| Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Unless otherwise indicated, references to “FY 2018,” “FY 2019” and “FY 2020” are to the fiscal years ended June 30, 2018, 2019 and 2020, respectively. Certain amounts have been reclassified or revised to conform with the current year presentation. The most significant are the rates disclosed at June 30, 2019 in the table for the open interest rate swap contract in Note 6. Principles of Consolidation The 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. Foreign Currency Translation The Company’s functional currencies for its foreign operations are the respective local currencies, the Australian (“AUS”) and New Zealand (“NZ”) dollars in the Asia-Pacific area and the Canadian (“C”) dollar in North America. All adjustments resulting from the translation of the accompanying consolidated financial statements from the functional currency into reporting currency are recorded as a component of stockholders’ equity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency Matters Non-monetary Non-monetary Segment Information FASB ASC Topic 280, Segment Reporting Pac-Van 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. The new strain of coronavirus (“COVID-19”) COVID-19 COVID-19 Cash Equivalents The Company considers highly liquid investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on its cash balances. Inventories Inventories are stated at the lower of cost or net realizable value and consist of primarily finished goods for containers, modular buildings and mobile offices held for sale or lease; as well as raw materials, work in-process first-in, first-out June 30, 2019 2020 Finished goods $ 25,576 $ 17,347 Work in-process 1,275 1,161 Raw materials 2,226 2,420 $ 29,077 $ 20,928 Derivative Financial Instruments The Company may use derivative financial instruments to hedge its exposure to foreign currency and interest rate risks arising from operating, financing and investing activities. The Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on the remeasurement to fair value on unhedged (or the ineffective portion of hedged) derivative financial instruments is recognized in the statement of operations. Also, as more fully discussed in Note 5, the Company accounts for the fair value of embedded derivatives in a convertible note that required bifurcation. Accounting for Stock Options For the issuances of stock options, the Company follows the fair value provisions of FASB ASC Topic 718, Stock Compensation non-employee non-employee Fair Value Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 6. Fair value estimates would involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labor, the initial estimate (where relevant) of the costs of dismantling and removing the items and restoring the site on which they are located; and an appropriate allocation of production overhead, where applicable. Depreciation for property, plant and equipment is recorded on the straight-line basis over the estimated useful lives of the related asset. The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. Property, plant and equipment consist of the following (in thousands): Estimated Useful Life June 30, 2019 2020 Land — $ 2,168 $ 2,168 Building and improvements 10 — 40 years 4,893 4,899 Transportation and plant equipment (including finance lease assets – see Note 10) 3 — 20 years 47,433 50,497 Furniture, fixtures and office equipment 3 — 10 years 13,786 14,583 68,280 72,147 Less accumulated depreciation and amortization (45,385 ) (47,751 ) $ 22,895 $ 24,396 Depreciation and amortization expense on property, plant and equipment totaled $6,942,000, $7,477,000 and $6,563,000 for FY 2018, FY 2019 and FY 2020, respectively. 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. The value of the lease fleet (or lease or rental equipment) is recorded at cost and depreciated on the straight-line basis over the estimated useful life (5 - 20 years), after the date the units are put in service, down to their estimated residual values (up to 70% of cost). In the opinion of management, estimated residual values are at or below net realizable values. The Company periodically reviews these depreciation policies in light of various factors, including the practices of the larger competitors in the industry, and its own historical experience. Costs incurred on lease fleet units subsequent to initial acquisition are capitalized when it is probable that future economic benefits in excess of the originally assessed performance will result; otherwise, they are expensed as incurred. At June 30, 2019 and 2020, the gross costs of the lease fleet were $598,757,000 and $613,358,000, respectively. 