UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended June 30, 2011
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-32845
(Exact name of registrant as specified in its charter)
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Delaware
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32-0163571 |
(State or other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.) |
Organization) |
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39 East Union Street |
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Pasadena, California 91103
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(626) 584-9722 |
(Address of Principal Executive Offices)
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(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Each Exchange On Which Registered |
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Units, each consisting of one share of Common Stock,
$0.0001 par value, and One Warrant
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NASDAQ Global Market |
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Common Stock, $0.0001 par value
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NASDAQ Global Market |
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Warrants to Purchase 0.5 Shares of Common Stock
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NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the last 90 days. Yes þ
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No þ
The aggregate market value of Common Stock held by non-affiliates of the Registrant on December
31, 2010 was approximately $26,937,000 based on a closing price of $1.98 for the Common Stock
on such date. For purposes of this computation, all executive officers and directors have been
deemed to be affiliates. Such determination should not be deemed to be an admission that such
executive officers and directors are, in fact, affiliates of the Registrant.
There were 22,013,299 shares of the Registrants Common Stock outstanding as of September 9,
2011.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2010 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K. In addition,
certain exhibits are incorporated into Part IV, Item 15. of this Annual Report on Form 10-K by
reference to other reports and registration statements of the Registrant, which have been filed
with the Securities and Exchange Commission.
GENERAL FINANCE CORPORATION
2011 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
i
SAFE HARBOR STATEMENT
This Annual Report on Form 10-K, including the documents incorporated by reference into this
Annual Report on Form 10-K, contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, referred to in this Annual Report on Form 10-K as the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, referred to in
this Annual Report on Form 10-K as the Exchange Act. Forward-looking statements involve risks and
uncertainties that could cause results or outcomes to differ materially from those expressed in the
forward-looking statements. Forward-looking statements may include, without limitation, statements
relating to our plans, strategies, objectives, expectations and intentions and are intended to be
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Some of the forward-looking statements can be identified by the use of forward-looking terms
such as believes, expects, may, will, should, could, seek, intends, plans,
estimates, anticipates or other comparable terms. A number of important factors could cause
actual results to differ materially from those in the forward-looking statements. The risks and
uncertainties discussed in Risk Factors should be considered in evaluating our forward-looking
statements. You should not place undue reliance on our forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and we undertake no
obligation to update or revise any forward-looking statements.
ii
PART I
References to we, us, our or the Company refer to General Finance Corporation, a
Delaware corporation (GFN), and its consolidated subsidiaries. These subsidiaries include GFN
U.S. Australasia Holdings, Inc., a Delaware corporation (GFN U.S.); GFN North America Corp., a
Delaware corporation (GFNNA); GFN Mobile Storage Inc., a Delaware corporation (GFNMS); Royal
Wolf Holdings Limited (formerly GFN Australasia Holdings Pty Ltd)., an Australian corporation
publicly traded on the Australian Securities Exchange (RWH or GFN Holdings); GFN Australasia
Finance Pty Ltd, an Australian corporation (GFN Finance); RWA Holdings Pty Limited (RWA), an
Australian corporation, and its Australian and New Zealand subsidiaries (collectively, Royal
Wolf); and Pac-Van, Inc., an Indiana corporation (combined with GFNMS, Pac-Van).
Background and Overview
We incorporated in Delaware on October 14, 2005 and completed our initial public offering (the
IPO) in April 2006. On September 13, 2007 (September 14 in Australia), we acquired Royal Wolf by
purchasing the outstanding shares of RWA. The purchase price paid to the former shareholders of RWA
was $64.3 million, which consisted of $44.7 million in cash, the issuance to Bison Capital
Australia, L.P., (Bison Capital), one of the sellers, of shares of common stock of GFN U.S. and
the issuance of a note to Bison Capital. Following the acquisition, we owned 86.2% of the
outstanding capital stock of GFN U.S. and Bison Capital owned 13.8% of the outstanding capital
stock of GFN U.S. Royal Wolf leases and sells storage containers, portable container buildings and
freight containers in Australia and New Zealand, which is considered geographically by the Company
to be the Asia-Pacific area.
On October 1, 2008, we acquired Pac-Van through a merger with Mobile Office Acquisition Corp.
(MOAC), the parent of Pac-Van, and our wholly-owned subsidiary formed in July 2008, GFNNA. In
addition to assuming Pac-Vans senior and other debt, we paid $46.5 million to the stockholders of
MOAC by a combination of $19.4 million in cash, 4,000,000 shares of GFN restricted common stock
(valued at $25.6 million) and a 20-month subordinated promissory note in the aggregate principal
amount of $1.5 million bearing interest at 8% per annum. Pac-Van leases and sells storage and
office containers, modular buildings and mobile offices in the United States.
The economic downturn in the United States, particularly in the construction related
industries (where Pac-Van has currently over 30% of its business and historically has had over
40%), and, until recently, the global economy in general, have had an adverse impact on the
Companys operating results. To offset this adverse effect, we undertook cost-reduction and other
measures, particularly in the U.S., to reduce our indebtedness and to strive to comply with
financial loan covenants. Reference is made to the Liquidity and Financial Condition section for
a discussion of the more significant capital transactions we undertook in improving our senior and
other debt leverage position, including an initial public offering (IPO) in Australia of a
noncontrolling interest in Royal Wolf.
Our long-term strategy and business plan is to acquire and operate rental services and
specialty finance businesses in North America, Europe and the Asia-Pacific area.
Our two operating subsidiaries, Royal Wolf and Pac-Van, lease and sell storage container
products, modular buildings and mobile offices through seventeen customer service centers (CSCs)
in Australia, six CSCs in New Zealand and twenty-six branch locations across eighteen states in the
United States. As of June 30, 2011, we had 229 and 179 employees and 30,170 and 11,176 lease fleet
units in the Asia-Pacific area and United States, respectively. We do business in two distinct, but
related industries; mobile storage and modular space, which we collectively refer to as the
portable services industry. Prior to our acquisition of Pac-Van, our revenue mix was
approximately 70% sales and 30% leasing. However, during the year ended June 30, 2011 the mix was
51% sales and 49% leasing.
Our products include the following:
Mobile Storage
Storage Containers. Storage containers consist of new and used shipping containers that
provide a flexible, low cost alternative to warehousing, while offering greater security,
convenience and immediate accessibility. Our storage products include general purpose dry storage
containers, refrigerated containers and specialty containers in a range of standard and modified
sizes, designs and storage capacities. Specialty containers include blast-resistant units, hoarding
units and hazardous-waste units. We also offer storage vans, also known as storage trailers or
dock-height trailers.
Freight Containers. Freight containers are specifically designed for transport of products by
road and rail. Our freight container products include curtain-side, refrigerated and bulk cargo
containers, together with a range of standard and industry-specific dry freight containers.
I-1
Modular Space
Modular Buildings. Also known as manufactured buildings, modular buildings provide customers
with additional space and are often modified to customer specifications. Modular buildings range in
size from 1,000 to more than 30,000 square feet and may be highly customized.
Mobile Offices. Also known as trailers or construction trailers, mobile offices are
re-locatable units with aluminum or wood exteriors on wood (or steel) frames on a steel carriage
fitted with axles, allowing for an assortment of add-ons to provide comfortable and convenient
temporary space solutions.
Portable Container Buildings and Office Containers. Portable container buildings and office
containers are either modified or specifically-manufactured containers that provide self-contained
office space with maximum design flexibility. Office containers in the U.S. are oftentimes
referred to as ground level offices (GLOs).
ROYAL WOLF
Royal Wolf is the leading provider in Australia and New Zealand of portable storage
containers, portable container buildings and freight containers, which we refer to collectively as
storage container products. Royal Wolf leases and sells storage container products through its 23
Customer Service Centers (CSCs) located in every state in Australia and in the North and South
Islands of New Zealand. We believe Royal Wolf has the largest lease fleet of storage container
products in Australia and New Zealand. Royal Wolf is the only portable container lease and sales
company with CSCs in all major business centers in Australia and New Zealand and, as such, is the
only storage container products company in Australia and New Zealand with a national infrastructure
and work force. Royal Wolf has an experienced senior management team. Robert Allan, the chief
executive officer of Royal Wolf, has 26 years of experience in the equipment leasing industry. The
ten members of the senior management team of Royal Wolf have an average of over 15 years of
experience in the equipment leasing industry. We believe the experience of this management team
will be critical to growing Royal Wolfs business.
Royal Wolfs storage container products are used by a broad range of industries. Our storage
container products provide secure, accessible temporary storage for a diverse client base of nearly
21,000 large and small customers who conduct business in industries that include mining, road and
rail, construction, moving and storage, manufacturing, transportation, defense and in the support
of small and medium-size entities (SMEs). Our customers use our products for a wide variety of
storage applications, including retail and manufacturing inventory, construction materials and
equipment, documents and records and household goods.
We are pursuing a long-term strategy focused on growing our leasing operations, generating
strong internal growth and leveraging our infrastructure through acquisitions, as follows:
Focus on Mobile Storage Leasing Business. We focus on growing our core leasing business
because it provides predictable, recurring revenue and high margins. We believe that we can
generate substantial demand for our storage container products as the container storage and
portable container building industry is relatively underdeveloped in Australia and New Zealand. We
believe the underdeveloped nature of the market presents significant growth opportunities for Royal
Wolf. Although mobile storage, domestic freight movement and portable building applications are
increasing, we believe many more uses for our storage container products are still to be developed.
Royal Wolfs market opportunity is to fully develop and service these applications.
Generate Strong Internal Growth. We define internal growth as an increase in lease revenues on
a year-over-year basis at our CSCs in operation for at least one year, without inclusion of leasing
revenue attributed to same-market acquisitions. We continue to focus on increasing the number of
storage containers we lease from our existing branches to both new and repeat customers as well as
changing the billing methodologies that are represented in the U.S. market, such as billing in
advance, a 28-day billing cycle, fuel surcharges and a damage waiver program. Historically, we have
been able to generate strong internal growth within our existing markets through sales and
marketing programs designed to increase brand recognition, expand market awareness of the uses of
mobile storage and differentiate our products from our competitors.
Leverage our Infrastructure through Acquisitions. Our branch network infrastructure covers a
broad geographic area and is capable of serving additional volume at minimal levels of additional
fixed costs. Our objective is to add volume by organically growing the lease fleet in these
locations and through acquisitions. Asset purchases of tuck in competitors to existing or
acquired CSCs or adding new fleets allows us to more effectively leverage our infrastructure. In
addition, the corporate infrastructure of Royal Wolf is capable of managing existing fleets and
locations in geographies outside of Australia and New Zealand, but within the Asia-Pacific area.
From September 2007 through October 2008, Royal Wolf completed six acquisitions and, as a result of
these acquisitions and organic growth, Royal
Wolfs lease fleet grew to over 30,000 units as of June 30, 2011.
I-2
Industry Overview
The storage industry includes two principal markets, fixed self-storage and mobile storage.
The fixed self-storage market consists of permanent structures located away from customer locations
used primarily by consumers to temporarily store excess household goods. Although we have
containers that are used for self-storage on our sites and have sites that are focused on
self-storage such as Auckland and Christchurch in New Zealand and Tomago in Australia, we do not
participate in the fixed self-storage market with permanent structures.
The portable storage market, in which we operate, differs from the fixed self-storage market
in that it brings the storage solution to the customers location and addresses the need for
secure, temporary storage with immediate access to the storage unit. The advantages of portable
storage include convenience, immediate accessibility, better security and lower costs. In contrast
to fixed self-storage, the portable storage market is primarily used by businesses.
Mobile Storage Container Market
Since the mid-1990s, the storage container industry in Australia and New Zealand has developed
into a stable market analogous to the marine container business of 20 or 25 years ago. Marine
containerization displaced less efficient and more expensive specialized equipment. We believe
mobile storage containers are achieving increased market share compared to the other options
because of an increasing awareness that containers provide ground level access, durable protection
against damage caused by wind or water and custom modifications tailored to customers specific
uses.
We are not aware of any published third-party analysis of the Australia and New Zealand mobile
storage container markets. Based upon internal analysis, Royal Wolfs management team estimates
that the mobile storage market in Australia and New Zealand currently generates annual revenues of
approximately $251 million (AUS$237 million), with an estimated 60% derived from sales of mobile
storage containers. Royal Wolfs management team also anticipates that, as the market matures,
leasing revenues will account for an increasing proportion of the total revenue.
The mobile storage market has experienced steady growth since the mid-1990s. Although there is
no official forecast of industry growth rates or the future potential size market for mobile
storage in Australia and New Zealand, we believe that a number of factors suggest that the market
will continue to grow:
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The level of knowledge among potential customers regarding the availability and
benefits of containerized storage in key Australia and New Zealand markets, such as
the construction and mining industries, is still relatively low; |
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Suppliers and customers continue to develop further uses for mobile storage
containers, thereby broadening the market for mobile storage containers; and |
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As the market leader in Australia and New Zealand, Royal Wolf has consistently
achieved organic growth based, in part, on growth in the market as a whole. |
The mobile storage markets in Australia and New Zealand are highly fragmented. In most
locations in Australia, Royal Wolf competes with several national and regional competitors,
including, Cronos, and CGM-CMA, as well as smaller, full and part-time operators. Local competitors
are regionally focused, and are usually more capital-constrained. Therefore, in general, most are
heavily reliant on monthly sales performance, have slowly growing rental fleets and have limited
ability to transact larger deals. The New Zealand market is even more fragmented.
The following table lists Royal Wolfs principal competitors in the mobile storage container
market in Australia. This information was compiled by Royal Wolfs management team based upon
informal estimates and internal surveys of competitor rental fleet size, annual sales volumes and,
where possible, external information such as competitor newsletters, placement of advertising in
regional yellow pages and discussions with corporate customers and suppliers of used boxes; such as
wholesalers, shipping lines and container fleet lessors. We have no independent corroboration of
this market information, and there is no assurance that this internally-generated information is
accurate or complete.
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Competitor
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Scope of Operations |
Cronos
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National |
CGM-CMA
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National |
I-3
Portable Container Buildings Market
The portable container buildings market in Australia was estimated to have generated revenue
totaling $1,272 million (AUS$1,200 million) during the year ended June 30, 2010, of which
approximately $572 million (AUS$540 million) relates to the markets in which Royal Wolf offers a
competing product, according to reports from IBIS World Industry Report published in January
2011. The portable buildings market consists of the following:
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Engineering, construction and resources approximately 30%. |
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Household approximately 30% |
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Non-residential building construction approximately 17%. |
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Recreation and holiday approximately 15%. |
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Agriculture and export approximately 8% |
Within the engineering, construction and resources market, portable container buildings are
used for site offices, toilet and shower facilities, and worker housing and temporary accommodation
blocks. This market is influenced by trends in public and private sector spending on
infrastructure, generally, and, particularly, mine development and road and pipeline construction.
Demand from the non-residential buildings market principally stems from the demand for work
sheds, site offices, industrial garages and temporary warehousing.
We believe the recreation and holiday market is increasingly becoming an important source of
demand, particularly for the supply of fitted out cabins to be used as rental accommodations and
second homes on purchased blocks of land. Growth in demand has been driven by growth in disposable
income and increased leisure time associated with an aging population.
We believe that the portable container buildings market will grow over the long-term term,
driven in part by a cyclical expansion in the mining and construction markets. We believe that the
advantages of containerized portable buildings over traditional portable buildings of
transportability, security and flexibility are highly valued in the mining and construction
markets. We believe these markets represent a significant growth opportunity for Royal Wolf.
In the portable container buildings markets, Royal Wolf competes with three or four other
large participants who manufacture their own units and most of whom offer units for both lease and
sale to customers. These competitors include Coates, Atco, Ausco and Nomad. At present, Royal Wolf
has a small presence in this market. The major barrier to entry for new participants is the degree
of market penetration necessary to create a wide profile with contractors and clients. Penetrating
and competing with the range of products and number of depots and agencies offered by incumbent
operators tends to inhibit new entrants. As Royal Wolf already has a national sale and distribution
network, established supply channels and a strong profile in its target markets, many of the
barriers to entry applicable to other new entrants are not applicable to it.
The following table lists Royal Wolfs principal competitors in the Australian portable
buildings market:
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Competitor
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Scope of Operations |
Coates
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National |
Ausco
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National |
Nomad
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National |
Atco
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National |
Freight Container Market
Based upon internal analysis, Royal Wolfs management team estimates that the freight
container market in Australia generates approximately $42 million (AUS $40 million) in aggregate
annual lease and sales revenues. The rate of growth in this industry has been slow compared with
the portable container storage and portable container buildings market, which reflects the relative
maturity of this industry. Although there is potential for growth in the freight container market
as more road and rail carriers recognize the efficiencies of containerization, Royal Wolfs present
strategy is to maintain rather than grow its container fleet in this sector. Competitors include
Cronos and the SCF Group (Simply Containers).
I-4
The following table lists Royal Wolfs principal competitors in the Australian freight
container market:
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Competitor
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Scope of Operations |
Cronos
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National |
SCF Group
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Products and Services
Royal Wolf is the only storage container product company in Australia and New Zealand with
both the national presence and product range capable of servicing all sectors of the domestic
rental and sales market. The Companys key products include:
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Mobile storage containers:
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10-foot, 20-foot and 40-foot
general purpose units
Double pallet-wide high cube units
Hazardous goods containers
Refrigerated containers |
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Portable building
containers:
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Site offices and cabins
Workforce accommodation units
Luxury accommodation units
Restroom blocks
Blast-resistant units
Specialized office and infrastructure suites |
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Freight containers:
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Curtain-side containers
20-foot and 40-foot Hi-cube containers
20-foot and 40-foot two pallet-wide containers
Side-opening door containers
20-foot bulk containers |
Mobile Storage Containers. Royal Wolf leases and sells mobile storage containers, some of
which are customized for specific customers, for on-site storage by customers. These customers
include retail outlets and manufacturers, government departments, farming and agricultural
concerns, building and construction companies, clubs and sporting associations, mine operators and
the general public. Royal Wolfs products include general purpose dry storage containers,
refrigerated containers and hazardous goods containers in a range of standard and modified sizes,
designs and storage capacities.
There were 20,439 mobile storage containers in the lease fleet at June 30, 2011. The amount
and percentage of Royal Wolfs total sales and leasing revenues of mobile storage containers for
the fiscal year ended June 30, 2011 (FY 2011) were as follows ($ in millions):
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Dollars |
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Percentage |
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Sales |
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$ |
65.4 |
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87 |
% |
Leasing |
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34.9 |
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68 |
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Total revenues from mobile storage containers were 80% of Royal Wolfs total revenues in
FY 2011.
Portable Container Buildings. Royal Wolf also leases and sells portable container buildings as
site offices and for temporary accommodations. Royal Wolf customizes mobile storage container
buildings for some customers. Royal Wolf entered the portable building market in August 2005 with
20-foot and 40-foot portable buildings manufactured from steel container platforms which it markets
to a subset of its mobile storage container customer base.
There were 2,227 portable container buildings in the lease fleet at June 30, 2011. The amount
and percentage of Royal Wolfs total sales and leasing of portable container building revenues for
FY 2011 were as follows ($ in millions):
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Dollars |
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Percentage |
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Sales |
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8.6 |
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12 |
% |
Leasing |
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7.1 |
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13 |
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Total revenues from portable container buildings were 12% of Royal Wolfs total revenues
in FY 2011.
I-5
Freight Containers. Royal Wolf leases and sells freight containers specifically designed for
transport of products
by road and rail. Customers include national moving and storage companies, distribution and
logistics companies, freight forwarders, transport companies, rail freight operators and the
Australian military. Royal Wolfs freight container products include curtain-side, refrigerated and
bulk cargo containers, together with a range of standard and industry-specific dry freight
containers.
There were 7,504 freight containers in the lease fleet at June 30, 2011. The amount and
percentage of Royal Wolfs total sales and leasing of freight container revenues for FY 2011 were
as follows ($ in millions):
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Dollars |
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Percentage |
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Sales |
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0.8 |
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1 |
% |
Leasing |
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9.6 |
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19 |
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Total revenues from freight containers were 8% of Royal Wolfs total revenues in FY 2011.
Most of our fleet is comprised of new and refurbished and customized storage containers,
manufactured steel containers and record storage units, along with our freight and accommodation
units. These products are designed for long useful lives.
A portion of our fleet consists of used storage containers of eight to 13 years in age, a time
at which their useful life as ocean-going shipping containers is over according to the standards
promulgated by the International Organization for Standardization, which we refer to as ISO.
Because we do not have the same stacking and strength requirements that apply in the ocean-going
shipping industry, we have no need for these containers to meet ISO standards. We purchase these
containers in large quantities, refurbish them by removing any rust and paint them with a rust
inhibiting paint, and further customize them, and add our decals and branding.
We maintain our steel containers on a regular basis by painting them on average once every
three to five years, removing rust, and occasionally replacing the wooden floor or other parts.
This periodic maintenance keeps the container in good condition and is designed to maintain the
units value and rental rates comparable to new units.
Product Procurement
Royal Wolf purchases marine cargo containers from a wide variety of international shipping
lines and container leasing companies and new container products directly from storage container
manufacturers in China. We believe Royal Wolf is the largest buyer of both new and used storage
container products for the Australia and New Zealand markets. The majority of used storage
containers purchased is standard 20-foot and 40-foot units which Royal Wolf converts, refurbishes
or customizes. Royal Wolf purchases new storage containers directly from container manufacturers.
Each of the following material suppliers was the source of five percent or more of Royal
Wolfs container purchases during FY 2011:
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Percentage of |
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Suppliers |
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Type of Product Purchased |
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Container Purchases |
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Nantong CIMC |
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New |
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14 |
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Tradecorp International |
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New and used |
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8 |
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World Container Trailers |
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New |
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8 |
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China Shipping |
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Used |
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7 |
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Flex Box |
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New |
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5 |
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Royal Wolf purchases new storage container products under purchase orders issued to container
manufacturers, which the manufacturers may or may not accept or be able to fill. There are several
alternative sources of supply for storage containers. Though Royal Wolf is not dependent upon any
one manufacturer in purchasing storage container products, the failure of one or more of its
suppliers to timely deliver containers to Royal Wolf could adversely affect its operations. If
these suppliers do not timely fill Royal Wolfs purchase orders or do not properly manufacture the
ordered products, Royal Wolfs reputation and financial condition also could be harmed.
In connection with a Business Sale Agreement dated November 14, 2007 with GE SeaCo Australia
Pty Ltd. (GE SeaCo), Royal Wolf entered in a preferred supply agreement with GE SeaCo. Under the
preferred supply agreement, GE SeaCo has agreed to sell to Royal Wolf, and Royal Wolf has agreed to
purchase, all of GE SeaCos containers that GE SeaCo determines to sell, up to a maximum of 5,000
containers each year. The purchase price for the containers will be based on their condition and is
specified in the agreement, subject to annual adjustment. In addition, Royal Wolf received a right
of first refusal to purchase any additional containers that GE SeaCo desires to sell in Australia,
New Zealand and Papua New Guinea. Either party may terminate the agreement upon no less than 90
days prior notice at any
time after November 15, 2012. Approximately 580 units were purchased under this contract
during FY 2011.
I-6
CSC Network
Royal Wolf leases and sells its storage container products from an Australia and New Zealand
network of 23 CSCs, the largest branch network of any storage container company in Australia and
New Zealand. Royal Wolf is represented in all major metropolitan areas, and Royal Wolf is the only
container leasing and sales company with a nationally integrated infrastructure and work force.
A typical Royal Wolf CSC consists of a leased site of approximately two to five acres with a
sales office, forklifts and all-weather container repair workshop. CSC office staffing ranges from
two to 15 people and include a branch manager supported by the appropriate level of sales,
operations and administrative personnel. Yard and workshop staffing usually ranges between one and
12 people and can consist of welders, spray painters, boilermakers, forklift drivers and production
supervisors. CSC inventory holding usually ranges between 150 and 700 storage containers at any one
time, depending on market size and throughput demand.
The following map shows Royal Wolfs existing CSC locations at June 30, 2011:
Each CSC has a branch manager who has overall supervisory responsibility for all activities of
the CSC. Branch managers report to one of our six regional managers. Our regional managers, in
turn, report to our CSC or retail manager. Performance-based incentive bonuses are a portion of the
compensation for the CSC, regional and branch managers.
Each branch has its own sales force, and we are introducing a transportation department that
will deliver and pick up mobile storage units from customers in certain hub areas. Each branch has
forklifts to load, transport and unload units and a storage yard staff responsible for unloading
and stacking units. Steel units can be stored by stacking them three-high to maximize usable ground
area. Our larger branches also have a fleet maintenance department to make modifications to the
containers and maintain the branchs forklifts and other equipment. Our smaller branches perform
preventative maintenance tasks and outsource major repairs.
Except for the Auckland, New Zealand self-storage and regional office site, we lease all of
our branch locations and Royal Wolfs corporate and administrative offices in Hornsby, New South
Wales. All of our major leased properties have remaining lease terms of up to 15 years and we
believe that satisfactory alternative properties can be found in all of our markets, if we do not
renew these existing leased properties. Reference is made to Item. 2 Properties for a more
detailed description of our leased facilities.
I-7
Customers
Royal Wolf has a broad base of nearly 21,000 active customers, with only one customer
constituting more than 2% of our annual revenue for FY 2011. Our customer base includes the retail
and manufacturing sectors, councils and government departments, the farming and agricultural
community, the building and construction industry, clubs and sporting associations, the mining
sector and the general public. We believe the disparity of Royal Wolfs customer base reduces the
business exposure to a significant downturn in any particular industry.
Royal Wolf provides its customers a solutions-oriented approach, with high reliability in
equipment quality and supply, with prompt and efficient delivery and pick-up, and with superior
service and product knowledge. This is supported by a highly responsive national marketing team,
in-house finance, and control and engineering expertise and nationally linked fleet management and
accounting systems. Royal Wolf is the largest and only truly national supplier of container
products in Australia and New Zealand, and the only container company with the scale and capacity
to service a full range of customers; from small local accounts right through to the largest
national businesses. Royal Wolfs diverse customer base is depicted in the following chart for FY
2011:
Royal Wolf customers use its storage containers for a wide variety of purposes, which include:
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Temporary storage of excess inventory for the retail and wholesale industries; |
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Offices, workshops or storerooms; |
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Portable work camps for the resources industry, including accommodations, ablution and
kitchen containers; |
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Blast resistant containers for refineries; |
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Rapid deployment storage for the military, emergency services and disaster relief; |
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Low-cost accommodations for remote communities and caravan parks; and |
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Farm storage for cattle feed, farm equipment, fertilizers and other items. |
Sales and Marketing
Royal Wolfs sales and marketing strategy is designed to reach thousands of potential
customers. Communication with potential customers is predominantly generated through a combination
of Yellow Pages, internal advertising and SEO (search engine optimization), print media
advertising, telemarketing, web-site, customer referrals, signage and decal awareness, direct mail
and radio. The customer hiring or buying process is being driven by customer awareness of the
products combined with price shopping. We believe that while a typical customer may shop a limited
number of suppliers, the customer does not spend much time doing so because the potential cost
savings is relatively low compared to the value of their time. Our goal is for Royal Wolf to be one
of the suppliers that potential customers call.
I-8
Fleet Management
Royal Wolf regularly re-locates containers between its CSCs to meet peaks in regional demand
and optimize inventory levels. Royal Wolf has close relationships with the national road and rail
hauling companies that enable it to transport the majority of containers interstate at attractive
rates.
Royal Wolfs management information systems are instrumental to its fleet management and
targeted marketing efforts. Fleet information is updated daily at the CSC level which provides
management with on-line access to utilization, leasing and sale fleet unit levels and revenues by
branch or geographic region.
Management Information Systems
Our management information systems, including the RMI and Navision software programs, are
scalable and provide us with critical information to manage our business. Utilizing our systems, we
track a number of key operating and financial metrics including utilization, lease rates, customer
trends and fleet data. All our branches use RMI/Navision and our support office provides financial,
inventory and customer reports for branch managers.
Employees
As of June 30, 2011, Royal Wolf employed 229 full-time employees in the following major
categories:
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Senior and CSC management |
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16 |
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Corporate staff |
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21 |
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Sales and marketing |
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73 |
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CSC operations and administration |
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119 |
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None of our employees is covered by a collective bargaining agreement. We believe our
relationship with our employees is good. We have never experienced any material labor disruption,
and we are not aware of any efforts or plans to unionize our employees.
PAC-VAN
Pac-Van leases and sells mobile storage containers, container offices, mobile offices and
modular buildings to customers throughout a number of industries through its branch network of 26
locations in 18 states. The management team led by Ted Mourouzis, as President, has extensive
experience in the industry and with Pac-Van.
Pac-Van competes in the mobile storage and modular space and industries. Mobile storage
generally includes providing customers with secure, temporary storage at their site locations.
Modular space includes mobile offices and modular buildings and involves the rental and sales of
factory built structures and the delivery and installation of the equipment at customer properties.
Both lines of business serve a broad range of industries, including construction, services, retail,
manufacturing, transportation, utilities and government.
We are pursuing a business strategy focused on growing our storage and office container lease
fleet, maintaining disciplined cost controls, reducing indebtedness and eventually completing
accretive acquisitions, as follows:
Focus on Increasing our Container Lease Fleet. We will emphasize expansion of our higher
return products, particularly storage and office containers. In addition, we will continue to
pursue the introduction of specialty storage and office products that can attain long lease
durations and high leasing operating margins.
Disciplined Cost Controls. Pac-Vans size and experience permits it to more rapidly adjust
to changing market conditions than many of its larger competitors. These attributes enable Pac-Van
to quickly adjust capital expenditures and other spending and maintain more disciplined cost
controls than competitors whose cost structures include manufacturing, large payrolls and large
investments in outdated product classes, such as storage trailers.
Reducing Indebtedness. We continue to focus on reducing the indebtedness of Pac-Van. We
believe this focus on debt reduction will provide great flexibility in the future and will position
Pac-Van to capture future growth opportunities. In down or recovering economic cycles, such as we
are experiencing in the United States, the Company focuses on optimizing lease fleet utilization,
lease rates and collections.
