(6) the Co-Issuers must have delivered to the trustee an opinion of counsel to the effect that after the 91st day following the deposit, no trust funds will be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally;
(7) the Co-Issuers must deliver to the trustee an Officers’ Certificate stating that the deposit was not made by the Co-Issuers with the intent of preferring the Holders of notes over the other creditors of the Co-Issuers or with the intent of defeating, hindering, delaying or defrauding creditors of the Co-Issuers or others; and
(8) the Co-Issuers must deliver to the trustee an Officers’ Certificate and an opinion of counsel stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Co-Issuers and the Trustee may amend, supplement or waive any provision of the Indenture or the notes or the Guarantees with the consent of the Holders of at least a majority in aggregate principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing Default or Event of Default or compliance with any provision of the Indenture or the notes or the Guarantees may be waived with the consent of the Holders (other than the Co-Issuers and their Affiliates) of a majority in aggregate principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment, supplement or waiver may not (with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of (or the premium on) or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes (other than provisions relating to the covenants described above under the caption “—Repurchase at the Option of Holders”);
(3) reduce the rate of or change the time for payment of interest or Additional Interest on any note;
(4) waive a Default or Event of Default in the payment of principal of, or interest or premium or Additional Interest, if any, on the notes (except a rescission of acceleration of the notes by the Holders of at least a majority in aggregate principal amount of the then outstanding notes and a waiver of the payment default that resulted from such acceleration);
(5) make any note payable in currency other than that stated in the notes;
(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of
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Holders of notes to receive payments of principal of, or interest or premium or Additional Interest, if any, on the notes;
(7) waive a redemption payment with respect to any note (other than a payment required by one of the covenants described above under the caption “—Repurchase at the Option of Holders”);
(8) release any Guarantor from any of its obligations under its Guarantee or the Indenture, except in accordance with the terms of the Indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of notes, the Co-Issuers and the trustee may amend or supplement the Indenture or the notes or the Guarantees to:
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated notes in addition to or in place of certificated notes;
(3) provide for the assumption of the obligations of the Co-Issuers or any Guarantor to Holders of notes in the case of a merger or consolidation or sale of all or substantially all of their assets in accordance with the Indenture;
(4) make any change that would provide any additional rights or benefits to the Holders of notes or that does not adversely affect the legal rights under the Indenture of any Holder;
(5) provide for the issuance of additional notes in accordance with the provisions set forth in the Indenture;
(6) evidence and provide for the acceptance of an appointment of a successor trustee;
(7) comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act;
(8) secure the notes;
(9) add to the covenants of the Co-Issuers and their Restricted Subsidiaries for the benefit of the Holders or to surrender any rights or power herein conferred upon the Co-Issuers and their Restricted Subsidiaries;
(10) provide for additional Guarantors in accordance with the terms of the Indenture; or
(11) to conform the text of the Indenture, Guarantees or the notes to any provision of this “Description of Notes.”
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all notes and Guarantees issued thereunder, except as to surviving rights of registration of transfer or exchange of the notes, when:
(a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to the Co-Issuers, have been delivered to the trustee for cancellation; or (b) all notes that have not been delivered to the trustee for cancellation (i) have become due and payable by reason of the mailing of a notice of redemption or otherwise, (ii) will become due and payable within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in the name and at the expense of the Co-Issuers and the Co-Issuers or any Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the trustee for cancellation for principal, premium and Additional Interest, if any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the date of the deposit or will occur as
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a result of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowing) and the deposit will not result in a breach or violation of, or constitute a default under, any other material instrument to which the Co-Issuers or any Guarantor is a party or by which the Co-Issuers or any Guarantor is bound;
(3) the trustee, for the benefit of the Holders, has a valid, perfected, first priority security interest in the trust;
(4) the Co-Issuers or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and
(5) the Co-Issuers has delivered irrevocable instructions to the trustee under the Indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be.
In addition, the Co-Issuers must deliver an Officers’ Certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
SEC Reports
Following the effectiveness of the exchange offer or shelf registration statement required by the Registration Rights Agreement, the Company will file with the SEC, and make available to the Trustee and the registered holders of the Notes, the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that are specified in Sections 13 and 15(d) of the Exchange Act with respect to the Co-Issuers and the Guarantors within the time periods specified therein. Prior to the effectiveness of the exchange offer or shelf registration statement required by the Registration Rights Agreement or in the event that the Co-Issuers are not permitted to file such reports, documents and information with the SEC pursuant to the Exchange Act, the Co-Issuers will nevertheless make available such Exchange Act information to the Trustee and the holders of the Notes as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act within the time periods specified therein or in the relevant forms.
If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes to the financial statements and in Management’s Discussion and Analysis of Results of Operations and Financial Condition, of the financial condition and results of operations of the Co-Issuers and its Restricted Subsidiaries.
In addition, Co-Issuers and the Guarantors have agreed that they will make available to the holders and to prospective investors, upon the request of such holders, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as the Notes are not freely transferable under the Securities Act. For purposes of this covenant, the Co-Issuers and the Guarantors will be deemed to have furnished the reports to the Trustee and the holders of Notes as required by this covenant if it has filed such reports with the SEC via the EDGAR filing system and such reports are publicly available.
The filing requirements set forth above for the applicable period may be satisfied by the Company prior to the commencement of the exchange offer or the effectiveness of the shelf registration statement (each as described under “Exchange offer; registration rights”) by the filing with the SEC of the exchange offer registration statement and/or shelf registration statement, and any amendments thereto, with such financial information that satisfies Regulation S-X of the Securities Act;provided that this paragraph shall not supersede or in any manner suspend or delay the Company’s reporting obligations set forth in the first three paragraphs of this covenant.
Concerning the Trustee
If the trustee becomes a creditor of any Co-Issuer or any Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in aggregate principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of
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any Holder of notes, unless such Holder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture and the registration rights agreement without charge by writing to Mobile Services Group, Inc., 700 North Brand Boulevard, Suite 1000, Glendale, California 91203, USA, Attention: General Counsel.
Registration Rights; Additional Interest
The following description is a summary of the material provisions of the registration rights agreement. It does not restate that agreement in its entirety. We urge you to read the proposed form of registration rights agreement in its entirety because it, and not this description, defines your registration rights as holders of these notes. See “—Additional Information.”
The Co-Issuers, the Guarantors and the initial purchasers will enter into the registration rights agreement on or prior to the closing of this offering. Pursuant to the registration rights agreement, the Co-Issuers and the Guarantors will agree to file with the Commission the Exchange Offer Registration Statement on the appropriate form under the Securities Act with respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Co-Issuers and the Guarantors will offer to the holders of Transfer Restricted Securities pursuant to the Exchange Offer who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for Exchange Notes.
If:
(1) the Co-Issuers and the Guarantors are not
(a) required to file the Exchange Offer Registration Statement; or
(b) permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or
(2) any holder of Transfer Restricted Securities notifies the Co-Issuers within 20 Business Days following consummation of the Exchange Offer that:
(a) it is prohibited by law or Commission policy from participating in the Exchange Offer; or
(b) it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales; or
(c) it is a broker-dealer and owns notes acquired directly from the Co-Issuers or an affiliate of the Co-Issuers,
the Co-Issuers and the Guarantors will file with the Commission a Shelf Registration Statement to cover resales of the notes by the Holders of the notes who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement.
For purposes of the preceding, “Transfer Restricted Securities” means each note, and the related Guarantees, until the earliest to occur of:
(1) the date on which such note has been exchanged by a Person other than a broker-dealer for an Exchange Note in the Exchange Offer and entitled to be resold to the public by such Person without complying with the prospectus delivery requirements of the Securities Act;
(2) following the exchange by a broker-dealer in the Exchange Offer of a note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement;
(3) the date on which such note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; or
(4) the date on which such note is distributed to the public pursuant to Rule 144 under the Securities Act.
The registration rights agreement will provide that:
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(1) the Co-Issuers and the Guarantors will file an Exchange Offer Registration Statement with the Commission on or prior to 455 days after the closing of this offering; (2) the Co-Issuers and the Guarantors will use all commercially reasonable efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 547 days after the closing of this offering;
(3) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Co-Issuers and the Guarantors will
(a) commence the Exchange Offer; and
(b) use all commercially reasonable efforts to issue on or prior to 60 days, or longer, if required by the federal securities laws, after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all notes tendered prior thereto in the Exchange Offer; and
(4) If obligated to file the Shelf Registration Statement, the Co-Issuers and the Guarantors will use all commercially reasonable efforts to file the Shelf Registration Statement with the Commission on or prior to 30 days after such filing obligation arises (and in any event within 607 days after the closing of this offering) and to cause the Shelf Registration to be declared effective by the Commission on or prior to 90 days after such obligation arises.
If:
(1) the Co-Issuers and the Guarantors fail to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing; or
(2) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the “Effectiveness Target Date”); or
(3) the Co-Issuers and the Guarantors fail to consummate the Exchange Offer within 60 days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement; or
(4) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the registration rights agreement without being succeeded immediately by an additional registration statement which becomes effective (each such event referred to in clauses (1) through (4) above, a “Registration Default”),
then the Co-Issuers and the Guarantors will pay Additional Interest to each Holder of notes, with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to $.05 per week per $1,000 principal amount of notes held by such Holder. The amount of the Additional Interest will increase by an additional $.05 per week per $1,000 principal amount of notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Additional Interest for all Registration Defaults of $.20 per week per $1,000 principal amount of notes.
All accrued Additional Interest shall be paid by the Co-Issuers and the Guarantors on each day that interest is payable under the notes or the Exchange Notes.
Following the cure of all Registration Defaults, the accrual of Additional Interest will cease.
Holders of notes will be required to make certain representations to the Co-Issuers (as described in the registration rights agreement) in order to participate in the Exchange Offer and will be required to deliver certain information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the registration rights agreement in order to have their notes included in the Shelf Registration Statement and benefit from the provisions regarding Additional Interest set forth above. By acquiring Transfer Restricted Securities, a Holder will be deemed to have agreed to indemnify the Co-Issuers and the Guarantors against certain losses arising out of information furnished by such holder in writing for inclusion in any Shelf Registration Statement. Holders of notes will also be required to suspend their use of the prospectus included in the Shelf Registration Statement under certain circumstances upon receipt of written notice to that effect from the Co-Issuers.
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Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided.
“Acquired Debt” means, with respect to any specified Person:
(1) Indebtedness of any other Person (a) existing at the time such other Person is merged or consolidated with or into or became a Subsidiary of such specified Person, or (b) assumed by such specified Person in connection with an acquisition of any Equity Interests or assets of such other Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
“Additional Interest” means all additional interest then owing pursuant to the registration rights agreement.
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings.
“Applicable Premium” means, with respect to a note at any redemption date, the excess of (1) the present value at such time of (a) the redemption price of such note at August 1, 2010 (such redemption price being described under “Optional Redemption” plus (b) all required interest payments (excluding accrued and unpaid interest) due on such note through August 1, 2010, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (2) the outstanding principal amount of such fixed rate note.
“Asset Sale” means:
(1) the sale, lease (other than operating leases), sublease, conveyance or other disposition of any assets or rights, other than sales of assets in the ordinary course of business; provided that the sale, lease, sublease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption “—Repurchase at the Option of Holders—Change of Control” and/or the provisions described above under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of the Company’s Restricted Subsidiaries or the sale of Equity Interests in any of the Company’s Restricted Subsidiaries.
Notwithstanding the preceding, the following items will not be deemed to be Asset Sales:
(1) any single transaction or series of related transactions that involves assets having a fair market value of less than $2.5 million;
(2) a transfer of assets (a) between or among the Company and its Restricted Subsidiaries (other than a Receivables Entity) or (b) between the Company or its Restricted Subsidiary, on the one hand, and another Person, on the other hand, if after giving effect to such transaction, the other Person becomes a Restricted Subsidiary (other than a Receivables Entity) of the Company;
(3) the sale, lease, sublease, conveyance or other disposition of equipment (including lease equipment), assets, inventory, accounts receivable or other assets from the lease fleet and the sales inventory of the Company and its Restricted Subsidiaries in the ordinary course of business;
(4) the sale, transfer or other disposition of obsolete, damaged or worn-out equipment, lease fleet and sales inventory;
(5) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary (other than a Receivables Entity) of the Company;
(6) a Restricted Payment that is permitted by the covenant described above under the caption “—Certain
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Covenants—Restricted Payments” or a Permitted Investment;
(7) any conversion of Cash Equivalents into cash or any form of Cash Equivalents;
(8) any surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other litigation claims;
(9) any termination or expiration of any lease or sublease of real property in accordance with its terms;
(10) creating or granting of Liens (and any sale or disposition thereof or foreclosure thereon) not prohibited by the Indenture;
(11) any sublease of real property in the ordinary course of business;
(12) grants of credits and allowances in the ordinary course of business;
(13) sales of accounts receivable and related assets or an interest therein of the type specified in the definition of “Qualified Receivables Transaction” to a Receivables Entity; and
(14) condemnations on or the taking by eminent domain of property or assets.
“Attributable Debt” in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.
“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act (as in effect on the date of the Indenture). The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.
“Board of Directors” means:
(1) with respect to a corporation, the board of directors of the corporation;
(2) with respect to a partnership, the board of directors of the general partner of the partnership; and
(3) with respect to any other Person, the board of directors or committee of such Person serving a similar function.
“Board Resolution” means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the trustee.
“Borrowing Base”means, as of any date, on a consolidated basis and without duplication, the sum of (i) 85.0% of the net book value of accounts receivable of the Company and its Restricted Subsidiaries,plus (ii) the lesser of 100.0% of the net book value and 90.0% of the net appraised recovery value of lease fleet assets of the Company and its Restricted Subsidiaries,plus (iii) the lesser of 90.0% of the net book value and 80.0% of the net appraised recovery value of machinery and equipment of the Company and its Restricted Subsidiaries,plus (iv) 90.0% of the net book value of inventory of the Company and its Restricted Subsidiaries (subject to an aggregate $25.0 million inventory sublimit);provided, however, that if Indebtedness is being incurred to finance an acquisition pursuant to which any accounts receivable, lease fleet assets, machinery and equipment or inventory will be acquired (whether through the direct acquisition of assets or the acquisition of Capital Stock of a Person), the Borrowing Base shall include the applicable percentage of any accounts receivable, lease fleet assets, machinery and equipment and inventory to be acquired in connection with such acquisition.
“Business Day” means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close.
“Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP.
“Capital Stock” means:
(1) in the case of a corporation, corporate stock;
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(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
“Cash Equivalents” means:
(1) United States dollars, Canadian dollars, British pounds or Euros and, in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies held by it from time to time in the ordinary course of business;
(2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $250 million and a Thomson Bank Watch Rating of “B” or better;
(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5) commercial paper having a rating of at least “P-2” (or the equivalent thereof) from Moody’s Investors Service, Inc. or at least “A-2” (or the equivalent thereof) from Standard & Poor’s Rating Services and in each case maturing within one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition.
“Change of Control” means the occurrence of any of the following:
(1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party;
(2) the adoption of a plan relating to the liquidation or dissolution of the Company;
(3) any “person” (as defined above) other than any Principal or Related Party becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; or
(4) the first day on which a majority of the members of the Board of Directors of the Company or any Parent Entity are not Continuing Directors.
“Commission” means the United States Securities and Exchange Commission.
“Comparable Treasury Issue” means the United States Treasury security selected by an Independent Investment Banker, having a maturity comparable to the first redemption date of the notes, that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the first redemption date of the notes. “Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the trustee after consultation with the Company.
“Comparable Treasury Price” means, with respect to any redemption date, (1) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (2) if the trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any
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redemption date, the average, as determined by the trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the trustee by such Reference Treasury Dealer at 3:30 p.m. New York time, on the third Business Day preceding such redemption date.
“Consolidated Cash Flow” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:
(1) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(2) the interest expense of such Person and its Restricted Subsidiaries for such period, to the extent that such interest expense was deducted in computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses and charges (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses and charges were deducted in computing such Consolidated Net Income; plus
(4) losses arising from foreign currency or foreign currency exchange fluctuations related to Investments of the Company or its Restricted Subsidiaries in the Company or its Restricted Subsidiaries (other than Receivables Entities); plus
(5) any fees, charges and expenses incurred in connection with any Equity Offering, Permitted Investment, acquisition, recapitalization or issuance or repayment of Indebtedness permitted to be incurred under the Indenture (in each case whether or not consummated) or the Transactions (including, without limitation, the fees payable to the Principal pursuant to the Management Agreement in connection with the Transactions) and, in each case, deducted in such period in computing Consolidated Net Income; minus
(6) gains arising from foreign currency or foreign currency exchange fluctuations related to Investments of the Company or its Restricted Subsidiaries in the Company or its Restricted Subsidiaries (other than Receivables Entities); minus
(7) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges made in any prior period that reduced Consolidated Cash Flow or which will result in the receipt of cash in a future period or the amortization of lease incentives), in each case, on a consolidated basis and determined in accordance with GAAP.
“Consolidated Net Income” means, with respect to any specified Person for any period, the aggregate, without duplication, of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP;provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or (subject to clause (2) below) a Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its shareholders unless such restriction with respect to the payment of dividends or similar distributions has been legally waived;provided that the Consolidated Net Income of such Person shall be increased by the amount of dividends or similar distributions that are actually paid in cash (or to the extent converted into cash) to such Person or a Restricted Subsidiary thereof in respect of such period, to the extent not already included therein;
(3) the cumulative effect of a change in accounting principles will be excluded;
(4) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions other than in the ordinary course of business (as determined in good faith by the Board of Directors of
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the Company) and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person shall be excluded;
(5) any non-cash compensation expense, including any such expense arising from stock options, restricted stock grants or other equity-incentive programs shall be excluded;
(6) any net after-tax gains or losses attributable to the early extinguishment of Indebtedness shall be excluded;
(7) the effect of any non-cash items resulting from any amortization, write-up, write-down or write-off of assets (including intangible assets, goodwill and deferred financing costs in connection with the Transactions or any future acquisition, disposition, merger, consolidation or similar transaction or any other non-cash impairment charges incurred subsequent to the date of the Indenture resulting from the application at SFAS Nos. 141, 142 or 144 (excluding any such non-cash item to the extent that it represents an accrual of or reserve for cash expenditures in any future period except to the extent such item is subsequently reversed) shall be excluded; and
(8) any net gain or loss resulting from Hedging Obligations (including pursuant to the application of SFAS No. 133) shall be excluded.
“Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of the Indenture; or
(2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election; or
(3) was nominated by a Principal or Related Party pursuant to a shareholders, voting or similar agreement.
“Contribution Indebtedness” means Indebtedness of the Company or any Restricted Subsidiary of the Company in an aggregate principal amount not greater than two times the net cash proceeds received by the Company after the date of the Indenture from the issue or sale of Equity Interests of the Company or cash contributions made to the capital of the Company (in each case, other than proceeds of Disqualified Stock or sales of Equity Interests to the Company or any of its Subsidiaries) (collectively, “Contribution Indebtedness Equity”)provided that such Contribution Indebtedness: (1) if the aggregate principal amount of such Contribution Indebtedness is greater than one times the net cash proceeds of such Contribution Indebtedness Equity, the amount of such excess shall be (a) subordinated Indebtedness (other than secured Indebtedness) and (b) Indebtedness with a Stated Maturity at least 91 days later than the Stated Maturity of the notes, and (2) (a) is incurred within 180 days after the making of such cash contributions and (b) is so designated as Contribution Indebtedness (and the related Contribution Indebtedness Equity is so designated as Contribution Indebtedness Equity) pursuant to an Officers’ Certificate on the date of the incurrence thereof.
“Credit Agreement” means each of (i) the U.S. Credit Agreement and (ii) the U.K. Credit Agreement.
“Credit Agreement Note” means that certain Revolving Subordinated Intercompany Demand Note dated as of the date of the Indenture by the Company in favor of Ravenstock MSG Limited in an amount not to exceed $15 million pursuant to the Credit Agreement and any Permitted Refinancing Indebtedness in respect thereof.
“Credit Facilities” means one or more debt facilities or agreements (including, without limitation, the Credit Agreement) or commercial paper facilities or indentures, in each case with banks or other institutional lenders or investors providing for revolving credit loans, term loans, debt securities, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, extended, replaced, restructured or refinanced in whole or in part from time to time under the same or any other agent, lender or group of lenders.
“Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
“Designated Non-cash Consideration” means the fair market value of non-cash consideration received by the Company or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers’ Certificate, setting forth the basis of such valuation, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of or collection on such Designated Non-cash Consideration;provided such cash proceeds are applied as required under “—Repurchase at the Option of Holders—Asset Sales.”
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“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Co-Issuers to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Co-Issuers may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption “—Certain Covenants—Restricted Payments.”
“Domestic Subsidiary” means any Restricted Subsidiary of the Company that was formed under the laws of the United States or any state of the United States or the District of Columbia, other than (a) MSG Investments, Inc. and (b) any Subsidiary that is a direct or indirect Subsidiary of a Foreign Subsidiary.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
“Equity Offering” means any public offering or private sale for cash on a primary basis by the Company or any Parent Entity of the Company or private sale of Capital Stock (other than Disqualified Stock) after the date of the Indenture (other than any issuance (1) pursuant to employee benefit plans or otherwise in compensation to officers, directors or employees, (2) made in connection with Change of Control transactions or (3) constituting Contribution Indebtedness Equity).
“Exchange Notes” means the notes issued in the Exchange Offer pursuant to the Indenture.
“Exchange Offer” has the meaning set forth for such term in the registration rights agreement.
“Exchange Offer Registration Statement” has the meaning set forth for such term in the registration rights agreement.
“Existing Indebtedness” means Indebtedness of the Co-Issuers and their Restricted Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid (unless replaced by Permitted Refinancing Indebtedness at the time of repayment).
“Fixed Charge Coverage Ratio” means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock (or any preferred stock permanently ceases to accrue dividends or is converted into, or exchanged for, Capital Stock (other than Disqualified Stock)) subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase, redemption, conversion, exchange, cessation of dividends, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period will be calculated on a pro forma basis;provided that such pro forma calculations shall be determined in good faith by the Chief Financial Officer of the Company and shall be set forth in an Officers’ Certificate signed by the Company’s Chief Financial Officer which states (a) the amount of such adjustment or adjustments, (b) that such adjustment or adjustments are based on the reasonable good faith belief of the Company at the time of such execution, and (c) that the steps necessary for the realization of such adjustments have been or are reasonably expected to be taken within 12 months following such transaction;
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with
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GAAP, and operations or businesses (and ownership interests therein) disposed of on or prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of on or prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; and
(4) any interest expense of such Person attributable to interest on any Indebtedness or dividends on any Disqualified Stock bearing a floating interest (or dividend) rate will be computed on a pro forma basis as if the average rate of interest (or dividend) in effect from the beginning of the period referenced to the Calculation Date had been the applicable rate of interest (or dividend) for the entire period, unless such Person or any of its Restricted Subsidiaries is a party to a Hedging Obligation (which will remain in effect for the twelve-month period immediately following the Calculation Date) that has the effect of fixing the rate of interest on the date of determination, in which case such rate (whether higher or lower) will be used.
Fixed Charges” means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates but excluding amortization of debt issuance costs; plus
(2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) Receivables Fees; plus
(5) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock or any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of such Person (other than Disqualified Stock) or to such Person or a Restricted Subsidiary of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis and in accordance with GAAP.
“Foreign Subsidiary” means a Restricted Subsidiary that is not a Domestic Subsidiary.
“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect as of the date of the Indenture.
“guarantee” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.
“Guarantee” means each Subsidiary Guarantee.
“Guarantors” means each Subsidiary Guarantor.
“Hedging Obligations” means, with respect to any specified Person, the obligations of such Person incurred not for speculative purposes under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
(2) foreign exchange contracts and currency protection agreements entered into with one of more financial
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institutions designed to protect the person or entity entering into the agreement against fluctuations in interest rates or currency exchanges rates with respect to Indebtedness incurred;
(3) any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that entity at the time; and
(4) other agreements or arrangements designed to protect such person against fluctuations in interest rates or currency exchange rates.
“Immaterial Subsidiary” means, as of any date, any Restricted Subsidiary whose total assets (other than Capital Stock of a Foreign Subsidiary), as of the last day of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding such date, are less than $250,000 and whose total revenues (other than revenues attributable to a Foreign Subsidiary owned by such Restricted Subsidiary) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding such date do not exceed $50,000;provided that a Restricted Subsidiary will not be considered to be an Immaterial Subsidiary if it, directly or indirectly, guarantees or otherwise provides direct credit support for any Indebtedness of the Co-Issuers or any Guarantor.
“Indebtedness” means (without duplication), with respect to any specified Person, any indebtedness of such Person (it being understood that Indebtedness shall not include, among other things, deferred taxes, customer deposits, accrued expenses and trade payables), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of letters of credit, banker’s acceptances or other similar instruments;
(4) representing Capital Lease Obligations and Attributable Debt;
(5) representing the balance of the deferred and unpaid portion of the purchase price of any property except (a) any portion thereof that constitutes an accrued expense or trade payable, (b) obligations to consignors to pay under normal trade terms for consigned goods and (c) earn-out obligations;
(6) all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Restricted Subsidiary that is not a Subsidiary Guarantor, any preferred stock (but excluding, in each case, any accrued dividends);
(7) representing any Hedging Obligations; or
(8) to the extent not otherwise included in this definition, the Receivables Transaction Amount outstanding relating to a Qualified Receivables Transaction,
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes, without duplication, all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(2) in the case of any Disqualified Stock of the specified Person or any Subsidiary Guarantor or preferred stock of a Restricted Subsidiary that is not a Subsidiary Guarantor, the repurchase price calculated in accordance with the terms of such Disqualified Stock or preferred stock as if such Disqualified Stock or preferred stock were repurchased on the date on which Indebtedness is required to be determined pursuant to the Indenture;provided that if such Disqualified Stock or preferred stock is not then permitted to be repurchased, the greater of the liquidation preference and the book value of such Disqualified Stock or preferred stock;
(3) in the case of Indebtedness of others secured by a Lien on any asset of the specified Person, the lesser of (A) the fair market value of such asset on the date on which Indebtedness is required to be determined pursuant to the Indenture and (B) the amount of the Indebtedness so secured;
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(4) in the case of the guarantee by the specified Person of any Indebtedness of any other Person, the maximum liability to which the specified Person may be subject upon the occurrence of the contingency giving rise to the obligation;
(5) in the case of any Hedging Obligations, the net amount payable if such Hedging Obligations were terminated at that time due to default by such Person (after giving effect to any contractually permitted set-off);
(6) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness; and
(7) the principal amount of any Indebtedness outstanding in connection with a Qualified Receivables Transaction is the Receivables Transaction Amount relating to such Qualified Receivables Transaction.
“Investments” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees, and deposits, extensions of trade credits and allowances on commercially reasonable terms, in each case, made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition in an amount equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” The acquisition by the Company or any Restricted Subsidiary of the Company of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person on the date of any such acquisition in an amount determined as provided in the final paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments”; provided that investments held by the acquired Person in such third person that do not exceed $1.0 million will not be deemed to be an Investment by the Company or any such Subsidiary for the purposes of this definition.
“Leverage Ratio” means, with respect to any Person, at any date the ratio of (i) Indebtedness of such Person and its Restricted Subsidiaries as of such date of calculation (determined on a consolidated basis in accordance with GAAP) to (ii) Consolidated Cash Flow of such Person for the four full fiscal quarters for which internal financial statements are available immediately preceding such date on which such additional Indebtedness is incurred. In the event that such Person or any of its Restricted Subsidiaries incurs or redeems any Indebtedness subsequent to the commencement of the period for which the Leverage Ratio is being calculated but prior to the event for which the calculation of the Leverage Ratio is made, then the Leverage Ratio shall be calculated giving pro forma effect to such incurrence or redemption of Indebtedness as if the same had occurred at the beginning of the applicable four-quarter period. For purposes of making the computation referred to above, Consolidated Cash Flow of such Person shall be determined in accordance with the second paragraph of the definition of “Fixed Charge Coverage Ratio.”
“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
“Management Agreement” means the Management Agreement among the Company, MSG WC Holdings Corp. and WCAS Management Corporation dated the date of the Indenture.
