39 East Union Street, Pasadena, California 91103
October 25, 2018
Dear fellow stockholders,
The General Finance Corporation team continues to deliver great results in executing our long-term growth strategy.
The chart following shows the capital markets rewarding these results, and in fiscal year 2018 our common stock
outperformed the Russell 2000 Index and S&P SmallCap 600® Index by a wide margin.
Total Return Performance
General Finance Corporation
Russell 2000 Index
S&P SmallCap 600 Index
350
300
250
200
150
100
e
u
l
a
V
x
e
d
n
I
50
06/30/13
06/30/14
06/30/15
06/30/16
06/30/17
06/30/18
Over the past decade, our team has consistently managed our business model and driven our growth strategy. We focus
on growing our business and branch network with organic growth, recurring leasing revenue, superior customer service, new
product innovation, operational excellence and disciplined acquisitions.
Through our team’s dedication and commitment to our long-term growth strategies, the business reached important
growth milestones in fiscal year 2018:
DECADE OF HIGHLIGHTS
Branch Network Growth. Over the past 11 years ending June 30, 2018 our branch network grew from 15 to 95
branches.
Lease Fleet Growth. From June 30, 2007 to June 30, 2018 our lease fleet grew at a compound annual growth
rate of 16%.
EBITDA Margin Growth. Our EBITDA margins have increased from 17% in June 30, 2007 to 25% at June 30,
2018.
Large and Loyal Customer Base. Our customer base has grown from 12,000 customers at June 30, 2007 to over
47,000 customers at June 30, 2018, of which over 80% are repeat leasing customers.
Disciplined and Accretive Acquisitions. From May 31, 2007 to June 30, 2018 we completed 48 accretive
acquisitions.
We continue to grow our North America and Asia-Pacific lease fleets with disciplined and balanced capital allocation.
In fiscal year 2018 we invested $21 million in net lease fleet purchases to drive organic growth and $87 million to acquire
LEASE FLEET
North America and Asia-Pacific container businesses with strong long-term prospects. We also simplified our corporate
structure by acquiring all the remaining publicly-traded shares we did not own of our Australian and New Zealand business
at an attractive price, making Royal Wolf a wholly-owned subsidiary.
Our lease fleet grew through this combination of organic growth and acquisitions, with North America lease fleet units
increasing by 58%, or 31,553 units from June 30, 2013 to June 30, 2018. The charts below show the long-term growth of our
lease fleet and units utilization and the value of our lease fleet.
Lease Fleet Units
120,000
100,000
80,000
79%
81%
80%
72,856
77%
76%
78,605
80,712
80%
85,812
60,000
54,259
61,597
40,000
20,000
-
FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
Total Units in Fleet
Average Fleet Utilization
85%
80%
75%
70%
65%
60%
55%
50%
$600
$500
$400
$300
$200
$100
$-
$18
$48
$290
FY 2013
Lease Fleet, net
($ in millions)
$119
$66
$38
$55
$23
$21
$5
$22
$87
$21
$397
$411
$419
$427
$429
FY 2014
Lease Fleet, net
FY 2015
FY 2016
Organic Growth
FY 2017
Acquisitions
FY 2018
OUR PEOPLE AND CUSTOMERS
Our team continues to deliver outstanding customer service, earning Pac-Van a “net promoter score” of 85, which we
believe leads our industry. This high level of customer satisfaction has helped General Finance Corporation build the diverse
and loyal customer base shown below.
Fiscal Year 2017
Fiscal Year 2016
Mining
3%
Education
2%
Government
3%
Other
4%
Retail
6%
Commercial
25%
Retail
6%
Government
2%
Mining
3%
Education
2%
Other
5%
Moving &
Transportation
6%
Consumer
7%
Oil & Gas
10%
Industrial
11%
Consumer
7%
Industrial
9%
Construction
23%
Moving &
Transportation
11%
Fiscal Year 2018
Government
2%
Education
1%
Mining
3%
Construction
23%
Retail
5%
Consumer
5%
Other
6%
Moving &
Transportation
6%
Commercial
20%
Industrial
9%
Commercial
27%
Construction
22%
Oil & Gas
12%
Oil & Gas
14%
LEADERSHIP
Our Chief Executive Officer, Jody Miller, has completed a flawless transition to his new role. His “lead by example”
leadership style has the entire executive team reaching for new heights.
The balance of our executive and support team, Chuck Barrantes, Jeffrey Kluckman, Chris Wilson and Sally
Lierheimer, provide the foundation that support our long-term strategies. Mr. Barrantes adds value with effective
communication with our capital providers while mentoring the younger financial executives, and Mr. Kluckman contributes
by completing accretive acquisitions and leading a disciplined acquisition process.
Pac-Van has benefited from the consistent leadership of the management team headed by Ted Mourouzis and Eric
Weber. In fiscal year 2018 Mr. Mourouzis and Mr. Weber guided Pac-Van to increased utilization across all product
categories and a $7 million increase in core rental revenue over the prior fiscal year. While Royal Wolf, under Neil
Littlewood’s and Greg Baker’s leadership, has continued to deliver solid results in fiscal year 2018 with increases in
EBITDA, leasing revenue, sales revenue and utilization over the prior fiscal year.
Under Bobby Keenom’s leadership Lone Star Tank Rental achieved strong fiscal year 2018 results, increasing EBITDA
by 211% over fiscal year 2017 and leasing revenue by over $20 million over the prior fiscal year. Southern Frac also
rebounded in fiscal year 2018 under Brian Bottelberghe’s leadership with sales of 250 frac tanks, specialty tanks and chassis.
In addition to each of these exceptional leaders, General Finance Corporation is fortunate to have hundreds of
employees focused on our strategies and delivering best-in-class service to our customers.
OUR ANNUAL STOCKHOLDER MEETING
We appreciate our team of high quality service providers and “customer first” attitude. Our company provides an
environment where our people can develop, contribute and prosper. Our long-term growth strategies create the foundation for
sustainable long-term value for our stockholders.
We look forward to seeing you at our upcoming 2018 annual stockholder meeting of General Finance Corporation on
Thursday, December 6, 2018 at 10:00 a.m. PST at 39 East Union Street, Pasadena, California 91103.
Sincerely,
Ronald F. Valenta
Executive Chairman of the Board
Jody E. Miller
Chief Executive Officer and President
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NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS
To be held on December 6, 2018
AND
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
Notice of Date, Time and Location of Meeting
Notice is hereby given to the holders of common stock of General Finance Corporation (the “Company”) that the 2018
Annual Meeting of Stockholders (“Annual Meeting”) will be held on Thursday, December 6, 2018 at 10:00 a.m. Pacific
Standard Time at the offices of the Company located at 39 East Union Street, Pasadena, California. At the Annual Meeting
we will ask you to:
Items of Business
1. Election of Directors. Elect three Class C directors, William H. Baribault, Larry D. Tashjian and Ronald F. Valenta, to
serve for terms of three years each, in each case until their respective successors are elected and qualified. The
qualifications and experience of the three Class C directors are described in the accompanying Proxy Statement;
2. Ratification of Appointment of the Independent Registered Public Accounting Firm. Ratify the selection of Crowe
LLP as our independent auditors for the fiscal year ending June 30, 2019;
3. Amendment to Company’s Bylaws. Approve an amendment to the Company’s bylaws that would result in the courts
located within the State of Delaware serving as the exclusive forum for the adjudication of certain legal actions
involving the Company.
4. Other Business. Transact any other business that may properly be presented at the Annual Meeting.
Any action on the items of business described above may be considered at the Annual Meeting at the time and on the
date specified above or at any date and time to which the Annual Meeting may be properly adjourned or postponed.
P
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Record Date
If you owned Company common stock on October 9, 2018, the record date, you are entitled to notice of, to attend and to
vote at the Annual Meeting and any adjournments or postponements thereof. In addition to submitting a proxy and voting in
person, you may vote by mail, telephone or the Internet. A complete list of stockholders entitled to vote at the Annual
Meeting will be available at the principal executive offices of General Finance Corporation located at 39 East Union Street,
Pasadena, California beginning November 26, 2018 and at the Annual Meeting.
Materials to Review
The Proxy Statement, form of proxy card and Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the
“2018 Annual Report”) that accompany this Notice (all of the foregoing collectively, the “Proxy Materials”) contain
additional information regarding the proposals to be considered at the Annual Meeting, and stockholders are encouraged to
read the Proxy Materials in their entirety. Under rules adopted by the U.S. Securities and Exchange Commission (“SEC”), we
have elected to provide access to our Proxy Materials both by sending you the Proxy Materials by mail and by notifying you
of the availability of our Proxy Materials at the website www.cstproxy.com/generalfinance/2018. Internet access to our Proxy
Materials does not identify visitors to the website.
Proxy Voting
If you submit a proxy, you are entitled to revoke your proxy at any time before it is exercised by attending the Annual
Meeting and voting in person, duly executing and delivering a proxy bearing a later date or sending written notice of
revocation to our Secretary at 39 East Union Street, Pasadena, California 91103. Whether or not you plan to be present at the
Annual Meeting, we encourage you to vote your proxy by following the instructions provided in the Proxy Materials. Any
stockholder attending the meeting may vote in person even if the stockholder previously returned a proxy.
Respectfully Submitted
Christopher A. Wilson
General Counsel, Vice President & Secretary
October 25, 2018
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on
December 6, 2018. Our Proxy Statement and our 2018 annual report to stockholders are available at
http://www.cstproxy.com/generalfinance/2018.
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PROXY STATEMENT—TABLE OF CONTENTS
PROXY STATEMENT SUMMARY
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
CORPORATE GOVERNANCE
Overview
GOVERNANCE INFORMATION
Board of Directors
General Oversight
Leadership Structure
Risk Oversight
Corporate Governance
Director Independence
Executive Sessions of Independent Directors
Lead Independent Director
Board and Committee Meetings
Board Committees
Audit Committee
Compensation Committee
Nominating and Governance Committee
Composition of the Board and Review of Director Nominees
Compensation Committee Interlocks and Insider Participation
Review and Approval of Transactions with Related Persons
Communication with the Board of Directors
Code of Ethics
Compensation of Non-Employee Directors
Cash Compensation
Annual Award of Restricted Stock
Stock Ownership Guidelines
Director Attendance at Annual Meetings
PROPOSALS REQUIRING YOUR VOTE
Proposal 1: Election of Directors
Proposal 2: Ratification of Selection of Independent Auditors
Proposal 3: Amendment to the Company’s Bylaws
REPORT OF THE AUDIT COMMITTEE
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMPLIANCE WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Philosophy and Objectives
Say-on-Pay and Frequency of Say-on-Pay Advisory Votes
Executive Compensation Program
Elements of Compensation
Base Salaries
Bonuses
Equity-Based Compensation
Stock Option and Restricted Stock Grant Practices
Role of Executive Officers
Compensation Surveys
Compensation of Executives
Severance
Clawback Policy
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Perquisites and Other Personal Benefits
Tax & Accounting Considerations
Deductibility of Executive Compensation—Code Section 162(m)
Accounting for Stock-Based Compensation
Report of the Compensation Committee
Summary Compensation Table
Plan-Based Awards
Employment Agreements
Potential Payments Upon Termination of Employment of Change in Control
2018 CEO TO MEDIAN EMPLOYEE PAY RATIO
TRANSACTIONS WITH RELATED PERSONS
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
STOCKHOLDER RECOMMENDATIONS FOR BOARD NOMINEES
OTHER MATTERS
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
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PROXY STATEMENT SUMMARY
2018 ANNUAL MEETING OF STOCKHOLDERS
Date and Time:
Thursday, December 6, 2018
10:00 a.m. Pacific Standard Time
Place:
General Finance Corporation
39 East Union Street
Pasadena, California 91103
Record Date:
October 9, 2018
This summary sets forth certain performance highlights, as well as information contained elsewhere in this proxy
statement. You should read the entire proxy statement before casting your vote.
PERFORMANCE HIGHLIGHTS
Branch Network Growth. Over the past 11 years ending June 30, 2018 our branch network grew from 15 to
95 branches.
Lease Fleet Growth. From June 30, 2007 to June 30,
2018 our lease fleet grew at a compound annual growth
rate of 16%.
Lease Fleet Units
120,000
100,000
80,000
79%
81%
80%
72,856
77%
76%
78,605
80,712
80%
85,812
60,000
54,259
61,597
40,000
20,000
-
FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
Total Units in Fleet
Average Fleet Utilization
85%
80%
75%
70%
65%
60%
55%
50%
EBITDA Margin Growth. Our EBITDA margins have
increased from 17% in June 30, 2007 to 25% at
June 30, 2018.
25%
Large and Loyal Customer Base. Our customer base
has grown from 12,000 customers at June 30, 2007 to
over 47,000 customers at June 30, 2018, of which over
80% are repeat leasing customers.
Disciplined and Accretive Acquisitions. From
May 31, 2007 to June 30, 2018 we completed
48 accretive acquisitions.
48 Acquisitions
VOTING MATTERS AND BOARD RECOMMENDATIONS
Voting Matter
Board Vote
Recommendation
Page Number with
More Information
Proposal 1: Election of Directors
FOR each nominee
Proposal 2: Ratification of Appointment of Crowe LLP
as Independent Auditors
Proposal 3: Amendment to Company Bylaws
FOR
FOR
13
16
17
CASTING YOUR VOTE
Stockholder of Record
(Shares registered in
your name with our
transfer agent Continental
Stock Transfer & Trust
Company)
www.cstproxyvote.com
Internet
How to Vote
Visit the applicable voting
website and follow the
on-screen instructions:
Telephone
To vote call:
(866) 894-0536
Street Name Holders
(Shares held through a
Broker, Bank or Other
Nominee)
Refer to voting instruction
form.
Refer to voting instruction
form.
Mail
In Person
You may vote by mail by marking your votes on, signing, dating and returning your completed
proxy card by mail.
For instructions on attending the 2018 Annual Meeting of Stockholders in person, please see
“How can I vote?”
This Proxy Statement Summary contains highlights of certain information in this Proxy Statement. Because it is
only a summary, it does not contain all the information that you should consider prior to voting. Please review
the complete Proxy Statement and the Company’s 2018 Annual Report on Form 10-K that accompanies the
Proxy Statement for additional information.
OUR DIRECTOR NOMINEES
You have the opportunity to vote on the election of the following three nominees for director. Additional
information regarding each director nominee’s experience, skills and qualifications to serve as a member of the
Company’s Board of Directors (the “Board”) can be found in the Proxy Statement under “Proposal No. 1 –
Election of Directors.”
Name
Age
Years
on
Board
Ronald F. Valenta
William H. Baribault
Larry D. Tashjian
59
73
65
13
2
4
Position
Executive Chairman of
the Board
Director
Director
Independent
Committee Memberships
No
Yes
Yes
None
Audit, Compensation
Audit, Compensation,
Nominating &
Governance +
+ Committee Chair
Board Composition
GOVERNANCE HIGHLIGHTS
3 director nominees; 2 director nominees are independent
•
• Average age of director nominees is 66
• Average tenure of director nominees is 6.3 years
• Two new directors over last year.
• Highly qualified directors reflect broad mix of business backgrounds, skills and experiences
Corporate Governance
Separate Chairman of the Board and Chief Executive Officer positions
Strong Lead Independent Director
3 fully independent Board committees
•
•
•
• Executive sessions of independent directors at Board meetings
• Regular Board and committee meetings to ensure awareness and alignment
•
•
6 Board meetings in fiscal year 2018
10 standing committee meetings in fiscal year 2018
Strong clawback policy
Significant stock ownership requirements for directors
• On average, directors attended 96.9% of Board and committee meetings held in fiscal year 2018
• Annual Board and committee self-assessments
•
•
• Active role in risk oversight
• Advisory vote on executive compensation held every 3 years
• Approximately 99.2% stockholder approval (based on votes cast) at the Company’s last executive
compensation advisory vote in December 2016
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held on Tuesday, December 6, 2018
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why did you send me the Proxy Materials?
We sent you the Proxy Materials because you owned shares of common stock (“Common Stock”) of
General Finance Corporation (“we” or the “Company”) at the close of business on October 9, 2018, the record
date. The Proxy Materials, which are furnished by the Board, provide you with information that will help you
cast your vote at the Annual Meeting and at any adjournment or postponement thereof. You do not need to attend
the Annual Meeting to vote your shares. Instead, you may simply complete, sign, date and return the enclosed
proxy card.
You are invited to attend the Annual Meeting, which will take place on December 6, 2018 at 10:00 a.m.
Pacific Standard Time, at 39 East Union Street, Pasadena, California 91103.
When you return the completed, signed and dated proxy card, you appoint the proxy holders named therein
(your proxies), as your representatives at the Annual Meeting. The proxy holders will vote your shares at the
Annual Meeting as you have instructed them on your proxy card(s). If an issue not set forth on the proxy card
comes up for vote at the Annual Meeting, the proxy holders will vote your shares, under your proxy, in
accordance with their best judgment.
We began sending the Proxy Materials on or about October 26, 2018 to all stockholders entitled to vote.
We have enclosed with this Proxy Statement, proxy card and Notice of the 2018 Annual Meeting of
Stockholders our Annual Report to stockholders, which includes our 2018 Annual Report as filed with the SEC.
Who is entitled to vote at the Annual Meeting?
Only stockholders who owned Common Stock at the close of business on October 9, 2018, the record date,
are entitled to vote on matters properly presented at the Annual Meeting. On the record date, there were
30,259,966 shares of Common Stock outstanding. The Common Stock is our only class of voting stock
outstanding.
What am I voting on?
We ask you to vote on the election of three Class C directors, ratification of the selection of Crowe LLP as
our independent auditors for the fiscal year ending June 30, 2019, approve an amendment to the Company’s
bylaws that would result in the courts located within the State of Delaware serving as the exclusive forum for the
adjudication of certain legal actions involving the Company and any other matter properly presented at the
Annual Meeting. The sections entitled “Election of Directors,” “Ratification of Selection of Independent
Auditors” and “Bylaw Amendment” provide more information on these proposals.
At the time this Proxy Statement was printed, we knew of no other matters to be acted upon by stockholders
at the Annual Meeting.
1
Could other matters be decided at the Annual Meeting?
On the date this Proxy Statement was printed, we did not know of any matters to be raised at the Annual
Meeting other than those mentioned in this Proxy Statement. If you vote your proxy by following the instructions
in this Proxy Statement and other matters are properly presented at the Annual Meeting for a vote of
stockholders, the persons appointed as proxies by the Board will have discretion to vote your shares for you.
How many votes do I have, and who will count the votes?
You have one vote for each share of our Common Stock you own. Charles E. Barrantes, our Executive Vice
President and Chief Financial Officer, and Christopher A. Wilson, our General Counsel, Vice President and
Secretary, will act as inspectors of the election and will tabulate the votes.
How are abstentions and broker non-votes treated?
Abstentions and broker non-votes will be included in the number of shares present at the Annual Meeting
for purposes of determining the presence of a quorum. (A “broker non-vote” occurs when a beneficial owner fails
to provide the broker with instructions on how the vote the shares, and the broker lacks discretionary authority to
vote the shares.) Abstentions and broker non-votes will not be counted either as a vote cast for or against the
election of the three Class C directors, the ratification of selection of independent auditors or the amendment of
our bylaws.
How can I vote?
For Company stockholders of record, the Company has established telephone and Internet voting described
below. If your shares of common stock are held in a brokerage account, by a bank or other holder of record, you
are considered a “beneficial owner” of those shares, and the availability of telephone and Internet voting will
depend on the voting processes of your broker, bank or other holder of record. We therefore recommend that you
follow the voting instructions in the materials you receive.
You may vote by telephone or via the Internet. You can vote by telephone or via the Internet by following
the instructions in your enclosed proxy card, notice and/or voting instruction form. Votes submitted
electronically over the Internet or by telephone must be received by 7:00 p.m. Eastern Standard Time on
December 5, 2018. You can vote by calling the toll-free telephone number on your proxy card. Please have your
proxy card available when you call. The website for Internet voting is www.proxyvote.com.
You may vote by mail. You can vote by mail by completing, signing and dating the enclosed proxy card and
returning it promptly in the prepaid envelope provided. If you are a stockholder of record and you did not receive
a prepaid envelope, please mail your signed proxy card to Continental Stock Transfer & Trust Company, 1 State
Street, Floor 30, New York, New York 10275-0741, Attention: Proxy Department. If you mark your voting
instructions on the proxy card, your shares will be voted as you instruct. If you return a signed proxy card but
do not provide voting instructions, your shares will be voted FOR the election of the nominees for director,
the ratification of the selection of independent auditors and the amendment of the Company’s bylaws
identified in this Proxy Statement.
You may vote in person at the Annual Meeting. You may attend the Annual Meeting and vote in person. If
you hold your shares as a beneficial owner (“in street name”), you must request a legal proxy from your
stockbroker in order to vote at the Annual Meeting. Otherwise, we cannot count your votes. Please see the notice
or voting instruction form from your bank, broker or other holder of record for more information on these
options.
2
What is the difference between holding shares of Common Stock as a stockholder of record and as a
beneficial owner?
If your shares of Common Stock are registered in your name with Continental Stock Transfer & Trust
Company, the Company’s transfer agent, you are a “stockholder of record” of those shares, and the Proxy
Materials were sent to you by Continental Stock Transfer & Trust Company. If your shares of common stock are
held in a brokerage account or by a bank or other holder of record, you are considered a “beneficial owner” of
those shares, and Proxy Materials were sent to you by your broker, bank or other holder of record. As the
beneficial owner you have the right to direct your broker, bank or other holder of record how to vote your shares
by using the voting instruction card or by following their instructions for voting by telephone, Internet, by mail or
other means.
May I revoke my proxy?
If you are a stockholder of record, you can change or revoke your proxy before it is exercised by giving
written notice to our Secretary or in person at our corporate headquarters before the Annual Meeting that you
have revoked your proxy, by delivering in a timely manner a valid proxy by mail, telephone or Internet with a
date later than the prior proxy or by attending the Annual Meeting and voting in person. If you are a beneficial
owner of shares, you may submit new voting instructions by contacting your broker, bank or other holder of
record. All shares for which proxies have been properly submitted and not revoked will be voted at the Annual
Meeting.
How will shares I hold in street name be voted?
If your shares of Common Stock are held in street name, your broker, bank or other holder of record, under
certain circumstances, may not vote your shares without specific voting instructions under rules of The
NASDAQ Stock Market LLC (“NASDAQ”). This is called a “broker non-vote.” We encourage you to provide
instructions to your brokerage firm by voting your proxy. This ensures your shares will be voted at the Annual
Meeting.
What does it mean if I receive more than one proxy card?
If you have more than one account at the transfer agent and/or with stockbrokers, you will receive separate
proxy cards for each account. Please sign and return all proxy cards to ensure that all your shares are voted.
How many votes may be cast at the Annual Meeting?
Based on the number of shares of Common Stock outstanding on the record date, up to 30,259,966 votes
may be cast on any matter.
How many shares of Common Stock do you need to hold the Annual Meeting (what are the quorum
requirements)?
Shares representing a majority of our outstanding votes on the record date of October 9, 2018 must be
present in person or by proxy to constitute a quorum for the transaction of business at the Annual Meeting.
Accordingly, a quorum will be present at the Annual Meeting if 15,129,984 shares of Common Stock are
represented at the Annual Meeting in person or by proxy. Your shares will be counted towards the quorum only
if you submit a valid proxy (or one is submitted on your behalf by your broker) or if you vote in person at the
Annual Meeting. Abstentions and broker non-votes will be counted as present for purposes of determining a
quorum.
Who nominates individuals for election to the Board?
Nominations for the election of individuals to the Board may be made by the Board or by any holder of our
Common Stock.
3
How many votes must the director nominee receive to be elected?
The nominees receiving the highest number of “FOR” votes of the shares present in person or represented
by proxy at the meeting and entitled to vote on the election of the three Class C directors will be elected as the
three Class C directors. This number is called a plurality. If you withhold authority to vote for the nominee on
your proxy card, your vote will not count either “for” or “against” the nominee.
How many votes are required to ratify the selection of auditors?
The selection of Crowe LLP will be ratified if a majority of the votes cast are voted in favor of ratification.
How many votes are required to approve the amendment to our bylaws?
The amendment to our bylaws, which would result in the courts located within the State of Delaware
serving as the exclusive forum for the adjudication of certain legal actions involving the Company, will be
approved if a majority of votes cast are voted in favor of the amendment.
Is there a list of stockholders entitled to vote at the Annual Meeting?
A list of stockholders entitled to vote at the Annual Meeting will be available at the Annual Meeting and for
ten days prior to the Annual Meeting by contacting the Company Secretary for any purpose appropriate to the
Annual Meeting at our offices located at 39 East Union Street, Pasadena, California between the hours of
9:00 a.m. and 5:00 p.m.
Who pays the costs of soliciting these proxies?
The Company pays to distribute and solicit proxies and reimburses the reasonable fees and expenses
incurred by brokers, nominees, fiduciaries and other custodians in forwarding proxy materials to stockholders.
The directors, officers and employees of the Company may solicit proxies in person, through mail, telephone,
electronic transmission or other means. We do not pay those individuals additional compensation for soliciting
proxies.
When will the voting results be announced?
We will announce the final voting results at the Annual Meeting. We will also report final voting results
from the Annual Meeting in a Current Report on Form 8-K filed with the SEC within four business days of the
Annual Meeting.
4
CORPORATE GOVERNANCE
Overview
This section of the Proxy Statement provides an overview of the corporate governance of General Finance
Corporation. The Board of General Finance Corporation is committed to effective corporate governance. The
Board regularly reviews the key governance documents of General Finance Corporation, including its Corporate
Governance Guidelines, and these governance documents and policies are updated to reflect changes in
applicable laws and corporate governance the Board determines to be in the best interests of the Company and its
stockholders.
The Corporate Governance Guidelines of General Finance Corporation include the following key features:
• A majority of our directors are independent.
• A Lead Independent Director leads the independent directors.
• The Audit, Compensation and Nominating and Governance Committees are currently comprised solely
of independent directors.
• The Company does not have a stockholder rights plan, or “poison pill.”
• The Board has adopted a whistleblower policy which encourages employees to report any instances of
fraud, dishonesty and violations of Company policies and procedures without fear of any retaliation or
breach of confidentiality.
• The Board has approved stock incentive plans and bonus plans for executives that enable the Company
to “clawback” previously awarded compensation if the compensation was predicated on financial
results which were the subject of a material financial restatement, the recipient was deemed to have
engaged in fraud or misconduct that caused the material financial restatement and a lower granting,
vesting or payment would have resulted based upon the restated financial results.
• The Board and each of its committees have the authority to retain outside advisors.
• The Audit Committee monitors and restricts the hiring of current and former Company employees by
our independent auditor.
• The Compensation Committee may only select or receive advice from a compensation consultant, legal
counsel or other advisor to the Committee, other than in-house legal counsel, after taking into
consideration the factors identified by NASDAQ as necessary to evaluate independence and
affirmatively determine whether the consultant, legal counsel or advisor is independent in the judgment
of the Compensation Committee.
• There are no interlocks among Compensation Committee members.
• The responsibilities of the committees of our Board set forth in each committee’s charter are regularly
reviewed, updated as necessary and posted to the Company’s website.
• The Company’s Code of Ethics is regularly reviewed and posted to the Company’s website.
• The Board and each of its committees perform self-assessments.
• The Board has adopted an “overboarding policy” which prohibits directors from serving on more than
six public company boards.
• The Board has adopted stock ownership guidelines for directors.
• Each director attended at least 75% of the Board and committee meetings of which he or she was a
member, and the Board has adopted an attendance policy requiring board members to attend 75% of
the Board meetings and committee meetings of which each director is a member in each fiscal year
with attendance excused in the case of medical issues or illness.
5
The Corporate Governance Guidelines and the following additional corporate governance materials are
published at the General Finance Corporation website www.generalfinance.com under the “Corporate
Governance” section:
• Audit Committee Charter
• Charter of the Lead Independent Director
• Compensation Committee Charter
• Code of Ethics
• Corporate Governance Guidelines
• Nominating and Governance Committee Charter
We will provide without charge copies of any the documents listed above upon written request to the
General Finance Corporation Secretary, 39 East Union Street, Pasadena, California 91103. The information on
our website is not part of this Proxy Statement.
GOVERNANCE INFORMATION
Board of Directors
General Oversight
The business of the Company is managed under the direction of the Company’s Board. The Board’s general
oversight responsibility is conferred by the Delaware General Corporation Law, the Company’s Amended and
Restated Certificate of Incorporation and the Company’s Bylaws. The leadership structure of the Board and its
committees assist the Board in exercising its fiduciary duties as it oversees the Company’s business affairs,
Chief Executive Officer performance and succession, internal controls over financial reporting and long-term
strategy.
Leadership Structure
The Company does not have a formal policy concerning whether the same individual may serve as the
Chief Executive Officer and Chairman of the Board. In June 2014, the Board approved a Charter for the Lead
Independent Director, elected Ronald F. Valenta as the Chairman of the Board and elected James B. Roszak as
the Lead Independent Director. The Charter of Lead Independent Director provides that the Lead Independent
Director must be independent and delineates the powers of the Lead Independent Director, including the power to
call meetings of the independent Board members, to develop agendas for executive sessions of the Board’s
independent members and to preside at executive sessions of the Board’s independent directors.
Ronald F. Valenta retired as the Chief Executive Officer effective December 31, 2017, and Jody Miller has
served as our Chief Executive Officer and President since January 1, 2018.
Risk Oversight
The identification, evaluation and mitigation of risks arising in connection with the Company’s businesses
are the responsibility of the Company’s senior management. The Board’s responsibility is to understand the risks
related to the Company’s businesses and to oversee senior management’s mitigation of those risks.
The Board and the Audit Committee receive regular reports from senior management concerning the risks
related to the Company’s businesses.
The Audit Committee and the Nominating and Governance Committee have certain risk management
oversight responsibilities and regularly report to the Board concerning risk management. These reports include
6
the risks considered by each committee and the direction given to management to mitigate these risks. The Audit
Committee oversees compliance by the Company with legal requirements and regularly receives reports
concerning the Company’s significant internal controls, steps taken by management to maintain a strong internal
controls environment and enterprise risk management. In addition, representatives of the Company’s independent
auditors attend Audit Committee meetings, deliver presentations to the Audit Committee and meet with the Audit
Committee in private session. The Company’s Chief Financial Officer and General Counsel also meet in private
session with the Audit Committee. The Nominating and Governance Committee develops corporate governance
principles and oversees management’s evaluation and mitigation of risk relating to the Company’s Code of
Ethics and business practices.
Corporate Governance
Our corporate governance reflects the principles that guide the Company. Our corporate governance
framework specifies the duties, responsibilities and rights of our stockholders, Board and management. Our
corporate governance principles are found in the Company’s charter documents, the Company’s Corporate
Governance Guidelines, Company’s Code of Ethics, committee charters and other policies approved by the
Board.
The Corporate Governance Guidelines were adopted by the Board in December 2010. The Corporate
Governance Guidelines are reviewed at least annually to guide our corporate governance in response to changing
regulatory requirements and as circumstances warrant.
Our Corporate Governance Guidelines, Code of Ethics and committee charters are available for review on
our website http://www.generalfinance.com/corporate.html or may be requested without charge by written
request to our Secretary, General Finance Corporation, 39 East Union Street, Pasadena, California 91103. The
information on our website is not part of this Proxy Statement.
Director Independence
NASDAQ Stock Market Rules require that a majority of the members of the Board be “independent
directors,” which is defined generally as a person, other than an officer or employee of the Company or its
subsidiaries, having no relationship, which, in the opinion of the Company’s Board, would interfere with the
director’s exercise of independent judgment in carrying out the responsibilities of a director. All members of the
Board’s Audit, Compensation and Nominating and Governance Committees are “independent” within the
meaning of NASDAQ Stock Market Rules and Rule 10A-3(b)(i) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).
In making these determinations, the Board was presented with a report from the Company’s General
Counsel and discussed information provided by the directors and the Company with regard to each director’s
business and personal activities as they relate to the Company. Each director and executive officer is required to
complete a director and officer questionnaire each year which requires disclosure of transactions with the
Company in which the director or officer, or any members of his or her family, have a direct or indirect material
interest and which requires disclosure of any relationships or transactions which could interfere with the
director’s exercise of independent judgment.
The Board has determined that Ms. Harris and Messrs. Baribault, Roszak, Tashjian and Trussler are
independent under NASDAQ Stock Market rules and listing standards and have no relationship with the
Company except as a director and stockholder. The Board determined that Mr. Valenta is not independent
because he served as the Chief Executive Officer of the Company until December 31, 2017. The Board
determined that Mr. Marrero is not independent because he serves as the President of Main St. Personal Finance,
Inc., a specialty finance company controlled by Mr. Valenta. The Board determined that Mr. Miller is not
independent because he serves as the President and, since December 31, 2017, as the Chief Executive Officer.
7
Executive Sessions of Independent Directors
The Company’s corporate governance guidelines require independent directors to meet, without
management, at regularly scheduled executive sessions which generally may take place after regularly scheduled
meetings of the entire Board. The Chairman of the Board, the Lead Independent Director or any two independent
directors may call a special executive session of the independent directors at any time. Such special executive
sessions may take place after a regular or special meeting of the entire Board or at such other time deemed
appropriate.
Lead Independent Director
James B. Roszak has served as the Lead Independent Director since June 2014.
Board and Committee Meetings
The Board held five meetings during the fiscal year ended June 30, 2018, or fiscal year 2018, and acted by
written consent four times. All five of the meetings were regular meetings. The Board holds meetings each fiscal
year according to a pre-arranged schedule, but the Board also holds special meetings and acts by written consent
from time to time as needed.
Each director attended more than 75% of all meetings of the Board and board committees on which he or
she served during the period he or she was a director in fiscal year 2018.
Board Committees
The Board has an Audit Committee, a Compensation Committee and a Nominating and Governance
Committee. Each committee regularly delivers reports to the full Board concerning its meetings and actions. In
fiscal year 2018 the independent directors met in executive session five times, and the Audit Committee met in
executive session in two of its four regularly scheduled meetings.
Audit Committee. The Audit Committee consists of Mr. Roszak, as Chair, Mr. Baribault, Ms. Harris and
Mr. Tashjian. The Board has determined that each member of the Audit Committee qualifies as “independent”
within the meaning of The NASDAQ Stock Market Rules and Section 10A of the Exchange Act. Our Board has
determined that Mr. Roszak, Mr. Baribault and Mr. Tashjian each qualify as an “audit committee financial
expert,” as defined in the rules and regulations of the SEC and NASDAQ. In addition, Mr. Roszak,
Mr. Baribault, Ms. Harris and Mr. Tashjian have the past employment experience in finance or accounting,
requisite professional certification in accounting, or other comparable experience or background that results in
their financial sophistication.
The functions of the Audit Committee and its activities during fiscal year 2018 are described below under
the heading “Report of the Audit Committee.”
The Board has adopted a written charter for the Audit Committee, and the Audit Committee within the past
year has reviewed and assessed the adequacy of the charter. The Audit Committee charter was most recently
amended in September 2016 concerning the Audit Committee’s oversight of the internal audit department. A
copy of the Audit Committee Charter is available free of charge on the “Corporate Governance” section in our
website at www.generalfinance.com or by written request addressed to our Secretary.
The Audit Committee met four times in fiscal year 2018.
Compensation Committee. The Compensation Committee consists of Ms. Harris, as Chair, Mr. Baribault,
Mr. Roszak and Mr. Tashjian, each of whom is an independent director under NASDAQ rules and listing
standards. The purposes of the Compensation Committee are to determine and approve the goals, objectives and
compensation structure for our executive officers, to review the performance of our executive officers and to
review the Company’s management resources, succession planning and development activities.
8
The Board established the Compensation Committee in May 2006. The Compensation Committee adopted
its charter in February 2007. The Compensation Committee reviews its charter annually and recommends to the
Board any changes to the charter it believes are warranted. The Compensation Committee amended its charter in
June 2011 and October 2013. The October 2013 amendments provided that each member of the Compensation
Committee must be “independent” with the meaning of SEC and NASDAQ Stock Market Rules, that committee
member independence must be evaluated from a variety of factors, including committee member compensation
sources and affiliation with the Company and that the Company’s chief executive officer may not be present
during voting or deliberations concerning his compensation. The June 2011 amendments to the charter provided
that each member of the Compensation Committee must be independent within the meaning of NASDAQ Stock
Market Rules and Rule 10A-3(b)(i) under the Securities Exchange Act of 1934, as amended, and that prior to
selection of an executive compensation advisor, the Compensation Committee must evaluate the independence of
the executive compensation advisor by considering the factors identified by the SEC necessary to determine the
executive compensation advisors are independent. A copy of the Compensation Committee Charter is available
free of charge on the “Corporate Governance” section in our website at www.generalfinance.com or by written
request addressed to our Secretary.
The Compensation Committee met four times in fiscal year 2018.
Nominating and Governance Committee. The Nominating and Governance Committee consists of
Mr. Tashjian, as Chairman, Ms. Harris and Mr. Roszak. The Nominating and Governance Committee is
responsible for certain matters which include reviewing the size and composition of the Board, overseeing the
selection of persons to be nominated to serve on our Board, maintaining and overseeing the corporate governance
of the Company, assuring that the Board conducts an annual self-evaluation and periodically reviewing the
Company’s succession plans.
The Board adopted a written charter for the Nominating and Governance Committee in January 2006 and
amended its charter in September 2009. A copy of the Nominating and Governance Committee Charter is
available free of charge on the “Corporate Governance” section in our website at www.generalfinance.com or by
written request addressed to our Secretary.
The Nominating and Governance Committee met two times in fiscal year 2018.
Composition of the Board and Review of Director Nominees
The Nominating and Governance Committee periodically assesses and makes recommendations to the
Board concerning the size and composition of the Board. The Nominating and Governance Committee seeks to
achieve a balance of diverse knowledge, experience and capabilities on the Board. The committee is responsible
for identifying and assessing potential director candidates from directors, management and stockholders. The
Nominating and Governance Committee recommends qualified candidates to the Board.
Stockholders’ nominees for director must be delivered to the Company in writing and include the written
consent of and background information concerning the nominee sufficient for the Nominating and Governance
Committee to evaluate the candidate’s qualifications. Stockholder nominees for director must be delivered
pursuant to all of the requirements described in the paragraphs below and the section of this Proxy Statement
entitled “Stockholder Recommendations for Board Nominees.” When considering candidates for director, the
Nominating and Governance Committee takes into account a number of factors, including the following:
• Ethics and integrity;
• Ability to attend regular and special board and committee meetings and willingness to perform the
duties of a director;
• Excellent moral character and reputation;
9
•
Industry knowledge, contacts and network of potential clients in industries served by the Company;
• Ability to be responsible and fair-minded;
•
•
Prior experience, including service on boards of directors;
Senior-level management experience;
• Whether the candidate has a background that would provide diversity to the Board; and
•
Possession of specific skills in auditing, accounting, personnel and finance.
Candidates need not possess all of these characteristics, nor are all of these factors weighed equally.
The Nominating and Governance Committee periodically determines whether any vacancies on the Board
are expected. If vacancies are anticipated or arise, or the size of the Board expands, the Nominating and
Governance Committee will consider potential candidates for director. Candidates may come to the attention of
the Board through current Board members or management, stockholders or other persons. These candidates will
be evaluated at regular or special meetings of the Nominating and Governance Committee and may be
considered at any point during the year.
The Nominating and Governance Committee will consider candidates for directors recommended by
stockholders who follow the proper procedures in submitting the recommendation. The Board will consider
candidates recommended by stockholders using the same criteria it applies to candidates recommended by
directors. To be considered for election at an annual meeting, the recommendation must be submitted no later
than November 5, 2018. The recommendation must be in writing and addressed to the Secretary and must include
the following: (i) a statement that the writer is a stockholder and is proposing a candidate for consideration by the
Nominating and Governance Committee; (ii) the name and contact information for the candidate; (iii) a statement
of the candidate’s business and educational experience; (iv) information regarding each of the factors listed
above (other than the factor regarding board size and composition) sufficient to enable the Nominating and
Governance Committee to evaluate the candidate; (v) a statement detailing any relationship between the
candidate and any competitor of the Company; (vi) detailed information about any relationship or understanding
between the writer and the candidate; and (vii) a statement that the candidate is willing to be considered and is
willing to serve as a director if nominated and elected.
Compensation Committee Interlocks and Insider Participation
No person who served on the Compensation Committee in fiscal year 2018 was, during the year or
previously, an officer or employee of the Company or had a relationship with the Company requiring disclosure
under Item 404 of Regulation S-K. Since July 2011 Mr. Marrero has served as the President of Main St. Personal
Finance, Inc., a company controlled by Ronald F. Valenta. Mr. Valenta has the power to set Mr. Marrero’s
incentive compensation. No other interlocking relationship exists between any member of the Board and any
member of any other company’s board of directors or compensation committee.
Review and Approval of Transactions with Related Persons
The Company has not adopted a formal written policy regarding transactions with related persons. The
Company’s Code of Ethics for Directors, Officers and Employees (“Code of Ethics”) requires the disclosure of
all potential conflicts of interest. Delaware law in turn requires that each director or officer disclose to the Board
all material facts relating to such director’s or officer’s relationship or interest in a proposed contract or
transaction and that a majority of the Board, with any interested director abstaining, approve the contract or
transaction in good faith.
The Board is responsible for reviewing any proposed transaction with related persons. The Board considers
all relevant information in deciding whether to approve or reject a transaction with a related person. Information
10
relating to transactions between the Company and related persons is set forth in “Transactions with Related
Parties.”
Communication with the Board Directors
Stockholders may communicate with the Board in writing by mail delivered to the following address:
General Finance Corporation, 39 East Union Street, Pasadena, California 91103, Attention: Secretary. All notices
and communications received in writing will be distributed to the Chairman of the Board, the Lead Independent
Director and, if applicable, the chairman or chair of the appropriate Board committee.
Code of Ethics
The Company’s Code of Ethics applies to all our directors, officers and employees, including our principal
executive officer, principal financial officer and principal accounting officer. The Code of Ethics sets forth the
guiding principles by which the Board, officers and employees operate the Company’s businesses. The Code of
Ethics is posted on our Internet website at www.generalfinance.com under the “Corporate Governance” section.
We will provide a copy of the Code of Ethics upon written request delivered to General Finance
Corporation, 39 East Union Street, Pasadena, California 91103, Attention: Secretary.
Compensation of Non-Employee Directors
We currently have five non-employee directors who qualify for compensation. In fiscal year 2018 the
five non-employee directors received cash compensation and an annual award of restricted stock.
Cash Compensation
In June 2018, the Compensation Committee approved a schedule of cash compensation of our
non-employee directors effective July 1, 2018. The following table summarizes the schedule of compensation of
our non-employee directors (directors who also serve as officers currently receive no additional compensation for
their services as directors). In addition to the compensation set forth below, each director is also eligible for
reimbursement of reasonable expenses incurred in connection with the director’s services.
Annual Retainer—Non-Employee Directors
Additional Annual Retainer—Audit Committee Chair
Additional Annual Retainer—Compensation Committee Chair
Additional Annual Retainer—Nominating and Governance Committee Chair
Special Meeting Attendance Fee
$60,000
12,000
10,000
6,000
2,500
The annual retainers are payable in advance in quarterly installments. Fees to directors are paid for special
meetings other than regular meetings of the Board and committees.
Annual Award of Restricted Stock
Each non-employee director, except for Mr. Trussler and Mr. Valenta, received an annual award of $45,000
in restricted stock that vests on the first anniversary of the date of grant. Subsequent to June 2018, this annual
award will increase to $60,000.
11
The following table sets forth information regarding compensation earned during fiscal year 2018.
Employee directors do not receive any compensation for service on the Board.
Fiscal Year 2018 Non-Employee Director Compensation
Name
James B. Roszak
Manuel Marrero
Susan L. Harris
Larry D. Tashjian
William H. Baribault
Annual
Retainer(1)
$60,000
40,000
40,000
40,000
40,000
Committee
Chair
Fees
Committee
Meeting
Fees(1)
Total
Cash
Fees
$12,000
$12,000
—
10,000
6,000
—
—
12,000
12,000
12,000
$84,000
40,000
62,000
58,000
52,000
Stock
Awards(2)
$44,996
44,996
44,996
44,996
44,996
Total
$128,996
$ 84,996
$106,996
$102,996
$ 96,996
(1) Cash compensation prior to July 1, 2018.
(2) On December 7, 2017, each non-employee director, except for Mr. Trussler and Mr. Valenta, was granted
7,086 non-vested equity shares, or restricted stock, with an aggregate value of $44,996 as of the date of
grant based on the NASDAQ Stock Market closing price of $6.35 per share. These non-vested equity shares
vest one year from the date of grant if the director continues to serve on the Board.
Stock Ownership Guidelines
In December 2013 the Board adopted stock ownership guidelines under which it is recommended that
within four years each non-employee director acquire Company common stock with an aggregate fair market
value equal to or greater than four times the annual cash retainer, not including committee cash retainers,
received by each non-employee Company director. As of October 9, 2018, each non-employee director owned
more Company common stock than is required by the Company’s stock ownership guidelines.
Director Attendance at Annual Meetings
We have scheduled a board meeting in conjunction with our Annual Meeting and expect that our directors
will attend, absent a valid business or personal reason not to attend.
12
PROPOSAL 1:
ELECTION OF DIRECTORS
(Item Number 1 on the Proxy Card)
Background
Pursuant to our Amended and Restated Certificate of Incorporation, the Board must consist of no less than
three members, the exact number of which is determined from time to time by the Board, divided into three
classes designated Class A, Class B and Class C, respectively. As of the Annual Meeting, the number of directors
will be fixed at eight.
The terms of the Class A directors will expire as of the annual meeting of stockholders in 2019, the terms of
the Class B directors will expire as of the annual meeting of stockholders in 2020 and the terms of the Class C
directors will expire as of the annual meeting of stockholders in 2018. Upon expiration of the terms of the
directors of each class as set forth above, the terms of their successors in that class will continue until the end of
their terms and until their successors are duly elected and qualified.
The Board has nominated three Class C directors, William H. Baribault, Larry D. Tashjian and
Ronald F. Valenta for re-election by the stockholders. If a nominee is unable to serve or for good cause will not
serve, your proxy holders may vote for another nominee proposed by the Board. If any director resigns, dies or is
otherwise unable to serve out his or her term, the Board may fill the vacancy until the next annual meeting.
Information Concerning the Nominees and Continuing Director
The following information is provided regarding the nominees and the continuing directors:
Name
Nominees—Class C Directors:
Ronald F. Valenta (Chairman)
William H. Baribault
Larry D. Tashjian
Class A Directors:
Manuel Marrero
Douglas B. Trussler
Class B Directors:
James B. Roszak (Lead Independent Director)
Susan L. Harris
Jody E. Miller
Age
Director Since
Term to
Expire
59
73
65
60
47
77
61
51
2005
2015
2014
2005
2017
2005
2008
2017
2018
2018
2018
2019
2019
2020
2020
2020
Nominees
Each nominee is a current director has consented to serve as a director. The Board has no reason to believe
that the nominees will be unable to serve as directors. If any nominee is unable to serve or should a vacancy
occur before the annual meeting, the Board may designate a substitute nominee. If a substitute nominee is named,
your shares will be voted in favor of the election of the substitute nominee designated by the Board.
William H. Baribault has been a director since December 2015. Mr. Baribault has served on the Audit
Committee and Compensation Committee since December 2016. Mr. Baribault has served as the chief operating
officer and president of the Richard Nixon Foundation from 2014 to the present. Mr. Baribault has also served as
an independent trustee of the American Funds from 2009 to the present and as a principal of Oakwood
Enterprises, a private investment and consulting firm, from 1998 to the present. Mr. Baribault’s broad range of
experience, including manufacturing, retail sales, expansion of product portfolios and acquisition strategies
provide the Board with important perspectives in those areas.
13
Larry D. Tashjian has served as a director since February 2014 and the chair of the Nominating and
Governance Committee since February 2016. He is the founder, President and CEO of CAM Capital Advisors, an
opportunistic, valued-based manager in all asset classes. Prior to starting CAM Capital Advisors, he was
Chief Executive Officer of Provident Investment Counsel (“PIC”), a Pasadena-based investment company that
specializes in growth stocks. During his time with PIC (1981—2005), Mr. Tashjian was an integral part of the
company’s growth. In 1995, he was intimately involved in the sale of PIC to United Asset Management, a
New York Stock Exchange-listed company. He would go on to serve on its board of directors. Near the end of 2000,
United Asset Management was acquired by Old Mutual PLC. Prior to joining PIC, Mr. Tashjian worked for the
Bank of America, both in retail banking and corporate finance, and his professional career in investment
management spans over 30 years. Mr. Tashjian’s other professional activities have included directorships at
Bavarian Specialty Food Products, Southland Title Corporation, Lineage Capital Partners, S & S Portable Services
and PGP Capital Advisors. He also currently serves as Chairman of Investment Managers Series Trust II, a multiple
series trust investment company. In 2001, Mr. Tashjian helped found Professional Business Bank in Pasadena,
California, which was initially sold to Belvedere Capital Management in 2005 and maintained his involvement with
Professional Business Bank through continued board participation until the bank was ultimately sold again in late
2010. During this period of time, he served on the audit committee and chaired both the compensation and loan
committees. Mr. Tashjian’s business and capital markets knowledge provide the Board with unique insights.
Ronald F. Valenta has served as a director since our inception and was appointed Executive Chairman of the
Board of Directors on January 1, 2018. Mr. Valenta has served as the Chairman of the Board since June 2014 and
as the Chief Executive Officer from inception to December 31, 2017. Mr. Valenta has served as 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 founding 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. From 1980 to
1985, Mr. Valenta was employed by the accounting firm of Arthur Andersen & Co. in Los Angeles.
Mr. Valenta’s experience in the portable storage industry, his financial and accounting background and the
knowledge he acquired in managing diverse businesses provide the Board with key insights.
Continuing Directors
Susan L. Harris has been a director since 2008 and the Chair of the Compensation Committee since
February 2016. Ms. Harris served as a director of portable storage companies Mobile Services Group, Inc. and
Mobile Storage Group, Inc. from May 2004 to August 2006 and from May 2002 to August 2006, respectively.
Ms. Harris retired from SunAmerica Inc., a NYSE-listed financial services company, where she served in a
variety of positions between 1985 and 2000, including her most recent position as Senior Vice President, General
Counsel and Corporate Secretary. Prior to joining SunAmerica Inc., Ms. Harris worked for the law firm of
Lillick, McHose and Charles, specializing in corporate and securities law. Ms. Harris brings to our Board broad
legal experience and knowledge of the portable storage industry that provide the Board with key perspectives in
corporate governance, legal matters and portable storage.
Jody E. Miller was elected as a member of the Board in December 2017 and appointed as the Chief
Executive Officer in January 2018. Mr. Miller has served as our President since January 2017 and General
Finance Corporation Executive Vice President from June 2015 to January 2017. Since July 2017, Mr. Miller has
also served as the President of Southern Frac LLC, the Chief Executive Officer of GFN Manufacturing
Corporation and GFN North America Corp. and the Chief Executive Officer of Lone Star Tank Rental Inc.
Mr. Miller has also served as the Chief Executive Officer of GFN North America Leasing Corporation since June
2016. Mr. Miller has served as director of GFN Manufacturing Corporation, Lone Star Tank Rental Inc., GFN
North America Leasing Corporation, GFN U.S. Australasia Holdings, Inc. and Royal Wolf Holdings Limited
since June 2014, September 2014, June 2016, June 2016 and July 2016, respectively. Mr. Miller served as a
consultant to GFN Manufacturing Corporation from May 2013 to June 2015. Mr. Miller has over 25 years of
experience in the equipment rental industry, including five years at Mobile Mini, Inc. as Executive Vice
14
President and Chief Operations Officer, five years at Mobile Storage Group, Inc. as Senior Vice President and
fifteen years at RSC Holdings, Inc. where he held many positions including Regional Vice President for
seven years. Mr. Miller is a 1990 graduate of Central Missouri State University.
James B. Roszak has been a director since November 2005 and our Lead Independent Director since
June 2014. Mr. Roszak was employed by the Life Insurance Division of Transamerica Corporation, a financial
services organization engaged in life insurance, commercial lending, equipment leasing and real estate services,
from 1962 until his retirement in 1997. From 1978 to 1988 Mr. Roszak was based in Toronto, Canada and during
that time served as the President and Chief Executive Officer of Transamerica’s life insurance operations in
Canada. In 1988 Mr. Roszak returned to the U. S. Life insurance operations as the Chief Marketing Officer and
was subsequently named President, the capacity in which he served until his retirement. Mr. Roszak also served
on the board of directors of buy.com, an Internet retailer and NASDAQ-listed company and also served as its
interim Chief Executive Officer from February 2001 to August 2001 when it was taken private. He was also a
director of National RV Holdings from June 2003 until July 2008. He is currently a member of the Board of
Trustees of Chapman University where he is the Chairman of the Finance Committee. Our board benefits from
Mr. Roszak’s management and board experience and deep knowledge of finance, accounting, international
business, operations and risk management.
Douglas B. Trussler was elected as a director in December 2017. Mr. Trussler has served as a founding
partner and investment committee member of Bison Capital Partners since 2001. From 1995 to 2000 Mr. Trussler
served as a principal of Windward Capital Partners. Mr. Trussler graduated from the Richard Ivey School of
Business Administration in 1993. Mr. Trussler’s experience includes capital markets fund raising, deal sourcing,
mergers and acquisition due diligence and structuring and exit strategy execution.
Manuel Marrero has been a director since November 2005, and Mr. Marrero served as a director of Royal
Wolf Holdings Limited from October 2014 to October 2017. Since March 2009 Mr. Marrero has served as the
Chief Executive Officer of the specialty finance companies of General Finance Group, Inc., a company
controlled by Ronald F. Valenta. From January 2004 to March 2009, Mr. Marrero 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 from 1996 to 1999 Mr. Marrero served as the Chief
Financial Officer of Precision Specialty Metals, Inc., a light gauge conversion mill for flat rolled stainless steel
and high performance alloy. Mr. Marrero has served on the boards of directors of Interplay OEM, Inc., Shiney
Entertainment, Inc., Seed Internet Ventures, Inc., L.A. Top Producers, LLC, Friends of Rancho San Pedro and
Tree People. Mr. Marrero’s business experiences and entrepreneurial accomplishments assist the Board in
shaping the Company’s strategy and growth.
Vote Required
The three nominees for Class C director receiving the highest number of “FOR” votes, or a plurality, of the
shares present in person or represented by proxy at the meeting and entitled to vote on the election of the three
Class C directors will be elected as the three Class C directors. If you do not vote for a nominee, or you withhold
authority to vote for the nominee on your proxy card, your vote will not count either “for” or “against” the nominee.
The persons appointed by the Board as proxies intend to vote for the election of the Director nominees,
unless you indicate otherwise on the proxy or voting instruction card.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE
BOARD NOMINEES.
15
PROPOSAL 2:
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(Item Number 2 on the Proxy Card)
Background
The Audit Committee has selected Crowe LLP as our independent auditors for fiscal year ending June 30,
2019, or fiscal year 2019. We are asking the stockholders to ratify this selection. We expect a representative from
Crowe LLP to participate in the Annual Meeting and the representative will have the opportunity to make a
statement if desired and to respond to appropriate questions by stockholders.
Aggregate fees billed to us by Crowe LLP for professional services rendered with respect to our fiscal year
ended June 30, 2017, or fiscal year 2017, and our fiscal year ended June 30, 2018, or fiscal year 2018, were as
follows:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
2017
2018
$708,357
249,974
$683,522
209,250
—
—
—
—
In the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees we paid for
professional services for the audit of our consolidated financial statements, including those in our Annual Report
on Form 10-K and local statutory audit requirements and reviews of our Quarterly Reports on Form 10-Q.
“Audit-related fees” are fees for assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements. “Tax fees” are fees for tax compliance, tax advice and tax
planning.
The policy of the Audit Committee is that it must approve in advance all services (audit and non-audit) to be
rendered by the Company’s independent auditors. The Audit Committee approved in advance the engagement of
Crowe LLP for services in fiscal year 2017 and fiscal year 2018.
Vote Required
The ratification of the selection of Crowe LLP requires the affirmative vote of the holders of a majority of
the number of shares present or represented by proxy and entitled to vote on this proposal. Abstentions will be
counted as if voted “against” this proposal. If the stockholders do not ratify the selection, the adverse vote will be
deemed to be an indication to the Audit Committee that it should consider selecting other independent auditors
for fiscal year 2019. Because of the difficulty and expense of substituting accounting firms, it is the intention of
the Audit Committee that the appointment of Crowe LLP for fiscal year 2019 will stand unless, for a reason other
than the adverse vote of the stockholders, the Audit Committee deems it necessary or appropriate to make a
change. The Audit Committee also retains the power to appoint another independent auditor at any time or from
time to time if it determines it is in our best interests.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF
THE SELECTION OF CROWE LLP AS OUR INDEPENDENT AUDITORS FOR FISCAL YEAR 2019.
16
PROPOSAL 3:
ADOPTION OF AN AMENDMENT TO THE COMPANY’S BYLAWS
TO PROVIDE THAT THE COURTS LOCATED WITHIN THE STATE OF DELAWARE WILL
SERVE AS THE EXCLUSIVE FORUM FOR THE ADJUDICATION OF CERTAIN LEGAL DISPUTES
We are asking stockholders to approve an amendment (the “Amendment”) to the Company’s Amended and
Restated Bylaws (the “Bylaws”) that, if adopted, would result in the courts located within the State of Delaware
serving as the exclusive forum for the adjudication of certain legal actions involving the Company. If is approved
by stockholders, the Bylaws will be amended to insert a new provision as Section 15 of Article 5 to the Bylaws.
The text of the new Section 15 of Article 5 to the Bylaws is as follows:
EXCLUSIVE FORUM FOR ADJUDICATION OF DISPUTES
“Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery
of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter
jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack
subject matter jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive
forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action or
proceeding asserting a claim of breach of fiduciary duty owed by any current or former director or officer or
other employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any
action or proceeding asserting a claim arising pursuant to, or seeking to enforce any right, obligation or remedy
under, any provision of the DGCL, the Certificate of Incorporation or these Bylaws (as each may be amended
from time to time), (iv) any action or proceeding as to which the DGCL confers jurisdiction on the Court of
Chancery of the State of Delaware, or (v) any action or proceeding asserting a claim governed by the internal
affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal
jurisdiction over the indispensable parties named as defendants.”
The Board has the power to adopt this Bylaw Amendment by vote of the Board. The Board is seeking
stockholder approval, however, for this exclusive forum bylaw Amendment based on the following:
• The Board’s belief that such provision is in the best interest of the Company’s stockholders; and
• The Board’s own determination that approval by the Company’s stockholders should be sought
because of the importance of this issue.
The Board believes that this exclusive forum bylaw is in the best interests of its stockholders based on the
following factors:
• The rising volume of multi—forum litigation exposes the Company to expensive and potentially
contradictory litigation outcomes;
• The Bylaw Amendment would eliminate the risk of plaintiffs filing the same lawsuit in the courts
of multiple jurisdictions;
• The Delaware Court of Chancery can resolve stockholder litigation on an accelerated schedule
compared to other jurisdictions; and
• Chancellors of the Delaware Court of Chancery have significant experience and expertise in
corporate law.
The Board is concerned by the continuing trend of stockholder litigation driven by and benefiting lawyers
relating to mergers and acquisitions and other matters submitted for stockholder approval. Such stockholder
litigation can be filed where a company has its headquarters or where one or more of the plaintiff stockholders
17
reside, rather than the state where a company is incorporated. The filing of litigation in states other than the state
where a company was incorporated can result in courts that are unfamiliar with the laws of company’s state of
incorporation being required to interpret and apply those laws.
The Board believes that designating the State of Delaware as the exclusive forum for litigation against the
Company, the directors and officers of the Company and the other matters described in the Bylaw Amendment
will benefit the Company’s stockholders by placing the resolution of that litigation with courts which are the
most familiar and experienced with Delaware law, the law under which the Company was incorporated.
The Board also believes that Company’s stockholders will also benefit from by Bylaw Amendment by
avoiding the rising tide of lawyer–driven litigation that involves the same facts and that is filed in multiple states
to gain advantage and increase the Company’s legal fees and expenses. The Board also believes that Company
stockholders will benefit by avoiding conflicting and contradictory litigation outcomes.
Based on the foregoing the Board believes that the Amendment is in the best interest of the Company and its
stockholders and recommends that its stockholders approve the Amendment. If approved by stockholders, the
Amendment will be immediately effective. If the Amendment is not approved the Board will reconsider whether
the Amendment is in the best interests of Company and its stockholders and consider further action.
Voting Thresholds
Stockholder approval is not required for the Board to amend our bylaws. The Board believes however, that
submitting this proposal to stockholder vote is in keeping with our commitment to seek stockholder input for
important governance issues and to serve the best interests of our stockholders. Approval of the Amendment
requires the affirmative “FOR” vote of the majority of shares present in person or represented by proxy and
entitled to vote on the proposal. Abstentions are treated as shares represented in person or by proxy and entitled
to vote on the proposal and, therefore, will have the same effect as a vote “against” the proposal. Broker non—
votes will have no effect on the outcome of the vote.
Recommendation of the Board of Directors
The Board unanimously recommends a vote “FOR” the amendment to our Bylaws establishing the courts
located within the State of Delaware as the exclusive form for the adjudication of today certain legal disputes.
18
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting material and should not be deemed
filed or incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates this
Report by reference therein.
The Audit Committee oversees the financial reporting process on behalf of the Board of Directors. In
fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial
statements included in the Annual Report on Form 10-K filed with the SEC and the unaudited financial
statements included with Quarterly Reports on Form 10-Q filed with the SEC.
The Audit Committee met and discussed with management and the independent auditors the matters
required to be discussed under the rules and standards of the Public Company Accounting Oversight Board
(“PCAOB”). These discussions included the clarity of the disclosures made therein, the underlying estimates and
assumptions used in the financial reporting, the reasonableness of the significant judgments and management
decisions made in developing the financial statements and the testing and evaluation of the system of internal
control over financial reporting. In addition, the Audit Committee has discussed with the independent auditors
their independence from the Company and has received the written letter required by the PCAOB from the
independent auditors.
The Audit Committee also met and discussed with the independent auditors the overall scope and objectives
of the audit, the Company’s critical accounting policies and the specific results of the audit. Management was
present at all or some part of each of these meetings.
Pursuant to the reviews and discussions described above, the Audit Committee recommended to the Board
of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for
the fiscal year ended June 30, 2018.
Management is responsible for the Company’s financial reporting process, including its system of internal
controls, and for the preparation of consolidated financial statements in accordance with generally accepted
accounting principles. The Company’s independent auditors are responsible for auditing those financial
statements. The Audit Committee’s responsibility is to monitor and review these processes. It is neither the
Committee’s duty nor responsibility to conduct auditing or accounting reviews or procedures. Members of the
Audit Committee are not employees of the Company and may not be, and do not represent themselves to be or to
serve as, accountants or auditors by profession or experts in the fields of accounting or auditing. Therefore,
members have relied, without independent verification, on management’s representation that the financial
statements have been prepared with integrity and objectivity and in conformity with accounting principles
generally accepted in the United States of America and on the representations of the independent auditors
included in their report on the Company’s financial statements. The Audit Committee’s oversight does not
provide it with an independent basis to determine that management has maintained appropriate accounting and
financial reporting principles or policies, or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. Furthermore, consultations and
discussions with management and the independent auditors do not assure that the Company’s financial
statements are presented in accordance with generally accepted accounting principles, that the audit of the
Company’s financial statements has been carried out in accordance with generally accepted auditing standards or
that the Company’s independent accountants are in fact “independent.”
Respectfully Submitted,
James B. Roszak, Chairman
Susan L. Harris
William H. Baribault
Larry D. Tashjian
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of our common stock as of
October 22, 2018, 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.
Name
Directors and Executive Officers
Ronald F. Valenta(2)(3)
James B. Roszak(2)(4)
Larry D. Tashjian(2)(5)
Manuel Marrero(2)(6)
Susan L. Harris(2)(7)
William H. Baribault(2)(8)
Charles E. Barrantes(2)(9)
Christopher Wilson(2)(10)
Jeffrey Kluckman(2)(11)
Neil Littlewood(12)(13)
Theodore M. Mourouzis(14)(15)
Jody M. Miller(2)(16)
All executive officers and directors as a group (twelve persons)
5% Stockholders
Olowalu Holdings, LLC(17)
2863 S. Western Avenue
Palos Verdes, California 90275
Neil Gagnon(18)
1370 Avenue of the Americas, Suite 2400
New York, New York 10019
Ronald L. Havner, Jr.
and Lee Ann R. Havner(19)
c/o Karl Swaidan
Hahn & Hahn LLP
301 East Colorado Boulevard, Suite 900
Pasadena, California 91101
Beneficial Ownership
Number of
Shares(1)
Percent of
Class(1)
4,823,741
124,133
232,742
154,538
59,913
29,280
301,250
211,852
283,788
34,596
558,606
355,156
7,169,595
15.8%
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
1.8%
1.2%
23.0%
2,438,224
8.1%
3,690,165
12.2%
5,482,100
18.1%
(1) Based on 30,282,966 shares of common stock outstanding as of October 22, 2018. 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.
Includes 4,587,741 (including 58,333 restricted shares) shares owned and 236,000 shares that may be
(3)
acquired upon exercise of options owned by GF Group Holdings, Inc., a corporation over which Mr. Valenta
exercises voting and investment control. 2,731,573 of these shares are pledged to secure the repayment of
two loans and a charitable gift.
20
(4)
(5)
(6)
(7)
Includes 115,133 shares owned (including 7,086 restricted shares) and 9,000 shares that may be acquired
upon exercise of options.
Includes 183,097 shares owned (including 7,086 restricted shares), 13,500 shares owned by Mr. Tashjian’s
children over which Mr. Tashjian exercises investment power, 30,000 shares owned by a family limited
partnership and 6,145 shares owned by a family trust.
Includes 145,538 shares owned (including 7,086 restricted shares) and 9,000 shares that may be acquired
upon exercise of options.
Includes 50,913 shares owned (including 7,086 restricted shares) and 9,000 shares that may be acquired
upon exercise of options.
(8) Consists of 29,280 shares owned (including 7,086 restricted shares).
(9)
Includes 97,750 shares (including 20,000 restricted shares) owned and 203,500 shares that may be acquired
upon exercise of stock options.
(10) Includes 103,352 shares (including 15,001 restricted shares) owned and 108,500 shares that may be acquired
upon exercise of stock options
(11) Includes 88,788 shares (including 25,000 restricted shares) owned, 175 shares owned by Mr. Kluckman’s
child living in his residence and 195,000 shares that may be acquired upon exercise of stock options.
(12) Business address is Level 3, 1-3 Merriwa Street, Gordon, New South Wales, Australia 2072
(13) Consists of 34,596 restricted shares.
(14) Business address is 9155 Harrison Park Court, Indianapolis, Indiana 46216.
(15) Includes 458,453 shares owned, 2,819 shares owned by Mr. Mourouzis’ minor children and 97,334 shares
that may be acquired upon exercise of stock options.
(16) Includes 355,156 shares owned (including 142,886 restricted shares).
(17) Information is based upon Amendment No. 4 to Schedule 13G filed on January 19, 2018. Olowalu
Holdings, LLC (“Olowalu”), is a Hawaiian limited liability company, of which Rick Pielago and Marc
Perez are the managers. Olowalu shares voting and investment power as to all of the shares shown with U.S.
Commonwealth Life A.I., a Puerto Rican 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
the shares held by the Trust. Mr. Pielago and Mr. Perez may be deemed to be the control persons of
Olowalu, and Mr. Pielago may be deemed to be the control person of the Ronald Valenta Irrevocable Life
Insurance Trust No. 1.
(18) Information is based upon Schedule 13G filed on January 24, 2017.
(19) Information is based upon Amendment No. 10 to Schedule 13D filed on April 4, 2018 and a Form 4 filed on
September 6, 2018 filed by the Havner Family Trust. The shares shown consist of 3,970,600 shares owned
by the Havner Family Trust, 2,000 shares held by Ronald L. Havner, Jr., 9,500 shares owned by Lee Ann
Havner and 1,500,000 shares owned by JCS Ventures II, LLC, a limited liability company of which
Mr. Havner and Mrs. Havner act as managers.
21
COMPLIANCE WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers
and 10% stockholders to file reports with the SEC on changes in their beneficial ownership of common stock and
to provide us with copies of the reports. We believe that all of these persons filed all required reports on a timely
basis in fiscal year 2018. Based solely upon our review of the forms furnished to us and written representations
from certain reporting persons, we believe that in fiscal year 2018 our directors and officers who are subject to
Section 16(a) of the Securities Exchange Act of 1934, as amended, met all applicable filing requirements.
On May 24, 2018 there was one late Form 3 filing for our stockholders Ronald L. Havner, Jr., LeeAnn
Havner and the Havner Family Trust based on the purchase of Company common stock on May 9, 2018
following a delay in the delivery of information to the Company, on May 24, 2018 there was one late Form 4 for
our stockholders Ronald L Havner, Jr., LeeAnn Havner and the Havner Family Trust filing based on purchases of
Company common stock from May 9 to May 20, 2018 following a delay in the delivery of information to the
Company and on August 13, 2018 there was one late Form 4 filing for our stockholders Ronald L. Havner, Jr.,
LeeAnn Havner and the Havner Family Trust based on purchases of Company common stock from June 1, July 5
and July 26, 2018 following a delay in the delivery of information to the Company.
22
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The following report of the Compensation Committee shall not be deemed to be incorporated by reference
into any previous filing by the Company under either the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that incorporates future Securities Act or Exchange Act filings in whole or in
part by reference.
The Compensation Committee has reviewed and discussed with management the following Compensation
Discussion and Analysis section of the Company’s 2018 Proxy Statement. Based on our review and discussion,
we have recommended to the Board that the following Compensation Discussion and Analysis be included in the
Company’s 2018 Proxy Statement.
Compensation Committee
Susan L. Harris (Chair)
William Baribault
James B. Roszak
Larry D. Tashjian
COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Philosophy and Objectives
This Compensation Discussion and Analysis reviews the Company’s executive compensation program for
fiscal year 2018.
The Company’s executive compensation program aligns the interests of our executive officers with the
interests of our stockholders. The Company’s executive compensation program does so by establishing
short-term and long-term and strategic goals to increase stockholder value and by rewarding the achievement by
executive officers of those goals. The Compensation Committee periodically reviews and makes
recommendations with respect to the adoption and implementation of equity-based and non-equity based
compensation plans for executive officers. We therefore structure the compensation of our executive officers to
reward the achievement of the strategic goals that drive stockholder value.
Say-on-Pay and Frequency of Say-on Pay Advisory Votes
The Company held its initial advisory vote on executive compensation at its December 2013 annual
stockholder meeting at which time a non-binding, advisory vote on executive compensation was approved with
approximately 98.6% of the stockholders who voted on the proposal approving the compensation of our named
executive officers. At the same December 2013 annual meeting of stockholders, we held our first advisory vote
on the frequency of future advisory votes on executive compensation. The Company’s stockholders voted to hold
triennial votes on executive compensation.
At our 2016 annual meeting of stockholders we held our second advisory vote on executive compensation
and our second advisory vote on the frequency of future advisory votes on executive compensation. The 2016
non-binding, advisory vote on executive compensation was approved with approximately 99.2% of the
stockholders who voted on the proposal approving the compensation of our named executive officers. The
Company’s stockholders voted to hold a triennial vote on executive compensation.
23
Executive Compensation Program
The Compensation Committee of the Board is responsible for the establishment and development of the
Company’s compensation philosophy. The Compensation Committee establishes, implements and monitors the
structure of the Company’s executive compensation program.
The Compensation Committee designs the executive compensation program to achieve the following key
goals:
• Reinforce the business strategy;
• Balance rewards that address both short-term and long-term strategic objectives;
• Motivate executives to deliver a high degree of business performance without encouraging unnecessary
risk taking;
• Align executives’ interests with the stockholders’ interests; and
• Attract and retain talented executives whose skills and achievements will increase stockholder value.
The Compensation Committee determines the structure and amount of all executive officer compensation,
including grants of equity and non-equity compensation, after receiving recommendations from management and
input from its independent compensation consultant, Semler Brossy Consulting Group, LLC.
The Compensation Committee believes the structure and implementation of the executive compensation
program in fiscal year 2018 implemented its compensation philosophies. Each executive’s fiscal year plan consists
of financial incentives based upon the achievement of EBITDA targets and individualized key performance
indicators. In fiscal year 2018 EBITDA-based targets constituted a meaningful portion of each executive’s incentive
plan: 40% of the potential annual bonus for our chief executive officer, 48.3% of the potential bonus for our chief
financial officer, 40% of the potential annual bonus of our executive vice president of global business development
and 35.6% of the potential annual bonus of our chief executive officer of Royal Wolf Holdings Limited (“Royal
Wolf”) were based upon achieving EBITDA targets. The remaining non-equity, performance-based incentive
compensation for these executives was based on the attainment of key performance indicators created for each
executive. The Compensation Committee believes this compensation program structure focuses the executive team
on increasing revenues and profitability, a key element of the Company’s business strategy.
The Compensation established key performance indicators in fiscal year 2018 for our chief executive officer
that reinforced our business strategy. Other non-financial objectives of performance-based incentive compensation
of our chief executive officer and president included de-levering the Company’s balance sheet, mentoring and
training members of the senior management team, completing a smooth transition to chief executive officer,
attending investor conferences and earnings conference calls, overseeing the information technology consolidation
plan, reducing stale inventory and implementing an enterprise financial management system.
The Compensation Committee believes that the compensation plans of Lone Star Tank Rental Inc. (“Lone
Star”), Pac-Van, Inc. (“Pac-Van”), Royal Wolf and Southern Frac, LLC (“Southern Frac”), and the risks taken by
their respective management teams to meet compensation plan goals, do not vary significantly between the four
businesses.
The Compensation Committee also believes that compensation plans and practices of the Company, Lone
Star, Pac-Van, Royal Wolf Holdings and Southern Frac do not create risks that are reasonably likely to have a
material adverse effect on the Company. For fiscal year 2018, non-equity, performance-based compensation
goals established by the Compensation Committee were based upon a variety of metrics, which include EBITDA,
and key performance indicators. These objectives and metrics require executives to consider a variety of
operating results in pursuing their compensation goals. The Compensation Committee believes that the structure
of the non-equity, performance-based compensation emphasizes long-term results, thereby reducing the risk that
executives would take undue risk to achieve short-term goals. The Compensation Committee therefore believes
the structure of the compensation plans for annual bonuses and the vesting of equity awards stock do not create
risks that are reasonably likely to have a material adverse effect on the Company.
24
Elements of Compensation.
For the fiscal year 2018, the principal components of compensation for the principal executive officer, the
principal financial officer and the other three most highly compensated executive officers, or collectively the
named executive officers, were:
1. Annual base salary;
2. Non-equity performance-based annual incentive compensation; and
3.
Long-term equity incentive compensation.
Base Salaries. Annual base salaries provide executive officers with a minimum level of cash compensation.
We establish base salaries at levels so that a significant portion of the total cash compensation such executives
can earn is performance-based (through annual incentive compensation). Base salaries are set based on factors, as
applicable, that include whether a salary level is competitive with comparable companies, the recommendations
of Mr. Miller for the other named executive officers and the business judgment of the members of the
Compensation Committee, as discussed further below.
Bonuses. Annual cash bonuses are designed to reward our executive officers, including each of the named
executive officers and certain employees, for achievement of financial and operational goals and individual
performance objectives to enable us to meet long and short-term goals. In fiscal year 2018 the objectives related
to financial metrics, such as EBITDA goals, and the achievement of other corporate, operational and financial
goals. These goals and bonuses are determined annually at the discretion of the Compensation Committee in
consultation with Mr. Miller.
Equity-Based Compensation. Equity awards of stock options and restricted stock are long-term incentives
designed to reward long-term growth in the stockholder value. Stock option and restricted stock awards assist in
the retention of executives because they are not exercisable at the time of grant and achieve their maximum value
only if vesting conditions, which include performance goals and continued employment are met. Stock options
have value solely to the extent that the price of our common stock increases over the exercise price set as of the
date of grant. The Compensation Committee believes that our executive officers should have an incentive to
improve the Company’s performance by having an ongoing stake in the success of our business. The
Compensation Committee seeks to create this incentive by granting executive officers stock options and
restricted stock.
Stock Option and Restricted Stock Grant Practices
Grants of stock options and restricted stock to all of our executive officers and other employees, including
the named executive officers, must be approved by the Compensation Committee, which consists entirely of
independent directors. Grants occur only at meetings of the Compensation Committee and such grants are made
effective as of the date of the meeting or a future date, as in the case of the hiring of a new employee. Awards of
stock options and restricted stock are not timed in coordination with the release of material non-public
information. The exercise price of all stock options and restricted stock granted is equal to the closing market
price of our common shares on the date of grant so that the executive officer may not profit from the option
unless the price of our common shares increases.
The Compensation Committee determines stock option and restricted stock award levels in their discretion,
primarily based on the recommendations of Mr. Miller, consideration of the importance of an individual’s
responsibilities and performance within the Company and equity awards at comparable companies.
Options and restricted stock granted by the Compensation Committee also are designed to help us retain
executive officers in that options and restricted stock are not exercisable at the time of grant and achieve their
maximum value only if performance criteria are met or if the executive remains in the Company’s employ for a
25
period of years. All options and restricted stock granted to executive officers and employees in fiscal year 2018
vest ratably over three years based on continued employment. The Compensation Committee believes that these
vesting arrangements align the interests of option holders with stockholders by emphasizing a long-term view of
building stockholder value. The Compensation Committee also believes that multi-year vesting reduces the risks
that could arise from undertaking initiatives to realize annual EBITDA goals, such as through acquisitions or
capital expenditures, that could attain short-term goals while adversely effecting long-term stockholder value.
Grants of stock options and restricted stock under the 2009 Plan and the 2014 Plan are subject to the
recoupment provisions included in each plan which require each option holder to forfeit all or any portion of an
option grant and to reimburse the Company for all proceeds received from exercising stock options and restricted
stock if (i) payment, grant or vesting was predicated on the achievement of financial results that were
subsequently the subject of a material financial misstatement, (ii) the Board determines the award recipients
engaged in fraud or misconduct that caused or partially caused the material financial restatement of the Company
or any affiliate and (iii) a lower payment, award or vesting would have occurred based on the financial results.
Role of Executive Officers.
In general, Mr. Miller attends all meetings of the Compensation Committee at which compensation of the
other named executive officers or compensation policy is reviewed other than when his compensation is being
discussed. Mr. Miller does not vote on items before the Compensation Committee. The Compensation
Committee and the Board solicit Mr. Miller’s views on the performance of the executive officers who report to
him.
Compensation Surveys.
Each component of compensation we pay to our named executive officers—salary, cash bonuses, stock
options and restricted stock—is based generally on the Committee’s assessment of each individual’s role and
responsibilities. Consideration of market rates is an additional factor reviewed by the Committee in determining
compensation levels. The Compensation Committee engaged Semler Brossy in fiscal year 2015 as its
compensation consultants to analyze the Company’s compensation program, to provide a benchmarking analysis
which compared the Company’s compensation program to industry peers and comparable companies and to
assist with the design and implementation of the Company’s compensation program.
The Compensation Committee also bases its payment of base salary and annual bonuses for named
executive officers, other than the chief executive officer, on the attainment of objectives established by the
Compensation Committee and based upon recommendations from Mr. Valenta. In establishing individual
bonuses for senior executives, the Compensation Committee considers growth in the enterprise value, common
stock price, EBITDA and other financial and corporate objectives, together with the executive officer’s
contribution to the Company’s growth and profitability.
Compensation of Executives
The Compensation Committee sets the base salaries, bonus and equity compensation for the named
executive officers after consideration of benchmarking and other analyses from Semler Brossy, its independent
compensation consultant, and recommendations prepared by Mr. Miller. Mr. Miller used information relating to
each executive officer’s responsibilities and achievements in accomplishing the corporate objectives set by the
Compensation Committee for the previous year, his assessment of the individual performance of each named
executive officer and to recommend to the Compensation Committee the annual incentive bonuses for each of the
other named executive officers.
The implementation of the executive compensation program underlined our commitment to pay for
performance. Executives who achieved annual, long-term and strategic goals received compensation in
accordance with their compensation plans, while executives who failed to achieve their goals received
compensation corresponding to their performance.
26
In June 2018, the Compensation Committee considered the Company’s fiscal year 2018 revenues and
EBITDA and the recommendations of Mr. Miller with respect to the individual performance of the other named
executive officers and the payment of bonuses for fiscal year 2018. The Company exceeded its EBITDA goal for
fiscal year 2018 by a considerable margin. The Compensation Committee considered the completion by the
named executive officers of certain strategic and operational initiatives during fiscal year 2018 in awarding
bonuses for fiscal year 2018.
Based on the review of the Compensation Committee and the consideration of Mr. Miller’s
recommendations, the Compensation Committee awarded the following bonuses to the named executive officers
for fiscal year 2018.
The Compensation Committee determined that Mr. Valenta achieved all of his fiscal year 2018 key
performance indicators, including the successful transition to a new chief executive officer, assisting the new
chief executive officer with capital allocation matters, traveling to field operations, reducing senior indebtedness,
updating the Company’s strategic plan and completing the acquisition of Royal Wolf’s publicly traded shares not
owned by the Company. Based upon these achievements, the Compensation Committee determine that
Mr. Valenta should receive 100% of his target bonus amount.
The Compensation Committee determined that Mr. Miller exceeded his EBITDA goals and achieved all of
his fiscal year 2018 key performance indicators, and the Compensation Committee therefore determined to pay
Mr. Miller 255.8% of his EBITDA target, or $255,800, 100% of the target for reducing senior indebtedness or
$25,000 and 100% of his key performance indicators, or $125,000. The Compensation Committee determined
that Mr. Barrantes exceeded his EBITDA goals and achieved all of his fiscal year 2018 key performance
indicators, and the Compensation Committee therefore determined to pay Mr. Barrantes 194.1% of his EBITDA
target, or $135,900, and 90% of his key performance indicators, or $67,500. The Compensation Committee
determined that Mr. Kluckman exceeded his EBITDA goals and achieved all of his fiscal year 2018 key
performance indicators, and the Compensation Committee therefore determined to pay Mr. Kluckman 231.8% of
his EBITDA target, or $115,900, 100% of his key performance indicators, or $73,500, and $25,000 for
facilitating an acquisition by Royal Wolf. The Compensation Committee determined that Mr. Littlewood did not
meet his EBITDA goals and achieved some of his fiscal year 2018 key performance indicators, and the
Compensation Committee therefore determined to pay Mr. Littlewood 29.3% of his EBITDA target, or
A$114,000, and 25% of his key performance indicators, or A$19,0000.
The executive compensation program therefore reflected the Company’s compensation philosophies by
reducing executive compensation when the Company’s business goals were not met.
In June 2017, after consultation with Mr. Miller, the Compensation Committee increased the base salaries of
some of the named executive officers. Effective in February 2018, Mr. Kluckman’s annual base salary was
increased by 6.4% to $250,000, and effective July 1, 2018 the annual base salaries of Mr. Miller and
Mr. Barrantes were increased by 19.4% and 7.1%, respectively.
Neither the Committee nor Mr. Miller believe that the fiscal year 2018 goals will require the named
executive officers to take risks to achieve their EBITDA goals that are reasonably likely to have a material
adverse effect on the Company.
Severance
Pursuant to separate employment agreements with Mr. Valenta, Mr. Miller, Mr. Barrantes and
Mr. Kluckman, we will make severance payments equal to one year’s salary if such person’s employment is
terminated by the Company without cause or by the employee for good cause, each as defined in their respective
employment agreements. Pursuant to employment agreements with Mr. Littlewood, we will make a severance
payment equal to six months’ salary, respectively, if his employment is terminated by Royal Wolf without cause
or by the employee for good cause, each as defined in their respective employment agreements.
27
Each of these five employment agreements provide that each executive may be terminated for cause, and the
Company or Royal Wolf, as applicable, would therefore not be required to pay severance equal to six months’
salary or one year’s salary, as applicable, if such executive breaches his employment agreement, commits any act
of personal dishonesty, fraud or breach of fiduciary duty or trust, is convicted of or pleads guilty or no contest to
any theft, fraud, breach of fiduciary duty or crime involving moral turpitude or felony, committed acts which
give rise to liability for discrimination or harassment, violates directions from the Board or chief executive
officer, acts in a manner that harms the reputation of the Company, is found liable of violating securities or other
laws, fails to advance or cooperate with any investigation by the Company or misrepresents his experience or
employment history.
Each of Mr. Valenta, Mr. Barrantes, Miller and Kluckman may terminate their employment for good reason
and receive severance equal to one year’s salary if the Company reduces their base salary, permanently relocates
their place of employment more than 40 miles from their current residence, hires a person to perform the job
functions currently performed by such executive or assigns such executive duties beneath the duties they
ordinarily perform.
We may also elect to pay six months’ compensation to Mr. Littlewood in lieu of providing six months’ prior
notice of termination of his employment.
Clawback Policy
In accordance with the Dodd-Frank, the Compensation Committee has adopted recoupment provisions in
the Company’s 2009 Plan, 2014 Stock Incentive Plan, the 2014 Restated Plan and in equity award agreements.
The Compensation Committee will adopt an amended clawback policy once the SEC has adopted final rules to
implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Perquisites and Other Personal Benefits
Except for an expense allowance of $25,000 per year for Mr. Valenta, a car allowance of $650 per month
for Mr. Miller and a monthly stipend of $450 for Mr. Kluckman, we do not have programs in place to provide
personal perquisites for our executive officers. Mr. Valenta, Mr. Miller, Mr. Barrantes and Mr. Kluckman
participate in the medical and dental insurance of Lone Star or Pac-Van at the expense of the Company.
Messrs. Valenta, Mr. Barrantes, Miller and Kluckman are also eligible to participate in the 401(k) retirement plan
of Pac-Van, Inc. Mr. Littlewood participates in the medical and dental insurance of Royal Wolf, and Royal Wolf
contributed to Mr. Allan’s retirement plan and contributes to Mr. Littlewood’s retirement plan as required by
Australian law. We do not have any other retirement plans under which our executive officers may participate.
Tax & Accounting Considerations
Deductibility of Executive Compensation—Code Section 162(m). Section 162(m) of the Internal Revenue
Code imposes a $1,000,000 limit on the annual deduction that may be claimed for compensation paid to each of
the chief executive officer and the three other highest paid employees of a publicly held corporation (other than
the chief financial officer). However, while the Compensation Committee considers the tax deductibility of
compensation, the Committee has and may approve compensation that does not qualify for deductibility in
circumstances it deems appropriate to promote varying corporate goals.
Accounting for Stock-Based Compensation. For the issuances of stock options, the Company follows the fair
value provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 718, 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. For a discussion of valuation assumptions used in the calculation of these amounts for fiscal year 2018, see
Note 2, “Summary of Significant Accounting Policies,” and Note 9, “Equity Plans,” of the Notes to Consolidated
Financial Statements included in our 2018 Annual Report filed with the SEC on September 7, 2018.
28
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
contained in this Proxy Statement with management. Based on the Compensation Committee’s review of and the
discussions with management with respect to the Compensation Discussion and Analysis, the Compensation
Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy
Statement.
Respectfully Submitted,
Compensation Committee
Susan L. Harris (Chair)
William H. Baribault
James B. Roszak
Larry D. Tashjian
Summary Compensation Table
The following table contains summary compensation information of the following executive officers, or our
“named executive officers,” for fiscal years 2018, 2017 and 2016.
Name and Principal Position
Year
Salary
Bonus
Stock
Awards
Option
Awards(2)
All Other
Compensation(5)
Total
Summary Compensation Table
Ronald F. Valenta
Chief Executive Officer(4)(6)(7) 2017
2016
2018 $332,500 $392,500 $ — $ —
—
118,125
83,500
112,500
240,000
308,250
425,000
425,000
Jody E. Miller
President and Chief
Executive Officer(4)(7)
Charles E. Barrantes
Chief Financial Officer and
Executive Vice President(4)(6)
Jeffrey A. Kluckman
Executive Vice President
of Global Business
Development(4)(7)
Neil R. Littlewood
Chief Executive Officer,
Royal Wolf(1)(3)
2018 $335,000 $405,800 $335,005 $ —
—
125,000
2017
—
115,000
2016
335,000
335,000
753,993
335,002
2018 $280,000 $278,400 $ 55,000 $ 99,400
99,400
80,000
2017
27,900
80,000
2016
280,000
280,000
72,000
61,650
2018 $241,250 $214,400 $110,000 $151,300
— 157,800
75,000
2017
185,700
75,000
2016
235,000
235,000
61,650
2018 $352,023 $313,485 $861,554 $ —
—
2017
7,303
—
18,606
2016
365,128
234,243
139,819
82,593
$ 39,228
101,739
30,224
$
6,780
10,008
8,805
$ 14,995
50,782
2,120
$
5,130
2,319
2,120
$ 764,228
884,864
959,474
$1,082,585
1,224,001
793,807
$ 727,795
582,182
451,670
$ 722,080
470,119
559,470
$ — $1,527,062
512,250
335,442
—
—
(1) Australian dollar to U.S. dollar exchange rates used were 0.7411 for fiscal year 2018, 0.76869 for fiscal year
2017 and 0.74425 for fiscal year 2016.
(2) The amounts shown are derived from the amounts of compensation expense recognized by us relating to the
grants of stock options, as described in FASB ASC Topic 718. For a discussion of valuation assumptions
used in the calculation of these amounts, see Note 2, “Summary of Significant Accounting Policies,” and
Note 9, “Equity Plans,” of the Notes to Consolidated Financial Statements included in the 2018 Annual
Report filed with the SEC on September 7, 2018.
29
(3) Prior to fiscal year 2018, stock awards represented compensation expense recognized for performance rights
for Royal Wolf Holdings (“RWH”) capital stock earned under the Royal Wolf Long Term Incentive Plan
(“RWH LTI Plan”), which was terminated subsequent to June 30, 2017. For a discussion of the RWH LTI
Plan, see Note 9 “Equity Plans” of the Notes to Consolidated Financial Statements included in our 2018
Annual Report. In fiscal year 2018, stock awards also include restricted stock units (“RSU”) which value is
computed by the number of shares granted times the closing market price of our common stock on the date
of grant. In fiscal year 2018, Mr. Littlewood was granted RSUs that were valued at $742,070 on the date of
grant.
(4) Stock awards in fiscal year 2018, 2017 and 2016 represent non-vested equity shares, or restricted stock,
which value is computed by the number of shares granted times the closing market price of our common
stock on the date of grant.
(5) All Other Compensation includes 401(k) plan contributions by the employer.
(6) All Other Compensation includes pay in lieu of vacation in fiscal year 2018 and 2017 for Messrs. Valenta
and Barrantes of $22,068 and $12,115 and $71,515 and $48,463, respectively.
(7) All Other Compensation includes expense allowance in fiscal year 2018, 2017 and 2016 of $15,000,
$28,104 and $28,104, respectively, for Mr. Valenta; $3,900, $7,800 and $7,800, respectively, for Mr. Miller;
and $2,250 in fiscal year 2018 for Mr. Kluckman.
Plan-Based Awards
The following table provides information concerning each grant of an award made to the named executive
officers in fiscal year 2018 under the equity compensation plans.
Option Awards
Stock Awards
All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
Exercise
or Base
Price of
Option
Awards
($/Shares)
All Other
Option
Awards:
Number of
Shares of
Stock or
Units (#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
Exercise
or Base
Price of
Option
Awards
($ Sh)
Grant Date
Fair Value
of Stock
and Option
Awards
($)
Grant Date
Fair Value
of Option
Awards ($)
Grant
Date
6/12/2018 —
$—
$—
30,455 —
$11.00 $891,000(1)
Name
Jody E. Miller
Charles E. Barrantes
6/12/2018 —
Jeffrey A. Kluckman
6/12/2018 —
Neil R. Littlewood
2/6/2018 —
—
—
—
—
—
5,000 —
11.00
55,000(1)
10,000 —
11.00
110,000(1)
— 103,786 —
7.15
742,070(2)
(1) Amounts reflect the full grant date fair value of each non-vested equity, or restricted stock, award. The
number is calculated by multiplying the fair market value of our common stock on the date of the grant by
the number of shares awarded. One-third of the restricted stock vests on each of the first three anniversaries
of the grant date based upon the named executive officer being employed by us on such dates. The shares of
restricted stock subject to these awards are entitled to receive dividends if and when and at the same rate
that would be paid to all of our common stockholders.
(2) Amounts reflect the full grant date fair value of each RSU award. The number is calculated by multiplying
the fair market value of our common stock on the date of the grant by the number of shares awarded.
One-third of the RSU vests on each July 1st of 2018, 2019 and 2020 based upon the named executive officer
being employed by us on such dates.
30
The following table provides information concerning outstanding equity awards as of June 30, 2018.
Option Awards
Stock Awards
Name
Ronald F. Valenta
Jody E. Miller
Charles E. Barrantes
Jeffrey A. Kluckman
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
76,000
80,000
80,000
—
75,000
20,000
28,500
30,000
30,000
20,000
20,000
30,000
20,000
125,000
—
—
—
—
—
—
—
—
150,000(1) —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Market
Value of
Shares or
Units of
Stock that
Have
Vested
($)(2)
Number of
Shares or
Units of
Stock that
Have
Vested
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)(2)
Number of
Shares or
Units of
Stock that
Have Not
Vested(3)
Option
Exercise
Price
($/Sh)
Option
Expiration
Date
— $
$1.06 9/15/2020
8/15/202
—
6/7/2022 177,167
3.11
3.15
—
—
2,400,613
— $
—
58,333
—
—
790,412
— 159,497
2,161,184 142,886
1,936,105
—
5.10
1.28
1.06
3.00
3.15
4.43
2/7/2027
1/26/202
9/15/202
6/23/202
6/7/2022
6/7/2023
1.28 1/26/2020
6/7/2022
3.15
4.43
6/7/2023
5.45 6/15/2025
—
—
—
—
—
44,500
—
—
—
29,500
—
—
—
—
—
602,975
—
—
—
399,725
—
—
—
—
—
20,000
—
—
—
25,000
—
—
—
—
—
271,000
—
—
—
338,750
Neil R. Littlewood
—
—
—
—
— 103,786(4)1,406,300
(1) These options vest in three equal annual installments on February 7 of each of 2018, 2019 and 2020 and
have a ten-year term.
(2) Market price assumes a price of $13.55 per share, the closing price for our common shares on June 29,
2018.
(3) The non-vested stock equity, or restricted stock, vest in two or three equal installments from date of grant,
subject to continued service with us.
(4) The RSUs vest in three equal installments on each July 1st of 2018, 2019 and 2020.
Employment Agreements
Mr. Valenta served as our Chief Executive Officer until December 31, 2017 pursuant to his employment
agreement dated February 11, 2009. Under the employment agreement and base salary increases approved by the
Compensation Committee, Mr. Valenta received a base salary of $425,000 per year and a monthly car allowance
of $2,500 and payment of health, dental, vision and supplemental disability premiums for himself and his family.
Mr. Valenta retired as our Chief Executive Officer on December 31, 2017.
On January 1, 2018, we entered into an employment agreement with Ronald Valenta, under which he agreed
to serve to serve as the Executive Chairman of the Board of Directors. Under the employment agreement,
Mr. Valenta’s base annual salary is $240,000 and is eligible to receive a quarterly bonus of $46,250 and an
annual bonus each fiscal year determined by the Compensation Committee, 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 year’s salary if his employment is terminated without cause, as defined in the
employment agreement.
31
On January 1, 2018, we entered into an employment agreement with Jody Miller, under which he agreed to
serve as our Chief Executive Officer and President. Under the employment agreement, Mr. Miller received a base
annual salary of $335,000 until June 30, 2018, $400,000 in during fiscal year 2019 and $425,000 in fiscal year
2020 and is eligible to receive an annual bonus each fiscal year of $250,000, $300,000 and $350,000 in fiscal
years 2018, 2019 and 2020, respectively, provided he is employed on the last day of such year. Mr. Miller is
entitled to a severance payment equal to one year’s salary if his employment is terminated without cause, as
defined in the employment agreement. We pay Mr. Miller an automobile allowance of $650 per month, and we
reimburse Mr. Miller for health, dental, vision and supplemental disability premiums for himself and his family.
Mr. Miller is entitled to participate on the same basis in all offered benefits or programs as any other employee.
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 and base salary increases approved by the Compensation Committee, Mr. Barrantes received a base
annual salary of $280,000 during fiscal year 2018 and is eligible to receive an annual bonus each fiscal year
determined by the Compensation Committee, provided he is employed on the last day of such year. Effective
July 1, 2018 Mr. Barrantes’ base salary was increased to $300,000 per year. We reimburse Mr. Barrantes 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 year’s salary if his employment is terminated without cause, as
defined in the employment agreement.
On September 15, 2011, we entered into an employment agreement with Jeffrey Kluckman, under which he
agreed to serve as our Executive Vice President of Business Development. Under the employment agreement,
Mr. Kluckman received a base annual salary of $225,000, and is eligible to receive an annual bonus each fiscal
year, provided he is employed on the last day of such year. Mr. Kluckman is entitled to a severance payment
equal to one year’s salary if his employment is terminated without cause, as defined in the employment
agreement. Effective in February 2018, with his new title of Executive Vice President of Global Business
Development, Mr. Kluckman’s annual base salary was increased to $250,000, and Mr. Kluckman began
receiving a monthly allowance of $450 per month. We reimburse Mr. Kluckman for health, dental, vision and
supplemental disability premiums for himself and his family. Mr. Miller is entitled to participate on the same
basis in all offered benefits or programs as any other employee.
Royal Wolf entered into an employment agreement with Neil Littlewood dated February 7, 2016. Under his
employment agreement Mr. Littlewood agreed to serve as the chief executive officer of Royal Wolf Holdings
commencing on July 1, 2016 until the agreement was terminated. The employment agreement provides that
Mr. Littlewood would be paid an annual base salary of A $475,000 (including superannuation contributions), an
annual discretionary bonus targeted at 40% of the annual base salary and long-term incentives in each fiscal year
targeted at 40% of the annual base salary. There is no severance or similar obligation to Mr. Littlewood 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.
The employment agreements of Mr. Valenta, Mr. Miller, Mr. Barrantes and Mr. Kluckman 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,
Mr. Miller and Mr. Kluckman 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. Miller,
Mr. Barrantes and Mr. Kluckman.
In approving the compensation of Mr. Valenta, Mr. Miller, Mr. Barrantes, Mr. Littlewood and
Mr. Kluckman, 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
32
business. The Board also considered the size of the Company, the experience and prior compensation of
Mr. Valenta, Mr. Miller, Mr. Barrantes, Mr. Littlewood and Mr. Kluckman, 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).
Potential Payments Upon Termination of Employment or Change in Control
The employment agreements of Mr. Valenta, Mr. Miller, Mr. Barrantes and Mr. Kluckman provide that 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.” There is no similar obligation to
Mr. Littlewood under his employment agreements following a change of control.
33
2018 CEO TO MEDIAN EMPLOYEE PAY RATIO
The Dodd-Frank Act requires the Company to determine the ratio of the annual total compensation (under
the Summary Compensation Table definition) of Company’s Chief Executive Officer to that of the Company’s
median employee. In the identification of our median employee we used June 30, 2018 as our determination date.
As of the determination date, the Company had 936 employees, excluding the Chief Executive Officer. For
purposes of identifying the median employee we included in the calculation of compensation: base salary, stock-
based compensation (based on the grant date fair value of awards granted in 2018), target bonus amounts,
estimated annual commissions and estimated overtime. We ranked our full employee population from the highest
paid to the lowest paid, and the employee at the midpoint is our median employee.
The total compensation for the median employee was then calculated in accordance with Item 402(c)(2)(x)
of SEC Regulation S-K. Annual total compensation for Mr. Miller, the Company’s Chief Executive Officer was
$1,082,585, which was approximately 24 times the median employee compensation of $45,881.37.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our
payroll and employment records and the methodology described above. The SEC rules for identifying the median
compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow
companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and
assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may
not be comparable to the pay ratio reported above, as other companies may have different employment and
compensation practices and may use different methodologies, exclusions, estimates and assumptions in
calculating their pay ratios.
34
TRANSACTIONS WITH RELATED PERSONS
Effective January 31, 2008, we entered into a lease with an affiliate of Ronald F. Valenta, then Chief
Executive Officer (now Executive Chairman of the Board of Directors), for our 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. On October 11, 2012, we exercised the first option to renew the lease for an additional
five-year term commencing February 1, 2013 and on August 7, 2017, exercised the second option for an
additional five-year term commencing on February 1, 2018. Rental payments were $110,000 in FY 2016,
$113,000 in FY 2017 and $112,000 in FY 2018.
The premises of Pac-Van’s Las Vegas branch are owned by and were leased from the then acting branch
manager through December 31, 2016. From January 1, 2017 through May 12, 2017, the use of the premises was
rented on a month-to-month basis. Effective May 12, 2017, we entered into a lease agreement through
December 31, 2020 for rental of $10,876 per month and the right to extend the term of the lease for three
two-year options, with the monthly rental increasing at each option period from $11,420 to $12,590 per month.
Rental payments on these premises totaled $118,000 in FY 2016, $124,000 in FY 2017 and $131,000 in FY
2018.
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, with any interested director
abstaining.
35
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
Stockholders who want to communicate with the Board or any individual director should write to: Secretary,
General Finance Corporation, 39 East Union Street, Pasadena, California 91103. The letter should indicate that
you are a stockholder of General Finance Corporation and set forth the number of shares you hold and how the
shares are held if they are not registered in your name. Depending upon the subject matter, the Secretary will:
•
Forward the communication to the director or directors to whom it is addressed;
• Delegate the inquiry to management where it is a request for information about the Company or a
stock-related matter; or
• Not forward the communication, if it is primarily commercial in nature, or if it relates to an improper or
irrelevant topic, or is repetitive or redundant.
STOCKHOLDER RECOMMENDATIONS FOR BOARD NOMINEES
The Company’s Bylaws require that a stockholder’s notice of a person or persons the stockholder wishes to
nominate as director or submit a proposal for vote at the Annual Meeting of Stockholders must be delivered in
writing to the Company’s Secretary at 39 East Union Street, Pasadena, California 91103 not less than 60 days nor
more than 90 days prior to the date of the 2018 Annual Meeting of Stockholders. If the Company does not
publicly disclose the date of the 2018 Annual Meeting of Stockholders at least 70 days prior to the date of the
meeting, a stockholder’s notice must be received by the Company’s Secretary not later than the close of business
on the 10th day following the day on which such notice of the date of meeting was mailed or such public
disclosure of such meeting was made.
We intend to hold our 2019 Annual Meeting of Stockholders in December 2019. As a result, if, for example,
we hold our 2019 Annual Meeting of Stockholders on December 5, 2019 and publicly disclose or notify
stockholders by mail of the date of the 2019 Annual Meeting of Stockholders at least 100 days prior to
December 5, 2019, any notice given by a stockholder pursuant to these provisions of our Bylaws must be
received no earlier than September 6, 2019 and no later than October 6, 2019.
To be in proper form, a stockholder’s notice must include the specified information concerning the proposal
or nominee as described in our Bylaws. A stockholder who wishes to submit a proposal or nomination is
encouraged to seek independent counsel about our Bylaws and legal requirements. The Company will not
consider any proposal or nomination that does not meet the requirements of the Company’s Bylaw and SEC
requirements for submitting a nomination.
Stockholders who pursuant to Rule 14a-8 under the Exchange Act wish to present proposals for inclusion in
the proxy materials to be distributed in connection with our proxy statement for the 2018 annual meeting must
submit their proposals and proof of ownership of our common stock, in accordance with Rule 14a-8 under the
Exchange Act, to our corporate secretary at our principal executive offices no later than the close of business on
June 17, 2019 (120 days prior to the anniversary of this year’s mailing date). To be in proper form a
stockholder’s notice must include the specified information concerning the nominee or proposal required by our
Bylaws. Any nomination or proposal which is not in the proper form or which is not submitted on a timely basis,
as described above, will not be considered by the Company to be included in our proxy statement. The Company
reserves the right to exclude any proposal that does not comply with these or other applicable requirements.
36
OTHER MATTERS
Management does not know of any matters to be presented to the Annual Meeting other than those set forth
above. However, if other matters properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying proxy to vote said proxy in accordance with the recommendation of the Board and
authority to do so is included in the proxy.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
We will furnish without charge a copy of our 2018 Annual Report, as filed with the Securities and
Exchange Commission, including the financial statements and financial statement schedule thereto, to any
stockholder who so requests by writing to: Secretary, General Finance Corporation, 39 East Union Street,
Pasadena, California 91103.
The 2018 Annual Report is not incorporated into this proxy statement and is not to be considered to be a
part of our proxy solicitation materials.
Dated: October 25, 2018
By Order of the Board of Directors
Christopher A. Wilson
General Counsel, Vice President and Secretary
37
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:1799)
(cid:1798)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-32845
(Exact name of registrant as specified in its charter)
Delaware
(State or other Jurisdiction of Incorporation or
Organization)
39 East Union Street
Pasadena, California 91103
(Address of Principal Executive Offices)
32-0163571
(I.R.S. Employer Identification No.)
(626) 584-9722
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.0001 par value
9.00% Series C Cumulative Redeemable Perpetual
Preferred Stock (Liquidation Preference $100 per share)
8.125% Senior Notes due 2021
Name of Each Exchange On Which Registered
NASDAQ Global Market
NASDAQ Global Market
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
1
0
-
K
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes (cid:1798) No (cid:1799)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:1798) No (cid:1799)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last
90 days. Yes (cid:1799) No (cid:1798)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes (cid:1800)
No (cid:1798)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
(cid:1799)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See definition of “large accelerated filer,” “accelerated filer,” non-accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:1798) Accelerated filer (cid:1799)
Non-accelerated filer (cid:1798)
(Do not check if a smaller reporting company)
Emerging growth company (cid:1798)
Smaller reporting company
(cid:1798)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1798) No (cid:1799)
The aggregate market value of Common Stock held by non-affiliates of the Registrant on December 31, 2017 was approximately $82,941,000 based on a closing price of
$6.80 for the Common Stock on such date. For purposes of this computation, all executive officers and directors have been deemed to be affiliates. Such determination
should not be deemed to be an admission that such executive officers and directors are, in fact, affiliates of the Registrant.
There were 27,098,871 shares of the Registrant’s Common Stock outstanding as of August 31, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form
10-K. In addition, certain exhibits are incorporated into Part IV, Item 15. of this Annual Report on Form 10-K by reference to other reports and registration statements of
the Registrant, which have been filed with the Securities and Exchange Commission.
[THIS PAGE INTENTIONALLY LEFT BLANK]
GENERAL FINANCE CORPORATION
2018 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
SAFE HARBOR STATEMENT
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
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I-38
I-39
I-41
I-41
II-1
II-4
II-6
II-20
II-21
II-21
II-21
II-22
III-1
III-1
III-1
III-1
III-1
IV-1
IV-4
SIG
This Annual Report on Form 10-K, including the documents incorporated by reference into this Annual Report on Form 10-K, contains forward-
SAFE HARBOR STATEMENT
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, referred to in this Annual Report on Form 10-K as the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, referred to in this Annual Report on Form 10-K as the Exchange
Act. Forward-looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in the
forward-looking statements. Forward-looking statements may include, without limitation, statements re
expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,”
“could,” “seek,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. A number of important factors could cause actual results to
differ materially from those in the forward-looking statements. The risks and uncertainties discussed in “Risk Factors” should be considered in
evaluating our forward-looking statements. You should not place undue reliance on our forward-looking stat
statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statements.
lating to our plans, strategies, objectives,
ements. Further, any forward-looking
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Item 1. Business
PART I
References to “we,” “us,” “our” or the “Company” refer to General Financ
mm
e Corporation, a Delaware corporation (“GFN”), and its consolidated
subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (“GFN U.S.”); GFN Insurance Corporation, an
Arizona corporation (“GFNI”); GFN North America Leasing Corporation, a Delaware corporation (“GFNNA Leasing”); GFN North America Corp., a
Delaware corporation (“GFNNA”); GFN Realty Company, LLC, a Delaware limited liability company (“GFNRC”); GFN Manufacturing Corporation, a
Delaware corporation (“GFNMC”), and its subsidiary, Southern Frac, LLC, a Texas limited liability company (collectively “Southe
rn Frac”); Pac-Van,
Inc., an Indiana corporation, and its Canadian subsidiary, PV Acquisition Corp., an Alberta corporation (collectively “Pac-Van”
Rental Inc., a Delaware corporation (“Lone Star”); GFN Asia Pacific Holdings Pty Ltd, an Australian corporation (“GFNAPH”), and its subsidiaries,
GFN Asia Pacific Finance Pty Ltd, an Australian corporation (“GFNAPF”), Royal Wolf Holdings Limited, an Australian corporation (“RWH”), and its
Australian and New Zealand subsidiaries (collectively, “Royal Wolf”).
); and Lone Star Tank
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Overview
Founded in 2005, we are a leading specialty rental services company offering portable storage, modular space and liquid containment solutions,
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anch locations across North America and the Asia-
with a diverse and expanding lease fleet of 85,812 units as of June 30, 2018. Our primary 95 br
Pacific offer a wide range of portable storage units, including our core 20-feet and 40-feet stee
l containers, office container, mobile office and modular
space products and steel tanks that provide our customers a flexible, cost-effective and convenient way to meet their temporary storage and space needs.
Our units are easily customized to satisfy our customers’ specific application needs and include numerous value-added components. We provide our
storage solutions to a diverse base of over 47,000 customers across a broad range of industries, including the commercial, construction, transportation,
industrial, energy, manufacturing, mining, retail, consumer, education and government sectors. Our customers utilize our storage and space units for a
wide variety of applications, including the temporary storage of materials, supplies,
storage and for office use.
equipment, retail merchandise inventories, documents and liquid
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We focus on leasing rather than selling our units. Approximately 64% of our total non-
manufacturing revenues for the year ended June 30, 2018
d
(“FY 2018”) were derived from leasing activities. We believe our business model is compelling because it is driven by lease fleet assets that:
•
•
•
•
•
•
generate a recurring revenue stream with average lease durations of over 12 months;
possess long useful lives of 20 to 30 years with high residual values;
return the original equipment cost through revenue within four years on average;
operate at high lease fleet utilization levels, historically between 70% and 85%;
require low maintenance expenditures; and
earn attractive margins.
Our lease fleet is comprised of three distinct specialty rental equipment categories that possess attractive asset characteristics and serve our
customers’ on-site temporary needs and applications. These categories match the sectors we serve and which we collectively refer to as the “portable
services industry” – portable (or mobile) storage, modular space and liquid containment.
Our portable storage category is segmented into two products: (1) storage containers, which primarily consist of new and used steel shipping
containers under International Organization for Standardization (“ISO”) standards, that provide a flexible, low cost alternative to warehousing, while
offering greater security, convenience and immediate accessibility; and (2) freight containers, which are designed for either transport of products by
road and rail and are only offered in our Asia-Pacific territory.
Our modular space category is segmented into three products: (1) office containers, which are referred to as portable container buildings in the
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Asia-Pacific, are either modified or specifically manufactured containers that provide self-contained office space with maximum design flexibility.
Office containers in the United States are oftentimes referred to as ground level offices (“GLOs”); (2) modular buildings, which provide customers with
flexible space solutions and are often modified to customer specifications and (3) mobile offices, which are re-locatable units with aluminum or wood
exteriors and wood (or steel) frames on a steel carriage fitted with axles, and which allow for an assortment of “add-ons” to p
temporary space solutions.
rovide convenient
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Our liquid containment category includes portable liquid storage tanks that are manufactured 500-
barrel capacity steel containers with fixed
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axles for transport. These units can be utilized for a variety of applications across a wide range of industries, including refinery, petrochemical and
industrial plant maintenance, oil and gas services, environmental remediation and field services,
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infrastructure building construction, marine services, pipeline construction and maintenance, tank terminal services, waste management, wastewater
treatment and landfill services.
Summary Organization Chart (1) (2)
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y
(1)
(2)
Summary organization chart is illustrative and does not reflect our legal operating structure.
Reflects consolidated revenues for FY 2018.
Industry Overview
We compete in three distinct, but related, sectors of the specialty rental services industry: portable storage, modular space and liquid
containment, which we refer to collectively as the “portable services industry.”
Portable Storage
The storage industry includes two principal markets, fixed self-storage and portable 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. We do not participate in the
fixed self-storage market with permanent structures. The portable storage market, in which we primarily operate, differs from the fixed self-storage
market in that it brings the storage solution to the customer’s 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, improved security and lower costs. In contrast to fixed
self-storage, the portable storage market is primarily used by businesses and offers a flexible, secure, cost-effective and convenient alternative to
constructing permanent warehouse space or storing items at an offsite facility. A broad range of industries, including the construction, industrial,
commercial, retail and government sectors, utilize portable storage equipment to meet both their short-term and permanent stora
ge needs.
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The portable storage industry is fragmented in each of our geographic markets, with numerous participants in local markets leasing and selling
portable storage units. While we are not aware of any published third-party analysis of either the Asia-Pacific or North Americ
markets, we believe the portable storage sector has experienced steady growth since the 1990s and is achieving increased market share compared to
other storage alternatives because of an increasing awareness of the benefits that portable st
security and cost benefits of portable storage, as well as an increasing number of new applications for portable storage units.
orage units offer, including the availability, convenience,
an portable storage
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Modular Space
Modular space solutions, including modular buildings, mobile offices and portable container buildings, are used primarily by businesses to
address either temporary or permanent space needs. We believe modular space delivers four core benefits compared to permanent buildings or
structures: reusability, timely solutions, lower costs and flexibility.
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Modular buildings may offer customers significant cost savings over permanent construction and can generally be installed more quickly because site
work and fabrication can take place concurrently. In addition, modular solutions are not site specific and can be configured in a number of ways to meet
multiple needs. Finally, modular buildings are reusable and will generally serve a wide variet
utilize modular space solutions, including construction, resources, government, education, retail and special events, among others.
y of uses during their life span. A variety of industries
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The Modular Building Institute, in its 2017 Relocatable Buildings Annual Data Report, estimated that the North American modular space (or
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relocatable) sector generated approximately $4.0 billion in annua
number of applications for modular space has expanded and recognition of the product’s positive attributes has grown. By outsou
customers are able to achieve flexibility, preserve capital for core operations, and convert fixed costs into variable costs. The IBIS World Industry
Report published in November 2017 estimated that the portable container buildings market in Australia generated revenue of AUS$2.0 billion ($1.5
billion), of which approximately AUS$1.3 billion ($1.0 billion) related to the markets in which we offer a competing product. W
well positioned to benefit from any growth in the North American and Asia-Pacific
l revenue. The sector has experienced growth over the last thirty plus years as the
modular space markets.
e believe that we are
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rcing their space needs,
We expect that the modular space market will grow over the long-term, driven in part by increasing awareness of the advantages
of modular
space. Additionally, we believe that the advantages of modular space over permanent buildings and structures of reusability, timely solutions, lower
costs, and flexibility are highly valued in many of the end markets we serve. We further believe the increa
additional end markets will also continue to drive market growth.
sed penetration of modular space solutions in
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Liquid Containment
Portable liquid storage tank containers are used in envir
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onmental and industrial applications to temporarily store hazardous and nonhazardous
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liquids and semi-solids. The tanks are used by customers across a wide variety of e
maintenance, environmental remediation, infrastructure building construction, marine services, oil and gas exploration and field services, pipeline
construction and maintenance, tank terminal services, wastewater treatment and waste management and landfill services. Liquid containment end market
demand is recurring and is driven by the non-discretionary nature of required customer maintenance cycles, an increasing enforcement of existing
environmental regulations, a growing outsourcing of liquid containment solutions and an increasing level of vendor consolidation. We believe that the
rental industry in the U.S. for liquid containment equipment is fragmented and generated approximately $1.4 billion of annual rental revenues in 2013 –
2014. As a result of the decline in oil and gas prices during the latter part of our
year ended June 30, 2015, the size of the liquid containment sector has
contracted. However, oil and gas drilling and production activity increased in FY 2018, particularly in the Permian Basin of Texas. We believe that we
can leverage our branch network, existing relationships and operating philosophies to successfully compete in this sector. Our research indicated that
many of the companies that used containment solutions also used portable storage and mobile office products.
nd markets, including chemical, refinery and industrial plant
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Competitive Strengths
Leading Provider with Strong Presence in Served Markets
We believe we are a leading provider of portable storage, modular space and liquid containment solutions in all of the territories we serve. In
and mobile offices on a national, regional and local
North America, Pac-Van is a recognized national provider of portable storage, modular buildings
basis. Lone Star is a market leader in portable liquid storage tank rental and related services in the Permian Basin in West Texas and the Eagle Ford
Shale in South Texas. In the Asia-Pacific area, we believe Royal Wolf is the leading provider in Australia and New Zealand of portable storage
containers, portable container buildings and freight containers. Royal Wolf is represented in all major metropolitan areas, and we believe it maintains
ia and New Zealand.
the largest branch network and container fleet, with an estimated 40% market share, of any storage container company in Austral
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Superior Service Focus
Our operating infrastructure in each of our markets is designed to ensure that we consistently meet or exceed customer expectations. Our
scalable management information systems and administrative support services enhance our customer service capabilities by enabling our operating
management teams to access real time information on product availability, customer rese
regional and local level. We believe these capabilities enable us to provide superior customer service, allowing us to attract new and retain existing
customers. With the goal of delivering “best in class” customer service, we began collecting customer responses on net promoter scores (“NPS”) in
North America at Pac-Van, which track customer willingness to recommend our products and services, and for FY 2018 our customers gave us a NPS
of 85, which we believe is the leading score in our sector. In the Asia Pacific at Royal Wolf our customers there gave us a NPS of 61 in FY 2018. In
addition, over 80% of our consolidated total leasing revenues in FY 2018 were derived from repeat customers, which we believe is a result of our
superior customer service.
rvations, customer usage history and rates on a national,
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Extensive Reach and Capabilities
Through our expansive primary branch network of 95 locations, we maintain national service capabilities in our markets. In North America, our
mbia, we are now also
branches serve 49 of the top 100 U.S. Metropolitan Statistical Areas, or MSAs. With our expansion into Alberta and British Colu
able to serve the western provinces in Canada. Our Lone Star branches are strategically positioned to be able to respond quickly and maximize service
opportunities with customers in the Permian Basin and Eagle Ford Shale. We also have branch offices located in every state in Australia and on both the
North and South Islands of New Zealand. We are the only portable storage container company in these Asia-Pacific markets with a national
infrastructure and workforce.
AA
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Geographic, Product and End Market Diversification
Our specialty rental units are used in a wide variety of applications, and we have established strong relationships with a diversified customer
base in both our North American and Asia-Pacific venues. Our customers range from large companies with a national presence to small local
businesses. On a consolidated basis, during FY 2017 we served over 47,000 customers in over 20 industries. In FY 2018, our largest customer in each
venue accounted for less than 10% of the respective venue’s revenues and our 20 largest customers in each venue accounted for less than 25% of the
respective venue’s revenues. We believe that the breadth of our products and services limits the impact of changes within any g
industry.
iven customer or
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High Quality Fleet with Attractive Asset Characteristics
Our branch offices maintain our lease fleet to consistent quality standards. Maintenance costs are 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 exceeds customer
expectations and industry standards. All of our lease fleet carries signage reflecting its respective brands, which is important to ongoing name
recognition in our markets. Our lease fleet possesses attractive asset characteristics, including long economic useful lives with high residual values,
predictable and recurring revenue streams, low maintenance expense, rapid payback periods, high incremental leasing margins and favorable tax
attributes. We believe these characteristics allow us to generate high returns on invested capital relative to other rental services sectors and a level of
discretion in investing this capital.
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Experienced Management Team
We believe our management team’s experience and long tenure with our company and within the industry give us a strong competitive
advantage. Our current senior executive management team in FY 2018, led by our Executive Chairman of the Board, Ronald F. Valenta, who has been
and integrated a number of meaningful acquisitions. He
with us since our inception, has successfully entered new markets, expanded our customer base
stepped down as Chief Executive Officer and assumed the title of Executive Chairman of the Board in January 2018. Jody Miller, who became President
in January 2017, became our Chief Executive Officer in January 2018 and has been Chief Executive Officer of GFNNA Leasing since June 2015. He
has spent over 25 years in the equipment rental industry.
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Neil Littlewood, who became Chief Executive Officer of Royal Wolf in July 2016, has over 14 years of senior experience in the rental/hire
industry and Pac-Van’s Chief Executive Officer and President, Theodore M. Mourouzis, joined Pac-Van in 1997 and has been integral to our successful
growth in North America.
Lone Star’s management team has extensive experience in the oil and gas industry and emphasizes safety training and monitoring for all
employees.
Our senior management, as well as corporate, regional and branch managers across all of our operating companies, has been integral in
developing and maintaining our high level of customer service, deploying technology to improve operational efficiencies and successfully integrating
acquisitions.
Business Strategy
Our business strategy consists of the following:
Focus on High Margin Core Leasing Business
We focus on growing our core leasing business because it provides recurring revenues from specialty rental assets that (1) have long useful lives
of over 20 years; (2) generate rapid payback of unit investment through revenue in less than four years on average;
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and (3) have high residual values of up to 70% of original equipment cost. We have successfully increased leasing revenues as a percentage of our
consolidated non-manufacturing revenues from 29% in fiscal year 2007 to 64% for FY 2018. We believe that we can continue to generate substantial
demand for our leasing products as the industry is still relatively underdeveloped in our markets. With new uses for our produc
we believe many more applications for our specialty rental solutions are still yet to be developed.
ts continually emerging,
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Generate Organic Growth
We define organic growth as an increase in lease revenues on a year-over-year basis at our branches in operation for at least one year, excluding
leasing revenue attributed to same-market acquisitions. We continue to focus on increasing the number of our lease fleet units.
We believe that our high
quality lease fleet and superior customer service enable us to increase our lease rates and utilization rates over time. We generate organic growth within
our existing markets through sales and marketing programs designed to increase brand recognition, expand market awareness of the uses of our
specialty rental units and differentiate our products from our competitors.
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Leverage Our Infrastructure
Our branch network infrastructure covers a broad geographic area and is capable of serving significant additional customer volume while
incurring a minimal amount of incremental fixed costs. With our established branch network and infrastructure we generate significant adjusted earnings
before interest, income taxes, impairment, depreciation and amortization and other non-operating costs and income (“Adjusted EBITDA”) margins on
incremental units deployed. Our objective is to add volume by organically growing the lease fleet across our locations and through strategic acquisitions.
Asset purchases of “tuck-in” competitors and adding new units to our fleet allow us to more effectively leverage our infrastructure. Between June 30,
2007 and June 30, 2018, our lease fleet grew from approximately 16,000 units to over 85,000 units, representing a 16% compound annual growth rate,
and our Adjusted EBITDA margin expanded from 17% in the fiscal year ended June 30, 2008 to 25% in FY 2018.
Opportunistically Enter New Geographic Markets
We believe a long-term opportunity exists for us to significantly expand the size of our branch network in North America by opening up to 30
new locations in attractive markets. Additionally, we expect to open select satellite branch locations in our Asia-Pacific territory to expand our service
reach to attractive but more remote areas of Australia and New Zealand.
Pursue Select Strategic Acquisitions
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Acquisitions represent an attractive means for us to further leverage our infrastructure, add complementar
y product lines, ente
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regions and accelerate our growth and margin expansion opportunities. We operate in fragmented industries, and we seek to identify acquisition
candidates that we believe would be earnings accretive. We have a proven integration model that
since May 31, 2007.
we have effectively used to integrate 48 acquisitions
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Continue New Product Innovation
We have a history of developing innovative new product concepts to better service our customers’ needs. Our in-house capabilities and third
party modification capabilities allow us to customize units to meet customer specifications. We have introduced many new product innovations,
including temporary prison holding cells, hoarding units, blast-resistant units, workforce living accommodations, temporary retail frontage units and
observatory units customized from storage containers. In the Asia-Pacific area we offer over 100 c
industry. We believe these innovative new product offerings differentiate us in the market.
ontainer-based designs for the portable services
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Products and Services
Portable Storage
Our portable storage products primarily consist of steel storage containers and freight containers. Storage containers are steel structures, which
r carrying ocean cargo. They typically vary in size from
are generally eight feet wide and eight and one-half feet high; and are built to ISO standards fo
10 feet to 48 feet in length, with 20-foot and 40-foot length containers being the mo
containers that provide a flexible, low cost alternative to warehousing, while offering greater security, convenience and immediate accessibility. Storage
containers include general purpose dry storage, refrigerated and specialty containers in a range of standard and modified sizes, designs and capacities.
Specialty containers include solar lit blast-resistant, hoarding and hazardous waste units. In FY2018 we introduced our patent-pending safety containers,
marketed as PV3 Safety Containers in the United States, CK3 Safety Containers in Canada and the Wolf Lock Premium Container in the Asia/Pacific
region.
st common. Storage containers consist of new and used shipping
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Our freight containers are specifically designed for transport of products by road and rail, and include curtain-side, refrigerated and bulk cargo
containers, together with a range of standard and industry-specific dry freight containers. Freight container products are only offered in our Asia-Pacific
territory. These products are designed for long useful lives. A portion of our fleet consists of used
storage containers of eight to thirteen years in age, a
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time at which their useful life as ocean-going shipping containers is over according to the standards promulgated by the 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, further
customize them, and add our decals and branding.
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Modular Space
Our modular space products include office container products, modular buildings and mobile offices. Our office container products (portable
building containers and ground level office containers, or GLOs) are either modified or specifically-manufactured containers that provide secure and
convenient office space with maximum design flexibility. Floor plans can either be all office space, with features similar to those found in mobile
offices, or a combination of office and storage space. Due to their construction, office containers provide greater security than traditional field offices,
and since they sit at ground level they do not require stairs for entry and exit. Modular buildings are factory-built, highly customizable portable
structures constructed for diverse applications, ranging from schools to restaurants to medical offices and ranging in size from 1,000 to over 30,000
square feet. Mobile offices are factory built, single-unit structures that are re-locatable and used primarily for temporary office space. Mobile offices are
generally built on frames that are connected to axles and wheels and have either a fixed or removable hitch for easy transportation. Mobile offices can
be equipped with HVAC systems, lighting, electrical wiring, phone jacks, desk tops, shelving and other features normally associated with basic office
space. Mobile offices generally have wood siding, carpeting, high ceilings, custom windows and glass storefront doors, which provide a professional,
c area, we also provide
customer-friendly building in which to conduct business. In addition to offering modular buildings for rent, in the Asia-Pacifi
customers with the ability to customize buildings using our in-house engineering team.
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Liquid Containment
Our liquid containment products, primarily portable liquid storage tanks, are manufactured steel containers with fixed steel axles and rear wheels
for transport designed to hold liquids and semi-solids. Our product line currently focuses on 500-barrel capacity steel tanks,
buster, oil test tanks and various specially-built tanks. Products typically include features such as guardrails, safety stairways, multiple entry ways, a
sloped bottom for easy cleaning, an epoxy lining and various feed and drain lines. A number of value-added services are offered with liquid containment
products, including transportation, on-site setup and the servicing of equipment 24 hours a day, 7 days a week.
but also includes acid, gas
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The tables below provide details of our lease fleet by product category and unit types at June 30, 2018, 2017 and 2016; and for FY 2018, the
year ended June 30, 2017 (“FY 2017”) and the year ended June 30, 2016 (“FY 2016”).
Product
Category Unit Type
Storage
Containers
Freight
Containers
Office
Containers
Modular
Buildings
Mobile
Offices
Description
Dry storage,
refrigerated and
specialty
containers
Dry freight,
curtain-side,
refrigerated,
bulk cargo
containers
Storage
containers,
modified to
include office
space
Portable
structures used
for a variety
of applications
Relocatable
wood-framed
temporary office
space
Portable
Liquid
Storage
Tanks
Steel tanks, acid
tanks, gas buster
tanks and oil
test tanks
FY 2018
Number of Units
as of June 30,
2018
Average
Monthly Lease Rate
Average
Utilization
North
America
Asia-
Pacific
North
America
Asia-
Pacific
56,524
$122
A$138
77%
88%
Industry Applications
Classroom equipment storage, Construction
equipment and tool storage, Disaster shelters,
Landscaping sheds, Recreational equipment
storage, Retail inventory storage
Freight transportation
7,501
NA
A$135
NA
75%
General administrative office space, Military
installations, Workforce living
accommodations,
Bank branches, Classrooms /Education,
Construction offices, Daycare facilities,
Dormitories, General administrative office
space, Healthcare facilities, Rental facilities,
Retail space, Shelters
Well-site liquid containment needs,
Expansion / upgrade projects, Highway
construction/Groundwater sewage,
Infrastructure projects, Major industrial
projects, Mining pit pump work, Municipal
sewer and water projects, Non-residential
construction projects, Pipeline construction
and maintenance, Refinery turnarounds
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12,014
$340
A$286
83%
70%
1,179
$767
NA
84%
NA
4,447
$292
NA
82%
NA
4,147
$783
NA
78%
NA
Product
Category Unit Type Description
Industry Applications
Number of Units as
of June 30, 2017
FY 2017
Average
Monthly Lease Rate
Asia-
Pacific
North
America
Average
Utilization
North
America
Asia-
Pacific
Storage
Containers
Freight
Containers
Office
Containers
Modular
Buildings
Mobile
Offices
Portable
Liquid
Storage
Tanks
51,528
$121
A$139
75%
86%
8,272
NA
A$135
NA
70%
11,157
$321
A$268
78%
74%
SEE PRECEDING CHART
1,167
$774
NA
81%
NA
4,491
$282
NA
78%
NA
4,097
$533
NA
48%
NA
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Product
Category Unit Type Description
Industry Applications
Number of Units as
of June 30, 2016
FY 2016
Average
Monthly Lease Rate
Asia-
Pacific
North
America
Average
Utilization
North
America
Asia-
Pacific
50,276
$121
A$139
74%
85%
8,868
NA
A$132
NA
70%
9,673
$317
A$308
80%
70%
SEE PRECEDING CHART
1,142
$772
NA
81%
NA
4,590
$278
NA
76%
NA
4,056
$699
NA
43%
NA
Storage
Containers
Freight
Containers
Office
Containers
Modular
Buildings
Mobile
Offices
Portable
Liquid
Storage
Tanks
Ancillary Products and Services
We deliver and, where necessary, install our products directly on customers’ premises. These services are either provided by our in-house
personnel and transportation equipment or outsourced to third parties. We also provide ancillary products such as steps, ramps, furniture, portable
toilets, security systems, shelving, mud pumps, hoses, splitter valves, tee connectors and other items to our customers for their use in connection with
leased equipment. In addition, with our liquid containment products, a variety of spill prevention and secondary containment products are rented to our
customers to ensure compliance with the Environmental Protection Agency’s Spill Prevention, Control and Countermeasure (SPCC) rule/regulations.
th an impermeable plastic
Spill containment systems, or berms, are designed to protect against leaks or spills by covering the land under a steel tank wi
that has barrier walls. In the case of a spill, the liquid is captured within the containment
system, thereby limiting danger to the environment.
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In response to the reduced demand of its portable liquid storage tanks, our North American manufacturing operations began manufacturing a
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variety of other steel-based products, including:
•
•
•
•
•
Chassis
Storm Shelters
Blast-Resistant Modules
Specialty Tanks
Trash Hoppers
Designed for transporting containers safely on the road, the chassis are made with high quality components, are
I-9
fully customizable and all chassis sales are backed with both a five year limited warranty on axles as well as a five year warranty on workmanship.
Storm shelters are designed for above ground installation, thereby protecting homeowners from a natural disaster. The shelters come in two
different wall designs (corrugated or smooth) and in two different standard sizes. Custom sizes are also available to accommodate specific needs. All
storm shelters are Texas Tech Wind Institute Certified and compliant with ICC 500 2014 and FEMA 361.
Blast resistant modules, designed to protect individuals and materials from external explosions, come in three standard sizes of 8 by 20 feet, 8 by
40 feet and 12 by 40 feet. All modules have an 8 PSI blast rating and can be fabricated with a ballistic rating upon request.
Specialty tanks consist primarily of portable fuel tanks and tanks used in the agriculture industry to store chemicals. In particular, portable fuel
tanks allow the end user to work more efficiently and can reduce costs by accessing fleet fuel on the job site. Specialty tanks are manufactured similar to
liquid containment tanks for the oil and gas industry using a structural steel understructure.
Ideal for any industry needing to process, dispose or relocate materials, trash hoppers work well in multi-story building construction
t
applications, as they can be attached to a telehandler and elevated to accept discarded materials or
corrugated plate steel, making them stronger and more durable than our competitors.
trash. These trash hoppers are constructed of 3/16”
Sales
We complement our core leasing business by selling existing lease fleet assets or assets purchased specifically for resale. The sale of lease fleet
units has historically been a cost effective method of replenishing and upgrading the lease fleet. We also provide additional services when selling units.
These services range from delivery to full scale turnkey solutions. In a turnkey solution, we provide not only the underlying equipment but also a full
range of project related services, which may include foundation, specialty interior finishes, subleasing generators and landscaping, as may be necessary
to make the equipment fully operational for the customer.
Product Lives and Durability
Our portable storage, modular space and liquid containment units have long estimated useful lives of 20-30 years. The age of our rental
equipment, which can be a key price factor in some rental businesses, has only a modest impact on rental rates. This high value retention is due to the
fact that our lease fleet units have virtually no technology obsolescence risk, do not possess engines, have few moving parts, have low maintenance
requirements and are used in non-destructive applications, all differentiating characteristics from many other classes of rental equipment.
Ongoing maintenance to our fleet is performed on an as-needed basis and is intended to maintain the value and rental-ready condition of our
units. Maintenance requirements on portable storage units can include removing rust and dents, patching small holes, repairing floors, painting and
replacing seals around the doors. Maintenance requirements for modular space units can include repairs of floors, doors, air conditioning units,
windows, roofs and electric wiring. Maintenance requirements for liquid containment units include cleaning the unit to eliminate any residual material
and inspecting and repairing the lining, if needed. Maintenance is pe
rformed by in-house fleet technicians and third-party vendors, depending on the
branch and complexity of the work. Maintenance and repair costs of our lease fleet are included as direct costs of leasing operations and expensed as
incurred whether performed by in house technicians or by third party vendors. We believe our maintenance program ensures a high quality fleet that
supports both leasing and sales operations.
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Our lease fleet units are recorded at cost and depreciated on the straight-line basis, in accordance with accounting principles generally accepted
in the United States, up to 20 years after the date they are put in service, down to their estimated residual values. Because we have a history of selling
units for gains, we believe our lease fleet’s estimated residual value is at or below net realizable value.
Geographic Network
Our service locations are segmented into two operating areas: North America and Asia-Pacific. In North America, these service locations are
called branches and in our Asia-Pacific area they are referred to as Customer Service Centers, or “CSCs.” Our primary North American branch network
consists of 57 branch locations in the United States and three in Canada, and our primary Asia-Pacific network consists of 23 CSCs in Australia and 12
in New Zealand.
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Our network enables us 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. We, in turn, benefit because we are able to spread regional overhead and marketing costs over a large lease
base, redeploy units within our network to optimize utilization, discourage potential competitors by providing ample local supply and service local
customers in a more cost efficient manner. Through our network, we develop local market knowledge and strong customer relationships while our
corporate-based marketing group manages our brand image, web presence and lead generation programs.
The following maps show our existing branch and CSC locations as of June 30, 2018.
North America
Asia-Pacific
I-11
North America
In North America, branch offices are generally headed by a branch manager and are organized into four regions, which are managed by four
regional vice presidents each with more than 15 years of experience in the industry. In addition to a branch manager, each bran
sales force and a transportation department that will deliver and pick up lease fleet units from customers in certain remote areas. Branch managers are
integral to our success and performance-based incentive bonuses are a portion of their compensation.
ch may also have its own
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Our two Lone Star branch locations allow us to be near our customers’ production and drilling sites. In addition to benefitting from greater
product availability and timely service, these branch locations enable many of our customers to realize lower transportation costs, which is a significant
value proposition as they aim to control costs. These locations are managed by a general manager working closely with the organization’s Department
of Transportation (“DOT”) compliance and safety officer. Each location also has a superintendent that oversees the operations and yard foremen, who
are responsible for the drivers and mechanics.
Asia-Pacific
We believe that our Asia-Pacific CSC network is the largest of any storage container company in Australia and New Zealand, and management
estimates that we have approximately 40% market share in the region. We are represented in all major metropolitan areas and are the only container
leasing and sales company with a nationally integrated infrastructure and workforce. A typical CSC consists of a leased site of approximately two to five
acres with a sales office, forklifts and all-weather container repair workshop. CSC office staffing ranges from two to 15 people and include a branch
manager supported by the appropriate level of sales, operations and administrative personnel. Yard and workshop staffing usually ranges between one
and 12 people and can consist of welders, spray painters, boilermakers, forklift drivers and production supervisors. CSC inventory usually ranges
between 150 and 700 storage containers at any one time, depending on market size and throughput demand.
Each CSC has a branch manager who has
overall supervisory responsibility for all activities of the CSC. Branch managers report to one of our State Managers for Australia and Sales Managers
(North and South Islands) for New Zealand who in turn report to an Executive General Manager who reports to the CEO. Performance-based incentive
bonuses are a portion of the compensation for the CSC, State, Island and branch managers. Each branch has its own sales force, 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
branch’s forklifts and other equipment. Our smaller branches perform preventative maintenance tasks and outsource major repairs.
f
t
We lease all of our branch locations and Royal Wolf’s corporate and administrative offices in Gordon, New South Wales. All of our major
leased properties have remaining lease terms of up to 22 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.
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Reference is made to “Item 2. Properties” for a more detailed description of our geographic locations.
Customers and End Markets
We have a diverse customer base consisting of over 47,000 customers, who operate in a broad variety of over 20 industries in our North
American and Asia-Pacific venues. Our customers consist of large national corporations, as well as many local companies and organizations. As a
result, in each venue no customer contributed more than 10% of the respective venue’s FY 2018 revenues. Our end markets include construction,
commercial, transportation, industrial, energy, manufacturing, mining, retail, consumer, education and government. We believe the end market and
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geographic diversification of our customer base reduces the business exposure to a
significant downturn in any particular industry or geography.
I-12
The diversity for our leasing operations is depicted in the following charts showing total revenue breakdown by end markets for FY 2018:
r
I-13
The following provides an overview of the end markets served by our leasing operations:
•
•
•
•
•
•
•
•
•
•
Construction - general contractors, residential homebuilders and subcontractors
Industrial - industrial and manufacturing customers including a broad array of manufacturers, telecommunica
utilities, refuse, recycling and bottling companies
Commercial - businesses that provide service to both commercial businesses and individual consumers, including wholesalers,
health care facilities, veterinary offices, entertainment companies and religious institutions
Oil & Gas and Mining - Customers in specific sectors of the extractive industries
Government - federal agencies, state and local governments, fire departments, correctional institutions, and the U.S. military
Retail - large national chains, small local stores, shopping centers and restaurants
Education - public schools, private schools and day care facilities
Consumer – mass market of individuals or groups, not businesses, such as families, sporting teams and community groups in the
Asia-Pacific area
Moving & Transportation - freight providers for primarily road and rail transport in the Asia-Pacific area
Other - all other customers
tions, distribution,
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We differentiate ourselves from competitors in several ways. In our portable storage and modular space businesses, we provide a diverse set of
competitively priced products and, in our Asia-Pacific market, we leverage our engineering team to provide customized units upon customer request. In
our liquid containment business, we leverage long-standing customer relationships and not only provide liquid containment units, but also bundle units
with transportation, on-site set-up, and the servicing of equipment 24 hours a day, 7 days a week. Our customer-centric approach is designed to ensure
that our businesses consistently meet or exceed customer expectations. We believe this focus on customer service attracts new and retains existing
customers. With the goal of delivering “best in class” customer service, we began collecting customer responses on net promoter scores (“NPS”) in
North America at Pac-Van during the year ended June 30, 2015, which track customer willingness to recommend our products and services, and from
October 2014 to June 2015 our customers gave us a NPS of 82. In FY 2016 and in both FY 2017 and FY 2018, our customers gave us a NPS of 83 and
85, respectively. In FY 2017, we began collecting customer responses on NPS in the Asia Pacific at Royal Wolf and in both FY 2017 and FY 2018 our
customers there gave us a NPS of 61. In addition, over 80% of our consolidated total leasing revenues in FY 2018 were derived from repeat customers,
which we believe is a result of our superior customer service.
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Sales and Marketing
In North America, members of our sales teams act as primary cust
r
omer service representatives and are responsible for fielding calls, obtaining
credit applications, quoting prices, following up on quotes and handling orders. Our sales teams are responsible for developing and managing local
relationships, as well as handling both inbound and outbound calls. They also assist customers in defining their space needs, assess potential
I-14
opportunities, quote deals, close transactions and obtain the necessary documentation. Upon completing a lease or a sale, the sales team works closely
with the local branch operations team to ensure that customer expectations are met or exceeded, relative to equipment quality and delivery timing. Our
marketing group is primarily responsible for lead generation, digital marketing, advertising campaigns, producing company literature, creating
promotional sales tools and oversight of customer relationship management systems. We market services through a number of promotional vehicles,
including website, search engine optimization (SEO), search engine marketing (SEM), signage on our equipment, outbound sales efforts, targeted
mailings, and trade shows and live chat. We believe this approach to marketing is consistent with the local nature of our business and allows each
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branch to employ a customized marketing plan that fosters growth within its particular market. As a result of our national foot
print and strong service
levels, we are seeking and securing national account agreements with large retailers, construction companies and other large businesses. We provide
ongoing training to our sales teams, monitor call quality and survey our customers to ensure that customer interactions meet our quality and service
standards. Our lease fleet carries signage reflecting our brands, which is important to ongoing name recognition.
ff
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Our sales and marketing strategy in the Asia-Pacific is designed to reach thousands of potential customers. Communication with potential
customers is predominantly generated through a combination of internal advertising SEO and SEM, print media advertising, telemarketing, website,
customer referrals, signage and decal awareness, direct mail, video, television, radio, social media and live chat. 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 goals are to be one of the suppliers that potential customers call and to make the experience as easy as possible for that customer.
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Fleet Management and Information Systems
Fleet Management
Fleet information is updated daily at the branch level, which provides management with the ability to monitor branch operations on a daily,
weekly, monthly and ad hoc basis with on-line access to utilization, leasing and sale fleet unit levels and revenues by branch or geographic region. In
managing our fleet, we regularly relocate containers between branches to meet changes in regional demand and optimize inventory
levels. We have
close relationships with the national road and rail hauling companies that enable us to transport the majority of containers interstate at attractive rates.
d
Ongoing maintenance to our North American leasing fleet is performed on an as-needed basis and is intended to maintain the value and rental-
ready condition of our units. We use both in-house fleet technicians and third-party vendors to perform maintenance, depending on the branch and
complexity of the work. Maintenance requirements on containers are generally minor and include removing rust and dents, patching small holes,
repairing floors, painting and replacing seals around the doors. Maintenance requirements for container offices, mobile offices and modular buildings
tend to be more significant than for storage equipment and may involve repairs of floors, doors, air
conditioning units, windows, roofs and electric
wiring. Portable liquid storage tanks require simple maintenance, including cleaning the unit to eliminate any residual material and inspecting and
repairing the lining, if needed. Whether performed by us or a third party, the cost of maintenance and repair of our lease fleet is included as direct costs
of leasing operations and is expensed as incurred. We believe our maintenance program ensures a high quality fleet that supports both leasing and sales
operations.
f
In the Asia-Pacific, 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 thirteen years in age, a time at which their useful life as ocean-going shipping containers is over according to the
standards promulgated by 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, 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, spot welding and occasionally replacing the wooden floor or other parts. This
periodic maintenance keeps the container in good condition and is designed to maintain the unit’s value and rental rates comparable to new units.
I-15
Information Systems
We utilize management information systems across each of our businesses to support fleet management and targeted marketing efforts, and we
believe they are tailored to satisfactorily meet each of our businesses’ specific ne
f
eds for efficient operation.
In our North American portable storage and modular space business, we utilize Microsoft Dynamics Navision and a rental module Armada at all
of our branches to monitor operations at branches on a daily, weekly, monthly and ad hoc basis. Lease fl
level and verified through routine physical inventories by branch personnel, providing management with online access to utilization, lease fleet unit
detail and rental revenues by branch and geographic region. In addition, an electronic file for each unit showing its lease his
tory and current location and
status is maintained in the information system. Branch salespeople 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. In FY 2018 we added a business intelligence corporate performance management software package, Microsoft SQL Server Reporting
Services, or SSRS, to our information system platform.
eet information is updated daily at the branch
d
h
In our Asia-Pacific portable storage and modular space businesses, our management information systems, including Microsoft Dynamics
Navision and CRM, Armada, TCM and Power BI, are scalable and provide us with critical information to manage our business. Utilizing our systems,
l our branches
we track a number of key operating and financial metrics including utilization, lease rates, profitability, customer trends and fleet data. Al
use the CRM Platform for surveying, and Navision and Armada for day to day processing. TCM, Power BI and Navision provide branch managers with
vital data for financial, inventory and customer reports. In the year ending June 30, 2019, we intend to further develop our Navision and Armada
capabilities, refine and further automate reporting, roll-out Dynamics CRM for Sales, develop a Customer Portal for self-management and business
interaction, and continue to provide efficiency through system improvements and mobility solutions.
d
Our North American manufacturing business utilizes the enterprise resource planning (ERP) business system, SyteLine, which provides
comprehensive functionality, including order processing, inventory, purchasing, planning and scheduling, production, cost management, project
tracking, accounting and customer service.
Product Procurement
North America
Our North American leasing operations closely monitor fleet capital expenditures, which include fleet purchases and any capitalized
improvements to existing units. Pac-Van’s top four suppliers of units for FY 2017 represented approximately 44% of all fleet purchases and the top ten
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suppliers represented approximately 69% of all fleet purchases. We purchase our Pac-Van lease fleet from a network of third-party suppliers. All of our
mobile offices are built by an established network of manufacturing partners to standard specifications, which may vary dependi
ng on regional
preferences. In addition, we build these units to meet state building code requirements and generally obtain multi-state certificates enabling us to move
equipment among our branch network to meet changing demand and supply conditions. Like mobile offices, we procure modular buildings from an
aa
established network of manufacturing partners to me
et state building requirements and generally obtain multiple state certificates for each unit.
ff
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On October 1, 2012, we acquired 90% of the membership interests of Southern Frac. Southern Frac manufactures primarily portable liquid
storage containers in Waxahachie, Texas for oil and gas exploration and production, but it can also manufacture for, among others, the chemical and
industrial, environmental remediation, waste water treatment and waste management sectors. During FY 2016, Southern Frac introduced other high-
quality steel-based products, including container chassis, under the name “Southern Fabrication Specialties.”
Our North American leasing operations has historically purchased its tank fleet from several manufacturers but expects Southern Frac to be its
primary supplier of steel tanks going forward. However, if needed, we have an established network of steel tank manufacturing partners located
throughout the United States. Lone Star purchases its other containment solutions, pumps and hoses from a network of other manufacturing providers.
We believe that Southern Frac will continue to provide a substantial portion of the portable liquid storage containers requirements to our North
American leasing operations, including a portion of their GLO requirements, as well as generate leasing referrals.
Capital investments are adjusted to match business needs and to respond to changing economic conditions. We do not generally enter into long-
term purchase contracts with manufacturers, and we can modify our capital investment activities in response to market conditions. Our North American
leasing operations supplement fleet spending with acquisitions. Although the timing and amount of acquisitions are difficult to predict, management
I-16
considers its acquisition strategy to be opportunistic
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available.
and attempts to adjust its fleet spending patterns as favorable acquisition opportunities become
Asia-Pacific
In the Asia-Pacific area, we purchase 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 we are 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 we convert, refurbish or customize. We purchase new
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 we are not dependent upon any one manufacturer in purchasing storage container products, if one or more suppliers did not
timely fill our purchase orders or did not properly manufacture the ordered products, our reputation and financial condition also could be harmed. The
top four suppliers represented approximately 89% of all fleet purchases during FY 2018.
storage container products in the Asia-Pacific area under purchase orders
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Competition
Portable Storage
The portable storage markets in North America, Australia and New Zealand are highly fragmented. In most locations within its markets,
Pac-Van and Royal Wolf compete with several national and regional competitors. Our largest competitors in the portable storage sector in North
America are Mobile Mini, Williams Scotsman (WillScot Corporation), McGr
Trailer Storage. We believe we are the market share leader in Australia and New Zealand. Our primary competitors in these markets include
CGM-CMA Group, and the SCF Group (Simply Containers) as well as smaller, full and part-time operators. Local competitors are regionally focused,
and are usually more capital-constrained. Therefore, in general, they are heavily reliant on monthly sales performance, have slow growing rental fleets
and have limited ability to handle larger volume contracts or customer accounts. We believe that participants in this sector compete on the basis of
customer relationships, price, service, as well as breadth and quality of equipment offered.
ath RentCorp, Haulaway, Allied Leasing, Eagle Leasing and National
n
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Modular Space
The modular space sector is highly competitive in each of the markets in which we compete. Our largest North American competitors, Williams
a
Scotsman (WillScot Corporation), Mobile Modular (McGrath RentCorp) and Mobile Mini have greater market share or product availability in some
markets, as well as greater financial resources and pricing flexibility. Other regional competitors include Vanguard Modular, Design Space and Satellite
Shelters. In the Australian portable container buildings market, R
participants who manufacture their own units and most of whom offer units for both lease and sale to customers. These competitors are Coates Hire,
Atco Structures & Logistics and Ausco Modular (Algeco Scotsman). We believe we compete on the basis of service, quality, customer relationships and
price. We believe that our reputation for customer service and a wide selection of units allow us to compete effectively. 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 tend to inhibit new entrants. As we already maintain a national
sale and distribution network, established supply channels and a strong profile in our target markets, many of the barriers to entry applicable to other
new entrants are not applicable to us.
oyal Wolf maintains a small presence and competes primarily with three large
Liquid Containment
The liquid containment sector is highly competitive. We compete in this sector based upon product availability, product quality, price, service
and reliability. As with the other industries we serve, the competition consists of national, regional and local companies. Some of the national
competitors, notably BakerCorp, Rain For Rent and Adler Tanks (McGrath RentCorp), have significantly larger tank lease fleet and may have greater
financial and marketing resources, more established relationships and greater name recognition in the market than we do. As a result, the competitors
with these advantages may be better able to attract customers and provide their products and services at lower rental rates.
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Employees
As of June 30, 2018, we had a total of 875 employees. None of our employees are covered by a collective bargaining agreement and management
believes its relationship with employees is good. We have never experienced any material labor disruption and are unaware of any efforts or plan to
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organize our employees. The employee groups are as follows:
Corporate executive
Regional executive and administrative staff
Senior and branch management
Sales and marketing
Branch operations and administration
Manufacturing
Leasing
—
43
77
81
333
—
534
North America
Manufacturing
—
12
—
—
—
58
70
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Corporate
5
2
—
—
—
—
7
Asia-Pacific
Leasing
—
24
34
78
128
—
264
Executive Officers of the Registrant
The following information is provided as of June 30, 2018 regarding our executive officers. No family relationship exists between any executive
officer.
Name
Age
Position
Ronald F. Valenta
Jody Miller
Charles E. Barrantes
Christopher A. Wilson
Jeffrey A. Kluckman
Neil Littlewood
Theodore Mourouzis
59
51
66
51
57
57
55
Executive Chairman of the Board
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
General Counsel, Vice President and Secretary
Executive Vice President of Global Business Development
Chief Executive Officer of Royal Wolf Holdings Limited
Chief Executive Officer and President of Pac-Van, Inc.
Ronald F. Valenta assumed the title of Executive Chairman of the Board in January 2018. Mr. Valenta has served as a director since our
inception and our Chairman of the Board since June 2014. He was our President from inception until January 2017 and Chief Executive Officer from
inception until January 2018. From May 2011 to October 2017, Mr. Valenta served as a director of Royal Wolf Holdings Limited. 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, and from 2003
to 2006, Mr. Valenta was a director of the National Portable Storage Association, a storage industry non-profit organization that he co-founded. From
1985 to 1989, Mr. Valenta was a Senior Vice President of Public Storage, Inc., and from 1980 to 1985, Mr. Valenta was employed by the accounting
firm of Arthur Andersen & Co. in Los Angeles.
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Jody Miller became our Chief Executive Officer in January 2018 and has served as our President since January 2017. Mr. Miller was our
Executive Vice President from June 2015 to January 2017 and has been the Chief Executive Officer of GFN North America Leasing C
orporation since
June 2015 and has served on the board of Royal Wolf Holdings Limited since 2016. Prior to joining us, Mr. Miller spent over 25 years in the equipment
rental industry, including at Mobile Mini, Inc. as Executive Vice President and Chief Operations Officer for five years, Mobile Services Group, Inc. as
Senior Vice President for five years, and RSC Holdings, Inc. for fifteen years; where he held many positions, including Regional Vice President for
seven years. Mr. Miller is a 1990 graduate of Central Missouri State University.
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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
35 years of experience in accounting and finance, starting with more than a decade with Arthur Andersen & Co.
Christopher A. Wilson has served as our General Counsel, Vice President and Secretary since 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.
Jeffrey A. Kluckman is our Executive Vice President of Global Business Development. Jeff started with us in September 2011. Prior to joining
us, among other things, he held the role of vice president of mergers and acquisitions for portable storage solutions provider Mobile Mini, Inc. and,
earlier, similar positions with Mobile Services Group, Inc., which was acquired by Mobile Mini in 2008, and RSC Equipment Rental, Inc. In his near
20-year background in the rental services sector, including the mobile storage, modular space and equipment rental industries, Mr. Kluckman
successfully completed more than 145 transactions. Mr. Kluckman received an accounting degree from Northern Illinois University.
Neil Littlewood became Chief Executive Officer of Royal Wolf in July 2016. He joined Royal Wolf in March 2013 in the role of Executive
General Manager, North East. Neil has over 13 years of senior experience in the rental/hire
Australian Temporary Fencing. Prior to this, Neil spent 20 years as an Army Officer including being in charge of recruiting for the Australian Army and
retiring as Lieutenant Colonel. He is a graduate of the Royal Military College Duntroon and holds a Bachelor of Arts and Masters in Management from
the University of New South Wales.
industry including executive roles at Coates Hire and
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Theodore Mourouzis became Chief Executive Officer of Pac-Van, Inc. in April 2017 and has served as its President 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 was a controller for a 3M joint venture, served four years in management consulting with Deloitte & Touche, 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.
Trademarks
North America
We own trademarks important to our North American leasing operations, including Pac-Van®, “We’ve Put Thousands of U.S. Businesses In
Space®,” “Expect More. We’ll Deliver®” and the “Container King” logo in Canada. Material trademarks are registered in the U.S. Patent and Trademark
Office (“USPTO”). On March 27, 2018, we filed an application for the “PV 3 Safety Container,” and, on May 29, 2018, filed an amendment to allege
use of the trademark, which was accepted by the USPTO on July 12, 2018. We are currently preparing a response to the USPTO office action to proceed
with registration of the trademark. Registrations for such trademarks in the U.S.
trademarks and renew filings with the applicable governmental offices.
will last indefinitely as long as we continue to use and maintain the
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Asia-Pacific
We entered into a licensing agreement with Triton Corporation in May 2008 for the use of the “Royal Wolf” name and trademark in connection
with its retail sales and leasing of intermodal cargo containers and other container applications in the domestic storage market within Australia and New
Zealand and surrounding islands in the Pacific Islands region. We paid Triton Corporation $740,000 to license the trademark. The license will continue
in perpetuity as long as Royal Wolf continues to use the “Royal Wolf” name and trademark as the exclusive name for its business and mark for its
products, subject to the termination provisions of the license. The license may be terminated by the licensor upon 30 days notice in the event Royal Wolf
breaches its obligations under the license and will terminate automatically if Royal Wolf becomes insolvent or ceases to sell products under the
trademark for a continuous period of 30 months. We sold the “Royal Wolf” name and trademark to Royal Wolf in May 2011 in connection with the
Australian initial public offering of RWH. There are no claims pending against Royal Wolf challenging its right to use the “Royal Wolf” name and trade
mark within Royal Wolf’s region of business. In September 2017, we reacquired the RWH shares that were issued in the initial public offering and not
previously owned.
Available information
Our Internet website address is www.generalfinance.com. This reference to our Internet website does not incorporate by reference the
information contained on or hyperlinked from our Internet website into this Annual Report on Form 10-K. Such information should not be considered
part of this Annual Report on Form 10-K. The Internet websites for our operating units ar
www.royalwolf.co.nz), Pac-Van (www.pacvan.com), Lone Star (www.lonestartank.com) and Southern Frac (www.southernfrac.com and
www.southernfabricationspecialties.com). We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the
Securities and Exchange Commission (“SEC”) on a regular basis and are required to disclose certain material events in a current report on Form 8-K.
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The public may read and obtain a copy of any materials we file with the SEC through our Internet website noted above, which is
SEC’s Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the
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SEC. The SEC’s Internet website is located at
http://www.sec.gov.
e Royal Wolf (www.royalwolf.com.au and
hyperlinked to the
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Item 1A. Risk Factors
In addition to the other information in our Annual Report on Form 10-K, you should consider the risks described below that we believe may be
material to investors in evaluating us. This section contains forward-looking statements, and in considering these statements, you should refer to the
qualifications and limitations on our forward-looking statements that are described in SAFE HARBOR STATEMENT before the beginning of Item 1.
Economic conditions and global capital and credit market disruptions may adversely
operations.
a
affect our business, financial condition and results of
d
An economic slowdown in the United States and/or globally, including reduced oil and gas and non-residential construction activity, would
adversely affect our business. Worsening conditions could adversely affect, among other things, the collection of our trade receivables on a timely basis,
resulting in additional reserves for uncollectible accounts; and, in the event of continued contraction in product sales and leasing, could lead to a
build-up of inventory and lease fleet levels and a decline in revenues. In addition, we engage in borrowing and repayment activities under our revolving
credit facilities on an almost daily basis and have not had any disruption in our ability to access our revolving credit facili
disruptions in the global capital and credit markets, such as those that occurred in
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could increase the likelihood that one or more of our lenders may be unable to honor its commitments under our revolving credit facilities, which could
have an adverse effect on our business, financial condition and results of operations.
ties as needed. However,
the global financial crisis during the latter part of the past decade,
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We operate with a significant amount of indebtedness, bor
including liens on all or substantially all of our assets, variable interest rates and contains restrictive covenants.
rowed primarily under senior secured credit facilities, which include various restrictions,
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Our substantial indebtedness could have adverse consequences, such as:
•
•
•
•
•
•
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which could red
availability of our cash flow to fund future operating capital, capital expenditures, acquisitions and other general corporate purposes;
expose us to the risk of increases in interest rates, as a substantial portion of our borrowings on our secured senior credit facilities are at
variable rates of interest;
require us to sell assets to reduce indebtedness or influence our decisions about whether to do so;
increase our vulnerability to general
limit our flexibility in planning for, or reacting to, changes in our business and industry;
prohibit us from making strategic acquisitions or pursuing business opportunities; and
limit, along with the financial and other restrictive covenants in our indebtedne
adverse economic and industry conditions;
uce the
a
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ss, among other things, our ability to borrow additional funds.
Violating covenants in these agreements could have a material adverse effect on our business, financial condition and results of operations;
including substantially increasing our cost of borrowing and restricting our future operations, if not cured or waived. In addition, the lenders may be able
to terminate any commitments they had made to supply us with further funds. Accordingly, we may not be able to fully repay our debt obligations, if
some or all of our debt obligations are accelerated upon an event of default.
Our senior credit agreements also contain various restrictive covenants that limit the operations of our business. Among other things, these
agreements include covenants and restrictions relating to:
payments and distributions to GFN;
•
liens, loans and investments;
•
•
debt and hedging arrangements;
• mergers, acquisitions and asset sales;
transactions with affiliates; and
•
changes in business activities.
•
In addition, we may incur substantial debt to complete business combinations. The incurrence of debt could result in:
•
•
•
default and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations;
our immediate payment of all principal and accrued intere
our inability to obtain necessary additional financing if the agreements governing such indebtedness restrict our ability to obtain such financing
while the debt instrument is outstanding.
st, if any, if the debt security is payable on demand; and
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The amount our North American leasing operations can borrow under its senior credit agreement depends in part on the value of its lease fleet. If
the value of the lease fleet declines under appraisals our lenders receive, the amount we can borrow will decline by a similar amount. Several covenants
with our lenders are affected by changes in the value of the lease fleet. We would be in breach of certain of these covenants if the value of the North
American lease fleet drops below specified levels. If this happens, we may not be able to borrow the amounts we need to expand our business both
organically and through acquisitions, make payments and distributions to GFN, and we may be forced to liquidate a portion of our existing fleet.
While we believe we will remain in compliance with the covenants in agreements governing such indebtedness in the foreseeable future and that
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our relationships with our senior lenders are good, there is no assurance our lenders would consent to an amendment or waiver in the event of
noncompliance; or that such consent would not be conditioned upon the receipt of a cash payment, revised principal payout terms, increased interest
rates or restrictions in the expansion of the credit facilities for the foreseeable future; or that our
senior lenders would not exercise rights that would be
a
available to them, including, among other things, demanding payment of outstanding borrowings. In addition, our ability to obtain additional capital or
rsely affected. All or any of these adverse events would further limit our flexibility
alternative borrowing arrangements at reasonable rates may be adve
in planning for or reacting to downturns in our business.
a
See also the significant risks related primarily to our 9.00% Series C Cumulative Redeemable Perpetual Preferred Stock (the “Series C Preferred
Shares” or “Series C Preferred Stock”) and our 8.125% Senior Notes (the “Senior Notes”), that are due in July 2021. In addition, reference is made to
Notes 3 and 5 of Notes to Consolidated Financial Statements for more information regarding our Series C Preferred Stock and indebtedness.
We may need additional capital which we may be unable to obtain.
Our business is capital intensive and any inability to obtain capital in the amounts and at the times when needed, may 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 and impairing our ability to grow, improve and maintain our leased assets. We have a significant amount of our outstanding senior
indebtedness maturing in the foreseeable future. We may not have sufficient cash flow from our operations to repay amounts coming due and, if we are
unable to refinance this indebtedness, it could have a material adverse effect on our business.
Declines in demand for our products and services could also lead to increased borrowings and reduced collateral values which could lower the
amounts we can borrow under our senior credit facilities; which c
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ould, in turn, restrict our ability to grow our business.
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If we are unable to collect on contracts with customers, our operating results
could be materially adversely affected.
Some of our customers may have liquidity issues and may not be able to fulfill the terms of their rental agreements with us. Historically,
accounts receivable write-offs have not been significant. However, if we are unable to manage credit risk issues, or if a large number of customers have
financial difficulties at the same time, our credit losses could increase above historical levels a
Delinquencies and credit losses generally can be expected to increase during economic slowdowns or recessions.
nd our operating results would be adversely affected.
a
Demand for a portion of our lease fleet and manufacturing products in North America is, to a sign
expenditures and drilling activity by the oil and gas indu
y
stry and can fluctuate significantly in a short period of time. A sub
decline in oil and gas prices could result in lower expendit
n
ures and reduced drillin
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effect on our financial condition, results of operations and cash flows.
g by the oil and gas
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industry, which could have a material adverse
stantial or an extended
ificant degree, dependent on the levels of
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Demand for a portion of our lease fleet and manufacturing products in North America depends, to a significant degree, on the level of
expenditures by the oil and gas industry for the exploration, development and production of oil and natural gas reserves and can fluctuate significantly in
a short period of time. These expenditures are generally dependent on numerous factors and events
industry’s view of current and future oil and natural gas prices, future economic growth and the resulting impact on demand for oil and natural gas.
Declines, as well as anticipated declines, in oil and gas prices could result in the reduction of drilling activity, project modifications, delays or
cancellations, general business disruptions and delays in payment of, or nonpayment of, amounts that are owed to us. The oil and gas industry has
historically experienced volatile prices for oil and gas and periodic downturns, which have been characterized by diminished demand for oilfield
services and downward pressure on vendor prices charged. A significant and/or extended downturn in the oil and gas industry could result in a reduction
in demand for our products, specifically our portable liquid containment products and se
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borrow under our senior secured credit facilities and could adversely affect our financial condition, results of operations and cash flows.
rvices in North America, reduce the amounts we are able to
over which we have no control, including the
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Changes in regulatory, or governmental, oversight of hydraulic fracturing could materially adversely affect the demand for our portable liquid
containment products.
Oil and gas exploration and extraction (including the use of tanks for hydraulic fracturing of gas and oil shale) are subject to numerous local,
state and federal regulations. The hydraulic fracturing method of extraction has come under scrutiny in several states and by the federal government due
to the potential adverse effects that hydraulic fracturing, and the liquids and chemicals used, may have on water quality and public health. In addition,
the disposal of wastewater from the hydraulic fracturing process into injection wells may be proven to increase the rate of seismic activity near drill sites
and could result in regulatory changes, delays or interruption of future activity. Changes in these regulations could limit, interrupt or stop exploration
and extraction activities, which would negatively impact the demand for our portable liquid c
ontainment products and services in North America.
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We are subject to fluctuations in the rates of exchanges in the translation of our foreign operations into the U.S dollar for f
purposes.
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inancial reporting
Fluctuations in the rates of exchange for the U.S. dollar against the Australian, New Zealand and Canadian dollars could significantly affect our
results of operations through lower than anticipated reported revenues and profitability as a result of the translation of our foreign operations’ financial
results into U.S. dollars.
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ee
A write-off of all or a part of our goodwill and intangibles would hurt our operating re
sults and reduce ou
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r stockholders’ equity.
ii
As a result of our acquisitions, 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
standards and, instead, we review goodwill (as well as intangible assets) for impair
in the performance of acquired businesses, adverse market conditions and adverse changes in applicable laws or regulations, including changes that
restrict the activities of the acquired business. In the event impairment is identified, a charge to earnings would be recorded. Although it does not affect
our cash flow, a write-off of all or a part of our goodwill or intangibles would adve
are not permitted to amortize goodwill under U.S. accounting
ment. Impairment may result from, among other things, deterioration
rsely affect our operating results and equity.
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Reference is made to Note 2 of Notes to Consolidated Financial Statements for more information regarding goodwill and intangible assets.
Future acquisitions of businesses and greenfield expansions could subject us to additional business, operating an
which cannot presently be evaluated, and which could adversely impact our capital structure.
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d industry risks, the impact of
We intend to pursue acquisition opportunities and greenfield e
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xpansions in an effort to diversify our investments and grow our business. Any
business we acquire may cause us to be affected by numerous risks inherent in the target’s business operations. If we acquire a business in an industry
a
characterized by a high level of risk, we may be affected by the current
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, integrating acquired businesses, greenfield expansions and assets into our business can be difficult and
acquired business or assets involve an industry segment with which our management has limited experience or where there are lim
our current businesses. Our integration of acquired businesses and realization of all synergies or efficiencies that we believe may result from such
acquisitions or expansions may not come to fruition, which could negatively impact our business.
ly unascertainable risks of that industry. Although we
risky, especially if the
ited synergies with
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The financing of any acquisition we complete could adversely impact our capital structure as any such financing would likely include the
borrowing of additional funds and/or the issuance of additional equity securities. 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. 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.
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Reference is made to Note 4 of Notes to Consolidated Financial Statements for more information regarding acquisitions.
I-23
While part of our long-term business strategy is to acquire additional businesses, there is no assuranc
we can acquire upon terms we believe acceptable, or if such acquisitions require additional financing, that we could obtain suc
financing.
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e that we will be able to identify busi
nesses that
h additional
We cannot ascertain the availability of businesses to acquire, nor the capital requirements for future transactions. We cannot assure that, if
to be unavailable when
required, additional financing will be available on acceptable terms, if at all. To the extent that additional financing proves
needed to consummate a particular acquisition, we would be compelled to either restructure the transaction or abandon that part
addition, if we consummate a future acquisition, we may require additional financing to fund the operations or growth of the target business. The failure
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to secure additional financing may impact the continued development or growth of the target business and could adversely impact our operating results.
icular acquisition. In
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Our long-term growth plan involves an element of risk and could strain our management resources. Failure to retain key executives could adversely
affect our operations and could impede our ability to execute our business plan and growth strategy.
We intend to pursue a growth strategy involving organic and non-organic growth. There is a no guarantee that such growth will occur or be
successful. We may incur significant capital expenditures in connection with expansion plans that may not be realized or may not deliver the earnings
that are expected. In addition, our expansion plans may, in the future, give rise to unforeseen risks or problems, and our future performance will depend
in large part on our ability to manage our long-term planned growth that could strain our existing
successfully manage this growth, we must continue to add competent managers and employees and improve our operating, financial
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.
management, human and other resources. To
and other internal
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Our growth strategies, operational guidance, capital allocation and capital markets support are managed largely by our existing corporate
officers; as well as the senior management teams at our operating units in the Asia-Pacific area and North America. The continued success of our
businesses will depend largely on the efforts and abilities of our corporate executives and the operational senior management teams. These key
personnel have an understanding of our businesses that cannot be readily duplicated. However, we do not have key-man insurance on any of these key
personnel. The loss of any of these key personnel could impair our ability to execute our business plan and growth strategy and could have a material
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adverse effect on our operating results.
d
Our long-term growth plan may include the expansion of operations into markets outside of North America and the Asia-Pacific area. Such
international expansion may not prove successful, and may dive
affect our on-going operations.
rt significant capital, resources and management’s time and attention and adversely
s
To date, we have conducted all of our business within North America and the Asia-P
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acific area. However, we may in the future enter
international markets, which would require substantial amounts of management time and attention. Our products and overall business approach may not
be accepted in other markets to the extent needed to make our intern
from these activities may detract from our efforts in our current markets and adversely affect our operating results therein. 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
asset management difficulties.
ational expansion profitable. In addition, the additional demands on management
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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.
We may seek to finance future transactions, including business combinations, or improve our financial position by issuing additional shares of
our common stock and/or preferred stock. The issuance of any number of shares of our common stock or of our preferred stock:
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• may significantly reduce the equity interest of investors;
• may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to our common stock;
• 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
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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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I-24
• may adversely affect prevailing market prices for our common stock.
Because we have depended to a large extent on the success of our leasing operations, the failure to effectively and quickly remarket lease units that
are returned could materially and adversely
affect our results of operations.
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Historically, our average monthly lease fleet utilization has averaged between 70% and 85% and the typical lease term has averaged over twelve
months. These factors have provided us with a fairly predictable revenue stream. However, if utilization rates decline or should a significant number of
our lease units be returned during any short period of time, we
revenues from these operations. Our 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 and cash flows.
would have to re-lease a large supply of units at similar rates to maintain historic
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The supply and cost of used ISO containers fluctuates, which can affect our pricing.
We purchase, remanufacture and modify used ISO containers in order to expand our rental fleet. If used ISO container prices increase
substantially, these price increases could increase our expenses, particularly if we are not able (due to competitive reasons or otherwise) to raise our
rental rates to absorb this increased cost. Conversely, an oversupply of used ISO containers may cause container prices to fall. In such event,
competitors may then lower the rental rates on their storage units. As a result, we may need to lower our rental rates to remain competitive. Therefore,
fluctuations in the used ISO container market could cause our revenues and our earnings to decline.
Our lease fleet is subject to residual value risk upon disposition, and may not sell at the prices or in the quantities we expect.
A significant portion of our revenues are from unit sales out of our lease fleet. The market value of any given unit of our lease fleet could be less
than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including:
•
•
•
•
•
•
the market price for new equipment of a like kind;
the age of the equipment at the time it is sold, as well as wear and tear on the equipment relative to its age;
the supply of used equipment on the market;
technological advances relating to the equipment;
worldwide and domestic demand for used equipment; and
general economic conditions.
We include in operating income the difference between the sales price and the depreciated value of an item of equipment sold. Changes in our
assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of lease fleet. Sales of units
from our lease fleet at prices that fall significantly below its carrying value will have an adverse impact on our results of operations.
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New tariffs on steel imports could result in increased container prices.
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In June 2018, the U.S. government issued part 2 of the 25% ad valorem tariff that is expected to be applied to Chinese exports to the U.S. The
list of proposed products and commodities that would be subject to this 25% tariff includes ISO containers. While containers involved in typical
possible that the U.S.
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import/export shipping activities are considered instruments of international trade and not typically subject
government could view containers as being subject to the proposed tariff once they are sold into the United States. Since a significant portion of portable
storage containers currently in the United States were originally manufactured in China to transport goods before eventually being sold for domestic use,
the proposed tariff would immediately increase the cost of new and used containers being sold into the United States. In August 2018, the U.S.
government determined that a tariff would not be applied to ISO containers. However, if in the future it is reconsidered and a tariff is applied, such an
action would result in increased steel container prices, which could adversely affect our results of operations and financial c
to tariffs, it is
ondition.
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Unionization by some or all of our employees could cause increases in operating costs.
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Our employees are not presently covered by collective bargaining agreements. Unions may attempt to organize our employees in the future. We
are unable to predict the outcome of any continuing or future efforts to organize our employees, the terms of any future labor agreements, or the effect,
if any, those agreements might have on our operations or financial performance.
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We are subject to laws and governmental regulations and actions that affect our operating results and financial condition.
Our business is subject to regulation and taxation under a wide variety of foreign and U.S. federal, state and local laws, regulations and policies
including those imposed by the SEC, the Internal Revenue Service, the Dodd-Frank Wall Street Reform and Consumer Protection Act and NASDAQ, as
well as applicable labor laws. Although we have policies and procedures designed to comply with applicable laws and regulations, failure to comply
with the various laws and regulations may result in civil and criminal liability, fines and penalties, increased costs of compliance, additional taxation and
restatement of our financial statements.
There can also be no assurance that, in response to current economic conditions or the current political environment or otherwise, laws and
regulations will not be implemented or changed in ways that adversely affect our operating results and financial condition, such as recently adopted
legislation that expands health care coverage costs or facilitates union activity or federal legislative proposals to increase taxation and operating costs.
Our effective tax rate may change and become less predictable as our business expands, making our future after-tax results less predictable.
We continue to consider expansion opportunities domestically and internationally for our leasing businesses. Since the our effective tax rate
ion into new markets or acquisitions may change the
ictable going forward. In addition, the enactment of
depends on business levels, personnel and assets located in various jurisdictions, further expans
effective tax rate in the future and may make it, and consequently our after-tax results, less pred
future tax law changes by federal, state and international taxing authorities may impact our income tax provision and deferred tax liabilities.
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Failure to comply with internal control attestation requirements could lead to loss of public confidence in our financial state
impact our stock price.
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ments and negatively
As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002, including Section 404, and the related rules and
regulations of the SEC, including expanded disclosures and accelerated reporting requirements. Compliance with Section 404 and other related
requirements has increased our costs and will continue to require additional management resources. We may need to continue to implement additional
finance and accounting systems, procedures and controls to satisfy new reporting requirements, and there is no assurance that f
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uture assessments of the
adequacy of our internal controls over financial reporting will be favorable. If we are unable to obtain future unqualified reports as to the effectiveness
of our internal control over financial reporting, investors could lose confidence in the reliability of our internal control over financial reporting, which
could, among other things, adversely affect our stock price.
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Our self-insured loss reserves through our captive insurance company may be inadequate to cover our ultimate liability.
We have insurance policies with coverage that we believe are adequate, including auto liability, general liability, directors and officers liability
and workers compensation. Effective on February 1, 2017, we became self-insured for auto liability and general liability through GFNI, our wholly-
owned captive insurance company. Claims and expenses are reported when it is probable that a loss has occurred and the amount of the loss can be
reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. We record reserves (included in “Trade
payables and accrued liabilities” in our consolidated balance sheets) to cover estimated lo
determination of these loss reserves is based upon a number of factors, including current and historical claims activity, claims payment patterns and
developments in any existing claims. Accordingly, reserves do not represent an exact calculation of liability and can be affected by both internal and
external events, such as adverse developments on existing claims or changes in claims handling procedures, administrative costs and legal fees,
inflation, and legal trends and legislative changes. Loss reserves are adjusted from time to time to reflect new claims, claim developments, or systemic
changes, and such adjustments are reflected in the results of the periods in which the loss re
recorded at our consolidated balance sheet dates are adequate, because of the uncer
rr
tainties that surround
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reserves will cover the ultimate liability. If our loss reserves are insufficient to cover our actual losses, we would incur additional charges that could be
material to our consolidated results of operations and financial condition.
serves are changed. Though we believe the loss reserves
sses for our self-insured general liability and auto liability. The
estimating losses we cannot be certain that such
d
f
ll
We are exposed to various possible claims relating to our business and ou
r insurance may not fully protect us.
We are exposed to various possible claims relating to our business. These possible claims include those relating to: (i) personal injury or death
caused by container products, mobile offices or modular units leased or sold by us; (ii) accidents involving our vehicles and our employees;
(iii) employment-related claims; (iv) property damage; (v) commercial claims and (vi) environmental contamination. We believe that we have adequate
r
insurance coverage for the protection of our assets and operations. However, our insura
nce may not fully protect us for certain types of claims, such
n
t
I-26
as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third-party lawsuits.
In addition, we may be exposed to uninsured liability at levels in excess of our policy limits. If we are found liable for any significant claims that
are not covered by insurance, our liquidity and operating results could be materially adversely affected. It is possible that our insurance carriers may
disclaim coverage for any class action and derivative lawsuits against us. It is also possible that some or all of the insurance that is currently available to
us will not be available in the future on economically reasonable terms or not available at all. In addition, whether we are covered by insurance or not,
certain claims may have the potential for negative publicity surrounding such claims, which may adversely impact our operating results, value of our
public securities, or give rise to additional similar claims being filed.
Disruptions in our information technology systems could limit our ability to effectivel
d
y monitor and control our operations and
ll
operations.
tt
adversely affect our
Our information technology systems facilitate our ability to monitor and control our operations and adjust to changing market conditions. Any
disruption in our information technology systems or the failure of these systems to operate as expected could, depending on the magnitude of the
problem, adversely affect our operating results by limiting our capacity to effectively transact business, monitor and control our operations and adjust to
changing market conditions in a timely manner. Like other companies, our information technology systems may be vulnerable to a variety of
interruptions due to our own error or events beyond our control, including, but not limited to, cyber-security breaches, natural disasters, terrorist attacks,
telecommunications failures, computer viruses, hackers and other security issues. The failure of these systems to operate effectively could result in
substantial harm or inconvenience to us or our customers. This could include the im
mm
r
these situations or data privacy breaches may cause delays in customer service, reduce efficiency
investments to remediate the problem, or result in negative publicity that c
information or other “identity theft.” Each of
in our operations, require significant capital
ould harm our reputation and results.
proper use of personal
r
r
In addition, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract
and growth initiatives and increase our implementation and operating costs, any of
management’s focus and attention from our business operations
tt
which could negatively impact our operations and ope
rating results.
r
The price of our common stock may fluctuate significantly,
at a price they find attractive.
a
which may make it difficult for stockholders to resell common stock when they want or
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:
tt
•
•
•
•
•
•
•
•
actual or anticipated variations in our quarterly operating results;
changes in interest rates and other 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;
relatively low trading volume; and
significant concentration of ownership in our common stock.
rr
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 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.
I-27
Significant Risks Related Primarily to Our Leasing Operations in North America
g p
y
g
General or localized economic downturns or weakness may adversely affect our customers, in particular those in the oil and gas and construction
industries, which may reduce demand for our products and services and negatively impact our future re
venues and results of operations.
e
A significant portion of our revenues in our North American leasing ope
r
rations 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 oil and gas and the construction industries. Although the
variety of our products, the breadth of our customer base and the number of market
s we serve throughout North America limit our exposure to economic
r
downturns, general economic downturns or localized downturns in markets where we operate could reduce demand for our products, especially in the
construction or oil and gas industries, and negatively impact our future revenues, results of operations and cash flows.
r
In the oil and gas industry, lower or the perception of lower or unstable domestic oil or gas prices have an adverse effect on our portable liquid
containment business. Such market conditions cause customers to limit or stop exploration and extraction activities, resulting in lower rental demand
and rates for our portable liquid containment products. Also, a we
ak U.S. economy may negatively impact infrastructure construction and industrial
activity. Any of these factors would adversely affect our cash flows and financial performance and could result in excess lease fleet or impairment
charges.
d
We may be brought into tort or environmental litigation or held responsible for cleanup of spills if the customer fails to perf
ff
orm, or an
occurs in the use of our tank container products, which could materially adversely affect our business, future operating results or financial position.
accident
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tt
Our portable liquid tank containers and containment products are used by customers to store non-hazardous and certain hazardous liquids on
customer sites. Customers are responsible for proper operation of our fleet equipment while on lease and returning a cleaned and undamaged container
upon completion of use, but we cannot always assure that these responsibilities are fully met in all cases. Our operations are subject to operational
hazards, including accidents or equipment issues that can cause pollution and other damage to the environment. Hazards inherent in the oil and natural
gas industry, such as, but not limited to, accidents, blowouts, explosions, pollution and other damage to the environment, fires and hydrocarbon spills,
may delay or halt operations at extraction sites which we service. These conditions can cause:
t
•
•
•
•
personal injury or loss of life;
liabilities from accidents by our fleet of trucks and other equipment;
damage to or destruction of property, equipment and the environment; and
the suspension of operations.
In the event of a spill or accident, we may be brought into a lawsuit or enforcement action by either our customer or a third party on numerous
potential grounds, including that an inherent flaw in a container tank contributed to the accident or that the container tank had suffered some
undiscovered harm from a previous customer’s use. In the event of a spill caused by our customers, we may be held responsible for cleanup under
aa
environmental laws and regulations concerning obligations of suppliers of rental products to effect remediation. In addition, applicable environmental
laws and regulations may impose liability on us for conduct of third parties, or for actions that complied with applicable regu
lations when taken,
regardless of negligence or fault. Substantial damage awards have also been made in certain jurisdictions against lessors of industrial equipment based
upon claims of personal injury, property damage, and resource damage caused by the use of various products. While we try to take reasonable
precautions that our lease equipment is in good and safe condition prior to lease and carry insurance to protect against certain risks of loss or accidents,
liability could adversely impact our profitability.
mm
ff
We maintain insurance coverage that we believe to be customary in the industry agai
t
nst these hazards. We may not be able to maintain adequate
insurance in the future at rates we consider reasona
ble. In addition, insurance may not be available to cover any or all of the risks to which we are
t
subject, or, even if available, the coverage provided by such insurance may be inadequate, or insurance premiums or other costs could make such
insurance prohibitively expensive. It is likely that, in our insurance renewals, our premiums and deductibles will be higher, and certain insurance
coverage either will be unavailable or considerably more expensive than it has been in the recent past. In addition, our insurance is subject to coverage
limits, and some policies exclude coverage for damages resulting from environmental contamination.
I-28
The portable storage industry in North America is highly competitive and fragmented, and we face significant competition that may lead to our
inability to increase or maintain our prices, which could have a material adverse impact on our results of operations.
The portable storage industry in North America is highly competitive and fragmented. Many of the markets in which we operate are served by
numerous competitors, ranging from national companies to smaller multi-regional companies and small, independent businesses with a limited number
of locations. Some of these competitors currently offer products outside of our offerings or may have better brand recognition in some market sectors. If
these competitors use their brand awareness to promote products that compete with our product offerings, customers may choose these competitors’
products over ours, and we could lose business. A number of our competitors are competing aggressively on the basis of pricing and may drive down
prices. Additionally, general economic factors could drive down market prices. To the extent that we choose to match our competitors’ declining prices,
it could harm our results of operations as we would have lower margins. To the extent that we choose not to match or remain within a reasonable
competitive distance from our competitors’ pricing, it could also harm our results of operations, as we ma
y lose rental volume.
f
tt
The portable liquid containment rental industry is hi
i
ghly competitive, and competitive pressures could impair our ability to in
rable prices.
and to rent or sell, equipment at favo
ii
crease market share
The portable liquid containment rental industry is highly competitive. We compete against national, regional and local companies, some of
which are significantly larger than we are and have greater financial and
operating histories, lower cost rental equipment and lower cost structures and more established relationships with equipment manufacturers than we
have. In addition, certain of our competitors are more geographically diverse than we are and have greater name recognition among customers than we
do. As a result, our competitors that have these advantages may be better able to attract customers.
marketing resources than we have. Some of our competitors also have longer
aa
We believe that local relationships, equipment quality, service levels and fleet size are key competitive factors in the portable liquid containment
industry. From time to time, we or our competitors may attempt to compete aggressively by lowering rental rates or prices. Competitive pressures could
adversely affect our future revenues and operating results by depressing the rental rates. To the extent we lower lease rates or increase our fleet size in
order to retain or increase market share, our operating margins would be adversely impacted. In addition, we may not be able to match a larger
competitor’s price reductions or fleet investment because of its greater financial resources, all of which could adversely impa
results.
ct our future operating
f
Seasonality of the portable liquid containment industry may impact future quarterly results.
m
Activity may decline in our second quarter months of November and December and our third quarter months of January and February. These
months may have lower rental activity in parts of the country where inclement weather may delay, or suspend, customer projects. The impact of these
delays may be to decrease the number of frac tank containers on lease until companies are able to resume their projects when weather improves. These
seasonal factors may impact our future quarterly results in each year’s second and third quarters.
A key for success in the oil and gas industry in North America is our ability to continue to employ and retain
difficulty we experience replacing or adding personnel could adversely affect our business.
m
skilled and unskilled personnel. Any
We may not be able to find enough skilled and unskilled labor to meet our needs, which could limit our growth. Oil and gas business activity
historically decreases or increases with the prices of oil and natural gas. We may have problems retaining and finding enough laborers in the future,
particularly if the demand for our portable liquid containment products and fluid management services increases significantly in a relatively short period
of time. Other factors may also inhibit our ability to find enough workers to meet our employment needs. We believe that a key
to our success in the oil
and gas industry in North America is our ability to continue to employ and retain skilled and unskilled personnel. Our inability to employ or retain
personnel generally could have a significant adverse effect on our operations.
mm
tt
A substantial portion of the revenues of Lone Star are earned from a limited number of major cu
customers could adversely affect our results of operations.
d
stomers, and the loss of any one or more of these
Lone Star earns a substantial portion of its revenue from a limited number of major customers. One or more of these customers could cancel
their leases and cease doing business with Lone Star for a variety of reasons beyond our control. The loss of one or more of these major customers could
adversely affect our results of operations.
I-29
We face significant competition in the modular space industry, especially from several national competitors in the United State
ee
s who have greater
financial resources and pricing flexibility than we do. If we are unable to compete successfully, we could lose customers and our future revenues
could decline.
rr
Although our competition varies significantly by market, the modular space markets in which we compete are dominated primarily by four
participants and are highly competitive. In addition, we compete 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, 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 have greater
financial resources and pricing flexibility. If they focus on portable storage and are unable to compete successfully, we could lose customers and our
future revenues and results of operations could decline.
d
f
t
Failure to comply with applicable regulations could harm our business and financial condition, resulting in lower operating res
tt
ults and cash flows.
Similar to conventionally constructed buildings, companies in the modular building industry are subject to regulations by multiple governmental
f
agencies at the federal, state and local level relating to environmental, zoning, health and safety, labor and transportation,
among other matters. New
governmental regulations in these or other areas may increase our acquisition cost of new rental equipment, limit the use of or make obsolete some of
our existing fleet, or increase our costs of rental operations. Failure to
r
comply with these laws or regulations could impact o
reputation and result in higher capital or operating expenditures or the imposition of penalties or restrictions on our operati
building codes and regulations entails a certain amount of risk as state and local government authorities do not necessarily interpret building codes and
regulations in a consistent manner, particularly where applicable regulations may be unclear and subject to interpretation. These regulations often
provide broad discretion to governmental authorities that oversee these matters, which can result in unanticipated delays or increases in the cost of
compliance in particular markets. The construction and modular industries have developed many “best practices” which are constantly evolving. Some
of our peers and competitors may adopt practices that are more or less stringent than ours. When, and if, regulatory standards
are clarified, the effect of
the clarification may be to impose rules on our business and practices retroactively, at which time, we may not be in compliance with such regulations
s on to our customers, our profitability, operating cash
and we may be required to incur costly remediation. If we are unable to pass these increased cost
flows and financial condition could be negatively impacted.
ur business or harm our
ons. Compliance with
n
a
r
r
tt
Significant increases in raw material costs could increase our operating costs significantly and harm our future results of operations.
We purchase 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. We also maintain 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, we 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.
t
Failure by our manufacturers to sell and deliver products in a timely fashion may harm our reputation and financial condition.
We currently purchase new modular buildings and components, mobile offices and container products directly from manufacturers. Although we
are not dependent on any one manufacturer and are able to purchase products from a variety of suppliers, the failure of one or more of our suppliers to
timely manufacture and deliver storage containers to us could adversely affect our operations. We purchase 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. We have no contracts with any supplier. If these suppliers do not timely fill our purchase orders, or do not properly manufacture the ordered
products, our reputation and financial condition could be harmed.
Some zoning laws restrict the use of our storage units and therefore limit our ability to offer products in all markets.
Many of our customers use our storage units to store goods on their own properties. Local zoning laws in some of our 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 our geographic markets were to ban or restrict our products from being stored on customers’
sites, our business in that market could suffer.
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I-30
As Department of Transportation regulations increase, our operations could be negatively impacted and competition for qualified drivers could
increase.
d
We operate in the United States pursuant to operating authority granted by the U.S. Department of Transportation (“DOT”). Our company
drivers must comply with the safety and fitness regulations of the DOT, including those relating to drug and alcohol testing and hours-of-service. Such
matters as equipment weight and dimensions also are subject to government regulations. Our safety record could be ranked poorly compared to our peer
firms. A poor fleet ranking may result in the loss of customers or difficulty attracting and retaining qualified drivers which could affect our results of
operations. Should additional rules be enacted in the future, compliance with such rules could result in additional costs.
A tightening transportation-related labor market could adversely affect Lone Star
Lone Star’s ability to remain productive and competitive depends on its ability to attract and retain transportation personnel in particular skilled
truck drivers. The national tightening of the transportation related labor market due to a shortage of skilled truck drivers may inhibit Lone Star’s ability
to hire and retain this segment of our employee base. Additionally, rising wages paid to skilled truck drivers may pose a risk
to Lone Star’s margins if it
is unable to pass on such higher costs through rate increases. These labor factors could have a material adverse effect on our results of operations.
d
Significant Risks Related Primarily to Our Leasing Operations in the Asia-Pacific
g p
y
g
The future performance of Royal Wolf depends on customer demand for por
container solutions products market in Australia.
dd
table container solutions as well as the expansion of the portable
Any reduction in customer demand, failure of customer demand to grow, or failure of Royal Wolf to meet changes in customer demand or
preferences may adversely affect Royal Wolf’s businesses, operational performance, growth prospects and financial position. For example, if expected
growth in the portable container buildings market fails to come to fruition, or if businesses and indivi
buildings at current levels, Royal Wolf’s return on its portable container building investments could be negatively impacted. The demand for Royal
Wolf’s assets is dependent on the key industry segments into which Royal Wolf sells and lease assets, such as oil and gas, mining, construction,
industrial and retail. A significant reduction in the business climate in these industry segments, could negatively impact Royal Wolf’s results of
operations.
duals no longer demand portable container
f
y
The success and ability to drive future growth
is dependent to a large extent on brand reputation.
Royal Wolf believes its brand reputation is a key driver in its success and its ability to drive future growth. Any adverse change to the reputation
of Royal Wolf may adversely affect the Company’s businesses, operational performance and financial condition. Royal Wolf licenses the “Royal Wolf”
trademark in Australia, New Zealand and surrounding islands in the Asia-Pacific region. There is a risk that use of the “Royal Wolf” brand by third
tly its business.
parties in jurisdictions in which Royal Wolf does not own the trademark may adversely impact the Royal Wolf brand and consequen
f
Royal Wolf’s ability to achieve its long-term business strategy is dependent to a certain extent on its supply chain and purcha
t
sing.
Royal Wolf’s long-term business strategy assumes a certain level of growth in Australian and New Zealand demand for container based
solutions. Royal Wolf’s ability to meet this demand is dependent, to a certain extent, on the ability of Royal Wolf to purchase storage containers
economically and on a timely basis. Historically, Royal Wolf has successfully worked with shipping lines and international container leasing companies
to purchase used containers, and with manufacturers and brokers, including in Ch
in the future. Changes to shipping line practices with respect to used containers, and adverse changes in trade practices, regulations and relations
between Australia and its trading partners, including China, could adversely impact Royal Wolf’s ability to purchase containers or impact the price at
which Royal Wolf is able to purchase containers.
ina, to purchase new containers, but there can be no guarantee of this
aa
Historically, Royal Wolf has relied on internal supply chain and sourcing arrangements, international suppliers and the logistics industry to
relocate containers. Changes to these arrangements, constraints on the supply chain, failure of suppliers to deliver or deliver in a timely manner or
material increases in the price of new or used containers could have an adverse impact on Royal Wolf’s business, operational performance, profit
margins and financial results. 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 supplie
ordered products, Royal Wolf’s reputation and financial condition also could be harmed.
rs do not timely fill Royal Wolf’s purchase orders or do not properly manufacture the
ff
r
I-31
Royal Wolf conducts its business in a highly competitive sector.
Royal Wolf’s faces competition in the portable buildings, freight and portable storage markets. Royal Wolf also faces potentially significant
a
competition from modular industry companies who have non-container portable building offerings, especi
who have greater financial resources and pricing flexibility than Royal Wolf. As a result, Royal Wolf is subject to potential competition from new
domestic and foreign competitors and the provision of new products or services, aggressive pricing and lease rates offered by existing competitors.
Competition varies by region and Royal Wolf may not always be able to match its competitors in service levels, functionality and price in each or all
regions. The emergence of a new competitor with international reach, or increased focus on the rental model by existing competitors, particularly with
an extensive distribution network, could have an adverse effect on Royal Wolf’s business, financial condition, results of operations and growth
prospects. Also, continued service improvement by competitors may result in Royal Wolf’s customers using substitutes in place of some of Royal
Wolf’s products. Royal Wolf may not always be able to match its competitors in both functionality and price, which could negatively impact Royal
guarantee that those
Wolf’s revenues. In addition, some of Royal Wolf’s unique products are the subject of patent applications only and there is no
applications will become effective. If the patent applications do not become effective, there is a risk that Royal Wolf’s competitors could produce
similar rival products, which may have an adverse effect on Royal Wolf.
ally several national competitors in Australia
m
aa
Royal Wolf is subject to foreign exchange rate fluctuations.
r
Royal Wolf is subject to exchange rate fluctuations, particularly as it sources a substantial portion of its portable container
f
solutions fleet from
China in purchases, which are U.S. dollar-denominated. While Royal Wolf has a hedging policy to mitigate this risk, unhedged exchange rate
fluctuations in the Australian dollar relative to the U.S. dollar and, to a lesser extent, the New Zealand dollar, may adversely affect the financial
performance of Royal Wolf, including its financial position, cash flows, distributions and growth prospects.
Royal Wolf is subject to Australian and New Zealand taxation and tariff regulation.
tt
Significant recent reforms and current proposals for further reforms to tax laws in the jurisdictions within which Royal Wolf operates may give
rise to uncertainty. The precise scope and impact of future changes to tax laws may not be known. Royal Wolf is also subject to import tariffs with
respect to the portable container products it sources from overseas. Any changes to such tax or tariff laws (including the imposition of, or increases to,
such taxes or tariffs), their interpretation or the manner in which they are administered by the relevant government agency or the current rate of
of Royal Wolf (or customers in its key end markets).
mm
company income tax or import tariff may impact the operational or financial performance
Royal Wolf may face a tightening labor force and is subject to Workplace Health and Safety regulations.
Royal Wolf’s ability to remain productive, profitable and competitive and to effect its planned growth initiatives depends on its ability to attract
and retain workers. Tightening of the labor market in key regions due to a shortage of suitably skilled workers may inhibit Roy
al Wolf’s ability to hire
and retain employees. Additionally, rising wages paid to employees may pose a risk to Royal Wolf’s margins if it is unable to pass on such higher costs
through price increases. Royal Wolf is also subject to Workplace Health and Safety regulations. If Royal Wolf is not able to ma
conditions to meet Workplace Health and Safety regulations it may impact Royal Wolf’s operations
result in contravention of those regulations, which may give rise to potential criminal and civil liability and also damage Royal Wolf’s brand and
reputation.
and ability to attract and retain workers and also
intain its working
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f
f
Significant Risks Related Primarily to Our Manufacturing Operations in North America
g p
y
g
t degree dependent on the levels of expenditures and drilling activity by
Demand for our manufacturing products in North America is to a significan
tuate significantly in a short period of time. The viability of our manufacturing operations
the oil and gas industry, primarily in Texas, and can fluc
during times of reductions in domestic drilling activity and demand for our portable liquid containment products may be signifi
ii
cantly reliant on the
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commercial success of other steel-based products to industry sectors outsid
e of the oil and gas market.
dd
d
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tt
The substantial downturn in the domestic oil and gas industry since the second quarter of our fiscal year ended June 30, 2015 has resulted in
lower expenditures and reduced drilling, which in turn has had a material adverse effect on the results of operations and cash flows of our manufacturing
operations in North America. In order to remain commercially viable and diversify outside of the portable liquid containment business, our
I-32
manufacturing operations have focused on introducing steel-based products for non-oil and gas markets, which include a chassis product line targeted to
the North American transportation market, the production of GLOs for the portable storage market, the production of storm shelters for the consumer
market, the production of blast-resistant modules for the industrial market and the production of specialty portable fuel tanks
While we closely monitor the situation and are hopeful of the commercial success of these new steel-based products, there is no assurance that such
commercial success or viability will be attained. In FY 2016, operating losses from reduced demand of our portable liquid containment tanks and related
products and the manufacturing inefficiencies inherent in the introduction of new product lines resulted in the recording of goodwill and trade name
impairment charges. Reference is made to Note 2 of Notes to Consolidated Financial Statements for more information regarding these impairment
charges.
for the agricultural market.
f
Significant competition in the oil and gas industry in which Southern Frac produces its portable liquid containment products may result in its
ase in revenues.
competitors offering new or better products and servic
t
es or lower prices, which could result in a loss of customers and a decre
a
tt
The portable liquid storage tank container manufacturing industry is highly competitive. Southern Frac competes with other manufacturers of
varying sizes, some of which have substantial financial resources. Manufacturers compete primarily on the quality of their products, customer
relationships, service availability and cost. Barriers to entry are low. As a result, it is possible that additional competitors could enter the market at any
time. If Southern Frac is unable to successfully compete with other portable liquid storage tank container manufacturers it could lose customers and our
revenues may decline.
dd
Seasonality of the portable liquid containment industry may impact future quarterly results.
m
While the oil and gas industry is extremely volatile, historically, activity may typically decline in our second quarter months of November and
may have lower rental activity in parts of the country where inclement
December and our third quarter months of January and February. These months
weather may delay, or suspend, customer projects. The impact of these delays may be to decrease the number of frac tank containers sold until
companies are able to resume their projects when weather improves. These seasonal factors may impact Southern Frac’s future operating results in each
fiscal year’s second and third quarters.
aa
Difficulties Associated with Fixed Capacity Levels
Southern Frac’s ability to increase manufacturing capacity may require significant investments in equipment and personnel. To the extent that
we make investments to increase manufacturing capacity and demand for our products is not sustained, our results of operations and financial condition
may be adversely affected. Conversely, if we choose not to make investments to increase manufacturing capacity, our ability to meet customer demand
for our products and increase revenues may be adversely affected. Additionally, operating our facilities at near full capacity levels may cause us to incur
labor costs at premium rates in order to meet customer requirements, experience increased maintenance expenses or require us to replace our machinery
and equipment on an accelerated basis, each of which could cause our results of operations and financia
l condition to be adversely affected.
f
rr
Implementation of Operational Improvements
As part of our ongoing focus on being a low-cost provider of high quality products, we periodically analyze our business to further improve our
rr
operations. Our continued analysis may include identifying and implementing opportunities for: (i) furthe
(ii) streamlining of selling, general and administrative overhead; or (iii) efficient investment in new equipment and the upgrading of existing equipment.
We may be unable to successfully identify or implement plans targeting these initiatives, or fail to realize the benefits of th
implemented, as a result of operational difficulties, a weakening of the economy or other factors.
Cost reductions may not fully offset decreases in the prices of our products due to the time required to develop and implement cost reduction initiatives.
Additional factors, such as inconsistent customer ordering patterns, increasing product complexity and heightened quality standards, may also make it
more difficult to reduce our costs. It is also possible that as we incur costs to implement improvement strategies, the initial impact on our financial
position, results of operations and cash flow may be adverse and we may not be able to successfully realize sufficient cost savings to mitigate this
adverse impact.
r rationalization of manufacturing capacity;
e plans we have already
r
tt
ll
Southern Frac’s business could be harmed if we fail to ma
intain proper inventory levels.
Southern Frac is required to maintain sufficient inventories to accommodate the needs of its customers including, in many cases, short lead times
on delivery requirements. We purchase raw materials on a regular basis in an effort to maintain our inventory at levels that we believe are sufficient to
satisfy the anticipated needs of our customers based upon orders, customer volume expectations, historic buying practices and market conditions.
I-33
Inventory levels in excess of customer demand may result in the use of higher-priced inventory to fill orders reflecting lower selling prices, if steel
prices have significantly decreased. These events could adversely affect our financial results. Conversely, if we underestimate demand for our products
or if our suppliers fail to supply quality products in a timely manner, we may experience inventory shortages. Inventory shorta
unfilled orders, negatively impacting our customer relationships and resulting in lost revenues, which could harm our business and adversely affect our
financial results.
ges could result in
rr
Southern Frac’s future operating results may be affected by fluctuations in raw mate
raw material costs to its customers.
a
rial prices, and it may be unable to pass on any increases in
Southern Frac’s principal raw material is steel. The steel indus
aa
try as a whole has been cyclical, and at times availability and steel prices can be
d
ff
aa
ctors include general economic conditions, domestic and worldwide demand, the
volatile due to a number of factors beyond our control. These fa
influence of hedge funds and other investment funds participating in commodity markets,
curtailed production from major suppliers due to factors such
as the closing or idling of facilities, accidents or equipment breakdowns, repairs or catastrophic events, labor costs or problems, competition, new laws
and regulations, import duties, tariffs, energy costs, availability and cost of steel inputs (e.g., ore, scrap, coke and energy), currency exchange rates and
other factors. This volatility, as well as any increases in raw material costs, could significantly affect our steel costs and adversely impact our financial
results. If our suppliers increase the prices of our critical raw materials, we may not have alternative sources of supply. In addition, in an environment of
increasing prices for steel and other raw materials, competitive conditions may impact how much of the price increases we can pass on to our customers.
To the extent we are unable to pass on future price increases in our raw materials to customers, our financial results could be
adversely affected. Also, if
n
steel prices decrease, competitive conditions may impact how quickly we must reduce our prices to our customers, and we could be forced to use
higher-priced raw materials to complete orders for which the selling prices have decreased. Decreasing steel prices could also require us to write-down
the value of our inventory to reflect current market pricing.
aa
The loss of key supplier relationships could adversely affect Southern Frac.
Southern Frac has developed relationships with certain steel and other suppliers which have been beneficial to us by providing more assured
delivery and a more favorable all-in cost, which includes price and shipping costs. If any of t
effect on delivery times and the overall cost and quality of our raw materials, which could have a negative impact on our business. In addition, we do
not have long-term contracts with any of our suppliers. If, in the future, we are unable to obtain sufficien
competitive prices and on a timely basis from our traditional suppliers, we may be unable to obtain these products from alternative sources at
competitive prices to meet our delivery schedule, which could have a material adverse effect on our results of operations.
hose relationships were disrupted, it could have an adverse
t amounts of steel and other products at
aa
a
The costs of manufacturing Southern Frac’s products and its ability to supply customers could be negatively impacted if we expe
in deliveries of needed raw materials or supplies.
e
rience interruptions
If, for any reason, Southern Frac’s supply of steel is curtailed or it otherwise is
f
unable to obtain the quantities it needs at competitive prices, our
t
business could suffer and our financial results could be adversely affected. Such interruptions could result from a number of factors, including a
shortage of capacity in the supplier base of raw materials, energy or the inputs needed to make steel or other supplies, a failure of suppliers to fulfill their
supply or delivery obligations, financial difficulties of suppliers resulting in the closing or idling of supplier facilities, other significant events affecting
supplier facilities, significant weather events and other factors, all of which are beyond our control.
ff
t
A tightening Texas labor force could adversely affect
ll
Southern Frac
Southern Frac’s ability to remain productive and competitive depends on its ability to attract and retain workers. Tightening of the labor market
in Texas due to a shortage of suitably semi-skilled workers may inhibit Southern Frac’s ability to hire and retain employees. Additionally, rising wages
paid to employees may pose a risk to Southern Frac’s margins if it is unable to pass on such higher costs through price increases. These labor factors
could have a material adverse effect on our results of operations.
y
Significant Risks Related Primarily to Our Series C Preferred Stock
g
We cannot assure that quarterly dividends on, or any other payments in respect of, the Series C Preferred Shares will be made timely or at all.
We cannot assure that we will be able to pay quarterly dividends on the Series C Preferred Shares or to redeem the Series C Preferred Shares, if
we wanted to do so. Quarterly dividends on our Series C Preferred Shares will be paid from funds legally available for such purpose when, as and if
rr
I-34
declared by our board of directors. Certain factors may influence our decision, or adversely affect our ability, to pay dividends on, or make other
payments in respect of, our Series C Preferred Shares, including,
among other things:
ff
•
•
•
•
•
•
•
•
the amount of our available cash or other liquid assets, including the impact of any liquidity shortfalls caused by the below-
restrictions on the ability of our subsidiaries to generate and transfer cash to us;
our ability to service and refinance our current and future indebtedness;
changes in our cash requirements to fund capital expenditures, acquisitions or other operational or strategic initiatives;
our ability to borrow or raise additional capital to satisfy our capital needs;
restrictions imposed by our existing, or any future, credit facilities, debt securities or leases, including restricted payment and leverage
covenants that could limit our ability to make payments to holders of the Series C Preferred Shares;
limitations on our subsidiaries’ ability to distribute cash to us due to third parties holding equity interests in those subsidiaries; and
limitations on cash payments to shareholders under Delaware law, including limitations that require dividend payments be made out of surplus
or, subject to certain limitations, out of net profits for the then-current or preceding year in the event there is no surplus.
our ability to maintain a Fixed Charge Ratio, as defined, of no less than 2.00.
described
rr
Based on its evaluation of these and other relevant factors, our board of directors may, in its sole discretion, decide not to declare a dividend on
the Series C Preferred Shares for any quarterly period for any reason, regardless of whether we have funds legally available for such purpose. In such
event, a holder’s sole recourse will be its rights as a holder of Series C Preferred Shares, which includes the right to cumulative dividends and, under
certain specified circumstances, to additional interest and limited conditional voting rights.
r
GFN’s ability, as a holding company, to make payments in respect of the Series C Preferred Shares depends on the ability of our
transfer funds to us.
e
subsidiaries to
GFN is a holding company and, accordingly, substantially all of our operations are conducted through our subsidiaries. As a result, GFN’s cash
flow and ability to make dividend payments to our stockholders depend on the earnings of our subsidiaries, the distribution from our subsidiaries and
compliance with the covenants governing the indebtedness of our subsidiaries, including, without limitation, covenants of the senior credit facilities of
our subsidiaries that permit dividends and other payments from such subsidiaries to GFN. Payments by our subsidiaries to GFN are also contingent upon
those subsidiaries’ earnings and business considerations. Furthermore, GFN’s right to receive any assets of any of our subsidiaries upon their
r
liquidation, reorganization or otherwise, and thus th
f
subject to the prior claims of the subsidiaries’ creditors.
ff
e ability of a holder of Series C Preferred Stock to benefit indirectly fr
om such distribution, will be
The terms of the revolving senior secured credit facility with a syndicate led by Wells Fargo Bank, National Association (“Wells Fargo”) limit
the ability of our North American Leasing operations to upstream funds to GFN that would be used to pa
the amount of the dividends payable on the Series C Preferred Stock exceeds the amount of the funds our North American Leasing operations are
permitted to pay GFN, and GFN is unable to generate sufficient cash from its other subsidiaries for a dividend payment, GFN may not be able to make
the required dividend payment on the Series C Preferred Stock. Our ability to pay dividends or make other payments to the holde
Preferred Shares will be adversely affected if the senior credit facility prohibits the transfer of funds to GFN.
y dividends on the Series C Preferred Stock. If
rs of our Series C
y
aa
t
The Series C Preferred Shares represent perpetual equity interests.
The Series C Preferred Shares represent perpetual equity interests in us and, unlike our indebtedness, will not entitle the holders thereof to
receive payment of a principal amount at a particular date. As a result, holders of the Series C Preferred Shares may be requir
risks of an investment in the Series C Preferred Shares for an indefinite period of time. In addition, the Series C Preferred Shares will rank junior to all
our indebtedness and other liabilities, and to any other senior securities we may issue in the future with respect to assets available to satisfy claims
against us. In addition, the lack of a fixed mandatory redemption date for the Series C Preferred Shares will increase your reliance on the secondary
market for liquidity purposes.
ed to bear the financial
ff
Investors should not expect us to redeem the Series C Preferred Shares on the date the Series C Preferred Shares become redeemable by the
Company or on any particular date afterwards.
I-35
t
The shares of Series C Preferred Shares have no maturity or mandatory redemption date and are not
nvestors under
any circumstances. By their terms, the Series C Preferred Shares may be redeemed by us at our option either in whole or in part at any time on or after
May 17, 2018. Any decision we may make at any time regarding whether to redeem the Series C Pr
eferred Shares will depend upon a wide variety of
factors, including our evaluation of our capital position, our capital requirements and general market conditions at that time. However, investors should
not assume that we will redeem the Series C Preferred Shares at any particular time, or at all.
redeemable at the option of i
a
aa
tt
Increases in market interest rates may adversely affect the trading price of our Series C Preferred Shares.
One of the factors that will influence the trading price of our Series C Preferred Shares will be the dividend yield on the Series C Preferred
Shares relative to market interest rates. An increase in market interest rates may reduce demand for our Series C Preferred Shares and would likely
increase our borrowing costs and potentially decrease funds available for distribution. Accordingly, higher market interest rates could cause the market
price of our Series C Preferred Shares to decrease.
The Series C Preferred Shares have not been rated and the lack of a rating may adversely affect the trading price of the Series
t
C Preferred Shares.