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. Depreciation expense on lease fleet totaled $26,522,000, $29,553,000 and $25,241,000 for FY 2018, FY 2019 and FY 2020, respectively. Impairment of Long-Lived Assets The Company periodically reviews for the impairment of long-lived assets and assesses when an event or change in circumstances indicates the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and the eventual disposition is less than its carrying amount. The Company has determined that no impairment provision related to long-lived assets was required to be recorded as of June 30, 2019 and 2020. Goodwill 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. and the vast majority of goodwill recorded (and currently on the books) was in the acquisitions of Royal Wolf, Pac-Van The Company assesses the potential impairment of goodwill on an annual basis or if a determination is made based on a qualitative assessment that it is more likely than not (i.e., greater than 50%) that the fair value of the reporting unit is less than its carrying amount. Qualitative factors which could cause an impairment include (1) significant underperformance relative to historical, expected or projected future operating results; (2) significant changes in the manner of use of the acquired businesses or the strategy for the Company’s overall business; (3) significant changes during the period in the Company’s market capitalization relative to net book value; and (4) significant negative industry or general economic trends. If the Company did determine that fair value is more likely than not less than the carrying amount, a quantitative process for potential impairment is performed where the fair value of the reporting unit is compared to its carrying value to determine if the goodwill is impaired. If the carrying value of the net assets assigned to the reporting unit were to exceed its fair value, then in accordance with FASB Accounting Standards Update (“ASU”) No. 2017-04, The Company’s annual impairment assessment at June 30, 2019 concluded that the fair value of the goodwill of each of its reporting units was greater than their respective carrying amounts. The North American oil and gas market has been, and the Company expects it to continue to be, highly cyclical, generally fluctuating in correlation with the price of West Texas Intermediate Crude (“WTI”). The decrease in demand caused by the COVID-19 impairment charge was recorded. The Company’s annual impairment assessment at June 30, 2020 for its other operating units concluded that the fair value of the goodwill for each of them was greater than their respective carrying amounts. Determining the fair value of a reporting unit requires judgment and involves the use of significant estimates and assumptions. The Company based its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions. The change in the balance of goodwill was as follows (in thousands): June 30, 2018 2019 2020 Beginning of year (a) $ 105,129 $ 109,943 $ 111,323 Additions to goodwill 5,827 2,819 657 Impairment of goodwill — — (14,160 ) Other adjustments, primarily foreign translation effect (1,013 ) (1,439 ) (596 ) End of year (b) $ 109,943 $ 111,323 $ 97,224 (a) Net of accumulated impairment losses of $16,172 for all periods presented. (b) Net of accumulated impairment losses of $16,172 at June 30, 2018 and 2019, and $30,332 at June 30, 2020. Goodwill recorded from domestic acquisitions of businesses under asset purchase agreements is deductible for U.S. federal income tax purposes over 15 years, even though goodwill is not amortized for financial reporting purposes. Intangible Assets Intangible assets include those with indefinite (trademark and trade name) and finite (primarily customer base and lists, non-compete non-compete June 30, 2019 June 30, 2020 Gross Accumulated Net Gross Accumulated Net Trademark and trade name $ 5,486 $ (453 ) $ 5,033 $ 5,486 $ (453 ) $ 5,033 Customer base and lists 31,069 (17,174 ) 13,895 31,691 (19,612 ) 12,079 Non-compete 8,782 (8,031 ) 751 8,651 (8,226 ) 425 Deferred financing costs 3,563 (2,290 ) 1,273 3,643 (2,769 ) 874 Other 4,328 (3,471 ) 857 2,828 (2,468 ) 360 $ 53,228 $ (31,419 ) $ 21,809 $ 52,299 $ (33,528 ) $ 18,771 The Company reviews intangible assets (those assets resulting from acquisitions) for impairment if it determines, based on a qualitative assessment, that it is more likely than not (i.e., greater than 50%) that fair value might be less than the carrying amount. If the Company determines that fair value is more likely than not less than the carrying amount, then impairment would be quantitatively tested, using historical cash flows and other relevant facts and circumstances as the primary basis for estimates of future cash flows. If it determines that fair value is not likely to be less than the carrying amount, then no further testing would be required. The Company conducted its review at each fiscal year-end, Amortization expense related to amortizable intangible assets, other than deferred financing