Accretive Acquisitions. Pac-Van plans to focus on acquisitions that are both accretive and
have container products. These acquisitions, especially tuck in acquisitions, allow Pac-Van to
leverage the fixed costs of its branch offices with additional lease fleet that deliver scale and
increased profitability.
I-9
Industry Overview
Pac-Van competes in two different, but related, sectors of the portable services industry,
mobile storage and modular space.
Mobile Storage Container Market
Mobile Storage is used primarily by businesses for secure, temporary storage at the customers
location and offers customers a flexible, secure, cost-effective and convenient alternative to
constructing permanent warehouse space or storing items at a fixed-site self-storage facility. A
broad range of industries, including construction, industrial, commercial, services, retail, and
government utilize mobile storage equipment to meet both their short-term and permanent storage
needs. Although Pac-Van is not aware of any published estimates, Pac-Van believes the mobile
storage industry is growing due to an increasing awareness of its convenience and cost benefits.
The mobile storage industry is highly fragmented, with numerous participants in local markets
leasing and selling storage containers, storage trailers and other structures.
Pac-Van believes that participants in its industry compete on the basis of customer
relationships, price, service, delivery speed and breadth and quality of equipment offered. In
every area Pac-Van serves, Pac-Van competes with multiple local, regional, and national portable
storage providers. Some of Pac-Vans competitors may have greater market share, less indebtedness,
greater pricing flexibility or superior marketing and financial resources. Pac-Vans largest
competitors in the storage container and storage trailer markets in the U.S. are Mobile Mini,
Williams Scotsman, Allied Leasing, Haulaway, Eagle Leasing and National Trailer Storage.
Modular Space Market
Modular Space is used primarily by businesses to address either temporary or permanent space
needs. We believe modular space delivers four core benefits: lower costs, flexibility, reusability
and timely solutions. Modular buildings offer customers significant cost savings over permanent
construction and can generally be installed quicker because site work and fabrication can take
place concurrently. In addition, modular solutions are not site specific and can be configured in
multiple ways to meet a variety of needs. Finally, modular buildings are reusable and will
generally serve a wide variety of users during their life span. We believe this characteristic can
be a key competitive advantage with the emphasis on green building. The Modular Building
Institute, in its State of the Industry 2011 Annual Reports estimated that U.S. modular space
industry dealers earned in excess of $5.0 billion of leasing and sales revenues in 2010. The
industry has expanded rapidly over the last thirty years as the number of applications for modular
space has increased and recognition of the products positive attributes has grown. We believe we
are well-positioned to benefit from growth in the modular space industry.
The modular space industry is highly competitive. Pac-Van competes with service, quality,
customer relationships and price. Pac-Van believes that its reputation for customer service and a
wide selection of units allow it to compete effectively. However, Pac-Vans largest North American
competitors, ModSpace, Williams-Scotsman, and Mobile Mini have greater market share or product
availability in some markets and have greater financial resources and pricing flexibility than it.
Other regional competitors include Acton Mobile, Vanguard Modular, and Satellite Shelters.
Business Attributes
Pac-Van is a recognized provider of modular buildings, mobile offices and mobile storage
products on a national, regional and local basis in the United States. Pac-Van believes it
possesses the following strengths:
Extensive Geographic Coverage. With growing lease fleet of over 11,000 units, Pac-Van is a
national participant in the mobile and modular sectors of the portable services industry. Pac-Vans
branch offices serve 17 of the 50 largest Metropolitan Statistical Areas, or MSAs, in the United
States. Pac-Van serves a diverse base of national, regional and local customers. The size of
Pac-Vans fleet also allows Pac-Van to offer a wide selection of products to its customers and to
achieve purchasing efficiencies.
Diversified Customer Base. Pac-Van has established strong relationships with a diverse
customer base in the U.S., ranging from large companies with a national presence to small local
businesses. During FY 2011, Pac-Van leased or sold its equipment to approximately 7,400 customers.
In FY 2011, Pac-Vans largest customer accounted for approximately 2% of its total revenues and
Pac-Vans top ten customers accounted for approximately 11% of its total revenues. Pac-Van believes
that the diversity of its business limits the impact on Pac-Van of changes in any given customer,
geography or market.
I-10
Sales and Marketing Excellence. Pac-Van has implemented a centralized customer relationship
management system that allows it to coordinate its sales and marketing efforts. Through its branch
network, Pac-Van develops local market knowledge and strong customer relationships while the
corporate based marketing group manages the companys brand image, web presence, and lead
generation programs. Pac-Van provides ongoing training to it sales team and also monitors call
quality and surveys it customer to ensure that customer interactions meet its standards. All of
Pac-Vans lease fleet carries signage reflecting its brand, important to the ongoing branding and
name recognition in marketing its products
Focus On Customer Service and Support. Pac-Vans operating infrastructure in the U.S. is
designed to ensure that Pac-Van consistently meets or exceeds customer expectations. On the
national and regional level, Pac-Vans administrative support services and scalable management
information systems enhance its service by enabling Pac-Van to access real-time information on
product availability, customer reservations, customer usage history and rates. Pac-Van believes
this focus on customer service attracts new and retains existing customers. In FY 2011, more than
90% of its lease and lease-related revenues were generated from customers who leased from Pac-Van
in prior years.
Significant Cash Flow Generation and Discretionary Capital Expenditures. Pac-Van has
consistently generated significant cash flow from operations by maintaining high utilization rates
and leasing margins and controlling capital expenditures. A significant portion of Pac-Vans
capital expenditures are discretionary in nature, thus providing Pac-Van with the flexibility to
readily adjust the amount that it spends based on its business needs and prevailing economic
conditions.
High Quality Fleet. Pac-Vans branches maintain their lease fleet to consistent quality
standards. Maintenance is expensed as incurred and branch managers and operations staff are
responsible for managing a maintenance program aimed at providing equipment to customers that meets
or exceed customer expectations and industry standards.
Experienced Management Team. Pac-Van has an experienced and proven senior management team,
with its seven most senior managers having worked at Pac-Van for an average of more than ten years.
Pac-Vans President, Theodore M. Mourouzis, joined Pac-Van in 1997 and the consistency of the
senior management, corporate and branch management teams has been integral in developing and
maintaining its high level of customer service, deploying technology to improve operational
efficiencies and integrating acquisitions.
Products and Services
Pac-Van provides a broad range of products to meet the needs of its customer base. These
products include storage containers, office containers, mobile offices and modular buildings. The
following provides a description of Pac-Vans products:
Storage Containers. Storage containers also consist of domestic storage containers and
include storage trailers. Storage containers vary in size from 10 feet to 48 feet in length, with
20-foot and 40-foot length containers being the most common. Storage containers are steel units,
which are generally eight feet wide and eight and one-half feet high; and, like at Royal Wolf, are
built to ISO standards for carrying ocean cargo. Pac-Van purchases both new and used storage
containers. Domestic storage containers are generally eight feet wide, ten feet high and come in
lengths ranging from 40 to 53 feet. Storage trailers, which vary in size from 28 to 53 feet in
length, have wheels and hitches and provide dock height storage. At June 30, 2011, there 4,072
storage containers in Pac-Vans lease fleet.
Container Offices. Container offices are storage containers that have been modified to
include office space. Floor
plans can be either all office space or a combination of office and storage space. The office
space includes features similar to those found in mobile offices. Like storage storages, container
offices typically come in lengths of 20 feet and 40 feet. Due to their construction, they provide
greater security than traditional field offices, and since they sit at ground level they dont
require stairs for entry and exit. Container offices are oftentimes referred to as GLOs (ground
level offices). At June 30, 2011, there were 1,274 container offices in Pac-Vans lease fleet.
Mobile Offices. Sales and construction offices, also known as field offices, are factory
built, single-unit structures primarily that are relocatable and used primarily for temporary
office space. These units are generally built on frames that are connected to axles and wheels and
have either a fixed or removable hitch for easy transportation. Standard field offices come in 8,
10, 12, and 14 foot widths and range in size from approximately 160 square feet to 1,000 square
feet. They include HVAC systems, lighting, electrical wiring, phone jacks, plan tables, shelving,
and other features normally associated with basic office space. Sales offices typically come in 12
foot widths and provide 350 to 700 square feet. In addition to the basic amenities included in a
field office, sales offices generally have wood siding, carpeting, high ceilings, custom windows,
and glass storefront doors, which provide a professional, customer-friendly building in which to
conduct business. All of Pac-Vans mobile offices are built by an established network of
manufacturing partners to standard specification, which may vary depending on regional preferences.
In addition, Pac-Van builds these units to meet state building code requirements and generally
obtains multi-state codes enabling the company to move equipment among its branch network to meet
changing demand and supply conditions. At June 30, 2011, there were 4,839 mobile offices in
Pac-Vans lease fleet.
I-11
Modular Buildings. Modular buildings are factory-built, portable structures generally
consisting of two or more floors and are used in a wide variety of applications, ranging from
schools to restaurants to medical offices. Ranging in size from 1,000 to more than 30,000 square
feet, the companys modular buildings are constructed in many sizes and are usually designed to
satisfy unique customer requirements. Like mobile offices, Pac-Van procures modular buildings from
an established network of manufacturing partners to meet state building requirements, and generally
obtains multiple state codes for each unit. As of June 30, 2011, there were 991 modular building
units in Pac-Vans lease fleet.
Delivery and Installation, Return and Dismantle, and Other Site Services. Pac-Van delivers
and where necessary installs all three product lines directly to its customers premises.
Installation services range from simple leveling for portable storage to complex seaming and
joining for modular buildings. Pac-Van will also provide skirting and ramps as needed by the
customer. Depending on the type of unit some states will also require tie downs and other features
to secure the unit. Once a unit is on site at a customer location, Pac-Vans site services include
relocating the unit.
Ancillary Products and Services. In addition to leasing it core product line, Pac-Van
provides ancillary products such as steps, furniture, portable toilets, security systems, and other
items to its customers for their use in connection with its equipment. Pac-Van also offers its
lease customers a damage waiver program that protects them in case the leased unit is damaged. For
customers who do not select the damage waiver program, Pac-Van bills them for the cost of any
repairs.
Pac-Van complements its core leasing business by selling either existing rental fleet assets
or assets purchased specifically for resale. In FY 2011, management estimates that nearly 33% of
the sales came from existing fleet units. The sale of lease fleet units has historically been a
cost-effective method of replenishing and upgrading the lease fleet. As with the leasing business,
Pac-Van provides additional services when selling units. These services range from delivery to full
scale turnkey solutions. In a turnkey solution, Pac-Van provides not only the underlying equipment
but also a full range of ancillary services, such as a foundation, specialty interior finishes, and
landscaping, necessary to make the equipment fully operational for the customer.
The following charts provide the mix of Pac-Vans products in the lease fleet in both units
and dollars at June 30, 2011:
Leasing. Leasing revenue is a function of average monthly rental rate, fleet size and
utilization. Pac-Van monitors fleet utilization at each branch. For FY 2011, average unit
utilization of the lease fleet was approximately 73% on a gross dollar basis and 74% on a unit
basis. While Pac-Van adjusts its pricing to respond to local market conditions, management
believes that it generally achieves a rental rate equal to or above that of competitors because of
the quality of Pac-Vans products and its high level of customer service. As part of its leasing
operations, Pac-Van sells used units from its rental fleet at fair market value or, to a much
lesser extent, pursuant to pre-established lease purchase options included in the terms of its
lease agreements. Due in part to an active fleet maintenance program, Pac-Vans units maintain a
substantial portion of their initial value which includes the cost of the units as well as costs of
significant improvements made to the units.
Sales. Pac-Van will sell units out of its sale inventory as well as its lease fleet. Pac-Van
does not generally purchase new units for resale until it has obtained firm purchase orders (which
are generally non-cancelable) for such units.
I-12
Delivery and Installation. Pac-Van provides delivery, site-work, installation and other
services to its customers as part of its leasing and sales operations. Revenues from delivery,
site-work and installation result from the transportation of units to a customers location,
site-work required prior to installation and installation of the units which have been leased or
sold. Typically units are placed on temporary foundations constructed by service technicians, and
service personnel will also generally install ancillary products. Pac-Van also derives revenues
from dismantling and transporting units upon lease expiration.
Product Procurement and Capital Expenditures
Pac-Van closely monitors fleet capital expenditures, which include fleet purchases and
any capitalized improvements to existing units. Generally, fleet purchases require corporate
approval and must pass purchasing guidelines (primarily based on minimum return on investment
requirements and utilization requirement). Pac-Van purchases storage equipment and modular and
mobile offices from a network of third-party suppliers. The top three suppliers of units for FY
2011 represented approximately 44% of all fleet purchases and the top ten suppliers represented
approximately 71% of all fleet purchases
Pac-Van can adjust capital expenditures to match business needs and prevailing economic
conditions. Pac-Van does not generally enter into long-term purchase contracts with manufacturers
and can modify its capital spending activities to correspond to market conditions.
We supplement our fleet spending with acquisitions. Although the timing and amount of
acquisitions are difficult to predict, management considers its acquisition strategy to be
opportunistic and will adjust its fleet spending patterns as favorable acquisition opportunities
become available.
Fleet Maintenance
Ongoing maintenance to Pac-Vans lease fleet is performed on an as-needed basis and is
intended to maintain the value and rental-ready condition of its units. Pac-Van uses both in-house
fleet technicians and third-party vendors to perform maintenance depending on the branch and
complexity of the work. Maintenance requirements on containers are generally minor and include
removing rust and dents, patching small holes, repairing floors, painting and replacing seals
around the doors. Storage trailer maintenance may also include repairing or replacing brakes,
lights, doors and tires. Maintenance requirements for mobile offices and modular buildings tend to
be more significant than for storage equipment and may involve repairs of floors, doors, air
conditioning units, windows, roofs and electric wiring. Major office repairs are sometimes
outsourced. Whether performed by Pac-Van or a third party, the cost of maintenance and repair of
Pac-Vans lease fleet is included as direct costs of leasing operations and is expensed as
incurred. We believe that Pac-Vans maintenance program ensures a high quality fleet.
Branch Network
The following map shows Pac-Vans existing branch network as of June 30, 2011:
I-13
As a key element to its market strategy, Pac-Van maintains a network of 26 branch offices
throughout the United States. This network enables it to maintain product availability and provide
customer service within regional and local
markets. Customers benefit because they are provided with improved service availability,
reduced time to occupancy, better access to sales representatives, the ability to inspect units
prior to rental and lower freight costs which are typically paid by the customer. Pac-Van benefits
because it is able to spread regional overhead and marketing costs over a larger lease base,
redeploy units within its branch network to optimize utilization, discourage potential competitors
by providing ample local supply and offer profitable short-term leases which would not be
profitable without a local market presence.
Branches are generally headed by a branch manager with profitability responsibility and branch
operations are organized into three regions, which are led by three regional vice presidents who
collectively average more than 10 years of experience with Pac-Van. Management believes it is
important to encourage employees to achieve specified revenue and profit levels and to provide a
high level of service to customers. Regional and branch managers compensation is based upon the
financial performance of their branches and overall corporate performance and, in some cases, sales
commissions. Sales representatives compensation includes both base and commission elements.
Customers
Pac-Van has established strong relationships with a diverse set of customers, ranging from
large national retailers and manufacturers to local sole proprietors. During FY 2011, Pac-Van
provided its portable storage, mobile office and modular building products to a diversified base of
approximately 7,400 national, regional and local companies in a variety of industries including
construction, industrial, manufacturing, education, service, and government sectors.
In FY 2011, Pac-Van generated 68% of its revenues from leasing and 32% of its revenues
from sales. Pac-Vans largest leasing customer accounted for approximately 2% of total leasing
revenues and its top ten customers accounted for approximately 9% of its total leasing revenues.
The following chart shows the percentage of revenues generated by different industries in FY 2011:
Construction. Construction customers include a diverse group of contractors and
subcontractors who work on commercial and residential projects. Pac-Van believes its construction
customer base is characterized by a wide variety of contractors and subcontractors, including
general contractors, mechanical contractors, plumbers, electricians and roofers. In FY 2011,
revenue generated from construction customers was 35% of total revenue, a decrease from 37% in the
year ended June 30, 2010. Contractors typically use Pac-Vans products to provide on-site office
facilities and to securely store construction materials and supplies at construction sites.
Nevertheless, Pac-Van believes the majority of its lease and lease-related revenue is derived from
the commercial construction market. Demand from Pac-Vans construction customers tends to be
higher in the second and third quarters when the weather is warmer, particularly in the central and
northern United States.
Services. Service customers include businesses that provide medical care or veterinary
services, equipment leasing companies that sublease Pac-Vans equipment, entertainment companies
including those conducting sporting events, and religious institutions, other than for their
classroom needs. These customers may use any or all of Pac-Vans products and services.
I-14
Retail. Retail customers include both large national chains and small local stores. These
customers typically lease storage containers and storage trailers to store excess inventory and
supplies. Retail customers also use Pac-Vans storage products during store remodeling or
refurbishment. Demand from these customers can be seasonal and tends to peak during the winter
holidays.
Industrial. Industrial and manufacturing customers include a broad array of manufacturers,
including oil refineries, petrochemical refineries, carpet manufacturers, textile manufacturers and
bottling companies. They generally lease storage containers and storage trailers to store both
inventory and raw materials. They lease mobile offices and modular buildings for extra office
space, cafeterias, changing rooms and other interior space needs.
Commercial. The commercial customer segment includes a wide variety of businesses, usually
businesses that sell services, but excludes businesses that have customers who shop at their
location. These customers may use Pac-Vans modular products as their place of business, Pac-Vans
mobile offices as supplemental office space and Pac-Vans storage products to store their
inventory, goods or supplies.
Government. Government customers include public schools, correctional institutions, fire
departments as well as the U.S. military. These customers generally lease storage containers and
storage trailers to safeguard materials used in their day-to-day operations and various government
projects. They lease mobile offices and modular buildings for classrooms, training offices and
general office space.
Education. The education customer segment includes both public and private schools and day
care facilities, and includes classroom space for religious institutions. Pac-Van provides space to
this customer group ranging from entire school facilities to supplemental classroom space, to
portable storage equipment for storing athletic gear.
Sales and Marketing
As of June 30, 2011, Pac-Vans sales and marketing team consisted of 29 employees. The 18
branch managers also play a critical role in Pac-Vans sales and marketing programs. Members of
Pac-Vans sales group act as its primary customer service representatives and are responsible for
fielding calls, obtaining credit applications, quoting prices, following up on quotes and handling
orders. The sales team is responsible for developing and managing local relationships, as well as
making both inbound and outbound calls. The sales team assists customers define and understand
their space needs, assesses potential opportunities, quotes deals, closes transactions and obtains
the necessary documentation. Upon completing a lease or a sale the sales team works closely with
the local branch operations team to ensure that Pac-Van is able to meet or exceed customer
expectations. Pac-Vans centralized support services group handles all billing, collections and
other support functions, allowing its sales and marketing team to focus on addressing the needs of
its customers.
Pac-Vans marketing group is primarily responsible for coordinating direct mail, Internet
marketing and other advertising campaigns, producing company literature, creating promotional sales
tools and managing its sales management system. Pac-Vans centralized support services group
handles all billing, collections and other support functions, allowing its sales and marketing team
to focus on addressing the needs of its customers. Pac-Vans marketing programs emphasize the
cost-savings and convenience of using its products versus constructing temporary or permanent
offices or storage facilities. Pac-Van markets its services through a number of promotional
vehicles, including the Internet, Yellow Pages, prominent branding of its equipment, telemarketing,
targeted mailings, trade shows and limited advertising in publications.
The development of Pac-Vans marketing programs are developed by branch managers, regional
vice presidents and senior management, all of whom participate in devising branch-by-branch
marketing strategies based on fleet availability and forecasted demand. Pac-Vans branch managers,
working with its corporate marketing team, determine the timing, content and target audience of
direct mailings, specials and promotional offers, while the corporate office manages the marketing
process itself to ensure the consistency of its message, achieve economies of scale and relieve its
local branches of the administrative responsibility of running its marketing programs. Pac-Van
believes that its approach to marketing is consistent with the local nature of its business and
allows each branch to employ a customized marketing plan that fosters growth within its particular
market.
Management Information Systems
Pac-Vans management information systems are instrumental to its lease fleet management
and targeted marketing efforts and allow management to monitor operations at branches on a daily,
weekly, and monthly basis. Lease fleet information is updated daily at the branch level and
verified through routine physical inventories by branch personnel. This provides management with
on-line access to utilization, lease fleet unit levels and rental revenues by branch or geographic
region. In addition, an electronic file for each unit showing its lease history and current
location and status is maintained in the information system. Branch sales people utilize the system
to obtain information regarding unit condition and availability. The database tracks individual
units by serial number and provides comprehensive information including cost, condition and other
financial and unit specific information.
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Employees
As of June 30, 2011, Pac-Van had 176 employees. None of our employees are covered by a
collective bargaining agreement and management believes its relationship with employees is good. We
have never experienced any material labor disruption and are unaware of any efforts or plans to
organize our employees. The employees are grouped accordingly:
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Senior and branch management |
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25 |
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Corporate staff |
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21 |
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Sales and marketing |
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29 |
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Branch operations and administration |
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101 |
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In addition, we have three full-time employees at our GFN corporate office in Pasadena,
California.
Regulatory Matters
We must comply with various federal, state and local laws and regulations in connection with
our operations. We believe that we are in substantial compliance with these laws and regulations.
In addition to compliance costs, we may incur costs related to alleged environmental damage
associated with past or current properties owned or leased. We believe that our liability, if any,
for any environmental remediation will not have a material adverse effect on our results of
operations or financial condition. However, we cannot be certain that the discovery of currently
unknown matters or conditions, new laws and regulations, or stricter interpretations of existing
environmental laws will not have a material adverse effect on our business or operations in the
future.
A portion of Pac-Vans units are subject to regulation in certain states under motor vehicle
and similar registrations and certificate of title statutes. We believe that we have complied in
all material respects with all motor vehicle registration and similar certificate of title statutes
in states where such statutes clearly apply to modular space units. However, in certain states, the
applicability of such statutes to its modular space units is not clear beyond doubt. If additional
registration and related requirements are deemed to be necessary in such states or if the laws in
such states or other states were to change to require compliance with such requirements, Pac-Van
could be subject to additional costs, fees and taxes as well as administrative burdens in order to
comply with such statutes and requirements. We do not believe the effect of such compliance will be
material to our business, results of operations or financial condition.
Trademarks
We entered into a licensing agreement with Triton Corporation in May 2008 for the use of the
Royal Wolf name and trademark in connection with its retail sales and leasing of intermodal cargo
containers and other container applications in the domestic storage market within Australia and New
Zealand and surrounding islands in the Pacific Islands region. We paid Triton Corporation $740,000
to license the trademark. The license will continue in perpetuity as long as Royal Wolf continues
to use the Royal Wolf name and trademark as the exclusive name for its business and mark for its
products, subject to the termination provisions of the license. The license may be terminated by
the licensor upon 30 days notice in the event Royal Wolf breaches its obligations under the license
and will terminate automatically if Royal Wolf becomes insolvent or ceases to sell products under
the trademark for a continuous period of 30 months. GFN sold the Royal Wolf name and trademark
to Royal Wolf in May 2011 in connection with the Australian IPO of RWH. There are no claims
pending against Royal Wolf challenging its right to use the Royal Wolf name and trade mark within
Royal Wolfs region of business.
Pac-Van owns a number of trademarks important to its business, including
Pac-Van® and Weve Put Thousands of U.S. Businesses In Space
®. Material trademarks are registered in the U.S. Patent and Trademark Office.
Registrations for such trademarks in the United States will last indefinitely as long as Pac-Van
continues to use and maintain the trademarks and renew filings with the applicable governmental
offices.
I-16
Available information
Our
Internet website address is www.generalfinance.com. This reference to our Internet
website does not incorporate by reference the information contained on or hyperlinked from our
Internet website into this Annual Report on Form 10-K. Such information should not be considered
part of this Annual Report on Form 10-K. The Internet websites for Royal Wolf and Pac-Van are
www.royalwolf.com.au and www.PacVan.com, respectively. A noncontrolling interest of the capital
stock of Royal Wolf that we do not own is traded on the Australian Securities Exchange (ASX)
under the symbol RWH.
We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with
the Securities and Exchange Commission (SEC) on a regular basis, and are required to disclose
certain material events in a current report on Form 8-K. The public may read and obtain a copy of
any materials we file with the SEC through our Internet website noted above, which is hyperlinked
to the SECs Internet website that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The SECs Internet website is
located at http://www.sec.gov.
In addition, the public may read and obtain a copy of any materials we file with the SEC at
the SECs Public Reference Room at 450 Fifth Street, N.W., 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.
I-17
Executive Officers of the Registrant
The following information is provided as of June 30, 2011 regarding our executive officers who
are not a continuing director or a director nominee. Information concerning our chief executive
officer, who is a continuing director or a director nominee, is set forth in PART III Item 10.
Directors, Executive Officers and Corporate Governance of this Annual Report on Form 10-K, which
incorporates by reference to our definitive Proxy Statement for the 2011 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Securities Exchange Act of 1934.
No family relationship exists between any executive officer.
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Position |
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Charles E. Barrantes |
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59 |
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Executive Vice President and Chief Financial Officer |
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Christopher A. Wilson |
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General Counsel, Vice President and Secretary |
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Robert Allan |
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55 |
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Chief Executive Officer of Royal Wolf |
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Theodore Mourouzis |
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President and Chief Operating Officer of Pac-Van, Inc. |
Charles E. Barrantes has served as our Executive Vice President and Chief Financial Officer
since September 2006. Prior to joining us, Mr. Barrantes was vice president and chief financial
officer for Royce Medical Company from early 2005 to its sale in late 2005. From 1999 to early
2005, he was chief financial officer of Earl Scheib, Inc., a public company that operated over 100
retail paint and body shops. Mr. Barrantes has over 25 years of experience in accounting and
finance, starting with more than a decade with Arthur Andersen & Co.
Christopher A. Wilson became our General Counsel, Vice President and Secretary in December
2007. Prior to joining us, Mr. Wilson was the general counsel and assistant secretary of Mobile
Services Group, Inc. from February 2002 to December 2007. Mr. Wilson practiced corporate law as an
associate at Paul, Hastings, Janofsky & Walker LLP from 1998 to February 2002. Mr. Wilson graduated
with a B.A. from Duke University in 1989 and a J.D. from Loyola Law School of Los Angeles in 1993.
Robert Allan has been the Chief Executive Officer of Royal Wolf since February 2006. Mr. Allan
joined Royal Wolf in April 2004 as its Executive General Manager. From 2000 until joining Royal
Wolf, he served as Group General Manager of IPS Logistics Pty Ltd, a shipping and logistics
company. From 1997 until 2000, Mr. Allan was employed as a Regional Director of Triton Container
International, the worlds largest lessor of marine cargo containers to the international shipping
industry. Mr. Allan has more than 30 years of experience in the container leasing and logistics
industries.
Theodore Mourouzis has been President of Pac-Van, Inc. since August 2006. He previously served
as its Chief Operating Officer since 1999 and as its Vice President of Finance from 1997 until
1999. Prior to his employment with Pac-Van, Mr. Mourouzis, among other things, was a controller for
a 3M joint venture, served four years in management consulting with Deloitte & Touche (focusing in
operations and business process consulting), and was president of a picture framing distributor and
the chief financial officer of its holding company. He received his undergraduate degree from
Stanford University (in 1985) and a Masters of Business Administration from The Wharton School of
the University of Pennsylvania (in 1991).
I-18
In addition to the other information in our Annual Report on Form 10-K, you should consider
the risks described below that we believe may be material to investors in evaluating us. This
section contains forward-looking statements, and in considering these statements, you should refer
to the qualifications and limitations on our forward-looking statements that are described in SAFE
HARBOR STATEMENT before the beginning of Item 1.
Our inability to raise capital.
Our inability to obtain capital in the amounts and at the times when needed, may have a
material adverse affect on our business, financial condition and results of operations, including
substantially increasing our cost of borrowing and restricting our future operations. These events
may significantly reduce the value of your investment.
Global economic conditions and market disruptions may adversely affect our business, financial
condition and results of operations.
Financial markets and economic conditions throughout the world have been experiencing
disruption, including, among other things, volatility in security prices, diminished liquidity and
credit availability, rating downgrades of certain investments and declining valuations of others,
failure and potential failures of major financial institutions, unprecedented government support of
financial institutions and high unemployment rates. These developments and the related general
global economic downturn have and may continue to adversely affect our business and financial
condition, as well as the ability of our customers and suppliers to obtain financing to perform
their obligations to us.
Though we have strengthened our efforts in collections and inventory control, continued
worsening of conditions could adversely affect the collection of trade receivables on a timely
basis, could result in additional reserves for uncollectible accounts and, in the event of
continued contraction in container and modular unit sales and leasing, could lead to a further
build-up of inventory and lease fleet levels. These factors would have a further adverse impact on
operating results and cash flows. In addition, fluctuations in the rates of exchange for the U.S.
dollar against the Australian and New Zealand dollars could significantly affect our results of
operations through lower than anticipated reported revenues and profitability as a result of the
translation of Royal Wolfs financial results into U.S. dollars.
There were no events of default under the covenants of our senior credit facilities at June
30, 2011. While we believe we will remain in compliance with covenants in the foreseeable future
and that our relationships with our senior lenders are good, there is no assurance our lenders
would consent to an amendment or waiver in the event of noncompliance; or that such consent would
not be conditioned upon the receipt of a cash payment, revised principal payout terms, increased
interest rates, or restrictions in the expansion of the credit facilities for the foreseeable
future; or that our senior lenders would not exercise rights that would be available to them,
including, among other things, demanding payment of outstanding borrowings. In addition, our
ability to obtain additional capital or alternative borrowing arrangements at reasonable rates,
including through the issuance of our preferred stock, has been and may continue to be adversely
affected by the current conditions in the financial markets. All or any of these adverse events
would further limit our flexibility in planning for or reacting to downturns in our business. We
are unable to predict the duration and severity of the current economic downturn and disruption in
financial markets or their effects on our business and results of operations, but the consequences
may be materially adverse and more severe than other recent economic slowdowns.