We have not sought to obtain a rating for the Series C Preferred Shares, and the shares may never be rated. It is possible, however, that one or
more rating agencies might independently determine to assign a rating to the Series C Preferred Shares or that we may elect to obtain a rating of our
Series C Preferred Shares in the future. In addition, we may elect to issue other securities for which we may seek to obtain a rating. The market value of
the Series C Preferred Shares could be adversely affected if:
•
•
any ratings assigned to the Series C Preferred Shares in the future or to other securities we issue in the future are lower than market
expectations or are subsequently lowered or withdrawn;
or ratings for such other securities would imply a lower relative value for the Series C Preferred Shares.
The interests of holders in the Series C Preferred Shares could be diluted by our issuance of additional shares of preferred stock, including
additional Series C Preferred Shares, and by other transactions.
tt
Our charter currently authorizes the issuance of up to one million shares of preferred stock in one or more classes or series, and we will be
permitted, without notice to or consent of the holders of Series C Preferred Shares, to issue additional Series C Preferred Shares or other securities that
have rights junior to such shares, up to the maximum aggregate number of authorized shares of our preferred stock. The issuance of additional preferred
stock on a parity with or senior to our Series C Preferred Shares would dilute the interests of the holders of our Series C Preferred Shares, and any
issuance of preferred stock senior to or on a parity with our Series C Preferred Shares or of additional indebtedness could adversely affect our ability to
pay dividends on, redeem or pay the liquidation preference on our Series C Preferred Shares. We cannot as
sure that quarterly dividends on, or any other
payments in respect of, the Series C Preferred Shares will be made timely or at all and there are effectively no provisions relating to our Series C
Preferred Shares that protect the holders of our Series C Preferred Shares in the event of a highly leveraged or other transaction, including a merger or
the sale, lease or conveyance of all or substantially all our assets or business; any of which might adversely affect the holders of our Series C Preferred
Shares.
ff
A holder of Series C Preferred Shares has extremely limited voting rights.
Voting rights as a holder of Series C Preferred Shares will be extremely limited. However, in the event that six quarterly dividends, whether
consecutive or not, payable on Series C Preferred Shares are in arrears or a listing failure has occurred and is continuing, the holders of Series C
Preferred Shares will have the right, voting together as a class with all other classes or series of parity securities upon which like voting rights have been
conferred and are exercisable, to elect two additional directors to serve on our board of directors.
The Series C Preferred Shares are not convertible, and purchasers may not realize a corresponding benefit if the trading price of our common stock
rises.
The Series C Preferred Shares are not convertible into our common shares and do not have exchange rights or entitled or subject to any
t
preemptive or similar rights. Accordingly, the market value of the Series C Preferred Shares may depend to some degree on, among other things,
dividend and interest rates for other securities and other investment alternatives and our actual and perceived ability to make dividend or other payments
in respect of our Series C Preferred Shares rather than the trading price of our common stock. In addition, our right to redeem the Series C Preferred
Shares on or after May 17, 2018 or in the event of a change in control could impose a ceiling on their value.
I-36
Significant Risks Related Primarily to Our Senior Notes
y
g
.ss
The Senior Notes are not rated, and the issuance of a credit rating could adversely affect the market price of the Senior Notes
a
At their issuance, the Senior Notes were not rated by any credit rating agency. However, the Senior Notes may subsequently be r
ated by one or
more of the credit rating agencies. If the Senior Notes are rated, the rating could be lower than expected, and such a rating could have an adverse effect
on the market price of the Senior Notes. Furthermore, credit rating agencies revise their ratings from time to time and could lower or withdraw any
rating issued with respect to the Senior Notes. Any real or anticipated downgrade or withdrawal of any ratings of the Senior Notes could have an
adverse effect on the market price or liquidity of the Senior Notes.
r
r
Ratings reflect only the views of the issuing credit rating agency or agencies and are not recommendations to purchase, sell or hold any
particular security, including the Senior Notes. In addition, ratings do not reflect market prices or suitability of a security for a particular investor, and
any future rating of the Senior Notes may not reflect all risks related to us and our business or the structure or market value of the Senior Notes.
y
r
We are the sole obligor of the Senior Notes, and our direct
t
and indirect subsidia
not have any obligation with respect to the Senior Notes. Furthermore, your right to receive payment on the Senior Notes will be structurally
subordinated to the liabilities of our subsidiaries.
ries do not guarantee our obligations under the Senior Notes and do
f
ii
aa
GFN is a holding company with no business operations or assets other than the capital stock of its direct and indirect subsidia
ries. Consequently,
f
we will be dependent on loans, dividends and other payments from these subsidiaries to make
However, our subsidiaries are separate and distinct legal entities, and they will have no obligation, contingent or otherwise, to pay the amounts due
under the Senior Notes or to make any funds available to pay those amounts, whether
Senior Notes will not have any direct claim on the cash flows or assets of our dire
by dividend, distribution, loan or other payments. Holders of the
payments of principal and interest on the Senior Notes.
ct and indirect subsidiaries.
h
aa
ff
The ability of our subsidiaries to pay dividends and make other payments to us will depend on
t
their cash flows and earnings, which, in turn, will
be affected by all of the factors discussed in our Annual Report on Form 10-K. The ability of our direct and indirect subsidiaries to pay dividends and
make distributions to us may be restricted by, among other things, applicable laws and regulations and by the terms of the agreements into which they
enter. If we are unable to obtain funds from our direct and indirect subsidiaries as a result of restrictions under their debt or other agreements, applicable
laws and regulations or otherwise, we may not be able to pay cash interest or principal on the Senior Notes when due.
The Senior Notes are structurally subordinated to all indebtedness of our subsidiaries. While the
f
indenture governing the Senior Notes will limit
the indebtedness and activities of these subsidiaries, holders of indebtedness of, and trade creditors of, our subsidiaries, are entitled to payments of their
claims from the assets of such subsidiaries before those assets are made available for distribution to us, as direct or indirect shareholder. Accordingly, in
the event that any of our subsidiaries becomes insolvent, liquidates or otherwise reorganizes:
•
•
the creditors of such subsidiary (including the holders of the Senior Notes) will have no right to proceed against such subsid
iary’s assets; and
the creditors of such subsidiary, including trade creditors, will generally be entitled to payment in full from the sale or other disposal of assets
of such subsidiary before we, as direct or indirect stockholder, will be entitled to receive any distributions from such subsidiary.
tt
t
tt
GFN’s ability, as a holding company, to make payments in respect of the Senior Notes depends on the abilit
y of our subsidiaries
us.
ee
to transfer funds to
GFN’s cash flow and ability to make payments in respect of the Senior Notes depends on the earnings of our subsidiaries, the distribution from
our subsidiaries and compliance with the covenants governing the indebtedness of our subsidiaries, including, without limitation, covenants of the senior
credit facilities of our subsidiaries that permit dividends and other payments from such subsidiaries to GFN. Payments by our subsidiaries to GFN are
also contingent upon those subsidiaries’ earnings and business considerations. Furthermore, GFN’s right to receive any assets of any of our subsidiaries
upon their liquidation, reorganization or otherwise, and thus the ability of a holder of Senior Notes to benefit indirectly from such distribution, will be
f
subject to the prior claims of the subsidiaries’ creditors.
I-37
The terms of the revolving senior credit facility with a syndicate led by Wells Fargo limit the ability of our North American Leasing operations
to upstream funds to GFN that would be used to pay interest on the Senior Notes. If the amount of the interest payable on the Senior Notes exceeds the
amount of the funds our North American Leasing operations are permitted to pay GFN, and GFN is unable to generate sufficient cash from its other
subsidiaries for an interest payment, GFN may not be able to
make the required interest payment on the Senior Notes. Our ability to pay interest or
f
principal to the holders of our Senior Notes will be adversely affected if the senior credit facility prohibits the transfer of
funds to GFN.
d
aa
We may be unable to repurchase the Senior Notes upon a change of control.
In the event of a “change of control,” as defined in the indenture governing our Senior Notes, we must offer to purchase the Se
nior Notes at a
purchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase. In the event that we are required to
r
make such offer with respect to the Senior Notes, there can be no assurance that we
and we may be required to refinance the Senior Notes. There can be no assurance that we would be able to
were to occur, that it would be accomplished on commercially reasonable terms. The revolving credit facilities of our subsidiaries prohibit us from
repurchasing any of the Senior Notes, except under limited circumstances. The revolving credit facilities of our subsidiaries also provide that certain
change of control events would constitute a default. In the event a change of control occurs at a time when we are prohibited from purchasing the Senior
Notes, we could seek the consent of the lenders under the revolving credit facilities of our U.S. subsidiaries to purchase the Senior Notes. If we did not
obtain such consent, we would remain prohibited from purchasing the Senior Notes. In this case, our failure to purchase would constitute an event of
default under the indenture governing the Senior Notes.
would have sufficient funds available to purchase any Senior Notes,
accomplish a refinancing or, if a refinancing
t
uu
r
ff
Changes in the credit markets could adversely affect the market price of the Senior Notes.
t
The market price for the Senior Notes will be based on a number of factors, including:
f
•
•
the prevailing interest rates being paid by other companies similar to us; and
and the overall condition of the financial markets.
The conditions of the credit markets and prevailing interest rates have fluctuated in the past
Fluctuations in these factors could have an adverse effect on the price and liquidity of the Senior Notes.
t
and can be expected to fluctuate in the future.
An increase in market interest rates could result in a decrease in the relative value of the Senior Notes.
In general, as market interest rates rise, Senior Notes bearing interest at a fixed rate generally decline in value. Consequently, if you purchase
these Senior Notes and market interest rates increase, the market values of your Senior Notes may decline. We cannot predict the future level of market
interest rates.
We could enter into various transactions that could increase the amount of our outstanding debt, or adversely a
a
rating, or otherwise adversely affect holders of the Senior Notes.
tt
ffect our capita
l structure or credit
Subject to certain exceptions relating to incurring certain liens or entering into certain sale and leaseback transactions, the terms of the Senior
leveraged transactions. As a
Notes do not prevent us from entering into a variety of acquisition, divestiture, refinancing, recapitalization or other highly
result, we could enter into any such transaction even though the transaction could increase the total amount of our outstanding indebtedness, adversely
affect our capital structure or credit rating or otherwise adve
rsely affect the holders of the Senior Notes.
aa
t
Redemption may adversely affect your return on the Senior Notes.
r
We have the right to redeem some or all of the Senior Notes prior to maturity. We may redeem the Senior Notes at times when prevailing
interest rates may be relatively low compared to rates at the time of issuance of the Senior Notes. Accordingly, you may not be able to reinvest the
redemption proceeds in a comparable security at an effective interest rate as high as that of the Senior Notes.
Item 1B. Unresolved Staff Comments
None.
I-38
Item 2. Properties
Function/Uses
We lease the locations in our North American leasing operations, except for Pac-Van’s corporate offices and two branch locations. Most of the
major leased properties have remaining lease terms of at least one year and we believe that satisfactory alternative properties could be found in all of our
North American markets, if necessary. The following table shows information about our primary branches and other properties in North America as of
June 30, 2018:
Location
United States:
Albany, GA
Atlanta, GA
Austin, TX
Bakersfield, CA
Boston, MA
Charleston, WV
Charlotte, NC
Chicago, IL (owned)
Cincinnati, OH
Cleveland, OH
Columbus, OH
Corpus Christi, TX
Dallas, TX
Denver, CO
Des Moines, IA
Detroit, MI
Elkhart, IN
Elko, NV
Chino-Los Angeles, CA
Green Bay, WI (c)
Greenville, SC
Houma, LA
Houston, TX
Indianapolis, IN
Indianapolis, IN (owned)
Jacksonville, FL
Kansas City, MO
Kenedy, TX (a)
Kermit, TX (b)
Lafayette, LA
Las Vegas, NV
Lexington, KY
Little Rock, AK
Louisville, KY
Madison, WI
Memphis, TN (owned)
Miami, FL
Milwaukee, WI
Nashville, TN
New Brunswick (Trenton), NJ
Orlando, FL
Paducah, KY
Philadelphia, PA
Phoenix, AZ (c)
Pittsburgh, PA
Portland, OR
Milan, IL (Quad Cities)
Raleigh, NC
Royalton, VT
Salt Lake City, UT
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Corporate office
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
I-39
San Antonio, TX
Seattle, WA
Springfield, MO
St. Louis, MO
Toledo, OH
Watford City, ND
Wichita, KS
Yakima, WA
Canada:
Edmonton, AB (c)
Calgary, AB
Vancouver, BC
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
Leasing and sales
(a)
(b)
(c)
There is another associated location in Karnes County, TX, but it does not conduct leasing and sales.
There are other associated locations in Goldsmith, Midland and Mentone, TX, but they do not conduct leasing and sales.
There is also a fleet maintenance and modification facility in this market.
t
t
Southern Frac’s 40,000 square foot manufacturing facility located in Waxahachie, Texas is on a 7.4 acre property, which we purchased in
December 2012. In addition, Southern Frac has two contiguous leased properties that include administrative offices and warehouse space, as well as
additional parking, with lease terms through February 2019 and March 2019 with a three-year renewal option on each lease.
We lease our GFN corporate headquarters in Pasadena, California, effective January 31, 2008, from an affiliate of our former chief executive
officer, who is also the executive chairman of the board of directors. 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. On October 11, 2012, we exercised the first option to renew the lease for an additional five-year
term commencing February 1, 2013 and on August 7, 2017, exercised our second option for an additional five-year term commencing on February 1,
2018. We also lease a small office in Northbrook, Illinois. The term of the lease is through October 31, 2018.
r
We locate our Asia-Pacific CSCs (or branches) in markets with attractive demographics and strong growth prospects. Within each market, we
have located our CSCs in areas that allow for easy delivery of portable storage units to our customers over a wide geographic area. In addition, when
cost effective, we seek high visibility locations. Our CSCs maintain an inventory of portable storage units available for lease, and most of our CSCs also
provide storage of units under lease at the site (“on-site storage”). Several CSCs have multiple leases of adjoining or contiguous properties and the CSCs
are all leased. The following table shows information about our primary CSCs and other properties by country (Australia and New Zealand) at June 30,
2018 and we believe these properties are suitable and adequate:
Location
Functions/Uses
Australia:
Adelaide
Albury
Brisbane – Weyba Street Banyo
Brisbane – Armada Place Banyo (special projects
and modifications)
South Brisbane - Meadowbrook
Cairns
Cairns
Canberra
Melbourne East – Clayton
Melbourne West - Sunshine
Darwin
Geelong (Vic)
Geraldton
Gold Coast
Gosford – Central Coast
Hobart - Tasmania
Kalgoorlie (WA)
Launceston - Tasmania
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing and sales (not a CSC)
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
I-40
Gordon
Sydney – Moorebank
Newcastle
Perth – Bassendean
Rockhampton
Toowoomba
Townsville
Wollongong
New Zealand:
Auckland – Jarvis Way
Christchurch
Dunedin
Hamilton
Invercargill
Napier
Nelson
Palmerston North
Silverdale/Albany
Tauranga/Bay of Plenty
Wellington
Whangarei
Head office (Not a CSC)
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Head Office, Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
Leasing, on-site storage and sales
During FY 2018, effective March 31, 2018, Royal Wolf relocated its corporate headquarters from Hornsby to Gordon in New South Wales. The
term of the lease is for ten years, including a five-year renewal option, with rent adjusted yearly by 4%.
Item 3. Legal Proceedings
We are not involved in any material lawsuits or claims arising out of the normal course of our business. We have insurance policies to cover
general liability and workers compensation related claims. In our opinion, the ultimate amount of liability not covered by insurance under pending
litigation and claims, if any, will not have a material adverse effect on our financial position, operating results or cash flows.
Reference is made to Note 10 of Notes to Consolidated Financial Statements for further discussion of commitments and contingencies, including
any legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
I-41
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on The NASDAQ Global Market (NASDAQ) under the symbol “GFN.” The following tables set forth, for the
periods indicated, the range of high and low closing sales prices for our common stock.
PART II
Year Ended June 30, 2018:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended June 30, 2017:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Record Holders
Common Stock
High
Low
$
$
$
$
13.55
7.50
6.80
5.15
5.20
5.70
5.60
4.67
7.10
6.80
5.10
4.55
4.70
4.95
4.00
4.20
As of August 1, 2018, there were 64 holders of record of our common stock. The number of record holders was determined from the records of
our transfer agent and does not include beneficial owners of our common stocks whose shares are held in the names of various security brokers, dealers
and registered clearing agencies. We believe that there are thousands of beneficial owners.
Dividend Policy
We have not paid any dividends on our common stock to date. The payment of dividends in the future will be contingent upon our revenues and
earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our board of
directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board
does not anticipate declaring any dividends in the foreseeable future.
Sales of Unregistered Securities
Information required is not applicable or has been previously included in either a Quarterly Report on Form 10-Q or in a Curren
r
t Report on
Form 8-K.
II-1
Equity Compensation Plans
The following table sets forth information concerning our equity compensation plans (see Note 9 of Notes to Consolidated Financial Statements)
as of June 30, 2018:
(a)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(b)
Weighted-average exercise
price of outstanding
options, warrants and
rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
1,824,910
—
1,824,910
$
$
4.52
—
4.52
871,160 (i)
—
871,160 (i)
(i) Reduced by the issuance under the equity compensation plans of 1,293,791 restricted stock units (RSU) and restricted (non-vested equity) and
non-restricted shares.
II-2
Stock Performance Graph
The following Performance Graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor should such
information be incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent that we specifically
incorporate it by reference in such filing.
The following graph compares the five-year cumulative total return on our common stock with the cumulative total returns (assuming
reinvestment of dividends) on the Standard and Poor’s (“S&P”) Small Cap 600 Index and the Russell 2000 Index if $100 were invested in our common
stock and each index on June 30, 2013.
Index
General Finance Corporation
Russell 2000 Index
S&P SmallCap 600 Index
Period Ending
06/30/14
204.30
123.64
125.54
06/30/15
112.26
131.66
133.97
06/30/16
91.40
122.80
133.93
06/30/17
110.75
153.01
164.02
06/30/18
291.40
179.89
197.65
06/30/13
100.00
100.00
100.00
II-3
Item 6. Selected Financial Data
The following tables summarize our selected financial data for each of the five
years ended June 30, 2018 and should be read in conjunction with
the audited consolidated financial statements included in “Item 8 Financial Statements and Supplementary Data” and “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
r
Consolidated Statement of Operations Information:
Sales:
Lease inventories and fleet
Manufactured units
Leasing
Operating income
Other expense, net
Income (loss) before provision for income taxes
Net income (loss)
NNet income (loss) attributable to common stockholders
Net income (loss) per common share:
Basic
Diluted
Consolidated Balance Sheet Information:
Trade and other receivables, net
Inventories
Lease fleet, net
Total assets
Trade payables and accrued liabilities
Senior and other debt
Total equity
2014
Year Ended June 30,
2016
2015
2017
2018
$ 116,448
19,647
136,095
151,010
287,105
$ 90,275
13,981
104,256
199,569
303,825
$ 111,439
6,179
117,618
168,233
285,851
$ 95,764
4,895
100,659
176,269
276,928
$ 122,467
9,850
132,317
214,985
347,302
40,041
(13,272)
43,043
(21,301)
14,383
(19,860)
19,066
(19,938)
26,769
15,149
3,904
21,742
13,045
3,475
(5,477)
(3,286)
(9,025)
(872)
(847)
(6,620)
43,699
(53,485)
(9,786)
(9,107)
(11,964)
$
$
0.16
0.15
$
0.13
0.13
(0.35)
(0.35)
$
(0.25)
(0.25)
$
(0.46)
(0.46)
2014
$ 61,474
27,402
396,552
664,915
2015
$ 47,641
36,875
410,985
684,377
June 30,
2016
$ 38,067
34,609
419,345
673,574
2017
$ 44,390
29,648
427,275
675,314
2018
$ 50,525
22,731
429,388
689,687
53,838
299,303
257,885
37,590
353,940
234,356
43,476
352,220
224,612
42,774
355,638
223,248
50,545
427,218
141,785
II-4
Selected Unaudited Quarterly Financial Data
The following table sets forth unaudited operating data for each quarter of the years ended June 30, 2018 and June 30, 2017. 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.
For the Fiscal Year Ended June 30, 2018:
Revenues
Gross profit
Operating income
Net income (loss) (a)
Net income (loss) attributable to common stockholders
Net income (loss) per common share:
Basic
Diluted
For the Fiscal Year Ended June 30, 2017:
Revenues
Gross profit
Operating income
Net income (loss)
Net loss attributable to common stockholders
Net loss per common share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(in thousands, except per share data)
$ 76,917
6,699
5,647
(844)
(965)
$
$
$
(0.04)
(0.04)
62,798
6,222
3,663
(744)
(2,137)
(0.08)
(0.08)
$
$
$
$
92,130
10,281
15,059
2,974
2,052
0.08
0.08
72,327
6,795
7,097
1,370
(639)
(0.02)
(0.02)
$
$
$
$
84,421
7,745
10,872
(563)
(1,485)
(0.06)
(0.06)
68,464
6,183
3,610
(1,071)
(2,079)
(0.08)
(0.08)
$
$
$
$
93,834
10,601
12,121
(10,674)
(11,566)
(0.44)
(0.44)
73,339
6,908
4,696
(402)
(1,765)
(0.07)
(0.07)
(a) Includes pretax charges of $1,717, $504 and $11,498 in the second, third and fourth quarter, respectively, for the change in valuation of a bifurcated
derivative in a convertible note (see Note 5 of Notes to Consolidated Financial Statements).
II-5
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements
and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion includes forward-looking statements that
involve risks and uncertainties. Our actual results may differ significantly from those anticipated or discussed in those forwa
rd-looking statements as a
result of various factors; including, but not limited to, those described in Item 1A. “Risk Factors.”
d
References to “we,” “us,” “our” or the “Company” refer to General Financ
mm
e Corporation, a Delaware corporation (“GFN”), and its consolidated
subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (“GFN U.S.”); GFN Insurance Corporation, an
Arizona corporation (“GFNI”); GFN North America Leasing Corporation, a Delaware corporation (“GFNNA Leasing”); GFN North America Corp., a
Delaware corporation (“GFNNA”); GFN Realty Company, LLC, a Delaware limited liability company (“GFNRC”); GFN Manufacturing Corporation, a
Delaware corporation (“GFNMC”), and its subsidiary, Southern Frac, LLC, a Texas limited liability company (collectively “Southe
rn Frac”); Pac-Van,
Inc., an Indiana corporation, and its Canadian subsidiary, PV Acquisition Corp., an Alberta corporation (collectively “Pac-Van”
Rental Inc., a Delaware corporation (“Lone Star”); GFN Asia Pacific Holdings Pty Ltd, an Australian corporation (“GFNAPH”), and its subsidiaries,
GFN Asia Pacific Finance Pty Ltd, an Australian corporation (“GFNAPF”), Royal Wolf Holdings Limited, an Australian corporation (“RWH”), and its
Australian and New Zealand subsidiaries (collectively, “Royal Wolf”).
); and Lone Star Tank
rr
tt
Overview
Founded in October 2005, we are a leading specialty rental services company offering portable (or mobile) storage, modular space and liquid
containment solutions in these three distinct, but related industries, which we collectively refer to as the “portable services industry.”
We have two geographic areas that include four operating segments; the As
ff
ia-Pacific (or Pan-Pacific) area, consisting of Royal Wolf (which
leases and sells storage containers, portable container buildings and freight containers in Australia and New Zealand) and North America, consisting of
Pac-Van (which leases and sells storage, office and portable liquid storage tank containers, modular buildings and mobile offices), and Lone Star (which
leases portable liquid storage tank containers and containment products, as well as provides certain fluid management services, to the oil and gas
industry in the Permian and Eagle Ford basins of Texas), which are combined to form our “North American Leasing” operations, and Southern Frac
(which manufactures portable liquid storage tank containers and other steel-related products). As of June 30, 2018, our two geographic leasing
operations primarily lease and sell their products through 23 customer service centers (“CSCs”) in Australia, 12 CSCs in New Zealand, 57 branch
locations in the United States and three branch locations in Canada. At that date, we had 264 and 611 employees and 42,305 and 43,507 lease fleet units
in the Asia-Pacific area and North America, respectively.
Our lease fleet is comprised of three distinct specialty rental equipment categories that possess attractive asset characteristics and serve our
customers’ on-site temporary needs and applications. These categories match the sectors comprising the portable services industry.
Our portable storage category is segmented into two products: (1) storage containers, which primarily consist of new and used steel shipping
containers under International Organization for Standardization (“ISO”) standards, that provide a flexible, low cost alternative to warehousing, while
offering greater security, convenience and immediate accessibility; and (2) freight containers, which are designed for transport of products either by
road and rail and are only offered in our Asia-Pacific territory.
Our modular space category is segmented into three products: (1) office containers, which are referred to as portable container buildings in the
r
Asia-Pacific, are either modified or specifically manufactured containers that provide self-contained office space with maximum design flexibility.
Office containers in the United States are oftentimes referred to as ground level offices (“GLOs”); (2) modular buildings, which provide customers with
flexible space solutions and are often modified to customer specifications and (3) mobile offices, which are re-locatable units with aluminum or wood
exteriors and wood (or steel) frames on a steel carriage fitted with axles, and which allow for an assortment of “add-ons” to p
temporary space solutions.
rovide convenient
n
Our liquid containment category includes portable liquid storage tanks that are manufactured 500-
aa
barrel capacity steel containers with fixed
axles for transport. These units are regularly utilized for a variety of applications across a wide range of industries, including refinery, petrochemical and
tt
industrial plant maintenance, oil and gas services, environmental remediation and field services, infrastructure building construction, mari
pipeline construction and maintenance, tank terminal services, waste management, wastewater treatment and landfill services.
ne services,
II-6
Results of Operations
Year Ended June 30, 2018 (“FY 2018”) Compared to Year Ended June 30, 2017 (“FY 2017”)
The following compares our FY 2018 results of operations with our FY 2017 results of operations.
Revenues. Revenues increased by $70.4 million, or 25%, to $347.3 million in FY 2018 from $276.9 million in FY 2017. This consisted of
increases of $42.5 million, or 26%, in revenues in our North American leasing operations, $22.9 million increase, or 21%, in revenues in the Asia-
Pacific area and $5.0 million, or 102%, in manufacturing revenues from Southern Frac. The effect of the average currency exchange rate of the stronger
Australian dollar relative to the U.S. dollar in FY 2018 versus FY 2017 enhanced the translation of revenues from the Asia-Pacific area. The average
currency exchange rate of one Australian dollar during FY 2018 was $0.7755 U.S. dollar compared to $0.7541 U.S. dollar during FY 2017. In
Australian dollars, total revenues in the Asia-Pacific area increased by 18% in FY 2018 from FY 2017.
Excluding Lone Star (doing business solely in the oil and gas sector), total revenues of our North American leasing operations increased by
$21.6 million, or 15%, in FY 2018 from FY 2017, primarily in the commercial, construction, industrial, oil and gas, services, mining and government
sectors, which increased by an aggregate $19.8 million between the periods, offset somewhat by reductions in primarily the education and retail sectors
of $1.6 million. At Lone Star, revenues significantly increased by $20.9 million, or 109%, from $19.1 million in FY 2017 to $40.0 million in FY 2018.
The revenue increase in the Asia-Pacific area occurred primarily in the utilities, transportation, construction, mining, retail, wholesale and special events
sectors, which increased between the periods by an aggregate $26.6 million, and were partially offset by a total decrease of $5.1 million in the oil and
gas and industrials sectors.
Sales and leasing revenues represented 36% and 64% of total non-manufacturing revenues, respectively, in FY 2018, compared to 35% and 65%
of total non-manufacturing revenues, respectively in FY 2017.
Non-manufacturing sales during FY 2018 amounted to $122.4 million, compared to $95.7 million during FY 2017; representing an increase of
n
ic area and $7.8 million
ff
$26.7 million, or 28%. This consisted of increases of $18.9 million, or 39%, in sales in the Asia-Pacif
American leasing operations. The increase in the Asia-Pacific area was comprised of increases of $17.0 million ($4.4 million decrease due to lower unit
sales, $19.9 million increase due to higher average prices and a $1.5 million increase due to foreign exchange movements) in the CSC operations and
$1.9 million ($0.5 million increase due to higher unit sales, $1.2 million increase due to higher average prices and a $0.2 million increase due to foreign
exchange movements) in the national accounts group, and occurred primarily in the utilities, transportation, construction, mining and retail sectors,
which increased between the periods by $21.0 million and was partially offset by a decrease of $2.9 million in the oil and gas and industrial sectors. FY
2018 included four large sales, one in the transportation sector and three in the utilities se
AUS$21.1 million); whereas FY 2017 had two large sales, one each in the energy and transportation sectors, totaling $2.7 million (AUS$3.5 million). In
Australian dollars, total sales in the Asia-Pacific area increased by 36% in FY 2018 from FY 2017. In our North American leasing operations, the sales
increase in FY 2018 from FY 2017 was primarily in the commercial, construction, oil and gas, services and government sectors, which increased by a
total of $7.6 million between the periods; offset somewhat by a decrease of $1.8 million in the education and mining sectors. The increase at Southern
Frac was due primarily from sales of portable liquid containment tanks, which increased by 354% in FY 2018 from FY 2017, as sales on all other steel-
based products decreased by 16% in FY 2018 from FY 2017.
ctor, totaling approximately $16.1 million (approximately
, or 16%, in our North
r
Leasing revenues totaled $215.0 million in FY 2018, an increase of $38.7 million, or 22%, from $176.3 million in FY 2017. This consisted of
increases of $34.7 million, or 30%, in North America and $4.0 million, or 7%, in the Asia-Pacific area. In Australian dollars,
by 4% percent in the Asia-Pacific area in FY 2018 from FY 2017.
r
leasing revenues increased
In the Asia-Pacific area, average utilization in the retail and the national accounts group operations was 85% and 71%, respectively, during FY
2018, as compared to 84% and 67%, respectively, in FY 2017. The overall average utilization increased to 82% in FY 2018 from 80% in FY 2017; and
the average monthly lease rate of containers was AUS$160 in FY 2018 and AUS$158 in FY 2017. The composite average monthly number of units on
lease was over 800 higher in FY 2018, as compared to FY 2017. The leasing revenue increase in the Asia-Pacific area occurred primarily in the
construction, mining, industrial, transportation, special events and retail sectors, which increased between the periods by $5.8 million, and was partially
offset by a decrease of $2.9 million in the oil and gas sector. FY 2017 included a recovery of $2.2 million (AUS$2.8) million from a lease settlement
payment made by a former oil and gas customer.
r
ff
II-7
In our North American leasing operations, average utilization rates were 77%, 83%, 78%, 82% and 84% and average monthly lease rates were
$122, $340, $783, $292 and $767 for storage containers, office containers, frac tank containers, mobile offices and modular units, respectively, during
FY 2018; as compared to 75%, 78%, 48%, 78% and 81% and average monthly lease rates were $121, $321, $533, $282 and $774 for storage containers,
office containers, frac tank containers, mobile offices and modular units in FY 2017, respectively. The average composite utilization rate was 78% FY
2018 and 73% in FY 2017, and the composite average monthly number of units on lease was over 4,400 higher in FY 2018 as compared to FY 2017.
The increase in leasing revenues between the periods was across the board, but primarily in the oil and gas, commercial, construction, industrial and
mining sectors, which increased by $33.3 in FY 2018 from FY 2017. Excluding Lone Star,
operations increased by $13.8 million, or 14%, in FY 2018 from FY 2017.
total leasing revenues of our North American leasing
n
rr
Cost of Sales. Cost of sales from our lease inventories and fleet (which is the cost related to our sales revenues only and exclusive of the line
items discussed below) increased by $19.6 million from $68.2 million during FY 2017 to $87.8 million during FY 2018, and our gross profit percentage
from these non-manufacturing sales deteriorated slightly to 28% in FY 2018 from 29% in
totaled $9.2 million in FY 2018, as compared to $6.3 million in FY 2017, resulting in a
d
$1.4 million during FY 2017. The low profitability or loss during both periods was due primarily to the lack of production from our portable liquid
containment tanks and other steel-based products. A greater amount of portable liquid containment tanks were sold out of inventory in FY 2018, as
compared to FY 2017, and because these units had been written down to net realizable value, the gross profit effect was minimal despite the increase in
sales between the periods. In addition, production levels on all other steel-based products decreased by 43% in FY 2018 from FY 2017.
slight gross profit of $0.7 million in FY 2018 and a gross loss of
FY 2017. Cost of sales from our manufactured products
m
d
Direct Costs of Leasing Operations and Selling and General Expenses. Direct costs of leasing operations and selling and general expenses
increased in the aggregate by $22.9 million from $144.0 million during FY 2017 to $166.9 million during FY 2018. As a percentage of revenues,
however, these costs decreased to 48% during FY 2018 from 52% in FY 2017 due to the higher revenues being primarily driven by increases in average
units on lease and average lease rates between the periods in both North America and the Asia-Pacific area, without a proportionate increase in
infrastructure costs.
Depreciation and Amortization. Depreciation and amortization increased slightly by $0.5 million to $39.8 million in FY 2018 from $39.3 million
sed by $0.4 million and included the translation effect of a stronger Australian dollar to the
n
in FY 2017, substantially all in the Asia-Pacific, which increa
U.S. dollar in FY 2018 versus FY 2017. Depreciation and amortization in our North American operations increased by only $0.1 million in FY 2018
from FY 2017.
Interest Expense. Interest expense of $34.0 million in FY 2018 increased by $14.3 million from $19.7 million in FY 2017. In the Asia-Pacific
n
area, the significantly higher interest expense between the periods of $12.1 million was due primarily to a higher weighted-average interest rate of
10.1% (which does not include the effect of translation, interest rate swap contract
deferred financing costs) in FY 2018 from the 5.0% in FY 2017, higher average borrowings and by a stronger Australian dollar between the periods. In
North America, the higher interest expense of $2.2 million between the periods was due primarily to the weighted-average interest rate of 6.2% (which
does not include the effect of the accretion of interest and amortization of deferred financing costs) in FY 2018 being higher than the 5.3% in FY 2017.
s and options, the accretion of interest and the amortization of
f
Change in Valuation of Bifurcated Derivative. FY 2018 includes a non-cash charge of $13.7 million for the loss on the change in the valuation
of the stand-alone bifurcated derivative in the Bison Capital Convertible Note (see Note 5 of Notes to Consolidated Financial Statements).
Foreign Exchange and Other. The currency exchange rate of one Australian dollar to one U.S. dollar was $0.74425 at June 30, 2016, $0.76869
at June 30, 2017 and $0.7411 at June 30, 2018. In FY 2017 and FY 2018, net unrealized and realized foreign exchange gains (losses) totaled $(375,000)
and $(39,000), and $(6,138,000) and $(451,000), respectively. In addition, in FY 2017 and FY 2018, net unrealized exchange gains (losses) on forward
exchange contracts totaled $(12,000) and $697,000, respectively.
Income Taxes. Our income tax provision for FY 2018, which derived an effective tax rate of 6.9%, was comprised of:
(i) A charge of $0.8 million, primarily as a result of the nondeductible expense of the change in valuation of the bifurcated derivative in the
Bison Capital Convertible Note (see Note 5 of Notes to Consolidated Financial Statements);
(ii) As a result of the enactment on December 22, 2017 of the Act, a tax benefit of $1.6 million for, among other things, the re-measurement of
for temporary differences and NOL and FTC carryforwards reasonably
approximately $7.0 million for our estimated deferred tax assets and liabilities
estimated to be existing at December 22, 2017, and from the current statutory rate of 35% to the new corporate rate of either 28% (if the temporary
timing differences are expected to roll off in FY 2018) or 21 percent (if the temporary timing differences and NOL carryforwards are expected to
r
rr
II-8
remain as of June 30, 2018). This estimated tax benefit was offset by approximately $4.8 million for the estimated transition tax on the mandatory
repatriation of accumulated foreign earnings and a $0.3 million valuation allowance that was established to offset previously recognized FTC
carryforward deferred tax assets that we believe will not be realized, and other adjustments totaling
Consolidated Financial Statements); and
approximately $0.3 million (see Note 2 of Notes to
tt
(iii) A net tax charge of $0.1 million for the net of excess tax benefits and forfeitures on equity compensation awards (see Note 2 of Notes to
Consolidated Financial Statements).
The effective income tax rate in FY 2017 was 40.0% and in both periods, the effective tax rate differs from the U.S. federal tax rate of 28% in
FY 2018 and 35% in FY 2017 primarily because of state income taxes from the filing of tax
returns in multiple U.S. states and the effect of doing
business and filing income tax returns in foreign jurisdictions; including some large nondeductible permanent differences in the Asia Pacific area,
f
primarily the valuation of the embedded derivative.
f
Preferred Stock Dividends. In both FY 2018 and FY 2017, we paid $3.7 million primarily on our 9.00% Series C Cumulative Redeemable
Perpetual Preferred Stock.
Noncontrolling Interests. Noncontrolling interests in the Royal Wolf and, in FY 2017, Southern Frac results of operations were a decrease of
$0.8 million to the net loss in FY 2018 and an increase to the net loss of $2.1 million in FY 2017.
f
Net Loss Attributable to Common Stockholders. Net loss attributable to common stockholders was $12.0 million in FY 2018 versus a net loss of
$6.6 million in FY 2017, an increase of approximately $5.4 million, primarily as a result of the non-cash charge of $13.7 million for the change in the
valuation of the stand-alone bifurcated derivative in the Bison Capital Convertible Note and higher interest expense; offset so
operating profit in both North America and the Asia-Pacific area.
mewhat by higher
t
FY 2017 Compared to Year Ended June 30, 2016 (“FY 2016”)
The following compares our FY 2017 results of operations with our FY 2016 results of operations.
Revenues. Revenues decreased $9.0 million, or 3%, to $276.9 million in FY 2017 from $285.9 million in FY 2016. This consisted of a
$3.8 million increase, or 2%, in revenues in our North American leasing operations; which were more than offset by decreases of $11.6 million, or 10%,
in revenues in the Asia-Pacific area and $1.2 million, or approximately 20%, in manufacturing revenues from Southern Frac. The effect of the average
currency exchange rate of the stronger Australian dollar relative to the U.S. dollar
the Asia-Pacific area. The average currency exchange rate of one Australian dollar during FY 2017 was $0.7541 U.S. dollar compared to $0.7287 U.S.
dollar during FY 2016. As a result, FY 2017 total revenues in the Asia-Pacific area were impacted by an approximately 3% favorable foreign exchange
FY 2017 from FY 2016.
translation effect when compared to FY 2016. In Australian dollars, total revenues in the Asia-Pacific area decreased by 13% in
in FY 2017 versus FY 2016 enhanced the translation of revenues from
a
f
ff
tt
Excluding Lone Star (doing business solely in the oil and gas sector), total revenues of our North American leasing operations increased by
$8.1 million, or 6%, in FY 2017 from FY 2016, primarily in the commercial, industrial, government, mining and education sectors, which increased by
an aggregate $18.0 million between the periods; and was partially offset by reductions in the oil and gas, services, construction and retail sectors totaling
$10.0 million. At Lone Star, revenues declined by $4.3 million, or 18%, from $23.4 million in FY 2016 to $19.1 million in FY 2017. The revenue
decrease in the Asia-Pacific area occurred primarily in the transportation, oil and gas and consumer sectors, which decreased between the periods by
$13.8 million, and was partially offset by an increase of $1.8 million in the construction sector.
Sales and leasing revenues represented 35% and 65% of total non-manufacturing revenues, respectively, in FY 2017, compared to 40% and 60%
of total non-manufacturing revenues, respectively in FY 2016.
Sales during FY 2017 amounted to $100.6 million, compared to $117.6 million during FY 2016; representing a decrease of $17.0 million, or
14%. This consisted of a $15.4 million decrease, or 24%, in sales in the Asia-Pacific area, a decrease of $0.4 million, or 1%, in our North American
leasing operations and a decrease in manufacturing sales of $1.2 million at Southern Frac. The decrease in the Asia-Pacific area was comprised of a
decrease of $2.3 million ($2.6 million decrease due to lower unit sales, $1.0 million decrease due to lower average prices and a $1.3 million increase due
to foreign exchange movements) in the CSC operations and a decrease of $13.1 million ($9.9 m
illion decrease due to lower unit sales, $3.4 million
f
decrease due to lower average prices and a $0.2 million increase due to foreign exchange movements) in the national accounts group, and occurred
primarily in transportation, construction, oil and gas, consumer and moving and storage sectors, which decreased between the periods by $17.3 million;
offset somewhat by increases in the mining and industrial sectors totaling $2.5 million. FY 2016 included several low-margin sales in the transportation
II-9
sector in the Asia-Pacific area totaling approximately $14.0 million (approximately AUS$19.4 million), whereas FY 2017 had two large sales, one each
in the energy and transportation sectors, totaling $2.7 million (AUS$3.5 million). In Australian dollars, total sales in the Asia-Pacific area decreased by
27% in FY 2017 from FY 2016. In our North American leasing operations, the sales decrease in FY 2017 from FY 2016 was primarily in the services,
construction and oil and gas sectors, which decreased by a total of $9.4 million between the periods; offset somewhat by increases in primarily the
commercial, industrial, government and mining sectors, which increased by over $9.0 million. The decrease at Southern Frac was due to the continued
low demand for our portable liquid containment tanks caused by soft oil and gas drilling activity, primarily in Texas. Sales at Southern Frac in both
periods were primarily from chassis and other steel-based product lines.
t
Leasing revenues totaled $176.3 million in FY 2017, an increase of $8.0 million, or 3%, from $168.3 million in FY 2016. This consisted of
increases of $3.8 million, or 7%, in the Asia-Pacific area, and $4.2 million, or 4%, in North America. In Australian dollars, leasing revenues increased
by 3% in the Asia-Pacific area in FY 2017 from FY 2016.
In the Asia-Pacific area, average utilization in the retail and the national accounts group operations was 84% and 67%, respectively, during FY
2017, as compared to 83% and 68%, respectively, in FY 2016. The overall average utilization was 80% during both periods; and the average monthly
lease rate of containers was AUS$158 in FY 2017 versus AUS$159 in FY 2016, caused primarily by a lower average lease rate in portable container
buildings between the periods. Leasing revenues in FY 2017 increased from FY 2016 despite the lower composite monthly lease rate between the
periods primarily because of the composite average monthly number of units on lease was approximately 600 higher in FY 2017 as compared to FY
2016, and a stronger Australian dollar between the periods . Leasing revenues increased in most sectors, but primarily in construction, transportation and
special events, which increased by a total of $4.8 million between the periods; offset somewhat by decreases of an aggregate $2.1 million in the mining
and industrial sectors.
In our North American leasing operations, average utilization rates were 75%, 78%, 48%, 78% and 81% and average monthly lease rates were
$121, $321, $533, $282 and $774 for storage containers, office containers, frac tank containers, mobile offices and modular units, respectively, during
FY 2017; as compared to 74%, 80%, 43%, 76% and 81% and average monthly lease rates were $121, $317, $699, $278 and $772 for storage containers,
office containers, frac tank containers, mobile offices and modular units in FY 2016, respectively. The average composite utilization rate was 73% FY
2017 and 71% in FY 2016, and the composite average monthly number of units on lease was over 3,200 higher in FY 2017 as compared to FY 2016.
The increase in leasing revenues between the periods was primarily in the commercial, construction and industrial sectors, which increased by $9.4 in
FY 2017 from FY 2016; offset somewhat by decreases in FY 2017 from FY 2016 in the oil and gas and retail sectors totaling $6.3 million. Excluding
Lone Star, total leasing revenues of our North American leasing operations increased by $8.5 million, or 10%, in FY 2017 from FY 2016.
Cost of Sales. Cost of sales from our lease inventories and fleet (which is the cost related to our sales revenues only and exclusive of the line
items discussed below) decreased by $14.5 million from $82.7 million during FY 2016 to $68.2 million during FY 2017, and our gross profit percentage
from these non-manufacturing sales improved to 29% in FY 2017 from 26% in FY 2016, primarily as a result of the low-margin sales in the Asia-
Pacific area in FY 2016 discussed above. Cost of sales from our manufactured products totaled $6.3 million in FY 2017, as compared to $10.1 million in
FY 2016, resulting in reducing our gross margin loss from $3.9 million in FY 2016 to $1.4 million in FY 2017. The loss incurred during both periods
was due primarily to the lack of production and sales volume from our portable liquid containment tanks and other steel-based products, primarily
chassis.
d
Direct Costs of Leasing Operations and Selling and General Expenses. Direct costs of leasing operations and selling and general expenses
increased by $6.2 million from $137.8 million during FY 2016 to $144.0 million during FY 2017. As a percentage of revenues, these costs increased to
52% during FY 2017 from 48% in FY 2016 due to operating expenses not proportionately decreasing w
ith lower revenues, primarily as a result of the
t
adverse effect of lower lease rates between the periods in the oil and gas market in North America, the overall lower average lease rate in the Asia-
Pacific area and the beneficial effect on the percentage of the higher revenues in FY 2016 from
above.
the low-margin sales in the Asia-Pacific area discussed
f
Impairment of Goodwill. In FY 2016, we recognized a non-cash impairment charge of $2.7 million to the goodwill recorded in our North
American manufacturing operations as a result of the Southern Frac acquisition. Reference is made to Note 2 of Notes to Condensed Consolidated
Financial Statements for further discussion regarding goodwill.
Depreciation and Amortization. Depreciation and amortization increased by $1.5 million to $39.3 million in FY 2017 from $37.8 million in FY
2016. This consisted of an increase of $2.3 million in the Asia-Pacific, or 16%, primarily as a result of the translation effect of a stronger Australian
II-10
dollar to the U.S. dollar in FY 2017 versus FY 2016 (in Australian dollars, depreciation and amortization increased by 12%); which offset somewhat by
a $0.8 million decrease in North America, consisting of decreases at Lone Star and Southern Frac of $0.8 million and $0.4 million, respectively, and a
$0.4 million increase at Pac-Van, primarily as a result of our increased investment in lease fleet purchases and business acqui
sitions.
r
Interest Expense. Interest expense of $19.7 million in FY 2017 was comparable to FY 2016. In North America, the higher interest expense of
$1.4 million was due to the weighted-average interest rate of 5.3% (which does not include the effect of the accretion of interest and amortization of
deferred financing costs) in FY 2017 being higher than the 4.9% in FY 2016, as well as the average borrowings being comparatively higher between the
periods. In the Asia-Pacific area, reduced interest expense of $1.4 million was due to the weighted-average interest rate of 5.0% (which does not include
the effect of translation, interest rate swap contracts and options and the amortization of deferred financing costs) in FY 2017 being lower than the 5.4%
in FY 2016, as well as average borrowings being comparatively lower between the periods. However, this was partially offset by the stronger Australian
dollar between the periods.
Foreign Exchange and Other. The currency exchange rate of one Australian dollar to one U.S. dollar was $0.7658 at June 30, 2015, $0.74425 at
June 30, 2016 and $0.76869 at June 30, 2017. In FY 2016 and FY 2017,
and $80,000, and $(375,000) and $39,000, respectively. In addition, in FY 2016 and FY 2017, unrealized exchange losses on forward exchange
contracts totaled $367,000 and $12,000, respectively. In FY 2016, we sold our owned real properties in the Asia-Pacific area for a net gain of $109,000.
net unrealized and realized foreign exchange gains (losses) totaled $(103,000)
JJ
Income Taxes. Our effective income tax rate was 2.9% and 40.0% in FY 2017 and FY 2016, respectively. In FY 2016, the effective tax rate is
greater than the U.S. federal tax rate of 35% primarily because of state income taxes from the filing of tax returns in multiple U.S. states and the effect
of doing business and filing income tax returns in foreign jurisdictions. In FY 2017, the effective tax rate is lower than the U.S. federal tax rate primarily
as a result of adjustments to estimated state deferred tax liabilities, net of U.S. federal tax benefit, totaling $297,000, which more than offset the same
multijurisdictional factors present in FY 2016.
Preferred Stock Dividends. In both FY 2017 and FY 2016, we paid $3.7 million primarily on our 9.00% Series C Cumulative Redeemable
Perpetual Preferred Stock.
Noncontrolling Interests. Noncontrolling interests in the Royal Wolf and Southern Frac results of operations were approximately $2.1 million in
both FY 2017 and FY 2016.
Net Loss Attributable to Common Stockholders. Net loss attributable to common stockholders was $6.6 million in FY 2017 versus $9.0 million
in FY 2016, an improvement of $2.4 million, primarily as a result of higher operating profit in North America (FY 2016 included a pretax impairment
charge of $2.7 million) and a stronger Australian dollar between the periods, offset somewhat by lower operating profit in the Asia-Pacific area.
d
II-11
Measures not in Accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”)
t
Earnings before interest, income taxes, impairment, depreciation and amortization and ot
her non-operating cost
aa
s and income (“EBITDA”) and
t
adjusted EBITDA are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GA
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. Adjusted EBITDA is a non-U.S. GAAP measure. We calculate adjusted EBITDA to eliminate the impact
of certain items we do not consider to be indicative of the performance of our ongoing operations. You are encouraged to evaluate each adjustment and
whether you consider each to be appropriate. In addition, in evaluating adjusted EBITDA, you should be aware that in the future, we may incur
expenses similar to the expenses excluded from our presentation of adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as
an inference that our future results will be unaffected by unusual or non-recurring items. We present adjusted EBITDA because we consider it to be an
important supplemental measure of our performance and because we believe it is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry, many of which present EBITDA and a form of adjusted EBITDA when reporting their results.
Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported
under U.S. GAAP. Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest
in the growth of our business or to reduce our indebtedness. We compensate for these limitations by relying primarily on our U.S. GAAP results and
using adjusted EBITDA only supplementally. The following table shows our adjusted EBITDA and the reconciliation from net income (in thousands):
AP. These measures
NNet income (loss)
Add —
Provision (benefit) for income taxes
Loss on change in valuation of bifurcated derivative in Convertible Note
Foreign exchange and other
Interest expense
Interest income
Depreciation and amortization
Impairment of goodwill and trade name
Share-based compensation expense
Expenses of postponed public equity offering
Inventory write-downs and related
NNon-recurring severance costs and CEO retirement compensation at Royal Wolf
Refinancing costs not capitalized
Adjusted EBITDA
2014
$ 15,149
2015
$ 13,045
2016
$ (3,286)
2017
$ (847)
2018
$ (9,107)
Year Ended June 30,
11,620
—
1,372
11,952
(52)
27,127
—
1,938
—
—
—
—
$ 69,106
$
8,697
—
273
21,096
(68)
38,571
—
2,174
365
—
—
—
84,153
$
(2,191)
—
309
19,648
(97)
38,634
3,068
2,388
—
1,630
727
—
60,830
(25)
—
351
19,653
(66)
40,092
—
1,374
—
—
—
437
60,969
$
$
(679)
13,719
5,887
33,991
(112)
40,335
—
3,658
—
—
—
—
87,692
Our business is capital intensive, so from an operating level we focus primarily on EBITDA and adjusted EBITDA to measure our results. These
measures provide us with a means to track internally generated cash from which we can fund our interest expense and fleet growth objectives. In
managing our business, we regularly compare our adjusted EBITDA margins on a monthly basis. As capital is invested in our established branch (or
CSC) locations, we achieve higher adjusted EBITDA margins on that capital than we achieve on capital invested to establish a new branch, because our
fixed costs are already in place in connection with the established branches. The fixed costs are those associated with yard and delivery equipment, as
well as advertising, sales, marketing and office expenses. With a new market or branch, we must first fund and absorb the start
-up costs for setting up
the new branch facility, hiring and developing the management and sales team and developing our marketing and advertising programs. A new branch
will have low adjusted EBITDA margins in its early years until the number of units on rent increases. Because of our higher operating margins on
incremental lease revenue, which we realize on a branch-by-branch basis, when the branch achieves leasing revenues sufficient to cover the branch’s
fixed costs, leasing revenues in excess of the break-even amount produce large increases in profitability and adjusted EBITDA margins. Conversely,
absent significant growth in leasing revenues, the adjusted EBITDA margin at a branch will remain relatively flat on a period by period comparative
basis.
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II-12
Liquidity and Financial Condition
Though we have raised capital at the corporate level to primarily assist in the funding of acquisitions a
ff
nd lease fleet expenditures, as well as for
general purposes, our operating units substantially fund their operations through secured bank credit facilities that require compliance with various
covenants. These covenants require our operating units to, among other things; maintain certain levels of interest or fixed charge coverage, EBITDA (as
defined), utilization rate and overall leverage.
y
Asia-Pacific Leasing Senior Credit Facility
g
Our operations in the Asia-Pacific area had an AUS$150,000,000 secured senior credit facility, as amended, under a common terms deed
arrangement with the Australia and New Zealand Banking Group Limited (“ANZ”) and Commonwealth Bank of Australia (“CBA”) (the “ANZ/CBA
Credit Facility”). On October 26, 2017, RWH and its subsidiaries, Deutsche Bank AG, Sydney Branch (“Deutsche Bank”), CSL Fund (PB) Lux Sarl II,
Aiguilles Rouges Lux Sarl II, Perpetual Corporate Trust Limited and P.T. Limited entered into a Syndicated Facility Agreement (the “Syndicated
Facility Agreement”). Pursuant to the Syndicated Facility Agreement, the parties entered into a three-year, $92,637,500 (AUS$125,000,000) senior
secured credit facility (the “Deutsche Bank Credit Facility”) and repaid the ANZ/CBA Credit Facility on November 3, 2017. The Deutsche Bank Credit
Facility initially consisted of a $14,822,000 (AUS$20,000,000) Facility A that will amortize semi-annually; a $62,993,500 (AUS$85,000,000) Facility B
that has no scheduled amortization; and a $14,822,000 (AUS$20,000,000) revolving Facility C that is used for working capital, capital expenditures and
general corporate purposes. On June 25, 2018, RWH and its subsidiaries amended the Deutsche Bank Credit Facility to increase by
y
approximately
$6,784,700 (NZ$10,000,000) the amount that can be borrowed under Facility B. The Deutsche Bank Credit Facility is secured by substantially all of the
u
assets and by the pledge of all the capital stock of the subsidiaries of RWH and matures on November 3, 2020.
AA
tt
p
Bison Capital Notes
On September 19, 2017, Bison Capital, GFN, GFN U.S., GFNAPH and GFNAPF, entered into that certain Amended and Restated Securities
Purchase Agreement dated September 19, 2017 (the “Amended Securities Purchase Agreement”). On September 25, 2017, pursuant to the Amended
Securities Purchase Agreement, GFNAPH and GFNAPF issued and sold to Bison an 11.9% secured senior convertible promissory note dated
September 25, 2017 in the original principal amount of $26,000,000 (the “Convertible Note”) and an 11.9% secured senior promissory note dated
September 25, 2017 in the original principal amount of $54,000,000 (the “Senior Term Note” and collectively with the Convertible Note, the “Bison
Capital Notes”). Net proceeds from the sale of the Bison Capital Notes were used to repay in full all principal, interest and other amounts due under the
term loan to Credit Suisse (see Note 5 of Notes to Consolidated Financial Statements), to acquire the 49,188,526 publicly-traded shares of RWH not
owned by the Company (see Note 4 of Notes to consolidated Financial Statements) and to pay all related fees and expenses. The Bison Capital Notes
have a maturity of five years and are secured by a first priority security interest over all of the assets of GFN U.S., GFNAPH and GFNAPF, by the
pledge by GFN U.S. of the capital stock of GFNAPH and GFNAPF and by of all of the capital stock of RWH.
t
North America Senior Credit Facilityy
Our North America leasing (Pac-Van and Lone Star) and manufacturing operations (Southern Frac) have a combined $237,000,000 senior
secured revolving credit facility, as amended, with a syndicate led by Wells Fargo Bank, National Association (“Wells Fargo”) that also includes East
West Bank, CIT Bank, N.A., the Canadian Imperial Bank of Commerce (“CIBC”), KeyBank, National Association, Bank Hapoalim B.M. and
Associated Bank, N.A. (the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facili
senior notes due July 31, 2021(see below) are extended at least 90 days past this scheduled maturity date; otherwise the Wells Fargo Credit Facility
would mature on March 24, 2021. There is also a separate loan agreement with Great American Capital Partners (“GACP”), where GACP provided a
First In Last Out Term Loan (”FILO Term Loan”) within the Wells Fargo Credit Facility in the amount
$237,000,000 total amount.
ty matures on March 24, 2022, assuming our publicly-traded
of $20,000,000, and inclusive in the
t
tt
The Wells Fargo Credit Facility is secured by substantially all of the rental fleet,
f
inventory and other assets of our North American leasing and
manufacturing operations. The FILO Term Loan also contains a first priority lien on the same collateral, but on a “last out bas
outstanding obligations to the primary lenders in the Wells Fargo Credit Facility have been satisfied. The Wells Fargo Credit Facility effectively not
only finances our North American operations, but also the funding requirements for the Series C Preferred Stock and the publicly-traded unsecured
senior notes (see below). The maximum amount of intercompany dividends that Pac-Van and Lone Star are allowed to pay in each fiscal year to GFN
for the funding requirements of GFN’s senior and other debt and the Series C Preferred Stock are (a) the lesser of $5,000,000 for the Series C Preferred
Stock or the amount equal to the dividend rate of the Series C Preferred Stock and its aggregate liquidation preference and the actual amount of
dividends required to be paid to the Series C Preferred Stock; and (b) $6,300,000 for the public offering of unsecured senior notes or the actual amount
is,” after all of the
ff
t
II-13
of annual interest required to be paid; provided that (i) the payment of such dividends does not cause a default or event of de
and Lone Star is solvent; (iii) excess availability, as defined, is $5,000,000 or more under the Wells Fargo Credit Facility; (iv) the fixed charge coverage
ratio, as defined, will be greater than 1.25 to 1.00; and (v) the dividends are paid no earlier than ten business days prior to the date they are due.
fault; (ii) each of Pac-Van
aa
Corporate Senior Notes
p
On June 18, 2014, we completed the sale of unsecured senior not
f
es (the “Senior Notes”) in a public offering for an aggregate principal
amount of $72,000,000. On April 24, 2017, we completed the sale of a “tack-on” offering of our publicly-traded Senior Notes for an aggregate principal
amount of $5,390,000 that was priced at $24.95 per denomination. Net proceeds were $5,190,947, after deducting an aggregate original issue discount
(“OID”) of $10,780 and underwriting discount of $188,273. In both offerings, we used at least 80% of the gross proceeds to reduce indebtedness at
Pac-Van and Lone Star under the Wells Fargo Credit Facility in order to permit the payment of intercompany dividends by Pac-Van and Lone Star to
GFN to fund the interest requirements of the Senior Notes. For the ‘tack-on” offering, this amounted to $4,303,376 of the net proceeds. The Company
has total outstanding publicly-traded Senior Notes in an aggregate principal amount of $77,390,000. The Senior Notes bear interest at the rate of 8.125%
per annum, mature on July 31, 2021 and are not subject to any sinking fund. Interest on
the Senior Notes is payable quarterly in arrears on January 31,
April 30, July 31 and October 31, commencing on July 31, 2014. The Senior Notes rank equally in right of payment with all of our existing and future
nd future subordinated debt. The Senior Notes are effectively subordinated to
unsecured senior debt and senior in right of payment to all of its existing a
any of our existing and future secured debt, to the extent of the value of the assets securing such debt. The Senior Notes are structurally subordinated to
all existing and future liabilities of our subsidiaries and are not guaranteed by any of our subsidiaries.
n
r
t
Reference is made to Notes 3 and 5 of Notes to Consolidated Financial Statements for further discussion of our equity transactions and senior
and other debt, respectively, and Note 13 for a discussion of recent developments.
r
We currently do not pay a dividend on our common stock and do not intend on doi
ng so in the foreseeable future.
Capital Deployment and Cash Management
p y
g
p
Our business is capital intensive, and we acquire leasing assets before they generate revenues, cash flow and earnings. These leasing assets have
ess historically has been
long useful lives and require relatively minimal maintenance expenditures. Most of the capital we deploy into our leasing busin
used to expand our operations geographically, to increase the number of units available for lease at our branch and CSC locations and to add to the
breadth of our product mix. Our operations have generally generated annual cash flow which would include, even in profitable periods, the deferral of
income taxes caused by accelerated depreciation that is used for tax accounting.
aa
aa
As we discussed above, our principal source of capital for operations consists of funds available from the senior secured credit facilities at our
operating units. We also finance a smaller portion of capital
requirements through finance leases and lease-purchase contracts. We intend to continue
utilizing our operating cash flow and net borrowing capacity primarily to expanding our container sale inventory and lease fleet through both capital
expenditures and accretive acquisitions; as well as paying dividends on the Series C Preferred Stock and 8.00% Series B Cumulative Preferred Stock
(“Series B Preferred Stock”), if and when declared by our Board of Directors. While we have always owned a majority interest in Royal Wolf and its
results and accounts are included in our consolidated financial statements, access to its operating cash flows, cash on hand and other financial assets and
the borrowing capacity under its senior credit facility are limited to us in North America contractually by its senior lenders and, to a certain extent, as a
result of Royal Wolf having been a publicly-listed entity on the Australian Stock Exchange.
Supplemental information pertaining to our consolidated sources and uses of cash is presented in the table below (in thousands):
NNet cash provided by operating activities
Net cash used in investing activities
NNet cash provided by (used in) financing activities
2016
$ 48,822
Year Ended June 30,
2017
$ 35,307
2018
$ 58,775
(35,378)
(5,577)
$
$
(30,722)
(6,159)
$
$
(114,500)
70,721
$
$
II-14
Cash Flow for FY 2018 Compared to FY 2017
p
Operating activities. Our operations provided cash of $58.8 million during FY 2018 versus $35.3 million during FY 2017, an increase in cash of
h
$23.5 million between the periods. Net loss in FY 2018 of $9.1 million was $8.3 million higher than the net loss in FY 2017 of $0.8 million. However,
our management of operating assets and liabilities in FY 2018, when compared to FY 2017, increased cash by $11.2 million. Historically we have
experienced significant variations in operating assets and liabilities between periods when conducting our business in due course. Non-cash adjustments
st deferred on the Senior
relating to depreciation and amortization, including amortization of deferred financing costs, accretion of interest and intere
Term Note also increased cash between the periods by $4.8 mi
llion, from $41.9 million in FY 2017 to $46.7 million in FY 2018; and non-cash share-
based compensation of $3.7 million in FY 2018 further increased operating cash flows by $2.3 million, when compared to $1.4 million in FY 2017. In
the first quarter of FY 2017 a benefit of $0.7 million was recorded at Royal Wolf, primarily for the reversal of expenses recognized for unvested
performance grants to key employees under its Long Term Incentive Plan (see Note 8 of Notes to Consolidated Financial Statement
charge of $13.7 million for the change in the valuation of the stand-alone bifurcated derivative in the Convertible Note (see Note 5 of Notes to
Consolidated Financial Statements) increased operating cash flow in FY 2018 and, additionally, net unrealized gains and losses from foreign exchange
and derivative instruments (see Note 6 of Notes to Consolidated Financial Statements), which affect operating results but are non-cash addbacks for
cash flow purposes, increased cash by $6.1 million between the periods, from a cash reduction of $0.7 million in FY 2017 to a cash increase of
$5.4 million in FY 2018. Somewhat offsetting these increases were the net gain
$8.5 million in FY 2018 and by $3.7 million in FY 2017, a reduction of $4.8 million between the periods; and, additionally, operating cash flows were
reduced by non-cash adjustments for deferred income taxes in FY 2018 and FY 2017 of $3.0 million and $1.2 million, respectively.
on the sales of lease fleet, which reduced operating cash flows by
s). The non-cash
d
f
t
ff
Investing Activities. Net cash used in investing activities was $114.5 million during FY 2018, as compared to $30.7 million used during FY
2017, resulting in a net increase in the use of cash between the periods of $83.8 million. In FY 2018, we used $73.3 million and $15.1 million of cash to
acquire the noncontrolling interest of Royal Wolf and make four business acquisitions in North
Consolidated Financial Statements). In FY 2017, we made three business acquisitions (two in North America and one in the Asia-Pacific area) for cash
of $5.0 million. Purchases of property, plant and equipment, or rolling stock (maintenance capital expenditures), were $4.8 million in FY 2018 and
$3.7 million in FY 2017, an increase of $1.1 million. In both periods, proceeds from sales of property, plant and equipment were not significant. Net
capital expenditures of lease fleet (purchases, net of proceeds from sales of lease fleet) were $21.1 million in FY 2018 as compared to $21.8 million in
FY 2017, a slight decrease of $0.7 million. In FY 2018, net capital expenditures of lease fleet were approximately $19.0 million in North America, as
compared to $10.7 million in FY 2017, an increase of $8.3 million; and net capital expenditures of lease fleet in the Asia Pacific totaled $2.1 million in
FY 2018, versus $11.1 million in FY 2017, a decrease of $9.0 million. The amount of cash that we use during any period in inves
ting activities is almost
entirely within management’s discretion and 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.
America, respectively (see Note 4 of Notes to
t
Financing Activities. Net cash provided from financing activities was $70.7 million during FY 2018, as compared to $6.2 million cash used
during FY 2017, an increase to cash between the periods of $76.9 million. In FY 2018, we issued the Bison Capital Notes for proceeds totaling
$80.0 million to, among other things, acquire the noncontrolling interest of Royal Wolf (see above) and repay the principal of
the term loan to Credit Suisse (see Note 5 of Notes to Consolidated Financial Statements). Cash of $3.7 million was used during
dividends on primarily our Series C Preferred Stock and, in FY 2018 and FY 2017, Royal Wolf paid a capital stock dividend of $1.0 million and
$1.9 million, respectively, to the noncontrolling interests (see Note 3 of Notes to Consolidated Financial Statements). In FY 2018 and FY 2017,
financing activities also included net borrowings and repayments of $89.4 million and $3.3 million, respectively, on existing credit facilities and, in FY
2017, we completed the sale of a “tack-on” offering of our publicly-traded Senior Notes for an aggregate principal amount of $5.4 million. These
financing activities on our existing credit facilities and Senior Notes were primarily to fund our investment in the container lease fleet, make business
acquisitions, pay dividends, manage our operating assets and liabilities and, in FY 2018, $81.5 million was borrowed from the Deutsche Bank Credit
Facility to repay the ANZ/CBA Credit Facility (see Note 5 of Notes to Consolidated Financial Statements). In addition, deferred financing costs related
to the Bison Capital Notes and Deutsche Bank Credit Facility totaled $4.0 million in FY 2018 and, in FY 2017, we paid deferred financing costs of
$2.8 million primarily for the amendment and extension of our senior secured credit facilities in both North America and the Asia-Pacific area, as well
as for the “tack-on” offering of our publicly-traded Senior Notes.
$10.0 million due under
both periods to pay
d
a
f
Cash Flow for FY 2017 Compared to FY 2016
p
Operating activities. Our operations provided cash of $35.7 million during FY 2017 versus providing $48.8 million during FY 2016, a decrease
of $13.1 million. While the net loss of $0.8 million in FY 2017 was $2.5 less than the $3.3 million net loss in FY 2016, our management of operating
assets and liabilities in FY 2017, when compared to FY 2016, reduced cash by $17.7 million. The primary reason for this was the increase in trade and
other receivables and the timing on the satisfaction of trade payables, accrued liabilities and unearned revenues during FY 2017 that, when compared
II-15
a
to FY 2016, reduced cash by $21.3 million between the periods. In FY 2017 these operating accounts reduced cash by $7.3 million, whereas in FY 2016
they increased cash by $14.0 million. While historically we have experienced significant variations in operating assets and liabilities between periods
when conducting our business in due course, having a more than usual impact this time was our days sales outstanding (“DSO”) in trade receivables in
the Asia-Pacific area, which increased to 49 days at June 30, 2017, as compared to 36 days at June 30, 2016, which was an exceptional DSO. The main
factors contributing to the increase are the economic climate within Australia, which is being adversely impacted by an apparent lack of business
confidence, coupled with our increased activity in the building and construction industry, whose payment profile is usually 60 days. However, we do
expect this situation to normalise to a more standard 40 - 45 days in the Asia-Pacific region as a result of, among other things, improved collection
efforts and system improvements. In addition, net unrealized gains and losses from foreign exchange and derivative instruments (see Note 6 of Notes to
Consolidated Financial Statements), which affect operating results but are non-cash addbacks for cash flow purposes, caused a net increase of
$0.7 million to operating cash flows in FY 2017 versus a net increase of $0.5 million in FY 2016. Further, non-cash adjustments relating to impairment
f
of goodwill, depreciation, amortization (including amortization of deferred financing costs) and
periods by $1.8 million, from $43.7 million in FY 2016 to $41.9 million in FY 2017. In FY 2016 operating cash flows increased b
result of the non-cash addback of the goodwill and trade name impairment charge recognized at Sout
tt
hern Frac. Finally, while ope
enhanced by non-cash share-based compensation of $1.4 million in FY 2017 and $2.4 million in FY 2016, it resulted in a decrease of $1.0 million
between the periods. During the first quarter of FY 2017, a benefit of
recognized for unvested performance grants to key employees under its Long Term Incentive Plan (see Note 9 of Notes to Consolidated Financial
Statements). Offsetting these reductions somewhat were the non-cash adjustments of deferred income taxes and gains on the sales of lease fleet, which
increased cash from operating activities by $3.0 million and $2.7 million, respectively, in FY 2017 from FY 2016.
accretion of interest also decreased cash between the
y $3.1 million as a
rating cash flows were
$0.7 million was recorded at Royal Wolf; primarily for the reversal of expenses
n
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Investing Activities. Net cash used in investing activities was $30.7 million during FY 2017, as compared to $35.4 million used during FY 2016,
resulting in an increase to cash of $4.7 million. Purchases of property, plant and equipment (or rolling stock) were $3.7 million in FY 2017 and
$4.2 million in FY 2016, a decrease of $0.5 million. In FY 2017, proceeds from sales of property, plant and equipment were only $0.3 million, as
compared to $10.6 million in FY 2016, when all of our owned real properties in the Asia-Pacific area were sold for $10.3 millio
expenditures of lease fleet (purchases, net of proceeds from sales of lease fleet) were $21.8 million in FY 2017 as compared to $20.8 million in FY
2016, a decrease of $1.0 million. In FY 2017, net capital expenditures of lease fleet were approximately $10.7 million in North America, as compared to
$14.7 million in FY 2016, a decrease of $4.0 million; and net capital expenditures of lease fleet in the Pan Pacific totaled $11.1 million in FY 2017,
versus $6.1 million in FY 2016, an increase of $5.0 million. The amount of cash that we use during any period in investing activities is almost entirely
within management’s discretion and we have no significant long-term contracts or other arrangement
purchase at a certain price or a minimum amount of goods or services. In FY 2017, we made three business acquisitions (two in North America and one
in the Asia-Pacific area) for cash of $5.0 million; as compared to six business acquisitions (four in North America and two in the Asia-Pacific area)
during FY 2016 for cash totaling $20.7 million (see Note 4 of Notes to Consolidated Financial Statements).
s pursuant to which we may be required to
n. Net capital
m
d
d
Financing Activities. Net cash used in financing activities was $6.2 million during FY 2017, as compared to net cash used of $5.6 million during
FY 2016, a decrease to cash of $0.6 million. In FY 2017 and FY 2016, financing activities included net reductions of $3.3 million and net borrowings of
$1.3 million, respectively, on existing credit facilities. In addition, in FY 2017, we completed the sale of a “tack-on” offering of our publicly-traded
Senior Notes for an aggregate principal amount of $5.4 million. These financing activities on our existing credit facilities and Senior Notes were
primarily to fund our investment in the container lease fleet and business acquisitions and, in FY 2017, for the management of operating assets and
liabilities. Cash of $3.7 million was used during both periods to pay dividends on primarily our Series C Preferred Stock and, in FY 2017 and FY 2016,
Royal Wolf paid capital stock dividends of $1.9 million and $2.9 million, respectively, to noncontrolling interests (see Note 3
of Notes to Consolidated
Financial Statements). Additionally, during FY 2016, $0.2 million of cash was used to make a distribution to the noncontrolling interest of Southern
Frac. During FY 2017, we paid deferred financing costs of $2.8 million primarily for the amendment and extension of our senior secured credit facilities
in both North America and the Asia-Pacific area, as well as for the “tack-on” offering of our publicly-traded Senior Notes.
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Asset Management
g
Receivables and inventories were $50.5 million and $22.7 million at June 30, 2018 and $44.4 million and $29.6 million at June 30, 2017,
respectively. At June 30, 2018, DSO in trade receivables were 35 days and 47 days in the Asia-Pacific area and our North American leasing operations,
as compared to 49 days and 46 days at June 30, 2017, respectively. Effective asset management is always a significant focus as we strive to apply
appropriate credit and collection controls and maintain proper inventory levels to enhance cash flow and profitability.
II-16
The net book value of our total lease fleet was $429.4 million at June 30, 2018, as compared to $427.3 million at June 30, 2017. At June 30,
2018, we had 85,812 units (24,037 units in retail operations in Australia, 8,046 units in national account group operations in Australia, 10,222 units in
New Zealand, which are considered retail; and 43,507 units in Nort
operations in Australia, 8,871 units in national account group operations in Australia, 10,137 units in New Zealand, which are considered retail; and
38,482 units in North America) at June 30, 2017. At those dates, 68,712 units (
account group operations in Australia, 8,705 units in New Zealand, which are considered retail; and 34,867 units in North America); and 63,321 units
tt
(19,554 units in retail operations in Australia, 5,287 units in nationa
considered retail; and 29,550 units in North America) were on lease, respectively.
h America) in our lease fleet, as compared to 80,712 units (23,222 units in retail
l account group operations in Australia, 8,930 units in New Zealand, which are
20,102 units in retail operations in Australia, 5,038 units in national
d
t
In the Asia-Pacific area, the lease fleet was comprised of 34,507 storage and freight containers and 7,798 portable building co
t
ntainers at June 30,
2018; and 34,625 storage and freight containers and 7,605 portable bui
t
of 28,301 storage and freight containers and 5,544 portable building containers; and 28,280 storage and freight containers and 5,491 portable building
containers, respectively.
lding containers at June 30, 2017. At those dates, units on lease were comprised
In North America, the lease fleet was comprised of 29,518 storage containers
f
, 4,216 office containers (GLOs), 4,147 portable liquid storage tank
containers, 4,447 mobile offices and 1,179 modular units at June 30, 2018; and 25,175 storage containers, 3,552 office containers (GLOs), 4,097
portable liquid storage tank containers, 4,491 mobile offices and 1,167 modular units at June 30, 2017. At those dates, units on lease were comprised of
23,040 storage containers, 3,620 office containers, 3,405 portable liquid storage tank containers, 3,792 mobile offices and 1,010 modular units; 19,296
storage containers, 2,885 office containers, 2,672 portable liquid storage tank containers, 3,732 mobile offices and 965 modular units, respectively.
r
Contractual Obligations and Commitments
Our material contractual obligations and commitments consist of outstanding borrowings under our credit facilities discussed above and
operating leases for facilities and office equipment. The table below provides a summary of our contractual obligations and reflects expected payments
due as of June 30, 2018 and does not reflect changes that could arise after that date (dollars in thousands).
Deutsche Bank Credit Facility
Interest payment obligations under the Deutsche Bank
Credit Facility (a)
Bison Capital Notes
Interest payment obligations under the Bison Capital
Notes (b)
Wells Fargo Credit Facility
Interest payment obligations under the Wells Fargo
Credit Facility (c)
Senior Notes
Interest payment obligations under the Senior Notes
(d)
Other (e)
Other interest payment obligations (f)
Operating leases (g)
Total
Total
Within 1
Year
Within 1 to 2
Years
Within 2 to
3 Years
Within 3 to
4 Years
Within 4 to
5 Years
More than
5 Years
$
81,781 $
9,263 $
4,936 $
67,582 $
— $
— $
12,170
82,013
45,478
183,949
37,915
77,390
5,532
—
10,736
1,500
10,427
—
5,023
—
10,736
2,000
10,198
—
1,615
—
—
—
10,736
2,000
10,736
178,449
9,936
—
7,354
77,390
—
82,013
2,534
—
—
—
—
—
—
—
—
—
—
19,388
6,652
695
45,655
—
100
4
11,547
$ 593,086 $ 57,448 $ 49,711 $ 105,551 $ 279,580 $ 89,145 $ 11,651
6,288
3,042
349
10,311
6,288
719
85
6,590
6,288
2,007
177
8,346
—
590
27
3,981
524
194
53
4,880
(a)
(b)
(c)
Interest payment obligations under the Deutsche Bank Credit Facility, which are subject to a vari
–average rate during the fourth quarter of FY 2018 of 7.17%.
Interest payment obligations under the Bison Capital Notes were calculated using an effective rate of 13.09%.
Interest payment obligations under the Wells Fargo Credit Facility, which are subject to a variable rate, were calculated using a rate at
June 30, 2018 of 13.091% on the $20,000 FILO Term Loan and 4.823% on the remaining balance.
Interest payment obligations under the Senior Notes were calculated using the stated rate of 8.125%.
Includes primarily equipment financing and real estate mortgage.
(d)
(e)
(f) Other interest payment obligations were calculated using a weighted –average rate during the fourth quarter of FY 2018 of 6.8% (interest
able rate, were calculated using a weighted
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payments subsequent to June 30, 2023 are considered immaterial and are not calculated).
(g) See Note 10 of Notes to Consolidated Financial Statements.
II-17
We estimate the annual distribution requirements with respect to our Series C Preferred Stock and Series B Preferred Stock outstanding at
June 30, 2018 to be approximately $3.7 million. Dividends are paid when and if declared by our Board of Directors and accumulate if not paid.
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.
r
Seasonality
Although demand from certain customer segments can be seasonal, our operations as a whole are not seasonal to any significant e
t
xtent. We
experience a reduction in sales volumes at Royal Wolf during Australia’s 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 increased levels of 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-Van’s customers can be seasonal, such as in the construction industry, which tends to increase l
first and fourth quarters of our fiscal year; while customers in the retail industry tend to lease more units in the second quarter. Our business at Lone Star
and Southern Frac, which has been significantly derived from the oil and gas industry, may decline in our second quarter months of November and
December and our third quarter months of January and February, particularly if inclement weather delays, or suspends, customer
easing activity in the
projects.
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Environmental and Safety
Our operations, and the operations of many of our customers, are subject to numerous
f
federal and local laws and regulations governing
environmental protection and transportation. These laws regulate such issues as wastewater, storm water and the management, storage and disposal of,
or exposure to, hazardous substances. We are not aware of any pending environmental compliance or remediation matters that are reasonably likely to
have a material adverse effect on our business, financial position or results of operations. However, the failure by us to comply with applicable
environmental and other requirements could result in fines, penalties, enforcement actions, third party claims, remediation actions, and could negatively
impact our reputation with customers. We have a company-wide focus on safety and have implemented a number of measures to promote workplace
safety.
Impact of Inflation
We believe that inflation has not had a material effect on our business. However, during periods of rising prices and, in particular when the
prices increase rapidly or to levels significantly higher than normal, we may incur significant increases in our operating costs and may not be able to
pass price increases through to our customers in a timely manner, which could harm our future results of operations.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liab
ilities 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.
f
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 sales outstanding trends, a review of
historical collection results and a review of specific past due receivables. If the financial condition of our customers were to deteriorate, resulting in an
II-18
impairment of their ability to make payments, additional allowances may be required, resulting in decreased operating income. Prior to FY 2016,
uncollectible accounts were generally within the range of our expectations; however, in FY 2016 and FY 2017 we incurred more than our historically
normal provision and write-offs for bad debts, primarily for customers in the oil and gas sector.
We lease and sell a fleet of storage, portable building, office and portable liquid storage tank containers, modular buildings and mobile offices to
our customers. Leases to customers, which have varying terms, 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 equipment is recognized upon delivery and when collectability is reasonably assured,
sales of manufactured units are recognized when title and risk of loss transfers to the purchaser, generally upon shipment. 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. There were no such arrangements in FY 2017 and FY
2018. The lease fleet (or lease or rental equipment) is recorded at cost and depreciated on the straight-line basis over the estimated useful life (5 —
20 years), after the date the units are put in service, down to their estimated residual values (up to 70% of cost). In our opinion, estimated residual values
are at or below net realizable values. We periodically review these depreciation policies in light of various fact
competitors in the industry, and our own historical experience.
ors, including the practices of the larger
while revenue from the
f
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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 management’s judgment and may impact operating income. In particular, we use a volatility rate based on the
performance of our common stock, which yields a higher rate. In addition we use a risk-free interest rate, which is the rate on U.S. Treasury instruments,
for a security with a maturity that approximates the estimated remaining expected term of the stock option.
n
The purchase consideration of acquired businesses have been allocated to the assets and liabilities acquired based on the estimated fair values on
the respective acquisition dates. Based on these values, the excess purchase consideration over the fair value of the net assets acquired was allocated to
goodwill. 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. We operate two reportable
geographic areas and the vast majority of goodwill recorded was
in the acquisitions of Royal Wolf, Pac-Van, Southe
rn Frac and Lone Star.
ff
t
We assesses the potential impairment of goodwill on an annual basis or if a determination is made based on a qualitative assessment that it is
more likely than not (i.e., greater than 50%) that the fair value of the reporting unit is less than its carrying amount. Qualitative factors which could
cause an impairment include (1) significant underperformance relative to historical, expected or projected future operating results; (2) significant
changes in the manner of use of the acquired businesses or the strategy for our overall business; (3) significant changes during the period in our market
capitalization relative to net book value; and (4) significant negative industry or general economic trends. Prior to June 30, 2017, if we did determine
that fair value is more likely than not less than the carrying amount, a quantitative two-step impairment test process would be
applied. The first step in
this quantitative process is a screen for potential impairment where the fair value of the reporting unit is compared to its carrying value to determine if
the goodwill is impaired. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, then goodwill is not
impaired and no further testing is required. If, however, the carrying value of the net assets assigned to the reporting unit were to exceed its fair value,
then the second step is performed by determining the implied fair value of a reporting unit’s goodwill and comparing it to the carrying value of the
goodwill. This would involve allocating the fair value of the reporting unit to its respective assets and liabilities (as if it had been acquired in a separate
and individual business combination and the fair value was the price paid to acquire it), with the excess of the fair value over the amounts assigned
being the implied fair value of goodwill. If the implied fair va
lue is less than the carrying value of the goodwill, an impairment loss would be recorded
f
for the difference. In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, which removed the requirement for a Step 2
goodwill impairment test and permitted early adoption for interim or annual goodwill impairment tests performed on dates on or after January 1, 2017.
We adopted ASU No. 2017-04 effective June 30, 2017 and any goodwill impairment will now be the amount by which a reporting unit’s carrying value
exceeds its fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. During FY 2016, we
determined that qualitative factors in our North American leasing and manufacturing
market, required an update of the step one impairment analysis for Lone Star and Southern Frac. This updated analysis calculated that even though the
excess of the estimated fair value of Lone Star over the carrying value of its invested capital declined to approximately 11% of the book value of its net
assets, its implied value of goodwill was still greater than its carrying value. However, we dete
operations, pertaining primarily to conditions in the oil and gas
rmined that the implied value of Southern Frac’s
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t
II-19
goodwill was less than the carrying value of its goodwill, resulting in an impairment charge of $2,681,000 at March 31, 2016. Our annual impairment
analysis performed at June 30, 2017 and 2018 concluded that the fair value of each of its reporting units was greater than thei
amounts. We base our fair value estimates on assumptions that we believe are reasonable, but are uncertain and subject to changes in market conditions.
r respective carrying
f
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-li
expected period of benefit which range from one to fourteen years. Costs to obtaining long-term financing are deferred and amortized over the term of
the related revolving line of credit senior 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 intangible assets (those assets resulting from
acquisitions) for impairment if we determine, based on a qualit
might be less than the carrying amount. If we determine that fair value is more likely than not less than the carrying amount, then impairment would be
quantitatively tested, using historical cash flows and other relevant facts and circumstances as the primary basis for estimates of future cash flows. If we
determine that fair value is not likely to be less than the
fiscal yearend, which did not result in an impairment adjustment at June 30, 2017 and 2018, but did result in an impairment write-down at June 30, 2016
of $387,000 to the carrying amount of the trade name recorded at Southern Frac. Determining
significant estimates and assumptions, which we believe are reasonable, but are uncertain and subj
carrying amount, then no further testing would be required. We conducted our review at each
ative assessment, that it is more likely than not (i.e., greater than 50%) that fair value
the fair value of intangible assets involves the use of
ect to changes in market conditions.
ne basis over the
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t
t
We have a convertible note which conversion rights are an embedded derivative that requires bifurcation and separate accounting of its fair value
as a standalone derivative. We determine the fair value of this bifurcated derivative using a valuation model and market prices and reassess its fair value
at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in the consolidated statements of
operations.
In preparing our consolidated financial statements, we recognize income taxes in each of the jurisdictions in which we operate. For each
jurisdiction, we estimate the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary
liabilities and their respective tax bases. Deferred income tax assets
differences between the financial statement carrying amounts of existing assets and
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance would be provided for those deferred tax assets for which it is more likely than not that the related benefits will
not be realized. In determining the amount of the valuation allowance, we
strategies in each jurisdiction. If we determine that we will not realize all or a portion of our deferred tax assets, we would
d
allowance with a charge to income tax expense or offset goodwill if the deferred tax asset was acquired in a business combination. Conversely, if we
determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a
portion of the related valuation allowance would be reduced with a credit to income tax expense except if the valuation allowance was created in
conjunction with a tax asset in a business combination.
consider estimated future taxable income as well as feasible tax planning
increase our valuation
t
ff
f
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r
Reference is made to Note 2 of Notes to Consolidated Financial Statements for a further discussion of our significant accounting policies.
Impact of Recently Issued Accounting Pronouncements
Reference is made to Note 2 of Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements that
could potentially impact us.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges and ot
her market-driven rates or prices. Exposure to
interest rates and currency risks arises in the normal course of our business and we may use derivative financial instruments to hedge exposure to
fluctuations in foreign exchange rates and interest rates. We believe we have no material market risks to our operations, financial position or liquidity as
a result of derivative activities, including forward-exchange contracts.
t
Reference is made to Notes 5 and 6 of Notes to Consolidated Financial Statements for a discussion of our senior and other debt and financial
instruments.
II-20
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2017 and 2018
Consolidated Statements of Operations for the years ended June 30, 2016, 2017 and 2018
Consolidated Statements of Comprehensive Income/Loss for the years ended June 30, 2016, 2017 and 2018
Consolidated Statements of Equity for the years ended June 30, 2016, 2017 and 2018
Consolidated Statements of Cash Flows for the years ended June 30, 2016, 2017 and 2018
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
F-1
F-2
F-3
F-4
F-5
F-7
F-8
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file and
submit under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time
periods specified in accordance with SEC guidelines and that such information is communicated to management, including our Chief Executive Officer
and Chief Financial Officer, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in
the Exchange Act. In designing and evaluating our disclosure controls and procedures, we recognized that any controls and proce
dures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of pos
assurance. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of our disclosure controls and procedures, as required by Exchange Act, as of the end of the period covered by this report.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective
at the reasonable assurance level.
sible controls and procedures in reaching that level of reasonable
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Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
iability of financial
Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the rel
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in conformity with U.S. generally accepted accounting principles, and that receipts and expenditures are being made
only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.
a
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
controls system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected. Under the supervision and with the participation of management, we assessed the
effectiveness of our internal control over financial reporting based on the criteria in Internal Control — Integrated Framework issued by the
II-21
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria in Internal Control — Integrated
Framework (2013), we concluded that our internal control over financial reporting was effective as of June 30, 2018.
Our independent registered public accounting firm, Crowe LLP, audited our internal control over financial reporting as of June 30, 2018, as
stated in their report in the section entitled “Report of Independent Registered Public Accounting Firm” included elsewhere in this Annual Report on
Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
II-22
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy Statement for
the 2018 Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the “Proxy Statement”), not later than
120 days after the end of the fiscal year covered by this Annual Report on Form 10-K and the applicable information included in the Proxy Statement is
incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance
Information concerning our executive officers is set forth in Item 1. of this Annual Report on Form 10-K under the caption “Executive Officers
of the Registrant.”
We have adopted a code of ethics that applies to our directors, officers (including our principal executive and principal financial and accounting
g
officers) and employees. A copy of these code of ethics is available free of charge on the “Corporate Governance” section of our website at
www.generalfinance.com or by a written request addressed to the Corporate Secretary, General Finance Corporation, 39 East Union Street, Pasadena,
California 91103. We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision
of the code of ethics by posting such information on our web site at the address and location specified above.
Other information required by this Item is incorporated herein by reference to information included in the Proxy Statement.
Item 11. Executive Compensation
Information required by this Item is incorporated herein by reference to information included in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item is incorporated herein by reference to information included in the Proxy Statement
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item is incorporated herein by reference to information included in the Proxy Statement
Item 14. Principal Accountant Fees and Services
Information required by this Item is incorporated herein by reference to information included in the Proxy Statement.
III-1
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements
PART IV
(1) The financial statements required in this Annual Report on Form 10-K are included in Item 8. Financial Statements and Suppl
n
ementary
Data.
(2) Financial statement schedule:
Schedule I — Condensed Financial Information of Registrant (Parent Company Information)
All other supplemental schedules have been omitted since the required information is not present in amounts sufficient to require submission of
the schedule, or because the required information is included in the consolidated financial statements or notes thereto.
(b) Exhibits
Exhibit No.
2.1
2.2
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.1
4.2
4.3
4.4
Exhibit Description
Agreement and Plan of Merger dated July 28, 2008 among General Finance Corporation, GFN North America Corp., Mobile Office
Acquisition Corp., Pac-Van, Inc., Ronald F. Valenta, Ronald L. Havner, Jr., D. E. Shaw Laminar Portfolios, L.L.C. and Kaiser
Investments Limited (incorporated by reference to Exhibit 2.1 of Registrant’s Form 8-K filed July 28, 2008).
Asset Purchase Agreement dated February 28, 2014 among KHM Rentals, LLC, Lone Star Tank Rental LP, certain other parties
thereto and Lone Star Tank Rental Inc. (incorporated by reference to Registrant’s Form 8-K filed March 3, 2014).
Amended and Restated Certificate of Incorporation filed April 4, 2006 (incorporated by reference to Exhibit 3.1 of Registrant’s
Form S-1, File No. 333-129830).
Amended and Restated Bylaws as of October 30, 2007 (incorporated by reference to Exhibit 3.2 of Registrant’s Form 10-Q for the
quarter ended September 30, 2007).
Certificate of Designation for the Series A Preferred Stock filed with the Delaware Secretary of State on December 3, 2008
(incorporated by reference to Registrant’s Form 8-K filed December 9, 2008).
Certificate of Designation for the Series B Preferred Stock filed with the Delaware Secretary of State on December 3, 2008
(incorporated by reference to Registrant’s Form 8-K filed December 9, 2008).
Corrected Amended and Restated Certificate of Designation for Series A 12.5% Cumulative Preferred Stock filed with the Delaware
Secretary of State on May 10, 2013 (incorporated by reference to Registrant’s Form 8-K filed May 16, 2013).
Certificate of Designation for the Series C Convertible Cumulative Preferred Stock filed with the Delaware Secretary of Stat
September 28, 2012 (incorporated by reference to Registrant’s Form 8-K filed October 4, 2012).
Certificate of Elimination of Certificate of Designation, Preferences and Rights of Series C Convertible
Cumulative Preferred Stock
filed with the Delaware Secretary of State on April 2, 2013 (incorporated by reference to Registrant’s Form 8-K filed April 5, 2013).
Certificate of Designations, Preferences and Rights of 9.00% Series C Cumulative Redeemable Perpetual Preferred Stock
(incorporated by reference to Exhibit 3.7 of Registrant’s Form S-1, File No. 333-187687).
Certificate of Elimination of Certificate of Designation, Preferences and Rights of Series A 12.5% Cumulative Preferred Stoc
(incorporated by reference to Registrant’s Form 8-K filed June 14, 2013).
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 of Registrant’s Form S-1, File No. 333-129830).
Specimen 9.00% Series C Cumulative Redeemable Perpetual Preferred Stock Certificate (incorpor
Registrant’s Form S-1, File No. 333-187687).
Senior Indenture dated as of June 18, 2014, between General Finance Corporation and Wells Fargo Bank, National Association, as
trustee (incorporated by reference to Registrant’s Form 8-K filed June 18, 2014).
First Supplemental Indenture dated as of June 18, 2014, between General Finance Corporation and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Registrant’s Form 8-K filed June 18, 2014).
ated by reference to Exhibit 4.2 of
e on
k
aa
f
f
ff
f
IV-1
Exhibit No.
4.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Exhibit Description
f
f
d
roxy
roxy
Form of 8.125% Senior Note due 2021 (incorporated by reference to Registrant’s Form 8-K filed June 18, 2014).
General Finance Corporation 2009 Stock Incentive Plan (incorporated by reference to Appendix A of Registrant’s Definitive P
Statement filed October 19, 2009).
General Finance Corporation 2014 Stock Incentive Plan (incorporated by reference to Appendix A of Registrant’s Definitive P
Statement filed October 17, 2014).
Amendment to General Finance Corporation 2014 Stock Incentive Plan Association (incorporated by reference to Exhibit 10.2 of
Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2014).
Amended and Restated 2014 Stock Incentive Plan (incorporated by reference to Registrant’s Fo
Omnibus Amendment and Reaffirmation Agreement is dated as of March 24, 2017 among Wells Fargo Bank, National Association
(“Wells Fargo”), East West Bank (“East West”), CIT Bank, N.A. (“CIT”), the Private Bank and Trust Company (the “Private
Bank”), Key Bank, National Association (“Key Bank”), Bank Hapoalim, N.A. (“BHI”) and GACP I, L.P. (“Great American” and
collectively with Wells Fargo, East West, CIT, Private Bank, Key Bank and BHI, the “Lenders”), GFN Realty Company, LLC,
(“GFNRC”), Lone Star Tank Rental Inc. (“Lone Star”), Pac-Van, Inc. (“Pac-Van”), Southern Frac, LLC (“Southern Frac”),
PV Acquisition Corp., (“PV Acquisition”), GFN Manufacturing Corporation (“GFN Manufacturing”), and GFN North America
Corp. (“GFNNA” and collectively with GFNRC, Southern Frac, Lone Star, Pac-Van, PV Acquisition and GFN Manufacturing, the
“Credit Parties”) (incorporated by reference to Registrant’s Form 8-K/A filed March 31, 2017).
Pledge Agreement dated March 24, 2017 by GFN Realty Company, LLC (“GFN Realty”), for the benefit of Wells Fargo, as agent
for the Lenders (incorporated by reference to Registrant’s Form 8-K/A filed March 31, 2017).
Master Assignment and Assumption Agreement dated March 24, 2017 among Pac-Van, the Lenders, Capital One Business Corp. and
HSBC Bank U.S.A. (incorporated by reference to Registrant’s Form 8-K/A filed March 31, 2017).
Intercreditor Provisions dated March 24, 2017 among the Lenders and the Credit Parties (incorporated by reference to Registrant’s
Form 8-K/A filed March 31, 2017).
Omnibus Amendment and Reaffirmation Agreement is dated as of March 24, 2017 among Wells Fargo, East West, CIT, the Private
Bank, Key Bank, BHI and Great American (collectively with Wells Fargo, East West, CIT, Private Bank, Key Bank and BHI, the
“Lenders”), and the Credit Parties (incorporated by reference to Registrant’s Form 8-K filed May 3, 2017).
rm 8-K filed December 9, 2015).
Amendment No. 6 to Amended and Restated Credit Agreement dated March 24, 2017 among Wells Fargo Bank, East West, CIT,
Private Bank, Key Bank, BHI, Great American, GFNRC, Lone Star, Pac-Van and Southern Frac. (Certain portions have been
omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the Securities and Exchange
Commission) (incorporated by reference to Registrant’s Form 8-K filed May 3, 2017).
Increase and Joinder Agreement dated as of June 30, 2017 among Wells Fargo Bank, National Association, Associated Bank, N.A.,
East West Bank, CIT Bank, N.A., the Private Bank and Trust Company, Key Bank, National Association, Bank Hapoalim, N.A.,
GACP I, L.P., GFN Realty Company, LLC, Lone Star Tank Rental Inc., Pac-Van, Inc. and Southern Frac, LLC (incorporated by
reference to Registrant’s Form 8-K filed July 6, 2017).
Commitment Letter dated July 11, 2017 from Bison Capital Partners V., L.P. to GFN Asia Pacific Holdings Pty Ltd. and GFN Asia
Pacific Finance Pty Ltd. (incorporated by reference to Registrant’s Form 8-K filed July 14, 2017).
Commitment Letter dated 11 July 2017 from Deutsche Bank AG, Sydney Branch to GFN Asia Pacific Holdings Pty Ltd. and
General Finance Corporation (incorporated by reference to Registrant’s Form 8-K filed July 14, 2017).
Buy-Out Letter dated 11 July 2017 from Deutsche Bank AG, Sydney Branch to Bison Capital Partners V., L.P. (incorporated by
reference to Registrant’s Form 8-K filed July 14, 2017).
Takeover Bid Implementation Agreement dated 12 July 10217 between GFN Asia Pacific Holdings Pty Ltd. and Royal Wolf
Holdings Limited (incorporated by reference to Registrant’s Form 8-K filed July 14, 2017).
IV-2
Exhibit No.
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Exhibit Description
rr
m
Registrant’s Form 8-K filed September 28, 2017).
Amendment No. 7 to Amended and Restated Credit Agreement is dated as of July 31, 2017 among Wells Fargo Bank, National
Association, East West Bank, CIT Bank, N.A., the Private Bank and Trust Company, Key Bank, National Association, Bank
Hapoalim, N.A., Associated Bank, N.A., GACP I, L.P., GFN Realty Company, LLC, Lone Star Tank Rental Inc., Pac-Van, Inc. and
Southern Frac, LLC and Guarantor Acknowledgement (incorporated by reference to Registrant’s Form 8-K filed August 1, 2017).
Waiver of Certain Closing Conditions dated August 17, 2017 by and among Bison Capital Partners V, LP, General Finance
Corporation, GFN U.S. Australasia Holdings, Inc., GFN Asia Pacific Holdings Pty Ltd. and GFN Asia Pacific Finance Pty Ltd.
(incorporated by reference to Registrant’s Form 8-K filed August 21, 2017).
Amended and Restated Securities Purchase Agreement dated September 19, 2017 by and among Bison Capital Partners V., L.P.,
General Finance Corporation, GFN Asia Pacific Holdings Pty Ltd., GFN Asia Pacific Finance Pty Ltd. and GFN U.S. Australasia
Holdings, Inc. (incorporated by reference to Registrant’s Form 8-K filed September 22, 2017).
11.9% Secured Senior Convertible Promissory Note dated September 25, 2017 by GFN Asia Pacific Holdings Pty Ltd. and GFN
Asia Pacific Finance Pty Ltd. (incorporated by reference to
11.9% Secured Senior Promissory Note dated September 25, 2017 by GFN Asia Pacific Holdings Pty Ltd. and GFN Asia Pacific
Finance Pty Ltd. (incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
Pledge and Security Agreement dated September 25, 2017 by GFN Asia Pacific Holdings Pty Ltd. in favor of Bison Capital Partners
V, L.P. (incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
Pledge and Security Agreement dated September 25, 2017 by GFN Asia Pacific Holdings Pty Ltd. and GFN U.S. Australasia
Holdings, Inc. in favor of Bison Capital Partners V, L.P. (incorporated by reference to Registrant’s Form 8-K filed September 28,
2017).
Pledge and Security Agreement dated September 25, 2017 by GFN Asia Pacific Finance Pty Ltd. and GFN U.S. Australasia
Holdings, Inc. in favor of Bison Capital Partners V, L.P. (incorporated by reference to Registrant’s Form 8-K filed September 28,
2017).
Pledged Account Agreement dated September 25, 2017 among D.A. Davidson & Co., Bison Capital Partners V, L.P. and GFN Asia
Pacific Holdings Pty Ltd. (incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
CHESS Sponsorship Deed dated September 25, 2017 by GFN Asia Pacific Holdings Pty Ltd., Credit Suisse Equiti
Limited and Bison Capital Partners V., L.P. (incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
General Security Deed dated September 25, 2017 between Bison Capital Partners V, L.P. and GFN Asia Pacific Finance Pty Ltd.
(incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
General Security Deed dated September 25, 2017 between Bison Capital Partners V, L.P. and GFN U.S. Australasia Holdings, Inc.
(incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
General Security Deed dated September 25, 2017 between Bison Capital Partners V, L.P. and GFN Asia Pacific Holdings Pty Ltd.
(incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
Side Letter Deed dated September 25, 2017 among Bison Capital Partners V, L.P., General Finance Corporation, GFN U.S.
Australasia Holdings, Inc., GFN Asia Pacific Holdings Pty Ltd. and GFN Asia Pacific Holdings Pty Ltd. (incorporated by reference
to Registrant’s Form 8-K filed September 28, 2017).
Board Observer Agreement dated September 25, 2017 between General Finance Corporation and Bison Capital Partners V, L.P.
(incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
Registration Rights Agreement dated September 25, 2017 between General Finance Corporation and Bison Capital Partners V, L.P.
(incorporated by reference to Registrant’s Form 8-K filed September 28, 2017).
Guaranty dated September 25, 2017 by GFN U.S. Australasia Holdings, Inc. (incorporated by reference to Registrant’s Form 8-K
filed September 28, 2017).
es (Australia)
t
IV-3
Exhibit No.
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
21.1
23.1
31.1
31.2
32.1
32.2
101
Exhibit Description
Registrant’s Form 8-K filed October 27, 2017).
Syndicated Facility Agreement dated October 26, 2017 among Royal Wolf Holdings Limited, Royal Wolf Trading Australia Pty
Limited, Royalwolf Trading New Zealand Limited, Kookaburra Containers Pty Limited, Royalwolf NZ Acquisition Co. Limited,
Deutsche Bank AG, Sydney Branch, CSL Fund (PB) Lux Sarl II, Aiguilles Rouges Lux Sarl II, Perpetual Corporate Trust Limited
and P.T. Limited (incorporated by reference to
rr
Commitment Letter dated July 11, 2017 from Bison Capital Partners V., L.P. to GFN Asia Pacific Holdings Pty Ltd. and GFN Asia
Pacific Finance Pty Ltd. (incorporated by reference to Registrant’s Form 8-K/A filed November 3, 2017).
Commitment Letter dated 11 July 2017 from Deutsche Bank AG, Sydney Branch to GFN Asia Pacific Holdings Pty Ltd. and
General Finance Corporation (incorporated by reference to Registrant’s Form 8-K/A filed November 3, 2017).
Buy-Out Letter dated 11 July 2017 from Deutsche Bank AG, Sydney Branch to Bison Capital Partners V., L.P. (incorporated by
reference to Registrant’s Form 8-K/A filed November 3, 2017).
Securities Purchase Agreement dated July 12, 2017 by and among Bison Capital Partners V., L.P., General Finance Corporation,
GFN Asia Pacific Holdings Pty Ltd., GFN Asia Pacific Finance Pty Ltd. and GFN U.S. Australasia Holdings, Inc. (incorporated by
reference to Registrant’s Form 8-K/A filed November 3, 2017).
Takeover Bid Implementation Agreement dated 12 July 10217 between GFN Asia Pacific Holdings Pty Ltd. and Royal Wolf
Holdings Limited (incorporated by reference to Registrant’s Form 8-K/A filed November 3, 2017).
Valenta Employment Agreement dated January 1, 2018 (incorporated by reference to Registrant’s
Miller Employment Agreement dated January 1, 2018 (incorporated by reference to Registrant’s Form 8-K filed January 3, 2018).
First Amendment and Restatement Deed dated June 25, 2018 among RWH, Royal Wolf Trading Australia Pty Ltd., Royalwolf
Trading New Zealand Limited, Kookaburra Containers Pty Limited, Royalwolf NZ Acquisition Co. Limited, Deutsche Bank AG,
Sydney Branch, CSL Fund (PB) Lux Sarl II, CSL Fund (PB) Holdings Lux Sarl II, Aiguilles Rouges Lux Sarl II, Core Senior
Lending Fund (A-A) Lux SARL II and Core Senior Lending Fund Lux SARL II (incorporated by reference to
8-K/A filed June 29, 2018).
First Amendment to Amended and Restated Purchase Agreement dated June 26, 2018 by and among Bison, GFN, GFNAPH,
GFNAPF and GFN U.S. (incorporated by reference to Registrant’s
Subsidiaries of General Finance Corporation (a)
Form 8-K/A filed June 29, 2018).
Form 8-K filed January 3, 2018).
Registrant’s Form
d
d
rr
Consent of Independent Registered Public Accounting Firm (a)
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14 (a)
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14 (a)
Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350 (a)
Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350(a)
The following materials from the Registrant’s Annual Report on Form 10-K for the year ended June 30, 2018, formatted in XBRL
(eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations,
(iii) the Consolidated Statements of Comprehensive Income/Loss, (iv) the Consolidated Statements of Equity, (v) the Consolidated
Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements and (vii) Financial Statement Schedule I.
aa
(a) Filed herewith.
Item 16. Form 10-K Summary
Not applicable.
