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| GFN > SEC Filings for GFN > Form 10-Q on 13-Feb-2013 | All Recent SEC Filings |
13-Feb-2013
Quarterly Report
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, which are included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012 filed with the Securities and Exchange Commission ("SEC"), as well as the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue" or the negative of such terms or other similar expressions. Risk factors that might cause or contribute to such discrepancies include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended June 30, 2012 and other SEC filings. We maintain a web site at www.generalfinance.com that makes available, through a link to the SEC's EDGAR system website, our SEC filings.
References to "we," "us," "our" or the "Company" refer to General Finance Corporation, a Delaware corporation ("GFN"), and its consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation ("GFN U.S."); GFN North America Corp., a Delaware corporation ("GFNNA"); GFN Manufacturing Corporation, a Delaware corporation ("GFNMC") and its subsidiary, Southern Frac, LLC, a Texas limited liability company ("Southern Frac"); Royal Wolf Holdings Limited (formerly GFN Australasia Holdings Pty Ltd)., an Australian corporation publicly traded on the Australian Securities Exchange ("RWH"); and its Australian and New Zealand subsidiaries (collectively, "Royal Wolf"); Pac-Van, Inc., an Indiana corporation , and its Canadian subsidiary, PV Acquisition Corp., an Alberta corporation, doing business as "Container King" (collectively "Pac-Van").
Background and Overview
We incorporated in Delaware on October 14, 2005 and completed our initial public offering ("IPO") in April 2006. Our primary long-term strategy and business plan are to acquire and operate rental services and specialty finance businesses in North and South America, Europe and the Asia-Pacific (or Pan-Pacific) area.
At December 31, 2012, we have two geographic and three operating units. Royal Wolf, which leases and sells storage containers, portable container buildings and freight containers in Australia and New Zealand, which is referred geographically by us to be the Asia-Pacific (or Pan-Pacific) area; Pac-Van, which leases and sells storage, office and portable liquid storage tank containers, modular buildings and mobile offices in North America; and Southern Frac, which manufactures portable liquid storage tank containers for sale in North America.
We do business in three distinct, but related industries, mobile storage, modular space and liquid containment; which we collectively refer to as the "portable services industry." Our two leasing subsidiaries, Royal Wolf and Pac-Van, lease and sell their products through nineteen customer service centers ("CSCs") in Australia, seven CSCs in New Zealand and twenty-eight branch locations across eighteen states in the United States and in Alberta, Canada. As of December 31, 2012, we had 254 and 454 employees and 39,226 and 14,038 lease fleet units in the Asia-Pacific area and North America, respectively.
Our products primarily consist of the following:
Mobile Storage
Storage Containers. Storage containers consist of new and used shipping containers that provide a flexible, low cost alternative to warehousing, while offering greater security, convenience and immediate accessibility. Our storage products include general purpose dry storage containers, refrigerated containers and specialty containers in a range of standard and modified sizes, designs and storage capacities. Specialty containers include blast-resistant units, hoarding units and hazardous-waste units. We also offer storage vans, also known as storage trailers or dock-height trailers.
Freight Containers. Freight containers are specifically designed for transport of products by road and rail. Our freight container products include curtain-side, refrigerated and bulk cargo containers, together with a range of standard and industry-specific dry freight containers.
Modular Space
Modular Buildings. Also known as manufactured buildings, modular buildings provide customers with additional space and are often modified to customer specifications. Modular buildings range in size from 1,000 to more than 30,000 square feet and may be highly customized.
Mobile Offices. Also known as trailers or construction trailers, mobile offices are re-locatable units with aluminum or wood exteriors on wood (or steel) frames on a steel carriage fitted with axles, allowing for an assortment of "add-ons" to provide comfortable and convenient temporary space solutions.
Portable Container Buildings and Office Containers. Portable container buildings and office containers are either modified or specifically-manufactured containers that provide self-contained office space with maximum design flexibility. Office containers in the U.S. are oftentimes referred to as ground level offices ("GLOs").