“Net Income” means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends;provided, that “Net Income” shall exclude:
(1) any gain (or loss), together with any related provision for taxes on such gain (or loss), realized in connection with: (a) any Asset Sale or other disposition not in the ordinary course of business (including, without limitation, dispositions pursuant to sale and leaseback transactions); or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries;
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(2) any extraordinary, unusual or non-recurring gain (or loss), charge, cost or expense, together with any related provision for taxes on such extraordinary, unusual or non-recurring gain (or loss), charge, cost or expense; and
(3) any (a) non-cash charges relating to the grant, exercise or repurchase of options for, or shares of, the Capital Stock (other than Disqualified Stock) of such Person to any employee or director of such Person, (b) non-cash charges relating to the write-down of goodwill or other intangibles to the extent such items reduced the Net Income of such Person during any period and (c) non-cash gains or losses related to Hedging Obligations.
“Net Proceeds” means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale, including any Designated Non-cash Consideration), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale including any withholding taxes imposed on the repatriation of such proceeds, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness (including any interest or premium) and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.
“Non-Recourse Debt” means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender (in each case, except for a pledge of the Equity Interests of Unrestricted Subsidiaries); and
(2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity.
“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
“Officer” means, with respect to any Person, the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer or the Secretary of such Person.
“Officers’ Certificate” means a certificate signed by two Officers of each Co-Issuer or by one Officer and any Assistant Treasurer or Assistant Secretary of each Co-Issuer and which complies with the provisions of the Indenture.
“Parent Entity” means any Person that is a direct or indirect parent of the Company.
“Parent Subordinated Notes” means the $90 million in aggregate principal amount of Subordinated Notes due 2015 issued by MSG WC Holdings Corp. on the date of the Indenture.
“Permitted Business”means (1) the lines of business conducted by the Company and its Restricted Subsidiaries on the date of the Indenture and any business incidental or reasonably related thereto or which is a reasonable extension thereof as determined in good faith by the Company’s Board of Directors and (2) any business which forms a part of a business (the “Acquired Business”) which is acquired by the Company or any of its Restricted Subsidiaries if the primary intent of the Company or such Restricted Subsidiary was to acquire that portion of the Acquired Business which meets the requirements of clause (1) of this definition and the portion of the Acquired Business which meets the requirements of clause (1) of this definition constitutes a majority of the Acquired Business.
“Permitted Investments” means:
(1) any Investment in the Company or in a Restricted Subsidiary (other than a Receivables Entity) of the Company;
(2) any Investment in Cash and Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment:
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(a) such Person becomes a Restricted Subsidiary (other than a Receivables Entity) of the Company; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary (other than a Receivables Entity) of the Company;
(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales” or any non-cash consideration received in connection with a disposition of assets excluded from the definition of “Asset Sales;” (5) workers’ compensation, utility, lease and similar deposits and prepaid expenses in the ordinary course of business and endorsements of negotiable instruments and documents in the ordinary course of business; (6) any investments in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (7) any Investments arising from agreements of the Company or a Restricted Subsidiary of the Company providing for adjustment of purchase price, deferred payment, earn out or similar obligations, in each case acquired in connection with the disposition or acquisition of any business or assets of the Company or a Restricted Subsidiary (other than in connection with a Qualified Receivables Transaction); (8) any Investments received in compromise of obligations of any Person to the Company or any Restricted Subsidiary of the Company incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy, insolvency, reorganization, or liquidation of such Person or the good faith settlement of debts of such Person to the Company or a Restricted Subsidiary of the Company, as the case may be; (9) Hedging Obligations permitted to be incurred under the “—Certain Covenants—Incurrence of Indebtedness” covenant; (10) loans and advances made in settlement of accounts receivable, all in the ordinary course of business; (11) guarantees of Indebtedness to the extent permitted by clause (9) of the second paragraph of the covenant described under the caption “—Certain Covenants—Incurrence of Indebtedness;” (12) Investments by the Company or a Restricted Subsidiary in a Receivables Entity or any Investment by a Receivables Entity in any other Person, in each case, in connection with a Qualified Receivables Transaction, provided, however, that any Investment in any such Person is in the form of a Purchase Money Note, or any equity interest or interests in Receivables and related assets generated by the Company or a Restricted Subsidiary and transferred to any Person in connection with a Qualified Receivables Transaction or any such Person owning such Receivables; (13) receivables owing to the Company or a Restricted Subsidiary of the Company if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided that such trade terms may include such concessionary trade terms as the Company or such Restricted Subsidiary, as the case may be, deems reasonable under the circumstances; (14) any Investments in payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes; (15) any Investments existing on the date of the Indenture; (16) loans and advances to employees (other than executive officers) of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes; (17) Investments consisting of licensing of intellectual property pursuant to joint marketing arrangements with other Persons; (18) Investments consisting of earnest money deposits required in connection a purchase agreement or other acquisition; and
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(19) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (19) that are at the time outstanding, not to exceed the greater of (a) $7.5 million and (b) 1.0% of Total Assets of the Company, provided that if such Investment is in Capital Stock of a Person that subsequently becomes a Restricted Subsidiary, such Investment shall thereafter be deemed permitted under clause (1) above and shall not be included as having been made pursuant to this clause (19).
“Permitted Liens” means:
(1) Liens of the Company and any Restricted Subsidiary of the Company securing Indebtedness and other Obligations under the Credit Facilities, including the Credit Agreement, that were incurred and remain outstanding under clause (1) of the second paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness”, or any exercise of remedies in connection therewith; (2) Liens in favor of the Company or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; (4) Liens on property (including Capital Stock) existing at the time of acquisition of the property by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness” covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the Indenture or that remain in place in connection with the incurrence of Permitted Refinancing Indebtedness; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (10) Liens in favor of customs and revenue authorities in connection with custom duties; (11) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance, social security and other statutory obligations, including any Lien securing letters of credit issued in the ordinary course of business in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, governmental contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (12) Liens imposed by law, such as carriers’, landlords’, material men’s, repairmen’s warehouse-men’s and mechanics’ Liens, in each case, for sums not yet due or being contested in good faith through diligent proceedings; (13) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations with respect to letters of credit or bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (14) Liens arising from Uniform Commercial Code financing statement filings regarding leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; (15) Liens securing Hedging Obligations; (16) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning, building or other restrictions or any similar laws, ordinances, orders, rules or regulations as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that do not, in the aggregate, materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (17) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or one of its Subsidiaries relating to such property or assets;
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(18) Liens on assets that are the subject of a sale and leaseback transaction permitted by the provisions of the Indenture;
(19) Liens arising from licenses, leases and subleases entered into the ordinary course of business, provided such Liens are limited to the specific property that is the subject of such license, lease, or sublease;
(20) judgment Liens not giving rise to an Event of Default; and
(21) Liens securing insurance premium financing;provided that such Liens do not extend to any property or assets other than the insurance policies and proceeds thereof;
(22) Liens on assets transferred to a Receivables Entity or on assets of a Receivables Entity, in either case incurred in connection with a Qualified Receivables Transaction; and
(23) other Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $10 million at any one time outstanding.
“Permitted Payments to Parent Entity” means without duplication as to amounts:
(1) payments to the Parent Entity in an amount sufficient to permit the Parent Entity to pay reasonable accounting, legal, board and administrative expenses and other reasonable holding company expenses of the Parent Entity, and
(2) payments to the Parent Entity in respect of the United States, federal, state, local or non-United States tax liabilities of the Company and its Subsidiaries to the extent that the Parent Entity has an obligation to pay such tax liabilities (“Tax Payments”). Tax Payments shall not exceed the tax liabilities (including any penalties or interest for taxes and costs to contest any tax liability) that would otherwise be payable by the Company and its Subsidiaries to the appropriate taxing authorities if the Company was not a Subsidiary of the Parent Entity (a “Tax Liability”). The amount of any Tax Payment that may be made with respect to a Tax Liability shall be reduced by any amount paid directly by the Company or any of its Subsidiaries to a taxing authority in satisfaction of such Tax Liability;
(3) payments to reimburse the Parent Entity for costs, fees and expenses incident to any debt or equity financing, to the extent that (a) the net proceeds of a primary offering (if it is completed) are, or the net proceeds from original issuance of such securities in the case of a secondary offering, were, contributed to, or otherwise used for the benefit of, the Company or any of its Restricted Subsidiaries, and (b) the costs, fees and expenses are allocated among the Parent Entity and any selling shareholders in such proportion as is required by an applicable shareholders agreement or, to the extent no applicable shareholders agreement exists, as is appropriate to reflect the relative proceeds received by the Parent Entity and such selling shareholders;
(4) obligations under the Management Agreement; and
(5) payments to fund interest payments not in excess of 10% per annum on the outstanding Parent Subordinated Notes;provided, however, that a payment under this clause (5) will only be permitted (a) on and with respect to periods after the second anniversary of the date of the Indenture, (b) at the time of such payment and after giving pro forma effect thereto, no Default or Event of Default shall have occurred and be continuing or would occur as a result of such payment, (c) the Company would, at the time of such payment and after giving pro forma effect thereto as if such payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under the caption “—Certain Covenants—Incurrence of Indebtedness;” and (d) the Leverage Ratio of the Company as of the most recent fiscal quarter end, after giving effect to such payments on a pro forma basis, shall not exceed 4.75:1.
“Permitted Refinancing Indebtedness” means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to repay, redeem, extend, refinance, renew, replace, defease, discharge, refund or otherwise retire for value other Indebtedness of the Company or any of its Subsidiaries (other than intercompany Indebtedness between and among the Company and its Restricted Subsidiaries);provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness repaid, redeemed, extended, refinanced, renewed, replaced, defeased, discharged, refunded, or retired (plus all accrued interest on the Indebtedness and the amount of all fees and expenses and premiums and penalties incurred in connection therewith);
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(2) such Permitted Refinancing Indebtedness has a final maturity date of or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being repaid, redeemed, extended, refinanced, renewed, replaced, defeased, discharged, or refunded or retired;
(3) if the Indebtedness being repaid, redeemed, extended, refinanced, renewed, replaced, defeased, discharged, refunded or retired is subordinated in right of payment to the notes or any Guarantee, such Permitted Refinancing Indebtedness is subordinated in right of payment to the notes or the Guarantees, as the case may be, on terms at least as favorable to the Holders of notes as those contained in the documentation governing the Indebtedness being repaid, redeemed, extended, refinanced, renewed, replaced, defeased, refunded, discharged or retired; and
(4) such Indebtedness is incurred either by a Co-Issuer or a Guarantor or if a Restricted Subsidiary that is not a Guarantor is the obligor on the Indebtedness being repaid, redeemed, extended, refinanced, renewed, replaced, defeased, refunded or discharged, then by any Restricted Subsidiary.
“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
“Principal or Related Party” means Welsh Carson and its Affiliates.
“Purchase Money Note” means a promissory note of a Receivables Entity evidencing the deferred purchase price of Receivables (and related assets) and a line of credit, which may be irrevocable, from the Company or any Restricted Subsidiary of the Company in connection with a Qualified Receivables Transaction with a Receivables Entity, which deferred purchase price or line is repayable from cash available to the Receivables Entity, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts owing to such investors and amounts paid in connection with the purchase of newly generated Receivables.
“Qualified Proceeds” means any of the following or any combination of the following: (1) cash, (2) Cash Equivalents, (3) assets that are used or useful in a Permitted Business (excluding Permitted Investments made in Persons other than Restricted Subsidiaries pursuant to clause (6) of the definition of “Permitted Investments”) by the Company or any Restricted Subsidiary of the Company and (4) the Capital Stock of any Person engaged in a Permitted Business that becomes a Restricted Subsidiary of the Company as a result of the acquisition of such Capital Stock by the Company or any Restricted Subsidiary of the Company.
“Qualified Receivables Transaction” means any transaction or series of transactions that may be entered into by the Company or any of its Restricted Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries may sell, convey or otherwise transfer to (1) a Receivables Entity (in the case of a transfer by the Company or any of its Restricted Subsidiaries) and (2) any other Person (in the case of a transfer by a Receivables Entity), or may grant a security interest in, any Receivables (whether now existing or arising in the future) of the Company or any of its Restricted Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such Receivables, all contracts and all guarantees or other obligations in respect of such accounts receivable, the proceeds of such Receivables and other assets which are customarily transferred, or in respect of which security interests are customarily granted, in connection with asset securitization involving Receivables.
“Receivable” means a right to receive payment arising from a sale or lease of goods or the performance of services by a Person pursuant to an arrangement with another Person pursuant to which such other Person is obligated to pay for goods or services under terms that permit the purchase of such goods and services on credit and shall include, in any event, any items of property that would be classified as an “account,” “chattel paper,” “payment intangible” or “instrument” under the Uniform Commercial Code as in effect in the State of New York and any “supporting obligations” as so defined.
“Receivables Entity” means a wholly-owned Subsidiary (or another Person in which the Company or any Restricted Subsidiary makes an Investment and to which the Company or any Restricted Subsidiary transfers Receivables and related assets) which engages in no activities other than in connection with the financing of Receivables and which is designated by the Board of Directors of the Company (as provided below) as a Receivables Entity:
(1) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which:
(a) is guaranteed by the Company or any Restricted Subsidiary (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings);
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(b) is recourse to or obligates the Company or any Restricted Subsidiary in any way other than pursuant to Standard Securitization Undertakings; or (c) subjects any property or asset of the Company or any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings;
(2) with which neither the Company nor any Restricted Subsidiary has any material contract, agreement, arrangement or understanding (except in connection with a Purchase Money Note or Qualified Receivables Transaction) other than on terms no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing Receivables; and (3) to which neither the Company nor any Restricted Subsidiary has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution of the Company giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing conditions.
“Receivables Fees” means any fees or interest paid to purchasers or lenders providing the financing in connection with a Qualified Receivables Transaction, factoring agreement or other similar agreement, including any such amounts paid by discounting the face amount of Receivables or participations therein transferred in connection with a Qualified Receivables Transaction, factoring agreement or other similar arrangement, regardless of whether any such transaction is structured as on-balance sheet or off-balance sheet or through a Restricted Subsidiary or an Unrestricted Subsidiary.
“Receivables Transaction Amount” means the amount of obligations outstanding under the legal documents entered into as part of such Qualified Receivables Transaction on any date of determination that would be characterized as principal if such Qualified Receivables Transaction were structured as a secured lending transaction rather than as a purchase.
“Reference Treasury Dealer” means Lehman Brothers Inc. and three other primary U.S. government securities dealers in The City of New York to be selected by the Company, and their respective successors.
“Restricted Investment” means an Investment other than a Permitted Investment.
“Restricted Subsidiary”of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
“Shelf Registration Statement” has the meaning set forth for such term in the registration rights agreement.
“Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof.
“Standard Securitization Undertakings” means representations, warranties, covenants and indemnities entered into by the Company or any Restricted Subsidiary which are reasonably customary in securitization of Receivables transactions.
“Stated Maturity” means, with respect to any installment of interest or payment of principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
“Subsidiary” means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
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“Subsidiary Guarantee” means the guarantee by each Subsidiary Guarantor of all Obligations of the Co-Issuers under the Indenture and the notes.
“Subsidiary Guarantor” means each of the Co-Issuers’ current and future Domestic Subsidiaries (other than MSG Investments, Inc. and Immaterial Subsidiaries).
“Total Assets” means, with respect to any Person, the total assets of such Person and its Restricted Subsidiaries on a consolidated basis, as shown on the most recent balance sheet of such Person as determined in accordance with GAAP.
“Transactions” shall have the meaning specified in this registration statement.
“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
“U.K. Credit Agreement” means that certain Credit Agreement, dated as of the date of the Indenture, by and among Ravenstock MSG Limited, The CIT Group/Business Credit, Inc., as administrative agent, Lehman Brothers Inc., as sole bookrunner and syndication agent, the lenders party from time to time thereto and the agents named therein, providing for up to £85.0 million of revolving credit borrowings (as a sublimit to the Credit Agreement), including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, extended, replaced, restructured or refinanced in whole or in part from time to time under the same or any other agent, lender or group of lenders.
“U.S. Credit Agreement” means that certain Credit Agreement, dated as of the date of the Indenture, by and among the Issuers, The CIT Group/Business Credit, Inc., as administrative agent, Lehman Brothers Inc., as sole bookrunner and syndication agent, the lenders party from time to time thereto, and the agents named therein providing for up to $300 million of revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, extended, replaced, restructured or refinanced in whole or in part from time to time under the same or any other agent, lender or group of lenders.
“Unrestricted Subsidiary” means any Subsidiary of the Company (other than MSG) that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary, at the time of such designation:
(1) has no Indebtedness other than Non-Recourse Debt; (2) except as permitted by the covenant described above under the caption “—Certain Covenants—Transactions with Affiliates,” is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption “—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries.” If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption “—Certain Covenants—Incurrence of Indebtedness,” the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the
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caption “—Certain Covenants—Incurrence of Indebtedness,” calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness.
“Welsh Carson”means Welsh, Carson, Anderson & Stowe X, L.P. and Affiliates of the foregoing that are directly or indirectly controlling or controlled by Welsh, Carson, Anderson & Stowe X, L.P. or under direct or indirect common control with Welsh, Carson, Anderson & Stowe X, L.P.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice as of the date hereof. The Internal Revenue Service may take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the following statements and conditions. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders, whose tax consequences could be different from the following statements and conditions. Some holders, including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States, may be subject to special rules not discussed below. We recommend that each holder consult his own tax advisor as to the particular tax consequences of exchanging such holder’s Old Notes for New Notes, including the applicability and effect of any state, local or non-U.S. tax law.
The exchange of the Old Notes for New Notes pursuant to the exchange offer should not be treated as an “exchange” for federal income tax purposes because the New Notes should not be considered to differ materially in kind or extent from the Old Notes. Rather, the New Notes received by a holder should be treated as a continuation of the Old Notes in the hands of such holder. As a result, there should be no federal income tax consequences to holders exchanging Old Notes for New Notes pursuant to the exchange offer.
IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this prospectus (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax-related penalties under the Code. The tax advice contained in this prospectus (including any attachments) was written to support the promotion or marketing of the transaction(s) or matter(s) addressed herein. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
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CERTAIN ERISA CONSIDERATIONS
The following is a summary of material considerations associated with the purchase of Notes by employee benefit plans that are subject to Title I of ERISA, plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the Code or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA, collectively “Similar Laws,” and entities whose underlying assets are considered to include “plan assets” of such plans, accounts and arrangements, each a “Plan.”
General Fiduciary Matters
ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the Code, an “ERISA Plan,” and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of such an ERISA Plan or the management or disposition of the assets of such an ERISA Plan, or who renders investment advice for a fee or other compensation to such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.
In considering an investment in the Notes of a portion of the assets of any Plan, a fiduciary should determine whether the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciary’s duties to the Plan including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.
Prohibited Transaction Issues
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from engaging in specified transactions involving plan assets with persons or entities who are “parties in interest,” within the meaning of ERISA, or “disqualified persons,” within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engaged in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the ERISA Plan that engaged in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code. The acquisition and/or holding of Notes by an ERISA Plan with respect to which any of the issuers, the initial purchasers, or the guarantors is considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor has issued prohibited transaction class exemptions, or “PTCEs,” that may apply to the acquisition and holding of the Notes. These class exemptions include, without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers, although there can be no assurance that all of the conditions of any such exemptions will be satisfied.
Because of the foregoing, the Notes should not be purchased or held by any person investing “plan assets” of any Plan, unless such purchase and holding (and the exchange of Old Notes for New Notes) will not constitute a non-exempt prohibited transaction under ERISA and the Code or similar violation of any applicable Similar Laws.
Representation
Accordingly, by acceptance of a Note each purchaser and subsequent transferee will be deemed to have represented and warranted that either (i) no portion of the assets used by such purchaser or transferee to acquire and hold the Notes constitutes assets of any Plan or (ii) the purchase and holding of the Notes (and the exchange of Old Notes for New Notes) by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar violation under any applicable Similar Laws.
The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing the Notes (and holding the Notes) on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to such investment and whether an exemption would be applicable to the purchase and holding of the Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new securities for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of these new securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new securities received in exchange for securities where those securities were acquired as a result of market-making activities or other trading activities. We and the subsidiary guarantors have agreed that, starting on the expiration date and ending on the close of business 180 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.
Any broker-dealer who holds Registrable Securities (as defined in the registration rights agreement governing the Notes) that were acquired for the account of such broker-dealer as a result of market-making activities or other trading activities (other than initial Notes acquired directly from the Company or any affiliate of the Company), may exchange such Registrable Securities pursuant to the exchange offer.
We will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit of any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. By acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.
For a period of 180 days after the expiration date, we and the subsidiary guarantors will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents. We have agreed to pay all expenses incident to the exchange offer, other than commissions or concessions of any brokers or dealers and will indemnify the holders of the securities against certain liabilities.
LEGAL MATTERS
The validity of the notes offered by this registration statement and certain legal matters in connection with this offering will be passed upon for us by Kirkland & Ellis LLP, New York, New York.
EXPERTS
Ernst & Young LLP, an independent registered public accounting firm, has audited our consolidated financial statements and schedule at December 31, 2005 and 2006 and for each of the three years in the period ended December 31, 2006, as set forth in their reports. We have included our financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance upon Ernst & Young LLP’s reports, given on their authority as experts in accounting and auditing.
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AVAILABLE INFORMATION
Under the terms of the Indenture, we have agreed that, whether or not we are required to do so by the rules and regulations of the SEC, for so long as any of the Notes remain outstanding, we will nevertheless make available such Exchange Act information to the trustee and the holders of the Notes as if we were subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act within the time periods specified therein or in the relevant forms. Following the effectiveness of the exchange offer, we will make available to the trustee and holders of the Notes, the annual reports, information, documents and other reports that are required by Sections 13 and 15(d) of the Exchange Act within the time periods specified therein. Information filed with the SEC may be read and copied by the public at the Public Reference Room of the SEC at 100 F Street NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at http:/ /www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. In addition, for so long as any of the Notes remain outstanding, we have agreed to make available to any holder or prospective purchaser of the Notes the information required to be delivered by 144A(d)(4) under the Securities Act so long as the Notes are not freely transferable under the Securities Act.
This prospectus contains summaries of certain agreements that we have entered into in connection with the Transactions, such as the indenture, the registration rights agreement for the Notes, our senior secured revolving credit agreement and the agreements described under “Certain relationships and related party transactions.” The descriptions contained in this prospectus of these agreements do not purport to be complete and are subject to, or qualified in their entirety by reference to, the definitive agreements. Copies of the definitive agreements will be made available without charge to you by making a written or oral request to us. Any such request should be directed to Mobile Services Group, Inc., 700 North Brand Boulevard, Suite 1000, Glendale, California 91203, Attention: Investor Relations. Our telephone number is (818) 253-3200.
130
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MOBILE SERVICES GROUP, INC.
| | | Page |
| ANNUAL CONSOLIDATED FINANCIAL STATEMENTS: | | |
| | | |
| Report of Independent Registered Public Accounting Firm | | F-2 |
| | | |
| Consolidated Balance Sheets as of December 31, 2005 and 2006 | | F-3 |
| | | |
| Consolidated Statements of Operations for the years ended December 31, 2004 and 2005, the | | |
| period from January 1, 2006 to August 1, 2006, and the period from August 2, 2006 to | | |
| December 31, 2006 | | F-4 |
| | | |
| Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004 and 2005, the | | |
| period from January 1, 2006 to August 1, 2006, and the period from August 2, 2006 to | | |
| December 31, 2006 | | F-5 |
| | | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2005, the | | |
| period from January 1, 2006 to August 1, 2006, and the period from August 2, 2006 to | | |
| December 31, 2006 | | F-6 |
| | | |
| Notes to Consolidated Financial Statements | | F-8 |
| | | |
| INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | | |
| | | |
| Condensed Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007 (unaudited) | | F-38 |
| | | |
| Condensed Consolidated Statements of Operations for the three and six months ended | | |
| June 30, 2006 and 2007 (unaudited) | | F-39 |
| | | |
| Condensed Consolidated Statements of Cash Flows for the six months ended | | |
| June 30, 2006 and 2007 (unaudited) | | F-40 |
| | | |
| Notes to Condensed Consolidated Financial Statements | | F-42 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Mobile Services Group, Inc.
We have audited the accompanying consolidated balance sheets of Mobile Services Group, Inc. and subsidiaries as of December 31, 2006 (Successor Company) and 2005 (Predecessor Company), and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2004 (Predecessor Company) and 2005 (Predecessor Company), the period from January 1, 2006 to August 1, 2006 (Predecessor Company), and the period from August 2, 2006 to December 31, 2006 (Successor Company). 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, Mobile Services Group, Inc. consummated a transaction with MSG WC Holdings Corp. on August 1, 2006. As a result, the periods presented in the accompanying consolidated financial statements reflect a new basis of accounting beginning August 2, 2006.
Additionally, as discussed in Note 1 to the consolidated financial statements, Mobile Services Group, Inc. changed its method of accounting for Share-Based Payments in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) on January 1, 2006.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mobile Services Group, Inc. and subsidiaries as of December 31, 2006 (Successor Company) and 2005 (Predecessor Company), and the consolidated results of their operations and their cash flows for the years ended December 31, 2004 (Predecessor Company) and 2005 (Predecessor Company), the period from January 1, 2006 to August 1, 2006 (Predecessor Company), and the period from August 2, 2006 to December 31, 2006 (Successor Company) in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Woodland Hills, California
March 21, 2007
F-2
MOBILE SERVICES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| | Predecessor | | Successor |
| | December 31, | | December 31, |
| | 2005 | | 2006 |
| |
| Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | — | | | $ | 1,469 | |
| Accounts receivable, net of allowance for doubtful accounts of $570 and $701 at December 31, | | | | | | | | |
| 2005 and 2006, respectively | | | 28,342 | | | | 29,845 | |
| Inventories | | | 10,062 | | | | 5,550 | |
| Lease equipment, net of accumulated depreciation of $50,199 and $5,384 at December 31, | | | | | | | | |
| 2005 and 2006, respectively | | | 257,498 | | | | 301,630 | |
| Property and equipment, net of accumulated depreciation of $15,094 and $1,617 | | | | | | | | |
| at December 31, 2005 and 2006, respectively | | | 17,577 | | | | 19,973 | |
| Due from affiliates | | | 527 | | | | — | |
| Goodwill | | | 77,216 | | | | 296,854 | |
| Other intangible assets, net | | | 10,035 | | | | 77,955 | |
| Deferred financing costs, net | | | 8,538 | | | | 15,246 | |
| Prepaid expenses and other assets | | | 5,366 | | | | 5,342 | |
| Assets held for sale and discontinued operations | | | — | | | | 7,567 | |
| Total assets | | $ | 415,161 | | | $ | 761,431 | |
| |
| Liabilities: | | | | | | | | |
| Accounts payable | | $ | 11,737 | | | $ | 11,169 | |
| Accrued liabilities | | | 10,509 | | | | 21,830 | |
| Customer deposits | | | 5,294 | | | | 5,998 | |
| Senior revolving credit facility | | | 175,367 | | | | 172,267 | |
| Capital leases and other notes payable | | | 4,038 | | | | 3,268 | |
| Subordinated Notes, net of unamortized original issue discount | | | | | | | | |
| of $9,158 at December 31, 2005 | | | 70,842 | | | | — | |
| 9 ¾% Senior Notes Due 2014 | | | — | | | | 200,000 | |
| Deferred income taxes | | | 50,955 | | | | 72,403 | |
| Total liabilities | | | 328,742 | | | | 486,935 | |
| Mandatorily redeemable, Series E convertible 8.5% cumulative preferred stock – Predecessor; | | | | | | | | |
| $20 per share par value, 300,000 shares authorized, 238,000 shares issued and outstanding at | | | | | | | | |
| December 31, 2005; weighted-average redemption and liquidation preference of $23.37 per | | | | | | | | |
| share over common stockholders | | | 5,555 | | | | — | |
| Commitments and contingencies | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Series B 10% nonconvertible, and 10% H, 10% I and 10% J, convertible, redeemable, | | | | | | | | |
| cumulative, preferred stock – Predecessor; $10 per share par value, 2,750,000 shares | | | | | | | | |
| authorized, 1,909,000 shares issued and outstanding at December 31, 2005; redemption and | | | | | | | | |
| liquidation preference of $12.00 per share over common stockholders | | | 19,089 | | | | — | |
| Series C 8.5% nonconvertible redeemable, cumulative preferred stock – Predecessor; $20.00 per | | | | | | | | |
| share par value; 500,000 shares authorized, 10,000 shares issued and outstanding at | | | | | | | | |
| December 31, 2005; redemption and liquidation preference of $22.53 per share over common | | | | | | | | |
| stockholders | | | 200 | | | | — | |
| Series G nonconvertible and K convertible, redeemable, preferred stock – Predecessor; no par | | | | | | | | |
| and $0.10 par value, respectively; 2,679,000 shares authorized, 2,360,000 shares issued and | | | | | | | | |
| outstanding at December 31, 2005; redemption and liquidation preference of $0.40 per share | | | | | | | | |
| over common stockholders | | | 236 | | | | — | |
| Common stock, $0.001 par value, 1,200,000 shares authorized, 220,000 – Predecessor and | | | | | | | | |
| 246,000 – Successor shares issued and outstanding at December 31, 2005 and 2006, | | | | | | | | |
| respectively | | | 63,889 | | | | 265,538 | |
| Notes receivable from stockholders | | | — | | | | (610 | ) |
| Accumulated other comprehensive income | | | 10,711 | | | | 4,191 | |
| Retained earnings (Accumulated deficit) | | | (13,261 | ) | | | 5,377 | |
| Total stockholders’ equity | | | 80,864 | | | | 274,496 | |
| Total liabilities and stockholders’ equity | | $ | 415,161 | | | $ | 761,431 | |
See accompanying notes to consolidated financial statements.