We operate with a significant amount of indebtedness, which is secured by all or substantially all
of our assets, subject to variable interest rates and contain restrictive covenants.
Our substantial indebtedness could have adverse consequences, such as:
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require us to dedicate a substantial portion of our cash flow from operations at Royal
Wolf and Pac-Van to payments on our indebtedness, which could reduce the availability of
our cash flow to fund future operating capital, capital expenditures, acquisitions and
other general corporate purposes; |
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expose us to the risk of increased interest rates, as our borrowings on our secured
senior credit facilities are at variable rates of interest; |
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require us to sell assets to reduce indebtedness or influence our decisions about
whether to do so; |
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increase our vulnerability to general adverse economic and industry conditions; |
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limit our flexibility in planning for, or reacting to, changes in our business and our
industry; |
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restrict us from making strategic acquisitions or pursuing business opportunities; |
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limit, along with the financial and other restrictive covenants in our indebtedness,
among other things, our ability to borrow additional funds; and |
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violating covenants in these agreements could have a material adverse effect on our
business, financial condition and results of operations; including substantially increasing
our cost of borrowing and restricting our future operations, if not cured or waived. In
addition, the lenders may be able to terminate any commitments they had made to supply us
with further funds. Accordingly, we may not be able to fully repay our debt obligations, if
some or all of our debt obligations are accelerated upon an event of default. |
I-19
Our senior credit agreements also contain various restrictive covenants that limit the
operations of our business. In particular, these agreements include covenants and restrictions
relating to:
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payments and distributions to GFN; |
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liens and sale-leaseback transactions; |
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debt and hedging arrangements; |
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mergers, acquisitions and asset sales; |
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transactions with affiliates; and |
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changes in business activities. |
Reference is made to Note 5 of Notes to Consolidated Financial Statements for more information
regarding our indebtedness.
Our overall financial results will be affected by the relative value of the Australian dollar
and/or the New Zealand dollar to the U.S. dollar and may be affected by other currencies with
future acquisitions.
We purchase a portion of our lease fleet in Australia in U.S. dollars and gains and losses
resulting from the Australian dollar to the U.S. dollar not hedged could have a significant impact
in our reported results of operations. In addition, a weakening in the Australian or New Zealand
dollars could result in lower than anticipated reported revenues and profitability as a result of
the translation of Royal Wolfs financial results into U.S. dollars.
A write-off of all or a part of our goodwill and intangibles would hurt our operating results
and reduce our stockholders equity.
As a result of our acquisitions of Royal Wolf, Pac-Van and other smaller businesses, we have
recorded significant amounts of goodwill and intangible assets. Goodwill represents the excess of
the total purchase price of these acquisitions over the fair value of the net assets acquired. We
are not permitted to amortize goodwill under U.S. accounting standards and instead we review
goodwill, as well as intangible assets, at least annually for impairment. Impairment may result
from, among other things, deterioration in the performance of acquired businesses, adverse market
conditions and adverse changes in applicable laws or regulations, including changes that restrict
the activities of the acquired business. In the event impairment is identified, a charge to
earnings would be recorded. Although it does not affect our cash flow, a write-off of all or a part
of our goodwill or intangibles would adversely affect our operating results and stockholders
equity. During both the fiscal years ended June 30, 2010 and 2011, we recognized an impairment
charge to the goodwill recorded in the Pac-Van acquisition. Reference is made to Note 2 of Notes
to Consolidated Financial Statements for more information regarding goodwill and intangible assets.
Future acquisitions of businesses could subject us to additional business, operating and industry
risks, the impact of which cannot presently be evaluated, and could adversely impact our capital
structure.
Global economic conditions discussed above had a negative impact upon our business and we
responded by making a determined effort to reduce personnel costs, capital expenditures,
discretionary spending and curtail acquisition activity. However, we still intend to eventually
pursue additional acquisition opportunities in an effort to diversify our investments and grow our
business. Any business we acquire may cause us to be affected by numerous risks inherent in the
acquired business operations. If we acquire a business in an industry characterized by a high
level of risk, we may be affected by the currently unascertainable risks of that industry. Although
we will endeavor to evaluate the risks inherent in a particular industry or target business, we
cannot assure that we will be able to properly ascertain or assess all of the significant risk
factors.
In addition, the financing of any acquisition we complete could adversely impact our capital
structure as any such financing would likely include the issuance of additional equity securities
and/or the borrowing of additional funds. The issuance of additional equity securities may
significantly reduce the equity interest of our stockholders and/or adversely affect prevailing
market prices for our common stock. Increasing our indebtedness could increase the risk of a
default that would entitle the holder to declare all of such indebtedness due and payable and/or to
seize any collateral securing the indebtedness. In addition, default under one debt instrument
could in turn permit lenders under other debt instruments to declare borrowings outstanding under
those other instruments to be due and payable pursuant to cross default clauses. Accordingly, the
financing of future acquisitions could adversely impact our capital structure and any equity
interests in us.
I-20
While part of our long-term business strategy is to acquire additional businesses, there is no
assurance that we will be able to identify businesses that we can acquire upon terms we believe
acceptable, or if such acquisitions require additional financing, that we could obtain such
additional financing.
If we do seek to complete other acquisitions, we cannot ascertain the capital requirements for
other future transactions. We cannot assure that, if required, additional financing will be
available on acceptable terms, if at all. To the extent that additional financing proves to be
unavailable when needed to consummate a particular acquisition, we would be compelled to either
restructure the transaction or abandon that particular acquisition. In addition, if we consummate a
future acquisition, we may require additional financing to fund the operations or growth of the
target business. The failure to secure additional financing may impact the continued development or
growth of the target business.
Our long-term growth could strain our management resources.
Our future performance will depend in large part on our ability to manage our long-term
planned growth that could strain our existing management, human and other resources. To
successfully manage this growth, we must continue to add managers and employees and improve our
operating, financial and other internal procedures and controls. We also must effectively motivate,
train and manage employees. If we do not manage our growth effectively, it would adversely affect
our future operating results.
Our long-term growth plan includes the expansion of operations into markets outside of the United
States and the Asia-Pacific area. Such international expansion may not prove successful, and may
divert significant capital, resources and managements time and attention and adversely affect our
on-going operations.
To date, we have conducted all of our business within the United States, Australia and New
Zealand. However, we have intentions in the future to enter international markets, including
possibly South America and the European markets, which will require substantial amounts of
management time and attention. Our products and overall marketing approach may not be accepted in
other markets to the extent needed to make our international expansion profitable. In addition, the
additional demands on management from these activities may detract from our efforts in the United
States, Australian and New Zealand markets and adversely affect our operating results in these
principal markets. Any international expansion will expose us to the risks normally associated with
conducting international business operations, including unexpected changes in regulatory
requirements, changes in foreign legislation, possible foreign currency controls, currency exchange
rate fluctuations or devaluations, tariffs, difficulties in staffing and managing foreign
operations, difficulties in obtaining and managing vendors and distributors, potential negative tax
consequences and difficulties collecting accounts receivable.
To complete future business combinations, we may issue shares of our capital stock that would
reduce the equity interest of our stockholders and could cause a change in control of our
ownership, or incur debt, which could adversely affect our financial condition.
Our certificate of incorporation authorizes the issuance of up to 100,000,000 shares of common
stock and up to 1,000,000 shares of preferred stock. At June 30, 2011, there were 74,352,508
authorized shares of our common stock available for issuance (after appropriate reservation for the
issuance of shares upon full exercise of our outstanding warrants and options issued under our 2006
Stock Option Plan and 2009 Stock Incentive Plan. If we seek to consummate future business
combinations, we may be required to issue a substantial number of additional shares of our common
or preferred stock, or a combination of common and preferred stock, to complete the other business
combination. The issuance of additional shares of our common stock or any number of shares of our
preferred stock:
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may significantly reduce the equity interest of investors; |
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may subordinate the rights of holders of common stock if preferred stock is issued with
rights senior to those afforded to our common stock; |
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may cause a change in control if a substantial number of our shares of common stock are
issued, which may affect, among other things, our ability to use our net operating loss
carry forwards, if any, and could result in the resignation or removal of our present
officers and directors; and |
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may adversely affect prevailing market prices for our common stock. |
I-21
In addition, we may incur substantial debt to complete another business combination. The
incurrence of debt could result in:
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default and foreclosure on our assets if our operating revenues after a business
combination are insufficient to repay our debt obligations; |
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our immediate payment of all principal and accrued interest, if any, if the debt
security is payable on demand; and |
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our inability to obtain necessary additional financing if the debt security instrument
covenants restricting our ability to obtain such financing while the debt instrument is
outstanding. |
The price of our common stock may fluctuate significantly, which may make it difficult for
stockholders to resell common stock when they want or at a price they find attractive.
We expect that the market price of our common stock will fluctuate. Our common stock price can
fluctuate as a result of a variety of factors, many of which are beyond our control. These factors
include:
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actual or anticipated variations in our quarterly operating results; |
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changes in interest rates and other general economic conditions; |
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significant acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving us or our competitors; |
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operating and stock price performance of other companies that investors deem comparable
to us; |
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news reports relating to trends, concerns, litigation, regulatory changes and other
issues in our industry; |
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geopolitical conditions such as acts or threats of terrorism or military conflicts; |
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relatively low trading volume; and |
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significant concentration of ownership in our common stock. |
If equity research analysts do not publish research or reports about our business or if they issue
unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that
equity research analysts publish about us and our business. We do not control these analysts. The
price of our stock could decline if one or more equity analysts downgrade our stock or if those
analysts issue other unfavorable commentary or cease publishing reports about us or our business.
We do not currently intend to pay dividends on our common stock, which may limit the return on your
investment in us.
Except for payment of dividends on our preferred stock and on the capital stock of Royal Wolf,
we intend to retain all available funds and any future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
Our outstanding options and warrants may have an adverse effect on the market price of common stock
and increase the difficulty of effecting future business combinations.
At June 30, 2011, we had outstanding options and warrants to purchase 3,634,193 shares of
common stock. The potential for the issuance of substantial numbers of additional shares of common
stock upon exercise of these warrants and options could make us a less attractive acquisition
vehicle in the eyes of a target business. Such securities, when exercised, will increase the number
of issued and outstanding shares of our common stock and reduce the value of the shares issued.
Additionally, the sale, or even the possibility of sale, of the shares underlying the warrants and
options could have an adverse effect on the market price for our securities or on our ability to
obtain future financing.
Significant Risks Related Primarily to Our Operations in the Asia-Pacific Area
Sales of container units constitute a significant portion of Royal Wolfs revenues. Failure to
continue to sell units at historic levels could adversely affect our financial results and our
ability to grow.
Sales of container units and related modification revenues constitute a significant portion of
Royal Wolfs total revenues. Sales are strongly correlated with overall economic conditions,
especially the natural resources sectors. Revenues from sales of container units have a material
impact on our financial results and our ability to service our debt. Further, the funding of the
growth of the lease fleet is dependent upon the sales of container units to take advantage of
business and growth opportunities available to it.
I-22
The failure of Royal Wolf to achieve its business strategy of increasing its leasing revenue could
adversely affect the predictability of our quarterly earnings results and adversely affect our
results of operations.
Historically, Royal Wolfs sales have been a proportionately greater percentage of total
revenues than leasing. We are pursuing a strategy of increasing revenue generated from leasing
operations. Revenues generated from sales can vary greatly from quarter to quarter, while revenue
from leasing operations is more predictable and has better margins. If we are not successful in
increasing the percentage of our revenues generated by our leasing operations, our results of
operations may vary greatly quarter to quarter, and would therefore be less predictable. In
addition, if we are not successful in increasing the percentage of our revenues from our leasing
operations, our results of operations may be adversely affected.
General or localized economic downturns or weakness may adversely affect Royal Wolfs customers, in
particular those in the mining and moving and storage industries, which may reduce demand for Royal
Wolfs products and services which would negatively impact our future revenues and results of
operations.
A significant portion of Royal Wolfs revenues is derived from customers in industries and
businesses that are cyclical in nature and subject to changes in general economic conditions,
including the mining, transport (road and rail) and construction industries. Although we believe
the variety of Royal Wolfs products, the breadth of its customer base and its geographic diversity
throughout Australia reduces its exposure to economic downturns, general economic downturns or
localized downturns in markets where its operates could reduce demand for Royal Wolfs products and
negatively impact our future revenues and results of operations.
Royal Wolf faces significant competition in the portable buildings industry and regional
competition in the portable
storage market. Royal Wolf also faces potentially significant competition from modular industry
companies who have portable storage offerings, especially from several national competitors in
Australia who have greater financial resources and pricing flexibility than Royal Wolf does. If
Royal Wolf is unable to compete successfully in these industries, it could lose customers and our
future revenues could decline.
Although Royal Wolfs competition varies significantly by market, the portable buildings
market in which Royal Wolf competes is dominated by three or four large participants and is highly
competitive. In addition, Royal Wolf competes with a number of large to mid-sized regional
competitors, as well as many smaller, full and part-time operators in many local regions. The
modular space industry is highly competitive and almost all of the competitors have portable
storage product offerings. The primary modular national competitors with portable storage offerings
are less leveraged than Royal Wolf, and have greater financial resources and pricing flexibility
than Royal Wolf does. If they focus on portable storage, Royal Wolf could lose customers and our
future revenues could decline. If Royal Wolf is unable to compete successfully in these markets, it
could lose customers and our future revenues could decline.
Our customers lease our storage container products on primarily a month-to-month basis, and our
results of operations could be adversely affected by a downturn in economic activity.
Should a significant number of Royal Wolfs container products be returned by customers during
a short period of time, Royal Wolf would have to lease to new customers a large supply of units at
similar rates in order to maintain historic revenues from these operations. Royal Wolfs failure to
effectively lease to new customers a large influx of units returned by customers from leases could
have a material adverse effect on our results of operations.
Failure to retain key personnel could adversely affect Royal Wolfs operations and could impede our
ability to execute our business plan and growth strategy.
Royal Wolf is managed largely by its existing officers, including Robert Allan, its Chief
Executive Officer. The continued success of Royal Wolf will depend largely on the efforts and
abilities of these executive officers and certain other key employees. The members of the senior
management team of Royal Wolf have substantial experience in the equipment leasing industry. These
key employees have knowledge and an understanding of Royal Wolf and its industry that cannot be
readily duplicated. Mr. Allan has an employment agreement which is terminable under certain
circumstances upon notice to him. However, we do not have key-man insurance on any of these key
personnel. The loss of Mr. Allan or any member of Royal Wolfs senior management team could impair
our ability to execute our business plan and growth strategy, cause a loss of customers, reduce
revenues and adversely affect employee morale.
Failure by container suppliers to deliver container products to Royal Wolf could adversely affect
its operations.
The failure of one or more container suppliers to deliver or timely deliver containers to
Royal Wolf could harm its reputation with customers. If Royal Wolf is unable to fulfill customer
orders due to delivery failures by its suppliers, Royal Wolfs results of operations could be
harmed.
Unionization by some or all of Royal Wolfs employees could cause increases in operating costs.
Royal Wolfs employees are not presently covered by collective bargaining agreements. Unions
may attempt to organize Royal Wolfs employees in the future. We are unable to predict the outcome
of any continuing or future efforts to organize Royal Wolfs employees, the terms of any future
labor agreements, or the effect, if any, those agreements might have on our operations or financial
performance.
I-23
Significant Risks Related to Primarily Our Business and Operations in the United States
General or localized economic downturns or weakness may adversely affect Pac-Vans customers, in
particular those in the construction industry, which may reduce demand for Pac-Vans products and
services and negatively impact our future revenues and results of operations.
A significant portion of Pac-Vans revenues is derived from customers who are in industries
and businesses that are cyclical in nature and subject to changes in general economic conditions,
including the construction industry, which constituted over 35% of Pac-Vans revenues for the
fiscal year ended June 30, 2011. Although the variety of Pac-Vans products, the breadth of its
customer base and the number of markets it serves throughout the United States limit its exposure
to economic downturns, general economic downturns or localized downturns in markets where its
operates could reduce demand for Pac-Vans products, especially in the construction industry, and
negatively impact our future revenues and results of operations.
Pac-Van faces significant competition in the modular buildings and portable storage industries.
Pac-Van also faces potentially significant competition from modular buildings companies who have
portable storage product offerings,
especially from several national competitors in the United States who have greater financial
resources and pricing flexibility than Pac-Van does. If Pac-Van is unable to compete successfully,
it could lose customers and our future revenues could decline.
Although Pac-Vans competition varies significantly by market, the modular buildings markets
in which Pac-Van competes are dominated by two large participants and are highly competitive. In
addition, Pac-Van competes with a number of large to mid-sized regional competitors, as well as
many smaller, full and part-time operators in many local regions. The modular building industry is
highly competitive, subject to stiff pricing competition and almost all of the competitors have
portable storage product offerings. The primary modular national competitors with portable storage
product offerings are less leveraged than Pac-Van, and have greater financial resources and pricing
flexibility than Pac-Van does. If they focus on portable storage, Pac-Van could lose customers and
our future revenues could decline. If Pac-Van is unable to compete successfully, it could lose
customers and our future revenues could decline.
Because Pac-Van has depended to a large extent on the success of its leasing operations, the
failure of Pac-Van to effectively and quickly remarket lease units that are returned could
materially and adversely affect our results of operations.
The current economic recession in the U.S. has reduced utilization rates at Pac-Van to levels
at approximately 72% as of June 30, 2011, but historically Pac-Vans average monthly lease fleet
utilization has averaged between 70% and 85%; with the typical lease term being for an average
period of over twelve months. The high utilization rate and the length of the average lease have
provided Pac-Van with a predictable revenue stream. However, if utilization rates continue to
decline or should a significant number of Pac-Vans lease units be returned during any short period
of time, Pac-Van would have to re-lease a large supply of units at similar rates to maintain
historic revenues from these operations. Pac-Vans failure to effectively maintain historical
utilization rates or remarket a large influx of units returning from leases could have a material
adverse effect on our results of operations.
Sales of modular buildings, mobile offices and container product units constitute a significant
portion of Pac-Vans revenues and the failure to continue to sell units at historic rates could
adversely affect our ability to grow Pac-Vans lease fleet.
Sales constituted approximately 32% of Pac-Vans total revenues for the fiscal year ended June
30, 2011. Revenues from sales of modular buildings, mobile offices and container products have
been used to fund increases in the size of our lease fleet. As a result, the failure to continue to
sell a significant number of units may adversely affect our ability to increase the size of
Pac-Vans lease fleet or to otherwise take advantage of business and growth opportunities available
to it.
Governmental regulations could impose substantial costs and restrictions on Pac-Vans operations
that could harm our future results of operations.
Pac-Van is subject to various federal, state and local environmental, transportation, health
and safety laws and regulations in connection with its operations. Any failure to comply with these
laws or regulations could result in capital or operating expenditures or the imposition of severe
penalties or restrictions on its operations. In addition, these laws and regulations could change
in a manner that materially and adversely affects Pac-Vans ability to conduct its business. More
burdensome regulatory requirements in these or other areas may increase our general and
administrative costs. If Pac-Van is unable to pass these increased costs on to its customers, our
future operating results could be negatively impacted.
I-24
Significant increases in raw material costs could increase our operating costs significantly and
harm our future results of operations.
Pac-Van purchases raw materials, including metals, lumber, siding and roofing and other
products, to construct and modify modular buildings and to modify containers to its customers
requirements. Pac-Van also maintains a truck fleet to deliver units to and return units from
customers. During periods of rising prices for raw materials, especially oil and fuel for delivery
vehicles, and in particular when the prices increase rapidly or to levels significantly higher than
normal, Pac-Van may incur significant increases in operating costs and may not be able to pass
price increases through to customers in a timely manner, which could harm our future results of
operations.
Failure to retain key personnel could adversely affect Pac-Vans operations and could impede our
ability to execute our business plan and growth strategy.
Pac-Van is managed largely by its seven existing officers, including its President, Theodore
M. Mourouzis. The continued success of Pac-Van will depend largely on the efforts and abilities of
Mr. Mourouzis and these senior managers. These officers and employees have an understanding of
Pac-Van and its industry that cannot be readily
duplicated. Mr. Mourouzis has an employment agreement which is terminable under certain
circumstances upon notice to or by him. However, we do not have key-man insurance on any of these
key personnel. The loss of any member of Pac-Vans senior management team could impair our ability
to execute our business plan and growth strategy, cause a loss of customers, reduce revenues and
adversely affect employee morale.
Any failure of Pac-Vans management information systems could disrupt our business and result in
decreased rental or sale revenues and increased overhead costs, which could negatively impact our
results of operations.
Pac-Van depends on its management information systems to actively manage its lease fleet,
control new unit capital spending and provide fleet information, including leasing history,
condition and availability of our units. These functions enhance Pac-Vans ability to optimize
fleet utilization, rent ability and redeployment. The failure of Pac-Vans management information
systems to perform as we anticipate could disrupt its business and could result in, among other
things, decreased leases or sales and increased overhead costs, which could negatively impact our
results of operations.
Failure by Pac-Vans manufacturers to sell and deliver products to Pac-Van in timely fashion may
harm Pac-Vans reputation and our financial condition.
Pac-Van currently purchases new modular buildings and components, mobile offices and storage
container products directly from manufacturers. Although Pac-Van is not dependent on any one
manufacturer and is able to purchase products from a variety of suppliers, the failure of one or
more of its suppliers to timely manufacture and deliver storage containers to Pac-Van could
adversely affect its operations. Pac-Van purchases new modular buildings and components, mobile
offices and storage containers under purchase orders issued to various manufacturers, which the
manufacturers may or may not accept or be able to fill. Pac-Van has no contracts with any supplier.
If these suppliers do not timely fill Pac-Vans purchase orders, or do not properly manufacture the
ordered products, our reputation and financial condition also could be harmed.
Unionization by some or all of Pac-Vans employees could cause increases in operating costs.
Pac-Vans employees are not presently covered by collective bargaining agreements. Unions may
attempt to organize Pac-Vans employees in the future. We are unable to predict the outcome of any
continuing or future efforts to organize Pac-Vans employees, the terms of any future labor
agreements, or the effect, if any, those agreements might have on our operations or financial
performance.
Some zoning laws restrict the use of Pac-Vans storage units and therefore limit its ability to
offer its products in all markets.
Many of Pac-Vans customers use Pac-Vans storage units to store goods on their own
properties. Local zoning laws in some of Pac-Vans markets prohibit customers from maintaining
mobile offices or storage containers on their properties or require that mobile offices or storage
containers be located out of sight from the street. If local zoning laws in one or more of
Pac-Vans geographic markets were to ban or restrict its products from being stored on customers
sites, Pac-Vans business in that market could suffer.
I-25
|
|
|
Item 1B. |
|
Unresolved Staff Comments |
None.
We locate our Asia-Pacific branches (or CSCs) in markets with attractive demographics and
strong growth prospects. Within each market, we have located our branches in areas that allow for
easy delivery of mobile storage units to our customers over a wide geographic area. In addition,
when cost effective, we seek high visibility locations. Our CSCs maintain an inventory of mobile
storage units available for lease, and most of our CSCs also provide storage of units under lease
at the branch (on-site storage). Several CSCs have multiple leases of adjoining or contiguous
properties and, except for the Auckland, New Zealand self-storage and regional office site, the
CSCs are all leased.
The following table shows information about our CSCs and other properties by country
(Australia and New Zealand) and we believe these properties are suitable and adequate for our
needs:
|
|
|
|
|
|
|
|
|
Location |
|
Functions/Uses |
|
Year Established |
|
Australia: |
|
|
|
|
|
|
|
|
Adelaide |
|
Leasing, on-site storage and sales |
|
|
2006 |
|
Brisbane |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Brisbane (special products
and modifications) |
|
Leasing and modifications (not a CSC) |
|
|
2008 |
|
Cairns |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Canberra |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
Melbourne East Clayton |
|
Leasing, on-site storage and sales |
|
|
1997 |
|
Melbourne West Sunshine |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Darwin |
|
Leasing, on-site storage and sales |
|
|
2010 |
|
Geraldton |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
Gold Coast |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Gosford Central Coast |
|
Leasing, on-site storage and sales |
|
|
2009 |
|
Hobart |
|
Leasing, on-site storage and sales |
|
|
2008 |
|
Hornsby |
|
Head office |
|
|
1986 |
|
Sydney Moorebank |
|
Leasing, on-site storage and sales |
|
|
2009 |
|
Sydney St Marys |
|
Leasing, on-site storage and sales |
|
|
2011 |
|
Newcastle |
|
Leasing, on-site storage and sales |
|
|
2001 |
|
Perth North Bayswater |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Perth South Bibra Lakes |
|
Leasing, on-site storage and sales |
|
|
2006 |
|
Tomago |
|
On-site storage and sales (not a CSC) |
|
|
2008 |
|
Townsville |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
New Zealand: |
|
|
|
|
|
|
|
|
Auckland-Ormiston Rd (owned) |
|
Head office and on-site storage |
|
|
2000 |
|
Auckland-East Tama |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Christchurch |
|
Leasing, on-site storage and sales |
|
|
2002 |
|
Hamilton |
|
Leasing, on-site storage and sales |
|
|
2010 |
|
Silverdale/Albany |
|
Leasing, on-site storage and sales |
|
|
2008 |
|
Tauranga/Bay of Plenty |
|
Leasing, on-site storage and sales |
|
|
2009 |
|
Wellington |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
I-26
Except for the head office of Pac-Van, which we own, all of the locations in the U.S. are
leased. Most of Pac-Vans major leased properties have remaining lease terms of at least one year,
and we believe that none of the individual branch locations is material to our operations. We also
believe that satisfactory alternative properties could be found in all of our U.S. markets, if
necessary. The following table shows information about our branches and other properties in the
U.S.:
|
|
|
|
|
|
|
|
|
Location |
|
Functions/Uses |
|
Year Established |
|
Atlanta, GA |
|
Leasing and sales |
|
|
2008 |
|
Bakersfield, CA |
|
Leasing and sales |
|
|
2008 |
|
Charleston, WV |
|
Fleet storage |
|
|
2007 |
|
Charlotte, NC |
|
Leasing and sales |
|
|
2005 |
|
Chicago, IL |
|
Leasing and sales |
|
|
2005 |
|
Cincinnati, OH |
|
Leasing and sales |
|
|
2008 |
|
Cleveland, OH |
|
Leasing and sales |
|
|
2008 |
|
Columbus, OH |
|
Leasing and sales |
|
|
2005 |
|
Dallas, TX |
|
Leasing and sales |
|
|
2008 |
|
Denver, CO |
|
Leasing and sales |
|
|
2008 |
|
Elkhart, IN |
|
Fleet storage |
|
|
2009 |
|
Chino, CA |
|
Leasing and sales |
|
|
2008 |
|
Indianapolis, IN |
|
Leasing and sales |
|
|
1998 |
|
Indianapolis, IN (owned) |
|
Head office |
|
|
2011 |
|
Jacksonville, FL |
|
Leasing and sales |
|
|
2007 |
|
Kansas City, MO |
|
Leasing and sales |
|
|
2000 |
|
Las Vegas, NV |
|
Leasing and sales |
|
|
2006 |
|
Louisville, KY |
|
Leasing and sales |
|
|
2006 |
|
Memphis, TN |
|
Leasing and sales |
|
|
1999 |
|
Nashville, TN |
|
Leasing and sales |
|
|
2001 |
|
Orlando, FL |
|
Leasing and sales |
|
|
2006 |
|
Phoenix, AZ |
|
Leasing and sales |
|
|
2009 |
|
Pittsburgh, PA |
|
Leasing and sales |
|
|
2005 |
|
Salt Lake City, UT |
|
Leasing and sales |
|
|
2008 |
|
St. Louis, MO |
|
Leasing and sales |
|
|
2008 |
|
Toledo, OH |
|
Leasing and sales |
|
|
2008 |
|
Trenton, NJ |
|
Leasing and sales |
|
|
2009 |
|
We lease our corporate headquarters in Pasadena, California, effective January 31, 2008, from
an affiliate of our chief executive officer, who is also a member of the board of directors. The
rent is $7,393 per month, plus allocated charges for common area maintenance, real property taxes
and insurance, for approximately 3,000 square feet of office space. The term of the lease is five
years, with two five-year renewal options, and the rent is adjusted yearly based on the consumer
price index.
|
|
|
Item 3. |
|
Legal Proceedings |
We are not involved in any material lawsuits or claims arising out of the normal course of our
business. We have insurance policies to cover general liability and workers compensation related
claims. In our opinion, the ultimate amount of liability not covered by insurance under pending
litigation and claims, if any, will not have a material adverse effect on our financial position,
operating results or cash flows.
Reference is made to Note 10 of our consolidated financial statements for further discussion
of commitments and contingencies, including any legal proceedings.
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of our stockholders during the quarter ended June 30,
2011.
I-27
PART II
|
|
|
Item 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is listed on The NASDAQ Global Market (NASDAQ) under the symbol GFN and,
effective July 14, 2010, our units and warrants that were issued in connection with our rights
offering on June 25, 2010 are listed on NASDAQ under the symbols GFNCL and GFNCZ, respectively.
Reference is made to Note 3 of our consolidated financial statements for a discussion of the rights
offering. The following table sets forth, for the periods indicated, the range of high and low
closing sales prices for our common stock and for the units and warrants that were issued in
connection with our rights offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
Common Stock |
|
|
Warrants |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
Year Ended June 30, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
4.40 |
|
|
$ |
2.80 |
|
|
$ |
3.40 |
|
|
$ |
2.61 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Third Quarter |
|
|
3.51 |
|
|
|
2.22 |
|
|
|
3.65 |
|
|
|
2.01 |
|
|
|
0.00 |
|
|
|
0.00 |
|
Second Quarter |
|
|
4.00 |
|
|
|
1.50 |
|
|
|
2.60 |
|
|
|
1.30 |
|
|
|
0.00 |
|
|
|
0.00 |
|
First Quarter |
|
|
2.70 |
|
|
|
1.50 |
|
|
|
1.28 |
|
|
|
1.01 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, for the periods indicated, the range of high and
low closing sales prices for our common stock and for the units and warrants that
were issued in connection with our initial public offering and expired on June 30,
2010. These units and warrants were previously listed under the symbols GFNCU
and GFNCW, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
3.75 |
|
|
$ |
0.80 |
|
|
$ |
1.65 |
|
|
$ |
1.06 |
|
|
$ |
0.09 |
|
|
$ |
0.01 |
|
Third Quarter |
|
|
1.15 |
|
|
|
1.00 |
|
|
|
1.40 |
|
|
|
1.15 |
|
|
|
0.09 |
|
|
|
0.01 |
|
Second Quarter |
|
|
2.25 |
|
|
|
1.05 |
|
|
|
1.65 |
|
|
|
1.11 |
|
|
|
0.20 |
|
|
|
0.02 |
|
First Quarter |
|
|
2.80 |
|
|
|
1.07 |
|
|
|
1.60 |
|
|
|
1.22 |
|
|
|
0.15 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Holders
As of August 2, 2011, there were 28 stockholders of record of our common stock and 59 holders
of record for our units and 12 holders of record for our warrants issued in connection with the
rights offering. We believe that there are thousands of beneficial owners of our common stock,
units and warrants.
Dividend Policy
We have not paid any dividends on our common stock to date. The payment of dividends in the
future will be contingent upon our revenues and earnings, if any, capital requirements and general
financial condition. The payment of any dividends will be within the discretion of our board of
directors. It is the present intention of our board of directors to retain all earnings, if any,
for use in our business operations and, accordingly, our board does not anticipate declaring any
dividends in the foreseeable future.
Sales of Unregistered Securities
We are conducting private placements of Series A 12.5% Cumulative Preferred Stock, par value
$0.0001 per share and liquidation preference of $50 per share (Series A Preferred Stock), and
Series B 8% Cumulative Preferred Stock, par value of $0.0001 per share and liquidation value of
$1,000 per share (Series B Preferred Stock), in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. The Series A Preferred Stock and the Series B Preferred Stock are referred to
collectively as the Cumulative Preferred Stock.
The Cumulative Preferred Stock is not convertible into GFN common stock, has no voting rights,
except as required by Delaware law, and is not redeemable prior to February 1, 2014; at which time
it may be redeemed at any time, in whole or in part, at our option. Holders of the Cumulative
Preferred Stock are entitled to receive, when declared by our Board of Directors, annual dividends
payable quarterly in arrears on the 31st day of January, July and October of each year
and the 30th day of April of each year. In the event of any liquidation or winding up
of the Company, the
holders of the Cumulative Preferred Stock will have preference to holders of common stock;
with the holders of the Series A Preferred Stock having preference over holders of the Series B
Preferred Stock. We have agreed to register for public trading the Cumulative Preferred Stock no
later than one year from issuance.
II-1
As of June 30, 2011, we had issued 25,900 share and 210 shares of Series A Preferred Stock and
Series B Preferred Stock for total proceeds of $1,295,000 and $210,000, respectively.
Equity Compensation Plan
The following table sets forth information concerning our equity compensation plans, the 2006
Stock Option Plan and the 2009 Stock Incentive Plan, as of June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
|
(a) |
|
|
|
|
|
|
for future issuance |
|
|
|
Number of securities |
|
|
(b) |
|
|
under equity |
|
|
|
to be issued upon |
|
|
Weighted-average exercise |
|
|
compensation plans |
|
|
|
exercise of |
|
|
price of outstanding |
|
|
(excluding securities |
|
|
|
outstanding options, |
|
|
options, warrants and |
|
|
reflected in column |
|
Plan category |
|
warrants and rights |
|
|
rights |
|
|
(a)) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security
holders |
|
|
1,540,570 |
|
|
$ |
5.47 |
|
|
|
959,430 |
|
Equity compensation
plans not approved by
security
holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,540,570 |
|
|
$ |
5.47 |
|
|
|
959,430 |
|
|
|
|
|
|
|
|
|
|
|
II-2
|
|
|
Item 6. |
|
Selected Financial Data |
Our summary historical consolidated financial data set forth below as of and for the years
ended June 30, 2011 and 2010 (as Successor) was derived from the audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. Our summary historical
consolidated financial data set forth below as of and for the years ended June 30, 2009 and 2008
(as Successor), the summary historical consolidated financial data for Royal Wolf (as our
Predecessor) for the period from July 1 to September 13, 2007 and as of and for the year ended June
30, 2007, was derived from audited financial statements of Royal Wolf.
Consolidated Statement of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
Year Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
Sales |
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
|
$ |
68,029 |
|
|
$ |
75,528 |
|
|
$ |
79,207 |
|
|
$ |
92,687 |
|
Leasing |
|
|
21,483 |
|
|
|
4,915 |
|
|
|
|
27,547 |
|
|
|
70,932 |
|
|
|
77,102 |
|
|
|
89,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
|
95,575 |
|
|
|
146,460 |
|
|
|
156,309 |
|
|
|
182,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4,672 |
|
|
|
1,530 |
|
|
|
|
8,373 |
|
|
|
14,058 |
|
|
|
3,575 |
|
|
|
9,781 |
|
Other expense, net |
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
|
(1,785 |
) |
|
|
(25,177 |
) |
|
|
(13,792 |
) |
|
|
(15,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before provision
for income taxes |
|
|
802 |
|
|
|
468 |
|
|
|
|
6,588 |
|
|
|
(11,119 |
) |
|
|
(10,217 |
) |
|
|
(5,900 |
) |
Net income (loss) |
|
|
312 |
|
|
|
288 |
|
|
|
|
4,554 |
|
|
|
(6,745 |
) |
|
|
(8,956 |
) |
|
|
(8,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
|
$ |
(0.22 |
) |
|
$ |
(0.64 |
) |
|
$ |
(0.72 |
) |
Diluted |
|
|
|
|
|
|
|
|
|
|
|
0.39 |
|
|
|
(0.22 |
) |
|
|
(0.64 |
) |
|
|
(0.72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Successor |
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
2007 |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
Trade and other receivables, net |
|
$ |
14,686 |
|
|
|
$ |
19,916 |
|
|
$ |
27,565 |
|
|
$ |
27,449 |
|
|
$ |
30,498 |
|
Inventories |
|
|
5,472 |
|
|
|
|
21,084 |
|
|
|
22,511 |
|
|
|
19,063 |
|
|
|
20,942 |
|
Lease fleet, net |
|
|
40,928 |
|
|
|
|
87,748 |
|
|
|
188,915 |
|
|
|
188,410 |
|
|
|
220,095 |
|
Total assets |
|
|
68,788 |
|
|
|
|
207,861 |
|
|
|
358,696 |
|
|
|
346,880 |
|
|
|
387,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
|
10,452 |
|
|
|
|
18,731 |
|
|
|
24,657 |
|
|
|
25,246 |
|
|
|
32,522 |
|
Senior and other debt |
|
|
44,170 |
|
|
|
|
81,252 |
|
|
|
200,304 |
|
|
|
186,183 |
|
|
|
136,589 |
|
Total equity |
|
|
13,040 |
|
|
|
|
93,731 |
|
|
|
103,174 |
|
|
|
101,734 |
|
|
|
191,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-3
Selected Unaudited Quarterly Financial Data
The following table sets forth unaudited operating data for each quarter of the years ended
June 30, 2011 and June 30, 2010. This quarterly information has been prepared on the same basis as
the annual consolidated financial statements and, in the opinion of management, contains all
significant adjustments necessary to state fairly the information set forth herein. These quarterly
results are not necessarily indicative of future results, growth rates or quarter-to-quarter
comparisons.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
(in thousands, except per share data) |
|
|
For the Fiscal Year Ended June 30, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
43,465 |
|
|
$ |
44,897 |
|
|
$ |
43,322 |
|
|
$ |
50,580 |
|
Gross profit |
|
|
5,779 |
|
|
|
5,515 |
|
|
|
4,708 |
|
|
|
7,233 |
|
Operating income (loss) (a)(b) |
|
|
3,670 |
|
|
|
4,345 |
|
|
|
4,278 |
|
|
|
(2,512 |
) |
Net income (loss) (c) |
|
|
1,195 |
|
|
|
1,342 |
|
|
|
(196 |
) |
|
|
(11,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.67 |
) |
Diluted |
|
|
0.03 |
|
|
|
0.03 |
|
|
|
(0.12 |
) |
|
|
(0.67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended June 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
35,219 |
|
|
$ |
39,146 |
|
|
$ |
38,485 |
|
|
$ |
43,459 |
|
Gross profit |
|
|
4,088 |
|
|
|
4,259 |
|
|
|
3,923 |
|
|
|
5,571 |
|
Operating income (loss) (a) |
|
|
2,075 |
|
|
|
2,641 |
|
|
|
2,979 |
|
|
|
(4,120 |
) |
Net income (loss) |
|
|
648 |
|
|
|
(561 |
) |
|
|
(203 |
) |
|
|
(8,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.00 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.53 |
) |
Diluted |
|
|
0.00 |
|
|
|
(0.07 |
) |
|
|
(0.05 |
) |
|
|
(0.53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes non-cash impairment charge to the goodwill recorded in the Pac-Van acquisition
of $5,858 and $7,633 in the fourth quarter of FY 2011 and FY 2010, respectively. |
|
(b) |
|
Includes non-recurring expenses incurred in the Royal Wolf IPO of $2,482 in the fourth
quarter. |
|
(c) |
|
Includes noncontrolling interest charge of $3,413 in the fourth quarter, primarily due to
the enhanced redemption value of the Bison Capital put option to the final accretion value of
$17,634. |
II-4
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our financial condition and results of operations should be read
together with the consolidated financial statements and the accompanying notes thereto included
elsewhere in this Annual Report on Form 10-K. This discussion includes forward-looking statements
that involve risks and uncertainties. Our actual results may differ significantly from those
anticipated or discussed in those forward-looking statements as a result of various factors;
including, but not limited to, those described in Item 1A. Risk Factors.
References to we, us, our or the Company refer to General Finance Corporation, a
Delaware corporation (GFN), and its consolidated subsidiaries. These subsidiaries include GFN
U.S. Australasia Holdings, Inc., a Delaware corporation (GFN U.S.); GFN North America Corp., a
Delaware corporation (GFNNA); GFN Mobile Storage Inc., a Delaware corporation (GFNMS); Royal
Wolf Holdings Limited (formerly GFN Australasia Holdings Pty Ltd)., an Australian corporation
publicly traded on the Australian Securities Exchange (RWH or GFN Holdings); GFN Australasia
Finance Pty Ltd, an Australian corporation (GFN Finance); RWA Holdings Pty Limited (RWA), an
Australian corporation, and its Australian and New Zealand subsidiaries (collectively, Royal
Wolf); and Pac-Van, Inc., an Indiana corporation (combined with GFNMS, Pac-Van).
Background and Overview
We incorporated in Delaware on October 14, 2005 and completed our initial public offering (the
IPO) in April 2006. On September 13, 2007 (September 14 in Australia), we acquired Royal Wolf by
purchasing the outstanding shares of RWA. The purchase price paid to the former shareholders of RWA
was $64.3 million, which consisted of $44.7 million in cash, the issuance to Bison Capital
Australia, L.P., (Bison Capital), one of the sellers, of shares of common stock of GFN U.S. and
the issuance of a note to Bison Capital. Following the acquisition, we owned 86.2% of the
outstanding capital stock of GFN U.S. and Bison Capital owned 13.8% of the outstanding capital
stock of GFN U.S. Royal Wolf leases and sells storage containers, portable container buildings and
freight containers in Australia and New Zealand, which is considered geographically by the Company
to be the Asia-Pacific area.
On October 1, 2008, we acquired Pac-Van through a merger with Mobile Office Acquisition Corp.
(MOAC), the parent of Pac-Van, and our wholly-owned subsidiary formed in July 2008, GFNNA. In
addition to assuming Pac-Vans senior and other debt, we paid $46.5 million to the stockholders of
MOAC by a combination of $19.4 million in cash, 4,000,000 shares of GFN restricted common stock
(valued at $25.6 million) and a 20-month subordinated promissory note in the aggregate principal
amount of $1.5 million bearing interest at 8% per annum. Pac-Van leases and sells storage and
office containers, modular buildings and mobile offices in the United States.
The economic downturn in the United States, particularly in the construction related
industries (where Pac-Van has currently over 30% of its business and historically has had over
40%), and, until recently, the global economy in general, have had an adverse impact on the
Companys operating results. To offset this adverse effect, we undertook cost-reduction and other
measures, particularly in the U.S., to reduce our indebtedness and to strive to comply with
financial loan covenants. Reference is made to the Liquidity and Financial Condition section for
a discussion of the more significant capital transactions we undertook in improving our senior and
other debt leverage position, including an initial public offering (IPO) in Australia of a
noncontrolling interest in Royal Wolf.
Our long-term strategy and business plan is to acquire and operate rental services and
specialty finance businesses in North America, Europe and the Asia-Pacific area.
Our two operating subsidiaries, Royal Wolf and Pac-Van, lease and sell storage container
products, modular buildings and mobile offices through seventeen customer service centers (CSCs)
in Australia, six CSCs in New Zealand and twenty-six branch locations across eighteen states in the
United States. As of June 30, 2011, we had 229 and 179 employees and 30,170 and 11,176 lease fleet
units in the Asia-Pacific area and United States, respectively. We do business in two distinct, but
related industries; mobile storage and modular space, which we collectively refer to as the
portable services industry. Prior to our acquisition of Pac-Van, our revenue mix was
approximately 70% sales and 30% leasing. However, during the year ended June 30, 2011 the mix was
51% sales and 49% leasing.
Our products include the following:
Mobile Storage
Storage Containers. Storage containers consist of new and used shipping containers that
provide a flexible, low cost alternative to warehousing, while offering greater security,
convenience and immediate accessibility. Our storage products include general purpose dry storage
containers, refrigerated containers and specialty containers in a range of standard and modified
sizes, designs and storage capacities. Specialty containers include blast-resistant units, hoarding
units and hazardous-waste units. We also offer storage vans, also known as storage trailers or
dock-height trailers.
II-5
Freight Containers. Freight containers are specifically designed for transport of products by
road and rail. Our freight container products include curtain-side, refrigerated and bulk cargo
containers, together with a range of standard and industry-specific dry freight containers.
Modular Space
Modular Buildings. Also known as manufactured buildings, modular buildings provide customers
with additional space and are often modified to customer specifications. Modular buildings range in
size from 1,000 to more than 30,000 square feet and may be highly customized.
Mobile Offices. Also known as trailers or construction trailers, mobile offices are
re-locatable units with aluminum or wood exteriors on wood (or steel) frames on a steel carriage
fitted with axles, allowing for an assortment of add-ons to provide comfortable and convenient
temporary space solutions.
Portable Container Buildings and Office Containers. Portable container buildings and office
containers are either modified or specifically-manufactured containers that provide self-contained
office space with maximum design flexibility. Office containers in the U.S. are oftentimes
referred to as ground level offices (GLOs).
Results of Operations
Year Ended June 30, 2011 (FY 2011) Compared to Year Ended June 30, 2010 (FY 2010)
The following compares our FY 2011 results of operations with our FY 2010 results of
operations.
Revenues. Revenues increased approximately 17% to $182.3 million in FY 2011 from $156.3
million in FY 2010. This consisted of an increase of $27.2 million, or 27%, in revenues at Royal
Wolf and a $1.2 million decrease, or 2%, in revenues at Pac-Van. The translation effect of the
average currency exchange rate, driven by the strengthening in the Australian dollar to the U.S.
dollar in FY 2011 versus FY 2010, caused a portion of the increase in total revenues at Royal Wolf
which otherwise would have shown an increase of 14%. This increase at Royal Wolf was reflected in
most of the sectors in which we do business in the Asia-Pacific area, but most significantly in the
mining sector where revenues increased by approximately $7.0 million, or 75%, in FY 2011 from FY
2010. Since the second half of our FY 2009, the economic downturn, particularly in the
construction-related and government sectors, resulted in a significant reduction in our overall
business in United States. In FY 2011, when compared to FY 2010, revenues in these sectors
decreased by $1.3 million and $2.9 million, respectively. Sales and leasing revenues represented
51% and 49% of total revenues, respectively, in both FY 2011 and FY 2010.
Sales during FY 2011 amounted to $92.7 million, compared to $79.2 million during FY 2010;
representing an increase of $13.5 million, or 17%. This included an increase of $15.5 million, or
26%, in sales at Royal Wolf and a $2.0 million decrease, or 10%, in sales at Pac-Van. The
translation effect of the average currency exchange rate, driven by the strengthening in the
Australian dollar to the U.S. dollar in FY 2011 versus FY 2010, caused a portion of the increase in
sales revenues at Royal Wolf which otherwise would have shown an increase of 13%. In FY 2011,
sales in the Asia-Pacific area increased $9.8 million in our CSC retail operations and $5.7 million
in our national accounts group (or non-retail operations) from FY 2010; primarily because of the
enhanced activity in the mining, defense, building and construction sectors. In the United States,
the lower sales revenues in FY 2011 from FY 2010 were primarily from office containers, modular
building and mobile office projects in the commercial, construction and government sectors.
The $9.8 million revenue increase at Royal Wolf in the retail operations resulted from a $6.3
million increase due to higher prices and a favorable foreign exchange rate effect of $6.8 million,
offset somewhat by a $3.3 million decrease in unit sales. The higher sales revenues were primarily
due to increased demand in our CSCs in Western Australia because of increased activities in the oil
and gas exploration and defense sectors in that region, as well as increased business in our CSCs,
primarily in the Queensland and Victoria regions.
The $5.7 million revenue increase at Royal Wolf in the national accounts group resulted from a
$7.6 million increase due to higher prices and a favorable foreign exchange rate effect of $1.5
million, offset somewhat by a $3.4 million decrease in unit sales. FY 2011 revenues included the
sales of 206 mining container units (versus 46 units in FY 2010) for over $4.0 million to a single
customer.
Leasing revenues during FY 2011 totaled $89.6 million, as compared to $77.1 million during FY
2010, representing an increase of $12.5 million, or 16%. Leasing revenues increased at Royal Wolf
by $11.7 million, or 29%, and increased $0.8 million, or 2%, at Pac-Van. The translation effect of
the average currency exchange rate, driven by the strengthening in the Australian dollar to the
U.S. dollar in FY 2011 versus FY 2010, caused a portion of the increase in total revenues at Royal
Wolf which otherwise would have shown an increase of 15%. The favorable foreign exchange
rate effect at Royal Wolf in FY 2011 totaled $5.6 million ($4.5 million and $1.1 million in
our retail business and national accounts group, respectively) from FY 2010.
II-6
At Royal Wolf, average utilization in the retail operations was 88% during FY 2011, as
compared to 80% during FY 2010; and average utilization in the national accounts group operations
was 80% during FY 2011, as compared to 74% during FY 2010. Overall average utilization at Royal
Wolf was 85% in FY 2011 and 78% in FY 2010; and the average monthly lease rate of containers was
AUS$153 in FY 2011 as compared to AUS$154 in FY 2010. Leasing revenues in FY 2011 increased in
part as a result of demand for storage and accomodation units caused by the Queensland, Australia
flooding and the Christchurch, New Zealand earthquake. However, we believe the primary reasons we
were able to both increase our overall average utilization and generally maintain our composite
monthly lease rate between the periods at Royal Wolf were because of the improving economy in the
Asia-Pacific area and because of our position as the only company with a national footprint in the
mobile storage industry in Australia and New Zealand. We continually review each local market in
which we do business to determine if local factors justify increases or decreases in lease rates
and the effect these changes would have on utilization and revenues.
At Pac-Van, average utilization rates were 87%, 74%, 63% and 75% and monthly lease rates were
$96, $237, $220 and $825 for storage containers, office containers, mobile offices and modular
units, respectively, during FY 2011; as compared to 78%, 69%, 61% and 76% and $94, $240, $232 and
$909 for storage containers, office containers, mobile offices and modular units in FY 2010,
respectively. The generally lower monthly lease rates resulted from lower demand and increased
competition as a result of the generally stagnant U.S. economy. The average composite utilization
rate in FY 2011 was 74%, as compared to 69% in FY 2010.
The average value of the Australian dollar against the U.S. dollar strengthened during FY 2011
as compared to FY 2010. The average currency exchange rate of one Australian dollar during FY 2011
was $0.98939 U.S. dollar compared to $0.88219 U.S. dollar during FY 2010. This fluctuation in
foreign currency exchange rates resulted in an increase to our total revenues at Royal Wolf of
$13.9 million in FY 2011 when compared to FY 2010.
Cost of Sales. Cost of sales (which is the cost related to our sales revenues only and
exclusive of the line items discussed below) increased by $8.1 million to $69.5 million during FY
2011 from $61.4 million during FY 2010, but was proportionately more profitable. Our gross profit
percentage from sales revenues was 25% in FY 2011 versus 22% in FY 2010.
Direct Costs of Leasing Operations and Selling and General Expenses. Direct costs of leasing
operations (which excludes depreciation and amortization) and selling and general expenses
aggregately increased by $13.9 million ($10.8 million of which was at Royal Wolf) to $78.0 million
during FY 2011 from $64.1 million during FY 2010. As a percentage of revenues, these operating
expenses were 43% during FY 2011 and 41% during FY 2010; primarily due to non-recurring expenses
incurred in the Royal Wolf IPO totaling $2.5 million and the adverse impact of the reduced revenues
at Pac-Van in FY 2011 from FY 2010 despite implementing cost-cutting measures in the United States
since the second half of the fiscal year ended June 30, 2009 to offset the effects of the economic
downturn. Since the second half of FY 2009, we implemented, primarily the United States,
cost-cutting measures that, among other things, consisted of: (1) salaries and related payroll
costs as a result of staff reductions and lower bonuses, (2) less discretionary spending and (3)
better control of our professional costs.
In general, Pac-Vans operating expenses as a percentage of revenues would be higher than
Royal Wolfs percentage as Royal Wolfs mix of FY 2011 sales to total revenues at 59% is higher
than the 32% at Pac-Van and Pac-Van has less density in its retail markets.
Impairment of Goodwill. In the fourth quarter of both FY 2011 and FY 2010, we recognized a
non-cash impairment charge of $5.9 million and $7.6 million, respectively, to goodwill recorded in
the Pac-Van acquisition. Reference is made to Critical Account Estimates below and Note 2 of
Notes to Consolidated Financial Statements for further discussion regarding goodwill.
Depreciation and Amortization. Depreciation and amortization decreased slightly by $0.4
million to $19.2 million in FY 2011 from $19.6 million in FY 2010.
Interest Expense. Interest expense of $20.3 million in FY 2011 was $4.3 million higher than
the $16.0 million in FY 2010. This was comprised of an increase of $3.8 million at Royal Wolf and
$0.5 million in the United States. The weighted-average interest rate at Royal Wolf was 12.0% and
10.3% in FY 2011 and FY 2010, respectively; which does not include the effect of translation,
interest rate swap contracts and options (caps), amortization of deferred financing costs and
prepayment penalty and premium paid on the repayment of the Bison Capital subordinated notes in
connection with the Royal Wolf IPO. The weighted-average interest rate in the United States was
6.2% and 5.5% in FY 2011 and FY 2010, respectively; which does not include the effect of the
amortization of deferred financing costs.
II-7
Foreign Currency Exchange. We had certain U.S. dollar-denominated debt at Royal Wolf,
including intercompany borrowings, which were remeasured at each financial reporting date with the
impact of the remeasurement being recorded in our consolidated statements of operations. Unrealized
gains and losses resulting from such remeasurement due to changes in the Australian exchange rate
to the U.S. dollar had a significant impact in our reported results of operations, as well as any
realized gains and losses from payments on such U.S. dollar-denominated debt and intercompany
borrowings. As noted above, the average value of the U.S. dollar against the Australian dollar
weakened during FY 2011 as compared to FY 2010 and from June 30, 2010 to June 30, 2011. The
currency exchange rate of one Australian dollar at June 30, 2010 was $0.8567 U.S. dollar compared
to $1.0597 U.S. dollar at June 30, 2011. The repayment of the U.S. dollar-denominated debt,
including intercompany borrowings, at Royal Wolf in conjunction with the Royal Wolf IPO was the
primary reason we recognized a net realized foreign exchange gain of
$13.5 million in FY 2011. Also
in FY 2011, net unrealized losses on foreign exchange and forward currency exchange contracts
totaled $9.0 million and $0.4 million, respectively. In FY 2010, net unrealized and realized
foreign exchange gains totaled $0.6 million and $0.5 million, respectively, and net unrealized
gains on forward currency exchange contracts totaled $1.0 million.
Income Taxes. Our effective income tax rate was 50.1% in FY 2011, as compared to an effective
tax rate benefit of 12.3% in FY 2010, despite the fact that in both fiscal years there was a pretax
loss. The primary reason for a tax provision in FY 2011 versus a benefit was the Royal Wolf IPO,
which triggered U.S. federal and state income taxes as a result of changing the tax status of Royal
Wolf from an over 80% subsidiary treated as a disregarded entity (which effectively considered
Royal Wolf a domestic subsidiary that was included in our consolidated income tax returns) to a
majority-owned foreign corporation (which effectively excludes it from our consolidated income tax
returns). Among other things, this change required us to increase, for tax purposes, the cost basis of Royal Wolfs
inventory to fair value, which resulted in a taxable gain of approximately $6.4 million. In
addition, in both FY 2011 and FY 2010, the effective tax rate was impacted by the non-deductibility
for U.S. federal income tax purposes of the goodwill impairment charge and a portion of the
depreciation and amortization on the fixed and intangible assets recorded in the Pac-Van
acquisition, offset somewhat by the favorable income tax impact of the amortization of goodwill
acquired in acquisitions made in the Asia-Pacific area; which until the Royal Wolf IPO was
deductible for U.S. income tax reporting purposes. We also file tax returns in multiple U.S.
states, which would generally increase our effective tax rate. Reference is made to Note 7 of Notes
to the Consolidated Financial Statements for further discussion regarding income taxes.
Noncontrolling Interest. Noncontrolling interest, which until the Royal Wolf IPO at May 31,
2011 represented Bison Capitals 13.8% interest in Royal Wolf, was a charge of $6.9 million in FY
2011, as compared to $2.3 million in FY 2010; primarily reflecting the enhanced redemption value of
the Bison Capital put option to the final accretion value of $17.6 million. Reference is made to
the Liquidity and Financial Condition section and Note 10 of Notes to Consolidated Financial
Statements for further discussion of the Bison Capital put option. Effective June 1, 2011,
noncontrolling interest represents the pro rata share in the Royal Wolf results of operations of
the shareholders of the RWH capital stock, other than us.
Net Loss Attributable to Common Stockholders. We had a net loss attributable to common
stockholders of $15.9 million FY 2011, as compared to a net loss of $11.4 million in FY 2010,
primarily as a result of non-recurring expenses incurred in the Royal Wolf IPO totaling $2.5
million, the accretion of the Bison Capital put option, higher interest expense and income tax
provision in FY 2011 from FY 2010; offset somewhat by the increased profitability in the
Asia-Pacific area.
Measures not in Accordance with Generally Accepted Accounting Principles in the United States
(U.S. GAAP)
Earnings before interest, income taxes, impairment, depreciation and amortization and other
non-operating costs and income (EBITDA) and adjusted EBITDA are supplemental measures of our
performance that are not required by, or presented in accordance with U.S. GAAP. These measures are
not measurements of our financial performance under U.S. GAAP and should not be considered as
alternatives to net income, income from operations or any other performance measures derived in
accordance with U.S. GAAP or as an alternative to cash flow from operating, investing or financing
activities as a measure of liquidity.
II-8
Adjusted EBITDA is a non-U.S. GAAP measure. We calculate adjusted EBITDA to eliminate the
impact of certain items we do not consider to be indicative of the performance of our ongoing
operations. You are encouraged to evaluate each adjustment and whether you consider each to be
appropriate. In addition, in evaluating adjusted EBITDA, you should be aware that in the future, we
may incur expenses similar to the adjustments in the presentation of adjusted EBITDA. Our
presentation of adjusted EBITDA should not be construed as an inference that our future results
will be unaffected by unusual or non-recurring items. We present adjusted EBITDA because we
consider it to be an important supplemental measure of our performance and because we believe it is
frequently used by securities analysts, investors and other interested parties in the evaluation of
companies in our industry, many of which present EBITDA and a form of our adjusted EBITDA when
reporting their results. Adjusted EBITDA has limitations as an analytical tool, and should
not be considered in isolation, or as a substitute for analysis of our results as reported
under U.S. GAAP. Because of these limitations, adjusted EBITDA should not be considered as a
measure of discretionary cash available to us to invest in the growth of our business or to reduce
our indebtedness. We compensate for these limitations by relying primarily on our U.S. GAAP results
and using adjusted EBITDA only supplementally. The following table shows our adjusted EBITDA and
the reconciliation from net income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
Net loss |
|
$ |
(8,956 |
) |
|
$ |
(8,858 |
) |
Add |
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(1,261 |
) |
|
|
2,958 |
|
Foreign currency exchange gain and other |
|
|
(1,948 |
) |
|
|
(4,125 |
) |
Interest expense |
|
|
15,974 |
|
|
|
20,293 |
|
Interest income |
|
|
(234 |
) |
|
|
(487 |
) |
Depreciation and amortization |
|
|
19,619 |
|
|
|
19,165 |
|
Impairment of goodwill |
|
|
7,633 |
|
|
|
5,858 |
|
Share-based compensation expense |
|
|
629 |
|
|
|
693 |
|
Shares of RWH capital stock issued at IPO to Royal
Wolf board of directors and executive management |
|
|
|
|
|
|
369 |
|
Provision for shares of RWH capital stock to be
purchased and awarded to Royal Wolf senior
management team |
|
|
|
|
|
|
802 |
|
Loyalty, past performance and successful IPO
bonus to
Royal Wolf executive and senior management team |
|
|
|
|
|
|
1,311 |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
31,456 |
|
|
$ |
37,979 |
|
|
|
|
|
|
|
|
Our business is capital intensive, so from an operating level we focus primarily on EBITDA and
adjusted EBITDA to measure our results. These measures provide us with a means to track internally
generated cash from which we can fund our interest expense and fleet growth objectives. In managing
our business, we regularly compare our adjusted EBITDA margins on a monthly basis. As capital is
invested in our established branch locations, we achieve higher adjusted EBITDA margins on that
capital than we achieve on capital invested to establish a new branch (or CSC), because our fixed
costs are already in place in connection with the established branches. The fixed costs are those
associated with yard and delivery equipment, as well as advertising, sales, marketing and office
expenses. With a new market or branch, we must first fund and absorb the start-up costs for setting
up the new branch facility, hiring and developing the management and sales team and developing our
marketing and advertising programs. A new branch will have low adjusted EBITDA margins in its early
years until the number of units on rent increases. Because of our higher operating margins on
incremental lease revenue, which we realize on a branch-by-branch basis, when the branch achieves
leasing revenues sufficient to cover the branchs fixed costs, leasing revenues in excess of the
break-even amount produce large increases in profitability and adjusted EBITDA margins. Conversely,
absent significant growth in leasing revenues, the adjusted EBITDA margin at a branch will remain
relatively flat on a period by period comparative basis.
Liquidity and Financial Condition
Each of our two operating units, Royal Wolf and Pac Van, fund their operations substantially
through secured bank credit facilities that require compliance with various covenants. These
covenants require them to, among other things, maintain certain levels of interest coverage, EBITDA
(as defined), utilization rate and overall leverage. In addition, we have a subordinated notes
payable by GFN to Laminar Direct Capital, L.L.C. (Laminar). We also have a $1.0 million credit
facility with Union Bank at GFN under which no borrowings were outstanding as of June 30, 2011.
The economic downturn in the United States, particularly in the construction-related
industries (where Pac-Van has currently over 30% of its business and historically has had over
40%), and, until recently, the global economy in general, had an adverse impact on our operating
results. To offset this adverse effect, we undertook cost-reduction and other measures,
particularly in the U.S., to reduce our indebtedness and to strive to comply with financial loan
covenants.
In addition, we undertook various capital events, the most significant of which are as
follows:
1. On June 25, 2010, we completed a rights offering for the issuance and sale of units at
$1.50 each (with each unit consisting of one share of GFN common stock and a three-year warrant to
purchase 0.5 additional shares of GFN common stock at an exercise price of $4.00 per share). We
utilized $4,800,000 of the approximately $5,900,000 net proceeds from the rights offering in the
refinancing at Pac-Van in FY 2011 (see below).
II-9
2. Prior to July 16, 2010, Pac-Van had a senior credit facility, as amended, with a syndicate
of four financial institutions led by Bank of America, N.A. (BOA), as administrative and
collateral agent, and a $25,000,000 senior subordinated secured note payable to SPV Capital
Funding, L.L.C. (SPV). On July 16, 2010, we entered into several agreements relating to: (a) a
new $85,000,000 senior secured revolving credit facility at Pac-Van with a syndicate led by PNC
Bank, National Association (PNC) and including Wells Fargo Bank, National Association and Union
Bank (the PNC Credit Facility); and (b) a new $15,000,000 senior subordinated note issued by GFN
to Laminar (the Laminar Note). Borrowings under the PNC Credit Facility and proceeds from both
the issuance of the Laminar Note and our rights offering (see above) were used to prepay in full
all borrowings under the BOA credit facility and the $25,000,000 senior subordinated secured note
payable to SPV. The PNC Credit Facility matures on January 16, 2013 and the Laminar Note matures
on July 16, 2013.
3. On May 31, 2011, we completed an IPO in Australia of a noncontrolling interest in RWH. A
total of 50,000,000 shares of capital stock were issued to the Australian market at $1.96
(AUS$1.83) per share, resulting in gross proceeds of $97,850,000 (AUS$91,500,000). An additional
total of 188,526 shares ($369,000 value) were issued to the non-employee members of the RWH Board
of Directors, the RWH chief executive officer and the RWH chief financial officer. Previously, GFN
U.S. owned the only capital stock outstanding of RWH. In conjunction with the IPO, RWH undertook a
share split which resulted in GFN U.S. receiving 50,198,526 shares of the new capital stock. We
used the proceeds of the RWH IPO to, among other things, pay offering costs of $5,443,000
(AUS$5,090,000), pay down borrowings at each of the senior credit facilities, as well as fully
repay the subordinated notes held by Bison Capital. Simultaneously, we also satisfied the Bison
Capital put option to acquire the 13.8% of GFN U.S. previously owned by Bison Capital. We now own
100% of GFN U.S. and still own a majority of Royal Wolf.
Royal Wolf has an approximately $106,000,000 (AUS$100,000,000) senior credit facility with
Australia and New Zealand Banking Group Limited (ANZ), which matures on June 30, 2014 (the ANZ
Credit Facility). The ANZ Credit Facility was substantially amended in connection with the Royal
Wolf IPO and is comprised of three sub-facilities, a $15,900,000 (AUS$15,000,000) working capital
sub-facility, primarily for receivable financing; a $79,500,000 (AUS$75,000,000) revolving
sub-facility, primarily for lease fleet purchases; and a $10,600,000 acquisition sub-facility.
Reference is made to Notes 1, 3, 5 and 10 in the Notes to Consolidated Financial Statements
for further discussion of the Royal Wolf IPO, rights offering, senior and other debt and other
obligations; such as the Bison Capital put option.
As of June 30, 2011, our required principal and other obligations payments for the year ending
June 30, 2012 and the subsequent three fiscal years are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
ANZ Credit Facility (a) |
|
$ |
4,175 |
|
|
$ |
505 |
|
|
$ |
58,337 |
|
|
$ |
96 |
|
PNC Credit Facility (b) |
|
|
|
|
|
|
56,689 |
|
|
|
|
|
|
|
|
|
Laminar Note (c) |
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
Other |
|
|
641 |
|
|
|
380 |
|
|
|
728 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,816 |
|
|
$ |
57,574 |
|
|
$ |
74,065 |
|
|
$ |
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects primarily the working capital sub-facilities as due within the next
twelve months. These should continually roll over and would be fully repaid at the
maturity of the ANZ credit facility in June 2014. |
|
(b) |
|
Scheduled to mature in January 2013. |
|
(c) |
|
Scheduled to mature in July 2013. |
We have significantly improved our financial position, particularly in the Asia-Pacific area,
and we intend in the foreseeable future to utilize our operating cash flow and borrowing capacity
in that region to expand our sale inventory and lease fleet by making both capital expenditures and
acquisitions to meet the increasing business demands. In the U.S., where the markets in which we
do business in remain stagnant, we will continue to monitor the senior and other debt leverage at
Pac-Van. However, we do intend on prudently expanding our storage and office container lease fleet
at Pac-Van and would also look at accretive acquisition opportunities.
We currently do not pay a dividend on our common stock and do not intend on doing so in the
foreseeable future.
Cash Flow for FY 2011 Compared to FY 2010
Our leasing business is capital intensive, and we acquire leasing assets before they generate
revenues, cash flow and earnings. These leasing assets have long useful lives and require
relatively minimal maintenance expenditures. Most of the capital we deploy into our leasing
business historically has been used to expand our operations geographically, to increase the number
of units available for lease at our branch and CSC locations and to add to the breadth of our
product
mix. Our operations have generated annual cash flow that exceeds our reported earnings, which
would include, even in profitable periods, the deferral of income taxes caused by accelerated
depreciation that is used for tax accounting.
II-10
As we discussed above, our principal source of capital for operations consists of funds
available from the senior secured credit facility with ANZ and the PNC Credit Facility. We also
finance a smaller portion of capital requirements through finance leases and lease-purchase
contracts, have a $1.0 million line of credit with Union Bank and have an outstanding subordinated
note with Laminar. Supplemental information pertaining to our combined sources and uses of cash is
presented in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
Net cash provided by operating activities |
|
$ |
16,669 |
|
|
$ |
18,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in ) investing activities |
|
$ |
662 |
|
|
$ |
(20,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by (used in) financing activities |
|
$ |
(14,839 |
) |
|
$ |
3,963 |
|
|
|
|
|
|
|
|
Operating activities. Our operations provided net cash flow of $18.5 million during FY 2011,
an increase of $1.8 million from the $16.7 million provided during FY 2010. This was primarily
because deferred taxes were $2.7 million greater in FY 2011 than FY 2010, as the net loss was
approximately $9.0 million for both years. Historically, cash flow provided by operating
activities is enhanced by the deferral of most income taxes due to the rapid tax depreciation rate
of our assets and our net operating loss carryforwards. In addition, operating cash flows
benefited by non-cash add-backs totaling $9.4 million for unrealized losses from foreign exchange
and forward exchange contracts in FY 2011 versus non-cash reductions of $1.6 million for unrealized
gains in FY 2010. These items were substantially offset by cash flow of $6.3 million used in the
management of operating assets and liabilities in FY 2011, primarily as a result of increased fleet
investments in the Asia-Pacific area, as compared to cash flow of $6.2 million provided in FY 2010.
In both FY 2011 and FY 2010, operating cash flow was enhanced by non-cash adjustments of
depreciation and amortization on fixed and intangible assets of $19.2 million and $19.6 million,
respectively; and, in addition, during both years, operating cash flows were reduced by gains on
the sales of lease fleet totaling $5.6 million in FY 2011 and $7.0 million in FY 2010.
Investing Activities. Net cash used by investing activities was $20.7 million during FY 2011,
as compared to $0.7 million provided during FY 2010. During FY 2011, purchases of property, plant
and equipment, or rolling stock, were approximately $3.8 million in FY 2011 and $2.3 million in FY
2010; and net capital expenditures of lease fleet (purchases, net of proceeds from sales of lease
fleet) were $16.1 million in FY 2011 and $2.9 million in FY 2010. We increased our investing in
the lease fleet in the Asia-Pacific area during FY 2011 to meet the demands of the additional
business from its improving economy. However, we continued to scrutinize capital expenditures in
the United States and anticipate our near term investing activities domestically to be primarily
focused on acquiring containers. The amount of cash that we use during any period in investing
activities is almost entirely within managements discretion and, other than a preferred supply
agreement which requires us to purchase yearly up to 5,000 containers, if offered to us (see Note
10 of Notes to Consolidated Financial Statements), we have no significant long-term contracts or
other arrangements pursuant to which we may be required to purchase at a certain price or a minimum
amount of goods or services. In FY 2011, we acquired through Pac-Van, in two separate
transactions, the business of Advanced Mobile Storage for a total of $0.9 million in cash. We made
no acquisitions in FY 2010.
Financing Activities. Net cash provided by financing activities was $4.0 million during FY
2011, as compared to $14.8 million used during FY 2010. In FY 2011, we completed an IPO in
Australia of a noncontrolling interest in Royal Wolf for net proceeds of $92.4 million and, in FY
2010, we completed a rights offering that resulted in net proceeds of $5.9 million. Over $84.0
million of the net proceeds from the Royal Wolf IPO in FY 2011 was used to reduce outstanding
borrowings and to satisfy the Bison put option (see Note 10 of Notes to Consolidated Financial
Statements) and $4.8 million of the net proceeds from the rights offering completed in FY 2010 was
used in the Pac-Van refinancing during the first quarter of FY 2011. All told, in FY 2011, we
repaid a net $69.4 million on senior and other debt borrowings, including the full repayment of the
subordinated notes due Bison Capital (see Note 5 of Notes to Consolidated Financial Statements),
satisfied the Bison Capital put option for $17.6 million and incurred deferred financing costs of
$1.8 million during the refinancing at Pac-Van and the substantial amendment of the ANZ Credit
Facility. In FY 2010, we reduced our outstanding borrowings by $20.3 million. Since the second
half of our fiscal year ended June 30, 2009, reducing the overall senior and other debt leverage,
particularly in the United States, has been a principal objective.
II-11
Asset Management
Receivables and inventories (including foreign translation effect) were $30.5 million and
$20.9 million at June 30, 2011 and $27.4 million and $19.1 million at June 30, 2010, respectively.
Inventory levels have increased at June 30, 2011 from June 30, 2010, due primarily to the improving
economy in the Asia-Pacific area; but effective asset management remains a significant focus, as we
strive to continue to apply appropriate credit and collection controls and reduce inventory levels
to maintain and enhance cash flow and profitability. At June 30, 2011, days sales outstanding
(DSO) in trade receivables were 42 days and 49 days for Royal Wolf and Pac-Van, as compared to 43
days and 53 days at June 30, 2010, respectively.
The net book value of our total lease fleet increased (including foreign translation effect)
from $188.4 million at June 30, 2010 to $220.1 million at June 30, 2011. At June 30, 2011, we had
41,346 units (16,668 units in retail operations in Australia, 7,675 units in national account group
operations in Australia, 5,827 units in New Zealand, which are considered retail; and 11,176 units
in the United States) in our lease fleet, as compared 37,862 units (15,945 units in retail
operations in Australia, 6,444 units in national account group operations in Australia, 4,538 units
in New Zealand, which are considered retail; and 10,935 units in the United States) at June 30,
2010. At those dates, 33,876 units (14,030 units in retail operations in Australia, 5,814 units in
national account group operations in Australia, 5,481 units in New Zealand, which are considered
retail; and 8,551 units in the United States) and 29,735 units (12,997 units in retail operations
in Australia, 4,875 units in national account group operations in Australia, 3,954 units in New
Zealand, which are considered retail; and 7,909 units in the United States) were on lease,
respectively.
In the United States, the lease fleet was comprised of 4,072 storage containers, 1,274 office
containers, 4,839 mobile offices and 991 modular units at June 30, 2011; and 3,800 storage
containers, 1,260 office containers, 4,884 mobile offices and 991 modular units at June 30, 2010.
At those dates, in the United States, units on lease were comprised of 3,661 storage containers,
993 office containers, 3,095 mobile offices and 802 modular units; and 3,205 storage containers,
887 office containers, 3,086 mobile offices and 731 modular units, respectively.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet transactions, arrangements, obligations or other
relationships with unconsolidated entities or others that are reasonably likely to have a material
current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
Seasonality
Although demand from certain customer segments can be seasonal, our operations as a whole are
not seasonal to any significant extent. We experience a reduction in sales volumes at Royal Wolf
during Australias summer holiday break from mid-December to the end of January, followed by
February being a short working day month. However, this reduction in sales typically is
counterbalanced by the increased lease revenues derived from the removals or moving and storage
industry, which experiences its seasonal peak of personnel relocations during this same summer
holiday break. Demand from some of Pac-Vans customers can be seasonal, such as in the
construction industry, which tends to increase leasing activity in the first and fourth quarters;
while customers in the retail industry tend to lease more units in the second quarter.
Impact of Inflation
We believe that inflation has not had a material effect on our business. However, during
periods of rising prices and, in particular when the prices increase rapidly or to levels
significantly higher than normal, we may incur significant increases in our operating costs and may
not be able to pass price increases through to our customers in a timely manner, which could harm
our future results of operations.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we
re-evaluate all of our estimates. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may materially differ from these estimates
under different assumptions or conditions as additional information becomes available in future
periods. We believe the following are the more significant judgments and estimates used in the
preparation of our consolidated financial statements.
II-12
We are required to estimate the collectability of our trade receivables. Accordingly, we
maintain allowances for doubtful accounts for estimated losses that may result from the inability
of our customers to make required payments. On a recurring basis, we evaluate a variety of factors
in assessing the ultimate realization of these receivables, including the current credit-worthiness
of our customers, days outstanding trends, a review of historical collection results and a review
of specific past due receivables. If the financial conditions of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be
required, resulting in decreased net income. To date, uncollectible accounts have been within the
range of our expectations.
We lease and sell storage, building and office containers, modular buildings and mobile
offices to our customers. Leases to customers generally qualify as operating leases unless there
is a bargain purchase option at the end of the lease term. Revenue is recognized as earned in
accordance with the lease terms established by the lease agreements and when collectability is
reasonably assured. Revenue is recognized as earned in accordance with the lease terms established
by the lease agreements and when collectability is reasonably assured. Revenue from sales of
equipment is recognized upon delivery and when collectability is reasonably assured.
We have a fleet of storage, building and office containers, mobile offices, modular buildings
and steps that we lease to customers under operating lease agreements with varying terms. 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, and
are depreciated down to their estimated residual values (up to 70% of cost). In our opinion,
estimated residual values are at or below net realizable values. We periodically review these
depreciation policies in light of various factors, including the practices of the larger
competitors in the industry, and our own historical experience.
For the issuances of stock options, we follow the fair value provisions of Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718,
Compensation Stock Compensation. FASB ASC Topic 718 requires recognition of employee
share-based compensation expense in the statements of income over the vesting period based on the
fair value of the stock option at the grant date. The pricing model we use for determining fair
values of the purchase option is the Black-Scholes Pricing Model. Valuations derived from this
model are subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates, market prices and volatilities. Selection of these
inputs involves managements judgment and may impact net income. In particular, prior to July 1,
2009, we used volatility rates based upon a sample of comparable companies our industry and we now
use a volatility rate based on the performance of our common stock; which yields a higher rate. In
addition we use a risk-free interest rate, which is the rate on U.S. Treasury instruments, for a
security with a maturity that approximates the estimated remaining expected term of the stock
option.
We account for goodwill in accordance with FASB ASC Topic 350, Intangibles Goodwill and
Other. FASB ASC Topic 350 prohibits the amortization of goodwill and intangible assets with
indefinite lives and requires these assets be reviewed for impairment at least annually. We
operate two reportable and operating segments (Pac-Van and Royal Wolf). All of our goodwill was
allocated between these two reporting units. We perform an annual impairment test on goodwill at
June 30 using the two-step process required under FASB ASC Topic 350. The first step is a screen
for potential impairment, while the second step measures the amount of the impairment, if any. We
would also consider performing impairment tests during an interim reporting period in which
significant events or changes in circumstances indicate that a permanent impairment may have
occurred. Some factors we consider important which could trigger such an impairment review include
(1) significant underperformance relative to historical, expected or projected future operating
results; (2) significant changes in the manner of our use of the acquired assets or the strategy
for our overall business; (3) significant changes during the period in our market capitalization
relative to net book value; and (4) significant negative industry or general economic trends.
At June 30, 2010 and 2011, we performed the first step of the two-step impairment test and
compared the fair value of each reporting unit to its carrying value. In assessing the fair value
of the reporting units, we considered both the market approach and the income approach. Under the
market approach, the fair value of the reporting unit was determined on a weighted-average range of
multiples to adjusted EBITDA. Under the income approach, the fair value of the reporting unit was
based on the present value of estimated cash flows. The income approach was dependent on a number
of significant management assumptions, including estimated future revenue growth rates, gross
margins on sales, operating margins, capital expenditures and discount rates. Each approach was
given equal weight in arriving at the fair value of the reporting unit. If the carrying value of
the net assets of any reporting unit would have exceeded its fair value, a step-two impairment test
would have been performed. In a step-two test, we would be required to determine the implied fair
value of the goodwill and compare it to the carrying value of the goodwill. Generally, this would
involve allocating the fair value of the reporting unit to the respective assets and liabilities
(as if the reporting unit had been acquired in separate and individual business combination and the
fair value was the price paid to acquire it) with the excess of the fair value of the reporting
unit over the amounts assigned to their respective assets and liabilities being the implied fair
value of goodwill. It was determined that the fair value of the Royal Wolf reporting unit exceeded
the carrying values of the net assets at June 30, 2010 and 2011. However, the fair value of the
Pac-Van reporting unit was
less than the carrying values the net assets at June 30, 2010 and 2011; therefore, we
performed a step-two impairment test for Pac-Van. In the step-two test for Pac-Van, the implied
value of its goodwill was less than the carrying value of goodwill, resulting in an impairment
charge of $7,633,000 and $5,858,000 at June 30, 2010 and 2011, respectively. The Company had not
recorded an impairment charge to goodwill prior to June 30, 2010.
II-13
Intangible assets include those with indefinite (trademark and trade name), and finite
(primarily customer base and lists, non-compete agreements and deferred financing costs) useful
lives. Customer base and lists and non-compete agreements are amortized on the straight-line basis
over the expected period of benefit which range from one to ten years. Costs to obtaining long-term
financing are deferred and amortized over the term of the related debt using the straight-line
method. Amortizing the deferred financing costs using the straight-line method does not produce
significantly different results than that of the effective interest method. We review intangibles
(those assets resulting from acquisitions) at least annually for impairment or when events or
circumstances indicate these assets might be impaired. We test impairment using historical cash
flows and other relevant facts and circumstances as the primary basis for its estimates of future
cash flows. This process requires the use of estimates and assumptions, which are subject to a high
degree of judgment.
At June 30, 2010 and 2011, we, pursuant to an evaluation that determined that the respective
fair values were less than the carrying values, recognized impairment charges of $190,000 and
$250,000, respectively, to the trade name and, at June 30, 2010, $329,000 to the customer base
acquired in the Pac-Van acquisition. These impairment charges were recorded as a part of
depreciation and amortization in the consolidated statements of operations.
In preparing our consolidated financial statements, we recognize income taxes in each of the
jurisdictions in which we operate. For each jurisdiction, we estimate the actual amount of taxes
currently payable or receivable as well as deferred tax assets and liabilities attributable to
temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance would be provided for those deferred tax assets for which it
is more likely than not that the related benefits will not be realized. In determining the amount
of the valuation allowance, we consider estimated future taxable income as well as feasible tax
planning strategies in each jurisdiction. If we determine that we will not realize all or a portion
of our deferred tax assets, we would increase our valuation allowance with a charge to income tax
expense or offset goodwill if the deferred tax asset was acquired in a business combination.
Conversely, if we determine that we will ultimately be able to realize all or a portion of the
related benefits for which a valuation allowance has been provided, all or a portion of the related
valuation allowance would be reduced with a credit to income tax expense except if the valuation
allowance was created in conjunction with a tax asset in a business combination.
Reference is made to Note 2 of Notes to Consolidated Financial Statements for a further
discussion of our significant accounting policies.
Impact of Recently Issued Accounting Pronouncements
Reference is made to Note 2 of Notes to Consolidated Financial Statements for a discussion of
recently issued accounting pronouncements that could potentially impact us.
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Item 7A. |
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Quantitative and Qualitative Disclosures about Market Risk |
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges and
other market-driven rates or prices. Exposure to interest rates and currency risks arises in the
normal course of our business and we may use derivative financial instruments to hedge exposure to
fluctuations in foreign exchange rates and interest rates. We believe we have no material market
risks to our operations, financial position or liquidity as a result of derivative activities,
including forward-exchange contracts.
Reference is made to Note 6 of Notes to Consolidated Financial Statements for a discussion of
market risk related to interest rates and foreign exchanges.
II-14
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Item 8. |
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Financial Statements and Supplementary Data |
Index to Consolidated Financial Statements:
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Item 9. |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
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Item 9A. |
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Controls and Procedures |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in reports we file and submit under the Securities Exchange Act of 1934,
as amended (Exchange Act), is recorded, processed, summarized and reported within the time
periods specified in accordance with SEC guidelines and that such information is
communicated to management, including our Chief Executive Officer and Chief Financial Officer, to
allow timely decisions regarding required disclosure based on the definition of disclosure
controls and procedures in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. In designing and
evaluating our disclosure controls and procedures, we recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives and that our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls and procedures in
reaching that level of reasonable assurance.
Under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our
disclosure controls and procedures, as required by Exchange Act Rule 13a-15(b), as of the end of
the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective at the
reasonable assurance level.
Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. Internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in conformity with U.S. generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of assets that
could have a material effect on the financial statements.
A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the controls system are met. Because of the inherent
limitations in all controls systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected.
II-15
Under the supervision and with the participation of management, we assessed the effectiveness
of our internal control over financial reporting based on the criteria in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the criteria in Internal Control Integrated Framework,
we concluded that our internal control over financial reporting was effective as of June 30, 2011.
This Annual Report of Form 10-K does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial reporting. The
managements report was not subject to attestation by our independent registered public accounting
firm pursuant to regulatory provisions that permit us to provide only managements report in this
Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting in connection
with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the
quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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Item 9B. |
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Other Information |
None.
II-16
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K
because we will file a definitive Proxy Statement for the 2011 Annual Meeting of Stockholders,
pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement), not
later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K and
the applicable information included in the Proxy Statement is incorporated herein by reference.
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Item 10. |
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Directors, Executive Officers and Corporate Governance |
Information concerning our executive officers is set forth in Item 1. of this Annual Report on
Form 10-K under the caption Executive Officers of the Registrant.
Information required by Items 401 and 407(c)(3) of Regulation S-K regarding our directors and
the nomination process is incorporated herein by reference to information included in the Proxy
Statement.
Information required by Item 405 of Regulation S-K regarding compliance with Section 16(A) of
the Exchange Act is incorporated herein by reference to information included in the Proxy
Statement.
Information required by Item 407(d)(4) and (d)(5) of Regulation S-K regarding our audit
committee and our audit committee financial experts is incorporated herein by reference to
information included in the Proxy Statement.
We have adopted a code of ethics that applies to our directors, officers (including our
principal executive and principal financial and accounting officers) and employees. A copy of these
code of ethics is available free of charge on the Corporate Governance section of our website at
www.generalfinance.com or by a written request addressed to the Corporate Secretary,
General Finance Corporation, 39 East Union Street, Pasadena, California 91103. We intend to satisfy
any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a
provision of the code of ethics by posting such information on our web site at the address and
location specified above.
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Item 11. |
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Executive Compensation |
Information required by Item 402 of Regulation S-K regarding executive compensation is
incorporated herein by reference to information included in the Proxy Statement.
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Item 12. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information required by Items 201(d) and 403 of Regulation S-K is incorporated herein by
reference to the sections of the Proxy Statement entitled Equity Compensation Plan Information
and Security Ownership of Certain Beneficial Owners and Management.
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Item 13. |
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Certain Relationships and Related Transactions, and Director Independence |
Information required by Item 404 of Regulation S-K is incorporated herein by reference to
information to the section of the Proxy Statement entitled Certain Relationships and Related
Transactions.
Information required by Item 407(a) regarding director independence compensation is
incorporated herein by reference to information included in the Proxy Statement.
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Item 14. |
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Principal Accountant Fees and Services |
Information required by this Item is incorporated herein by reference to information included
in the Proxy Statement.
III-1
PART IV
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Item 15. |
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Exhibits and Financial Statement Schedules |
(a) Financial Statements
(1) The financial statements required in this Annual Report on Form 10-K are included in Item
8. Financial Statements and Supplementary Data.
(2) Financial statement schedule:
Schedule I Condensed Financial Information of Registrant (Parent Company Information)
All other supplemental schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because the required
information is included in the consolidated financial statements or notes thereto.
(b) Exhibits
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Exhibit |
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Number |
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Exhibit Description |
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2.1 |
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Agreement and Plan of Merger dated July 28, 2008 among
General Finance Corporation, GFN North America Corp.,
Mobile Office Acquisition Corp., Pac-Van, Inc., Ronald F.
Valenta, Ronald L. Havner, Jr., D. E. Shaw Laminar
Portfolios, L.L.C. and Kaiser Investments Limited
(incorporated by reference to Exhibit 2.1 of Registrants
Form 8-K filed July 28, 2008). |
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3.1 |
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Amended and Restated Certificate of Incorporation filed
April 4, 2006 (incorporated by reference to Exhibit 3.1 of
Registrants Form S-1, File No. 333-129830). |
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3.2 |
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Amended and Restated Bylaws as of October 30, 2007
(incorporated by reference to Exhibit 3.2 of Registrants
Form 10-Q for the quarter ended September 30, 2007). |
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3.3 |
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Certificate of Designation for the Series A Preferred Stock
filed with the Delaware Secretary of State on December 3,
2008 (incorporated by reference to Registrants Form 8-K
filed December 9, 2008). |
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3.4 |
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Certificate of Designation for the Series B Preferred Stock
filed with the Delaware Secretary of State on December 3,
2008 (incorporated by reference to Registrants Form 8-K
filed December 9, 2008). |
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4.1 |
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Form of Common Stock Certificate (incorporated by reference
to Exhibit 4.2 of Registrants Form S-1, File No.
