Form 10-K
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, 2010
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
(State or other Jurisdiction of Incorporation or
Organization)
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32-0163571
(I.R.S. Employer Identification No.)
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39 East Union Street
Pasadena, California 91103
(Address of Principal Executive Offices)
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(626) 584-9722
(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 |
Units, each consisting of one share of Common |
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Stock, $0.0001 par value, and One Warrant
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NASDAQ Global Market |
Common Stock, $0.0001 par value
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NASDAQ Global Market |
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, 2009 was approximately $14,758,000 based on a closing price of $1.27 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 22,023,299 shares of the Registrants Common Stock outstanding as of September 3,
2010.
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
2010 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
Item 1. Business
References to we, us, our or the Company refer to General Finance Corporation, a
Delaware corporation (GFN), and its direct and indirect subsidiaries, including, GFN Mobile
Storage Inc., a Delaware corporation (GFNMS), GFN North America Corp., a Delaware corporation
(GFNNA), and its subsidiary Pac-Van, Inc., an Indiana corporation (which, combined with GFNMS, is
referred to herein as Pac-Van), GFN U.S. Australasia Holdings, Inc., a Delaware corporation (GFN
U.S), its subsidiary GFN Australasia Holdings Pty Limited, an Australian corporation (GFN
Holdings), its subsidiary GFN Australasia Finance Pty Limited, an Australian corporation (GFN
Finance), and its subsidiary RWA Holdings Pty Limited, an Australian corporation ( RWA), and its
subsidiaries. GFN Holdings and its subsidiaries are collectively referred to herein as Royal
Wolf.
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 own 86.2% of the
outstanding capital stock of GFN U.S. and Bison Capital owns 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 modular
buildings, mobile offices and storage containers in the United States.
Our strategy and business plan is to acquire and operate 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 24 customer service
centers, which we refer to as CSCs, in Australia and New Zealand and 25 branch locations across
18 states in the United States. Royal Wolf and Pac-Van operate in two distinct, but related
industries, modular space and mobile storage, which we collectively refer to as the portable
services industry.
Our products include the following:
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 and Portable Container Buildings. 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. We also offer portable container buildings,
ground level offices (GLOs), or office containers (which are either modified or
specifically-manufactured shipping containers that are used as mobile offices), and in-plant units,
which are manufactured structures that provide self-contained office space with maximum design
flexibility.
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.
I-1
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.
ROYAL WOLF
Royal Wolfs lease fleet, nationwide presence and experienced management team position it as
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 24 (Customer Service
Centers (CSCs) located in every state in Australia and 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. Royal Wolfs experienced management team is lead by Robert Allan, the
chief executive officer of Royal Wolf, who has 25 years of experience in the industry. The ten
members of the senior management team of Royal Wolf have an average of over 14 years of experience
in the 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 diverse client base of nearly 21,000
customers who conduct business in a broad range of 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 business strategy focused on growing our leasing operations, generating
strong internal growth, reducing indebtedness and eventually 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 used in the U.S. market, such as advance billing, 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.
Reducing and Refinancing Indebtedness. Reducing and refinancing Royal Wolfs debt on more
favorable terms are among our priorities. We believe this focus on debt reduction and refinancing
will provide greater operational flexibility in the future and will position Royal Wolf to capture
future growth opportunities.
Leverage our Infrastructure through Acquisitions. Our branch network infrastructure serves a
broad geographic area and is capable of serving additional volume at minimal levels of additional
fixed costs. Our long-term 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
branches or adding newly acquired fleet with branches in better locations can be very effective. 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.
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 to temporarily store excess 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.
I-2
The portable storage market 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, which
is used by retail customers, 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 due to an increasing awareness of
container storage benefits: convenience and ground level access at the customer location, security
and low cost.
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 $167 million (AUS$195 million), with an estimated 60% derived from sales of mobile
storage containers. Royal Wolfs management team also anticipates that, as the market matures,
rental revenue 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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Customer familiarity with mobile storage benefits is still relatively low; |
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Suppliers and customers continue to develop further uses for mobile storage containers;
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Industries which use portable storage products continue to grow. |
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 and advertising. 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 |
Portable Container Buildings Market
The portable container buildings market in Australia was estimated to have generated revenue
totaling $848 million (AUS$990 million) during the year ended June 30, 2009, of which approximately
$502 million (AUS$586 million) relates to the markets in which Royal Wolf offers a competing
product, according to reports from IBIS World Industry Report published in January 2010. 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.
I-3
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, which represent a
significant growth opportunity for Royal Wolf. The transportability, security and flexibility of
portable container buildings are highly valued in the mining and construction markets.
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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Nomad
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National |
Atco
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National |
Freight Container Market
Royal Wolfs management team estimates that the freight container market in Australia
generates approximately $33 million (AUS $38 million) in aggregate annual lease and sales revenues.
The growth rate 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. Royal
Wolfs present strategy is to maintain rather than grow its container fleet in this sector.
Competitors include, Cronos and Simply Containers.
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 |
Simply Containers
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National |
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 |
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Double pallet-wide high cube units |
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Hazardous goods containers |
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Refrigerated containers |
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Portable container: buildings:
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Site offices and cabins |
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Workforce accommodation units |
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Luxury accommodation units |
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Restroom blocks |
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Blast-resistant units |
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Specialized office and infrastructure suites |
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Freight Containers:
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Curtain-side containers |
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20-foot and 40-foot Hi-cube containers |
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20-foot and 40-foot two pallet-wide containers |
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Side-opening door containers |
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20-foot bulk containers |
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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 are 18,759 mobile storage containers in the lease fleet. The amount and percentage of
Royal Wolfs total sales and leasing revenues of mobile storage containers for the fiscal year
ended June 30, 2010 were as follows ($ in millions):
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Dollars |
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Percentage |
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Sales |
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53.0 |
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89 |
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Leasing |
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27.8 |
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70 |
% |
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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 are 1,859 portable container buildings in the lease fleet. The amount and percentage of
Royal Wolfs total sales and leasing of portable container building revenues for the fiscal year
ended June 30, 2010 were as follows ($ in millions):
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Dollars |
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Sales |
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4.4 |
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8 |
% |
Leasing |
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5.4 |
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13 |
% |
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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 are 6,309 freight containers in the lease fleet. The amount and percentage of Royal
Wolfs total sales and leasing of freight container revenues for the fiscal year ended June 30,
2010 were as follows ($ in millions):
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Dollars |
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Percentage |
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Sales |
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$ |
1.9 |
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3 |
% |
Leasing |
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6.7 |
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17 |
% |
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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.
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 are standard 20-foot and 40-foot units which Royal Wolf converts, refurbishes
or customizes. Royal Wolf purchases new storage containers directly from container manufacturers.
I-5
Each of the following material suppliers was the source of five percent or more of Royal
Wolfs container purchases during the year ended June 30, 2010:
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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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10 |
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Flex Box |
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New |
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8 |
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Singamas |
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New |
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6 |
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Eastern Container Alliance |
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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. 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 November 2007, Royal Wolf entered into a preferred supply agreement with GE SeaCo. Under
the preferred supply agreement, GE SeaCo has agreed to sell to Royal Wolf 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 360 units were purchased under this contract
during the year ended June 30, 2010.
Branch network
Royal Wolf leases and sells its storage container products from its network of 24 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, 2010:
I-6
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 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 between one month and 15
years, and we believe that satisfactory alternative properties can be found in all of our markets.
Reference is made to Item. 2 Properties for a more detailed description of our leased facilities.
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 the fiscal year ended June 30, 2010. 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 diversity of Royal Wolfs
customer base reduces the business exposure to a significant downturn in any particular industry.
Royal Wolf storage container products provide its customers with a solutions-oriented approach
with high quality equipment, 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 the fiscal year ended June 30, 2010:
I-7
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) and 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 the
market leader in identifying and closing new customers.
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. 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 and Back Office Systems
Our management information systems, including the RMI and Navision software programs 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, 2010, Royal Wolf employed 226 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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76 |
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CSC operations and administration |
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113 |
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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.
I-8
PAC-VAN
Pac-Van competes in the modular space and the mobile storage industries. 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. Mobile
storage generally includes providing customers with secure, temporary storage at their site
locations. 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 leasing operations, diversifying
our product offerings in storage containers and modular buildings, maintaining disciplined cost
controls, reducing indebtedness and eventually completing accretive acquisitions, as follows:
Focus on Leasing Business. We focus on increasing our core leasing business because it
generates predictable, recurring revenues and high profit margins. Pac-Vans management team
strives to optimize leasing rates and lease fleet utilization in the 26 core markets it serves.
Pac-Van branch office system permits it to shift its fleet to branches where customer demand is
greatest, and Pac-Vans planning and sourcing expertise permits it to procure new product on an as
needed basis.
Diversifying Our Product Offerings. We plan to continue to expand the size and breadth of our
lease fleet. We will emphasize expansion of our higher return products, particularly storage
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 permits it to more rapidly adjust to changing
market conditions than many of its larger competitors. This size enables Pac-Van to quickly
introduce storage container products demanded by customers, 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 complete acquisitions that are accretive or offer
other benefits such as expanded customer service or product offerings. Acquisitions, especially
tuck in acquisitions, also allow Pac-Van to leverage the fixed costs of its branch offices with
additional lease fleet that deliver scale and increased profitability.
Industry Overview
Pac-Van competes in two different, but related, segments of the portable services industry:
the modular space segment and the mobile storage segment.
The Modular Building Institute, in its State of the Industry 2006 report, estimated that U.S.
modular space industry dealers earned in excess of $3.0 billion of leasing and sales revenues in
2005. 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 modular space delivers four core benefits: lower costs, flexibility, reusability and timely
solutions. Modular buildings offer customers significant cost savings over permanent construction.
Flexibility and reusability are the hallmarks of modular buildings. Modular products are not site
specific and can be reutilized. It is not unusual to have modular buildings serve a wide variety of
users during their life spans. We believe we are well-positioned to benefit from growth in the
modular space industry.
Pac-Van also competes in the mobile storage industry. Mobile storage is used primarily by
businesses for secure, temporary storage at the customers location. The mobile storage industry
serves a broad range of other industries, including construction, services, retail, manufacturing,
transportation, utilities and government. Mobile storage 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 by providing additional space for higher levels of
inventory, equipment or other goods on an as-needed basis. 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.
I-9
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.
The portable 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.
Business Strengths
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 approximately 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 the fiscal year ended June 30, 2010 (FY 2010), Pac-Van leased or sold its
equipment to over 6,200 customers. In FY 2010, Pac-Vans largest customer accounted for
approximately 5% of its total revenues and Pac-Vans top ten customers accounted for approximately
15% 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.
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 2010, 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.
I-10
Products and Services
Pac-Van provides a broad range of products to meet the needs of its customer base. These
products include modular buildings, mobile offices and storage containers. The following provides a
description of Pac-Vans product lines:
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. Pac-Van procures modular buildings from an established
network of manufacturing partners to meet state building requirements. Modular buildings represent
34% of Pac-Vans lease fleet.
Mobile Offices. Sales and construction offices, also known as field offices, are relocatable,
single-unit structures primarily used 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 construction office models range in size from approximately 160
square feet to 1,000 square feet, and are available in standard 8, 10, 12, and 14 foot widths, and
include air conditioning and heating, lighting, plan tables, shelving, electrical wiring, phone
jacks, and other features normally associated with basic office space. Sales offices range in size
from 384 to 672 square feet and typically come in 12 foot widths. 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. Ground offices are storage
containers that have been modified to include office space with feature similar to those found in
construction offices. Like storage containers, ground level offices (GLOs) typically come in
lengths of 20 feet and 40 feet. Some models combine both office and storage functions. All of
Pac-Vans mobile offices are built, or modified as with ground offices, 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. Mobile offices comprise approximately 59% of
Pac-Vans lease fleet.
Mobile Storage Equipment. Mobile storage equipment is generally classified into the following
product groupings: storage containers, domestic storage containers and 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 are built to the International Organization for
Standardization standards for carrying ocean cargo. Pac-Van purchases new and used storage
containers. Domestic storage containers are generally eight feet wide, ten feet in width 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. Mobile storage equipment comprises
approximately 7% of Pac-Vans rental 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 2010, management estimates that nearly 29% 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.
I-11
Lease Fleet Summary by Number of Units as June 30, 2010:
Lease Fleet Summary by Gross Dollar Value (thousands) at June 30, 2010:
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 2010, average unit
utilization of the lease al fleet was approximately 71% on a gross dollar basis and 69% 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.
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.
I-12
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 2010 represented
approximately 53% of all fleet purchases and the top ten suppliers represented approximately 81% 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. We use 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, 2010:
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.
I-13
Branches are generally headed by a branch manager and branch operations 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 FY2010, Pac-Van
provided its portable storage, mobile office and modular building products to a diversified base of
approximately 6,200 national, regional and local companies in a variety of industries including
construction, industrial, manufacturing, education, service, and government sectors.
In FY2010, Pac-Van generated 65% of its revenues from leasing and 35% 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 8% of its total leasing revenues. The
following chart shows the percentage of revenues generated by different industries in FY 2010:
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 2010,
revenue generated from construction customers was 37% of total revenue, a decrease from 45% in the
year ended June 30, 2009. 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.
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.
I-14
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, 2010, Pac-Vans sales and marketing team consisted of 33 employees. 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. 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.
Employees
As of June 30, 2010, Pac-Van had 181 employees. None of our employees are covered by a
collective bargaining agreement. 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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26 |
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Corporate staff |
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Sales and marketing |
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CSC operations and administration |
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102 |
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I-15
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. 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.
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.
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-16
Executive Officers of the Registrant
The
following information is provided as of June 30, 2010 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 Item 10 of this Annual
Report on Form 10-K, which incorporates by reference to our definitive Proxy Statement for the 2009
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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Age |
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Position |
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Charles E. Barrantes
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58 |
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Executive Vice President and Chief Financial Officer |
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Christopher A. Wilson
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43 |
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General Counsel, Vice President and Secretary |
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Robert Allan
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54 |
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Chief Executive Officer of Royal Wolf |
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Theodore Mourouzis
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47 |
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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-17
Item 1A. Risk Factors
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 ability to repay our indebtedness is dependent on our ability to raise capital that may not be
available.
We are required to pay the U.S.-denominated principal payment of $5.5 million due Bison
Capital in July 2011 by a capital infusion from GFN. There can be no assurances that our current
cash balance will be sufficient to make the principal payment of $5.5 million due Bison Capital in
July 2011. In such event, we may seek to raise additional funds through, among other things, sales
of our debt or equity securities. However, we cannot assure you that any such future financing
would be successful. Our inability to obtain sufficient funding 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.
Reference is made to Note 5 of Notes to Consolidated Financial Statements for more information
regarding our indebtedness to Bison Capital.
