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As filed with the Securities and Exchange Commission on February 8, 2010
Registration No. 333-163851
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GENERAL FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or jurisdiction of
incorporation or organization)
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7359
(Primary Standard Industrial
Classification Code Number)
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32-0163571
(I.R.S. Employer
Identification Number) |
39 East Union Street
Pasadena, California 91103
(626) 584-9722
(Address and telephone number of principal executive offices and principal place of business)
Ronald F. Valenta
Chief Executive Officer
39 East Union Street
Pasadena, California 91103
(626) 584-9722
(Name, address and telephone number of agent for service)
With copies to:
Christopher A. Wilson, Esq.
General Counsel, Vice President & Secretary
39 East Union Street
Pasadena, California 91103
(626) 584-9722
(626) 795-8090 Facsimile
Approximate date of commencement of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective Registration Statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the
following box. o
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 the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b2 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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CALCULATION OF REGISTRATION FEE
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Estimated |
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Title of Each |
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Proposed |
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Proposed |
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Amount of |
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Class of Securities |
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Amount to be |
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Maximum Offering |
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Maximum Aggregate |
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Registration |
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to be Registered |
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Registered (1) |
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Price per Unit (1) |
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Offering Price (4) |
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Fee |
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Transferable Subscription
Rights (Rights) to
purchase units (Units)
consisting of one share of
common stock and a
three-year warrant to
purchase 0.5 shares of
common stock at an
exercise price of $4.00
per share (Warrants) |
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8,920,000 |
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(2) |
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Units underlying the Rights |
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8,920,000 |
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$ |
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$ |
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(3) |
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Common Stock |
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8,920,000 |
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(4) |
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Warrants to Purchase
4,460,000 shares of Common
Stock |
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8,920,000 |
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Common Stock issuable upon
exercise of the Warrants |
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4,460,000 |
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Total |
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$ |
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$ |
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(5) |
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(1) |
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This registration statement relates to (a) the subscription rights
to purchase Units, (b) the Units, (c) the shares of common stock
included in the Unit, (d) Warrants to purchase shares of common
stock and (e) the shares of common stock issuable upon exercise of
the Warrants. |
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(2) |
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The rights are being issued without consideration. Pursuant to
Rule 457(g), no separate registration fee is payable with respect
to the rights being offered hereby since the rights are being
registered in the same registration statement as the securities to
be offered pursuant thereto. |
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(3) |
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Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as
amended. |
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(4) |
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Pursuant to Rule 416, there are also being registered such
additional securities as may be issued to prevent dilution
resulting from stock splits, stock dividends or similar
transactions to the common stock. |
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(5) |
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Calculated pursuant to Rule 457(g) based on the aggregate exercise price of the rights. |
The registrant hereby amends this registration statement on such date or dates as may be necessary
to delay its effective date until the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not permitted.
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Preliminary Prospectus
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Subject To Completion, Dated February , 2010 |
GENERAL FINANCE CORPORATION
8,920,000 Transferable Rights to Subscribe for up to 13,380,000 Shares of
Common Stock and Warrants to Purchase Common Stock
Issuable Upon Exercise of Rights to Subscribe for such Shares and Warrants
We are distributing, at no charge to the holders of our common stock, transferable
subscription rights to subscribe for Units, which we refer to throughout this prospectus as Units,
consisting of one share of our common stock and a three-year warrant to purchase 4,460,000
additional shares of our common stock at an exercise price of $4.00 per share. Our stockholders
will receive one subscription right for every two shares of our common stock held of record as of
5:00 p.m., Eastern Standard Time, on ,2010, the record date.
Each subscription right entitles the holder to subscribe for one Unit at the subscription
price of $ per Unit, which we refer to as the basic subscription right. In addition,
rights holders who fully exercise their basic subscription rights will be entitled, subject to
limitations, to subscribe for additional Units that remain unsubscribed as a result of any
unexercised basic subscription rights, which we refer to as the over-subscription right, at the
subscription price of $ per Unit.
There is no minimum number of Units you must purchase, but you may not purchase fractional
Units. When determining the number of subscription rights you will receive, divide the number of
shares of our common stock you own by two and round down to the next whole number. For example, if
you own 225 shares of our common stock, you will receive 112 subscription rights (225 shares
divided by 2 = 112.5, rounded down to 112 subscription rights, the next whole number), which will
entitle you to subscribe for up to 112 Units under your basic subscription privilege.
The rights will expire at 5:00 p.m., Eastern Standard Time, on March , 2010, which date we
refer to as the expiration date. If the rights offering is undersubscribed, we may extend the
period for exercising the rights in our sole discretion. Any rights not exercised at or before
that time will expire worthless without any payment to the holders of those unexercised
rights. There is no minimum subscription amount required for consummation of the rights offering.
In the event we cancel the rights offering, all subscription payments received by us will be
returned, without interest or penalty, as soon as practicable.
As of February 5, 2010, the aggregate market value of our outstanding common stock held by
non-affiliates was approximately $13,245,870, based on approximately 10,769,000 shares are held
by non-affiliates, and a per share price of $1.23 based on the closing sale price of our common stock
on February 5, 2010.
You should carefully consider whether to exercise your subscription rights before the
expiration date. All exercises of subscription rights are irrevocable. Our board of directors is
making no recommendation regarding your exercise of the subscription rights. Investing in our
securities involves a high degree of risk. In addition, your holdings in our company will be
diluted if you do not exercise the full amount of your basic subscription rights. See Risk
Factors beginning on page 22 of this prospectus.
Our common
stock is quoted on The NASDAQ Global Market under the symbol GFN. The last
reported sale price of our common stock on February 5, 2010 was
$1.23 per share. The
rights are transferable and will be listed for trading on The NASDAQ Global Market under the symbol
GFNR during the course of this offering. We intend to apply to The NASDAQ Global Market for
quotation of our Units, Warrants and common stock included in the Units and issuable upon exercise
of the Warrants. We cannot assure you that our Units, Warrants and common stock included in the
Units and issuable upon exercise of the Warrants will meet the requirements for quotation or that
there will be an active trading market for these securities.
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Proceeds, Before |
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Subscription Price |
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Offering Expenses |
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Expenses, to us |
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Per share |
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$ |
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Total (1) |
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$ |
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$ |
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$ |
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(1) |
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Assumes that the rights offering is fully subscribed and that the maximum
offering amount in the aggregate of $ is subscribed. |
Neither the U.S. Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense. The Units, Warrants and
common stock included in the Units and issuable upon exercise of the Warrants offered hereby and
our common stock are not deposits, savings accounts, or other obligations of a bank or savings
association and are not insured by the FDIC or any other governmental agency.
Our principal executive offices are located at 39 East Union Street, Pasadena,
California 91103. Our telephone number is (626) 584-9722. If you have any questions or need
further information about this rights offering, please contact MacKenzie Partners, Inc., our
information agent for the rights offering at (212) 929-5500 (call collect) or (800) 322-2885 (toll
free) or via email at generalfinancerights@mackenziepartners.com.
The
date of this prospectus is February ,
2010
ABOUT THIS PROSPECTUS
You should rely only on the information contained in or incorporated by reference into this
prospectus or any supplement. We have not authorized anyone else to provide you with different
information. You should not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date on the front of those documents.
References in this prospectus to we, us, our or the Company refer to General Finance
Corporation, a Delaware corporation, and its direct and indirect subsidiaries, including GFN North
America Corp., a Delaware corporation, which we refer to as GFNNA, and its subsidiary Pac-Van,
Inc., an Indiana corporation which we refer to as Pac-Van, GFN Mobile Storage Inc., a Delaware
corporation which we refer to as GFNMS, GFN U.S. Australasia Holdings, Inc., a Delaware
corporation which we refer to as GFN U.S., its subsidiary GFN Australasia Holdings Pty Limited,
an Australian corporation which we refer to as GFN Holdings, its subsidiary GFN Australasia
Finance Pty Limited, an Australian corporation, which we refer to as GFN Finance, and its
subsidiary RWA Holdings Pty Limited, an Australian corporation which we refer to as RWA. RWA and
its subsidiaries are collectively referred to herein as Royal Wolf.
We obtained statistical data, market data and other industry data and forecasts used
throughout this prospectus from market research, publicly available information and industry
publications. Industry publications generally state that they obtain their information from
sources that they believe to be reliable, but they do not guarantee the accuracy and completeness
of the information. Similarly, while we believe that the statistical data, industry data and
forecasts and market research are reliable, we have not independently verified the data, and we do
not make any representation as to the accuracy of the information. We have not sought the consent
of the sources to refer to their reports appearing in this prospectus.
This prospectus contains trademarks, trade names, service marks and service names of the
Company and its subsidiaries.
We have not authorized any dealer, agent or other person to give any information or to make
any representation other than those contained or incorporated by reference in this prospectus and
any accompanying prospectus supplement. You must not rely upon any information or representation
not contained or incorporated by reference in this prospectus or an accompanying prospectus
supplement. This prospectus and the accompanying prospectus supplement, if any, do not constitute
an offer to sell or the solicitation of an offer to buy any securities other than the registered
securities to which they relate, nor do this prospectus and the accompanying prospectus supplement
constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction
to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You
should not assume that the information contained in this prospectus and the accompanying prospectus
supplement, if any, is accurate on any date subsequent to the date set forth on the front of the
document or that any information we have incorporated by reference is correct on any date
subsequent to the date of the document incorporated by reference, even though this prospectus and
any accompanying prospectus supplement is delivered or securities are sold on a later date.
-ii-
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
The following are examples of what we anticipate may be common questions about the rights
offering. The answers are based on selected information from this prospectus. The following
questions and answers do not contain all of the information that may be important to you and may
not address all of the questions that you may have about the rights offering. This prospectus
contains more detailed descriptions of the terms and conditions of the rights offering and provides
additional information about us and our business, including potential risks related to the rights
offering, our common stock and our business. Exercising the rights and investing in our securities
involves a high degree of risk. We urge you to carefully read the section entitled Risk Factors
beginning on page 22 of this prospectus and all other information included in this prospectus in
its entirety before you decide whether to exercise your rights.
What is the rights offering?
We are distributing, at no charge, to holders of our shares of common stock transferable
subscription rights to subscribe for Units consisting of one share of our common stock and a
three-year Warrant to purchase 0.5 additional shares of our common stock at an exercise price of
$4.00 per share. You will receive one subscription right for every two shares of our common stock
held of record by you as of 5:00 p.m., Eastern Standard Time, on , 2010, the record
date. Each subscription right entitles the holder to a basic subscription right and an
over-subscription privilege, which are described below. The subscription rights will be tradeable
and listed for trading on the NASDAQ Global Market under the symbol GFNR during the course of
this offering. The shares of common stock to be issued as a component of the Units in the rights
offering, like our existing shares of common stock, will be traded on the NASDAQ Global Market
under the symbol GFN. We intend to apply for quotation of the subscription rights, Units and
Warrants to be issued as components of the Units in the rights offering. The subscription rights,
Units and the Warrants do not currently trade on the NASDAQ Global Market or on any other exchange.
What is the basic subscription right?
The basic subscription right gives our stockholders the opportunity to purchase Units at a
subscription price of $ per Unit for each two shares of common stock you own. We have granted to
you, as a stockholder of record on the record date, one subscription right for each two shares of
our common stock you owned at that time.
There is no minimum number of Units you must purchase, but you may not purchase fractional
Units. When determining the number of subscription rights you will receive, divide the number of
shares of our common stock you own by two and round down to the next whole number. For example, if
you own 225 shares of our common stock, you will receive 112 subscription rights (225 shares
divided by two = 112.5, rounded down to 112 subscription rights, the next whole number), which will
entitle you to subscribe for up to 112 Units under your basic subscription privilege.
You may exercise all or a portion of your basic subscription rights, or you may choose not to
exercise any subscription rights at all. However, if you exercise less than your full basic
subscription right, you will not be entitled to purchase shares under your over-subscription
privilege.
If you hold a General Finance Corporation stock certificate, the number of Units you may
purchase pursuant to your basic subscription right is indicated on the enclosed rights certificate.
If you hold your shares of common stock in the name of a broker, dealer, custodian bank, or other
nominee who uses the services of the Depository Trust Company (DTC), you will not receive a rights
certificate. Instead, DTC will issue one subscription right to your nominee record holder for each
two shares of our common stock that you own, rounded down to the next whole number, at the record
date. If you are not contacted by your nominee, you should contact your nominee as soon as
possible.
What is the over-subscription privilege?
In the event that you purchase all of the Units available to you pursuant to your basic
subscription right, you may also choose to purchase any Units that are not purchased by our other
stockholders through the exercise of their basic subscription rights. You should indicate on your
rights certificate, or the form provided by your nominee if your shares are held in the name of a
nominee, how many additional Units you would like to purchase pursuant to your over-subscription
privilege. If sufficient Units are available, we will seek to honor your over-subscription request
in full. If, however, the number of oversubscription requests exceeds the number of Units
available, we will allocate the available Units pro rata among the stockholders exercising the
over-subscription privilege in proportion to the number of shares of common stock owned by such
stockholder on the record date, relative to the number of shares owned on the record date by all
stockholders exercising the over-subscription privilege. If the pro-rated amount of Units allocated
to you in connection with your over-subscription right is less than your over-subscription request,
then the excess funds held by us on your behalf will be returned to you, without interest, as soon
as practicable after the rights offering has expired and all prorating calculations and reductions
contemplated by the terms of the rights offering have been effected, and we will have no further
obligations to you. We also retain the right to limit the exercise of over-subscription privileges
if such exercise would cause a change of control, as defined in the agreements governing the
indebtedness of our subsidiaries Pac-Van and Royal Wolf.
1
In order to properly exercise your over-subscription privilege, you must deliver the
subscription payment related to your over-subscription privilege prior to the expiration of the
rights offering. Because we will not know the total number of unsubscribed Units prior to the
expiration of the rights offering, if you wish to maximize the number of Units you purchase
pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal
to the aggregate subscription price for the maximum number of Units that may be available to you (
i.e. , for the maximum number of Units available to you, assuming you exercise all of your basic
subscription rights and are allotted the full amount of your over-subscription). See The Rights
Offering The Subscription Rights Over-Subscription Privilege.
Any excess subscription payments received by us will be returned, without interest or penalty,
as soon as practicable.
Why are we conducting the rights offering?
We are conducting the rights offering for the primary purpose of reducing debt and for general
corporate purposes. See Use of Proceeds.
How much money will the Company raise as a result of the rights offering?
Assuming full participation in the rights offering, we estimate that the net proceeds from the
rights offering will be approximately $ after deducting expenses related to this offering payable
by us estimated at approximately $ . We may decide to close the rights offering and accept such
proceeds of the basic subscription rights and over-subscription rights as we have received as of
the expiration date of the rights offering whether or not they are sufficient to meet the
objectives we state in this prospectus or other objectives that we may set. We will raise no more
than $ in this offering. See Risk Factors. Completion of this offering is not subject to us
raising a minimum offering amount and proceeds may be insufficient to meet our objectives, thereby
increasing the risk to investors in this offering.
Are we pursuing other initiatives to improve our capital position?
Yes. We have undertaken several initiatives to improve our capital position. These initiatives
include, but are not limited to, reductions in discretionary spending, capital expenditures and
staff. We intend to continue to explore additional initiatives to improve our capital position in
light of the turbulent economic environment and our desire to preserve capital.
How was the $ per Unit subscription price determined?
The $ per Unit subscription price was determined by our board of directors based, in part, on
the per share value of the common stock.
In determining the subscription price, our board of directors considered many factors,
including the historical and current market price of our common stock, the fact that holders will
have an oversubscription right, the terms and expenses of this offering relative to other
alternatives to raising capital, the size of this offering and the general condition of the
securities markets.
We did not seek or obtain an opinion of financial advisors in establishing the subscription
price. The subscription price will not necessarily be related to our book value, tangible book
value, net worth or any other established criteria of fair value and may or may not be considered
the fair value of our common stock to be offered in the rights offering. You should not assume or
expect that, after the rights offering, our shares of common stock will trade at or above the
equivalent component of the subscription price in any given time period.
What are the material terms of the Warrants offered in this rights offering?
The Warrants that we are offering in this rights offering will be a three-year Warrant to
purchase 0.5 shares of our common stock at an exercise price of $4.00 per share, subject to our
right to call the Warrants under certain conditions.
Am I required to exercise all of the subscription rights I receive in the rights offering?
No. You may exercise any number of your subscription rights, or you may choose not to exercise
any subscription rights. If you do not exercise any subscription rights, the number of shares of
our common stock you own will not change. However, if you choose not to exercise your subscription
rights, your ownership interest in General Finance Corporation may be diluted by other stockholder
purchases (to the extent we receive any subscriptions in this rights offering). In addition, if you
do not exercise your basic subscription right in full, you will not be entitled to participate in
the over-subscription privilege, subject to our right to limit the exercise of the
over-subscription right to prevent a change of control, as defined in the agreements governing
the indebtedness of Pac-Van and Royal Wolf. See Risk Factors If you do not exercise all of your
subscription rights, your percentage ownership in General Finance Corporation will be diluted.
2
How soon must I act to exercise my subscription rights?
If you received a rights certificate and elect to exercise any or all of your subscription
rights, we must receive your completed and signed rights certificate and payments prior to the
expiration of the rights offering, which is , 2010, at 5:00 p.m., New York Time. If
you hold your shares in the name of a broker, dealer, custodian bank or other nominee, your nominee
may establish a deadline prior to 5:00 p.m. Eastern Standard Time, on , 2010 by which
you must provide it with your instructions to exercise your subscription rights. Although our board
of directors may, in its discretion, extend the expiration of the rights offering, we currently do
not intend to do so. Our board of directors may cancel or amend the rights offering at any time. In
the event that the rights offering is cancelled, all subscription payments received will be
returned, without interest or penalty, as soon as practicable.
Although we will make reasonable attempts to provide this prospectus to our stockholders, the
rights offering and all subscription rights will expire at 5:00 p.m., Eastern Standard Time on
, 2010, whether or not we have been able to locate each person entitled to subscription
rights.
May I transfer my subscription rights?
The subscription rights may be transferred or assigned during the subscription period. If your
shares are held of record by a broker, custodian bank or other nominee on your behalf, you may sell
your subscription rights by contacting your broker, custodian bank or other nominee through which
you hold your common stock. If you are a record holder of a subscription rights certificate, you
may transfer your subscription rights through the subscription agent, in which case, you must
deliver your properly executed subscription rights certificate, with appropriate instructions, to
the subscription agent. The subscription agent will only facilitate subdivisions, transfers or
sales of subscription rights until 5:00 p.m., Eastern Standard Time, on March , 2010, [three
business days prior] to the scheduled March , 2010 expiration date of this rights offering. You
may also choose to sell your subscription rights through a broker, custodian bank or other nominee.
We intend to apply for quotation of the subscription rights on The NASDAQ Global Market under the
symbol GFN beginning on or about February , 2010, until 4:00 p.m., Eastern Standard Time, on
March , 2010, the last business day prior to the scheduled expiration date of this rights
offering.
Are we requiring a minimum subscription to complete the rights offering?
No. There is no individual minimum purchase requirement in the rights offering and we are not
requiring a minimum subscription to complete the rights offering. However, because we are not
issuing fractional Units, you must own at least two shares of our common stock as of the record
date in order to subscribe for one Unit in the rights offering.
If other stockholders or holders of the rights elect to purchase the Units, your ownership
interest in General Finance Corporation may be diluted as a result of these purchases if you do not
exercise your subscription rights.
In addition, our board of directors reserves the right to cancel the rights offering for any
reason, including if we do not receive aggregate subscriptions that we believe will satisfy our
capital plans.
Can the board of directors cancel, amend or extend the rights offering?
Yes. Our board of directors may decide to cancel, amend or terminate the rights offering at
any time before the expiration of the rights offering and for any reason. If our board of directors
cancels or terminates the rights offering, any money received from subscribing stockholders will be
returned, without interest or penalty, as soon as practicable. We also reserve the right to amend
or modify the terms of the rights offering. We further have the right to extend the rights offering
and the time for exercising your subscription rights, although we do not presently intend to do so.
Has our board of directors made a recommendation to our stockholders regarding the rights offering?
No. Our board of directors is making no recommendation regarding your exercise of the
subscription rights. Stockholders who exercise subscription rights risk investment loss on new
money invested. We cannot predict the price at which our shares of common stock will trade and
there is currently no public market for the Rights, the Units or the Warrants. The market price for
our common stock is below the equivalent price of the common stock that we are offering as a
component of the Units in this rights offering. The market price for our common stock may remain at
an amount below the equivalent component of the subscription price, and, if you purchase Units at
the subscription price, you may not be able to sell those shares of common stock in the future at
the equivalent price or a higher price. You are urged to make your decision based on your own
assessment of our business and financial condition, our prospects for the future, the terms of the
rights offering and the information contained in, or incorporated by reference into, this
prospectus. See Risk Factors for a discussion of some of the risks involved in investing in our
common stock.
3
How do I exercise my subscription rights if I own shares in certificate form?
If you hold a General Finance Corporation stock certificate and you wish to participate in the
rights offering, you must take the following steps:
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deliver payment to us before 5:00 p.m., Eastern Standard Time, on , 2010; and |
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deliver a properly completed and signed rights certificate to us before 5:00 p.m., Eastern
Standard Time, on , 2010. |
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In certain cases, you may be required to provide additional documentation or signature guarantees.
Please follow the delivery instructions on the rights certificate. You are solely responsible
for completing delivery to us of your subscription documents, rights certificate and payment. We
urge you to allow sufficient time for delivery of your subscription materials to us so that they
are received by us by 5:00 p.m., Eastern Standard Time, on , 2010. WE WILL NOT
ACCEPT ANY SUBSCRIPTIONS THAT WE RECEIVE AFTER THIS TIME UNLESS WE ELECT TO EXTEND THE OFFERING.
If you send a payment that is insufficient to purchase the number of Units you request, or if
the number of Units you request is not specified in the forms, the payment received will be applied
to exercise your subscription rights to the fullest extent possible based on the amount of the
payment received, subject to the availability of Units under the over-subscription privilege and
the elimination of fractional Units.
What should I do if I want to participate in the rights offering, but my shares are held in the
name of a broker, dealer, custodian bank or other nominee?
If you hold your shares of common stock through a broker, dealer, custodian bank or other
nominee, then your nominee is the record holder of the shares you own. The record holder must
exercise the subscription rights on your behalf. If you wish to purchase Units through the rights
offering, you should contact your broker, dealer, custodian bank or nominee as soon as possible.
Please follow the instructions of your nominee. Your nominee may establish a deadline that may be
before the expiration date that we have established for the rights offering.
When will I receive my new shares of common stock and Warrants?
If you purchase Units in the rights offering you will receive your new shares of common stock
and Warrants as soon as practicable after the closing of the rights offering.
After I send in my payment and rights certificate, may I cancel my exercise of subscription rights?
No. All exercises of subscription rights are irrevocable unless the rights offering is
terminated, even if you later learn information that you consider to be unfavorable to the exercise
of your subscription rights. You should not exercise your subscription rights unless you are
certain that you wish to purchase Units in the rights offering.
Are there any conditions to completing the rights offering?
No, there are no conditions to completion of the rights offering.
What effects will the rights offering have on our outstanding common stock, preferred stock and
Warrants?
As of February 5, 2010, we had 17,826,052 shares of our common stock issued and outstanding,
25,900 shares of Series A Preferred Stock, 100 shares of Series B Preferred Stock and warrants and
unit option to purchase 7,072,380 shares of common stock. The number of shares of our common stock
and Warrants that we will issue in this rights offering through the exercise of subscription rights
will depend on the number of Units that are subscribed for in the rights offering. We could,
depending on the number of Units that are subscribed for in the offering (and assuming the exercise
of all Warrants issued in the offering), have a maximum of approximately 31,206,000 shares of
common stock outstanding after completion of the rights offering.
The issuance of Units in the rights offering may dilute, and thereby reduce, your
proportionate ownership in General Finance Corporation if you do not exercise your entire basic
subscription right.
How much will General Finance Corporation receive from the rights offering?
If all of the subscription rights (including all over-subscription privileges) are exercised
in full by our stockholders, we expect the gross proceeds from the rights offering to be
approximately $ million. If no subscription rights are exercised by our stockholders, we would
receive no proceeds from the offering. We are offering shares in the rights offering to
stockholders with no individual minimum purchase requirement.
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Are there risks in exercising my subscription rights?
Yes. The exercise of your subscription rights involves risks. Exercising your subscription
rights involves the purchase of additional shares of our common stock and warrants to purchase our
common stock and should be considered as carefully as you would consider any other equity
investment. Among other things, you should carefully consider the risks described under the heading
Risk Factors in this prospectus and in the documents incorporated by reference in this
prospectus.
Will the officers, directors and significant stockholders of the Company be exercising their
rights?
Our officers, directors and greater than 5% beneficial stockholders may participate in this
offering, but none of our officers, directors or greater than 5% beneficial stockholders are
obligated to so participate.
If the rights offering is not completed, will my subscription payment be refunded to me?
Yes. We will hold all funds we receive in a segregated bank account until completion of the
rights offering. If the rights offering is not completed, all subscription payments received by us
will be returned, without interest or penalty, as soon as practicable. If you own shares in street
name, it may take longer for you to receive your subscription payment because we will return
payments through the record holder of your shares.
What fees or charges apply if I purchase Units in the rights offering?
We are not charging any fee or sales commission to issue subscription rights to you or to
issue shares or warrants to you if you exercise your subscription rights. If you exercise your
subscription rights through a broker, dealer, custodian bank or other nominee, you are responsible
for paying any fees your record holder may charge you.
What are the material U.S. federal income tax consequences of exercising my subscription rights?
For U.S. federal income tax purposes, you should not recognize income or loss in connection
with the receipt or exercise of subscription rights in the rights offering. You should consult your
tax advisor as to your particular tax consequences resulting from the rights offering. For a
detailed discussion, see Material U.S. Federal Income Tax Considerations.
Who is the subscription agent for the rights offering?
The subscription agent is Continental Stock Transfer & Trust Company. The address for delivery
to the subscription agent is as follows:
By Mail/Commercial Courier/Hand Delivery:
Continental Stock Transfer & Trust Company
Attn: Reorganization Department
17 Battery Place, 8th Floor
New York, NY 10004
Your delivery to an address other than the address set forth above will not constitute valid
delivery and, accordingly, may be rejected by us.
To whom should I send my forms and payment?
If your shares are held in the name of a broker, dealer or other nominee, then you should send
your subscription documents, rights certificate and subscription payment to that record holder. If
you are the record holder, then you should send your subscription documents, rights certificate and
subscription payment by hand delivery, first class mail or courier service to:
Continental Stock Transfer & Trust Company
Attn: Reorganization Department
17 Battery Place, 8th Floor
New York, NY 10004
You are solely responsible for completing delivery to us of your subscription documents,
rights certificate and payment. We urge you to allow sufficient time for delivery of your
subscription materials to us.
Who should I contact if I have other questions?
If you have any questions regarding General Finance Corporation or the rights offering,
completing a rights certificate or submitting a payment in the rights offering, please contact
MacKenzie Partners, Inc., our information agent for the rights offering at
(212) 929-5500 (call collect) or (800) 322-2885 (toll free) or via email at
generalfinancerights@mackenziepartners.com.
5
PROSPECTUS SUMMARY
The following summary contains information about General Finance Corporation and the rights
offering. For a more complete understanding of this offering, you should read the entire prospectus
carefully, including the risk factors. You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer is not permitted. It does
not contain all of the information that may be important to you in making a decision to purchase
our Units, Warrants and common stock. For a more complete understanding of General Finance
Corporation and the offering of its Units, Warrants and common stock, we urge you to read this
entire prospectus and the documents incorporated by reference carefully, including the Risk
Factors sections and our financial statements and the notes to those statements incorporated by
reference herein.
References in this prospectus to we, us, our or the Company refer to General Finance
Corporation, a Delaware corporation, and its direct and indirect subsidiaries, including GFN North
America Corp., a Delaware corporation, which we refer to as GFNNA, and its subsidiary Pac-Van,
Inc., an Indiana corporation which we refer to as Pac-Van, GFN Mobile Storage Inc., a Delaware
corporation which we refer to as GFNMS, GFN U.S. Australasia Holdings, Inc., a Delaware
corporation which we refer to as GFN U.S., its subsidiary GFN Australasia Holdings Pty Limited,
an Australian corporation which we refer to as GFN Holdings, its subsidiary GFN Australasia
Finance Pty Limited, an Australian corporation, which we refer to as GFN Finance, and its
subsidiary RWA Holdings Pty Limited, an Australian corporation which we refer to as RWA. RWA and
its subsidiaries are collectively referred to herein as Royal Wolf.
Company Overview
Our strategy and business plan is to acquire rental services and specialty finance businesses
in North America, Europe and the Asia-Pacific area. We currently have two operating subsidiaries,
Royal Wolf and Pac-Van that 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.
On September 13, 2007, we acquired Royal Wolf. We paid $64.3 million to acquire Royal Wolf.
The purchase price consisted of $44.7 million of cash and shares of common stock of GFN U.S.,
constituting 13.8% of the outstanding capital stock of GFN U.S. following the issuance. We issued
the shares of common stock of GFN U.S. to Bison Capital Australia, L.P., which we refer to as
Bison Capital, as one of the sellers of Royal Wolf. Following the acquisition, we own 86.2% of
the outstanding capital stock of GFN U.S., and Bison Capital owns the remaining 13.8% of the
outstanding capital stock of GFN U.S. Through its indirect subsidiary GFN Finance, GFN U.S. owns
all of the outstanding capital stock of Royal Wolf.
On October 1, 2008, we acquired Pac-Van, Inc., or Pac-Van, through a merger with Mobile Office
Acquisition Corp., or MOAC, the parent company of Pac-Van, and the Companys wholly-owned
subsidiary, GFN North America Corp, or GFNA. To purchase all of the capital stock of MOAC we paid
$19.4 million in cash, issued 4,000,000 shares of restricted common stock valued at $7.50 under the
merger agreement and caused GFNA to issue a $1.5 million 20-month subordinated promissory note. We
also assumed the outstanding senior indebtedness of Pac-Van.
Royal Wolf
Royal Wolf is the leading provider in Australia and New Zealand of portable storage
containers, portable container buildings and freight containers, which we refer to collectively as
storage container products. Royal Wolf leases and sells storage container products through its 24
CSCs located in every state in Australia and in the North and South Islands of New Zealand. We
believe Royal Wolf has the largest lease fleet of storage container products in Australia and New
Zealand. Royal Wolf is the only portable container lease and sales company with CSCs in all major
business centers in Australia and New Zealand and, as such, is the only storage container products
company in Australia and New Zealand with a national infrastructure and work force.
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Royal Wolfs storage container products are used by a broad range of industries. Our
storage container products provide secure, accessible temporary storage for a diverse client base
of over 19,000 large and small customers who conduct business in industries that include mining,
road and rail, construction, moving and storage, manufacturing, transportation and defense. 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 strategy focused on growing our leasing operations. Historically, Royal
Wolfs revenue mix has been approximately 70% sales and approximately 30% leasing. We believe a
leasing business with a fleet of storage container products has the following advantages:
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recurring revenues from leases with an average duration of more than 12-15 months; |
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long useful asset lives exceeding 25 years with low maintenance and high residual values; |
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the ability to leverage the relatively fixed costs of our CSCs to service a large fleet
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incremental leasing operating margins in excess of 50%. |
Business Strengths of Royal Wolf
Royal Wolf is the leading provider of storage container products in Australia and New Zealand.
We believe this leading position is based upon the following strengths:
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Market Leader. We believe Royal Wolf is the market leader in
Australia and New Zealand for storage container products. As of
December 31, 2009, Royal Wolf had a lease fleet of approximately
27,400 storage container products and a national network of 24
CSCs located in every state in Australia and in the North and
South Islands of New Zealand. |
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Diverse Customer Base. Royal Wolfs portable units provide secure,
accessible temporary storage for a diverse client base of over
19,000 customers that include large and small mining companies,
road and rail businesses, construction companies, moving and
storage providers, manufacturers, transportation businesses and
the Australian military. |
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Experienced Management Team. Royal Wolf has an experienced senior
management team. Robert Allan, the chief executive officer of
Royal Wolf, has 25 years of experience in the equipment leasing
industry. The eight members of the senior management team of Royal
Wolf have an average of over ten years of experience in the
equipment leasing industry. We believe the experience of this
management team will be critical to growing Royal Wolfs business. |
Business Strategy of Royal Wolf
Our business strategy consists of the following:
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 throughout Australia and New
Zealand. The container storage and portable 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 use for mobile storage, domestic freight movement and
portable building applications is increasing, we believe there are many more uses for our storage
container products 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 branch locations 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 container units we lease from our existing branches to both new
and repeat customers as well as changing the billing methodologies that are represented in the U.S.
market, such as billing in advance, a 28-day billing cycle, fuel surcharges and a damage waiver
program. Historically, we have been able to generate strong internal growth within our existing
markets through sales and marketing programs designed to increase brand recognition, expand market
awareness of the uses of mobile storage and differentiate our products from our competitors.
Launch Enhanced and Innovative Products. We continue to enhance our existing products to meet
our customers needs and requirements. We have introduced new products and features that expand the
applications and overall market for our storage products. For example, in 2005 we introduced a
10-foot wide storage unit that has proven to be a popular product with our customers. In 2005, we
also introduced a new accommodation unit used in mining camps. In 2007-2008, we introduced
specialized products for the construction and engineering sectors as well as a blast resistant
container unit for the refinery and energy sector.
Leverage our Infrastructure through Acquisitions. Our branch network infrastructure covers a
broad geographic area and is capable of serving additional volume at minimal levels of additional
fixed costs. Our objective is to add volume by organically growing the lease fleet in these
locations and through acquisitions. Asset purchases of tuck in competitors to existing branches
or adding newly acquired fleets with branch locations 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.
Pac-Van
Pac-Van competes in both the modular space industry and the mobile storage sector. Mobile
storage is used primarily by businesses for secure, temporary storage at the customers location.
The mobile storage industry serves a broad range of industries, including construction, services,
retail, manufacturing, transportation, utilities and government.
We are pursuing a strategy focused growing our leasing operations, diversifying our product
offerings in storage containers and mobile offices, maintaining disciplined cost controls and
completing accretive acquisitions.
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Business Strengths of Pac-Van
Pac-Van is a recognized provider of modular buildings, mobile offices and mobile storage
products on a national, regional and local basis in the U.S., Pac-Van 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 service
industry. Pac-Vans branch offices serve 18 of the 50 largest Metropolitan Statistical Areas or
MSAs. In the U.S. 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. The following map shows the locations of Pac-Vans branch
offices as of December 31, 2009.
Highly 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. Pac-Van believes that the diversity of its business limits the impact on Pac-Van
of changes in any given customer, geography or end-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 by reacting
quickly and effectively to satisfy their needs. 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.
Significant Cash Flow Generation and Discretionary Capital Expenditures. Pac-Van has
consistently generated significant cash flow from operations by maintaining high utilization rates
and increasing the yield of its lease fleet. Pac-Vans yield equals its lease and lease related
revenues divided by the total number of units in its lease fleet. 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 meet
or exceed customer expectations and industry standards. The following chart shows the composition
of Pac-Vans lease fleet as of January 31, 2010:
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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 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.
Business Strategy of Pac-Van
Pac-Vans business strategy consists of the following:
Focus on Portable Storage Leasing Business. We focus on increasing our core leasing
business because it generates predictable, recurring revenues and high profit margins. Pac-Van
continues to use its experience and management team to attain the best leasing rates and lease
fleet utilization in each of the 36 states it serves. Pac-Van branch office system permits it to
rapidly shift its fleet of 11,000 units to branches where customer demand is greatest, and
Pac-Vans planning and sourcing expertise permit it to emphasize the portable storage products with
the best utilization.
Diversifying Our Product Offerings. We plan to continue to expand the size and breadth
of our lease fleet. We will emphasize expansion of the core product of our lease fleet: the storage
container. 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 largest competitors. This size enables Pac-Van to more
rapidly introduce storage container products demanded by customers, curtail 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 trailers.
Accretive Acquisitions. Pac-Van will continue 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.
Additional Information
Our principal executive offices are located at 39 East Union Street, Pasadena, California
91103 and our telephone number is (626) 584-9722.
10
The Rights Offering
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Securities Offered
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We are distributing to you, at no charge, one transferable subscription
right for each two shares of our common stock that you owned as of 5:00
p.m., Eastern Standard Time, on , 2010, the record date,
either as a holder of record or, in the case of shares held of record
by brokers, dealers, custodian banks, or other nominees on your behalf,
as a beneficial owner of such shares. If the rights offering is fully
subscribed, of which no assurance can be given, we expect the gross
proceeds from the rights offering to be approximately $ million. |
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Basic Subscription Right
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The basic subscription right will entitle you to purchase one Unit at a
subscription price of $ . A Unit consists of one share of our
common stock and a three-year Warrant to purchase an additional 0.5
shares of our common stock at an exercise price of $4.00 per share. |
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There is no minimum number of Units you must purchase, but you may not
purchase fractional Units. When determining the number of subscription
rights you will receive, divide the number of shares of our common
stock you own by two, and round down to the next whole number. For
example, if you own 225 shares of our common stock, you will receive
112 subscription rights (225 shares divided by 2 = 112.5, rounded down
to 112 subscription rights, the next whole number), which will entitle
you to subscribe for up to 112 Units under your basic subscription
privilege. |
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Over-Subscription Privilege
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In the event that you purchase all of the Units available to you
pursuant to your basic subscription right, you may also choose to
subscribe for a portion of any Units that are not purchased by our
stockholders through the exercise of their basic subscription rights.
You may subscribe for these Units pursuant to your over-subscription
privilege, subject to the limitations described below. We also retain
the right to limit the exercise of over-subscription privileges if such
exercise would cause a change of control, as defined in the agreements
governing the indebtedness of our subsidiaries Pac-Van and Royal Wolf. |
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Subscription Price
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$ per Unit, payable in cash. To be effective, any payment related to
the exercise of a subscription right must clear prior to the expiration
of the rights offering. |
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Record Date
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5:00 p.m., Eastern Standard Time, on , 2010. |
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Expiration of the Rights Offering
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5:00 p.m., Eastern Standard Time, on , 2010. |
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Use of Proceeds
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We intend to use the proceeds of the rights offering to reduce our
indebtedness and for general corporate purposes. |
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Non-Transferability of Rights
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The subscription rights may be sold, transferred or assigned and will
be listed for trading on the NASDAQ Global Market or on any other stock
exchange or market. |
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No Revocation
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All exercises of subscription rights are irrevocable, even if you later
learn of information that you consider to be unfavorable to the
exercise of your subscription rights. You should not exercise your
subscription rights unless you are certain that you wish to purchase
additional Units at a subscription price of $ per Unit. |
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Material U.S. Federal Income Tax
Consequences
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For U.S. federal income tax purposes, you should not recognize income
or loss upon receipt or exercise of a subscription right. You should
consult your own tax advisor as to the tax consequences to you of the
receipt, exercise or lapse of the subscription rights in light of your
particular circumstances. |
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Extension, Cancellation and
Amendment
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Although we do not presently intend to do so, we have the option to
extend the rights offering and the period for exercising your
subscription rights. Our board of directors may cancel the rights
offering at any time prior to the expiration date of the rights
offering for any reason. In the event that the rights offering is
cancelled, all subscription payments received by us will be returned,
without interest or penalty, as soon as practicable. We also reserve
the right to amend or modify the terms of the rights offering at any
time. |
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Procedures for Exercising Rights
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To exercise your subscription rights, you must take the following steps: |
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If you are a registered holder of our common stock, you must deliver payment
and a properly completed rights certificate to Continental Stock Transfer &
Trust Company so that we receive these items before 5:00 p.m., Eastern
Standard Time, on , 2010. You may deliver the documents and
payments by hand delivery, first class mail or courier service. If first
class mail is used for this purpose, we recommend using registered mail,
properly insured, with return receipt requested. |
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If you are a beneficial owner of shares that are registered in the name of a
broker, dealer, custodian bank or other nominee, or if you would rather an
institution conduct the transaction on your behalf, you should instruct your
broker, dealer, custodian bank or other nominee to exercise your subscription
rights on your behalf. Please follow the instructions of your nominee, who
may require that you meet a deadline earlier than 5:00 p.m., Eastern Standard
Time, on , 2010. |
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Information Agent
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MacKenzie Partners, Inc. |
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Questions
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If you have any questions or need further information about this rights
offering, please contact MacKenzie Partners, Inc., our information agent for
the rights offering, at (212) 929-5500 (call collect) or (800) 322-2885
(toll-free) or via email at generalfinancerights@mackenziepartners.com. |
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Shares of Common Stock
Outstanding Before the Rights
Offering
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17,826,052 shares of our common stock were outstanding as of February 5, 2010. |
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Shares Outstanding After
Completion of the Rights
Offering
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Assuming all Units are sold in the rights offering, we expect approximately
26,746,000 shares of our common stock and Warrants to purchase 4,460,000
shares of our common stock will be outstanding immediately after completion
of the rights offering. |
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Fees and Expenses
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We will pay the expenses related to the rights offering. |
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The NASDAQ Global Market
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Our shares of common stock are currently listed for trading on the NASDAQ
Global Market under the ticker symbol GFN. |
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Risk Factors
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Before you exercise your subscription rights to purchase our securities, you
should carefully consider risks described in the section entitled Risk
Factors, beginning on page 22 of this prospectus. |
12
THE RIGHTS OFFERING
The Subscription Rights
We are distributing, at no charge to the holders of our common stock, transferable
subscription rights to subscribe for Units, consisting of one share of our common stock and a
three-year warrant to purchase 0.5 additional shares of our common stock at an exercise price of
$4.00 per share. Our stockholders will receive one subscription right for every two shares of our
common stock held of record as of 5:00 p.m., Eastern Standard Time, on
, 2010, the record date. Pursuant to the terms of this offering, the rights may only be
exercised for a maximum of Units, or $ million of gross subscription proceeds
Each subscription right entitles the holder to a basic subscription right and an
over-subscription privilege.
Basic Subscription Right. With your basic subscription right, you may purchase one Unit,
consisting of one share of our common stock and a three-year warrant to purchase 0.5 additional
shares of our common stock at an exercise price of $4.00 per share, subject to delivery of the
required documents and payment of the subscription price of $ per Unit, prior to the expiration of
the rights offering. You may exercise all or a portion of your basic subscription right, or you may
choose not to exercise any of your subscription rights. If you do not exercise your basic
subscription rights in full, you will not be entitled to purchase any Units under your
over-subscription privilege.
There is no minimum number of Units you must purchase, but you may not purchase fractional
Units. When determining the number of subscription rights you will receive, divide the number of
shares of our common stock you own by two, and round down to the next whole number. For example, if
you own 225 shares of our common stock, you will receive 112 subscription rights (225 shares
divided by two = 112.5, rounded down to 112 subscription rights, the next whole number), which will
entitle you to subscribe for up to 112 Units under your basic subscription privilege. Any excess
subscription payments received by us will be returned, without interest, as soon as practicable
following the expiration of the rights offering.
We will deliver certificates representing shares of our common stock and warrants or credit
your account at your record holder with shares of our common stock and Warrants that you purchased
with the basic subscription rights as soon as practicable after the rights offering has expired.
Over-Subscription Privilege. If you purchase all of the Units available to you pursuant to
your basic subscription right, you may also choose to purchase a portion of any Units that are not
purchased by other stockholders through the exercise of their basic subscription rights. If
sufficient Units are available, we will seek to honor the over-subscription requests in full. If,
however, over-subscription requests exceed the number of Units available, we will allocate the
available Units pro rata among the stockholders exercising the over-subscription privilege in
proportion to the number of shares of common stock owned by such stockholder on the record date,
relative to the number of shares owned on the record date by all stockholders exercising the
over-subscription privilege. If this pro rata allocation results in any stockholder receiving a
greater number of Units than the stockholder subscribed for pursuant to the exercise of the
over-subscription privilege, then such stockholder will be allocated only that number of Units for
which the stockholder oversubscribed, and the remaining Units will be allocated among all other
stockholders exercising the over-subscription privilege on the same pro rata basis described
above. The proration process will be repeated until all Units have been allocated.
In order to properly exercise your over-subscription privilege, you must deliver the
subscription payment related to your over-subscription privilege prior to the expiration of the
rights offering. Because we will not know the total number of unsubscribed Units prior to the
expiration of the rights offering, if you wish to maximize the number of Units you purchase
pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal
to the aggregate subscription price for the maximum number of Units that may be available to you (
i.e. , payment for the maximum number of Units available to you under your basic subscription right
and the full amount of your over-subscription).
We can provide no assurances that you will actually be entitled to purchase the number of
Units issuable upon the exercise of your over-subscription right in full at the expiration of the
rights offering. We will not be able to satisfy any orders for Units pursuant to the
over-subscription privilege if all of our stockholders exercise their basic subscription rights in
full, and we will only honor an over-subscription privilege to the extent sufficient Units are
available following the exercise of subscription rights pursuant to the basic subscription rights.
To the extent the aggregate subscription price of the actual number of unsubscribed Units
available to you pursuant to the over-subscription privilege is less than the amount you actually
paid in connection with the exercise of the over-subscription privilege, you will be allocated only
the number of unsubscribed Units available to you, and any excess subscription payments will be
returned to you, without interest or penalty, as soon as practicable.
13
To the extent the amount you actually paid in connection with the exercise of the
over-subscription privilege is less than the aggregate subscription price of the maximum number of
unsubscribed Units available to you pursuant to the over-subscription privilege, you will be
allocated the number of unsubscribed Units for which you actually paid in connection with the
over-subscription privilege and subject to the elimination of any fractional Units. Any excess
subscription payments received by us will be returned, without interest or penalty, as soon as
practicable.
We will deliver certificates representing shares of our common stock and warrants or credit
the account of your record holder with shares of our common stock and warrants that you purchased
with the over-subscription privilege as soon as practicable after the expiration of the rights
offering.
Reasons for the Rights Offering
We are engaging in the rights offering to reduce our indebtedness and improve our overall
capital position. Our board of directors has chosen to raise capital through a rights offering to
give our stockholders the best opportunity to limit ownership dilution by participating in the
rights offering on a pro-rata basis. Our board of directors has chosen to raise capital in a
manner to allow existing stockholders to purchase additional Units based on their pro rata
ownership percentage.
Information Agent
MacKenzie Partners, Inc. will act as the information agent in connection with this offering.
The information agent will receive for its services a fee estimated to be approximately $7,500 plus
reimbursement of all reasonable out-of-pocket expenses related to this offering. The information
agent can be contacted at the address below:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, NY 10016
Collect: (212) 929-5500
Toll-free: (800) 322-2885
Email: generalfinancerights@mackenziepartners.com
Effect of Rights Offering on Existing Stockholders
The ownership interests and voting interests of the existing stockholders who do not exercise
their basic subscription privileges will be diluted. See Questions and Answers About the Rights
Offering.
Method of Exercising Subscription Rights
The exercise of subscription rights is irrevocable and may not be cancelled or modified. You
may exercise your subscription rights as follows:
Subscription by Registered Holders . If you hold a General Finance stock certificate, the
number of Units you may purchase pursuant to your basic subscription right is indicated on the
enclosed rights certificate. You may exercise your subscription rights by properly completing and
executing the rights certificate and forwarding it, together with your full payment, to Continental
Stock Transfer & Trust Company at the address set forth below under Delivery of Subscription
Payments, to be received prior to 5:00 p.m., Eastern Standard Time, on
, 2010.
Subscription by Beneficial Owners. If you are a beneficial owner of shares of our common stock
that are registered in the name of a broker, custodian bank or other nominee, you will not receive
a rights certificate. Instead, the DTC will issue one subscription right to the nominee record
holder for each two shares of our common stock that you own at the record date. If you are not
contacted by your nominee, you should promptly contact your nominee in order to subscribe for Units
in the rights offering.
14
Payment Method
Payments must be made in full in U.S. currency by:
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check or bank draft payable to General Finance Corporation, drawn upon a U.S. bank; or |
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wire transfer of immediately available funds to an account maintained by General
Finance Corporation for purposes of this rights offering. |
Payment received after the expiration of the rights offering will not be honored, and we will
return your payment to you, without interest, as soon as practicable. We will be deemed to receive
payment upon:
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clearance of any uncertified check deposited by us into our account designated for the rights offering; |
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receipt by us of any certified check or bank draft, drawn upon a U.S. bank; or |
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receipt of collected funds in our account designated for the rights offering. |
If you elect to exercise your subscription rights, we urge you to consider using a certified
or cashiers check, money order or wire transfer of funds to ensure that we receive your funds
prior to the expiration of the rights offering. If you send an uncertified check, payment will not
be deemed to have been received by us until the check has cleared. If you send a certified check or
bank draft, drawn upon a U.S. bank, or wire or transfer funds directly to our account, payment will
be deemed to have been received by us immediately upon receipt of such instruments or wire
transfer.
Any personal check used to pay for Units must clear the appropriate financial institutions
prior to 5:00 p.m., Eastern Standard Time, on , 2010, which is
the expiration of the rights offering. The clearinghouse may require five or more business days.
Accordingly, holders that wish to pay the subscription price by means of an uncertified personal
check are urged to make payment sufficiently in advance of the expiration of the rights offering to
ensure such payment is received and clears by such date.
You should read the instruction letter accompanying the rights certificate carefully and
strictly follow it. We will not consider your subscription received until we have received delivery
of a properly completed and duly executed rights certificate and payment of the full subscription
amount. The risk of delivery of all documents and payments is borne by you or your nominee, not by
General Finance Corporation.
The method of delivery of rights certificates and payment of the subscription amount to us
will be at the risk of the holders of subscription rights. If sent by mail, we recommend that you
send those certificates and payments by overnight courier or by registered mail, properly insured,
with return receipt requested, and that a sufficient number of days be allowed to ensure delivery
to us and clearance of payment prior to the expiration of the rights offering.
Unless a rights certificate provides that the Units are to be delivered to the record holder
of such rights or such certificate is submitted for the account of a bank or a broker, signatures
on such rights certificate must be guaranteed by an eligible guarantor institution, as such term
is defined in Rule 17Ad-15 of the Exchange Act.
Medallion Guarantee May Be Required
Your signature on your rights certificate must be guaranteed by an eligible institution, such
as a member firm of a registered national securities exchange or a member of the Financial Industry
Regulatory Authority, Inc., or a commercial bank or trust company having an office or correspondent
in the United States, unless:
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you provide on the rights certificate that the Units are to be
delivered to you as record holder of those subscription rights; or |
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you are an eligible institution. |
Missing or Incomplete Subscription Information
If you hold your shares of common stock in the name of a custodian bank, broker, dealer or
other nominee, the nominee will exercise the subscription rights on your behalf in accordance with
your instructions. Your nominee may establish a deadline that may be before the 5:00 p.m., Eastern
Standard Time , 2010 expiration date that we have established
for the rights offering. If you send a payment that is insufficient to purchase the number of Units
you requested, or if the number of Units you requested is not specified in the forms, the payment
received will be applied to exercise your subscription rights to the fullest extent possible based
on the amount of the payment received, subject to the availability of Units under the
over-subscription privilege and the elimination of fractional Units. Any excess subscription
payments received by us will be returned, without interest, as soon as practicable following the
expiration of the rights offering.
15
Expiration Date and Cancellation Rights
The subscription period, during which you may exercise your subscription rights, expires at
5:00 p.m., Eastern Standard Time, on , 2010, which is the
expiration of the rights offering. If you do not exercise your subscription rights prior to that
time, your subscription rights will expire and will no longer be exercisable. We will not be
required to issue Units to you if we receive your rights certificate or your subscription payment
after that time. We have the option to extend the rights offering without notice to you, although
we do not presently intend to do so. We may extend the expiration of the rights offering at any
time prior to the scheduled expiration of the rights offering. If we elect to extend the expiration
of the rights offering, we will issue a press release announcing such extension no later than 9:00
a.m., Eastern Standard Time, on the next business day after the most recently announced expiration
of the rights offering. We reserve the right to amend or modify the terms of the rights offering.
If you hold your shares of common stock in the name of a broker, dealer, custodian bank or
other nominee, the nominee will exercise the subscription rights on your behalf in accordance with
your instructions. Please note that the nominee may establish a deadline that may be before the
5:00 p.m., Eastern Standard Time, , 2010, expiration date that
we have established for the rights offering.
We may cancel the rights offering at any time for any reason prior to the time the rights
offering expires. If we cancel the rights offering, we will issue a press release notifying
stockholders of the cancellation and all subscription payments received by us will be returned,
without interest or penalty, as soon as practicable.
Determination of Subscription Price
The $ per Unit subscription price was determined by our board of directors based in part on
the per share value of the common stock. In determining the subscription price, our board of
directors did not seek or obtain an opinion of financial advisors in establishing the subscription
price. The subscription price will not necessarily be related to our book value, tangible book
value, net worth or any other established criteria of fair value and may or may not be considered
the fair value of our common stock to be offered in the rights offering. You should not assume or
expect that, after the rights offering, our shares of common stock will trade at or above the
equivalent component of the subscription price in any given time period.
The market price for our common stock is below the equivalent price of the common stock that
we are offering as a component of the Units in this rights offering. The market price for our
common stock may remain at an amount below the equivalent component of the subscription price, and,
if you purchase Units at the subscription price, you may not be able to sell those shares of common
stock in the future at the equivalent price or a higher price. In addition, there is currently no
market for our Warrants and, unless you choose to exercise the Warrants for shares of common stock,
you may not be able to re-sell such Warrants. We urge you to obtain a current quote for our common
stock and perform an independent assessment of our Warrants before exercising your subscription
rights and to make your own assessment of our business and financial condition, our prospects for
the future, and the terms of this rights offering.
Terms of Warrants
Each Warrant issued as a component of the Units which are offered in this rights offering will
be a three-year Warrant to purchase 0.5 shares of our common stock at an exercise price of $4.00
per share, subject to our right to call the Warrant under certain conditions. The Warrants will not
include any anti-dilution adjustment provisions for issuances of securities below $4.00 per share.
Withdrawal, Amendment and Termination
We reserve the right to withdraw the rights offering at any time for any reason. We also may
amend or terminate the rights offering at any time before its completion if our board of directors
decides to do so in its sole discretion. If we terminate the rights offering, all affected
subscription rights will expire without value, and all excess subscription payments received by us
will be returned, without interest, as soon as practicable.
Fees and Expenses
We will pay the fees and expenses of collecting the subscription payments and distributing the
share certificates and warrants associated with the Units. You are responsible for paying any other
commissions, fees, taxes or other expenses that you may incur in connection with the exercise of
your subscription rights.
16
No Fractional Units
All Units will be sold at a purchase price of $ per Unit. We will not issue fractional Units.
Fractional Units resulting from the exercise of the basic subscription rights and the
over-subscription privileges will be eliminated by rounding down to the nearest whole Unit. Any
excess subscription payments received by us will be returned, without interest, as soon as
practicable.