Liquid Containment
Portable Liquid Storage Tank Containers. Portable liquid storage tank containers are often referred to as "frac tanks" or "frac tank containers" and are manufactured steel containers with fixed steel axles for transport and use in a variety of industries; including oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and field services, infrastructure building construction, marine services, pipeline construction and maintenance, tank terminals services, wastewater treatment and waste management and landfill services. While there are a number of different sizes of tanks currently used in the market place, we are currently focusing on the more common 500-barrel capacity containers. Our products typically include features such as guardrails, safety stairways, multiple entry ways and a sloped bottom for easy cleaning, an epoxy lining, and various feed and drain lines.
Results of Operations
Quarter Ended December 31, 2012 ("QE FY 2013") Compared to Quarter Ended December 31, 2011 ("QE FY 2012")
The following compares our QE FY 2013 results of operations with our QE FY 2012 results of operations.
Revenues. Revenues increased by $15.2 million, or 32%, to $63.3 million in QE FY 2013 from $48.1 million in QE FY 2012. This consisted of an increase of $3.9 million, or 12%, in revenues at Royal Wolf, a $3.6 million increase, or 25%, in revenues at Pac-Van, and $7.7 million from Southern Frac, which we acquired on October 1, 2012. The translation effect of the average currency exchange rate, driven by the strengthening in the Australian dollar relative to the U.S. dollar in QE FY 2013 versus QE FY 2012, caused a translation increase in QE FY 2013 to the total revenues at Royal Wolf when compared to QE FY 2012. In Australian dollars, total revenues at Royal Wolf increased by 9% in QE FY 2013 from QE FY 2012. The average currency exchange rate of one Australian dollar during QE FY 2013 was $1.03836 U.S. dollar compared to $1.01236 U.S. dollar during QE FY 2012.
The revenue increase at Royal Wolf was primarily in the mining and consumer sectors where revenues increased by approximately $2.7 million, or 19%, in QE FY 2013 from QE FY 2012. At Pac-Van, the revenue increase in QE FY 2013 from QE FY 2012 was across-the-board in most sectors, particularly in commercial, construction, services and mining and energy.
Sales and leasing revenues of our leasing operations represented 44% and 56% of total revenues (not including Southern Frac) in QE FY 2013 and 48% and 52% of total revenues in QE FY 2012, respectively.
Sales during QE FY 2013 amounted to $32.0 million, compared to $22.9 million during QE FY 2012; representing an increase of $9.1 million, or 40%. This included a decrease of $0.2 million, or 1%, in sales at Royal Wolf, a $1.6 million increase, or 36%, in sales at Pac-Van and $7.7 million of sales from Southern Frac. The translation effect of the average currency exchange rate, driven by the strengthening in the Australian dollar relative to the U.S. dollar in QE FY 2013 versus QE FY 2012, caused a translation increase in QE FY 2013 to the sales revenues at Royal Wolf when compared to QE FY 2012. In Australian dollars, sales at Royal Wolf decreased by 4% in QE FY 2013 from QE FY 2012. The sales decrease in QE FY 2013 from QE FY 2012 at Royal Wolf consisted of a $1.2 million decrease in our CSC retail operations (primarily from lower unit sales of $0.8 million and decreases in average prices of $0.8 million, offset somewhat by a favorable foreign exchange translation effect of $0.4 million), substantially offset by an increase in our national accounts group of $1.0 million (primarily from increases in average unit prices of $1.0 million and a favorable foreign exchange translation effect of $0.1 million, offset slightly by lower unit sales of $0.1 million). At Pac-Van, the higher sales in QE FY 2013 versus QE FY 2012 were across-the-board in most sectors, particularly in commercial, construction, services and mining and energy. At Southern Frac, portable liquid storage tank container sales in QE FY 2013 consisted of 232 units at an average sales price of approximately $33,300 per unit.