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 has 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 are strengthening 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 reported foreign exchange gains and losses on
U.S.-denominated debt and, if the Australian and New Zealand dollars weaken, result in 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 our senior credit facilities and senior subordinated
notes at June 30, 2010. However, if the results of our operations continue to be weak or worsen, we
may be unable to meet the covenants governing the indebtedness of GFN, Pac-Van and Royal Wolf,
which may require our seeking amendments, waivers of covenant compliance or alternative borrowing
arrangements. While we believe our relationships with our senior lenders are good, there is no
assurance that they would consent to such 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.
I-18
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.
As of June 30, 2010, we had outstanding approximately $186.2 million of indebtedness,
primarily under our secured senior credit facilities and secured subordinated notes at Royal Wolf
and Pac-Van. 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. |
Our senior credit and subordinated notes 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 Notes 5 and 13 of Notes to Consolidated Financial Statements for more
information regarding our indebtedness.
Subsequent to July 1, 2011, we may be required to satisfy Bison Capitals put option for Bison
Capitals 13.8% interest in GFN U.S.
We entered into a shareholders agreement with Bison Capital with respect to our 86.2% and
Bison Capitals 13.8% ownership interest in GFN U.S., which indirectly owns Royal Wolf. Under our
shareholders agreement with Bison Capital, at any time after July 1, 2011, Bison Capital has the
option to cause us to purchase from Bison all of its 13.8% outstanding capital stock of GFN U.S. If
Bison Capital exercises its put option, we may be required to take certain actions, such as selling
assets, seeking additional capital (including issuing GFN common stock), or reducing or delaying
capital expenditures and acquisition activity, in order to obtain the necessary capital to satisfy
the payment to Bison Capital. The satisfaction of this contingent obligation or any of these
actions, particularly under unfavorable market conditions, could have a material adverse effect on
our operations and financial condition.
Reference is made to Note 10 of Notes to Consolidated Financial Statements for more
information regarding the shareholders agreement with Bison Capital.
I-19
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 have certain U.S.
dollar-denominated debt at Royal Wolf, including the secured subordinated notes due Bison Capital
and intercompany borrowings, which are re-measured 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 not hedged could have a significant impact in our 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 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 the fiscal year ended June 30, 2010, we recognized an impairment charge to the goodwill
recorded in the Pac-Van acquisition of $7,633,000. 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.
The global economic downturn discussed above is having a negative impact upon our business and
we have responded by making a determined effort to reduce personnel costs, capital expenditures,
discretionary spending and curtail acquisition activity. While this is our approach for the
foreseeable future, we intend to eventually commence pursuing 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 businesss 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 our company.
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.
I-20
Our long-term growth plan includes the expansion of operations into markets outside of the United
States, Australia and New Zealand, including Asia/Pacific and European markets. 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 to enter international markets, including the Asia/Pacific and
European markets, in the future, 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, 2010, there were 72,623,168
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. |
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; |
I-21
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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, we currently 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, 2010, we had outstanding options and warrants to purchase 5,353,533 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 constituted approximately 60% of
Royal Wolf total revenues for the year ended June 30, 2010. 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.
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.
Prior to the year ended June 30, 2009, sales generated approximately 70% of Royal Wolfs
revenue and leasing generated approximately 30% of Royal Wolfs revenue. 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, which aggregated
approximately 43% of Royal Wolfs revenues during the fiscal year ended June 30, 2010. 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.
I-22
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.
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 approximately 37% of Pac-Vans revenues for
the fiscal year ended June 30, 2010. 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.
I-23
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, 2010, 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 storage 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 of modular buildings, mobile offices and storage units constituted approximately 35% of
Pac-Vans total revenues for the fiscal year ended June 30, 2010. Revenues from sales of modular
buildings, mobile offices and storage units 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.
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. 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.
I-24
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.
Item 2. Properties
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 branches maintain an inventory of
mobile storage units available for lease, and some of our branches also provide storage of units
under lease at the branch (on-site storage). Except for the Auckland, New Zealand self-storage
and regional office site, the branch locations are leased. The following table shows information
about our branches by geographic area (Australia and New Zealand). Several branches have multiple
leases of adjoining or contiguous properties. 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 |
|
Altona |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Brisbane |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Brisbane (Mining and Defense) |
|
Leasing and modifications (not a CSC) |
|
|
2008 |
|
Cairns |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Canberra |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
Clayton |
|
Leasing, on-site storage and sales |
|
|
1997 |
|
Darwin |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Geraldton |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
Gold Coast |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Gosford |
|
Leasing, on-site storage and sales |
|
|
2008 |
|
Hobart |
|
Leasing, on-site storage and sales |
|
|
2008 |
|
Hornsby |
|
Head office |
|
|
2004 |
|
Moorebank |
|
Leasing, on-site storage and sales |
|
|
2010 |
|
Newcastle |
|
Leasing, on-site storage and sales |
|
|
2001 |
|
Perth Bayswater |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Perth Bibra Lakes |
|
Leasing, on-site storage and sales |
|
|
2006 |
|
Sunshine |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Tomago |
|
On-site storage and sales (not a CSC) |
|
|
2008 |
|
Townsville |
|
Leasing, on-site storage and sales |
|
|
2005 |
|
Wollongong |
|
Leasing and sales |
|
|
2008 |
|
New Zealand: |
|
|
|
|
|
|
Auckland-Ormiston Rd (owned) |
|
Head office and on-site storage |
|
|
2000 |
|
Auckland-East Tamaki |
|
Leasing and sales |
|
|
2005 |
|
Christchurch |
|
Leasing and sales |
|
|
2002 |
|
Hamilton |
|
Leasing and sales |
|
|
2010 |
|
Silverdale/Albany |
|
Leasing and sales |
|
|
2008 |
|
Tauranga/Bay of Plenty |
|
Leasing and sales |
|
|
2009 |
|
Wellington |
|
Leasing and sales |
|
|
2007 |
|
I-26
We lease all of the locations in The U.S. 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 Pac-Van corporate office shares a
leased property with the Indianapolis branch. The following table shows information about our
branches in the U.S. under lease.
|
|
|
|
|
|
|
Location |
|
Functions/Uses |
|
Year Established |
|
Atlanta, GA |
|
Leasing & Sales |
|
|
2008 |
|
Bakersfield, CA |
|
Leasing & Sales |
|
|
2008 |
|
Charleston, WV |
|
Fleet Storage |
|
|
2007 |
|
Charlotte, NC |
|
Leasing & Sales |
|
|
2005 |
|
Chicago, IL |
|
Leasing & Sales |
|
|
2005 |
|
Cincinnati, OH |
|
Leasing & Sales |
|
|
2008 |
|
Cleveland, OH |
|
Leasing & Sales |
|
|
2008 |
|
Columbus, OH |
|
Leasing & Sales |
|
|
2005 |
|
Dallas, TX |
|
Leasing & Sales |
|
|
2008 |
|
Denver, CO |
|
Leasing & Sales |
|
|
2008 |
|
Elkhart, IN |
|
Fleet Storage |
|
|
2009 |
|
Fontana, CA |
|
Leasing & Sales |
|
|
2008 |
|
Indianapolis, IN |
|
Leasing & Sales, Corp Office |
|
|
1998 |
|
Jacksonville, FL |
|
Leasing & Sales |
|
|
2007 |
|
Kansas City, KS |
|
Leasing & Sales |
|
|
2000 |
|
Las Vegas, NV |
|
Leasing & Sales |
|
|
2006 |
|
Louisville, KY |
|
Leasing & Sales |
|
|
2006 |
|
Memphis, TN |
|
Leasing & Sales |
|
|
1999 |
|
Nashville, TN |
|
Leasing & Sales |
|
|
2001 |
|
Orlando, FL |
|
Leasing & Sales |
|
|
2006 |
|
Phoenix, AZ |
|
Leasing & Sales |
|
|
2009 |
|
Pittsburgh, PA |
|
Leasing & Sales |
|
|
2005 |
|
Salt Lake City, UT |
|
Leasing & Sales |
|
|
2008 |
|
St. Louis, MO |
|
Leasing & Sales |
|
|
2008 |
|
Toledo, OH |
|
Leasing & Sales |
|
|
2008 |
|
Trenton, NJ |
|
Leasing & 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,
2010.
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 connections
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
Common Stock |
|
|
Warrants |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
3.80 |
|
|
$ |
1.00 |
|
|
$ |
2.16 |
|
|
$ |
1.05 |
|
|
$ |
0.34 |
|
|
$ |
0.08 |
|
Third Quarter |
|
|
3.12 |
|
|
|
0.92 |
|
|
|
2.50 |
|
|
|
0.85 |
|
|
|
0.13 |
|
|
|
0.02 |
|
Second Quarter |
|
|
6.49 |
|
|
|
1.88 |
|
|
|
6.40 |
|
|
|
1.59 |
|
|
|
0.75 |
|
|
|
0.03 |
|
First Quarter |
|
|
8.05 |
|
|
|
5.90 |
|
|
|
7.10 |
|
|
|
4.90 |
|
|
|
1.20 |
|
|
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Holders
As of September 3, 2010, there were 12 stockholders of record of our common stock and one
holder of record for each of our units and warrants issued in connection with the rights offering.
We believe that there are hundreds 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, 2010, we had issued 25,900 share and 100 shares of Series A Preferred Stock and
Series B Preferred Stock for total proceeds of $1,295,000 and $100,000, 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, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
1,254,910 |
|
|
$ |
6.65 |
|
|
|
1,245,090 |
|
Equity compensation
plans not approved
by security
holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,254,910 |
|
|
$ |
6.65 |
|
|
|
1,245,090 |
|
|
|
|
|
|
|
|
|
|
|
II-2
Item 6. Selected Financial Data
Our summary historical consolidated financial data set forth below as of and for the year
ended June 30, 2010 and 2009 (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 year ended June 30, 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 and
2006, was derived from the 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, |
|
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Sales |
|
$ |
34,473 |
|
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
75,528 |
|
|
$ |
79,207 |
|
Leasing |
|
|
15,921 |
|
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
70,932 |
|
|
|
77,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,394 |
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,575 |
|
|
|
146,460 |
|
|
|
156,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,412 |
|
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
14,058 |
|
|
|
3,575 |
|
Other expense, net |
|
|
(2,626 |
) |
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(25,177 |
) |
|
|
(13,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
(214 |
) |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
(11,119 |
) |
|
|
(10,217 |
) |
Net income (loss) |
|
|
(428 |
) |
|
|
312 |
|
|
|
288 |
|
|
|
4,554 |
|
|
|
(6,745 |
) |
|
|
(8,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
|
$ |
(0.22 |
) |
|
$ |
(0.64 |
) |
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39 |
|
|
|
(0.22 |
) |
|
|
(0.64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Trade and other receivables, net |
|
$ |
7,451 |
|
|
$ |
13,322 |
|
|
$ |
18,327 |
|
|
$ |
26,402 |
|
|
$ |
25,667 |
|
Inventories |
|
|
5,460 |
|
|
|
5,472 |
|
|
|
21,084 |
|
|
|
22,511 |
|
|
|
19,063 |
|
Lease fleet, net |
|
|
27,773 |
|
|
|
40,928 |
|
|
|
87,748 |
|
|
|
188,915 |
|
|
|
188,410 |
|
Total assets |
|
|
47,903 |
|
|
|
68,788 |
|
|
|
207,861 |
|
|
|
358,696 |
|
|
|
346,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
|
10,789 |
|
|
|
10,452 |
|
|
|
18,731 |
|
|
|
24,657 |
|
|
|
25,246 |
|
Senior and other debt |
|
|
33,681 |
|
|
|
44,170 |
|
|
|
81,252 |
|
|
|
200,304 |
|
|
|
186,183 |
|
Stockholders equity |
|
|
3,018 |
|
|
|
13,040 |
|
|
|
93,731 |
|
|
|
103,174 |
|
|
|
101,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-3
Selected Unaudited Quarterly Financial Data
The following table sets forth unaudited operating data for each quarter of the years ended
June 30, 2010 and June 30, 2009. 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) |
|
|
|
Successor |
|
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 (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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
31,653 |
|
|
$ |
42,601 |
|
|
$ |
34,455 |
|
|
$ |
37,751 |
|
Gross profit |
|
|
4,819 |
|
|
|
4,648 |
|
|
|
3,654 |
|
|
|
4,034 |
|
Operating income |
|
|
1,727 |
|
|
|
5,275 |
|
|
|
5,253 |
|
|
|
1,803 |
|
Net income (loss) |
|
|
(6,668 |
) |
|
|
(2,204 |
) |
|
|
93 |
|
|
|
2,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.36 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.01 |
|
|
$ |
0.11 |
|
Diluted |
|
|
(0.36 |
) |
|
|
(0.06 |
) |
|
|
0.01 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes a non-cash impairment charge to the goodwill recorded in the Pac-Van acquisition
of $7,633 in the fourth quarter. |
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 direct and indirect subsidiaries, including, GFN Mobile
Storage Inc., a Delaware corporation (GFNMS), GFN North America Corp., a Delaware corporation
(GFNNA), and its subsidiary Pac-Van, Inc., an Indiana corporation (which, combined with GFNMS, is
referred to herein as Pac-Van), GFN U.S. Australasia Holdings, Inc., a Delaware corporation (GFN
U.S), its subsidiary GFN Australasia Holdings Pty Limited, an Australian corporation (GFN
Holdings), its subsidiary GFN Australasia Finance Pty Limited, an Australian corporation (GFN
Finance), and its subsidiary RWA Holdings Pty Limited, an Australian corporation ( RWA), and its
subsidiaries. GFN Holdings and its subsidiaries are collectively referred to herein as Royal
Wolf.
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 own 86.2% of the
outstanding capital stock of GFN U.S. and Bison Capital owns 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 modular
buildings, mobile offices and storage containers in the United States.
The economic downturn in the United States, particularly in the construction-related
industries, and the global economy in general had an adverse impact on the Companys operating
results during the year ended June 30, 2010. We responded by reducing indebtedness, personnel
costs, capital expenditures, discretionary spending and curtailing acquisition activity. We
continuously monitor our performance and customer demand levels by identifying and applying best
practices to make our business more efficient. Accordingly, we may continue to reduce headcount or
employee compensation in the areas in which we believe we can achieve greater efficiencies without
affecting customer service or our sales efforts. While this is our approach for the foreseeable
future, 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 eighteen 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, 2010, we had 226 and 184 employees and 26,927 and 10,935 lease fleet
units in the Asia-Pacific area and United States, respectively. We do business in two distinct, but
related industries; modular space and mobile storage, 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, 2010 the mix was
51% sales and 49% leasing.
Our products include the following:
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 and Portable Container Buildings. 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. We also offer portable container buildings,
ground level offices (GLOs), or office containers (which are either modified or
specifically-manufactured shipping containers that are used as mobile offices), and in-plant units,
which are manufactured structures that provide self-contained office space with maximum design
flexibility.