IV-4
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
General Finance Corporation
By:
/s/ Jody E. Miller
Name: Jody E. Miller
Title: Chief Executive Officer
September 7, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature
/s/ Jody E. Miller
Jody E. Miller
/s/ Charles E. Barrantes
Charles E. Barrantes
/s/ Ronald F. Valenta
Ronald F. Valenta
/s/ James B. Roszak
James B. Roszak
/s/ Manuel Marrero
Manuel Marrero
/s/ Susan L. Harris
Susan L. Harris
/s/ Larry D. Tashjian
Larry D. Tashjian
/s/ William H. Baribault
William H. Baribault
/s/ Douglas B. Trussler
Douglas B. Trussler
Title
Date
Chief Executive Officer (Principal Executive Officer)
ff
September 7, 2018
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
September 7, 2018
Executive Chairman of the Board
September 7, 2018
Lead Independent Director
September 7, 2018
Director
Director
Director
Director
Director
SIG
September 7, 2018
September 7, 2018
September 7, 2018
September 7, 2018
September 7, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
General Finance Corporation
Pasadena, California
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of General Finance Corporation (the “Company”) as of June 30, 2018 and 2017, the related
consolidated statements of operations, comprehensive income/loss, equity, and cash flows for each of the years in the three-year period ended June 30, 2018, and the
related notes and schedules (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of
June 30, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017,
and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2018 in conformity with acco
unting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
June 30, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
ff
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the aud
t
its to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
ff
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
control based on the
f
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
a
preparation of financial statements for external purposes in accordance with generally accepted accounting princi
reporting includes those policies and procedures that (1) pertain to the maintenance of r
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
y
xx
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unaut
of the company’s assets that could have a material effect on the financial statements.
ecords that, in reasonable detail, accurately and fairly reflect the transactions and
in accordance with
horized acquisition, use, or disposition
ples. A company’s internal control over financial
authorizations of
n
r
t
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
policies or procedures may deteriorate.
f
with the
/s/ Crowe LLP
We have served as the Company’s auditor since 2009.
Sherman Oaks, California
September 7, 2018
F-1
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, 2017
June 30, 2018
Assets
Cash and cash equivalents
Trade and other receivables, net of allowance for doubtful accounts of $6,387
and $5,687 at June 30, 2017 and June 30, 2018, respectively
Inventories
Prepaid expenses and other
Property, plant and equipment, net
Lease fleet, net
Goodwill
Other intangible assets, net
Total assets
Liabilities
Trade payables and accrued liabilities
Income taxes payable
Unearned revenue and advance payments
Senior and other debt, net
Fair value of bifurcated derivative in Convertible Note
Deferred tax liabilities
Total liabilities
Commitments and contingencies (Note 10)
Equity
Cumulative preferred stock, $.0001 par value: 1,000,000 shares authorized; 400,100
shares issued and outstanding (in series) and liquidation value of $40,722 at
June 30, 2017 and 2018
Common stock, $.0001 par value: 100,000,000 shares authorized; 26,611,688 shares
issued and outstanding at June 30, 2017 and 27,017,606 at June 30, 2018
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total General Finance Corporation stockholders’ equity
Equity of noncontrolling interests
Total equity
Total liabilities and equity
$
$
$
$
7,792
$
44,390
29,648
8,923
23,388
427,275
105,129
28,769
675,314
42,774
—
15,548
355,638
—
38,106
452,066
—
40,100
3
120,370
(12,355)
(12,972)
135,146
88,102
223,248
675,314
$
$
$
21,617
50,525
22,731
8,023
22,310
429,388
109,943
25,150
689,687
50,545
361
19,226
427,218
15,583
34,969
547,902
—
40,100
3
139,547
(17,091)
(21,278)
141,281
504
141,785
689,687
The accompanying notes are an integral part of these consolidated financial statements.
F-2
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Revenues
Sales:
Lease inventories and fleet
Manufactured units
Leasing
Costs and expenses
Cost of Sales:
Lease inventories and fleet (exclusive of the items shown separately below)
Manufactured units
Direct costs of leasing operations
Selling and general expenses
Impairment of goodwill and trade name
Depreciation and amortization
Operating income
Interest income
Interest expense (includes cash flow hedge reclassifications from AOCI of an unrealized
gain of $1,073 in 2017 and $12 in 2018)
Loss on change in valuation of bifurcated derivative in Convertible Note (Note 5)
Foreign exchange and other
Loss before benefit for income taxes
Benefit for income taxes
Net loss
Preferred stock dividends
Noncontrolling interest
Net loss attributable to common stockholders
Net loss per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
2016
Year Ended June 30,
2017
2018
$
$111,439
6,179
117,618
168,233
285,851
$
95,764
4,895
100,659
176,269
276,928
122,467
9,850
132,317
214,985
347,302
82,683
10,063
69,134
68,697
3,068
37,823
14,383
97
(19,648)
—
(309)
(19,860)
(5,477)
(2,191)
(3,286)
(3,668)
(2,071)
(9,025)
(0.35)
(0.35)
$
$
68,215
6,336
76,306
67,705
—
39,300
19,066
66
(19,653)
—
(351)
(19,938)
(872)
(25)
(847)
(3,658)
(2,115)
(6,620)
(0.25)
(0.25)
$
$
87,779
9,212
89,201
77,650
—
39,761
43,699
112
(33,991)
(13,719)
(5,887)
(53,485)
(9,786)
(679)
(9,107)
(3,658)
801
(11,964)
(0.46)
(0.46)
26,060,823
26,060,823
26,348,344
26,348,344
26,269,931
26,269,931
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS
(In thousands, except share and per share data)
Net loss
Other comprehensive income (loss):
2016
Year Ended June 30,
2017
2018
$
(3,286)
$
(847)
$
(9,107)
Change in fair value, net of cash flow hedge reclassifications to the statement of
operations of an unrealized gain of $1,073 in 2017 and $12 in 2018, and net of income
tax effect of $325 and $28 in 2017 and 2018, respectively
Cumulative translation adjustment
Total comprehensive income (loss)
406
(2,543)
(5,423)
(222)
3,814
2,745
(80)
1,988
(7,199)
Allocated to noncontrolling interests
(1,190)
(3,933)
(1,095)
Comprehensive loss allocable to General Finance Corporation stockholders
$
(6,613)
$
(1,188)
$
(8,294)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
Cumulative
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
General Finance
Corporation
Stockholders’
Equity
Equity of
Noncontrolling
Interests
Total
Equity
Balance at June 30, 2015
$
40,100
$
Share-based compensation
Preferred stock dividends
Dividends and distributions by subsidiaries
Issuance of 13,000 shares of common stock
on exercises of stock options
Grant of net 196,894 shares of restricted
stock
NNet income (loss)
Fair value change in derivative, net of
related tax effect
Cumulative translation adjustment
Total comprehensive income (loss)
—
—
—
—
—
—
—
—
—
Balance at June 30, 2016
40,100
Share-based compensation
Preferred stock dividends
Dividends and distributions by subsidiaries
Issuance of 21,500 shares of common stock
on exercises of stock options
Grant of 22,112 shares of common stock
Grant of net 349,304 shares of restricted
stock
Net income (loss)
Fair value change in derivative, net of
related tax effect
Cumulative translation adjustment
Total comprehensive income (loss)
—
—
—
—
—
—
—
—
—
—
Balance at June 30, 2017
$
40,100
$
3
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
3
$ 124,288
$
(12,873)
$
(4,653)
$
146,865
$
87,491
$ 234,356
1,908
(3,668)
—
40
—
—
—
—
—
122,568
1,406
(3,658)
—
54
—
—
—
—
—
—
—
—
—
—
—
—
207
(1,463)
—
—
—
—
—
—
(5,357)
—
—
—
(14,129)
(10,010)
—
—
—
—
—
—
—
(113)
1,887
—
—
—
—
—
—
—
(2,962)
—
—
—
1,908
(3,668)
—
40
—
(5,357)
207
(1,463)
(6,613)
138,532
1,406
(3,658)
—
54
—
—
(2,962)
(113)
1,887
(1,188)
480
2,388
—
(3,081)
(3,668)
(3,081)
—
—
40
—
2,071
(3,286)
199
(1,080)
1,190
406
(2,543)
(5,423)
86,080
224,612
(32)
1,374
—
(1,879)
(3,658)
(1,879)
—
—
—
2,115
(109)
1,927
3,933
54
—
—
(847)
(222)
3,814
2,745
$ 120,370
$
(12,355)
$
(12,972)
$
135,146
$
88,102
$ 223,248
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share data)
Cumulative
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
General Finance
Corporation
Stockholders’
Equity
Equity of
Noncontrolling
Interests
Total
Equity
Share-based compensation
$
— $
— $
3,067
$
— $
— $
3,067
$
591
$
3,658
Preferred stock dividends
Dividends and distributions by
subsidiaries
Issuance of 237,260 shares of common
stock on exercises of stock options
Grant of net 125,885 shares of restricted
stock
Grant of 42,773 shares of common stock
Refund from terminated Royal Wolf
LTI Plan trust
Net loss
Fair value change in derivative, net of
related tax effect
Cumulative translation adjustment
Total comprehensive income
Acquisition of noncontrolling interest in
Royal Wolf
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,658)
—
1,150
—
—
338
—
—
—
—
—
—
—
—
—
—
—
(141)
153
—
18,280
)
(4,748)
(
—
—
—
—
—
—
(8,306)
—
—
—
—
(3,658)
—
(3,658)
—
(1,038)
(1,038)
1,150
—
—
338
(8,306)
(141)
153
(8,294)
—
—
—
—
(801)
61
1,835
1,095
1,150
—
—
338
(9,107)
(80)
1,988
(7,199)
13,532
)
(88,246)
(
)
(74,714)
(
Balance at June 30, 2018
$
40,100
$
3
$
139,547
$
(17,091)
$
(21,278)
$
141,281
$
504
$ 141,785
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)
Year Ended June 30,
2016
2017
2018
Cash flows from operating activities:
Net loss
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Gain on sales and disposals of property, plant and equipment
Gain on sales of lease fleet
Gain on bargain purchase of businesses
Unrealized foreign exchange loss
Unrealized loss (gain) on forward exchange contracts
Unrealized gain on interest rate swaps
Impairment of goodwill and trade name
Change in valuation of bifurcated derivative in Convertible Note
Depreciation and amortization
Amortization of deferred financing costs
Accretion of interest
Interest deferred on Senior Term Note
Share-based compensation expense
Deferred income taxes
Changes in operating assets and liabilities (excluding assets and liabilities from acquisitions):
Trade and other receivables, net
Inventories
Prepaid expenses and other
Trade payables, accrued liabilities and unearned revenues
Income taxes
Net cash provided by operating activities
Cash flows from investing activities:
Business acquisitions, net of cash acquired
Acquisition of noncontrolling interest in Royal Wolf
Proceeds from sales of property, plant and equipment
Purchases of property, plant and equipment
Proceeds from sales of lease fleet
Purchases of lease fleet
Other intangible assets
Net cash used in investing activities
Cash flows from financing activities:
Repayments of equipment financing activities
Repayment of Credit Suisse Term Loan
Repayment of ANZ/CBA Credit Facility
Proceeds from issuance of Bison Notes
Proceeds from (repayments of) senior and other debt borrowings, net
Proceeds from issuances of 8.125% senior notes
Deferred financing costs
Proceeds from issuances of common stock
Dividends and distributions by subsidiaries
Refund from terminated Royal Wolf LTI Plan trust
Preferred stock dividends
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash and equivalents at beginning of period
The effect of foreign currency translation on cash
$
(3,286)
$
(847)
$
(61)
(6,384)
(72)
103
367
—
3,068
—
38,634
1,466
536
—
2,388
(4,195)
9,486
4,813
(1,498)
4,511
)
(
(1,054)
48,822
(20,658)
—
10,609
(4,224)
28,547
(49,320)
(332)
(35,378)
(651)
—
—
—
1,989
—
(206)
40
(3,081)
—
(3,668)
(5,577)
7,867
3,716
(2,241)
(126)
(3,700)
—
375
12
(1,073)
—
—
40,092
1,504
316
—
1,374
(1,194)
(5,445)
6,253
492
(1,843)
)
(
(883)
35,307
(4,993)
—
267
(3,693)
24,030
(45,812)
(521)
(30,722)
(483)
—
—
—
(2,782)
5,390
(2,801)
54
(1,879)
—
(3,658)
(6,159)
(1,574)
9,342
24
(9,107)
(2)
(8,464)
—
6,138
(697)
(12)
—
13,719
40,335
2,293
822
3,272
3,658
(2,981)
(6,446)
7,021
1,170
6,975
1,081
58,775
(15,084)
(73,251)
281
(4,784)
27,481
(48,566)
(577)
(114,500)
(512)
(10,000)
(81,521)
80,000
89,942
—
(3,980)
1,150
(1,038)
338
(3,658)
70,721
14,996
7,792
(1,171)
Cash and equivalents at end of period
$
9,342
$
7,792
$
21,617
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest
Income taxes
Non-cash investing and financing activities (see Note 4):
$ 17,519
4,163
$ 18,914
2,479
$ 31,091
543
The Company included non-cash holdback amounts totaling $1,849, $376 and $1,044 as part of the consideration for business acquisitions during the year ended June 30, 2016, 2017
and 2018, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Business Operations
General Finance Corporation (“GFN”) was incorporated in Delaware in October 2005. References to the “Company” in these Notes are to GFN
and its consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (“GFN U.S.”); GFN
Insurance Corporation, an Arizona corporation (“GFNI”); GFN North America Leasing Corporation, a Delaware
GFN North America Corp., a Delaware corporation (“GFNNA”); GFN Realty Company, LLC, a Delaware limited liability company (“GFNRC”); GFN
Manufacturing Corporation, a Delaware corporation (“GFNMC”), and its subsidiary, Southern Frac, LLC, a Texas limited liability company
(collectively “Southern Frac”); Pac-Van, Inc., an Indiana corporation, and its Canadian subsidiary, PV Acquisition Corp., an Alberta corporation
(collectively “Pac-Van”); and Lone Star Tank Rental Inc., a Delaware corporation (“Lone Star”); GF
corporation (“GFNAPH”), and its subsidiaries, GFN Asia Pacific Finance Pty Ltd, an Australian corporation (“GFNAPF”), Royal Wolf Holdings
Limited, an Australian corporation (“RWH”), and its Australian and New Zealand subs
N Asia Pacific Holdings Pty Ltd, an Australian
idiaries (collectively, “Royal Wolf”).
corporation (“GFNNA Leasing”);
n
aa
rr
The Company does business in three distinct, but related industries, mobile storage, modular space and liquid containment (which are collectively
referred to as the “portable services industry”), in two geographic areas; the Asia-Pacific (or Pan-Pacific) area, consisting of Royal Wolf (which leases
and sells storage containers, portable container buildings and freight containers in Australia and New Zealand) and North America, consisting of
Pac-Van (which leases and sells storage, office and portable liquid storage tank containers, modular buildings and mobile offices) and Lone Star (which
leases portable liquid storage tank containers and containment products, as well as provides certain fluid management services, to the oil and gas
industry in the Permian and Eagle Ford basins of Texas), which are combined to form our North American leasing operations, and Southern Frac (which
manufactures portable liquid storage tank containers and other steel-related products).
ff
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 princ
f
iples generally
accepted in the United States.
Unless otherwise indicated, references to “FY 2016,” “FY 2017” and “FY 2018” are to the fiscal years ended June 30, 2016, 2017 and 2018,
respectively.
Principles of Consolidation
p
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
y
g
The Company’s functional currencies for its foreign operations are the respective local currencies, the Australian (“AUS”) and New Zealand
(“NZ”) dollars in the Asia-Pacific area and the Canadian (“C”) dollar in North America. All adjustments resulting from the translation of the
accompanying consolidated financial statements from the functional currency into reporting currency are recorded as a component of stockholders’
equity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency
Matters. 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-8
Segment Information
g
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 areas that include four operating segments, North America (leasing and manufacturing, including
corporate headquarters) and the Asia-Pacific area (the leasing operations of Royal Wolf).
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are particularly susceptible
assigning value to identifiable intangible assets at the acquisition date, the assessment for impairment of goodwill, the assessment for impairment of
other intangible assets, the allowance for doubtful accounts, share-based compensation expense, residual value of the lease fleet and deferred tax assets
and liabilities. Assumptions and factors used in the estimates are evaluated on an annual basis or whenever events or changes in circumstances indicate
that the previous assumptions and factors have changed. The results of the analysis could result in adjustments to estimates.
to significant changes include assumptions used in
t
q
Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less, when purchased, to be cash equivalents. The Company
maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit risk on its cash balances.
Inventories
Inventories are stated at the lower of cost or fair value (net realizable value) and consist of primarily finished goods for containers, modular
d
as raw materials, work in-process and finished goods of manufactured portable liquid storage
buildings and mobile offices held for sale or lease; as well
tank containers. Costs for leasing operations are assigned to individual items on the basis of specific identification and include expenditures incurred in
acquiring the inventories and bringing them to their existing condition and location; while costs for manufactured units are determined using the first-in,
first-out method. 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. Inventories
are comprised of the following (in thousands):
Finished goods
Work in-process
Raw materials
Derivative Financial Instruments
June 30,
2017
2018
$
$
25,564 $
1,844
2,240
29,648 $
18,971
1,442
2,318
22,731
The Company may use derivative financial instruments to hedge its exposure to foreign currency and interest rate risks arising from operating,
financing and investing activities. The Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that
do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognized initially at fair value.
Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on the remeasurement to fair value on
unhedged (or the ineffective portion of hedged) derivative financial instruments is recognized in the statement of operations. Also, as more fully
discussed in Note 5, the Company accounts for the fair value of an embedded derivative in a c
onvertible note that required bifurcation.
f
F-9
Accounting for Stock Options
g
p
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the issuances of stock options, the Company follows the fair value provisions of FASB ASC Topic 718, Stock Compensation, which require
recognition of employee share-based compensation expense in the statements of operations over the vesting period based on the fair value of the stock
option at the grant date. For stock options granted to non-employee consultants, the Company recognizes compensation expense measured at their fair
value at each reporting date. Therefore, the stock options issued to non-employee consultants are subject to periodic fair value adjustments recorded in
share-based compensation over the vesting period.
ff
Fair Value
Fair values of financial instruments are estimated using relevant market information and other a
t
ssumptions, as more fully disclosed in Note 6. Fair
value estimates would involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors,
especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates
Property, Plant and Equipment
q p
y,
p
Owned assets
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. The cost of self-constructed assets includes
the cost of materials, direct labor, the initial estimate (where relevant) of the costs of dismantling and removing the items and restoring the site on which
they are located; and an appropriate allocation of production overhead, where applicable. Depreciation for property, plant and equipment is recorded on
the straight-line basis over the estimated useful lives of the related asset. The residual value, the useful life and the depreciation method applied to an
asset are reassessed at least annually.
Property, plant and equipment consist of the following (in thousands):
Land
Building and improvements
Transportation and plant equipment (including capital lease assets)
Furniture, fixtures and office equipment
Less accumulated depreciation and amortization
Capital leases
Estimated
Useful Life
—
10 — 40 years
3 — 20 years
3 — 10 years
June 30,
2017
$
2,168
4,890
39,899
10,683
57,640
(34,252)
$ 23,388
2018
$
2,168
4,893
43,078
11,959
62,098
(39,788)
$ 22,310
Leases under which substantially all the risks and benefits incidental to ownership of the leased assets are assumed by the Company are classified
m
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. Capitalized leased assets as of June 30, 2018 and 2017, include gross costs of $6,660,000 and $4,440,000, and
accumulated
amortization of $3,247,000 and $2,047,000, resulting in a net book value of $3,413,000 and $2,393,000, respectively.
F-10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, portable building, office and portable liquid storage tank containers, mobile offices, modular buildings and
t
steps that it primarily leases to customers under operating lease agreements with varying terms. The value of the lease fleet (or lease or rental
equipment) is recorded at cost and depreciated on the straight-line basis over th
service, down to their estimated residual values (up to 70% of cost). In the opinion of management, estimated residual values are at or below net
realizable values. The Company periodically reviews these depreciation
competitors in the industry, and its own historical experience. Costs incurred on lease fleet units subsequent to initial acquisition are capitalized when it
is probable that future economic benefits in excess of the originally assessed performance will result; otherwise, they are expensed as incurred. At
June 30, 2017 and 2018, the gross costs of the lease fleet were $534,197,000 and $555,263,000, respectively. Units in the lease fleet are also available
for sale. The cost of sales of a unit in the lease fleet is recognized at the carrying amount at the date of sale.
policies in light of various factors, including the practices of the larger
e estimated useful life (5 - 20 years), after the date the units are put in
y
Impairment of Long-Lived Assets
g
p
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, 2017 and 2018.
Goodwill
The purchase consideration of acquired businesses have been allocated to the assets and liabilities acquired based on the estimated fair values on
the respective acquisition dates (see Note 4). Based on these values, the excess purchase consideration over the fair value of the net assets acquired was
allocated to goodwill. The Company accounts for goodwill in accordance with FASB ASC Topic 350, Intangibles — Goodwill and Other. FASB ASC
Topic 350 prohibits the amortization of goodwill and intangible assets with indefinite lives and requires these assets be reviewed for impairment. The
Company operates two reportable geographic areas and the vast majority of goodwill recorded was in the acquisitions of Royal Wolf, Pac-Van,
Southern Frac and Lone Star.
The Company assesses the potential impairment of goodwill on an annual basis or if a determination is made based on a qualitative assessment
that it is more likely than not (i.e., greater than 50%) that the fair value of the reporting unit is less than its carrying amount. Qualitative factors which
could cause an impairment include (1) significant underperformance relative to historical, expected or projected future operating results; (2) significant
changes in the manner of use of the acquired businesses or the strategy for the Company’s overall business; (3) significant changes during the period in
the Company’s market capitalization relative to net book value; and (4) significant negative industry or general economic trends. Prior to June 30, 2017,
if the Company did determine that fair value is more likely than not less than the carrying amount, a quantitative two-step impairment test process would
be applied. The first step in this quantitative process is a screen for potential impairment where the fair value of the reporting unit is compared to its
carrying value to determine if the goodwill is impaired. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that
unit, then goodwill is not impaired and no further testing is required.
If, however, the carrying value of the net assets assigned to the reporting unit were
to exceed its fair value, then the second step is performed by determining the implied fair value of a reporting unit’s goodwil
l and comparing it to the
carrying value of the goodwill. This would involve allocating the fair value of the reporting unit to its respective assets and liabilities (as if it had been
acquired in a separate and individual business combination and the fair value was the price paid to acquire it), with the excess of the fair value over the
mm
amounts assigned being the implied fair value of goodwill. If
would be recorded for the difference. In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-04, which removed the
requirement for a Step 2 goodwill impairment test and permitted early adoption for interim or annual goodwill impairment tests
the implied fair value is less than the carrying value of the goodwill, an impairment loss
performed on dates on
mm
uu
r
F-11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or after January 1, 2017. The Company adopted ASU No. 2017-04 effective June 30, 2017 and any goodwill impairment will now be the amount by
which a reporting unit’s carrying value exceeds its fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that
reporting unit.
tt
During FY 2016, the Company determined that qualitative factors in its North American leasing and manufacturing operations, pertaining
rr
primarily to conditions in the oil and gas market, required an update of the step one impairment analysis for Lone Star and Sou
uu
thern Frac. This updated
analysis calculated that even though the excess of the estimated fair value of Lone Star over the carrying value of its invested capital declined to
approximately 11% of the book value of its net assets, its implied value of goodwill was still greater than its carrying value. However, the Company
determined that the implied value of Southern Frac’s goodwill was less than the carrying value of its goodwill, resulting in an impairment charge of
$2,681,000 at March 31, 2016. The Company’s annual impairment assessment at June 30, 2017 and 2018 concluded that the fair value of the goodwill
of each of its reporting units was greater than their respective carrying amounts. Determining the fair value of a reporting unit requires judgment and
involves the use of significant estimates and assumptions. The Company based its fair value estimates on assumptions that it believes are reasonable, but
are uncertain and subject to changes in market conditions.
mm
n
The change in the balance of goodwill was as follows (in thousands):
Beginning of year (a)
Additions to goodwill
Impairment of goodwill
Other adjustments, primarily foreign translation effect
End of year (b)
2016
$
99,344
6,367
(2,681)
(484)
$ 102,546
June 30,
2017
$ 102,546
1,673
—
910
$ 105,129
2018
$ 105,129
5,827
—
(1,013)
$ 109,943
(a) Net of accumulated impairment losses of $13,491 at June 30, 2015,
t
(b) Net of accumulated impairment losses of $16,172 at June 30, 2016, 2017 and 2018.
and $16,172 at June 30, 2016 and 2017.
Goodwill recorded from domestic acquisitions of businesses under asset purchase agreements is deductible for U.S. federal income tax purposes
over 15 years, even though goodwill is not amortized for financial reporting purposes.
Intangible Assets
g
tt
Intangible assets include those with indefinite (trade
and deferred financing costs) useful lives. Customer base and lists and non-compete agreements are amortized on the straight-li
expected period of benefit which range from one to fourteen years. Costs to obtain long-term financing are deferred and amortized over the term of the
related revolving line of credit senior 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 consist of the following (in thousands):
mark and trade name) and finite (primarily customer base and lists, non-compete agreements
rr
ne basis over the
Trademark and trade name
Customer base and lists
NNon-compete agreements
Deferred financing costs
Other
June 30, 2017
June 30, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
$
5,486 $
47,647
9,622
4,855
4,006
71,616 $
(453) $
(31,223)
(6,678)
(2,250)
(2,243)
(42,847) $
5,033 $
16,424
2,944
2,605
1,763
28,769 $
5,486 $
29,057
9,005
3,522
4,683
51,753 $
(453) $
(14,150)
(7,130)
(1,905)
(2,965)
(26,603) $
5,033
14,907
1,875
1,617
1,718
25,150
F-12
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company reviews intangible assets (those assets resulting from acquisitions) for impairment if it determines, based on a qualitative
assessment, that it is more likely than not (i.e., greater than 50%) that fair value might be less than the carrying amount. If the Company determines that
fair value is more likely than not less than the carrying amount, then impairment would be quantitatively tested, using historical cash flows and other
relevant facts and circumstances as the primary basis for estimates of future cash flows. If it determines that fair value is not likely to be less than the
carrying amount, then no further testing would be required. The Company conducted its review at each yearend, which did not result in an impairment
adjustment at June 30, 2017 and 2018, but did result in an impairment write-down at June 30, 2016 of $387,000 to the carrying amount of the trade
name recorded at Southern Frac. This write-down is included in the caption “Impairment of goodwill and trade name” in the accompanying consolidated
statements of operations. Determining the fair value of intangible assets involves the use of significant estimates and assumpt
believes are reasonable, but are uncertain and subject to changes
ions, which the Company
in market conditions.
aa
f
ff
The estimated future amortization of intangible assets with finite useful lives as of June 30, 2018 is as follows (in thousands):
g
,
Year Ending June 30,
2019
2020
2021
2022
2023
Thereafter
$
5,488
3,755
2,687
2,134
1,474
4,579
$ 20,117
The weighted-average remaining useful life of the finite intangible assets was approximately 9.0 years at June 30, 2018.
Defined Contribution Benefit Plan
Obligations for contributions to defined contribution benefit plans are recognized as an expense in the statement of operations as incurred.
Contributions to defined contribution benefit plans in FY 2016, FY 2017 and FY 2018 were $1,507,000, $1,586,000 and $1,552,000, respectively.
Revenue Recognition
g
The Company leases and sells new and used storage, office, building
d
and portable liquid storage tank 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 and revenue from the sales of manufactured units are recognized when title and risk of loss transfers to the
purchaser, generally upon shipment. 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. There were no such arrangements in FY 2017 and FY 2018.
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 g
Advertising costs are generally expensed as incurred. Direct-response advertising costs 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, 2017 and 2018, prepaid advertising costs were not significant. Advertising costs expensed were approximately
$3,284,000, $3,478,000 and $3,834,000 for FY 2016, FY 2017and FY 2018, respectively.
F-13
Shipping and Handling Costs
pp g
g
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company reports shipping and handling costs, primarily related to outbound freight in its North American manufacturing operations, as a
component of selling and general expenses. Shipping and handling costs totaled $219,000, $172,000 and $483,000 in FY 2016, FY 2017 and FY 2018,
respectively. Freight charges billed to customers are recorded as revenue and included in sales.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are
recorded for temporary differences between the financial reporting basis and income tax basis of assets and liabilities at the balance sheet date multiplied
by the applicable tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax
assets and liabilities during the period. The Company files U.S. Federal tax returns, multiple U.S. state (and state franchise) tax returns and Australian,
New Zealand and Canadian tax returns. For U.S. Federal tax purposes, all periods subsequent to June 30, 2014 are subject to examination by the U.S.
Internal Revenue Service (“IRS”); and, for U.S. state tax purposes, with few exceptions and depending on the state, periods subsequent to June 30, 2012
are subject to examination by the respective state’s taxation authorities. Periods subsequent to June 30, 2014, June 30, 2013 and June 30, 2011 are
subject to examination by the respective taxation authorities in Canada, Australia and New Zealand, respectively. Tax records are required to be kept for
s and deductions would
five years and seven years in Australia and New Zealand, respectively. The Company believes that its income tax filing position
be sustained on audit and does not anticipate any adjustments that would result in a material change. Therefore, no reserves for uncertain income tax
positions have been recorded. In addition, the Company does not anticipate that the total amount of unrecognized tax benefit related to any particular tax
position will change significantly within the next 12 months. The Company’s policy for recording interest and penalties, if any, will be to record such
items as a component of income taxes.
t
Recently Enacted U.S. Federal Tax Legislation
g
y
Introduced initially as the Tax Cuts and Jobs Act, the Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution
on the Budget for Fiscal Year 2018 (the “Act”) was enacted on December 22, 2017. The Act applies to corporations generally beginning with taxable
years starting after December 31, 2017, or the fiscal year ending June 30, 2019 for the Company, and reduces the corporate tax rate from a graduated set
of rates with a maximum 35% tax rate to a flat 21% tax rate. Additionally, the Act introduces other changes that impact corporations, including a net
operating loss (“NOL”) deduction annual limitation, an interest expense deduction annual limitation, elimination of the alternative minimum tax, and
immediate expensing of the full cost of qualified property. The Act also introduces an international tax reform that moves the U.S. toward a territorial
system, in which income earned in other countries will generally not be subject to U.S. taxation. However, the accumulated foreign earnings of certain
ition period, using specified
foreign corporations will be subject to a one-time transition tax, which can be elected to be paid over an eight-year tax trans
percentages, or in one lump sum. NOL and foreign tax credit (“FTC”) carryforwards can be used to offset the transition tax liability. Any transition tax
to be paid on accumulated foreign earnings is not expected to be significant since the Company has available NOL and FTC carryforwards to offset any
transitional taxes that would be otherwise payable.
d
ff
In accordance with ASC Topic 740, Income Taxes, the Company re-measured its deferred income tax assets and liabilities for, among other
things, temporary differences and NOL and FTC carryforwards reasonably estimated to be existing at December 22, 2017, from the current statutory
rate of 35% to the new corporate rate of either 28% (if the temporary timing differences are expected to roll off in FY 2018) or 21 percent (if the
temporary timing differences and NOL carryforwards are expected to remain as of June 30, 2018). This re-measurement resulted in an estimated benefit
of approximately $6,979,000, which was recognized through the provision (benefit) for income taxes in the accompanying consolidated statements of
operations. This estimated tax benefit was offset by approximately $4,843,000 for the estimated transition tax and a valuation allowance of $330,000
that was established to offset previously recognized FTC carryforward deferred tax assets that the Company believes will not be realized, and other
adjustments totaling approximately $299,000. Both the estimated transition tax and valuation allowance are considered provisional amounts that require
further analysis. These provisional amounts are subject to adjustment during a measurement period which should not extend beyond one year from the
enactment date of the Act as in accordance with Staff Accounting Bulletin No. 118.
n
F-14
Net Income per Common Share
p
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basic net income per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of
shares of common stock outstanding during the periods. Diluted net income per common share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised, vested or converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. The potential dilutive securities (common stoc
stock options, non-vested equity shares, restricted stock units and convertible debt. The following is a reconciliation of weighted average shares
outstanding used in calculating earnings per common share:
k equivalents) the Company had outstanding related to
t
l
Basic
Dilutive effect of common stock equivalents
Diluted
FY 2016
26,060,823
—
26,060,823
FY 2017
26,348,344
—
26,348,344
FY 2018
26,269,931
—
26,269,931
Potential common stock equivalents totaling 2,183,224, 1,635,025 and 5,475,347 for FY 2016, FY 2017 and FY 2018, respectively, have been
excluded from the computation of diluted earnings per share because the effect is anti-dilutive.
Recently Issued Accounting Pronouncements
g
y
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU
mm
2014-09 completes the joint effort by the FASB and IASB to improve financial reporti
GAAP and International Financial Reporting Standards (“IFRS”). The ASU 2014-09 revenue recognition model virtually replaces all existing revenue
recognition guidance and applies to all companies that enter into contracts with customers to transfer goods or services. ASU 2014-09 (as updated by
ASU 2015-14 in August 2015, ASU No. 2016-08 in March 2016, ASU No. 10 in April 2016,
December 2016) is effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Pub
entities have the choice to apply ASU 2014-09 either retrospectively to each re
applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company will adopt the new revenue standard
in the first quarter of its fiscal year ending June 30, 2019 using the modified retrospective adoption method and does not expect the adoption to have a
material impact on its consolidated financial statements,.
ASU No. 12 in May 2016 and ASU No. 2016-20 in
lic and nonpublic
porting period presented or by recognizing the cumulative effect of
ng by creating common revenue recognition guidance for U.S.
n
aa
ff
In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842). This new guidance was initiated as a
joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial
information for users. This new guidance, as updated by ASU No. 2018-01 (January 2018), ASU No. 2018-10 (July 2018) and ASU No. 2018-11 (July
2018), would eliminate the concept of off-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASU
No. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting
in the recognition of a defined “right-of-use” asset and a lease liability on the balance sheet. However, recognition in the income statement will differ
depending on the lease classification, with finance leases recognizing the amortization of the right-of-use asset separate from the interest on the lease
liability and operating leases recognizing a single total lease expense. Lessor accounting under ASU No. 2016-02 would be substantially unchanged
from the previous lease requirements under U.S. GAAP. ASU No. 2016-02 will take effect for public companies in fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and for leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition
approach. During FY 2018, the Company evaluated this new accounting standard and engaged professionals in the new lease accounting
implementation and related real estate consulting industry to assist in determining the effect of the new standard as of July 1, 2018. The Company
currently has over 120 real estate leases worldwide and evaluated each of these leases in accordance with the new lease accounting standard under ASC
Topic 842. As of July 1, 2018, the Company estimates that the right of use asset to be recorded on its consolidated balance she
approximately $59.0 million to $68.3 million and that the related liability would be approximately $60.8 million to $70.2 million related to operating
leases. The difference between the right of use asset and related lease liability is predominantly defe
new lease accounting standard. The difference in the ranges is due to the presumed renewal of leases whereby the exercise of the renewal
rred rent and other related lease expenses under the
et would be
y
t
F-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
option is twelve months or less from July 1, 2018. The Company will continue to evaluate existing renewal options in excess of one year as to the
probability of exercising renewal options and is currently evaluating its equipment and other finance leases and its lessor accounting under the new
standard. In addition, the Company is evaluating its proposed transition method in accordance with guidance issued by the FASB in July 2018. The
Company will continue this effort in a manner to be appropriately prepared for its implementation on or before July 1, 2019.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). Under ASU No. 2016-09, all excess tax
benefits and tax deficiencies related to equity compensation will be recognized in the income statement as they occur. This will replace the current
guidance, which requires tax benefits that exceed compensation cost (windfalls) to be recognized in equity, and tax deficiencies (shortfalls) to be
t
recognized in equity to the extent of previously recognized windfalls. It will also eliminate the need to maintain a “windfall
requirement to delay recognizing a windfall until it reduces current taxes payable. ASU No. 2016-09 will also change the cash flow presentation of
excess tax benefits, classifying them as operating inflows, consistent with other cash flows related to income taxes. In addition, this ASU allows a policy
election to either continue to reduce share-based compensation expense for forfeitures in future periods, or to recognize forfe
itures as they occur. The
Company implemented ASU No. 2016-09 in FY 2018, elected to recognize forfeitures as they occur and, because it was not significant, recorded the
$107,000 tax charge for the cumulative-effect adjustment for previously unrecognized excess tax benefits and the tax-effect of
the fair value estimate of awards historically expected to be forfeited and the fair value estimate of awards actually forfeited in the accompanying
consolidated statement of operations. The tax effect for excess tax benefits and forfeitures in FY 2018 was a tax benefit of $3
pool,” and will remove the
the difference between
8,000.
ff
ff
ff
tt
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging
d
Activities. ASU No. 2017-12 expands hedge accounting for both non-financial and financial risk components and refines the measurement of hedge
results in an attempt to better reflect an entity’s hedging strategies. The ASU also amends the
entities assess hedge effectiveness. The effective
ff
and interim periods within those fiscal years, though early adoption is permitted. The new standard must be adopted using a modified retrospective
transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. The Company is evaluating the effect
that ASU No. 2017-12 will have on the consolidated financial statements and related disclosures, but does not currently believe
date of ASU No. 2017-12 for public companies is for fiscal years beginning after December 15, 2018
qq
presentation and disclosure requirements and changes how
it will be significant.
aa
t
Note 3. Equity Transactions
Preferred Stock
Upon issuance of shares of preferred stock, the Company records the liquidation value as the preferred equity in the consolidated balance sheet,
with any underwriting discount and issuance or offering costs recorded as a reduction in additional paid-in capital.
Series B Preferred Stock
The Company has outstanding privately-placed 8.00% Series B Cumulative Preferred St
d
ock, 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. At
June 30, 2017 and June 30, 2018, the Company had outstanding 100 shares of Series B Preferred Stock with an aggregate liquidati
$102,000. The Series B Preferred Stock is not convertible into GFN common stock, has no voting rights, except as required by Delaware law, and is
redeemable after February 1, 2014; at which time it may be redeemed at any time, in whole or in part, at the Company’s option.
Preferred Stock are entitled to receive, when declared by the Company’s Board of Directors, annual dividends payable quarterly in arrears on the 31st
day of January, July and October and on the 30th day of April of each year. In the event of any liquidation or winding up of the Company, the holders of
the Series B Preferred Stock will have preference to holders of common stock.
Holders of the Series B
on preference totaling
n
ff
F-16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series C Preferred Stock
tt
The Company has outstanding publicly-traded 9.00% Series C Cumulative Redeemable Perpetual Preferred Stock, liquidation prefere
nce $100.00
per share (the “Series C Preferred Stock”). At June 30, 2017 and 2018, the Company had outstanding 400,000 shares of Series C Preferred Stock with an
aggregate liquidation preference totaling $40,620,000. Dividends on the Series C Preferred Stock are cumulative from the date of original issue and will
be payable on the 31st day of each January, July and October and on the 30th day of April when, as and if declared by the Company’s Board of Directors.
Commencing on May 17, 2018, the Company may redeem, at its option, the Series C Preferred Stock, in whole or in part, at a cash redemption price of
$100.00 per share, plus any accrued and unpaid dividends to, but
date. Among other things, the Series C Preferred Stock
t
not including, the redemption
rr
has no stated maturity, is not subject to any sinking fund or other mandatory redemption, and is not convertible into or exchangeable for any of the
Company’s other securities. Holders of the Series C Preferred Stock generally will have no voting rights, except for limited voting rights if dividends
payable on the outstanding Series C Preferred Stock are in arrears for six or more consecutive or non-consecutive quarters, and under certain other
circumstances. If the Company fails to maintain the listing of the Series C Preferred Stock on the NASDAQ Stock Market (“NASDAQ”) for 30 days or
more, the per annum dividend rate will increase by an additional 2.00% per $100.00 stated liquidation value ($2.00 per annum per share) so long as the
listing failure continues. In addition, in the event of any liquidation or winding up of the Company, the holders of the Series
preference to holders of common stock and are pair passu with the Series B Preferred Stock. The Series C Preferred Stock is listed on NASDAQ under
the symbol “GFNCP.”
C Preferred Stock will have
h
d
d
f
Dividends
As of June 30, 2018, since issuance, dividends paid or payable totaled $93,000 for the Series B Preferred Stock and dividends paid totaled
$18,098,000 for the Series C Preferred Stock. The characterization of dividends to the recipients for Federal income tax purposes is made based upon
the earnings and profits of the Company, as defined by the Internal Revenue Code.
Royal Wolf Dividends
y
On August 12, 2015, the Board of Directors of Royal Wolf declared a dividend of AUS$0.05 per RWH share payable on October 2, 2015 to
shareholders of record on September 17, 2015; and on February 8, 2016, the Board of Directors of Royal Wolf declared a dividend of AUS$0.03 per
RWH share payable on April 4, 2016 to shareholders of record on March 16, 2016, respectively.
d
On August 10, 2016, the Board of Directors of Royal Wolf declared a dividend of AUS$0.025 per RWH share payable on October 4, 2016 to
shareholders of record on September 16, 2016 and on February 7, 2017, the Board of Directors of Royal Wolf declared a dividend of AUS$0.025 per
RWH share payable on April 4, 2017 to shareholders of record on March 16, 2017.
On August 2, 2017, Royal Wolf paid a special dividend of AUS$0.0265 per RWH share to shareholders of record on July 18, 2017 (see Note 4).
The consolidated financial statements reflect the amount of the dividends pertaining to the noncontrolling interest.
Note 4. Acquisitions
The Company can enhance its business and market share by entering into new markets in various ways, including starting up a new location or
acquiring a business consisting of container, modular unit or mobile office assets of another entity. An acquisition generally provides the Company with
operations that enables it to at least cover existing overhead costs and is preferable to a start-up or greenfield location. The acquisition(s) discussed
below were completed primarily to expand the Company’s container lease fleet. The accompanying consolidated financial statements include the
operations of the acquired businesses from the dates of acquisition.
F-17
FY 2016 Acquisitions
q
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 28, 2015, the Company, through Pac-Van, purchased the business of Mobile Storage Solutions of Mo., LLC (“MSS”) for $1,497,000,
which included a deferred purchase price promissory note of $613,000, bearing interest at 2.00% per annum and due in January 2016, and a holdback
amount of $139,000. MSS leased and sold storage and office containers and storage trailers in Springfield, Missouri.
On October 16, 2015, the Company, through Pac-Van, purchased the container business of McKinney Trailer Rentals, Inc., d/b/a McKinney
. McKinney
Container Rentals & Sales (“McKinney”), for $15,264,000, which included holdback and other adjustment amounts totaling $940,000
leased and sold storage (including refrigerated) containers and chassis and other units in the Seattle and Tacoma area.
d
On October 29, 2015, the Company, through Royal Wolf, purchased the container business of Spacewise (Aust) Pty Limited (“Spacewise”), for
$281,000 (AUS$390,000), which included holdback and other adjustment amounts totaling $56,000 (AUS$78,000). Spacewise is based in Sydney, New
South Wales.
On December 23, 2015, the Company, through Royal Wolf, purchased the container business of W.A. Container Services Pty Limited (“W.A.
Container”), for $321,000 (AUS$439,000), which included holdback and other adjustment amounts totaling $66,000 (AUS$90,000). W.A. Container is
based in Perth, West Australia.
On February 19, 2016, the Company, through Pac-Van, purchased the container business of Box Service Company, Inc. (“BSC”) for $461,000,
which included a holdback of $35,000. BSC is based in Houston, Texas.
On April 4, 2016, the Company, through Pac-Van, purchased the container business of Aran Trading, Ltd. (“Aran”), for $4,755,000, which
included a holdback of $500,000 paid to an escrow account. Aran, which is located in Salisbury, Massachusetts, leases and sells storage containers and
trailers in the New England area.
The allocations for the acquisitions in FY 2016 to tangible and intangible assets acquired and liabilities assumed based on their estimated fair
market values were as follows (in thousands):
Fair value of the net tangible assets acquired and
liabilities assumed:
Trade and other receivables
Inventories
Prepaid expenses and other
Property, plant and equipment
Lease fleet
Accounts payables and accrued liabilities
Unearned revenue and advance payments
Total net tangible assets acquired and
liabilities assumed
Fair value of intangible assets acquired:
Non-compete agreement
Customer lists/relationships
Other
Goodwill
Total intangible assets acquired
Total purchase consideration
MSS
August 28, 2015
McKinney
October 16, 2015
Aran
April 4, 2016
Other
Acquisitions
Total
$
$
—
—
—
60
933
—
(27)
966
132
226
—
173
531
1,497
$
$
1,580
—
8
531
6,278
(984)
(2)
7,411
239
2,371
89
5,154
7,853
15,264
$
$
97
—
—
206
2,897
—
(175)
3,025
52
353
416
909
1,730
4,755
$
$
—
23
—
77
730
(22)
(56)
752
76
104
—
131
311
1,063
$
$
1,677
23
8
874
10,838
(1,006)
(260)
12,154
499
3,054
505
6,367
10,425
22,579
Revenues and net income for McKinney since the date of acquisition in FY 2016 totaled $7,494,000 and $1,219,000, respectively. The FY 2016
operating results of all acquisitions prior to and since their respective dates of acquisition were not considered significant.
F-18
FY 2017 Acquisitions
q
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 22, 2016, the Company, through Pac-Van, purchased the container business of The Great Container Company, Ltd. (“GCC”), for
$662,000 (C$869,000), which included holdback and other adjustment amounts totaling $102,000 (C$133,000). GCC is located in Vancouver, British
Columbia.
On July 27, 2016, the Company, through Pac-Van, purchased the business of Container Systems Storage, Inc. (“CSS”), for $1,667,000, which
included holdback and other adjustment amounts totaling approximately $120,000. CSS, which is located in Yakima, Washington, leases and sells
storage containers in the state of Washington and in northern Oregon.
f
On December 1, 2016, the Company, through Royal Wolf, purchased the container businesses of All Direct Container Sales Pty Limited and ADC
Storage Pty Limited as Trustee for the ADC Storage Unit Trust (collectively “All Direct”), for $3,040,000 (AUS$4,109,000), which included holdback
containers in the southeast Queensland market, particularly
t
and other adjustment amounts totaling $154,000 (AUS$209,000). All Direct leases and sells
in the Brisbane, Gold Coast and Toowoomba regions.
The allocations for the acquisitions in FY 2017 to tangible and intangible assets acquired and liabilities assumed based on their estimated fair
market values was as follows (in thousands):
Fair value of the net tangible assets acquired and liabilities
assumed:
Trade and other receivables
Inventories
Property, plant and equipment
Lease fleet
Accounts payables and accrued liabilities
Unearned revenue and advance payments
Deferred income taxes
Total net tangible assets acquired and liabilities
assumed
Fair value of intangible assets acquired:
Non-compete agreement
Customer lists/relationships
Goodwill
Total intangible assets acquired
Total purchase consideration
GCC
July 22, 2016
CSS
July 27, 2016
All Direct
December 1, 2016
Total
$
$
5
66
23
352
—
(21)
—
425
21
138
78
237
662
$
$
57
211
44
615
(7)
(36)
(241)
643
29
312
683
1,024
1,667
$
$
—
—
44
1,646
(45)
—
(201)
1,444
350
334
912
1,596
3,040
$
$
62
277
111
2,613
(52)
(57)
(442)
2,512
400
784
1,673
2,857
5,369
The FY 2017 operating results of all acquisitions prior to and since their respective dates of acquisition were not considered significant.
F-19
Acquisition of Noncontrolling Interest of Royal Wolf
g
y
q
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 12, 2017, the Company announced that it commenced, through GFNAPH, an off-market takeover offer and entered into a binding
takeover bid implementation agreement with the independent directors of RWH to acquire the approximately 49.2 million ordinary (common) shares of
RWH not owned by the Company. The takeover offer was for AUS$1.83 per share in cash, less a special dividend declared by RWH of AUS$0.0265
per share (see Note 3), for total purchase consideration to be paid by the Company of AUS$88,712,000 ($70,401,000), or AUS$1.8035 per share. For
the takeover offer, the Company used AUS$2,516,000 ($1,997,000) borrowed under its North America senior secured revolving credit facility (see Note
5) and received financing totaling $80,000,000 from Bison Capital Equity Partners V, L.P. and its affiliates (“Bison Capital”), of which $10,000,000
was used for the repayment of the term loan due to Credit Suisse AG, Singapore Branch (“Credit Suisse”) (See Note 5). At September 8, 2017, the
closing of the takeover bid offer period, the Company received valid acceptances for approximately 48.1 million shares, which in combination with the
51.2 million RWH shares previously owned by the Company represented approximately 99% of the total shares outstanding. The Company deposited in
escrow the entire amount of the purchase consideration required to acquire all 49.2 million of the RWH shares owned by the noncontrolling interest
shareholders, with owners of the 48.1 million shares accepting the takeover bid offer paid on or before September 29, 2017, and the remaining
1.1 million shares paid on or around October 31, 2017.
f
The accounting for the purchase consideration and total transaction-related costs of $70,402,000 and $2,299,000 (net of income tax effect of
$550,000), respectively, as well as the adjustment to the accumulated other comprehensive income (loss) and reclassification of the noncontrolling
interest of Royal Wolf to the Company’s equity accounts, have been recorded as equity transactions in the accompanying consolidated balance sheet in
FY 2018.
f
FY 2018 Acquisitions
q
On September 1, 2017, the Company, through Pac-Van, purchased the container businesses of Advantage Storage Trailer, LLC and Big Star
Container, LLC (collectively “Advantage”) for approximately $1,576,000, which included a general indemnity holdback of $155,000. Advantage is
located in Austin and San Antonio, Texas.
On December 1, 2017, the Company, through Pac-Van, purchased the container and mobile office business of Gauthier Homes, Inc. (
f
“Gauthier”)
for approximately $10,371,000, which included a general indemnity holdback of $457,000. Gauthier is loca
Louisiana.
f
ted in Carencro (Lafayette) and Houma,
On January 26, 2018, the Company, through Pac-Van, purchased the container and storage trailer business of Lucky’s Lease, Inc. (“Lucky’s”) for
approximately $3,369,000, which included a general indemnity and other holdbacks of $307,000. Lucky’s is located in South Royalton, Vermont.
On April 6, 2018, the Company, through Pac-Van, purchased the container and storage trailer business of Acorn Storage Trailers,
rr
Inc. (“Acorn”)
for approximately $812,000, which included a general indemnity and other holdbacks of $125,000. Acorn is located in Bowling Green, Kentucky.
F-20
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation for the acquisition in FY 2018 to tangible and intangible assets acquired and liabilities assumed based on their estimated fair
r
market values was as follows (in thousands):
Advantage
September 1, 2017
Gauthier
December 1, 2017
Lucky’s Lease
January 26, 2018
Acorn
April 6, 2018
Total
$
Fair value of the net tangible assets
acquired and liabilities assumed:
Trade and other receivables
Inventories
Property, plant and equipment
Lease fleet
Unearned revenue and advance
payments
Total net tangible assets
acquired and liabilities
assumed
Fair value of intangible assets
acquired:
Non-compete agreement
Customer lists/relationships
Other
Goodwill
Total intangible assets
acquired
$
—
234
55
558
(25)
822
56
97
—
601
754
$
390
444
339
4,216
(237)
5,152
143
1,085
250
3,741
5,219
$
—
203
135
1,092
(36)
1,394
44
676
—
1,255
1,975
Total purchase consideration
$
1,576
$
10,371
$
3,369
$
The FY 2018 operating results prior to and since the respective date of acquisition were not considered significant.
—
85
32
341
(14)
444
130
8
—
230
368
812
$
390
966
561
6,207
(312)
7,812
373
1,866
250
5,827
8,316
$
16,128
Goodwill recognized is attributable primarily to expected corporate synergies, the as
rr
sembled workforce and other factors. In FY 2016, the
goodwill recognized in the Spacewise and W.A. Container acquisitions is not deductible for U.S. income tax purposes, but all other goodwill recognized
during FY 2016 is deductible. The estimated fair value of the tangible and intangible assets acquired and liabilities assumed exceeded the purchase
prices of Spacewise resulting in estimated bargain purchase gain of $72,000 in FY 2016. This gain has been recorded as non-operating income in the
accompanying consolidated statements of operations. In FY 2017, the goodwill recognized in the GCC, CSS and All Direct acquisitions are not
deductible for U.S. income tax purposes. The goodwill recognized in the FY 2018 acquisitions is deductible for U.S. income tax purposes.
The Company incurred approximately $422,000 during FY 2016, $44,000 during FY 2017 and $163,000 during FY 2018 of incremental
transaction costs associated with acquisition-related activity that were expensed as incurred a
accompanying consolidated statements of operations.
t
nd are included in selling and general expenses in the
F-21
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Senior and Other Debt
y
Asia-Pacific Leasing Senior Credit Facility
g
The Company’s operations in the Asia-Pacific area had an AUS$150,000,000 secured senior credit facility, as amended, under a co
ff
mmon
terms deed arrangement with the Australia and New Zealand Banking Group Limited (“ANZ”) and Commonwealth Bank of Australia (“CBA”) (the
“ANZ/CBA Credit Facility”). On October 26, 2017, RWH and its subsidiaries, Deutsche Bank AG, Sydney Branch (“Deutsche Bank”), CSL Fund (PB)
Lux Sarl II, Aiguilles Rouges Lux Sarl II, Perpetual Corporate Trust Limited and P.T. Limited entered into a Syndicated Facility Agreement (the
“Syndicated Facility Agreement”). Pursuant to the Syndicated Facility Agreement, the parties entered into a three-year, $92,637,500
(AUS$125,000,000) senior secured credit facility (the “Deutsche Bank Credit Facility”) and repaid the ANZ/CBA Credit Facility on November 3, 2017.