costs, totaled $6,871,000, $5,078,000 and $3,746,000 for FY 2018, FY 2019 and FY 2020, respectively. Amortization expense, which is included in interest expense, related to deferred financing costs recorded as amortizable intangible assets totaled $446,000, $559,000 and $479,000 for FY 2018, FY 2019 and FY 2020, respectively. The estimated future amortization of intangible assets with finite useful lives as of June 30, 2020 is as follows (in thousands): Year Ending June 30, 2021 $ 3,195 2022 2,558 2023 1,773 2024 1,381 2025 1,211 Thereafter 3,620 $ 13,738 The weighted-average remaining useful life of the finite intangible assets was approximately 8.4 years at June 30, 2020. Defined Contribution Benefit Plan Obligations for contributions to defined contribution benefit plans are recognized as an expense in the statement of operations as incurred. Contributions to defined contribution benefit plans in FY 2018, FY 2019 and FY 2020 were $1,552,000, $1,588,000 and $1,631,000, respectively. 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 rental revenue portions of the Company’s revenues that arise from lease arrangements are accounted for in accordance with Topic 842, 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 842. 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 FY 2020, FY 2019 and FY 2018 were $52,048,000, $55,235,000 and $47,600,000, respectively. A small portion of the rental-related services, include subleasing, special events leases and other miscellaneous streams, are accounted for under Topic 842. 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. The Company did not elect the practical expedient for lessor accounting. 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 upon the return of the equipment. 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 June 30, 2019 and June 30, 2020, we had approximately $22,671,000 and $24,642,000, respectively, of unearned rental revenue included in unearned revenue and advance payments in the accompanying consolidated balance sheets. Revenues of $15,453,000, which were included in the unearned rental revenue balance at June 30, 2019, were recognized during FY 2020. The Company’s uncompleted contracts with customers have unsatisfied (or partially satisfied) performance obligations. For the future service revenues that are expected to be recognized within twelve months, the Company has elected to utilize the optional disclosure exemption made available regarding transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations. The transaction price for performance obligations that will be completed in greater than twelve months is generally variable based on the costs ultimately incurred to provide those services and therefore we are applying the optional exemption to omit disclosure of such amounts. 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 June 30, 2019 and June 30, 2020, the Company had $219,331 and $136,394, respectively, of warranty reserve included in trade payables and accrued liabilities in the accompanying consolidated balance sheets. Disaggregated Rental Revenue In the following tables, total revenue is disaggregated by revenue type for the periods indicated. The tables also include a reconciliation of the disaggregated rental revenue to the Company’s reportable segments (in thousands). FY 2020 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 68,767 $ 35 $ 68,802 $ — $ — $ 68,802 $ 52,521 $ 121,323 Sales manufactured units — — — 12,451 (5,132 ) 7,319 — 7,319 Total non-lease 68,767 35 68,802 12,451 (5,132 ) 76,121 52,521 128,642 Leasing: Rental revenue 99,101 12,954 112,055 — (616 ) 111,439 47,648 159,087 Rental-related services 40,206 13,069 53,275 — — 53,275 15,475 68,750 Total leasing revenues 139,307 26,023 165,330 — (616 ) 164,714 63,123 227,837 Total revenues $ 208,074 $ 26,058 $ 234,132 $ 12,451 $ (5,748 ) $ 240,835 $ 115,644 $ 356,479 FY 2019 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 72,241 $ — $ 72,241 $ — $ — $ 72,241 $ 54,691 $ 126,932 Sales manufactured units — — — 14,922 (4,138 ) 10,784 — 10,784 Total non-lease 72,241 — 72,241 14,922 (4,138 ) 83,025 54,691 137,716 Leasing: Rental revenue 101,830 25,269 127,099 — (1,862 ) 125,237 49,813 175,050 Rental-related services 28,631 21,955 50,586 — — 50,586 14,854 65,440 Total leasing revenues 130,461 47,224 177,685 — (1,862 ) 175,823 64,667 240,490 Total revenues $ 202,702 $ 47,224 $ 249,926 $ 14,922 $ (6,000 ) $ 258,848 $ 119,358 $ 378,206 FY 2018 North America Leasing Pac-Van Lone Star Combined Manufacturing Corporate and Total Asia – Consolidated Non-lease: Sales lease inventories and fleet $ 55,438 $ 20 $ 55,458 $ — $ — $ 55,458 $ 67,009 $ 122,467 Sales manufactured units — — — 13,565 (3,715 ) 9,850 — 9,850 Total non-lease 55,438 20 55,458 13,565 (3,715 ) 65,308 67,009 132,317 Leasing: Rental revenue 76,693 22,769 99,462 — (1,132 ) 