II-5
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.
Results of Operations
Year Ended June 30, 2010 (FY 2010) Compared to Year Ended June 30, 2009 (FY 2009)
The following compares our FY 2010 results of operations with our FY 2009 results of
operations.
Revenues. Revenues increased 7% to $156.3 million in FY 2010 versus $146.4 in FY 2009. This
included an increase of a $2.7 million in revenues at Pac-Van, which we acquired on October 1,
2008, and a $7.2 million increase in revenues in FY 2010 from FY 2009 at Royal Wolf. The
translation effect of the average currency exchange rate, driven by the strengthening in the
Australian dollar to the U.S. dollar in FY 2010 versus FY 2009, caused the increase in total
revenues at Royal Wolf, which otherwise would have shown a reduction of approximately 9% in total
revenues. The economic downturn in both our geographic segments during FY 2010 resulted in a
significant reduction in our overall business, but particularly in the construction-related sector
in the United States and in the mining and defense and transportation sectors in the Asia-Pacific
area. These sectors had an aggregate decline in revenues of approximately $9.9 million and $6.5
million from FY 2009, respectively. Sales and leasing revenues represented 51% and 49% of total
revenues in FY 2010 and 52% and 48% of total revenues in FY 2009, respectively; the more favorable
leasing revenue mix in FY 2010 resulting primarily from our acquisition of Pac-Van.
Sales during FY 2010 amounted to $79.2 million, compared to $75.5 million during FY 2009;
representing an increase of $3.7 million, or 5%. The increase was primarily because sales at Royal
Wolf were $3.4 million higher in FY 2010 from FY 2009 due to the strengthening of the Australian
dollar between periods and by a net sales increase in FY 2010 from FY 2009 of $0.3 million as a
result of the acquisition of Pac-Van. Without the benefit of the translation effect as a result of
the stronger Australian dollar in FY 2010 from FY 2009, Royal Wolfs sales revenues would have
decreased by 10%. In FY 2010, sales in the Asia-Pacific area declined $3.8 million in our national
accounts group (or non-retail operations); primarily because of the reduced activity in the mining
and defense and transportation sectors, and increased $7.2 million in our CSC retail operations
from FY 2009.
The $3.8 million decrease in our national accounts group consisted of a $6.0 million reduction
due to lower prices, which was offset somewhat by a $1.3 million increase due to higher unit sales
and a favorable foreign exchange rate effect of $0.9 million. The decrease in our sales prices was
primarily due to sales of certain mining container units that remain in inventory as a result of a
cancelled leasing order in FY 2009. There are 127 of these units available for sale at June 30,
2010, at a cost of approximately $17,000 each, which we anticipate selling in the range of $19,000
per unit.
The $7.2 million increase in our retail operations consisted of a favorable foreign exchange
rate effect of $7.0 million and a $1.2 million increase from higher unit sales; offset somewhat by
a $1.0 million reduction due to lower prices, reflecting our efforts to reduce fleet inventories in
the current economic environment. The higher unit sales were primarily due to increased demand in
our CSCs in Western Australia and the Northern Territory because of increased oil exploration
activities in those regions.
Leasing revenues during FY 2010 amounted to $77.1 million compared to $70.9 million during FY
2009, representing an increase of $6.2 million, or 9%. The increase was primarily due to net
leasing revenue increases in FY 2010 from FY 2009 of $2.4 million as result of the acquisition of
Pac-Van and $3.8 million at Royal Wolf; which was the result of a favorable foreign exchange rate
effect of $6.2 million ($5.1 million and $1.1 million in our retail business and national accounts
group, respectively) and a $0.3 million increase in lease rates ($0.2 million and $0.1 million in
our retail business and national accounts group, respectively), offset somewhat by a decrease of
$2.7 million in the average total number of units on lease per month ($1.2 million and $1.5 million
in our retail business and national accounts group, respectively). Without the benefit of the
translation effect as a result of the stronger Australian dollar in FY 2010 from FY 2009, Royal
Wolfs leasing revenues would have decreased by 7%.
II-6
At Royal Wolf, average utilization in the retail operations was 80% during FY 2010, as
compared to 77% during FY 2009; and average utilization in the national accounts group operations
was 74% during FY 2010, as compared to 63% during FY 2009. Overall average utilization at Royal
Wolf was 78% in FY 2010 and 76% in FY 2009. The average monthly lease rate of containers in FY
2010 for Royal Wolf was AUS$154, as compared to AUS$150 in FY 2009. Though leasing revenues at
Royal Wolf decreased between the periods primarily because the unit size of our lease fleet has
decreased by 5% since June 30, 2009 as a result of our efforts to curtail expenditures, our overall
average utilization remained steady and our monthly lease rate increased. We believe this is
reflective of our position as the only national company in the mobile storage industry in Australia
and New Zealand. Royal Wolf continually reviews each local market in which it does 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 80%, 67% and 77% and monthly lease rates were $94,
$234 and $909 for containers, mobile offices and modular units, respectively, during FY 2010; as
compared to 84%, 74% and 83% and $107, $268 and $1,084 for containers, mobile offices and modular
units, respectively. The lower monthly lease rates resulted from lower demand and increased
competition, particularly in the construction-related industry in which Pac-Van has approximately
40% of its business. Maintaining utilization rates was of particular importance as under its
senior secured credit facility led by BOA, Pac-Van was required to maintain a minimum composite
utilization rate, as defined, of over 70% at each quarterend. At June 30, 2010, the composite
utilization rate was 72%.
The average value of the Australian dollar against the U.S. dollar strengthened during FY 2010
as compared to FY 2009. The average currency exchange rate of one Australian dollar during FY 2009
was $0.74803 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
$14.1 million in FY 2010 when compared to FY 2009.
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 a net $3.0 million to $61.4 million
during FY 2010 from $58.4 million during FY 2009, which was not proportionate with the increase in
sales of $3.7 million. Our gross profit percentage from sales revenues was 22% during FY 2010,
which deteriorated slightly from 23% in FY 2009, but did receive the benefit of a favorable foreign
currency exchange rate effect on the greater proportion of sales in the Asia-Pacific area.
Otherwise there would have been a greater deterioration in FY 2010 because of the downward
pressures on our margins in the current economic environment.
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
increased by $7.1 million during FY 2010 to $64.1 million from $57.0 million during FY 2009. This
increase included $7.4 million incurred at Pac-Van during the quarter ended September 30, 2009, to
which there was no comparable cost in the quarter ended September 30, 2008 of the prior year since
Pac-Van was not acquired until October 1, 2008. As a percentage of revenues, these operating
expenses increased to 41% in FY 2010 from 39% in FY 2009, reflecting the foreign exchange effect of
the stronger Australian dollar against the U.S. dollar. On an absolute basis, excluding the $7.4
million incurred at Pac-Van during the quarter ended September 30, 2009, the net decrease of $0.3
million was primarily due to our cost-cutting measures implemented during the second half of FY
2009. This cost cutting involved: (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 are higher than Royal
Wolfs percentage as: (1) Royal Wolfs mix of FY 2010 sales to leasing revenue at 60% is higher
than the 35% at Pac-Van, (2) Pac-Van has invested in an office modular fleet which is a lower
margin product line; and (3) Pac-Van has less density in its retail markets.
Impairment of Goodwill. In the fourth quarter of FY2010 we recognized a non-cash impairment
charge of $7.6 million to the goodwill recorded in the Pac-Van acquisition. Reference is made to
Note 2 of Notes to Consolidated Financial Statements for further discussion regarding goodwill.
Depreciation and Amortization. Depreciation and amortization increased by $2.6 million to
$19.6 million during FY 2010 from $17.0 million during FY 2009. The increase was primarily due to
adjustments to fixed assets and identifiable intangible assets as a result of the Pac-Van
acquisition, the effect of net capital expenditures since June 30, 2009 and the translation effect
of the stronger Australian dollar in FY 2010 versus FY 2009. Depreciation and amortization at
Pac-Van during the quarter ended September 30, 2009 totaled $1.4 million. In addition,
depreciation and amortization includes impairment charges to certain intangible assets recorded in
the Pac-Van acquisition of $0.5 million in FY 2010 and $0.7 million in FY 2009. Reference is made
to Note 2 of Notes to Consolidated Financial Statements for further discussion regarding intangible
assets.
II-7
Interest Expense. Interest expense of $16.0 million in FY 2010 was $0.2 million lower than the
$16.2 million in FY 2009. This was due primarily to an overall $1.0 million interest reduction
(including foreign translation effect) at Royal Wolf, caused by a lower effective interest rate and
an unrealized gain on interest rate swap and option contracts totaling $0.2 million in FY 2010
versus an unrealized loss of $2.1 million in FY 2009. Royal Wolfs weighted-average interest rate
(without the effect of the interest rate swap and option contracts) was 10.3% in FY 2010, as
compared to 10.9% in FY 2009. Two small acquisitions in FY 2009 and capital expenditure
requirements for FY 2010 and FY 2009 in the Asia-Pacific area were funded primarily by borrowings
under the senior credit facility with Australia and New Zealand Banking Group Limited (ANZ). The
Pac-Van acquisition, another small acquisition in FY 2009 and capital requirements for FY 2010 and
FY 2009 in the U.S. were funded principally with the assumption of and borrowings under the BOA
senior credit facility and the senior subordinated secured note payable to SPV Capital Funding,
L.L.C. (SPV). Interest expense at Pac-Van, with a weighted-average rate of 5.5%, totaled $5.2
million in FY 2010 (of which $1.3 million was incurred in the quarter ended September 30, 2009); as
compared to 7.0% in FY 2009, including the quarter prior to our acquisition of Pac-Van.
Foreign Currency Exchange. We have 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 could have a significant impact in our 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. As noted above, the average value of the U.S. dollar against the
Australian dollar weakened during FY 2010 as compared to FY 2009 and from June 30, 2009 to June 30,
2010. The currency exchange rate of one Australian dollar at June 30, 2009 was $0.8048 U.S. dollar
compared to $0.8567 U.S. dollar at June 30, 2010. 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. In FY 2009, net unrealized foreign
exchange losses totaled $6.6 million and realized exchange losses totaled $2.8 million; primarily
because of a realized exchange loss of $2.8 million as a result of Royal Wolfs repayment of
intercompany advances totaling $21.5 million in September 2008. We advanced $20.0 million of the
proceeds received from our warrant exercise program in May 2008 to Royal Wolf for the temporary
reduction of long-term borrowings prior to the ultimate use of these proceeds in the acquisition of
Pac-Van on October 1, 2008. Net unrealized gains on forward currency exchange contracts totaled
$0.2 million in FY 2009.
Income Taxes. Our effective income tax benefit rate decreased to 12.3% during FY 2010 from the
FY 2009 effective rate of 39.3% rate, primarily because of the non-deductibility charge 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 is deductible for U.S. income tax reporting
purposes. We are now required to file tax returns in multiple U.S. states as a result of the
Pac-Van acquisition. Reference is made to Note 7 of Notes to Consolidated Financial Statements
for further discussion regarding income taxes.
Noncontrolling Interest. Noncontrolling interest, which represents Bison Capitals 13.8%
interest in Royal Wolf, was a charge of $2.3 million in FY 2010, as compared to a benefit of $3.0
million in FY 2009. As discussed in Note 10 of Notes to Consolidated Financial Statements, we
commenced accreting the redemption value of the Bison Capital put option over the period from July
1, 2009 through June 30, 2011, which resulted in a charge to noncontrolling interest in FY 2010.
In FY 2009, the benefit was due to the substantial net loss incurred at Royal Wolf in FY 2009;
primarily as a result of the unrealized losses on foreign exchange and interest rate swap an option
contracts discussed above.
Net Income Attributable to Common Stockholders. We had a net loss attributable to common
stockholders of $11.4 million during FY 2010, as compared to a net loss of $3.8 million during FY
2009, primarily as a result of the impairment of goodwill and the accretion of the Bison put
option; offset somewhat by the operating profit from Pac-Van in the quarter ended September 30,
2009, the favorable impact of the foreign exchange and forward currency exchange contract gains and
reduced interest expense in FY 2010 versus FY 2009.
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, |
|
|
|
2009 |
|
|
2010 |
|
Net loss |
|
$ |
(6,745 |
) |
|
$ |
(8,956 |
) |
Add |
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(4,374 |
) |
|
|
(1,261 |
) |
Foreign currency exchange (gain) loss and other |
|
|
9,312 |
|
|
|
(1,948 |
) |
Interest expense |
|
|
16,161 |
|
|
|
15,974 |
|
Interest income |
|
|
(296 |
) |
|
|
(234 |
) |
Depreciation and amortization |
|
|
17,045 |
|
|
|
19,619 |
|
Impairment of goodwill |
|
|
|
|
|
|
7,633 |
|
Share-based compensation expense |
|
|
902 |
|
|
|
629 |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
32,005 |
|
|
$ |
31,456 |
|
|
|
|
|
|
|
|
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 produces large increases in profitability. 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), unit utilization rate and overall leverage. In addition, we have certain obligations
and subordinated notes payable to Bison Capital (with our purchase of Royal Wolf) and, subsequent
to June 30, 2010, a subordinated note 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, 2010.
The economic downturn in the U.S., particularly in the construction -related industries, and
the global economy in general had an adverse impact on our operating results during FY 2010. To
offset this adverse effect, we continued to undertake cost-reduction and other measures to be able
to reduce our indebtedness and continue complying with the financial loan covenants of our senior
lenders. During the fourth quarter of FY 2010, we amended our senior credit agreements at Royal
Wolf to, among other things, extend required principal payments during the fiscal year ending June
30, 2011 and establish financial covenants at the ANZ credit facility at more favorable levels. In
addition, 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) that
resulted in net proceeds of $5,800,000.
II-9
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 with Laminar issued by GFN (the
Laminar Note). Borrowings under the PNC Credit Facility and proceeds from both the issuance of
the Laminar Note and our rights offering completed on June 25, 2010 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. This refinancing also resulted in the establishment of less restrictive covenants
through the PNC Credit Facility. The PNC Credit Facility matures on January 16, 2013 and the
Laminar Note matures on July 16, 2013.
Reference is made to Notes 3, 5 and 13 of Notes to Consolidated Financial Statements for more
information regarding our rights offering and indebtedness.
These actions should allow us to be able to satisfy its long-term debt and other liquidity
requirements and to comply with our financial loan covenants for the foreseeable future. However,
if operating results do not improve, or worsen, we may eventually be unable to comply with the
covenants governing our indebtedness; which may require waivers of covenant compliance, amendments
to such agreements or alternative borrowing arrangements. In the event of noncompliance with
covenants, there is no assurance that the senior lenders would consent to such 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. Nor is there any assurance that senior
lenders would not exercise rights that would be available to them, including, among other things,
demanding payment of outstanding borrowings.