Notice to Nominees
If you are a broker, custodian bank or other nominee holder that holds shares of our common
stock for the account of others on the record date, you should notify the beneficial owners of the
shares for whom you are the nominee of the rights offering as soon as possible to learn their
intentions with respect to exercising their subscription rights. You should obtain instructions
from the beneficial owners of our common stock. If a registered holder of our common stock so
instructs, you should complete the rights certificate and submit it to us with the proper
subscription payment by the expiration date. You may exercise the number of subscription rights to
which all beneficial owners in the aggregate otherwise would have been entitled had they been
direct holders of our common stock on the record date, provided that you, as a nominee record
holder, make a proper showing to us by submitting the form entitled Nominee Holder Certification,
which is provided with your rights offering materials. If you did not receive this form, you should
contact us to request a copy.
Beneficial Owners
If you are a beneficial owner of shares of our common stock or preferred stock and will
receive your subscription rights through a broker, custodian bank or other nominee, we will ask
your nominee to notify you of the rights offering. If you wish to exercise your subscription
rights, you will need to have your nominee act for you, as described above. To indicate your
decision with respect to your subscription rights, you should follow the instructions of your
nominee. If you wish instead to obtain a separate rights certificate, you should contact your
nominee as soon as possible and request that a rights certificate be issued to you. You should
contact your nominee if you do not receive notice of the rights offering, but you believe you are
entitled to participate in the rights offering. We are not responsible if you do not receive the
notice by mail or otherwise from your nominee or if you receive notice without sufficient time to
respond to your nominee by the deadline established by your nominee, which may be before the 5:00
p.m., Eastern Standard Time, , 2010, expiration date.
Transferability of Subscription Rights
The subscription rights granted to you are transferable and, therefore, you may sell, transfer
or assign your subscription rights to anyone. We will be listing our Units, Warrants and the
subscription rights for trading on The NASDAQ Global Market. The shares of our common stock
issuable upon exercise of the subscription rights will be tradable on The NASDAQ Global Market.
Validity of Subscriptions
We will resolve all questions regarding the validity and form of the exercise of your
subscription rights, including time of receipt and eligibility to participate in the rights
offering. Our determination will be final and binding. Once made, subscriptions and directions are
irrevocable, and we will not accept any alternative, conditional or contingent subscriptions or
directions. We reserve the absolute right to reject any subscriptions or directions not properly
submitted or the acceptance of which would be unlawful. You must resolve any irregularities in
connection with your subscriptions before the subscription period expires, unless waived by us in
our sole discretion. We shall not be under any duty to notify you or your representative of defects
in your subscriptions. A subscription will be considered accepted, subject to our right to withdraw
or terminate the rights offering, only when a properly completed and duly executed rights
certificate and any other required documents and the full subscription payment have been received
by us. Our interpretations of the terms and conditions of the rights offering will be final and
binding.
Escrow Arrangements; Return of Funds
We will hold funds received in payment for Units in a segregated account pending completion of
the rights offering. We will hold this money in escrow until the rights offering is completed or is
withdrawn and cancelled. If the rights offering is cancelled for any reason, all subscription
payments received by us will be returned, without interest or penalty, as soon as practicable.
Stockholder Rights
You will have no rights as a holder of the Units, Warrants or shares of our common stock you
purchase in the rights offering until certificates representing the Units, Warrants and shares of
our common stock are issued to you, or your account at your nominee is credited with the Units,
Warrants or shares of our common stock purchased in the rights offering.
17
No Revocation or Change
Once you submit the rights certificate or have instructed your nominee of your subscription
request, you are not allowed to revoke or change the exercise or request a refund of monies paid.
All exercises of subscription rights are irrevocable, even if you learn information about us that
you consider to be unfavorable. You should not exercise your subscription rights unless you are
certain that you wish to purchase Units at the subscription price.
Material U.S. Federal Income Tax Treatment of Rights Distribution
For U.S. federal income tax purposes, you should not recognize income or loss upon receipt or
exercise of these subscription rights to purchase shares of our common stock for the reasons
described below in Material U.S. Federal Income Tax Considerations.
No Recommendation to Rights Holders
Our board of directors is making no recommendation regarding your exercise of the subscription
rights. Stockholders who exercise subscription rights risk investment loss on new money invested.
The market price for our common stock may decline to a price that is less than the equivalent
component of the subscription price and, if you purchase Units at the subscription price, you may
not be able to sell the component share of common stock in the future at the same price or a higher
price. You are urged to make your decision based on your own assessment of our business and
financial condition, our prospects for the future and the terms of this rights offering. Please see
Risk Factors for a discussion of some of the risks involved in investing in our common stock.
Shares of Our Common Stock, Preferred Stock and Warrants Outstanding After the Rights Offering
As of February 5, 2010, we had 17,826,052 shares of our common stock issued and outstanding,
25,900 shares of Series A Preferred Stock, 100 shares of Series B Preferred Stock and warrants and
unit option to purchase 7,072,380 shares of common stock. The number of shares of our common stock
and Warrants that we will issue in this rights offering through the exercise of subscription rights
will depend on the number of Units that are subscribed for in the rights offering. Assuming no
other transactions by us involving our common stock, preferred stock or warrants and no options for
our common stock are exercised prior to the expiration of the rights offering, we could, depending
on the number of Units that are subscribed for in the offering (and assuming the exercise of all
Warrants issued in the offering), have a maximum of approximately 31,206,000 shares of common stock
outstanding after completion of the rights offering.
18
SELECTED FINANCIAL DATA
Our summary historical consolidated financial data set forth below as of and for the year
ended June 30, 2009 and 2008 (as Successor) and the summary historical consolidated financial data
for Royal Wolf (as our Predecessor) for the period from July 1, to September 13, 2007, and as of
and for the year ended June 30, 2007 was derived from the audited consolidated financial statements
included elsewhere in this prospectus. The summary consolidated financial data for Royal Wolf as of
and for the year ended June 30, 2006 and as of and for the six months ended June 30, 2005 was
derived from the audited financial statements of Royal Wolf. Our summary consolidated financial
data as of and for the quarter ended September 30, 2009 was derived from the unaudited interim
condensed consolidated financial statements included elsewhere in this prospectus.
Consolidated Statement of Operations Information (in thousands, except per share data):
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|
|
|
|
|
|
|
|
|
|
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Predecessor |
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|
Successor |
|
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|
Six Months |
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|
|
|
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|
Period from |
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|
(Unaudited) |
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|
Ended |
|
|
Year Ended |
|
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|
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|
July 1 to |
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Year Ended |
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|
Quarter Ended |
|
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|
|
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|
|
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|
|
|
|
|
|
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|
September |
|
|
|
|
|
|
|
|
|
June 30, |
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13, |
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|
June 30, |
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|
September 30, |
|
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|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
|
|
Sales |
|
$ |
13,563 |
|
|
$ |
34,473 |
|
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
75,528 |
|
|
$ |
20,995 |
|
|
$ |
16,613 |
|
Leasing |
|
|
7,224 |
|
|
|
15,921 |
|
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
70,932 |
|
|
|
10,658 |
|
|
|
18,606 |
|
|
|
|
|
|
|
20,787 |
|
|
|
50,394 |
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,575 |
|
|
|
146,460 |
|
|
|
31,653 |
|
|
|
35,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
560 |
|
|
|
2,412 |
|
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
14,058 |
|
|
|
1,727 |
|
|
|
2,075 |
|
Other income (expense), net |
|
|
(662 |
) |
|
|
(2,626 |
) |
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(25,177 |
) |
|
|
(11,960 |
) |
|
|
(1,055 |
) |
|
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|
|
|
|
|
|
|
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|
|
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|
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|
|
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|
|
|
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Income (loss) before
provision for income taxes and
noncontrolling interest |
|
|
(102 |
) |
|
|
(214 |
) |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
(11,119 |
) |
|
|
(10,233 |
) |
|
|
1,020 |
|
Net income (loss)
attributable to stockholders |
|
|
(177 |
) |
|
|
(428 |
) |
|
|
312 |
|
|
|
288 |
|
|
|
4,106 |
|
|
|
(3,717 |
) |
|
|
(5,027 |
) |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
common share: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
|
$ |
(0.22 |
) |
|
$ |
(0.36 |
) |
|
$ |
0.00 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39 |
|
|
|
(0.22 |
) |
|
|
(0.36 |
) |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Information (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
June 30, |
|
|
September 30 |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
|
|
Trade and other receivables, net |
|
$ |
6,002 |
|
|
$ |
7,451 |
|
|
$ |
13,322 |
|
|
$ |
18,327 |
|
|
$ |
26,432 |
|
|
$ |
21,656 |
|
Inventories |
|
|
3,066 |
|
|
|
5,460 |
|
|
|
5,472 |
|
|
|
21,084 |
|
|
|
22,511 |
|
|
|
20,104 |
|
Lease fleet, net |
|
|
19,644 |
|
|
|
27,773 |
|
|
|
40,928 |
|
|
|
87,748 |
|
|
|
188,915 |
|
|
|
195,562 |
|
Total assets |
|
|
35,930 |
|
|
|
47,903 |
|
|
|
68,788 |
|
|
|
207,861 |
|
|
|
358,696 |
|
|
|
357,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
8,997 |
|
|
|
16,580 |
|
|
|
20,859 |
|
|
|
25,362 |
|
|
|
49,254 |
|
|
|
59,691 |
|
Long-term debt and obligations,
net |
|
|
22,993 |
|
|
|
27,155 |
|
|
|
33,811 |
|
|
|
78,029 |
|
|
|
183,933 |
|
|
|
166,283 |
|
Stockholders equity |
|
|
3,586 |
|
|
|
3,018 |
|
|
|
13,040 |
|
|
|
93,731 |
|
|
|
103,174 |
|
|
|
107,514 |
|
|
|
|
19
Selected Unaudited Quarterly Financial Data
The following table sets forth unaudited operating data for each quarter of the years ended
June 30, 2009 and June 30, 2008. 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, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
31,653 |
|
|
$ |
42,601 |
|
|
$ |
34,455 |
|
|
$ |
37,751 |
|
Gross profit |
|
|
2,829 |
|
|
|
3,194 |
|
|
|
2,415 |
|
|
|
2,773 |
|
Operating income |
|
|
1,727 |
|
|
|
5,275 |
|
|
|
5,253 |
|
|
|
1,803 |
|
Net income (loss) attributable to stockholders |
|
|
(5,027 |
) |
|
|
(1,005 |
) |
|
|
270 |
|
|
|
2,045 |
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.36 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.01 |
|
|
$ |
0.11 |
|
Diluted |
|
|
(0.36 |
) |
|
|
(0.06 |
) |
|
|
0.01 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended June 30, 2008 (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
4,399 |
|
|
$ |
29,852 |
|
|
$ |
28,650 |
|
|
$ |
32,675 |
|
Gross profit |
|
|
331 |
|
|
|
3,744 |
|
|
|
3,445 |
|
|
|
2,834 |
|
Operating income (loss) |
|
|
(111 |
) |
|
|
3,256 |
|
|
|
3,570 |
|
|
|
1,658 |
|
Net income attributable to stockholders |
|
|
1,522 |
|
|
|
1,197 |
|
|
|
834 |
|
|
|
553 |
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.09 |
|
|
$ |
0.05 |
|
Diluted |
|
|
0.12 |
|
|
|
0.09 |
|
|
|
0.08 |
|
|
|
0.05 |
|
|
|
|
|
|
|
(a) |
|
Revenues, gross profit, operating income and net income of the Predecessor during the
first quarter of the fiscal year ended June 30, 2008 for the period from July 1, 2007 to September
13, 2007 were $15,859, $1,478, $1,530 and $288, respectively. |
20
MARKET PRICES
Our units, common stock and warrants are listed on The NASDAQ Global Market (NASDAQ) under the
symbols GFNCU, GFN and GFNCW, respectively. The following table sets forth for the periods
indicated the range of high and low closing sales prices for the units, common stock and warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
Common Stock |
|
|
Warrants |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
FY 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter (through
February 3, 2010) |
|
$ |
1.05 |
|
|
$ |
0.96 |
|
|
$ |
1.40 |
|
|
$ |
1.18 |
|
|
$ |
0.09 |
|
|
$ |
0.02 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
9.05 |
|
|
$ |
6.15 |
|
|
$ |
7.54 |
|
|
$ |
5.44 |
|
|
$ |
1.90 |
|
|
$ |
0.91 |
|
Third Quarter |
|
|
12.15 |
|
|
|
8.50 |
|
|
|
9.05 |
|
|
|
7.00 |
|
|
|
3.24 |
|
|
|
1.55 |
|
Second Quarter |
|
|
13.70 |
|
|
|
10.00 |
|
|
|
9.89 |
|
|
|
7.90 |
|
|
|
4.05 |
|
|
|
2.20 |
|
First Quarter |
|
|
10.05 |
|
|
|
8.80 |
|
|
|
8.00 |
|
|
|
7.43 |
|
|
|
2.20 |
|
|
|
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Holders
As of February 4, 2010, there were 12 stockholders of record of our common stock and one
holder of record for each of our units and warrants. We believe that there are thousands of
beneficial owners of our common stock, units and warrants.
Dividend Policy
We have not paid any dividends on our common stock to date. The payment of dividends in the
future will be contingent upon our revenues and earnings, if any, capital requirements and general
financial condition. The payment of any dividends will be within the discretion of our board of
directors. It is the present intention of our Board of Directors to retain all earnings, if any,
for use in our business operations and, accordingly, our board does not anticipate declaring any
dividends in the foreseeable future.
21
RISK FACTORS
An investment in the Units, common stock and Warrants offered in this rights offering involves
a high degree of risk. You should consider carefully all the risks described below, together with
the other information contained in this prospectus, before making a decision to invest in the
Units, common stock and Warrants.
Risks Related to the Rights Offering
Your interest in our company may be diluted as a result of this offering.
Common stockholders who do not fully exercise their respective rights should expect that they
will, at the completion of this offering, own a smaller proportional interest in the Company than
would otherwise be the case had they fully exercised their basic subscription rights. In addition,
the shares issuable upon the exercise of the Warrants to be issued pursuant to this rights offering
will dilute the ownership interest of stockholders not participating in this offering or holders of
Warrants issued pursuant to this offering who have not exercised them.
You could be buying shares of common stock above the prevailing market price.
The market price of our common stock is currently less than the equivalent
common stock component of the Unit. In the event you choose to exercise the subscription rights
offered to you, you will have committed to buy shares of common stock in the rights offering at a
price greater than the prevailing market price. We cannot predict the effect, if any, that the
availability of shares for future sale, represented by the Warrants issued in connection with the
rights offering, will have on the market price of our common stock from time to time. Further, if a
substantial number of subscription rights are exercised and the holders of the shares received upon
exercise of those subscription rights or the related Warrants choose to sell some or all of the
shares underlying the subscription rights or the related Warrants, the resulting sales could
depress the market price of our common stock. Following the exercise of your subscription rights
you may not be able to sell your common stock at a price equal to or greater than the equivalent
component of the subscription price. Once you exercise your subscription rights, you may not revoke
such exercise even if you later learn information that you consider to be unfavorable to the
exercise of your subscription rights.
Completion of this offering is not subject to us raising a minimum offering amount and therefore
proceeds may be insufficient to meet our objectives, thereby increasing the risk to investors in
this offering.
Completion of this offering is not subject to us raising a minimum offering amount. As such,
proceeds from this rights offering may not be sufficient to meet the objectives we state in this
prospectus or other goals that we may set.
There is no active trading market for the rights Units and Warrants and an active trading market is
unlikely to develop. Exercise of the Warrants into the underlying shares of our common stock and
sale of those shares may be the only way for you to liquidate your investment in the Warrants.
We intend to apply to list the rights, Units and Warrants for trading on The NASDAQ Global
Market. We cannot assure you that the rights, Units and Warrants will meet the requirements for
quotation or that there will be an active trading market for the rights, Units and Warrants. There
is currently no market for the rights, Units and Warrants and an active trading market is unlikely
to develop. Exercise of the Warrants into the underlying shares of our common stock and sale of
those shares may be the only way for you to liquidate your investment in the Warrants.
None of our officers, directors or significant stockholders are obligated to exercise their
subscription right and, as a result, the offering may be undersubscribed.
Ronald F. Valenta, our President, Chief Executive Officer and member of our board of directors
beneficially owns approximately 21.2% of our common stock. As a group, our directors and officers
beneficially own approximately 39.6% of our common stock. None of our officers, directors or
significant stockholders are obligated to participate in this offering. We cannot guarantee you
that any of our officers or directors will exercise their basic or over-subscription rights to
purchase any Units issued in connection with this offering. As a result, the offering may be
undersubscribed and proceeds may not be sufficient to meet the objectives we state in this
prospectus or other goals we may set.
22
If we terminate this offering for any reason, we will have no obligation other than to return
subscription monies promptly.
We may decide, in our discretion and for any reason, to cancel or terminate the rights
offering at any time prior to the expiration date. If this offering is terminated, we will have no
obligation with respect to rights that have been exercised except to return promptly, without
interest or deduction, the subscription monies deposited with the subscription agent. If we
terminate this offering and you have not exercised any rights, such rights will expire worthless.
The subscription price determined for this offering is not an indication of the fair value of our
common stock.
In determining the subscription price for the Units, our board of directors
did not seek or obtain an opinion of financial advisors in establishing the subscription price. The
subscription price of the Units will not necessarily be related to our book value, tangible book
value, net worth or any other established criteria of fair value and may or may not be considered
the fair value of our common stock to be offered in the rights offering. You should not assume or
expect that, after the rights offering, our shares of common stock will trade at or above the
equivalent component of the subscription price in any given time period.
You may not receive all of the Units for which you subscribe pursuant to the over-subscription
privilege.
Holders who fully exercise their basic subscription rights will be entitled to
subscribe for an additional amount of Units that are not purchased by our other holders through the
exercise of their basic subscription rights. Over-subscription rights will be allocated pro-rata
among subscription rights holders who over-subscribed, based on the number of shares of common
stock owned by such holders on the record date, relative to the number of shares owned on the
record date by all stockholders exercising the over-subscription privilege. You may not receive any
or all of the Units for which you over-subscribed. If the pro rated amount of Units allocated to
you in connection with your over-subscription right is less than your over-subscription request,
then the excess funds held by us on your behalf will be returned to you, without interest, as soon
as practicable after the rights offering has expired and all prorating calculations and reductions
contemplated by the terms of the rights offering have been effected, and we will have no further
obligations to you. We also retain the right to limit the exercise of over-subscription privileges
if such exercise would cause a change of control, as defined in the agreements governing the
indebtedness of our subsidiaries Pac-Van and Royal Wolf.
The price of shares of our common stock may fluctuate significantly, and this may make it difficult
for you to resell or exercise your Warrants and resell the common stock issuable upon exercise of
the Warrants.
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:
|
|
|
actual or anticipated variations in our quarterly operating results; |
|
|
|
|
|
changes in interest rates, currency conversion rates for the Australian dollar relative to the U.S. dollar
and general economic conditions; |
|
|
|
|
|
|
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving us or our competitors; |
|
|
|
|
|
operating and stock price performance of other companies that investors deem comparable to us; |
|
|
|
|
news reports relating to trends, concerns, litigation, regulatory changes and other issues in our industry; |
|
|
|
|
geopolitical conditions such as acts or threats of terrorism or military conflicts; and |
|
|
|
|
relatively low trading volume. |
The market price of our common stock may never exceed the exercise price of the Warrants issued in
connection with this offering.
The Warrants being issued in connection with this offering become exercisable on their date of
issuance and will expire three years thereafter. We cannot provide you any assurance that the
market price of our common stock will ever exceed the exercise price of these Warrants prior to
their date of expiration. Any Warrants not exercised by their date of expiration will expire
worthless, and we will be under no further obligation to the Warrant holder.
23
There may be future sales or other dilution of our equity, which may adversely affect the market
price of our common stock.
We are not restricted from issuing additional common stock, including any securities that are
convertible into or exchangeable for, or that represent the right to receive, common stock or any
substantially similar securities. The market price of our common stock could decline as a result of
sales of shares of common stock or similar securities in the market made after this offering or the
perception that such sales could occur.
We will have broad discretion in the use of the net proceeds from this offering and may not use the
proceeds effectively.
Although we plan to use the proceeds of this offering primarily for the reduction of our
indebtedness and working capital, we will not be restricted to such use and will have broad
discretion in determining how the proceeds of this offering will be used. Our discretion is not
substantially limited by the uses set forth in this prospectus in the section entitled Use of
Proceeds. While our board of directors believes the flexibility in application of the net
proceeds is prudent, the broad discretion it affords entails increased risks to the investors in
this offering. Investors in this offering have no current basis to evaluate the possible merits or
risks of any application of the net proceeds of this offering. Our stockholders may not agree with
the manner in which we choose to allocate and spend the net proceeds.
If you do not act on a timely basis and follow subscription instructions, your exercise of rights
may be rejected.
Holders of shares of common stock who desire to purchase Units in this offering must act on a
timely basis to ensure that all required forms and payments are actually received by the
subscription agent prior to 5:00 p.m., Eastern Standard Time, on the expiration date, unless
extended. If you are a beneficial owner of shares of common stock and you wish to exercise your
rights, you must act promptly to ensure that your broker, dealer, custodian bank, trustee or other
nominee acts for you and that all required forms and payments are actually received by your broker,
dealer, custodian bank, trustee or other nominee in sufficient time to deliver such forms and
payments to the subscription agent to exercise the rights granted in this offering that you
beneficially own prior to 5:00 p.m., Eastern Standard Time on the expiration date, as may be
extended. We will not be responsible if your broker, dealer, custodian bank, trustee or other
nominee fails to ensure that all required forms and payments are actually received by the
subscription agent prior to 5:00 p.m., Eastern Standard Time, on the expiration date, as may be
extended.
If you fail to complete and sign the required subscription forms, send an incorrect payment
amount, or otherwise fail to follow the subscription procedures that apply to your exercise in this
offering, the subscription agent may, depending on the circumstances, reject your subscription or
accept it only to the extent of the payment received. Neither we nor the subscription agent
undertakes to contact you concerning an incomplete or incorrect subscription form or payment, nor
are we under any obligation to correct such forms or payment. We have the sole discretion to
determine whether a subscription exercise properly follows the subscription procedures.
We cannot guarantee that you will receive all of the Units for which you subscribe under your basic
subscription rights.
Basic subscription rights may be undersubscribed and will be allocated pro rata among rights
holders, based on the number of basic subscription shares to which they subscribed. If the offering
is downsized, we cannot guarantee that you will receive all of the Units for which you
subscribed. If the pro rated amount of Units allocated to you in connection with your basic
subscription right is less than your basic subscription request, then the excess funds held by the
subscription agent on your behalf will be returned to you promptly without interest or deduction
and we will have no further obligations to you.
If you make payment of the subscription price by uncertified check, your check may not clear in
sufficient time to enable you to purchase Units in this rights offering.
Any uncertified check used to pay for Units to be issued in this rights offering must clear
prior to the expiration date of this rights offering, and the clearing process may require five or
more business days. If you choose to exercise your subscription rights, in whole or in part, and to
pay for Units by uncertified check and your check does not clear prior to the expiration date of
this rights offering, you will not have satisfied the conditions to exercise your subscription
rights and will not receive the Units you wish to purchase.
24
The receipt of rights may be treated as a taxable distribution to you.
The distribution of the rights in this offering should be a non-taxable distribution under
Section 305(a) of the Internal Revenue Code of 1986, as amended (the Code). Please see the
discussion on the Material U.S. Federal Income Tax Considerations below. This position is not
binding on the Internal Revenue Service, or the courts, however. If this offering is deemed to be
part of a disproportionate distribution under Section 305 of the Code, your receipt of rights in
this offering may be treated as the receipt of a taxable distribution to you equal to the fair
market value of the rights. Any such distribution would be treated as dividend income to the
extent of our current and accumulated earnings and profits, if any, with any excess being treated
as a return of capital to the extent thereof and then as capital gain. Each holder of common stock
is urged to consult his, her or its own tax advisor with respect to the particular tax consequences
of this offering.
Since the Warrants are executory contracts, they may have no value in a bankruptcy or
reorganization proceeding.
In the event a bankruptcy or reorganization proceeding is commenced by or against us, a
bankruptcy court may hold that any unexercised Warrants are executory contracts that are subject to
rejection by us with the approval of the bankruptcy court. As a result, holders of the Warrants
may, even if we have sufficient funds, not be entitled to receive any consideration for their
Warrants or may receive an amount less than they would be entitled to if they had exercised their
Warrants prior to the commencement of any such bankruptcy or reorganization proceeding.
Your ability to resell the securities you acquire in the rights offering may be limited by state
securities laws.
If you purchase securities in the rights offering, you may not be able to resell the Units,
common stock and Warrants to other persons unless the securities are registered under the
securities laws of the states in which the potential purchasers reside or exemptions from
registration requirements are available in such states. We do not intend to register any of the
securities for resale in any states or jurisdictions. Consequently, you may only be able to sell
the Units, common stock and Warrants in those states where exemptions are available, such as an
exemption for sales to institutional investors. In addition, in the event that the Warrants to be
issued in this rights offering are sold to another person, the purchaser may not be able to
exercise the Warrants unless an exemption is available in the purchasers state of residence for
the issuance of common stock upon the exercise of Warrants.
Risks Relating to Our Businesses in Australia and in the United States
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 2010 by a capital infusion from GFN. There can be no assurances that the funds we
raise in this offering, together with our current cash balances, will be sufficient to make the
principal payment of $5.5 million due Bison Capital in July 2010. 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.
Global economic conditions and market disruptions may adversely affect our business, financial
condition and results of operations.
As widely reported, financial markets and economic conditions throughout the world have been
experiencing extreme disruption, including, among other things, extreme volatility in security
prices, severely 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 increased needs for
revenue and higher unemployment rates. These developments and the related general global economic
downturn, including in the United States and Australia, has and may continue to adversely impact
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 to
collections and inventory control, continued worsening of conditions could negatively impact our
ability to collect 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 not only continue to significantly affect our results of operations through reported
foreign exchange gains and losses on U.S.-denominated debt, but if the Australian and New Zealand
dollars weaken, it would result in lower than anticipated reported revenues and profitability as a
result of the translation of Royal Wolfs financial results into U.S. dollars.
25
We are in compliance with our financial covenants under our senior credit facilities and
senior subordinated notes. However, if the current environments in the U.S. and Australian
economies continue to be weak or worsen, our ability to meet our covenant requirements may be
impaired and may result in our seeking amendments or waivers of covenant compliance. 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 at reasonable rates, including through the issuance of our
preferred stock, has been and may continue to be adversely affected by the current conditions in
the financial markets. All or any of these adverse events would further limit our flexibility in
planning for or reacting to downturns in our business.
We are unable to predict the duration and severity of the current economic downturn and
disruption in financial markets or their effects on our business and results of operations, but the
consequences may be materially adverse and more severe than other recent economic slowdowns.
We operate with a significant amount of long-term debt, which is secured by all or substantially
all of our assets, subject to variable interest rates and contain restrictive covenants.
As of December 31, 2009, we had outstanding approximately $192.1 million of indebtedness,
primarily under our existing 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
working 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. |
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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 General Finance Corporation, |
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liens and sale-leaseback transactions, |
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loans and investments, |
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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. |
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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.
Our overall financial results will be affected by the relative value of the Australian 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, stock price, 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.
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/or 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.
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While part of our long-term business strategy is to acquire additional businesses, there is no
assurance that we will be able to identify businesses that we can acquire upon terms we believe
acceptable, or if such acquisitions require additional financing, that we could obtain such
additional financing.
If we do seek to complete other acquisitions, we cannot ascertain the capital requirements for
other future transactions. We cannot assure that, if required, additional financing will be
available on acceptable terms, if at all. To the extent that additional financing proves to be
unavailable when needed to consummate a particular acquisition, we would be compelled to either
restructure the transaction or abandon that particular acquisition. In addition, if we consummate a
future acquisition, we may require additional financing to fund the operations or growth of the
target business. The failure to secure additional financing may impact the continued development or
growth of the target business.
Our long-term growth could strain our management resources.
Our future performance will depend in large part on our ability to manage our long-term
planned growth that could strain our existing management, human and other resources. To
successfully manage this growth, we must continue to add managers and employees and improve our
operating, financial and other internal procedures and controls. We also must effectively motivate,
train and manage employees. If we do not manage our growth effectively, it would adversely affect
our future operating results.
Our long-term growth plan includes the expansion of operations into markets outside of the United
States, 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 December 31, 2009, there were 73,743,568
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 that may be issued
under our 2006 Stock Option 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. |
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In addition, we may incur substantial debt to complete another business combination. The
incurrence of debt could result in:
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default and foreclosure on our assets if our operating revenues after
a business combination are insufficient to repay our debt obligations; |
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our immediate payment of all principal and accrued interest, if any,
if the debt security is payable on demand; and |
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our inability to obtain necessary additional financing if the debt
security instrument covenants restricting our ability to obtain such
financing while the debt instrument is outstanding. |
The price of our common stock may fluctuate significantly, which may make it difficult for
stockholders to resell common stock when they want or at a price they find attractive.
We expect that the market price of our common stock will fluctuate. Our common stock price can
fluctuate as a result of a variety of factors, many of which are beyond our control. These factors
include:
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actual or anticipated variations in our quarterly operating results; |
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changes in interest rates and other general economic conditions; |
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significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving us or our competitors; |
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operating and stock price performance of other companies that investors deem comparable to us; |
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news reports relating to trends, concerns, litigation, regulatory changes and other issues in our industry; |
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geopolitical conditions such as acts or threats of terrorism or military conflicts; and |
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relatively low trading volume. |
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 December 31, 2009, we had outstanding options and warrants to purchase over 8,000,000
shares of common stock. The potential for the issuance of substantial numbers of additional shares
of common stock upon exercise of these warrants and option 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.
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We may choose to redeem outstanding warrants at a time that is disadvantageous to our warrant
holders.
Subject to there being a current prospectus under the Securities Act of 1933, as amended, with
respect to the shares of common stock issuable upon exercise of the warrants issued as a part of
the units in our initial public offering, we may redeem the warrants at any time after the warrants
become exercisable, in whole and not in part, at a price of $.01 per warrant, upon a minimum of
30 days prior written notice of redemption, if and only if, the last sales price of our common
stock equals or exceeds $11.50 per share for any 20 trading days within a 30 trading day period
ending three business days before the notice of redemption is sent. We may also elect to reduce the
warrant price in our sole discretion to encourage warrant holders to exercise their warrants to
purchase our common stock. Redemption of the warrants could force the warrant holders (i) to
exercise the warrants and pay the exercise price therefore at a time when it may be disadvantageous
for the holders to do so, (ii) to sell the warrants at the then current market price when they
might otherwise wish to hold the warrants, or (iii) to accept the nominal redemption price which,
at the time the warrants are called for redemption, is likely to be substantially less than the
market value of the warrants.
Although we are required to (and intend to) use our best efforts to have an effective registration
statement covering the issuance of the shares underlying the warrants issued in our initial public
offering at the time that the warrant holders exercise their warrants, we cannot guarantee that a
registration statement will be effective, in which case the warrant holders may not be able to
exercise their warrants.
Holders of the warrants issued in our initial public offering will be able to receive shares
upon exercise of the warrants only if (i) a current registration statement under the Securities Act
of 1933 relating to the shares of common stock underlying the warrants is then effective and
(ii) such shares are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of warrants reside. Although we have
agreed in the warrant agreement, and therefore have a contractual obligation, to use our best
efforts to maintain a current registration statement covering the shares underlying the warrants to
the extent required by federal securities laws, and we intend to comply with such agreement, we
cannot give assurance that we will be able to do so. In addition, some states may not permit us to
register the shares issuable upon exercise of our warrants for sale. The value of the warrants will
be greatly reduced if a registration statement covering the shares issuable upon the exercise of
the warrants is not kept current or if the securities are not qualified, or exempt from
qualification, in the states in which the holders of warrants reside. Holders of warrants who
reside in jurisdictions in which the shares underlying the warrants are not qualified and in which
there is no exemption will be unable to exercise their warrants and would either have to sell their
warrants in the open market or allow them to expire unexercised. If and when the warrants become
redeemable by us, we may exercise our redemption right even if we are unable to qualify the
underlying securities for sale under all applicable state securities laws.
Significant Risks Related Primarily to Our Operations in the Asia-Pacific Area
Sales of storage 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 storage units and related modification revenues constituted approximately 57% of
Royal Wolf total revenues for the quarter ended December 31, 2009. Sales are strongly correlated
with overall economic conditions, especially the natural resources sectors. Revenues from sales of
storage 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 storage
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.
Historically, 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.
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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 41% of Royal Wolfs revenues during the six months ended December 31, 2009. Although
we believe the variety of Royal Wolfs products, the breadth of its customer base and its
geographic diversity throughout Australia reduces its exposure to economic downturns, general
economic downturns or localized downturns in markets where its operates could reduce demand for
Royal Wolfs products and negatively impact our future revenues and results of operations.
Royal Wolf faces significant competition in the portable buildings industry and regional
competition in the portable storage market. Royal Wolf also faces potentially significant
competition from modular industry companies who have portable storage offerings, especially from
several national competitors in Australia who have greater financial resources and pricing
flexibility than Royal Wolf does. If Royal Wolf is unable to compete successfully in these
industries, it could lose customers and our future revenues could decline.
Although Royal Wolfs competition varies significantly by market, the portable buildings
market in which Royal Wolf competes is dominated by three or four large participants and is highly
competitive. In addition, Royal Wolf competes with a number of large to mid-sized regional
competitors, as well as many smaller, full and part-time operators in many local regions. The
modular space industry is highly competitive and almost all of the competitors have portable
storage product offerings. The primary modular national competitors with portable storage offerings
are less leveraged than Royal Wolf, and have greater financial resources and pricing flexibility
than Royal Wolf does. If they focus on portable storage, Royal Wolf could lose customers and our
future revenues could decline. If Royal Wolf is unable to compete successfully in these markets, it
could lose customers and our future revenues could decline.
Our customers lease our storage container products on primarily a month-to-month basis, and our
results of operations could be adversely affected by a downturn in economic activity .
Should a significant number of Royal Wolfs storage 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 storage container suppliers to deliver storage container products to Royal Wolf could
adversely affect its operations.
The failure of one or more storage container suppliers to deliver or timely deliver storage
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.
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Significant Risks Related to Primarily Our Business and Operations in the United States
General or localized economic downturns or weakness may adversely affect Pac-Vans customers, in
particular those in the construction industry, which may reduce demand for Pac-Vans products and
services and negatively impact our future revenues and results of operations.
A significant portion of Pac-Vans revenues is derived from customers who are in industries
and businesses that are cyclical in nature and subject to changes in general economic conditions,
including the construction industry, which constituted over 38% of Pac-Vans revenues for the six
months ended December 31, 2009. Although the variety of Pac-Vans products, the breadth of its
customer base and its geographic diversity throughout the United States limits its exposure to
economic downturns, general economic downturns or localized downturns in markets where its operates
could reduce demand for Pac-Vans products, especially in the construction industry, and negatively
impact our future revenues and results of operations.
Pac-Van faces significant competition in the modular buildings and portable storage industries.
Pac-Van also faces potentially significant competition from modular buildings companies who have
portable storage product offerings, especially from several national competitors in the United
States who have greater financial resources and pricing flexibility than Pac-Van does. If Pac-Van
is unable to compete successfully, it could lose customers and our future revenues could decline.
Although Pac-Vans competition varies significantly by market, the modular buildings markets
in which Pac-Van competes are dominated by two large participants and are highly competitive. In
addition, Pac-Van competes with a number of large to mid-sized regional competitors, as well as
many smaller, full and part-time operators in many local regions. The modular building industry is
highly competitive, subject to stiff pricing competition and almost all of the competitors have
portable storage product offerings. The primary modular national competitors with portable storage
product offerings are less leveraged than Pac-Van, and have greater financial resources and pricing
flexibility than Pac-Van does. If they focus on portable storage, Pac-Van could lose customers and
our future revenues could decline. If Pac-Van is unable to compete successfully, it could lose
customers and our future revenues could decline.
Because Pac-Van has depended to a large extent on the success of its leasing operations, the
failure of Pac-Van to effectively and quickly remarket lease units that are returned could
materially and adversely affect our results of operations.
The current economic recession in the U.S. has reduced utilization rates at Pac-Van to levels
at approximately 71% as of December 31, 2009, 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 37% of
Pac-Vans total revenues for the six months ended December 31, 2009. 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.
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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.
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.
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USE OF PROCEEDS
Although the actual amount will depend on participation in the rights offering, we
expect that the net proceeds from the rights offering will be
approximately $ million. We
intend to use the proceeds of the rights offering to reduce indebtedness and for general corporate
and working capital purposes.
DILUTION
Purchasers of Units in the rights offering (and upon exercise of the Warrants issued
pursuant to this rights offering) will experience an immediate dilution of the net tangible book
value per share of our common stock. Our net tangible book value as of September 30, 2009 was
approximately $1,792,000, or $0.10 per share of our common stock (based upon 17,826,052 shares of
our common stock outstanding). Net tangible book value per share is equal to our total net tangible
book value, which is our total tangible assets less our total liabilities and noncontrolling
interest, divided by the number of shares of our outstanding common stock. Dilution per share
equals the difference between the amount per share of common stock paid by purchasers of Units in
the rights offering (including the equivalent amount per share of common stock paid by our holders
of preferred stock in the rights offering) and the net tangible book value per share of our common
stock immediately after the rights offering.
Based on the aggregate offering of a maximum of 8,920,000 Units and after deducting
estimated offering expenses payable by us of approximately $, and the application of the
estimated $ of net proceeds from the rights offering, our pro forma net tangible book
value as of September 30, 2009 would have been approximately $ or $ per share.
This represents an immediate increase in pro forma net tangible book value to existing stockholders
of $ per share and an immediate dilution to purchasers in the rights offering of $
per share.
The following table illustrates this per-share dilution (assuming a fully subscribed
for rights offering of 8,920,000 Units at the subscription price of $ per Unit but
excluding any issuance of shares of common stock to holders of Warrants):
|
|
|
|
|
Price per Unit |
|
$ |
|
|
Net tangible book value per share prior to the rights offering |
|
$ |
0.10 |
|
Increase per share attributable to the rights offering |
|
$ |
|
|
Pro forma net tangible book value per share after the rights offering |
|
$ |
|
|
Dilution in net tangible book value per share to purchasers |
|
$ |
|
|
34
CAPITALIZATION
The following table sets forth our capitalization, cash and cash equivalents on an actual
basis as of September 30, 2009 and as adjusted to give effect to the rights offering, assuming net
proceeds of $ and after deducting the estimated offering expenses.
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
|
2009 |
|
|
|
Actual |
|
|
As Adjusted |
|
|
|
(Unaudited and in thousands) |
|
Cash and cash equivalents |
|
$ |
29 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
240,422 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
9,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value, 100,000,000 shares authorized, 17,826,052 shares issued and outstanding |
|
|
2 |
|
|
|
|
|
Series A Preferred Stock, $0.0001 par value, 900,000 shares authorized, 24,900 shares outstanding |
|
|
1,245 |
|
|
|
|
|
Series B Preferred Stock, $0.0001 par value, 100,000 shares authorized, 100 issued and outstanding |
|
|
100 |
|
|
|
|
|
Additional paid-in capital |
|
|
105,560 |
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
(903 |
) |
|
|
|
|
Retained earnings |
|
|
1,510 |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
107,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
357,127 |
|
|
$ |
|
|
|
|
|
|
|
|
|
DESCRIPTION OF SECURITIES TO BE REGISTERED
The following is a summary of some of the terms of the Units, the Warrants and a description
of our common stock. This summary contains a description of the material terms of the securities
but is not necessarily complete. We refer you to our certificate of incorporation and by-laws,
copies of which are available upon request as described under Where You Can Find Additional
Information.
We have the authority to issue 101,000,000 shares of capital stock, consisting of 100,000,000
shares of common stock, $0.0001 par value per share, and 1,000,000 of preferred stock, $0.0001 par
value per share, which can be issued from time to time by our board of directors on such terms and
conditions as they may determine. As of the date of this prospectus, there were approximately
17,826,052 shares of common stock outstanding, 25,900 shares of Series A Preferred Stock
outstanding and 100 shares of Series B Preferred Stock outstanding. As of December 31, 2009, we
had over 8,000,000 shares of common stock reserved for issuance underlying currently issued and
outstanding warrants and outstanding options.
Warrants
As of December 31, 2009, there were outstanding (i) warrants to purchase up to
750,000 shares of our common stock at an exercise price per share of $7.20; (ii) warrants to
purchase up to 500,000 shares of our common stock at an exercise price per share of $8.00; and
(iii) warrants to purchase up to 5,072,380 shares of our common stock at an exercise price per
share of $6.00.
Each Warrant to be issued as part of the Units will be a three-year warrant to
purchase 0.5 shares of our common stock at an exercise price of $4.00 per share, subject to our
right to call the warrant under certain conditions. The warrants will not include any anti-dilution
adjustment provisions for issuances of securities below $4.00 per share, subject to customary
exceptions.
Prior to exercise, the Warrants do not confer upon holders any voting or any other
rights as a stockholder.
35
Common Stock
Holders of our common stock are entitled to one vote per share on all matters requiring a vote
of stockholders, including the election of directors.
Ronald F. Valenta, our President, Chief Executive Officer and one of our directors,
beneficially owns approximately 21.2% of our outstanding common stock. Consequently, Mr. Valenta,
as one of our principal stockholders, has the power, and may continue to have the power, to have
significant control over the outcome of any matter on which the stockholders may vote.
Holders of our common stock are entitled to receive dividends only if we have funds legally
available and the board of directors declares a dividend.
Holders of our common stock do not have any rights to purchase additional shares. This right
is sometimes referred to as a preemptive right.
Upon a liquidation or dissolution, whether in bankruptcy or otherwise, holders of common stock
rank behind our secured and unsecured debt holders, and behind any holder of any series of our
preferred stock.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation
Certain provisions of Delaware law and our certificate of incorporation could make more
difficult the acquisition of us by means of a tender offer or otherwise, and the removal of
incumbent officers and directors. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us.
Our Certificate of Incorporation and Bylaws include provisions that allow the board of
directors to issue, without further action by the stockholders, shares of undesignated preferred
stock.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging under certain circumstances, in a business combination with an interested
stockholder for a period of three years following the date the person became an interested
stockholder unless:
|
|
|
prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder. |
|
|
|
|
upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the
number of shares outstanding (1) shares owned by persons who are
directors and also officers and (2) shares owned by employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer. |
|
|
|
|
on or subsequent to the date of the transaction, the business
combination is approved by the board and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. An interested stockholder is a
person who, together with affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a corporations outstanding
voting securities. The existence of this provision may have an anti-takeover effect with respect to
transactions our board of directors does not approve in advance. Section 203 may also discourage
attempts that might result in a premium over the market price for the shares of common stock held
by stockholders.
These provisions of Delaware law and our certificate of incorporation could have the effect of
discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit
temporary fluctuations in the market price of our common stock that often result from actual or
rumored hostile takeover attempts. These provisions may also have the effect of preventing changes
in our management. It is possible that these provisions could make it more difficult to accomplish
transactions that stockholders may otherwise deem to be in their best interests.
Transfer Agent
Continental Stock Transfer & Trust Company, 17 Battery Place, 8th Floor, New York,
New York 10004 is our registrar and transfer agent for our common stock. We have engaged
Continental Stock Transfer & Trust Company to act as the subscription agent in connection with this
offering and to act as transfer agent for the rights to be distributed in this offering.
36
BUSINESS
The following summary contains information about General Finance Corporation and the offering
of our Units, Warrants and common stock in this rights offering. For a more complete understanding
of this offering, you should read the entire prospectus carefully, including the risk factors. You
should rely only on the information contained in this prospectus. We have not authorized anyone to
provide you with different information. We are not making an offer of these securities in any
jurisdiction where the offer is not permitted. It does not contain all of the information that may
be important to you in making a decision to purchase our Units, Warrants and common stock. For a
more complete understanding of General Finance Corporation and the offering of its Units, Warrants
and common stock, we urge you to read this entire prospectus and the documents incorporated by
reference carefully, including the Risk Factors sections and our financial statements and the
notes to those statements incorporated by reference herein.
References in this prospectus to we, us, our or the Company refer to General Finance
Corporation, a Delaware corporation, and its direct and indirect subsidiaries, including GFN North
America Corp., a Delaware corporation, which we refer to as GFNNA, and its subsidiary Pac-Van,
Inc., an Indiana corporation which we refer to as Pac-Van, GFN Mobile Storage Inc., a Delaware
corporation which we refer to as GFNMS, GFN U.S. Australasia Holdings, Inc., a Delaware
corporation which we refer to as GFN U.S., its subsidiary GFN Australasia Holdings Pty Limited,
an Australian corporation which we refer to as GFN Holdings, its subsidiary GFN Australasia
Finance Pty Limited, an Australian corporation, which we refer to as GFN Finance, and its
subsidiary RWA Holdings Pty Limited, an Australian corporation which we refer to as RWA. RWA and
its subsidiaries are collectively referred to herein as Royal Wolf.
Company Overview
Our strategy and business plan is to acquire rental services and specialty finance businesses
in North America, Europe and the Asia-Pacific area. We currently have two operating company
subsidiaries, Royal Wolf and Pac-Van that 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.
As of June 30, 2009, Royal Wolf and Pac-Van had 227 and 202 employees and 28,227 and 11,347
lease fleet units in the Asia-Pacific area and United States, respectively. Currently, only Pac-Van
leases and sells modular space products. Prior to our acquisition of Pac-Van, our revenue mix was
approximately 70% sales and 30% leasing. However, during the year ended June 30, 2009 the mix was
52% sales and 48% leasing.
The products offered by Pac-Van and Royal Wolf include the following:
Modular Space
Modular Buildings. Also known as manufactured buildings, modular buildings provide customers
with additional space and are often tailored specifically to satisfy the unique needs of the
customer. Depending on the customers desired application, modular buildings can 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 (GLO), 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 generally consist of used shipping containers that have
been purchased and refurbished and 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 trailers,
also known as storage vans 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.
37
Royal Wolf
Royal Wolf is the leading provider in Australia and New Zealand of portable storage
containers, portable container buildings and freight containers, which we refer to collectively as
storage container products. Royal Wolf leases and sells storage container products through its 24
CSCs located in every state in Australia and in the North and South Islands of New Zealand. We
believe Royal Wolf has the largest lease fleet of storage container products in Australia and New
Zealand. Royal Wolf is the only portable container lease and sales company with CSCs in all major
business centers in Australia and New Zealand and, as such, is the only storage container products
company in Australia and New Zealand with a national infrastructure and work force. Royal Wolf has
an experienced senior management team. Robert Allan, the chief executive officer of Royal Wolf, has
25 years of experience in the equipment leasing industry. The eight members of the senior
management team of Royal Wolf have an average of over 10 years of experience in the equipment
leasing industry. We believe the experience of this management team will be critical to growing
Royal Wolfs business.
Royal Wolfs storage container products are used by a broad range of industries. Our storage
container products provide secure, accessible temporary storage for a diverse client base of over
19,700 large and small customers who conduct business in industries that include mining, road and
rail, construction, moving and storage, manufacturing, transportation, defense and in the support
of small and medium-size entities. Our customers use our products for a wide variety of storage
applications, including retail and manufacturing inventory, construction materials and equipment,
documents and records and household goods.
We are pursuing a long-term strategy focused on growing our leasing operations, generating
strong internal growth and leveraging our infrastructure through acquisitions, as follows:
Focus on Mobile Storage Leasing Business. We focus on growing our core leasing business
because it provides predictable, recurring revenue and high margins. We believe that we can
generate substantial demand for our storage container products as the container storage and
portable container building industry is relatively underdeveloped in Australia and New Zealand. We
believe the underdeveloped nature of the market presents significant growth opportunities for Royal
Wolf. Although mobile storage, domestic freight movement and portable building applications are
increasing, we believe many more uses for our storage container products are still to be developed.
Royal Wolfs market opportunity is to fully develop and service these applications.
Generate Strong Internal Growth. We define internal growth as an increase in lease revenues on
a year-over-year basis at our CSCs in operation for at least one year, without inclusion of leasing
revenue attributed to same-market acquisitions. We continue to focus on increasing the number of
storage containers we lease from our existing branches to both new and repeat customers as well as
changing the billing methodologies that are represented in the U.S. market, such as billing in
advance, a 28-day billing cycle, fuel surcharges and a damage waiver program. Historically, we have
been able to generate strong internal growth within our existing markets through sales and
marketing programs designed to increase brand recognition, expand market awareness of the uses of
mobile storage and differentiate our products from our competitors.
Leverage our Infrastructure through Acquisitions. Our branch network infrastructure covers a
broad geographic area and is capable of serving additional volume at minimal levels of additional
fixed costs. Our objective is to add volume by organically growing the lease fleet in these
locations and through acquisitions. Asset purchases of tuck in competitors to existing or
acquired CSCs or adding new fleets allows us to more effectively leverage our infrastructure. In
addition, the corporate infrastructure of Royal Wolf is capable of managing existing fleets and
locations in geographies outside of Australia and New Zealand, but within the Asia-Pacific area.
From September 2007 through June 2009, Royal Wolf completed six acquisitions:
|
|
|
In November 2007 we acquired substantially all of the assets of GE
SeaCo Australia Pty Ltd. (GeSeaco) for $17.9 million. The
acquisition added more than 6,300 containers to Royal Wolfs fleet, of
which 4,600 units are leased by approximately 200 mid-sized businesses
and approximately 20 national accounts serving such industries as road
and rail, moving and storage and logistics. Prior to the acquisition,
we believe GE SeaCo was the third largest storage container lessor in
Australia. GE SeaCo exited the domestic container leasing market in
Australia through this transaction and the simultaneous sale of its
tank container business. Royal Wolf assumed several depot and agency
contracts, including a third party sales agreement for intermodal
containers from the GE SeaCo international fleet. |
38
|
|
|
|
In February 2008 we acquired the dry and refrigerated container assets of Container Hire
and Sales (CHS), located south of Perth, Australia for $3.8 million. With this
acquisition, Royal Wolf added 630 storage containers, of which approximately 570 units
were leased in the mining dominated Western Australia marketplace. This acquisition
ultimately consolidated with an existing CSC in the Bibra Lakes suburb, south of Perth. |
|
|
|
|
|
On April 30, 2008 (May 1 in New Zealand), we acquired RWNZ Acquisition Co. Limited
(RWAC) and its wholly owned subsidiary Royalwolf Trading New Zealand (RWNZ), believed
to be the largest marketer and lessor of storage containers in New Zealand, for
approximately $17.0 million. Through this acquisition Royal Wolf acquired more than 5,800
storage containers, of which approximately 5,000 storage containers were in the leasing
fleet that are primarily delivered through five branches or customer service centers. |
|
|
|
|
In June 2008, we acquired 162 storage containers from Container Hire & Storage Pty Ltd,
d/b/a Tomago Self-Storage, in Tomago, New South Wales for approximately $427,000. |
|
|
|
|
|
In July 2008, we acquired the business of NT Container Services for $1,028,000. |
|
|
|
|
|
|
In October 2008, we purchased the business of Ace Container Services Pty Ltd for $741,000. |
|
As a result of these acquisitions and organic growth, Royal Wolfs lease fleet grew to
approximately 27,400 units as of December 31, 2009.
Industry Overview
The storage industry includes two principal markets, fixed self-storage and mobile storage.
The fixed self-storage market consists of permanent structures located away from customer locations
used primarily by consumers to temporarily store excess household goods. Although we have
containers that are used for self-storage on our sites and have sites that are focused on
self-storage such as Auckland and Christchurch in New Zealand and Tomago in Australia, we do not
participate in the fixed self-storage market with permanent structures.
The portable storage market, in which we operate, differs from the fixed self-storage market
in that it brings the storage solution to the customers location and addresses the need for
secure, temporary storage with immediate access to the storage unit. The advantages of portable
storage include convenience, immediate accessibility, better security and lower costs. In contrast
to fixed self-storage, the portable storage market is primarily used by businesses.
Mobile Storage Container Market
Since the mid-1990s, the storage container industry in Australia and New Zealand has developed
into a stable market analogous to the marine container business of 20 or 25 years ago. Marine
containerization displaced less efficient and more expensive specialized equipment. We believe
mobile storage containers are achieving increased market share compared to the other options
because of an increasing awareness that containers provide ground level access, durable protection
against damage caused by wind or water and custom modifications tailored to customers specific
uses.
We are not aware of any published third-party analysis of the Australia and New Zealand mobile
storage container markets. Based upon internal analysis, Royal Wolfs management team estimates
that the mobile storage market in Australia and New Zealand currently generates annual revenues of
approximately $153 million (AUS$190 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:
|
|
|
The level of knowledge among potential customers regarding the
availability and benefits of containerized storage in key Australia
and New Zealand markets, such as the construction and mining
industries, is still relatively low; |
|
|
|
|
Suppliers and customers continue to develop further uses for mobile
storage containers, thereby broadening the market for mobile storage
containers; and |
|
|
|
|
As the market leader in Australia and New Zealand, Royal Wolf has
consistently achieved organic growth based, in part, on growth in the
market as a whole. |
39
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 Simply Containers, Cronos, Macfield and ANL CGM, as well as smaller, full and part-time
operators. Local competitors are regionally focused, and are usually more capital-constrained.
Therefore, in general, most are heavily reliant on monthly sales performance, have slowly growing
rental fleets and have limited ability to transact larger deals. The New Zealand market is even
more fragmented.
The following table lists Royal Wolfs principal competitors in the mobile storage container
market in Australia. This information was compiled by Royal Wolfs management team based upon
informal estimates and internal surveys of competitor rental fleet size, annual sales volumes and,
where possible, external information such as competitor newsletters, placement of advertising in
regional yellow pages and discussions with corporate customers and suppliers of used boxes; such as
wholesalers, shipping lines and container fleet lessors. We have no independent corroboration of
this market information, and there is no assurance that this internally-generated information is
accurate or complete.
|
|
|
Competitor |
|
Scope of Operations |
Simply Containers
|
|
National |
Macfield
|
|
Regional |
Cronos
|
|
National |
ANL CGM
|
|
National |
Portable Container Buildings Market
The portable container buildings market in Australia was estimated to have generated revenue
totaling $776 million (AUS$964 million) during the year ended June 30, 2006, of which approximately
$460 million (AUS$571 million) relates to the markets in which Royal Wolf offers a competing
product, according to reports from IBIS World Industry Report published in March 2006. The portable
buildings market consists of the following:
|
|
|
Engineering, construction and resources approximately 50%. |
|
|
|
|
Non-residential building construction approximately 35%. |
|
|
|
|
Recreation and holiday market approximately 15%. |
Within the engineering, construction and resources market, portable container buildings are
used for site offices, toilet and shower facilities, and worker housing and temporary accommodation
blocks. This market is influenced by trends in public and private sector spending on
infrastructure, generally, and, particularly, mine development and road and pipeline construction.
Demand from the non-residential buildings market principally stems from the demand for work
sheds, site offices, industrial garages and temporary warehousing.
We believe the recreation and holiday market is increasingly becoming an important source of
demand, particularly for the supply of fitted out cabins to be used as rental accommodations and
second homes on purchased blocks of land. Growth in demand has been driven by growth in disposable
income and increased leisure time associated with an aging population.
We believe that the portable container buildings market will grow over the long-term term,
driven in part by a cyclical expansion in the mining and construction markets. We believe that the
advantages of containerized portable buildings over traditional portable buildings of
transportability, security and flexibility are highly valued in the mining and construction
markets. We believe these markets represent a significant growth opportunity for Royal Wolf.
In the portable container buildings markets, Royal Wolf competes with three or four other
large participants who manufacture their own units and most of whom offer units for both lease and
sale to customers. These competitors include Coates, Atco, Ausco and Nomad. At present, Royal Wolf
has a small presence in this market. The major barrier to entry for new participants is the degree
of market penetration necessary to create a wide profile with contractors and clients. Penetrating
and competing with the range of products and number of depots and agencies offered by incumbent
operators tends to inhibit new entrants. As Royal Wolf already has a national sale and distribution
network, established supply channels and a strong profile in its target markets, many of the
barriers to entry applicable to other new entrants are not applicable to it.
40
The following table lists Royal Wolfs principal competitors in the Australian portable
buildings market:
|
|
|
Competitor |
|
Scope of Operations |
Coates
|
|
National |
Ausco
|
|
National |
Nomad
|
|
National |
Atco
|
|
National |
Freight Container Market
Based upon internal analysis, Royal Wolfs management team estimates that the freight
container market in Australia generates approximately $30 million (AUS $37 million) in aggregate
annual lease and sales revenues. The rate of growth in this industry has been slow compared with
the portable container storage and portable container buildings market, which reflects the relative
maturity of this industry. Although there is potential for growth in the freight container market
as more road and rail carriers recognize the efficiencies of containerization, Royal Wolfs present
strategy is to maintain rather than grow its container fleet in this sector. Competitors include
MacField, Cronos and Simply Containers.
The following table lists Royal Wolfs principal competitors in the Australian freight
container market:
|
|
|
Competitor |
|
Scope of Operations |
Macfield
|
|
National |
Cronos
|
|
National |
Simply Containers
|
|
National |
ANL
|
|
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:
|
|
|
|
|
|
|
Mobile storage containers:
|
|
10-foot, 20-foot and 40-foot general purpose units |
|
|
|
|
Double pallet-wide high cube units |
|
|
|
|
Hazardous goods containers |
|
|
|
|
Refrigerated containers |
|
|
|
|
|
|
|
Portable container buildings:
|
|
Site offices and cabins |
|
|
|
|
Workforce accommodation units |
|
|
|
|
Luxury accommodation units |
|
|
|
|
Restroom blocks |
|
|
|
|
Blast-resistant units |
|
|
|
|
Specialized office and infrastructure suites |
|
|
|
|
|
|
|
Freight Containers:
|
|
Curtain-side containers |
|
|
|
|
20-foot and 40-foot Hi-cube containers |
|
|
|
|
20-foot and 40-foot two pallet-wide containers |
|
|
|
|
Side-opening door containers |
|
|
|
|
20-foot bulk containers |
Mobile Storage Containers. Royal Wolf leases and sells mobile storage containers, some of
which are customized for specific customers, for on-site storage by customers. These customers
include retail outlets and manufacturers, government departments, farming and agricultural
concerns, building and construction companies, clubs and sporting associations, mine operators and
the general public. Royal Wolfs products include general purpose dry storage containers,
refrigerated containers and hazardous goods containers in a range of standard and modified sizes,
designs and storage capacities.
41
The amount and percent of Royal Wolfs total sales and leasing of mobile storage container
revenues for the fiscal year ended June 30, 2009 were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
45.2 |
|
|
|
81 |
% |
Leasing |
|
|
25.9 |
|
|
|
72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile storage containers in lease fleet |
|
|
18,449 |
|
|
|
65 |
% |
|
|
|
|
|
|
|
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.
The amount and percent of Royal Wolfs total sales and leasing of portable container
building revenues for the fiscal year ended June 30, 2009 were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
8.3 |
|
|
|
15 |
% |
Leasing |
|
|
3.9 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portable container buildings in lease fleet |
|
|
1,758 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
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.
The amount and percent of Royal Wolfs total sales and leasing of freight container revenues
for the fiscal year ended June 30, 2009 were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
2.4 |
|
|
|
4 |
% |
Leasing |
|
|
6.4 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight containers in lease fleet |
|
|
8,020 |
|
|
|
29 |
% |
|
|
|
|
|
|
|
Most of our fleet is comprised of new and refurbished and customized storage containers,
manufactured steel containers and record storage units, along with our freight and accommodation
units. These products are designed for long useful lives.
A portion of our fleet consists of used storage containers of eight to 12 years in age, a time
at which their useful life as ocean-going shipping containers is over according to the standards
promulgated by the International Organization for Standardization, which we refer to as ISO.
Because we do not have the same stacking and strength requirements that apply in the ocean-going
shipping industry, we have no need for these containers to meet ISO standards. We purchase these
containers in large quantities, refurbish them by removing any rust and paint them with a rust
inhibiting paint, and further customize them, and add our decals and branding.
We maintain our steel containers on a regular basis by painting them on average once every
three to five years, removing rust, and occasionally replacing the wooden floor or other parts.
This periodic maintenance keeps the container in good condition and is designed to maintain the
units value and rental rates comparable to new units.
Product Procurement
Royal Wolf purchases marine cargo containers from a wide variety of international shipping
lines and container leasing companies and new container products directly from storage container
manufacturers in China. We believe Royal Wolf is the largest buyer of both new and used storage
container products for the Australia and New Zealand markets. The majority of used storage
containers purchased is standard 20-foot and 40-foot units which Royal Wolf converts, refurbishes
or customizes. Royal Wolf purchases new storage containers directly from container manufacturers.
42
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, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Container |
|
Suppliers |
|
Type of Product Purchased |
|
|
Purchases |
|
Nantong CIMC |
|
New |
|
|
29 |
% |
Dong Fang |
|
New |
|
|
9 |
% |
Singamas |
|
New |
|
|
8 |
% |
Eastern Container
Alliance |
|
New |
|
|
7 |
% |
|
|
|
|
|
|
|
|
Royal Wolf purchases new storage container products under purchase orders issued to container
manufacturers, which the manufacturers may or may not accept or be able to fill. There are several
alternative sources of supply for storage containers. Though Royal Wolf is not dependent upon any
one manufacturer in purchasing storage container products, the failure of one or more of its
suppliers to timely deliver containers to Royal Wolf could adversely affect its operations. If
these suppliers do not timely fill Royal Wolfs purchase orders or do not properly manufacture the
ordered products, Royal Wolfs reputation and financial condition also could be harmed.
In connection with a Business Sale Agreement dated November 14, 2007 with GE SeaCo, Royal Wolf
entered in a preferred supply agreement with GE SeaCo. Under the preferred supply agreement, GE
SeaCo has agreed to sell to Royal Wolf, and Royal Wolf has agreed to purchase, all of GE SeaCos
containers that GE SeaCo determines to sell, up to a maximum of 5,000 containers each year. The
purchase price for the containers will be based on their condition and is specified in the
agreement, subject to annual adjustment. In addition, Royal Wolf received a right of first refusal
to purchase any additional containers that GE SeaCo desires to sell in Australia, New Zealand and
Papua New Guinea. Either party may terminate the agreement upon no less than 90 days prior notice
at any time after November 15, 2012. Approximately 1,520 units were purchased under this contract
during the year ended June 30, 2009.
Branch network
Royal Wolf leases and sells its storage container products from an Australia and New Zealand
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 includes 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:
43
Each CSC has a branch manager who has overall supervisory responsibility for all
activities of the CSC. Branch managers report to one of our six regional managers. Our regional
managers, in turn, report to our CSC or retail manager. Performance based incentive bonuses are a
portion of the compensation for the CSC, regional and branch managers.
Each branch has its own sales force, and we are introducing a transportation department that
will deliver and pick up mobile storage units from customers in certain hub areas. Each branch has
forklifts to load, transport and unload units and a storage yard staff responsible for unloading
and stacking units. Steel units can be stored by stacking them three-high to maximize usable ground
area. Our larger branches also have a fleet maintenance department to make modifications to the
containers and maintain the branchs forklifts and other equipment. Our smaller branches perform
preventative maintenance tasks and outsource major repairs.
Except for the Auckland, New Zealand self-storage and regional office site, we lease all of
our branch locations and Royal Wolfs corporate and administrative offices in Hornsby, New South
Wales. All of our major leased properties have remaining lease terms of between one month and 15
years, and we believe that satisfactory alternative properties can be found in all of our markets,
if we do not renew these existing leased properties. Reference is made to Item. 2 Properties for a
more detailed description of our leased facilities.
Customers
Royal Wolf has a broad base of over 19,000 active customers, with only two customers
constituting more than 2% of our annual revenue for the fiscal year ended June 30, 2009. Our
customer base includes the retail and manufacturing sectors, councils and government departments,
the farming and agricultural community, the building and construction industry, clubs and sporting
associations, the mining sector and the general public. We believe the disparity of Royal Wolfs
customer base reduces the business exposure to a significant downturn in any particular industry.
Royal Wolf provides its customers a solutions-oriented approach, with high reliability in
equipment quality and supply, with prompt and efficient delivery and pick-up, and with superior
service and product knowledge. This is supported by a highly responsive national marketing team,
in-house finance, and control and engineering expertise and nationally linked fleet management and
accounting systems. Royal Wolf is the largest and only truly national supplier of container
products in Australia and New Zealand, and the only container company with the scale and capacity
to service a full range of customers; from small local accounts right through to the largest
national businesses. Royal Wolfs diverse customer base uses mobile storage containers for a
variety of uses:
For the Fiscal Year Ended June 30, 2009
44
|
|
|
|
|
Temporary storage of excess inventory for the retail and wholesale industries; and |
|
|
|
|
|
|
Offices, workshops or storerooms; |
|
|
|
|
|
|
|
Portable work camps for the resources industry, including accommodations,
ablution and kitchen containers; |
|
|
|
|
|
|
|
Blast resistant containers for refineries; |
|
|
|
|
|
|
|
Rapid deployment storage for the military, emergency services and disaster relief; |
|
|
|
|
|
|
|
Lost-cost accommodations for remote communities and caravan parks; |
|
|
|
|
|
|
|
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 one
of the suppliers that potential customers call.
Fleet Management
Royal Wolf regularly re-locates containers between its CSCs to meet peaks in regional demand
and optimize inventory levels. Royal Wolf has close relationships with the national road and rail
hauling companies that enable it to transport the majority of containers interstate at attractive
rates.
Royal Wolfs management information systems are instrumental to its fleet management and
targeted marketing efforts. Fleet information is updated daily at the CSC level which provides
management with on-line access to utilization, leasing and sale fleet unit levels and revenues by
branch or geographic region.
Management Information and Back Office Systems
Our management information systems, including the RMI and Navision software programs, are
scalable and provide us with critical information to manage our business. Utilizing our systems, we
track a number of key operating and financial metrics including utilization, lease rates, customer
trends and fleet data. All our branches use RMI/Navision and our support office provides financial,
inventory and customer reports for branch managers.
Employees
As of December 31, 2009, Royal Wolf employed 224 full-time employees. 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.
45
Pac-Van
Pac-Van competes in both the modular space and the mobile storage industries in the United
States. Modular space includes mobile offices and modular buildings and involves the rental and
sales of factory built structures delivered to and set-up on 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 long-term strategy focused on growing our leasing operations, diversifying
our product offerings in storage containers and modular buildings, maintaining disciplined cost
controls and completing accretive acquisitions.
Focus on Leasing Business. We focus on increasing our core leasing business because it
generates predictable, recurring revenues and high profit margins. Pac-Van seeks to use its
experienced management team to optimize leasing rates and lease fleet utilization in its 26 core
markets. Pac-Van branch office systems permits it to shift its fleet of more than 11,000 units 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 as demand allows. 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 largest competitors. This size enables Pac-Van to quickly introduce
storage container products demanded by customers, curtail 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.
Accretive Acquisitions. Pac-Van will continue 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. In December
2008, Pac-Van purchased the business of Container Wholesalers for $499,000.
Industry Overview
Pac-Van primarily competes in the modular space industry in the United States. The Modular
Building Institute, in its State of the Industry 2006 report, estimates 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.
46
Although Pac-Vans competition varies significantly by market, the modular space industry, in
general, is highly competitive. Pac-Van competes primarily in terms of product availability and
quality, customer service, and price. We believe that Pac-Vans reputation for customer service and
its ability to offer a wide selection of units suitable for various uses at competitive prices
allows 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 used for
temporary storage. We believe that participants in Pac-Vans 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. We believe Pac-Van possesses
the following strengths:
Extensive Geographic Coverage. With a lease fleet of over 11,000 units, Pac-Van is a national
participant in the mobile and modular sectors of the portable services industry. Pac-Vans branch
offices serve 17 of the 50 largest Metropolitan Statistical Areas, or MSAs, in the United States.
Pac-Van serves a diverse base of national, regional and local customers. The size of Pac-Vans
fleet also allows Pac-Van to offer a wide selection of products to its customers and to achieve
purchasing efficiencies.
Diversified Customer Base. Pac-Van has established strong relationships with a diverse
customer base in the U.S., ranging from large companies with a national presence to small local
businesses. For the year ended June 30, 2009; which, for Pac-Van, would be for nine months since
the date of acquisition (FY09), Pac-Van leased or sold its portable storage products to over 6,500
customers. In FY09, Pac-Vans largest customer accounted for approximately 6% of its total revenues
and Pac-Vans top ten customers accounted for approximately 17% of its total revenues. We believe
that the diversity of Pac-Vans business limits, to some degree, a significant impact on it of
changes in any given customer, geography or end 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 by reacting
quickly and effectively to satisfy their needs. 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. We believe this focus on customer service attracts new and
retains existing customers. In FY09, more than 79% 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 increasing the yield of its lease fleet. During the last five years, Pac-Van has achieved
stable annual yields on its lease fleet investment. A significant portion of Pac-Vans capital
expenditures are discretionary in nature, thus providing Pac-Van with the flexibility to readily
adjust the amount that it spends based on its business needs and prevailing economic conditions.
High Quality Fleet. Pac-Vans branches maintain their lease fleet to consistent quality
standards. Maintenance is expensed as incurred and branch managers and operations staff are
responsible for managing a maintenance program aimed at providing equipment to customers that meets
or exceed customer expectations and industry standards.
Experienced Management Team. Pac-Van has an experienced and proven senior management team,
with its seven most senior managers having worked at Pac-Van for an average of more than ten years.
Pac-Vans President, Theodore M. Mourouzis, joined Pac-Van in 1997 and the consistency of the
senior management, corporate and branch management teams has been integral in developing and
maintaining its high level of customer service, deploying technology to improve operational
efficiencies and integrating acquisitions.
Products and Services
Pac-Van provides a broad range of products to meet the space 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:
47
Modular Buildings. Modular buildings are factory-built, portable structures generally
consisting of two or more floors and are used in a wide variety of applications, ranging from
schools to restaurants to medical offices. Ranging in size from 1,000 to more than 30,000 square
feet, the companys modular buildings are constructed in many sizes and are usually designed to
satisfy unique customer requirements. Like mobile offices, Pac-Van procures modular buildings from
an established network of manufacturing partners to meet state building requirements, and generally
obtains multiple state codes for each unit. Modular buildings represent approximately 35% 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. In addition to the basic
amenities included in a field office, sales offices generally have wood siding, carpeting, high
ceilings, custom windows, and glass storefront doors, which provide a professional,
customer-friendly building in which to conduct business. GLOs are storage containers that have been
modified to include office space with feature similar to those found in construction offices. Like
storage containers, 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 GLOs,
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 58% 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 ISO standards for carrying ocean
cargo. Pac-Van purchases new and used storage containers. Domestic storage containers are generally
eight or 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 lease fleet.
All of Pac-Vans lease fleet carry signage reflecting the companys brand, important to the
ongoing branding and name recognition in marketing our products.
Delivery and Other Site Services. Pac-Van delivers and 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 FY09, we estimate that nearly 23% of sales came
from existing fleet units. The sale of these in-fleet units has historically been a cost-effective
method of replenishing and upgrading its 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.
48
Equipment Summary by number of units as of December 31, 2009:
Equipment Summary by dollar value as of June 30, 2009 (thousands):
Leasing. Leasing revenues are driven by average monthly rental rate, fleet size and
utilization. Pac-Van monitors fleet utilization at each branch. For FY09, average fleet utilization
was approximately 77%. While Pac-Van adjusts its pricing to respond to local competition in
markets, we believe 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
leasing operations, Pac-Van sells used modular space units from its lease 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.
New Unit Sales. New unit sales include sales of newly-manufactured modular space units.
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. New modular space units are generally
purchased more heavily in the late spring and summer months due to seasonal classroom and
construction market requirements.
Delivery and Installation. Pac-Van provides delivery, site-work, installation and other
services to its customers as part of its leasing and sales operations. Revenues from delivery,
site-work and installation result from the transportation of units to a customers location,
site-work required prior to installation and installation of the units which have been leased or
sold. Typically units are placed on temporary foundations constructed by service technicians, and
service personnel will also generally install ancillary products. Pac-Van also derives revenues
from dismantling and transporting units upon lease expiration.
Product Procurement and Capital Expenditures
Pac-Van closely monitors fleet capital expenditures, which include fleet purchases and any
improvement costs to existing units that may be capitalized. Generally, fleet purchases are
controlled by field and corporate executives, and must pass fleet purchasing policy guidelines
(which include ensuring that utilization rates and unrented units levels are reviewed for
acceptability, that redeployment, refurbishment and conversion options have been considered and
that specific returns on investment criteria have been evaluated). Pac-Van purchases modular and
mobile office units through third-party suppliers. The top three suppliers of units for FY09
represented approximately 39% of all fleet purchases, and the top ten suppliers represented
approximately 70% of all fleet purchases.
49
We 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. For example, gross fleet
capital expenditures, prior to proceeds from sales of used units, for the nine months ended
September 30, 2008 were approximately $16.1 million, but only $3.3 million for the nine months
ended June 30, 2009. Purchases of delivery vehicles and yard equipment have averaged approximately
$0.8 million for the nine months ended September 30, 2008 and June 30, 2009, respectively. This is
the equivalent of maintenance capital expenditures.
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 acquisition opportunities become
available.
Branch Network
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 its infrastructure, redeploy units
within its branch network to optimize utilization, provide optimum equipment levels for customer
demand and offer profitable short-term leases which would not be profitable without a local market
presence.
Branches are generally headed by a dedicated branch manager, and branch operations are led by
three regional vice presidents who collectively average more than 10 years of experience with
Pac-Van. We believe 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.
Refurbishment
and Maintenance of Fleet
Ongoing maintenance to Pac-Vans lease fleet is performed on an as-needed basis and is
intended to maintain the value of its units and keep them in lease-ready condition. Most of this
maintenance on storage containers, storage trailers and mobile offices is primarily performed
in-house. 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. Brake repairs are typically outsourced. Maintenance requirements for offices tend to be more
significant than for storage containers or storage trailers 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 in leasing, selling, and general expenses and is
expensed as incurred. We believe that Pac-Vans maintenance program ensures a high quality fleet.
50
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 fiscal year 2009,
Pac-Van provided its portable storage, mobile office and modular building products to a diversified
base of approximately 6,500 national, regional and local companies in a variety of industries
including, construction, industrial, manufacturing, education, service and government sectors. This
distribution reflects both the strength of Pac-Vans branch network and the many uses of its
products.
In the fiscal year 2009, Pac-Van generated 64% of its revenues from leasing and 36% of its
revenues from sales. Pac-Vans largest leasing customer accounted for approximately 2% of total
leasing revenues and its top ten customers accounted for approximately 9% of its total leasing
revenues. The following chart shows the percentage of revenues generated by different industries in
FY09:
Construction. Construction customers include a diverse group of contractors and subcontractors
who work on both commercial and residential projects. We believe Pac-Vans construction customer
base is characterized by a wide variety of contractors and subcontractors, including general
contractors, mechanical contractors, plumbers, electricians and roofers. Pac-Vans revenues
generated from the construction industry approximated 45% in FY09. Contractors typically use
Pac-Vans products to provide on-site office facilities and to securely store construction
materials and supplies at construction sites. Nevertheless, we believe the majority of 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 any health care entity that provides 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.
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. Commercial customers include a wide variety of businesses, usually businesses that
sell services, but exclude 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.
51
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 government
projects. They also lease mobile offices and modular buildings for classrooms, training offices and
general office space.
Education. Education customers include both public and private schools and day care
facilities, and include 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, 2009, Pac-Vans sales and marketing team consisted of 37 people. 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 Yellow Pages; prominent branding of its equipment, telemarketing, targeted
mailings, trade shows and limited advertising in publications.
The development of Pac-Vans marketing programs involves branch managers, regional vice
presidents and senior management, all of whom participate in devising branch-by-branch marketing
strategies, demand forecasts and its branch marketing budgets. 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/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, 2009, Pac-Van had 202 employees. None of our employees are covered by a
collective bargaining agreement. Management believes its relationship with our employees is good.
We have never experienced any material labor disruption and are unaware of any efforts or plan to
organize our employees.
In addition, we have three full-time employees at our corporate office in
Pasadena, California.
52
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
Royal Wolf has a licensing agreement with us 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 acquired this trademark for Asia-Pacific
indirectly from Triton Corporation with the RWNZ purchase for $740,000. 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. The license is nontransferable by Royal Wolf without our consent. 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
or are pending for registration 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.
53
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 audited consolidated financial statements and the accompanying notes thereto; and
the unaudited condensed consolidated financial statements and the accompanying notes thereto
included elsewhere in this prospectus.
Background and Significant Acquisitions
We were incorporated in Delaware on October 14, 2005 in order to serve as a vehicle to effect
a business combination with one or more operating businesses in the rental services and specialty
finance sectors. From inception through September 13, 2007, we did not have any business or
operations and our activities were limited to raising capital in our initial public offering (the
IPO) in April 2006, identifying an operating business to acquire, and negotiating and entering
into an agreement to acquire Royal Wolf.
On September 13, 2007 (September 14 in Australia), we completed the acquisition of Royal Wolf
through the acquisition of all of the outstanding shares of RWA. Royal Wolf is the leading provider
in Australia and New Zealand of storage containers, portable container buildings and freight
containers, which we refer to collectively as storage container products. 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 by us in connection with the
acquisition. We 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, 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.
On October 1, 2008, we completed our acquisition of 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. Pac-Van leases and sells modular buildings, mobile offices and storage container
products in the United States. In addition to assuming Pac-Vans long-term debt, we 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 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
our restricted common stock will secure the indemnification obligations for 20 months and 36
months, respectively.
Business Overview
The global economic downturn and credit crisis, particularly the recession experienced in the
United States and Australia, are having a negative impact upon our business and we have responded
by making a determined effort to reduce personnel costs, capital expenditures, discretionary
spending, curtail acquisition activity and reduce our long-term debt. We continuously monitor our
performance and customer demand levels to find more efficiency in all aspects of our business.
Accordingly, we may continue to reduce headcount or employee compensation in the areas in which we
believe we can achieve greater efficiencies without effecting 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.
We currently have two operating subsidiaries, Royal Wolf and Pac-Van, that 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 September 30, 2009, we had 219 and 196 employees and
27,626 and 11,341 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. Currently, only Pac-Van leases and sells
modular space products. Prior to our acquisition of Pac-Van, our revenue mix was approximately 70%
sales and 30% leasing. However, during the quarter ended September 30, 2009 the mix was 47% sales
and 53% 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 tailored specifically to satisfy the unique needs of the
customer. Depending on the customers desired application, modular buildings can range in size from
1,000 to more than 30,000 square feet and may be highly customized.
54
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 (GLO), 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 generally consist of used shipping containers that have
been purchased and refurbished and 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.
Quarter Ended September 30, 2009 (QE FY 2010) Compared to Quarter September 30, 2008 (QE FY 2009)
The following compares our QE FY 2010 results of operations with our QE FY 2009 results of
operations.
Revenues. Revenues totaled $35.2 million in QE FY 2010, an increase of $3.5 million, or 11.0%,
from $31.7 million in QE FY 2009. The increase was primarily due to $14.4 million of revenues at
Pac-Van, which we acquired on October 1, 2008, substantially offset by a $10.9 million decrease, or
34.4%, in revenues in QE FY 2010 from QE FY 2009 at Royal Wolf. The economic downturn in the
Asia-Pacific area during QE FY 2010 resulted in a significant reduction in our overall business,
but particularly in the mining and defense and transportation (road and rail) sectors, which had an
aggregate decline in revenues of over $8.0 million from QE FY 2009. Sales and leasing revenues
represented 47% and 53% of total revenues in QE FY 2010 and 66% and 34% of total revenues in QE FY
2009, respectively; the more favorable leasing revenue mix in QE FY 2010 resulting primarily from
our acquisition of Pac-Van.
Sales during QE FY 2010 amounted to $16.6 million, compared to $21.0 million during QE FY
2009; representing a decrease of $4.4 million, or 21.0%. The decrease was primarily because sales
at Royal Wolf were $8.9 million lower in QE FY 2010 from QE FY 2009, but this reduction was offset
somewhat by a sales increase in QE FY 2010 of $4.5 million at Pac-Van. In QE FY 2010 sales in the
Asia-Pacific area declined $6.1 million and $2.1 million in our national accounts group (or
non-retail operations) and CSC retail operations, respectively, and we experienced an unfavorable
foreign exchange rate effect of $0.7 million. The $6.1 million decrease in our national accounts
group consisted of a $1.2 million reduction due to lower prices and a $4.9 million reduction due to
lower unit sales. The $2.1 million decrease in our retail operations consisted of a $0.8 million
reduction in sales prices and a $1.3 million reduction from lower unit sales.
In both our national accounts group and retail businesses, the decline in sales was primarily
in the mining and defense and transportation sectors, which saw sales drop in these sectors from
$10.6 million in QE FY 2009 to $2.7 million in QE FY 2010. Our business in these sectors,
particularly mining and defense, was significantly impacted by the economic downturn in the
Asia-Pacific area, most significantly the curtailment of mining and production in China during QE
FY 2010.
Leasing revenues during QE FY 2010 amounted to $18.6 million compared to $10.7 million during
QE FY 2009, representing an increase of $7.9 million, or 73.8%. The increase was primarily due to
leasing revenues recognized at Pac-Van of $9.9 million, which had an average composite utilization
rate of 71.0% in QE FY 2010. This increase was offset somewhat by a reduction in leasing revenues
at Royal Wolf of $2.0 million, or 18.7%, in QE FY 2010 from QE FY 2009. This was driven by a
decrease of $2.0 million in the average total number of units on lease per month ($1.4 million in
our retail business and $0.6 million in our national accounts group) and an unfavorable foreign
exchange rate effect of $0.2 million; offset somewhat by an increase of $0.2 million due to growth
in the average pricing on lease per month ($0.1 million decrease in our retail business and $0.3
million increase in our national accounts group). At Royal Wolf, average utilization in the retail
operations was 76.0% during QE FY 2010, as compared to 80.4% during QE FY 2009; and average
utilization in the national accounts group operations was 63.5% during QE FY 2010, as compared to
77.3% during QE FY 2009. Overall average utilization at Royal Wolf was 71.5% in QE FY 2010, as
compared to 78.8% in QE FY 2009. The average monthly lease rate of containers in QE FY 2010 for
Royal Wolf was AUS$152, as compared to AUS$145 in QE FY 2009. At Pac-Van, the average monthly lease
rate for QE FY 2010 was $90, $244 and $967 for containers, mobile offices and modular units,
respectively; as compared to $93, $255 and $1,043 for containers, mobile offices and modular units,
respectively, during the previous quarter ended June 30, 2009. The lower monthly lease rates
reflect the competitive pressures n the current U.S. economy to maintain lease revenues and
utilization rates; particularly in the construction industry in which Pac-Van has over 40% of its
business.
55
In QE FY 2010, at Royal Wolf, the transportation sector experienced the largest leasing
revenue reduction from QE FY 2009 ($0.8 million) and the impact of the downturn in the Asia-Pacific
area was reflected in the reduction of our utilization rates in QE FY 2010 from QE FY 2009;
however, our average monthly lease rate increased, which we believe 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, maintaining utilization rates are of particular importance as
under its senior secured credit facility led by LaSalle National Association, now Bank of America,
N.A. (BOA), Pac-Van is required to maintain a minimum overall utilization rate, as defined, of
over 70% at each quarter end. The impact of this is that Pac-Van would be more apt to reduce its
monthly lease rate to maintain its utilization than Royal Wolf.
The average value of the U.S. dollar against the Australian dollar strengthened during QE FY
2010 as compared to QE FY 2009. The average currency exchange rate of one Australian dollar during
QE FY 2009 was $0.89174 U.S. dollar compared to $0.83244 U.S. dollar during QE FY 2010. This
fluctuation in foreign currency exchange rates resulted in a decrease to our total revenues at
Royal Wolf of $0.9 million in QE FY 2010 when compared to QE FY 2009.
Cost of Sales. Cost of sales decreased by a net $4.4 million to $13.8 million during QE FY
2010 from $18.2 million during QE FY 2009; reflecting the reduction in sales at Royal Wolf of $7.7
million, offset somewhat by an increase of $3.3 million at Pac-Van. Our gross profit percentage
from sales revenues improved during QE FY 2010 to approximately 17% compared to 13% during QE FY
2009, primarily as a result of the more favorable gross profit percentage of approximately 27% at
Pac-Van during QE FY 2010. Royal Wolfs gross profit percentage in QE FY 2010 remained flat at
approximately 13% with QE FY 2009.
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by $5.7
million during QE FY 2010 to $14.1 million from $8.4 million during QE FY 2009. This increase
included $7.4 million incurred at Pac-Van; offset slightly by an approximately (a) a $0.1 decrease
at GFN, which incurred $0.5 million during QE FY 2010 as compared to $0.6 million in QE FY 2009,
and (b) a $1.6 million decrease at Royal Wolf, which incurred $6.2 million in QE FY 2010 as
compared to $7.8 million in QE FY 2009. The following table provides more detailed information:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(in millions) |
|
Salaries, wages and related |
|
|
4.1 |
|
|
$ |
3.4 |
|
Share-based payments |
|
|
0.1 |
|
|
|
0.1 |
|
Rent |
|
|
0.1 |
|
|
|
0.1 |
|
CSC operating costs |
|
|
1.5 |
|
|
|
1.2 |
|
Business promotion |
|
|
0.4 |
|
|
|
0.3 |
|
Travel and meals |
|
|
0.4 |
|
|
|
0.2 |
|
IT and telecommunications |
|
|
0.3 |
|
|
|
0.2 |
|
Professional costs |
|
|
0.6 |
|
|
|
0.3 |
|
Other |
|
|
0.3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7.8 |
|
|
$ |
6.2 |
|
|
|
|
|
|
|
|
Operating expenses at Royal Wolf decreased by $1.6 million, or 20.5%, in QE FY 2010 from QE FY
2009. As a percentage of revenues, it increased to 29.8% in QE FY 2010 from 24.6% in QE FY 2009;
primarily as a result of the lower revenues at Royal Wolf in QE FY 2010 from QE FY 2009. The major
decreases in leasing, selling and general expenses for QE FY 2010 were: (1) salaries and related
payroll costs decreased as a result of staff reductions and lower bonuses, (2) less discretionary
spending on retail business (CSC operating costs) including travel and meals, and (3) better
control of our professional costs.
As a percentage of revenues, operating expenses at Pac-Van were 51.0% during QE FY 2010.
Pac-Vans operating expenses as a percentage of revenues are higher than Royal Wolfs percentage
as: (1) Royal Wolfs mix of QE FY 2010 sales to leasing revenue at 58% is higher than the 31% 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. Overall, total operating expenses as a
percentage of revenues were 39.9% in QE FY 2010, as compared to 26.5% in QE FY 2009.
56
Depreciation and Amortization. Depreciation and amortization increased by $1.9 million to $5.3
million during QE FY 2010 from $3.4 million during QE FY 2009. The increase was primarily due to
adjustments to fixed assets and identifiable intangible assets as a result of the Pac-Van
acquisition, as well as three other smaller acquisitions since June 2008. Depreciation and
amortization at Pac-Van totaled $1.4 million during QE FY 2010.
Interest Expense. Interest expense of $3.7 million in QE FY 2010 was $0.7 million lower than
the $4.4 million in QE FY 2009. This was due primarily to an overall $2.0 million interest
reduction at Royal Wolf caused by lower effective interest rates (including foreign translation
effect) and the fact that it had an unrealized gain on interest rate swap and option contracts
totaling $0.1 million in QE FY 2010 versus an unrealized loss of $1.5 million in QE FY 2009. Royal
Wolfs weighted-average interest rate was 10.2% in QE FY 2010, as compared to 13.1% in QE FY 2009.
These factors more than offset the effect of the increased total debt since June 30, 2008,
primarily as a result of our acquisition of Pac-Van and capital expenditure requirements. The
Pac-Van acquisition, another small acquisition and capital requirements 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 5.3%, totaled $1.3 million in QE FY 2010. Two small
acquisitions and capital expenditure requirements in the Asia-Pacific area were funded primarily by
borrowings under the senior credit facility with Australia and New Zealand Banking Group Limited
(ANZ). Total long-term debt, including current portion, totaled $81,252, $95,942, $200,304 and
$198,735 at June 30, 2008, September 30, 2008, June 30, 2009 and September 30, 2009, respectively.
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 strengthened during QE FY 2010 as compared to QE FY 2009, but the U.S. dollar
weakened against the Australian dollar from June 30, 2009 to September 30, 2009. The currency
exchange rate of one Australian dollar at June 30, 2009 was $0.8048 U.S. dollar compared to $0.8729
U.S. dollar at September 30, 2009. In QE FY 2010, unrealized and realized foreign exchange gains
totaled $2.3 million and $0.1 million, respectively, and unrealized gains on forward currency
exchange contracts totaled $0.2 million. In QE FY 2009, unrealized foreign exchange losses totaled
$5.8 million and realized exchange losses totaled $3.2 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 had 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. Unrealized gains on forward currency exchange contracts totaled $1.3 million in QE
FY 2009.
Income Taxes. Our effective income tax increased to 36.5% during QE FY 2010 from the QE FY
2009 effective rate of 34.8% rate (which resulted in an income tax benefit), primarily because we
are now required to file tax returns in multiple U.S. states as a result of the Pac-Van
acquisition. As of June 30, 2009, we had a U.S. federal net operating loss carryforward of
approximately $34.8 million, which expires if unused during fiscal years 2019 to 2029.
Net Income Attributable to Stockholders. We had net income attributable to stockholders of
$0.1 million during QE FY 2010, as compared to a net loss of $5.0 million during QE FY 2009,
primarily as a result of the operating profit from Pac-Van, which we acquired on October 1, 2008,
the favorable impact of the foreign currency exchange gains and reduced interest expense QE FY 2010
versus QE FY 2009.
Year Ended June 30, 2009 (FY 2009) Compared to Year Ended June 30, 2008 (FY 2008)
We had no business or operations prior to our acquisition of Royal Wolf on September 13, 2007.
Comparisons of our results of operations for FY 2009 with FY 2008 therefore are not particularly
meaningful. We believe a more meaningful comparison is the results of our operations for FY 2009
with the combined results of our operations and Royal Wolf during FY 2008. To assist in this
comparison, the following table sets forth statements of operations for the following: (i) Royal
Wolf, as Predecessor, for the period July 1, 2007 to September 13, 2007; (ii) the Company, as
Successor, for FY 2008, which reflects the results of operations of Royal Wolf for the period
September 14, 2007 through June 30, 2008; (iii) the combined results of operations of the
Predecessor and the Successor for FY 2008; and (iii) the Company, as Successor, for FY 2009. The
combined FY 2008 results do not reflect any adjustments for the purchase method of accounting in
the Predecessor period and is presented for comparison purposes only. The presentation of the
results of operations has been updated to reflect the retrospective adoption of Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business
Combinations and Topic 810, Consolidation (SFAS No. 160 Noncontrolling Interests in
Consolidated financial Statements ). No other financial statements of the Company were
significantly impacted by the adoption of this pronouncement.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
Successor |
|
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 to |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 13, |
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
78,973 |
|
|
$ |
75,528 |
|
Leasing |
|
|
4,915 |
|
|
|
27,547 |
|
|
|
32,462 |
|
|
|
70,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
111,435 |
|
|
|
146,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of the items shown
separately below) |
|
|
9,466 |
|
|
|
57,675 |
|
|
|
67,141 |
|
|
|
64,317 |
|
Leasing, selling and general expenses |
|
|
4,210 |
|
|
|
22,161 |
|
|
|
26,371 |
|
|
|
51,040 |
|
Depreciation and amortization |
|
|
653 |
|
|
|
7,367 |
|
|
|
8,020 |
|
|
|
17,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,530 |
|
|
|
8,373 |
|
|
|
9,903 |
|
|
|
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
14 |
|
|
|
1,289 |
|
|
|
1,303 |
|
|
|
296 |
|
Interest expense |
|
|
(947 |
) |
|
|
(6,888 |
) |
|
|
(7,835 |
) |
|
|
(16,161 |
) |
Foreign currency exchange gain (loss) and other |
|
|
(129 |
) |
|
|
3,814 |
|
|
|
3,685 |
|
|
|
(9,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(2,847 |
) |
|
|
(25,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income
taxes and noncontrolling interest |
|
|
468 |
|
|
|
6,588 |
|
|
|
7,056 |
|
|
|
(11,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
180 |
|
|
|
2,034 |
|
|
|
2,214 |
|
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
288 |
|
|
|
4,554 |
|
|
|
4,842 |
|
|
|
(6,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
|
|
|
|
448 |
|
|
|
448 |
|
|
|
(3,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to stockholders |
|
$ |
288 |
|
|
$ |
4,106 |
|
|
$ |
4,394 |
|
|
$ |
(3,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Revenues totaled $146.4 million in FY 2009, an increase of $35.0 million, or 31.4%,
from $111.4 million in FY 2008. The increase was primarily due to $54.4 million of revenues at
Pac-Van, which we acquired on October 1, 2008, offset somewhat by a $19.4 million decrease, or
17.4%, in revenues in FY 2009 from FY 2008 at Royal Wolf.
Sales during FY 2009 amounted to $75.5 million compared to $79.0 million during FY 2008;
representing a decrease of $3.5 million, or 4.4%. The decrease in total sales was primarily as a
result of a reduction in sales at Royal Wolf of $23.1 million; due to a $14.0 million unfavorable
foreign exchange rate effect and decreased sales of $6.7 million and $2.4 million in our national
accounts group, or non-retail operations, and retail operations at the CSCs, respectively. The $2.4
million decrease in our retail operations consisted of an $11.0 million reduction due to lower
prices, offset somewhat by $8.6 million from higher unit sales. The $6.7 million decrease in our
national accounts group consisted of $11.6 million due to lower unit sales, offset somewhat by
higher prices of $4.9 million. The decrease in sales at Royal wolf was substantially offset by
$19.6 million in sales recognized at Pac-Van during FY 2009, which benefited by a single sale of
$4.5 million in December 2008.
58
Leasing revenues during FY 2009 amounted to $70.9 million compared to $32.4 million during FY
2008, representing an increase of $38.5 million, or 118.8%. The increase was primarily due to
leasing revenues recognized at Pac-Van of $34.8 million, which had a utilization rate of 72.2% at
June 30, 2009. In addition, leasing revenues at Royal Wolf increased by $3.7 million, or 11.4%, in
FY 2009 from FY 2008. This was driven by an increase of $3.8 million due to growth in the average
pricing on lease per month ($3.3 million in our retail business and $0.5 million in our national
accounts group) and an increase of $3.8 million due to growth in the average total number of units
on lease per month ($3.6 million in our retail business and $0.2 million in our national accounts
group); offset somewhat by an unfavorable foreign exchange rate effect of $3.9 million. At Royal
Wolf, average utilization in the retail operations was 80.0% during FY 2009, as compared to 82.0%
during FY 2008; and average utilization in the national accounts group operations was 63.0% during
FY 2009, as compared to 81.1% during FY 2008. Overall average utilization at Royal Wolf was 75.6%
in FY 2009, as compared to 81.9% in FY 2008.
The average value of the U.S. dollar against the Australian dollar strengthened during FY 2009
as compared to FY 2008. The average currency exchange rate of one Australian dollar during FY 2008
was $0.89646 U.S. dollar compared to $0.74803 U.S. dollar during FY 2009. This fluctuation in
foreign currency exchange rates resulted in a decrease to our sales and leasing revenues at Royal
Wolf of $14.0 million and $3.9 million, respectively, during FY 2009 compared to FY 2008;
representing 16.1% of total revenues in FY 2008.
Sales and leasing revenues represented 52% and 48% of total revenues in FY 2009 and 71% and
29% of total revenues in FY 2008, respectively; the more favorable leasing revenue mix in FY 2009
resulting primarily from our acquisition of Pac-Van.
Cost of Sales. Cost of sales decreased by $2.8 million to $64.3 million during FY 2009 from
$67.1 million during FY 2008. The decrease was primarily due to foreign exchange translation effect
of $9.9 million and cost decreases of $1.8 million in our retail operations and $5.7 million in the
national account group operations in the Asia-Pacific area; substantially offset by cost of sales
incurred at Pac-Van of $14.6 million. Our gross profit percentage from sales revenues deteriorated
during FY 2009 to approximately 14.8% compared to 15.1% during FY 2008 as a result of price
decreases and unfavorable product mix that resulted in a gross profit percentage of 11.3% in the
Asia-Pacific area. This was offset by the more favorable gross profit percentage of 25.5% at
Pac-Van during FY 2009.
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by
$24.6 million during FY 2009 to $51.0 million from $26.4 million during FY 2008. This increase
included $24.9 million incurred at Pac-Van and an approximately $0.4 increase at GFN, which
incurred $2.8 million during FY 2009 as compared to $2.4 million in FY 2008. The following table
provides more detailed information about the Royal Wolf operating expenses of $23.3 million in FY
2009 as compared to $24.0 million in FY 2008:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(in millions) |
|
Salaries, wages and related |
|
$ |
13.1 |
|
|
$ |
12.5 |
|
Share-based payments |
|
|
0.3 |
|
|
|
0.4 |
|
Rent |
|
|
0.4 |
|
|
|
0.4 |
|
CSC operating costs |
|
|
5.0 |
|
|
|
4.5 |
|
Business promotion |
|
|
1.1 |
|
|
|
1.2 |
|
Travel and meals |
|
|
1.1 |
|
|
|
0.8 |
|
IT and telecommunications |
|
|
0.8 |
|
|
|
0.8 |
|
Professional costs |
|
|
1.9 |
|
|
|
1.6 |
|
Other |
|
|
0.3 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24.0 |
|
|
$ |
23.3 |
|
|
|
|
|
|
|
|
Operating expenses at Royal Wolf decreased by $0.7 million, or 2.9%, in FY 2009 from FY 2008.
As a percentage of revenues, it increased to 25.3% in FY 2009 from 21.5% in FY 2008; primarily as a
result of the lower revenues at Royal Wolf in FY 2009 from FY 2008. The major decreases in leasing,
selling and general expenses for FY 2009 were: (1) salaries and related payroll costs decreased as
a result of staff reductions and lower bonuses, (2) less discretionary spending on retail business
(CSC operating costs) including travel and meals, and (3) better control of our professional
costs. As a percentage of revenues, operating expenses at Pac-Van were 45.8% during FY 2009.
Pac-Vans operating expenses as a percentage of revenues are higher than Royal Wolfs percentage
as: (1) Royal Wolfs mix of FY 2009 sales to leasing revenue at 61% 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. Overall, total operating expenses as a
percentage of revenues were 34.8% in FY 2009, as compared to 23.7% in FY 2008.
59
Depreciation and Amortization. Depreciation and amortization increased by $9.0 million to
$17.0 million during FY 2009 from $8.0 million during FY 2008. The increase was primarily due to
adjustments to fixed assets and identifiable intangible assets as a result of the Pac-Van
acquisition, as well as three other smaller acquisitions since June 2008. Depreciation and
amortization at Pac-Van totaled $5.7 million during FY 2009.
Interest Income. We had interest income of $1.0 million earned in FY 2008 on marketable
securities held in a trust account, which we were required to maintain as a blank-check company
prior to our acquisition of Royal Wolf (the Trust Account).
Interest Expense. The increase in interest expense of $8.4 million in FY 2009 to $16.2
million, as compared to $7.8 million in FY 2008, was due primarily to the increase in total
long-term debt; which was $81.3 million at June 30, 2008 and $200.3 million at June 30, 2009, and
an unrealized loss on interest rate swap and option contracts totaling $2.1 million. The increase
in total debt since FY 2008 was due primarily to our acquisition of Pac-Van and three other smaller
acquisitions since June 2008, funded principally with borrowings under the senior credit facility
with Australia and New Zealand Banking Group Limited (ANZ) and the secured senior subordinated
notes issued to Bison Capital; as well as the assumption of the senior credit facility with a
syndication of four financial institutions led by LaSalle National Association, now Bank of
America, N.A. (BOA), and the senior subordinated secured note payable to SPV Capital funding,
L.L.C. (SPV) in connection with 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 strengthened during FY 2009 as compared to FY 2008 and, in addition, the U.S.
dollar strengthened against the Australian dollar from June 30, 2008 to June 30, 2009. The currency
exchange rate of one Australian dollar at June 30, 2008 was $0.9615 U.S. dollar compared to $0.8048
U.S. dollar at June 30, 2009. In addition, we incurred a significant 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. In FY 2009,
unrealized and realized foreign exchange losses totaled $6.6 million and $2.8 million,
respectively. These foreign exchange losses were somewhat offset in FY 2009 by unrealized gains on
forward currency exchange contracts, which totaled $0.2 million.
Income Taxes. Our effective income tax rate (which resulted in an income tax benefit)
increased to 39.3% during FY 2009 from the FY 2008 effective rate of 31.4%, primarily as a result
of 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, and the
recognized benefit of Australian and U.S. net operating losses. As of June 30, 2009, we had a U.S.
federal net operating loss carryforward of approximately $34.8 million, which expires if unused
during fiscal years 2019 to 2029.
Noncontrolling Interest. Noncontrolling interest, which represents Bison Capitals 13.8%
interest in Royal Wolf, was a benefit of $3.0 million in FY 2009, as compared to a reduction of
$0.5 million in FY 2008, 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 (Loss) Attributable to Stockholders. We had a net loss attributable to stockholders
of $3.7 million during FY 2009, as compared to net income attributable to stockholders of $4.4
million during FY 2008, primarily as a result of the unfavorable impact of the foreign currency
exchange losses and increased interest expense FY 2009 versus FY 2008; offset somewhat by the
operating profit from Pac-Van, which we acquired on October 1, 2008.
60
Year Ended June 30, 2008 (FY 2008) Compared to Year Ended June 30, 2007 (FY 2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
|
Year |
|
|
Period from |
|
|
Year |
|
|
|
Ended |
|
|
July 1 to |
|
|
Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of containers |
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
78,973 |
|
Leasing of containers |
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
32,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
111,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of the items shown separately below) |
|
|
46,402 |
|
|
|
9,466 |
|
|
|
57,675 |
|
|
|
67,141 |
|
Leasing, selling and general expenses |
|
|
20,761 |
|
|
|
4,210 |
|
|
|
22,161 |
|
|
|
26,371 |
|
Depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
8,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
9,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
413 |
|
|
|
14 |
|
|
|
1,289 |
|
|
|
1,303 |
|
Interest expense |
|
|
(4,378 |
) |
|
|
(947 |
) |
|
|
(6,888 |
) |
|
|
(7,835 |
) |
Foreign currency exchange gain (loss) and other |
|
|
95 |
|
|
|
(129 |
) |
|
|
3,814 |
|
|
|
3,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(2,847 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes and
noncontrolling interest |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
7,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
490 |
|
|
|
180 |
|
|
|
2,034 |
|
|
|
2,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
312 |
|
|
|
288 |
|
|
|
4,554 |
|
|
|
4,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to stockholders |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,106 |
|
|
$ |
4,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Sales of containers during FY 2008 amounted to $79.0 million compared to $52.9
million during FY 2007; representing an increase of $26.1 million or 49.3%. This increase was due
to growth in revenues from sales of containers in our retail operations of $13.4 million, sales of
$5.2 million in our national accounts group or non-retail operations and $7.5 million due to
favorable foreign exchange rates. The $13.4 million increase in our retail operations consisted of
$6.4 million due to higher unit sales and $7.0 million due to price increases. The $5.2 million
increase in our national accounts group operations consisted of $3.6 million due to higher unit
sales and $1.6 million due to price increases.
Leasing of container revenues during FY 2008 amounted to $32.5 million compared to $21.5
million during FY 2007, representing an increase of $11.0 million, or 51.2%. This was driven by
favorable foreign exchange rates of $3.1 million, an increase of $1.4 million in our average total
number of units on lease per month in our portable container building business, which increased by
58.7% during FY 2008 compared to FY 2007; and an increase of $6.5 million in our average total
number of units on lease per month in our portable storage container business, primarily as a
result of our acquisition of the assets of GE SeaCo in November 2007, CHS in February 2008, RWNZ in
April 2008 and Tomago in June 2008. Average utilization in our retail operations was 82.0% during
FY 2008, as compared to 82.8% during FY 2007; and our average utilization in our national accounts
group operations was 81.1% during FY 2008, as compared to 76.5% during FY 2007. Overall our average
utilization was 81.9% in FY 2008, as compared to 80.4% in FY 2007.
61
The average value of the U.S. dollar against the Australian dollar declined during FY 2008 as
compared to FY 2007. The average currency exchange rate of one Australian dollar during FY 2007 was
$0.78592 U.S. dollar compared to $0.89646 U.S. dollar during FY 2008. This fluctuation in foreign
currency exchange rates resulted in an increase to our container sales and leasing revenues of $7.5
million and $3.1 million, respectively, during FY 2008 compared to FY 2007; representing 28.6% of
the increase in total revenues; or 14.2% of total revenues in FY 2007.
Sales of containers and leasing of containers represented 71% and 29% of total revenues in
both FY 2008 and FY 2007.
Cost of Sales. Cost of sales in our container sales business increased by $20.7 million to
$67.1 million during FY 2008 compared to $46.4 million during FY 2007. The increase was primarily
due to foreign exchange translation effect of $6.1 million and cost increases of $10.2 million and
$3.9 million in our retail and national account group operations, respectively. Our gross profit
margin from sales revenues improved during FY 2008 to 15.1% compared to 12.3% during FY 2007 as a
result of price increases and favorable product mix.
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by $5.6
million, or 26.9%, during FY 2008 to $26.4 million from $20.8 million during FY 2007. This increase
includes approximately $2.4 million, or 42.9% of the increase, incurred at GFN. The following table
provides more detailed information about the Royal Wolf operating expenses of $24.0 million in FY
2008 as compared to $20.8 million in FY 2007:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2008 |
|
|
|
(in millions) |
|
Salaries, wages and related |
|
$ |
9.6 |
|
|
$ |
13.1 |
|
Share-based payments |
|
|
3.7 |
|
|
|
0.3 |
|
Rent |
|
|
0.2 |
|
|
|
0.4 |
|
CSC operating costs |
|
|
2.7 |
|
|
|
5.0 |
|
Business promotion |
|
|
0.8 |
|
|
|
1.1 |
|
Travel and meals |
|
|
0.8 |
|
|
|
1.1 |
|
IT and telecommunications |
|
|
0.6 |
|
|
|
0.8 |
|
Professional costs |
|
|
1.4 |
|
|
|
1.9 |
|
Other |
|
|
1.0 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
$ |
20.8 |
|
|
$ |
24.0 |
|
|
|
|
|
|
|
|
FY 2007 included a shared-based payment expense of approximately $3.7 million to recognize the
full vesting of options as a result of the purchase of approximately 80% of RWA by Bison Capital in
March 2007. The increase in FY 2008 from FY 2007 in salaries, wages and related expenses and CSC
costs of $3.5 million and $2.3 million, respectively, were primarily due to the increase in number
of sales and marketing personnel as we continue to expand our infrastructure for growth. As a
percentage of revenues, operating expenses at Royal Wolf decreased to 21.5% in FY 2008 from 28.0%
(23.4% not including the net effect of share-based payment in March 2007) in FY 2007.
Depreciation and Amortization. Depreciation and amortization expenses increased by $5.4
million to $8.0 million during FY 2008 compared to $2.6 million during FY 2007. The increase was
primarily the result of adjustments to fair values of fixed assets and identifiable intangible
assets as a result of acquisitions. The amortization of identifiable intangible assets (customer
lists and non-compete agreements) represented approximately $2.5 million of this increase. In
addition, during the fourth quarter of FY 2007, Royal Wolf revised the estimated useful life and
residual value of its containers for lease fleet. The financial impact of the revision resulted in
depreciation expense for FY 2007 being $1.0 million less than what it would have been if the
previous useful life estimate had been applied.
Interest Income. We had interest income earned on marketable securities held in the Trust
Account of $1.0 million in FY 2008.
Interest Expense. The increase in interest expense of $3.4 million in FY 2008, as compared to
FY 2007, was due primarily to an increase in total long-term debt; which was $44.2 million at June
30, 2007 and $81.3 million at June 30, 2008. The increase in total debt in FY 2008 was due
primarily to our acquisitions of Royal Wolf, GE SeaCo, CHS, RWNZ and Tomago; funded principally
with the senior credit facility with Australia and New Zealand Banking Group Limited, or ANZ, and
the secured senior subordinated notes issued to Bison Capital.
62
Foreign Currency Exchange. As a result of the acquisition of Royal Wolf, we now 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. We had foreign currency exchange gains of approximately $3.8
million in FY 2008 because the Australian dollar strengthened against the U.S. dollar during FY
2008 as compared to FY 2007. Effective October 1, 2007, the foreign exchange effect of the
principal balance of the U.S. dollar-denominated intercompany borrowings are now included in
accumulated other comprehensive income since we do not expect repayment in the foreseeable future.
Income Taxes. Our effective income tax rate decreased to 31.4% during the FY 2008 as a result
of certain non-deductible amounts included in the FY 2007 for Australian income tax purposes being
extinguished and the amortization of goodwill for U.S. income tax reporting purposes being
deductible in FY 2008.
Net Income Attributable to Stockholders. We had net income attributable to stockholders of
$4.4 million during FY 2008 compared to net income attributable to stockholders of $0.3 million
during FY 2007 primarily as a result of increased revenues from the sales and leasing of containers
in FY 2008, the fact that FY 2007 included share-based expense of approximately $3.7 million and
the favorable impact of the foreign currency exchange gain, offset somewhat by increased interest
expense.
Measures not in Accordance with Generally Accepted Accounting Principles in the United States
(U.S. GAAP)
Earnings before interest, income taxes, 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.
EBITDA is a non-U.S. GAAP measure. We calculate adjusted EBITDA by adjusting 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 EBITDA and adjusted EBITDA, you should be aware that in
the future, we may incur expenses similar to the adjustments in the presentation of EBITDA and
adjusted EBITDA. Our presentation of EBITDA and adjusted EBITDA should not be construed as an
inference that our future results will be unaffected by unusual or non-recurring items. We present
EBITDA and adjusted EBITDA because we consider them to be important supplemental measures of our
performance and because we believe they are frequently used by securities analysts, investors and
other interested parties in the evaluation of companies in our industry, many of which present
EBITDA and adjusted EBITDA when reporting their results. EBITDA and adjusted EBITDA have
limitations as analytical tools, 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, EBITDA and
adjusted EBITDA should not be considered as measures 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 EBITDA and adjusted EBITDA only
supplementally. The following table shows our EBITDA and adjusted EBITDA, and the reconciliation
from operating income:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
2009 |
|
|
|
(in thousands) |
|
Operating income |
|
|
1,727 |
|
|
|
2,075 |
|
Add depreciation and amortization |
|
|
3,383 |
|
|
|
5,257 |
|
EBITDA |
|
|
5,110 |
|
|
|
7,332 |
|
Add Share-based compensation expense |
|
|
210 |
|
|
|
246 |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
5,320 |
|
|
|
7,578 |
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
Successor |
|
|
|
Year |
|
|
Period from |
|
|
|
|
|
|
Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
Operating income |
|
$ |
4,672 |
|
|
$ |
1,530 |
|
|
$ |
8,373 |
|
|
$ |
9,903 |
|
|
$ |
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
8,020 |
|
|
|
17,045 |
|
EBITDA |
|
|
7,249 |
|
|
|
2,183 |
|
|
|
15,740 |
|
|
|
17,923 |
|
|
|
31,103 |
|
Add Share-based compensation
expense |
|
|
3,689 |
|
|
|
|
|
|
|
509 |
|
|
|
509 |
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
10,938 |
|
|
$ |
2,183 |
|
|
$ |
16,249 |
|
|
$ |
18,432 |
|
|
$ |
32,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our business is capital intensive, so from an operating level, we focus primarily on adjusted
EBITDA to measure our results. This measure eliminates the effect of financing transactions that we
enter into and provides 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 EBITDA margins on a monthly basis. As capital is invested in our established branch locations,
we achieve higher 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 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 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
independent of one another. Each have term debt and bank credit facilities that provide short term
and long term funding and require compliance with various covenants. These covenants require them
to, among other things; maintain certain levels of interest coverage, EBITDA, unit utilization rate
and overall leverage. In addition, we have a $1.0 million credit facility with Union Bank and have
certain obligations to Bison Capital and SPV in connection with its purchase of Royal Wolf and Pac
Van, respectively.
The global economic downturn and credit crises have had and continue to have a significant
adverse impact on our business operations, making compliance with the various loan covenants very
challenging. In addition, our leverage has increased due to declining EBITDA and asset values. We
have limited access to additional capital except on terms that may be viewed as onerous and
expensive. While we have and continue to proactively manage compliance with the covenants of our
various loan agreements and believe we have satisfactory relationships with each lender, continued
deterioration of the economies in which we operate could lead to a breach in one or more covenants
and the lenders accelerating loan maturities.
During the fiscal year ended June 30, 2009 (FY 2009), we began negotiations with our lenders
to modify various covenants and extend maturities. These included our amending our senior credit
facility with ANZ (see Note 4 of Notes to Condensed Consolidated Financial Statements) and our
shareholders agreement with Bison Capital in GFN U.S. (see Note 8 of Notes to Condensed
Consolidated Financial Statements). The effect of these amendments, among other things, was
establishing financial covenants on the ANZ facility at less restrictive levels, as well as
revising principal payment requirements, and deferring Bison Capitals put option on their
noncontrolling interest in GFN U.S. (through which we indirectly own Royal Wolf) to July 2011.
Also, as a result of the ANZ credit facility amendment, we are required to pay the U.S.-denominated
principal payment of $5.5 million due Bison Capital in July 2010 by a capital infusion from GFN.
64
Our required principal and other obligations payments (not including and Bison Capitals put
option) for the current fiscal year ending June 30, 2010 and the subsequent three fiscal years are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending June 30, |
|
|
|
2010 (a) |
|
|
2011 |
|
|
2012 (b) |
|
|
2013 |
|
ANZ senior credit facility and other |
|
$ |
10,900 |
|
|
$ |
10,600 |
|
|
$ |
300 |
|
|
$ |
56,800 |
|
Bison Capital subordinated notes |
|
|
|
|
|
|
5,500 |
|
|
|
|
|
|
|
16,000 |
|
Holdback note (issued in connection with
Pac-Van acquisition) |
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
BOA senior credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,100 |
|
SPV subordinated note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
Union Bank credit facility |
|
|
|
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,400 |
|
|
$ |
17,000 |
|
|
$ |
300 |
|
|
$ |
168,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Does not include the invoice financing and overdraft facilities totaling $4.3 million. These continually
roll over and will be fully repaid at the maturity of the ANZ facility. |
|
(b) |
|
The Bison put option of a minimum of $12.9 million is effective on July 1, 2011. |
As reflected in the table 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 borrowings under our secured senior and subordinated loans
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.
Depending on our operating performance, we believe we may require up to an approximately net
$6.0 million of external financing during the fiscal year ending June 30, 2010 to achieve these
objectives. There can be no assurance that we will be successful in raising additional capital or
maintaining compliance with our loan covenants. We currently do not pay a dividend on common stock
and anticipate using retained earnings to reduce debt for the foreseeable future.
Cash Flow for FY 2009 Compared to FY 2008
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, particularly due to
the deferral of income taxes caused by accelerated depreciation that is used for tax accounting.
As we discussed above, our principal source of capital for operations consists of funds
available from the senior secured credit facility with ANZ and the senior secured credit facility
led by BOA. We also finance a smaller portion of capital requirements through finance leases and
lease-purchase contracts, have a $1.0 million line of credit with Union Bank and have outstanding
senior subordinated notes with Bison Capital and SPV. Supplemental information pertaining to our
combined sources and uses of cash is presented in the table below.
65
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
2008 |
|
|
2009 |
|
Net cash provided by operating activities |
|
$ |
507 |
|
|
$ |
7,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
$ |
(7,121 |
) |
|
$ |
(2,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
$ |
26,578 |
|
|
$ |
(8,153 |
) |
|
|
|
|
|
|
|
Operating activities. Our operations provided net cash flow of $7.9 million during QE FY 2010,
as compared to $0.5 million during QE FY 2009. The significant increase in operating cash flows of
$7.4 million in QE FY 2010 from QE FY 2009 was primarily due to (1) net income of $0.6 million
versus a net loss of $6.7 million, and (2) non-cash adjustments of (i) unrealized gains on forward
exchange contracts of $0.2 million versus $1.3 million, (ii) depreciation and amortization of $5.3
million versus $3.4 million and (iii) additional deferred income taxes of $4.1 million in QE FY
2010 versus QE FY 2009. Cash provided by operating activities is enhanced by the deferral of most
income taxes due to the rapid tax depreciation rate of our assets and our federal and state net
operating loss carryforwards. At September 30, 2009, we had a net deferred tax liability of $14.1
million. Operating cash flow was offset somewhat by non-cash adjustments in QE FY 2010 when
compared to QE FY 2009 for (i) unrealized foreign exchange gains of $2.3 million versus an
unrealized loss of $5.8 million and unrealized gains on interest rate swaps and options of $0.1
million versus an unrealized loss of $1.5 million. The non-cash adjustments in QE FY 2009 more than
offset the other adjustments and uses of cash, including the realized foreign exchange losses of
$2.8 million incurred primarily as a result of Royal Wolf repaying intercompany advances totaling
$21.5 million.
Investing Activities. Net cash used by investing activities was $2.6 million for QE FY 2010,
as compared to $7.1 million for QE FY 2009. In QE FY 2009, cash of $1.0 million was used to acquire
one small business in the Asia-Pacific area. Purchases of property, plant and equipment were
approximately $1.0 million in both QE FY 2010 and QE FY 2009, and purchases of lease fleet declined
from $5.0 million in QE FY 2009 to $1.4 million in QE FY 2010; despite the acquisition of Pac-Van
and its capital requirements. In the current economic environment, we are minimizing our 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 a
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 does not
have a minimum purchase commitment, but does require us to purchase up to 5,000 containers if
offered to us; and the put and call options pertaining to Bison Capitals noncontrolling 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 in
connection with any portion of our business. Reference is made to Note 8 of Notes to the Unaudited
Condensed Consolidated Financial Statements for a further discussion of our commitments and
contingencies.
Financing Activities. Net cash used by financing activities was $8.2 million for QE FY 2010,
as compared to $26.6 million provided in QE FY 2009. During FY 2009, as a result of the economic
environment, we made reducing our long-term debt a principal objective. In QE FY 2010, we reduced
our long-term borrowings by $7.9 million, as compared to borrowing $26.1 million in QE FY 2009;
which was used primarily by Royal Wolf to repay the intercompany advance totaling $21.5 million
(prior to our acquisition of Pac-Van), make a small acquisition and expand the container lease
fleet.
Cash Flow for FY 2009 Compared to FY 2008
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, particularly due to
the deferral of income taxes caused by accelerated depreciation that is used for tax accounting.
Our principal source of capital for operations consists of funds available from the senior
secured credit facility with ANZ and the senior secured credit facility led by BOA. We also finance
a smaller portion of capital requirements through finance leases and lease-purchase contracts, have
a $1.0 million line of credit with Union Bank and have outstanding senior subordinated notes with
Bison Capital and SPV. Supplemental information pertaining to our combined sources and uses of cash
is presented in the table below.
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
Successor |
|
|
|
Year |
|
|
Period from |
|
|
|
|
|
|
Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
Net cash provided
by operating
activities |
|
$ |
8,956 |
|
|
$ |
4,294 |
|
|
$ |
8,016 |
|
|
$ |
12,310 |
|
|
$ |
23,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by
investing
activities |
|
$ |
(21,914 |
) |
|
$ |
(3,078 |
) |
|
$ |
(120,484 |
) |
|
$ |
(123,562 |
) |
|
$ |
(38,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
(used) by financing
activities |
|
$ |
13,389 |
|
|
$ |
(1,807 |
) |
|
$ |
45,352 |
|
|
$ |
43,545 |
|
|
$ |
17,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities. Our operations provided net cash flow of $23.3 million during FY 2009,
as compared to using net cash flow of $12.3 million during FY 2008. The significant increase in
operating cash flows of $11.0 million in FY 2009 from FY 2008 was, despite the net loss of $3.7
million, primarily due to non-cash adjustments of unrealized losses on foreign exchange and forward
exchange contracts and interest rate swaps and options of $6.6 million and $2.1 million,
respectively; as well as depreciation and amortization of $17.0 million. This compares to
unrealized gains on foreign exchange and forward exchange contracts and interest rate swaps and
options aggregating to $4.4 million and depreciation and amortization of $8.0 million in FY 2008.
These non-cash adjustments in FY 2009 more than offset the other adjustments and uses of cash,
including the realized foreign exchange losses of $2.8 million incurred primarily as a result of
Royal Wolf repaying intercompany advances totaling $21.5 million. Cash provided by operating
activities is enhanced by the deferral of most income taxes due to the rapid tax depreciation rate
of our assets and our federal and state net operating loss carryforwards. At June 30, 2009, we had
a net deferred tax liability of $13.8 million.
Investing Activities. Net cash used by investing activities was $38.8 million for FY 2009, as
compared to $123.6 million for FY 2008. In FY 2008, cash of $110.9 million was used to acquire
Royal Wolf and four other smaller acquisitions, while in FY 2009 we used $21.0 million to acquire
Pac-Van and three other small acquisitions (not including non-cash issuances of a promissory note
and common and preferred stock totaling $27.2 million). Net capital expenditures for our lease
fleet were $14.3 million in FY 2009 and $11.7 million in FY 2008. Purchases of property, plant and
equipment were $3.5 million in FY 2009 and $0.7 million in FY 2008. In the current economic
environment, we anticipate our near term investing activities will be primarily focused on
acquiring lease fleet as those specific types of units are not in our fleet and are placed on-rent,
technology and communication improvements for our telephone and computer systems and for delivery
equipment whereby we would derive improved customer service levels and a 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 does not have a minimum
purchase commitment, but does require us to purchase up to 5,000 containers if offered to us; and
the put and call options pertaining to Bison Capitals noncontrolling 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 in connection with
any portion of our business. Reference is made to Note 10 of the Audited Notes to Consolidated
Financial Statements for a further discussion of our commitments and contingencies.
Financing Activities. Net cash provided by financing activities was $17.8 million during FY
2009, as compared to $43.5 million during FY 2008. In FY 2008, we used $2.4 million to fully repay
the line of credit with Ronald Valenta, our Chief Executive Officer, and paid $6.4 million to our
stockholders electing to convert their shares of common stock into cash. Net long-term borrowings,
primarily under the ANZ senior credit facility and the Bison secured senior subordinated notes,
totaled $16.4 million in FY 2009, as compared to net borrowings of $26.6 million in FY 2008. In
addition, net proceeds received from the issuances of our preferred stock totaled $1.2 million in
FY 2009; versus $26.0 million in FY 2008, of which $21.0 million was from our warrant exercise
program initiated in May 2008. These proceeds from our capital issuances and net borrowings were
used together with cash flow generated from operations to primarily fund the acquisition of Royal
Wolf, Pac-Van, as well as for seven other small acquisitions, and the expansion of our lease fleet.
67
Financial Condition
Inventories increased from $21.1 million at June 30, 2008 to $22.5 million at June 30, 2009,
primarily because of the acquisitions of Pac-Van (which added $9.2 million in inventories at June
30, 2009) and our New Zealand operations. Trade receivables increased to $26.4 million at June 30,
2009 from $18.3 million at June 30, 2008. Effective asset management is a significant focus for us,
particularly in this current economic environment, as we strive to reduce inventory levels and
continue to apply appropriate credit and collection controls to maintain and enhance cash flow and
profitability.
Property, plant and equipment increased from $7.5 million at June 30, 2008 to $10.5 million at
June 30, 2009, primarily as a result of our acquisition of Pac-Van.
Our total lease fleet increased from $87.7 million at June 30, 2008 to $188.9 million at June
30, 2009, primarily due to our acquisition of Pac-Van and three other smaller acquisitions since
June 2008. At June 30, 2009, we had 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) in our lease fleet, as compared to
28,603 units (15,842 units in retail operations in Australia, 8,517 units in national account group
operations in Australia and 4,244 units in New Zealand, which are considered retail) at June 30,
2008. At those dates, 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) and 23,000 units (12,616 units in retail operations
in Australia, 6,773 units in national account group operations in Australia and 3,611 units in New
Zealand, which are considered retail) were on lease, respectively.
Goodwill and intangible assets increased from a total of $66.4 million at June 30, 2008 to
$104.0 million at June 30, 2009, as a result of the purchase accounting adjustments in connection
with our acquisition of Pac-Van and five other smaller acquisitions since June 2008.
Long-term debt and obligations, including current portion, increased from $81.3 million at
June 30, 2008 to $200.4 million at June 30, 2009, primarily due to the acquisition of Pac-Van and
three other smaller acquisitions since June 2008, and the expansion of our lease fleet. These
acquisitions and capital expenditures were funded in large part by issuances of our common and
preferred stock, borrowings on the ANZ senior credit facility and the issuance of a secured senior
subordinated note to Bison Capital; as well as the assumption of the BOA senior credit facility and
the senior subordinated note payable to SPV. Reference is made to Notes 5 and 13 of Notes to the
Audited Consolidated Financial Statements for further discussion of our long-term debt and
obligations.
Asset Management
Receivables and inventories decreased (including foreign translation effect) from $26.4
million and $22.5 million at June 30, 2009 to $21.7 million and $20.4 million at September 30,
2009, respectively. Effective asset management is 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
September 30, 2009, days sales outstanding (DSO) in trade receivables were 40 days and 63 days
for Royal Wolf and Pac-Van, as compared to 49 days and 59 days at June 30, 2009, respectively.
Our total lease fleet increased (including foreign translation effect) from $188.9 million at
June 30, 2009 to $195.6 million at September 30, 2009. At September 30, 2009, we had 38,967 units
(15,412 units in retail operations in Australia, 7,811 units in national account group operations
in Australia, 4,403 units in New Zealand, which are considered retail; and 11,341 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, 27,556 units (11,544 units in retail operations in Australia, 4,891 units in national
account group operations in Australia, 3,459 units in New Zealand, which are considered retail; and
7,662 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, the lease fleet totaled 11,341 units and 11,347 units at September 30,
2009 and June 30, 2009, respectively, and was comprised of 3,965 containers, 6,363 mobile offices
and 1,013 modular units at September 30, 2009; and 4,007 containers, 6,327 mobile offices and 1,013
modular units at June 30, 2009. At those dates, in the United States, the total of 7,662 units and
8,080 units on lease, respectively, were comprised of 2,883 containers, 4,003 mobile offices and
776 modular units; and 3,255 containers, 4,061 mobile offices and 764 modular units, respectively.
68
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
accounting principles. 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.
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 (10 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 continue to evaluate these depreciation
policies as more information becomes available from other comparable sources and our own historical
experience.
69
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, the Company uses
volatility rates based upon a sample of comparable companies in the Companys industry and 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 will
test goodwill annually for impairment or when events or circumstances indicate that there might be
impairment using the two-step process prescribed in 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.
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.
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 is 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 will 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
will 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.
Impact of Recently Issued Accounting Pronouncements
Reference is made to Note 2 of Notes to both the Unaudited Condensed Consolidated Financial
Statements and the Audited Consolidated Financial Statements included elsewhere in this prospectus
for a discussion of recently issued accounting pronouncements that could potentially impact us.
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 5 of Notes to the Unaudited
Condensed Consolidated financial Statements and Note 6 of Notes to the Audited Consolidated
Financial Statements included elsewhere in this prospectus for a discussion of market risk related
to interest rates and foreign exchanges.
70
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Statements of Operations gives effect to
the business combination of us and Pac-Van as if it had occurred on the first day of each of the
periods presented. The unaudited statements of operations of Pac-Van for the year ended June 30,
2008 were derived by combining the results for the six-month period from July 1, 2007 to December
31, 2007 with the six-month period from January 1, 2008 to June 30, 2008 (as Pac-Vans fiscal year
end was December 31), and the unaudited statements of operations for the year ended June 30, 2009
were derived by combining the results for the three-month period of Pac-Van from July 1, 2008 to
September 30, 2008 with the actual results of our operation for year ended June 30, 2009; as
Pac-Van was acquired on October 1, 2008.
The Unaudited Pro Forma Condensed Combined Financial Statements do not purport to represent
what our actual consolidated results of operations or the consolidated financial position would
have been had the business combination with Pac-Van occurred on the respective dates assumed, nor
are they necessarily indicative of our future consolidated operating results or the future
consolidated financial position. The Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with our audited consolidated financial statements and the
accompanying notes, the unaudited condensed consolidated financial statements and the accompanying
notes and the separate historical consolidated financial statements and accompanying notes of
Pac-Van; all included elsewhere in this prospectus.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General |
|
|
|
|
|
|
Pro Forma |
|
|
Pro Forma |
|
|
|
Finance |
|
|
Pac-Van |
|
|
Adjustments |
|
|
Combined |
|
|
|
|
|
|
|
(In thousands, except share and per share data) |
|
|
|
|
|
Revenues |
|
$ |
146,460 |
|
|
$ |
22,642 |
|
|
$ |
|
|
|
$ |
169,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
64,317 |
|
|
|
6,294 |
|
|
|
|
|
|
|
70,611 |
|
Leasing, selling and general
expenses |
|
|
51,040 |
|
|
|
11,738 |
|
|
|
(1,140 |
)(e) |
|
|
61,638 |
|
Depreciation and amortization |
|
|
17,045 |
|
|
|
1,229 |
|
|
|
243 |
(b) |
|
|
18,600 |
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
|
|
(c |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
14,058 |
|
|
|
3,381 |
|
|
|
814 |
|
|
|
18,253 |
|
Interest income |
|
|
296 |
|
|
|
|
|
|
|
|
|
|
|
296 |
|
Interest expense |
|
|
(16,161 |
) |
|
|
(2,894 |
) |
|
|
|
(a) |
|
|
(19,064 |
) |
|
|
|
|
|
|
|
|
|
|
|
(9 |
)(d) |
|
|
|
|
Other, net |
|
|
(9,312 |
) |
|
|
|
|
|
|
|
|
|
|
(9,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,177 |
) |
|
|
(2,894 |
) |
|
|
(9 |
) |
|
|
(28,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income taxes and noncontrolling
interest |
|
|
(11,119 |
) |
|
|
487 |
|
|
|
805 |
|
|
|
(9,827 |
) |
Provision (benefit) for
income taxes |
|
|
(4,374 |
) |
|
|
173 |
|
|
|
339 |
(f) |
|
|
(3,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(6,745 |
) |
|
|
314 |
|
|
|
466 |
|
|
|
(5,965 |
) |
Noncontrolling interest |
|
|
(3,028 |
) |
|
|
|
|
|
|
|
|
|
|
(3,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
stockholders |
|
$ |
(3,717 |
) |
|
$ |
314 |
|
|
$ |
466 |
|
|
$ |
(2,937 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,826,052 |
(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,826,052 |
(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited pro forma condensed combined financial statements
71
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General |
|
|
|
|
|
|
Pro Forma |
|
|
Pro Forma |
|
|
|
Finance |
|
|
Pac-Van |
|
|
Adjustments |
|
|
Combined |
|
|
|
|
|
|
|
(In thousands, except share and per share data) |
|
|
|
|
|
Revenues |
|
$ |
95,576 |
|
|
$ |
70,824 |
|
|
$ |
|
|
|
$ |
166,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
57,675 |
|
|
|
14,038 |
|
|
|
|
|
|
|
71,713 |
|
Leasing, selling and general
expenses |
|
|
22,161 |
|
|
|
35,252 |
|
|
|
|
|
|
|
57,413 |
|
Depreciation and amortization |
|
|
7,367 |
|
|
|
4,833 |
|
|
|
970 |
(b) |
|
|
13,312 |
|
|
|
|
|
|
|
|
|
|
|
|
142 |
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
8,373 |
|
|
|
16,701 |
|
|
|
(1,112 |
) |
|
|
23,962 |
|
Interest income |
|
|
1,289 |
|
|
|
|
|
|
|
|
|
|
|
1,289 |
|
Interest expense |
|
|
(6,888 |
) |
|
|
(8,743 |
) |
|
|
(987 |
)(a) |
|
|
(16,654 |
) |
|
|
|
|
|
|
|
|
|
|
|
(36 |
)(d) |
|
|
|
|
Other, net |
|
|
3,814 |
|
|
|
|
|
|
|
|
|
|
|
3,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,785 |
) |
|
|
(8,743 |
) |
|
|
(1,023 |
) |
|
|
(11,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and noncontrolling interest |
|
|
6,588 |
|
|
|
7,958 |
|
|
|
(2,135 |
) |
|
|
12,411 |
|
Provision for income taxes |
|
|
2,034 |
|
|
|
3,332 |
|
|
|
(409 |
) (f) |
|
|
4,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
4,554 |
|
|
|
4,626 |
|
|
|
(1,726 |
) |
|
|
7,454 |
|
Noncontrolling interest |
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
stockholders |
|
$ |
4,106 |
|
|
$ |
4,626 |
|
|
$ |
(1,726 |
) |
|
$ |
7,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,826,052 |
(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,150,494 |
(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited pro forma condensed combined financial statements.
72
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(In thousands, except per share data)
Adjustments included in the column under the heading Pro Forma Adjustments are the
following:
Pro Forma Condensed Combined Statements of Operations
(a) To adjust interest expense from the beginning of the period on the revised senior bank
credit facility, subordinated note payable and the holdback notes;
(b) To reflect the amortization from the beginning of the period of the trademark and customer
base acquired;
(c) To reflect the additional depreciation from the beginning of the period of the fixed
assets acquired;
(d) To reflect the amortization from the beginning of the period of the deferred financing
costs incurred;
(e) To reverse stock-based compensation recorded as a result of the full vesting of outstanding
options under Pac-Vans terminated Stock Option Plan
(f) To adjust the provision for income taxes based on (a) to (e) above at an estimated
effective rate of 40%; and
(g) Weighted average shares outstanding are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
Common stock
assumed outstanding
at beginning of
period |
|
|
9,690,099 |
|
|
|
9,690,099 |
|
|
|
9,690,099 |
|
|
|
9,690,099 |
|
Common stock issued
in connection with
warrant exercise
program |
|
|
4,135,953 |
|
|
|
4,135,953 |
|
|
|
4,135,953 |
|
|
|
4,135,953 |
|
Common stock issued
in connection with
the business
combination |
|
|
4,000,000 |
|
|
|
4,000,000 |
|
|
|
4,000,000 |
|
|
|
4,000,000 |
|
Assumed exercise of
warrants and stock
options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,826,052 |
|
|
|
17,826,052 |
|
|
|
17,826,052 |
|
|
|
18,150,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
DIRECTORS AND EXECUTIVE OFFICERS
The following information is provided regarding our directors and executive officers as of
February 5, 2010. No family relationship exists between any director or executive officer:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Ronald F. Valenta
|
|
|
51 |
|
|
Chief Executive Officer and Director |
|
|
|
|
|
|
|
Charles E. Barrantes
|
|
|
57 |
|
|
Executive Vice President and Chief
Financial Officer |
|
|
|
|
|
|
|
Christopher A. Wilson
|
|
|
42 |
|
|
General Counsel, Vice President & Secretary |
|
|
|
|
|
|
|
Robert Allan
|
|
|
53 |
|
|
Chief Executive Officer, Royal Wolf |
|
|
|
|
|
|
|
Theodore Mourouzis
|
|
|
46 |
|
|
President, Pac-Van |
|
|
|
|
|
|
|
Lawrence Glascott
|
|
|
75 |
|
|
Chairman of the Board of Directors |
|
|
|
|
|
|
|
David M. Connell
|
|
|
65 |
|
|
Director |
|
|
|
|
|
|
|
Susan L. Harris
|
|
|
52 |
|
|
Director |
|
|
|
|
|
|
|
Ronald L. Havner, Jr.
|
|
|
52 |
|
|
Director |
|
|
|
|
|
|
|
Manuel Marrero
|
|
|
52 |
|
|
Director |
|
|
|
|
|
|
|
James B. Roszak
|
|
|
68 |
|
|
Director |
Ronald F. Valenta has served as a director and as our Chief Executive Officer since our
inception. He served as our Chief Financial Officer from inception through September 2006 and as
our Secretary from inception through December 2007. Mr. Valenta has been the Chairman of General
Finance Group, Inc. since 2008. From 1988 to 2003 Mr. Valenta served as the President and Chief
Executive Officer of Mobile Services Group, Inc., a portable storage company he founded. From 2003
to 2006 Mr. Valenta was a director of the National Portable Storage Association, a storage industry
non-profit organization. From 1985 to 1989, Mr. Valenta was a Senior Vice President of Public
Storage, 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 & 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 and as
such has been one of our executive officers since September 13, 2007. 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.
74
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.
Lawrence Glascott has been our Chairman of the Board of Directors since November 2005. Mr.
Glascott has served as a director of 99¢ Only Stores since 1996 where he currently serves on its
Audit, Compensation and Nominating and Corporate Governance Committees. From 1991 to 1996 he was
the Vice President Finance of Waste Management International, an environmental services company.
Prior thereto, Mr. Glascott was a partner at Arthur Andersen LLP and was in charge of the Los
Angeles-based Arthur Andersen LLP Enterprise Group practice for over 15 years.
David M. Connell has been a director since November 2005. In 1999 Mr. Connell founded
Cornerstone Corporate Partners, LLC, a consulting and advisory firm. Prior to establishing
Cornerstone Corporate Partners in 1999, Mr. Connell served as President and a member of the Board
of Directors for Data Processing Resources Corporation, or DPRC, from 1992 to 1999. DPRC was a
NASDAQ listed provider of information technology consulting services to Fortune 500 companies.
Prior to his services with DPRC, from 1988 to 1993, Mr. Connell was engaged by Welsh, Carson,
Anderson; Stowe, a New York private equity firm, to manage a group of portfolio companies. From
1990 to 1993, Mr. Connell served as Chairman and Chief Executive Officer of Specialized Mortgage
Service, Inc., an information technology company serving the real estate, banking, and credit
rating industries. From 1988 to 1990, he served as Chairman and Chief Executive Officer of Wold
Communications, Inc., which later merged and became Keystone Communications, a leading satellite
communications service provider.
Susan Harris has been a director since November 2008. Ms. Harris served as a director of
Mobile Services Group, Inc. and Mobile Storage Group, Inc., portable storage companies, from May
2004 to August 2006 and from May 2002 to August 2006, respectively. Ms. Harris retired from Sun
America, Inc. where she served in a variety of positions between 1985 and 2000, including Senior
Vice President and General Counsel. She earned her J.D. Degree from the University of Southern
California and her B.A. degree from the University of California, Los Angeles.
Ronald L. Havner, Jr. became a director on October 1, 2008. Mr. Havner has been the
Vice-Chairman, Chief Executive Officer and a member of the Board of Public Storage, Inc. since
November 2002 and President since July 1, 2005. Mr. Havner joined the Public Storage, Inc. in 1986
and held a variety of senior management positions until his appointment as Vice-Chairman and Chief
Executive Officer in 2002. Mr. Havner has been Chairman of the Public Storages affiliate, PS
Business Parks, Inc. (PSB), since March 1998 and was Chief Executive Officer of PSB from March 1998
until August 2003. He is also a member of the Board of Governors and the Executive Committee of the
National Association of Real Estate Investment Trusts, Inc. (NAREIT).
Manuel Marrero has been a director since November 2005. Since March 2009 Mr. Marrero has
served as the Chief Executive Officer of ACAC, Inc., a company controlled by Ronald Valenta. From
January 2004 to March 2009, Mr. Marrero has worked as a financial and operations management
consultant with several companies, principally focused in consumer products brand management. From
May 2002 until January 2004, Mr. Marrero served as the Chief Financial Officer of Mossimo, Inc., a
designer and licensor of apparel and related products. From 1999 to 2001, Mr. Marrero was the Chief
Operating Officer and Chief Financial Officer of Interplay Entertainment Corp., a developer,
publisher and distributor of interactive entertainment software, and the Chief Financial Officer of
Precision Specialty Metals, Inc. from 1996 to 1999, a light gauge conversion mill for flat rolled
stainless steel and high performance alloy. He has served on the boards of Interplay OEM, Inc.,
Shiney Entertainment, Inc., Seed Internet Ventures, Inc., L.A. Top Producers, LLC, Friends of
Rancho San Pedro and Tree People.
James B. Roszak has been a director since November 2005. Mr. Roszak has been a director of
National RV Holdings, Inc. since June 2003. Mr. Roszak was employed by the Life Insurance Division
of Transamerica Corporation, a financial services organization engaged in life insurance,
commercial lending, leasing and real estate services, from June 1962 through his retirement as
President of such division in June 1997. Mr. Roszak also served as interim Chief Executive Officer
and a director of buy.com, an Internet retailer, from February 2001 through August 2001. He is a
member of the Board of Trustees of Chapman University.
75
EXECUTIVE COMPENSATION
The following table contains summary compensation information of the following executive
officers, or our Named Executive Officers, for fiscal years 2009, 2008, the six months ended June
30, 2007 and the year ended December 31, 2006.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
All Other |
|
|
Name and Principal Position |
|
Year |
|
Salary |
|
Bonus |
|
(4) |
|
Compensation |
|
Total |
Ronald F. Valenta
Chief Executive Officer (6) |
|
|
2009 |
|
|
$ |
77,778 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
25,000 |
|
|
$ |
102,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles E. Barrantes
Chief Financial Officer and
Executive Vice President (1)(5) |
|
|
2009 |
|
|
$ |
200,000 |
|
|
$ |
42,000 |
|
|
$ |
137,600 |
|
|
$ |
5,250 |
|
|
$ |
384,850 |
|
|
|
|
2008 |
|
|
|
200,000 |
|
|
|
90,000 |
|
|
|
137,600 |
|
|
|
10,533 |
|
|
|
438,133 |
|
|
|
|
2007 |
|
|
|
100,000 |
|
|
|
|
|
|
|
68,800 |
|
|
|
3,512 |
|
|
|
172,312 |
|
|
|
|
2006 |
|
|
|
62,121 |
|
|
|
21,742 |
|
|
|
42,000 |
|
|
|
3,361 |
|
|
|
129,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A. Wilson
General Counsel, Vice President and
Counsel (2)(5) |
|
|
2009 |
|
|
$ |
200,000 |
|
|
$ |
42,000 |
|
|
$ |
168,600 |
|
|
$ |
9,598 |
|
|
$ |
420,198 |
|
|
|
|
2008 |
|
|
|
109,167 |
|
|
|
108,133 |
|
|
|
92,100 |
|
|
|
11,335 |
|
|
|
321,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Allan
Chief Executive Officer, Royal Wolf (3) |
|
|
2009 |
|
|
$ |
261,813 |
|
|
$ |
21,468 |
|
|
$ |
128,500 |
|
|
$ |
|
|
|
$ |
411,781 |
|
|
|
|
2008 |
|
|
|
313,764 |
|
|
|
107,575 |
|
|
|
71,600 |
|
|
|
|
|
|
|
492,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theodore Mourouzis
President, Pac-Van, Inc. (7)(8) |
|
|
2009 |
|
|
$ |
163,221 |
|
|
$ |
50,042 |
|
|
$ |
42,700 |
|
|
$ |
3,450 |
|
|
$ |
259,413 |
|
|
|
|
(1) |
|
The employment of Mr. Barrantes commenced in September 2006. |
|
(2) |
|
The employment of Mr. Wilson commenced in December 2007. Fiscal year 2008 included a signing bonus of $70,833. |
|
(3) |
|
Mr. Allan became a Named Executive Officer in conjunction with our acquisition of Royal Wolf effective September 13, 2007. The salary reflected in this table
was for the full fiscal year 2008. Australian dollar to U.S. dollar exchange rates used were 0.7480 in fiscal year 2009 and 0.8965 in fiscal year 2008. |
|
|
(4) |
|
The amounts shown are the amounts of compensation expense recognized by us relating to the grants of stock options, as described in Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation . For a discussion of valuation assumptions
used in the calculation of these amounts for fiscal year 2008, see Note 2, Summary of Significant Accounting Policies, and Note 9, Stock Option Plans,
of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 30, 2009 filed with the Securities and
Exchange Commission on September 28, 2009. |
|
|
(5) |
|
Other compensation represents reimbursement of medical and dental insurance premiums. |
|
|
(6) |
|
The employment of Mr. Valenta commenced in February 2009. Other compensation represents a one-time expense allowance. |
|
|
|
(7) |
|
Mr. Mourouzis became a Named Executive Officer in conjunction with our acquisition of Pac-Van, Inc. effective October 1, 2008. Included in the bonus paid in
fiscal year 2009 was $45,042, which pertained to periods prior to our acquisition of Pac-Van. |
|
|
|
(8) |
|
Other compensation represents 401(k) plan contributions by Pac-Van, Inc. |
|
76
Plan-Based Awards
We have only one compensation plan, our 2006 Stock Option Plan. The following table provides
information concerning each grant of an award made to the Named Executive Officers in fiscal year
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Grants in Fiscal Year 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of |
|
|
Option Awards: |
|
|
Exercise or |
|
|
|
|
|
|
|
|
|
|
Approval of |
|
|
Number of |
|
|
Base Price of |
|
|
Grant Date |
|
|
|
|
|
|
|
Grants by the |
|
|
Securities |
|
|
Option |
|
|
Fair Value of |
|
|
|
|
|
|
|
Compensation |
|
|
Underlying |
|
|
Awards |
|
|
Option |
|
Name |
|
Grant Date |
|
|
Committee |
|
|
Options (#) |
|
|
($/Shares) |
|
|
Awards ($) |
|
Theodore Mourouzis |
|
|
10/1/2008 |
|
|
|
9/17/2008 |
|
|
|
125,000 |
(1) |
|
$ |
6.40 |
|
|
$ |
256,300 |
|
|
|
|
(1) |
|
50,000 of these stock options vest in five equal annual installments beginning October 1, 2009 and 75,000 of these stock options vest in varying
periods over 71 months subject to performance conditions based on Pac-Van, Inc. achieving certain EBITDA (earnings before interest, income taxes,
depreciation and amortization and other non-operating costs) targets for the fiscal years 2009 through 2013. |
The following table provides information concerning outstanding options as of June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year-End |
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
Equity Incentive Plan |
|
|
|
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
Awards: Number of |
|
|
|
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Securities Underlying |
|
|
|
|
|
|
|
|
Options |
|
|
Options |
|
|
Unexercised Unearned |
|
|
|
|
|
|
|
|
(#) |
|
|
(#) |
|
|
Options |
|
|
Exercise Price |
|
|
Expiration |
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
(#) |
|
|
($/Sh) |
|
|
Date |
Charles E. Barrantes |
|
|
90,000 |
|
|
|
135,000 |
(1)
|
|
|
|
|
|
$ |
7.30 |
|
|
|
9/11/16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A. Wilson |
|
|
45,000 |
|
|
|
180,000 |
(2) |
|
|
|
|
|
$ |
9.05 |
|
|
|
12/14/17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Allan |
|
|
9,000 |
|
|
|
116,000 |
(3) |
|
|
|
|
|
$ |
8.80 |
|
|
|
1/22/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theodore Mourouzis |
|
|
|
|
|
|
125,000 |
(4) |
|
|
|
|
|
$ |
6.40 |
|
|
|
10/1/18 |
|
|
|
(1) |
|
These options vest in five equal annual installments on September 11 of each of 2007, 2008, 2009, 2010 and 2011, subject to continued service with us, and have a
ten-year term. |
|
(2) |
|
These options vest in five equal annual installments on December 14 of each of 2008, 2009, 2010, 2011 and 2012, subject to continued service with us, and have a
ten-year term. |
|
(3) |
|
45,000 of these stock options vest in five equal annual installments on January 22 of each of 2009, 2010, 2011, 2012 and 2013. 80,000 of these stock options vest
over 20 months subject to a performance condition based on Royal Wolf achieving a certain EBITDA target for the fiscal year 2008. In June 2008, the Compensation
Committee determined that 40,000 of these performance-based options would be deemed to have achieved the performance criteria and the remaining 40,000
performance-based options would be rolled over and modified during the first quarter of the fiscal year ending June 30, 2010, over a longer period. These stock
options are subject to continued service with us and have a ten-year term. |
|
(4) |
|
50,000 of these options vest in five equal installments beginning October 1, 2009 and 75,000 of these options vest in varying periods over 71 months subject to
performance conditions based on Pac-Van, Inc. achieving certain EBITDA targets for the fiscal years 2009 through 2013. These stock options are subject to
continued service with us and hold a ten-year term. |
No Named Executive Officer exercised any stock options during fiscal year 2009.
77
Employment Agreements
On February 11, 2009, we entered into an employment agreement with Ronald Valenta, under which
he agreed to serve to serve as our Chief Executive Officer. Under the employment agreement, Mr.
Valenta receives a base annual salary of $200,000 and is eligible to receive an annual bonus each
fiscal year of up to 35% of his base salary, provided he is employed on the last day of such year.
We reimburse Mr. Valenta up to $2,500 per month for a car allowance and health, dental, vision and
supplemental disability premiums for Mr. Valenta and his family. Mr. Valenta is entitled to a
severance payment equal to one years salary if his employment is terminated without cause, as
defined in the employment agreement.
On September 11, 2006, we entered into an employment agreement with Charles E. Barrantes,
under which he agreed to serve as our Executive Vice President and Chief Financial Officer. Under
the employment agreement, Mr. Barrantes receives a base annual salary of $200,000 and is eligible
to receive an annual bonus each fiscal year of up to 35% of his base salary, provided he is
employed on the last day of such year. We reimburse Mr. Barrantes up to $750 per month for health,
dental, vision and supplemental disability premiums for himself and his family. Mr. Barrantes is
entitled to participate on the same basis in all offered benefits or programs as any other
employee. On June 30, 2009, we entered into an amended and restated employment agreement with Mr.
Barrantes that provides that Mr. Barrantes is entitled to a severance payment equal to one years
salary if his employment is terminated without cause, as defined in the employment agreement.
On December 14, 2007, we entered into an employment agreement with Christopher A. Wilson,
under which he agreed to serve as our General Counsel, Vice President and Secretary. Under the
employment agreement, Mr. Wilson receives a base annual salary of $200,000, and is eligible to
receive an annual bonus each fiscal year of up to 35% of his base salary, provided he is employed
on the last day of such year. Mr. Wilson is entitled to a severance payment equal to one years
salary if his employment is terminated without cause, as defined in the employment agreement. We
reimburse Mr. Wilson for up to $1,150 per month for health, dental, vision and supplemental
disability premiums for himself and his family. Mr. Wilson is entitled to participate on the same
basis in all offered benefits or programs as any other employee.
Mr. Valenta, at his recommendation, has not been granted stock options. Mr. Barrantes and Mr.
Wilson each received options to purchase an aggregate of 225,000 shares of common stock under our
2006 Stock Option Plan as of the respective dates of commencement of their employment. Mr.
Barrantes and Mr. Wilsons stock options have an exercise price of $7.30 and $9.05 per share,
respectively (the closing sales price of the common stock on the date of grant), vest in five equal
annual installments and expire ten years from the date of grant.
The employment agreements of Mr. Valenta, Mr. Barrantes and Mr. Wilson will terminate upon the
date of their death or in the event of a physical or mental disability that renders either of them
unable to perform his duties for 60 consecutive days or 120 days in any twelve-month period. Mr.
Valenta, Mr. Barrantes and Mr. Wilson may terminate their respective employment agreements at any
time upon 30 days notice to us, and we may terminate these agreements at any time upon notice to
Mr. Valenta, Mr. Barrantes or Mr. Wilson.
Royal Wolf employs Robert Allan pursuant to an employment agreement that will continue
indefinitely, unless terminated by Mr. Allan or Royal Wolf upon at least six months notice. Under
his employment agreement, using an Australian dollar to United States dollar exchange rate of
0.8048 at June 30, 2009, Mr. Allan receives a base annual salary of $281,683 and is eligible to
receive an annual performance bonus not to exceed $115,489 based upon the achievement of specified
performance indicators. The maximum annual performance bonus is subject to increase based upon
consumer priced index increases. There is no severance or similar obligation to Mr. Allan under his
employment agreement except that Royal Wolf may pay six months compensation to Mr. Allan in lieu
of providing notice of termination of his employment as described above.
Ronald Valenta, Charles Barrantes and Christopher Wilson are the only employees who received
compensation for services to the Company in fiscal year 2009. Robert Allan received compensation as
Chief Executive Officer of GFN Australasia Holdings Pty Limited, which, with its subsidiaries, we
refer to as Royal Wolf, an indirectly-owned Australian subsidiary.
In approving Mr. Valentas, Mr. Barrantes and Mr. Wilsons compensation, the Board of
Directors reviewed information provided by management regarding the compensation of comparable
level officers of public companies, including companies in the equipment leasing business. The
Board also considered the size and stage of development of the Company, Mr. Valentas, Mr.
Barrantes and Mr. Wilsons experience and prior compensation, and the scope of the services that
each would be required to render (particularly given the lack of support staff and the need to
implement policies and procedures). The Board of Directors determined that Mr. Valentas, Mr.
Barrantes and Mr. Wilsons compensation should consist of a base salary, the opportunity for a
material performance-based bonus and stock options under the 2006 Stock Option Plan.
78
Potential Payments Upon Termination of Employment or Change in Control
We have no agreements or arrangement with any executive officer that provides for payments
upon termination of employment except that to the employment agreements of Mr. Valenta, Mr.
Barrantes and Mr. Wilson under which each is entitled to a lump sum severance payment of twelve
months base salary if we terminate their employment without cause or he terminates his employment
for good reason. We have no other agreements or arrangements with any executive officer that
provide for payments upon a change of control.
79
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of our common
stock as of February 5, 2010, by (i) each person known by us to be the beneficial owner of more
than 5% of our outstanding shares of common stock; (ii) each of our executive officers and
directors; and (iii) all of our executive officers and directors as a group. Unless otherwise
noted, we believe that each beneficial owner named in the table has sole voting and investment
power with respect to the shares shown, subject to community property laws where applicable. An
asterisk (*) denotes beneficial ownership of less than one percent.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership |
|
|
Number of |
|
Percent of |
Name |
|
Shares(1) |
|
Class(1) |
Ronald F. Valenta(2)(3)
|
|
|
3,776,805 |
|
|
|
21.2 |
% |
James B. Roszak(2)(4)
|
|
|
31,500 |
|
|
|
(* |
) |
Lawrence Glascott(2)(5)
|
|
|
36,200 |
|
|
|
(* |
) |
Manuel Marrero(2)(6)
|
|
|
50,500 |
|
|
|
(* |
) |
David M. Connell(2)(7)
|
|
|
27,500 |
|
|
|
(* |
) |
Susan Harris(2)(8)
|
|
|
3,000 |
|
|
|
(* |
) |
Ronald L. Havner, Jr.(9)
LeeAnn R. Havner
The Havner Family Trust
c/o Karl Swaidan
Hahn & Hahn LLP
301 East Colorado Boulevard, Suite 900
Pasadena, California 91101
|
|
|
2,562,175 |
|
|
|
14.4 |
% |
Charles E. Barrantes(2)(10)
|
|
|
154,000 |
|
|
|
(* |
) |
Christopher Wilson(2)(11)
|
|
|
114,000 |
|
|
|
(* |
) |
Robert Allan(12)(13)
|
|
|
69,170 |
|
|
|
(* |
) |
Theodore M. Mourouzis(14)(15)
|
|
|
262,463 |
|
|
|
1.5 |
% |
Gilder, Gagnon, Howe & Co. LLC(16)
|
|
|
961,720 |
|
|
|
5.4 |
% |
Olowalu Holdings, LLC(17)
2863 S. Western Avenue
Palos Verdes, California 90275
|
|
|
1,354,571 |
|
|
|
7.6 |
% |
Jonathan Gallen(18)
299 Park Avenue, 17th Floor
New York, New York 10171
|
|
|
1,578,000 |
|
|
|
8.9 |
% |
Neil Gagnon(19)
1370 Avenue of the Americas, Suite 2400
New York, New York 10019
|
|
|
2,423,544 |
|
|
|
13.6 |
% |
Jack Silver(20)
SIAR Capital LLC
660 Madison Avenue
New York, New York 10021
|
|
|
3,365,000 |
|
|
|
16.5 |
% |
Brencourt Advisors, LLC(21)
600 Lexington Avenue
8 th Floor
New York, NY 10022
|
|
|
231,117 |
|
|
|
1.3 |
% |
Halcyon Asset Management LLC
Halcyon Offshore Asset Management LLC (22)
477 Madison Avenue
New York, NY 10022
|
|
|
875,842 |
|
|
|
4.9 |
% |
|
All executive officers and directors as a group (eleven persons)
|
|
|
7,056,313 |
|
|
|
39.6 |
% |
80
|
|
|
(1) |
|
Based on 17,826,052 shares of common stock outstanding. In accordance with the rules of the SEC, person is deemed to be the beneficial owner of
shares that the person may acquire within the following 60 days (such as upon exercise of options or warrants or conversion of convertible
securities). These shares are deemed to be outstanding for purposes of computing the percentage ownership of the person beneficially owning such
shares but not for purposes of computing the percentage of any other holder. |
|
|
|
(2) |
|
Business address is c/o General Finance Corporation, 39 East Union Street, Pasadena, California 91103. |
|
|
|
(3)
|
|
Includes: (i) 13,500 shares owned by Mr. Valentas wife and minor children, as to which Mr. Valentas shares
voting and investment power with his wife; and (ii) 540,013 shares that may be acquired upon exercise of
warrants. The shares shown exclude the shares referred to in note (8), below. |
|
|
|
(4)
|
|
Includes 31,500 shares owned and 3,000 shares that may be acquired upon exercise of options. |
|
|
|
(5)
|
|
Includes 36,200 shares owned and 3,000 shares that may be acquired upon exercise of options. |
|
|
|
(6)
|
|
Includes 50,500 shares owned and 3,000 shares that may be acquired upon exercise of options. |
|
|
|
(7)
|
|
Includes 27,500 shares owned and 3,000 shares that may be acquired upon exercise of options. |
|
|
|
(8)
|
|
Includes 3,000 shares that may be acquired upon exercise of options. |
|
|
|
(9)
|
|
Information is based upon Amendment No. 2 to Schedule 13D filed on October 8, 2008. The shares shown include
2,000 shares as to which Ronald L. Havner has sole voting power, 3,000 shares as to which his wife, LeeAnn R.
Havner, has sole voting power and 3,000 shares that may be acquired upon the exercise of stock options. Mr.
and Mrs. Havner are Co-Trustees of The Havner Family Trust. The Trust owns 2,517,425 shares and 39,750
warrants. As Co-Trustees of the Trust, Mr. and Mrs. Havner may he deemed to beneficially own all of the
shares held by the Trust. |
|
|
|
(10)
|
|
Includes 19,000 shares owned and 135,000 shares that may be acquired upon exercise of stock options. |
|
|
|
(11)
|
|
Includes 24,000 shares owned and 90,000 shares that may be acquired upon exercise of stock options. |
|
|
|
(12)
|
|
Business address is Suite 201, Level 2, 22-28 Edgeworth David Avenue, Hornsby, New South Wales, Australia 2077 |
|
|
|
(13)
|
|
Includes 20,170 shares owned and 49,000 shares that may be acquired upon the exercise of stock options. |
|
|
|
|
(14)
|
|
Business address is 2995 South Harding Street, Indianapolis, IN 46225. |
|
|
|
|
(15)
|
|
Includes 252,463 shares owned and 10,000 shares that may be acquired upon exercise of stock options. |
|
|
|
(16)
|
|
Information is based upon a Schedule 13G filed on April 10, 2009. Gilder, Gagnon, Howe & Co. LLC is a New
York limited liability and broker or dealer registered under the Securities Exchange Act of 1934. The shares
shown include 28,865 shares as to which Gilder, Gagnon, Howe & Co. LLC has sole voting power and 932,855
shares as to which it has investment power. Of these 932,855 shares, 823,762 shares are held in customer
accounts under which partners or employees of Gilder, Gagnon, Howe & Co. LLC have discretionary authority to
dispose or direct the disposition of the shares, 109,093 shares are held in accounts of its partners and
28,865 shares are held in its profit-sharing plan. |
|
|
|
(17)
|
|
Information is based upon an Amendment to Schedule 13G filed on February 13, 2009. Olowalu Holdings, LLC
(Olowalu), is a Hawaiian limited liability company, of which Rick Pielago is the manager. Olowalu shares
voting and investment power as to all of the shares shown with Lighthouse Capital Insurance Company, a Cayman
Islands exempted limited company, and the Ronald Valenta Irrevocable Life Insurance Trust No. 1, a California
trust, of which Mr. Pielago is trustee. The Ronald Valenta Irrevocable Life Insurance Trust No. 1 is an
irrevocable family trust established by Ronald F. Valenta in December 1999 for the benefit of his wife at the
time, any future wife, and their descendants. Mr. Valenta, himself, is not a beneficiary of the Trust, and
neither he nor his wife or their descendants has voting or investment power, or any other legal authority,
with respect to the shares shown. Mr. Valenta disclaims beneficial ownership of our shares held by the Trust.
Mr. Pielago may be deemed to be the control person of Olowalu and the Ronald Valenta Irrevocable Life
Insurance Trust No. 1. |
81
|
|
|
(18)
|
|
Information is based upon a Schedule 13G filed on February 17, 2009. The shares shown are held by Ahab
Opportunities, L.P. and Ahab Opportunities, Ltd. |
|
|
|
(19)
|
|
Information is based upon a Schedule 13G filed on
February 18, 2009. The shares shown include: (i)
2,423,544 shares beneficially owned by Mr. Gagnon;
(ii) 901,598 shares beneficially owned by Mr.
Gagnon over which he has sole voting power and
shared dispositive power; and (iii) 1,760,502
shares held for certain customers of Gagnon
Securities LLC, of which Mr. Gagnon is the managing
member and the principal owner and over which he
has shared dispositive power but no voting power. |
|
|
|
|
(20)
|
|
Information is based upon an Amendment to Schedule
13G filed on December 11, 2009. The shares shown
include: (i) 2,600,000 shares that may be acquired
upon exercise of warrants held by Sherleigh
Associates Inc. Profit Sharing Plan, a trust of
which Mr. Silver is the trustee; and (ii) 765,000
shares held by Sherleigh Associates Inc. Profit
Sharing Plan, a trust of which Mr. Silver is a
trustee. |
|
|
|
|
(21)
|
|
Information is based upon a Schedule 13G filed on
February 12, 2009 as an Investment Advisor with the
Sole dispositive and power to vote or to direct the
vote of 231,117 shares. |
|
|
|
(22)
|
|
Information is based upon an Amendment to Schedule
13G filed on February 13, 2009. The shares shown
consist of 875,842 shares beneficially owned by
Halcyon Asset Management LLC and Halcyon Offshore
Asset Management LLC over which they have sole
voting power and dispositive power. |
82
TRANSACTIONS WITH RELATED PERSONS
On October 1, 2008 we acquired Mobile Office Acquisition Corp., or MOAC, through a merger, or
Merger. Pursuant to the Merger Agreement, the former stockholders of MOAC received approximately
$19.4 million in cash, four million shares of restricted common stock of GFN (valued pursuant to
the Merger Agreement at $7.50 per share with an aggregate value of $30 million) and a 20-month
subordinated promissory note in the principal amount of $1.5 million issued by GFN North America
Corp., our wholly-owned subsidiary. A special committee of independent directors of the Company was
formed to determine whether to acquire MOAC because Ronald F. Valenta, our President, Chief
Executive Officer and director, is a stockholder of MOAC. The stockholders of the Company approved
the acquisition of MOAC on September 30, 2008, and the acquisition was completed on October 1,
2008.
In April 2006, immediately prior to the closing of our initial public offering, Ronald F.
Valenta, our Chief Executive Officer and a director, purchased from the Company 466,667 warrants at
a price of $1.20 per warrant for an aggregate purchase price of approximately $560,000. These
warrants are identical to the warrants issued in our initial public offering in that each warrant
entitles the holder to purchase one share of Common Stock for $6.00 per share following the
completion of a business combination and expires April 5, 2010.
In May 2008, pursuant to an offering to holders of our publicly-traded warrants at a reduced
exercise price of $5.10 per warrant, Mr. Valenta exercised all 466,667 of his warrants.
The Company had an unsecured limited recourse revolving line of credit from Ronald F. Valenta,
a director and the chief executive officer of the Company, pursuant to which the Company could
borrow up to $3,000,000 outstanding at one time. The line of credit terminated upon the completion
of the acquisition of Royal Wolf, and the outstanding principal and interest totaling $2,586,848
was repaid on September 14, 2007.
The Company utilizes certain accounting, administrative and secretarial services from
affiliates of officers; as well as office space provided by an affiliate of Mr. Valenta. Until the
consummation of a business combination by the Company, the affiliates had agreed to make such
services available to the Company free of charge, as may be required by the Company from time to
time; with the exception of the reimbursement of certain out-of-pocket costs incurred on behalf of
the Company. Effective September 14, 2007, the Company entered into a month-to-month arrangement
that lasted until January 31, 2008 with an affiliate of Mr. Valenta for the rental of the office
space at $1,148 per month. In addition, effective September 14, 2007, the Company commenced
recording a charge to operating results (with an offsetting contribution to additional paid-in
capital) for the estimated cost of contributed services rendered to the Company at no compensation
by non-employee officers and administrative personnel of affiliates. These contributed services
ceased in February 2009.
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 $63,000 at the corporate office and $155,000, plus out-of-pocket expenses of
$16,000, at the operating subsidiaries in 2009.
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 in fiscal year 2009.
We have not adopted a formal written policy regarding transactions with related persons.
However, in general, any such material transaction would require approval of the Board of
Directors, with any interested director abstaining.
83
PLAN OF DISTRIBUTION
Terms of the Rights Offering
We are distributing, at no charge to the holders of our common stock, transferable
subscription rights to subscribe for Units, which we refer to throughout this prospectus as Units,
consisting of one share of our common stock and a three-year Warrant to purchase 0.5 additional
shares of our common stock at an exercise price of $4.00 per share. Our stockholders will receive
one subscription right for every two shares of our common stock held of record as of 5:00 p.m.,
Eastern Standard Time, on , 20 , the record date.
Each subscription right entitles the holder to subscribe for one Unit at the subscription
price of $ per Unit, which we refer to as the basic subscription right. In addition, rights holders
who fully exercise their basic subscription rights will be entitled, subject to limitations, to
subscribe for additional Units that remain unsubscribed as a result of any unexercised basic
subscription rights, which we refer to as the over-subscription right, at the subscription price of
$ per Unit.
There is no minimum number of Units you must purchase, but you may not purchase fractional
Units. When determining the number of subscription rights you will receive, divide the number of
shares of our common stock you own by two and round down to the next whole number. For example, if
you own 225 shares of our common stock, you will receive 112 subscription rights (225 shares
divided by 2 = 112.5, rounded down to 112 subscription rights, the next whole number), which will
entitle you to subscribe for up to 112 Units under your basic subscription privilege.
The rights will expire at 5:00 p.m., Eastern Standard Time, on February , 2010,
which date we refer to as the expiration date. If the rights offering is undersubscribed, we may
extend the period for exercising the rights in our sole discretion. Any rights not exercised at or
before that time will expire worthless without any payment to the holders of those unexercised
rights. There is no minimum subscription amount required for consummation of the rights offering.
In the event we cancel the rights offering, all subscription payments received by us will be
returned, without interest or penalty, as soon as practicable.
The rights will be evidenced by subscription rights certificates which will be mailed to
stockholders, except as discussed below under Foreign Stockholders. The subscription rights are
transferable and will be listed for trading on The NASDAQ Global Market under the symbol GFNR
during the course of this offering.
For purposes of determining the number of Units a rights holder may acquire in this offering,
brokers, dealers, custodian banks, trust companies or others whose shares are held of record by DTC
or by any other depository or nominee will be deemed to be the holders of the rights that are
issued to Cede or the other depository or nominee on their behalf.
There is no minimum subscription amount. We will we not raise more than $ in this offering.
Allocation and Exercise of Over-Subscription Rights
In order to properly exercise an over-subscription right, a rights holder must: (i) indicate
on its subscription rights certificate that it submits with respect to the exercise of the rights
issued to it how many additional Units it is willing to acquire pursuant to its over-subscription
right and (ii) concurrently deliver the subscription payment related to your over-subscription
right at the time you make payment for your basic subscription right.
If there are sufficient remaining Units, all over-subscription requests will be honored in
full. If requests for shares pursuant to the over-subscription right exceed the remaining shares
available, the available remaining shares will be allocated pro rata among rights holders who
over-subscribe based on the number of over-subscription shares to which they subscribe. The
allocation process will assure that the total number of remaining shares available for
over-subscriptions is distributed on a pro rata basis. The formula to be used in allocating the
available excess shares is as follows:
|
|
|
|
|
Number of Over-Subscription Units |
|
|
|
|
Subscribed to by Exercising Rights Holder |
|
|
Units Available for |
|
Total Number of Over-Subscription Units
|
|
X
|
Rights Holders Exercising |
|
Available for Rights Holders Exercising Their
Over-Subscription Right
|
|
|
Their Over-Subscription Right |
|
84
Rights payments for basic subscriptions and over-subscriptions will be deposited upon
receipt by the subscription agent and held in a segregated account with the subscription agent
pending a final determination of the number of Units to be issued pursuant to the over-subscription
right. If the prorated amount of Units allocated to you in connection with your over-subscription
right is less than your over-subscription request, then the excess funds held by the subscription
agent on your behalf will be returned to you promptly without interest or deduction. We will
deliver certificates representing your Units of one share of common stock and one Warrant to
acquire 0.5 shares of common stock or credit your account at your nominee holder with one share of
common stock and one Warrant to acquire 0.5 shares of common stock that you purchased pursuant to
your over-subscription right as soon as practicable after the rights offering has expired and all
proration calculations and reductions contemplated by the terms of the rights offering have been
effected.
Brokers, dealers, custodian banks, trust companies and other nominee holders of rights will be
required to certify to the subscription agent, before any over-subscription right may be exercised
with respect to any particular beneficial owner, as to the aggregate number of rights exercised
pursuant to the basic subscription right and the number of Units subscribed for pursuant to the
over-subscription right by such beneficial owner.
Pro Rata Allocation if Insufficient Shares are Available for Issuance
If we receive a sufficient number of subscriptions, the aggregate dollar amount of the
exercises could exceed the maximum dollar amount of this offering. In each case, we would reduce on
a pro rata basis, the number of subscriptions we accept so that: (i) we will not become obligated
to issue, upon exercise of the subscriptions, a greater number of Units than we have authorized and
available for issuance and (ii) the gross proceeds of this offering will not exceed the maximum
dollar amount of this offering. In the event of any pro rata reduction, we would first reduce
over-subscriptions prior to reducing basic subscriptions.
Expiration of the Rights Offering and Extensions, Amendments, and Termination
Expiration and Extensions. You may exercise your subscription rights at any time before 5:00
p.m., Eastern Standard Time, on February
[ ], 2010, the expiration date of the rights offering,
unless extended. If the rights offering is undersubscribed, our board of directors may extend the
expiration date for exercising your subscription rights for up to an additional 30 trading days, in
their sole discretion. If we extend the expiration date, you will have at least ten trading days
during which to exercise your rights. Any extension of this offering will be followed as promptly
as practicable by an announcement, and in no event later than 9:00 a.m., Eastern Standard Time, on
the next business day following the previously scheduled expiration date.
We may choose to extend the expiration date of the rights in order to give investors more time
to exercise their subscription rights in the rights offering. We may extend the expiration date of
the rights offering by giving oral or written notice to the subscription agent and information
agent on or before the scheduled expiration date. If we elect to extend the expiration date, we
will issue a press release announcing such extension no later than 9:00 a.m., Eastern Standard
Time, on the next business day after the most recently announced expiration date.
Any rights not exercised at or before that time will have no value and expire without any
payment to the holders of those unexercised rights. We will not be obligated to honor your exercise
of subscription rights if the subscription agent receives the documents relating to your exercise
after the rights offering expires, regardless of when you transmitted the documents.
Termination; Cancellation. We may cancel or terminate the rights offering at any time prior to
the expiration date. Any cancellation or termination of this offering will be followed as promptly
as practicable by an announcement or termination.
Reasons for the Rights Offering; Determination of the Offering Price
We are making the rights offering to reduce our indebtedness, as well as for general working
capital purposes. Prior to approving the rights offering, our board of directors carefully
considered current market conditions and financing opportunities, as well as the potential dilution
of the ownership percentage of the existing holders of our common stock that may be caused by the
rights offering.
After weighing the factors discussed above and the effect of the $ in additional capital,
before expenses, that may be generated by the sale of shares pursuant to the rights offering, our
board of directors believes that the rights offering is in the best interests of our company. As
described in the section of this prospectus entitled Use of Proceeds, the proceeds from the
rights offering, less fees and expenses incurred in connection with this offering, will be used to
reduce indebtedness, as well as for general working capital purposes. Although we believe that the
rights offering will strengthen our financial condition, our board of directors is not making any
recommendation as to whether you should exercise your subscription rights.
85
The subscription price per share for the rights offering was set by our board of
directors. In determining the subscription price of the Units, the board of directors considered,
among other things, the following factors:
|
|
|
|
the historical and current market price of our common stock; |
|
|
|
|
|
|
the fact that holders of rights will have an over-subscription right; |
|
|
|
|
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the terms and expenses of this offering relative to other alternatives for raising capital, |
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the size of this offering; and |
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the general condition of the securities market. |
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Subscription Agent
Continental Stock Transfer & Trust Company will act as the subscription agent in connection
with this offering. The subscription agent will receive for its administrative, processing,
invoicing and other services a fee estimated to be approximately $15,000 plus reimbursement for all
reasonable out-of-pocket expenses related to this offering.
Completed subscription rights certificates must be sent together with full payment of the
subscription price for all Units subscribed for through the exercise of the subscription right and
the over-subscription right to the subscription agent by one of the methods described below.
We will accept only properly completed and duly executed subscription rights certificates
actually received at any of the addresses listed below, at or prior to 5:00 p.m., Eastern Standard
Time, on the expiration date of this offering. See Payment for Units below. In this prospectus,
close of business means 5:00 p.m., Eastern Standard Time, on the relevant date.
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Subscription Rights Certificate |
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Delivery Method
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Address/Number |
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By Mail/Commercial Courier/Hand Delivery:
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Continental Stock Transfer & Trust Company |
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17 Battery Place, 8th Floor |
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New York, NY 10004 |
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(212) 509-4000, x 536 |
Delivery to an address other than the address listed above will not constitute valid delivery
and, accordingly, may be rejected by us.
Any questions or requests for assistance concerning the method of subscribing for Units or for
additional copies of this prospectus or subscription rights certificates may be directed to the
subscription agent at its telephone number and address listed below:
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, NY 10004
(212) 509-4000, x 536
Stockholders may also contact their broker, dealer, custodian bank, trustee or other nominee
for information with respect to this offering.
Methods for Exercising Rights
Rights are evidenced by subscription rights certificates that, except as described below under
Foreign Stockholders, will be mailed to record date stockholders or, if a record date
stockholders shares are held by a depository or nominee on his, her or its behalf, to such
depository or nominee. Rights may be exercised by completing and signing the subscription rights
certificate that accompanies this prospectus and mailing it in the envelope provided, or otherwise
delivering the completed and duly executed subscription rights certificate to the subscription
agent, together with payment in full for the Units at the subscription price by the expiration date
of this offering. Completed subscription rights certificates and related payments must be received
by the subscription agent prior to 5:00 p.m., Eastern Standard Time, on or before the expiration
date, at the offices of the subscription agent at the address set forth above.
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Exercise of the Over-Subscription Right
Rights holders who fully exercise all basic subscription rights issued to them may participate
in the over-subscription right by indicating on their subscription rights certificate the number of
Units they are willing to acquire. If sufficient remaining shares are available after the basic
subscription, all over-subscriptions will be honored in full; otherwise, remaining shares will be
allocated on a pro rata basis as described under Allocation of Over-Subscription Right above.
Record Date Stockholders Whose Shares are Held by a Nominee
Record date stockholders whose shares are held by a nominee, such as a broker, dealer,
custodian bank, trustee or other nominee, must contact that nominee to exercise their rights. In
that case, the nominee will complete the subscription rights certificate on behalf of the record
date stockholder and arrange for proper payment by one of the methods set forth under Payment for
Units below.
Nominees
Nominees, such as brokers, dealers, custodian banks, trustees or depositories for securities,
who hold shares for the account of others, should notify the respective beneficial owners of the
shares as soon as possible to ascertain the beneficial owners intentions and to obtain
instructions with respect to the rights. If the beneficial owner so instructs, the nominee should
complete the subscription rights certificate and submit it to the subscription agent with the
proper payment as described under Payment for Units below.
General
All questions as to the validity, form, eligibility (including times of receipt and matters
pertaining to beneficial ownership) and the acceptance of subscription forms and the subscription
price will be determined by us, which determinations will be final and binding. No alternative,
conditional or contingent subscriptions will be accepted. We reserve the right to reject any or all
subscriptions not properly submitted or the acceptance of which would, in the opinion of our
counsel, be unlawful.
We reserve the right to reject any exercise if such exercise is not in accordance with the
terms of this rights offering or not in proper form or if the acceptance thereof or the issuance of
Units thereto could be deemed unlawful. We reserve the right to waive any deficiency or
irregularity with respect to any subscription rights certificate. Subscriptions will not be deemed
to have been received or accepted until all irregularities have been waived or cured within such
time as we determine in our sole discretion. We will not be under any duty to give notification of
any defect or irregularity in connection with the submission of subscription rights certificates or
incur any liability for failure to give such notification.
Rights are Transferable
The rights are transferable and will be listed for trading on The NASDAQ Global Market under
the symbol GFNR during the course of this offering.
Foreign Stockholders
Subscription rights certificates will not be mailed to foreign stockholders. A foreign
stockholder is any record holder of common stock on the record date whose address of record is
outside the United States and Canada, or is an Army Post Office (APO) address or Fleet Post Office
(FPO) address. Foreign stockholders will be sent written notice of this offering. The subscription
agent will hold the rights to which those subscription rights certificates relate for these
stockholders accounts, subject to that stockholder making satisfactory arrangements with the
subscription agent for the exercise of the rights, and follow the instructions of such stockholder
for the exercise of the rights if such instructions are received by the subscription agent at or
before 11:00 a.m., Eastern Standard Time, on March , 2010, three business days prior to the
expiration date (or, if this offering is extended, on or before three business days prior to the
extended expiration date). If no instructions are received by the subscription agent by that time,
the rights will expire worthless without any payment to the holders of those unexercised rights.
Payment for Units
A participating rights holder may send the subscription rights certificate together with
payment for the Units acquired in the subscription right and any additional shares subscribed for
pursuant to the over-subscription right to the subscription agent based on the subscription price
of $ per share. To be accepted, the payment, together with a properly completed and executed
subscription rights certificate, must be received by the subscription agent at one of the
subscription agents offices set forth above (see Subscription Agent), at or prior to 5:00
p.m., Eastern Standard Time, on the expiration date.
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All payments by a participating rights holder must be in U.S. dollars by money order or check
or bank draft drawn on a bank or branch located in the U.S. and payable to Continental Stock
Transfer and Trust as Agent for benefit of (FBO) General Finance Corporation Subscription. Payment
also may be made by wire transfer to JP Morgan Chase, ABA No. 021-000021, Account No. , Continental
Stock Transfer and Trust as Agent for benefit of (FBO) General Finance Corporation Subscription,
with reference to the rights holders name. The subscription agent will deposit all funds received
by it prior to the final payment date into a segregated account pending pro-ration and distribution
of the Units.
The method of delivery of subscription rights certificates and payment of the subscription
price to us will be at the election and risk of the participating rights holders, but if sent by
mail it is recommended that such certificates and payments be sent by registered mail, properly
insured, with return receipt requested, and that a sufficient number of days be allowed to ensure
delivery to the subscription agent and clearance of payment prior to 5:00 p.m., Eastern Standard
Time, on the expiration date. Because uncertified personal checks may take at least five business
days to clear, you are strongly urged to pay, or arrange for payment, by means of certified or
cashiers check or money order.
Whichever of the methods described above is used, issuance of the shares purchased is subject
to collection of checks and actual payment.
If a participating rights holder who subscribes for shares as part of the subscription right
or over-subscription right does not make payment of any amounts due by the expiration date, the
subscription agent reserves the right to take any or all of the following actions: (i) reallocate
the shares to other participating rights holders in accordance with the over-subscription right;
(ii) apply any payment actually received by it from the participating rights holder toward the
purchase of the greatest whole number of shares which could be acquired by such participating
rights holder upon exercise of the basic subscription any over-subscription right; and/or (iii)
exercise any and all other rights or remedies to which it may be entitled, including the right to
set off against payments actually received by it with respect to such subscribed for Units.
All questions concerning the timeliness, validity, form and eligibility of any exercise of
rights will be determined by us, whose determinations will be final and binding. We, in our sole
discretion, may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as we may determine, or reject the purported exercise of any right.
Subscriptions will not be deemed to have been received or accepted until all irregularities have
been waived or cured within such time as we determine in our sole discretion. The subscription
agent will not be under any duty to give notification of any defect or irregularity in connection
with the submission of subscription rights certificates or incur any liability for failure to give
such notification.
Participating rights holders will have no right to rescind their subscription after receipt of
their payment for Units.
Delivery of Stock Certificates
Stockholders whose shares are held of record by DTC or by any other depository or nominee on
their behalf or on behalf of their broker, dealer, custodian bank, trustee or other nominee will
have any shares that they acquire credited to the account of Cede & Co. or the other depository or
nominee. With respect to all other stockholders, stock certificates for all shares acquired will
be mailed promptly after payment for all the shares subscribed for has cleared.
THE REOFFERING OF REMAINING UNITS
Preliminary Nonbinding Subscriptions During Pendency Of Rights Offering
We will permit prospective investors who are not stockholders eligible to participate in the
rights offering and who desire to purchase shares of our Units the right to submit preliminary
non-binding subscriptions with respect to Units. Prospective investors who wish to do so should
complete, date, and sign the preliminary subscription agreement which accompanies this prospectus
and return it to General Finance Corporation, 39 East Union Street, Pasadena, California 91103,
attention: Charles E. Barrantes.
Preliminary subscriptions are NOT binding on subscribers. Do NOT send payment for your Units
at this time. Upon the completion of our rights offering, we will furnish a prospectus supplement
that sets forth the results of our rights offering and the amount of unsubscribed Units accompanied
by an acknowledgment of subscription to all subscribers. A copy of the acknowledgment of
subscription accompanies this prospectus. Upon receipt of the prospectus supplement, each
subscriber will be asked to do the following:
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Complete, date, and sign the acknowledgment of subscription. |
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Make a check payable to General Finance Corporation in an amount
equal to the subscription price of $ times the number of Units
subscribed for. |
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Return the completed acknowledgment of subscription and check to
General Finance Corporation, 39 East Union Street, Pasadena,
California 91103, attention: Charles E. Barrantes. |
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UPON RECEIPT BY THE COMPANY OF THE ACKNOWLEDGMENT OF SUBSCRIPTION, THE PRELIMINARY SUBSCRIPTION
AGREEMENT WILL BECOME BINDING ON AND IRREVOCABLE BY THE SUBSCRIBER UNTIL THE EXPIRATION DATE OF THE
REOFFER PERIOD.
Expiration Date
The reoffer period will expire at the earlier of 5:00 p.m., Eastern Standard Time, on
, 2010 or the date on which we have accepted subscriptions for all Units remaining for
purchase as reflected in the prospectus supplement. We refer to this date as the Reoffer
Expiration Date.
Discretion To Accept Subscriptions
We have the right, in our sole discretion, to accept or reject any subscription in whole or in
part on or before the Reoffer Expiration Date. If we receive subscriptions for a total of more than
that number of Units available for sale in the reoffer period, we may limit the number of Units
sold to any subscriber. As a result, you may not receive any or all of the Units for which you
subscribe.
We will notify subscribers no later than ten days after the expiration date as to whether and
to what extent their subscriptions have been accepted. If we do not accept all or a portion of a
subscription, we will return to the subscriber the unaccepted portion of the subscription funds,
without interest.
Issuance of Stock Certificates
Promptly after the acceptance of a subscription, we will issue stock certificates representing
the Warrants and common stock which constitute the Units purchased by investors in the reoffer
period. We will follow the instructions contained in the accepted Subscription Agreements when we
issue the stock certificates.
Subscription Proceeds
We will promptly deposit all subscription proceeds as we receive them in a noninterest-bearing
deposit account. Upon our acceptance of a subscription, the related subscription proceeds due to us
will become immediately available for our use. Promptly following the Reoffer Expiration Date, we
will refund any amounts due to subscribers whose subscriptions we did not accept as described under
Discretion to Accept Subscriptions above.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal income tax consequences
to U.S. holders, as defined below, of the receipt, ownership and exercise of the subscription
rights distributed in the subscription rights offering. This discussion is based on the Code,
Treasury regulations promulgated thereunder, and administrative and judicial interpretations
thereof, all as in effect as of the date hereof and all of which are subject to change, possibly
with retroactive effect. This discussion is not binding on the Internal Revenue Service, which we
refer to as the IRS, or the courts. Accordingly, no assurance can be given that the tax
consequences described herein will not be challenged by the IRS or that such a challenge would not
be sustained by a court. No ruling has been sought from the IRS, and no opinion of counsel has been
rendered, as to the federal income tax consequences set forth in this discussion.
This discussion does not address all aspects of U.S. federal income taxation that may be
applicable to holders in light of their particular circumstances or to holders subject to special
treatment under the U.S. federal income tax laws, including, but not limited to, financial
institutions, brokers and dealers in securities or currencies, insurance companies, regulated
investment companies, real estate investment trusts, tax-exempt organizations, persons who hold
their shares as part of a straddle, hedge, conversion or other risk-reduction transaction, persons
liable for the alternative minimum tax, persons who have received their common stock pursuant to
which the subscription rights in this rights offering have been granted through the exercise of
employee stock options or otherwise as compensation for services, partnerships or other entities
treated as partnerships for United States federal income tax purposes, U.S. expatriates, persons
whose functional currency is not the U.S. dollar and foreign taxpayers. This discussion also does
not address any aspect of state, local or foreign income or other tax laws. This discussion is
limited to U.S. holders which hold our shares as capital assets. For purposes of this discussion, a
U.S. holder is a holder that is, for U.S. federal income tax purposes:
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a corporation created or organized in or under the laws of the United States or any political
subdivision thereof; |
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
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a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to control all substantial decisions of the
trust or (2) has a valid election in effect under applicable Treasury Department regulations to be
treated as a United States person. |
If a partnership (including any entity treated as a partnership for United States federal
income tax purposes) receives the subscription rights or holds shares of common stock or warrants
received upon exercise of the subscription rights or the oversubscription privilege, the tax
treatment of a partner in a partnership generally will depend upon the status of the partner and
the activities of the partnership. Such a partner or partnership should consult its own tax advisor
as to the United States federal income tax consequences of the receipt and ownership of the
subscription rights or the ownership of shares of common stock and warrants received upon exercise
of the subscription rights or, if applicable, upon exercise of the oversubscription privilege.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF YOUR
RECEIPT, OWNERSHIP AND EXERCISE OF THE RIGHTS, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR
GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Subscription Rights
Each subscription right entitles eligible stockholder the right to purchase for $ ______ one Unit,
consisting of one share of our common stock and a three-year Warrant to purchase 0.5 additional
shares of our common stock at an exercise price of $4.00 per share. Generally, the distribution of
stock by a corporation to its shareholders with respect their stock is not taxable to such
shareholders pursuant to Section 305(a) of the Code. For such purpose, a distribution of rights to
acquire stock of the distributing corporation constitutes a distribution of stock. However, if a
distribution of stock or rights to acquire stock is within one of several exceptions to the general
rule of Section 305(a) set forth in Section 305(b) of the Code, the distribution may be taxable to
the shareholders of the distributing corporation as described below.
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Section 305(b)(2) is an exception to the general rule of Section 305(a) that applies to a
disproportionate distribution. Pursuant to Section 305(b)(2), a distribution (or a series of
distributions of which such a distribution is one) of stock rights constitutes a disproportionate
distribution, and is therefore taxable, if the distribution results in (a) the receipt of
property, including cash, by some shareholders, and (b) an increase in the proportionate interest
of other shareholders in the assets or earnings and profits of the distributing corporation. For
this purpose, the term property means money, securities, and any other property, except that such
term does not include stock in the corporation making the distribution or rights to acquire such
stock. A series of distributions encompasses all distributions of stock made or deemed made by a
corporation which have the result of receipt of cash or property by some shareholders and an
increase in the proportionate interests of other shareholders. It is not necessary for a
distribution of stock to be considered as one of a series of distributions that such distribution
be pursuant to a plan to distribute cash and property to some shareholders and to increase the
proportionate interests of the other shareholders, rather it is sufficient if there is a
distribution (or a deemed distribution) having such effect. In addition, there is no requirement
that both elements of Section 305(b)(2) of the Code occur in the form of a distribution or series
of distributions as long as the result is that some shareholders receive cash and property and
other shareholders proportionate interests increase. Under the applicable Treasury Regulations,
where the receipt of cash or property occurs more than 36 months following a distribution or series
of distributions of stock, or where a distribution is made more than 36 months following the
receipt of cash or property, such distribution or distributions will be presumed not to result in
the receipt of cash or property by some shareholders and an increase in the proportionate interest
of other shareholders, unless the receipt of cash or property by some shareholders and the
distribution or series of distributions are made pursuant to a plan.
We believe that the distribution of rights in the rights offering does not constitute an
increase in the proportionate interest of some shareholders in the assets or earnings and profits
of General Finance Corporation for the purpose of Section 305(b)(2) because all of our stockholders
will receive rights in the rights offering based upon their respective ownership our common stock.
Accordingly, we do not believe that the rights offering should constitute part of a
disproportionate distribution, pursuant to Section 305(b)(2) of the Code. However, there can be
no assurances that our application of Section 305 to the rights offerings is accurate. In the
unlikely event the IRS successfully asserts that your receipt of subscription rights is currently
taxable pursuant to Section 305(b) of the Code, the discussion under the heading Alternative
Treatment of Subscription Rights describes the tax consequences that will result from such a
determination.
Receipt of the Subscription Rights
You should not recognize taxable income for U.S. federal income tax purposes in connection with the
receipt of the subscription right in the rights offering. However, there can be no assurance of
this result. Unless otherwise noted, the remainder of the discussion under this heading
Subscription Rights assumes that the distribution of the subscription rights in the rights
offering will not result in a disproportionate distribution or will otherwise be taxable pursuant
to Section 305(b) of the Code.
Tax Basis and Holding Period of the Subscription Rights
Your tax basis of the subscription rights for United States federal income tax purposes will depend
on the fair market value of the subscription rights you receive and the fair market value of your
existing shares of stock on the date you receive the subscription rights. The tax basis of the
subscription rights received by you in the subscription rights offering will be zero unless either
(1) the fair market value of the subscription rights on the date such subscription rights are
distributed is equal to at least 15% of the fair market value on such date of the shares with
respect to which they are received or (2) you elect to allocate part of the tax basis of such
shares to the subscription rights. If either (1) or (2) is true, then, if you exercise the
subscription rights, your tax basis in your shares will be allocated between the subscription
rights and the shares with respect to which the subscription rights were received in proportion to
their respective fair market values on the date the subscription rights are distributed.
In addition, any tax basis allocated to the subscription rights must be apportioned between
the right to receive shares of common stock, or Common Stock Rights, and the right to receive
warrants, or Warrant Rights, in proportion to their respective fair market values on the date you
receive the subscription rights.
We have not obtained an independent appraisal of the valuation of the subscription rights and,
therefore, you should consult with your tax advisor to determine the proper allocation of basis
between the subscription rights and the shares with respect to which the subscription rights are
received.
Your holding period for the subscription rights will include your holding period for the
shares with respect to which the subscription rights were received.
Expiration of the Subscription Rights
If you allow subscription rights received in the subscription rights offering to expire, you
should not recognize any gain or loss. If you have tax basis in the subscription rights, the tax
basis of the shares owned by you with respect to which such subscription rights were distributed
will be restored to the tax basis of such shares immediately prior to the receipt of the
subscription rights in the subscription rights offering.
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Alternative Treatment of Subscription Rights
Receipt. If the IRS were to successfully assert that the distribution of the subscription
rights in the rights offering resulted in a disproportionate distribution or is otherwise taxable
pursuant to Section 305(b), each holder would be considered to have received a distribution with
respect to such holders stock in an amount equal to the fair market value of the subscription
rights received by such holder on the date of the distribution. This distribution generally would
be taxed as dividend income to the extent of your ratable share of our current and accumulated
earnings and profits. The amount of any distribution in excess of our earnings and profits will be
applied to reduce, but not below zero, your tax basis in your stock, and any excess generally will
be taxable to you as capital gain (long-term, if your holding period with respect to your common
stock is more than one year as of the date of distribution, and otherwise short-term). Under
current law for taxable years beginning prior to January 1, 2011, so long as certain holding period
requirements are satisfied, the maximum federal income tax rate on most dividends received by
individuals is generally 15%. Your tax basis in the subscription rights received pursuant to the
rights offering would be equal to their fair market value on the date of distribution and the
holding period for the rights would begin upon receipt.
Expiration. Assuming the receipt of subscription rights in the rights offering is a taxable
event, if your subscription rights lapse without being exercised, you will recognize a capital loss
equal to your tax basis in such expired subscription rights. The deductibility of capital losses is
subject to limitations.
Exercise of the Subscription Rights; Tax Basis and Holding Period of the Shares
You should not recognize any gain or loss upon the exercise of the subscription rights
received in the subscription rights offering by purchasing Unit(s) for $ per Unit. The tax basis of
the shares and Warrants acquired through exercise of the subscription rights should equal the sum
of (i) the subscription price and (ii) your tax basis, if any, in the subscription rights as
described above. The tax basis of the common stock received generally will then be (i) the sum of
that portion of the subscription price so allocable to the common stock, plus (ii) the portion, if
any, of the tax basis of the subscription rights allocable to the Common Stock Rights. The tax
basis of the Warrants acquired generally will be the sum of (i) that portion of the subscription
price allocable to the Warrants, plus (ii) the portion, if any of the tax basis of the subscription
rights allocable to the Warrant Rights.
The holding period for the shares and Warrants acquired through exercise of the subscription
rights will begin on the date the subscription rights are exercised.
CERTAIN ERISA CONSIDERATIONS
Each person considering the use of plan assets of a pension, profit-sharing or other employee
benefit plan, individual retirement account, Keogh plan or other retirement plan, account or
arrangement, or a plan , to acquire or hold the Units should consider whether an investment in
the Units would be consistent with the documents and instruments governing the plan, and whether
the investment would involve a prohibited transaction under Section 406 of the Employee Retirement
Income Security Act of 1974, as amended, or ERISA, or Section 4975 of the Code.
Section 406 of ERISA and Section 4975 of the Code prohibit plans subject to Title I of ERISA
and/or Section 4975 of the Code including entities such as collective investment funds,
partnerships and separate accounts or insurance company pooled separate accounts or insurance
company general accounts whose underlying assets include the assets of such plans, or collectively,
Plans, from engaging in certain transactions involving plan assets with persons who are
parties in interest under ERISA or disqualified persons under the Code, or parties in
interest , with respect to the Plan. A violation of these prohibited transaction rules may result
in civil penalties or other liabilities under ERISA and/or an excise tax under Section 4975 of the
Code for those persons, unless exemptive relief is available under an applicable statutory,
regulatory or administrative exemption. Certain plans including those that are governmental plans
(as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA)
and foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to the requirements of
ERISA or Section 4975 of the Code but may be subject to similar provisions under applicable
federal, state, local, foreign or other regulations, rules or laws, or Similar Laws.
The acquisition or holding of the Units (and the Warrants and common stock issuable upon
exercise of the Warrants) by a Plan with respect to which we or certain of our affiliates is or
becomes a party in interest may constitute or result in prohibited transactions under ERISA or
Section 4975 of the Code, unless the Units (or the Warrants and common stock issuable upon exercise
of the Warrants) is acquired or held pursuant to and in accordance with an applicable exemption.
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The Units (the Warrants and common stock issuable upon exercise of the Warrants) may not be
purchased or held by any Plan or any person investing plan assets of any Plan, unless such
purchase or holding is eligible for the exemptive relief available under a Prohibited Transaction
Class Exemption, or PTCE , such as PTCE 96-23, PTCE 95-60, PTCE 91-38, PTCE 90-1 or PTCE 84-14
issued by the U.S. Department of Labor or there is some other basis on which the purchase or
holding of the Units (the Warrants and common stock issuable upon exercise of the Warrants) is not
prohibited, such as the exemption under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the
Code, or the Service Provider Exemption , for certain transactions with non-fiduciary service
providers for transactions that are for adequate consideration. Each purchaser or holder of the
Units (or the Warrants and common stock issuable upon exercise of the Warrants) or any interest
therein, and each person making the decision to purchase or hold the Units (or the Warrants and
common stock issuable upon exercise of the Warrants) on behalf of any such purchaser or holder will
be deemed to have represented and warranted in both its individual capacity and its representative
capacity (if any), that on each day from the date on which the purchaser or holder acquires its
interest in the Units (or the Warrants and common stock issuable upon exercise of the Warrants) to
the date on which the purchaser disposes of its interest in the Units (or the Warrants and common
stock issuable upon exercise of the Warrants), that such purchaser and holder, by its purchase or
holding of the Units (or the Warrants and common stock issuable upon exercise of the Warrants) or
any interest therein that (a) its purchase and holding of the Units (and the Warrants and common
stock issuable upon exercise of the Warrants) is not made on behalf of or with plan assets of any
Plan, or (b) if its purchase and holding of the Units (and the Warrants and common stock issuable
upon exercise of the Warrants) is made on behalf of or with plan assets of a Plan, then (i) its
purchase and holding of the Units (and the Warrants and common stock issuable upon exercise of the
Warrants) will not result in a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code and (ii) neither the Company nor any of our affiliates is acting as a
fiduciary (within the meaning of Section 3(21)) of ERISA in connection with the purchase or holding
of the Units (and the Warrants and common stock issuable upon exercise of the Warrants) and has not
provided any advice that has formed or may form a basis for any investment decision concerning the
purchase or holding of the Units. Each purchaser and holder of the Units (and the Warrants and
common stock issuable upon exercise of the Warrants) or any interest therein on behalf of any
governmental plan will be deemed to have represented and warranted by its purchase or holding of
the Units or any interest therein that such purchase and holding does not violate any applicable
Similar Laws or rules.
Due to the complexity of these rules and the penalties that may be imposed upon persons
involved in nonexempt prohibited transactions, it is important that fiduciaries or other persons
considering purchasing the Units on behalf of or with plan assets of any plan or plan asset
entity consult with their counsel regarding the availability of exemptive relief under any of the
PTCEs listed above or any other applicable exemption, or the potential consequences of any purchase
or holding under similar laws, as applicable.
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the Delaware General Corporation Law (the DGCL), as the same exists or may
hereafter be amended, provides that a Delaware corporation may indemnify any persons who were, or
are threatened to be made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the corporations best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A
Delaware corporation may indemnify any persons who are, were or are threatened to be made, a party
to any threatened, pending or completed action or suit by or in the right of the corporation by
reason of the fact that such person was a director, officer, employee or agent of such corporation,
or is or was serving at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses (including attorneys
fees) actually and reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporations best interests, provided that no
indemnification is permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director, employee, or agent is
successful on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him or her against the expenses which such officer or director has
actually and reasonably incurred.
Section 145 of the DGCL further authorizes a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against any liability asserted against him or her and incurred
by him or her in any such capacity, arising out of his or her status as such, whether or not the
corporation would otherwise have the power to indemnify him or her under Section 145 of the DGCL.
Our amended certificate of incorporation provides that, to the fullest extent permitted by
Delaware law, as it may be amended from time to time, none of our directors will be personally
liable to us or our stockholders for monetary damages resulting from a breach of fiduciary duty as
a director. Our amended certificate of incorporation also provides discretionary indemnification
for the benefit of our directors, officers, and employees, to the fullest extent permitted by
Delaware law, as it may be amended from time to time. Pursuant to our bylaws, we are required to
indemnify our directors, officers, employees and agents, and we have the discretion to advance his
or her related expenses, to the fullest extent permitted by law.
These indemnification provisions may be sufficiently broad to permit indemnification of our
officers and directors for liabilities (including reimbursement of expenses incurred) arising under
the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors or officers, or persons controlling us, pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment of expenses incurred
or paid by a director, officer or controlling person in a successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to the court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
EXPERTS
The consolidated financial statements of General Finance Corporation appearing in this
registration statement as of and for the year ended June 30, 2009, have been audited by Crowe
Horwath LLP, independent registered public accounting firm, as stated in their report, which is
included in this registration statement in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of General Finance Corporation appearing in this
registration statement as of and for the year ended June 30, 2008, and Royal Wolf, as Predecessor,
for the year ended June 30, 2007 and for the period from July 1 to September 13, 2007 for the
consolidated statements of operations and cash flows and from inception (October 14, 2005) to June
30, 2007 for the consolidated statement of stockholders equity and comprehensive income (loss),
have been audited by Grobstein, Horwath & Company LLP, independent registered public accounting
firm, as stated in their report, which is included in this registration statement in reliance upon
the report of such firm given upon their authority as experts in accounting and auditing.
94
The consolidated financial statements of Mobile Office Acquisition Corp. and Subsidiary d/b/a
Pac-Van, Inc. at September 30, 2008, December 31, 2007 and December 31, 2006 and for the nine-month
period ended September 30, 2008, year ended December 31, 2007 and five-month period from August 2,
2006 to December 31, 2006; and of Pac-Van, Inc., as Predecessor, at August 1, 2006 and December 31,
2005 and for the seven-month period from January 1, 2006 to August 1, 2006 and year ended December
31, 2005, appearing in this registration statement have been included herein in reliance upon the
reports of Katz, Sapper & Miller, LLP, independent public accounting firm, given on the authority
of such firm as experts in accounting and auditing.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust
Company, whose address is 17 Battery Place, 8th Floor, New York, NY 10004, and whose phone number
is (212) 509-4000, x 536.
LEGAL MATTERS
The validity of the securities being offered by this prospectus has been passed upon for us by
Christopher A. Wilson, Pasadena, California.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with
respect to the Units offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration statement or the
exhibits and schedules filed therewith. For further information about us and the Units offered
hereby, reference is made to the registration statement and the exhibits and schedules filed
therewith. Statements contained in this prospectus regarding the contents of any contract or any
other document that is filed as an exhibit to the registration statement are not necessarily
complete, and each such statement is qualified in all respects by reference to the full text of
such contract or other document filed as an exhibit to the registration statement.
A copy of the registration statement and the exhibits and schedules filed therewith may be
inspected without charge at the public reference room maintained by the SEC, located at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from such offices upon the payment of the fees prescribed by the SEC.
Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. We
also file annual, quarterly and current reports, proxy statements and other information with the
SEC. The SEC also maintains an Internet web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC. The
address of the site is www.sec.gov .
95
INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
I-1
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
(Unaudited) |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,346 |
|
|
$ |
29 |
|
Trade and other receivables, net of allowance for
doubtful accounts of $2,092 at June 30, 2009 and
$2,849 at September 30, 2009 |
|
|
26,432 |
|
|
|
21,656 |
|
Inventories |
|
|
22,511 |
|
|
|
20,104 |
|
Prepaid expenses |
|
|
1,883 |
|
|
|
2,294 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
54,172 |
|
|
|
44,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease receivables |
|
|
1,163 |
|
|
|
1,083 |
|
Property, plant and equipment, net |
|
|
10,460 |
|
|
|
10,666 |
|
Lease fleet, net |
|
|
188,915 |
|
|
|
195,562 |
|
Goodwill |
|
|
73,917 |
|
|
|
76,082 |
|
Intangible assets, net |
|
|
30,058 |
|
|
|
29,640 |
|
Other assets |
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
358,696 |
|
|
$ |
357,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
$ |
24,422 |
|
|
$ |
18,076 |
|
Current portion of long-term debt and obligations |
|
|
16,371 |
|
|
|
32,452 |
|
Unearned revenue and advance payments |
|
|
8,461 |
|
|
|
9,163 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
49,254 |
|
|
|
59,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
Long-term debt and obligations, net of current portion |
|
|
183,933 |
|
|
|
166,283 |
|
Deferred tax liabilities |
|
|
13,822 |
|
|
|
14,123 |
|
Employee benefits and other non-current liabilities |
|
|
235 |
|
|
|
325 |
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
197,990 |
|
|
|
180,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest (Note 8) |
|
|
8,278 |
|
|
|
9,191 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative preferred stock, $.0001 par value: 1,000,000 shares
authorized; 25,000 shares issued and
outstanding (in series) and stated at liquidation
value ($1,386 total liquidation preference) |
|
|
1,345 |
|
|
|
1,345 |
|
Common stock, $.0001 par value: 100,000,000 shares
authorized; 17,826,052 shares outstanding |
|
|
2 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
105,314 |
|
|
|
105,560 |
|
Accumulated other comprehensive income (loss) |
|
|
(4,963 |
) |
|
|
(903 |
) |
Retained earnings |
|
|
1,476 |
|
|
|
1,510 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
103,174 |
|
|
|
107,514 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
358,696 |
|
|
$ |
357,127 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
I-2
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
2008 |
|
|
2009 |
|
Revenues |
|
|
|
|
|
|
|
|
Sales |
|
$ |
20,995 |
|
|
$ |
16,613 |
|
Leasing |
|
|
10,658 |
|
|
|
18,606 |
|
|
|
|
|
|
|
|
|
|
|
31,653 |
|
|
|
35,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
18,166 |
|
|
|
13,785 |
|
Leasing, selling and general expenses |
|
|
8,377 |
|
|
|
14,102 |
|
Depreciation and amortization |
|
|
3,383 |
|
|
|
5,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,727 |
|
|
|
2,075 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
121 |
|
|
|
59 |
|
Interest expense |
|
|
(4,364 |
) |
|
|
(3,707 |
) |
Foreign currency exchange gain (loss) and other |
|
|
(7,717 |
) |
|
|
2,593 |
|
|
|
|
|
|
|
|
|
|
|
(11,960 |
) |
|
|
(1,055 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income
taxes and noncontrolling interest |
|
|
(10,233 |
) |
|
|
1,020 |
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(3,565 |
) |
|
|
372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(6,668 |
) |
|
|
648 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
(1,641 |
) |
|
|
573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to stockholders |
|
$ |
(5,027 |
) |
|
$ |
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.36 |
) |
|
$ |
0.00 |
|
Diluted |
|
|
(0.36 |
) |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
13,826,052 |
|
|
|
17,826,052 |
|
Diluted |
|
|
13,826,052 |
|
|
|
17,826,052 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
I-3
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
2008 |
|
|
2009 |
|
Net cash provided (used) by operating activities (Note 9) |
|
$ |
507 |
|
|
$ |
7,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of property, plant and equipment |
|
|
26 |
|
|
|
30 |
|
Business acquisitions, net of cash acquired |
|
|
(1,028 |
) |
|
|
|
|
Purchases of property, plant and equipment |
|
|
(1,105 |
) |
|
|
(329 |
) |
Purchases of lease fleet |
|
|
(5,014 |
) |
|
|
(2,280 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(7,121 |
) |
|
|
(2,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds (repayments) on capital leasing activities |
|
|
450 |
|
|
|
(243 |
) |
Proceeds from (repayments of) long-term borrowings |
|
|
26,128 |
|
|
|
(7,869 |
) |
Cumulative dividends paid |
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
26,578 |
|
|
|
(8,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
19,964 |
|
|
|
(3,267 |
) |
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of period |
|
|
2,772 |
|
|
|
3,346 |
|
|
|
|
|
|
|
|
|
|
The effect of foreign currency translation on cash |
|
|
(485 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
|
$ |
22,251 |
|
|
$ |
29 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
I-4
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Business Operations
Organization
General Finance Corporation (GFN) was incorporated in Delaware in October 2005 to effect a
business combination with one or more operating businesses in the rental services and specialty
finance sectors. From inception through September 13, 2007, GFN had no business or operations.
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 (Pac-Van). In September 2007, the Company
changed its fiscal year to June 30 from December 31.
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
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 long-term 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 will secure the indemnification obligations for 20 months and 36
months, respectively. Among other things, the Company and the stockholders of MOAC entered into a
stockholders agreement which provided registration rights which may be exercised after June 30,
2009. In addition, in connection with the acquisition, 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 347,000 and 9,000 shares of common
stock, respectively, at an exercise price equal to the closing market price of the Companys common
stock as of October 1, 2008, or $6.40.
I-5
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The total purchase consideration, including the Companys transaction costs of approximately
$0.9 million has been allocated to tangible and intangible assets acquired 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 |
) |
Long-term 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 |
|
|
|
|
|
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
quarter ended September 30, 2008 assumes the acquisition of Pac-Van occurred at the beginning of
the period presented (in thousands, except per share data):
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
September 30, |
|
|
|
2008 |
|
Revenues |
|
$ |
54,295 |
|
|
|
|
|
|
Net income (loss) attributable to stockholders |
|
|
(3,786 |
) |
|
|
|
|
Pro forma net income (loss) per common share: |
|
|
|
|
Basic |
|
$ |
(0.21 |
) |
Diluted |
|
|
(0.21 |
) |
|
|
|
|
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.
I-6
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
conformity with United States generally accepted accounting principles (U.S. GAAP) applicable to
interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements. In the
opinion of management, all adjustments (which include all significant normal and recurring
adjustments) necessary to present fairly the financial position, results of operations and cash
flows for all periods presented have been made. The accompanying results of operations are not
necessarily indicative of the operating results that may be expected for the entire year ending
June 30, 2010. These condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and accompanying notes thereto of the Company, which are
included in the Companys Annual Report on Form 10-K for the year ended June 30, 2009 filed with
the Securities and Exchange Commission (SEC).
Unless otherwise indicated, references to FY 2009 and FY 2010 are to the quarters ended
September 30, 2008 and 2009, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
and majority-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Foreign Currency Translation
The Companys functional currency for its operations in the Asia-Pacific area is the local
currency, which is primarily the Australian (AUS) dollar. All adjustments resulting from the
translation of the accompanying consolidated financial statements from the functional currency into
reporting currency are recorded as a component of stockholders equity in accordance with Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 830, Foreign
Currency Matters. All assets and liabilities are translated at the rates in effect at the balance
sheet dates; and revenues, expenses, gains and losses are translated using the average exchange
rates during the periods. Transactions in foreign currencies are translated at the foreign exchange
rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated to the functional currency at the
foreign exchange rate prevailing at that date. Foreign exchange differences arising on translation
are recognized in the statement of operations. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate
at the date of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to the functional currency at foreign
exchange rates prevailing at the dates the fair value was determined.
Segment Information
FASB ASC Topic 280, Segment Reporting, establishes standards for the way companies report
information about operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major customers. Based on
the provisions of FASB ASC Topic 280 and the manner in which the chief operating decision maker
analyzes the business, the Company has determined it has two separately reportable geographic
segments and one reportable operating segment.
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.
I-7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Inventories
Inventories are stated at the lower of cost or market (net realizable value). 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 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
(Unaudited) |
|
Finished goods |
|
$ |
21,170 |
|
|
$ |
19,962 |
|
Work in progress |
|
|
1,341 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
$ |
22,511 |
|
|
$ |
20,104 |
|
|
|
|
|
|
|
|
Derivative Financial Instruments
The Company may use derivative financial instruments to hedge its exposure to foreign currency
and interest rate risks arising from operating, financing and investing activities. The Company
does not hold or issue derivative financial instruments for trading purposes. However, derivatives
that do not qualify for hedge accounting are accounted for as trading instruments. Derivative
financial instruments are recognized initially at fair value. Subsequent to initial recognition,
derivative financial instruments are stated at fair value. The gain or loss on remeasurement to
fair value is recognized immediately in the statement of operations.
Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
Useful Life |
|
|
June 30, 2009 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
Land |
|
|
|
|
|
$ |
1,486 |
|
|
$ |
1,647 |
|
Building |
|
40 years |
|
|
230 |
|
|
|
254 |
|
Transportation and plant equipment
(including capital lease assets) |
|
3 10 years |
|
|
9,010 |
|
|
|
10,427 |
|
Furniture, fixtures and office equipment |
|
3 10 years |
|
|
3,017 |
|
|
|
2,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,743 |
|
|
|
14,778 |
|
Less accumulated depreciation and
amortization |
|
|
|
|
|
|
(3,283 |
) |
|
|
(4,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,460 |
|
|
$ |
10,666 |
|
|
|
|
|
|
|
|
|
|
|
|
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
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
continues to evaluate these depreciation policies as more information becomes available from other
comparable sources and its own historical experience.
Containers in the lease fleet are also available for sale. The cost of sales of a container in
the lease fleet is recognized at the carrying amount at the date of sale.
Income Taxes
The Company accounts for income taxes under FASB ASC Topic 740, Income Taxes. Accordingly, 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.
I-8
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company files U.S. Federal tax returns, multiple U.S. state (and state franchise) tax
returns and Australian tax returns. For U.S. Federal tax purposes, all periods subsequent to June
30, 2007 are subject to examination by the U.S. Internal Revenue Service (IRS). The Company
believes that its income tax filing positions and deductions will be sustained on audit and does
not anticipate any adjustments that will result in a material change. Therefore, no reserves for
uncertain income tax positions have been recorded pursuant to FASB ASC Topic 740. 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, associated with audits will
be to record such items as a component of income taxes.
Net Income per Common Share
Basic net income per common share is computed by dividing net income attributable to
stockholders, less dividends declared (or accumulated) on cumulative preferred stock (Note 3), 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 net income per common
share:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
2008 |
|
|
2009 |
|
Basic |
|
|
13,826,052 |
|
|
|
17,826,052 |
|
Assumed exercise of warrants |
|
|
|
|
|
|
|
|
Assumed exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
13,826,052 |
|
|
|
17,826,052 |
|
|
|
|
|
|
|
|
In FY 2009 and FY 2010, potential common stock equivalents (consisting of units, warrants
and stock options) totaling 8,101,380 and 8,290,840, 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.
In April 2008, the FASB issued a pronouncement on what now is codified as FASB ASC Topic 350,
Intangibles Goodwill and Other. This pronouncement amends the factors to be considered in
determining the useful life of intangible assets accounted for pursuant to previous topic guidance.
Its intent is to improve the consistency between the useful life of an intangible asset and the
period of expected cash flows used to measure its fair value. This pronouncement is effective for
fiscal years beginning after December 15, 2008 and its adoption did not have a material effect on
the Companys consolidated financial statements.
In November 2008, the FASB issued a pronouncement on what is now codified as FASB ASC Topic
350, Intangibles Goodwill and Other. This pronouncement applies to defensive intangible assets,
which are acquired intangible assets that the acquirer does not intend to actively use but intends
to hold to prevent its competitors from obtaining access to them. As these assets are separately
identifiable, the pronouncement requires an acquiring entity to account for defensive intangible
assets as a separate unit of accounting. Defensive intangible assets must now be recognized at fair
value in accordance with FASB ASC Topic 350. This pronouncement is effective for intangible assets
acquired on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008 and its adoption did not have a material effect on the Companys consolidated
financial statements.
I-9
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In April 2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic 825,
Financial Instruments. This pronouncement amends previous topic guidance to require disclosures
about fair value of financial instruments for interim reporting periods of publicly traded
companies, as well as in annual financial statements. The pronouncement was effective for interim
reporting periods ending after June 15, 2009 and its adoption resulted in additional disclosures in
the Companys interim consolidated financial statements (see Note 5).
In April 2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic 805,
Business Combinations. This pronouncement provides new guidance that changes the accounting
treatment of contingent assets and liabilities in business combinations under previous topic
guidance and is effective for contingent assets or liabilities acquired in business combinations
for which the acquisition date is on or after the first annual reporting period beginning on or
after December 15, 2008. The adoption of this pronouncement did not have a material effect on the
Companys consolidated financial statements currently, but its effects will depend on the nature of
future acquisitions completed by the Company.
In May 2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic 855,
Subsequent Events. This pronouncement establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before the financial statements
are issued or are available to be issued. FASB ASC Topic 855 provides guidance on the period after
the balance sheet date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the financial statements,
the circumstances under which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The pronouncement was effective
for the Company during the interim and annual period ending June 30, 2009. The Company has
evaluated subsequent events for the period from September 30, 2009, the date of these financial
statements, through November 12, 2009, which represents the date these financial statements are
being filed with the SEC. Pursuant to the requirements of FASB ASC Topic 855, there were no events
or transactions occurring during this subsequent event reporting period that require recognition or
disclosure in the consolidated financial statements.
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. 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.
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 September 30, 2009, the Company had issued 24,900
shares and 100 shares of Series A Preferred Stock and Series B Preferred Stock for total proceeds
of $1,245,000 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 31 st day of
January, July and October of each year and the 30 th 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.
I-10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2009, since issuance, dividends paid or payable totaled $97,000 and $6,000
for the Series A Preferred Stock and Series B Preferred Stock, respectively. The characterization
of dividends as ordinary income, capital or qualified for Federal income tax purposes is made based
upon the earnings and profits of the Company, as defined by the Internal Revenue Code. No such
characterization has been made by the Company as of September 30, 2009.
Note 4. Long-Term Debt and Obligations
The following is a discussion of the Companys significant long-term debt facilities and
notes.
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 assets of
the Companys Australian and New Zealand subsidiaries. The aggregate ANZ facility is comprised of
various sub-facilities, most of which do not provide additional borrowing availability. In
addition, the $4,888,000 (AUS$5,600,000) multi-option facility for the lease financing of
accommodation units, which was unused at June 30, 2009, has been eliminated. As of September 30,
2009, based upon the exchange rate of one Australian dollar to $0.8729 U.S. dollar and one New
Zealand dollar to $0.8219 Australian dollar, borrowings and availability under the ANZ credit
facility totaled $78,345,000 (AUS$89,753,000) and $1,768,000 (AUS$2,026,000), respectively.
Principal payments for the fiscal year ending June 30, 2010 are required to total 80% of Free Cash
Flow, as defined, which the Company estimates would be approximately $10,500,000 (approximately
AUS$12,000,000); payable at a minimum of $1,091,000 (AUS$1,250,000) per quarter during the interim,
with the balance to be paid within 60 days from June 30, 2010. Principal payments subsequent to
June 30, 2010 vary through the scheduled maturity of the facility in September 2012. Approximately
$13,800,000 (AUS$15,800,000) of the borrowings under the ANZ credit facility at September 30, 2009
bears interest at ANZs prime rate, plus 4.15% per annum; with substantially the balance of the
borrowings bearing interest at ANZs prime rate, plus 3.15% per annum. As of September 30, 2009,
the weighted-average interest rate was 8.4%; 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 on July 1, 2010 (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 $1,746,000
(AUS$2,000,000) in the year ending June 30, 2010 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 103% of par prior to
September 13, 2009; 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 inter- creditor 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
$1.0 million in cash, 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.
