EX-99.2 4 a18-17295_1ex99d2.htm EX-99.2

Exhibit 99.2

 

Modular Space Holdings, Inc. and Subsidiaries

Condensed Consolidated Financial Statements

As of March 31, 2018 and September 30, 2017 and for the Three and Six Months Ended March 31, 2018 and the Period from March 3, 2017 through March 31, 2017 (Successor), the Periods from January 1, 2017 through March 2, 2017 (Predecessor) and from October 1, 2016 through March 2, 2017 (Predecessor)

 



 

Modular Space Holdings, Inc. and Subsidiaries

Index

 

 

Page(s)

 

 

Unaudited Condensed Consolidated Financial Statements

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2018 and September 30, 2017

1

 

 

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2018 (Successor) and the period from March 3, 2017 through March 31, 2017 (Successor), the periods January 1, 2017 through March 2, 2017 (Predecessor) and October 1, 2016 through March 2, 2017 (Predecessor)

2

 

 

Unaudited Statements of Comprehensive Income (Loss) for the three and six months ended March 31, 2018 (Successor) and the period from March 3, 2017 through March 31, 2017 (Successor), the periods January 1, 2017 through March 2, 2017 (Predecessor) and October 1, 2016 through March 2, 2017 (Predecessor)

3

 

 

Unaudited Statements of Stockholders’ Equity for the six months ended March 31, 2018 (Successor) and the period from March 3, 2017 through March 31, 2017 (Successor) and the period from October 1, 2016 through March 2, 2017 (Predecessor)

4

 

 

Unaudited Statements of Cash Flows for the six months ended March 31, 2018 (Successor) and the period from March 3, 2017 through March 31, 2017 (Successor) and the period from October 1, 2016 through March 2, 2017 (Predecessor)

5

 

 

Unaudited Notes to the Condensed Consolidated Financial Statements

6-15

 



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

As of March 31, 2018 and September 30, 2017

(In thousands except share data)

 

 

 

Successor

 

 

 

March 31, 2018

 

September 30, 2017

 

Assets

 

 

 

 

 

Cash

 

$

9

 

$

1,476

 

Accounts receivable, net of allowance for doubtful accounts of $4,670 and $1,331, respectively

 

65,272

 

74,256

 

Lease receivables, net of allowance for doubtful accounts of $97 and $63 respectively

 

1,624

 

2,029

 

Prepaid expenses and other current assets

 

12,228

 

10,964

 

Total current assets

 

79,133

 

88,725

 

 

 

 

 

 

 

Rental equipment, net (Note 3)

 

846,512

 

855,402

 

Other property and equipment, net (Note 4)

 

123,546

 

127,040

 

Intangible assets, net (Note 5)

 

12,814

 

13,144

 

Other non-current assets

 

1,026

 

1,193

 

Total assets

 

$

1,063,031

 

$

1,085,504

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Accounts payable

 

$

6,700

 

$

12,073

 

Accrued expenses

 

31,170

 

35,111

 

Advance rents

 

11,196

 

11,119

 

Current portion of term loans (Note 6)

 

5,664

 

5,664

 

Asset based revolver (Note 6)

 

444,095

 

454,070

 

Total current liabilities

 

498,825

 

518,037

 

 

 

 

 

 

 

Term loans (Note 6)

 

58,904

 

61,949

 

Deferred income taxes (Note 8)

 

45,057

 

51,273

 

Total liabilities

 

602,786

 

631,259

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock - 60,000,000 shares of $0.01 par value per share authorized and 29,233,375 shares outstanding as of March 31, 2018 and September 30, 2017

 

292

 

292

 

Preferred stock - 1,000,000 shares of $0.01 per value per share authorized, none outstanding

 

 

 

Additional paid-in capital

 

445,157

 

443,472

 

Warrants

 

4,970

 

4,970

 

Retained earnings

 

8,042

 

1,058

 

Accumulated other comprehensive income

 

1,784

 

4,453

 

Total stockholders’ equity

 

460,245

 

454,245

 

Total liabilities and stockholders’ equity

 

$

1,063,031

 

$

1,085,504

 

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

1



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands except share data)

 

 

 

Successor

 

 

Predecessor

 

Successor

 

 

Predecessor

 

 

 

Three months

 

Period from

 

 

Period from

 

Six months

 

Period from

 

 

Period from

 

 

 

ended

 

3/3/17 to

 

 

1/1/17 to

 

ended

 

3/3/17 to

 

 

10/1/16 to

 

 

 

3/31/18

 

3/31/17

 

 

3/2/17

 

3/31/18

 

3/31/17

 

 

3/2/17

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

$

63,734

 

$

9,864

 

 

$

39,110

 

$

127,462

 

$

9,864

 

 

$

99,024

 

Sales of rental equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New units

 

10,073

 

3,751

 

 

7,944

 

18,646

 

3,751

 

 

21,542

 

Lease units

 

7,451

 

3,543

 

 

4,405

 

16,581

 

3,543

 

 

11,265

 

Delivery, installation and site services

 

28,097

 

12,001

 

 

19,307

 

54,779

 

12,001

 

 

47,920

 

Total revenues

 

109,355

 

29,159

 

 

70,766

 

217,468

 

29,159

 

 

179,751

 

Leasing and sales costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of rental equipment sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New units

 

7,718

 

2,741

 

 

6,445

 

14,678

 

2,741

 

 

17,046

 

Lease units

 

4,612

 

2,730

 

 

3,356

 

10,616

 

2,730

 

 

8,865

 

Delivery, installation and site services

 

21,279

 

8,881

 

 

14,941

 

41,249

 

8,881

 

 

37,456

 

Depreciation

 

11,762

 

3,726

 

 

10,808

 

23,629

 

3,726

 

 

26,288

 

Maintenance and other

 

21,773

 

6,709

 

 

14,181

 

42,304

 

6,709

 

 

33,508

 

Total leasing and sales costs

 

67,144

 

24,787

 

 

49,731

 

132,476

 

24,787

 

 

123,163

 

Gross profit

 

42,211

 

4,372

 

 

21,035

 

84,992

 

4,372

 

 

56,588

 

Operating and other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

33,706

 

11,433

 

 

16,292

 

65,795

 

11,433

 

 

43,433

 

Interest, including amortization of deferred financing costs

 

7,773

 

2,585

 

 

15,275

 

15,394

 

2,585

 

 

39,642

 

Loss on reorganization items, net

 

 

 

 

92,450

 

 

 

 

97,121

 

Restructuring and merger costs

 

 

135

 

 

3,164

 

2,217

 

135

 

 

18,142

 

Total operating and other expenses

 

41,479

 

14,153

 

 

127,181

 

83,406

 

14,153

 

 

198,338

 

Net income/(loss) before income taxes

 

732

 

(9,781

)

 

(106,146

)

1,586

 

(9,781

)

 

(141,750

)

Income tax (benefit) expense

 

(209

)

(3,834

)

 

(9,516

)

(5,398

)

(3,834

)

 

(8,946

)

Net income/(loss)

 

$

941

 

$

(5,947

)

 

$

(96,630

)

$

6,984

 

$

(5,947

)

 

$

(132,804

)

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

2



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands except share data)

 

 

 

Successor

 

 

Predecessor

 

Successor

 

 

Predecessor

 

 

 

Three months

 

Period from

 

 

Period from

 

Six months

 

Period from

 

 

Period from

 

 

 

ended

 

March 3, 2017 to

 

 

January 1, 2017

 

ended

 

March 3, 2017 to

 

 

October 1, 2016

 

 

 

March 31, 2018

 

March 31, 2017

 

 

to March 2, 2017

 

March 31, 2018

 

March 31, 2017

 

 

to March 2, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

941

 