As of June 30, 2010, our required principal and other obligations payments (including Bison
Capitals put option) for the year ending June 30, 2011 and the subsequent three years are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30, |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
ANZ senior credit facility (a) |
|
$ |
9,110 |
|
|
$ |
14,160 |
|
|
$ |
48,308 |
|
|
$ |
84 |
|
Bison Capital subordinated notes |
|
|
|
|
|
|
5,500 |
|
|
|
16,176 |
|
|
|
|
|
Bison Capital put option |
|
|
|
|
|
|
12,850 |
|
|
|
|
|
|
|
|
|
BOA senior credit facility (b) |
|
|
|
|
|
|
|
|
|
|
66,600 |
|
|
|
|
|
SPV subordinated note (c) |
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
Other |
|
|
78 |
|
|
|
77 |
|
|
|
68 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,188 |
|
|
$ |
32,587 |
|
|
$ |
156,152 |
|
|
$ |
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects the invoice financing and overdraft facilities totaling $3.5 million as a current
maturity. These should continually roll over and would be fully repaid at the
maturity of the ANZ facility. |
|
(b) |
|
Scheduled to mature in August 2012, this facility was repaid in full in July 2010 as a result
of the Pac-Van refinancing and replaced by the PNC Credit Facility that matures in January
2013. |
|
(c) |
|
Scheduled to mature in February 2013, this note was repaid in full in July 2010 as a result
of the Pac-Van refinancing and replaced in part by the Laminar Note that matures in July 2013. |
As reflected above, unless conditions significantly change, a company-wide capital
restructuring will be required some time before or during the fiscal year ending June 30, 2013, as
the majority of the outstanding indebtedness mature during this period. In the foreseeable future,
however, we have three principal objectives with respect to our liquidity:
1. Reduce overall leverage in each operating entity by minimizing capital expenditures and
using operating cash flow to pay interest and reduce debt.
2. Operate the businesses to meet all loan covenant requirements.
3. Generate sufficient capital, either through operations or external sources, including debt
or equity, to meet loan maturities and the potential payment of the Bison Capital put option.
As a part of achieving these objectives, and depending on our operating performance, we may
require external financing in the foreseeable future to pay the $5.5 million due Bison Capital in
July 2011 and the Bison Capital put option exercisable in September 2011. This put option could be
paid, with Bison Capitals approval, by a combination of cash and common stock. While we believe
such external financing could be derived from various sources, including private individual or
institutional investors, there can be no assurance that we will be successful in raising the
required capital under favorable terms and conditions, if at all.
We currently do not pay a dividend on our common stock and do not intend on doing so in the
foreseeable future.
II-10
Cash Flow for FY 2010 Compared to FY 2009
Our leasing business is capital intensive, and we acquire leasing assets before they generate
revenues, cash flow and earnings. These leasing assets have very 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 retail locations and to add to our breadth of 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.
As we discussed above, during FY 2010 our principal sources of capital consisted of funds
available from the senior secured credit facilities at each of our operating units. We also have a
$1.0 million line of credit with Union Bank and have outstanding senior subordinated notes. In
addition, during FY 2010, we completed a rights offering that resulted in net proceeds of $5.8
million. Supplemental information pertaining to our combined sources and uses of cash is presented
in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2009 |
|
|
2010 |
|
Net cash provided by operating activities |
|
$ |
23,332 |
|
|
$ |
23,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
$ |
(38,793 |
) |
|
$ |
(6,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
$ |
17,831 |
|
|
$ |
(14,839 |
) |
|
|
|
|
|
|
|
Operating activities. Our operations provided net cash flow of $23.8 million during FY 2010,
as compared to $23.3 million during FY 2009. The increase in operating cash flows of $0.5 million
in FY 2010 from FY 2009 was primarily due to non-cash adjustments for: (i) the impairment of
goodwill of $7.6 million in FY 2010, (ii) depreciation and amortization of $19.6 million in FY 2010
versus $17.0 million in FY 2009 and (iii) the additional benefit in deferred income taxes of $3.9
million in FY 2010 versus FY 2009. Cash provided by operating activities is typically enhanced by
the deferral of most income taxes due to the rapid tax depreciation rate of our assets and our
federal and state net operating loss carryforwards. At June 30, 2010 we had a net deferred tax
liability of $13.4 million. Reference is made to Note 7 of Notes to Consolidated Financial
Statements for further discussion regarding income taxes.
These increases were substantially offset by (1) a greater net loss of $9.0 million in FY 2010
versus $6.7 million in FY 2009, (2) non-cash adjustments for: (i) unrealized foreign exchange
gains of $0.6 million in FY 2010 versus an unrealized loss of $6.6 million in FY 2009, (ii)
unrealized gains on interest rate swaps and options of $0.2 million in FY 2010 versus an unrealized
loss of $2.1 million in FY 2009, and (iii) unrealized gains on forward exchange contracts of $1.0
million in FY 2010 versus $0.2 million in FY 2009, and (3) management of cash flows from operating
assets and liabilities of $6.3 million in FY 2010 versus $7.2 million in FY 2009.
Investing Activities. Net cash used by investing activities was $6.5 million for FY 2010, as
compared to $38.8 million for FY 2009. In FY 2009, we used $21.0 million to acquire Pac-Van and to
complete three other small acquisitions. Purchases of property, plant and equipment, or rolling
stock, were reduced to approximately $2.3 million in FY 2010 from $3.5 million in FY 2009, and
purchases of lease fleet declined significantly from $14.3 million in FY 2009 to $4.3 million in FY
2010; despite the acquisition of Pac-Van in the first quarter of FY 2009 and its capital
requirements. In the current economic environment, we are minimizing capital expenditures to
reduce our overall leverage and anticipate our near term investing activities will be primarily
focused on acquiring (a) specific types of units that are not in our fleet and are placed on-rent,
(b) technology and communication improvements for our telephone and computer systems and (c)
delivery equipment whereby we would derive improved customer service levels and cost savings. The
amount of cash that we use during any period in investing activities is almost entirely within
managements discretion. Other than a preferred supply agreement, which requires us to purchase up
to 5,000 containers if offered to us, and the put and call options pertaining to Bison Capitals
minority interest of 13.8% in GFN U.S., 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. Reference is made to Note 10 of Notes to Condensed Consolidated
Financial Statements for a further discussion of our commitments and contingencies.
Financing Activities. Net cash used by financing activities was $14.8 million for FY 2010, as
compared to $17.8 million provided in FY 2009. During the second half of FY 2009, we made debt
reduction a principal objective. In FY 2010, we reduced our outstanding borrowings by $20.3
million, as compared to borrowing $16.4 million in FY 2009. In FY 2010, we completed a rights
offering that resulted in net proceeds of $5.8 million, $4.8 million of which was used in the
Pac-Van refinancing subsequent to June 30, 2010. Reference is made to Note 13 of Notes to
Condensed Consolidated Financial Statements for a further discussion of the Pac-Van refinancing.
Proceeds from our capital issuances and net borrowings were used together with cash flow generated
from operations to primarily fund the acquisition of Pac-Van, as well as three smaller acquisitions
and the expansion of our lease fleet, during FY 2009.
II-11
Asset Management
Receivables and inventories decreased (including foreign translation effect) from $26.4
million and $22.5 million at June 30, 2009 to $25.7 million and $19.1 million at June 30, 2010,
respectively. Effective asset management is always a significant focus for us, particularly in
this current economic environment, 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, 2010, days sales outstanding (DSO) in trade receivables were 43 days
and 53 days for Royal Wolf and Pac-Van, as compared to 49 days and 59 days at June 30, 2009,
respectively.
The net book value of our total lease fleet decreased (including foreign translation effect)
from $188.9 million at June 30, 2009 to $188.4.0 million at June 30, 2010. At June 30, 2010, we
had 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) in our lease fleet, as compared 39,574 units (15,534 units in retail
operations in Australia, 8,190 units in national account group operations in Australia, 4,503 units
in New Zealand, which are considered retail; and 11,347 units in the United States) at June 30,
2009. At those dates, 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) and 27,825 units (11,106 units in retail operations
in Australia, 5,145 units in national account group operations in Australia, 3,494 units in New
Zealand, which are considered retail; and 8,080 units in the United States) were on lease,
respectively.
In the United States, at June 30, 2010 and June 30, 2009, the lease fleet was comprised of
3,800 containers, 6,144 mobile offices and 991 modular units at June 30, 2010; and 4,007
containers, 6,327 mobile offices and 1,013 modular units at June 30, 2009. At those dates, in the
United States, units on lease were comprised of 3,205 containers, 3,973 mobile offices and 731
modular units; and 3,255 containers, 4,061 mobile offices and 764 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 container products, 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 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 against 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, 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. However, the fair value of the Pac-Van
reporting unit was less than the carrying values the net assets at June 30, 2010 and, 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 in the fourth quarter of FY 2010. The Company had not recorded an impairment
charge to goodwill prior to FY 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.
We determined that, as a result of changes in market conditions and other factors in the U.S.,
an impairment charge to the customer base acquired in the Pac-Van acquisition was required to be
recorded at both June 30, 2009 and June 30, 2010; and, as of June 30, 2010, to the trade name. To
be more in line with the expected revenue stream of the customer base, we recorded the FY 2009
impairment charge of $689,000 by revising the method of amortization from a straight-line to an
accelerated basis. The FY 2010 impairment charge to the customer base and trade name of $329,000
and $190,000, respectively, was recorded pursuant to an evaluation, which determined that the
respective fair values were less than the carrying values. These impairment charges were included
as a part of depreciation and amortization.
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 Condensed 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 Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements that could potentially impact us.
Item 7A. 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.
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
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements:
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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, 2010.
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, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. 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 2010 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.
Item 10. 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.
Item 11. 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.
Item 12. 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.
Item 13. 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.
Item 14. 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
Item 15. 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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Deed of Variation No. 3 dated March 30, 2007, which amended and restated the Share Sale Deed dated
September 12, 2006, by and among General Finance Corporation, GFN Australasia Finance Pty. Limited,
Bison Capital Australia LP, and the shareholders of RWA Holdings Pty Limited and certain other parties.
(incorporated by reference to Annex A to Registrants Preliminary Proxy Statement of Schedule 14A filed
April 27, 2007). |
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2.2 |
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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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4.2 |
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Form of Warrant (incorporated by reference to Exhibit 4.3 of Registrants Form S-1, File No. 333-163851). |
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10.1 |
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Unit Purchase Option granted to Morgan Joseph & Co. Inc. dated April 10, 2006 (incorporated by reference
to Exhibit 10.1 of Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
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10.2 |
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Amended and Restated Registration Rights Agreement dated March 3, 2006 by and between the Registrant and
each of Ronald F. Valenta, John O. Johnson, Marc Perez, Lawrence Glascott, David M. Connell, Manuel
Marrero and James B. Roszak (incorporated by reference to Exhibit 10.5 of Registrants Form S-1, File
No. 333-129830). |
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10.3 |
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Form of Indemnification Agreement by and between the Registrant and each of Ronald F. Valenta, John O.
Johnson, Marc Perez, Lawrence Glascott, David M. Connell, Manuel Marrero, James B. Roszak and Charles E.
Barrantes (incorporated by reference to Exhibit 10.7 of Registrants Form S-1, File No. 333-129830). |
IV-1
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Exhibit |
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Number |
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Exhibit Description |
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10.4 |
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2006 Stock Option Plan (incorporated by reference to
Exhibit 10.1 of Registrants Form 10-Q for the quarter
ended September 30, 2006). |
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10.5 |
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Forms of Incentive Stock Option Agreement and
Non-Qualified Stock Option Agreement used under the 2006
Stock Option Plan (incorporated by reference to Exhibit
10.2 of Registrants Form 8-K filed September 12, 2006). |
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10.6 |
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Employment Agreement dated September 11, 2006 between
General Finance Corporation and Charles E. Barrantes
(incorporated by reference to Exhibit 10.3 of Registrants
Form 8-K filed September 12, 2006). |
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10.7 |
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Executive Services Agreement, dated July 4, 2006, between
Royal Wolf Trading Australia Pty Ltd and Robert Allan
(incorporated by reference to Exhibit 10.13 of
Registrants Form 8-K filed September 19, 2007). |
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10.8 |
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Securities Purchase Agreement, dated as of September 13,
2007, among General Finance Corporation, GFN U.S.
Australasia Holdings, Inc., GFN Australasia Holdings Pty
Limited and Bison Capital Australia, L.P. (incorporated by
reference to Exhibit 10.16 of Registrants Form 8-K filed
September 19, 2007). |
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10.9 |
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Senior Secured Subordinated Promissory Note, dated
September 13, 2007, of GFN Australasia Finance Pty Limited
in favor of Bison Capital Australia, L.P. (incorporated by
reference to Exhibit 10.17 of Registrants Form 8-K filed
September 19, 2007). |
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10.10 |
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Form of Deed of Charge, dated as of September 13, 2007,
between each of General Finance Corporation, GFN U.S.
Australasia Holdings, Inc., GFN Australasia Holdings Pty
Limited and GFN Australasia Finance Pty Limited,
respectively, and Bison Capital Australia, L.P.
(incorporated by reference to Exhibit 10.18 of
Registrants Form 8-K filed September 19, 2007). |
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10.11 |
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Warrants, dated September 13, 2007, of General Finance
Corporation in favor of Bison Capital Australia, L.P.
(incorporated by reference to Exhibit 10.19 of
Registrants Form 8-K filed September 19, 2007). |
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10.12 |
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Registration Rights Agreement dated as of September 13,
2007, between General Finance Corporation and Bison
Capital Australia, L.P. (incorporated by reference to
Exhibit 10.20 of Registrants Form 8-K filed September 19,
2007). |
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10.13 |
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Guaranty, dated as of September 13, 2007, by General
Finance Corporation, GFN U.S. Australasia Holdings, Inc.
and GFN Australasia Holdings Pty Limited in favor of Bison
Capital Australia, L.P. (incorporated by reference to
Exhibit 10.21 of Registrants Form 8-K filed September 19,
2007). |
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10.14 |
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Shareholders Agreement dated as of September 13, 2007,
among General Finance Corporation, GFN U.S. Australasia
Holdings, Inc. and Bison Capital Australia, L.P.