98,330 49,404 147,734 Rental-related services 35,334 17,191 52,525 — — 52,525 14,726 67,251 Total leasing revenues 112,027 39,960 151,987 — (1,132 ) 150,855 64,130 214,985 Total revenues $ 167,465 $ 39,980 $ 207,445 $ 13,565 $ (4,847 ) $ 216,163 $ 131,139 $ 347,302 Advertising Advertising costs are generally expensed as incurred. At June 30, 2019 and 2020, prepaid advertising costs were not significant. Advertising costs expensed were approximately $3,834,000, $3,587,000 and $3,674,000 for FY 2018, FY 2019 and FY 2020, respectively. Shipping and Handling Costs The Company reports shipping and handling costs, primarily related to outbound freight in its North American manufacturing operations, as a component of selling and general expenses. Shipping and handling costs totaled $483,000, $546,000 and $149,000 in FY 2018, FY 2019 and FY 2020, respectively. Freight charges billed to customers are recorded as revenue and included in sales. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for temporary differences between the financial reporting basis and income tax basis of assets and liabilities at the balance sheet date multiplied by the applicable tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period. The Company files U.S. Federal tax returns, multiple U.S. state (and state franchise) tax returns and Australian, New Zealand and Canadian tax returns. For U.S. Federal tax purposes, all periods subsequent to June 30, 2016 are subject to examination by the U.S. Internal Revenue Service (“IRS”); and, for U.S. state tax purposes, with few exceptions and depending on the state, periods subsequent to June 30, 2015 are subject to examination by the respective state’s taxation authorities. Periods subsequent to June 30, 2016, June 30, 2015 and June 30, 2013 are subject to examination by the respective taxation authorities in Canada, Australia and New Zealand, respectively. Tax records are required to be kept for five years and seven years in Australia and New Zealand, respectively. The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change. Therefore, no reserves for uncertain income tax positions have been recorded. In addition, the Company does not anticipate that the total amount of unrecognized tax benefit related to any particular tax position will change significantly within the next 12 months. The Company’s policy for recording interest and penalties, if any, will be to record such items as a component of income taxes. Enacted U.S. Federal Tax Legislation Introduced initially as the Tax Cuts and Jobs Act, the Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (the “Act”) was enacted on December 22, 2017. The Act applied to corporations generally beginning with taxable years starting after December 31, 2017, or FY 2019 for the Company, and reduced the corporate tax rate from a graduated set of rates with a maximum 35% tax rate to a flat 21% tax rate. Additionally, the Act introduced other changes that impact corporations, including a net operating loss (“NOL”) deduction annual limitation, an interest expense deduction annual limitation, elimination of the alternative minimum tax, and immediate expensing of the full cost of qualified property. The Act also introduced an international tax reform that moved the U.S. toward a territorial system, in which income earned in other countries will generally not be subject to U.S. taxation. However, the accumulated foreign earnings of certain foreign corporations was subject to a one-time In addition, the Act introduced a tax on Global Intangible Low-Taxed Income (“GILTI”) to include in its gross income annually. In accordance with ASC Topic 740, Income Taxes re-measured re-measurement During FY 2019, the remeasurement offset was adjusted to $4,493,000 for the transition tax and a valuation allowance of $529,000. The net benefit of $151,000 has been recorded through the FY 2019 income tax provision. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020. Among other things, the CARES Act includes changes to the tax treatment of NOLs for corporations. It temporarily removes the limitations on NOL carryforwards to years beginning before January 1, 2021 and allows for NOL carrybacks. It also temporarily increases the annual limitation on interest expense. The CARES Act did not have a significant impact on the Company’s income tax provision for FY 2020. 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 FY 2018 FY 2019 FY 2020 Basic 26,269,931 29,318,511 30,252,431 Dilutive effect of common stock equivalents — — 1,001,353 Diluted 26,269,931 29,318,511 31,253,784 Potential common stock equivalents totaling 5,475,347, 2,144,800 and 1,115,215 for FY 2018, FY 2019 and FY 2020, respectively, have been excluded from the computation of diluted earnings per share because the effect is anti-dilutive. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) |
