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 and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements, although the Condensed Consolidated Balance Sheet at June 30, 2018 was derived from the audited Consolidated Balance Sheet at that date. In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The accompanying results of operations are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending June 30, 2019. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto of the Company, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 filed with the Securities and Exchange Commission (“SEC”). Unless otherwise indicated, references to “FY 2018” and “FY 2019” are to the six months ended December 31, 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, December 31, 2018 2018 Finished goods $ 18,971 $ 33,721 Work in progress 1,442 1,062 Raw materials 2,318 2,195 $ 22,731 $ 36,978 Property, Plant and Equipment Property, plant and equipment consist of the following (in thousands): Estimated Useful Life June 30, December 31, 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 45,913 Furniture, fixtures and office equipment 3 — 10 years 11,959 12,866 62,098 65,840 Less accumulated depreciation and amortization (39,788) (42,602) $ 22,310 $ 23,238 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 December 31, 2018, the gross costs of the lease fleet were $555,263,000 and $583,619,000, 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. Other intangible assets include those with indefinite (trademark and trade name) and finite (primarily customer base and lists, non-compete agreements and deferred financing costs), as follows (in thousands): June 30, 2018 December 31, 2018 Gross Accumulated Net Carrying Gross Accumulated Net Carrying Trademark and trade name $ 5,486 $ (453) $ 5,033 $ 5,484 $ (453) $ 5,031 Customer base and lists 29,057 (14,150) 14,907 30,638 (15,616) 15,022 Non-compete agreements 9,005 (7,130) 1,875 8,751 (7,513) 1,238 Deferred financing costs 3,522 (1,905) 1,617 3,563 (2,057) 1,506 Other 4,683 (2,965) 1,718 4,211 (3,157) 1,054 $ 51,753 $ (26,603) $ 25,150 $ 52,647 $ (28,796) $ 23,851 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 equity shares, restricted stock units and convertible debt. The following is a reconciliation of weighted average shares outstanding used in calculating earnings per common share: Quarter Ended December 31, Six Months Ended December 31, 2017 2018 2017 2018 Basic 26,636,594 29,907,679 26,624,141 28,649,451 Dilutive effect of common stock equivalents 674,807 — 673,125 — Diluted 27,311,401 29,907,679 27,297,266 28,649,451 Potential common stock equivalents totaling 4,415,574 and 4,417,256 for the quarter ended December 31, 2017 and FY 2018, respectively, and 2,188,412 for both the quarter ended December 31, 2018 and FY 2019 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 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 payment terms. Specific customers have extended terms for payment, but no terms are greater than one year from the invoice date. 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 amounts of rental-related services related to Topic 606 recognized during the quarter ended December 31, 2018 and FY 2019 and the quarter ended December 31, 2017 and FY 2018 were $14,811,000 and $27,811,000 and $11,917,000 and $22,847,000, 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 services in conjunction with the rental of equipment, but are not required to do so. Given the short duration of these services, equipment transportation services and other on-site services revenue of a rented unit is recognized in leasing revenue upon completion of the service. Non-Lease Revenue Non-lease revenues consist primarily of the sale of new and used units, and to a lesser extent, sales of manufactured units are all accounted for under Topic 606. Sales contracts generally have a single performance obligation that is satisfied at the time of delivery, which is the point in time control over the unit transfers and the Company is entitled to consideration due under the contract with its customer. 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 December 31, 2018 and June 30, 2018, we had approximately $20,208,000 and $19,226,000, respectively, of unearned rental revenue included in trade payables and accrued liabilities in the accompanying consolidated balance sheets. Revenues of $1,755,000 and $10,401,000, which were included in the unearned rental revenue balance at June 30, 2018, were recognized during the quarter ended December 31, 2018 and FY 2019, respectively. 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 December 31, 2018 and June 30, 2018, the Company had $238,902 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 December 31, 2018 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 17,105 $ - $ 17,105 $ - $ - $ 17,105 $ 14,708 $ 31,813 Sales manufactured units - - - 3,617 (946) 2,671 - 2,671 Total non-lease revenues 17,105 - 17,105 3,617 (946) 19,776 14,708 34,484 Leasing: Rental revenue 24,277 6,819 31,096 - (587) 30,509 12,868 43,377 Rental-related services 9,984 6,283 16,267 - - 16,267 3,865 20,132 Total leasing revenues 34,261 13,102 47,363 - (587) 46,776 16,733 63,509 Total revenues $ 51,366 $ 13,102 $ 64,468 $ 3,617 $ (1,533) $ 66,552 $ 31,441 $ 97,993 Six Months Ended December 31, 2018 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 39,563 $ - $ 39,563 $ - $ - $ 39,563 $ 27,886 $ 67,449 Sales manufactured units - - - 7,934 (1,425) 6,509 - 6,509 Total non-lease revenues 39,563 - 39,563 7,934 (1,425) 46,072 27,886 73,958 Leasing: Rental revenue 45,963 14,123 60,086 - (1,091) 58,995 25,086 84,081 Rental-related services 18,692 11,793 30,485 - - 30,485 7,261 37,746 Total leasing revenues 64,655 25,916 90,571 - (1,091) 89,480 32,347 121,827 Total revenues $ 104,218 $ 25,916 $ 130,134 $ 7,934 $ (2,516) $ 135,552 $ 60,233 $ 195,785 Quarter Ended December 31, 2017 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 13,510 $ - $ 13,510 $ - $ - $ 13,510 $ 22,555 $ 36,065 Sales manufactured units - - - 3,505 (1,425) 2,080 - 2,080 Total non-lease revenues 13,510 - 13,510 3,505 (1,425) 15,590 22,555 38,145 Leasing: Rental revenue 19,512 5,467 24,979 - (277) 24,702 12,400 37,102 Rental-related services 8,796 4,092 12,888 - - 12,888 3,995 16,883 Total leasing revenues 28,308 9,559 37,867 - (277) 37,590 16,395 53,985 Total revenues $ 41,818 $ 9,559 $ 51,377 $ 3,505 $ (1,702) $ 53,180 $ 38,950 $ 92,130 Six Months Ended December 31, 2017 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 25,338 $ - $ 25,338 $ - $ - $ 25,338 $ 36,109 $ 61,447 Sales manufactured units - - - 6,584 (2,601) 3,983 - 3,983 Total non-lease revenues 25,338 - 25,338 6,584 (2,601) 29,321 36,109 65,430 Leasing: Rental revenue 37,316 10,083 47,399 - (493) 46,906 24,552 71,458 Rental-related services 17,031 7,825 24,856 - - 24,856 7,303 32,159 Total leasing revenues 54,347 17,908 72,255 - (493) 71,762 31,855 103,617 Total revenues $ 79,685 $ 17,908 $ 97,593 $ 6,584 $ (3,094) $ 101,083 $ 67,964 $ 169,047 Recently Issued Accounting Pronouncements In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842) In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities |