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Table of Contents

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2020

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________________ to ______________________.

Commission file number 001-32845

Graphic

(Exact Name of Registrant as Specified in its Charter)

Delaware

32-0163571

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

39 East Union Street

Pasadena, CA 91103

(Address of Principal Executive Offices)

(626) 584-9722

(Registrant’s Telephone Number, Including Area Code)

Indicate by check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 past 90 days:

Yes    

No    

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    

No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act:

    

Trading

    

Title of Each Class

Symbol(s)

Name of Each Exchange On Which Registered

Common Stock, $0.0001 par value

GFN

NASDAQ Global Market

9.00% Series C Cumulative Redeemable Perpetual Preferred Stock (Liquidation Preference $100 per share)

GFNCP

NASDAQ Global Market

8.125% Senior Notes due 2021

GFNSL

NASDAQ Global Market

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes    

No    

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 30,175,225 shares outstanding as of November 5, 2020.

Table of Contents

GENERAL FINANCE CORPORATION

INDEX TO FORM 10-Q

PART I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

3

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

43

 

 

 

Item 1A.

Risk Factors

43

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

Item 3.

Defaults Upon Senior Securities

43

 

 

 

Item 4.

Mine Safety Disclosures

43

 

 

 

Item 5.

Other Information

43

 

 

 

Item 6.

Exhibits

43

SIGNATURES

45

2

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

    

June 30, 2020

    

September 30, 2020

Assets

Cash and cash equivalents

$

17,478

$

17,297

Trade and other receivables, net of allowance for doubtful accounts of $5,972 and $5,514 at June 30, 2020 and September 30, 2020, respectively

 

44,066

 

42,221

Inventories

 

20,928

 

20,192

Prepaid expenses and other

 

8,207

 

13,660

Property, plant and equipment, net

 

24,396

 

24,064

Lease fleet, net

 

458,727

 

459,107

Operating lease assets

 

66,225

 

76,723

Goodwill

 

97,224

 

98,234

Other intangible assets, net

 

18,771

 

17,920

Total assets

$

756,022

$

769,418

Liabilities

 

  

 

  

Trade payables and accrued liabilities

$

46,845

$

44,949

Income taxes payable

 

645

 

360

Unearned revenue and advance payments

 

24,642

 

27,115

Operating lease liabilities

 

67,142

 

77,913

Senior and other debt, net

 

379,798

 

375,000

Fair value of bifurcated derivatives in Convertible Note

 

18,325

 

19,008

Deferred tax liabilities

 

43,708

 

44,662

Total liabilities

 

581,105

 

589,007

Commitments and contingencies (Note 9)

 

 

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, 2020 and September 30, 2020

 

40,100

 

40,100

Common stock, $.0001 par value: 100,000,000 shares authorized; 30,880,531 shares issued and 29,968,766 outstanding at June 30, 2020 and 31,086,990 shares issued and 30,175,225 shares outstanding at September 30, 2020

 

3

 

3

Additional paid-in capital

 

183,051

 

182,796

Accumulated other comprehensive loss

 

(22,106)

 

(20,440)

Accumulated deficit

 

(20,790)

 

(16,707)

Treasury stock, at cost; 911,765 shares at June 30, 2020 and September 30, 2020

(5,845)

(5,845)

Total General Finance Corporation stockholders’ equity

 

174,413

 

179,907

Equity of noncontrolling interests

 

504

 

504

Total equity

 

174,917

 

180,411

Total liabilities and equity

$

756,022

$

769,418

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

    

Quarter Ended September 30,

    

2019

    

2020

Revenues

 

  

 

  

Sales:

 

  

 

  

Lease inventories and fleet

$

28,791

$

29,665

Manufactured units

 

2,173

 

357

 

30,964

 

30,022

Leasing

 

58,933

 

52,338

 

89,897

 

82,360

Costs and expenses

 

  

 

  

Cost of sales:

 

  

 

  

Lease inventories and fleet (exclusive of the items shown separately below)

 

20,216

 

21,294

Manufactured units

 

1,827

 

441

Direct costs of leasing operations

 

22,858

 

20,611

Selling and general expenses

 

20,655

 

19,643

Depreciation and amortization

 

9,411

 

9,066

Operating income

 

14,930

 

11,305

Interest income

 

186

 

151

Interest expense

 

(7,324)

 

(5,697)

Change in valuation of bifurcated derivatives in Convertible Note (Note 5)

 

992

 

(683)

Foreign exchange and other

 

(573)

 

326

 

(6,719)

 

(5,903)

Income before income taxes

 

8,211

 

5,402

Provision for income taxes

 

2,260

 

1,319

Net income

 

5,951

 

4,083

Preferred stock dividends

 

(922)

 

(922)

Net income attributable to common stockholders

$

5,029

$

3,161

Net income per common share:

 

  

 

  

Basic

$

0.17

$

0.11

Diluted

 

0.16

 

0.10

Weighted average shares outstanding:

 

  

 

  

Basic

 

30,205,248

 

29,693,856

Diluted

 

31,340,432

 

30,517,727

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS

(In thousands, except share and per share data)

(Unaudited)

    

Quarter Ended September 30,

    

2019

    

2020

Net income

$

5,951

$

4,083

Other comprehensive income (loss):

 

  

 

  

Change in fair value change of interest rate swap, net of income tax effect of $230 and $3 in the quarter ended September 30, 2019 and 2020, respectively

 

(458)

 

(87)

Cumulative translation adjustment

 

(1,794)

 

1,753

Total comprehensive income

 

3,699

 

5,749

Allocated to noncontrolling interests

 

 

Comprehensive income allocable to General Finance Corporation stockholders

$

3,699

$

5,749

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

GENERALFINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share and share data)

(Unaudited)

    

    

    

    

    

    

    

    

Total 

    

    

    

Accumulated 

General Finance 

Cumulative

Additional

Other

Corporation

Equity of

Preferred 

Common 

Paid-In

Comprehensive 

Accumulated 

Stockholders’ 

Noncontrolling

Total 

    

Stock

    

Stock

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

    

Interests

    

Equity

Balance at June 30, 2019

$

40,100

$

3

$

183,933

$

(18,755)

$

(28,744)

$

176,537

$

504

$

177,041

Share-based compensation

 

 

 

683

 

 

 

683

 

 

683

Preferred stock dividends

 

 

 

(922)

 

 

 

(922)

 

 

(922)

Issuance of 47,500 shares of common stock on exercises of stock options

 

 

 

85

 

 

 

85

 

 

85

Forfeiture of 1,000 shares of restricted stock

 

 

 

 

 

 

 

 

Vesting of restricted stock units into 55,957 shares of common stock

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

5,951

 

5,951

 

 

5,951

Fair value change in derivative, net of related tax effect

 

 

 

 

(458)

 

 

(458)

 

 

(458)

Cumulative translation adjustment

 

 

 

 

(1,794)

 

 

(1,794)

 

 

(1,794)

Total comprehensive income

 

 

 

 

 

 

3,699

 

 

3,699

Balance at September 30, 2019

$

40,100

$

3

$

183,779

$

(21,007)

$

(22,793)

$

180,082

$

504

$

180,586

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share and share data)

(Unaudited)

    

    

    

    

    

    

    

    

    

Total 

    

    

    

Accumulated 

General Finance

Cumulative

Additional

Other

 Corporation

Equity of

Preferred

Common 

Paid-In 

Comprehensive

Accumulated 

Treasury

Stockholders’ 

Noncontrolling 

Total

 Stock

Stock

Capital

 Income (Loss)

Deficit

Stock

Equity

Interests

 Equity

Balance at June 30, 2020

$

40,100

$

3

$

183,051

$

(22,106)

$

(20,790)

$

(5,845)

$

174,413

$

504

$

174,917

Share-based compensation

 

 

 

524

 

 

 

524

 

 

524

Preferred stock dividends

 

 

 

(922)

 

 

 

(922)

 

 

(922)

Issuance of 132,100 shares of common stock on exercises of stock options

 

 

 

143

 

 

 

143

 

 

143

Vesting of restricted stock units into 74,359 shares of common stock

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

4,083

 

4,083

 

 

4,083

Fair value change in derivative, net of related tax effect

 

 

 

 

(87)

 

 

(87)

 

 

(87)

Cumulative translation adjustment

 

 

 

 

1,753

 

 

1,753

 

 

1,753

Total comprehensive income

 

 

 

 

 

 

5,749

 

 

5,749

Balance at September 30, 2020

$

40,100

$

3

$

182,796

$

(20,440)

$

(16,707)

$

(5,845)

$

179,907

$

504

$

180,411

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except shares)

(Unaudited)

    

Quarter Ended September 30,

    

2019

    

2020

Net cash provided by operating activities (Note 10)

$

13,591

$

10,732

Cash flows from investing activities:

 

  

 

  

Proceeds from sales of property, plant and equipment

 

185

 

55

Purchases of property, plant and equipment

 

(3,372)

 

(1,249)

Proceeds from sales of lease fleet

 

7,862

 

10,284

Purchases of lease fleet

 

(15,114)

 

(10,096)

Other intangible assets

 

(78)

 

(17)

Net cash used in investing activities

 

(10,517)

 

(1,023)

Cash flows from financing activities:

 

  

 

  

Repayments of equipment financing activities, net

 

(163)

 

(60)

Proceeds from (repayments of) senior and other debt borrowings, net

 

546

 

(9,669)

Proceeds from issuances of common stock

 

85

 

143

Preferred stock dividends

 

(922)

 

(922)

Net cash used in financing activities

 

(454)

 

(10,508)

Net increase (decrease) in cash

 

2,620

 

(799)

Cash and equivalents at beginning of period

 

10,359

 

17,478

The effect of foreign currency translation on cash

 

(847)

 

618

Cash and equivalents at end of period

$

12,132

$

17,297

There were no non-cash investing and financing activities

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 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 “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”); GFN Asia Pacific Holdings Pty Ltd, an Australian corporation (“GFNAPH”), and its subsidiaries, Royal Wolf Holdings Pty Ltd, an Australian corporation, which was dissolved in June 2019 (“RWH”), Royal Wolf Trading Australia Pty Limited, an Australian corporation, and Royalwolf Trading New Zealand Limited, a New Zealand Corporation (collectively, “Royal Wolf”).

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).

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”) applicable to interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements, although the Condensed Consolidated Balance Sheet at June 30, 2020 was derived from the audited Consolidated Balance Sheet at that date. In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The accompanying results of operations are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending June 30, 2021, particularly in light of the pandemic caused by the novel strain of coronavirus (COVID-19). The Company believes its business is essential, which allows it to continue to serve customers that remain operational. However, if the Company is required to close a certain number of its locations or a number of its employees cannot work because of illness or otherwise, its business could be materially adversely affected in a rapid manner. Similarly, if customers experience adverse business consequences due to the COVID-19 pandemic, including being required to shut down their operations, demand for the Company’s services and products could also be materially adversely affected in a rapid manner. The impact of the COVID-19 pandemic is fluid, continues to evolve and, therefore, at this time it cannot be reasonably predicted to what extent the Company’s consolidated results of operations and financial condition will ultimately be impacted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto of the Company, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the Securities and Exchange Commission (“SEC”).

Unless otherwise indicated, references to “FY 2020” and “FY 2021” are to the quarter ended September 30, 2019 and 2020, respectively.

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Principles of Consolidation

The condensed 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.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include assumptions used in 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, derivative liability valuation 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. The COVID-19 pandemic and the efforts to contain it have, among other things, negatively impacted the global economy and created significant volatility and disruption of financial markets. In addition, the COVID-19 pandemic has significantly increased economic and demand uncertainty. The Company believes the estimates and assumptions underlying the accompanying consolidated financial statements are reasonable and supportable based on the information available at the time the financial statements were prepared. However, uncertainty over the impact COVID-19 will have on the global economy and the Company’s business in particular makes many of the estimates and assumptions reflected in these consolidated financial statements inherently less certain. Therefore, actual results may ultimately differ from those estimates to a greater degree than historically.

Inventories

Inventories are comprised of the following (in thousands):

    

June 30,

    

September 30,

2020

2020

Finished goods

$

17,347

$

16,239

Work in progress

 

1,161

 

1,639

Raw materials

 

2,420

 

2,314

$

20,928

$

20,192

Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

Estimated 

June 30,

September 30,

    

Useful Life

    

2020

    

2020

Land

 

$

2,168

$

2,168

Building and improvements

 

1040 years

 

4,899

 

4,899

Transportation and plant equipment (including finance lease assets - see Note 9)

 

320 years

 

50,497

 

51,522

Furniture, fixtures and office equipment

 

310 years

 

14,583

 

14,910

 

72,147

 

73,499

Less accumulated depreciation and amortization

 

(47,751)

 

(49,435)

$

24,396

$

24,064

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Depreciation expense on property, plant and equipment totaled $1,586,000 and $1,637,000 for FY 2020 and FY 2021, respectively.

Lease Fleet

The Company has a fleet of storage, portable building, office and portable liquid storage tank containers, mobile offices, modular buildings and steps that it primarily leases to customers under operating lease agreements with varying terms. 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. At June 30, 2020 and September 30, 2020, the gross costs of the lease fleet were $613,358,000 and $618,643,000, respectively. Depreciation expense on lease fleet totaled $6,959,000 and $6,755,000 for FY 2020 and FY 2021, respectively.

Goodwill and Other Intangible Assets

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. The Company’s annual impairment assessment at June 30, 2019 concluded that the fair value of the goodwill of each of its reporting units was greater than their respective carrying amounts.

The North American oil and gas market has been, and the Company expects it to continue to be, highly cyclical, generally fluctuating in correlation with the price of West Texas Intermediate Crude (“WTI”). The decrease in demand caused by, among other things, the COVID-19 pandemic resulted in a substantial decline in WTI prices and drilling activity which is likely to continue longer than previously anticipated. Specifically impacting the Company is a reduction in drilling activity of oil wells located in the Permian and Eagle Ford shales basins in Texas, the two primary basins in which it operates. At June 30, 2020, the Company’s annual impairment test for Lone Star, which does its business in the Permian and Eagle Ford shales basins, determined that the implied value of goodwill at Lone Star, based on a discounted cash flow basis, was less than its carrying value and, as a result, a $14,160,000 impairment charge was recorded. The Company’s annual impairment assessment at June 30, 2020 for its other operating units concluded that the fair value of the goodwill for each of them was greater than their respective carrying amounts.

At September 30, 2020, the Company determined that qualitative factors in its North American leasing operations pertaining to conditions in the oil and gas market did not change significantly since June 30, 2020 and, as a result, a quantitative impairment analysis for Lone Star was not required.

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.

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other intangible assets include those with indefinite lives (trademark and trade name) and finite lives (primarily customer base and lists, non-compete agreements and deferred financing costs), as follows (in thousands):

    

June 30, 2020

September 30, 2020

Gross 

Gross 

Carrying 

Accumulated 

Net Carrying 

Carrying 

Accumulated 

Net Carrying 

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

Trademark and trade name

$

5,486

$

(453)

$

5,033

$

5,486

$

(453)

$

5,033

Customer base and lists

 

31,691

 

(19,612)

 

12,079

 

31,712

 

(20,286)

 

11,426

Non-compete agreements

 

8,651

 

(8,226)

 

425

 

8,669

 

(8,286)

 

383

Deferred financing costs

 

3,643

 

(2,769)

 

874

 

3,643

 

(2,893)

 

750

Other

 

2,828

 

(2,468)

 

360

 

2,948

 

(2,620)

 

328

$

52,299

$

(33,528)

$

18,771

$

52,458

$

(34,538)

$

17,920

Amortization expense related to amortizable intangible assets, other than deferred financing costs, totaled $967,000 and $773,000 for FY 2020 and FY 2021, respectively. Amortization expense, which is included in interest expense, related to deferred financing costs recorded as amortizable intangible assets totaled $116,000 and $124,000 for FY 2020 and FY 2021, respectively.

Revenue from Contracts with Customers

The Company leases and sells new and used storage, office, building and portable liquid storage tank containers, modular buildings and mobile offices to its customers, as well as provides other ancillary products and services. The Company recognizes revenue in accordance with two accounting standards. The rental revenue portions of the Company’s revenues that arise from lease arrangements are accounted for in accordance with Topic 842, Leases. Revenues determined to be non-lease related, including sales of lease inventories and fleet, sales of manufactured units and rental-related services, are accounted for in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).

Our portable storage and modular space rental customers are generally billed in advance for services, which generally includes fleet pickup. Liquid containment rental customers are typically billed in arrears monthly and sales transactions are generally billed upon transfer of the sold items. Payments from customers are generally due upon receipt or 30-day payment terms. Specific customers have extended terms for payment, but no terms are greater than one year from the invoice date.

Leasing Revenue

Typical rental contracts include the direct rental of fleet, which is accounted for under Topic 842. Rental-related services include fleet delivery and fleet pickup, as well as other ancillary services, which are primarily accounted for under Topic 606. The total amounts of rental-related services related to Topic 606 recognized during FY 2020 and FY 2021 were $13,510,000 and $10,922,000, respectively. A small portion of the rental-related services, include subleasing, special events leases and other miscellaneous streams, are accounted for under Topic 842. For contracts that have multiple performance obligations, revenue is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation. The standalone selling price is determined using methods and assumptions developed consistently across similar customers and markets generally applying an expected cost plus an estimated margin to each performance obligation. The Company did not elect the practical expedient for lessor accounting.

Rental contracts are based on a monthly rate for our portable storage and modular space fleet and a daily rate for our liquid containment fleet. Rental revenue is recognized ratably over the rental period. The rental continues until the end of the initial term of the lease or when cancelled by the customer or the Company. If equipment is returned prior to the end of the contractual lease period, customers are typically billed a cancellation fee, which is recorded as rental revenue upon the return of the equipment. Customers may utilize our equipment transportation services and other on-site services in conjunction with the rental of equipment, but are not

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

required to do so. Given the short duration of these services, equipment transportation services and other on-site services revenue of a rented unit is recognized in leasing revenue upon completion of the service.

Non-Lease Revenue

Non-lease revenues consist primarily of the sale of new and used units, and to a lesser extent, sales of manufactured units are all accounted for under Topic 606. Sales contracts generally have a single performance obligation that is satisfied at the time of delivery, which is the point in time control over the unit transfers and the Company is entitled to consideration due under the contract with its customer.

Contract Costs and Liabilities

The Company incurs commission costs to obtain rental contracts and for sales of new and used units. We expect the period benefitted by each commission to be less than one year. Therefore, we have applied the practical expedient for incremental costs of obtaining a contract and expense commissions as incurred.

When customers are billed in advance for rentals, end of lease services, and deposit payments, we defer revenue and reflect unearned rental revenue at the end of the period. As of June 30, 2020 and September 30, 2020, we had approximately $24,642,000 and $27,115,000, respectively, of unearned rental revenue included in unearned revenue and advance payments in the accompanying consolidated balance sheets. Revenues of $10,821,000 and $12,145,000, which were included in the unearned rental revenue balance at June 30, 2019 and 2020, were recognized during FY 2020 and FY 2021, respectively. The Company’s uncompleted contracts with customers have unsatisfied (or partially satisfied) performance obligations. For the future service revenues that are expected to be recognized within twelve months, the Company has elected to utilize the optional disclosure exemption made available regarding transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations. The transaction price for performance obligations that will be completed in greater than twelve months is generally variable based on the costs ultimately incurred to provide those services and therefore we are applying the optional exemption to omit disclosure of such amounts.

Sales taxes charged to customers are excluded from revenues and expenses.

Sales of new modular buildings not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. Certain sales of manufactured units are covered by assurance-type warranties and as of June 30, 2020 and September 30, 2020, the Company had $136,394 and $111,199, respectively, of warranty reserve included in trade payables and accrued liabilities in the accompanying consolidated balance sheets.

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GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Disaggregated Rental Revenue

In the following tables, total revenue is disaggregated by revenue type for the periods indicated. The tables also include a reconciliation of the disaggregated rental revenue to the Company’s reportable segments (in thousands).

Quarter Ended September 30, 2020

North America

Corporate and 

Asia – 

Leasing

Intercompany 

Pacific 

    

Pac-Van

    

Lone Star

    

Combined

    

Manufacturing

    

Adjustments

    

Total

    

Leasing

    

Consolidated

Non-lease:

Sales lease inventories and fleet

$

16,834

$

20

$

16,854

$

$

$

16,854

$

12,811

$

29,665

Sales manufactured units

 

 

 

 

1,625

 

(1,268)

 

357

 

 

357

Total non-lease revenues

 

16,834

 

20

 

16,854

 

1,625

 

(1,268)

 

17,211

 

12,811

 

30,022

Leasing:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

Rental revenue

 

24,148

 

1,106

 

25,254

 

 

(83)

 

25,171

 

12,058

 

37,229

Rental-related services

 

10,271

 

1,215

 

11,486

 

 

 

11,486

 

3,623

 

15,109

Total leasing revenues

 

34,419

 

2,321

 

36,740

 

 

(83)

 

36,657

 

15,681

 

52,338

Total revenues

$

51,253

$

2,341

$

53,594

$

1,625

$

(1,351)

$

53,868

$

28,492

$

82,360