F-3
MOBILE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
| | Predecessor | | Successor |
| | | | | | | | | | Period from | | Period from |
| | Year Ended | | Year Ended | | January 1, 2006 | | August 2, 2006 to |
| | December 31, | | December 31, | | to August 1, | | December 31, |
| | 2004 | | 2005 | | 2006 | | 2006 |
| |
| Revenues: | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | 127,040 | | | $ | 143,417 | | | $ | 91,088 | | | $ | 75,596 | |
| Sales | | | 29,336 | | | | 35,584 | | | | 22,410 | | | | 14,812 | |
| Total revenues | | | 156,376 | | | | 179,001 | | | | 113,498 | | | | 90,408 | |
| Costs and expenses: | | | | | | | | | | | | | | | | |
| Cost of sales | | | 21,636 | | | | 27,114 | | | | 16,223 | | | | 10,289 | |
| Trucking and yard costs | | | 40,811 | | | | 44,764 | | | | 27,965 | | | | 23,053 | |
| Depreciation and amortization | | | 14,502 | | | | 19,471 | | | | 12,191 | | | | 8,223 | |
| Selling, general and administrative expenses | | | 42,129 | | | | 46,909 | | | | 32,103 | | | | 25,797 | |
| Management fees | | | 422 | | | | 400 | | | | 329 | | | | 29 | |
| Charge for lease fleet impairment | | | 9,155 | | | | — | | | | — | | | | — | |
| Acquisition Transaction Expenses | | | — | | | | — | | | | 40,306 | | | | — | |
| Income (loss) from operations | | | 27,721 | | | | 40,343 | | | | (15,619 | ) | | | 23,017 | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest expense, net | | | (23,096 | ) | | | (26,249 | ) | | | (15,557 | ) | | | (14,832 | ) |
| Foreign currency translation gain (loss) | | | 1,013 | | | | (1,386 | ) | | | 212 | | | | 74 | |
| Loss on early extinguishment of debt | | | — | | | | (780 | ) | | | — | | | | — | |
| Other income (expense) | | | 270 | | | | (241 | ) | | | (84 | ) | | | (58 | ) |
| Income (loss) from continuing operations | | | | | | | | | | | | | | | | |
| before provision (benefit) for income taxes | | | 5,908 | | | | 11,687 | | | | (31,048 | ) | | | 8,201 | |
| Provision (benefit) for income taxes | | | 2,539 | | | | 4,652 | | | | (9,240 | ) | | | 3,012 | |
| Income (loss) from continuing operations | | | 3,369 | | | | 7,035 | | | | (21,808 | ) | | | 5,189 | |
| Income from operations of discontinued | | | | | | | | | | | | | | | | |
| operations (net of tax provision of $300, | | | | | | | | | | | | | | | | |
| $122, $225 and $125 for the years 2004 | | | | | | | | | | | | | | | | |
| and 2005 and the periods from January 1 | | | | | | | | | | | | | | | | |
| to August 1, 2006 and August 2 to | | | | | | | | | | | | | | | | |
| December 31, 2006, respectively) | | | 451 | | | | 184 | | | | 337 | | | | 188 | |
| Net income (loss) | | $ | 3,820 | | | $ | 7,219 | | | $ | (21,471 | ) | | $ | 5,377 | |
See accompanying notes to consolidated financial statements.
F-4
MOBILE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except per share data)
| | Preferred Stock | | Common Stock | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Notes | | Accumulated | | Retained | | | | |
| | | | | | | | | | | | | | | | Receivable | | Other | | Earnings | | | | |
| | Number of | | | | | | Number of | | | | | | From | | Comprehensive | | (Accumulated | | | | |
| | Shares | | Amount | | Shares | | Amount | | Stockholders | | Income (Loss) | | Deficit) | | Total |
| Predecessor: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances, January 1, 2004 | | 4,725,000 | | | $ | 23,882 | | | 221,000 | | | $ | 64,295 | | | | — | | | $ | 12,863 | | | $ | (18,814 | ) | | $ | 82,226 | |
| Redemption of common stock | | — | | | | — | | | (1,000 | ) | | | (354 | ) | | | — | | | | — | | | | — | | | | (354 | ) |
| Redemption of Series B, H, I and J preferred | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| stock, including cumulative dividends | | (246,000 | ) | | | (2,461 | ) | | — | | | | — | | | | — | | | | — | | | | (493 | ) | | | (2,954 | ) |
| Preferred stock dividends, $0.79 per share in cash | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | (2,019 | ) | | | (2,019 | ) |
| Accretion on Series E mandatorily redeemable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| convertible preferred stock | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | (101 | ) | | | (101 | ) |
| Issuance of Series C and F preferred stock, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| of offering costs | | 10,000 | | | | 200 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 200 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | 3,820 | | | | 3,820 | |
| Adjustment for foreign currency translation | | — | | | | — | | | — | | | | — | | | | — | | | | 6,020 | | | | — | | | | 6,020 | |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,840 | |
| Balances, December 31, 2004 | | 4,489,000 | | | | 21,621 | | | 220,000 | | | | 63,941 | | | | — | | | | 18,883 | | | | (17,607 | ) | | | 86,838 | |
| Redemption of common stock | | — | | | | — | | | — | | | | (52 | ) | | | — | | | | — | | | | — | | | | (52 | ) |
| Redemption of Series B, H, I and J preferred | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| stock, including cumulative dividends | | (210,000 | ) | | | (2,096 | ) | | — | | | | — | | | | — | | | | — | | | | (405 | ) | | | (2,501 | ) |
| Preferred stock dividends, $1.07 per share in cash | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | (2,468 | ) | | | (2,468 | ) |
| Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | 7,219 | | | | 7,219 | |
| Adjustment for foreign currency translation | | — | | | | — | | | — | | | | — | | | | — | | | | (8,172 | ) | | | — | | | | (8,172 | ) |
| Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (953 | ) |
| Balances, December 31, 2005 | | 4,279,000 | | | | 19,525 | | | 220,000 | | | | 63,889 | | | | — | | | | 10,711 | | | | (13,261 | ) | | | 80,864 | |
| Stock-based compensation | | — | | | | — | | | — | | | | 3,041 | | | | — | | | | — | | | | — | | | | 3,041 | |
| Redemption of common stock | | — | | | | — | | | — | | | | (8 | ) | | | — | | | | — | | | | — | | | | (8 | ) |
| Redemption of Series G and K preferred stock, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| including cumulative dividends | | (2,360,000 | ) | | | (236 | ) | | — | | | | — | | | | — | | | | — | | | | (702 | ) | | | (938 | ) |
| Preferred stock dividends, $0.54 per share in cash | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | (1,159 | ) | | | (1,159 | ) |
| Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | (21,471 | ) | | | (21,471 | ) |
| Adjustment for foreign currency translation . | | — | | | | — | | | — | | | | — | | | | — | | | | 5,495 | | | | — | | | | 5,495 | |
| Comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (15,976 | ) |
| Balances, August 1, 2006 | | 1,919,000 | | | | 19,289 | | | 220,000 | | | | 66,922 | | | | — | | | | 16,206 | | | | (36,593 | ) | | | 65,824 | |
| Elimination of historical stockholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| upon consummation of the Acquisition | | (1,919,000 | ) | | | (19,289 | ) | | (220,000 | ) | | | (66,922 | ) | | | — | | | | (16,206 | ) | | | 36,593 | | | | (65,824 | ) |
| Successor: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances, August 2, 2006 | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Equity contributions | | — | | | | — | | | 246,000 | | | | 263,876 | | | | — | | | | — | | | | — | | | | 263,876 | |
| Notes receivable from stockholders | | — | | | | — | | | — | | | | — | | | | (610 | ) | | | — | | | | — | | | | (610 | ) |
| Stock-based compensation | | — | | | | — | | | — | | | | 1,662 | | | | — | | | | | | | | | | | | 1,662 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | 5,377 | | | | 5,377 | |
| Adjustment for foreign currency translation | | — | | | | — | | | — | | | | — | | | | — | | | | 4,191 | | | | — | | | | 4,191 | |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,568 | |
| Balances, December 31, 2006 | | — | | | $ | — | | | 246,000 | | | $ | 265,538 | | | $ | (610 | ) | | $ | 4,191 | | | $ | 5,377 | | | $ | 274,496 | |
See accompanying notes to consolidated financial statements.
F-5
MOBILE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| | Predecessor | | Successor |
| | | | | | | | | | Period from | | Period from |
| | Year Ended | | Year Ended | | January 1, 2006 | | August 2, 2006 to |
| | December 31, | | December 31, | | to August 1, | | December 31, |
| | 2004 | | 2005 | | 2006 | | 2006 |
| Operating activities | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | 3,820 | | | $ | 7,219 | | | $ | (21,471 | ) | | $ | 5,377 | |
| Income from discontinued operations | | | (451 | ) | | | (184 | ) | | | (337 | ) | | | (188 | ) |
| Income (loss) from continuing operations | | | 3,369 | | | | 7,035 | | | | (21,808 | ) | | | 5,189 | |
| Adjustments to reconcile income (loss) from continuing operations to | | | | | | | | | | | | | | | | |
| net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | |
| Foreign currency translation loss (gain) | | | (1,013 | ) | | | 1,386 | | | | (212 | ) | | | (74 | ) |
| Loss on early extinguishment of debt | | | — | | | | 780 | | | | — | | | | — | |
| Provision for doubtful accounts | | | 487 | | | | 768 | | | | 744 | | | | 147 | |
| Write-off of receivables due from affiliates | | | — | | | | — | | | | 527 | | | | — | |
| Amortization of deferred financing costs and original issue discount | | | 2,860 | | | | 3,180 | | | | 2,107 | | | | 1,093 | |
| Depreciation | | | 12,372 | | | | 17,822 | | | | 11,246 | | | | 7,001 | |
| Amortization | | | 2,130 | | | | 1,649 | | | | 945 | | | | 1,222 | |
| Impairment charge | | | 9,155 | | | | — | | | | — | | | | — | |
| Acceleration of original issue discount and prepayment penalty on | | | | | | | | | | | | | | | | |
| Subordinated Notes | | | — | | | | — | | | | 11,450 | | | | — | |
| Write-off of deferred financing costs | | | — | | | | — | | | | 8,144 | | | | — | |
| Deferred income taxes | | | 1,939 | | | | 3,616 | | | | (10,386 | ) | | | 2,365 | |
| Stock-based compensation | | | — | | | | — | | | | 3,041 | | | | 1,662 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | |
| Accounts receivable | | | (4,861 | ) | | | (1,513 | ) | | | (1,452 | ) | | | (1,575 | ) |
| Inventories | | | (1,826 | ) | | | (3,944 | ) | | | (5,652 | ) | | | 797 | |
| Prepaid expenses and other assets | | | (2,223 | ) | | | (1,071 | ) | | | (580 | ) | | | (43 | ) |
| Accounts payable and accrued liabilities | | | 2,977 | | | | 5,458 | | | | 5,969 | | | | 6,770 | |
| Accrued Acquisition Transaction Expenses | | | — | | | | — | | | | 17,162 | | | | — | |
| Net cash provided by operating activities – | | | | | | | | | | | | | | | | |
| continuing operations | | | 25,366 | | | | 35,166 | | | | 21,245 | | | | 24,554 | |
| Net cash provided by (used in) operating activities – | | | | | | | | | | | | | | | | |
| discontinued operations | | | (399 | ) | | | 29 | | | | 55 | | | | 48 | |
| Net cash provided by operating activities | | | 24,967 | | | | 35,195 | | | | 21,300 | | | | 24,602 | |
| |
| Investing activities | | | | | | | | | | | | | | | | |
| Acquisition of Predecessor | | | — | | | | — | | | | — | | | | (317,138 | ) |
| Acquisition payment of Predecessor transaction expenses | | | — | | | | — | | | | — | | | | (17,162 | ) |
| Other acquisitions, net | | | (10,737 | ) | | | (4,890 | ) | | | (8,757 | ) | | | (12,155 | ) |
| Purchases of lease equipment | | | (22,660 | ) | | | (32,466 | ) | | | (17,109 | ) | | | (17,483 | ) |
| Purchases of property and equipment | | | (4,802 | ) | | | (6,266 | ) | | | (2,416 | ) | | | (2,198 | ) |
| Proceeds from assets held for sale | | | — | | | | 1,024 | | | | — | | | | — | |
| Net cash used in investing activities | | | (38,199 | ) | | | (42,598 | ) | | | (28,282 | ) | | | (366,136 | ) |
| |
| Financing activities | | | | | | | | | | | | | | | | |
| Borrowings (payments) under BofA Credit Facility | | | 18,842 | | | | 18,590 | | | | 11,060 | | | | (192,278 | ) |
| Borrowings under New Credit Facility | | | — | | | | — | | | | — | | | | 168,592 | |
| Redemption of Subordinated Notes | | | — | | | | — | | | | — | | | | (83,200 | ) |
| Issuance of 9 ¾% Senior Notes due 2014 | | | — | | | | — | | | | — | | | | 200,000 | |
| Deferred financing costs | | | — | | | | (2,600 | ) | | | (1,160 | ) | | | (15,313 | ) |
| Payments on capital leases and notes payable | | | (1,575 | ) | | | (1,620 | ) | | | (562 | ) | | | (208 | ) |
| Equity contributions | | | — | | | | — | | | | — | | | | 263,266 | |
| Redemption of Predecessor common stock | | | (354 | ) | | | (52 | ) | | | (8 | ) | | | — | |
| Predecessor preferred stock dividends paid | | | (2,019 | ) | | | (2,468 | ) | | | (1,159 | ) | | | — | |
| Predecessor redemptions of preferred stock | | | (2,691 | ) | | | (2,501 | ) | | | (938 | ) | | | — | |
| Net cash provided by financing activities | | | 12,203 | | | | 9,349 | | | | 7,233 | | | | 340,859 | |
| Effect of foreign exchange rate changes on cash | | | 76 | | | | (1,946 | ) | | | (251 | ) | | | 2,144 | |
| Net increase (decrease) in cash | | | (953 | ) | | | — | | | | — | | | | 1,469 | |
| Cash and cash equivalents at beginning of period | | | 953 | | | | — | | | | — | | | | — | |
| Cash and cash equivalents at end of period | | $ | — | | | $ | — | | | $ | — | | | $ | 1,469 | |
See accompanying notes to consolidated financial statements.
F-6
MOBILE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
| | Predecessor | | Successor |
| | | | | | | | | | Period from | | Period from |
| | Year Ended | | Year Ended | | January 1, 2006 | | August 2, 2006 |
| | December 31, | | December 31, | | to August 1, | | to December 31, |
| | 2004 | | 2005 | | 2006 | | 2006 |
|
|
| Supplemental disclosure of cash flow information: | | | | | | | | | | | | | | | |
| Cash paid during the period: | | | | | | | | | | | | | | | |
| Interest | | $ | 20,260 | | | $ | 22,858 | | | $ | 13,550 | | | $ | 4,848 |
| Income taxes | | $ | 1,621 | | | $ | 1,618 | | | $ | 1,715 | | | $ | 553 |
|
| Supplemental disclosure of noncash investing and | | | | | | | | | | | | | | | |
| financing activities: | | | | | | | | | | | | | | | |
| Details of acquisitions: | | | | | | | | | | | | | | | |
| Fair value of assets acquired | | $ | 11,403 | | | $ | 5,032 | | | $ | 8,965 | | | $ | 12,155 |
| Liabilities assumed | | | (666 | ) | | | (142 | ) | | | (208 | ) | | | — |
| Net cash paid in connection with acquisitions | | $ | 10,737 | | | $ | 4,890 | | | $ | 8,757 | | | $ | 12,155 |
|
| Issuance of common stock in exchange for notes receivable | | $ | — | | | $ | — | | | $ | — | | | $ | 610 |
| Accrued payment to Predecessor stockholders | | $ | — | | | $ | — | | | $ | — | | | $ | 1,089 |
Changes in assets and liabilities used in the Company’s consolidated statement of cash flows for the period ended December 31, 2006 have been determined using the Successor’s opening balance sheet at August 2, 2006 which includes the push down of purchase accounting. Refer to Note 1 to the consolidated financial statements for a summary of the values attributed to the Company’s assets and liabilities in the Acquisition transaction.
As a result of the purchase price allocation, the consolidated statement of cash flows for the period ended December 31, 2006 excludes a non-cash decrease to inventories and lease equipment of $337 and $2,069, respectively, and a non-cash increase to other intangible assets and net deferred tax liabilities of $65,287 and $26,252, respectively.
See accompanying notes to consolidated financial statements.
F-7
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Business and Basis of Presentation
Organization and Business
Mobile Services Group, Inc. (the “Company”) is an international provider of portable storage solutions with 81 locations throughout the United States and the United Kingdom. The Company leases and sells portable storage containers, trailers and mobile offices. The Company has a diversified customer base, including large national and small local companies in the construction, services, retail, manufacturing, transportation, utilities and government sectors. These customers use portable storage solutions for a variety of purposes, including storing and transporting inventory, equipment and documents and providing temporary office space.
The consolidated financial statements include the accounts of the Company and its subsidiaries, including its operating company in the United Kingdom, Ravenstock MSG Limited. All significant intercompany accounts and transactions have been eliminated in consolidation.
Recent Developments
Acquisition.On August 1, 2006, Holdings, a newly formed entity controlled by Welsh Carson and its affiliates, acquired control of the capital stock of the Company in exchange for consideration of approximately $606,000, subject to certain adjustments and excluding fees and expenses. The Acquisition was financed with $362,000 of debt financing and $263,876 of cash contributions from Welsh Carson and its affiliates and certain members of the Company’s management in exchange for common equity. A portion of the consideration was used to repay in full the BofA Credit Facility, to repay in full all of the Company’s Subordinated Notes and to redeem all of its issued and outstanding preferred stock.
The $362,000 of debt financing consists of the following:
| | (i) | $200,000 of 9 ¾% Senior Notes issued by the Company and its wholly-owned subsidiary Mobile Storage Group, Inc. on the closing date of the Acquisition; and |
| |
| | (ii) | a New Credit Facility, which includes a £85,000 U.K. borrowing sublimit. A total of $162,000 was drawn on the New Credit Facility on the closing date, including £37,716 drawn under the Company’s U.K. borrowing sublimit. The New Credit Facility matures on August 1, 2011. |
In connection with the consummation of the Acquisition in August 2006, the Company (i) forgave $527 of receivables due from affiliates and (ii) redeemed all of its issued and outstanding preferred stock, including all preferred dividend payments due which totaled $28,854. Additionally, the Acquisition resulted in a change of control, as defined by the Company’s 2005 stock option plan, which resulted in the immediate vesting of all outstanding and unvested options under the plan.
The Acquisition was accounted for by Holdings using the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” Accordingly, the total purchase price, including related fees and expenses, are to be allocated to the acquired net assets based upon their estimated fair value as of August 1, 2006. In addition, the Securities and Exchange Commission requires the application of “push down accounting” in business combinations where the ownership of an entity has changed. Thus, the post-Acquisition financial statements of the Company, as the acquired entity, reflect the new basis of accounting in accordance with Staff Accounting Bulletin, which we refer to as “SAB” 54.
F-8
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Business and Basis of Presentation (continued)
Recent Developments (continued)
Acquisition (continued)All references in the consolidated financial statements and the accompanying notes thereto to events or activities which occurred prior to the completion of the Acquisition on August 1, 2006 relate to Mobile Services Group, Inc., as the predecessor company (the “Predecessor”). All references in the consolidated financial statements and the accompanying notes thereto to events or activities which occurred after completion of the Acquisition on August 1, 2006 relate to Mobile Services Group, Inc., as the successor company (the “Successor”).
The following table summarizes the fair values assigned to the Company’s assets acquired and liabilities assumed in connection with the Acquisition on August 1, 2006. The fair values allocated to other intangible assets were determined based on a third-party valuation performed as of August 1, 2006.
| Accounts receivable | | $ | 28,403 |
| Inventories | | | 13,189 |
| Lease equipment | | | 278,347 |
| Property and equipment | | | 18,367 |
| Goodwill | | | 291,343 |
| Other intangible assets | | | 75,902 |
| Deferred financing costs | | | 16,171 |
| Prepaid expenses and other assets | | | 8,694 |
| Total assets acquired | | | 730,416 |
| |
| Accounts payable and accrued liabilities | | | 32,674 |
| New Credit Facility | | | 162,000 |
| 9 ¾% Senior Notes due 2014 | | | 200,000 |
| Other debt obligations | | | 3,135 |
| Deferred income taxes | | | 68,731 |
| Total liabilities assumed | | | 466,540 |
| |
| Net assets acquired | | $ | 263,876 |
The Company incurred the following costs as a result of the Acquisition and related financing transactions which were recorded by the Predecessor as of August 1, 2006. These costs are referred to herein collectively as the “Acquisition Transaction Expenses.”
| Write-off of deferred financing costs related to the BofA Credit Facility | | $ | 8,144 |
| Payment of original issue discount upon early redemption of Subordinated Notes | | | 8,250 |
| Prepayment penalty upon early redemption of Subordinated Notes | | | 3,200 |
| Compensation costs related to the acceleration of vesting of stock options | | | 2,341 |
| Write-off of receivables due from CMSI Capital Holdings, Inc | | | 527 |
| Professional fees and other transaction expenses | | | 17,844 |
| Acquisition Transaction Expenses | | $ | 40,306 |
Upon consummation of the Acquisition on August 1, 2006, the Company paid $6,091 and $6,000 in transaction fees to its former majority stockholder and Welsh Carson, respectively. These amounts are included in the Acquisition Transaction Expenses, except for $3,461 of the fees paid to Welsh Carson which are included in our net deferred financing costs as of December 31, 2006.
F-9
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Business and Basis of Presentation (continued)
Pro Forma Financial Information (unaudited)
The following unaudited pro forma information has been prepared as if the Acquisition had occurred as of the beginning of the periods presented for the Predecessor. The pro forma adjustments for the years ended December 31, 2004 and 2005, and the period from January 1, 2006 to August 1, 2006, include estimated adjustments for the following items: a) a decrease to depreciation and amortization expense which amounts to $1,414, $1,647 and $1,037, respectively, related to adjustments to the depreciation of lease equipment resulting from the adjustment to fair value at the date of the Acquisition as well as adjustments to amortization expense resulting from the amortization of other intangible assets recorded in connection with the Acquisition b) the elimination of management fees charged by the Company’s former majority stockholder which amounts to $422, $400 and $329, respectively; c) an increase to interest expense based on the Company’s capitalization structure upon consummation of the Acquisition which amounts to $6,691, $6,730 and $4,587, respectively; and d) the related income tax effects of such pro forma adjustments resulting in a decrease to the income tax provision of $1,942 and $1,873, and an increase in the income tax benefit of $1,288, respectively.
| | Predecessor |
| | | | | | | | Period from |
| | | | | | | | January 1 to |
| | Year ended December 31, | | August 1, |
| | 2004 | | 2005 | | 2006 |
| | | | | | (Unaudited) | | | | |
| Total revenues | | $ | 156,376 | | $ | 179,001 | | $ | 113,498 | |
| Income (loss) from continuing operations before | | | | | | | | | | |
| provision (benefit) for income taxes | | $ | 1,053 | | $ | 7,004 | | $ | (34,269 | ) |
| Net income (loss) | | $ | 907 | | $ | 4,409 | | $ | (23,404 | ) |
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company leases and sells portable storage containers, trailers and mobile offices to its customers. Leases to customers are generally on a short-term basis qualifying as operating leases. The aggregate lease payments are generally less than the purchase price of the equipment. Revenue is recognized as earned in accordance with the lease terms established by the lease agreements and when collectibility is reasonably assured. Revenue from sales of equipment is recognized upon delivery and when collectibility is reasonably assured.
Revenue from sales and lease equipment unit delivery, pick-up and repositioning is recognized when these services are provided. Costs associated with these activities are included in trucking and yard costs in the consolidated statements of operations.
Customers in the United States are often billed in advance for each 28-day period and customers in the United Kingdom are generally billed monthly in arrears. Deferred revenue is recorded for the unearned portion of pre-billed lease income.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
F-10
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
Financial instruments potentially exposing the Company to concentrations of credit risk consist primarily of receivables. Concentrations of credit risk with respect to receivables are limited due to the large number of customers spread over a large geographic area in many industry segments. The Company’s receivables related to sales are generally secured by the equipment sold to the customer. The Company’s receivables related to its lease operations are primarily small month-to-month amounts generated from both off-site and on-site customers. The Company has the right to repossess lease equipment for nonpayment.
Inventories
Inventories consist primarily of equipment held for sale and are carried at the lower of cost or market. Cost of equipment is determined when acquired and is based on the specific-identification method.
Lease Equipment
Lease equipment consists primarily of portable storage containers, trailers and mobile offices used by the Company in its lease fleet. The lease equipment is recorded at cost and depreciated on a straight-line basis, containers over the estimated life of 20 years and trailers and portable offices (steel and timber) over the estimated lives of 15 years (prior to January 1, 2005). Salvage values are determined when the lease equipment is acquired and are typically 70% for containers, 50% for trailers (prior to January 1, 2005) and 10% for portable offices.
Effective January 1, 2005, the Company changed its estimate of salvage value for trailers from 50% to 10% and changed the estimated life of portable timber offices from 15 to 10 years. These changes in estimates resulted from the Company’s historical experience with this equipment and are consistent with industry practice. These changes in estimates were implemented on a prospective basis and resulted in additional depreciation expense in 2005 of approximately $4,600. Management believes the estimated salvage values do not cause carrying values to exceed net realizable values. Normal repairs and maintenance to lease equipment are expensed as incurred.
Property and Equipment
Property and equipment is stated at cost. Depreciation for property and equipment is recorded on the straight-line method over their estimated useful lives of five years. Transportation equipment is generally depreciated over five to seven years with a salvage value of 20%. Leasehold improvements and buildings are depreciated on the straight-line method over their estimated useful lives of 12 years, or the term of the underlying lease agreement, whichever is shorter.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with acquisitions. The Company accounts for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires these assets be reviewed for impairment at least annually. The Company tests goodwill for impairment using the two-step process prescribed in SFAS 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The Company performed the required impairment tests of goodwill and indefinite-lived intangible assets as of October 1, 2004, 2005 and 2006. The Company has determined that no impairments related to goodwill and indefinite-lived intangible assets exist.