I-11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2010. Collectively,
these two notes are referred to as the Bison Notes.
At September 30, 2009, the principal balance of the Bison Notes was $21,496,000.
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 has a senior credit facility, as amended, with a syndication of four financial
institutions led by LaSalle Bank National Association, now Bank of America, N.A. (BOA), as
administrative and collateral agent. The BOA credit facility is secured by substantially all the
business assets of Pac-Van and GFNNA, including the assignment of its rights under leasing
contracts with customers, and is available for purchases of rental equipment and general operating
purposes. At September 30, 2009, borrowings and availability under the BOA credit facility totaled
$71,050,000 and $24,350,000, respectively. Borrowings under the BOA credit facility are due on
August 23, 2012 and accrue 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 is required to pay an unused commitment fee equal to 0.25% of
the average unused line calculated on a quarterly basis. As of September 30, 2009, the
weighted-average interest rate was 2.4%. The BOA senior credit facility is 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 utilization rate, as
defined; and, among other things, restrictions on the payment of dividends, loans and payments to
affiliates.
Pac-Van also has a senior subordinated secured note payable to SPV Capital Funding, L.L.C.
(SPV) with a principal balance of $25,000,000. This subordinated note matures on February 2,
2013, requires quarterly interest only payments computed at 13.0% per annum and is also subject to
the maintenance of certain financial covenants.
Other
The Company has a credit agreement, as amended, with Union Bank (UB) for a $1,000,000 credit
facility. Borrowings or advances under the facility bear interest at UBs Reference Rate (which
approximates the U.S. prime rate) and are due and payable by 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 September 30, 2009, borrowings under the UB credit facility totaled
$900,000.
Other long-term debt and obligations totaled $1,944,000 at September 30, 2009, which includes
the subordinated promissory note of $1,500,000 issued in connection with the acquisition of Pac-Van
(see Note 1).
Loan Covenant Compliance
The Company was in compliance with the financial covenants under its senior credit facilities
and senior subordinated notes discussed above as of September 30, 2009. However, as widely
reported, the financial markets and economy in the U.S., as well as the global economy in general,
including Australia, have been in a downturn or recession for a period of time. If the current
economic environment continues to be weak or worsens, the Companys ability to continue meeting
covenant requirements may be impaired and may result in the seeking of amendments or waivers of
covenant compliance or alternative borrowing arrangements. While management of the Company believes
its relationships with its 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; or that our senior lenders would
not exercise rights that would be available to them, including, among other things, demanding
payment of outstanding borrowings.
I-12
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. 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. Derivative
instruments measured at fair value and their classification on the consolidated balances sheets and
consolidated statements of operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivative - Fair Value (Level 2) |
|
|
|
|
|
June 30, |
|
|
September 30, |
|
Type of Derivative Contract |
|
Balance Sheet Classification |
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
Swap Contracts and Options (Caps) |
|
Trade and other receivables |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivative - Fair Value (Level 2) |
|
|
|
|
|
June 30, |
|
|
September 30, |
|
Type of Derivative Contract |
|
Balance Sheet Classification |
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
Swap Contracts and Options (Caps) |
|
Trade payables and accrued liabilities |
|
$ |
1,587 |
|
|
$ |
1,360 |
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
Trade payables and accrued liabilities |
|
|
656 |
|
|
|
486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
Type of Derivative Contract |
|
Statement of Operations Classification |
|
2008 |
|
|
2009 |
|
Swap Contracts and Options (Caps) |
|
Unrealized gain (loss) included in interest expense |
|
$ |
(1,536 |
) |
|
$ |
141 |
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
Foreign currency exchange gain
(loss) and other |
|
|
1,291 |
|
|
|
209 |
|
|
|
|
|
|
|
|
|
|
I-13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 its commercial bill liability. The secured ANZ loan and interest rate swaps and options
have the same critical terms, including expiration dates. 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 September 30, 2009, there were four open interest rate swap contracts and three
open interest rate option (cap) contracts, as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of |
|
|
|
Notional Amount |
|
|
September 30, 2009 |
|
Swap |
|
$ |
14,403 |
|
|
$ |
(712 |
) |
Swap |
|
|
1,746 |
|
|
|
(135 |
) |
Swap |
|
|
4,402 |
|
|
|
(314 |
) |
Swap |
|
|
3,183 |
|
|
|
(278 |
) |
Option (Cap) |
|
|
1,887 |
|
|
|
8 |
|
Option (Cap) |
|
|
1,364 |
|
|
|
1 |
|
Option (Cap) |
|
|
10,475 |
|
|
|
70 |
|
|
|
|
|
|
|
|
Total |
|
$ |
37,460 |
|
|
$ |
(1,360 |
) |
|
|
|
|
|
|
|
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 and FY 2010, unrealized and realized foreign exchange (losses)
and gains totaled ($5,785,000) and ($3,237,000) and $2,250,000 and $128,000, respectively.
I-14
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. 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 Mr. Valenta. Until the
consummation of a business combination by the Company, the affiliates had agreed to make such
services available to the Company free of charge, as may have been required by the Company from
time to time; with the exception of the reimbursement of certain out-of-pocket costs incurred on
behalf of the Company. Effective September 14, 2007, the Company entered into a month-to-month
arrangement that lasted until January 31, 2008 with an affiliate of Mr. Valenta for the rental of
the office space at $1,148 per month. In addition, effective September 14, 2007, the Company
commenced recording a charge to operating results (with an offsetting contribution to additional
paid-in capital) for the estimated cost of contributed services rendered to the Company by
non-employee officers and administrative personnel of affiliates. These contributed services ceased
in February 2009.
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 $29,000 and $28,000 in FY 2009 and FY 2010, respectively.
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 $21,000 at the corporate office and $8,000 at the operating subsidiaries in FY
2010.
Note 7. 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. Under the 2006 Plan, the Company may issue to
directors, employees, consultants and advisers up to 2,500,000 shares of its common stock. The
options may be 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. The options may not have a term in excess of ten years, and the exercise price of any
option may not be less than the fair market value of the Companys common stock on the date of
grant of the option. Unless terminated earlier, the 2006 Plan will automatically terminate June 30,
2016.
On each of September 11, 2006 (2006 Grant) and December 14, 2007 (2007 Grant), the Company
granted options to an officer of GFN to 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 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 the years ending June 30, 2009 (2009) and 2010 (2010). At
that time, the Company reassessed and revalued these options and commenced recognizing the changes
in stock-based compensation on a prospective basis.
I-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 2009 and 2010. The Company initially commenced
recognizing compensation expense over the vesting periods of 2.17 years and 3.17 years for EBITDA
targets in 2009 and 2010, respectively, pertaining to 79,250 options in each of those vesting
periods. However, the EBITDA target for 2009 was not achieved and those performance-based options
were forfeited during the quarter ended September 30, 2009.
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 an EBITDA target for 2009 and
to-be-determined EBITDA targets for the subsequent four fiscal years . The Company commenced
recognizing 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. However, the EBITDA target for 2009
was not achieved and those performance-based options were forfeited during the quarter ended
September 30, 2009.
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.
A summary of the Companys stock option activity and related information under the 2006 Plan
as of and for the quarter ended September 30, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
Number of |
|
|
Average |
|
|
Remaining |
|
|
|
Options |
|
|
Exercise |
|
|
Contractual |
|
|
|
(Shares) |
|
|
Price |
|
|
Term (Years) |
|
Outstanding at June 30, 2009 |
|
|
1,358,000 |
|
|
$ |
7.39 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(139,540 |
) |
|
|
6.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
1,218,460 |
|
|
$ |
7.53 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009 |
|
|
298,000 |
|
|
$ |
8.07 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009, the Companys market price for its common stock was at $1.45 per
share, which is below the exercise prices of all of the outstanding stock options. Also at
September 30, 2009, stock-based compensation of $1,767,000 related to stock options has been
recognized in the statement of operations, with a corresponding benefit to additional paid-in
capital, and there remains $1,895,000 of unrecognized compensation expense to be recorded on a
straight-line basis over the remaining weighted-average vesting period of 3.0 years.
I-16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The fair value of the stock options granted under the 2006 Plan was determined by using the
Black-Scholes option-pricing model. The fair value of the stock options of each grant and the
assumptions used are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2008 |
|
|
September |
|
|
October 2008 |
|
|
December |
|
|
January |
|
|
|
2006 Grant |
|
|
2007 Grant |
|
|
2008 Grant |
|
|
Grant |
|
|
2008 Grant |
|
|
Grant |
|
|
2008 Grant |
|
|
2009 Grant |
|
Fair value of stock option |
|
$ |
3.06 |
|
|
$ |
3.75 |
|
|
$ |
3.94 |
|
|
$ |
2.74 |
|
|
$ |
3.31 |
|
|
$ |
3.22 |
|
|
$ |
1.06 |
|
|
$ |
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
4.8 |
% |
|
|
3.27 |
% |
|
|
3.01 |
% |
|
|
3.77 |
% |
|
|
3.08 |
% |
|
|
3.29 |
% |
|
|
1.99 |
% |
|
|
1.99 |
% |
Expected life (in years) |
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.5 |
|
Expected volatility |
|
|
26.5 |
% |
|
|
31.1 |
% |
|
|
35.8 |
% |
|
|
41.8 |
% |
|
|
43.1 |
% |
|
|
41.8 |
% |
|
|
57.1 |
% |
|
|
59.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
On September 21, 2009, the Board of Directors of the Company adopted the 2009 Stock Incentive
Plan (2009 Plan), subject to stockholder approval at the Companys annual meeting in December
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 will suspend further grants under the 2006 Plan. 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.
Note 8. Commitments and Contingencies
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 for
the capital stock price (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, in essence, the greater of
the following:
(i) the amount equal to 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 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.
I-17
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Also under the shareholders agreement, the Company has 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.
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 was reflected
in minority interest, with the corresponding adjustment to additional paid-in capital determined
after the attribution of the net income or loss of Royal Wolf to minority 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 will
accrete 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.
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.
I-18
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Cash Flows from Operating Activities and Other Financial Information
The following table provides a detail of cash flows from operating activities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
2008 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(6,668 |
) |
|
$ |
648 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales and disposals of property, plant and equipment |
|
|
(8 |
) |
|
|
|
|
Unrealized foreign exchange loss (gain) |
|
|
5,785 |
|
|
|
(2,250 |
) |
Unrealized loss (gain) on forward exchange contracts |
|
|
(1,291 |
) |
|
|
(209 |
) |
Unrealized loss (gain) on interest rate swaps and options |
|
|
1,536 |
|
|
|
(141 |
) |
Depreciation and amortization |
|
|
3,383 |
|
|
|
5,257 |
|
Amortization of deferred financing costs |
|
|
59 |
|
|
|
81 |
|
Accretion of interest |
|
|
60 |
|
|
|
60 |
|
Share-based compensation expense |
|
|
210 |
|
|
|
246 |
|
Contributed services |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
(3,778 |
) |
|
|
333 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade and other receivables, net |
|
|
(5,656 |
) |
|
|
6,636 |
|
Inventories |
|
|
(5,111 |
) |
|
|
3,419 |
|
Prepaid expenses and other |
|
|
(540 |
) |
|
|
(1,579 |
) |
Trade payables, accrued liabilities and other deferred credits |
|
|
12,545 |
|
|
|
(5,166 |
) |
Income taxes payable |
|
|
(92 |
) |
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
$ |
507 |
|
|
$ |
7,465 |
|
|
|
|
|
|
|
|
The following table provides a detail of comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
2008 |
|
|
2009 |
|
Net income (loss) attributable to stockholders |
|
$ |
(5,027 |
) |
|
$ |
75 |
|
Other comprehensive income (loss) cumulative translation adjustment |
|
|
(9,526 |
) |
|
|
4,060 |
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(14,553 |
) |
|
$ |
4,135 |
|
|
|
|
|
|
|
|
I-19
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Segment Reporting
The tables below represent the Companys revenues from external customers, long-lived assets
(consisting of lease fleet and property, plant and equipment) and operating income as attributed to
its two geographic locations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
Revenues from external customers: |
|
2008 |
|
|
2009 |
|
North America: |
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
4,474 |
|
Leasing |
|
|
|
|
|
|
9,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,427 |
|
|
|
|
|
|
|
|
Asia-Pacific: |
|
|
|
|
|
|
|
|
Sales |
|
|
20,995 |
|
|
|
12,139 |
|
Leasing |
|
|
10,658 |
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
31,653 |
|
|
|
20,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
31,653 |
|
|
$ |
35,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets: |
|
June 30, 2009 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
(Unaudited) |
|
North America |
|
$ |
112,419 |
|
|
$ |
112,296 |
|
Asia-Pacific |
|
|
86,956 |
|
|
|
93,932 |
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
199,375 |
|
|
$ |
206,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
Operating income: |
|
2008 |
|
|
2009 |
|
North America |
|
$ |
(535 |
) |
|
$ |
1,771 |
|
Asia-Pacific |
|
|
2,262 |
|
|
|
304 |
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
1,727 |
|
|
$ |
2,075 |
|
|
|
|
|
|
|
|
I-20
INDEX TO ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
F-9 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
General Finance Corporation
We have audited the accompanying consolidated balance sheet of General Finance Corporation and
Subsidiaries as of June 30, 2009, and the related consolidated statements of operations,
stockholders equity and comprehensive income (loss), and cash flows for the year ended June 30,
2009. In connection with our audit of the financial statements, we have also audited the financial
statement schedule listed in Item 15(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements and financial statement schedule based on our
audit.
We conducted our audit 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company as of June 30, 2009, and the
consolidated results of its operations and its cash flows for the year ended June 30, 2009, in
conformity with U.S. generally accepted accounting principles.
As described in Note 14, the Company adopted certain provisions of Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) Topic 805 Business Combinations and Topic
810 Consolidation on July 1, 2009, which required retrospective application in the 2009 and 2008
financial statements.
/s/ Crowe Horwath LLP
Sherman Oaks, California
September 28, 2009, except for Note 14, as to which the date is December 16, 2009
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
General Finance Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of General Finance Corporation and
Subsidiaries (the Successor) as of June 30, 2008, and the related consolidated statement of
operations for the year ended June 30, 2008, consolidated statements of stockholders equity and
comprehensive income (loss) for the period since inception (October 14, 2005) to June 30, 2007 and
for the year ended June 30, 2008, and consolidated statement of cash flows for the year ended June
30, 2008. We have also audited the accompanying consolidated statements of operations and cash
flows of RWA Holding Pty Limited and Subsidiaries (the Predecessor) for the period from July 1,
2007 to September 13, 2007 and for the year ended June 30, 2007. These financial statements are the
responsibility of the management of the Successor and Predecessor (collectively referred to as the
Companies). Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards established by the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement. The Companies were not required to have, nor were we engaged to perform,
audits of their internal control over financial reporting. Our audits 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 opinions on the
effectiveness of the Companies internal control over financial reporting. Accordingly, we express
no such opinions. 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 opinions.
In our opinion, the consolidated financial statements of the Successor referred to above present
fairly, in all material respects, the consolidated financial position of General Finance
Corporation and Subsidiaries as of June 30, 2008, and the consolidated results of their operations
and cash flows for the year then ended and the changes in stockholders equity and comprehensive
income (loss) for the period from inception (October 14, 2005) to June 30, 2007 and for the year
ended June 30, 2008, in conformity with accounting principles generally accepted in the United
States. Also in our opinion, the consolidated financial statements of the Predecessor referred to
above present fairly, in all material respects, the consolidated results of operations and cash
flows of RWA Holding Pty Limited and Subsidiaries for the period from July 1, 2007 to September 13,
2007 and for the year ended June 30, 2007 in conformity with accounting principles generally
accepted in the Unites States.
/s/ Grobstein, Horwath & Company LLP
Sherman Oaks, California
September 13, 2008
F-3
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Successor (Note 1) |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,772 |
|
|
$ |
3,346 |
|
Trade and other receivables, net of allowance for
doubtful accounts of $485 and $2,092 at June 30, 2008
and 2009, respectively |
|
|
18,327 |
|
|
|
26,432 |
|
Inventories |
|
|
21,084 |
|
|
|
22,511 |
|
Prepaid expenses |
|
|
2,094 |
|
|
|
1,883 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
44,277 |
|
|
|
54,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease receivables |
|
|
1,589 |
|
|
|
1,163 |
|
Property, plant and equipment, net |
|
|
7,503 |
|
|
|
10,460 |
|
Lease fleet, net |
|
|
87,748 |
|
|
|
188,915 |
|
Goodwill |
|
|
31,721 |
|
|
|
73,917 |
|
Intangible assets, net |
|
|
34,698 |
|
|
|
30,058 |
|
Other assets |
|
|
325 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
163,584 |
|
|
|
304,524 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
207,861 |
|
|
$ |
358,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
$ |
18,504 |
|
|
$ |
24,422 |
|
Current portion of long-term debt and obligations |
|
|
3,223 |
|
|
|
16,371 |
|
Unearned revenue and advance payments |
|
|
2,930 |
|
|
|
8,461 |
|
Income taxes payable |
|
|
705 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
25,362 |
|
|
|
49,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
Long-term debt and obligations, net of current portion |
|
|
78,029 |
|
|
|
183,933 |
|
Deferred tax liabilities |
|
|
1,462 |
|
|
|
13,822 |
|
Employee benefits and other non-current liabilities |
|
|
227 |
|
|
|
235 |
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
79,718 |
|
|
|
197,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest (Note 14) |
|
|
9,050 |
|
|
|
8,278 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Cumulative
preferred stock, $.0001 par value: 1,000,000 shares authorized; 25,000 shares issued and
outstanding (in series) at June 30, 2009 and stated
at liquidation value ($1,386 total liquidation
preference) |
|
|
|
|
|
|
1,345 |
|
Common stock, $.0001 par value: 100,000,000 shares
authorized; 13,826,052 and 17,826,052 shares
outstanding at June 30, 2008 and 2009, respectively |
|
|
1 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
81,688 |
|
|
|
105,314 |
|
Accumulated other comprehensive income (loss) |
|
|
6,787 |
|
|
|
(4,963 |
) |
Retained earnings |
|
|
5,255 |
|
|
|
1,476 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
93,731 |
|
|
|
103,174 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
207,861 |
|
|
$ |
358,696 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor (Note 1) |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
75,528 |
|
Leasing |
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
70,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
146,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of the
items shown separately below) |
|
|
46,402 |
|
|
|
9,466 |
|
|
|
57,675 |
|
|
|
64,317 |
|
Leasing, selling and general expenses |
|
|
20,761 |
|
|
|
4,210 |
|
|
|
22,161 |
|
|
|
51,040 |
|
Depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
17,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
413 |
|
|
|
14 |
|
|
|
1,289 |
|
|
|
296 |
|
Interest expense |
|
|
(4,378 |
) |
|
|
(947 |
) |
|
|
(6,888 |
) |
|
|
(16,161 |
) |
Foreign currency exchange gain
(loss) and other |
|
|
95 |
|
|
|
(129 |
) |
|
|
3,814 |
|
|
|
(9,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(25,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income taxes and noncontrolling
interest |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
(11,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
490 |
|
|
|
180 |
|
|
|
2,034 |
|
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
312 |
|
|
|
288 |
|
|
|
4,554 |
|
|
|
(6,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest (Note 14) |
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
(3,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
stockholders |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,106 |
|
|
$ |
(3,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
|
$ |
(0.22 |
) |
Diluted |
|
|
|
|
|
|
|
|
|
|
0.39 |
|
|
|
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
10,160,955 |
|
|
|
16,817,833 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
10,485,397 |
|
|
|
16,817,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor (Note 1) |
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Equity |
|
Balance at October 14, 2005
(inception) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock to initial
stockholder on October 14, 2005 |
|
|
|
|
|
|
|
|
|
|
1,875,000 |
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
250 |
|
Sale of warrants on April 10, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 7,500 units and
underwriters purchase option, net
of underwriters discount and
offering expenses on April 10, 2006 |
|
|
|
|
|
|
|
|
|
|
7,500,000 |
|
|
|
1 |
|
|
|
55,255 |
|
|
|
|
|
|
|
|
|
|
|
55,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 1,125 units for
over-allotment on April 13, 2006 |
|
|
|
|
|
|
|
|
|
|
1,125,000 |
|
|
|
|
|
|
|
8,320 |
|
|
|
|
|
|
|
|
|
|
|
8,320 |
|
Common stock subject to possible
conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,858 |
) |
|
|
|
|
|
|
|
|
|
|
(12,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation during the
development stag |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
110 |
|
Net income attributable to
stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149 |
|
|
|
1,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
10,500,000 |
|
|
|
1 |
|
|
|
51,777 |
|
|
|
|
|
|
|
1,149 |
|
|
|
52,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of common stock subject to
possible conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,858 |
|
|
|
|
|
|
|
|
|
|
|
12,858 |
|
Conversion of common stock into cash |
|
|
|
|
|
|
|
|
|
|
(809,901 |
) |
|
|
|
|
|
|
(6,042 |
) |
|
|
|
|
|
|
|
|
|
|
(6,042 |
) |
Issuance of warrant to secured
subordinated promissory note holder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,309 |
|
|
|
|
|
|
|
|
|
|
|
1,309 |
|
Exercise of warrants |
|
|
|
|
|
|
|
|
|
|
4,135,953 |
|
|
|
|
|
|
|
21,044 |
|
|
|
|
|
|
|
|
|
|
|
21,044 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509 |
|
|
|
|
|
|
|
|
|
|
|
509 |
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
233 |
|
Net income attributable to
stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,106 |
|
|
|
4,106 |
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,787 |
|
|
|
|
|
|
|
6,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
Cumulative dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
(62 |
) |
Net loss attributable to stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,717 |
) |
|
|
(3,717 |
) |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor (Note 1) |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,554 |
|
|
$ |
(6,745 |
) |
Adjustments to reconcile net income (loss) to cash flows from
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sales and disposals of property, plant and equipment |
|
|
(23 |
) |
|
|
11 |
|
|
|
71 |
|
|
|
7 |
|
Unrealized foreign exchange loss (gain) |
|
|
(134 |
) |
|
|
58 |
|
|
|
(4,246 |
) |
|
|
6,616 |
|
Unrealized loss (gain) on forward exchange contracts |
|
|
40 |
|
|
|
72 |
|
|
|
34 |
|
|
|
(157 |
) |
Unrealized loss (gain) on interest rate swaps and options |
|
|
(174 |
) |
|
|
90 |
|
|
|
(377 |
) |
|
|
2,057 |
|
Depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
17,045 |
|
Amortization of deferred financing costs |
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
256 |
|
Accretion of interest |
|
|
340 |
|
|
|
32 |
|
|
|
189 |
|
|
|
240 |
|
Share-based compensation expense |
|
|
336 |
|
|
|
|
|
|
|
509 |
|
|
|
902 |
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
130 |
|
Interest deferred for common stock subject to possible conversion,
net of income tax effect |
|
|
|
|
|
|
|
|
|
|
(226 |
) |
|
|
|
|
Deferred income taxes |
|
|
489 |
|
|
|
180 |
|
|
|
1,492 |
|
|
|
(4,198 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables, net |
|
|
(5,017 |
) |
|
|
1,090 |
|
|
|
(1,321 |
) |
|
|
5,659 |
|
Inventories |
|
|
12,017 |
|
|
|
(3,822 |
) |
|
|
(7,162 |
) |
|
|
3,525 |
|
Prepaid expenses and other |
|
|
12 |
|
|
|
|
|
|
|
1,776 |
|
|
|
442 |
|
Trade payables, accrued liabilities and other deferred credits |
|
|
(1,869 |
) |
|
|
5,642 |
|
|
|
5,244 |
|
|
|
(2,125 |
) |
Income taxes payable |
|
|
50 |
|
|
|
|
|
|
|
(337 |
) |
|
|
(322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,956 |
|
|
|
4,294 |
|
|
|
8,016 |
|
|
|
23,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of property, plant and equipment |
|
|
101 |
|
|
|
28 |
|
|
|
16 |
|
|
|
134 |
|
Business acquisitions, net of cash acquired |
|
|
(303 |
) |
|
|
|
|
|
|
(110,872 |
) |
|
|
(20,989 |
) |
Purchases of property, plant and equipment |
|
|
(845 |
) |
|
|
|
|
|
|
(678 |
) |
|
|
(3,531 |
) |
Purchases of lease fleet |
|
|
(20,350 |
) |
|
|
(3,106 |
) |
|
|
(8,560 |
) |
|
|
(14,300 |
) |
Purchases of intangible assets |
|
|
(66 |
) |
|
|
|
|
|
|
(390 |
) |
|
|
(107 |
) |
Payment of deferred purchase consideration |
|
|
(451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(21,914 |
) |
|
|
(3,078 |
) |
|
|
(120,484 |
) |
|
|
(38,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds (repayments) on capital leasing activities |
|
|
(718 |
) |
|
|
(7,921 |
) |
|
|
(641 |
) |
|
|
241 |
|
Proceeds from long-term borrowings |
|
|
5,361 |
|
|
|
1,124 |
|
|
|
25,447 |
|
|
|
16,416 |
|
Proceeds from issuances of capital |
|
|
8,746 |
|
|
|
4,990 |
|
|
|
21,044 |
|
|
|
1,236 |
|
Cumulative dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
Payments to converting stockholders, net |
|
|
|
|
|
|
|
|
|
|
(6,426 |
) |
|
|
|
|
Noncontrolling interest capital contributions |
|
|
|
|
|
|
|
|
|
|
8,278 |
|
|
|
|
|
Repayment of borrowings from related party |
|
|
|
|
|
|
|
|
|
|
(2,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
13,389 |
|
|
|
(1,807 |
) |
|
|
45,352 |
|
|
|
17,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
431 |
|
|
|
(591 |
) |
|
|
(67,116 |
) |
|
|
2,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of period |
|
|
567 |
|
|
|
886 |
|
|
|
68,277 |
|
|
|
2,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of foreign currency translation on cash |
|
|
(112 |
) |
|
|
(5 |
) |
|
|
1,611 |
|
|
|
(1,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
|
$ |
886 |
|
|
$ |
290 |
|
|
$ |
2,772 |
|
|
$ |
3,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
1,497 |
|
|
$ |
494 |
|
|
$ |
6,199 |
|
|
$ |
13,417 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
218 |
|
|
|
536 |
|
F-7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(continued)
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 the Container Wholesalers acquisition (see Note 4).
The accompanying notes are an integral part of these consolidated financial statements.
F-8
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 to effect a
business combination with one or more operating businesses in the rental services and specialty
finance sectors. From inception through September 13, 2007, GFN had no business or operations.
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 (Pac-Van). In September 2007, the Company
changed its fiscal year to June 30 from December 31.
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. GFN Finance, an
indirect subsidiary of GFN U.S., owns all of the outstanding capital stock of Royal Wolf.
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. All references to events or activities (other than equity-related) which
occurred prior to the completion of the acquisition on September 13, 2007 (September 14 in
Australia) relate to Royal Wolf, as the predecessor company (the Predecessor). All references to
events or activities (other than equity-related) which occurred after the completion of the
acquisition on September 13, 2007 (September 14 in Australia) relate to the Company, as the
successor company (the Successor).
The total purchase consideration, including the Companys transaction costs of approximately
$1.7 million, has been allocated to tangible and intangible assets acquired and liabilities assumed
based on their estimated fair market values as of September 13, 2007, as follows (in thousands):
|
|
|
|
|
|
|
September 13, 2007 |
|
Fair value of the net tangible assets acquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
290 |
|
Trade and other receivables |
|
|
11,212 |
|
Inventories |
|
|
9,224 |
|
Lease receivables |
|
|
2,008 |
|
Property, plant and equipment |
|
|
4,346 |
|
Lease fleet |
|
|
51,362 |
|
Trade payables and accrued liabilities |
|
|
(18,705 |
) |
Long-term debt and obligations |
|
|
(37,028 |
) |
|
|
|
|
Total net tangible assets acquired and liabilities assumed |
|
|
22,709 |
|
|
|
|
|
|
|
|
|
|
Fair value of intangible assets acquired: |
|
|
|
|
Customer lists |
|
|
21,722 |
|
Non-compete agreement |
|
|
3,139 |
|
Software and other (including deferred financing costs of $1,187) |
|
|
1,521 |
|
Goodwill |
|
|
23,057 |
|
|
|
|
|
Total intangible assets acquired |
|
|
49,439 |
|
|
|
|
|
Total purchase consideration |
|
$ |
72,148 |
|
|
|
|
|
F-9
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition of Pac-Van
The Companys long-term strategy is to acquire and conduct operations in North America, Europe
and the Asia-Pacific area. The acquisition of Pac-Van gave the Company the opportunity to enter and
participate in the United States with an experienced management team. 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 long-term 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 will secure the indemnification obligations for 20 months and 36
months, respectively. Among other things, the Company and the stockholders of MOAC entered into a
stockholders agreement which provided registration rights which may be exercised after June 30,
2009. In addition, in connection with the acquisition, 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 347,000 and 9,000 shares of common
stock, respectively, at an exercise price equal to the closing market price of the Companys common
stock as of October 1, 2008, or $6.40.
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 |
|
|
(12,975 |
) |
Unearned revenue and advance payments |
|
|
(7,414 |
) |
Long-term debt |
|
|
(107,600 |
) |
Deferred income taxes |
|
|
(17,405 |
) |
|
|
|
|
Total net tangible assets acquired and liabilities assumed |
|
|
(6,692 |
) |
|
|
|
|
|
|
|
|
|
Fair value of intangible assets acquired: |
|
|
|
|
Customer base |
|
|
4,850 |
|
Trade name |
|
|
2,200 |
|
Deferred financing costs |
|
|
191 |
|
Goodwill |
|
|
46,889 |
|
|
|
|
|
Total intangible assets acquired |
|
|
54,130 |
|
|
|
|
|
Total purchase consideration |
|
$ |
47,438 |
|
|
|
|
|
F-10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated statements of operations reflect the operating results of the
Company following the dates of acquisitions of Royal Wolf and Pac-Van and do not reflect the
operating results of Royal Wolf and Pac-Van prior to the acquisition dates, except for Royal Wolf
as the Predecessor. The following unaudited pro forma information for the years ended June 30, 2008
and 2009 assume the acquisitions of Royal Wolf and Pac-Van occurred at the beginning of the periods
presented (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(Unaudited) |
|
Revenues |
|
$ |
166,400 |
|
|
$ |
169,102 |
|
Net income (loss) attributable to stockholders |
|
|
7,006 |
|
|
|
(2,937 |
) |
|
|
|
|
|
|
|
Pro forma net income (loss) per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.39 |
|
|
$ |
(0.17 |
) |
Diluted |
|
|
0.39 |
|
|
|
(0.17 |
) |
|
|
|
|
|
|
|
The pro forma results are not necessarily indicative of the results that may have
actually occurred had the acquisitions taken place on the dates 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 reduced interest income and 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.
References to 2007, 2008, 2009 and Predecessor Period 2008 are to the years ended June
30, 2007, 2008, 2009 and for the period from July 1 to September 13, 2007, respectively.
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 Australia is the Australian (AUS)
dollar. All adjustments resulting from the translation of the accompanying consolidated financial
statements from the functional currency into the United States (U.S.) dollar reporting currency
are recorded as a component of stockholders equity in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation. 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-11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segment Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, 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 SFAS No. 131 and the manner in
which the chief operating decision maker analyzes the business, the Company has determined it has
two separately reportable geographic segments and one reportable operating segment.
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, |
|
|
|
2008 |
|
|
2009 |
|
Finished goods |
|
$ |
18,795 |
|
|
$ |
21,170 |
|
Work in progress |
|
|
2,289 |
|
|
|
1,341 |
|
|
|
|
|
|
|
|
|
|
$ |
21,084 |
|
|
$ |
22,511 |
|
|
|
|
|
|
|
|
Derivative Financial Instruments
Derivative financial instruments include warrants issued as part of the Initial Public
Offering (IPO), a purchase option that was sold to the representative of the underwriters 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.
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.
F-12
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock Options
For the issuances of stock options, the Company follows the fair value provisions of SFAS No.
123R, Share-Based Payment. SFAS No. 123R 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.
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 a 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 |
|
|
2008 |
|
|
2009 |
|
Land |
|
|
|
|
|
$ |
1,749 |
|
|
$ |
1,486 |
|
Building |
|
40 years |
|
|
271 |
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and plant equipment (including capital lease assets) |
|
3 10 years |
|
|
5,489 |
|
|
|
9,010 |
|
Furniture, fixtures and office equipment |
|
3 10 years |
|
|
893 |
|
|
|
3,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,402 |
|
|
|
13,743 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
(899 |
) |
|
|
(3,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,503 |
|
|
$ |
10,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases
Leases under which substantially all the risks and benefits incidental to ownership of the
leased assets are assumed by the Company are classified as capital leases. Other leases are
classified as operating leases. A lease asset and a lease liability equal to the present value of
the minimum lease payments, or the fair value of the leased item, whichever is the lower, are
capitalized and recorded at the inception of the lease. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged directly to the statement of
operations. Capitalized leased assets are depreciated over the shorter of the estimated useful life
of the asset or the lease term.
Operating leases
Payments made under operating leases are expensed on the straight-line basis over the term of
the lease, except where an alternative basis is more representative of the pattern of benefits to
be derived from the leased property. Where leases have fixed rate increases, these increases are
accrued and amortized over the entire lease period, yielding a constant periodic expense over the
term of the lease.
Lease Fleet
The Company has a fleet of storage containers, mobile offices, modular buildings and steps
that it primarily leases 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 (0% 70% of cost). In the opinion of
management, estimated residual values are at or below net realizable values. The Company continues
to evaluate these depreciation policies as more information becomes available from other comparable
sources and its own historical experience.
Costs incurred on lease fleet containers 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.
F-13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Containers in the lease fleet are also available for sale. The cost of sales of a container in
the lease fleet is recognized at the carrying amount at the date of sale.
In the fourth quarter of 2007, Royal Wolf revised the estimated useful life and residual value
of its container for lease fleet. The financial impact of the revision resulted in depreciation
expense for 2007 being $969,000 less than what it would have been if the previous useful life
estimate had been applied.
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, 2008 and 2009.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets
acquired in connection with business acquisitions. The Company accounts for goodwill in accordance
with SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives and requires these assets be reviewed
for impairment at least annually. The Company tests goodwill annually for impairment or when events
or circumstances indicate that there might be impairment using the two-step process prescribed in
SFAS No. 142. The first step is a screen for potential impairment, while the second step measures
the amount of the impairment, if any. The Company has determined that no impairment provision
related to goodwill was required to be recorded at June 30, 2009. The change in the balance of
goodwill is as follows (in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Beginning of year |
|
$ |
|
|
|
$ |
31,721 |
|
Acquired goodwill (including foreign translation effect) |
|
|
31,721 |
|
|
|
42,196 |
|
|
|
|
|
|
|
|
End of year |
|
$ |
31,721 |
|
|
$ |
73,917 |
|
|
|
|
|
|
|
|
Intangible Assets
Intangible assets consist of those with indefinite useful lives (trademark and trade name) and
those with finite useful lives (primarily customer base and lists, non-compete agreements and
deferred financing costs). Customer base and lists are amortized on an accelerated and
straight-line basis, respectively, and non-compete agreements are amortized on a straight-line
basis over the expected period of benefit which range from one to ten years. Costs to obtain
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, |
|
|
|
2008 |
|
|
2009 |
|
Trademark and trade name |
|
$ |
740 |
|
|
$ |
2,940 |
|
Customer base and lists |
|
|
29,364 |
|
|
|
29,485 |
|
Non-compete agreements |
|
|
6,218 |
|
|
|
5,633 |
|
Deferred financing costs |
|
|
1,947 |
|
|
|
2,019 |
|
Other |
|
|
733 |
|
|
|
713 |
|
|
|
|
|
|
|
|
|
|
|
39,002 |
|
|
|
40,790 |
|
Less accumulated amortization |
|
|
(4,304 |
) |
|
|
(10,732 |
) |
|
|
|
|
|
|
|
|
|
$ |
34,698 |
|
|
$ |
30,058 |
|
|
|
|
|
|
|
|
The Company reviews intangibles (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 has determined that impairment
related to the customer base acquired in the Pac-Van acquisition (see Note 1) was required to be
recorded as of June 30, 2009, as a result of changes in market conditions in the U.S. Therefore, in
the fourth quarter of 2009, the Company, to be more in line with the expected
revenue stream of the customer base, recorded this impairment by revising its method of
amortization from a straight-line to an accelerated basis. The financial impact of the revision
resulted in an impairment expense for 2009 of $689,000.
F-14
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated future amortization of intangible assets with finite useful lives as of June 30,
2009 is as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
2010 |
|
$ |
5,724 |
|
2011 |
|
|
4,903 |
|
2012 |
|
|
4,537 |
|
2013 |
|
|
3,859 |
|
2014 |
|
|
1,847 |
|
Thereafter |
|
|
6,248 |
|
|
|
|
|
|
|
$ |
27,118 |
|
|
|
|
|
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.
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 2007, Predecessor Period 2008, 2008 and 2009 were $729,000, $180,000, $819,000 and
$848,000, 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, 2008 and 2009,
prepaid advertising costs were approximately $200,000 and $191,000, respectively. Advertising costs
expensed were approximately $800,000, $200,000, $900,000 and $2,283,000 for 2007, Predecessor
Period 2008, 2008 and 2009, respectively.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes.
Accordingly, 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.
F-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company files U.S. Federal tax returns, California franchise tax returns and Australian
tax returns, and beginning in 2009 will also file in multiple other U.S. states. For U.S. Federal
tax purposes, all periods subsequent to June 30, 2007 are subject to examination by the U.S.
Internal Revenue Service (IRS). The Company believes that its income tax filing positions and
deductions will be sustained on audit and does not anticipate any adjustments that will result in a
material change. Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48). In addition, the Company did not record a
cumulative effect adjustment related to the adoption of FIN 48 and 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, associated with audits will
be to record such items as a component of income taxes.
Net Income per Common Share
Basic net income per common share is computed by dividing net income, less dividends declared
(or accumulated) on cumulative preferred stock (Note 3), 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 net income per common share:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
Basic |
|
|
10,160,955 |
|
|
|
16,817,833 |
|
Assumed exercise of warrants |
|
|
324,442 |
|
|
|
|
|
Assumed exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
10,485,397 |
|
|
|
16,817,833 |
|
|
|
|
|
|
|
|
In 2009, potential common stock equivalents (consisting of units, warrants and stock
options) totaling 8,430,380 have been excluded from the computation of diluted earnings per share
because the effect is anti-dilutive.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations, and SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141R improves
reporting by creating greater consistency in the accounting and financial reporting of business
combinations, resulting in more complete, comparable, and relevant information for investors and
other users of financial statements. SFAS No. 141R requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and understand the nature and financial
effect of the business combination. SFAS No. 141R also requires that acquisition costs will
generally be expensed as incurred and restructuring costs will be expensed in periods after the
acquisition date. SFAS No. 160 improves the relevance, comparability, and transparency of financial
information provided to investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way as equity in the consolidated financial statements.
Moreover, SFAS No. 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be treated as equity
transactions. The two statements will be effective for the Company as of July 1, 2009. Management
believes that the adoption of these statements would have a significant impact in the presentation
of minority interest in the Companys consolidated financial statements and could have a material
effect on the Companys results of operations or financial position for future periods, but it is
still evaluating the impact these statements will have.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No. 133. SFAS No. 161 changes the disclosure
requirements for derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No. 133 and its
related interpretations, (c) how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows and (d) encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. The adoption of SFAS No. 161 did not have a significant impact
on the Companys consolidated financial statements.
F-16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2008, the FASB issued FASB Staff Position FAS 142-3, Determining the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors to be considered in determining the
useful life of intangible assets accounted for pursuant to SFAS No. 142. Its intent is to improve
the consistency between the useful life of an intangible asset and the period of expected cash
flows used to measure its fair value. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008. Management does not believe that the adoption of FSP 142-3 will have a material
effect on the Companys consolidated financial statements.
In November 2008, the FASB ratified EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets (EITF No. 08-7). EITF No. 08-7 applies to defensive intangible assets, which are acquired
intangible assets that the acquirer does not intend to actively use but intends to hold to prevent
its competitors from obtaining access to them. As these assets are separately identifiable, EITF
No. 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit
of accounting. Defensive intangible assets must be recognized at fair value in accordance with SFAS
No. 141(R) and SFAS No. 157. This issue is effective for intangible assets acquired on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. Management
believes the adoption of ETIF Issue No. 08-7 could have a material effect on the Companys results
of operations or financial position for future periods, but its effects will depend on the nature
of future acquisitions completed by the Company.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and APB 28-1, Interim
Disclosure about Fair Value of Financial Instruments (FSF FAS 107-1 and APB 28-1). FSP FAS 107-1
and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require
disclosures about fair value of financial instruments for interim reporting periods of publicly
traded companies as well as in annual financial statements. The FSP also amends APB Opinion No. 28,
Interim Financial Reporting, to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim reporting periods
ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009.
Management does not believe the adoption of FSP FAS 107-1 and APB 28-1 will have a material impact
on the Companys consolidated financial statements.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly, and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. FSP FAS 157-4 relates to determining fair values when there is no
active market or where the price inputs being used represent distressed sales; and FSP FAS 115-2
and FAS 124-2 on other-than-temporary impairments is intended to bring greater consistency to the
timing of impairment recognition, and provide greater clarity to investors about the credit and
noncredit components of impaired debt securities that are not expected to be sold. Both FSPs are
effective for interim reporting periods ending after June 15, 2009 with early adoption permitted
for periods ending after March 15, 2009. The adoption of these FSPs did not have a material impact
on the Companys consolidated financial statements.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP FAS 141(R)-1
provides new guidance that changes the accounting treatment of contingent assets and liabilities in
business combinations under SFAS No. 141 (revised 2007). This FSP is effective for contingent
assets or liabilities acquired in business combinations for which the acquisition date is on or
after the first annual reporting period beginning on or after December 15, 2008. Management has not
elected early adoption and is currently evaluating the impact that the adoption of this FSP may
have on the Companys consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before the financial statements are issued or are available to be issued. SFAS No. 165 provides
guidance on the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements and the disclosures
that an entity should make about events or transactions that occurred after the balance sheet date.
The statement was effective for the Company during the interim and annual period ending June 30,
2009. The Company has evaluated subsequent events for potential recognition and/or disclosure
through September 28, 2009, the date the consolidated financial statements included in this Annual
Report on Form 10-K were originally issued, and through December 16, 2009, the date the financial
statements were re-issued for the retroactive adoption of a new accounting standard (see Notes 13
and 14).
F-17
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Initial Public Offering (IPO) and Other Equity Transactions
IPO
On April 10, 2006, the Company issued and sold 7,500,000 units (Units) in its IPO, and on
April 13, 2006, the Company issued and sold an additional 1,125,000 Units that were subject to the
underwriters over-allotment option. Each Unit consists of one share of common stock and one
warrant. Each warrant entitles the holder to purchase from the Company one share of common stock at
an exercise price of $6.00 commencing at the later of the completion of a business combination with
a target business or one year from the effective date of the IPO (April 5, 2007) and expiring on
April 5, 2010 (Warrants), assuming there is an effective registration statement. The Warrants
will be redeemable at a price of $0.01 per Warrant upon 30 days notice after the Warrants become
exercisable, only in the event that the last sale price of the common stock is at least $11.50 per
share for any 20 trading days within a 30 trading day period ending on the third day prior to the
date on which notice of redemption is given.
The IPO price of each Unit was $8.00, and the gross proceeds of the IPO were $69,000,000
(including proceeds from the exercise of the over-allotment option). Of the gross proceeds: (i)
$65,000,000 was deposited into a trust account (the Trust Account), which amount included
$1,380,000 of deferred underwriting fees; (ii) the underwriters received $3,450,000 as underwriting
fees (excluding the deferred underwriting fees); and (iii) the Company retained $550,000 for
offering expenses. In addition, the Company deposited into the Trust Account the $700,000 that it
received from a private placement of 583,333 warrants to two executive officers (one of whom is
also a director) for $1.20 per warrant immediately prior to the closing of the IPO. These warrants
are identical to the Warrants issued in the IPO.
The funds in the Trust Account were distributed at the closing of the acquisition of Royal
Wolf. The Company received approximately $60.8 million, of which it used $44.7 million to pay the
purchase price for the RWA shares. Approximately $6.4 million ($7.93482 per share) of the funds in
the Trust Account was paid to Public Stockholders holding 809,901 shares that voted against the
acquisition and, in accordance with the Companys certificate of incorporation, elected to receive
cash in exchange for their shares, which have been cancelled. The remaining $1.3 million was paid
to our IPO underwriters as deferred underwriting fees.
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 the units have an exercise price of
$7.20. This option may be exercised on a cashless basis. This option expires April 5, 2011.
Warrant Exercise Program
On May 2, 2008, the Company offered the holders of its 8,625,000 outstanding, publicly-traded
warrants and the 583,333 warrants issued to two executive officers (one of whom is also a director)
the opportunity to exercise those warrants for a limited time at a reduced exercise price of $5.10
per warrant. The offer commenced on May 2, 2008 and continued through May 30, 2008. Under the
warrant exercise program, a total of 4,125,953 warrants were exercised and all outstanding warrants
that were not exercised retain their original terms, including the $6.00 exercise price, which
existed prior to the warrant exercise program. In June 2008, an additional 10,000 warrants were
exercised at $6.00 per warrant.
Cumulative Preferred Stock
The Company is offering 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 (see Note 4).
The Series A Preferred stock and the Series B Preferred stock are referred to collectively as
the Cumulative Preferred Stock.
Upon issuance of the Cumulative Preferred Stock, the Company records the liquidation value as
the preferred equity in the consolidated balance sheet, with any issuance or offering costs as a
reduction in additional paid-in capital. As of June 30, 2009, the Company had issued 24,900 shares
and 100 shares of Series A Preferred Stock and Series B Preferred Stock for total proceeds of
$1,245,000 and $100,000, respectively.
F-18
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 31 st day of
January, July and October of each year and the 30 th 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, 2009, dividends paid or payable totaled $58,000 and $4,000 for the Series A
Preferred Stock and Series B Preferred Stock, respectively. The characterization of dividends as
ordinary income, capital or qualified for Federal income tax purposes is made based upon the
earnings and profits of the Company, as defined by the Internal Revenue Code. No such
characterization has been made by the Company as of June 30, 2009.
Note 4. Acquisitions
On May 31, 2007, Royal Wolf acquired the business and assets of Professional Sales & Hire
(Terrigal Motors Ltd) for $303,000 in cash. Professional Sales & Hire sells and leases shipping
containers. The purchase price was essentially allocated to the container for lease fleet acquired
based on its estimated fair market values as of May 31, 2007.
On November 14, 2007, the Company, through GFN Finance and Royal Wolf, entered into a Business
Sale Agreement dated November 14, 2007 (the Business Sale Agreement) with GE SeaCo Australia Pty
Ltd. and GE SeaCo SRL. GE SeaCo Australia Pty Ltd. is owned by GE SeaCo SRL, which is a joint
venture between Genstar Container Corporation (a subsidiary of General Electric) and Sea Containers
Ltd. Sea Containers Ltd. is in bankruptcy reorganization (collectively GE SeaCo). Pursuant to the
Business Sale Agreement, the Company purchased the assets of GE SeaCo used in its dry and
refrigerated container business in Australia and Papua New Guinea for $17,850,000, after
adjustments. The Business Sale Agreement contains a three-year non-competition agreement from GE
SeaCo and certain affiliates covering Australia and Papua New Guinea. The purchase price was paid
at the closing, less a holdback of approximately $900,000 deposited into an escrow account for one
year to provide for damages from breach of representations and warranties by GE SeaCo and any
post-closing purchase price adjustments. The total purchase price, including deferred financing
costs of $84,000, has been allocated to tangible and intangible assets acquired and liabilities
assumed based on their estimated fair market values as of November 14, 2007.
On February 29, 2008, the Company, through Royal Wolf, entered into an asset purchase
agreement to acquire the dry and refrigerated container assets of Container Hire and Sales (CHS),
located south of Perth, Australia for $3,772,000. The total purchase price has been allocated to
tangible and intangible assets acquired based on their estimated fair market values as of February
29, 2008.
On April 30, 2008 (May 1, 2008 in New Zealand), the Company, through Royal Wolf, acquired RWNZ
Acquisition Co. Limited and its wholly owned subsidiary, Royalwolf Trading New Zealand
(collectively RWNZ) for $16,965,000. Among other things, the acquisition agreement contains a
three-year non-compete covenant under which the sellers agree not to sell or lease storage
containers to retail customers in an area that includes New Zealand. The total purchase price,
including deferred financing costs of $223,000, has been allocated to tangible and intangible
assets acquired and liabilities assumed based on their estimated fair market values as of April 30,
2008 (May 1, 2008 in New Zealand).
On June 16, 2008, the Company, through Royal Wolf, purchased the business of Container Hire
and Storage Pty Limited (d/b/a Tomago Discount Self Storage) for $427,000. The total purchase price
has been allocated to tangible and intangible assets acquired based on their estimated fair market
values as of June 16, 2008.
F-19
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation for the acquisitions in 2008 to tangible and intangible assets acquired and
liabilities assumed based on their estimated fair market values were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE SeaCo |
|
|
RWNZ |
|
|
|
|
|
|
November 14, 2007 |
|
|
April 30, 2008 |
|
|
Other Acquisitions |
|
Fair value of the net tangible assets acquired and liabilities
assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Trade and other receivables |
|
|
|
|
|
|
5,224 |
|
|
|
|
|
Inventories (primarily containers) |
|
|
1,746 |
|
|
|
1,705 |
|
|
|
|
|
Property, plant and equipment |
|
|
28 |
|
|
|
2,488 |
|
|
|
151 |
|
Container for lease fleet |
|
|
9,952 |
|
|
|
9,476 |
|
|
|
1,805 |
|
Trade and other payables |
|
|
(229 |
) |
|
|
(2,403 |
) |
|
|
|
|
Long-term debt and obligations |
|
|
|
|
|
|
(4,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net tangible assets acquired and liabilities assumed |
|
|
11,497 |
|
|
|
11,713 |
|
|
|
1,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of intangible assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement |
|
|
1,999 |
|
|
|
|
|
|
|
473 |
|
Customer lists |
|
|
|
|
|
|
4,289 |
|
|
|
|
|
Trademark |
|
|
|
|
|
|
740 |
|
|
|
|
|
Deferred financing costs |
|
|
84 |
|
|
|
223 |
|
|
|
|
|
Goodwill |
|
|
4,270 |
|
|
|
|
|
|
|
1,770 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets acquired |
|
|
6,353 |
|
|
|
5,252 |
|
|
|
2,243 |
|
|
|
|
|
|
|
|
|
|
|
Total purchase consideration |
|
$ |
17,850 |
|
|
$ |
16,965 |
|
|
$ |
4,199 |
|
|
|
|
|
|
|
|
|
|
|
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-20
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-Term Debt and Obligations
Royal Wolf Senior Credit Facility and Subordinated Notes
Royal Wolf has a credit facility, as amended, with Australia and New Zealand Banking Group
Limited (ANZ). The facility is subject to annual reviews by ANZ and is guaranteed and secured by
assets of the Companys Australian and New Zealand subsidiaries. Based upon the exchange rate of
one Australian dollar to $0.80480 U.S. dollar and one New Zealand dollar to $0.80460 Australian
dollar at June 30, 2009, the total credit facility limit is $91.3 million (AUS$101.0 million and
NZ$15.5 million). The aggregate ANZ facility is comprised of various sub-facilities. The more
significant of these sub-facilities include eight interchangeable loan facilities under which Royal
Wolf may borrow up to the lesser of $59.5 million (AUS$74.0 million) or 80% of the orderly
liquidation value, as defined, of its container fleet; a receivables financing facility of up to
$9.7 million (AUS$12.0 million); a special finance line for acquisitions of $0.8 million (AUS$1.0
million); a multi-option facility for the lease financing of accommodation units of $4.5 million
(AUS$5.6 million); and a separate bank guarantee facility for New Zealand of $10.0 million (NZ$15.5
million), which terminates in May 2010. The receivables financing facility bears interest at a
variable rate equal to the bank bill swap reference rate, plus 1.65% per annum, and may not be
terminated, except on default, prior to ANZs next review date of the facility. Four of the
interchangeable loan facilities, totaling $48.9 million (AUS$60.8 million), mature in September
2012; three of the interchangeable loan facilities, totaling $5.8 million (AUS$7.2 million), $0.8
million (AU$1.0 million) and $0.8 million (AU$1.0 million), mature in April 2010, September 2010
and November 2010, respectively; and the remaining interchangeable loan facility of $3.2 million
(AUS$4.0 million) may not be terminated, except on default, prior to ANZs next review date. The
multi-option facility matures two years from the date of drawdown, but is unused at June 30, 2009.
Loans on the interchangeable facilities and multi-option facility bear interest at ANZs prime rate
plus 2.50% per annum, with interest payable quarterly. As of June 30, 2009, borrowings under the
ANZ credit facility totaled $74,765,000 (AUS$92,899,000) and the weighted-average interest rate was
8.3%, 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.
Subsequent to June 30, 2009, the ANZ senior credit facility was amended (see Note 13).
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 paid Bison Capital a closing fee of $336,000 and issued to Bison Capital
warrants to purchase 500,000 shares of common stock of GFN.
The Bison Note bears interest at the annual rate of 13.5%, payable quarterly in arrears,
commencing October 1, 2007, 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 103% of par prior to September 13, 2009; 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 inter- creditor
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 $1.0 million in cash, 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.
F-21
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2010. Collectively,
these two notes are referred to as the Bison Notes. At June 30, 2009, the principal balance of
the Bison Notes was $21,436,000.
The Bison Notes 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 has a revolving line of credit and letter of credit facility, as amended, with a
syndication of four financial institutions led by LaSalle Bank National Association, now Bank of
America, N.A. (BOA), as administrative and collateral agent. The BOA credit facility is secured
by substantially all the business assets of Pac-Van and GFNNA, including the assignment of its
rights under leasing contracts with customers, and is available for purchases of rental equipment
and general operating purposes. The maximum aggregate amount available under the BOA credit
facility is $120,000,000; with borrowings limited to 85% of eligible accounts receivable, net of
reserves and allowances, plus 85% of the net book value of all eligible rental equipment, net of
reserves and allowances, plus the lesser of (i) 75% of property and equipment, as defined, and (ii)
$1,000,000. Letters of credit commitments under the credit facility are not to exceed $10,000,000
and approval is required by BOA, as the administrative agent, for borrowings over $95,400,000 and
letters of credit commitments over $2,000,000.