333-129830). |
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10.1 |
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Compensation of Non-Employee Directors (incorporated by
reference to Exhibit 10.29 of Registrants Form 10-Q for
the Quarterly Period Ended September 30, 2007). |
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10.2 |
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Preferred Supply Agreement among General Electric Capital
Container Finance Corporation, Genstar Container
Corporation, GE SeaCo SRL, Sea Containers Ltd., Royal Wolf
Trading Australia Pty Limited and GE SeaCo Australia Pty
Limited (incorporated by reference to Exhibit 10.2 of
Registrants Post-Effective Amendment No. 1 to Form S-1
filed January 29, 2008). |
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10.3 |
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Employment Agreement dated February 11, 2009 between
General Finance Corporation and Ronald F. Valenta 2006
(incorporated by reference to Exhibit 10.15 of Registrants
Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008). |
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10.4 |
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Form of Series A Preferred Stock Purchase Agreement
(incorporated by reference to Registrants Form 8-K filed
February 13, 2009 and November 12, 2009). |
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10.5 |
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Form of Registration Rights Agreement (incorporated by
reference to Registrants Form 8-K filed February 13, 2009
and November 12, 2009). |
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10.6 |
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First Amendment to Stockholders Agreement dated March 31,
2009 (incorporated by reference to Registrants Form 8-K
filed April 1, 2009). |
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10.7 |
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Letter Agreement dated March 30, 2009 (incorporated by
reference to Registrants Form 8-K filed April 1, 2009). |
IV-1
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Exhibit |
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Number |
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Exhibit Description |
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10.8 |
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Variation Letter dated as of September 11, 2009 among GFN
Australasia Holdings Pty Ltd., GFN Australasia Finance Pty
Ltd., RWA Holdings Pty Ltd., Royalwolf Trading Australia
Pty Ltd., Royal Wolf Hi-Tech Pty Ltd., Royalwolf NZ
Acquisition Co Ltd., Royalwolf Trading New Zealand Ltd.
and Australia and New Zealand Banking Group Limited
(incorporated by reference to Registrants Form 8-K filed
September 11, 2009). |
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10.9 |
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Second Amendment to Shareholders Agreement dated September
21, 2009 (incorporated by reference to Registrants Form
8-K filed September 25, 2009). |
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10.10 |
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2009 Stock Incentive Plan (incorporated by reference to
Appendix A of Registrants Definitive Proxy Statement
filed October 19, 2009). |
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10.11 |
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Variation Letter dated as of June 29, 2010 among the Royal
Wolf Australia Group and ANZ (incorporated by reference to
Registrants Form 8-K filed June 30, 2010). |
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10.12 |
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Amendment and Release Agreement dated June 30, 2010 among
GFN Australasia Finance Pty Ltd and Bison Capital
Australia L.P. (incorporated by reference to Exhibit 10.1
of Registrants Form 8-K filed July 2, 2010). |
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10.13 |
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Revolving Credit and Security Agreement dated July 16,
2010 among PNC, Wells Fargo, Union Bank, GFNA, Pac-Van and
the Pac-Van Asset Trust (incorporated by reference to
Exhibit 10.1 of Registrants Form 8-K filed July 22, 2010) |
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10.14 |
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Guaranty and Suretyship Agreement dated July 16, 2010
among GFNA (incorporated by reference to Exhibit 10.2 of
Registrants Form 8-K filed July 22, 2010). |
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10.15 |
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Limited Guaranty dated July 16, 2010 by Ronald F. Valenta
and Lydia D. Valenta (incorporated by reference to Exhibit
10.3 of Registrants Form 8-K filed July 22, 2010). |
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10.16 |
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Pledge Agreement dated July 16, 2010 by GFNA (incorporated
by reference to Exhibit 10.4 of Registrants Form 8-K
filed July 22, 2010) |
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10.17 |
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Patent, Trademark and Copyright Security Agreement dated
July 16, 2010 by Pac-Van, GFNA for the benefit of PNC
Bank, National Association (PNC), as administrative and
collateral agent for the Lenders (incorporated by
reference to Exhibit 10.5 of Registrants Form 8-K filed
July 22, 2010). |
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10.18 |
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Pledge and Security Agreement dated July 16, 2010 by
Ronald F. Valenta and Lydia D. Valenta for the benefit of
PNC, as administrative and collateral agent for the
Lenders (incorporated by reference to Exhibit 10.6 of
Registrants Form 8-K filed July 22, 2010). |
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10.19 |
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Investment Agreement dated July 16, 2010 among GFN,
Laminar Direct Capital, L.L.C., as administrative agent
and the other lenders from time to time party hereto
(Laminar) (incorporated by reference to Exhibit 10.7 of
Registrants Form 8-K filed July 22, 2010). |
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10.20 |
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Continuing Unconditional Guaranty dated July 16, 2010 by
GFNA and Pac-Van for the benefit of Laminar (incorporated
by reference to Exhibit 10.8 of Registrants Form 8-K
filed July 22, 2010). |
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10.21 |
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Subordination and Intercreditor Agreement dated July 16,
2010 among Pac-Van, GFNA, PNC and Laminar (incorporated by
reference to Exhibit 10.9 of Registrants Form 8-K filed
July 22, 2010). |
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10.22 |
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Master Restructure and Debt Exchange Agreement dated July
16, 2010 among GFNA, Pac-Van, Laminar and SPV Capital
Funding, L.L.C., a Delaware limited liability company
(SPV) (incorporated by reference to Exhibit 10.10 of
Registrants Form 8-K filed July 22, 2010). |
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10.23 |
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Subordination Agreement dated July 16, 2010 among Laminar,
Pac-Van, GFNA and PNC (incorporated by reference to
Registrants Form 8-K filed July 22, 2010). |
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10.24 |
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Employment Agreement dated October 5, 2010 with Theodore
M. Mourouzis (incorporated by reference to Registrants
Form 8-K filed October 5, 2010). |
IV-2
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Exhibit |
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Number |
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Exhibit Description |
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10.25 |
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Variation Letter executed on December 23, 2010 among Australia and New Zealand
Banking Group Limited, GFN Australasia Holdings Pty Ltd., GFN Australasia Finance
Pty Ltd., RWA Holdings Pty Ltd., Royal Wolf Trading Australia Pty Ltd. and Royal
Wolf Hi-Tech Pty Ltd. (incorporated by reference to Registrants Form 8-K filed
December 28, 2010). |
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10.26 |
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Annual Review and Variation Letter executed on December 31, 2010 among Australia
and New Zealand Banking Group Limited, GFN Australasia Holdings Pty Ltd., GFN
Australasia Finance Pty Ltd., RWA Holdings Pty Ltd., Royal Wolf Trading Australia
Pty Ltd. and Royal Wolf Hi-Tech Pty Ltd. (incorporated by reference to
Registrants Form 8-K filed January 6, 2011). |
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10.27 |
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Letter of Offer executed on March 4, 2011 by Australia and New Zealand Banking
Group Limited, GFN Australasia Holdings Pty Ltd., GFN Australasia Finance Pty
Ltd., RWA Holdings Pty Ltd., Royal Wolf Trading Australia Pty Ltd. and Royal Wolf
Hi-Tech Pty Ltd. (incorporated by reference to Registrants Form 8-K filed March
7, 2011). |
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10.28 |
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First Amendment to Revolving Credit and Security Agreement, dated May 9, 2011, by
and among Pac-Van, Inc., an Indiana corporation, GFN North America Corp., a
Delaware corporation, the financial institutions party hereto (collectively, the
Lenders), and PNC Bank, National Association, as administrative and collateral
agent for the Lenders (incorporated by reference to Exhibit 10.3 of Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2011). |
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10.29 |
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Underwriting Agreement dated May 13, 2011 (incorporated by reference to
Registrants Form 8-K filed May 19, 2011). |
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10.30 |
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Voluntary Escrow Deed dated May 13, 2011 (incorporated by reference to
Registrants Form 8-K filed May 19, 2011). |
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10.31 |
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Separation Agreement dated May 13, 2011 (incorporated by reference to
Registrants Form 8-K filed May 19, 2011). |
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10.32 |
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Letter Agreement re Put Option dated May 13, 2011 (incorporated by reference to
Registrants Form 8-K filed May 19, 2011). |
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10.33 |
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Payoff Letter dated May 13, 2011 (incorporated by reference to Registrants Form
8-K filed May 19, 2011). |
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10.34 |
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ANZ Letter of Offer dated May 12, 2011 (incorporated by reference to Registrants
Form 8-K filed May 19, 2011). |
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10.35 |
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Robert Allan Employment Agreement dated May 13, 2011 (incorporated by reference
to Registrants Form 8-K filed May 19, 2011). |
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21.1 |
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Subsidiaries of General Finance Corporation (a) |
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23.1 |
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Consent of Independent Registered Public Accounting Firm (a) |
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31.1 |
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Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14 (a) |
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31.2 |
|
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Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14 (a) |
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32.1 |
|
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350 (a) |
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32.2 |
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350(a) |
IV-3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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General Finance Corporation |
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By:
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/s/ Ronald F. Valenta
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September 23, 2011 |
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Name: Ronald F. Valenta
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Title: Chief Executive Officer |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated:
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Signature |
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Title |
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Date |
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/s/ Ronald F. Valenta
Ronald F. Valenta
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Chief Executive Officer and
Director (Principal Executive
Officer)
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September 23, 2011 |
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/s/ Charles E. Barrantes
Charles E. Barrantes
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Executive Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
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September 23, 2011 |
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/s/ Lawrence Glascott
Lawrence Glascott
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Chairman of the Board of Directors
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September 23, 2011 |
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/s/ David M. Connell
David M. Connell
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Director
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September 23, 2011 |
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/s/ Manuel Marrero
Manuel Marrero
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Director
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September 23, 2011 |
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/s/ James B. Roszak
James B. Roszak
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Director
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September 23, 2011 |
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/s/ Susan Harris
Susan Harris
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Director
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September 23, 2011 |
SIG
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
General Finance Corporation
We have audited the accompanying consolidated balance sheets of General Finance Corporation
and Subsidiaries as of June 30, 2011 and 2010, and the related consolidated statements of
operations, equity and cash flows for the years then ended. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement schedule listed in
Item 15(a) of this Form 10-K. These consolidated financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement schedule 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. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit 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
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of June 30, 2011 and 2010,
and the consolidated results of its operations and its cash flows for the years then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Crowe Horwath LLP
Sherman Oaks, California
September 23, 2011
F-1
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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June 30, 2010 |
|
|
June 30, 2011 |
|
Assets |
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|
|
|
|
|
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Cash and cash equivalents |
|
$ |
4,786 |
|
|
$ |
6,574 |
|
Trade and other receivables, net of allowance for
doubtful accounts of $2,328 and $2,331 at June 30,
2010 and 2011, respectively |
|
|
27,449 |
|
|
|
30,498 |
|
Income taxes receivable |
|
|
1,071 |
|
|
|
|
|
Subscription receivables |
|
|
1,211 |
|
|
|
|
|
Inventories |
|
|
19,063 |
|
|
|
20,942 |
|
Prepaid expenses and other |
|
|
2,206 |
|
|
|
4,503 |
|
Property, plant and equipment, net |
|
|
10,182 |
|
|
|
12,652 |
|
Lease fleet, net |
|
|
188,410 |
|
|
|
220,095 |
|
Goodwill |
|
|
67,919 |
|
|
|
68,948 |
|
Other intangible assets, net |
|
|
24,583 |
|
|
|
23,358 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
346,880 |
|
|
$ |
387,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
$ |
25,246 |
|
|
$ |
32,522 |
|
Income taxes payable |
|
|
|
|
|
|
440 |
|
Unearned revenue and advance payments |
|
|
9,468 |
|
|
|
10,292 |
|
Senior and other debt |
|
|
186,183 |
|
|
|
136,589 |
|
Deferred tax liabilities |
|
|
13,409 |
|
|
|
15,835 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
234,306 |
|
|
|
195,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest (Note 10) |
|
|
10,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Cumulative preferred stock, $.0001 par value: 1,000,000 shares authorized; 26,000 shares issued and
outstanding (in series) and liquidation value of
$1,438 and $1,440 at June 30, 2010 and 2011,
respectively |
|
|
1,395 |
|
|
|
1,395 |
|
Common stock, $.0001 par value: 100,000,000 shares
authorized; 22,023,299 and 22,013,299 shares
outstanding at June 30, 2010 and 2011, respectively |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
111,783 |
|
|
|
112,278 |
|
Subscription receivables |
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
(1,571 |
) |
|
|
4,904 |
|
Accumulated deficit |
|
|
(9,775 |
) |
|
|
(25,490 |
) |
|
|
|
|
|
|
|
Total General Finance Corporation stockholders equity |
|
|
101,734 |
|
|
|
93,089 |
|
Equity of noncontrolling interests |
|
|
|
|
|
|
98,803 |
|
|
|
|
|
|
|
|
Total equity |
|
|
101,734 |
|
|
|
191,892 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
346,880 |
|
|
$ |
387,570 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-2
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
Revenues |
|
|
|
|
|
|
|
|
Sales |
|
$ |
79,207 |
|
|
$ |
92,687 |
|
Leasing |
|
|
77,102 |
|
|
|
89,577 |
|
|
|
|
|
|
|
|
|
|
|
156,309 |
|
|
|
182,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Cost of sales (exclusive of the items shown
separately below) |
|
|
61,366 |
|
|
|
69,452 |
|
Direct costs of leasing operations |
|
|
26,444 |
|
|
|
33,298 |
|
Selling and general expenses |
|
|
37,672 |
|
|
|
44,710 |
|
Impairment of goodwill |
|
|
7,633 |
|
|
|
5,858 |
|
Depreciation and amortization |
|
|
19,619 |
|
|
|
19,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
3,575 |
|
|
|
9,781 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
234 |
|
|
|
487 |
|
Interest expense |
|
|
(15,974 |
) |
|
|
(20,293 |
) |
Foreign currency exchange gain and other |
|
|
1,948 |
|
|
|
4,125 |
|
|
|
|
|
|
|
|
|
|
|
(13,792 |
) |
|
|
(15,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
(10,217 |
) |
|
|
(5,900 |
) |
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(1,261 |
) |
|
|
2,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(8,956 |
) |
|
|
(8,858 |
) |
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
(168 |
) |
|
|
(177 |
) |
Noncontrolling interest |
|
|
(2,295 |
) |
|
|
(6,857 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(11,419 |
) |
|
$ |
(15,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.64 |
) |
|
$ |
(0.72 |
) |
Diluted |
|
|
(0.64 |
) |
|
|
(0.72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
17,826,052 |
|
|
|
22,013,299 |
|
Diluted |
|
|
17,826,052 |
|
|
|
22,013,299 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Retained |
|
|
General Finance |
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Earnings |
|
|
Corporation |
|
|
Equity of |
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Paid-In |
|
|
Subscription |
|
|
Comprehensive |
|
|
(Accumulated |
|
|
Stockholders |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Receivables |
|
|
Income (Loss) |
|
|
Deficit) |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
|
Balance at June 30, 2009 |
|
$ |
1,345 |
|
|
$ |
2 |
|
|
$ |
105,314 |
|
|
$ |
|
|
|
$ |
(4,963 |
) |
|
$ |
1,476 |
|
|
$ |
103,174 |
|
|
$ |
|
|
|
$ |
103,174 |
|
Issuance of common stock (4,197,247 shares) included with units sold in a rights offering, net of offering expenses |
|
|
|
|
|
|
|
|
|
|
6,008 |
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
5,908 |
|
|
|
|
|
|
|
5,908 |
|
Issuance of preferred stock (1,000 shares) |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
50 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
629 |
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
|
|
(168 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,956 |
) |
|
|
(8,956 |
) |
|
|
|
|
|
|
(8,956 |
) |
Redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,295 |
) |
|
|
(2,295 |
) |
|
|
|
|
|
|
(2,295 |
) |
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,392 |
|
|
|
|
|
|
|
3,392 |
|
|
|
|
|
|
|
3,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,859 |
) |
|
|
|
|
|
|
(7,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 |
|
|
1,395 |
|
|
|
2 |
|
|
|
111,783 |
|
|
|
(100 |
) |
|
|
(1,571 |
) |
|
|
(9,775 |
) |
|
|
101,734 |
|
|
|
|
|
|
|
101,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of subscription receivables (10,000 shares) |
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription receivables receipts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
85 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
687 |
|
|
|
6 |
|
|
|
693 |
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177 |
) |
|
|
|
|
|
|
(177 |
) |
Issuance of capital stock by subsidiary (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,776 |
|
|
|
92,776 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,975 |
) |
|
|
(9,975 |
) |
|
|
1,117 |
|
|
|
(8,858 |
) |
Redeemable noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,740 |
) |
|
|
(5,740 |
) |
|
|
|
|
|
|
(5,740 |
) |
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,475 |
|
|
|
|
|
|
|
6,475 |
|
|
|
4,904 |
|
|
|
11,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,240 |
) |
|
|
6,021 |
|
|
|
(3,219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011 |
|
$ |
1,395 |
|
|
$ |
2 |
|
|
$ |
112,278 |
|
|
$ |
|
|
|
$ |
4,904 |
|
|
$ |
(25,490 |
) |
|
$ |
93,089 |
|
|
$ |
98,803 |
|
|
$ |
191,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $369 for shares of subsidiary capital stock issued to subsidiary board of
directors and executive management. |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,956 |
) |
|
$ |
(8,858 |
) |
Adjustments to reconcile net loss to cash flows from operating activities: |
|
|
|
|
|
|
|
|
Loss (gain) on sales and disposals of property, plant and equipment |
|
|
76 |
|
|
|
(21 |
) |
Gain on sales of lease fleet |
|
|
(7,000 |
) |
|
|
(5,631 |
) |
Unrealized foreign exchange (gain) loss |
|
|
(586 |
) |
|
|
9,026 |
|
Unrealized (gain) loss on forward exchange contracts |
|
|
(958 |
) |
|
|
387 |
|
Unrealized gain on interest rate swaps and options |
|
|
(231 |
) |
|
|
(697 |
) |
Impairment of goodwill |
|
|
7,633 |
|
|
|
5,858 |
|
Depreciation and amortization |
|
|
19,619 |
|
|
|
19,165 |
|
Amortization of deferred financing costs |
|
|
381 |
|
|
|
1,917 |
|
Accretion of interest |
|
|
240 |
|
|
|
220 |
|
Share-based compensation expense |
|
|
629 |
|
|
|
693 |
|
Shares of subsidiary capital stock issued to subsidiary board of directors and executive management |
|
|
|
|
|
|
369 |
|
Deferred income taxes |
|
|
(338 |
) |
|
|
2,353 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade, subscription and other receivables, net |
|
|
(234 |
) |
|
|
3,666 |
|
Inventories |
|
|
4,397 |
|
|
|
1,566 |
|
Prepaid expenses and other |
|
|
149 |
|
|
|
(720 |
) |
Trade payables, accrued liabilities and other deferred credits |
|
|
1,848 |
|
|
|
(11,249 |
) |
Income taxes |
|
|
|
|
|
|
471 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
16,669 |
|
|
|
18,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired |
|
|
|
|
|
|
(880 |
) |
Proceeds from sales of property, plant and equipment |
|
|
105 |
|
|
|
99 |
|
Purchases of property, plant and equipment |
|
|
(2,295 |
) |
|
|
(3,799 |
) |
Proceeds from sales of lease fleet |
|
|
22,573 |
|
|
|
24,115 |
|
Purchases of lease fleet |
|
|
(19,721 |
) |
|
|
(40,239 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
662 |
|
|
|
(20,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from (repayments on) equipment financing activities |
|
|
(337 |
) |
|
|
531 |
|
Repayments on senior and other debt borrowings |
|
|
(20,292 |
) |
|
|
(69,404 |
) |
Deferred financing costs |
|
|
|
|
|
|
(1,760 |
) |
Proceeds from issuances of units in rights offering |
|
|
5,908 |
|
|
|
|
|
Proceeds from issuances of preferred stock |
|
|
50 |
|
|
|
|
|
Preferred stock dividends |
|
|
(168 |
) |
|
|
(177 |
) |
Net proceeds from issuance of capital stock by subsidiary |
|
|
|
|
|
|
92,407 |
|
Payment of redeemable noncontrolling interest |
|
|
|
|
|
|
(17,634 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(14,839 |
) |
|
|
3,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
2,492 |
|
|
|
1,774 |
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of period |
|
|
3,346 |
|
|
|
4,786 |
|
|
|
|
|
|
|
|
|
|
The effect of foreign currency translation on cash |
|
|
(1,052 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
|
$ |
4,786 |
|
|
$ |
6,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
14,751 |
|
|
$ |
18,615 |
|
Income taxes |
|
|
52 |
|
|
|
28 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
On October 1, 2010 and January 14, 2011, the Company issued redeemable preferred stock of $100 and
$10, respectively, as part of the consideration for business acquisitions (see Note 4).
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Business Operations
Organization
General Finance Corporation (GFN) was incorporated in Delaware in October 2005. References
to the Company in these Notes are to GFN and its consolidated subsidiaries. These subsidiaries
include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (GFN U.S.); GFN North America
Corp., a Delaware corporation (GFNNA); GFN Mobile Storage Inc., a Delaware corporation (GFNMS);
Royal Wolf Holdings Limited (formerly GFN Australasia Holdings Pty Ltd)., an Australian corporation
publicly traded on the Australian Securities Exchange (RWH or GFN Holdings); GFN Australasia
Finance Pty Ltd, an Australian corporation (GFN Finance); RWA Holdings Pty Limited (RWA), an
Australian corporation, and its Australian and New Zealand subsidiaries (collectively, Royal
Wolf); and Pac-Van, Inc., an Indiana corporation (combined with GFNMS, Pac-Van).
Acquisition of Royal Wolf
On September 13, 2007 (September 14 in Australia), the Company completed the acquisition of
Royal Wolf through the acquisition of all of the outstanding shares of RWA. The Company paid the
purchase price by a combination of cash, the issuance to Bison Capital Australia, L.P., (Bison
Capital), one of the sellers, of shares of common stock of GFN U.S. and the issuance of a
subordinated note to Bison Capital. As a result of this structure, the Company owned 86.2% of the
outstanding capital stock of GFN U.S. and Bison Capital owned 13.8% of the outstanding capital
stock of GFN U.S. Royal Wolf leases and sells storage containers, portable container buildings and
freight containers in Australia and New Zealand, which is considered geographically by the Company
to be the Asia-Pacific area.
Acquisition of Pac-Van
On October 1, 2008, the Company completed its acquisition of Pac-Van through a merger with
Mobile Office Acquisition Corp. (MOAC), the parent of Pac-Van, and the Companys wholly-owned
subsidiary formed in July 2008, GFNNA. The Company, in addition to assuming Pac-Vans senior and
other debt, paid the purchase price to the stockholders of MOAC by a combination of cash, GFN
restricted common stock and a 20-month subordinated promissory note. Pac-Van leases and sells
modular buildings, mobile offices storage and office containers in the United States.
IPO of Royal Wolf
On May 31, 2011, the Company completed an initial public offering (IPO) in Australia of a
noncontrolling interest in RWH. A total of 50,000,000 shares of capital stock were issued to the
Australian market at $1.96 (AUS$1.83) per share, resulting in gross proceeds of $97,850,000
(AUS$91,500,000). An additional total of 188,526 shares ($369,000 value) were issued to the
non-employee members of the RWH Board of Directors, the RWH chief executive officer and the RWH
chief financial officer. Previously, GFN U.S. owned the only capital stock outstanding of RWH. In
conjunction with the IPO, RWH undertook a share split which resulted in GFN U.S. receiving
50,198,526 shares of the new capital stock. The Company used the proceeds of the RWH IPO to, among
other things, pay offering costs of $5,443,000 (AUS$5,090,000), pay down borrowings at each of the
senior credit facilities, as well as fully repay the subordinated notes held by Bison Capital (see
Note 5). Simultaneously, the Company also satisfied the Bison Capital put option (see Note 10) to
acquire the 13.8% of GFN U.S. previously owned by Bison Capital and now owns 100% of GFN U.S.
At the IPO date and at June 30, 2011, RWH had a total of 100,387,052 shares of capital stock
issued and outstanding, of which GFN U.S. owns a direct (and the Company an indirect) majority
interest of 50.005%.
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.
Unless otherwise indicated, references to FY 2010 and FY 2011 are to the year ended June
30, 2010 and
2011, respectively.
F-6
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain reclassifications have been made to the FY 2010 statements to conform to the current
period presentation, the most significant of which was to present sales from the lease fleet
(versus from inventory) as an investing activity in the statement of cash flows. The Company
previously presented these sales as an operating activity.
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 Companys functional currency for its operations in the Asia-Pacific area is the local
currency, which is primarily the Australian (AUS) dollar. 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. All assets and liabilities are translated at the rates in effect at the balance
sheet dates; and revenues, expenses, gains and losses are translated using the average exchange
rates during the periods. Transactions in foreign currencies are translated at the foreign exchange
rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated to the functional currency at the
foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation
are recognized in the statement of operations. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate
at the date of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to the functional currency at foreign
exchange rates prevailing at the dates the fair value was determined.
Segment Information
FASB ASC Topic 280, Segment Reporting, 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 FASB ASC Topic 280 and the manner in which the chief operating decision maker
analyzes the business, the Company has determined it has two separately reportable geographic and
operating segments, North America (Pac-Van, including corporate headquarters) and the Asia-Pacific
area (Royal Wolf).
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 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 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.
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.
F-7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories are stated at the lower of cost or market (net realizable value). Net realizable
value is the estimated selling price in the ordinary course of business. Expenses of marketing,
selling and distribution to customers, as well as costs of completion are estimated and are
deducted from the estimated selling price to establish net realizable value. Costs are assigned to
individual items of inventory on the basis of specific identification and include expenditures
incurred in acquiring the inventories and bringing them to their existing condition and location.
Inventories consist primarily of containers, modular buildings and mobile offices held for sale or
lease and are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2011 |
|
Finished goods |
|
$ |
18,840 |
|
|
$ |
20,661 |
|
Work in progress |
|
|
223 |
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
$ |
19,063 |
|
|
$ |
20,942 |
|
|
|
|
|
|
|
|
Derivative Financial Instruments
Derivative financial instruments included warrants issued as part of the Companys IPO and
rights offering (Note 3), a purchase option that was sold to the representative of the underwriters
(Note 3) and warrants issued in connection with a senior subordinated promissory note with Bison
Capital (Note 5). Based on Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, the issuance
of the warrants and the sale of the purchase option were reported in stockholders equity and,
accordingly, there was no impact on the Companys financial position or results of operations;
except for the $100 in proceeds from the sale of the purchase option and the discounting of the
senior subordinated promissory note for the fair market value of the warrants issued to Bison
Capital. Subsequent changes in the fair value will not be recognized as long as the warrants and
purchase option continue to be classified as equity 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 remeasurement to
fair value is recognized immediately in the statement of operations.
Accounting for Stock Options
For the issuances of stock options, the Company follows the fair value provisions of FASB ASC
Topic 718, Stock Compensation, which require recognition of employee share-based compensation
expense in the statements of operations over the vesting period based on the fair value of the
stock option at the grant date. For stock options granted to non-employee consultants, the Company
recognizes compensation expense measured at their fair value at each reporting date. Therefore,
these stock options are subject to periodic fair value adjustments recorded in share-based
compensation over the vesting period.
Property, Plant and Equipment
Owned assets
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 |
|
|
June 30, |
|
|
|
Useful Life |
|
|
2010 |
|
|
2011 |
|
Land |
|
|
|
|
|
$ |
1,599 |
|
|
$ |
1,788 |
|
Building |
|
40 years |
|
|
|
247 |
|
|
|
1,280 |
|
Transportation and plant equipment (including capital lease assets) |
|
3 10 years |
|
|
|
11,407 |
|
|
|
15,914 |
|
Furniture, fixtures and office equipment |
|
3 10 years |
|
|
|
2,865 |
|
|
|
3,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,118 |
|
|
|
22,255 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
(5,936 |
) |
|
|
(9,603 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,182 |
|
|
$ |
12,652 |
|
|
|
|
|
|
|
|
|
|
|
|
F-8
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital leases
Leases under which substantially all the risks and benefits incidental to ownership of the
leased assets are assumed by the Company are classified as capital leases. Other leases are
classified as operating leases. A lease asset and a lease liability equal to the present value of
the minimum lease payments, or the fair value of the leased item, whichever is the lower, are
capitalized and recorded at the inception of the lease. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged directly to the statement of
operations. Capitalized leased assets are depreciated over the shorter of the estimated useful life
of the asset or the lease term.
Operating leases
Payments made under operating leases are expensed on the straight-line basis over the term of
the lease, except where an alternative basis is more representative of the pattern of benefits to
be derived from the leased property. Where leases have fixed rate increases, these increases are
accrued and amortized over the entire lease period, yielding a constant periodic expense over the
term of the lease.
Lease Fleet
The Company has a fleet of storage, building and office 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, and are depreciated 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.
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.
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, 2010 and 2011.
Goodwill
The Company accounts for goodwill in accordance with FASB ASC Topic 350, Intangibles
Goodwill and Other. FASB ASC Topic 350 prohibits the amortization of goodwill and intangible assets
with indefinite lives and requires these assets be reviewed for impairment at least annually. The
Company operates two reportable and operating segments (Pac-Van and Royal Wolf) and all of the
goodwill was allocated between these two reporting units. The Company performs an annual impairment
test on goodwill at year end using the two-step process required under FASB ASC Topic 350. The
first step is a screen for potential impairment, while the second step measures the amount of the
impairment, if any.
At June 30, 2010 and 2011, the Company performed the first step of the two-step impairment
test and compared the fair value of each reporting unit to its carrying value. In assessing the
fair value of the reporting units, the Company considered both the market approach and the income
approach. Under the market approach, the fair value of the reporting unit was determined on a
weighted-average range of multiples to adjusted EBITDA. Under the income approach, the fair value
of the reporting unit was based on the present value of estimated cash flows. The income approach
was dependent on a number of significant management assumptions, including estimated future revenue
growth rates, gross margins on sales, operating margins, capital expenditures and discount rates.
Each approach was given equal weight in arriving at the fair value of the reporting unit and it was
determined that the fair value of the Royal Wolf reporting unit exceeded the carrying values of the
net assets. However, in both years, the fair value of the Pac-Van reporting unit was less than the
carrying values of the net assets and, therefore, the Company performed a step-two impairment test
for Pac-Van.
F-9
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the step-two test, the Company determined the implied fair value of the Pac-Van reporting
units goodwill and compared it to the carrying value of the goodwill. This involved allocating the
fair value of the reporting unit to its respective assets and liabilities (as if it had been
acquired in a separate and individual business combination and the fair value was the price paid to
acquire it) with the excess of the fair value over the amounts assigned being the implied fair
value of goodwill. For Pac-Van, the implied value of its goodwill was less than the carrying value
of goodwill, resulting in an impairment charge of $7,633,000 at June 30, 2010 and $5,858,000 at
June 30, 2011. The Company had not recorded an impairment charge to goodwill prior to FY 2010. At
June 30, 2011, the carrying value of goodwill at Pac-Van was $33,303,000.
The change in the balance of goodwill was as follows (in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2011 |
|
Beginning of year |
|
$ |
73,917 |
|
|
$ |
67,919 |
|
Foreign translation effect |
|
|
1,635 |
|
|
|
6,887 |
|
Impairment of goodwill |
|
|
(7,633 |
) |
|
|
(5,858 |
) |
|
|
|
|
|
|
|
End of year |
|
$ |
67,919 |
|
|
$ |
68,948 |
|
|
|
|
|
|
|
|
Intangible Assets
Intangible assets include those with indefinite (trademark and trade name) and finite
(primarily customer base and lists, non-compete agreements and deferred financing costs) useful
lives. Customer base and lists and non-compete agreements are amortized on the straight-line basis
over the expected period of benefit which range from one to ten years. Costs to obtaining long-term
financing are deferred and amortized over the term of the related debt using the straight-line
method. Amortizing the deferred financing costs using the straight-line method does not produce
significantly different results than that of the effective interest method.