The Deutsche Bank Credit Facility initially consisted of a $14,822,000 (AUS$20,000,000) Facility A that will amortize semi-annually; a $62,993,500
(AUS$85,000,000) Facility B that has no scheduled amortization; and a $14,822,000 (AUS$20,000,000) revolving Facility C that is used for working
ank Credit Facility to
capital, capital expenditures and general corporate purposes. On June 25, 2018, RWH and its subsidiaries amended the Deutsche B
increase by approximately $6,784,700 (NZ$10,000,000) the amount that can be borrowed under Facility B. Borrowings bear interest at the rate of 5.0%
per annum until delivery of the first compliance certificate and thereafter at the bank
bill swap interest rate in Australia (“BBSY”), plus a margin of
4.25% to 5.50% per annum, as determined by net leverage. The Deutsche Bank Credit Facility is secured by substantially all of the assets and by the
pledge of all the capital stock of the subsidiaries of RWH and matures on November 3, 2020, at which time an exit fee of up to approximately
$1,519,300 (A$2,050,000) is owed depending on the final amounts borrowed. In addition, the Deutsche Bank Credit Facility is subject to certain
financial and other customary covenants, including, among other things, compliance with specified net leverage and debt requirement or fixed charge
ratios based on earnings before interest, income taxes, impairment, depreciation and amortization and other non-operating costs and income
(“EBITDA”), as defined.
b
aa
aa
t
At June 30, 2018, the Deutsche Bank Credit Facility totaled $79,745,000 (A$107,604,000), net of deferred financing costs of $2,036,000
(A$2,747,000), and availability, including cash at the bank, totaled $31,406,000 (AUS$42,377,000).
The above amounts were translated based upon the exchange rate of one Australian dollar to 0.7411 U.S. dollar and one New Zealand dollar to
0.67847 U.S. dollar at June 30, 2018.
p
Bison Capital Notes
General
On September 19, 2017, Bison Capital, GFN, GFN U.S., GFNAPH and GFNAPF, entered into that certain Amended and Restated Securities
Purchase Agreement dated September 19, 2017 (the “Amended Securities Purchase Agreement”). On September 25, 2017, pursuant to the Amended
Securities Purchase Agreement, GFNAPH and GFNAPF issued and sold to Bison an 11.9% secured senior convertible promissory note dated
September 25, 2017 in the original principal amount of $26,000,000 (the “Convertible Note”) and an 11.9% secured senior promissory note dated
September 25, 2017 in the original principal amount of $54,000,000 (the “Senior Term Note” and collectively with the Convertible Note, the “Bison
Capital Notes”). Net proceeds from the sale of the Bison Capital Notes were used to repay in full all principal, interest and other amounts due under the
term loan to Credit Suisse (see below), to acquire the 49,188,526 publicly-traded shares of RWH not owned by the Company and to pay all related fees
and expenses.
t
F-22
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bison Capital Notes have a maturity of five years and bear interest from the date of issuance, payable quarterly in arrears beginning on
January 2, 2018. The Bison Capital Notes may be prepaid at 102% of the original principal amount, plus accrued interest, after the first anniversary and
prior to the second anniversary of issuance, at 101% of the original principal amount, plus accrued interest, after the second anniversary and prior to the
third anniversary of issuance and with no prepayment premium after the third anniversary of issuance. The Company may elect to defer interest under
the Bison Capital Notes until the second anniversary of issuance. Interest on the Bison Capital Notes are payable in Australian dollars, but the principal
must be repaid in U.S. dollars. The Bison Capital Notes are secured by a first priority security interest over all of the assets of GFN U.S., GFNAPH and
GFNAPF, by the pledge by GFN U.S. of the capital stock of GFNAPH and GFNAPF and by of all of the capital stock of RWH. The Bison Capital
Notes are subject to all terms, conditions and covenants set forth in the Amended Securities Purchase Agreement. The Amended Securities Purchase
strictive covenants, including, among other things, a minimum EBITDA requirement to
aa
Agreement contains certain financial and other customary and re
equal or exceed AUS$30,000,000 per trailing 12-month period. In addition, the Bison Capital Notes must be repaid upon a change of control, as defined.
At June 30, 2018, the principal balance of the Senior Term Note was $57,272,000, which includes interest the Company has elected to defer.
Convertible Note
At any time prior to maturity, Bison Capital may convert unpaid principal and interest under the Convertible Note into shares of GFN common
stock based upon a price of $8.50 per share (3,058,824 shares based on the original $26,000,000 principal amount), subject to adjustment as described in
the Convertible Note. If GFN common stock trades above 150% of the conversion price over 30 consecutive trading days and the aggregate dollar value
of all GFN common stock traded on NASDAQ exceeds $600,000 over the last 20 consecutive days of the same 30-day period, GFN may force Bison
Capital to convert all or a portion of the Convertible Note. The Convertible Note also provides that Bison Capital shall not be entitled, and GFN shall
not be obligated, to convert the Convertible Note into shares of GFN common stock if such conversion would result in holders of the Convertible Note
beneficially owning in excess of 5,200,000 shares of GFN common stock, or approximately 19.5% of the number of shares of GFN common stock
outstanding immediately prior to issuance of the Convertible Note. The Convertible Note grants Bison Capital and holders of the Convertible Note a
preemptive right to invest in any issuance GFN equity securities, options or warrants to maintain its proportionate interest in GFN common stock, after
giving effect to the conversion of the entire Convertible Note. In addition, the Convertible Note includes a provision which requires GFNAPH and
GFNAPF to pay Bison Capital, via the payment of principal, interest and the value of GFN common stock received upon conversion of all or a portion
of the Convertible Note, a minimum return of 1.75 times the original principal amount. This minimum rate of return will be recorded at $806,000 per
year, or $201,500 per quarter, as an accretion in the accompanying consolidated statements of operations. The Convertible Note must also be repaid
upon a change of control, as defined. In the event that Bison Capital or holders of the Convertible Note receive aggregate proceeds in excess of
$48,900,000 from the sale of GFN common stock received from conversion of the Convertible Note, then 50% of the interest accrued and actually paid
to Bison Capital (such amount, the “Price Increase”) shall be repaid by Bison Capital or holders of the Convertible Note by either (i) paying such Price
Increase to GFNAPH or GFNAPF in the form of cash, (ii) returning to GFN shares of GFN Common Stock with a value equal to the Price Increase or
(iii) any combination of (i) or (ii) above that if the aggregate equals the Price Increase. The value of the GFN common stock for purposes of the return of
shares to GFN shall be deemed to be the average price per share of GFN common stock realized by the Convertible Note holder in the sale of such
shares. The Convertible Note holder may satisfy such obligations by returning to GFN shares of GFN common stock with an aggregate value equivalent
to the Price Increase.
n
f
ff
The Company evaluated the Convertible Note and determined that certain conversion rights were an embedded derivative that requi
because they were not deemed to be clearly and closely related to the Convertible Note. As a result, the Company separately accounts for these
conversion rights as a standalone derivative. As of the date of issuance on September 25, 2017, the fair value of this bifurcated derivative was
determined to be $1,864,000, resulting in a principal balance of $24,136,000 for the Convertible Note. The Company determines the fair value of the
bifurcated derivative using a valuation model and market prices and reassesses its fair value at the end of each reporting period or more frequently as
deemed necessary, with any changes in value reported in the accompanying consolidated statements of operations. At June 30, 2018, the fair value of
this bifurcated derivative was $15,583,000 (using, among other things, the Company’s market price for its common stock of $13.55 per share at June 30,
2018, and assumptions of a risk-free interest rate of 2.22%, an expected
d
volatility of 25% on the co
principal balance of the Convertible Note was $24,741,000, which includes accretion for the minimum rate of return.
mpany’s assets and no expected dividend) and the
red bifurcation
m
tt
t
At June 30, 2018, the Bison Capital Notes totaled $81,048,000, net of deferred financing costs of $965,000.
F-23
North America Senior Credit Facility y
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The North America leasing (Pac-Van and Lone Star) and manufacturing operations (Southern Frac) have a combined $237,000,000 senior secured
revolving credit facility, as amended, with a syndicate led by Wells Fargo Bank, National Association (“Wells Fargo”) that also includes East West
Bank, CIT Bank, N.A., the Canadian Imperial Bank of Commerce (“CIBC”), KeyBank, National Association, Bank Hapoalim B.M. and As
sociated
Bank, N.A. (the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility matu
senior notes due July 31, 2021(see below) are extended at least 90 days past this scheduled maturity date; otherwise the Wells Fargo Credit Facility
would mature on March 24, 2021. There is also a separate loan agreement with Great American Capital Partners (“GACP”), where GACP provided a
First In Last Out Term Loan (”FILO Term Loan”) within the Wells Fargo Credit Facility in the amount
$237,000,000 total amount. The FILO Term Loan has the same maturity date and commences principal amortization on October 1, 2018 at $500,000 per
quarter. The FILO Term Loan has a prepayment fee of 3.00% of the prepaid amount if prepaid prior to the first anniversary, 2.00% of the prepaid
amount if prepaid prior to the second anniversary and 1.00% of the prepaid amount if prepaid prior to the third anniversary.
res on March 24, 2022, assuming the Company’s publicly-traded
of $20,000,000, and inclusive in the
m
aa
t
The Wells Fargo Credit Facility is secured by substantially all of the rental fleet, inventory and other assets of the Company’s North American
leasing and manufacturing operations. The FILO Term Loan also contains a first priority lien on the same collateral, but on a “last out basis,” after all of
the outstanding obligations to the primary lenders in the Wells Fargo Credit Facility have been satisfied. The Wells Fargo Credit Facility effectively not
only finances the North American operations, but also the funding requirements for the Series C Preferred Stock (see Note 3) and the publicly-traded
unsecured senior notes. The maximum amount of intercompany dividends
the funding requirements of GFN’s senior and other debt and the Series C Preferred Stock are (a) the lesser of $5,000,000 for the Series C Preferred
Stock or the amount equal to the dividend rate of the Series C Preferred Stock and its aggregate liquidation preference and the actual amount of
dividends required to be paid to the Series C Preferred Stock; and (b) $6,300,000 for the public offering of unsecured senior notes or the actual amount
of annual interest required to be paid; provided that (i) the payment of such dividends does not cause a default or event of de
fault; (ii) each of Pac-Van
and Lone Star is solvent; (iii) excess availability, as defined, is $5,000,000 or more under the Wells Fargo Credit Facility; (iv) the fixed charge coverage
ratio, as defined, will be greater than 1.25 to 1.00; and (v) the dividends are paid no earlier than ten business days prior to the date they are due.
that Pac-Van and Lone Star are allowed to pay in each fiscal year to GFN for
aa
f
Borrowings under the Wells Fargo Credit Facility accrue interest, at the Company’s option, either at the base rate, plus 0.5% and a range of 1.00%
to 1.50%, or the LIBOR rate, plus 1.0% and a range of 2.50% to 3.00%. The FILO Term Loan within the Wells Fargo Credit Facility bears interest at
11.00% above the LIBOR rate, with a LIBOR rate floor of 1.00%. The Wells Fargo Credit Facility contains,
covenants, including fixed charge coverage ratios, and other covenants, representations, warranties, indemnification provisions, and events of default
that are customary for senior secured credit facilities; including a covenant that would require repayment upon a change in control, as defined. At
June 30, 2018, borrowings and availability under the Wells Fargo Credit Facility totaled $183,949,000 and $46,424,000, respectively.
among other things, certain financial
y
t
Credit Suisse Term Loan
On March 31, 2014, the Company entered into a $25,000,000 facility agreement, as amended, with Credit Suisse (“Credit Suisse Term Loan”) as
part of the financing for the acquisition of Lone Star and, on April 3, 2014, the Company borrowed the $25,000,000 available to it. The Credit Suisse
Term Loan provided that the amount borrowed would bear interest at LIBOR plus 7.50% per year, would be payable quarterly and that all principal and
interest would mature on July 1, 2018. In addition, the Credit Suisse Term Loan was secured by a first ranking pledge over substantially all shares of
RWH owned by GFN U.S., required a certain coverage maintenance ratio in U.S. dollars based on the value of the RWH shares and, among other
things, that an amount equal to six-months interest be deposited in an interest reserve account pledged to secure repayment of all amounts borrowed.
The Company had repaid, prior to maturity, $15,000,000 of the outstanding borrowings of the Credit Suisse Term Loan and, as of June 30, 2017,
$9,920,000 remained outstanding, net of unamortized debt issuance costs of $80,000. On September 25, 2017, in connection with the acquisition of the
noncontrolling interest of Royal Wolf (see Note 4), the Credit Suisse Term Loan was fully repaid.
t
F-24
Senior Notes
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 18, 2014, the Company completed the sale of unsecured senior notes (the “Senior Notes”) in a public offering for an aggregate
principal amount of $72,000,000. On April 24, 2017, the Company completed the sale of a “tack-on” offering of its publicly-traded Senior Notes for an
aggregate principal amount of $5,390,000 that was priced at $24.95 per denomination. Net proceeds were $5,190,947, after deducting an aggregate
original issue discount (“OID”) of $10,780 and underwriting discount of $188,273. In both offerings, the Company used at least 80% of the gross
proceeds to reduce indebtedness at Pac-Van and Lone Star under the Wells Fargo Credit Facility in order to permit the payment of intercompany
dividends by Pac-Van and Lone Star to GFN to fund the interest requirements of th
$4,303,376 of the net proceeds. The Company has total outstanding publicly-traded Senior Notes in an aggregate principal amount
($75,319,000 and $75,824,000, net of unamortized debt issuance costs of $2,071,000 and $1,566,000, at June 30, 2017 and 2018, respectively).
e Senior Notes. For the ‘tack-on” offering, this amounted to
of $77,390,000
r
tt
The Senior Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof and pursuant to the First
Supplemental Indenture (the “First Supplemental Indenture”) dated as of June 18, 2014 by and between the Company and Wells Fargo, as trustee (the
“Trustee”). The First Supplemental Indenture supplements the Indenture entered into by and between the Company and the Trustee dated as of June 18,
2014 (the “Base Indenture” and, together with the First Supplemental Indenture, the “Indenture”). The Senior Notes bear interest at the rate of 8.125%
per annum, mature on July 31, 2021 and are not subject to any sinking fund. Interest on
the Senior Notes is payable quarterly in arrears on January 31,
April 30, July 31 and October 31, commencing on July 31, 2014. The Senior Notes rank equally in right of payment with all of the Company’s existing
r
and future unsecured senior debt and senior in right of payment to all of its existing and future subordinated debt. The Senior Notes are effectively
subordinated to any of the Company’s existing and future secured debt, to the extent of the value of the assets securing such d
structurally subordinated to all existing and future liabilities of the Company’s subsidiaries and are not guaranteed by any of the Company’s
subsidiaries.
ebt. The Senior Notes are
f
f
t
The Company had an option, prior to July 31, 2017, to redeem the Senior Notes in whole or in part upon the payment of 100%
of the principal
amount of the Senior Notes being redeemed, plus any additional amount required by the Indenture. In addition, the Company may have redeemed up to
35% of the aggregate outstanding principal amount of the Senior Notes before July 31, 2017 with the net cash proceeds from certain equity offerings at
a redemption price of 108.125% of the principal amount plus accrued and unpaid interest. The Company has not redeemed any of its Senior Notes.
r
If the Company sells certain of its assets or experiences specific kinds of changes in control, as defined, it must offer to redeem the Senior Notes.
The Company may, at its option, at any time and from time to time, on or after July 31, 2017, redeem the Senior Notes in whole or in part. The Senior
Notes will be redeemable at a redemption price initially equal to 106.094% of the principal amount of the Senior Notes (and which declines each year
on July 31) plus accrued and unpaid interest to the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed
Senior Notes.
The Indenture contains covenants which, among other things, limit the Company’s ability to make certain payments, to pay dividends and to incur
additional indebtedness if the incurrence of such indebtedness would cause the company’s consolidated fixed charge coverage ratio, as defined in the
Indenture, to be below 2.0 to 1.0. The Senior Notes are listed on NASDAQ under the symbol “GFNSL.”
Other
At June 30, 2018, equipment financing and other debt totaled $6,652,000.
The Company was in compliance with the financial covenants under all its credit facilities as of June 30, 2018.
The weighted-average interest rate in the Asia-Pacific area was 5.4%, 5.0% and 10.1% in FY 2016, FY 2017 and FY 2018, respectively; which
does not include the effect of translation, derivative valuation, amortization of deferred financing costs and accretion. The weighted-average interest rate
in North America was 4.9%, 5.3% and 6.2% in FY 2016, FY 2017 and FY 2018, respectively, which does not include the effect of the amortization of
deferred financing costs and accretion.
F-25
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Senior and other debt consisted of the following at June 30, 2017 and 2018 (in thousands):
ANZ/CBA Credit Facility
Deutsche Bank Credit Facility
Bison Capital Notes
Wells Fargo Credit Facility
Credit Suisse Term Loan
Senior Notes
Equipment Financing and Other
Scheduled Maturities on Senior and Other Debt
June 30,
2017
81,051
—
—
180,946
9,920
75,319
8,402
355,638
$
$
2018
—
79,745
81,048
183,949
—
75,824
6,652
427,218
$
$
The scheduled maturities for the senior credit facilities senior subordinated notes and other debt at June 30, 2018 were as follows (in thousands):
g
Year Ending June 30,
,
2019
2020
2021
2022
2023
Thereafter
Less – deferred financing costs
$
13,805
8,943
70,301
256,033 (a)
82,603
100
431,785
(4,567)
$ 427,218
(a) Wells Fargo Credit Facility is reflected as maturing on March 24, 2022.
Note 6. Financial Instruments
Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received from selling an asset or
d
aa
paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measu
determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering
ASC Topic 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, as follows:
a
rement that should be
such assumptions, FASB
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 reporti
t
ng entity to develop its own assumptions.
F-26
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s derivative instruments are not traded on a market exchange; therefore, the fair values are determined using valuation models that
include assumptions about yield curve at the reporting dates as well as counter-party credit risk. The assumptions are generally derived from market-
observable data. The Company has consistently applied these calculation techniques to all periods presented, which are considered Level 2. Derivative
instruments measured at fair value and their classification in the consolidated balances sheets and statements of operations are as follows (in thousands):
Derivative – Fair Value (Level 2)
Type of Derivative
Contract
Balance Sheet Classification
June 30, 2017
June 30, 2018
Swap Contracts
Trade payables and accrued liabilities
$
Forward-Exchange Contracts
Trade and other receivables
Forward-Exchange Contracts
Trade payables and accrued liabilities
a
$
96
—
299
223
298
—
Bifurcated Derivative
Fair value of bifurcated derivative in
Convertible Note
—
15,583
Type of Derivative
Contract
Statement of Operations Classification
FY 2016
FY 2017
FY 2018
Swap Contracts
Unrealized gain included in interest expense
$ —
$ 1,073
$
12
Forward-Exchange Contracts
Unrealized foreign currency exchange gain (loss)
(367)
(12)
697
Bifurcated Derivative
Loss on change in valuation of bifurcated derivative in
Convertible Note
—
—
13,719
Interest Rate Swap Contracts
p
The Company’s exposure to market risk for changes in interest rates relates primarily to its senior and other debt obligations. The Company’s
policy is to manage its interest expense by using a mix of fixed and variable rate debt.
To manage its exposure to variable interest rates in a cost-efficient manner, the Company has entered into interest rate swaps and interest rate
options, in which the Company agreed 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 were designated to hedge changes in the interest rate of a portion of the
outstanding borrowings in the Asia-Pacific area. In FY 2017, the Company entered into two interest rate swaps that were designated as cash flow
hedges. The Company expected these derivatives to remain effective during their remaining terms, but recorded any changes in the portion of the hedges
considered ineffective in interest expense in the consolidated statement of operations. There was no ineffective portion recorded in FY 2017 and, in FY
2018, these two interest rate swap contracts were closed, with the Company incurring break costs of $148,000. In January 2018, the Company entered
into another interest rate swap contract that was also designated as a cash flow hedge. The Company expects this derivative to remain highly effective
during its term; however, any changes in the portion of the hedge considered ineffective would also be recorded in interest expense in the consolidated
statement of operations. In FY 2018, the Company recorded in interest expense an un
realized gain of $12,000 for the portion considered ineffective.
nn
t
The Company’s interest rate derivative instruments were not traded on a market exchange; therefore, the fair values were 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,
2017 and 2018, the open interest rate swap contracts were as follows (dollars in thousands):
F-27
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30,
2017
June 30,
2018
NNotional amounts
Fixed/Strike Rates
Floating Rates
Fair Value of Combined Contracts
Foreign Currency Risk
y
g
$
$
30,748
2.0025% - 2.2900%
1.6650%
(96)
$
$
37,055
7.414%
7.16%
(223)
n
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
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 and participating forward contracts are always in the same currency as the hedged item. The Company believes that financial
instruments designated as foreign currency hedges are highly effective. However documentation of such as required by ASC Topic 815 does not exist.
Therefore, all movements in the fair values of these hedges are reported in the statement of operations in the period in which fair values change. As of
June 30, 2017, there were 16 open forward exchange contracts that mature between July 2017 and December 2017; and as of June 30, 2018, there were
32 open forward exchange that mature between July 2018 and November 2018, as follows (dollars in thousands):
currency and participating forward contracts to eliminate the currency exposures on the
uu
NNotional amounts
Exchange/Strike Rates (AUD to USD)
Fair Value of Combined Contracts
$
$
7,687
0.69304 – 0.75650
(299)
$
$
8,950
0.68142 – 0.80004
298
June 30,
2017
June 30,
2018
In FY 2016, FY 2017 and FY 2018, net unrealized and realized foreign exchange gains (losses) totaled$(103,000) and $80,000, $(375,000) and
$(39,000) and $(6,138,00) and $(451,000), respectively.
Fair Value of Other Financial Instruments
The fair value of the Company’s borrowings under the Senior Notes was determined based on a Level 1 input and for borrowings under its senior
credit facilities and Credit Suisse Term Loan determined based on Level 3 inputs; including a comparison to a group of comparable industry debt
issuances (“Industry Comparable Debt Issuances”) and a study of credit (“Credit Spread Analysis”). Under the Industry Comparable Debt Issuance
method, the Company compared the debt facilities to several industry comparable debt issuances. This method consisted of an analysis of the offering
yields compared to the current yields on publicly traded debt securities. Under the Credit Spread Analysis, the Company first examined the implied
credit spreads, which are based on data published by the United States Federal Reserve. Based on this analysis the Company was able to assess the
credit market. The fair value of the Company’s senior credit facilities as of June 30, 2017 and 2018 was determined to be approximately $347,236,000
and $423,029,000, respectively. The Company also determined that the fair value of its equipment financi
$6,652,000 at June 30, 2017 and 2018, respectively, approximated or would not vary significantly from their carrying values.
ng and other debt of $8,402,000 and
f
Under the provisions of FASB ASC Topic 825, Financial Instruments, the carrying value of the Company’s other financial instruments
(consisting primarily of cash and cash equivalents, net receivables, trade payables and accrued liabilities)
aa
approximate fair value.
F-28
Credit Risk and Allowance for Doubtful Accounts
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and no
single customer accounted for more than 10% of consolidated revenues or trade receivables during and at the periods presented. However, in our North
American leasing operations a significant portion of the business activity are with companies in the construction and energy (oil and gas and mining)
industries. Revenues from the construction industry totaled $42,510,000 in FY 2016; and revenues and receivables from the construction industry
totaled $40,739,000 and $5,521,000 during FY 2017 and at June 30, 2017, respectively; and $44,427,000 and $6,298,000 during FY 2018 and at
June 30, 2018, respectively. Revenues of $29,913,000, $24,964,000 and $49,053,000 during FY 2016, FY 2017and FY 2018, respectively; and
receivables of $6,568,000 and $11,869,000 at June 30, 2017 and 2018, respectively, were from the energy industry.
tt
The Company’s receivables related to sales of lease inventories and fleet are generally secured by the equipment sold to the customer. The
Company’s receivables related to leasing 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 Company’s 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 Company’s exposure to bad debts is not typically significant; however, in
FY 2016 the Company has provided more than historically normal provision and write-offs for bad debts, primarily for customers in the energy sector.
Net allowance for doubtful accounts provided and uncollectible accounts written off, net of recoveries and other, was $5,570,000 and $3,357,000,
$2,529,000 and $5,060,000, and $1,850,000 and $2,570,000 for FY 2016, FY 2017 and FY 2018, respectively. The translation gain (loss) to the
allowance for doubtful accounts for FY 2017 and FY 2018 was $42,000 and $20,000, respectively. There was no translation gain or loss in FY 2016.
r
rr
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 Company’s 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 pa
aa
rty for derivative in
Company has assessed this as a low risk.
struments is nearly always a bank, the
t
Note 7. Income Taxes
Income (loss) before provision for income taxes consisted of the following (in thousands):
NNorth America
Asia-Pacific
FY 2016
FY 2017
FY 2018
$
$
(13,607)
8,130
(5,477)
$
$
(8,234)
7,362
(872)
$
$
11,739
(21,525)
(9,786)
F-29
Current:
U.S. Federal
State
Foreign
Deferred:
U.S. Federal
State
Foreign
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision (benefit) for income taxes consisted of the following (in thousands):
FY 2016
FY 2017
FY 2018
$
— $
— $
203
1,842
2,045
(4,364)
(39)
167
(4,236)
(2,191)
$
172
703
875
(3,351)
(120)
2,571
(900)
(25)
$
—
481
1,925
2,406
(1,323)
844
(2,606)
(3,085)
(679)
June 30,
2017
2018
40,310
2,867
1,846
0
45,023
(82,214)
(915)
(83,129)
—
(38,106)
$
$
21,094
3,025
1,314
4,252
29,685
(64,324)
—
(64,324)
(330)
(34,969)
$
$
$
The components of the net deferred tax liability are as follows (in thousands):
Deferred tax assets:
Net operating loss and tax credit carryforwards
Accrued compensation and other benefits
Allowance for doubtful accounts
Deferred revenue and expenses
Total deferred tax assets
Deferred tax liabilities:
Accelerated tax depreciation and amortization
Deferred revenue and expenses
Total deferred tax liabilities
Valuation allowance
Net deferred tax liabilities
At June 30, 2018, the Company had a U.S. federal net operating loss carryforward of $89,960,000, which expires if unused during
aa
fiscal years
2021 – 2038, and state net operating loss carryforwards of $29,792,000, which will begin expiring in fiscal year 2019. As a result of transactions of its
publicly-held common stock, it is possible to have a change in ownership for federal income tax purposes, which can limit the amount of net operating
loss currently available as a deduction. The Company has determined that, as of June 30, 2018, there was not a significant limitation from any such
ownership changes. However, as a result of the stock ownership change in the Pac-Van acquisition in October 2008, the available deduction of the net
operating loss carryforward of $17,611,000 is generally limited to approximately $2,400,000 on a yearly basis until the fiscal year 2022.
F-30
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For income tax purposes, deductible compensation related to non-qualified stock option awards is based on the value of the award when realized,
which may be different than the compensation expense recognized in the consolidated financial statements, which is based on the award value on the
date of grant. The difference between the value of the award upon grant and the value of the award when ultimately realized creates either additional tax
benefits or a tax shortfall. Prior to July 1, 2017, tax benefits resulting from tax deductions in excess of the compensation cost recognized for share-based
awards would have been recognized as increases to additional paid in capital only if an incremental income tax benefit would be realized after
considering all other tax attributes presently available. Tax shortfalls, which would occur when the tax deduction for share-based awards is less than the
compensation cost recognized, would have been recorded as a reduction to additional paid in capital to the extent that, cumulatively, the shortfalls do
not exceed the cumulative excess tax benefits recognized (including excess tax benefits not yet recognized in additional paid in capital). Should
cumulative tax shortfalls have exceeded cumulative excess tax benefits, the difference would have been reflected as additional tax expense in the
consolidated financial statements. The Company did not recognize excess tax benefits in FY 2016 or FY 2017 because it has not paid U.S. federal
income taxes in those years. Effective July 1, 2017, the difference between the deductible compensation related to share-based awards based on the
value of the award when realized and the compensation expense recognized in the consolidated financial statements based on the award value on the
date of grant is recognized upon realization as an additional tax expense or benefit in the consolidated statements of operations.
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 had been determined to be required as of June 30, 2017. As of June 30, 2018, the Company recorded a valuation
allowance of $330,000 for foreign tax credit carryforwards that it believes will not be realized.
A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows:
Federal statutory rate
Adjustment to estimated state deferred tax liability, net of U.S. federal tax benefit (a)
Change in valuation of bifurcated derivative in Convertible Note
State and Asia-Pacific taxes, net of U.S. federal tax benefit
Adjustment of net deferred tax liability for enacted tax rate change by the Act
Adjustment for previously unrecognized net tax deficiency related to equity
compensation activity prior to July 1, 2017
NNet tax benefit related to equity compensation activity
Valuation allowance
Other
Effective tax rate
(a) Adjustment for estimated state taxes of $297,000.
Note 8. Related-Party Transactions
FY 2016
FY 2017
35.0%
—
—
5.0
—
—
—
—
—
40.0%
35.0%
(34.1)
—
(2.1)
—
—
—
—
4.1
2.9%
FY 2018
28.0%
—
(42.7)
6.0
18.8
(1.1)
0.4
(3.4)
0.9
6.9%
Effective January 31, 2008, the Company entered into a lease with an affiliate of the Company’s then Chief Executive Officer (n
f
ow Executive
Chairman of the Board of Directors) for its 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. On October 11, 2012, the
Company exercised the first option to renew the lease for an additional five-year term commencing February 1, 2013 and on August 7, 2017, it
exercised its second option for an additional five-year term commencing on February 1, 2018. Rental payments were $110,000 in FY 2016, $113,000 in
FY 2017 and $112,000 in FY 2018.
F-31
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The premises of Pac-Van’s Las Vegas branch are owned by and were leased from the then acting branch manager through December 31,
2016. From January 1, 2017 through May 12, 2017, the use of the premises was rented on a month-to-month basis. Effective May 12, 2017, the
Company entered into a lease agreement through December 31, 2020 for rental of $10,876 per month and the right to extend the term of the lease for
three two-year options, with the monthly rental increasing at each option period from $11,420 to $12,590 per month. Rental payments on these premises
totaled $118,000 in FY 2016, $124,000 in FY 2017 and $131,000 in FY 2018.
Note 9. Equity Plans
On September 11, 2014, the Board of Directors of the Company adopted the 2014 Stock Incentive Plan (the “2014 Plan”), which was approved by
the stockholders at the Company’s annual meeting on December 4, 2014 and amended and restated by the stockholders at the annual meeting on
December 3, 2015. The 2014 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 (“non-vested equity shares”),
restricted stock units, stock appreciation rights, performance stock, performance units and other stock-based awards. Participants in the 2014 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 2014 Plan by the stockholders, the Company suspended further grants under its previous equity plans, the General Finance
Corporation 2006 Stock Option Plan (the “2006 Plan”) and the 2009 Stock Incentive Plan (the “2009 Plan”) (collectively the “Predecessor Plans”),
which had a total of 2,500,000 shares reserved for grant. Any stock options which are forfeited under the Predecessor Plans will become available for
grant under the 2014 Plan, but the total number of shares available under the 2014 Plan will not exceed the 1,500,000 shares reserved for grant under the
2014 Plan, plus any options which were forfeited or are available for grant under the Predecessor Plans. If not sooner terminat
Directors, the 2014 Plan will expire on December 4, 2024, which is the tenth anniversary of the date it was approved by the Company’s stockholders.
The 2006 Plan expired on June 30, 2016 and the 2009 Plan will expire on December 10, 2019. On December 7, 2017, the stockholders approved an
amendment unanimously approved by the Board of Directors of the Company that increased the number of shares reserved for issuance under the 2014
Plan by 1,000,000 shares, from 1,500,000 to 2,500,000 shares of common stock, plus any options which were forfeited or are available for grant under
the 2009 Plan. The Predecessor Plans and the 2014 Plan are referred to collectively as the “Stock Incentive Plan.”
ed by the Board of
r
There have been no grants or awards of stock appreciation rights, performance stock or performance units under the Stock Incentive Plan. All
grants to-date consist of incentive and non-qualified stock options that vest over a period of up to
that vest over varying periods that are dependent on the attainment of certain defined EBITDA and other targets (“performance-based”), non-vested
equity shares (“restricted stock”) and restricted stock units (“RSU”). At June 30, 2018, 871,160 shares remained available for grant.
five years (“time-based”), non-qualified stock options
t
On June 8, 2016 (the “June 2016 Grant”), ”), the Company granted time-based options to 21 key employees of GFN, Pac-Van, Lone Star and
Southern Frac to purchase 106,700 shares of common stock at an exercise price equal to the closing market price of the Company’s common stock as of
that date, or $4.11 per share. The options under the June 2016 Grant vest over 36 months from the date of grant. The weighted-average fair value of the
stock options in the June 2016 Grant was $2.87, determined using the Black-Scholes option-pricing model using the following assumptions: a risk-free
interest rate of 1.47%, an expected life of 7.5 years, an expected volatility of 72.9% and no expected dividend.
On February 7, 2017 (the “February 2017 Grant”), the Company granted time-based 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 Company’s common stock as of that date, or $5.10 per share. The options
under the February 2017 Grant vest over 36 months from the date of grant. The weighted-average fair value of the stock options in the February 2017
Grant was $3.35, determined using the Black-Scholes option-pr
expected life of 7.5 years, an expected volatility of 65.1% and no expected dividend.
icing model using the following assumptions: a risk-free interest rate of 2.13%, an
d
r
On December 15, 2017 (the “December 2017 Grant”), the Company granted time-based 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 Company’s common stock as of that date, or $6.25
per share. The options
under the December 2017 Grant vest over 36 months from the date of grant. The fair value of the stock options in the December 2017 Grant was $3.45,
determined using the Black-Scholes option-pricing model using the following assumptions: a risk-free interest rate of 2.26%, an expected life of 7.5
years, an expected volatility of 50.5% and no expected dividend.
f
f
F-32
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 6, 2018 (the “February 2018 Grant”), the Company granted time-based options to a key employee of Royal Wolf to purchase 81,280
shares of common stock at an exercise price equal to the closing market price of the Company’s common stock as of that date, or $7.15 per share. The
options under the February 2018 Grant vest over 28.8 months from the date of grant. The fair value of the stock options in the February 2018 Grant was
$4.00, determined using the Black-Scholes option-pricing model using the following assumptions: a risk-free interest rate of 2.66%, an expected life of
7.5 years, an expected volatility of 50.5% and no expected dividend.
r
In FY 2018, the weighted-average fair value of the stock options granted to officers and key employees was $3.60. Since inception, the range of
the fair value of the stock options granted (other than to non-employee consultants) and the assumptions used are as follows:
Fair value of stock options
$0.81 - $6.35
Assumptions used:
Risk-free interest rate
Expected life (in years)
Expected volatility
Expected dividends
1.19% - 4.8%
7.5
26.5% - 84.6%
—
At June 30, 2018, there were no significant outstanding stock options held by non-employe
t
e consultants that were not fully vested. A summary of
tt
the Company’s stock option activity and related information for FY
2016, FY 2017 and FY 2018 follows:
Outstanding at June 30, 2015
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2016
Number of
Options
(Shares)
Weighted-
Average
Exercise
Price
2,110,191
106,700
(13,000)
(20,667)
2,183,224
$
$
5.35
4.11
3.09
6.05
5.30
Exercisable at June 30, 2016
1,852,190
$ 5.24
Outstanding at June 30, 2016
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2017
Number of
Options
(Shares)
Weighted-
Average
Exercise
Price
2,183,224
225,000
(21,500)
(325,667)
2,061,057
$
$
5.30
5.10
2.50
7.75
4.92
Exercisable at June 30, 2017
1,632,256
$ 4.78
F-33
Weighted-
Average
Remaining
Contractual
Term (Years)
4.6
3.8
Weighted-
Average
Remaining
Contractual
Term (Years)
4.9
3.8
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number of
Options
(Shares)
Weighted-
Average
Exercise
Price
2,061,057
306,280
(237,260)
(305,167)
1,824,910
$
$
4.92
6.49
4.85
8.96
4.52
1,824,910
1,333,564
$
4.52
$ 4.01
Weighted-
Average
Remaining
Contractual
Term (Years)
5.8
5.8
4.5
Outstanding at June 30, 2017
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2018
Vested and expected to vest at
June 30, 2018
Exercisable at June 30, 2018
At June 30, 2018, outstanding time-based options and performance-based options totaled 1,227,790 and 597,120, respectively. Also at that date,
the Company’s market price for its common stock was $13.55 per share, which was above the exercise prices of all of the outstanding stock options, and
the intrinsic value of the outstanding stock options at that date was $16,716,000. Share-based compensation of $8,192,000 related to stock options has
been recognized in the consolidated statements of operations, with a corresponding benefit to equity, from inception through June 30, 2018. At that date,
there remains $1,405,000 of unrecognized compensation expense to be recorded on a straight-line basis over the remaining weighted-average vesting
period of 1.7 years.
A deduction is not allowed for U.S. income tax purposes with respect to non-qualified options granted in the United States until the stock options
are exercised or, with respect to incentive stock options issued in the United States, unless the optionee makes a disqualifying disposition of the
underlying shares. The amount of any deduction will be the difference between the fair value of the Company’s 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. Effective July 1, 2017,
the tax effect of the U.S. income tax deduction in excess of the financial statement
d
expense, if any, will be recorded as a benefit in the consolidated statement of operations.
A summary of the Company’s restricted stock and RSU ac
d
tivity follows:
NNonvested at June 30, 2015
Granted
Vested
Forfeited
NNonvested at June 30, 2016
Granted
Vested
Forfeited
NNonvested at June 30, 2017
Granted
Vested
Forfeited
NNonvested at June 30, 2018
Restricted Stock
RSU
Shares
293,983
263,007
(117,370)
(66,113)
373,507
349,304
(242,501)
—
480,310
125,885
(226,345)
—
379,850
Weighted-Average
Grant Date Fair
Value
$
$
F-34
6.18
4.10
6.10
9.25
4.20
4.10
6.10
—
4.54
9.69
4.42
—
6.32
Shares
—
—
—
—
—
—
—
—
—
211,763
—
—
211,763
Weighted-Average
Grant Date Fair
Value
$
$
—
—
—
—
—
—
—
—
—
7.15
—
—
7.15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-based compensation of $3,176,000 and $252,000 related to restricted stock and RSU, respectively, has been recognized in the consolidated
t
statements of operations, with a corresponding benefit to equity, from inception through June 30, 2018. At that date, there remains $1,235,000 and
$1,262,000 of unrecognized compensation expense to be recorded on a straight-line basis over the remaining vesting period of over approximately 0.29
year – 2.95 years and 2.00 years, respectively, for the restricted stock and RSU.
On October 12, 2016, the Company granted a total of 22,112 equity shares to an officer of GFN at a value equal to the closing market price of the
Company’s common stock as of that date, or $4.45 per share. The fair value of this equity share grant of $98,000 has been recognized in the
consolidated statements of operations as share-based compensation, with a corresponding benefit to equity.
On January 2, 2018, the Company granted a total of 42,773 equity shares to an officer of GFN at a value equal to the closing market price of the
Company’s common stock as of that date, or $6.80 per share. The fair value of this equity share grant of $291,000 has been recognized as share-based
compensation in the consolidated statements of operations, with a corresponding benefit to equity.
Royal Wolf Long Term Incentive Plan
g
y
Royal Wolf established the Royal Wolf Long Term Incentive Plan (the “LTI Plan”) in conjunction with its initial public offering in May 2011.
Under the LTI Plan, the RWH Board of Directors may have granted, at its discretion, options, performance rights and/or restricted shares of RWH
capital stock to Royal Wolf employees and executive directors. Vesting terms and conditions were up to four years and, generally, were subject to
performance criteria based primarily on enhancing shareholder returns using a number of key financial benchm
arks, including EBITDA. In addition,
unless the RWH Board determined otherwise, if an option, performance right or restricted share had not lapsed or been forfeited earlier, it would have
terminated at the seventh anniversary from the date of grant. It was intended that up to one percent of RWH’s outstanding capital stock would be
reserved for grant under the LTI Plan and a trust was established to hold RWH shares for this purpose. However, since the Company held more than
50% of the outstanding shares of RWH capital stock, RWH shares reserved for grant under the LTI Plan were purchased in the open market. The LTI
Plan, among other provisions, did not permit the transfer, sale, mortgage or encumbering of options, performance rights and restricted shares without the
prior approval of the RWH Board. In the event of a change of control, the RWH Board, at its discretion, would have determined whether, and how
many, unvested options, performance rights and restricted shares would have vested. In
addition, if, in the RWH Board’s opinion, a participant acted
fraudulently or dishonestly or was in breach of his obligations to Royal Wolf, the RWH Board may have deemed any options, performance rights and
restricted shares held by or reserved for the participant to have lapsed or been forfeited.
d
f
tt
With the Company’s acquisition of the noncontrolling interest of Royal Wolf (see Note 4), the LTI Plan was terminated in September 2017 and
the RWH Board determined that 582,370 performance rights were deemed vested, resulting in payments totaling A$1,066,000 ($835,000) to
participants. At the date of its termination, Royal Wolf had granted, net of forfeitures, 2,582,723 performance rights to key m
the LTI Plan. Also, through the date of termination, 677,953 of the performance rights had been converted into RWH capital stock through purchases in
the open market. In FY 2016, FY 2017 and FY 2018, share-based compensation of $959,000, $(74,000) and $1,207,000, respectively, related to the LTI
Plan had been recognized in the consolidated statements of operations, with a corresponding benefit to equity. In addition, in
(A$458,000) was refunded back to Royal Wolf by the trust established to make the open market purchases of RWH shares reserved for grant under the
LTI Plan. This refund was recorded as a benefit to equity.
anagement personnel under
FY 2018, $338,000
ff
ff
ff
F-35
Note 10. Commitments and Contingencies
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating Lease Rentals
p
g
The Company leases primarily facilities and office equipment 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, 2018 are payable as follows (in thousands):
g
,
Year Ending June 30,
2019
2020
2021
2022
2023
Thereafter
$ 10,311
8,346
6,590
4,880
3,981
11,547
$ 45,655
Rental expense on non-cancellable operating leases was $10,382,000, $11,911,000 and $13,004,000 in FY 2016, FY 2017 and FY 2018,
respectively.
p
Sales-Type and Operating Fleet Leases
yp
g
Future minimum receipts under sales-type and operating fleet leases at June 30, 2018 are as follows (in thousands):
g
Year Ending June 30,
,
2019
2020
2021
2022
2023
Thereafter
Self-Insurance
$
18,276
4,065
1,532
866
119
45
$ 24,903
The Company has insurance policies to cover auto liability, general liability, directors and officers liability and workers compensation-related
m
claims. Effective on February 1, 2017, the Company became self-insured for auto liability and general liability through GFNI, a wholly-owned captive
insurance company, up to a maximum of $1,200,000 per policy period. Claims and expenses are reported when it is probable that a loss has occurred
and the amount of the loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. At June 30,
2017 and June 30, 2018, reported liability totaled $129,000 and $691,000, respectively, and has been recorded in the caption “Trade payables and
accrued liabilities” in the accompanying consolidated balance sheets.
Other Matters
aa
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 property and workers compensation
related claims. In the opinion of management, the ultimate am
f
not have a material adverse effect on our financial position, operating results or cash flows.
ount of liability not covered by insurance under pending litigation and claims, if any, will
tt
rr
F-36
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Detail of Certain Accounts
Trade payables and accrued liabilities consist of the following (in thousands):
Trade payables
Checks written in excess of bank balance
Payroll and related
Taxes, other than income
Fair value of interest swap and forward currency exchange contacts
Accrued interest
Deferred consideration
Self-insured reported liability
Other accruals
Note 12. Segment Reporting
June 30,
2017
$
21,810
1,660
9,207
1,812
395
1,841
1,956
129
3,964
$ 42,774
2018
$
23,142
1,295
11,012
1,820
223
4,005
2,568
691
5,789
$ 50,545
We have two geographic areas that include four operating segments; the Asia-Pacific area, consisting of the leasing operations of Royal Wolf, and
North America, consisting of the combined leasing operations of Pac-Van and Lone Star, and the manufacturing operations of Southern Frac. Discrete
financial data on each of the Company’s products is not available and it would be impractical to collect and maintain financial data in such a manner. In
managing the Company’s business, senior management focuses on primarily growing its leasing revenues and operating cash flow (EBITDA), and
investing in its lease fleet through capital purchases and acquisitions.
F-37
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions between reportable segments included in the tables below are record
a
ed on an arms-length basis at market in conformity with U.S.
GAAP and the Company’s significant accounting policies (see Note 2). The tables below represent the Company’s revenues from external customers,
share-based compensation expense, depreciation and amortization, operating income, interest income and expense, expenditures for additions to long-
lived assets (consisting of lease fleet and property, plant and equipment), long-lived assets and goodwill; as attributed to its geographic and operating
segments (in thousands):
FY 2018
North America
Leasing
Revenues:
Sales
Leasing
Pac-Van
Lone Star
Combined Manufacturing
Corporate
and
Intercompany
Adjustments
Total
Asia – Pacific
Leasing
Consolidated
$
55,438
$
20
$
55,458
$
13,565
$
(3,715)
$
65,308
$
67,009
$
132,317
112,027
39,960
151,987
-
(1,132)
150,855
64,130
214,985
$ 167,465
$ 39,980
$ 207,445
$ 13,565
Share-based compensation
$
309
$
41
$
350
Depreciation and amortization
$ 14,233
$ 9,161
$ 23,394
Operating income
$ 28,689
$ 8,798
$ 37,487
Interest income
Interest expense
Additions to long-lived assets
$
$
$
-
9,172
33,628
$
$
$
-
1,770
3,326
$
$
$
-
10,942
36,954
Long-lived assets
$
264,651
$
49,352
$
314,003
Goodwill
$ 61,693
$ 20,782
$ 82,475
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(4,847)
$ 216,163
$ 131,139
$
347,302
1,749
$
2,145
$
1,513
$
3,658
(731)
$ 23,237
$ 17,098
$
40,335
(6,709)
$ 30,427
$ 13,272
$
43,699
9
7,291
(334)
$
$
$
9
$
103
$
112
18,617
$
15,374
$
33,991
36,751
$
16,599
$
53,350
46
574
(351)
-
384
131
At June 30, 2018
(10,099)
$
305,987
$
145,711
$
451,698
-
$ 82,475
$ 27,468
$
109,943
2,083
-
$
$
F-38
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FY 2017
North America
Leasing
Pac-Van
Lone Star
Combined Manufacturing
Corporate
and
Intercompany
Adjustments
Total
Asia – Pacific
Leasing
Consolidated
Revenues:
Sales
Leasing
$
47,640
$
-
$
47,640
$
6,944
$
(2,049)
$
52,535
$
48,124
$
100,659
97,383
19,097
116,480
-
(291)
116,189
60,080
176,269
$
145,023
Share-based compensation
$
333
Depreciation and amortization
$
13,663
Operating income (loss)
$
19,551
Interest income
$
-
Interest expense
$
7,304
Additions to long-lived assets
$
26,024
$
$
$
$
$
$
$
19,097
41
9,666
(3,916)
-
1,369
47
$
$
$
$
$
$
$
164,120
374
23,329
15,635
-
8,673
26,071
Long-lived assets
$
244,973
$
52,158
$
297,131
Goodwill
$ 55,882
$ 20,782
$ 76,664
$
$
$
$
$
$
$
$
$
6,944
62
792
(2,430)
-
392
-
$
$
$
$
$
$
$
(2,340)
$ 168,724
$
108,204
$
276,928
1,012
(728)
(4,907)
25
7,325
(247)
$
$
$
$
$
$
1,448
$
(74)
$
1,374
23,393
$
16,699
$
40,092
8,298
$
10,768
$
19,066
25
$
41
$
66
16,390
$
3,263
$
19,653
25,824
$
23,681
$
49,505
At June 30, 2017
2,526
-
$
$
(10,521)
$ 289,136
$
161,527
$
450,663
-
$ 76,664
$ 28,465
$
105,129
FY 2016
North America
Leasing
Revenues:
Sales
Leasing
Pac-Van
Lone Star
Combined Manufacturingg
Corporate
and
Intercompany
Adjustments
j
Total
Asia – Pacific
g
Leasing
Consolidated
$
47,973
$
-
$
47,973
$
8,130
$
(1,951)
$
54,152
$
63,466
$
117,618
88,877
23,378
112,255
-
(275)
111,980
56,253
168,233
$ 136,850
Share-based compensation
$
374
Impairment of goodwill and trade
name
$
-
Depreciation and amortization
$
13,154
Operating income (loss)
$
17,984
Interest income
Interest expense
$
$
-
5,802
Additions to long-lived assets
$ 32,225
$
$
$
$
$
$
$
$
23,378
22
-
10,529
(1,541)
-
1,453
$
$
$
$
$
$
$
160,228
396
-
23,683
16,443
-
7,255
245
$ 32,470
$
$
$
$
$
$
$
$
(2,226)
933
-
(746)
(5,430)
-
7,473
$
$
$
$
$
$
$
166,132
$
119,719
$
285,851
1,429
$
959
$
2,388
3,068
$
-
$
3,068
24,280
$
14,354
$
38,634
1,549
$
12,834
$
14,383
5
$
92
$
97
15,019
$
4,629
$
19,648
(97)
$ 32,556
$ 20,988
$
53,544
$
$
$
$
$
$
$
$
8,130
100
3,068
1,343
(9,464)
-
291
183
F-39
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intersegment net revenues related to sales of primarily portable liquid storage containers and ground level offices from Southern Frac to the North
American leasing operations totaled $1,951,000, $2,049,000 and $3,715,000 during FY 2016, FY 2017 and FY 2018, respectively; and intrasegment net
revenues in the North American leasing operations related to primarily the leasing of portable liquid storage containers from Pac-Van to Lone Star
totaled $1,000,000 during FY 2018.
Note 13. Subsequent Events
On July 2, 2018, the Company, through Royal Wolf, purchased the container business of Spacewise (N.Z.) Limited (“Spacewise NZ”), for
approximately $7,396,000 (NZ$10,901,000) which included holdback and other adjustment amounts totaling approximately $625,000 (NZ$921,000).
Spacewise operates from eight major locations in New Zealand.
On July 13, 2018, the Company announced that its Board of Directors declared a cash dividend of $2.30 per share on the Series C Preferred Stock
(see Note 3). The dividend is for the period commencing on April 30, 2018 through July 30, 2018, and payable on July 31, 2018 to holders of record as
of July 30, 2018.
On August 9, 2018, the Company, through Pac-Van, purchased the container and trailer business of Delmarva Trailer Sales and Rentals, Inc.
(“Delmarva”) for approximately $470,000, which included a general indemnity and other adjustments of $157,000. Delmarva is located in Elkridge
(Baltimore/D.C. area), Maryland.
On September 6, 2018, the Company elected to force the conversion of the aggregate $26,000,000 principal balance of the Convertible Note into
shares of GFN common stock (see Note 5).
F-40
CC
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RR
PP
OO
RR
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TT
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II
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FF
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II
DIRECTORS
EXECUTIVE OFFICERS
Ronald F. Valenta
Executive Chairman of the Board
Jody E. Miller
Chief Executive Officer and President
Charles E. Barrantes
Executive Vice President and Chief Financial
Officer
Christopher A. Wilson
General Counsel, Vice President and Secretary
Jeffrey A. Kluckman
Executive Vice President of Global Business
Development
Neil Littlewood
Chief Executive Officer, Royal Wolf Holdings
Limited
Theodore M. Mourouzis
Chief Executive Officer and President, Pac-Van,
Inc.
TRANSFER AGENT
Continental Stock Transfer & Trust
Company
17 Battery Place
New York, NY 10004
Tel: (212) 509-4000
INDEPENDENT AUDITORS
Crowe LLP
15233 Ventura Blvd., 9th Floor
Sherman Oaks, CA 91403
Jody E. Miller
Chief Executive Officer and President
James B. Roszak
Lead Independent Director and Chairman of the
Audit Committee
Susan L. Harris
Chairman of the Compensation Committee
Larry D. Tashjian
Chairman of the Nominating and Governance
Committee
Manuel Marrero
Director
William H. Baribault
Director
Douglas B. Trussler
Director
INVESTOR RELATIONS
Financial Profiles, Inc.
11601 Wilshire Boulevard, Suite 1920
Los Angeles, CA 90025
Tel: (310) 622-8223
LEGAL COUNSEL
Morrison & Foerster LLP
707 Wilshire Boulevard
Los Angeles, CA 90017
Recent press releases, filings with the Securities
and Exchange Commission and additional
information about General Finance Corporation
can be obtained by visiting our website at
www.generalfinance.com