F-11
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Goodwill and Other Intangible Assets (continued)
Other intangible assets with finite useful lives are amortized over their useful lives. Intangible assets with finite useful lives consist primarily of noncompete covenants and customer relationships which are amortized over the expected period of benefit which range from five to ten years. Noncompete covenants are amortized using the straight-line method while customer relationships are amortized using an accelerated method that reflects the related customer attrition rates.
In connection with the Acquisition completed on August 1, 2006, the Company allocated $16,293 to customer relationships with a useful life of 10 years, and $59,609 to trade names based on a third-party valuation of the estimated fair values of these intangible assets as of August 1, 2006. At December 31, 2005 and 2006, noncompete covenants amounted to $1,284 and $1,263, respectively, net of accumulated amortization of $7,448 and $369, respectively. Customer relationships amounted to $3,684 and $16,105 as of December 31, 2005 and 2006, respectively, net of accumulated amortization of $3,895 and $759, respectively. The amortization of intangible assets resulted in amortization expense which amounted to $2,130, $1,649, $945 and $1,222 for the years ended December 31, 2004 and 2005, the period from January 1, 2006 to August 1, 2006 and the period from August 2, 2006 to December 31, 2006, respectively. Included in other intangible assets are indefinite-lived trade names which amount to $5,066 and $60,587 as of December 31, 2005 and 2006, respectively.
The estimated future amortization expense of intangible assets as of December 31, 2006, is as follows:
| 2007 | | $ | 3,251 |
| 2008 | | | 3,539 |
| 2009 | | | 2,010 |
| 2010 | | | 1,410 |
| 2011 and thereafter | | | 7,158 |
| | | $ | 17,368 |
Impairment of Long-Lived Assets
The Company periodically reviews for the impairment of long-lived assets and certain identifiable intangibles and assesses when an event or change in circumstances indicates the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and the eventual disposition is less than its carrying amount. As discussed in Note 14, the Company recorded an asset impairment charge of $9,155 in 2004.
Accrued Liabilities
Included in accrued liabilities in the accompanying consolidated balance sheets are deferred revenues totaling $1,334 and $1,446 as of December 31, 2005 and 2006, respectively, resulting from advanced billings for a portion of the Company’s customers.
F-12
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the Company using available market information valuation methodologies. Management uses judgment in estimating fair values. Accordingly, the estimates may not be indicative of the amounts that the Company could realize in a current market exchange.
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair values. The carrying amounts of the Company’s borrowings under the Subordinated Notes and the revolving credit facility approximate fair value based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements or since the floating rates change with market conditions. The estimated fair value of the Company’s 9 ¾% Senior Notes is approximately $209,500 at December 31, 2006 based on quoted market prices.
Income Taxes
Deferred income taxes have been provided for using the liability method. Deferred tax assets and liabilities are determined based upon the difference between the financial statement bases and tax bases of assets and liabilities as measured by the enacted tax rate which will be in effect when these differences are expected to reverse. These differences are primarily related to depreciation. Foreign taxes are provided based on the tax rates of the country of the subsidiary.
Advertising
The Company expenses costs of advertising as incurred, except for direct-response advertising which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of costs incurred for directory listings which guide customers to the Company. The capitalized costs are amortized over the periods the directories are current and no longer than 12 months.
Advertising costs of approximately $770 and $870 were capitalized and included in prepaid expenses and other assets at December 31, 2005 and 2006, respectively, and will be amortized over the related direct response marketing period. Advertising expenses totaled $2,326, $2,553, $1,766 and $1,221 for the years ended December 31, 2004 and 2005, and for the period from January 1 to August 1, 2006 and August 2 to December 31, 2006, respectively.
Foreign Currency Translation
The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during each fiscal quarter. Translation adjustments arising from differences in exchange rates from period to period are included in the accumulated other comprehensive income (loss) in stockholders’ equity.
Ravenstock MSG Limited has outstanding U.S. dollar-denominated short-term intercompany borrowings of $1,547 at December 31, 2005 and short-term intercompany receivables of $1,745 as of December 31, 2006. These borrowings are remeasured at each reporting date with the impact of the remeasurement being recorded in foreign currency translation gain in the consolidated statements of income.
F-13
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Employee Stock Options
On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” SFAS 123(R), which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” SFAS 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and amends FASB Statement No. 95, “Statement of Cash Flows.” SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values. The fair value of employee stock options is estimated using option-pricing models adjusted for the unique characteristics of those instruments. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.
As required, the Company adopted SFAS 123(R) effective on January 1, 2006, using the modified-prospective transition method. Under this method, the compensation cost is recognized for awards granted and for awards modified, repurchased or cancelled in the period after adoption. Compensation cost is also recognized for the unvested portion of awards granted prior to adoption. Prior year financial statements are not restated. The Company recorded $3,041and $1,662 in compensation expense relating to the adoption of SFAS 123(R), of which $2,341 is included in Acquisition Transaction Expenses during the period January 1, 2006 to August 1, 2006, while the remaining amounts are included in selling, general and administrative expense, during the period from January 1, 2006 to August 1, 2006 and the period from August 2, 2006 to December 31, 2006, respectively. This resulted in a decrease of $3,041 and $1,662 to income from operations and approximately $1,210 and $660 to net income during the period from January 1, 2006 to August 1, 2006 and the period from August 2, 2006 to December 31, 2006, respectively. The adoption of SFAS 123(R) had no effect on the Company’s cash flows.
For the years ended December 31, 2004 and 2005, the Company accounted for stock-based compensation grants under the intrinsic value method in accordance with APB 25, whereby no compensation expense is recognized in the consolidated financial statements for stock-based employee awards if the exercise price is equal to or greater than the fair value of the Company’s common stock on the date of grant. Under the fair-value accounting method, the fair value of each option granted has been estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| | | 2004 | | 2005 |
| Risk-free interest rate range | | 3.3%-3.8% | | 3.8%-4.2% |
| Expected holding period | | 5 years | | 5 years |
| Dividend rate | | 0.0% | | 0.0% |
| Volatility | | 37.6% | | 34.0% |
Under these assumptions, the weighted-average fair value of the stock option grants during the years ended December 31, 2004 and 2005, was $231.32 and $325.98 per share, respectively. These amounts are amortized over the vesting period of the options. If the Company had accounted for stock options consistent with the fair-value accounting method, utilizing the assumptions detailed above, the Company’s net income would have been as follows:
| | Predecessor |
| | Year Ended December 31, |
| | 2004 | | 2005 |
| Net income as reported | | $ | 3,820 | | | $ | 7,219 |
| Pro forma stock-based employee compensation (cost) | | | | | | | |
| benefit under fair-value method | | | (773 | ) | | | 1,041 |
| Pro forma net income | | $ | 3,047 | | | $ | 8,260 |
The Company’s stock option plan was terminated on August 1, 2006 in connection with the consummation of the Acquisition. See “Stock Option Plans” in Note 10 for additional information.
F-14
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Comprehensive Income
For the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and from August 2, 2006 to December 31, 2006, comprehensive income (loss) amounted to $9,840, $(953), $(15,976) and $9,568, respectively. The difference between net income and comprehensive income relates to the Company’s change in foreign currency translation adjustments.
Segment Information
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS 131), establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Based on the provisions of SFAS 131 and the manner in which the chief operating decision maker analyzes the business, the Company has determined it does not have separately reportable operating segments.
Estimates and Assumptions
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In May 2005, the FASB issued Statement No. 154 (SFAS No. 154),Accounting Changes and Error Corrections, which replaced APB Opinion No. 20,Accounting Changes, and FASB Statement No. 3,Reporting Changes in Interim Financial Statements. SFAS No. 154 requires retrospective application to prior periods’ financial statements of voluntary changes in accounting principles and changes required by a new accounting standard when the standard does not include specific transition provisions. Previous guidance required most voluntary changes in accounting principles to be recognized by including in net income of the period in which the change was made the cumulative effect of changing to the new accounting principle. SFAS No. 154 carries forward existing guidance regarding the reporting of the correction of an error and a change in accounting estimate. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Adoption of SFAS No. 154 as of January 1, 2006 did not have a material effect on the Company’s consolidated financial statements.
In July 2006, FASB released Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting and disclosure for uncertainty in income taxes recognized in financial statements. FIN 48 prescribes a comprehensive accounting model for recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is in the process of evaluating the impact of the adoption of FIN 48 on its consolidated financial statements.
On September 15, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition and disclosure purposes under generally accepted accounting principles. SFAS No. 157 will require the fair value of an asset or liability to be based on a market based measure which will reflect the credit risk of the company. SFAS No. 157 will also require expanded disclosure requirements which will include the methods and assumptions used to measure fair value and the effect of fair value measures on earnings. SFAS No. 157 will be applied prospectively and will be effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact SFAS No. 157 will have on its consolidated financial statements.
F-15
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
3. Acquisitions
The Company acquired the assets of certain companies during the years ended December 31, 2004 and 2005, the period from January 1, 2006 to August 1, 2006 and the period from August 2, 2006 to December 31, 2006 for an aggregate purchase price of $10,737, $4,890, $8,757 and $12,155, respectively, which the Company paid in cash. The acquisitions were accounted for as purchases and the acquired assets were recorded at their estimated fair values on the date of acquisition. The accompanying consolidated financial statements include the operations of the acquired companies from the respective dates of acquisition.
The fair value of the assets acquired and liabilities assumed has been allocated as follows:
| | | Predecessor | | Successor |
| | | | | | | | | | Period from | | Period from |
| | | | | | | | | | January 1 to | | August 2 to |
| | Year Ended December 31, | | August 1, | | December 31, |
| | 2004 | | 2005 | | 2006 | | 2006 |
|
| Accounts receivable | $ | 327 | | | $ | 28 | | | $ | — | | | $ | — |
| Lease equipment | | 6,615 | | | | 3,178 | | | | 6,948 | | | | 7,386 |
| Property and equipment | | 277 | | | | 194 | | | | 233 | | | | — |
| Non-compete agreements | | 3,283 | | | | 25 | | | | 100 | | | | — |
| Goodwill | | 617 | | | | 1,159 | | | | 1,009 | | | | 3,701 |
| Customer relationships | | 284 | | | | 448 | | | | 675 | | | | 1,068 |
| Accrued liabilities | | (666 | ) | | | (142 | ) | | | (208 | ) | | | — |
| | | $ | 10,737 | | | $ | 4,890 | | | $ | 8,757 | | | $ | 12,155 |
The following unaudited pro forma information presents a summary of results of operations of the Company as if the transactions described above had occurred at the beginning of the respective year of acquisition. The pro forma results adjust for the amortization of other intangible assets, the increase in interest expense and certain income tax adjustments. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates or of future results of operations of the combined entities.
| | Predecessor | | Successor |
| | | | | | | | Period from | | Period from |
| | | | | | | | January 1 to | | August 2 to |
| | Year Ended December 31, | | August 1, | | December 31, |
| | 2004 | | 2005 | | 2006 | | 2006 |
| | | | | | (Unaudited) | | | |
| Revenues | | $ | 158,305 | | $ | 179,816 | | $ | 113,672 | | | $ | 91,693 |
| Income (loss) from operations | | $ | 28,645 | | $ | 40,959 | | $ | (15,525 | ) | | $ | 23,530 |
| Net income (loss) | | $ | 4,125 | | $ | 7,608 | | $ | (21,415 | ) | | $ | 5,685 |
F-16
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
4. Property and Equipment
Property and equipment consist of the following:
| | Predecessor | | Successor |
| | December 31, |
| | 2005 | | 2006 |
| Land and building | | $ | 3,874 | | | $ | 3,876 | |
| Transportation equipment | | | 17,986 | | | | 13,603 | |
| Furniture, fixtures and office equipment | | | 8,496 | | | | 3,465 | |
| Leasehold improvements | | | 2,315 | | | | 646 | |
| | | | 32,671 | | | | 21,590 | |
| Less accumulated depreciation | | | (15,094 | ) | | | (1,617 | ) |
| | | $ | 17,577 | | | $ | 19,973 | |
5. Financing
Senior Revolving Credit Facility
In December 2005, the Company refinanced its borrowings under its existing credit facility by entering into a new 5-year agreement with Bank of America (the “BofA Credit Facility”) as agent for a bank syndicate, up to a maximum of $260,000. The BofA Credit Facility consisted entirely of revolving loans which had no scheduled principal payments prior to maturity in December 2009. As a result of the debt refinancing completed in December 2005, the Company recorded a loss on the early extinguishment of debt of $780 for the write-off of the remaining unamortized deferred loan costs and prepayment penalties relating to its existing credit facility.
Borrowings under the BofA Credit Facility were secured by a lien on substantially all of the Company’s assets and were based on a borrowing base amount determined by a percentage of the collateral value of the lease equipment, accounts receivable and inventories. The lease equipment was required to be appraised at least annually and the advance rates were determined annually at the time of the appraisal. The advance rate for the lease fleet assets was calculated by dividing the lesser of (1) 85% of Orderly Liquidation Value as determined by the annual appraisal or (2) 90% of net book value by the net book value of total rental fleet for the U.S. or U.K. As of December 31, 2005, the lease equipment advance rate for the U.S. was 89.7% and for the U.K. was 84.5% . Interest was payable monthly or with respect to LIBOR borrowings, either quarterly or on the last day of the applicable interest period. The revolving loans bore interest at U.S. LIBOR or U.K. LIBOR plus 1.75% to 3.0% or at U.S. Base Rate or U.K. Base Rate, as defined, plus 0% to 1.25% . At December 31, 2005, substantially all outstanding revolving loans bore interest at U.S. LIBOR or U.K. LIBOR plus 2.5% . At December 31, 2005, the Company’s weighted-average interest rate on outstanding obligations under the BofA Credit Facility was 7.22% .
The BofA Credit Facility required the Company to meet specific financial ratios and placed various restrictions on the Company, including the incurrence of additional debt, specified limits on capital expenditures, the amounts of dividends which can be paid by the Company, and does not allow for dividends to be paid on common stock. The Company was in compliance with such ratios and restrictions described above as of December 31, 2005.
Borrowings under the BofA Credit Facility were fully repaid and the facility was extinguished in connection with the Acquisition on August 1, 2006. As a result, the Company wrote-off $8,144 in remaining unamortized deferred loan costs related to the BofA Credit Facility (included in Acquisition Transaction Expenses).
F-17
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
5. Financing (continued)
Senior Revolving Credit Facility (continued)
In connection with the Acquisition on August 1, 2006, the Company entered into the New Credit Facility. The New Credit Facility is a senior secured, asset-based revolving credit facility providing for loans of up to $300,000, subject to specified borrowing base formulas, of which the dollar equivalent of up to £85,000 can be drawn in borrowings denominated in British pounds and may be borrowed (and re-borrowed) by Ravenstock for use in the Company’s U.K. operations. The Company may also incur up to $50,000 of additional senior secured debt under the New Credit Facility, subject to the consent of the joint-lead arrangers under the New Credit Facility, the availability of lenders willing to provide such incremental debt and compliance with the covenants and certain other conditions under the New Credit Facility.
On August 1, 2006, $162,000 was drawn on the New Credit Facility, including £37,716 drawn under the U.K. borrowing sublimit. As of December 31, 2006, the Company’s aggregate borrowing capacity pursuant to the borrowing base under the New Credit Facility amounts to $127,733, net of the $172,267 in outstanding borrowings as of December 31, 2006.
Borrowings under the New Credit Facility are secured by a lien on substantially all of the Company’s assets. Such borrowings are governed by a borrowing base, with respect to the Company’s domestic assets (including assets of subsidiary guarantors) and the assets of Ravenstock (including assets of subsidiary guarantors), respectively, consisting of the sum of (i) 85.0% of eligible accounts receivable,plus (ii) the lesser of 100.0% of the net book value and 90.0% of the net orderly liquidation value of eligible lease fleet assets,plus (iii) the lesser of 90.0% of the net book value of and 80.0% of the net orderly liquidation value of eligible machinery and equipment,plus (iv) (A) until an acceptable appraisal is received, 90% of the net book value of eligible inventory (subject to an aggregate $25,000 inventory sublimit) or (B) after an acceptable appraisal is received, the lesser of (x) 90% of the net book value of eligible inventory and (y) 90% of the net orderly liquidation value of eligible inventory (subject to an aggregate $25,000 inventory sublimit, provided that the inventory sublimit may be increased up to $35,000 subject to the completion of an appraisal of the eligible inventory). The borrowing base is also subject to certain other adjustments and reserves to be determined by the administrative agent for the lenders under the New Credit Facility. In general, borrowings under the New Credit Facility bear interest based, at the Company’s option, on either the agent lender’s base rate or U.S. or U.K. LIBOR, in each case plus a margin. The applicable margin on base rate borrowings can range from 0.5% to 1.25% and 1.5% to 2.25% for LIBOR borrowings based on the Company’s ratio of total debt to EBITDA at the time of determination. As of December 31, 2006, the interest rate for borrowings under the New Credit Facility is based on the agent lender’s base rate plus 1.0% or LIBOR plus 2.0% . The Company’s weighted-average interest rate on outstanding obligations under the New Credit Facility as of December 31, 2006 is 7.20% .
The New Credit Facility places various restrictions on the Company, including the incurrence of additional debt, specified limits on capital expenditures and acquisitions, the amounts of dividends which can be paid by the Company, and does not allow for dividends to be paid on common stock. In addition, the New Credit Facility requires the Company to meet specific financial ratios if the total aggregate borrowing capacity falls below $30,000. Had the Company been subject to such financial ratios as of December 31, 2006, the Company would have been in full compliance.
The Company had $4,350 in letters of credit outstanding at December 31, 2006 related to its workers compensation and automobile insurance policies. There were no outstanding draws against such letters of credit as of December 31, 2006.
F-18
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
5. Financing (continued)
Subordinated Notes
The Company’s subordinated notes, as amended (the “Subordinated Notes”), consisted of notes held by The Northwestern Mutual Life Insurance Company, Caisse de depot et placement du Quebec, John Hancock Life Insurance Company and its affiliates and New York Life Insurance Company. The Subordinated Notes were issued in principal amounts of $25,000 and $55,000 in the years ended December 31, 2001 and 2002, respectively, and bore interest at 12% per annum with interest payable semiannually. The notes required a lump-sum principal repayment in an amount equal to $50 for each $1,000 principal amount of the notes then outstanding on December 30, 2008, with the remaining principal due June 29, 2010. The Subordinated Notes are included on the consolidated balance sheet as of December 31, 2005 net of the unamortized original issue discount of $9,158.
Amortization of the original issue discount amounted to $1,144, $1,317 and $908 for the years ended December 31, 2004 and 2005, and the period from January 1, 2006 to August 1, 2006, respectively, and is included in interest expense in the consolidated statements of operations. The Subordinated Notes placed various restrictions on the Company and required the Company to meet specific financial ratios in order to incur additional debt, subject to certain exceptions.
In connection with the Acquisition on August 1, 2006, the Company paid $83,200 to redeem all of the Subordinated Notes at face value, including $3,200 of prepayment penalties plus all accrued interest through the redemption date.
Senior Notes
In connection with the Acquisition, the Company issued $200,000 of Senior Notes on August 1, 2006. Interest on the Senior Notes accrues at a rate of 9¾% per annum and is payable on February 1 and August 1 of each year, beginning on February 1, 2007. The Senior Notes mature on August 1, 2014. The Senior Notes place various restrictions on the Company, including the incurrence of additional debt, sales of assets and payment of dividends. The Company is in compliance with the debt covenants under the Senior Notes as of December 31, 2006. The Senior Notes are senior unsecured obligations of the Company and are guaranteed by all of the Company’s current and future domestic subsidiaries, except for certain immaterial domestic subsidiaries. Such notes and guarantees are effectively junior to all of the Company’s secured indebtedness to the extent of the collateral securing such indebtedness. The Senior Notes are not guaranteed by any of the Company’s foreign subsidiaries and are structurally subordinated to the indebtedness and other liabilities of such non-guarantor subsidiaries. See Note 16 – Condensed Consolidating Financial Information, for financial information regarding the Company’s guarantor and non-guarantor subsidiaries.
Other Notes Payable
Included in capital leases and other notes payable are certain notes payable with a principal balance outstanding of $1,657 and $1,301 as of December 31, 2005 and 2006, respectively. Future payments on other notes payable obligations are as follows: 2007 – $861; 2008 – $66; 2009 – $71; 2010 – $78; 2011 – $84; Thereafter – 141.
F-19
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
6. Obligations Under Capital Leases
Included in capital leases and other notes payable are certain capital lease obligations expiring through 2011 with various leasing companies with a principal balance outstanding of $2,381 and $1,967 as of December 31, 2005 and 2006, respectively. The lease agreements provide the Company with a purchase option at the end of the lease term based on an agreed-upon percentage of the original cost of the equipment. These leases have been capitalized using interest rates ranging from approximately 5.5% to 8.5% . The leases are secured by the equipment under lease. At December 31, 2005 and 2006, equipment acquired under capital leases and related accumulated depreciation are included in lease equipment, net.
Future payments under capitalized lease obligations are as follows:
| 2007 | | $ | 574 | |
| 2008 | | | 555 | |
| 2009 | | | 534 | |
| 2010 | | | 472 | |
| 2011 | | | 201 | |
| Total payments | | | 2,336 | |
| Less amounts representing interest | | | (369 | ) |
| | | $ | 1,967 | |
7. Income Taxes
The provision (benefit) for income taxes from continuing operations is as follows:
| | | Predecessor | | Successor |
| | | | | | | | | | January 1 to | | August 2 to |
| | Year ended December 31, | August 1, | | December 31, |
| | 2004 | | | 2005 | | 2006 | | 2006 |
| Current: | | | | | | | | | | | | | | |
| Federal | | $ | — | | | $ | — | | $ | — | | | $ | — |
| State | | | 122 | | | | 220 | | | 193 | | | | 46 |
| Foreign | | | 478 | | | | 816 | | | 953 | | | | 601 |
| | | | 600 | | | | 1,036 | | | 1,146 | | | | 647 |
| Deferred: | | | | | | | | | | | | | | |
| Federal | | | 1,989 | | | | 2,770 | | | (9,336 | ) | | | 1,962 |
| State | | | (105 | ) | | | 365 | | | (986 | ) | | | 217 |
| Foreign | | | 55 | | | | 481 | | | (64 | ) | | | 186 |
| | | | 1,939 | | | | 3,616 | | | (10,386 | ) | | | 2,365 |
| | | $ | 2,539 | | | $ | 4,652 | | $ | (9,240 | ) | | $ | 3,012 |
Foreign income from continuing operations before provision for taxes for foreign operations is $2,519, $5,225, $824 and $2,987 for the years ended December 31, 2004 and 2005, and the period from January 1, 2006 to August 1, 2006 and from August 2, 2006, to December 31, 2006, respectively.
F-20
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
7. Income Taxes (continued)
The net deferred tax asset and liability in the accompanying consolidated balance sheets consist of the following components:
| | Predecessor | | Successor |
| | December 31, |
| | 2005 | | 2006 |
| Deferred tax liabilities: | | | | | | | | |
| Depreciation | | $ | 66,014 | | | $ | 72,971 | |
| Goodwill and other intangible assets | | | 2,697 | | | | 30,771 | |
| Transaction gain | | | 2,782 | | | | 2,782 | |
| Other | | | 1,285 | | | | 671 | |
| Total deferred tax liabilities | | | 72,778 | | | | 107,195 | |
| Deferred tax assets: | | | | | | | | |
| Tax loss carryforward | | | 18,798 | | | | 30,491 | |
| Stock compensation | | | 1,502 | | | | 648 | |
| Intangibles amortization | | | 2,556 | | | | 2,664 | |
| Other | | | 1,131 | | | | 1,651 | |
| Subtotal deferred tax assets | | | 23,987 | | | | 35,454 | |
| Valuation allowance | | | (2,164 | ) | | | (662 | ) |
| Total deferred tax assets. | | | 21,823 | | | | 34,792 | |
| Net deferred tax liability | | $ | 50,955 | | | $ | 72,403 | |
A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate from continuing operations before discontinued operations for the periods indicated below is as follows (percentages shown reflect income tax expense (benefit)):
| | Predecessor | | Successor |
| | | | | | | | Period from | | Period from |
| | | | | | | | January 1 to | | August 2 to |
| | Year Ended December 31, | | August 1, | | December 31, |
| | 2004 | | | 2005 | | | 2006 | | 2006 |
| Statutory federal rate | | 35.0 | % | | 35.0 | % | | (35.0 | %) | | 35.0 | % |
| Permanent differences | | 0.2 | | | 0.3 | | | 11.8 | | | (0.3 | ) |
| Foreign permanent and tax rate differences | | 2.8 | | | (1.7 | ) | | — | | | (1.3 | ) |
| State taxes, net of federal benefit | | 5.3 | | | 4.2 | | | (2.5 | ) | | 3.1 | |
| Valuation allowance | | (5.3 | ) | | — | | | (4.0 | ) | | — | |
| Other, net | | 5.0 | | | 2.0 | | | (0.1 | ) | | 0.2 | |
| | | 43.0 | % | | 39.8 | % | | (29.8 | %) | | 36.7 | % |
The Company has federal net operating loss carryforwards at December 31, 2006 of approximately $79,000 which expire in various amounts in 2012 through 2024. At December 31, 2006, the Company has state operating loss carryovers of approximately $63,000 that expire in various amounts beginning after January 2007. In addition, as of December 31, 2006, the Company has approximately $6,000 of federal and state net operating losses related to stock-based compensation for which benefits of future deductions will be recorded as additional paid in capital when realized as reductions in taxes payable.
F-21
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
7. Income Taxes (continued)
As a result of stock ownership changes, the Company has undergone changes in ownership which limit the amount of net operating loss currently available as a deduction. Such limitation could result in the Company being required to pay tax currently because only a portion of the net operating loss is available. Management believes the Company will fully realize its federal net operating loss carryforwards and a valuation reserve was not necessary at December 31, 2006.
A valuation allowance has been established for certain deferred tax assets that management has determined will likely not be realized. The valuation allowance is primarily related to certain state net operating loss carryforwards.
8. Related-Party Transactions
Transactions with MSG WC Holdings Corp. (“Holdings”)
The Company has various transactions with its parent company, Holdings, which are recorded through intercompany accounts. These amounts are payable on a current basis and are not subject to interest charges.
During the period from August 2, 2006 to December 31, 2006, Holdings made grants of options purchase 19,104 shares of Holdings’ stock to the Company’s key employees and certain members of the Company’s Board of Directors under the MSG WC Holdings Corp. 2006 Stock Option Plan. Holdings has allocated compensation expense to the Company of $1,662 during the period from August 2, 2006 to December 31, 2006 in connection with the issuance of these options which are included in the Company’s selling, general and administrative expenses.
Holdings Subordinated Notes
On August 1, 2006, Holdings issued $90,000 in aggregate principal amount of subordinated notes to WCAS Capital Partners IV, L.P., an affiliate of Welsh Carson, and a strategic co-investor. The proceeds from the Holdings subordinated notes were contributed to the Company in the form of common equity capital and were used to fund the Acquisition. The Holdings subordinated notes mature on February 1, 2015 and are structurally and contractually subordinated to the New Credit Facility and the Senior Notes. Such subordinated notes are unsecured and do not possess the benefit of a guarantee. The Holdings subordinated notes accrue interest on a payment-in-kind, non-cash basis at 12.0% per annum for the first two years. Thereafter, interest will be payable quarterly at 10.0% per annum subject to the terms of the New Credit Facility and the Senior Notes. If Holdings is prohibited from making cash interest payments, interest will continue to accrue on a payment-in-kind, non-cash basis at 12.0% per annum.
Consulting Agreement with Board Member
The Company has a consulting agreement with its former chief executive officer and current board member for his consulting services relating to strategic business plans, acquisitions, corporate finance transactions and customer and vendor relationships. This agreement is automatically renewed annually but may be terminated by providing written notice within 90 days of its anniversary date in January of each year. This agreement may also be terminated on the basis of death, disability or cause. Fees and expenses paid in connection with this agreement amounted to $158, $158, $92 and $66 for the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and from August 2, 2006 to December 31, 2006, respectively.
Transactions with PV Realty LLC
The Company leases property from PV Realty, LLC, a company controlled by the Company’s i) former chief executive officer and current board member; and ii) former executive vice-president and current board member. The Company pays annual rent of $78 through August 31, 2008. The Company believes the price and terms of this lease are at fair market value.
F-22
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
8. Related-Party Transactions (continued)
Fees to Former Majority Stockholder
In June 2000, the Company began to pay management fees to its then majority stockholder under a management agreement for financial advisory services including reviewing the business, operations and prospects of the Company with management, assisting in acquisitions, and finding and negotiating with potential financing sources. The term of the management agreement was for three years with automatic one-year extensions unless terminated with six months notice by the Board of Directors or the stockholders after the initial three-year term. Fees were payable in advance in semiannual installments on January 1 and July 1 of each year. Fees and expenses incurred in connection with the management agreement amounted to $422, $400, $329 and $29 for the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and from August 2, 2006 to December 31, 2006, respectively. This management agreement was terminated on August 1, 2006 in connection with the Acquisition.
Transactions with CMSI Capital Holdings, Inc. (CMSI)
The Company made advances to CMSI, a corporation controlled by the Company’s i) former chief executive officer and current board member; and ii) former executive vice-president and current board member, which were used by CMSI to fund its expenses. At December 31, 2005, CMSI owed the Company $527 under a short term, non-interest bearing advance. The advance is due on demand and included in due from affiliates. As noted in Note 1 – Recent Developments, the advances were forgiven by the Company in August 2006 in conjunction with the Acquisition and are included in Acquisition Transaction Expenses.
9. Redeemable Preferred Stock
The Company issued Series E redeemable convertible preferred stock in 2000 through 2001 with a par value of $20 per share. The Series E preferred stock was nonvoting and was convertible into shares of common stock, determined by dividing the liquidation preference of the preferred shares by the offering price upon an underwritten public offering of shares of common stock. The remaining shares were mandatorily redeemable on the tenth anniversary of the issuance of such shares or anytime at the option of the Company. Thus, outstanding Series E preferred stock is mandatorily redeemable beginning in 2010.
In connection with the consummation of the Acquisition in August 2006, the Company redeemed all of its issued and outstanding Series E preferred stock, totaling 238,000 shares, including all cumulated dividends, for $5,601 in cash.
10. Stockholders’ Equity
Preferred Stock
The Company had several series of redeemable preferred stock including Series B, C, G, H, I, J, and K. Such preferred stock were nonvoting except as required by law. Series B, C and G shares were nonconvertible. Series H, I, and J shares were automatically convertible into shares of common stock six months and one day subsequent to the completion of an initial public offering of the Company’s common stock. Series K shares were automatically convertible into shares of common stock, determined by dividing the liquidation preference of the preferred shares by the offering price upon an underwritten public offering of shares of common stock. For certain series of preferred stock, the holder was entitled to receive an annual dividend payable in cash. Such earned participating dividends were cumulative from the date first earned until paid or until the respective shares were redeemed by the Company.
F-23
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
10. Stockholders’ Equity (continued)
Preferred Stock (continued)
The par value and annual dividend rate of each series of preferred stock is as follows:
| | | Par Value | | Annual |
| Series | | (per share) | | Dividend % |
| B | | | $ | 10.0 | | | 10.0% |
| C | | | $ | 20.0 | | | 8.5% |
| G | | | $ | 0.1 | | | None |
| H | | | $ | 10.0 | | | 10.0% |
| I | | | $ | 10.0 | | | 10.0% |
| J | | | $ | 10.0 | | | 10.0% |
| K | | | $ | 0.1 | | | None |
In connection with the consummation of the Acquisition in August 2006, the Company redeemed all of its issued and outstanding Series B, C, G, H, I, J and K preferred stock, totaling 1,933,000 shares, including all accumulated dividends, for $24,512, including $1,089 that remains accrued at December 31, 2006.
Stock Option Plans
In July 2000, the Company adopted the Mobile Storage Group, Inc. 2000 Stock Option Plan (the “2000 Plan”). Under the 2000 Plan, options to purchase a maximum of 21,000 shares of the Company’s common stock could be granted to employees and directors. All options under the 2000 Plan were classified as nonqualified. Options granted vested on an accelerated basis if certain performance measures were met; however, if not met, all options granted vested after nine years of service from the grant date. The 2000 Plan was administered by the Board of Directors, and options had a life of ten years from the date of grant.
On March 22, 2002, the Board of Directors approved a new stock option incentive plan (the “2002 Plan”) for the Company. The terms of the plan generally provided for grants with an exercise price of not less than 100% of the fair market value of the common stock as determined by the Board of Directors on the date of grant. The grants vested on a graded basis, as specified in each option agreement, and terminated no later than ten years after the date of grant. Each of the Company’s employees and directors were eligible to be considered for the grant of awards under the 2002 Plan. A maximum of 33,049 shares of common stock could have been issued under the 2002 Plan, as amended.
On February 8, 2005, the Board of Directors approved a new stock option incentive plan (the “2005 Plan”) for the Company. All options issued and outstanding under the 2000 and 2002 Plans were assumed under the 2005 Plan with the date of grant, exercise price and vesting of each option remaining unchanged.
The following summarizes the activities under the Company’s stock option plan:
| | | Number | | | | Weighted-Average |
| | | of | | Exercise Price | | Exercise Price |
| | Shares | | Per Share | | Per Share |
| Options outstanding, January 1, 2004 | | 34,139 | | | $403.55 – 1,181.70 | | $700.32 |
| Options granted | | 4,300 | | | $600.00 | | $600.00 |
| Options forfeited | | (6,274 | ) | | $403.55 – 1,181.70 | | $698.96 |
| Options outstanding, December 31, 2004 | | 32,165 | | | $403.55 – 1,181.70 | | $687.18 |
| Options granted | | 4,300 | | | $750.00 – 935.00 | | $879.07 |
| Options forfeited | | (9,301 | ) | | $403.55 – 1,181.70 | | $824.90 |
| Options outstanding, December 31, 2005 | | 27,164 | | | $403.55 – 1,181.70 | | $670.39 |
| Options forfeited | | (572 | ) | | $403.55 – 1,181.70 | | $773.58 |
| Options exercised | | (26,592 | ) | | $403.55 – 1,181.70 | | $668.17 |
| | Options outstanding, August 1, 2006 | | — | | | | | |
F-24
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
10. Stockholders’ Equity (continued)
Stock Option Plans (continued)
In connection with the consummation of the Acquisition, a change of control, as defined by the 2005 Plan, occurred which resulted in the immediate vesting of all outstanding and unvested options under the 2005 Plan. This immediate vesting resulted in a pre-tax compensation charge recorded by the Predecessor as Acquisition Transaction Expenses of $2,341. The 2005 Plan was terminated on August 1, 2006 in conjunction with the Acquisition.
11. Commitments and Contingencies
The Company leases its corporate offices and various yard facilities under noncancelable operating leases with terms expiring at various dates through December 2014. Rent expense under these agreements was approximately $4,720, $5,254, $3,435 and $2,681for the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and from August 2, 2006 to December 31, 2006, respectively.
Future minimum payments under all noncancelable operating leases with terms in excess of one year at December 31, 2006, are as follows:
| 2007 | | $ | 5,804 |
| 2008 | | | 4,068 |
| 2009 | | | 3,267 |
| 2010 | | | 2,260 |
| 2011 and thereafter | | | 4,196 |
| | | $ | 19,595 |
The Company is party to various legal proceedings arising in the normal course of business. The Company carries insurance, subject to deductibles under the specific policies, to protect against losses from legal claims. The Company is not currently party to any material legal proceedings nor, to its knowledge, are any significant legal proceedings threatened.
12. Pension Plans
The Company sponsors a defined contribution pension plan covering substantially all full-time employees. The defined contribution plan is designed to provide tax deferred retirement benefits to the Company’s employees. The Company historically did not make matching contributions. During 2004, the Company changed the plan to provide matching contributions whereby the Company matches 25% of the participant contributions up to 4% of the employees’ compensation during the plan year. The total contribution to the plan was approximately $59, $92, $61 and $51 for the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and from August 2, 2006 to December 31, 2006, respectively.
The Company’s subsidiaries in the United Kingdom contribute to a group personal pension plan. Amounts contributed, which were not significant for any period presented, represent the Company’s obligation under the terms of the plan.
F-25
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
13. Foreign Operations
Condensed financial information of the Company’s foreign subsidiaries, the operations of which are principally located in the United Kingdom, at December 31, 2005 and 2006, and for the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and August 2, 2006 to December 31, 2006, before eliminations of intercompany balances and profits, is as follows:
| | | Predecessor | | Successor |
| | December 31, |
| | 2005 | | 2006 |
| Assets | | | | | | |
| Lease equipment, net | | $ | 87,899 | | $ | 104,949 |
| Goodwill, net | | | 46,696 | | | 32,443 |
| All other assets | | | 25,292 | | | 47,760 |
| | | $ | 159,887 | | $ | 185,152 |
| Liabilities and stockholders’ equity | | | | | | |
| Accounts payable | | $ | 6,914 | | $ | 5,752 |
| Notes payable | | | 59,582 | | | 73,627 |
| Other liabilities | | | 21,349 | | | 34,240 |
| Stockholders’ equity | | | 72,042 | | | 71,533 |
| | | $ | 159,887 | | $ | 185,152 |
| | | Predecessor | | Successor |
| | | | | | | | Period from | | Period from |
| | | | | | | | January 1 to | | August 2 to |
| | Year Ended December 31, | | August 1, | | December 31, |
| | 2004 | | 2005 | | 2006 | | 2006 |
| Revenues and Net Income | | | | | | | | | | | | |
| Total revenues | | $ | 65,935 | | $ | 72,750 | | $ | 42,342 | | $ | 30,799 |
| Costs and expenses | | | 64,112 | | | 69,042 | | | 41,773 | | | 28,747 |
| Net income | | $ | 1,823 | | $ | 3,708 | | $ | 569 | | $ | 2,052 |
14. Asset Impairment
The Company recorded an impairment charge of $9,155 in 2004. The charge resulted from the identification of specific lease fleet and property and equipment to be held for sale and whose value is impaired based upon a comparison of estimated fair market value based upon current estimates of selling prices of scrap values, less selling costs, compared to the carrying value. These assets were disposed of throughout fiscal 2005 and are included in sales and cost of sales in the accompanying consolidated statements of operations, generating proceeds of $1,024.
15. Discontinued Operations
Effective during the fourth quarter of 2006, the Company committed to plans to sell its Action Trailer Sales division (“Action”), thereby meeting the held-for-sale criteria set forth in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Action is comprised of three locations in the U.S. which are primarily engaged in the business of buying and selling used trailers. The Company expects to complete the sale of Action before December 31, 2007.
F-26
MOBILE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
15. Discontinued Operations (continued)
In accordance with SFAS No. 144 and EITF Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations,” the net assets of Action are presented separately as assets held for sale in the accompanying consolidated balance sheets and the operating results of Action are presented as discontinued operations in the accompanying consolidated statements of operations and cash flows. Prior period financial results were reclassified to conform to these changes in presentation. The Company has not recorded a gain or loss related to such discontinued operations because no gain or loss is expected upon completion of the sale of Action.
The results of discontinued operations for the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and August 2, 2006 to December 31, 2006 are summarized as follows:
| | | Predecessor | | Successor |
| | | | | | | | Period from | | Period from |
| | | | | | | | January 1 to | | August 2 to |
| | Year ended December 31, | | August 1, | | December 31, |
| | 2004 | | 2005 | | 2006 | | 2006 |
| Revenues | | $ | 16,112 | | $ | 18,059 | | $ | 17,019 | | $ | 7,336 |
| Income before provision for income taxes | | | 751 | | | 306 | | | 562 | | | 313 |
| Provision for income taxes | | | 300 | | | 122 | | | 225 | | | 125 |
| Net income | | $ | 451 | | $ | 184 | | $ | 337 | | $ | 188 |
Interest expense allocated to Action’s discontinued operations for the years ended December 31, 2004 and 2005, and the periods from January 1, 2006 to August 1, 2006 and from August 2, 2006 to December 31, 2006 was based upon a ratio of (i) the net assets of the discontinued operations compared to (ii) the overall net assets plus debt obligations of the Company and amounted to $386, $431, $349 and $182, respectively.
At December 31, 2006, assets held for sale and discontinued operations consist of the following:
| | Successor |
| | December 31, |
| | 2006 |
| Accounts receivable, net | | $ | 901 |
| Inventories | | | 6,366 |
| Other assets | | | 300 |
| | | $ | 7,567 |
16. Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information for: (a) Mobile Services Group, Inc. (the “Parent”) on a stand-alone basis as a co-issuer of the Company’s 9 ¾% Senior Notes; (b) on a combined basis, the subsidiary co-issuer and guarantors of the Company’s 9 ¾% Senior Notes (“Subsidiary Co-Issuer and Guarantors”) which include Mobile Storage Group, Inc., a co-issuer of the 9 ¾% Senior Notes and A Better Mobile Storage Company and Mobile Storage Group (Texas), LP, guarantors with nonmaterial assets and operations; (c) on a combined basis, the Non-Guarantor Subsidiaries, which include Ravenstock MSG Limited, MSG Investments, Inc., Mobile Storage U.K. Finance LP, LIKO Luxembourg International s.a.r.1., Ravenstock Tam (Hire) Limited and certain other nonmaterial, inactive entities based in the United Kingdom. Separate financial statements of the Subsidiary Guarantors are not presented because the guarantee by each 100% owned Subsidiary Guarantor is full and unconditional, joint and several, and management has determined that such information is not material to investors. In lieu thereof, the Company includes the following:
F-27
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2006
(Successor)
(Dollars in thousands)
| | | | | Subsidiary | | | | | | | | | | |
| | | | | Co-Issuer and | | Non-Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| |
| Assets: | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | $ | 1,469 | | | $ | — | | $ | — | | | $ | 1,469 |
| Accounts receivable, net | | | — | | | 15,601 | | | | 14,244 | | | — | | | | 29,845 |
| Inventories | | | — | | | 5,255 | | | | 295 | | | — | | | | 5,550 |
| Lease equipment, net | | | — | | | 196,681 | | | | 104,949 | | | — | | | | 301,630 |
| Property and equipment, net | | | — | | | 15,793 | | | | 4,180 | | | — | | | | 19,973 |
| Investment in subsidiary | | | 274,496 | | | 71,533 | | | | — | | | (346,029 | ) | | | — |
| Intercompany balances | | | — | | | (1,745 | ) | | | 1,745 | | | — | | | | — |
| Goodwill | | | — | | | 264,411 | | | | 32,443 | | | — | | | | 296,854 |
| Other intangible assets, net | | | — | | | 52,561 | | | | 25,394 | | | — | | | | 77,955 |
| Other assets | | | — | | | 18,686 | | | | 1,902 | | | — | | | | 20,588 |
| Assets held for sale and discontinued | | | | | | | | | | | | | | | | | |
| operations | | | — | | | 7,567 | | | | — | | | — | | | | 7,567 |
| Total assets | | $ | 274,496 | | $ | 647,812 | | | $ | 185,152 | | $ | (346,029 | ) | | $ | 761,431 |
| |
| Liabilities: | | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | — | | $ | 5,417 | | | $ | 5,752 | | $ | — | | | $ | 11,169 |
| Total debt | | | — | | | 301,908 | | | | 73,627 | | | — | | | | 375,535 |
| Other liabilities | | | — | | | 23,945 | | | | 3,883 | | | — | | | | 27,828 |
| Deferred income taxes | | | — | | | 42,046 | | | | 30,357 | | | — | | | | 72,403 |
| Total liabilities | | | — | | | 373,316 | | | | 113,619 | | | — | | | | 486,935 |
| Stockholders’ equity: | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 274,496 | | | 274,496 | | | | 71,533 | | | (346,029 | ) | | | 274,496 |
| Total liabilities and stockholders’ equity | | $ | 274,496 | | $ | 647,812 | | | $ | 185,152 | | $ | (346,029 | ) | | $ | 761,431 |
F-28
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2005
(Predecessor)
(Dollars in thousands)
| | | | | | Subsidiary | | | | | | | | | | | |
| | | | | | Co-Issuer and | | Non-Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| |
| Assets: | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | | $ | — | | $ | — | | | $ | — | | | $ | — |
| Accounts receivable, net | | | — | | | | 16,050 | | | 12,292 | | | | — | | | | 28,342 |
| Inventories | | | — | | | | 9,647 | | | 415 | | | | — | | | | 10,062 |
| Lease equipment, net | | | — | | | | 169,599 | | | 87,899 | | | | — | | | | 257,498 |
| Property and equipment, net | | | — | | | | 13,732 | | | 3,845 | | | | — | | | | 17,577 |
| Investment in subsidiary | | | 89,494 | | | | 72,042 | | | — | | | | (161,536 | ) | | | — |
| Intercompany balances | | | (3,451 | ) | | | 4,998 | | | (1,547 | ) | | | — | | | | — |
| Goodwill | | | — | | | | 30,520 | | | 46,696 | | | | — | | | | 77,216 |
| Other intangible assets, net | | | — | | | | 2,375 | | | 7,660 | | | | — | | | | 10,035 |
| Other assets | | | — | | | | 11,804 | | | 2,627 | | | | — | | | | 14,431 |
| Total assets | | $ | 86,043 | | | $ | 330,767 | | $ | 159,887 | | | $ | (161,536 | ) | | $ | 415,161 |
| |
| Liabilities: | | | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | — | | | $ | 4,823 | | $ | 6,914 | | | $ | — | | | $ | 11,737 |
| Total debt | | | — | | | | 190,665 | | | 59,582 | | | | — | | | | 250,247 |
| Other liabilities | | | — | | | | 14,423 | | | 1,380 | | | | — | | | | 15,803 |
| Deferred income taxes | | | (376 | ) | | | 31,362 | | | 19,969 | | | | — | | | | 50,955 |
| Total liabilities | | | (376 | ) | | | 241,273 | | | 87,845 | | | | — | | | | 328,742 |
| Mandatorily redeemable preferred stock | | | 5,555 | | | | — | | | — | | | | — | | | | 5,555 |
| Stockholders’ equity: | | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 80,864 | | | | 89,494 | | | 72,042 | | | | (161,536 | ) | | | 80,864 |
| Total liabilities and stockholders’ equity | | $ | 86,043 | | | $ | 330,767 | | $ | 159,887 | | | $ | (161,536 | ) | | $ | 415,161 |
F-29
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Period from August 2, 2006 to December 31, 2006
(Successor)
(Dollars in thousands)
| | | | | | Subsidiary | | | | | | | | | | | |
| | | | | | Co-Issuer and | | Non-Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| |
| Revenues: | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | | $ | 48,815 | | $ | 26,781 | | | $ | — | | | $ | 75,596 |
| Sales | | | — | | | | 10,794 | | | 4,018 | | | | — | | | | 14,812 |
| Total revenues | | | — | | | | 59,609 | | | 30,799 | | | | — | | | | 90,408 |
| |
| Costs and expenses: | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 7,139 | | | 3,150 | | | | — | | | | 10,289 |
| Trucking and yard costs | | | — | | | | 11,870 | | | 11,183 | | | | — | | | | 23,053 |
| Depreciation and amortization | | | — | | | | 4,914 | | | 3,309 | | | | — | | | | 8,223 |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | |
| expenses | | | — | | | | 17,647 | | | 8,150 | | | | — | | | | 25,797 |
| Interest expense, net | | | — | | | | 12,693 | | | 2,139 | | | | — | | | | 14,832 |
| Other expense (income)—net | | | 29 | | | | 103 | | | (119 | ) | | | — | | | | 13 |
| Income (loss) before provision for income | | | | | | | | | | | | | | | | | | |
| taxes, discontinued operations and | | | | | | | | | | | | | | | | | | |
| equity in earnings of consolidated | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | (29 | ) | | | 5,243 | | | 2,987 | | | | — | | | | 8,201 |
| Provision (benefit) for income taxes | | | (9 | ) | | | 2,086 | | | 935 | | | | — | | | | 3,012 |
| Income (loss) from discontinued | | | | | | | | | | | | | | | | | | |
| operations | | | — | | | | 188 | | | — | | | | | | | | 188 |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | 5,397 | | | | 2,052 | | | — | | | | (7,449 | ) | | | — |
| Net income | | $ | 5,377 | | | $ | 5,397 | | $ | 2,052 | | | $ | (7,449 | ) | | $ | 5,377 |
F-30
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Period From January 1, 2006 to August 1, 2006
(Predecessor)
(Dollars in thousands)
| | | | | | | | | | Non- | | | | | | | |
| | | | | | Subsidiary | | Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
|
| Revenues: | | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | | $ | 56,911 | | | $ | 34,177 | | | $ | — | | $ | 91,088 | |
| Sales | | | — | | | | 14,245 | | | | 8,165 | | | | — | | | 22,410 | |
| Total revenues | | | — | | | | 71,156 | | | | 42,342 | | | | — | | | 113,498 | |
| | | | | | | | | | | | | | | | | | | | |
|
| Costs and expenses: | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 9,701 | | | | 6,522 | | | | — | | | 16,223 | |
| Trucking and yard costs | | | — | | | | 13,998 | | | | 13,967 | | | | — | | | 27,965 | |
| Depreciation and amortization | | | — | | | | 7,125 | | | | 5,066 | | | | — | | | 12,191 | |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | | |
| expenses | | | — | | | | 21,881 | | | | 10,222 | | | | — | | | 32,103 | |
| Acquisition transaction expenses | | | — | | | | 37,564 | | | | 2,742 | | | | — | | | 40,306 | |
| Interest expense, net | | | — | | | | 12,352 | | | | 3,205 | | | | — | | | 15,557 | |
| Other expense (income) – net | | | 329 | | | | 78 | | | | (206 | ) | | | — | | | 201 | |
| Income (loss) before provision (benefit) | | | | | | | | | | | | | | | | | | | |
| for income taxes and equity in earnings | | | | | | | | | | | | | | | | | | | |
| of consolidated subsidiaries | | | (329 | ) | | | (31,543 | ) | | | 824 | | | | — | | | (31,048 | ) |
| Provision (benefit) for income taxes | | | (132 | ) | | | (9,363 | ) | | | 255 | | | | — | | | (9,240 | ) |
| Income from discontinued operations | | | — | | | | 337 | | | | — | | | | — | | | 337 | |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | (21,274 | ) | | | 569 | | | | — | | | | 20,705 | | | — | |
| Net income (loss) | | $ | (21,471 | ) | | $ | (21,274 | ) | | $ | 569 | | | $ | 20,705 | | $ | (21,471 | ) |
F-31
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31, 2005
(Predecessor)
(Dollars in thousands)
| | | | | | Subsidiary | | | | | | | | |
| | | | | | Co-Issuer and | | Non-Guarantor | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| |
| Revenues: | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | | $ | 85,739 | | | $ | 57,678 | | $ | — | | | $ | 143,417 |
| Sales | | | — | | | | 20,512 | | | | 15,072 | | | — | | | | 35,584 |
| Total revenues | | | — | | | | 106,251 | | | | 72,750 | | | — | | | | 179,001 |
| |
| Costs and expenses: | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 14,906 | | | | 12,208 | | | — | | | | 27,114 |
| Trucking and yard costs | | | — | | | | 22,296 | | | | 22,468 | | | — | | | | 44,764 |
| Depreciation and amortization | | | — | | | | 11,274 | | | | 8,197 | | | — | | | | 19,471 |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | |
| expenses | | | 150 | | | | 30,167 | | | | 16,592 | | | — | | | | 46,909 |
| Interest expense, net | | | — | | | | 19,938 | | | | 6,311 | | | — | | | | 26,249 |
| Other expense (income)—net | | | 400 | | | | (711 | ) | | | 1,749 | | | 1,369 | | | | 2,807 |
| Income (loss) before provision for income | | | | | | | | | | | | | | | | | | |
| taxes and equity in earnings of | | | | | | | | | | | | | | | | | | |
| consolidated subsidiaries | | | (550 | ) | | | 8,381 | | | | 5,225 | | | (1,369 | ) | | | 11,687 |
| Provision (benefit) for income taxes | | | (220 | ) | | | 3,355 | | | | 1,517 | | | — | | | | 4,652 |
| Income from discontinued operations | | | — | | | | 184 | | | | — | | | — | | | | 184 |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | 8,918 | | | | 3,708 | | | | — | | | (12,626 | ) | | | — |
| Net income (loss) | | $ | 8,588 | | | $ | 8,918 | | | $ | 3,708 | | $ | (13,995 | ) | | $ | 7,219 |
F-32
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31, 2004
(Predecessor)
(Dollars in thousands)
| | | | | | Subsidiary | | | | | | | | | |
| | | | | | Co-Issuer and | | Non-Guarantor | | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| | | | | | | | | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | | $ | 73,307 | | | $ | 53,733 | | $ | — | | | $ | 127,040 | |
| Sales | | | — | | | | 17,134 | | | | 12,202 | | | — | | | | 29,336 | |
| Total revenues | | | — | | | | 90,441 | | | | 65,935 | | | — | | | | 156,376 | |
| | | | | | | | | | | | | | | | | | | | |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 12,315 | | | | 9,321 | | | — | | | | 21,636 | |
| Trucking and yard costs | | | — | | | | 19,753 | | | | 21,058 | | | — | | | | 40,811 | |
| Depreciation and amortization | | | — | | | | 7,821 | | | | 6,681 | | | — | | | | 14,502 | |
| Selling, general and administrative expenses . | | | 71 | | | | 23,682 | | | | 18,376 | | | — | | | | 42,129 | |
| Charge for rental fleet impairment | | | — | | | | 6,121 | | | | 3,034 | | | — | | | | 9,155 | |
| Interest expense, net | | | — | | | | 17,053 | | | | 6,043 | | | — | | | | 23,096 | |
| Other expense (income)—net | | | 192 | | | | 44 | | | | (1,097 | | | — | | | | (861 | ) |
| Income (loss) before provision for income | | | | | | | | | | | | | | | | | | | |
| taxes and equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | (263 | ) | | | 3,652 | | | | 2,519 | | | — | | | | 5,908 | |
| Provision for income taxes | | | (105 | ) | | | 1,948 | | | | 696 | | | — | | | | 2,539 | |
| Income from discontinued operations | | | — | | | | 451 | | | | — | | | — | | | | 451 | |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | 3,978 | | | | 1,823 | | | | — | | | (5,801 | ) | | | — | |
| Net income (loss) | | $ | 3,820 | | | $ | 3,978 | | | $ | 1,823 | | $ | (5,801 | ) | | $ | 3,820 | |
F-33
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from August 2, 2006 to December 31, 2006
(Successor)
(Dollars in thousands)
| | | | | Subsidiary | | | | | | | | | | | |
| | | | | Co-Issuer | | Non- | | | | | | | |
| | | | | and | | Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| |
| Net cash provided by operating activities | | $ | — | | $ | 21,986 | | | $ | 2,616 | | | $ | — | | $ | 24,602 | |
| |
| Investing activities: | | | | | | | | | | | | | | | | | | |
| Acquisition of Predecessor | | | — | | | (317,138 | ) | | | — | | | | — | | | (317,138 | ) |
| Acquisition payment of Predecessor | | | | | | | | | | | | | | | | | | |
| transaction expenses | | | — | | | (17,162 | ) | | | — | | | | — | | | (17,162 | ) |
| Other acquisitions, net | | | — | | | (12,155 | ) | | | — | | | | — | | | (12,155 | ) |
| Purchases of lease equipment, net | | | — | | | (12,579 | ) | | | (4,904 | ) | | | — | | | (17,483 | ) |
| (Purchases) sales of property and equipment | | | — | | | (2,236 | ) | | | 38 | | | | — | | | (2,198 | ) |
| Net cash used in investing activities | | | — | | | (361,270 | ) | | | (4,866 | ) | | | — | | | (366,136 | ) |
| |
| Financing activities: | | | | | | | | | | | | | | | | | | |
| Payments on capital leases and notes | | | | | | | | | | | | | | | | | | |
| payable | | | — | | | (28 | ) | | | (180 | ) | | | — | | | (208 | ) |
| Borrowings under New Credit Facility | | | — | | | 98,713 | | | | 69,879 | | | | — | | | 168,592 | |
| Redemption of Subordinated Notes | | | — | | | (83,200 | ) | | | — | | | | — | | | (83,200 | ) |
| Issuance of 9 ¾% Senior Notes due 2014 | | | — | | | 200,000 | | | | — | | | | — | | | 200,000 | |
| Payments under BofA Credit Facility | | | — | | | (122,929 | ) | | | (69,349 | ) | | | — | | | (192,278 | ) |
| Equity contributions | | | — | | | 263,266 | | | | — | | | | — | | | 263,266 | |
| Deferred financing costs | | | — | | | (15,069 | ) | | | (244 | ) | | | — | | | (15,313 | ) |
| |
| Net cash provided by financing activities | | | — | | | 340,753 | | | | 106 | | | | — | | | 340,859 | |