(incorporated by reference to Exhibit 10.22 of
Registrants Form 8-K filed September 19, 2007). |
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10.15 |
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Royal Wolf Intercreditor Deed, dated as of September 13,
2007, among General Finance Corporation, Bison Capital
Australia, L.P., Royal Wolf Trading Australia Pty Ltd, GFN
Australasia Finance Pty Ltd, RWA Holdings Pty Ltd, GFN
Australasia Holdings Pty Ltd, Royal Wolf Hi-Tech Pty Ltd,
and Australia and New Zealand Banking Group Limited
(incorporated by reference to Exhibit 10.23 of
Registrants Form 8-K filed September 19, 2007). |
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10.16 |
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Letter of Offer, dated September 10, 2007, to Royal Wolf
Australia Group from Australia and New Zealand Banking
Group Limited (incorporated by reference to Exhibit 10.27
of Registrants Form 8-K filed September 19, 2007). |
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10.17 |
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Cross Guarantee and Indemnity, dated September 13, 2007,
by GFN Australasia Holdings Pty Limited, GFN Australasia
Finance Pty Limited, Royal Wolf Trading Australia Pty
Limited, RWA Holdings Pty Limited and Royal Wolf Hi-Tech
Ltd in favor of Australia and New Zealand Banking Group
Limited (incorporated by reference to Exhibit 10.28 of
Registrants Form 8-K filed September 19, 2007). |
IV-2
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Exhibit |
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Number |
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Exhibit Description |
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10.18 |
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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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10.19 |
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Employment Agreement between General Finance Corporation
and Christopher A. Wilson (incorporated by reference to
Exhibit 10.1 of Registrants Post-Effective Amendment No.
1 to Form S-1 filed January 29, 2008). |
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10.20 |
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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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10.21 |
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Variation Letter between Australia and New Zealand Banking Group Limited and Royal Wolf
Australia Group (incorporated by reference to Exhibit 10.3 of Registrants
Post-Effective Amendment No. 1 to Form S-1 filed January 29, 2008). |
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10.22 |
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Variation Letter between Australia and New Zealand Banking Group Limited and Royal Wolf
Australia Group (incorporated by reference to Exhibit 10.4 of Registrants
Post-Effective Amendment No. 1 to Form S-1 filed March 20, 2008). |
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10.23 |
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13.5% Secured Senior Subordinated Promissory Note by GFN Australasia Finance Pty Ltd
dated May 1, 2008 Limited (incorporated by reference to Exhibit 10.1 of Registrants
Form 8-K filed May 6, 2008). |
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10.24 |
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First Amendment to Securities Purchase Agreement dated May 1, 2008 among Bison Capital
Australia L.P., General Finance Corporation, GFN US Australasia Holdings, Inc., GFN
Australasia Holdings Pty Ltd and GFN Australasia Finance Pty Ltd (incorporated by
reference to Exhibit 10.2 of Registrants Form 8-K filed May 6, 2008). |
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10.25 |
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First Amendment to Shareholders Agreement dated May 1, 2008 among General Finance
Corporation, Bison Capital Australia L.P. and GFN US Australasia Holdings, Inc.
(incorporated by reference to Exhibit 10.3 of Registrants Form 8-K filed May 6, 2008). |
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10.26 |
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Security Agreement dated May 1, 2008 by GFN Australasia Finance Pty Ltd in favor of
Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.4 of
Registrants Form 8-K filed May 6, 2008). |
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10.27 |
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Guaranty dated May 1, 2008 by General Finance Corporation, GFN US Australasia Holdings,
Inc., GFN Australasia Holdings Pty Ltd in favor of Bison Capital Australia, L.P.
(incorporated by reference to Exhibit 10.5 of Registrants Form 8-K filed May 6, 2008). |
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10.28 |
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Stock Pledge Agreement dated May 1, 2008 by GFN Australasia Finance Pty Ltd in favor of
Bison Capital Equity Partners II, L.P. (incorporated by reference to Exhibit 10.6 of
Registrants Form 8-K filed May 6, 2008). |
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10.29 |
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Deed of Amendment and Restatement: Intercreditor Deed dated May 1, 2008 among Australia
and New Zealand Banking Group Limited, General Finance Corporation, GFN US Australasia
Holdings, Inc., Bison Capital Australia, L.P., Royal Wolf Trading Australia Pty Ltd,
GFN Australasia Finance Pty Ltd, RWA Holdings Ltd, GFN Australasia Holdings Pty Ld and
Royal Wolf Hi-Tech Pty Ltd (incorporated by reference to Exhibit 10.7 of Registrants
Form 8-K filed May 6, 2008). |
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10.30 |
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Letter of Offer effective July 3, 2008 among the Royal Wolf Australia Group and ANZ
(incorporated by reference to Exhibit 10.1 of Registrants Form 8-K filed July 3, 2008). |
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10.31 |
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Pledge Agreement dated October 1, 2008 (incorporated by reference to Registrants Form
8-K filed October 7, 2008). |
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10.32 |
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Stockholders Agreement dated October 1, 2008 (incorporated by reference to Registrants
Form 8-K filed October 7, 2008). |
IV-3
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Exhibit |
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Number |
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Exhibit Description |
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10.33 |
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First Amendment to Employment Agreement dated July 22, 2008 between Pac-Van,
Inc. and Theodore M. Mourouzis (incorporated by reference to Registrants Form
8-K filed October 7, 2008). |
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10.34 |
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Letter of Offer dated as of December 17, 2008 among GFN Australasia Holdings Pty
Ltd., GFN Australasia Finance Pty Ltd., RWA Holdings Pty, Ltd., Royal Wolf
Trading Australia Pty Ltd., Royal Wolf Hi-Tech Pty Ltd. and Australia and New
Zealand Banking Group Limited 2008 (incorporated by reference to Exhibit 10.1 of
Registrants Form 8-K filed December 19, 2008). |
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10.35 |
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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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10.36 |
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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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10.37 |
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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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10.38 |
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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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10.39 |
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Letter Agreement dated March 30, 2009 (incorporated by reference to Registrants
Form 8-K filed April 1, 2009). |
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10.40 |
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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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10.41 |
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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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10.42 |
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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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10.43 |
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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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21.1 |
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Subsidiaries of General Finance Corporation |
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23.1 |
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Consent of Independent Registered Public Accounting Firm |
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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 |
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32.2 |
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350 |
IV-4
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: |
/s/ Ronald F. Valenta |
September 24, 2010 |
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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 24, 2010 |
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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 24, 2010 |
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/s/ Lawrence Glascott
Lawrence Glascott
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Chairman of the Board of Directors
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September 24, 2010 |
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/s/ David M. Connell
David M. Connell
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Director
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September 24, 2010 |
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/s/ Manuel Marrero
Manuel Marrero
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Director
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September 24, 2010 |
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/s/ James B. Roszak
James B. Roszak
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Director
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September 24, 2010 |
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/s/ Susan Harris
Susan Harris
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Director
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September 24, 2010 |
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, 2010 and 2009, and the related consolidated statements of
operations, stockholders equity and comprehensive income (loss), 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, 2010 and 2009,
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 24, 2010
F-1
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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|
|
June 30, |
|
|
|
2009 |
|
|
2010 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,346 |
|
|
$ |
4,786 |
|
Trade and other receivables, net of allowance for doubtful accounts of $2,642 and $2,328 at June 30, 2009 and 2010, respectively |
|
|
26,402 |
|
|
|
25,667 |
|
Income taxes receivable |
|
|
30 |
|
|
|
1,071 |
|
Subscription receivables |
|
|
|
|
|
|
1,211 |
|
Inventories |
|
|
22,511 |
|
|
|
19,063 |
|
Prepaid and other expenses |
|
|
1,894 |
|
|
|
2,206 |
|
Lease receivables |
|
|
1,163 |
|
|
|
1,782 |
|
Property, plant and equipment, net |
|
|
10,460 |
|
|
|
10,182 |
|
Lease fleet, net |
|
|
188,915 |
|
|
|
188,410 |
|
Goodwill |
|
|
73,917 |
|
|
|
67,919 |
|
Intangible assets, net |
|
|
30,058 |
|
|
|
24,583 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
358,696 |
|
|
$ |
346,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
$ |
24,657 |
|
|
$ |
25,246 |
|
Unearned revenue and advance payments |
|
|
8,461 |
|
|
|
9,468 |
|
Senior and other debt |
|
|
200,304 |
|
|
|
186,183 |
|
Deferred tax liabilities |
|
|
13,822 |
|
|
|
13,409 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
247,244 |
|
|
|
234,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest (Note 10) |
|
|
8,278 |
|
|
|
10,840 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Cumulative preferred stock, $.0001 par value: 1,000,000 shares authorized; 25,000 and 26,000 shares issued and outstanding (in
series) and stated at liquidation value ($1,386 and $1,438 total liquidation preference at June 30, 2009 and 2010,
respectively) at June 30, 2009 and 2010, respectively |
|
|
1,345 |
|
|
|
1,395 |
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value: 100,000,000 shares authorized; 17,826,052 and 22,023,299 shares outstanding at June 30, 2009
and 2010, respectively |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
105,314 |
|
|
|
111,783 |
|
Subscription receivables |
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
(4,963 |
) |
|
|
(1,571 |
) |
Retained earnings (accumulated deficit) |
|
|
1,476 |
|
|
|
(9,775 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
103,174 |
|
|
|
101,734 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
358,696 |
|
|
$ |
346,880 |
|
|
|
|
|
|
|
|
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, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
Sales |
|
$ |
75,528 |
|
|
$ |
79,207 |
|
Leasing |
|
|
70,932 |
|
|
|
77,102 |
|
|
|
|
|
|
|
|
|
|
|
146,460 |
|
|
|
156,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Cost of sales (exclusive of the items shown separately below) |
|
|
58,373 |
|
|
|
61,366 |
|
Direct costs of leasing operations |
|
|
22,581 |
|
|
|
26,444 |
|
Selling and general expenses |
|
|
34,403 |
|
|
|
37,672 |
|
Impairment of goodwill |
|
|
|
|
|
|
7,633 |
|
Depreciation and amortization |
|
|
17,045 |
|
|
|
19,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
14,058 |
|
|
|
3,575 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
296 |
|
|
|
234 |
|
Interest expense |
|
|
(16,161 |
) |
|
|
(15,974 |
) |
Foreign currency exchange gain (loss) and other |
|
|
(9,312 |
) |
|
|
1,948 |
|
|
|
|
|
|
|
|
|
|
|
(25,177 |
) |
|
|
(13,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
(11,119 |
) |
|
|
(10,217 |
) |
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(4,374 |
) |
|
|
(1,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(6,745 |
) |
|
|
(8,956 |
) |
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
3,028 |
|
|
|
(2,295 |
) |
Preferred stock dividends |
|
|
(62 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(3,779 |
) |
|
$ |
(11,419 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.22 |
) |
|
$ |
(0.64 |
) |
Diluted |
|
|
(0.22 |
) |
|
|
(0.64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
16,817,833 |
|
|
|
17,826,052 |
|
Diluted |
|
|
16,817,833 |
|
|
|
17,826,052 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
Cumulative Preferred |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Earnings |
|
|
Total |
|
|
|
Stock |
|
|
Common Stock |
|
|
Paid-In |
|
|
Subscription |
|
|
Comprehensive |
|
|
(Accumulated |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Receivables |
|
|
Income (Loss) |
|
|
Deficit) |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
|
|
|
$ |
|
|
|
|
13,826,052 |
|
|
$ |
1 |
|
|
$ |
81,688 |
|
|
$ |
|
|
|
$ |
6,787 |
|
|
$ |
5,255 |
|
|
$ |
93,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
1 |
|
|
|
25,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock |
|
|
25,000 |
|
|
|
1,345 |
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of redemption value of noncontrolling interest put option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,745 |
) |
|
|
(6,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,028 |
|
|
|
3,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,750 |
) |
|
|
|
|
|
|
(11,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
25,000 |
|
|
|
1,345 |
|
|
|
17,826,052 |
|
|
|
2 |
|
|
|
105,314 |
|
|
|
|
|
|
|
(4,963 |
) |
|
|
1,476 |
|
|
|
103,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock included with units sold in a rights
offering, net of offering expenses |
|
|
|
|
|
|
|
|
|
|
4,197,247 |
|
|
|
|
|
|
|
6,008 |
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
5,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock |
|
|
1,000 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,956 |
) |
|
|
(8,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,295 |
) |
|
|
(2,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,392 |
|
|
|
|
|
|
|
3,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 |
|
|
26,000 |
|
|
$ |
1,395 |
|
|
|
22,023,299 |
|
|
$ |
2 |
|
|
$ |
111,783 |
|
|
$ |
(100 |
) |
|
$ |
(1,571 |
) |
|
$ |
(9,775 |
) |
|
$ |
101,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
2009 |
|
|
2010 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,745 |
) |
|
$ |
(8,956 |
) |
Adjustments to reconcile net loss to cash flows from operating
activities: |
|
|
|
|
|
|
|
|
Loss on sales and disposals of property, plant and
equipment |
|
|
7 |
|
|
|
76 |
|
Unrealized foreign exchange loss (gain) |
|
|
6,616 |
|
|
|
(586 |
) |
Unrealized gain on forward exchange contracts |
|
|
(157 |
) |
|
|
(958 |
) |
Unrealized loss (gain) on interest rate swaps and options |
|
|
2,057 |
|
|
|
(231 |
) |
Impairment of goodwill |
|
|
|
|
|
|
7,633 |
|
Depreciation and amortization |
|
|
17,045 |
|
|
|
19,619 |
|
Amortization of deferred financing costs |
|
|
256 |
|
|
|
381 |
|
Accretion of interest |
|
|
240 |
|
|
|
240 |
|
Share-based compensation expense |
|
|
902 |
|
|
|
629 |
|
Contributed services |
|
|
130 |
|
|
|
|
|
Deferred income taxes |
|
|
(4,198 |
) |
|
|
(338 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade, subscription and other receivables, net |
|
|
5,659 |
|
|
|
(234 |
) |
Inventories |
|
|
3,525 |
|
|
|
4,546 |
|
Prepaid expenses and other |
|
|
442 |
|
|
|
149 |
|
Trade payables, accrued liabilities and other deferred
credits |
|
|
(2,125 |
) |
|
|
1,848 |
|
Income taxes |
|
|
(322 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
23,332 |
|
|
|
23,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of property, plant and equipment |
|
|
134 |
|
|
|
105 |
|
Business acquisitions, net of cash acquired |
|
|
(20,989 |
) |
|
|
|
|
Purchases of property, plant and equipment |
|
|
(3,531 |
) |
|
|
(2,295 |
) |
Purchases of lease fleet |
|
|
(14,300 |
) |
|
|
(4,297 |
) |
Purchases of intangible assets |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(38,793 |
) |
|
|
(6,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from (repayments on) capital leasing activities |
|
|
241 |
|
|
|
(337 |
) |
Proceeds from (repayments on) senior and other debt borrowings |
|
|
16,416 |
|
|
|
(20,292 |
) |
Proceeds from issuances of units in rights offering |
|
|
|
|
|
|
5,908 |
|
Proceeds from issuances of preferred stock |
|
|
1,236 |
|
|
|
50 |
|
Preferred stock dividends |
|
|
(62 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
17,831 |
|
|
|
(14,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
2,370 |
|
|
|
2,492 |
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of period |
|
|
2,772 |
|
|
|
3,346 |
|
|
|
|
|
|
|
|
|
|
The effect of foreign currency translation on cash |
|
|
(1,796 |
) |
|
|
(1,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
|
$ |
3,346 |
|
|
$ |
4,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
13,417 |
|
|
$ |
11,643 |
|
Income taxes |
|
|
536 |
|
|
|
52 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
On October 1, 2008, the Company issued a subordinated promissory note of $1,500 and common
stock of $25,600 as part of the consideration for the Pac-Van acquisition (see Note 1).
On December 8, 2008, the Company issued preferred stock of $100 as part of the consideration
for a small acquisition (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);
GFN Australasia Holdings Pty Ltd., an Australian corporation (GFN Holdings); GFN Australasia
Finance Pty Ltd, an Australian corporation (GFN Finance); RWA Holdings Pty Limited (RWA), an
Australian corporation, and its 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. Based upon the actual
exchange rate of one Australian dollar to $0.8407 U.S. dollar realized in connection with payments
made upon completion of the acquisition, the purchase price paid to the sellers for the RWA shares
was $64.3 million, including deposits of $1,005,000 previously paid in connection with the
acquisition. The Company paid the purchase price, less the deposits, by a combination of cash in
the amount of $44.7 million plus 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. As a result of this structure, the Company owns 86.2% of the outstanding capital stock of
GFN U.S. and Bison Capital owns 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
The Companys long-term strategy is to acquire and operate businesses in North America, Europe
and the Asia-Pacific area. The acquisition of Pac-Van gave the Company the opportunity to enter
the United States market. 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. Pac-Van leases and sells modular
buildings, mobile offices and storage containers in the United States.
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 $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. The note and
1,133,333 shares of the restricted common stock secure the indemnification obligations for 20
months and 36 months, respectively. Among other things, in connection with the acquisition, the
Company granted options to certain key employees of Pac-Van and to a former stockholder of MOAC at
an exercise price equal to the closing market price of the Companys common stock as of October 1,
2008 (see Note 9).
The total purchase consideration, including the Companys transaction costs of approximately
$0.9 million has been allocated to tangible and intangible assets acquired, including goodwill
(which will not be deductible for tax purposes), and liabilities assumed based on their estimated
fair market values as of October 1, 2008, as follows (in thousands):
|
|
|
|
|
|
|
October 1, 2008 |
|
Fair value of the net tangible assets acquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
1,517 |
|
Trade and other receivables |
|
|
15,035 |
|
Inventories |
|
|
10,145 |
|
Prepaid expenses |
|
|
398 |
|
Property, plant and equipment |
|
|
3,473 |
|
Lease fleet |
|
|
108,134 |
|
Other assets |
|
|
|
|
Trade payables and accrued liabilities |
|
|
(12,880 |
) |
Unearned revenue and advance payments |
|
|
(7,414 |
) |
Senior and other debt |
|
|
(107,600 |
) |
Deferred income taxes |
|
|
(17,405 |
) |
|
|
|
|
Total net tangible assets acquired and liabilities assumed |
|
|
(6,597 |
) |
|
|
|
|
|
|
|
|
|
Fair value of intangible assets acquired: |
|
|
|
|
Customer base |
|
|
4,850 |
|
Trade name |
|
|
2,200 |
|
Deferred financing costs |
|
|
191 |
|
Goodwill |
|
|
46,794 |
|
|
|
|
|
Total intangible assets acquired |
|
|
54,035 |
|
|
|
|
|
Total purchase consideration |
|
$ |
47,438 |
|
|
|
|
|
F-6
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to Note 2 for a discussion of impairment write-downs recognized subsequent
to October 1, 2008 to the carrying value of goodwill and intangible assets acquired.
The accompanying consolidated statements of operations reflect the operating results of the
Company following the date of acquisition of Pac-Van and do not reflect the operating results of
Pac-Van prior to the acquisition date. The following unaudited pro forma information for the year
ended June 30, 2009 assumes the acquisition of Pac-Van occurred at July 1, 2008 (in thousands,
except per share data):
|
|
|
|
|
|
|
Year Ended |
|
|
|
June 30, 2009 |
|
|
|
(Unaudited) |
|
Revenues |
|
$ |
169,102 |
|
|
|
|
|
|
Net loss attributable to stockholders |
|
|
(2,937 |
) |
|
|
|
|
Pro forma net loss per common share: |
|
|
|
|
Basic |
|
$ |
(0.17 |
) |
Diluted |
|
|
(0.17 |
) |
|
|
|
|
The pro forma results are not necessarily indicative of the results that may have
actually occurred had the acquisition taken place on the date noted, or the future financial
position or operating results of the Company. The pro forma adjustments are based upon available
information and assumptions that the Company believes are reasonable. The pro forma adjustments
include adjustments for increased interest expense, as well as increased depreciation and
amortization expense as a result of the application of the purchase method of accounting.
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 2009 and FY 2010 are to the year ended June
30, 2009 and 2010, respectively.
Certain reclassifications have been made to the FY 2009 statements to conform to the current
period presentation, including those resulting from the determination to present a nonclassified
consolidated balance sheet at June 30, 2010 to be consistent and better compare the Companys
financial results with other past and present public reporting companies in the modular space and
storage industries. The Company has no agreements or covenants that require an analysis or
presentation of working capital.
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.
F-7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
Allowance for Doubtful Accounts and Credit Risks
Reference is made to Note 6 for a discussion of the Companys allowance for doubtful accounts
and credit risks.
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, |
|
|
|
2009 |
|
|
2010 |
|
Finished goods |
|
$ |
21,170 |
|
|
$ |
18,840 |
|
Work in progress |
|
|
1,341 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
$ |
22,511 |
|
|
$ |
19,063 |
|
|
|
|
|
|
|
|
Derivative Financial Instruments
Derivative financial instruments include warrants issued as part of the Initial Public
Offering (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 is 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. At the
date of issuance, the Company determined the purchase option and the warrants issued to Bison
Capital had a fair market value of approximately $641,000 and $1,309,000, respectively, using the
Black-Scholes pricing model.
F-8
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-employees, 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 |
|
|
2009 |
|
|
2010 |
|
Land |
|
|
|
|
|
$ |
1,486 |
|
|
$ |
1,599 |
|
Building |
|
40 years |
|
|
|
230 |
|
|
|
247 |
|
Transportation and plant equipment (including capital lease assets) |
|
3 10 years |
|
|
|
9,010 |
|
|
|
11,407 |
|
Furniture, fixtures and office equipment |
|
3 10 years |
|
|
|
3,017 |
|
|
|
2,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,743 |
|
|
|
16,118 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
(3,283 |
) |
|
|
(5,936 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,460 |
|
|
$ |
10,182 |
|
|
|
|
|
|
|
|
|
|
|
|
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.
F-9
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease Fleet
The Company has a fleet of storage 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 against 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, 2009 and 2010.
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, 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, 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.
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 in the fourth quarter of FY 2010. The
Company had not recorded an impairment charge to goodwill prior to FY 2010.
F-10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The change in the balance of goodwill is as follows (in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2009 |
|
|
2010 |
|
Beginning of year |
|
$ |
31,721 |
|
|
$ |
73,917 |
|
Acquired goodwill (including foreign translation effect) |
|
|
42,196 |
|
|
|
1,635 |
|
Impairment of goodwill |
|
|
|
|
|
|
(7,633 |
) |
|
|
|
|
|
|
|
End of year |
|
$ |
73,917 |
|
|
$ |
67,919 |
|
|
|
|
|
|
|
|
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, |
|
|
|
2009 |
|
|
2010 |
|
Trademark and trade name |
|
$ |
2,940 |
|
|
$ |
2,750 |
|
Customer base and lists |
|
|
29,485 |
|
|
|
31,118 |
|
Non-compete agreements |
|
|
5,633 |
|
|
|
5,986 |
|
Deferred financing costs |
|
|
2,019 |
|
|
|
2,319 |
|
Other |
|
|
713 |
|
|
|
874 |
|
|
|
|
|
|
|
|
|
|
|
40,790 |
|
|
|
43,047 |
|
Less accumulated amortization |
|
|
(10,732 |
) |
|
|
(18,464 |
) |
|
|
|
|
|
|
|
|
|
$ |
30,058 |
|
|
$ |
24,583 |
|
|
|
|
|
|
|
|
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. The Company determined that, as a result
of changes in market conditions and other factors in the U.S., an impairment charge to the customer
base acquired in the Pac-Van acquisition (see Note 1) was required to be recorded at both June 30,
2009 and June 30, 2010; and, as of June 30, 2010, to the trade name. The Company, to be more in
line with the expected revenue stream of the customer base, recorded the FY 2009 impairment charge
of $689,000 by revising its method of amortization from a straight-line to an accelerated basis.
The FY 2010 impairment charge to the customer base and trade name of $329,000 and $190,000,
respectively, was recorded pursuant to an evaluation, which determined that the respective fair
values were less than the carrying values. These impairment charges are included as a part of
depreciation and amortization.
The estimated future amortization of intangible assets with finite useful lives as of June 30,
2010 is as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2011 |
|
$ |
5,070 |
|
2012 |
|
|
4,552 |
|
2013 |
|
|
4,093 |
|
2014 |
|
|
3,224 |
|
2015 |
|
|
3,208 |
|
Thereafter |
|
|
1,686 |
|
|
|
|
|
|
|
$ |
21,833 |
|
|
|
|
|
Subsequent expenditures
Subsequent expenditures on capitalized intangible assets are capitalized only when it
increases the future economic benefits of the specific asset to which it relates. All other
expenditures are expensed as incurred.
F-11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2009 and FY 2010 were $848,000 and $950,000, respectively.
Revenue Recognition
The Company leases and sells new and used portable storage 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, 2009 and 2010,
prepaid advertising costs were approximately $191,000 and $220,000, respectively. Advertising
costs expensed were approximately $2,283,000 and $2,478,000 for FY 2009 and FY 2010, 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-12
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, |
|
|
|
2009 |
|
|
2010 |
|
Basic |
|
|
16,817,833 |
|
|
|
17,826,052 |
|
Assumed exercise of warrants |
|
|
|
|
|
|
|
|
Assumed exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
16,817,833 |
|
|
|
17,826,052 |
|
|
|
|
|
|
|
|
Potential common stock equivalents (consisting of units, warrants and stock options)
totaling 8,430,380 and 5,353,533 for FY 2009 and FY 2010, respectively, have been excluded from
the computation of diluted earnings per share because the effect is anti-dilutive.
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.
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. Certain provisions of this pronouncement are required to be adopted retrospectively
for all periods presented. In accordance with these provisions, minority interest is now referred
to as noncontrolling interest and consolidated net income or loss has been recast to include net
income or loss attributable to the noncontrolling interest.
Note 3. Equity Transactions
Warrants Issued in IPO
The Company, in connection with its IPO in April 2006, issued and sold a total of 8,625,000
units. Each unit consisted of one share of common stock and one warrant. In addition, the Company
also issued and sold 583,333 privately-placed warrants to two executive officers for $1.20 per
warrant. Each of the public and privately-placed warrants entitled the holder to purchase from the
Company one share of common stock at an exercise price of $6.00, assuming there was an effective
registration statement, and was redeemable at a price of $0.01 per warrant, under certain
conditions. These warrants expired on June 30, 2010, at which time there were 5,072,380 still
outstanding.
Also in connection with the IPO, the Company sold to the representative of the underwriters
for $100 an option to purchase 750,000 units for $10.00 per unit. These units are identical to the
units issued in the IPO, except that the warrants included in these units have an exercise price of
$7.20. This option may be exercised on a cashless basis and expire on April 5, 2011.
Cumulative Preferred Stock
The Company is 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). 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.
F-13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2010, 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. The Company has agreed to register for
public trading the Cumulative Preferred Stock no later than one year from issuance.
As of June 30, 2010, since issuance, dividends paid or payable totaled $218,000 and $12,000
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.
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 rights were
tradable during the offering period and, among other things, stockholders of record were generally
able to purchase additional rights above their pro rata allocation and non-stockholders were able
to purchase rights not exercised. A total of 8,920,000 rights to purchase 8,920,000 units were
available.
The Company sold a total of 4,197,247 units that resulted, after deducting direct offering
costs of $288,000, in net proceeds of $6,008,000 and the issuance of 4,197,247 shares of common
stock and 4,197,247 warrants to acquire an additional 2,098,623 shares of common stock at an
exercise price of $4.00 per share. As of June 30, 2010, subscriptions receivable from the rights
offering totaled $1,311,000; of which $1,211,000 has been subsequently collected and, accordingly,
has been reflected as an asset in the consolidated balance sheet.
The Company used $4,800,000 of the net proceeds from the rights offering in a refinancing at
Pac-Van subsequent to June 30, 2010 (see Notes 5 and 13).
Note 4. Acquisitions
On July 11, 2008, the Company, through Royal Wolf, purchased the business of NT Container
Services for $1,028,000. The total purchase price has been allocated to tangible and intangible
assets acquired based on their estimated fair market values as of July 11, 2008.
On October 31, 2008, the Company, through Royal Wolf, purchased the business of Ace Container
Services Pty Ltd for $741,000. The total purchase price has been allocated to tangible and
intangible assets acquired based on their estimated fair market values as of October 31, 2008.
On December 8, 2008, the Company, through Pac-Van, purchased the business of Container
Wholesalers for $499,000; including the issuance of 100 shares of Series B 8% Cumulative Preferred
Stock (see Note 3). The total purchase price has been allocated to tangible and intangible assets
acquired based on their estimated fair market values as of December 8, 2008.
F-14
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Senior and Other Debt
The following is a discussion of the Companys significant senior and other debt.
Royal Wolf Senior Credit Facility and Subordinated Notes
Royal Wolf has a senior credit facility, as amended, with Australia and New Zealand
Banking Group Limited (ANZ). The facility 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
aggregate ANZ facility is comprised of various sub-facilities, not all of which provide additional
borrowing availability. As of June 30, 2010, based upon the exchange rate of one Australian dollar
to $0.8567 U.S. dollar and one New Zealand dollar to $0.8133 Australian dollar, borrowings and
availability under the ANZ credit facility totaled $72,589,000 (AUS$84,731,000) and $4,908,000
(AUS$5,729,000), respectively. Principal payments during FY 2010 were required to be a minimum of
AUS$1,250,000 per quarter, with an installment equal to 80% of Free Cash Flow, as defined, paid
within 60 days from June 30, 2010. The minimum principal payments increase to AUS$1,500,000
($1,285,000) per quarter during the year ending June 30, 2011 and vary throughout the scheduled
maturity date of September 14, 2012. Approximately $48,020,000 (AUS$56,052,000) and $10,258,000
(AUS$11,974,000) of the borrowings under the ANZ credit facility at June 30, 2010 bear interest at
ANZs prime rate, plus 3.15% per annum and 4.15% per annum, respectively; with the remaining
borrowings bearing interest at varying rates. As of June 30, 2010, the weighted-average interest
rate was 8.6%; which includes the effect of interest rate swap contracts and options (caps).
