Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”) applicable to interim financial information and the instructions to Form 10-Q Regulation S-X. 10-K for Unless otherwise indicated, references to “FY 2018” and “FY 2019” are to the quarter ended September 30, 2017 and 2018, respectively. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include assumptions used in assigning value to identifiable intangible assets at the acquisition date, the assessment for impairment of goodwill, the assessment for impairment of other intangible assets, the allowance for doubtful accounts, share-based compensation expense, residual value of the lease fleet, derivative liability valuation and deferred tax assets and liabilities. Assumptions and factors used in the estimates are evaluated on an annual basis or whenever events or changes in circumstances indicate that the previous assumptions and factors have changed. The results of the analysis could result in adjustments to estimates. Inventories Inventories are comprised of the following (in thousands): June 30, September 30, 2018 2018 Finished goods $ 18,971 $ 34,373 Work in progress 1,442 1,471 Raw materials 2,318 2,686 $ 22,731 $ 38,530 Property, Plant and Equipment Property, plant and equipment consist of the following (in thousands): Estimated Useful Life June 30, September 30, 2018 2018 Land — $ 2,168 $ 2,168 Building and improvements 10 — 40 years 4,893 4,893 Transportation and plant equipment (including capital lease assets) 3 — 20 years 43,078 43,886 Furniture, fixtures and office equipment 3 — 10 years 11,959 12,320 62,098 63,267 Less accumulated depreciation and amortization (39,788 ) (41,026 ) $ 22,310 $ 22,241 Lease Fleet The Company has a fleet of storage, portable building, office and portable liquid storage tank containers, mobile offices, modular buildings and steps that it primarily leases to customers under operating lease agreements with varying terms. Units in the lease fleet are also available for sale. The cost of sales of a unit in the lease fleet is recognized at the carrying amount at the date of sale. At June 30, 2018 and September 30, 2018, the gross costs of the lease fleet were $555,263,000 and $567,230,000, respectively. Goodwill and Other Intangible Assets The purchase consideration of acquired businesses have been allocated to the assets and liabilities acquired based on the estimated fair values on the respective acquisition dates (see Note 4). Based on these values, the excess purchase consideration over the fair value of the net assets acquired was allocated to goodwill. The Company accounts for goodwill in accordance with FASB ASC Topic 350, Intangibles — Goodwill and Other. Pac-Van, Other intangible assets include those with indefinite (trademark and trade name) and finite (primarily customer base and lists, non-compete June 30, 2018 September 30, 2018 Gross Accumulated Net Gross Accumulated Net Carrying Trademark and trade name $ 5,486 $ (453) $ 5,033 $ 5,486 $ (453) $ 5,033 Customer base and lists 29,057 (14,150) 14,907 30,141 (14,910) 15,231 Non-compete 9,005 (7,130) 1,875 8,748 (7,159) 1,589 Deferred financing costs 3,522 (1,905) 1,617 3,522 (2,013) 1,509 Other 4,683 (2,965) 1,718 4,288 (3,072) 1,216 $ 51,753 $ (26,603) $ 25,150 $ 52,185 $ (27,607) $ 24,578 Net Income per Common Share Basic net income per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the periods. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, vested or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential dilutive securities (common stock equivalents) the Company had outstanding related to stock options, non-vested Quarter Ended September 30, 2017 2018 Basic 26,611,688 27,391,220 Dilutive effect of common stock equivalents — — Diluted 26,611,688 27,391,220 Potential common stock equivalents totaling 1,807,476 and 2,240,081 for FY 2018 and FY 2019, respectively, have been excluded from the computation of diluted earnings per share because the effect is anti-dilutive. Revenue from Contracts with Customers The Company leases and sells new and used storage, office, building and portable liquid storage tank containers, modular buildings and mobile offices to its customers, as well as provides other ancillary products and services. The Company recognizes revenue in accordance with two accounting standards. The portions of the Company’s revenues that arise from lease arrangements are accounted for in accordance with Topic 840, Leases non-lease No. 2014-09, Revenue from Contracts with Customers Our portable storage and modular space rental customers are generally billed in advance for services, which generally includes fleet pickup. Liquid containment rental customers are typically billed in arrears monthly and sales transactions are generally billed upon transfer of the sold items. Payments from customers are generally due upon receipt or 30-day Leasing Revenue Typical rental contracts include the direct rental of fleet, which is accounted for under Topic 840. Rental-related services include fleet delivery and fleet pickup, as well as other ancillary services, which are primarily accounted for under Topic 606. The total rental-related services amount related to Topic 606 recognized during FY 2019 and FY 2018 was $12,893,000 and $10,930,000, respectively. A small portion of the rental-related services, include subleasing, special events leases and other miscellaneous streams, are accounted for under Topic 840. For contracts that have multiple performance obligations, revenue is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation. The standalone selling price is determined using methods and assumptions developed consistently across similar customers and markets generally applying an expected cost plus an estimated margin to each performance obligation. Rental contracts are based on a monthly rate for our portable storage and modular space fleet and a daily rate for our liquid containment fleet. Rental revenue is recognized ratably over the rental period. The rental continues until the end of the initial term of the lease or when cancelled by the customer or the Company. If equipment is returned prior to the end of the contractual lease period, customers are typically billed a cancellation fee, which is recorded as rental revenue in the period billed. Customers may utilize our equipment transportation services and other on-site on-site Non-Lease Non-lease Contract Costs and Liabilities The Company incurs commission costs to obtain rental contracts and for sales of new and used units. We expect the period benefitted by each commission to be less than one year. Therefore, we have applied the practical expedient for incremental costs of obtaining a contract and expense commissions as incurred. When customers are billed in advance for rentals, end of lease services, and deposit payments, we defer revenue and reflect unearned rental revenue at the end of the period. As of September 30, 2018 and June 30, 2018, we had approximately $20,844,000 and $19,226,000, respectively, of unearned rental revenue included in trade payables and accrued liabilities in the accompanying consolidated balance sheets. Rental revenues of $7,224,000, which were included in the unearned rental revenue balance at June 30, 2018, were recognized during FY 2019. We expect to perform the remaining performance obligations and recognize the unearned rental revenue generally within the next twelve months. Sales taxes charged to customers are excluded from revenues and expenses. Sales of new modular buildings not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. Certain sales of manufactured units are covered by assurance-type warranties and as of September 30, 2018 and June 30, 2018, the Company had $233,616 and $238,956, respectively, of warranty reserve included in trade payables and accrued liabilities in the accompanying consolidated balance sheets. Disaggregated Rental Revenue In the following table, total revenue is disaggregated by revenue type for the periods indicated. The table also includes a reconciliation of the disaggregated rental revenue to our reportable segments. Quarter Ended September 30, 2018 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 22,458 $ - $ 22,458 $ - $ - $ 22,458 $ 13,178 $ 35,636 Sales manufactured units - - - 4,317 (479) 3.838 - 3,838 Total non-lease 22,458 - 22,458 4,317 (479) 26,296 13,178 39,474 Leasing: Rental revenue 21,687 7,305 28,992 - (504) 28,488 12,218 40,706 Rental-related services 8,707 5,509 14,216 - - 14,216 3,396 17,612 Total leasing revenues 30,394 12,814 43,208 - (504) 42,704 15,614 58,318 Total revenues $ 52,852 $ 12,814 $ 65,666 $ 4,317 $ (983) $ 69,000 $ 28,792 $ 97,792 Quarter Ended September 30, 2017 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 11,828 $ - $ 11,828 $ - $ - $ 11,828 $ 13,554 $ 25,382 Sales manufactured units - - - 3,079 (1,176) 1,903 - 1,903 Total non-lease 11,828 - 11,828 3,079 (1,176) 13,731 13,554 27,285 Leasing: Rental revenue 17,804 4,616 22,420 - (216) 22,204 12,152 34,356 Rental-related services 8,235 3,733 11,968 - - 11,968 3,308 15,276 Total leasing revenues 26,039 8,349 34,388 - (216) 34,172 15,460 49,632 Total revenues $ 37,867 $ 8,349 $ 46,216 $ 3,079 $ (1,392) $ 47,903 $ 29,014 $ 76,917 Recently Issued Accounting Pronouncements In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842) No. 2018-01 No. 2018-10 No. 2018-11 off-balance No. 2016-02, “right-of-use” right-of-use No. 2016-02 No. 2016-02 In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities No. 2017-12 non-financial No. 2017-12 No. 2017-12 |