$

(5,947

)

 

$

(96,630

)

$

6,984

 

$

(5,947

)

 

$

(132,804

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative translation adjustment

 

(2,123

)

(429

)

 

2,661

 

(2,669

)

(429

)

 

(633

)

Reclassification of cumulative translation adjustment to net loss realized upon reorganization

 

 

 

 

16,748

 

 

 

 

16,748

 

Other comprehensive income (loss)

 

(2,123

)

(429

)

 

19,409

 

(2,669

)

(429

)

 

16,115

 

Total comprehensive income (loss)

 

$

(1,182

)

$

(6,376

)

 

$

(77,221

)

$

4,315

 

$

(6,376

)

 

$

(116,689

)

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

3



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(In thousands except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

Accumulated

 

 

 

 

 

Class A

 

 

 

 

 

 

 

Additional

 

Earnings

 

Other

 

Total

 

 

 

Common Stock

 

Common Stock

 

 

 

Paid-in

 

(Accumulated

 

Comprehensive

 

Stockholders’

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Warrants

 

Capital

 

Deficit)

 

Income/(Loss)

 

Equity

 

Balance at October 1, 2016 (Predecessor)

 

21,383,894

 

$

2

 

3,499,944

 

$

35

 

$

 

$

345,905

 

$

(196,247

)

$

(16,115

)

$

133,580

 

Stock compensation expense

 

 

 

 

 

 

1,377

 

 

 

1,377

 

Net Loss

 

 

 

 

 

 

 

(132,804

)

 

(132,804

)

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

16,115

 

16,115

 

Cancellation of Predecessor equity

 

(21,383,894

)

(2

)

(3,499,944

)

(35

)

 

(347,282

)

329,051

 

 

(18,268

)

Balance at March 2, 2017 (Predecessor)

 

 

 

 

 

 

 

 

 

 

Issuance of Successor common stock and warrants

 

 

 

29,233,375

 

292

 

4,970

 

442,927

 

 

 

448,189

 

Balance at March 2, 2017 (Predecessor)

 

 

 

29,233,375

 

292

 

4,970

 

442,927

 

 

 

448,189

 

Balance at March 3, 2017 (Successor)

 

 

 

29,233,375

 

292

 

4,970

 

442,927

 

 

 

448,189

 

Stock compensation expense

 

 

 

 

 

 

545

 

 

 

545

 

Net Income

 

 

 

 

 

 

 

1,058

 

 

1,058

 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

4,453

 

4,453

 

Balance at September 30, 2017 (Successor)

 

 

 

29,233,375

 

292

 

4,970

 

443,472

 

1,058

 

4,453

 

454,245

 

Stock compensation expense (Note 7)

 

 

 

 

 

 

1,685

 

 

 

1,685

 

Net Income

 

 

 

 

 

 

 

6,984

 

 

6,984

 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

(2,669

)

(2,669

)

Balance at March 31, 2018 (Successor)

 

 

$

 

29,233,375

 

$

292

 

$

4,970

 

$

445,157

 

$

8,042

 

$

1,784

 

$

460,245

 

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

4



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands except share data)

 

 

 

Successor

 

 

Predecessor

 

 

 

Six months ended
March 31, 2018

 

Period from
March 3, 2017 to
March 31, 2017

 

 

Period from
October 1, 2016 to
March 2, 2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 6,984

 

$

 (5,947

)

 

$

 (132,804

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

 

 

 

Non-cash interest

 

 

 

 

6,824

 

Provision for doubtful accounts

 

3,173

 

(96

)

 

1,787

 

Provision for customer credits

 

2,020

 

391

 

 

1,887

 

Reorganization items

 

 

 

 

96,174

 

Stock-based compensation expense

 

1,685

 

 

 

530

 

Depreciation and amortization

 

29,147

 

4,505

 

 

29,707

 

Gain on sale of rental equipment

 

(5,966

)

(813

)

 

(2,400

)