The ANZ senior credit facility is subject to certain covenants, including compliance with
specified consolidated senior and total interest coverage and senior and total debt ratios, as
defined, for each financial quarter based on earnings before interest, income taxes, depreciation
and amortization and other non-operating costs (EBITDA), as defined, on a year-to-date or
trailing twelve-month (TTM) basis; and restrictions on the payment of dividends, loans and
payments to affiliates and granting of new security interests on the assets of any of the secured
entities. A change of control in any of GFN Holdings or its direct and indirect subsidiaries
without the prior written consent of ANZ constitutes an event of default under the facility. The
ANZ senior credit facility further provides, among other things, that the $5,500,000 due Bison
Capital (see below) must be paid by a capital infusion from GFN, that at least 50% of the amounts
owed under the Bison Notes be hedged by Royal Wolf for foreign currency exchange risks and that
capital expenditures of property, plant and equipment over $1,713,000 (AUS$2,000,000) in the year
ending June 30, 2011 be approved by ANZ.
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 Note). 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 represent the right to purchase 500,000 shares of
GFNs common stock at an initial exercise price of $8.00 per share, subject to adjustment for stock
splits and stock dividends. Unexercised warrants will expire September 13, 2014. The Bison Note
bears interest at the annual rate of 13.5%, payable quarterly in arrears, and matures on March 13,
2013. The Company may extend the maturity date by one year, provided that it is not then in
default. The Company may prepay the Bison Note at a declining price of 102% of par prior to
September 13, 2010; 101% of par prior to September 13, 2011 and 100% of par thereafter. The
maturity of the Bison Note may be accelerated upon an event of default or upon a change of control
of GFN Finance or any of its subsidiaries. Payment under the Bison Note is secured by a lien on all
or substantially all of the assets of GFN Finance and its subsidiaries, subordinated and subject to
the intercreditor agreement with ANZ. 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 $1,000,000, 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 Note due to an event of default or change of control of GFN Finance
or any of its subsidiaries. As a condition to receiving this premium, Bison Capital must surrender
for cancellation any remaining warrants and warrant shares.
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 Note, except that the maturity of this second note is July 1, 2011 and must be paid
by a capital infusion from GFN (see above). Collectively, these two notes are referred to as the
Bison Notes. At June 30, 2010, the principal balance of the Bison Notes was $21,676,000. The
Bison Notes have covenants that require the maintenance of minimum EBITDA levels, as defined, and a
total debt ratio based on a TTM EBITDA basis; as well as restrictions on capital expenditures.
Pac-Van Senior Credit Facility and Subordinated Note
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. On July
16, 2010, this facility was prepaid in full and replaced by a new senior credit facility formed by
a syndicate of the other three financial institutions in the BOA credit facility (see Note 13).
F-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The BOA credit facility was secured by substantially all the business assets of Pac-Van and
GFNNA, including the assignment of its rights under leasing contracts with customers, and was
available for purchases of rental equipment and general operating purposes. At June 30, 2010,
borrowings under the BOA credit facility totaled $66,600,000, were due on August 23, 2012 and
accrued interest at the lead lenders prime lending rate or its prime lending rate plus 0.25%, or
the LIBOR plus a stated margin ranging from 1.5% to 2.25%, based on Pac-Vans leverage. In
addition, the Company was required to pay an unused commitment fee equal to 0.25% of the average
unused line calculated on a quarterly basis. As of June 30, 2010, the weighted-average interest
rate was 3.3%. The BOA senior credit facility was subject to certain covenants, including
compliance with minimum EBITDA levels, as defined, specified interest coverage, senior and total
debt ratios based on a TTM EBITDA basis, a minimum lease fleet utilization rate, as defined; and,
among other things, restrictions on the payment of dividends, loans and payments to affiliates.
Pac-Van also had a senior subordinated secured note payable to SPV Capital Funding, L.L.C.
(SPV) with a principal balance of $25,000,000 at June 30, 2010. This subordinated note was
scheduled to mature on February 2, 2013, but was repaid on July 16, 2010 in connection with the
refinancing of the Pac-Van senior facility (see above). The subordinated note required quarterly
interest only payments computed at 13.0% per annum and was also subject to the maintenance of
certain financial covenants.
Other
The Company has a credit agreement at GFN, as amended, with Union Bank, N.A. (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) and are due and payable at the earlier of 60
days from the advance date or the facility maturity date of March 31, 2011. 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, 2010, there were no borrowings outstanding under the UB credit
facility.
Other debt totaled $318,000 at June 30, 2010.
Loan Covenant Compliance
The economic downturn in the U.S., particularly in the construction-related industries, and
the global economy in general had an adverse impact on the Companys operating results during FY
2010. To offset this adverse effect, the Company continued to undertake cost-reduction and other
measures to be able to reduce its indebtedness and continue complying with the financial loan
covenants of its senior lenders. The Company during the fourth quarter of FY 2010 amended its
senior credit agreements at Royal Wolf to, among other things, extend required principal payments
during the fiscal year ending June 30, 2011 and establish financial covenants at the ANZ credit
facility at less restrictive levels. Subsequent to June 30, 2010, Pac-Van refinanced the BOA
senior credit facility and subordinated note due SPV (see Note 13). This refinancing also resulted
in the establishment of less restrictive covenants through a new senior credit facility. These
actions should allow the Company to be able to satisfy its indebtedness and other liquidity
requirements. However, if operating results do not improve, or worsen, the Company may eventually
be unable to comply with the covenants governing its indebtedness; which may require waivers of
covenant compliance, amendments to such agreements or alternative borrowing arrangements. In the
event of noncompliance with covenants, there is no assurance that the senior lenders would consent
to such 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, or that our senior lenders would
not exercise rights that would be available to them, including, among other things, demanding
payment of outstanding borrowings.
Scheduled Maturities on Senior and Other Debt
The scheduled maturities for the senior credit facilities senior subordinated notes and other
debt at June 30, 2010 were as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2011 |
|
$ |
9,188 |
|
2012 |
|
|
19,737 |
|
2013 |
|
|
156,152 |
|
2014 |
|
|
152 |
|
2015 |
|
|
31 |
|
Thereafter |
|
|
923 |
|
|
|
|
|
|
|
$ |
186,183 |
|
|
|
|
|
F-16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Financial Instruments
Fair Value Measurements
The Company adopted what is now codified as FASB ASC Topic 820, Fair Value Measurements and
Disclosures, effective July 1, 2008. FASB ASC Topic 820 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.
Exposure to credit, interest rate and currency risks arises in the normal course of the
Companys business. The Company may use derivative financial instruments to hedge exposure to
fluctuations in foreign exchange rates and interest rates. The Company believes it has no material
market or credit risks to its operations, financial position or liquidity as a result of its
commodities and other derivatives activities, including forward-exchange contracts. 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.
Derivative instruments measured at fair value and their classification on the consolidated
balances sheets and consolidated statements of operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Fair Value (Level 2) |
|
Type of Derivative |
|
|
|
|
|
June 30, |
|
Contract |
|
Balance Sheet Classification |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts and
Options (Caps) |
|
Trade payables and accrued liabilities |
|
$ |
(1,587 |
) |
|
$ |
(1,222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Exchange
Contracts |
|
Trade and other receivables |
|
|
|
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Exchange
Contracts |
|
Trade payables and accrued liabilities |
|
|
(656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Derivative |
|
|
|
|
|
Year Ended June 30, |
|
Contract |
|
Statement of Operations Classification |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts and Options (Caps) |
|
Unrealized gain (loss) included in interest expense |
|
$ |
(2,057 |
) |
|
$ |
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
Foreign currency exchange gain and other |
|
|
157 |
|
|
|
958 |
|
|
|
|
|
|
|
|
|
|
|
|
F-17
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2009 and 2010, there were four open interest rate swap contracts and
three open interest rate option (cap) contracts, as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
June 30, 2010 |
|
|
|
Notional Amount |
|
|
Fair Value |
|
|
Notional Amount |
|
|
Fair Value |
|
Swap |
|
$ |
13,279 |
|
|
$ |
(892 |
) |
|
$ |
14,136 |
|
|
$ |
(669 |
) |
Swap |
|
|
1,610 |
|
|
|
(157 |
) |
|
|
1,713 |
|
|
|
(118 |
) |
Swap |
|
|
4,059 |
|
|
|
(369 |
) |
|
|
4,320 |
|
|
|
(277 |
) |
Swap |
|
|
2,873 |
|
|
|
(245 |
) |
|
|
3,091 |
|
|
|
(171 |
) |
Option (Cap) |
|
|
9,658 |
|
|
|
68 |
|
|
|
10,280 |
|
|
|
13 |
|
Option (Cap) |
|
|
1,231 |
|
|
|
1 |
|
|
|
1,852 |
|
|
|
1 |
|
Option (Cap) |
|
|
1,739 |
|
|
|
7 |
|
|
|
1,325 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,449 |
|
|
$ |
(1,587 |
) |
|
$ |
36,717 |
|
|
$ |
(1,222 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Risk
Financial instruments potentially exposing the Company to concentrations of credit risk
consist primarily of receivables. Concentrations of credit risk with respect to receivables are
limited due to the large number of customers spread over a large geographic area in many industry
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
$25,376,000 and $5,757,000 during FY 2009 and at June 30, 2009, respectively; and $21,137,000 and
$3,953,000 during FY 2010 and at June 30, 2010, 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 $958,000 and $588,000 and $625,000 and $947,000 for FY 2009 and FY 2010,
respectively. The translation gain (loss) to the allowance for doubtful accounts for FY 2009 and FY
2010 was ($80,000) and $45,000, respectively; and with the RWNZ and Pac-Van acquisitions, the
Company recorded an allowance for doubtful accounts of $1,904,000 in FY 2009.
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.
F-18
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The Company also has 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 could have 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 2009, net unrealized and realized foreign exchange (losses) totaled
($6,616,000) and ($2,847,000), respectively. In FY 2010, net unrealized and realized foreign
exchange gains totaled $586,000 and $453,000, respectively.
Note 7. Income Taxes
Income (loss) before provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
3,593 |
|
|
$ |
(4,303 |
) |
Asia-Pacific |
|
|
(14,712 |
) |
|
|
(5,914 |
) |
|
|
|
|
|
|
|
|
|
$ |
(11,119 |
) |
|
$ |
(10,217 |
) |
|
|
|
|
|
|
|
The provision (benefit) for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
|
|
|
$ |
(1,041 |
) |
State |
|
|
|
|
|
|
|
|
Asia -Pacific |
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,071 |
) |
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
(1,172 |
) |
|
|
(152 |
) |
State |
|
|
(739 |
) |
|
|
(87 |
) |
Asia-Pacific |
|
|
(2,463 |
) |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
(4,374 |
) |
|
|
(190 |
) |
|
|
|
|
|
|
|
|
|
$ |
(4,374 |
) |
|
$ |
(1,261 |
) |
|
|
|
|
|
|
|
F-19
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax liability are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforwards |
|
$ |
14,308 |
|
|
$ |
19,082 |
|
Deferred revenue and expenses |
|
|
137 |
|
|
|
209 |
|
Accrued compensation and other benefits |
|
|
204 |
|
|
|
441 |
|
Allowance for doubtful accounts |
|
|
670 |
|
|
|
605 |
|
Unrealized exchange gains and losses |
|
|
946 |
|
|
|
597 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
16,265 |
|
|
|
20,934 |
|
Valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
16,265 |
|
|
|
20,934 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated tax depreciation and amortization |
|
|
(28,810 |
) |
|
|
(33,216 |
) |
Other |
|
|
(1,277 |
) |
|
|
(1,127 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(30,087 |
) |
|
|
(34,343 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(13,822 |
) |
|
$ |
(13,409 |
) |
|
|
|
|
|
|
|
At June 30, 2010, Royal Wolf had a U.S. federal net operating loss carryforward of
$46,700,000, which expires if unused during fiscal years 2020 2030, and an Australian net
operating loss carryforward of approximately $21,700,000 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 $27,500,000 acquired in the Pac-Van acquisition is limited 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, 2009 and 2010.
A reconciliation of the U.S. federal statutory rate of 34% to the Companys effective tax rate
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Federal statutory rate |
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
State and Asia-Pacific taxes, net of U.S.
federal benefit and credit |
|
|
(4.4 |
) |
|
|
(4.0 |
) |
Amortization and impairment of goodwill and
intangible assets, net |
|
|
(4.8 |
) |
|
|
24.1 |
|
Nondeductible expenses |
|
|
3.9 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
(39.3 |
)% |
|
|
(12.3 |
)% |
|
|
|
|
|
|
|
Note 8. Related-Party Transactions
The Company has utilized certain accounting, administrative and secretarial services from
affiliates of officers; as well as office space provided by an affiliate of Ronald F. Valenta, a
director and the chief executive officer of the Company.
Effective January 31, 2008, the Company entered into a lease with an affiliate of Mr. Valenta
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 $113,000 and $110,000 in FY 2009 and FY 2010, respectively.
F-20
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective October 1, 2008, the Company entered into a services agreement through June 30, 2009
(the Termination Date) 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 Termination Date. Total charges to the Company for services rendered under this
agreement totaled $234,000 ($63,000 at the corporate office and $155,000, plus out-of-pocket
expenses of $16,000, at the operating subsidiaries) in FY 2009 and $114,000 ($84,000 at the
corporate office and $30,000 at the operating subsidiaries) in FY 2010.
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.
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.
On each of September 11, 2006 (2006 Grant) and December 14, 2007 (2007 Grant), the Company
granted options to two officers of GFN to each purchase 225,000 shares of common stock at an
exercise price equal to the closing market price of the Companys common stock as of that date, or
$7.30 per share and $9.05 per share, respectively, with a vesting period of five years.
On January 22, 2008 (2008 Grant), the Company granted options to certain key employees of
Royal Wolf to purchase 489,000 shares of common stock at an exercise price equal to the closing
market price of the Companys common stock as of that date, or $8.80 per share. The 2008 Grant
consisted of 243,000 options with a vesting period of five years and 246,000 options that vest
subject to a performance condition based on Royal Wolf achieving a certain EBITDA target for FY
2008. The Company initially commenced recognizing compensation expense over the vesting period of
20 months.
In June 2008, the Compensation Committee of the Companys Board of Directors determined that
the full EBITDA target for the 2008 Grant would not be achieved. As a result, the 2008 Grant was
modified whereby one-half of the outstanding options subject to the EBITDA performance criteria
were deemed to have achieved the performance condition. The remaining one-half of these
performance-based options (PB 2008 Grant) were modified on July 23, 2008 (see below) for EBITDA
targets at Royal Wolf pertaining to FY 2009 and FY 2010. At that time, the Company reassessed and
revalued these options and commenced recognizing the changes in share-based compensation on a
prospective basis.