| Effect of foreign exchange rate changes on | | | | | | | | | | | | | | | | | | |
| cash | | | — | | | — | | | | 2,144 | | | | — | | | 2,144 | |
| Net increase in cash | | | — | | | 1,469 | | | | — | | | | — | | | 1,469 | |
| Cash and cash equivalents at beginning of | | | | | | | | | | | | | | | | | | |
| period | | | — | | | — | | | | — | | | | — | | | — | |
| Cash and cash equivalents at end of period | | $ | — | | $ | 1,469 | | | $ | — | | | $ | — | | $ | 1,469 | |
F-34
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period January 1, 2006 to August 1, 2006
(Predecessor)
(Dollars in thousands)
| | | | | Subsidiary | | | | | | | | | | | |
| | | | | Co-Issuer | | Non- | | | | | | | |
| | | | | and | | Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| |
| Net cash provided by operating activities | | $ | — | | $ | 16,525 | | | $ | 4,775 | | | $ | — | | $ | 21,300 | |
| |
| Investing activities: | | | | | | | | | | | | | | | | | | |
| Acquisitions, net of cash acquired | | | — | | | (8,757 | ) | | | — | | | | — | | | (8,757 | ) |
| Purchases of lease equipment, net | | | — | | | (9,018 | ) | | | (8,091 | ) | | | — | | | (17,109 | ) |
| Purchases of property and equipment | | | — | | | (1,142 | ) | | | (1,274 | ) | | | — | | | (2,416 | ) |
| Net cash used in investing activities | | | — | | | (18,917 | ) | | | (9,365 | ) | | | — | | | (28,282 | ) |
| |
| Financing activities: | | | | | | | | | | | | | | | | | | |
| Borrowings under BofA Credit Facility | | | — | | | 6,181 | | | | 4,879 | | | | — | | | 11,060 | |
| Payments on capital leases and notes | | | | | | | | | | | | | | | | | | |
| payable | | | — | | | (524 | ) | | | (38 | ) | | | — | | | (562 | ) |
| Redemption of Predecessor common stock | | | — | | | (8 | ) | | | — | | | | — | | | (8 | ) |
| Deferred financing costs | | | — | | | (1,160 | ) | | | — | | | | — | | | (1,160 | ) |
| Predecessor redemption of preferred stock | | | — | | | (938 | ) | | | — | | | | — | | | (938 | ) |
| Predecessor preferred stock dividends paid | | | — | | | (1,159 | ) | | | — | | | | — | | | (1,159 | ) |
| Net cash provided by financing activities | | | — | | | 2,392 | | | | 4,841 | | | | — | | | 7,233 | |
| Effect of foreign exchange rate changes on | | | | | | | | | | | | | | | | | | |
| cash | | | — | | | — | | | | (251 | ) | | | — | | | (251 | ) |
| Net increase in cash | | | — | | | — | | | | — | | | | — | | | — | |
| Cash and cash equivalents at beginning of | | | | | | | | | | | | | | | | | | |
| period | | | — | | | — | | | | — | | | | — | | | — | |
| Cash and cash equivalents at end of period | | $ | — | | $ | — | | | $ | — | | | $ | — | | $ | — | |
F-35
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2005
(Predecessor)
(Dollars in thousands)
| | | | | Subsidiary | | | | | | | | | | | |
| | | | | Co-Issuer | | Non- | | | | | | | |
| | | | | and | | Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
| |
| Net cash provided by operating activities | | $ | — | | $ | 20,418 | | | $ | 14,777 | | | $ | — | | $ | 35,195 | |
| |
| Investing activities: | | | | | | | | | | | | | | | | | | |
| Acquisitions, net of cash acquired | | | — | | | (4,890 | ) | | | — | | | | — | | | (4,890 | ) |
| Purchases of lease equipment, net | | | — | | | (22,848 | ) | | | (9,618 | ) | | | — | | | (32,466 | ) |
| Purchases of property and equipment | | | — | | | (4,717 | ) | | | (1,549 | ) | | | — | | | (6,266 | ) |
| Proceeds from assets held for sale | | | — | | | 414 | | | | 610 | | | | — | | | 1,024 | |
| Net cash used in investing activities | | | — | | | (32,041 | ) | | | (10,557 | ) | | | — | | | (42,598 | ) |
| |
| Financing activities: | | | | | | | | | | | | | | | | | | |
| Deferred financing costs | | | — | | | (1,309 | ) | | | (1,291 | ) | | | — | | | (2,600 | ) |
| Payments on debt | | | — | | | (97,985 | ) | | | (60,558 | ) | | | — | | | (158,543 | ) |
| Issuance of debt and borrowings under | | | | | | | | | | | | | | | | | | |
| credit facility | | | — | | | 115,938 | | | | 59,575 | | | | — | | | 175,513 | |
| Repurchase of common stock | | | — | | | (52 | ) | | | — | | | | — | | | (52 | ) |
| Issuance of preferred stock, net | | | — | | | (2,501 | ) | | | — | | | | — | | | (2,501 | ) |
| Preferred stock dividends paid | | | — | | | (2,468 | ) | | | — | | | | — | | | (2,468 | ) |
| Net cash provided by (used in) financing | | | | | | | | | | | | | | | | | | |
| activities | | | — | | | 11,623 | | | | (2,274 | ) | | | — | | | 9,349 | |
| Effect of foreign exchange rate changes | | | | | | | | | | | | | | | | | | |
| on cash | | | — | | | — | | | | (1,946 | ) | | | — | | | (1,946 | ) |
| Net increase (decrease) in cash | | | — | | | — | | | | — | | | | — | | | — | |
| Cash and cash equivalents at beginning | | | | | | | | | | | | | | | | | | |
| of year | | | — | | | — | | | | — | | | | — | | | — | |
| Cash and cash equivalents at end of year | | $ | — | | $ | — | | | $ | — | | | $ | — | | $ | — | |
F-36
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2004
(Predecessor)
(Dollars in thousands)
| | | | | Subsidiary | | | | | | | | | | | |
| | | | | Co-Issuer and | | Non-Guarantor | | | | | | | |
| | Parent | | Guarantors | | Subsidiaries | | Eliminations | | Consolidated |
|
| Net cash provided by operating activities | | $ | — | | $ | 16,850 | | | $ | 8,117 | | | $ | — | | $ | 24,967 | |
| |
| Investing activities: | | | | | | | | | | | | | | | | | | |
| Acquisitions, net of cash acquired | | | — | | | (7,962 | ) | | | (2,775 | ) | | | — | | | (10,737 | ) |
| Purchases of lease equipment, net | | | — | | | (16,054 | ) | | | (6,606 | ) | | | — | | | (22,660 | ) |
| Purchases of property and equipment | | | — | | | (950 | ) | | | (3,852 | ) | | | — | | | (4,802 | ) |
| Net cash used in investing activities | | | — | | | (24,966 | ) | | | (13,233 | ) | | | — | | | (38,199 | ) |
| |
| Financing activities: | | | | | | | | | | | | | | | | | | |
| Payments on debt | | | — | | | (1,500 | ) | | | (75 | ) | | | — | | | (1,575 | ) |
| Issuance of debt and borrowings under | | | | | | | | | | | | | | | | | | |
| credit facility | | | — | | | 13,262 | | | | 5,580 | | | | — | | | 18,842 | |
| Repurchase of common stock | | | — | | | (354 | ) | | | — | | | | — | | | (354 | ) |
| Issuance of preferred stock, net | | | — | | | (2,691 | ) | | | — | | | | — | | | (2,691 | ) |
| Preferred stock dividends paid | | | — | | | (2,019 | ) | | | — | | | | — | | | (2,019 | ) |
| Net cash provided by financing activities | | | — | | | 6,698 | | | | 5,505 | | | | — | | | 12,203 | |
| Effect of foreign exchange rate changes | | | | | | | | | | | | | | | | | | |
| on cash | | | — | | | — | | | | 76 | | | | — | | | 76 | |
| Net increase (decrease) in cash | | | — | | | (1,418 | ) | | | 465 | | | | — | | | (953 | ) |
| Cash and cash equivalents at beginning | | | | | | | | | | | | | | | | | | |
| of year | | | — | | | 1,418 | | | | (465 | ) | | | — | | | 953 | |
| Cash and cash equivalents at end of year | | $ | — | | $ | — | | | $ | — | | | $ | — | | $ | — | |
F-37
MOBILE SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| | Successor |
|
| | December 31, | | June 30, |
| | 2006 | | 2007 |
| | | | | | | (Unaudited) |
| Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,469 | | | $ | 794 | |
| Accounts receivable, net of allowance for doubtful accounts of $701 and $1,012 at | | | | | | | | |
| December 31, 2006 and June 30, 2007, respectively | | | 29,845 | | | | 29,610 | |
| Inventories | | | 5,550 | | | | 7,568 | |
| Lease equipment, net of accumulated depreciation of $5,384 and $11,656 at December 31, | | | | | | | | |
| 2006 and June 30, 2007, respectively | | | 301,630 | | | | 321,396 | |
| Property and equipment, net of accumulated depreciation of $1,617 and $3,873 | | | | | | | | |
| at December 31, 2006 and June 30, 2007, respectively | | | 19,973 | | | | 23,735 | |
| Goodwill | | | 296,854 | | | | 305,733 | |
| Other intangible assets, net | | | 77,955 | | | | 77,749 | |
| Deferred financing costs, net | | | 15,246 | | | | 13,596 | |
| Prepaid expenses and other assets | | | 5,342 | | | | 7,850 | |
| Assets held for sale and discontinued operations | | | 7,567 | | | | 86 | |
| Total assets | | $ | 761,431 | | | $ | 788,117 | |
| |
| Liabilities: | | | | | | | | |
| Accounts payable | | $ | 11,169 | | | $ | 21,062 | |
| Accrued liabilities | | | 21,830 | | | | 24,115 | |
| Customer deposits | | | 5,998 | | | | 5,797 | |
| Senior revolving credit facility | | | 172,267 | | | | 181,157 | |
| Capital leases and other notes payable | | | 3,268 | | | | 3,039 | |
| 9 ¾% Senior Notes Due 2014 | | | 200,000 | | | | 200,000 | |
| Deferred income taxes | | | 72,403 | | | | 73,981 | |
| Total liabilities | | | 486,935 | | | | 509,151 | |
| Stockholders’ equity: | | | | | | | | |
| Common stock, $0.001 par value, 1,200,000 shares authorized, 246,000 shares issued and | | | | | | | | |
| outstanding at December 31, 2006 and June 30, 2007 | | | 265,538 | | | | 267,160 | |
| Notes receivable from stockholders | | | (610 | ) | | | (419 | ) |
| Accumulated other comprehensive income | | | 4,191 | | | | 6,164 | |
| Retained earnings | | | 5,377 | | | | 6,061 | |
| Total stockholders’ equity | | | 274,496 | | | | 278,966 | |
| Total liabilities and stockholders’ equity | | $ | 761,431 | | | $ | 788,117 | |
See accompanying notes to condensed consolidated financial statements.
F-38
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| (Unaudited) |
| (Dollars in thousands) |
| |
|
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2006 | | 2007 | | 2006 | | 2007 |
| | Predecessor | | Successor | | Predecessor | | Successor |
|
| Revenues: | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | 39,561 | | | $ | 45,561 | | | $ | 77,271 | | | $ | 88,762 | |
| Sales | | | 10,014 | | | | 9,667 | | | | 19,492 | | | | 20,091 | |
| Total revenues | | | 49,575 | | | | 55,228 | | | | 96,763 | | | | 108,853 | |
| Costs and expenses: | | | | | | | | | | | | | | | | |
| Cost of sales | | | 7,189 | | | | 6,780 | | | | 14,077 | | | | 14,182 | |
| Trucking and yard costs | | | 12,168 | | | | 14,306 | | | | 23,679 | | | | 27,801 | |
| Depreciation and amortization | | | 5,269 | | | | 5,335 | | | | 10,434 | | | | 10,126 | |
| Selling, general and administrative | | | | | | | | | | | | | | | | |
| expenses | | | 13,738 | | | | 18,042 | | | | 27,489 | | | | 35,572 | |
| Management fees to majority | | | | | | | | | | | | | | | | |
| stockholder | | | 75 | | | | — | | | | 189 | | | | — | |
| Income from operations | | | 11,136 | | | | 10,765 | | | | 20,895 | | | | 21,172 | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest expense, net | | | (6,712 | ) | | | (9,812 | ) | | | (13,209 | ) | | | (18,630 | ) |
| Foreign currency transaction gain | | | 171 | | | | 471 | | | | 212 | | | | 473 | |
| Other expense | | | (26 | ) | | | (34 | ) | | | (85 | ) | | | (27 | ) |
| Income from continuing operations | | | | | | | | | | | | | | | | |
| before provision for income taxes | | | 4,569 | | | | 1,390 | | | | 7,813 | | | | 2,988 | |
| Provision for income taxes | | | 1,827 | | | | 619 | | | | 3,125 | | | | 1,249 | |
| Income from continuing operations | | | 2,742 | | | | 771 | | | | 4,688 | | | | 1,739 | |
| Income (loss) from operations of | | | | | | | | | | | | | | | | |
| discontinued operations (net of tax | | | | | | | | | | | | | | | | |
| provision (benefit) of $120, ($581), | | | | | | | | | | | | | | | | |
| $209 and ($757) for the three and six | | | | | | | | | | | | | | | | |
| months ended June 30, 2006 and | | | | | | | | | | | | | | | | |
| 2007, respectively | | | 179 | | | | (785 | ) | | | 313 | | | | (1,055 | ) |
| Net income (loss) | | $ | 2.921 | | | $ | (14 | ) | | $ | 5,001 | | | $ | 684 | |
See accompanying notes to condensed consolidated financial statements.
F-39
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| | Predecessor | | Successor |
| | Six Months Ended | | Six Months Ended |
| | June 30, 2006 | | June 30, 2007 |
| Operating activities | | | | | | | | |
| Net income | | $ | 5,001 | | | $ | 684 | |
| (Income) loss from discontinued operations | | | (313 | ) | | | 1,055 | |
| Income from continuing operations | | | 4,688 | | | | 1,739 | |
| Adjustments to reconcile net income from | | | | | | | | |
| continuing operations to net cash provided | | | | | | | | |
| by operating activities: | | | | | | | | |
| Foreign currency transaction gain | | | (212 | ) | | | (473 | ) |
| Provision for doubtful accounts | | | 665 | | | | 776 | |
| Amortization of deferred financing costs | | | 1,809 | | | | 2,013 | |
| Depreciation | | | 9,589 | | | | 8,705 | |
| Amortization | | | 845 | | | | 1,421 | |
| Deferred income taxes | | | 2,405 | | | | (674 | ) |
| Stock-based compensation | | | 600 | | | | 1,622 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (414 | ) | | | (255 | ) |
| Inventories | | | (1,332 | ) | | | (2,897 | ) |
| Prepaid expenses and other assets | | | (1,965 | ) | | | (1,037 | ) |
| Accounts payable and accrued liabilities | | | 4,069 | | | | 12,687 | |
| Net cash provided by operating activities – | | | | | | | | |
| continuing operations | | | 20,747 | | | | 23,627 | |
| Net cash provided by (used in) operating | | | | | | | | |
| activities – discontinued operations | | | (2,572 | ) | | | 7,269 | |
| Net cash provided by operating activities | | | 18,175 | | | | 30,896 | |
| |
| Investing activities | | | | | | | | |
| Acquisitions, net | | | (8,757 | ) | | | (7,184 | ) |
| Purchases of lease equipment | | | (13,599 | ) | | | (22,676 | ) |
| Purchases of property and equipment | | | (2,053 | ) | | | (4,921 | ) |
| Net cash used in investing activities | | | (24,409 | ) | | | (34,781 | ) |
| |
| Financing activities | | | | | | | | |
| Borrowings under BofA Credit Facility | | | 9,154 | | | | — | |
| Borrowings under New Credit Facility | | | — | | | | 15,459 | |
| Payments under New Credit Facility | | | — | | | | (12,484 | ) |
| Payments on capital leases and notes payable | | | (604 | ) | | | (908 | ) |
| Proceeds on note receivable from stockholder | | | — | | | | 202 | |
| Preferred stock dividends paid | | | (1,861 | ) | | | — | |
| Redemption of common stock | | | (8 | ) | | | — | |
| Redemption of preferred stock | | | (235 | ) | | | — | |
| Net cash provided by financing activities | | | 6,446 | | | | 2,269 | |
| Effect of foreign exchange rate changes on cash | | | (212 | ) | | | 941 | |
| Net decrease in cash | | | — | | | | (675 | ) |
| Cash and cash equivalents at beginning of period | | | — | | | | 1,469 | |
| Cash and cash equivalents at end of period | | $ | — | | | $ | 794 | |
See accompanying notes to condensed consolidated financial statements.
F-40
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(Dollars in thousands)
| | Predecessor | | Successor |
| | Six Months Ended | | Six Months Ended |
| | June 30, 2006 | | June 30, 2007 |
|
| Supplemental disclosure of cash flow | | | | | | | | |
| information: | | | | | | | | |
| Cash paid during the period: | | | | | | | | |
| Interest | | $ | 11,743 | | | $ | 16,453 | |
| Income taxes | | $ | 671 | | | $ | 607 | |
| |
| Supplemental disclosure of noncash | | | | | | | | |
| investing and financing activities: | | | | | | | | |
| Details of acquisitions: | | | | | | | | |
| Fair value of assets acquired | | $ | 8,965 | | | $ | 7,483 | |
| Liabilities assumed | | | (208 | ) | | | (299 | ) |
| Net cash paid in connection with acquisitions | | $ | 8,757 | | | $ | 7,184 | |
| |
| Capital lease obligations incurred | | $ | — | | | $ | 589 | |
See accompanying notes to condensed consolidated financial statements.
F-41
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
1. Business and Basis of Presentation
Organization and Business
Mobile Services Group, Inc. (the “Company”) is an international provider of portable storage solutions with 82 locations throughout the United States and the United Kingdom. The Company leases and sells portable storage containers, trailers and mobile offices. The Company has a diversified customer base, including large national and small local companies in the construction, services, retail, manufacturing, transportation, utilities and government sectors. These customers use portable storage solutions for a variety of purposes, including storing and transporting inventory, equipment and documents and providing temporary office space.
The consolidated financial statements include the accounts of the Company and its subsidiaries, including its operating company in the United Kingdom, Ravenstock MSG Limited (“Ravenstock”). All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The results of operations for the period ended June 30, 2007 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2007. These condensed consolidated financial statements should be read in conjunction with the Company’s December 31, 2006 audited consolidated financial statements and accompanying notes thereto.
Recent Developments
On August 1, 2006, MSG WC Holdings Corp. (“Holdings”), a newly formed entity controlled by Welsh, Carson, Anderson & Stowe X, L.P. (“Welsh Carson”) and its affiliates, acquired control of the capital stock of the Company (the “Acquisition”) in exchange for consideration of approximately $606,000, subject to certain adjustments and excluding fees and expenses. The Acquisition was financed with $362,000 of debt financing and $263,876 of cash common equity contributions from Welsh Carson and its affiliates and certain members of the Company’s management. A portion of the consideration was used to repay in full the Company’s existing senior secured credit facility (the “BofA Credit Facility”), to repay in full all of the Company’s subordinated notes (“Subordinated Notes”) and to redeem all of its issued and outstanding preferred stock.
The $362,000 of debt financing consists of the following:
| | (i) | $200,000 of 9¾% Senior Notes due 2014 (the “Senior Notes”) issued by the Company and its wholly-owned subsidiary Mobile Storage Group, Inc. on the closing date of the Acquisition; and |
| |
| | (ii) | a new $300,000 senior secured, asset-based revolving credit facility (the “New Credit Facility”), which includes a £85,000 U.K. borrowing sublimit. A total of $162,000 was drawn on the New Credit Facility on the closing date, including £37,716 drawn under the Company’s U.K. borrowing sublimit. The New Credit Facility matures on August 1, 2011. |
| |
F-42
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
1. Business and Basis of Presentation (continued)
Recent Developments (continued)
In connection with the consummation of the Acquisition in August 2006, the Company (i) forgave $527 of receivables due from affiliates and (ii) redeemed all of its issued and outstanding preferred stock, including all preferred dividend payments due which totaled $28,854. Additionally, the Acquisition resulted in a change of control, as defined by the Company’s 2005 stock option plan, which resulted in the immediate vesting of all outstanding and unvested options under the plan.
The Acquisition was accounted for by Holdings using the purchase method of accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” Accordingly, the total purchase price, including related fees and expenses, are to be allocated to the acquired net assets based upon their estimated fair value as of August 1, 2006. In the second quarter of 2007, the Company made a refinement of its preliminary purchase price allocation, resulting in a $3,480 reduction to the acquired lease equipment and a comparable increase in the acquired goodwill. In addition, the Securities and Exchange Commission requires the application of “push down accounting” in business combinations where the ownership of an entity has changed. Thus, the post-Acquisition financial statements of the Company, as the acquired entity, reflect the new basis of accounting in accordance with Staff Accounting Bulletin (“SAB”) 54, “Push Down Basis of Accounting Required In Certain Limited Circumstances”.
All references in the condensed consolidated financial statements and the accompanying notes thereto to events or activities which occurred prior to the completion of the Acquisition on August 1, 2006 relate to Mobile Services Group, Inc., as the predecessor company (the “Predecessor”). All references in the condensed consolidated financial statements and the accompanying notes thereto to events or activities which occurred after completion of the Acquisition on August 1, 2006 relate to Mobile Services Group, Inc., as the successor company (the “Successor”). See Note 1 in our 2006 audited consolidated financial statements for additional information regarding the Acquisition.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company leases and sells portable storage containers, trailers and mobile offices to its customers. Leases to customers are generally on a short-term basis qualifying as operating leases. The aggregate lease payments are generally less than the purchase price of the equipment. Revenue is recognized as earned in accordance with the lease terms established by the lease agreements and when collectibility is reasonably assured. Revenue from sales of equipment is recognized upon delivery and when collectibility is reasonably assured.
Revenue from sales and lease equipment unit delivery, pick-up and repositioning is recognized when these services are provided. Costs associated with these activities are included in trucking and yard costs in the consolidated statements of income.
Customers in the United States are generally billed in advance for each 28-day period and customers in the United Kingdom are generally billed monthly in arrears. Deferred revenue is recorded for the unearned portion of prebilled lease income.
F-43
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Lease Equipment
Lease equipment consists primarily of portable storage containers, trailers and mobile offices used by the Company in its lease fleet. The lease equipment is recorded at cost and depreciated on a straight-line basis over their estimated useful lives, as follows: containers – 20 years; trailers and portable steel offices – 15 years; portable timber offices – 10 years. Salvage values are determined when the lease equipment is acquired and are typically 70% for containers, and 10% for trailers and portable offices. Management believes the estimated salvage values do not cause carrying values to exceed net realizable values. Normal repairs and maintenance to lease equipment are expensed as incurred.
Property and Equipment
Property and equipment is stated at cost. Depreciation for property and equipment is recorded on the straight-line method over their estimated useful lives of five years. Transportation equipment is generally depreciated over five to seven years with a salvage value of 20%. Leasehold improvements and buildings are depreciated on the straight-line method over their estimated useful lives of 12 years, or the term of the underlying lease agreement, whichever is shorter.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with acquisitions. The Company accounts for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires these assets be reviewed for impairment at least annually. The Company tests goodwill for impairment using the two-step process prescribed in SFAS 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The Company performed the required impairment tests of goodwill and indefinite-lived intangible assets as of October 1, 2004, 2005 and 2006. The Company has determined that no impairments related to goodwill and indefinite-lived intangible assets exist.
Other intangible assets with finite useful lives are amortized over their useful lives. Intangible assets with finite useful lives consist primarily of non-compete covenants and customer relationships which are amortized over the expected period of benefit which range from five to ten years. Non-compete covenants are amortized using the straight-line method while customer relationships are amortized using an accelerated method that reflects the related customer attrition rates. At December 31, 2006 and June 30, 2007, non-compete covenants amounted to $1,263 and $1,081, respectively, net of accumulated amortization of $369 and $686, respectively.
Customer relationships amounted to $16,105 and $15,621 as of December 31, 2006 and June 30, 2007, respectively, net of accumulated amortization of $759 and $1,743, respectively. Amortization expense related to intangible assets was approximately $845 and $1,421 for the six months ended June 30, 2006 and 2007, respectively. Included in other intangible assets are indefinite-lived trade names which amount to $60,587 and $61,047 as of December 31, 2006 and June 30, 2007, respectively.
F-44
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the Company using available market information valuation methodologies. Management uses judgment in estimating fair values. Accordingly, the estimates may not be indicative of the amounts that the Company could realize in a current market exchange.
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair values. The carrying amounts of the Company’s borrowings under the Subordinated Notes and the revolving credit facility approximate fair value based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements or since the floating rates change with market conditions. The estimated fair value of the Company’s 9 ¾% Senior Notes is approximately $213,000 at June 30, 2007 based on quoted market prices.
Deferred Revenues
Included in accrued liabilities in the accompanying consolidated balance sheets are deferred revenues totaling $1,446 as of December 31, 2006 and $2,050 as of June 30, 2007.
Income Taxes
Deferred income taxes have been provided for using the liability method. Deferred tax assets and liabilities are determined based upon the difference between the financial statement basis and tax basis of assets and liabilities as measured by the enacted tax rate which will be in effect when these differences are expected to reverse. These differences are primarily related to depreciation. Foreign taxes are provided based on the tax rates of the country of the subsidiary.
Comprehensive Income
For the six months ended June 30, 2006 and 2007, comprehensive income amounted to $3,443 and $2,657, respectively. The difference between net income and comprehensive income relates to the Company’s change in foreign currency translation adjustments.
Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates.
F-45
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. Upon adoption, the Company recognized no adjustment in its balance of unrecognized tax benefits and no adjustment to retained earnings. As of the date of adoption, the Company’s unrecognized tax benefits totaled approximately $0.6 million, none of which would affect the effective tax rate, if recognized. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense which were insignificant for the six months ended June 30, 2007. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within 12 months of this reporting date. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years before 2003; state and local income tax examinations before 2002; and foreign income tax examinations before 2004 as per Schedule 18 of the Finance Act 1988. There are no income tax examinations currently in process.
In September 2006, the FASB issued SFAS No. 157 Fair Value Measurement (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, but does not require any new fair value measurement. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is in the process of determining the effect, if any, that the adoption of SFAS No. 157 will have on our consolidated financial statements. Because Statement No. 157 does not require any new fair value measurements or re-measurements of previously computed fair values, the Company does not believe the adoption of this Statement will have a material effect on the Company’s results of operations or financial condition.
In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(SFAS No. 159). Under this Standard, we may elect to report financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in value reported in earnings. This election is irrevocable. SFAS No. 159 provides an opportunity to mitigate volatility in reported earnings that is caused by measuring related assets and liabilities that were previously required to use a different accounting method without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for years beginning after November 15, 2007. We are currently evaluating the potential impact of adopting this Standard.
3. Acquisitions
The Company acquired the assets of certain companies during the six months ended June 30, 2006 and 2007 for an aggregate purchase price of $8,757 and $7,184, respectively, which the Company paid in cash. The acquisitions in 2006 and 2007 were accounted for as purchases and the acquired assets were recorded at their estimated fair values on the date of acquisition. The accompanying consolidated financial statements include the operations of the acquired companies from the respective dates of acquisition.