Leasing revenues during QE FY 2013 totaled $31.3 million, as compared to $25.2 million during QE FY 2012, representing an increase of $6.1 million, or 24%. Leasing revenues increased at Royal Wolf by $4.1 million, or 27%, and by $2.0 million, or 20%, at Pac-Van. The translation effect of the average currency exchange rate, driven by the strengthening in the Australian dollar relative to the U.S. dollar in QE FY 2013 versus QE FY 2012, caused a translation increase in QE FY 2013 to the leasing revenues at Royal Wolf when compared to QE FY 2012. In Australian dollars, leasing revenues at Royal Wolf increased by 24% in QE FY 2013 from QE FY 2012.
At Royal Wolf, average utilization in the retail operations was 85% during QE FY 2013 and 89% during QE FY 2012; and average utilization in the national accounts group operations was 81% during QE FY 2013 and 85% during QE FY 2012. In QE FY 2013 and QE FY 2012, the overall average utilization was 84% and 87%, respectively; and the average monthly lease rate of containers was AUS$167 in QE FY 2013 and AUS$153 in QE FY 2012. Leasing revenues in QE FY 2013 increased over QE FY 2012 due primarily to the combination of the higher average monthly lease rate and the average monthly number of units on lease being almost 3,900 higher in QE FY 2013 as compared to QE FY 2012. These factors more than offset the reduction in the average utilization rates between periods, though the utilization rates remain strong in QE FY 2013. We believe the primary reasons we are generally able to maintain high average utilization rates and increase our average units on lease between periods at Royal Wolf are the stronger economy in the Asia-Pacific area and our position as the only company with a national footprint in the mobile storage industry in Australia and New Zealand. We continually review each local market in which we do business to determine if local factors justify increases or decreases in lease rates and the effect these changes would have on utilization and revenues.
At Pac-Van, average utilization rates were 88%, 84%, 86%, 66% and 76% and average monthly lease rates were $106, $263, $1,170, $237 and $851 for storage containers, office containers, frac tank containers, mobile offices and modular units, respectively, during QE FY 2013; as compared to 89%, 86%, 0%, 66% and 76% and $105, $257, $0, $221 and $755 for storage containers, office containers, frac tank containers, mobile offices and modular units in QE FY 2012, respectively. The average composite utilization rate in QE FY 2013 and QE FY 2012 was 79% and 78%, respectively, and the composite average monthly number of units on lease was over 1,800 higher in QE FY 2013 as compared to QE FY 2012. The strong utilization and generally higher monthly lease rates resulted primarily from improved demand across most sectors, particularly in commercial, construction and mining and energy.
Cost of Sales. Cost of sales (which is the cost related to our sales revenues only and exclusive of the line items discussed below) increased by $1.3 million, from $16.8 million during QE FY 2012 to $18.1 million during QE FY 2013, as a result of the higher sales from our lease inventories and fleet discussed above. However, our gross profit percentage from these sales revenues decreased slightly to 26% in QE FY 2013 from 27% in QE FY 2012. Cost of sales from our manufactured portable liquid storage tank containers totaled $6.5 million, or approximately $28,200 per unit, which included additional costs of $145,000 due to the purchase price allocation effect of carrying the opening inventory on October 1, 2012 at fair value. Our gross profit percentage from sales of manufactured units was approximately 15% during QE FY 2013.
Direct Costs of Leasing Operations and Selling and General Expenses. Direct costs of leasing operations and selling and general expenses increased in absolute dollars (by $3.5 million, from $21.2 million during QE FY 2012 to $24.7 million during QE FY 2013), but decreased as a percentage of revenues (to 39% in QE FY 2013 from 44% in QE FY 2012). This absolute dollar increase was not only the result of our increased leasing operations, but also to the additional selling and administrative expenses of $0.9 million incurred at Southern Frac in QE FY 2013, which included $135,000 of one-time, transaction-related costs since the date of acquisition.