On July 23, 2008 (July 2008 Grant), the Company granted options to certain key employees of
Royal Wolf to purchase 198,500 shares of common stock at an exercise price equal to the closing
market price of the Companys common stock as of that date, or $5.35 per share. The July 2008 Grant
consisted of the PB 2008 Grant (see above) totaling 118,500 options, 40,000 options with a vesting
period of five years and 40,000 options that vest subject to a performance condition based on Royal
Wolf achieving certain EBITDA targets for FY 2009 and FY 2010. The Company initially commenced
recognizing compensation expense over the vesting periods of 2.17 years and 3.17 years for EBITDA
targets in FY 2009 and FY 2010, respectively, pertaining to 79,250 options in each of those vesting
periods. However, it was subsequently determined that the EBITDA targets for both years were
probable of not being achieved and, as result, previously recorded share-based compensation were
reversed in the respective fiscal years; but the related performance-based options were not
officially forfeited until the subsequent quarter ended September 30th.
F-21
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 18, 2008 (September 2008 Grant), the Company granted options to the
non-employee members of its Board of Directors to purchase 36,000 shares of common stock at an
exercise price equal to the closing market price of the Companys common stock as of that date, or
$6.50 per share, with a vesting period of three years.
On October 1, 2008 (October 2008 Grant), the Company granted options to certain key
employees of Pac-Van and to a former stockholder of MOAC, who became a non-employee member of
Companys Board of Directors effective on that date, to purchase 356,000 shares of common stock at
an exercise price equal to the closing market price of the Companys common stock as of that date;
or $6.40 per share. The October 2008 Grant consisted of 154,550 options with a vesting period of
five years, 9,000 options with a vesting period of three years and 192,450 options that vest
subject to performance conditions based on Pac-Van achieving EBITDA and return on asset targets for
2009 and to-be-determined targets for the subsequent four fiscal years. The Company commenced
recognizing share-based compensation expense over the vesting periods ranging from 1.92 years to
5.92 years pertaining to 38,490 options in each of those vesting periods, but it was subsequently
determined that the FY 2009 and FY 2010 fiscal year EBITDA targets were probable of not being
achieved and, as result, previously recorded share-based compensation were reversed in those
respective fiscal years. However, the related performance-based options were not officially
forfeited until the subsequent quarter ended September 30th.
On December 11, 2008 (December 2008 Grant), the Company granted options to a non-employee
member of its Board of Directors to purchase 9,000 shares of common stock at an exercise price
equal to the closing market price of the Companys common stock as of that date, or $1.78 per
share, with a vesting period of three years.
On January 27, 2009 (January 2009 Grant), the Company granted options to certain key
employees of Royal Wolf and Pac-Van to purchase 4,000 shares of common stock at an exercise price
equal to the closing market price of the Companys common stock as of that date, or $1.94 per
share, with a vesting period of five years.
The fair value of the stock options granted under the 2006 Plan was determined by using the
Black-Scholes option-pricing model. The range of the fair value of the stock options granted and
the assumptions used are as follows:
|
|
|
Fair value of stock option |
|
$1.06 $3.94 |
|
|
|
|
|
|
Assumptions used: |
|
|
Risk-free interest rate |
|
1.99% 4.8% |
Expected life (in years) |
|
7.5 |
Expected volatility |
|
26.5% 59.9% |
Expected dividends |
|
|
|
|
|
Under the 2009 Plan, 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 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 will not
be officially forfeited until the quarter ended September 30, 2010.
The weighted-average fair value of the stock options granted to the officers and key employees
was $0.99, determined using the Black-Scholes option-pricing model under the following assumptions:
A risk-free interest rate of 3.0% (average of five and ten-year Treasury bill); an expected life of
7.5 years; an expected volatility of 83.0%; and no expected dividend. At June 30, 2010, the
weighted-average fair value of the stock options granted to the non-employee was $1.02, determined
using the Black-Scholes option-pricing model using the following assumptions: A risk-free interest
rate of 2.9% (average of five and ten-year Treasury bill); an expected life of 9.6 years; an
expected volatility of 82.0%; and no expected dividend.
F-22
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Companys stock option activity and related information as of and for FY 2009
and FY 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
Average |
|
|
|
Options |
|
|
Exercise |
|
|
|
(Shares) |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
921,000 |
|
|
$ |
8.49 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
485,000 |
|
|
|
6.11 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(48,000 |
) |
|
|
7.63 |
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
1,358,000 |
|
|
$ |
7.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2009 |
|
|
177,400 |
|
|
$ |
8.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
|
Options (Shares) |
|
|
Price |
|
|
Term (Years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2010 |
|
|
1,045,127 |
|
|
$ |
7.26 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010 |
|
|
403,960 |
|
|
$ |
8.00 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2010, the intrinsic value was zero as the Companys market price for its common
stock was at $1.25 per share, which is at or below the exercise prices of all of the outstanding
stock options. Also at June 30, 2010, inception-to-date share-based compensation of $2,151,000
related to stock options has been recognized in the statement of operations, with a corresponding
benefit to additional paid-in capital, and there remains $1,587,000 of unrecognized compensation
expense to be recorded on a straight-line basis over the remaining weighted-average vesting period
of 2.3 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.
F-23
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2010 are payable as follows (in
thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2011 |
|
$ |
4,326 |
|
2012 |
|
|
2,815 |
|
2013 |
|
|
1,994 |
|
2014 |
|
|
1,376 |
|
2015 |
|
|
944 |
|
Thereafter |
|
|
1,376 |
|
|
|
|
|
|
|
$ |
12,831 |
|
|
|
|
|
Rental expense on non-cancellable operating leases was $4,204,000 and $5,373,000 in FY 2009
and FY 2010, respectively.
Sales-Type and Operating Fleet Leases
Future minimum payments to be received under sales-type and operating fleet leases at June 30,
2010 are as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2011 |
|
$ |
7,806 |
|
2012 |
|
|
2,234 |
|
2013 |
|
|
1,166 |
|
2014 |
|
|
346 |
|
2015 |
|
|
111 |
|
Thereafter |
|
|
333 |
|
|
|
|
|
|
|
$ |
11,996 |
|
|
|
|
|
Put and Call Options
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 provides 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 is payable in cash or, if mutually agreeable to both the Company
and Bison Capital, paid in GFN common stock or some combination thereof) is the greater of the
following:
(i) the amount equal to Bison Capitals ownership percentage in GFN U.S. (13.8%) multiplied
by the result of 8.25 multiplied by the sum of Royal Wolfs EBITDA for a twelve-month determination
period, as defined, plus all administrative expense payments or reimbursements made by Royal Wolf
to the Company during such period; minus the net debt of Royal Wolf, as defined; or
(ii) the amount equal to the Bison Capitals ownership percentage in GFN U.S. multiplied by
the result of the GFN trading multiple, as defined, multiplied by Royals Wolfs EBITDA for the
determination period; minus the net debt of Royal Wolf; or
(iii) the greater of (1) $12,850,000 or (2) Bison Capitals ownership percentage in GFN U.S.
(or 13.8%) multiplied by the result of 8.25 multiplied by the sum of Royal Wolfs TTM EBITDA
measured at the end of each fiscal quarter through June 30, 2011, as defined.
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 multiplied by Bison
Capitals cost in the GFN U.S. capital stock. Subsequent to July 1, 2012, the Companys call option
purchase price is similar to (i) and (ii) of the Bison Capital put option, except the EBITDA
multiple is 8.75.
F-24
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company accounts 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 has been
reflected as redeemable noncontrolling interest with, prior to July 1, 2009, the corresponding
adjustment to additional paid-in capital determined after the attribution of the net income or loss
of Royal Wolf to noncontrolling interest. As discussed in Note 2, 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 now accretes the redemption value of the
put option over the period from July 1, 2009 through June 30, 2011 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.
Note 11. Detail of Certain Accounts
Trade payables and accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2009 |
|
|
2010 |
|
Trade payables |
|
$ |
14,328 |
|
|
$ |
14,929 |
|
Payroll and related |
|
|
2,762 |
|
|
|
3,017 |
|
Taxes, other than income |
|
|
1,488 |
|
|
|
937 |
|
Fair value of interest swap and option and forward currency exchange contacts |
|
|
2,243 |
|
|
|
1,222 |
|
Accrued interest |
|
|
1,599 |
|
|
|
1,718 |
|
Other accruals |
|
|
2,237 |
|
|
|
3,423 |
|
|
|
|
|
|
|
|
|
|
$ |
24,657 |
|
|
$ |
25,246 |
|
|
|
|
|
|
|
|
F-25
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, |
|
|
|
2009 |
|
|
2010 |
|
Revenues from external customers |
|
|
|
|
|
|
|
|
North America: |
|
|
|
|
|
|
|
|
Sales |
|
$ |
19,657 |
|
|
$ |
19,938 |
|
Leasing |
|
|
34,781 |
|
|
|
37,203 |
|
|
|
|
|
|
|
|
|
|
|
54,438 |
|
|
|
57,141 |
|
|
|
|
|
|
|
|
Asia-Pacific: |
|
|
|
|
|
|
|
|
Sales |
|
|
55,871 |
|
|
|
59,269 |
|
Leasing |
|
|
36,151 |
|
|
|
39,899 |
|
|
|
|
|
|
|
|
|
|
|
92,022 |
|
|
|
99,168 |
|
|
|
|
|
|
|
|
Total |
|
$ |
146,460 |
|
|
$ |
156,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
North America |
|
$ |
6,365 |
|
|
$ |
(4,613 |
) |
Asia-Pacific |
|
|
7,693 |
|
|
|
8,188 |
|
|
|
|
|
|
|
|
Total |
|
$ |
14,058 |
|
|
$ |
3,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
North America |
|
$ |
7 |
|
|
$ |
|
|
Asia-Pacific |
|
|
289 |
|
|
|
234 |
|
|
|
|
|
|
|
|
Total |
|
$ |
296 |
|
|
$ |
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
North America |
|
$ |
4,451 |
|
|
$ |
5,299 |
|
Asia-Pacific |
|
|
11,710 |
|
|
|
10,675 |
|
|
|
|
|
|
|
|
Total |
|
$ |
16,161 |
|
|
$ |
15,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
North America |
|
$ |
347 |
|
|
$ |
520 |
|
Asia-Pacific |
|
|
438 |
|
|
|
109 |
|
|
|
|
|
|
|
|
Total |
|
$ |
902 |
|
|
$ |
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
|
|
|
|
|
|
North America |
|
$ |
|
|
|
$ |
7,633 |
|
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
7,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
North America |
|
$ |
5,729 |
|
|
$ |
6,512 |
|
Asia-Pacific |
|
|
11,316 |
|
|
|
13,107 |
|
|
|
|
|
|
|
|
Total |
|
$ |
17,045 |
|
|
$ |
19,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets |
|
|
|
|
|
|
|
|
North America |
|
$ |
4,539 |
|
|
$ |
575 |
|
Asia-Pacific |
|
|
13,292 |
|
|
|
6,017 |
|
|
|
|
|
|
|
|
Total |
|
$ |
17,831 |
|
|
$ |
6,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
|
2009 |
|
|
2010 |
|
Long-lived assets |
|
|
|
|
|
|
|
|
North America |
|
$ |
112,419 |
|
|
$ |
108,064 |
|
Asia-Pacific |
|
|
86,956 |
|
|
|
90,528 |
|
|
|
|
|
|
|
|
Total |
|
$ |
199,375 |
|
|
$ |
198,592 |
|
|
|
|
|
|
|
|
Intersegment net revenues totaled $432,000 during FY 2009 and $4,151,000 during FY 2010.
F-26
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Subsequent Event
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 and 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 (see Note 5).
PNC Credit Facility
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 (which are less restrictive than those under the
BOA credit facility), 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 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.
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.
Laminar Note
The 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.
F-27
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2009 |
|
|
2010 |
|
|
|
(in thousands) |
|
Cash and cash equivalents |
|
$ |
1,403 |
|
|
$ |
4,054 |
|
Property and equipment, net |
|
|
59 |
|
|
|
41 |
|
Other assets |
|
|
6,186 |
|
|
|
6,547 |
|
Investment and intercompany accounts |
|
|
96,010 |
|
|
|
91,726 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
103,658 |
|
|
$ |
102,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities |
|
$ |
484 |
|
|
$ |
634 |
|
Stockholders equity |
|
|
103,174 |
|
|
|
101,734 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
103,658 |
|
|
$ |
102,368 |
|
|
|
|
|
|
|
|
S-1
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2009 |
|
|
2010 |
|
|
|
(in thousands) |
|
General and administrative expenses |
|
$ |
2,785 |
|
|
$ |
2,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses of subsidiaries |
|
|
(6,984 |
) |
|
|
(12,732 |
) |
Intercompany income |
|
|
2,672 |
|
|
|
1,498 |
|
Interest income |
|
|
7 |
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
(28 |
) |
Other income, net |
|
|
25 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
(4,280 |
) |
|
|
(11,251 |
) |
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(7,065 |
) |
|
|
(13,843 |
) |
Income tax benefit |
|
|
(3,348 |
) |
|
|
(2,592 |
) |
|
|
|
|
|
|
|
Net loss attributable to stockholders |
|
$ |
(3,717 |
) |
|
$ |
(11,251 |
) |
|
|
|
|
|
|
|
S-2
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2009 |
|
|
2010 |
|
|
|
(in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss attributable to stockholders |
|
$ |
(3,717 |
) |
|
$ |
(11,251 |
) |
Equity in losses of subsidiaries |
|
|
6,984 |
|
|
|
12,732 |
|
Unrealized foreign exchange gain |
|
|
(24 |
) |
|
|
(12 |
) |
Depreciation and amortization |
|
|
26 |
|
|
|
72 |
|
Share-based compensation expense |
|
|
347 |
|
|
|
355 |
|
Contributed services |
|
|
130 |
|
|
|
|
|
Deferred income taxes |
|
|
(3,348 |
) |
|
|
(2,592 |
) |
Changes in operating assets and liabilities |
|
|
67 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
|
465 |
|
|
|
(683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(20,238 |
) |
|
|
|
|
Purchases of property and equipment |
|
|
(4 |
) |
|
|
|
|
Purchases of intangible assets |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(20,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds form issuances of units in rights offering |
|
|
|
|
|
|
4,697 |
|
Proceeds from issuances of preferred stock |
|
|
1,236 |
|
|
|
50 |
|
Preferred stock dividends |
|
|
(62 |
) |
|
|
(168 |
) |
Intercompany transfers |
|
|
18,976 |
|
|
|
(1,245 |
) |
|
|
|
|
|
|
|
Net cash
provided by financing activities |
|
|
20,150 |
|
|
|
3,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
266 |
|
|
|
2,651 |
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
|
1,137 |
|
|
|
1,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
1,403 |
|
|
$ |
4,054 |
|
|
|
|
|
|
|
|
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 |