Intangible assets with finite useful lives consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2011 |
|
Trademark and trade name |
|
$ |
2,750 |
|
|
$ |
2,500 |
|
Customer base and lists |
|
|
31,118 |
|
|
|
37,224 |
|
Non-compete agreements |
|
|
5,986 |
|
|
|
7,313 |
|
Deferred financing costs |
|
|
2,319 |
|
|
|
1,948 |
|
Other |
|
|
874 |
|
|
|
1,372 |
|
|
|
|
|
|
|
|
|
|
|
43,047 |
|
|
|
50,357 |
|
Less accumulated amortization |
|
|
(18,464 |
) |
|
|
(26,999 |
) |
|
|
|
|
|
|
|
|
|
$ |
24,583 |
|
|
$ |
23,358 |
|
|
|
|
|
|
|
|
The Company reviews intangible assets (those assets resulting from acquisitions) at least
annually for impairment or when events or circumstances indicate these assets might be impaired.
The Company tests impairment using historical cash flows and other relevant facts and circumstances
as the primary basis for estimates of future cash flows. At June 30, 2010 and 2011, the Company,
pursuant to an evaluation that determined that the respective fair values were less than the
carrying values, recognized impairment charges of $190,000 and $250,000, respectively, to the trade
name and, at June 30, 2010, $329,000 to the customer base acquired in the Pac-Van acquisition (see
Note 1). These impairment charges
were recorded as a part of depreciation and amortization in the accompanying consolidated
statements of operations.
F-10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated future amortization of intangible assets with finite useful lives as of June 30,
2011 is as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2012 |
|
$ |
5,742 |
|
2013 |
|
|
5,014 |
|
2014 |
|
|
3,308 |
|
2015 |
|
|
2,168 |
|
2016 |
|
|
2,160 |
|
Thereafter |
|
|
2,466 |
|
|
|
|
|
|
|
$ |
20,858 |
|
|
|
|
|
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 2010 and FY 2011 were $950,000 and $1,115,000, respectively.
Revenue Recognition
The Company leases and sells new and used portable storage, office and building containers,
modular buildings and mobile offices to its customers, as well as providing other ancillary
products and services. Leases to customers generally qualify as operating leases unless there is a
bargain purchase option at the end of the lease term. Revenue is recognized as earned in accordance
with the lease terms established by the lease agreements and when collectability is reasonably
assured.
Revenue from sales of the lease fleet is generally recognized upon delivery and when
collectability is reasonably assured. Certain arrangements to sell units under long-term
construction-type sales contracts are accounted for under the percentage of completion method.
Under this method, income is recognized in proportion to the incurred costs to date under the
contract to estimated total costs.
Unearned revenue includes end of lease services not yet performed by the Company (such as
transport charges for the pick-up of a unit where the actual pick-up has not yet occurred as the
unit is still leased), advance rentals and deposit payments.
Advertising
Advertising costs are generally expensed as incurred. Direct-response advertising costs,
principally yellow page advertising, are monitored through call logs and advertising source codes,
are capitalized when paid and amortized over the period in which the benefit is derived. However,
the amortization period of the prepaid balance never exceeds 12 months. At June 30, 2010 and 2011,
prepaid advertising costs were approximately $220,000 and $257,000, respectively. Advertising costs
expensed were approximately $2,478,000 and $2,774,000 for FY 2010 and FY 2011, respectively.
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 and New Zealand tax returns. For U.S. Federal tax purposes, all periods
subsequent to June 30, 2008 are subject to examination by the U.S. Internal Revenue Service
(IRS). 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 Companys policy for recording interest and penalties, if any, will be to record such
items as a component of income taxes.
F-11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 the Company has outstanding are warrants and stock options. The
following is a reconciliation of weighted average shares outstanding used in calculating earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
Basic |
|
|
17,826,052 |
|
|
|
22,013,299 |
|
Assumed exercise of warrants |
|
|
|
|
|
|
|
|
Assumed exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
17,826,052 |
|
|
|
22,013,299 |
|
|
|
|
|
|
|
|
Potential common stock equivalents (consisting of warrants and stock options) totaling
5,353,533 and 3,414,674 for FY 2010 and FY 2011, respectively, have been excluded from the
computation of diluted earnings per share because the effect is anti-dilutive as a result of the
net loss attributable to common stockholders.
Recently Issued Accounting Pronouncements
Effective July 1, 2009, the FASB ASC became the single official source of authoritative,
nongovernmental U.S. GAAP. The historical U.S. GAAP hierarchy was eliminated and the ASC became
the only level of authoritative U.S. GAAP, other than guidance issued by the SEC. The Companys
accounting policies were not affected by the conversion to ASC. However, references to specific
accounting standards in the notes to our consolidated financial statements have been changed to
refer to the appropriate section of the ASC.
In October 2009, the FASB issued an accounting standards update to ASC Topic 605, Revenue
Recognition, that impacts the determination of when the individual products or services
(deliverables) included in a multiple-element arrangement may be treated as separate units of
accounting. These new standards are effective for arrangements entered into subsequent to June 30,
2011 and the Company does not expect the adoption will have a material impact on its consolidated
financial position or results of operations.
In July 2010, the FASB issued an accounting standards update to ASC Topic 310, Receivables,
that requires disclosures about the credit quality of financing receivables (excluding short-term
trade accounts receivable or receivables measured at fair value or lower of cost or fair value) and
the allowance for credit losses. The disclosure requirements are effective for the periods ending
on or after December 15, 2010, and its adoption did not have a significant impact on the Companys
consolidated financial position or results of operations as it does not have significant
receivables that met the definition of financing receivables.
In December 2010, the FASB issued an accounting standards update to ASC Topic 805, Business
Combinations, that requires public companies that enter into business combinations that are
material on an individual or aggregate basis, and present comparative financial statements, to
disclose revenue and earnings of the combined entity as though the business combination(s) that
occurred during the current year had occurred as of the beginning of the comparable prior annual
reporting period only. The update also expands the supplemental pro forma disclosures under ASC
Topic 805 to
include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and
earnings. These new standards are effective for business combinations entered into subsequent to
June 30, 2011, and the Company does not expect the adoption to have any impact on its consolidated
financial position or results of operations.
In May 2011, the FASB issued amendments to the existing guidance on fair value measurement.
The amendments are intended to create consistency between GAAP and International Financial
Reporting Standards on measuring fair value and disclosing information about fair value
measurements. The amendments clarify the application of existing fair value measurement
requirements including (i) the application of the highest and best use valuation premise concepts,
(ii) measuring the fair value of an instrument classified in a reporting entitys equity, and (iii)
quantitative information required for fair value measurements categorized within Level 3. In
addition, the amendments require additional disclosure for Level 3 measurements regarding the
sensitivity of fair value to changes in unobservable inputs and any interrelationships between
those inputs. These amendments are effective for interim and annual periods beginning after
December 15, 2011. These changes are required to be applied prospectively and the Company does not
expect that the adoption will have a material impact on its consolidated financial position or
results of operations.
F-12
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2011, the FASB issued an amendment to the existing guidance on the presentation of
comprehensive income. Under the amended guidance, entities have the option to present the
components of net income and other comprehensive income in either a single continuous statement of
comprehensive income or in two separate but consecutive statements. Entities no longer have the
option of presenting the components of other comprehensive income within the statement of changes
in equity. This amendment is effective on a retrospective basis for interim and annual periods
beginning after December 15, 2011. The adoption of this amendment will result in a change to the
Companys current presentation of comprehensive income, but will not have any impact on the
Companys consolidated financial position or results of operations.
In August 2010, the FASB, as result of a joint project with the International Accounting
Standards Board (IASB) to simplify lease accounting and improve the quality of and comparability
of financial information for users, published a proposed standard that would change the accounting
and financial reporting for both lessee and lessor under ASC Topic 840, Leases. The proposed
standard would effectively eliminate off-balance sheet accounting for most of the operating leases
of lessees and would require lessors to apply a receivable and residual accounting approach. The
date of issuance of the final standards by the FASB and the effective date are to be determined.
The Company believes that the final standards, if issued in substantially the same form as the
published proposal, would have a material effect in the presentation of its consolidated financial
position and results of operations. However, subsequent to June 30, 2011, the FASB and IASB
announced their intention to re-expose the common leasing standard exposure draft for revised
proposals since August 2010.
Note 3. Equity Transactions
Warrants Issued in IPO
In connection with its IPO in April 2006, the Company sold to the representative of the
underwriters for $100 an option to purchase 750,000 units for $10.00 per unit. Each unit consisted
of one share of common stock and one warrant and each warrant entitles the holder to purchase from
the Company one share of common stock at an exercise price of $7.20. This option expired on April
5, 2011.
Cumulative Preferred Stock
The Company conducts private placements of Series A 12.5% Cumulative Preferred Stock, par
value $0.0001 per share and liquidation preference of $50 per share (Series A Preferred Stock);
and Series B 8% Cumulative Preferred Stock, par value of $0.0001 per share and liquidation value of
$1,000 per share (Series B Preferred Stock). The Series B Preferred Stock is offered primarily in
connection with business combinations. The Series A Preferred Stock and the Series B Preferred
Stock are referred to collectively as the Cumulative Preferred Stock. Upon issuance of the
Cumulative Preferred Stock, the Company records the liquidation value as the preferred equity in
the consolidated balance sheet, with any issuance or offering costs as a reduction in additional
paid-in capital. As of June 30, 2011, the Company had issued 25,900 shares and 100 shares of Series
A Preferred Stock and Series B Preferred Stock for total proceeds of $1,295,000 and $100,000,
respectively.
The Cumulative Preferred Stock is not convertible into GFN common stock, has no voting rights,
except as
required by Delaware law, and is not redeemable prior to February 1, 2014; at which time it
may be redeemed at any time, in whole or in part, at the Companys option. Holders of the
Cumulative Preferred Stock are entitled to receive, when declared by the Companys Board of
Directors, annual dividends payable quarterly in arrears on the 31st day of January,
July and October of each year and the 30th day of April of each year. In the event of
any liquidation or winding up of the Company, the holders of the Cumulative Preferred Stock will
have preference to holders of common stock; with the holders of the Series A Preferred Stock having
preference over holders of the Series B Preferred Stock.
In connection with the acquisition of Advanced Mobile Storage (see Note 4), the Company issued
110 shares of Series B Preferred Stock with a liquidation value of $110,000 that is redeemable in
three annual installments from the dates of issuance. As a result, these issuances are classified
as a liability in the consolidated balance sheet under the caption Senior and other debt.
As of June 30, 2011, since issuance, dividends paid or payable totaled $381,000 and $26,000
for the Series A Preferred Stock and Series B Preferred Stock, respectively. The characterization
of dividends to the recipients for Federal income tax purposes is made based upon the earnings and
profits of the Company, as defined by the Internal Revenue Code.
F-13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rights Offering
On June 25, 2010, the Company completed a rights offering to stockholders of record as of May
14, 2010. The offering entitled holders of the rights to purchase units at $1.50 per unit, with
each unit consisting of one share of GFN common stock and a three-year warrant to purchase 0.5
additional shares of GFN common stock at an exercise price of $4.00 per share. The Companys rights
offering resulted in, after deducting direct offering costs and subscription receivables, net
proceeds of $5,908,000. In FY 2011, subscription receivables for 10,000 units were cancelled and,
as a result, the Company now reports that it sold a total of 4,187,247 shares of common stock and
4,187,247 warrants to acquire an additional 2,095,623 shares of common stock at an exercise price
of $4.00 per share.
The Company used $4,800,000 of the net proceeds from the rights offering in the refinancing at
Pac-Van in FY 2011 (see Note 5).
Note 4. Acquisitions
In two separate transactions, on October 1, 2010 and on January 14, 2011, the Company, through
Pac-Van, purchased the business of Advanced Mobile Storage (AMS) for a total of $990,000; which
included the issuance of 110 shares of redeemable preferred stock (see Note 3). The total purchase
price has been allocated to tangible (lease fleet) and intangible (customer base and non-compete
agreement) assets acquired, based on their estimated fair market values, and totaled $893,000 and
$193,000, respectively, less trade payables and accrued liabilities assumed of $96,000.
Note 5. Senior and Other Debt
Royal Wolf Senior Credit Facility and Bison Capital Notes
Royal Wolf has an approximately $106,000,000 (AUS$100,000,000) senior credit facility with
Australia and New Zealand Banking Group Limited (ANZ), which matures on June 30, 2014. The
facility, which was substantially amended in connection with the RWH IPO (see Note 1), is subject
to annual reviews by ANZ and is secured by substantially all of the assets of the Companys
Australian and New Zealand subsidiaries. The ANZ credit facility is comprised of three
sub-facilities, a $15,900,000 (AUS$15,000,000) working capital sub-facility, primarily for
receivable financing; a $79,500,000 (AUS$75,000,000) revolving sub-facility, primarily for lease
fleet purchases; and a $10,600,000 (AUS$10,000,000) acquisition sub-facility. As of June 30, 2011,
based upon the exchange rate of one Australian dollar to $1.0597 U.S. dollar and one New Zealand
dollar to $0.7717 Australian dollar, borrowings and availability under the ANZ credit facility
totaled $63,113,000 (AUS$59,557,000) and $42,857,000 (AUS$40,443,000), respectively. At June 30,
2011, borrowings under the working capital sub-facility totaled $5,277,000 (AUS$4,980,000) and bear
interest at ANZs prime rate, plus 1.85% per annum, and borrowings under the revolving sub-facility
totaled $57,836,000 (AUS$54,578,000) and bear interest at ANZs prime rate, plus 2.05% per annum.
There are no borrowings under the acquisition sub-facility, which would bear interest at ANZs
prime rate, plus 1.85% per annum.
Royal Wolf also has a $3,200,000 (AUS$3,000,000) sub-facility with ANZ to, among other things,
facilitate direct and global payments using electronic banking services.
The ANZ senior credit facility is subject to certain covenants, including compliance with
specified consolidated interest coverage and total debt ratios for each financial quarter based on
earnings before interest, income taxes, depreciation and amortization and other non-operating costs
(EBITDA), as defined; and, among other things, the payment of dividends are not to exceed 60% of
net profits (adding back amortization), plus any dividend surplus from the previous year, as
defined.
On September 13, 2007, in conjunction with the closing of the acquisition of Royal Wolf, the
Company entered into a securities purchase agreement with Bison Capital, pursuant to which the
Company issued and sold to Bison Capital, at par, a secured senior subordinated promissory note in
the principal amount of $16,816,000 (the Bison Capital Note). The Bison Capital Note bore
interest at the annual rate of 13.5%, payable quarterly in arrears, and would have matured on March
13, 2013. In addition, there remained a penalty of 101% of par (AUS$200,000) if the Bison Capital
Note was prepaid prior to September 13, 2011. Pursuant to the securities purchase agreement, the
Company issued to Bison Capital warrants to purchase 500,000 shares of common stock of GFN. The
warrants issued to Bison Capital represented the right to purchase 500,000 shares of GFNs common
stock at an initial exercise price of $8.00 per share. Unexercised warrants would have expired
September 13, 2014 and, in addition, if, during the 66-month period ending on the scheduled
maturity date, GFNs common stock has not traded above $10 per share for any 20 consecutive trading
days on which the average daily trading volume was at least 30,000 shares (ignoring any daily
trading volume above 100,000 shares), upon demand by Bison Capital, the Company will pay Bison
Capital on the scheduled maturity date a premium of AUS$1,200,000, less any gains realized by Bison
Capital from any prior sale of the warrants and warrant shares. This premium is also payable upon
any acceleration of the Bison Capital Note. As a condition to receiving this premium, Bison Capital
must surrender for cancellation any remaining warrants and warrant shares.
F-14
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 1, 2008, the Company issued and sold to Bison Capital a second secured senior
subordinated promissory note in the principal amount of $5,500,000 on terms comparable to the
original Bison Capital Note, except that the maturity of this second note was July 1, 2011.
Collectively, these two notes are referred to as the Bison Capital Notes.
The Bison Capital Notes, including the prepayment penalty and warrant premium, were fully
repaid from net proceeds received in the RWH IPO (see Note 1), and the warrants were surrendered by
Bison Capital and cancelled.
Pac-Van Senior Credit Facility
Prior to July 16, 2010, Pac-Van had a senior credit facility, as amended, with a syndicate of
four financial institutions led by Bank of America, N.A. (BOA), as administrative and collateral
agent, and a $25,000,000 senior subordinated secured note payable to SPV Capital Funding, L.L.C.
(SPV). On July 16, 2010, the Company entered into several agreements relating to: (a) a new
$85,000,000 senior secured revolving credit facility at Pac-Van with a syndicate led by PNC Bank,
National Association (PNC) and including Wells Fargo Bank, National Association (Wells Fargo)
and Union Bank, N.A. (UB) (the PNC Credit Facility); and (b) a new $15,000,000 senior
subordinated note with Laminar Direct Capital, L.L.C. (Laminar) issued by GFN (the Laminar
Note). Borrowings under the PNC Credit Facility and proceeds from both the issuance of the Laminar
Note and the Companys rights offering completed on June 25, 2010 (see Note 3) were used to prepay
in full all borrowings under the BOA credit facility and the $25,000,000 senior subordinated
secured note payable to SPV.
Under the terms of the PNC Credit Facility, Pac-Van may borrow up to $85,000,000, subject to
the terms of a borrowing base, as defined, and will accrue interest, at Pac-Vans option, either at
the prime rate plus 2.75%, or the Eurodollar rate plus 3.75%. The PNC Credit Facility also provides
for the issuance of irrevocable standby letters of credit in amounts totaling up to $5,000,000,
contains certain financial covenants, including fixed charge coverage ratios, senior leverage
ratios and lease fleet utilization ratios; and also includes customary negative and other
covenants, including events of default relating to a change of control, as defined, at GFN, GFNNA
(which has guaranteed the repayment of all outstanding borrowings and obligations of the PNC Credit
Facility) and Pac-Van or upon the cessation of involvement of Ronald F. Valenta as a director or
officer in the operations and management of GFN, GFNNA or Pac-Van.
The PNC Credit Facility matures on January 16, 2013, at which time all amounts borrowed must
be repaid, but Pac-Van has the right to prepay loans in whole or in part at any time, provided that
Pac-Van will be required to pay PNC a prepayment fee of $700,000 if it prepays the loans in full
prior to July 16, 2011 and to pay PNC a prepayment fee of $350,000 if it prepays the loans in full
after July 16, 2011 but prior to July 16, 2012. At June 30, 2011, borrowings and availability under
the PNC Credit Facility totaled $56,689,000 and $18,467,000, respectively.
The repayment of borrowings under the PNC Credit Facility is secured by substantially all
of the assets of Pac-Van and by a limited guaranty by Ronald F. Valenta and Lydia D. Valenta (the
Valenta Limited Guaranty). Pursuant to the Valenta Limited Guaranty, the Valentas guaranteed
$10,000,000 of borrowings from July 16, 2010 until June 30, 2011, $8,000,000 of borrowings from
July 1, 2011 until June 30, 2012 and $6,000,000 of borrowings from July 1, 2012 until January 16,
2013. The amounts guaranteed by the Valentas will only be reduced if no event of default has
occurred under the PNC Credit Facility and if Pac-Van has delivered to PNC the certificates
necessary to demonstrate compliance by Pac-Van with the financial covenants at the date of each
scheduled reduction. In consideration for entering into the Valenta Limited Guaranty, Pac-Van will
pay the Valentas a fee equal to 1.2% of the lower of outstanding borrowings or the guaranty amount.
A guarantee fee of $120,000 for the first year was paid at or near the closing of the PNC Credit
Facility and, commencing with the first anniversary from the closing date, the guaranty fee will be
paid in advance at a rate of 0.3% per quarter, so long as Pac-Van remains in compliance with the
covenants of the PNC Credit Facility. In addition, the Valentas entered into a pledge and security
agreement for the benefit of PNC whereby the Valentas pledged a deposit account maintained by PNC,
and all interest accrued thereon, to secure the repayment of all loans and the performance of all
obligations under the PNC Credit Facility.
F-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Laminar Note
The $15,000,000 Laminar Note accrues interest at the floating rate of LIBOR plus 10.0% per
annum, provided that LIBOR shall be not less than 3.0%, and is payable monthly in arrears
commencing on August 1, 2010. The Laminar Note matures on July 16, 2013, at which time all amounts
borrowed must be repaid; but it may be prepaid by GFN in part or in full at any time before the
maturity date without penalty and by Pac-Van, upon prior written notice, subject to the terms of
the intercreditor agreement among Pac-Van, GFNNA, PNC and Laminar.
The Laminar Note contains certain financial covenants, including a consolidated funded
indebtedness-to-consolidated EBITDA leverage ratio, a minimum consolidated EBITDA covenant for the
four most recently completed calendar quarters of not less than $28,000,000; and customary negative
and other covenants, including events of default relating to a change of control, as defined, at
GFN, GFNNA and Pac-Van (both of which have guaranteed the repayment of all outstanding borrowings
and obligations of the Laminar Note) and covenants which limit the ability of GFNNA and Pac-Van to
sell assets, enter into acquisitions and incur additional indebtedness. In addition, the terms of
the Laminar Note prohibit GFNNA and Pac-Van from extending the maturity of the PNC Credit Facility
to a date later than April 16, 2013, increasing the maximum indebtedness above $93,500,000 without
the prior written consent of Laminar, entering into interest rate increases for indebtedness and
from undertaking certain other actions.
Other
The Company has a credit agreement at GFN, as amended, with UB for a $1,000,000 credit
facility. Borrowings or advances under this facility bear interest at UBs Reference Rate (which
approximates the prime rate), plus 2.0%, and are due and payable at the earlier of 60 days from the
advance date or the facility maturity date of April 2, 2012. The facility is guaranteed by GFN U.S.
and requires the maintenance of certain quarterly and year-end financial reporting covenants. As of
June 30, 2011, there were no borrowings outstanding under the UB credit facility.
Other debt (including redeemable preferred stock see Note 3) totaled $1,787,000 at June 30,
2011.
The weighted-average interest rate in the Asia-Pacific area was 10.3% and 12.0% in FY 2010 and
FY 2011, respectively; which does not include the effect of translation, interest rate swap
contracts and options (caps), amortization of deferred financing costs and prepayment penalty and
premium paid on the repayment of the Bison Capital Notes. The weighted-average interest rate in the
United States was 5.5% and 6.2% in FY 2010 and FY 2011, respectively; which does not include the
effect of the amortization of deferred financing costs.
Loan Covenant Compliance
At June 30, 2011, the Company was in compliance with the financial covenants under its senior
credit facilities and the Laminar Note. However, at March 31, 2011, the Company was not in
compliance with the senior leverage ratio financial covenant under the PNC Credit Facility. In
addition, a federal tax lien was filed against the personal residence of the Valentas, which
violated the Valenta Limited Guaranty, creating an event of default under the PNC Credit Facility.
The senior lenders amended the PNC Credit Facility to, among other things, waive this covenant
noncompliance
at the March 31, 2011 measurement date, waive the event of default related to the Valenta
Limited Guaranty, but required a cash equity infusion of not less than $5,000,000 by July 31, 2011.
In connection with the RWH IPO (see Note 1), net proceeds of $15,000,000 were used to make an
equity infusion into Pac-Van to reduce the borrowings outstanding under the PNC Credit Facility and
satisfy the $5,000,000 requirement. While the Company is currently in compliance with the financial
covenants under its senior credit facilities and the Laminar Note, in the event of noncompliance,
there is no assurance that the senior lenders would again consent to a waiver or an amendment; or
that such consent would not be conditioned upon the receipt of a cash payment, revised principal
payout terms, increased interest rates, or restrictions in the expansion of the credit facilities,
or that our senior lenders would not exercise rights that would be available to them, including,
among other things, demanding payment of outstanding borrowings.
F-16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Senior and other debt consisted of the following at June 30, 2010 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2011 |
|
ANZ Credit Facility |
|
$ |
72,589 |
|
|
$ |
63,113 |
|
Bison Capital Notes |
|
|
21,676 |
|
|
|
|
|
PNC Credit Facility |
|
|
66,600 |
|
|
|
56,689 |
|
SPV Note |
|
|
25,000 |
|
|
|
|
|
Laminar Note |
|
|
|
|
|
|
15,000 |
|
Other |
|
|
318 |
|
|
|
1,787 |
|
|
|
|
|
|
|
|
|
|
$ |
186,183 |
|
|
$ |
136,589 |
|
|
|
|
|
|
|
|
Scheduled Maturities on Senior and Other Debt
The scheduled maturities for the senior credit facilities senior subordinated notes and other
debt at June 30, 2011 were as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2012 |
|
$ |
4,816 |
|
2013 |
|
|
57,574 |
|
2014 |
|
|
74,065 |
|
2015 |
|
|
134 |
|
2016 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
136,589 |
|
|
|
|
|
Note 6. Financial Instruments
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price
that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, FASB ASC Topic 820 establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value, as follows:
Level 1 Observable inputs such as quoted prices in active markets for identical assets or
liabilities;
Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable
either directly or indirectly; and
Level 3 Unobservable inputs in which there is little or no market data, which require the
reporting entity to
develop its own assumptions.
The Companys swap contracts and options (caps) and forward-exchange contracts are not traded
on a market exchange; therefore, the fair values are determined using valuation models that include
assumptions about yield curve at the reporting dates as well as counter-party credit risk. The
Company has consistently applied these calculation techniques to all periods presented, which are
considered Level 2.
F-17
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative instruments measured at fair value and their classification on the consolidated
balances sheets and consolidated statements of operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Derivative |
|
|
|
|
|
Derivative - Fair Value (Level 2) |
|
Contract |
|
Balance Sheet Classification |
|
June 30, 2010 |
|
|
June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts and Options (Caps) |
|
Trade payables and accrued liabilities |
|
$ |
(1,222 |
) |
|
$ |
(743 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Exchange Contracts |
|
Trade and other receivables |
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Exchange Contracts |
|
Trade payables and accrued liabilities |
|
|
|
|
|
|
(401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Derivative |
|
Statement of Operations |
|
|
|
|
|
|
Contract |
|
Classification |
|
Year Ended June 30, 2010 |
|
|
Year Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts and Options (Caps) |
|
Unrealized gain included in interest expense |
|
$ |
231 |
|
|
$ |
697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Exchange Contracts |
|
Unrealized foreign currency exchange gain (loss) and other |
|
|
958 |
|
|
|
(387 |
) |
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
Under the provisions of FASB ASC Topic 825, Financial Instruments, the carrying value of the
Companys financial instruments, which include cash and cash equivalents, net receivables, trade
payables and accrued liabilities, borrowings under the senior credit facilities, the subordinated
notes, interest rate swap and forward exchange contracts and commercial bills; approximate fair
value due to current market conditions, maturity dates and other factors.
Interest Rate Swap Contracts
The Companys exposure to market risk for changes in interest rates relates primarily to its
long-term debt obligations. The Companys policy is to manage its interest expense by using a mix
of fixed and variable rate debt.
To manage this mix in a cost-efficient manner, the Company enters into interest rate swaps and
interest rate options, in which the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal amount. These swaps and options are designated to hedge changes in the interest
rate of a portion of the ANZ outstanding borrowings. The Company believes that financial
instruments designated as interest rate hedges are highly effective. However, documentation of
such, as required by FASB ASC Topic 815, Derivatives and Hedging, does not exist. Therefore, all
movements in the fair values of these hedges are reported in the statement of operations in the
period in which fair values change.
F-18
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Companys interest rate swap and option (cap) contracts are not traded on a market
exchange; therefore, the fair values are determined using valuation models which include
assumptions about the interest rate yield curve at the reporting dates (Level 2 fair value
measurement). As of June 30, 2010, there were four open interest rate swap contracts and three open
interest rate option (cap) contracts; and, as of June 30, 2011 there were three open interest rate
swap contracts and two open interest rate option (cap) contracts that mature in September 2012, as
follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2011 |
|
|
|
Swap |
|
|
Option (Cap) |
|
|
Swap |
|
|
Option (Cap) |
|
Notional amounts |
|
$ |
23,260 |
|
|
$ |
13,457 |
|
|
$ |
23,543 |
|
|
$ |
14,161 |
|
Fixed/Strike Rates |
|
|
7.19% - 8.22 |
% |
|
|
7.19% - 8.22 |
% |
|
|
7.19% - 8.22 |
% |
|
|
7.19% - 7.98 |
% |
Floating Rates |
|
|
6.33% - 8.12 |
% |
|
|
6.33% - 8.12 |
% |
|
|
7.01 |
% |
|
|
7.01 |
% |
Fair Value of Combined Contracts |
|
$ |
(1,235 |
) |
|
$ |
13 |
|
|
$ |
(743 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Risk
The Company has transactional currency exposures. Such exposure arises from sales or purchases
in currencies other than the functional currency. The currency giving rise to this risk is
primarily U.S. dollars. Royal Wolf has a bank account denominated in U.S. dollars into which a
small number of customers pay their debts. This is a natural hedge against fluctuations in the
exchange rate. The funds are then used to pay suppliers, avoiding the need to convert to Australian
dollars. Royal Wolf uses forward currency contracts and options to eliminate the currency exposures
on the majority of its transactions denominated in foreign currencies, either by transaction if the
amount is significant, or on a general cash flow hedge basis. The forward currency contracts and
options are always in the same currency as the hedged item. The Company believes that financial
instruments designated as foreign currency hedges are highly effective. However documentation of
such as required by ASC Topic 815 does not exist. Therefore, all movements in the fair values of
these hedges are reported in the statement of operations in the period in which fair values change.