Depreciation and Amortization. Depreciation and amortization increased by $0.6 million to $5.3 million in QE FY 2013 from $4.7 million in QE FY 2012 primarily as a result of our increasing investment in the lease fleet and business acquisitions.
Interest Expense. Interest expense of $2.6 million in QE FY 2013 was $0.3 million lower than the $2.9 million in QE FY 2012. This was comprised of a decrease in interest expense of $0.1 million at Royal Wolf and a decrease in interest expense of $0.2 million in North America. The weighted-average interest rate (which does not include the effect of translation, interest rate swap contracts and options and the amortization of deferred financing costs) at Royal Wolf of 5.7% in QE FY 2013 was substantially lower than the 8.4% in QE FY 2012 and more than offset the comparative higher average borrowings. Similarly, in North America, the decrease in the weighted-average interest rate (which does not include the effect of the amortization of deferred financing costs) of 4.1% in QE FY 2013 from 6.3% in QE FY 2012 more than offset the higher average borrowings in QE FY 2013, as compared to QE FY 2012.
Foreign Currency Exchange and Other. The currency exchange rate of one Australian dollar to one U.S. dollar was $0.9793 at September 30, 2011, $1.0176 at December 31, 2011, $1.0381 at September 30, 2012 and $1.0374 at December 31, 2012. In QE FY 2013 and QE FY 2012, net unrealized and realized gains (losses) on foreign exchange totaled $(0.8) million and $0.8 million and $(0.3) million and $25,000, respectively; and net unrealized gains (losses) on forward currency exchange contracts totaled $(0.8) million and $0.3 million, respectively.
Income Taxes. Our effective income tax rate was 38.0% in both QE FY 2013 and QE FY 2012. The effective rate is greater than the U.S. federal rate of 34% (the Australian statutory tax rate is 30%) primarily because of state income taxes from the filing of tax returns in multiple U.S. states and because a portion of the depreciation and amortization on the fixed and intangible assets recorded in the Pac-Van acquisition is not deductible for U.S. federal income tax purposes.
Noncontrolling Interest. Noncontrolling interest in the Royal Wolf and Southern Frac results of operations was $2.1 million QE FY 2013, as compared to $1.0 million in QE FY 2012, reflecting the higher profitability of Royal Wolf between periods and the addition of Southern Frac in QE FY 2013.
Net Income Attributable to Common Stockholders. We had net income attributable to common stockholders of $1.7 million in QE FY 2013, which was $1.6 million greater than the $0.1 million in QE FY 2012; primarily as a result of the greater operating profit in both the Pan-Pacific area and North America, lower interest expense and greater benefit from foreign exchange and derivative instrument transactions in QE FY 2013 when compared to QE FY 2012.
Six Months Ended December 31, 2012 ("FY 2013") Compared to Six Months Ended December 31, 2011 ("FY 2012")
The following compares our FY 2013 results of operations with our FY 2012 results of operations.
Revenues. Revenues increased by $15.8 million, or 16%, to $116.7 million in FY 2013 from $100.9 million in FY 2012. This consisted of an increase of $5.3 million, or 8%, in revenues at Royal Wolf, a $2.8 million decrease, or 9%, in revenues at Pac-Van and $7.7 million from Southern Frac, which we acquired on October 1, 2012. The translation effect of the average currency exchange rate, driven by the slight strengthening in the Australian dollar relative to the U.S. dollar in FY 2013 versus FY 2012, caused a slight translation increase in FY 2013 to the total revenues at Royal Wolf when compared to FY 2012. In Australian dollars, total revenues at Royal Wolf increased by 7% in FY 2013 from FY 2012. The average currency exchange rate of one Australian dollar during FY 2013 was $1.03884 U.S. dollar compared to $1.03251 U.S. dollar during FY 2012.
The revenue increase at Royal Wolf was primarily in the mining and consumer sectors where revenues increased by approximately $4.5 million, or 24%, in FY 2013 from FY 2012. At Pac-Van, increases across-the-board in most sectors, particularly in commercial, construction and mining and energy, which totaled over $3.7 million, were offset somewhat by decreases totaling $1.8 million in the services, government and education sectors.