Borrowings under the BOA credit facility are due on August 23, 2012 and accrue 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 is required
to pay an unused commitment fee equal to 0.25% of the average unused line calculated on a quarterly
basis. At June 30, 2009, borrowings under the BOA credit facility totaled $77,000,000 and the
weighted-average interest rate was 2.3%.
The BOA senior credit facility is 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 utilization rate, as defined; and, among other things,
restrictions on the payment of dividends, loans and payments to affiliates.
Pac-Van also has a senior subordinated secured note payable to SPV Capital Funding, L.L.C.
(SPV) with a principal balance of $25,000,000. This subordinated note matures on February 2,
2013, requires quarterly interest only payments computed at 13.0% per annum and is also subject to
the maintenance of certain financial covenants.
Loan Covenant Compliance
The Company was in compliance with the financial covenants under its senior credit facilities
and senior subordinated notes discussed above as of June 30, 2009. However, as widely reported, the
financial markets and economy in the U.S. and Australia, as well as the global economy in general,
have been in a downturn for a period of time. If the current economic environment continues to be
weak or worsens, the Companys ability to continue meeting covenant requirements may be impaired
and may result in the seeking of amendments or waivers of covenant compliance. While management of
the Company believes its relationships with its 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; or that
our senior lenders would not exercise rights that would be available to them, including, among
other things, demanding payment of outstanding borrowings.
F-22
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Union Bank Credit Facility
The Company has a credit agreement, as amended, with Union Bank (UB) for a $1.0 million
credit facility. Borrowings or advances under the facility will bear interest at UBs Reference
Rate (which approximates the prime rate) and are due and payable by March 31, 2011. The facility
is guaranteed by GFN U.S. and requires the maintenance of certain quarterly and year-end financial
reporting covenants. There were no outstanding borrowings under the UB credit facility at June 30,
2009.
Scheduled Maturities on Long-Term Debt
The scheduled maturities for the senior credit facilities (see also Note 13), senior
subordinated notes and other long-term debt at June 30, 2009 are as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2010 |
|
$ |
16,371 |
|
2011 |
|
|
14,996 |
|
2012 |
|
|
326 |
|
2013 |
|
|
168,424 |
|
2014 |
|
|
104 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
200,221 |
|
|
|
|
|
Capital Leases
Capital lease liabilities of the Company as of June 30, 2009 are payable as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
|
|
|
|
|
|
Year Ending June 30, |
|
lease payments |
|
|
Interest |
|
|
Principal |
|
2010 |
|
$ |
68 |
|
|
$ |
5 |
|
|
$ |
63 |
|
2011 2014 |
|
|
23 |
|
|
|
3 |
|
|
|
20 |
|
More than five years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
91 |
|
|
$ |
8 |
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
Note 6. Financial Instruments
Fair Value Measurements
The Company adopted SFAS No. 157, Fair Value Measurements, effective July 1, 2008. SFAS No.
157 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, SFAS No.
157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value, as follows:
Level 1 Observable inputs such as quoted prices in active markets for identical assets or
liabilities;
Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable
either directly or indirectly; and
Level 3 Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
The Company implemented SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133, as of July 1, 2008. Implementation of SFAS No. 161 did
not have a significant effect on the Companys consolidated results of operations or consolidated
financial position, nor a significant effect on the Companys use of derivative instruments or
hedging activities. However, SFAS No. 161 amended and expanded the disclosures required by SFAS No.
133 in order to provide an enhanced understanding of how and why the Company uses derivative
instruments, how derivative instruments and related hedged items are accounted for under SFAS No.
133 and its related interpretations, and how derivative instruments affect the Companys financial
position, financial performance and cash flows.
F-23
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Derivative instruments measured at fair value at June 30, 2008 and
2009, and their classification on the consolidated balances sheets and consolidated statements of
operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivative - Fair Value |
|
|
|
|
|
June 30, |
|
Type of Derivative Contract |
|
Balance Sheet Classification |
|
2008 |
|
|
2009 |
|
Swap Contracts and Options
(Caps) |
|
Trade and other receivables |
|
$ |
680 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivative - Fair Value |
|
|
|
|
|
June 30, |
|
Type of Derivative Contract |
|
Balance Sheet Classification |
|
2008 |
|
|
2009 |
|
Swap Contracts and Options
(Caps) |
|
Trade payables and accrued liabilities |
|
$ |
|
|
|
$ |
1,587 |
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
Trade payables and accrued liabilities |
|
|
575 |
|
|
|
656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
Type of Derivative Contract |
|
Statement of Operations Classification |
|
2008 |
|
|
2009 |
|
Swap Contracts and Options
(Caps) |
|
Unrealized gain (loss) included in interest expense |
|
$ |
377 |
|
|
$ |
(2,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
Foreign currency exchange gain (loss) and other |
|
|
(34 |
) |
|
|
157 |
|
|
|
|
|
|
|
|
|
|
Fair Value of 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.
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.
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 2009 and at June 30, 2009, respectively.
F-24
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, were $230,000, $172,000, $230,000 and $958,000; and $162,000, $124,000, $126,000 and
$625,000 for 2007, Predecessor Period 2008, 2008 and 2009, respectively. The translation gain
(loss) to the allowance for doubtful accounts for 2007, Predecessor Period 2008, 2008 and 2009 was
$40,000, ($3,000), $20,000 and ($80,000), respectively; and with the RWNZ and Pac-Van acquisitions,
the Company recorded an allowance for doubtful accounts of $79,000 and $1,354,000 in 2008 and 2009,
respectively.
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.
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 its commercial bill liability. The secured ANZ loan and interest rate swaps and options
have the same critical terms, including expiration dates. The Company believes that financial
instruments designated as interest rate hedges are highly effective. However, documentation of such
as required by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities 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, there were four open interest rate swap contracts and three open
interest rate option (cap) contracts, as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of |
|
|
|
Notional Amount |
|
|
June 30, 2009 |
|
Swap |
|
$ |
13,279 |
|
|
$ |
(892 |
) |
Swap |
|
|
1,610 |
|
|
|
(157 |
) |
Swap |
|
|
4,059 |
|
|
|
(369 |
) |
Swap |
|
|
2,873 |
|
|
|
(245 |
) |
Option (Cap) |
|
|
9,658 |
|
|
|
68 |
|
Option (Cap) |
|
|
1,231 |
|
|
|
1 |
|
Option (Cap) |
|
|
1,739 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Total |
|
$ |
34,449 |
|
|
$ |
(1,587 |
) |
|
|
|
|
|
|
|
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. The Company 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. The Company 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 SFAS No. 133 does not exist. Therefore, all movements
in the fair values of these hedges are reported in the statement of operations in the period in
which fair values change.
F-25
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2009, unrealized and realized foreign exchange losses totaled
$6,616,000 and $2,847,000, respectively.
Note 7. Income Taxes
Income (loss) before provision for income taxes and noncontrolling interest consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
U.S. |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,504 |
) |
|
$ |
1,942 |
|
Asia-Pacific |
|
|
802 |
|
|
|
468 |
|
|
|
8,092 |
|
|
|
(13,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
802 |
|
|
$ |
468 |
|
|
$ |
6,588 |
|
|
$ |
(11,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
377 |
|
|
$ |
|
|
State |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
Asia-Pacific |
|
|
9 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
|
|
|
|
|
|
|
|
(1,671 |
) |
|
|
(1,172 |
) |
State |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(739 |
) |
Asia-Pacific |
|
|
481 |
|
|
|
180 |
|
|
|
3,295 |
|
|
|
(2,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481 |
|
|
|
180 |
|
|
|
1,625 |
|
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
490 |
|
|
$ |
180 |
|
|
$ |
2,034 |
|
|
$ |
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax liability are approximately as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforwards |
|
$ |
5,252 |
|
|
$ |
14,308 |
|
Deferred revenue and expenses |
|
|
657 |
|
|
|
137 |
|
Accrued compensation and other benefits |
|
|
443 |
|
|
|
204 |
|
Allowance for doubtful accounts |
|
|
227 |
|
|
|
670 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
6,579 |
|
|
|
15,319 |
|
Valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
6,579 |
|
|
|
15,319 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated tax depreciation and amortization |
|
|
(4,255 |
) |
|
|
(28,810 |
) |
Unrealized exchange gains and losses |
|
|
(3,715 |
) |
|
|
946 |
|
Other |
|
|
(71 |
) |
|
|
(1,277 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(8,041 |
) |
|
|
(29,141 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(1,462 |
) |
|
$ |
(13,822 |
) |
|
|
|
|
|
|
|
At June 30, 2009, Royal Wolf had a U.S. federal net operating loss carryforward of
$34,800,000, which expires if unused during fiscal years 2019 2029, and an Australian net
operating loss carryforward of approximately $11,300,000 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, 2008 and 2009.
A reconciliation of the federal statutory rate (30% Australian for the Predecessor and 34%
U.S. for the Successor) to the Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Federal statutory rate |
|
|
30.0 |
% |
|
|
30.0 |
% |
|
|
34.0 |
% |
|
|
(34.0 |
)% |
State and Asia-Pacific taxes, net of
U.S. federal benefit and credit |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
(4.4 |
) |
Amortization of goodwill and trademark |
|
|
|
|
|
|
|
|
|
|
(7.4 |
) |
|
|
(4.8 |
) |
Nondeductible expenses |
|
|
31.1 |
|
|
|
8.5 |
|
|
|
4.2 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
61.1 |
% |
|
|
38.5 |
% |
|
|
30.9 |
% |
|
|
39.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Related Party Transactions
The Company previously had an unsecured limited recourse revolving line of credit from Ronald
F. Valenta, a director and the chief executive officer of the Company, pursuant to which the
Company could borrow up to $3,000,000 outstanding at one time. The line of credit terminated upon
the completion of the acquisition of Royal Wolf and the outstanding principal and interest totaling
$2,587,000 was repaid on September 14, 2007.
F-27
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has utilized certain accounting, administrative and secretarial services from
affiliates of officers; as well as office space provided by an affiliate of Mr. Valenta. Until the
consummation of a business combination by the Company, the affiliates had agreed to make such
services available to the Company free of charge, as may have been required by the Company from
time to time; with the exception of the reimbursement of certain out-of-pocket costs incurred on
behalf of the Company. Effective September 14, 2007, the Company entered into a month-to-month
arrangement that lasted until January 31, 2008 with an affiliate of Mr. Valenta for the rental of
the office space at $1,148 per month. In addition, effective September 14, 2007, the Company
commenced recording a charge to operating results (with an offsetting contribution to additional
paid-in capital) for the estimated cost of contributed services rendered to the Company by
non-employee officers and administrative personnel of affiliates. These contributed services ceased
in February 2009.
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 in 2009.
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 $63,000 at the corporate office and $155,000, plus out-of-pocket expenses of
$16,000, at the operating subsidiaries in 2009.
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. Under the 2006 Plan, the Company may issue to
directors, employees, consultants and advisers up to 2,500,000 shares of its common stock. The
options may be 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. The options may not have a term in excess of ten years, and the exercise price of any
option may not be less than the fair market value of the Companys common stock on the date of
grant of the option. Unless terminated earlier, the 2006 Plan will automatically terminate June 30,
2016.
On each of September 11, 2006 (2006 Grant) and December 14, 2007 (2007 Grant), the Company
granted options to an officer of GFN to 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. Stock-based
compensation expense of $646,000 related to these options has been recognized in the statements of
operations through June 30, 2009, with a corresponding benefit to additional paid-in capital. As of
June 30, 2009, there remains $885,000 of unrecognized compensation expense that will be recorded in
the statement of operations on the straight-line basis over the remaining weighted-average vesting
period of 2.83 years. There have been no options exercised, cancelled or forfeited under these two
grants and 450,000 options were outstanding at June 30, 2009. Also, as of June 30, 2009, 90,000 and
45,000 of the 2006 Grant and 2007 Grant options, respectively, were exercisable.
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 2008.
The Company initially commenced recognizing compensation expense over the vesting period of 20
months.
F-28
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the years ending June 30, 2009 (2009) and 2010 (2010). At
that time, the Company reassessed and revalued these options and commenced recognizing the changes
in stock-based compensation on a prospective basis. Total stock-based compensation expense of
$650,000 related to the 2008 Grant has been recognized in the statement of operations through June
30, 2009, with a corresponding benefit to additional paid-in capital. As of June 30, 2009, there
remains $450,000 of unrecognized compensation expense that will be recorded in the statement of
operations on the straight-line basis over the remaining weighted-average vesting period of 2.41
years. There have been 50,000 options cancelled or forfeited under the 2008 Grant and 325,500
options were outstanding at June 30, 2009. No options have been exercised and 42,400 options were
exercisable under the 2008 Grant as of June 30, 2009.
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 2009 and 2010. The Company initially commenced
recognizing compensation expense over the vesting periods of 2.17 years and 3.17 years for EBITDA
targets in 2009 and 2010, respectively, pertaining to 79,250 options in each of those vesting
periods. However, the Company determined that it was not probable that the EBITDA target for 2009
would be achieved and, therefore, ceased recognizing stock-based compensation expense for those
performance-based options. In addition, the Company has recorded a cumulative effect adjustment of
$37,000 in the quarter ended June 30, 2009 to reverse compensation expense previously recognized on
those performance-based options. Total stock-based compensation expense of $79,000 related to the
July 2008 Grant has been recognized in the statement of operations through June 30, 2009, with a
corresponding benefit to additional paid-in capital. As of June 30, 2009, there remains $178,000 of
unrecognized compensation expense that will be recorded in the statement of operations on the
straight-line basis over the remaining weighted-average vesting period of 2.81 years. There have
been 16,000 options cancelled or forfeited under the July 2008 Grant and 177,500 options (including
72,750 that pertain to a 2009 EBITDA target) were outstanding at June 30, 2009. No options have
been exercised and no options were exercisable under the July 2008 Grant as of June 30, 2009.
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. Stock-based compensation expense of $31,000
related to these options has been recognized in the statements of operations through June 30, 2009,
with a corresponding benefit to additional paid-in capital. As of June 30, 2009, there remains
$89,000 of unrecognized compensation expense that will be recorded in the statement of operations
on the straight-line basis over the remaining weighted-average vesting period of 2.22 years. There
have been no options exercised, cancelled or forfeited under the September 2008 Grant, all 36,000
options were outstanding at June 30, 2009, and none were exercisable.
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 a certain EBITDA target for 2009 and
to-be-determined EBITDA targets for the subsequent four fiscal years . The Company commenced
recognizing 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. However, the Company has determined
that it is not probable that the EBITDA target for 2009 would be achieved and has ceased
recognizing stock-based compensation expense for those performance-based options. In addition, the
Company has recorded an adjustment of $13,000 in the quarter ended June 30, 2009 to reverse
compensation expense previously recognized on those performance-based options. Total stock-based
compensation expense of $123,000 related to the October 2008 Grant has been recognized in the
statement of operations through June 30, 2009, with a corresponding benefit to additional paid-in
capital. As of June 30, 2009, there remains $513,000 of unrecognized compensation expense that will
be recorded in the statement of operations on the straight-line basis over the remaining
weighted-average vesting period of 3.86 years. There have been no options exercised, cancelled or
forfeited under the October 2008 Grant, all 356,000 options (including 38,490 that pertain to a
2009 EBITDA target) were outstanding at June 30, 2009, and none were exercisable.
F-29
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Stock-based compensation expense of $2,000 related to
these options has been recognized in the statements of operations through June 30, 2009 and, as of
that date, there remains $8,000 of unrecognized compensation expense that will be recorded in the
statement of operations on the straight-line basis over the remaining weighted-average vesting
period of 2.50 years. There have been no options exercised, cancelled or forfeited under the
December 2008 Grant, all 9,000 options were outstanding at June 30, 2009, and none were
exercisable.
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. Stock-based compensation expense of $1,000 related to
these options has been recognized in the statements of operations through June 30, 2009 and, as of
that date, there remained $4,000 of unrecognized compensation expense that will be recorded in the
statement of operations on the straight-line basis over the remaining weighted-average vesting
period of 4.50 years. There have been no options exercised, cancelled or forfeited under the
January 2009 Grant, all 4,000 options were outstanding at June 30, 2009, and none were exercisable.
At June 30, 2009, the Companys market price for its common stock was at $1.65 per share,
which is below the exercise prices of all of the outstanding stock options.
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.
The weighted-average fair value of the stock options granted was $3.06, $3.75, $3.94, $2.74,
$3.31, $3.22, $1.06 and $1.20 per option for the 2006 Grant, 2007 Grant, 2008 Grant, July 2008
Grant, September 2008 Grant, October 2008 Grant, December 2008 Grant and January 2009 Grant,
respectively, determined by using the Black-Scholes option-pricing model using the following
assumptions: A risk-free interest rate of 4.8%, 3.27%, 3.01%, 3.77%, 3.08%, 3.29%, 1.99% and 1.99%
(corresponding treasury bill rates) for the 2006 Grant, 2007 Grant, 2008 Grant, July 2008 Grant,
September 2008 Grant, October 2008 Grant, December 2008 Grant and January 2009 Grant, respectively;
an expected life of 7.5 years for all grants; an expected volatility of 26.5%, 31.1%, 35.83%,
41.78%, 43.12%, 41.78%, 57.13% and 59.85% for the 2006 Grant, 2007 Grant, 2008 Grant, July 2008
Grant, September 2008 Grant, October 2008 Grant, December 2008 Grant and January 2009 Grant,
respectively; and no expected dividend.
Royal Wolf had an employee share option plan (ESOP) for the granting of non-transferable
options to certain key management personnel and senior employees with more than twelve months
service at the grant date. During 2007, $3,689,000 was accrued under the ESOP; of which $2,930,000
was paid in 2007 and $759,000 was paid during the Predecessor Period 2008. The ESOP was terminated
in the Predecessor Period 2008.
Note 10. Commitments and Contingencies
Operating Leases
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, 2009 are payable as follows (in
thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2010 |
|
$ |
3,579 |
|
2011 |
|
|
2,308 |
|
2012 |
|
|
1,375 |
|
2013 |
|
|
875 |
|
2014 |
|
|
443 |
|
Thereafter |
|
|
1,281 |
|
|
|
|
|
|
|
$ |
9,861 |
|
|
|
|
|
F-30
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense on non-cancellable operating leases was $1,295,000, $685,000, $1,733,000 and
$4,204,000 in 2007, Predecessor Period 2008, 2008 and 2009, respectively.
Future minimum payments to be received under sales-type and operating fleet leases at June 30,
2009 are as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2010 |
|
$ |
11,133 |
|
2011 |
|
|
2,089 |
|
2012 |
|
|
697 |
|
2013 |
|
|
182 |
|
2014 |
|
|
59 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
14,160 |
|
|
|
|
|
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 for
the capital stock price (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, in essence, the greater of
the following:
(i) the amount equal to 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 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) at June 30, 2009, Bison Capitals cost ($8,278,000); which effective on September 21,
2009 was amended to be 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 has 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.
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 is reflected
in noncontrolling interest, with the corresponding adjustment to additional paid-in capital
determined after the attribution of the net income or loss of Royal Wolf to noncontrolling
interest. The Company believes that the fair value of the put option is in excess of the redemption
value and, therefore, no portion of the redemption adjustment is considered in the determination of
net income per common share. As of June 30, 2009, the redemption value of the Bison put option was
$8,278,000, which represented the capital contributions of Bison Capital through that date.
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.
F-31
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Matters
In January 2008, Royal Wolf was notified by a Department of the Australian government of an
odor that might be caused by high levels of formaldehyde or volatile organic compounds that exceed
national guidelines in some of its containers. Royal Wolf engaged the services of independent
consultants in cooperation with the Australian government in testing ventilation improvements. In
2008 and in 2009, the Company expensed $259,000 and $291,000, respectively, for containers that
were affected by this matter. The remediation of this matter has been resolved.
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, |
|
|
|
2008 |
|
|
2009 |
|
Trade payables |
|
$ |
9,014 |
|
|
$ |
14,328 |
|
Payroll and related |
|
|
3,043 |
|
|
|
2,564 |
|
Taxes, other than income |
|
|
1,456 |
|
|
|
1,488 |
|
Deferred consideration |
|
|
1,943 |
|
|
|
|
|
Fair value of interest swap and option and forward currency exchange contacts |
|
|
575 |
|
|
|
2,246 |
|
Accrued interest |
|
|
|
|
|
|
1,599 |
|
Other accruals |
|
|
2,473 |
|
|
|
2,197 |
|
|
|
|
|
|
|
|
|
|
$ |
18,504 |
|
|
$ |
24,422 |
|
|
|
|
|
|
|
|
Note 12. Segment Reporting
The tables below represent the Companys revenues from external customers, long-lived assets
(consisting of lease fleet and property, plant and equipment) and operating income as attributed to
its two geographic locations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,657 |
|
Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
52,929 |
|
|
|
10,944 |
|
|
|
68,029 |
|
|
|
55,871 |
|
Leasing |
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
36,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
92,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
74,412 |
|
|
$ |
15,859 |
|
|
$ |
95,576 |
|
|
$ |
146,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Long-lived assets: |
|
|
|
|
|
|
|
|
North America |
|
$ |
74 |
|
|
$ |
112,419 |
|
Asia-Pacific |
|
|
95,177 |
|
|
|
86,956 |
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
95,251 |
|
|
$ |
199,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,427 |
) |
|
$ |
6,365 |
|
Asia-Pacific |
|
|
4,672 |
|
|
|
1,530 |
|
|
|
10,800 |
|
|
|
7,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
4,672 |
|
|
$ |
1,530 |
|
|
$ |
8,373 |
|
|
$ |
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13. Subsequent Event
In September 2009, the Company and Royal Wolf amended the ANZ senior credit facility (see Note
5) to establish financial covenants (primarily consolidated senior and total interest coverage and
senior and total debt ratios) at less restrictive levels during the fiscal year ending June 30,
2010 (2010). In addition, required principal payments for 2010 were amended to total 80% of Free
Cash Flow, as defined, which the Company estimates would be approximately $9,700,000
(AUS$12,000,000); payable at a minimum of $1,006,000 (AUS$1,250,000) per quarter during the
interim, with the balance to be paid within 60 days from the end of 2010. The ANZ credit facility
was also amended to provide that approximately $12,700,000 (AUS$15,800,000) of the borrowings would
bear interest at ANZs prime rate, plus 4.15% per annum; and that, effectively, the balance of the
borrowings would bear interest at ANZs prime rate, plus 3.15% per annum.
The amended ANZ senior credit facility further provides, among other things, that the
$5,500,000 due Bison Capital on July 1, 2010 (see Note 5) 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
$1,600,000 (AUS$2,000,000) in 2010 be approved by ANZ.
ANZ charged a fee of $161,000 (AUS$200,000) for the amendment of the credit facility and would
require a break-up fee of $400,000 (AUS$500,000) if the credit facility is refinanced by another
lender before March 31, 2010.
The consolidated balance sheet as of June 30, 2009 and the scheduled maturities on long-term
debt included in Note 5 reflect the revised estimated principal payments for 2010 and thereafter of
this amendment.
Note 14. Adjustments to Previously Filed Financial Statements
The consolidated financial statements of the Company, as Successor, as of and for the years
ended June 30, 2009 and 2008 have been updated to reflect the adoption, effective July 1, 2009, of
the provisions of a pronouncement issued in December 2007 on what is now codified as FASB
Accounting Standards Codification (ASC) Topic 805, Business Combinations and Topic 810,
Consolidation. These ASC Topics describe a noncontrolling interest, sometimes called a minority
interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a
parent. The ASC Topics establish accounting and reporting standards that require, among other
items: a) the ownership interests in subsidiaries held by parties other than the parent be
presented in the consolidated balance sheets separate from the parents equity; b) the amount of
consolidated net income or loss in the consolidated statements of operations attributable to the
parent and the noncontrolling interests be presented on the face of the consolidated statements of
operations; and c) entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling holders. The
presentation and disclosure requirements of the ASC Topics have been applied retrospectively for
all periods presented in the accompanying consolidated balance sheets, statements of operations and
statements of cash flows. The adoption of this pronouncement resulted in a change in the
description of minority interest to noncontrolling interest, however there was no impact on the
Companys financial condition or net income (loss) attributable to stockholders for any periods
presented.
F-33
INDEX TO MOBILE OFFICE ACQUISITION CORP. AND PAC-VAN, INC. FINANCIAL STATEMENTS
|
|
|
|
|
Page |
Mobile Office Acquisition Corp. and Subsidiary
d/b/a Pac-Van, Inc. |
|
|
|
|
S-2 |
|
|
S-3 |
|
|
|
|
|
S-4 |
|
|
|
|
|
S-5 |
|
|
|
|
|
S-6 |
|
|
S-7 |
|
|
|
Mobile Office Acquisition Corp. and Subsidiary
d/b/a Pac-Van, Inc. |
|
|
|
|
S-15 |
|
|
S-16 |
|
|
S-17 |
|
|
S-18 |
|
|
S-19 |
|
|
S-20 |
|
|
|
Pac-Van, Inc. |
|
|
|
|
S-27 |
|
|
S-28 |
|
|
S-29 |
|
|
S-30 |
|
|
S-31 |
|
|
S-32 |
S-1
Independent Auditors Report
Board of Directors and Stockholders
Mobile Office Acquisition Corp. d/b/a Pac-Van, Inc.
We have audited the accompanying consolidated balance sheets of Mobile Office Acquisition Corp. and
Subsidiary d/b/a Pac-Van, Inc. as of September 30, 2008 and December 31, 2007, and the related
consolidated statements of income, stockholders equity and cash flows for the nine-month period
ended September 30, 2008. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 financial position of Mobile Office Acquisition Corp. and Subsidiary d/b/a
Pac-Van, Inc. at September 30, 2008 and December 31, 2007, and the results of their operations and
their cash flows for the nine-month period ended September 30, 2008, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 12 to the consolidated financial statements, the Company was acquired by
General Finance Corporation on October 1, 2008.
/s/ Katz, Sapper & Miller, LLP
Indianapolis, Indiana
December 1, 2008
S-2
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
61,495 |
|
|
$ |
53,325 |
|
Accounts receivable, net of allowances for doubtful accounts |
|
|
|
|
|
|
|
|
of $1,396,000 in 2008 and $1,175,000 in 2007 |
|
|
15,488,357 |
|
|
|
11,845,950 |
|
Net investment in sales-type leases |
|
|
158,290 |
|
|
|
117,650 |
|
Rental inventory, net |
|
|
116,639,778 |
|
|
|
94,708,614 |
|
Note receivable-related party |
|
|
|
|
|
|
260,000 |
|
Property and equipment, net |
|
|
2,299,592 |
|
|
|
2,048,374 |
|
Goodwill |
|
|
39,414,543 |
|
|
|
39,161,675 |
|
Intangible assets, net |
|
|
2,062,887 |
|
|
|
2,663,219 |
|
Other assets |
|
|
281,487 |
|
|
|
202,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
176,406,429 |
|
|
$ |
151,060,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
7,383,591 |
|
|
$ |
4,903,664 |
|
Accrued liabilities |
|
|
5,086,571 |
|
|
|
4,003,683 |
|
Unearned revenue and advance payments |
|
|
7,413,736 |
|
|
|
6,091,843 |
|
Senior bank debt |
|
|
82,500,000 |
|
|
|
67,600,000 |
|
Subordinated note payable |
|
|
25,000,000 |
|
|
|
24,303,977 |
|
Deferred income taxes |
|
|
16,992,052 |
|
|
|
14,815,956 |
|
Warrant obligation |
|
|
1,985,585 |
|
|
|
1,335,500 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
146,361,535 |
|
|
|
123,054,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common
stock, Class A, $0.001 par value; 300,000 shares authorized, 225,000 shares issued and outstanding |
|
|
225 |
|
|
|
225 |
|
Common
stock, Class B, $0.001 par value; 50,000 shares authorized, 1,800 shares issued and outstanding |
|
|
2 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
22,679,773 |
|
|
|
22,679,773 |
|
Retained earnings |
|
|
7,364,894 |
|
|
|
5,326,298 |
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
30,044,894 |
|
|
|
28,006,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
176,406,429 |
|
|
$ |
151,060,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
S-3
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED STATEMENT OF INCOME
Nine-Month Period Ended September 30, 2008
|
|
|
|
|
|
|
(Nine Months) |
|
|
|
2008 |
|
REVENUES |
|
|
|
|
Leasing revenue |
|
$ |
39,573,651 |
|
Sales of equipment and services |
|
|
17,945,729 |
|
|
|
|
|
Total Revenues |
|
|
57,519,380 |
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
Cost of sales of equipment and services |
|
|
12,721,769 |
|
Leasing, selling and general |
|
|
30,121,930 |
|
Depreciation and amortization |
|
|
3,575,170 |
|
|
|
|
|
Total Costs and Expenses |
|
|
46,418,869 |
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
11,100,511 |
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
6,878,319 |
|
|
|
|
|
|
|
|
|
|
Net Income before Provision for Income Taxes |
|
|
4,222,192 |
|
|
|
|
|
|
PROVISION FOR INCOME TAXES |
|
|
2,183,596 |
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
2,038,596 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
S-4
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Nine-Month Period Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Stockholders |
|
|
|
Class A |
|
|
Class B |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER
31, 2007 |
|
$ |
225 |
|
|
$ |
2 |
|
|
$ |
22,679,773 |
|
|
$ |
5,326,298 |
|
|
$ |
28,006,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,038,596 |
|
|
|
2,038,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT SEPTEMBER
30, 2008 |
|
$ |
225 |
|
|
$ |
2 |
|
|
$ |
22,679,773 |
|
|
$ |
7,364,894 |
|
|
$ |
30,044,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-5
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine-Month Period Ended September 30, 2008
|
|
|
|
|
|
|
(Nine Months) |
|
|
|
2008 |
|
OPERATING ACTIVITIES |
|
|
|
|
Net income |
|
$ |
2,038,596 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
Deferred income taxes |
|
|
2,176,096 |
|
Depreciation of property and equipment and rental inventory |
|
|
3,501,392 |
|
Proceeds from the sale of property and equipment |
|
|
52,512 |
|
Amortization of intangible assets |
|
|
769,801 |
|
Increase in value of warrant obligation |
|
|
650,085 |
|
Gain on disposals of property and equipment |
|
|
(33,082 |
) |
Increase in certain assets: |
|
|
|
|
Accounts receivable |
|
|
(3,397,150 |
) |
Net investment in sales-type leases |
|
|
(40,640 |
) |
Other assets |
|
|
(79,373 |
) |
Increase in certain liabilities: |
|
|
|
|
Accounts payable |
|
|
2,479,927 |
|
Accrued liabilities |
|
|
857,763 |
|
Unearned revenue and advance payments |
|
|
1,321,893 |
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
10,297,820 |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
Purchases of rental inventory, net |
|
|
(16,098,773 |
) |
Cash paid for assets of businesses acquired |
|
|
(8,396,315 |
) |
Payments received on note receivable-related party |
|
|
260,000 |
|
Purchases of property and equipment |
|
|
(785,093 |
) |
|
|
|
|
Net Cash (Used) by Investing Activities |
|
|
(25,020,181 |
) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
Proceeds of issuance of long-term debt |
|
|
22,450,000 |
|
Principal payments on long-term debt |
|
|
(7,550,000 |
) |
Financing costs |
|
|
(169,469 |
) |
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
14,730,531 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH |
|
|
8,170 |
|
|
|
|
|
|
CASH |
|
|
|
|
Beginning of Period |
|
|
53,325 |
|
|
|
|
|
|
End of Period |
|
$ |
61,495 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES |
|
|
|
|
Interest paid |
|
$ |
6,464,956 |
|
Noncash financing activities: |
|
|
|
|
Interest expense related to valuation of warrant obligation |
|
|
650,085 |
|
See accompanying notes.
S-6
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the balances and transactions of Mobile
Office Acquisition Corp. (MOAC) and its wholly-owned subsidiary, Pac-Van, Inc., (together referred
to as the Company) since August 2, 2006. All material intercompany balances and transactions
have been eliminated from the consolidated financial statements
Doing business as Pac-Van, Inc., the Company leases and sells mobile offices, modular buildings
and storage units throughout the United States from its branch network locations in sixteen states.
The Company provides solutions for customers in a wide range of industries including,
construction, industrial, commercial, retail and government.
During the nine months ended September 30, 2008, the Company acquired the assets of three
businesses. Each of these acquisitions was accounted for under the purchase method of accounting,
in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations. Accordingly, the acquisition cost of these transactions has been allocated to the
purchased assets and liabilities based on their respective fair values at the date of acquisition.
|
|
|
Effective February 1, 2008, the Company acquired the assets of US
SpaceMaster Leasing, LP. The purchase price was approximately
$3,801,000. The fair value of assets and liabilities acquired on
February 1, 2008, totaled approximately $3,548,000; accordingly,
the Company recorded goodwill of approximately $253,000. |
|
|
|
|
Effective April 2, 2008, the Company acquired the assets of I-R
Mobile Modular. The purchase price was approximately $2,967,000,
which was the fair value of assets and liabilities acquired. |
|
|
|
|
Effective June 6, 2008, the Company acquired the assets of
Brandall Modular Corp. The purchase price was approximately
$1,853,000, which was the fair value of assets and liabilities
acquired. |
These three acquisitions were primarily for the purchase of rental inventory to enhance the
Companys existing fleet. The results from these acquisitions are included in these consolidated
financial statements from the respective acquisition dates as noted above. The fair value of
assets and liabilities acquired from these acquisitions were as follows:
|
|
|
|
|
Accounts receivable |
|
$ |
245,257 |
|
Rental inventory |
|
|
8,123,315 |
|
Goodwill |
|
|
252,869 |
|
Liabilities assumed |
|
|
(225,126 |
) |
|
|
|
|
Cash paid for acquisitions |
|
$ |
8,396,315 |
|
|
|
|
|
Estimates: Management uses estimates and assumptions in preparing financial statements in
conformity with accounting principles generally accepted in the United States. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities and the reported revenues and expenses. Actual results could vary from the
estimates that were used.
S-7
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Rental Inventory and Other Long-lived Assets: Rental inventory consisting of mobile offices,
modular buildings, storage trailers, storage containers and steps (rental inventory or rental
equipment) acquired on August 2, 2006, were recorded at their purchase cost as allocated based on
information provided by an independent appraisal. Rental inventory acquired since August 2, 2006,
is recorded at lower of invoice cost or market. Mobile offices and modular buildings are
depreciated using the straight-line method over 20 years to a residual value of 50 percent of the
original cost. Steps are depreciated using the straight-line method over 5 years with no residual
value. Storage trailers are depreciated over 15 years and 10 years depending on the year of
acquisition. Storage containers are depreciated using the straight-line method over 20 years to a
residual value of 70 percent of the original cost.
Vehicles, office equipment and leasehold improvements are recorded at historical cost.
Depreciation is computed using the straight-line method over the estimated useful life of 5 years.
Long-lived assets, including the Companys rental inventory and amortizable intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying
amount to future net undiscounted cash flows expected to be generated by the related asset. If
such assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount exceeds the fair market value of the assets. To date, no
adjustments to the carrying amount of long-lived assets have been required.
Amortizable Intangible Assets consist of deferred financing costs and the value assigned to the
Companys continuing customer base as acquired on August 2, 2006. Deferred financing costs are
being amortized on a straight-line basis over the term of the loans, approximately five years. The
customer base is being amortized on a straight-line basis from August 2, 2006 through 2014,
managements estimate of the useful life of the customer base.
Goodwill: The Company follows the provisions of Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets
deemed to have indefinite lives are not amortized, but are subject to impairment tests annually, or
whenever an event or circumstances indicate the carrying amount may be impaired. The Company
performed the required impairment tests of its goodwill in the third quarter ended September 30,
2008, using the methodology prescribed by SFAS No. 142, and determined that the carrying value of
recorded goodwill did not exceed its fair value.
Revenue Recognition: The Company earns revenue by leasing, transporting, installing and dismantling
rental equipment, as well as providing other ancillary products and services, and by selling new
and used equipment. Leasing revenue includes monthly rentals, initial lease services, ancillary
products and services and end of lease services as earned. Leasing revenue is derived from leases
classified as operating leases for which the initial term is generally 3 to 60 months. Costs
associated with transportation, installation, and dismantling of rental equipment are recorded in
leasing, selling and general expense. Unearned revenue includes end of lease services not yet
performed by the Company, advance rentals and deposit payments.
Revenue from the sale of new and used mobile offices, modular buildings, storage units and steps,
including delivery and installation revenue, is generally recognized upon the delivery to and
acceptance by the customer. 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. Sales of new units are typically covered by warranties provided by the manufacturer
of the products sold.
S-8
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognized revenue of approximately $4,601,376 for the nine-month period ended
September 30, 2008, with related cost of sales of approximately $3,273,794 on the sale of rental
units which were greater than one year old.
Accounts Receivable: The Company extends credit to its customers. Accounts receivable are
recorded at net realizable value based on managements estimates of uncollectible accounts recorded
in the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on
historical collection experience and a review of specific past due receivables. The Company
charges late fees on past due accounts. The Company recognized income for late payment fees of
approximately $433,000 during the nine-month period ended September 30, 2008.
Concentrations of Credit Risk: Financial instruments that subject the Company to credit risk
consist principally of trade accounts receivable and receivables under sales-type lease contracts.
The Company performs periodic credit evaluations of its customers financial condition and
generally does not require collateral on trade accounts receivable. Receivables under sales-type
lease contracts are secured by the leased mobile office, modular building or storage unit. A
significant portion of the Companys business activity is with companies in the construction and
development industries. Total revenues from these industries were approximately $26,443,000 during
the nine-month period ended September 30, 2008. As of September 30, 2008, accounts receivable from
these industries were approximately $6,709,000.
Advertising Costs are expensed as incurred and totaled $486,000 during the nine-month period ended
September 30, 2008.
Shipping and Handling Costs are expensed as incurred and included in cost of leasing services and
cost of sales equipment and services. Shipping and handling costs included in cost of leasing
services and included in leasing, selling and general amounted to approximately $1,146,500 and
$2,532,200 for the nine-month period ended September 30, 2008.
Sales Taxes collected from customers and remitted to state government agencies are shown on a net
basis and are not included in sales or costs and expenses.
Income Taxes: The Company records income taxes in accordance with the liability method of
accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or
recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax
provision as they occur.
Stock-Based Compensation: For the issuance of stock options, the Company follows the fair value
provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, which
requires companies to recognize the grant date fair value of stock options and other equity-based
compensation issued to employees in their income statements.
Common Stock: MOAC has two classes of common stock: Class A and Class B, both with a par value of
$0.001. Both classes have the same rights and privileges except that holders of Class B shares
have no voting rights.
Fair Value of Financial Instruments: Because of their short-term nature, the amounts reported in
the consolidated balance sheet for cash, receivables and accounts payable approximate fair value.
Long-term debt approximates fair value as borrowing rates are based on market prices.
S-9
NOTE 2 RENTAL INVENTORY
Rental inventory was comprised of the following at September 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Mobile offices, modular buildings and storage units |
|
$ |
120,033,639 |
|
|
$ |
96,525,406 |
|
Steps |
|
|
2,181,668 |
|
|
|
1,641,864 |
|
|
|
|
|
|
|
|
|
|
|
122,215,307 |
|
|
|
98,167,270 |
|
Less: Accumulated depreciation |
|
|
(5,575,529 |
) |
|
|
(3,458,656 |
) |
|
|
|
|
|
|
|
Total Rental Inventory |
|
$ |
116,639,778 |
|
|
$ |
94,708,614 |
|
|
|
|
|
|
|
|
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following at September 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Equipment |
|
$ |
685,768 |
|
|
$ |
368,876 |
|
Vehicles |
|
|
2,222,919 |
|
|
|
1,873,943 |
|
Leasehold improvements |
|
|
629,953 |
|
|
|
559,020 |
|
|
|
|
|
|
|
|
|
|
|
3,538,640 |
|
|
|
2,801,839 |
|
Less: Accumulated depreciation |
|
|
(1,239,048 |
) |
|
|
(753,465 |
) |
|
|
|
|
|
|
|
Total Property and Equipment |
|
$ |
2,299,592 |
|
|
$ |
2,048,374 |
|
|
|
|
|
|
|
|
NOTE 4 GOODWILL
The changes in goodwill during the nine-month period ended September 30, 2008 are as follows:
|
|
|
|
|
Goodwill at December 31, 2008 |
|
$ |
39,161,675 |
|
Acquisition of US SpaceMaster Leasing, LP |
|
|
252,868 |
|
|
|
|
|
Goodwill at September 30, 2008 |
|
$ |
39,414,543 |
|
|
|
|
|
S-10
NOTE 5 AMORTIZABLE INTANGIBLE ASSETS
Intangible assets subject to amortization consisted of the following at September 30, 2008 and
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Accumulated |
|
|
|
Gross Amount |
|
|
Amortization |
|
|
Gross Amount |
|
|
Amortization |
|
Customer base |
|
$ |
4,547,400 |
|
|
$ |
2,963,306 |
|
|
$ |
4,547,400 |
|
|
$ |
2,263,009 |
|
Deferred financing costs |
|
|
849,695 |
|
|
|
370,902 |
|
|
|
679,695 |
|
|
|
300,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,397,095 |
|
|
$ |
3,334,208 |
|
|
$ |
5,227,095 |
|
|
$ |
2,563,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected amortization expense for each of the next five years ending September 30 is as
follows: $766,920 in 2009, $513,384 in 2010, $361,283 in 2011, $216,001 in 2012 and $161,307 in
2013.
NOTE 6 NET INVESTMENT IN SALES-TYPE LEASES
At September 30, 2008, the future minimum lease payments, including interest, to be received under
sales-type lease agreements were as follows:
|
|
|
|
|
|
|
Future |
|
Receivable In Year |
|
Minimum |
|
Ending September 30, |
|
Lease Payments |
|
2009 |
|
$ |
172,485 |
|
2010 |
|
|
13,375 |
|
2011 |
|
|
6,141 |
|
|
|
|
|
|
|
|
192,001 |
|
Less: Amount representing interest |
|
|
33,711 |
|
|
|
|
|
|
|
|
|
|
Net Investment in Sales-type Leases |
|
$ |
158,290 |
|
|
|
|
|
NOTE 7 DEBT
The Companys bank credit agreement includes a revolving line of credit and a swing line of credit.
All borrowings under the credit agreement are due on August 23, 2012. The Company has pledged all
business assets as collateral, including the assignment of the Companys rights under leasing
contracts with customers. The Company is also required to maintain certain financial ratios and net
worth requirements.
Interest accrues on all outstanding borrowings under the credit agreement at the lead lenders
prime lending rate or at the LIBOR plus a stated margin ranging from 1.5% to 2.25% (totaling 4.60%
at September 30, 2008) based on the Companys performance. In addition, the Company is required to
pay an unused commitment fee equal to .25% of the average unused line, calculated on a quarterly
basis.
The revolving and swing lines of credit are available for purchases of rental inventory and general
operating purposes. The maximum aggregate amount available under the lines is $120,000,000
($82,500,000 borrowed and outstanding at September 30, 2008) with borrowings limited to 85% of
eligible accounts receivable net of reserves and allowances, plus 85% of the net book value of all
eligible inventory net of reserves and allowances. At September 30, 2008, the Company was in
compliance with all credit agreement covenants.
S-11
NOTE 7 DEBT (CONTINUED)
In connection with its acquisition of Pac-Van, Inc. on August 2, 2006, MOAC issued a senior
subordinated secured note with an original principal balance of $25,000,000. The subordinated note
matures on February 2, 2013, and requires quarterly interest only payments computed at 13%.
The subordinated note was issued with warrants entitling the holders to purchase 9,375 shares of
common stock of MOAC (representing 4% of the issued outstanding common stock of MOAC) at $0.01 per
share. The warrants expire on August 2, 2016. The warrants provide the holder with put rights upon
the occurrence of a change in control of the Company, an event of non-compliance, or any time after
August 2, 2012. The put price per share shall be an amount equal to the fair market value of the
outstanding common stock at the exercise date. At inception, the warrants were recorded at their
fair market value of $937,500. The subordinated notes were discounted by the warrant fair value
and had a recorded value of $24,062,500. The discount is being amortized to interest expense over
the term of the borrowings. In future periods, the Company will recognize a charge to earnings for
increases, if any, in the value of the warrants to reflect the Companys ultimate obligation to
provide for the warrants under the agreement. On October 1, 2008, MOAC was acquired by General
Finance Corporation. In connection with this transaction, the warrant obligation of approximately
$1,985,000 was paid. Accordingly, the Company recognized approximately $650,000 in interest
expense for the increase in the obligation under the warrant agreement for the nine-month period
ended September 30, 2008.
Additionally, in connection with its acquisition on October 1, 2008, the Company recognized the
remaining unamortized debt discount of approximately $696,000 during the nine-month period ended
September 30, 2008, as the warrants were subsequently paid and the full face value of the senior
subordinated debt of $25,000,000 is considered outstanding.
NOTE 8 INCOME TAXES
The provision for income taxes consisted of the following for the nine-month period ended September
30, 2008:
|
|
|
|
|
Deferred income tax expense: |
|
|
|
|
Federal |
|
$ |
1,857,643 |
|
State |
|
|
318,453 |
|
|
|
|
|
Total |
|
|
2,176,096 |
|
|
|
|
|
|
Current state income tax expense |
|
|
7,500 |
|
|
|
|
|
Provision for Income Taxes |
|
$ |
2,183,596 |
|
|
|
|
|
The Companys deferred income tax liability was comprised of the following temporary differences at
September 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Rental inventory |
|
$ |
26,040,840 |
|
|
$ |
23,905,985 |
|
Net operating loss carryforwards |
|
|
(9,638,282 |
) |
|
|
(8,607,254 |
) |
Accounts receivable |
|
|
(305,845 |
) |
|
|
(246,000 |
) |
Other |
|
|
895,339 |
|
|
|
(236,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Income Tax Liability |
|
$ |
16,992,052 |
|
|
$ |
14,815,956 |
|
|
|
|
|
|
|
|
S-12
NOTE 8 INCOME TAXES (CONTINUED)
At September 30, 2008, the Company had federal net operating loss carryforwards of approximately
$23,000,000 which begin to expire in 2019.
Cash paid for income taxes approximated $7,500 for the nine-month period ended September 30, 2008.
The primary difference between the Companys effective income tax expense reflected in the
consolidated statement of income and the tax expense computed at the federal statutory rate is due
to certain nondeductible expenses for income tax purposes, primarily the increase in the warrant
valuation as of September 30, 2008 (see Note 7).
NOTE 9 OPERATING LEASE COMMITMENTS
The Company has various noncancellable operating leases for office space and storage facilities
that expire at various dates through April 2013. Certain leases contain renewal options and
escalation clauses. Rental expense for these leases was approximately $1,301,000 for the
nine-month period ended September 30, 2008.
Future minimum rental payments required under noncancellable operating lease agreements are as
follows:
|
|
|
|
|
Payable in Year |
|
Rental |
|
Ending September 30, |
|
Payments |
|
2009 |
|
$ |
1,437,775 |
|
2010 |
|
|
1,341,960 |
|
2011 |
|
|
695,178 |
|
2012 |
|
|
319,924 |
|
2013 |
|
|
138,241 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,933,078 |
|
|
|
|
|
NOTE 10 EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) retirement savings plan for eligible employees, which allows plan
participants to defer a percentage of their compensation subject to the limits imposed under the
Internal Revenue Code. The Plan allows the Company to make a discretionary contribution to the
Plan each year on behalf of participants at a rate determined before the year begins. At the end
of the Companys fiscal year, an additional matching contribution may be made at the discretion of
the Companys Board of Directors. The Companys contribution to the Plan was approximately $86,000
during the nine-month period ended September 30, 2008.
NOTE 11 STOCK OPTION PLAN
MOAC maintains a stock option plan under which employees, officers and directors of the Company may
be granted options to purchase non-voting common stock of MOAC at a price determined by the Board
of Directors. MOAC has reserved 26,042 shares under the Plan. As of September 30, 2008, there had
been no options exercised under the Plan. During 2006, 15,620 options were issued, of which none
were exercisable at September 30, 2008. Options granted under the Plan generally have an exercise
price equal to the fair market value of the non-voting common stock as of the date of grant and
vest over a period of five years. The maximum term of the options is 10 years. The weighted
average exercise price of stock options outstanding at September 30, 2008, was $100 per share.
S-13
NOTE 11 STOCK OPTION PLAN (CONTINUED)
Effective October 1, 2008, the Companys stock option grants were modified in connection with the
acquisition of MOAC by General Finance Corporation (See Note 13). The modifications included an
acceleration of vesting and net cash payout of approximately $1,355,000 on October 6, 2008. The
Companys stock option plan was subsequently terminated. As a result of the modification,
additional compensation expense of $1,203,000 was recognized during the nine-month period ended
September 30, 2008.
The fair value for options granted by MOAC was initially estimated at the date of grant using a
Black-Scholes option pricing model, with the following weighted-average assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
4.0 |
% |
Dividend yield |
|
|
0 |
% |
Expected life of the options |
|
10 years
|
Volatility |
|
|
30 |
% |
The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including expected stock price
volatility. Because MOACs stock is not publicly traded and its employee stock options have
characteristics significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in managements
opinion, the existing models do not necessarily provide a reliable single measure of the fair value
of its employee stock options.
The fair value of the options was being amortized to expense over the related vesting period until
the modification and subsequent termination of the stock option plan.
NOTE 12 RELATED PARTY TRANSACTION
The Company pays a management and consulting fee to one of its stockholders. Management and
consulting fees paid were $135,000 during the nine-month period ended September 30, 2008.
The Company had a note receivable from a related party in the amount of $260,000 at December 31,
2007. The note was paid in full during the nine-month period ended September 30, 2008.
NOTE 13 SUBSEQUENT EVENT
On October 1, 2008, MOAC and its wholly-owned subsidiary, Pac-Van, Inc., were acquired by General
Finance Corporation (GFC). The purchase price was $158,800,000, which consisted of $19,410,000 in
cash, a $1,500,000 senior subordinated note of GFC, $30,000,000 in GFC stock, valued at $7.50 per
share for purposes of the acquisition and the assumption of MOAC indebtedness. The accompanying
consolidated financial statements as of September 30, 2008, do not reflect any adjustments for the
purchase price of the acquisition.
S-14
Independent Auditors Report
Board of Directors and Stockholders
Mobile Office Acquisition Corp. d/b/a Pac-Van, Inc.
We have audited the accompanying consolidated balance sheets of Mobile Office Acquisition Corp. and
Subsidiary d/b/a Pac-Van, Inc. as of December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders equity and cash flows for the year ended December 31, 2007 and
for the five-month period from August 2, 2006 to December 31, 2006. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 financial position of Mobile Office Acquisition Corp. and Subsidiary d/b/a
Pac-Van, Inc. at December 31, 2007 and 2006, and the results of their operations and their cash
flows for the year ended December 31, 2007 and for the five-month period from August 2, 2006 to
December 31, 2006, in conformity with accounting principles generally accepted in the United
States.
/s/ Katz, Sapper & Miller, LLP
Indianapolis, Indiana
February 29, 2008
S-15
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
53,325 |
|
|
$ |
64,682 |
|
Accounts receivable, net of allowances of $1,175,000 in 2007 and $975,000 in 2006 |
|
|
11,845,950 |
|
|
|
9,409,029 |
|
Net investment in sales-type leases |
|
|
117,650 |
|
|
|
287,416 |
|
Rental inventory, net |
|
|
94,708,614 |
|
|
|
73,668,242 |
|
Note receivable-related party |
|
|
260,000 |
|
|
|
350,000 |
|
Property and equipment, net |
|
|
2,048,374 |
|
|
|
1,463,001 |
|
Other assets |
|
|
202,114 |
|
|
|
373,832 |
|
Intangible assets, net |
|
|
2,663,219 |
|
|
|
4,206,698 |
|
Goodwill |
|
|
39,161,675 |
|
|
|
39,161,675 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
151,060,921 |
|
|
$ |
128,984,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,903,664 |
|
|
$ |
5,330,808 |
|
Accrued liabilities |
|
|
4,003,683 |
|
|
|
3,481,831 |
|
Unearned revenue and advance payments |
|
|
6,091,843 |
|
|
|
4,560,261 |
|
Senior bank debt |
|
|
67,600,000 |
|
|
|
55,000,000 |
|
Subordinated note payable |
|
|
24,303,977 |
|
|
|
24,133,523 |
|
Deferred income taxes |
|
|
14,815,956 |
|
|
|
11,563,897 |
|
Warrant obligation |
|
|
1,335,500 |
|
|
|
937,500 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
123,054,623 |
|
|
|
105,007,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, Class A, $0.001 par value; 300,000 shares authorized,
225,000 shares issued and outstanding |
|
|
225 |
|
|
|
225 |
|
Common stock, Class B, $0.001 par value; 50,000 shares authorized, 1,800 shares
issued and outstanding |
|
|
2 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
22,679,773 |
|
|
|
22,679,773 |
|
Retained earnings |
|
|
5,326,298 |
|
|
|
1,296,755 |
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
28,006,298 |
|
|
|
23,976,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
151,060,921 |
|
|
$ |
128,984,575 |
|
|
|
|
|
|
|
|
See accompanying notes.
S-16
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 2007 and
Period from August 2, 2006 to December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Five Months) |
|
|
|
2007 |
|
|
2006 |
|
REVENUES |
|
|
|
|
|
|
|
|
Leasing revenue |
|
$ |
47,035,305 |
|
|
$ |
17,604,933 |
|
Sales of equipment and services |
|
|
20,220,120 |
|
|
|
11,261,618 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
67,255,425 |
|
|
|
28,866,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Cost of sales of equipment and services |
|
|
13,647,118 |
|
|
|
8,274,005 |
|
Leasing, selling and general |
|
|
32,837,661 |
|
|
|
13,347,747 |
|
Depreciation and amortization |
|
|
5,049,378 |
|
|
|
1,952,596 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
51,534,157 |
|
|
|
23,574,348 |
|
|
|
|
|
|
|
|
Income from Operations |
|
|
15,721,268 |
|
|
|
5,292,203 |
|
INTEREST EXPENSE |
|
|
8,425,166 |
|
|
|
3,163,747 |
|
|
|
|
|
|
|
|
Net Income before Provision for Income Taxes |
|
|
7,296,102 |
|
|
|
2,128,456 |
|
PROVISION FOR INCOME TAXES |
|
|
3,266,559 |
|
|
|
831,701 |
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
4,029,543 |
|
|
$ |
1,296,755 |
|
|
|
|
|
|
|
|
See accompanying notes.