As of June 30, 2010, there were 15 open forward exchange contracts and three open currency option
contracts; and, as of June 30, 2011, there were 25 open forward exchange contracts that mature
between July 2011 and April 2013, as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2011 |
|
|
|
Forward Exchange |
|
|
Currency Option |
|
|
Forward Exchange |
|
|
Currency Option |
|
Notional amounts |
|
$ |
7,018 |
|
|
$ |
9,164 |
|
|
$ |
11,452 |
|
|
$ |
|
|
Exchange/Strike Rates (AUD to USD) |
|
|
0.7005 0.8960 |
|
|
|
0.7000 0.8310 |
|
|
|
0.9973 1.0465 |
|
|
|
|
|
Fair Value of Combined Contracts |
|
$ |
149 |
|
|
$ |
98 |
|
|
$ |
(401 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also had certain U.S. dollar-denominated debt at Royal Wolf, including
intercompany borrowings, which are remeasured at each financial reporting date with the impact of
the remeasurement being recorded in our consolidated statements of operations. Unrealized gains and
losses resulting from such remeasurement due to changes in the Australian exchange rate to the U.S.
dollar had a significant impact in the Companys reported results of operations, as well as any
realized gains and losses from the payments on such U.S. dollar-denominated debt and intercompany
borrowings. In FY 2010 and FY 2011, net unrealized and realized foreign exchange gains (losses)
totaled $586,000 and $453,000, and $(9,026,000) and $13,540,000, respectively.
Credit Risk and Allowance for Doubtful Accounts
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
sectors. However, in the U.S. a significant portion of the Companys business activity is with
companies in the construction industry. Revenues and trade receivables from this industry totaled
$21,137,000 and $3,953,000 during FY 2010 and at June 30, 2010, respectively; and $19,831,000 and
$3,895,000 during FY 2011 and at June 30, 2011, respectively.
The Companys receivables related to sales are generally secured by the equipment sold to the
customer. The
Companys receivables related to its lease operations are primarily amounts generated from
both off-site and on-site customers. The Company has the right to repossess lease equipment for
nonpayment. It is the Companys policy that all customers who wish to purchase or lease containers
on credit terms are subject to credit verification procedures and the Company will agree to terms
with customers believed to be creditworthy. In addition, receivable balances are monitored on an
ongoing basis with the result that the Companys exposure to bad debts is not significant. Net
allowance for doubtful accounts provided and uncollectible accounts written off, net of recoveries,
was $625,000 and $947,000 and $954,000 and $1,078,000 for FY 2010 and FY 2011, respectively. The
translation gain to the allowance for doubtful accounts for FY 2010 and FY 2011 was $45,000 and
$127,000, respectively.
F-19
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
With respect to credit risk arising from the other significant financial assets of the
Company, which comprise cash and cash equivalents, available-for-sale financial assets and certain
derivative instruments, the Companys exposure to credit risk arises from default of the counter
party, with a maximum exposure equal to the carrying amount of these instruments. As the counter
party for derivative instruments is nearly always a bank, the Company has assessed this as a low
risk.
Note 7. Income Taxes
Income (loss) before provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
U.S. |
|
$ |
(4,303 |
) |
|
$ |
(4,527 |
) |
Asia-Pacific |
|
|
(5,914 |
) |
|
|
(1,373 |
) |
|
|
|
|
|
|
|
|
|
$ |
(10,217 |
) |
|
$ |
(5,900 |
) |
|
|
|
|
|
|
|
The provision (benefit) for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
Current: |
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
(1,041 |
) |
|
$ |
144 |
|
State |
|
|
|
|
|
|
49 |
|
Asia-Pacific |
|
|
(30 |
) |
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
(1,071 |
) |
|
|
469 |
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
(152 |
) |
|
|
1,291 |
|
State |
|
|
(87 |
) |
|
|
84 |
|
Asia-Pacific |
|
|
49 |
|
|
|
1,114 |
|
|
|
|
|
|
|
|
|
|
|
(190 |
) |
|
|
2,489 |
|
|
|
|
|
|
|
|
|
|
$ |
(1,261 |
) |
|
$ |
2,958 |
|
|
|
|
|
|
|
|
The components of the net deferred tax liability are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforwards |
|
$ |
19,082 |
|
|
$ |
17,111 |
|
Deferred revenue and expenses |
|
|
209 |
|
|
|
466 |
|
Accrued compensation and other benefits |
|
|
441 |
|
|
|
877 |
|
Allowance for doubtful accounts |
|
|
605 |
|
|
|
374 |
|
Unrealized exchange gains and losses |
|
|
597 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
20,934 |
|
|
|
18,828 |
|
Valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
20,934 |
|
|
|
18,828 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated tax depreciation and amortization |
|
|
(33,216 |
) |
|
|
(34,592 |
) |
Other |
|
|
(1,127 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(34,343 |
) |
|
|
(34,663 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(13,409 |
) |
|
$ |
(15,835 |
) |
|
|
|
|
|
|
|
F-20
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2011, the Company had a U.S. federal net operating loss carryforward of
$37,487,000, which expires if unused during fiscal years 2021 2031, and an Australian net
operating loss carryforward of approximately $27,806,000 with no expiration date. As a result of
the stock ownership change in the merger with MOAC (see Note 1), the available deduction of the net
operating loss carryforward of $16,779,000 acquired in the Pac-Van acquisition is generally limited
to approximately $2,500,000 on a yearly basis.
Management evaluates the ability to realize its deferred tax assets on a quarterly basis and
adjusts the amount of its valuation allowance if necessary. No valuation allowance has been
determined to be required as of June 30, 2010 and 2011.
A reconciliation of the U.S. federal statutory rate of 34% to the Companys effective tax rate
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Federal statutory rate |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
State and Asia-Pacific taxes, net of U.S.
federal benefit and credit |
|
|
(4.0 |
) |
|
|
(4.0 |
) |
U.S. income taxes related to RWH IPO |
|
|
|
|
|
|
48.5 |
|
Amortization and impairment of goodwill and
intangible assets, net |
|
|
24.1 |
|
|
|
30.1 |
|
Nondeductible expenses (primarily share-based
compensation expense at Royal Wolf) |
|
|
1.6 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
(12.3 |
)% |
|
|
50.1 |
% |
|
|
|
|
|
|
|
As
a result of the RWH IPO, the Company, among other things, was required to increase, for tax purposes, the cost
basis of Royal Wolfs inventory to fair value, which resulted in a taxable gain of approximately
$6,400,000. This gain was recorded in the consolidated income tax expense and, as such, was the
most significant portion in the federal rate reconciliation of 48.5%.
Note 8. Related Party Transactions
Effective January 31, 2008, the Company entered into a lease with an affiliate of Ronald F.
Valenta, a director and the chief executive officer of the Company, for its new corporate
headquarters in Pasadena, California. The rent is $7,393 per month, effective March 1, 2009, plus
allocated charges for common area maintenance, real property taxes and insurance, for approximately
3,000 square feet of office space. The term of the lease is five years, with two five-year renewal
options, and the rent is adjusted yearly based on the consumer price index. Rental payments were
$110,000 in both FY 2010 and FY 2011.
Effective October 1, 2008, the Company entered into a services agreement with an affiliate of
Mr. Valenta for certain accounting, administrative and secretarial services to be provided at the
corporate offices and for certain operational, technical, sales and marketing services to be
provided directly to the Companys operating subsidiaries. Charges for services rendered at the
corporate offices will be, until further notice, at $7,000 per month and charges for services
rendered to the Companys subsidiaries will vary depending on the scope of services provided. The
services agreement provides for, among other things, mutual modifications to the scope of services
and rates charged and automatically renews for successive one-year terms, unless terminated in
writing by either party not less than 30 days prior to the fiscal year end. Total charges to the
Company for services rendered under this agreement totaled $114,000 ($84,000 at the corporate
office and $30,000 at the operating subsidiaries) in FY 2010 and $231,000 ($84,000 at the corporate
office and $128,000 at the operating subsidiaries) in FY 2011.
Note 9. Stock Option Plans
On August 29, 2006, the Board of Directors of the Company adopted the General Finance
Corporation 2006 Stock Option Plan (2006 Plan), which was approved and amended by stockholders on
June 14, 2007 and December 11, 2008, respectively. Options granted and outstanding under the 2006
Plan are either incentive stock options under Section 422 of the Internal Revenue Code of 1986, as
amended, or so-called non-qualified options that are not intended to meet incentive stock option
requirements. All options granted do not have a term in excess of ten years, and the exercise price
of any option is not less than the fair market value of the Companys common stock on the date of
grant. After the adoption by the Board of Directors and upon the approval of the 2009 Stock
Incentive Plan by the stockholders (see below), the Company suspended any further grants under the
2006 Plan.
F-21
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 21, 2009, the Board of Directors of the Company adopted the 2009 Stock Incentive
Plan (2009 Plan), which was approved by the stockholders at the Companys annual meeting on
December 10, 2009. The 2009 Plan is an omnibus incentive plan permitting a variety of equity
programs designed to provide flexibility in implementing equity and cash awards, including
incentive stock options, nonqualified stock options, restricted stock grants, restricted stock
units, stock appreciation rights, performance stock, performance units and other stock-based
awards. Participants in the 2009 Plan may be granted any one of the equity awards or any
combination of them, as determined by the Board of Directors or the Compensation Committee. Upon
the approval of the 2009 Plan by the stockholders, the Company suspended further grants under the
2006 Plan (see above). Any stock options which are forfeited under the 2006 Plan will become
available for grant under the 2009 Plan, but the total number of shares available under the 2006
Plan and the 2009 Plan will not exceed the 2,500,000 shares reserved for grant under the 2006 Plan.
Unless terminated earlier at the discretion of the Board of Directors, the 2009 Plan will terminate
September 21, 2019.
The 2006 Plan and the 2009 Plan are referred to collectively as the Stock Incentive Plan.
There have been no grants or awards of restricted stock, restricted stock units, stock
appreciation rights, performance stock or performance units under the Stock Incentive Plan. All
grants to-date consist of incentive and non-qualified stock options that vest over a period of up
to five years (time-based options) and non-qualified stock options that vest over varying periods
that are dependent on the attainment of certain defined EBITDA and other targets for FY 2011 and
subsequent fiscal years (performance-based options).
On October 1, 2008 (October 2008 Grant), the Company granted 356,000 options to certain key
employees of Pac-Van and to a former stockholder of MOAC. At June 30, 2011, there remain 147,300
outstanding time-based options with a vesting period of five years and 112,020 outstanding
performance-based options that vest in three tranches subject to Pac-Van achieving certain EBITDA
and return on asset targets for FY 2011 and for the fiscal years ending June 30, 2012 and 2013. The
Company has been recognizing share-based compensation expense over the estimated vesting periods
for each of these three tranches, but it was determined that the FY 2011 performance targets were
not probable of being achieved and, as a result, previously recorded share-based compensation for
the related tranche of 37,340 performance-based options outstanding at June 30, 2011 was reversed
in the fourth quarter of FY 2011. However, these performance-based options will not be officially
forfeited until the quarter ended September 30, 2011. Similarly, share-based compensation
recognized in prior periods related to performance-based options with FY 2010 performance targets
were reversed in the fourth quarter of FY 2010. However, the related performance-based options not
officially forfeited until the quarter ended September 30, 2010.
On January 26, 2010 (January 2010 Grant) the Company granted options to two officers of GFN,
certain key employees of Pac-Van and a non-employee consultant to purchase 170,000 shares of common
stock at an exercise price equal to the closing market value of the Companys common stock as of
that date; or $1.28 per share. The January 2010 Grant consisted of 4,750 options with a vesting
period of five years, 20,000 options (granted to the non-employee) with a vesting period of three
years and 145,250 options that vest subject to performance conditions based the achievement of
certain EBITDA and other targets for FY 2010. The Company commenced recognizing share-based
compensation expense on these performance-based options over an estimated vesting period of just
over 20 months, but it was subsequently determined that the EBITDA target was not probable of being
achieved and, as result, previously recorded share-based compensation was reversed in the fourth
quarter of FY 2010. However, the related performance-based options were not officially forfeited
until the quarter ended September 30, 2010.
On July 14, 2010 (July 2010 Grant), the Company granted options to three non-employee
consultants to purchase 40,000 shares of common stock at an exercise price of equal to the closing
market value of the Companys common stock as of date, or $1.22 per share, with a vesting period of
three years.
On September 15, 2010 (September 2010 Grant), the Company granted options to three officers
of GFN and 12 key employees of Pac-Van and Royal Wolf to purchase 298,000 shares of common stock at
an exercise price equal to the closing market price of the Companys common stock as of that date,
or $1.06 per share. The options under the September 2010 Grant vest over four years, subject to
performance conditions based on achieving cumulative EBITDA and indebtedness targets for FY 2011
and the fiscal years ending June 30, 2012 and 2013.
On December 9, 2010 (December 2010 Grant), the Company granted options to two members of its
Board of Directors to purchase 18,000 shares of common stock at an exercise price equal to the
closing market price of the Companys common stock as of that date, or $2.04 per share, with a
vesting period of three years.
F-22
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 23, 2011 (June 2011 Grant), the Company granted options to two officers of GFN,
seven key employees of Pac-Van and a non-employee consultant to purchase 131,000 shares of common
stock at an exercise price equal to the closing market price of the Companys common stock as of
that date, or $2.99 per share. The options under the June 2011 Grant vest over forty-two months,
subject to performance conditions based on achieving cumulative EBITDA and indebtedness targets for
the fiscal years ending June 30, 2012 2014.
The fair value of the stock options granted under the Stock Incentive Plan was determined by
using the Black-Scholes option-pricing model. The range of the fair value of the stock options
granted (other than to non-employee consultants) and the assumptions used are as follows:
|
|
|
|
|
Fair value of stock option |
|
$ |
0.81 - $3.94 |
|
|
|
|
|
|
|
|
|
|
Assumptions used: |
|
|
|
|
Risk-free interest rate |
|
|
1.99% - 4.8 |
% |
Expected life (in years) |
|
|
7.5 |
|
Expected volatility |
|
|
26.5% - 84.6 |
% |
Expected dividends |
|
|
|
|
|
|
|
|
At June 30, 2011, the weighted-average fair value of the stock options granted to non-employee
consultants was $2.57, determined using the Black-Scholes option-pricing model using the following
assumptions: A risk-free interest rate of 2.78% 3.18% an expected life of 8.6 10 years, an
expected volatility of 84.6%, and no expected dividend. A summary of the Companys stock option
activity and related information as of and for FY 2010 and FY 2011 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
Average |
|
|
|
Options |
|
|
Exercise |
|
|
|
(Shares) |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
1,358,000 |
|
|
$ |
7.39 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
170,000 |
|
|
|
1.28 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(273,090 |
) |
|
|
6.97 |
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010 |
|
|
1,254,910 |
|
|
$ |
6.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010 |
|
|
403,960 |
|
|
$ |
8.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
Number of |
|
|
Average |
|
|
Remaining |
|
|
|
Options |
|
|
Exercise |
|
|
Contractual |
|
|
|
(Shares) |
|
|
Price |
|
|
Term (Years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010 |
|
|
1,254,910 |
|
|
$ |
6.65 |
|
|
|
|
|
|
Granted |
|
|
487,000 |
|
|
|
1.63 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(201,340 |
) |
|
|
3.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2011 |
|
|
1,540,570 |
|
|
$ |
5.47 |
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
at June 30, 2011 |
|
|
1,528,638 |
|
|
$ |
5.46 |
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2011 |
|
|
574,637 |
|
|
$ |
7.81 |
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2011, outstanding time-based options and performance-based options totaled 891,550
and 649,020, respectively. Also at that date, the Companys market price for its common stock was
$2.99 per share, which was at or below the exercise prices of the majority of the outstanding stock
options. As a result, the intrinsic value of the outstanding stock options at that date was only
$788,000.
F-23
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-based compensation of $2,844,000 related to stock options has been recognized in the
statement of operations, with a corresponding benefit to additional paid-in capital, from inception
through June 30, 2011. At that date, there remains $1,424,000 of unrecognized compensation expense
to be recorded on a straight-line basis over the remaining weighted-average vesting period of 2.1
years.
A deduction is not allowed for U.S. income tax purposes with respect to non-qualified options
granted in the United States until the stock options are exercised or, with respect to incentive
stock options issued in the United States, unless the optionee makes a disqualifying disposition of
the underlying shares. The amount of any deduction will be the difference between the fair value of
the Companys common stock and the exercise price at the date of exercise. Accordingly, there is a
deferred tax asset recorded for the U.S. tax effect of the financial statement expense recorded
related to stock option grants in the United States. The tax effect of the U.S. income tax
deduction in excess of the financial statement expense, if any, will be recorded as an increase to
additional paid-in capital.
Royal Wolf Long Term Incentive Plan
In FY 2011, in conjunction with the RWH IPO, Royal Wolf established the Royal Wolf Long Term
Incentive Plan (the LTI Plan). Under the LTI Plan, the RWH Board of Directors may grant, at its
discretion, options, performance rights and/or restricted shares of RWH capital stock to Royal Wolf
employees and executive directors. Vesting terms and conditions may be up to four years and,
generally, will be subject to performance criteria based primarily on enhancing shareholder returns
using a number of key financial benchmarks. In addition, unless the RWH Board determines otherwise,
if an option, performance right or restricted share has not lapsed or been forfeited earlier, it
will terminate at the seventh anniversary from the date of grant.
It is intended that up to one percent of RWHs outstanding capital stock will be reserved for
grant under the LTI Plan and a trust will be established to hold RWH shares for this purpose.
However, so long as the Company holds more than 50% of the outstanding shares of RWH capital stock,
RWH shares reserved for grant under the LTI Plan are required to be purchased in the open market;
unless the Company agrees otherwise.
The LTI Plan, among other provisions, does not permit the transfer of options, performance
rights and restricted shares without the prior approval of the RWH Board; nor may they be sold,
mortgaged or otherwise encumbered. In the event of a change of control, the RWH Board, at its
discretion, will determine whether, and how many, unvested options, performance rights and
restricted shares will vest. In addition, if, in the RWH Boards opinion, a participant acts
fraudulently or dishonestly or is in breach of their obligations to Royal Wolf, the RWH Board may
deem any options, performance rights and restricted shares held by or reserved for the participant
to have lapsed or been forfeited.
There have been no grants or awards under the LTI Plan as of June 30, 2011.
Note 10. Commitments and Contingencies
Operating Lease Rentals
The Company leases office equipment and other facilities under operating leases. The leases
have terms of between one and nine years, some with an option to renew the lease after that period.
None of the leases includes contingent rentals. There are no restrictions placed upon the lessee by
entering into these leases.
Non-cancellable operating lease rentals at June 30, 2011 are payable as follows (in
thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2012 |
|
$ |
6,505 |
|
2013 |
|
|
4,533 |
|
2014 |
|
|
3,560 |
|
2015 |
|
|
2,891 |
|
2016 |
|
|
1,755 |
|
Thereafter |
|
|
1,500 |
|
|
|
|
|
|
|
$ |
20,744 |
|
|
|
|
|
Rental expense on non-cancellable operating leases was $5,373,000 and $5,593,000 in FY 2010
and FY 2011, respectively.
F-24
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales-Type and Operating Fleet Leases
Future minimum payments to be received under sales-type and operating fleet leases at June 30,
2011 are as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2012 |
|
$ |
7,635 |
|
2013 |
|
|
2,469 |
|
2014 |
|
|
812 |
|
2015 |
|
|
305 |
|
2016 |
|
|
204 |
|
Thereafter |
|
|
256 |
|
|
|
|
|
|
|
$ |
11,681 |
|
|
|
|
|
Bison Capital Put Option
In conjunction with the closing of the acquisition of Royal Wolf, the Company entered into a
shareholders agreement with Bison Capital. The shareholders agreement was amended on September 21,
2009 and provided that, at any time after July 1, 2011, Bison Capital may require the Company to
purchase from Bison Capital all of its 13.8% outstanding capital stock of GFN U.S. The purchase
price for the capital stock (which was payable in cash or, if mutually agreeable to both the
Company and Bison Capital, paid in GFN common stock or some combination thereof) was the greater
$12,850,000 or several calculations; typically based as an 8.25 multiple of EBITDA, as defined.
This provision in the shareholders agreement was referred as the Bison Capital put option.
Also under the shareholders agreement, the Company had the option, at anytime prior to
September 13, 2010, to cause Bison Capital to sell and transfer its 13.8% outstanding capital stock
of GFN U.S. to the Company for a purchase price equal to the product of 2.75 and Bison Capitals
cost in the GFN U.S. capital stock. Subsequent to July 1, 2012, the Companys call option purchase
price was similar to the Bison Capital put option, except the EBITDA multiple was 8.75.
Simultaneously with the RWH IPO (see Note 1), the Company satisfied the Bison Capital put
option for $17,634,000 and now owns 100% of GFN U.S.
Prior to July 1, 2009, the Company accounted for Bison Capitals put option as a
non-freestanding financial instrument classified in temporary equity, pursuant to the requirements
of SEC Accounting Series Release (ASR) No. 268, Presentation in Financial Statements of
Redeemable Preferred Stock. In accordance with the guidelines of ASR No. 268, the redemption
value of the put option had been reflected as redeemable noncontrolling interest with the
corresponding adjustment to additional paid-in capital determined after the attribution of the net
income or loss of Royal Wolf to noncontrolling interest. Effective July 1, 2009, the Company
adopted the provisions of a pronouncement issued in December 2007 on what is now codified as FASB
ASC Topics 805, Business Combinations, and 810, Consolidation. In connection with the adoption of
the provisions in these Topics, the Company accreted the redemption value of the put option over
the periods from July 1, 2009 through May 31, 2011, the date of the RWH IPO, with the corresponding
adjustment to net income or loss attributable to noncontrolling interest.
Preferred Supply Agreement
In connection with a Business Sale Agreement dated November 14, 2007 with GE SeaCo Australia
Pty Ltd. and GE SeaCo SRL (collectively GE SeaCo), Royal Wolf entered in a preferred supply
agreement with GE SeaCo. Under the preferred supply agreement, GE SeaCo has agreed to sell to Royal
Wolf, and Royal Wolf has agreed to purchase, all
of GE SeaCos containers that GE SeaCo determines to sell, up to a maximum of 5,000 containers
each year. The purchase price for the containers will be based on their condition and is specified
in the agreement, subject to annual adjustment. In addition, Royal Wolf received a right of first
refusal to purchase any additional containers that GE SeaCo desires to sell in Australia, New
Zealand and Papua New Guinea. Either party may terminate the agreement upon no less than 90 days
prior notice at any time after November 15, 2012.
Other Matters
The Company is not involved in any material lawsuits or claims arising out of the normal
course of business. The nature of its business is such that disputes can occasionally arise with
employees, vendors (including suppliers and subcontractors), and customers over warranties,
contract specifications and contract interpretations among other things. The Company assesses these
matters on a case-by-case basis as they arise. Reserves are established, as required, based on its
assessment of its exposure. The Company has insurance policies to cover general liability and
workers compensation related claims. In the opinion of management, the ultimate amount of liability
not covered by insurance under pending litigation and claims, if any, will not have a material
adverse effect on our financial position, operating results or cash flows.
F-25
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Detail of Certain Accounts
Trade payables and accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2011 |
|
Trade payables |
|
$ |
14,929 |
|
|
$ |
20,463 |
|
Payroll and related |
|
|
3,017 |
|
|
|
6,268 |
|
Taxes, other than income |
|
|
937 |
|
|
|
793 |
|
Fair value of interest swap and option and forward currency exchange contacts |
|
|
1,222 |
|
|
|
1,144 |
|
Accrued interest |
|
|
1,718 |
|
|
|
707 |
|
Other accruals |
|
|
3,423 |
|
|
|
3,147 |
|
|
|
|
|
|
|
|
|
|
$ |
25,246 |
|
|
$ |
32,522 |
|
|
|
|
|
|
|
|
Note 12. Segment Reporting
The tables below represent the Companys revenues from external customers, operating income,
interest income and expense, share-based compensation expense, depreciation and amortization,
expenditures for additions to long-lived assets (consisting of lease fleet and property, plant and
equipment) and long-lived assets; as attributed to its two geographic (and operating) segments (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
Revenues from external customers |
|
|
|
|
|
|
|
|
North America: |
|
|
|
|
|
|
|
|
Sales |
|
$ |
19,938 |
|
|
$ |
17,876 |
|
Leasing |
|
|
37,203 |
|
|
|
38,000 |
|
|
|
|
|
|
|
|
|
|
|
57,141 |
|
|
|
55,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific: |
|
|
|
|
|
|
|
|
Sales |
|
|
59,269 |
|
|
|
74,811 |
|
Leasing |
|
|
39,899 |
|
|
|
51,577 |
|
|
|
|
|
|
|
|
|
|
|
99,168 |
|
|
|
126,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
156,309 |
|
|
$ |
182,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
North America |
|
$ |
(4,613 |
) |
|
$ |
(4,418 |
) |
Asia-Pacific |
|
|
8,188 |
|
|
|
14,199 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,575 |
|
|
$ |
9,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
North America |
|
$ |
|
|
|
$ |
|
|
Asia-Pacific |
|
|
234 |
|
|
|
487 |
|
|
|
|
|
|
|
|
Total |
|
$ |
234 |
|
|
$ |
487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
North America |
|
$ |
5,299 |
|
|
$ |
5,792 |
|
Asia-Pacific |
|
|
10,675 |
|
|
|
14,501 |
|
|
|
|
|
|
|
|
Total |
|
$ |
15,974 |
|
|
$ |
20,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
North America |
|
$ |
520 |
|
|
$ |
552 |
|
Asia-Pacific |
|
|
109 |
|
|
|
510 |
|
|
|
|
|
|
|
|
Total |
|
$ |
629 |
|
|
$ |
1,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
|
|
|
|
|
|
North America |
|
$ |
7,633 |
|
|
$ |
5,858 |
|
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,633 |
|
|
$ |
5,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
North America |
|
$ |
6,512 |
|
|
$ |
6,087 |
|
Asia-Pacific |
|
|
13,107 |
|
|
|
13,078 |
|
|
|
|
|
|
|
|
Total |
|
$ |
19,619 |
|
|
$ |
19,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
|
|
|
|
|
|
North America |
|
$ |
3,763 |
|
|
$ |
7,478 |
|
Asia-Pacific |
|
|
18,253 |
|
|
|
36,560 |
|
|
|
|
|
|
|
|
Total |
|
$ |
22,016 |
|
|
$ |
44,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
|
2010 |
|
|
2011 |
|
Long-lived assets |
|
|
|
|
|
|
|
|
North America |
|
$ |
108,064 |
|
|
$ |
108,212 |
|
Asia-Pacific |
|
|
90,528 |
|
|
|
124,535 |
|
|
|
|
|
|
|
|
Total |
|
$ |
198,592 |
|
|
$ |
232,747 |
|
|
|
|
|
|
|
|
Intersegment net revenues totaled $4,151,000 during FY 2010 and $2,237,000 during FY 2011.
F-27
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
CONDENSED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
(in thousands) |
|
Cash and cash equivalents |
|
$ |
4,054 |
|
|
$ |
6,019 |
|
Property and equipment, net |
|
|
41 |
|
|
|
24 |
|
Other assets |
|
|
6,547 |
|
|
|
376 |
|
Investment and intercompany accounts |
|
|
91,726 |
|
|
|
111,043 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
102,368 |
|
|
$ |
117,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities |
|
$ |
634 |
|
|
$ |
1,168 |
|
Senior and other debt |
|
|
|
|
|
|
15,110 |
|
Other deferred credits |
|
|
|
|
|
|
8,095 |
|
General Finance Corporation stockholders equity |
|
|
101,734 |
|
|
|
93,089 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
102,368 |
|
|
$ |
117,462 |
|
|
|
|
|
|
|
|
S-1
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
CONDENSED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
(in thousands) |
|
General and administrative expenses |
|
$ |
2,592 |
|
|
$ |
3,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses of subsidiaries |
|
|
(12,732 |
) |
|
|
(8,457 |
) |
Intercompany income |
|
|
1,498 |
|
|
|
3,915 |
|
Interest expense |
|
|
(28 |
) |
|
|
(1,902 |
) |
Other income, net |
|
|
11 |
|
|
|
2,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,251 |
) |
|
|
(3,698 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(13,843 |
) |
|
|
(6,876 |
) |
Income tax provision (benefit) |
|
|
(2,592 |
) |
|
|
8,839 |
|
|
|
|
|
|
|
|
Net loss attributable to stockholders |
|
|
(11,251 |
) |
|
|
(15,715 |
) |
Preferred stock dividends |
|
|
168 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(11,419 |
) |
|
$ |
(15,892 |
) |
|
|
|
|
|
|
|
S-2
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
CONDENSED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
(in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss attributable to stockholders |
|
$ |
(11,251 |
) |
|
$ |
(15,715 |
) |
Equity in losses of subsidiaries |
|
|
12,732 |
|
|
|
8,457 |
|
Unrealized foreign exchange gain |
|
|
(12 |
) |
|
|
(2,935 |
) |
Depreciation and amortization |
|
|
72 |
|
|
|
64 |
|
Amortization of deferred financing cots |
|
|
|
|
|
|
28 |
|
Share-based compensation expense |
|
|
355 |
|
|
|
458 |
|
Contributed services |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
(2,592 |
) |
|
|
8,839 |
|
Changes in operating assets and liabilities |
|
|
13 |
|
|
|
2,728 |
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
|
(683 |
) |
|
|
1,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
|
|
|
|
|
|
Purchases of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from senior and other debt borrowings |
|
|
|
|
|
|
15,000 |
|
Deferred financing costs |
|
|
|
|
|
|
(89 |
) |
Proceeds form issuances of units in rights offering |
|
|
4,697 |
|
|
|
|
|
Proceeds from issuances of preferred stock |
|
|
50 |
|
|
|
|
|
Payment of redeemable noncontrolling interest |
|
|
|
|
|
|
(17,634 |
) |
Preferred stock dividends |
|
|
(168 |
) |
|
|
(177 |
) |
Intercompany transfers |
|
|
(1,245 |
) |
|
|
2,941 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
3,334 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
2,651 |
|
|
|
1,965 |
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
|
1,403 |
|
|
|
4,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
4,054 |
|
|
$ |
6,019 |
|
|
|
|
|
|
|
|
S-3
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of General Finance Corporation |
|
|
|
|
|
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350 |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350 |