Sales and leasing revenues of our leasing operations represented 44% and 56% of total revenues (not including Southern Frac) in FY 2013 and 51% and 49% of total revenues in FY 2012, respectively.
Sales during FY 2013 amounted to $55.7 million, compared to $51.1 million during FY 2012; representing an increase of $4.6 million, or 9%. This included a decrease of $2.7 million, or 7%, in sales at Royal Wolf, a $0.4 million decrease, or 4%, in sales at Pac-Van and $7.7 million of sales from Southern Frac. The sales decrease in FY 2013 from FY 2012 at Royal Wolf consisted of a $2.1 million decrease in our national accounts group (primarily from a decrease in unit sales of $1.9 million, lower average prices of $0.4 million, offset somewhat by favorable foreign exchange translation effect of $0.2 million) and a $0.6 million decrease in our CSC retail operations (primarily from lower unit sales of $1.3 million, offset somewhat by increases in average prices of $0.7 million). At Pac-Van, the lower sales in FY 2013 versus FY 2012 were primarily due to an over $2.0 million decrease in the services, retail and government sectors, offset somewhat by increases of $1.6 million in the other sectors, particularly the commercial, construction and mining and energy sectors. At Southern Frac, portable liquid storage tank container sales in FY 2013 consisted of 232 units at an average sales price of approximately $33,300 per unit.
Leasing revenues during FY 2013 totaled $61.0 million, as compared to $49.8 million during FY 2012, representing an increase of $11.2 million, or 22%. Leasing revenues increased at Royal Wolf by $8.0 million, or 27%, and by $3.2 million, or 16%, at Pac-Van. The translation effect of the average currency exchange rate, driven by the slight strengthening in the Australian dollar relative to the U.S. dollar in FY 2013 versus FY 2012, caused a slight translation increase in FY 2013 to the leasing revenues at Royal Wolf when compared to FY 2012. In Australian dollars, leasing revenues at Royal Wolf increased by 26% in FY 2013 from FY 2012.
At Royal Wolf, average utilization in the retail operations was 86% during FY 2013 and 89% during FY 2012; and average utilization in the national accounts group operations was 76% during FY 2013 and 80% during FY 2012. In FY 2013 and FY 2012, the overall average utilization was 83% and 86%, respectively; and the average monthly lease rate of containers was AUS$165 in FY 2013 and AUS$150 in FY 2012. Leasing revenues in FY 2013 increased over FY 2012 due primarily to the combination of the higher average monthly lease rate and the average monthly number of units on lease being almost 4,000 higher in FY 2013 as compared to FY 2012. These factors more than offset the reduction in the average utilization rates between periods, though the utilization rates remain strong in FY 2013. We believe the primary reasons we are generally able to maintain high average utilization rates and increase our average
units on lease between periods at Royal Wolf are the stronger economy in the Asia-Pacific area and our position as the only company with a national footprint in the mobile storage industry in Australia and New Zealand. We continually review each local market in which we do business to determine if local factors justify increases or decreases in lease rates and the effect these changes would have on utilization and revenues.
At Pac-Van, average utilization rates were 87%, 83%, 83%, 66% and 76% and average monthly lease rates were $105, $259, $1,111, $236 and $844 for storage containers, office containers, frac tank containers, mobile offices and modular units, respectively, during FY 2013; as compared to 89%, 84%, 0%, 66% and 77% and $103, $255, $0, $223 and $756 for storage containers, office containers, frac tank containers, mobile offices and modular units in FY 2012, respectively. The average composite utilization rate in FY 2013 and FY 2012 was 78% and 77%, respectively, and the composite average monthly number of units on lease was over 1,400 higher in FY 2013 as compared to FY 2012. The strong utilization and generally higher monthly lease rates resulted primarily from improved demand across most sectors, with a modest reduction in leasing revenues in the government and education sectors.