S-17
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Year Ended December 31, 2007 and
Period from August 2, 2006 to December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Stockholders |
|
|
|
Class A |
|
|
Class B |
|
|
Capital |
|
|
Earnings |
|
|
Equity |
|
BALANCE AT AUGUST 2, 2006 |
|
$ |
225 |
|
|
$ |
|
|
|
$ |
22,499,775 |
|
|
$ |
|
|
|
$ |
22,500,000 |
|
Issuance of Class B common stock |
|
|
|
|
|
|
2 |
|
|
|
179,998 |
|
|
|
|
|
|
|
180,000 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,296,755 |
|
|
|
1,296,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2006 |
|
|
225 |
|
|
|
2 |
|
|
|
22,679,773 |
|
|
|
1,296,755 |
|
|
|
23,976,755 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,029,543 |
|
|
|
4,029,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2007 |
|
$ |
225 |
|
|
$ |
2 |
|
|
$ |
22,679,773 |
|
|
$ |
5,326,298 |
|
|
$ |
28,006,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
S-18
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2007 and
Period from August 2, 2006 to December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Five Months) |
|
|
|
2007 |
|
|
2006 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,029,543 |
|
|
$ |
1,296,755 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
3,252,059 |
|
|
|
830,202 |
|
Depreciation of property and equipment and rental inventory |
|
|
3,447,753 |
|
|
|
1,268,688 |
|
Amortization of intangible assets |
|
|
1,772,079 |
|
|
|
754,931 |
|
Increase in value of warrant obligation |
|
|
398,000 |
|
|
|
|
|
Loss on disposals of property and equipment |
|
|
44,503 |
|
|
|
16,588 |
|
(Increase) decrease in certain assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,436,921 |
) |
|
|
(385,563 |
) |
Net investment in sales-type leases |
|
|
169,766 |
|
|
|
59,463 |
|
Other assets |
|
|
171,718 |
|
|
|
(156,269 |
) |
Increase (decrease) in certain liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(427,144 |
) |
|
|
80,578 |
|
Accrued liabilities |
|
|
521,852 |
|
|
|
1,912,103 |
|
Unearned revenue and advance payments |
|
|
1,531,582 |
|
|
|
(682,416 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
12,474,790 |
|
|
|
4,995,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchases of rental inventory, net |
|
|
(23,753,427 |
) |
|
|
(6,986,718 |
) |
Payments received on note receivable-related party |
|
|
90,000 |
|
|
|
50,000 |
|
Purchases of property and equipment |
|
|
(1,194,120 |
) |
|
|
(278,045 |
) |
|
|
|
|
|
|
|
Net Cash (Used) by Investing Activities |
|
|
(24,857,547 |
) |
|
|
(7,214,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net increase in senior bank debt |
|
|
12,600,000 |
|
|
|
1,300,000 |
|
Financing costs |
|
|
(228,600 |
) |
|
|
|
|
Proceeds from issuance of Class B common stock |
|
|
|
|
|
|
180,000 |
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
12,371,400 |
|
|
|
1,480,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH |
|
|
(11,357 |
) |
|
|
(739,703 |
) |
CASH |
|
|
|
|
|
|
|
|
Beginning of Period |
|
|
64,682 |
|
|
|
804,385 |
|
|
|
|
|
|
|
|
End of Period |
|
$ |
53,325 |
|
|
$ |
64,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
7,901,339 |
|
|
$ |
1,649,426 |
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Interest expense related to valuation of warrant obligation |
|
|
398,000 |
|
|
|
|
|
Issuance of note receivable-related party for stock |
|
|
|
|
|
|
400,000 |
|
See accompanying notes.
S-19
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the balances and transactions of
Mobile Office Acquisition Corp. (Parent) and its wholly-owned subsidiary, Pac-Van, Inc. (together
referred to as the Company) since August 2, 2006. All material intercompany balances and
transactions have been eliminated in the consolidated financial statements.
Doing business as Pac-Van, Inc., the Company leases and sells mobile offices, modular
buildings and storage units throughout the United States from its branch network locations in
thirteen states. The Company provides solutions for customers in a wide range of industries
including, construction, industrial, commercial, retail and government.
Effective August 2, 2006, Mobile Office Acquisition Corp. acquired 100% of the outstanding
capital stock of Pac-Van, Inc. The purchase price was approximately $98,038,000 plus the assumption
of liabilities of approximately $22,797,000 and transactions costs of approximately $2,766,000. The
acquisition was financed through a combination of senior lending, subordinated borrowings and
contributed capital. The acquisition was accounted for under the purchase method of accounting, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.
Accordingly, the acquisition cost has been allocated to the purchased assets and liabilities based
on their respective fair values at the date of acquisition. The fair value of assets and
liabilities acquired at August 2, 2006, totaled approximately $84,458,000; accordingly, the Company
initially recorded goodwill of approximately $39,143,000.
Estimates: Management uses estimates and assumptions in preparing financial statements in
conformity with accounting principles generally accepted in the United States. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities and the reported revenues and expenses. Actual results could vary from the
estimates that were used.
Rental Inventory and Other Long-lived Assets: Rental inventory consisting of mobile offices,
modular buildings, storage trailers, storage containers and steps (rental inventory or rental
equipment) acquired August 2, 2006, were recorded at their purchase cost as allocated based on
information provided by an independent appraisal. Rental inventory acquired since August 2, 2006,
is recorded at lower of invoice cost or market. Mobile offices and modular buildings are
depreciated using the straight-line method over 20 years to a residual value of 50 percent of the
original cost. Steps are depreciated using the straight-line method over 5 years with no residual
value. Storage trailers are depreciated over 15 years and 10 years depending on the year of
acquisition. Storage containers are depreciated using the straight-line method over 20 years to a
residual value of 70 percent of the original cost.
Vehicles, office equipment and leasehold improvements are recorded at historical cost.
Depreciation is computed using the straight-line method over the estimated useful life of 5 years.
Long-lived assets, including the Companys rental inventory and amortizable intangible assets,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying
amount to future net undiscounted cash flows expected to be generated by the related asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount exceeds the fair market value of the assets. To date, no adjustments to
the carrying amount of long-lived assets have been required.
Amortizable Intangible Assets consist of deferred financing costs and the value assigned to
the Companys continuing customer base. Deferred financing costs are being amortized on a
straight-line basis over the term of the loans, approximately five years. The customer base is
being amortized on a straight-line basis through 2013, managements estimate of the useful life of
the customer base.
S-20
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill: The Company follows the provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible
assets deemed to have indefinite lives are not amortized, but are subject to impairment tests
annually, or whenever an event or circumstances indicate the carrying amount may be impaired. The
Company performed the required impairment tests of its goodwill in the fourth quarter of 2008,
using the methodology prescribed by SFAS No. 142, and determined that the carrying value of its
recorded goodwill did not exceed its fair value.
Revenue Recognition: The Company earns revenue by leasing, transporting, installing and
dismantling rental equipment, as well as providing other ancillary products and services, and
selling new and used equipment. Leasing revenue includes monthly rentals, initial lease services,
ancillary products and services and end of lease services as earned. Leasing revenue is derived
from leases classified as operating leases for which the initial term is generally 3 to 60 months.
Costs associated with transportation, installation, and dismantling of rental equipment are
recorded in leasing, selling and general expense. Unearned revenue includes end of lease services
not yet performed by the Company, advance rentals and deposit payments.
Revenue from the sale of new and used mobile offices, modular buildings, storage units and
steps, including delivery and installation revenue, is generally recognized upon the delivery to
and acceptance by the customer. 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. Sales of new units are typically covered by warranties provided
by the manufacturer of the products sold.
The Company recognized revenue of approximately $6,541,000 in 2007 and $2,095,000 for the
five-month period ended December 31, 2006, with related cost of sales of approximately $4,213,000
in 2007 and $1,304,000 in five-month period ended December 31, 2006 on the sale of rental units
which were greater than one year old.
Accounts Receivable: The Company extends credit to its customers. Accounts receivable are
recorded at net realizable value based on managements estimates of uncollectible accounts recorded
in the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on
historical collection experience and a review of specific past due receivables. The Company charges
late fees on past due accounts. The Company recognized income for late payment fees of
approximately $462,000 in 2007 and $208,000 during the five-month period ended December 31, 2006.
Advertising Costs are expensed as incurred and totaled $539,000 in 2007 and $204,000 during
the five-month period ended December 31, 2006.
Shipping and Handling Costs are expensed as incurred and included in cost of leasing services
and cost of sales equipment and services.
Concentrations of Credit Risk: Financial instruments that subject the Company to credit risk
consist principally of trade accounts receivable and receivables under sales-type lease contracts.
The Company performs periodic credit evaluations of its customers financial condition and
generally does not require collateral on trade accounts receivable. Receivables under sales-type
lease contracts are secured by the leased mobile office, modular building or storage unit. A
significant portion of the Companys business activity is with companies in the construction and
development industries. Total revenues from these industries were approximately $32,820,000 in 2007
and $12,891,000 during the five-month period ended December 31, 2006. As of December 31, 2007 and
2006, accounts receivable from these industries were approximately $5,283,000 and $5,385,000,
respectively.
Sales Taxes collected from customers and remitted to state government agencies are shown on a
net basis and are not included in sales or costs and expenses.
Income Taxes: The Company records income taxes in accordance with the liability method of
accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable
based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they
occur.
S-21
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation: The Company adopted Statement of Financial Accounting Standards No.
123(R), Share-Based Payment in 2006, which requires companies to recognize the grant date fair
value of stock options and other equity-based compensation issued to employees in their income
statements. The adoption did not have a material effect on the Companys consolidated financial
statements.
Common Stock: The Parent has two classes of Common Stock: Class A and Class B, both with a
par value of $0.001. Both classes have the same rights and privileges except that holders of Class
B have no voting rights.
Fair Value of Financial Instruments: Because of their short-term nature, the amounts reported
in the balance sheet for cash, receivables and accounts payable approximate fair value. Long-term
debt approximates fair value as borrowing rates are based on market prices.
NOTE 2 RENTAL INVENTORY
Rental inventory was comprised of the following at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Mobile offices, modular buildings and storage units |
|
$ |
96,525,406 |
|
|
$ |
73,589,195 |
|
Steps |
|
|
1,641,864 |
|
|
|
1,040,233 |
|
|
|
|
|
|
|
|
|
|
|
98,167,270 |
|
|
|
74,629,428 |
|
Less: Accumulated depreciation |
|
|
(3,458,656 |
) |
|
|
(961,186 |
) |
|
|
|
|
|
|
|
Total Rental Inventory |
|
$ |
94,708,614 |
|
|
$ |
73,668,242 |
|
|
|
|
|
|
|
|
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Equipment |
|
$ |
368,876 |
|
|
$ |
186,381 |
|
Vehicles |
|
|
1,873,943 |
|
|
|
970,928 |
|
Leasehold improvements |
|
|
559,020 |
|
|
|
494,913 |
|
|
|
|
|
|
|
|
|
|
|
2,801,839 |
|
|
|
1,652,222 |
|
Less: Accumulated depreciation |
|
|
(753,465 |
) |
|
|
(189,221 |
) |
|
|
|
|
|
|
|
Total Property and Equipment |
|
$ |
2,048,374 |
|
|
$ |
1,463,001 |
|
|
|
|
|
|
|
|
NOTE 4 AMORTIZABLE INTANGIBLE ASSETS
Intangible assets subject to amortization consisted of the following at December 31, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Customer base |
|
$ |
4,547,400 |
|
|
$ |
2,263,009 |
|
|
$ |
4,526,000 |
|
|
$ |
754,348 |
|
Deferred financing costs |
|
|
679,695 |
|
|
|
300,867 |
|
|
|
472,495 |
|
|
|
37,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,227,095 |
|
|
$ |
2,563,876 |
|
|
$ |
4,998,495 |
|
|
$ |
791,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected amortization expense for each of the next five years is as follows: $1,013,992 in
2008, $627,750 in 2009, $410,503 in 2010, $280,154 in 2011 and $143,566 in 2012.
S-22
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 NET INVESTMENT IN SALES-TYPE LEASES
At December 31, 2007, the future minimum lease payments, including interest, to be received
under sales-type lease agreements were as follows:
|
|
|
|
|
|
|
Future |
|
|
|
Minimum |
|
Receivable In |
|
Lease Payments |
|
2008 |
|
$ |
138,285 |
|
2009 |
|
|
10,575 |
|
2010 |
|
|
7,080 |
|
2011 |
|
|
4,130 |
|
|
|
|
|
|
|
|
160,070 |
|
Less: Amount representing interest |
|
|
42,420 |
|
|
|
|
|
Net Investment in Sales-type Leases |
|
$ |
117,650 |
|
|
|
|
|
NOTE 6 DEBT
The Companys bank credit agreement includes a revolving line of credit and a swing line of
credit. All borrowings under the credit agreement are due on August 23, 2012. The Company has
pledged all business assets as collateral, including the assignment of the Companys rights under
leasing contracts with customers. The Company is required to maintain certain financial ratios and
net worth requirements.
Interest accrues on all outstanding borrowings under the agreement at the lead lenders prime
lending rate or the LIBOR plus a stated margin ranging from 1.5% to 2.25% (totaling 7.03% at
December 31, 2007) based on the Companys performance. In addition, the Company is required to pay
an unused commitment fee equal to .25% of the average unused line calculated on a quarterly basis.
The revolving credit and swing lines are available for purchases of rental inventory and
general operating purposes. The maximum aggregate amount available under the lines is $90,000,000
($67,600,000 borrowed and outstanding at December 31, 2007) with borrowings limited to 85% of
eligible accounts receivable net of reserves and allowances plus 85% of the net book value of all
eligible inventory net of reserves and allowances. The credit agreement provides the Company with
the ability to increase the revolving credit line up to $120,000,000 upon written request and no
event of default. At December 31, 2007, the Company was in compliance with all loan covenants.
In connection with its acquisition of Pac-Van, Inc. on August 2, 2006, the Parent issued a
senior subordinated secured note with an original principal balance of $25,000,000. The
subordinated note matures on February 2, 2013, and requires quarterly interest only payments
computed at 13%.
The subordinated note was issued with warrants entitling the holders to purchase 9,375 shares
of common stock of the Parent (representing 4% of the issued outstanding common stock of the
Parent) at $0.01 per share. The warrants expire on August 2, 2016. The warrants provide the holder
with put rights upon the occurrence of a change in control, an event of non-compliance, or any time
after August 2, 2012. The put price per share shall be an amount equal to the fair market value of
the outstanding common stock at the exercise date. At inception, the warrants were recorded at
their fair market value of $937,500. The subordinated notes were discounted by the warrant fair
value and had a recorded value of $24,062,500. The discount is being amortized to interest expense
over the term of the borrowings. In future periods, the Company will recognize a charge to earnings
for increases, if any, in the value of the warrants to reflect the Companys ultimate obligation to
provide for the warrants under the agreement. In 2007, the Company recognized $398,000 in interest
expense for the increase in the estimated obligation under the warrant agreement. No charge to
earnings was recognized during the five-month period ended December 31, 2006.
S-23
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 INCOME TAXES
The provision for income taxes consisted of the following for the year ended December 31, 2007
and for the five-month period ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Five Months) |
|
|
|
2007 |
|
|
2006 |
|
Deferred tax expense: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
2,776,148 |
|
|
$ |
708,709 |
|
State |
|
|
475,911 |
|
|
|
121,493 |
|
|
|
|
|
|
|
|
Total |
|
|
3,252,059 |
|
|
|
830,202 |
|
Current state tax expense |
|
|
14,500 |
|
|
|
1,499 |
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
$ |
3,266,559 |
|
|
$ |
831,701 |
|
|
|
|
|
|
|
|
The Companys deferred income tax liability was comprised of the following temporary
differences at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Rental inventory |
|
$ |
23,905,985 |
|
|
$ |
20,250,897 |
|
Net operating loss carryforwards |
|
|
(8,607,254 |
) |
|
|
(8,492,000 |
) |
Accounts receivable |
|
|
(246,000 |
) |
|
|
(195,000 |
) |
Other |
|
|
(236,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Income Tax Liability |
|
$ |
14,815,956 |
|
|
$ |
11,563,897 |
|
|
|
|
|
|
|
|
At December 31, 2007, the Company had federal net operating loss carryforwards of
approximately $20,993,000 which begin to expire in 2019.
Cash paid for income taxes approximated $14,500 in 2007 and $1,500 for the five-month period
ended December 31, 2006.
The primary difference between the Companys effective income tax expense reflected in the
consolidated statements of income and the tax expense computed at the federal statutory rate is due
to certain nondeductible expenses for income tax purposes.
NOTE 8 OPERATING LEASE COMMITMENTS
The Company has various noncancellable operating leases for office space and storage
facilities that expire at various dates through March 2011. Certain leases contain renewal options
and escalation clauses. Rental expense for these leases was approximately $1,356,000 for 2007 and
$554,000 for the five-month period ended December 31, 2006.
S-24
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future minimum rental payments required under noncancellable operating lease agreements are as
follows:
|
|
|
|
|
|
|
Rental |
|
Payable In |
|
Payments |
|
2008 |
|
$ |
1,010,052 |
|
2009 |
|
|
775,509 |
|
2010 |
|
|
519,455 |
|
2011 |
|
|
47,038 |
|
|
|
|
|
|
|
$ |
2,352,054 |
|
|
|
|
|
NOTE 9 EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) retirement savings plan for eligible employees, which allows
plan participants to defer a percentage of their compensation subject to the limits imposed by the
Internal Revenue Code. The Plan allows the Company to make a discretionary contribution to the Plan
each year on behalf of participants at a rate determined before the year begins. At the end of the
Companys fiscal year, an additional matching contribution may be made at the discretion of the
Companys Board of Directors. The Companys contribution to the Plan was approximately $109,000 in
2007 and $37,000 during the five-month period ended December 31, 2006.
NOTE 10 STOCK OPTION PLAN
The Parent maintains a stock option plan under which employees, officers and directors of the
Company may be granted options to purchase non-voting common stock of the Parent at a price
determined by the Board of Directors. The Parent has reserved 26,042 shares under the Plan. As of
December 31, 2007, there had been no options exercised under the Plan. During 2006, 15,620 options
were issued, of which none are exercisable. Options granted under the Plan generally have an
exercise price equal to the fair market value of the non-voting common stock as of the date of
grant and vest over a period of five years. The maximum term of the options is 10 years. The
weighted average exercise price of stock options outstanding at December 31, 2007, was $100 per
share with a weighted average contractual term of nine years.
The fair value for options granted by the Parent was estimated at the date of grant using a
Black-Scholes option pricing model, with the following weighted-average assumptions:
|
|
|
Risk-free interest rate |
|
4.0% |
Dividend yield |
|
0% |
Expected life of the options |
|
10 years |
Volatility |
|
30% |
The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including expected stock price
volatility. Because the Parents stock is not publicly traded and its employee stock options have
characteristics significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in managements
opinion, the existing models do not necessarily provide a reliable single measure of the fair value
of its employee stock options.
Fair value of the options are amortized to expense over the related vesting period. Because
compensation expense is recognized over the vesting period, the initial impact on net income may
not be representative of compensation expense in future years. The Company recorded compensation
expense of approximately $154,000 in 2007 and $26,000 for the five-month period ended December 31,
2006, related to stock options granted in 2006.
S-25
MOBILE OFFICE ACQUISITION CORP. AND SUBSIDIARY
d/b/a PAC-VAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11 RELATED PARTY TRANSACTIONS
The Company pays a management and consulting fee to one of its stockholders. Management and
consulting fees paid were $180,000 in 2007 and $75,000 for the five-month period ended December 31,
2006.
The Company has a note receivable from a related party in the amount of $260,000 at December
31, 2007 and $350,000 at December 31, 2006. The note bears interest at LIBOR plus 1% per annum with
required payments of $80,000 plus interest and is due on May 31, 2011.
NOTE 12 SUBSEQUENT EVENT
On February 1, 2008, the Company entered into an asset purchase agreement for the acquisition
of rental fleet and accounts receivable of an unrelated third party. The purchase price was
approximately $3,872,000.
S-26
Independent Auditors Report
Board of Directors and Stockholders
Pac-Van, Inc.
We have audited the accompanying balance sheets of Pac-Van, Inc. as of August 1, 2006 and December
31, 2005, and the related statements of income, stockholders equity and cash flows for the
seven-month period from January 1, 2006 to August 1, 2006 and for the year ended December 31, 2005.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the 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. 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 financial statements referred to above present fairly, in all material
respects, the financial position of Pac-Van, Inc. as of August 1, 2006 and December 31, 2005, and
the results of its operations and its cash flows for the seven-month period from January 1, 2006 to
August 1, 2006 and for the year ended December 31, 2005, in conformity with accounting principles
generally accepted in the United States.
/s/ Katz, Sapper & Miller, LLP
Indianapolis, Indiana
November 15, 2007
S-27
PAC-VAN, INC.
BALANCE SHEETS
August 1, 2006 and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
August 1, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
301,395 |
|
|
$ |
76,490 |
|
Accounts receivable, net of allowance for
doubtful accounts of $750,000 at August
1, 2006 and $700,000 at December 31, 2005 |
|
|
9,123,466 |
|
|
|
8,543,955 |
|
Net investment in sales-type leases |
|
|
346,878 |
|
|
|
215,580 |
|
Rental inventory, net |
|
|
67,800,680 |
|
|
|
59,114,953 |
|
Property and equipment, net |
|
|
1,410,160 |
|
|
|
1,155,984 |
|
Other assets |
|
|
217,563 |
|
|
|
277,862 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
79,200,142 |
|
|
$ |
69,384,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,906,502 |
|
|
$ |
4,389,222 |
|
Accrued liabilities |
|
|
1,782,236 |
|
|
|
1,786,095 |
|
Unearned revenue and advance payments |
|
|
5,242,676 |
|
|
|
3,835,235 |
|
Senior bank debt |
|
|
36,062,500 |
|
|
|
33,100,000 |
|
Derivative obligation |
|
|
|
|
|
|
6,180 |
|
Subordinated notes payable |
|
|
4,522,000 |
|
|
|
4,522,000 |
|
Deferred income taxes |
|
|
9,718,142 |
|
|
|
7,770,526 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
62,234,056 |
|
|
|
55,409,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value;
5,000,000 shares authorized, no shares
issued and outstanding |
|
|
|
|
|
|
|
|
Common stock, Series A, $0.01 par value;
9,500,000 shares authorized, 2,000,000
shares issued and outstanding |
|
|
20,000 |
|
|
|
20,000 |
|
Common stock, Series B, $0.01 par value;
500,000 shares authorized, 231,525 shares
issued and outstanding |
|
|
2,315 |
|
|
|
2,315 |
|
Additional paid-in capital |
|
|
2,273,735 |
|
|
|
2,273,735 |
|
Stock options outstanding |
|
|
360,000 |
|
|
|
360,000 |
|
Retained earnings |
|
|
14,310,036 |
|
|
|
11,322,842 |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
(3,326 |
) |
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
16,966,086 |
|
|
|
13,975,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
79,200,142 |
|
|
$ |
69,384,824 |
|
|
|
|
|
|
|
|
See accompanying notes.
S-28
PAC-VAN, INC.
STATEMENTS OF INCOME
Period from January 1, 2006 to August 1, 2006
and Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
(Seven Months) |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
REVENUES |
|
|
|
|
|
|
|
|
Leasing revenue |
|
$ |
22,270,519 |
|
|
$ |
32,158,208 |
|
Sales of equipment and services |
|
|
11,052,995 |
|
|
|
18,847,929 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
33,323,514 |
|
|
|
51,006,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
Cost of sales of equipment and services |
|
|
7,816,428 |
|
|
|
13,831,804 |
|
Leasing, selling and general |
|
|
17,406,712 |
|
|
|
26,893,859 |
|
Depreciation and amortization |
|
|
1,395,231 |
|
|
|
2,374,005 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
26,618,371 |
|
|
|
43,099,668 |
|
|
|
|
|
|
|
|
Income from Operations |
|
|
6,705,143 |
|
|
|
7,906,469 |
|
INTEREST EXPENSE |
|
|
1,760,688 |
|
|
|
2,671,668 |
|
|
|
|
|
|
|
|
Net Income before Provision for Income Taxes |
|
|
4,944,455 |
|
|
|
5,234,801 |
|
PROVISION FOR INCOME TAXES |
|
|
1,957,261 |
|
|
|
2,079,585 |
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
2,987,194 |
|
|
$ |
3,155,216 |
|
|
|
|
|
|
|
|
See accompanying notes.
S-29
PAC-VAN, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
Period from January 1, 2006 to August 1, 2006
and Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Stock |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Options |
|
|
Retained |
|
|
Comprehensive |
|
|
Stockholders |
|
|
|
Series A |
|
|
Series B |
|
|
Capital |
|
|
Outstanding |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
BALANCE AT DECEMBER 31, 2004 |
|
$ |
20,000 |
|
|
$ |
2,315 |
|
|
$ |
2,273,735 |
|
|
$ |
360,000 |
|
|
$ |
8,167,626 |
|
|
$ |
(96,000 |
) |
|
$ |
10,727,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,155,216 |
|
|
|
|
|
|
|
3,155,216 |
|
Reclassification
adjustment for cash
flow hedges, net of
taxes of $61,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,674 |
|
|
|
92,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,247,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER
31, 2005 |
|
|
20,000 |
|
|
|
2,315 |
|
|
|
2,273,735 |
|
|
|
360,000 |
|
|
|
11,322,842 |
|
|
|
(3,326 |
) |
|
|
13,975,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,987,194 |
|
|
|
|
|
|
|
2,987,194 |
|
Reclassification
adjustment for cash
flow hedges, net of
taxes of $2,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,326 |
|
|
|
3,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,990,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT AUGUST
1, 2006 |
|
$ |
20,000 |
|
|
$ |
2,315 |
|
|
$ |
2,273,735 |
|
|
$ |
360,000 |
|
|
$ |
14,310,036 |
|
|
$ |
|
|
|
$ |
16,966,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
S-30
PAC-VAN, INC.
STATEMENTS OF CASH FLOWS
Period from January 1, 2006 to August 1, 2006
and Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
(Seven Months) |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,987,194 |
|
|
$ |
3,155,216 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
1,957,261 |
|
|
|
2,079,585 |
|
Depreciation and amortization |
|
|
1,395,231 |
|
|
|
2,374,005 |
|
(Increase) decrease in certain assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(579,511 |
) |
|
|
(2,165,388 |
) |
Net investment in sales-type leases |
|
|
(131,298 |
) |
|
|
127,299 |
|
Other assets |
|
|
60,299 |
|
|
|
8,118 |
|
Increase (decrease) in certain liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
517,280 |
|
|
|
1,445,811 |
|
Accrued liabilities |
|
|
(3,859 |
) |
|
|
677,626 |
|
Unearned revenue and advance payments |
|
|
1,407,441 |
|
|
|
861,018 |
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
7,610,038 |
|
|
|
8,563,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchases of rental inventory, net |
|
|
(9,874,246 |
) |
|
|
(7,192,441 |
) |
Purchases of property and equipment |
|
|
(473,387 |
) |
|
|
(683,555 |
) |
|
|
|
|
|
|
|
Net Cash (Used) by Investing Activities |
|
|
(10,347,633 |
) |
|
|
(7,875,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Payments of subordinated notes payable |
|
|
|
|
|
|
(250,000 |
) |
Net increase (decrease) in senior bank debt |
|
|
2,962,500 |
|
|
|
(400,000 |
) |
|
|
|
|
|
|
|
Net Cash Provided (Used) by Financing Activities |
|
|
2,962,500 |
|
|
|
(650,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH |
|
|
224,905 |
|
|
|
37,294 |
|
CASH |
|
|
|
|
|
|
|
|
Beginning of Year |
|
|
76,490 |
|
|
|
39,196 |
|
|
|
|
|
|
|
|
End of Year |
|
$ |
301,395 |
|
|
$ |
76,490 |
|
|
|
|
|
|
|
|
See accompanying notes.
S-31
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pac-Van, Inc. (the Company) leases and sells mobile offices, modular buildings and storage
units to industrial, commercial, retail, and construction oriented customers. The Company operates
in Arizona, Colorado, Florida, Illinois, Indiana, Kentucky, Missouri, Nevada, North Carolina, Ohio,
Pennsylvania, Tennessee and West Virginia with corporate offices located in Indianapolis, Indiana.
Estimates: Management uses estimates and assumptions in preparing financial statements in
conformity with accounting principles generally accepted in the United States. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities and the reported revenues and expenses. Actual results could vary from the
estimates that were used.
Rental Inventory and Other Long-lived Assets: Rental inventory consists of mobile offices,
modular buildings, storage units and steps stated at the lower of cost or market. Mobile offices,
modular buildings and storage containers are depreciated using the straight-line method over twenty
years to a residual value of fifty percent of the original cost. Steps are depreciated using the
straight-line method over 5 years with no residual value. Storage trailers are depreciated over
fifteen years and ten years depending on the year of acquisition.
Vehicles, office equipment and leasehold improvements are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives ranging from 5 to 10 years
of the respective assets.
Long-lived assets, including the Companys rental inventory, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured by comparison of the carrying amount to future net
undiscounted cash flows expected to be generated by the related asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount exceeds the fair market value of the assets. To date, no adjustments to the
carrying amount of long-lived assets have been required.
Revenue Recognition: The Company earns revenue by leasing, transporting, installing and
dismantling rental equipment, as well as providing other ancillary products and services, and
selling new and used equipment. Leasing revenue includes monthly rentals, initial lease services,
ancillary products and services and end of lease services as earned. Leasing revenue is derived
from leases classified as operating leases for which the initial term is generally 3 to 60 months.
Costs associated with transportation, installation, and dismantling of rental equipment are
recorded in leasing, selling and general expense. Unearned revenue includes end of lease services
not yet performed by the Company, advance rentals and deposit payments.
Revenue from the sale of new and used mobile offices, modular buildings, storage units, steps
including delivery and installation revenue, is generally recognized upon the delivery to and
acceptance by the customer. Certain arrangements to sell units under long-term construction-type
sales contracts are recognized 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. Sales of new units are typically covered by warranties provided by the manufacturer of
products sold.
The Company recognized revenue of approximately $3,760,000 and cost of sales of approximately
$2,450,000 for the period from January 1, 2006 to August 1, 2006, and revenue of approximately
$3,860,000 and cost of sales of approximately $2,740,000 for the year ended December 31, 2005 on
the sale of rental units which were greater than one year old.
Accounts Receivable: The Company extends credit to its customers located throughout the
United States. Accounts receivable are recorded at net realizable value based on managements
estimates of uncollectible accounts recorded in the allowance for doubtful accounts. The allowance
for doubtful accounts is estimated based on historical collection experience and a review of
specific past due receivables. The Company charges late fees on past due accounts. The Company
recognized income for late payment fees of approximately $276,000 for the period from January 1,
2006 to August 1, 2006 and approximately $371,000 for the year ended December 31, 2005.
S-32
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Advertising Costs are expensed as incurred and totaled $258,000 for the period from January 1,
2006 to August 1, 2006 and $421,000 for the year ended December 31, 2005.
Shipping and Handling Costs are expensed as incurred and included in cost of rental services
and cost of sales equipment and services in the statement of income.
Concentrations of Credit Risk: Financial instruments that subject the Company to credit risk
consist principally of trade accounts receivable and receivables under sales-type lease contracts.
The Company performs periodic credit evaluations of its customers financial condition and
generally does not require collateral on trade accounts receivable. Receivables under sales-type
lease contracts are secured by the leased mobile office, modular building or storage unit. A
significant portion of the Companys business activity is with companies in the construction and
development industries. Total revenues from companies in the construction and development
industries were approximately $15,490,000 for the period from January 1, 2006 to August 1, 2006 and
$27,145,000 for the year ended December 31, 2005. As of August 1, 2006 and December 31, 2005,
accounts receivable from companies in the construction and development industries were
approximately $4,285,000 and $5,240,000, respectively.
Income Taxes: The Company records income taxes in accordance with the liability method of
accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable
based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they
occur.
Stock-Based Compensation: In December 2004, the Financial Accounting Standards Board issued
SFAS No. 123(R), Share Based Payment, which requires companies to recognize the grant date fair
value of stock options and other equity-based compensation issued to employees in its income
statement. The Company adopted this statement effective January 1, 2006. The adoption did not have
a material effect on the financial statements.
Prior to January 1, 2006, the Company accounted for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB No. 25). Compensation cost for stock options, if any, was measured
as the excess of the fair value of the Companys stock over the amount an employee must pay to
acquire the stock at the measurement date, as determined based on the terms of the award.
Fair Value of Financial Instruments: Because of their short-term nature, the amounts reported
in the balance sheet for cash, receivables and accounts payable approximate fair value. Long-term
debt approximates fair value as borrowing rates fluctuate based on quoted market prices.
Derivative Financial Instruments: The Company periodically enters into derivative
transactions to protect against risk of interest rate movement. The Company does not engage in
speculative derivate transactions for trading purposes. The Company uses reputable financial
institutions with high credit ratings as counterparties.
The Company had one interest rate swap agreement at December 31, 2005, which had a notional
amount of $6,000,000 and expired on February 6, 2006. The Company paid a fixed rate of 4.70% and
received a floating rate equal to the three-month LIBOR.
The Company recognizes all derivatives on the balance sheet at fair value. The Company
assesses whether the derivatives used in hedging transactions have been effective in offsetting
changes in the cash flows of hedged items and whether those derivatives may be expected to remain
highly effective in future periods. Changes in the fair value of derivatives that are highly
effective and qualify as a cash flow hedge are recorded in other comprehensive income or loss. When
it is determined that a derivative is not highly effective as a hedge and the derivative remains
outstanding, the Company will recognize changes in the fair value in the statement of income
currently.
S-33
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
At August 1, 2006, the Companys fair value of interest rate swaps was $0. At December 31,
2005, the Companys fair value of interest rate swaps was a liability of $6,180. The fair value of
these cash flow hedges is reflected in stockholders equity as accumulated comprehensive loss, net
of income taxes of $2,854.
NOTE 2 RENTAL INVENTORY
Rental inventory was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
August 1, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Mobile offices, modular buildings and storage units |
|
$ |
76,562,853 |
|
|
$ |
67,624,270 |
|
Steps |
|
|
1,877,929 |
|
|
|
1,442,733 |
|
|
|
|
|
|
|
|
|
|
|
78,440,782 |
|
|
|
69,067,003 |
|
Less: Accumulated depreciation |
|
|
(10,640,102 |
) |
|
|
(9,952,050 |
) |
|
|
|
|
|
|
|
Total Rental Inventory |
|
$ |
67,800,680 |
|
|
$ |
59,144,953 |
|
|
|
|
|
|
|
|
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
August 1, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Equipment |
|
$ |
1,313,512 |
|
|
$ |
1,237,222 |
|
Vehicles |
|
|
1,853,932 |
|
|
|
1,594,942 |
|
Leasehold improvements |
|
|
442,304 |
|
|
|
342,138 |
|
|
|
|
|
|
|
|
|
|
|
3,609,748 |
|
|
|
3,174,302 |
|
Less: Accumulated depreciation |
|
|
(2,199,588 |
) |
|
|
(2,018,318 |
) |
|
|
|
|
|
|
|
Total Property and Equipment |
|
$ |
1,410,160 |
|
|
$ |
1,155,984 |
|
|
|
|
|
|
|
|
NOTE 4 NET INVESTMENT IN SALES-TYPE LEASES
At August 1, 2006, the future minimum lease payments, including interest, to be received using
sales-type lease agreements were as follows:
|
|
|
|
|
Receivable in |
|
Future |
|
Year Ending |
|
Minimum |
|
August 1, |
|
Lease Payments |
|
2007 |
|
$ |
308,043 |
|
2008 |
|
|
124,019 |
|
2009 |
|
|
3,135 |
|
|
|
|
|
|
|
|
435,197 |
|
Less: Amount representing interest |
|
|
88,319 |
|
|
|
|
|
Net Investment in Sales-type Leases |
|
$ |
346,878 |
|
|
|
|
|
NOTE 5 DEBT
The Companys bank credit agreement includes a capital expenditures revolving line of credit,
working capital revolving line of credit and term loan availability. All borrowings under the
credit agreement are due on June 30, 2008. The Company has pledged all business assets as
collateral including the assignment of the Companys rights under leasing contracts with customers.
The Company is required to maintain certain financial ratios and net worth requirements.
S-34
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Interest accrues on all borrowings under the agreement at the lead lenders prime lending rate
or the LIBOR plus a stated margin ranging from 2.0% to 2.75% (LIBOR was 5.38% as of August 1, 2006)
based on the Companys performance.
The capital expenditures line is available for purchases of rental inventory. The maximum
amount available under the line is $30,500,000 ($30,500,000 borrowed and outstanding at August 1,
2006) with borrowings limited to 75% of rental units value plus 75% of transportation assets
(limited to $300,000), as defined in the credit agreement.
The maximum amount available under the working capital line is $4,500,000 ($1,062,500 borrowed
and outstanding at August 1, 2006) with borrowings limited to 80% of eligible accounts receivable
as defined in the credit agreement.
The credit agreement has a term loan component, of which $4,500,000 was borrowed and
outstanding at August 1, 2006. The term loan requires monthly principal payments of $62,500 through
June 30, 2008, when the remaining principal balance is due and payable.
The Companys subordinated debt requires monthly interest payments and consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
August 1, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
12.5% notes payable due various dates in 2009 |
|
$ |
4,247,000 |
|
|
$ |
4,247,000 |
|
12.0% note payable due January, 2009 |
|
|
275,000 |
|
|
|
275,000 |
|
|
|
|
|
|
|
|
|
|
$ |
4,522,000 |
|
|
$ |
4,522,000 |
|
|
|
|
|
|
|
|
The 12.5% subordinated notes payable allow the investor the right to require the Company to
repay the notes in 2006 or anytime thereafter. These notes also contain warrants to purchase 10
Series B common shares per $1,000 of borrowings at $13.50 per share. The warrants are exercisable
at any time and expire in 2009. As of August 1, 2006, no warrants have been exercised and no value
has been assigned.
The 12.0% subordinated note payable allows the holder to require the Company to repay the
entire note, in the event of a triggering event as defined in the agreement or anytime after June
30, 2004, and annually thereafter.
The total of subordinated notes due to stockholders at August 1, 2006 and December 31, 2005
was $3,160,000.
Cash paid for interest approximated $1,673,000 in for the period January 1, 2006 through
August 1, 2006 and $2,670,000 for the year ended December 31, 2005, including interest paid to
stockholders of approximately $232,500 and $395,000, respectively.
At August 1, 2006, the Companys borrowings were payable as follows:
|
|
|
|
|
Payable in |
|
|
|
|
Year Ending |
|
|
|
|
August 1, |
|
|
|
|
2007 |
|
$ |
750,000 |
|
2008 |
|
|
35,312,500 |
|
2009 |
|
|
4,522,000 |
|
|
|
|
|
|
|
$ |
40,584,500 |
|
|
|
|
|
Effective August 2, 2006, the Company sold 100% of the outstanding stock (see Note 11). The
acquisition was financed through a combination of senior lending, subordinated borrowings and
contributed capital. The acquisition was accounted for under the purchase method of accounting in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.
Accordingly, the Companys borrowing and capital structure was significantly impacted by the
acquisition.
S-35
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 INCOME TAXES
The provision for income taxes for the period from January 1, 2006 to August 1, 2006 and the
year ended December 31, 2005, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(Seven Months) |
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Deferred tax expense: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
1,663,672 |
|
|
$ |
1,767,647 |
|
State |
|
|
293,589 |
|
|
|
311,938 |
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
$ |
1,957,261 |
|
|
$ |
2,079,585 |
|
|
|
|
|
|
|
|
The Companys deferred income tax liability was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
August 1, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Rental inventory |
|
$ |
17,374,000 |
|
|
$ |
16,640,000 |
|
Net operating loss carry forwards |
|
|
(7,450,000 |
) |
|
|
(8,466,000 |
) |
Accounts receivable |
|
|
(170,000 |
) |
|
|
(160,000 |
) |
Derivative obligation |
|
|
|
|
|
|
(2,854 |
) |
Stock option compensation |
|
|
(142,000 |
) |
|
|
(142,000 |
) |
Other |
|
|
106,142 |
|
|
|
(98,620 |
) |
|
|
|
|
|
|
|
Net Deferred Income Tax Liability |
|
$ |
9,718,142 |
|
|
$ |
7,770,526 |
|
|
|
|
|
|
|
|
At August 1, 2006, the Company had federal net operating loss carry forwards of approximately
$18,626,000 which begin to expire in 2017.
NOTE 7 OPERATING LEASE COMMITMENTS
The Company leases two of its locations from companies in which its stockholders have an
ownership interest. The leases expire in November 2010 and March 2011. The Company is responsible
for all taxes, insurance, maintenance and utilities. Rental expense for these leases was
approximately $86,000 for the period from January 1, 2006 to August 1, 2006 and $215,000 for the
year ended December 31, 2005.
The Company has various noncancellable operating leases for office space, storage facilities
and rental units, that expire at various dates through March 2011. Certain leases contain renewal
options and escalation clauses. Rental expense for these leases was approximately $844,000 for the
period from January 1, 2006 to August 1, 2006 and $1,310,000 for the year ended December 31, 2005.
The future minimum rental payments required under noncancellable operating lease agreements
are as follows:
|
|
|
|
|
Payable in |
|
|
|
Year Ending |
|
Rental |
|
August 1, |
|
Payments |
|
2007 |
|
$ |
748,194 |
|
2008 |
|
|
759,215 |
|
2009 |
|
|
612,502 |
|
2010 |
|
|
739,683 |
|
2011 |
|
|
235,108 |
|
|
|
|
|
|
|
$ |
3,094,702 |
|
|
|
|
|
S-36
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8 EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) retirement savings plan for eligible employees, which allows
plan participants to defer a percentage of their compensation subject to the limits imposed by the
Internal Revenue Code. The Plan allows the Company to make a discretionary contribution to the Plan
each year on behalf of participants at a rate determined before the year begins. At the end of the
Companys fiscal year, an additional matching contribution may be made at the discretion of the
Companys Board of Directors. The Companys contribution was approximately $60,000 for the period
from January 1, 2006 to August 1, 2006 and $66,000 for the year ended December 31, 2005.
NOTE 9 CAPITAL STOCK
The Company has preferred stock, the terms of which may be determined from time to time by the
directors of the Company prior to issuance, and common stock divided into two series: Series A and
Series B. Each share of common stock is entitled to one vote for all matters submitted to a vote of
the stockholders. Holders of Series B common stock are entitled to a preferential distribution on
liquidation of the Company in an amount equal to $10 per share.
See Note 5 for discussion on warrants issued in connection with a private placement in 2001 to
purchase common stock, none of which were exercised as of August 1, 2006.
NOTE 10 STOCK OPTION PLAN
In December 1998, the Company adopted an employee stock option plan which provides that the
Company may issue options for up to 160,000 shares of its common stock. Options under the Plan will
be awarded with exercise prices at least equal to the fair value of the Companys common stock on
the date of the grant.
In December 1998, the Company issued options for 80,000 shares of Series A common stock at
$2.50 per share to an employee of the Company, all of which are vested. In November 2000, the
Company issued options for 24,000 shares of Series A common stock at $10.00 per share to employees
of the Company. All stock options are fully vested.
The Plan and any unexercised options will expire on December 30, 2008. There were no options
granted or exercised during the period from January 1, 2006 to August 1, 2006 or in the year ended
December 31, 2005.
The fair value for options granted by the Company was estimated at the date of grant using a
Black-Scholes option pricing model, with the following weighted-average assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
4.0 |
% |
Dividend yield |
|
|
0 |
% |
Expected life of the options (years) |
|
|
4 |
|
The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including expected stock price
volatility. Because the Companys stock is not publicly traded and its employee stock options have
characteristics significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in managements
opinion, the existing models do not necessarily provide a reliable single measure of the fair value
of its employee stock options.
Fair value of the options are amortized to expense over the related vesting period.
Compensation expense related to stock options for the period from January 1, 2006 to August 1, 2006
is immaterial to the Companys financial statements.
S-37
PAC-VAN, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 11 SUBSEQUENT EVENT
Effective August 2, 2006, Mobile Office Acquisition Corp. acquired 100% of the outstanding
stock of Pac-Van, Inc. The purchase price was approximately $98,038,000 plus the assumption of
liabilities and transactions costs of approximately $22,797,000 and $2,766,000, respectively. The
acquisition was financed through a combination of senior lending, subordinated borrowings and
contributed capital. The acquisition was accounted for under the purchase method of accounting, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.
Accordingly, the acquisition cost has been allocated to the purchased assets and liabilities based
on their respective fair values at the date of acquisition. The fair value of assets and
liabilities acquired at August 2, 2006, totaled approximately $84,458,000; accordingly, the buyer
recorded goodwill of approximately $39,143,000.
S-38
No dealer, salesperson or any other person is authorized to give any information or make
any representations in connection with this offering other than those contained in this prospectus
and, if given or made, the information or representations must not be relied upon as having been
authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities offered by this prospectus, or an offer to sell
or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the
offer or solicitation is not authorized or is unlawful.
8,920,000 Transferable Rights to Subscribe for up to 8,920,000 Shares of
Common Stock at $
per Share
4,460,000 Shares of Common Stock Issuable Upon Exercise of Warrants
PROSPECTUS
February , 2010
The Information Agent for the Offer is:
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
Email:generalfinancerights@mackenziepartners.com
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by us in connection with this offering of
securities described in this registration statement. All amounts shown are estimates, except for
the SEC and FINRA registration fee. The Registrant will bear all expenses shown below.
|
|
|
|
|
SEC filing fee |
|
$ |
[ ] |
|
FINRA filing fee |
|
$ |
[ ] |
|
Accounting fees and expenses |
|
$ |
[25,000] |
|
Legal fees and expenses |
|
$ |
[10,000] |
|
Printing and engraving expenses |
|
$ |
[35,000] |
|
Other (including subscription and information agent fees) |
|
$ |
[36,000] |
|
|
|
|
|
Total |
|
$ |
[ ] |
|
|
|
|
|
|
|
|
(1) |
|
Assumes all of the 8,920,000 Units being registered are sold. |
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the DGCL), as the same exists or may
hereafter be amended, provides that a Delaware corporation may indemnify any persons who were, or
are threatened to be made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the corporations best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A
Delaware corporation may indemnify any persons who are, were or are threatened to be made, a party
to any threatened, pending or completed action or suit by or in the right of the corporation by
reason of the fact that such person was a director, officer, employee or agent of such corporation,
or is or was serving at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses (including attorneys
fees) actually and reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporations best interests, provided that no
indemnification is permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director, employee, or agent is
successful on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him or her against the expenses which such officer or director has
actually and reasonably incurred.
Section 145 of the DGCL further authorizes a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against any liability asserted against him or her and incurred
by him or her in any such capacity, arising out of his or her status as such, whether or not the
corporation would otherwise have the power to indemnify him or her under Section 145 of the DGCL.
Our amended certificate of incorporation provides that, to the fullest extent permitted by
Delaware law, as it may be amended from time to time, none of our directors will be personally
liable to us or our stockholders for monetary damages resulting from a breach of fiduciary duty as
a director. Our amended certificate of incorporation also provides discretionary indemnification
for the benefit of our directors, officers, and employees, to the fullest extent permitted by
Delaware law, as it may be amended from time to time. Pursuant to our bylaws, we are required to
indemnify our directors, officers, employees and agents, and we have the discretion to advance his
or her related expenses, to the fullest extent permitted by law.
II-1
These indemnification provisions may be sufficiently broad to permit indemnification of our
officers and directors for liabilities (including reimbursement of expenses incurred) arising under
the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors or officers, or persons controlling us, pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment
of expenses incurred or paid by a director, officer or controlling person in a successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities.
We are conducting a private placement 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), in
reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended (the Securities Act), and Rule 506 promulgated thereunder pursuant to which it
seeks to raise an aggregate amount of $15 million (the Offering). As of December 31, 2009, total
proceeds from the Offering were approximately $1.3 million. Pursuant to the Certificate of
Designation for the Series A Preferred Stock, each share of Series A Preferred Stock will pay
cumulative cash distributions at a rate of 12.5% per annum, subject to declaration by the board of
directors of the Company. The Series A Preferred Stock is not convertible into common stock.
On December 8, 2008 we sold 100 shares of Series 100 shares of Series B 8% cumulative
Preferred Stock in connection with the acquisition by Pac-Van of Container Wholesalers in Salt Lake
City, Utah. We issued and sold these shares without registration under the Securities Act pursuant
to the exemption from registration contained in Section 4(2) of the Securities Act as transactions
not involving any public offering. We paid no underwriting discounts or commissions with respect to
this issuance and sale.
On October 1, 2008, we issued 4,000,000 shares of restricted common stock in connection with
the acquisition of Mobile Office Acquisition Corp. We issued and sold these shares without
registration under the Securities Act pursuant to the exemption from registration contained in
Section 4(2) of the Securities Act as transactions not involving any public offering. We paid no
underwriting discounts or commissions with respect to this issuance and sale.
On October 17, 2005, we issued and sold 1,875,000 shares of common stock to Ronald F. Valenta
for $0.133 per share or a total of $250,000. We issued and sold these shares without registration
under the Securities Act pursuant to the exemption from registration contained in Section 4(2) of
the Securities Act as transactions not involving any public offering. We paid no underwriting
discounts or commissions with respect to this issuance and sale.
On October 20, 2005, Mr. Valenta sold 356,250 shares of Common Stock to John O. Johnson, our
former Executive Vice President, for $0.133 per share or an aggregate of $47,500. On November 15,
2005, Mr. Valenta transferred, without consideration, 22,500 shares to each of David M. Connell,
Lawrence Glascott, Manuel Marrero and James B. Roszak, directors of the company, and 18,750 shares
to Marc Perez, our controller. The transfer of these shares by Mr. Valenta was exempt from
registration pursuant to Section 4(1) of the Securities Act as transaction by a person other than
by an issuer, underwriter or dealer. In this respect, the shares were transferred without any
general solicitation or general advertising and each purchaser is a director or officer of the
registrant who agreed to appropriate limitations on resale.
The share amounts described above give effect to the 3-for-4 reverse split of Registrants
common stock that occurred in March 2006.
We issued and sold 583,333 warrants to Ronald F. Valenta and John O. Johnson immediately prior
to the closing of the offering pursuant to this registration statement at a price of $1.20 per
warrant for an aggregate purchase price of $700,000. These warrants are identical to the warrants
being issued pursuant to the registration statement. The issuance and sale of these warrants will
be made without registration under the Securities Act pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act as transactions not involving any public offering.
We will use no general solicitation or general advertising in connection with the issuance and sale
of these warrants, and the purchasers are affiliates of the company and have agreed to appropriate
restrictions on resale of the warrants and the underlying shares. We will pay no underwriting
discounts or commissions with respect to the issuance and sale of these warrants.
Item 16. Exhibits
See the Exhibit Index which follows the signature page of this Registration Statement on Form
S-1, which is incorporated herein by reference.
Item 17. Undertakings
II-2
The undersigned registrant hereby undertakes that:
(a) The undersigned registrant hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the registrants annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plans annual report pursuant to Section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
(b) The registrant undertakes in the event that the securities being registered are to be offered
to existing stockholders pursuant to warrants or rights, and any securities not taken by
shareholders are to be reoffered to the public, to supplement the prospectus, after the expiration
of the subscription period, to set forth the results of the subscription offer, the transactions by
the underwriters during the subscription period, the amount of unsubscribed securities to be
purchased by underwriters, and the terms of any subsequent underwriting thereof. The registrant
further undertakes that if any public offering by the underwriters of the securities being
registered is to be made on terms differing from those set forth on the cover page of the
prospectus, the registrant shall file a post-effective amendment to set forth the terms of such
offering.
(c) For purposes of determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)
(1) or (4) under the Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(d) For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements for filing on Form
S-1 and authorized this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pasadena, State of California, on February 8, 2010.
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GENERAL FINANCE CORPORATION
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By: |
/s/ Ronald F. Valenta
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Ronald F. Valenta |
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Chief Executive Officer |
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Ronald F. Valenta, Charles E. Barrantes and Christopher A. Wilson his/her true and lawful
attorney-in-fact and agent with full power of substitution and re-substitution, for him/her and in
his/her name, place and stead, in any and all capacities to sign any or all amendments (including,
without limitation, post-effective amendments) to this Registration Statement, any related
Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933 and any or
all pre- or post-effective amendments thereto, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully for all intents
and purposes as he or she might or could do in person, hereby ratifying and confirming that said
attorney-in-fact and agent, or any substitute or substitutes for him, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates stated.
In accordance with the requirements of the Securities Act of 1933, as amended, this
Registration Statement was signed by the following persons in the capacities and on the dates
stated.
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Name |
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Position |
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Date |
/s/ Ronald F. Valenta
Ronald F. Valenta
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Chief Executive
Officer, President
and Director
(Principal
Executive Officer)
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February 8, 2010 |
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/s/ Charles E. Barrantes
Charles E. Barrantes
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Executive Vice
President and Chief
Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
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February 8, 2010 |
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James B. Roszak |
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Director
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February 8, 2010 |
II-4
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Chairman of the
Board of Directors
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February 8, 2010 |
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Director
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February 8, 2010 |
Manuel Marrero |
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Director
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February 8, 2010 |
David M. Connell |
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Director
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February 8, 2010 |
Ronald L. Havner, Jr. |
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Director
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February 8, 2010 |
Susan Harris |
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* By: /s/ Christopher A. Wilson
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Attorney-in-Fact
February 8, 2010 |
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II-5
EXHIBIT INDEX
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3.1
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Amended and Restated Certificate of Incorporation of General Finance Corporation as filed
April 5, 2006, (Incorporated by reference to Exhibit 3.1 to General Finance Corporations
Registration Statement on Form S-1 (File No. 333-129830)) |
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3.2
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Amended and Restated Bylaws of General Finance Corporation, as amended (Incorporated by
reference to Exhibit 3.2 to General Finance Corporations Quarterly Report on Form 10-Q
(File No. 001-32845)) |
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4.1
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Form of common stock certificate (Incorporated by reference to Exhibit 4.2 to General
Finance Corporations Amendment No. 2 to Registration Statement on Form S-1 (File No.
333-129830)) |
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4.3
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Form of Subscription Rights Certificate* |
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4.4
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Form of Warrant* |
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4.5
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Form of Notice to Stockholders who are Record Holders* |
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4.6
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Form of Notice to Stockholders who are Acting as Nominees* |
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4.7
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Form of Notice to Clients of Stockholders who are Acting as Nominees* |
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4.8
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Form of Beneficial Owner Election Form* |
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4.9
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Form of Preliminary Subscription Agreement* |
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4.10
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Form of Acknowledgement of Subscription* |
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5.1
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Legal Opinion of Christopher A. Wilson* |
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23.1
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Consent of Independent Registered Public Accounting Firm (Crowe Horwath LLP)* |
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23.2
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Consent of Independent Registered Public Accounting Firm (Grobstein, Horwath & Company LLP)* |
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23.3
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Consent of Independent Public Accounting Firm (Katz, Sapper & Miller, LLP)* |
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23.4
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Consent of Christopher A. Wilson (contained in Exhibit 5.1)* |
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* |
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Filed herewith |
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** |
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To be filed by amendment |
II-6