F-46
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
The fair value of the assets acquired and liabilities assumed has been allocated as follows:
| | | | Predecessor | | Successor |
| | | | June 30, 2006 | | June 30, 2007 |
| | Lease equipment | | $ | 6,948 | | | $ | 4,054 | |
| | Sale inventory | | | — | | | | 128 | |
| | Property and equipment | | | 233 | | | | 223 | |
| | Non-compete agreements | | | 100 | | | | — | |
| | Goodwill | | | 1,009 | | | | 2,884 | |
| | Customer relationships | | | 675 | | | | 194 | |
| | Accrued liabilities | | | (208 | ) | | | (299 | ) |
| | | | $ | 8,757 | | | $ | 7,184 | |
4. Property and Equipment
Property and equipment consist of the following:
| | | | Successor |
| | | | December 31, | | June 30, |
| | | | | 2006 | | | | 2007 | |
| | Land and buildings | | $ | 3,876 | | | $ | 3,964 | |
| | Transportation equipment | | | 13,603 | | | | 17,791 | |
| | Furniture, fixtures and office equipment | | | 3,465 | | | | 4,840 | |
| | Leasehold improvements | | | 646 | | | | 1,013 | |
| | | | | 21,590 | | | | 27,608 | |
| | Less: Accumulated depreciation | | | (1,617 | ) | | | (3,873 | ) |
| | | | $ | 19,973 | | | $ | 23,735 | |
5. Financing
Senior Revolving Credit Facility
Prior to the Acquisition completed on August 1, 2006, the Company had a $260,000 Senior revolving credit facility with Bank of America (the “BofA Credit Facility”), as agent for a bank syndicate. Borrowings under the BofA Credit Facility were secured by a lien on substantially all of the Company’s assets. Such borrowings were based on a borrowing base amount determined by a percentage of the collateral value of the lease equipment, accounts receivable and inventories. The lease equipment were required to be appraised at least annually and the advance rates were determined annually at the time of the appraisal. The advance rate for the lease fleet assets was calculated by dividing the lesser of (1) 85% of Orderly Liquidation Value as determined by the annual appraisal or (2) 90% of net book value of total rental fleet for the U.S. or U.K. Interest was payable monthly or with respect to LIBOR borrowings, either quarterly or on the last day of the applicable interest period. The revolving loans bear interest at U.S. LIBOR or U.K. LIBOR plus 1.75% to 3.0% or at U.S. Base Rate or U.K. Base Rate, as defined, plus 0% to 1.25% . The BofA Credit Facility required the Company to meet specific financial ratios and placed various restrictions on the Company, including the incurrence of additional debt, specified limits on capital expenditures, the amounts of dividends which can be made by the Company, and did not allow for dividends to be paid on common stock.
In connection with the Acquisition on August 1, 2006, the Company entered into the New Credit Facility. The New Credit Facility is a 5-year senior secured, asset-based revolving credit facility providing for loans of up to $300,000, subject to specified borrowing base formulas, of which the dollar equivalent of up to £85,000 can be drawn in borrowings denominated in British pounds and may be borrowed (and re-borrowed) by Ravenstock for use in the
F-47
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
5. Financing (continued)
Company’s U.K. operations. The Company may also incur up to $50,000 of additional senior secured debt under the New Credit Facility, subject to the consent of the joint-lead arrangers under the New Credit Facility, the availability of lenders willing to provide such incremental debt and compliance with the covenants and certain other conditions under the New Credit Facility.
Senior Revolving Credit Facility (continued)
Borrowings under the New Credit Facility are secured by a lien on substantially all of the Company’s assets. Such borrowings are governed by a borrowing base, with respect to the Company’s domestic assets (including assets of subsidiary guarantors) and the assets of Ravenstock (including assets of subsidiary guarantors), respectively, consisting of the sum of (i) 85% of eligible accounts receivable,plus (ii) the lesser of 100% of the net book value and 90% of the net orderly liquidation value of eligible lease fleet assets,plus (iii) the lesser of 90% of the net book value of and 80% of the net orderly liquidation value of eligible machinery and equipment,plus (iv) (A) until an acceptable appraisal is received, 90% of the net book value of eligible inventory (subject to an aggregate $25,000 inventory sublimit) or (B) after an acceptable appraisal is received, the lesser of (x) 90% of the net book value of eligible inventory and (y) 90% of the net orderly liquidation value of eligible inventory (subject to an aggregate $35,000 inventory sublimit). The borrowing base is also subject to certain other adjustments and reserves to be determined by the administrative agent for the lenders under the New Credit Facility. As of June 30, 2007, the Company’s aggregate borrowing capacity pursuant to the borrowing base under the New Credit Facility amounts to $118,843, net of the $181,157 in outstanding borrowings.
In general, borrowings under the New Credit Facility bear interest based, at the Company’s option, on either the agent lender’s base rate or U.S. or U.K. LIBOR, in each case plus a margin. The applicable margin on base rate borrowings can range from 0.5% to 1.25% and 1.5% to 2.25% for LIBOR borrowings based on the Company’s ratio of total debt to EBITDA at the time of determination. As of June 30, 2007, the interest rate for borrowings under the New Credit Facility is based on the agent lender’s base rate plus 1.0% or LIBOR plus 2.0% . The Company’s weighted-average interest rate on outstanding obligations under the New Credit Facility as of June 30, 2007 is 7.50% .
The New Credit Facility places various restrictions on the Company, including the incurrence of additional debt, specified limits on capital expenditures, the amounts of dividends which can be made by the Company, and does not allow for dividends to be paid on common stock. In addition, the New Credit Facility requires the Company to meet specific financial ratios if the total aggregate borrowing capacity falls below $30,000. Had the Company been subject to such financial ratios as of June 30, 2007, the Company would have been in full compliance.
The Company has $4,329 in letters of credit outstanding at June 30, 2007 related to its workers compensation and automobile insurance policies. There were no outstanding draws against such letters of credit as of June 30, 2007.
Subordinated Notes
The Company’s subordinated notes, as amended (the “Subordinated Notes”), consisted of notes held by The Northwestern Mutual Life Insurance Company, Caisse de depot et placement du Quebec, John Hancock Life Insurance Company and its affiliates and New York Life Insurance Company. The Subordinated Notes were issued in principal amounts of $25,000 and $55,000 during 2001 and 2002, respectively, and bear interest at 12% per annum with interest payable semiannually. Amortization of the original issue discount related to the Subordinated Notes amounted to $783 for the six months ended June 30, 2006 and is included in interest expense in the condensed consolidated statement of income. The Subordinated Notes placed various restrictions on the Company and required the Company to meet specific financial ratios in order to incur additional debt, subject to certain exceptions.
F-48
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
5. Financing (continued)
In connection with the Acquisition on August 1, 2006, the Company paid $83,200 to redeem all of the Subordinated Notes at face value, including $3,200 of prepayment penalties plus all accrued interest through the redemption date.
Senior Notes
In connection with the Acquisition, the Company issued $200,000 of Senior Notes on August 1, 2006. Interest on the Senior Notes accrues at a rate of 9¾% per annum and is payable on February 1 and August 1 of each year. On February 1, 2007, the Company paid $9,750 of interest due on the Senior Notes in cash. The Senior Notes mature on August 1, 2014. The Senior Notes place various restrictions on the Company, including the incurrence of additional debt, sales of assets and payment of dividends. The Senior Notes are senior unsecured obligations of the Company and are guaranteed by all of the Company’s current and future domestic subsidiaries, except for certain immaterial domestic subsidiaries. Such notes and guarantees are effectively junior to all of the Company’s secured indebtedness to the extent of the collateral securing such indebtedness. The Senior Notes are not guaranteed by any of the Company’s foreign subsidiaries and are structurally subordinated to the indebtedness and other liabilities of such non-guarantor subsidiaries. See Note 11 – Condensed Consolidating Financial Information, for financial information regarding the Company’s guarantor and non-guarantor subsidiaries.
Capital Leases and Other Notes Payable
Capital leases and other notes payable consist of $1,967 and $2,297 in capital lease obligations with various leasing companies and $1,301 and $742 of other notes payable as of December 31, 2006 and June 30, 2007, respectively.
6. Related Party Transactions
Transactions with MSG WC Holdings Corp. (“Holdings”)
The Company has various transactions with its parent company, Holdings, which are recorded through intercompany accounts. These amounts are payable on a current basis and are not subject to interest charges.
Holdings has made grants of stock options to key employees under the MSG WC Holdings Corp. 2006 Stock Option Plan. During the period from August 2, 2006 to June 30, 2007, options to purchase 22,828 shares of Holdings were granted to Company employees, of which 2,000 options were granted during the six months ended June 30, 2007. Holdings has allocated compensation expense to the Company of $1,622 during the six months ended June 30, 2007 in connection with the issuance of these options which are included in the Company’s selling, general and administrative expenses.
Holdings Subordinated Notes
On August 1, 2006, Holdings issued $90,000 in aggregate principal amount of subordinated notes to WCAS Capital Partners IV, L.P., an affiliate of Welsh Carson, and a strategic co-investor. The proceeds from the Holdings subordinated notes were contributed to the Company in the form of common equity capital and were used to fund the Acquisition. The Holdings subordinated notes mature on February 1, 2015 and are structurally and contractually subordinated to the New Credit Facility and the Senior Notes. Such subordinated notes are unsecured and do not possess the benefit of a guarantee. The Holdings subordinated notes accrue interest on a payment-in-kind, non-cash basis at 12.0% per annum for the first two years. Thereafter, interest will be payable quarterly at 10.0% per annum subject to the terms of the New Credit Facility and the Senior Notes. If Holdings is prohibited from making cash interest payments, interest will continue to accrue on a payment-in-kind, non-cash basis at 12.0% per annum.
F-49
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
6. Related Party Transactions (continued)
Consulting Agreement with Board Members
The Company has a consulting agreement with its former chief executive officer and current board member for his consulting services. In addition, the Company entered into a consulting agreement in January 2007 with its former executive vice-president and current board member for his consulting services. Such services relate to consulting on strategic business plans, acquisitions, and customer and vendor relationships. Fees and expenses paid in connection with these agreements amounted to $80 and $76 for the six months ended June 30, 2006 and 2007, respectively.
Transactions with PV Realty LLC
The Company leases property from PV Realty, LLC, a company controlled by the Company’s a) former chief executive officer and current board member; and b) former executive vice-president and current board member. The Company pays annual rent of $78 through August 31, 2008. The Company believes the price and terms of this lease are at fair market value.
Fees to Former Majority Stockholder
In June 2000, the Company began to pay management fees to its then majority stockholder under a management agreement for financial advisory services including reviewing the business, operations and prospects of the Company with management, assisting in acquisitions, and finding and negotiating with potential financing sources. The term of the agreement is for three years with automatic one-year extensions unless terminated with six months notice by the Board of Directors or the stockholders after the initial three-year term. Fees and expenses incurred in connection with the management agreement amounted to $189 for the six months ended June 30, 2006. This management agreement was terminated on August 1, 2006 in connection with the Acquisition.
7. Redeemable Preferred Stock
The Company issued Series E redeemable convertible preferred stock in 2000 through 2001 with a par value of $20 per share. The Series E preferred stock was nonvoting and was convertible into shares of common stock, determined by dividing the liquidation preference of the preferred shares by the offering price upon an underwritten public offering of shares of common stock. The remaining shares were mandatorily redeemable on the tenth anniversary of the issuance of such shares or anytime at the option of the Company.
In connection with the consummation of the Acquisition in August 2006, the Company redeemed all of its issued and outstanding Series E preferred stock, totaling 238,000 shares, including all cumulated dividends, for $5,601 in cash.
8. Stockholders’ Equity
Preferred Stock
The Company had several series of redeemable preferred stock including Series B, C, G, H, I, J, and K. Such preferred stock were nonvoting except as required by law. Series B, C and G shares were nonconvertible. Series H, I, and J shares were automatically convertible into shares of common stock six months and one day subsequent to the completion of an initial public offering of the Company’s common stock. Series K shares were automatically convertible into shares of common stock, determined by dividing the liquidation preference of the preferred shares by the offering price upon an underwritten public offering of shares of common stock.
F-50
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
8. Stockholders’ Equity (continued)
Preferred Stock (continued)
For certain series of preferred stock, the holder was entitled to receive an annual dividend payable in cash. Such earned participating dividends were cumulative from the date first earned until paid or until the respective shares were redeemed by the Company. The par value and annual dividend rate of each series of preferred stock were as follows:
| | | Par Value | | Annual |
| Series | | (per share) | | Dividend % |
| B | | $ 10.0 | | 10.0% |
| C | | $ 20.0 | | 8.5% |
| G | | $ 0.1 | | None |
| H | | $ 10.0 | | 10.0% |
| I | | $ 10.0 | | 10.0% |
| J | | $ 10.0 | | 10.0% |
| K | | $ 0.1 | | None |
In connection with the consummation of the Acquisition in August 2006, the Company redeemed all of its issued and outstanding Series B, C, G, H, I, J and K preferred stock, totaling 1,933,000 shares, including all accumulated dividends, for $24,512.
Stock Option Plans
On February 8, 2005, the Board of Directors approved a stock option incentive plan (the “2005 Plan”) for the Company. All options issued and outstanding under stock option plans approved by the Company prior to 2005 were assumed under the 2005 Plan with the date of grant, exercise price and vesting of each option remaining unchanged. See Note 10 in our 2006 audited consolidated financial statements for additional information regarding the 2005 Plan.
In connection with the consummation of the Acquisition, a change of control, as defined by the 2005 Plan, occurred which resulted in the immediate vesting of all outstanding and unvested options under the 2005 Plan. This immediate vesting resulted in a pre-tax compensation charge recorded by the Predecessor in August 2006 as Acquisition Transaction Expenses of $2,341. The 2005 Plan was terminated on August 1, 2006 in conjunction with the Acquisition.
F-51
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
9. Foreign Operations
Condensed financial information of the Company’s foreign subsidiaries, the operations of which are principally located in the United Kingdom, at December 31, 2006 and June 30, 2007, and for the three and six months ended June 30, 2006 and 2007, before eliminations of intercompany balances and profits, are as follows:
| | | | Successor |
| | | | December 31, | | June 30, |
| | | | 2006 | | 2007 |
| | Assets | | | | | | |
| | Lease equipment, net | | $ | 104,949 | | $ | 113,251 |
| | Goodwill, net | | | 32,443 | | | 45,340 |
| | All other assets | | | 47,760 | | | 49,713 |
| | | | $ | 185,152 | | $ | 208,304 |
| | Liabilities and stockholders’ equity | | | | | | |
| | Accounts payable | | $ | 5,752 | | $ | 10,723 |
| | Notes payable | | | 73,627 | | | 78,352 |
| | Other liabilities | | | 34,240 | | | 37,137 |
| | Stockholders’ equity | | | 71,533 | | | 82,092 |
| | | | $ | 185,152 | | $ | 208,304 |
| | | Three months ended June 30, | | Six months ended June 30, |
| | | 2006 | | 2007 | | 2006 | | 2007 |
| | | Predecessor | | Successor | | Predecessor | | Successor |
| Revenues and Net Income: | | | | | | | | | | | | | |
| Total revenues | | $ | 18,619 | | $ | 19,726 | | | $ | 35,696 | | $ | 39,73 |
| Costs and expenses | | | 17,139 | | | 19,914 | | | | 33,532 | | | 39,527 |
| Net income (loss) | | $ | 1,480 | | $ | (188 | ) | | $ | 2,164 | | $ | 205 |
10. Discontinued Operations
Effective during the fourth quarter of 2006, the Company committed to plans to sell its Action Trailer Sales division (“Action”), thereby meeting the held-for-sale criteria set forth in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Action is comprised of three locations in the U.S. which are primarily engaged in the business of buying and selling used trailers.
In accordance with SFAS No. 144 and EITF Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations,” the net assets of Action are presented separately as assets held for sale in the accompanying consolidated balance sheets and the operating results of Action are presented as discontinued operations in the accompanying consolidated statements of income and cash flows. Prior period financial results were reclassified to conform to these changes in presentation.
The Company did not record a gain or loss related to such discontinued operations during the year ended December 31, 2006 because no gain or loss was expected upon completion of the sale of Action based upon facts and circumstances at that time. As efforts to sell Action progressed during 2007, the Company subsequently determined that the fair value of Action’s net assets, less costs to sell, was lower than its net carrying value. Based on sales of Action’s assets that occurred during the six months ended June 30, 2007, a loss on disposal of $1,566 was recorded within discontinued operations of which $430 is from the absorption of a future lease liability. The value of the remaining assets held for sale as of June 30, 2007 which amounts to $86 reflects an estimate of their fair value based on sales of Action’s assets during the six months ended June 30, 2007. Such remaining assets are expected to be sold before December 31, 2007.
F-52
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
10. Discontinued Operations (continued)
The results of discontinued operations for the three and six months ended June 30, 2006 and 2007 are summarized as follows:
| | | | Three months ended June 30, | | Six months ended June 30, |
| | | | 2006 | | | | 2006 | | 2007 |
| | | | Predecessor | | | | Predecessor | | Successor |
| | Revenues | | $ | 8,462 | | | | 6,290 | | | $ | 14,873 | | $ | 10,248 | |
| | Income (loss) from | | | | | | | | | | | | | | | |
| | operations of | | | | | | | | | | | | | | | |
| | discontinued component | | | | | | | | | | | | | | | |
| | (including loss on | | | | | | | | | | | | | | | |
| | disposal of $1,066 and | | | | | | | | | | | | | | | |
| | $1,566 for the three and | | | | | | | | | | | | | | | |
| | six month periods ended | | | | | | | | | | | | | | | |
| | June 30, 2007, | | | | | | | | | | | | | | | |
| | respectively) | | $ | 299 | | | $ | (1,366 | ) | | $ | 522 | | $ | (1,812 | ) |
| | Provision (benefit) for | | | | | | | | | | | | | | | |
| | income taxes | | | 120 | | | | (581 | ) | | | 209 | | | (757 | ) |
| | Net income (loss) | | $ | 179 | | | $ | (785 | ) | | $ | 313 | | $ | (1,055 | ) |
Interest expense allocated to Action’s discontinued operations for the three and six months ended June 30, 2006 and 2007 was based upon a ratio of (i) the net assets of the discontinued operations compared to (ii) the overall net assets plus debt obligations of the Company and amounted to $176, ($91), $347 and $18, respectively.
At December 31, 2006 and June 30, 2007, assets held for sale and discontinued operations consist of the following:
| | | | |
| | | | December 31, | | June 30, |
| | | | 2006 | | 2007 |
| | Accounts receivable, net | | $ | 901 | | | $ | 36 | |
| | Inventories | | | 6,366 | | | | 453 | |
| | Other assets | | | 334 | | | | 27 | |
| | Accrued liabilities | | | (34 | ) | | | (430 | ) |
| | | | $ | 7,567 | | | $ | 86 | |
F-53
MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at June 30, 2007 and for the six months ended
June 30, 2006 and June 30, 2007 are unaudited)
(Dollars in thousands, except per share data)
11. Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information for: (a) Mobile Services Group, Inc. (the “Parent”) on a stand-alone basis as a co-issuer of the Senior Notes; (b) on a combined basis, the subsidiary co-issuer and guarantors of the Senior Notes (“Subsidiary Co-Issuer and Guarantors”) which include Mobile Storage Group, Inc., a co-issuer of the Senior Notes and A Better Mobile Storage Company and Mobile Storage Group (Texas), L.P., guarantors with nonmaterial assets and operations; (c) on a combined basis, the Non-Guarantor Subsidiaries, which include Ravenstock MSG Limited, MSG Investments, Inc., Mobile Storage U.K. Finance LP, LIKO Luxembourg International s.a.r.1. and certain other nonmaterial, inactive entities based in the United Kingdom. Separate financial statements of the Subsidiary Guarantors are not presented because the guarantees by each 100% owned Subsidiary Guarantor are full and unconditional, joint and several, and management has determined that such information is not material to investors. In lieu thereof, the Company includes the following:
F-54
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2007
(Successor)
(Unaudited)
(Dollars in thousands)
| | | | | Subsidiary | | | | | | |
| | | | | Co-Issuer and | | Non-Guarantor | | | | |
| | | Parent | | Guarantors | | Subsidiaries | | | | Consolidated |
| |
| Assets: | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | $ | 794 | | $ | — | | | $ | — | | | $ | 794 |
| Accounts receivable, net | | | — | | | 15,083 | | | 14,527 | | | | — | | | | 29,610 |
| Inventories | | | — | | | 6,459 | | | 1,109 | | | | — | | | | 7,568 |
| Lease equipment, net | | | — | | | 208,145 | | | 113,251 | | | | — | | | | 321,396 |
| Property and equipment, net | | | — | | | 18,711 | | | 5,024 | | | | — | | | | 23,735 |
| Investment in subsidiary | | | 278,966 | | | 82,092 | | | — | | | | (361,058 | ) | | | — |
| Intercompany balances | | | — | | | 4,080 | | | (4,080 | ) | | | — | | | | — |
| Goodwill | | | — | | | 260,393 | | | 45,340 | | | | — | | | | 305,733 |
| Other intangible assets, net | | | — | | | 52,179 | | | 25,570 | | | | — | | | | 77,749 |
| Other assets | | | — | | | 13,883 | | | 7,563 | | | | — | | | | 21,446 |
| Assets held for sale and discontinued | | | | | | | | | | | | | | | | | |
| operations | | | — | | | 86 | | | — | | | | — | | | | 86 |
| Total assets | | $ | 278,966 | | $ | 661,905 | | $ | 208,304 | | | $ | (361,058 | ) | | $ | 788,117 |
| |
| Liabilities: | | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | — | | $ | 10,339 | | $ | 10,723 | | | $ | — | | | $ | 21,062 |
| Total debt | | | — | | | 305,844 | | | 78,352 | | | | — | | | | 384,196 |
| Other liabilities | | | — | | | 24,233 | | | 5,679 | | | | — | | | | 29,912 |
| Deferred income taxes | | | — | | | 42,523 | | | 31,458 | | | | — | | | | 73,981 |
| Total liabilities | | | — | | | 382,939 | | | 126,212 | | | | — | | | | 509,151 |
| Stockholders’ equity: | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 278,966 | | | 278,966 | | | 82,092 | | | | (361,058 | ) | | | 278,966 |
| Total liabilities and stockholders’ equity | | $ | 278,966 | | $ | 661,905 | | $ | 208,304 | | | $ | (361,058 | ) | | $ | 788,117 |
F-55
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2006
(Successor)
(Dollars in thousands)
| | | | | Subsidiary | | | | | | |
| | | | | Co-Issuer and | | Non-Guarantor | | | | |
| | | Parent | | Guarantors | | Subsidiaries | | | | Consolidated |
| |
| Assets: | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | $ | 1,469 | | | $ | — | | $ | — | | | $ | 1,469 |
| Accounts receivable, net | | | — | | | 15,601 | | | | 14,244 | | | — | | | | 29,845 |
| Inventories | | | — | | | 5,255 | | | | 295 | | | — | | | | 5,550 |
| Lease equipment, net | | | — | | | 196,681 | | | | 104,949 | | | — | | | | 301,630 |
| Property and equipment, net | | | — | | | 15,793 | | | | 4,180 | | | — | | | | 19,973 |
| Investment in subsidiary | | | 274,496 | | | 71,533 | | | | — | | | (346,029 | ) | | | — |
| Intercompany balances | | | — | | | (1,745 | ) | | | 1,745 | | | — | | | | — |
| Goodwill | | | — | | | 264,411 | | | | 32,443 | | | — | | | | 296,854 |
| Other intangible assets, net | | | — | | | 52,561 | | | | 25,394 | | | — | | | | 77,955 |
| Other assets | | | — | | | 18,686 | | | | 1,902 | | | — | | | | 20,588 |
| Assets held for sale and discontinued | | | | | | | | | | | | | | | | | |
| operations | | | — | | | 7,567 | | | | — | | | — | | | | 7,567 |
| Total assets | | $ | 274,496 | | $ | 647,812 | | | $ | 185,152 | | $ | (346,029 | ) | | $ | 761,431 |
| |
| Liabilities: | | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | — | | $ | 5,417 | | | $ | 5,752 | | $ | — | | | $ | 11,169 |
| Total debt | | | — | | | 301,908 | | | | 73,627 | | | — | | | | 375,535 |
| Other liabilities | | | — | | | 23,945 | | | | 3,883 | | | — | | | | 27,828 |
| Deferred income taxes | | | — | | | 42,046 | | | | 30,357 | | | — | | | | 72,403 |
| Total liabilities | | | — | | | 373,316 | | | | 113,619 | | | — | | | | 486,935 |
| Stockholders’ equity: | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity | | | 274,496 | | | 274,496 | | | | 71,533 | | | (346,029 | ) | | | 274,496 |
| Total liabilities and stockholders’ equity | | $ | 274,496 | | $ | 647,812 | | | $ | 185,152 | | $ | (346,029 | ) | | $ | 761,431 |
F-56
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2007
(Successor)
(Unaudited)
(Dollars in thousands)
| | | | Subsidiary | | | | | | |
| | | | Co-Issuer and | | Non-Guarantor | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | | $ | 28,453 | | | $ | 17,108 | | | $ | — | | $ | 45,561 | |
| Sales | | | — | | | | 7,049 | | | | 2,618 | | | | — | | | 9,667 | |
| Total revenues | | | — | | | | 35,502 | | | | 19,726 | | | | — | | | 55,228 | |
| |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 4,582 | | | | 2,198 | | | | — | | | 6,780 | |
| Trucking and yard costs | | | — | | | | 6,916 | | | | 7,390 | | | | — | | | 14,306 | |
| Depreciation and amortization | | | — | | | | 3,318 | | | | 2,017 | | | | — | | | 5,335 | |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | | |
| expenses | | | — | | | | 11,472 | | | | 6,570 | | | | — | | | 18,042 | |
| Interest expense, net | | | — | | | | 7,517 | | | | 2,295 | | | | — | | | 9,812 | |
| Other expense (income)—net | | | — | | | | 33 | | | | (470 | ) | | | — | | | (437 | ) |
| Income (loss) before provision for income | | | | | | | | | | | | | | | | | | | |
| taxes, discontinued operations and | | | | | | | | | | | | | | | | | | | |
| equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | — | | | | 1,664 | | | | (274 | ) | | | — | | | 1,390 | |
| Provision (benefit) for income taxes | | | — | | | | 705 | | | | (86 | ) | | | — | | | 619 | |
| Loss from discontinued operations | | | — | | | | (785 | ) | | | — | | | | — | | | (785 | ) |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | (14 | ) | | | (188 | ) | | | — | | | | 202 | | | — | |
| Net income (loss) | | $ | (14 | ) | | $ | (14 | ) | | $ | (188 | ) | | $ | 202 | | $ | (14 | ) |
F-57
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2006
(Predecessor)
(Unaudited)
(Dollars in thousands)
| | | | | Subsidiary | | Non-Guarantor | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | | $ | 24,671 | | | $ | 14,890 | | | $ | — | | | $ | 39,561 | |
| Sales | | | — | | | | 6,285 | | | | 3,729 | | | | — | | | | 10,014 | |
| Total revenues | | | — | | | | 30,956 | | | | 18,619 | | | | — | | | | 49,575 | |
| |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 4,223 | | | | 2,966 | | | | — | | | | 7,189 | |
| Trucking and yard costs | | | — | | | | 6,020 | | | | 6,148 | | | | — | | | | 12,168 | |
| Depreciation and amortization | | | — | | | | 3,045 | | | | 2,224 | | | | — | | | | 5,269 | |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | | | |
| expenses | | | 111 | | | | 9,185 | | | | 4,517 | | | | — | | | | 13,813 | |
| Interest expense, net | | | — | | | | 5,312 | | | | 1,400 | | | | — | | | | 6,712 | |
| Other expense (income) – net | | | 242 | | | | (218 | ) | | | (169 | ) | | | — | | | | (145 | ) |
| Income (loss) before provision (benefit) for | | | | | | | | | | | | | | | | | | | | |
| income taxes, discontinued operations and | | | | | | | | | | | | | | | | | | | | |
| equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | (353 | ) | | | 3,389 | | | | 1,533 | | | | — | | | | 4,569 | |
| Provision (benefit) for income taxes | | | (44 | ) | | | 1,818 | | | | 53 | | | | — | | | | 1,827 | |
| Income from discontinued operations | | | — | | | | 179 | | | | — | | | | — | | | | 179 | |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | 3,230 | | | | 1,480 | | | | — | | | | (4,710 | ) | | | — | |
| Net income | | $ | 2,921 | | | $ | 3,230 | | | $ | 1,480 | | | $ | (4,710 | ) | | $ | 2,921 | |
F-58
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2007
(Successor)
(Unaudited)
(Dollars in thousands)
| | | Subsidiary | | | | | | | |
| | | Co-Issuer and | | Non-Guarantor | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | $ | 55,723 | | | $ | 33,039 | | | $ | — | | | $ | 88,762 | |
| Sales | | | — | | | 13,398 | | | | 6,693 | | | | — | | | | 20,091 | |
| Total revenues | | | — | | | 69,121 | | | | 39,732 | | | | — | | | | 108,853 | |
| |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | 8,716 | | | | 5,466 | | | | — | | | | 14,182 | |
| Trucking and yard costs | | | — | | | 13,681 | | | | 14,120 | | | | — | | | | 27,801 | |
| Depreciation and amortization | | | — | | | 6,259 | | | | 3,867 | | | | — | | | | 10,126 | |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | | |
| expenses | | | — | | | 22,812 | | | | 12,760 | | | | — | | | | 35,572 | |
| Interest expense, net | | | — | | | 14,892 | | | | 3,738 | | | | — | | | | 18,630 | |
| Other expense (income)—net | | | — | | | 77 | | | | (523 | ) | | | — | | | | (446 | ) |
| Income before provision for income taxes, | | | | | | | | | | | | | | | | | | | |
| discontinued operations and equity in | | | | | | | | | | | | | | | | | | | |
| earnings of consolidated subsidiaries | | | — | | | 2,684 | | | | 304 | | | | — | | | | 2,988 | |
| Provision for income taxes | | | — | | | 1,150 | | | | 99 | | | | — | | | | 1,249 | |
| Loss from discontinued operations | | | — | | | (1,055 | ) | | | — | | | | — | | | | (1,055 | ) |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | 684 | | | 205 | | | | — | | | | (889 | ) | | | — | |
| Net income | | $ | 684 | | $ | 684 | | | $ | 205 | | | $ | (889 | ) | | $ | 684 | |
F-59
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2006
(Predecessor)
(Unaudited)
(Dollars in thousands)
| | | | | Subsidiary | | Non-Guarantor | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | | |
| Lease and lease related | | $ | — | | | $ | 48,343 | | | $ | 28,928 | | | $ | — | | | $ | 77,271 | |
| Sales | | | — | | | | 12,724 | | | | 6,768 | | | | — | | | | 19,492 | |
| Total revenues | | | — | | | | 61,067 | | | | 35,696 | | | | — | | | | 96,763 | |
| |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | — | | | | 8,715 | | | | 5,362 | | | | — | | | | 14,077 | |
| Trucking and yard costs | | | — | | | | 11,873 | | | | 11,806 | | | | — | | | | 23,679 | |
| Depreciation and amortization | | | — | | | | 6,136 | | | | 4,298 | | | | — | | | | 10,434 | |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | | | |
| expenses | | | 261 | | | | 18,713 | | | | 8,704 | | | | — | | | | 27,678 | |
| Interest expense, net | | | — | | | | 10,505 | | | | 2,704 | | | | — | | | | 13,209 | |
| Other expense (income) – net | | | 533 | | | | (452 | ) | | | (208 | ) | | | — | | | | (127 | ) |
| Income (loss) before provision (benefit) for | | | | | | | | | | | | | | | | | | | | |
| income taxes, discontinued operations and | | | | | | | | | | | | | | | | | | | | |
| equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | (794 | ) | | | 5,577 | | | | 3,030 | | | | — | | | | 7,813 | |
| Provision (benefit) for income taxes | | | (104 | ) | | | 2,363 | | | | 866 | | | | — | | | | 3,125 | |
| Income from discontinued operations | | | — | | | | 313 | | | | — | | | | — | | | | 313 | |
| Equity in earnings of consolidated | | | | | | | | | | | | | | | | | | | | |
| subsidiaries | | | 5,691 | | | | 2,164 | | | | — | | | | (7,855 | ) | | | — | |
| Net income | | $ | 5,001 | | | $ | 5,691 | | | $ | 2,164 | | | $ | (7,855 | ) | | $ | 5,001 | |
F-60
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six months Ended June 30, 2007
(Successor)
(Unaudited)
(Dollars in thousands)
| | | | | | Subsidiary | | | | | | | | | |
| | | | | | Co-Issuer and | | Non-Guarantor | | | | | | | |
| | | | Parent | | Guarantors | | Subsidiaries | | | | | |
| |
| Net cash provided by operating activities | | $ | — | | $ | 22,256 | | | $ | 8,640 | | | $ | — | | $ | 30,896 | |
| |
| Investing activities: | | | | | | | | | | | | | | | | | | |
| Other acquisitions, net | | | — | | | (7,184 | ) | | | — | | | | | | | (7,184 | ) |
| Purchases of lease equipment, net | | | — | | | (11,355 | ) | | | (11,321 | ) | | | — | | | (22,676 | ) |
| Purchases of property and equipment | | | — | | | (3,670 | ) | | | (1,251 | ) | | | — | | | (4,921 | ) |
| Net cash used in investing activities | | | — | | | (22,209 | ) | | | (12,572 | ) | | | — | | | (34,781 | ) |
| |
| Financing activities: | | | | | | | | | | | | | | | | | | |
| Payments on capital leases and notes | | | | | | | | | | | | | | | | | | |
| payable | | | — | | | (940 | ) | | | 32 | | | | — | | | (908 | ) |
| Proceeds on note receivable from | | | | | | | | | | | | | | | | | | |
| stockholder | | | — | | | 202 | | | | — | | | | — | | | 202 | |
| Borrowings under New Credit Facility | | | — | | | 12,500 | | | | 2,959 | | | | — | | | 15,459 | |
| Payments under New Credit Facility | | | — | | | (12,484 | ) | | | — | | | | — | | | (12,484 | ) |
| Net cash provided by (used in) financing | | | | | | | | | | | | | | | | | | |
| activities | | | — | | | (722 | ) | | | 2,991 | | | | — | | | 2,269 | |
| Effect of foreign exchange rate changes on | | | | | | | | | | | | | | | | | | |
| cash | | | — | | | — | | | | 941 | | | | — | | | 941 | |
| Net decrease in cash | | | — | | | (675 | ) | | | — | | | | — | | | (675 | ) |
| Cash and cash equivalents at beginning of | | | | | | | | | | | | | | | | | | |
| period | | | — | | | 1,469 | | | | — | | | | — | | | 1,469 | |
| Cash and cash equivalents at end of period | | $ | — | | $ | 794 | | | $ | — | | | $ | — | | $ | 794 | |
F-61
MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six months Ended June 30, 2006
(Predecessor)
(Unaudited)
(Dollars in thousands)
| | | | | | Subsidiary | | | | | | | | | |
| | | | | | Co-Issuer and | | Non-Guarantor | | | | | | | |
| | | | | Guarantors | | Subsidiaries | | | | |
| |
| Net cash provided by operating activities | | $ | — | | $ | 13,660 | | | $ | 4,515 | | | $ | — | | $ | 18,175 | |
| |
| Investing activities: | | | | | | | | | | | | | | | | | | |
| Acquisitions, net of cash acquired | | | — | | | (8,757 | ) | | | — | | | | — | | | (8,757 | ) |
| Purchases of lease equipment, net | | | — | | | (6,834 | ) | | | (6,765 | ) | | | — | | | (13,599 | ) |
| Purchases of property and equipment | | | — | | | (1,039 | ) | | | (1,014 | ) | | | — | | | (2,053 | ) |
| Investment in and advances to subsidiaries | | | — | | | 533 | | | | (533 | ) | | | — | | | — | |
| Net cash used in investing activities | | | — | | | (16,097 | ) | | | (8,312 | ) | | | — | | | (24,409 | ) |
| |
| Financing activities: | | | | | | | | | | | | | | | | | | |
| Payments on debt | | | — | | | (598 | ) | | | (6 | ) | | | — | | | (604 | ) |
| Issuance of debt and borrowings under credit | | | | | | | | | | | | | | | | | | |
| facility | | | — | | | 6,688 | | | | 2,466 | | | | — | | | 9,154 | |
| Repurchase of common stock | | | — | | | (8 | ) | | | — | | | | — | | | (8 | ) |
| Redemption of preferred stock | | | — | | | (235 | ) | | | — | | | | — | | | (235 | ) |
| Preferred stock dividends paid | | | — | | | (1,861 | ) | | | — | | | | — | | | (1,861 | ) |
| Net cash provided by financing activities | | | — | | | 3,986 | | | | 2,460 | | | | — | | | 6,446 | |
| Effect of foreign exchange rate changes on cash | | | — | | | — | | | | (212 | ) | | | — | | | (212 | ) |
| Net increase in cash | | | — | | | 1,549 | | | | (1,549 | ) | | | — | | | — | |
| Cash and cash equivalents at beginning of | | | | | | | | | | | | | | | | | | |
| period | | | — | | | — | | | | — | | | | — | | | — | |
| Cash and cash equivalents at end of period | | $ | — | | $ | 1,549 | | | $ | (1,549 | ) | | | — | | $ | — | |
F-62
$200,000,000
MOBILE SERVICES GROUP, INC.
MOBILE STORAGE GROUP, INC.
Exchange Offer for
9¾% Senior Notes due 2014
PROSPECTUS
, 2007
We have not authorized any dealer, salesperson or other person to give any information or represent anything to you other than the information contained in this prospectus. You may not rely on unauthorized information or representations.
This prospectus does not offer to sell or ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who can not legally be offered the securities.
The information in this prospectus is current only as of the date on its cover, and may change after that date. For any time after the cover date of this prospectus, we do not represent that our affairs are the same as described or that the information in this prospectus is correct, nor do we imply those things by delivering this prospectus or selling securities to you.
Until , 2007, all dealers that effect transactions in these securities, whether or not participating in the exchange offer may be required to deliver a prospectus. This is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Mobile Services and Mobile Storage are corporations organized under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware (the “Delaware Statute”) provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), other than an action by or in the right of such corporation, by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise (an “indemnified capacity”). The indemnity may include expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was illegal. Similar provisions apply to actions brought by or in the right of the corporation, except that no indemnification shall be made without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred. Section 145 of the Delaware Statute further authorizes a corporation to purchase and maintain insurance on behalf of any indemnified person against any liability asserted against him and incurred by him in any indemnified capacity, or arising out of his status as such, regardless of whether the corporation would otherwise have the power to indemnify him under the Delaware Statute.
Mobile Services’ Restated Certificate of Incorporation includes provisions eliminating the personal liabilities of its directors for money damages resulting from breaches of their fiduciary duty to the extent permitted by the Delaware Statute. It also contains provisions requiring Mobile Services to indemnify its present and former directors and officers to the fullest extent permitted by law, but Mobile Services is not obliged to indemnify any director or officer in connection with a proceeding initiated by such director or officer and which is other than to enforce the right to indemnification.
Mobile Storage’s Certificate of Incorporation includes provisions eliminating the personal liability of its directors for money damages resulting from breaches of their fiduciary duty to the extent permitted by Section 102(b)(7) of the Delaware Statute.
The by-laws, as amended, of Mobile Services and by-laws of Mobile Storage each provide for indemnification of their respective officers, directors, employees and agents to the fullest extent permitted by the Delaware statute against any expense (including attorney’s fees), judgments, fine, and amount paid by him or her in connection with his or her status as officer, director, employee or agent, provided that no person shall be entitled to indemnification in respect of any claim in which they have been found to be liable to their respective corporation unless, and only to the extent that, the court in which such action is brought determines that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnification.
Under separate indemnification agreements entered into with each of director and executive officer of Mobile Services and Mobile Storage, such directors and executive officers will have contractual rights to indemnification, and expense advance and reimbursement, to the fullest extent permitted under applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
| (a) | Exhibits. |
| See Exhibit Index. |
| (b) | Financial Statement Schedules. |
II-1
Schedule II - Valuation and Qualifying Accounts is on page II-10. All other schedules have been omitted because they are not applicable or because the required information is shown in the consolidated financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a) (3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933 if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such registration statement;
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 20, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(5) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the date of the registration statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Mobile Services Group, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Glendale, California, on September 18, 2007.
| | MOBILE SERVICES GROUP, INC. |
| | |
| | By: /s/ Douglas Waugaman |
| | Name: Douglas Waugaman |
| | Title: President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned hereby constitutes and appointsDouglas Waugaman, Allan Villegas and Christopher Wilson, jointly and severally, as his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and on his behalf to sign, execute and file this registration statement and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and any and all documents required to be filed with respect therewith, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that such attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons on behalf of Mobile Services Group, Inc. and in the capacities and on the dates indicated:
| Signature | | Title | | Date |
| |
| /s/ Douglas Waugaman | | | | September 18, 2007 |
| Douglas Waugaman | | President, Chief Executive Officer and Director | | |
| | | (Principal Executive Officer) | | |
| | | | | |
| /s/ Allan Villegas | | | | September 18, 2007 |
| Allan Villegas | | Chief Financial Officer | | |
| | | (Principal Financial and Accounting Officer) | | |
| | | | | |
| /s/ Sanjay Swani | | | | September 18, 2007 |
| Sanjay Swani | | Chairman of the Board of Directors | | |
| | | | | |
| /s/ Anthony de Nicola | | | | September 18, 2007 |
| Anthony de Nicola | | Director | | |
| | | | | |
| /s/ Michael Donovan | | | | September 18, 2007 |
| Michael Donovan | | Director | | |
| | | | | |
| /s/ James Martell | | | | September 18, 2007 |
| James Martell | | Director | | |
| | | | | |
| /s/ James Robertson | | | | September 18, 2007 |
| James Robertson | | Director | | |
| | | | | |
| /s/ Ronald Valenta | | | | September 18, 2007 |
| Ronald Valenta | | Director | | |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Mobile Storage Group, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Glendale, California, on September 18, 2007.
| | MOBILE STORAGE GROUP, INC. |
| | |
| | By: /s/ Douglas Waugaman |
| | Name: Douglas Waugaman |
| | Title: President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned hereby constitutes and appoints Douglas Waugaman, Allan Villegas and Christopher Wilson, jointly and severally, as his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and on his behalf to sign, execute and file this registration statement and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and any and all documents required to be filed with respect therewith, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that such attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons on behalf of Mobile Storage Group, Inc. and in the capacities and on the dates indicated:
| Signature | | Title | | Date |
| |
| /s/ Douglas Waugaman | | | | September 18, 2007 |
| Douglas Waugaman | | President, Chief Executive Officer and Director | | |
| | | (Principal Executive Officer) | | |
| | | | | |
| /s/ Allan Villegas | | | | September 18, 2007 |
| Allan Villegas | | Chief Financial Officer | | |
| | | (Principal Financial and Accounting Officer) | | |
| | | | | |
| /s/ Sanjay Swani | | | | September 18, 2007 |
| Sanjay Swani | | Chairman of the Board of Directors | | |
| | | | | |
| /s/ Anthony de Nicola | | | | September 18, 2007 |
| Anthony de Nicola | | Director | | |
| | | | | |
| /s/ Michael Donovan | | | | September 18, 2007 |
| Michael Donovan | | Director | | |
| | | | | |
| /s/ James Martell | | | | September 18, 2007 |
| James Martell | | Director | | |
| | | | | |
| /s/ James Robertson | | | | September 18, 2007 |
| James Robertson | | Director | | |
| | | | | |
| /s/ Ronald Valenta | | | | September 18, 2007 |
| Ronald Valenta | | Director | | |
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, A Better Mobile Storage Company has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Glendale, California, on September 18, 2007.
| | A BETTER MOBILE STORAGE COMPANY |
| | |
| | By: /s/ Douglas Waugaman |
| | Name: Douglas Waugaman |
| | Title: President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned hereby constitutes and appointsDouglas Waugaman, Allan Villegas and Christopher Wilson, jointly and severally, as his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and on his behalf to sign, execute and file this registration statement and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and any and all documents required to be filed with respect therewith, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that such attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons on behalf of A Better Mobile Storage Company and in the capacities and on the dates indicated:
| Signature | | Title | | Date |
| |
| /s/ Douglas Waugaman | | | | September 18, 2007 |
| Douglas Waugaman | | President and Chief Executive Officer | | |
| | | | | |
| /s/ Allan Villegas | | | | September 18, 2007 |
| Allan Villegas | | Chief Financial Officer | | |
| | | | | |
| /s/ Christopher Wilson | | | | September 18, 2007 |
| Christopher Wilson | | General Counsel and Assistant Secretary | | |
| | | | | |
| | | | | |
| /s/ Michael Donovan | | | | September 18, 2007 |
| Michael Donovan | | Director | | |
| | | | | |
| /s/ Sanjay Swani | | | | September 18, 2007 |
| Sanjay Swani | | Chairman of the Board | | |
| | | | | |
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Mobile Storage Group (Texas) L.P. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Glendale, California, on September 18, 2007.
| | MOBILE STORAGE GROUP (TEXAS) L.P. |
| | By: Mobile Storage Group, Inc. its General Partner |
| | By: /s/ Douglas A. Waugaman |
| | Name: Douglas A. Waugaman |
| | Title: Partner |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned hereby constitutes and appoints [•] and [•], jointly and severally, as his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and on his behalf to sign, execute and file this registration statement and any or all amendments (including, without limitation, post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and any and all documents required to be filed with respect therewith, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that such attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons on behalf of Mobile Storage Group (Texas) L.P. and in the capacities and on the dates indicated:
| Signature | | Title | | Date |
| |
| /s/ Douglas A. Waugaman | | | | September 18, 2007 |
| Douglas A. Waugaman | | Partner | | |
| | | | | |
| /s/ Allan Villegas | | | | September 18, 2007 |
| Allan Villegas | | Partner | | |
| | | | | |
| /s/ Christopher Wilson | | | | September 18, 2007 |
| Christopher Wilson | | Partner | | |
| | | | | |
II-6
EXHIBIT INDEX
Exhibit No. | | Description |
| | |
| 2.1 | | Agreement and Plan of Merger, dated May 24, 2006, by and among MSG WC Holdings Corp. , MSG WC Acquisition Corp. , Mobile Services Group, Inc. and target stockholder representative. |
| | |
| 2.2 | | Amendment to Agreement and Plan of Merger, dated June 7, 2006, by and among MSG WC Holdings Corp. , MSG WC Acquisition Corp. , Mobile Services Group, Inc. and target stockholder representative. |
| | |
| 3.1 | | Restated Certificate of Incorporation of Mobile Services Group, Inc. |
| | | |
| 3.2 | | By-laws of Mobile Services Group, Inc. |
| | |
| 3.3 | | Amendment to By-laws of Mobile Services Group, Inc. |
| | | |
| 3.4 | | Certificate of Incorporation of Mobile Storage Group, Inc. |
| | | |
| 3.5 | | By-laws of Mobile Storage Group, Inc. |
| | |
| 3.6 | | Articles of Incorporation of A Better Mobile Storage Company |
| | | |
| 3.7 | | By-laws of A Better Mobile Storage Company |
| | |
| 3.8 | | Certificate of Limited Partnership of Mobile Storage Group (Texas), L. P. |
| | |
| 3.9 | | Amended and Restated Limited Partnership Agreement of Mobile Storage Group (Texas), L. P. |
| | |
| 4.1 | | Indenture, dated August 1, 2006, by and among Mobile Services Group, Inc. , Mobile Storage Group, Inc. , subsidiary guarantors named therein and Wells Fargo Bank, N. A. |
| | |
| 4.2 | | Contractual Rights Agreement, dated August 1, 2006, by and among Foxkirk, LLC and WCAS Capital Partners IV, L. P. |
| | |
| 4.3 | | Registration Rights Agreement, dated August 1, 2006, by and among Mobile Services Group, Inc. , Mobile Storage Group, Inc. , guarantors named therein, Lehman Brothers Inc. , Goldman, Sachs & Co. and Wachovia Capital Markets, LLC. |
| | |
| 4.4 | | Note Purchase Agreement, dated August 1, 2006, by and among MSG WC Holdings Corp. and the purchasers named therein. |
| | |
| 4.5 | | Stockholders Agreement, dated August 1, 2006, by and among MSG WC Holdings Corp, Welsh, Carson, Anderson & Stowe X, L. P. , WCAS Capital Partners IV, L. P. , WCAS Management Corporation, de Nicola Holdings, L. P. , certain co-investors and certain management stockholders. |
| | |
| 5.1 | | Opinion of Kirkland & Ellis LLP. |
| | | |
| 10.1 | | Amended and Restated Credit Agreement, dated December 30, 2005, by and among the Lenders, Bank of America, N. A. , Mobile Storage Group, Inc. , Mobile Services Group, Inc. and Banc of America Securities, LLC. |
| | | |
| 10.2 | | Amended and Restated UK Credit Agreement, dated December 30, 2005, by and among the UK Lenders, Bank of America, N. A. , Mobile Storage Group, Inc. , Mobile Services Group, Inc. and Banc of America Securities, LLC. |
| | | |
| 10.3 | | Credit Agreement, dated August 1, 2006, by and among the Lenders, The CIT Group/Business Credit, Inc. , Mobile Storage Group, Inc. , Mobile Services Group, Inc. , MSG WC Holdings Corp. , MSG WC Intermediary Co. , CIT Capital Securities LLC, Lehman Brothers Inc. , Wachovia Capital Finance Corporation (Western), Merrill Lynch Capital Corporation and Textron Financial Corporation. |
| | |
| 10.4 | | UK Credit Agreement, dated August 1, 2006, by and among the Lenders, The CIT Group/Business Credit, Inc. , Mobile Storage Group, Inc. , Mobile Services Group, Inc. , MSG WC Holdings Corp. , MSG WCIntermediary Co. , Ravenstock MSG Limited, CIT Capital Securities LLC, Lehman Brothers Inc. , Wachovia Capital Finance Corporation (Western), Merrill Lynch Capital Corporation and Textron Financial Corporation. |
| | |
| 10.5 | | Office Lease Agreement between EOP-700 North Brand, L. L. C. and Mobile Storage Group, Inc. |
| | |
| 10.6 | | MSG WC Holdings Corp. 2006 Stock Option Plan. * |
| | |
| 10.7 | | MSG WC Holdings Corp. 2006 Stock Incentive Plan. * |
| | |
| 10.8 | | MSG WC Holdings Corp. 2006 Employee Stock Option Plan. * |
| | |
| 10.9 | | Amended and Restated Employment Agreement, dated August 1, 2006, by and among Douglas A. Waugaman, Mobile Storage Group, Inc. and MSG WC Holdings Corp. * |
| | |
| 10.10 | | Employment Agreement, dated October 4, 2005, by and among Allan A. Villegas and Mobile Storage Group, Inc. * |
| | |
| 10.11 | | Employment Agreement, dated November 9, 2005, by and among Christopher A. Wilson and Mobile Storage Group, Inc. * |
| | |
| 10.12 | | Employment Agreement, dated August 19, 2004, by and among William Armstead and Mobile Storage Group, Inc. * |
| | |
| 10.13 | | Employment Agreement, dated January 13, 2004, by and among Jody E. Miller and Mobile Storage Group, Inc. * |
II-7
| 10.14 | | Employment Agreement, dated February 12, 2006, by and among Gilbert Gomez and Mobile Storage Group, Inc.* |
| |
| 10.15 | | Employment Agreement, dated June 1, 2004, by and among Lynn Courville and Mobile Storage Group, Inc.* |
| |
| 10.16 | | Amended and Restated Employment Agreement, dated November 7, 2006, by and among Jeffrey E. Vaughn, Mobile Storage Group, Inc. and MSG WC Holdings Corp.* |
| |
| 10.17 | | Employment Agreement, dated July 17, 2007, by and among Ron Halchishak, Mobile Storage Group, Inc. and Mobile Services Group, Inc.* |
| |
| 10.18 | | Offer Letter, dated October 15, 2004, from Mobile Storage Group, Inc. to Jeffrey A. Kluckman.* |
| |
| 10.19 | | Statement of Particulars of Employment of Ronald Halchishak with Ravenstock MSG Ltd, dated July 17, 2007 |
| |
| 10.20 | | Management Services Agreement, dated August 1, 2006, by and among Mobile Services Group, Inc., MSG WC Holdings Corp. and WCAS Management Corporation. |
| |
| 10.21 | | Indemnification Agreement, dated May 10, 2006, by and among Mobile Storage Group, Inc., Mobile Services Group, Inc. and Christopher A. Wilson. |
| |
| 10.22 | | Indemnification Agreement, dated May 10, 2006, by and among Mobile Storage Group, Inc., Mobile Services Group, Inc. and Allan A. Villegas. |
| |
| 10.23 | | Indemnification Agreement, dated May 10, 2006, by and among Mobile Storage Group, Inc., Mobile Services Group, Inc. and Douglas A. Waugaman. |
| |
| 10.24 | | Board Retention and Consulting Agreement, dated January 31, 2007, by and among Mobile Storage Group, Inc., MSG WC Holdings Corp. and Ronald F. Valenta. |
| |
| 10.25 | | Board Retention and Consulting Agreement, dated August 28, 2006, by and among Mobile Storage Group, Inc., MSG WC Holdings Corp. and Jim Martell. |
| | | |
| 10.26 | | Consulting Agreement, dated May 1, 2003, by and among Mobile Storage Group, Inc. and Ronald F. Valenta.* |
| |
| 10.27 | | Mobile Storage Group, Inc. 2007 Corporate Incentive Plan Executive Plan.*(1) |
| | |
| 10.28 | | 2007 U.K. Special Incentive Plan.*(1) |
| | | |
| 12.1 | | Statement re Calculation of Ratio of Earnings to Fixed Charges. |
| |
| 21.1 | | Subsidiaries of Registrants. |
| |
| 23.1 | | Consent of Independent Registered Public Accounting Firm. |
| |
| 23.2 | | Consent of Kirkland & Ellis LLP (included in Exhibit 5.1). |
| |
| 24.1 | | Powers of Attorney (included in signature pages). |
| |
| 25.1 | | Statement of Eligibility of Trustee. |
| |
| 99.1 | | Letter of Transmittal. |
| |
* Denotes management contract or compensatory plan or arrangement.
| (1) | Portions of this document have been omitted and will be filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment of the omitted portions. | |
| | | |
| | | |
II-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Mobile Services Group, Inc.
We have audited the consolidated financial statements of Mobile Services Group, Inc, and subsidiaries (the “Company”) as of December 31, 2006 (Successor Company) and 2005 (Predecessor Company), and for each of the years ended December 31, 2004 (Predecessor Company), and 2005 (Predecessor Company) and 2005 (Predecessor Company), the period form January 1, 2006 to August 1, 2006 (Predecessor Company), and the period from August 2, 2006 to December 31, 2006 (Successor Company), and have issued our report thereon dated March 21, 2007 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 21(b) of this Registration Statement. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
| | | /s/ Ernst & Young LLP |
| |
| Woodland Hills, California | | |
| March 21, 2007 | | |
II-9
Schedule II
MOBILE SERVICES GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
(1) Deductions represent uncollectible accounts written-off, net of recoveries
| | Balance at | | Charges to | | | | |
| | Beginning of | | Cost and | | | | Balance at |
| | Period | | Expenses | | Deductions (1) | | End of Period |
| |
| Year ended December 31, 2004 (Predecessor) | | | | | | | | |
| Allowance for doubtful accounts | | $ 515 | | $ 487 | | $ (448) | | $ 554 |
| |
| Year ended December 31, 2005 (Predecessor) | | | | | | | | |
| Allowance for doubtful accounts | | $ 554 | | $ 768 | | $ (752) | | $ 570 |
| |
| Period from January 1, 2006 to August 1, 2006(Predecessor) | | | | | | | | |
| Allowance for doubtful accounts | | $ 570 | | $ 744 | | $ (183) | | $ 1,131 |
| |
| Period from August 2, 2006 to December 31,2006 (Successor) | | | | | | | | |
| Allowance for doubtfulaccounts | | $ 1,131 | | $ 147 | | $ (577) | | $ 701 |
| | | | | | | | | |
| |
| Six months ended June 30, 2007 (Successor)(Unaudited) | | | | | | | | |
| Allowance for doubtful accounts | | $ 701 | | $ 776 | | $ (465) | | $ 1,012 |
II-10