Cost of Sales. Cost of sales (which is the cost related to our sales revenues only and exclusive of the line items discussed below) decreased by $1.8 million, from $37.2 million during FY 2012 to $35.4 million during FY 2013, as a result of the lower sales from our lease inventories and fleet discussed above. However, our gross profit percentage from these sales revenues decreased slightly to 26% FY 2013 from 27% in FY 2012. Cost of sales from our manufactured portable liquid storage tank containers totaled $6.5 million, or approximately $28,200 per unit, which included additional costs of $145,000 due to the purchase price allocation effect of carrying the opening inventory on October 1, 2012 at fair value. Our gross profit percentage from sales of manufactured units was approximately 15% during FY 2013.
Direct Costs of Leasing Operations and Selling and General Expenses. . Direct costs of leasing operations and selling and general expenses increased in absolute dollars (by $6.3 million, from $42.4 million during FY 2012 to $48.7 million during FY 2013), but remained steady as a percentage of revenues at 42%. This absolute dollar increase was not only the result of our increased leasing operations, but also to the additional selling and administrative expenses of $0.9 million incurred at Southern Frac in FY 2013, which included $135,000 of one-time, transaction-related costs since the date of acquisition.
Depreciation and Amortization. Depreciation and amortization increased by $1.4 million to $10.6 million in FY 2013 from $9.2 million in FY 2012 primarily as a result of our increasing investment in the lease fleet and business acquisitions.
Interest Expense. Interest expense of $5.9 million in FY 2013 was $0.4 million lower than the $6.3 million in FY 2012. This was comprised of a decrease in interest expense at Royal Wolf of $0.4 million. The weighted-average interest rate (which does not include the effect of translation, interest rate swap contracts and options and the amortization of deferred financing costs) at Royal Wolf of 6.0% in FY 2013 was substantially lower than the 8.8% in FY 2012 and more than offset the comparative higher average borrowings. However, in North America, the decrease in the weighted-average interest rate (which does not include the effect of the amortization of deferred financing costs) of 4.9% in FY 2013 from 6.3% in FY 2012 was effectively offset by the higher average borrowings in FY 2013, as compared to FY 2012.
Foreign Currency Exchange and Other. The currency exchange rate of one Australian dollar to one U.S. dollar was $1.0597 at June 30, 2011, $1.0176 at December 31, 2011, $1.0161 at June 30, 2012 and 1.0374 at December 31, 2012. In FY 2013 and FY 2012, net unrealized and realized gains (losses) on foreign exchange totaled $(0.7) million and $0.8 million and $105,000 and $162,000, respectively; and net unrealized gains (losses) on forward currency exchange contracts totaled $(0.3 million) and $0.9 million, respectively. In FY 2013, the estimated fair value of the tangible and intangible assets acquired and liabilities assumed exceeded the purchase prices of two of our acquisitions resulting in bargain purchase gains of $0.2 million (see Note 4 of Notes to Condensed Consolidated Financial Statements).
Income Taxes. Our effective income tax rate was 38.0% in both FY 2013 and FY 2012. The effective rate is greater than the U.S. federal rate of 34% (the Australian statutory tax rate is 30%) primarily because of state income taxes from the filing of tax returns in multiple U.S. states and because a portion of the depreciation and amortization on the fixed and intangible assets recorded in the Pac-Van acquisition is not deductible for U.S. federal income tax purposes.
Noncontrolling Interest. Noncontrolling interest in the Royal Wolf and Southern Frac results of operations was $3.6 million FY 2013, as compared to $2.7 million in FY 2012, reflecting the higher profitability of Royal Wolf between periods and the addition of Southern Frac in FY 2013.
Net Income Attributable to Common Stockholders. We had net income attributable to common stockholders of $2.7 million in FY 2013, which was $1.6 million greater than the $1.1 million in FY 2012; primarily as a result of the greater operating profit in both the Pan-Pacific area and North America, lower interest . . .
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