Deferred gain on sale of other property and equipment

 

 

 

 

(572

)

Deferred income taxes, net of valuation allowance

 

(5,398

)

(3,834

)

 

(8,929

)

Changes in

 

 

 

 

 

 

 

 

Accounts receivable

 

1,914

 

105

 

 

8,996

 

Prepaid expenses and other assets

 

(1,118

)

1,294

 

 

344

 

Accounts payable and accrued expenses

 

(9,236

)

1,681

 

 

6,733

 

Advance rents

 

108

 

7,028

 

 

2,382

 

Net cash provided by operating activities

 

23,313

 

4,314

 

 

10,659

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of rental equipment and other property and equipment

 

(30,118

)

(7,255

)

 

(23,666

)

Proceeds from sale of rental equipment

 

16,453

 

3,061

 

 

11,395

 

Leasing receivables

 

 

 

 

 

 

 

 

Originations

 

(329

)

(39

)

 

(1,131

)

Payments received

 

726

 

159

 

 

1,130

 

Net cash used in investing activities

 

(13,268

)

(4,074

)

 

(12,272

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from asset based revolver

 

209,226

 

31,071

 

 

247,217

 

Payments on asset based revolver

 

(217,706

)

(40,010

)

 

(298,819

)

Payments on term loans

 

(3,045

)

 

 

 

Proceeds from rights offering investment by second lien noteholders

 

 

 

 

89,939

 

Financing costs paid

 

 

 

 

(13,892

)

Net cash (used in) provided by financing activities

 

(11,525

)

(8,939

)

 

24,445

 

Effect of exchange rate changes on cash

 

13

 

99

 

 

(192

)

Net (decrease) increase in cash and cash equivalents

 

(1,467

)

(8,600

)

 

22,640

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

Beginning of period

 

1,476

 

23,499

 

 

859

 

End of period

 

$

9

 

$

14,899

 

 

$

23,499

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid during the period for

 

 

 

 

 

 

 

 

Interest

 

$

15,343

 

$

721

 

 

$

16,831

 

Income tax payments, net

 

$

470

 

$

3

 

 

$

528

 

Cash paid for reorganization items

 

$

 

$

2,592

 

 

$

947

 

Non cash activity during the period for

 

 

 

 

 

 

 

 

Equipment purchases included in accounts payable

 

$

480

 

$

80

 

 

$

482

 

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

5



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

1.                            Basis of Presentation

 

The unaudited condensed consolidated financial statements of Modular Space Holdings, Inc., a Delaware corporation, and its Subsidiaries (collectively, ‘‘ModSpace’’ or the ‘‘Company’’) have been prepared in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’) for interim financial information. The unaudited condensed consolidated financial statements do not include all of the information or notes necessary for a complete presentation in accordance with GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s annual financial statements as of September 30, 2017. The results of operations for the Successor three and six months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017, the Predecessor period from January 1, 2017 to March 2, 2017 and the Predecessor period from October 1, 2016 to March 2, 2017 are not necessarily indicative of the operating results for the full year.

 

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2018, and its results of operations for the three months and six months ended March 31, 2018 (Successor), and for the periods from March 3, 2017 to March 31, 2017 (Successor), January 1, 2017 to March 2, 2017 (Predecessor), and October 1, 2016 to March 2, 2017 (Predecessor), and cash flows for the six months ended March 31, 2018 (Successor), and the periods from March 3, 2017 to March 31, 2017 (Successor) and October 1, 2106 to March 31, 2017 (Predecessor). The condensed consolidated balance sheet at September 30, 2017, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.

 

Certain prior year amounts have been reclassified to conform to the current period presentation.

 

Fresh Start Accounting

 

On December 21, 2016, Modular Space Holdings, Inc. and six of its U.S. subsidiaries (the “Chapter 11 Subsidiaries”) filed voluntary petitions seeking relief under section 1121 (a) of Chapter 11 of Title 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware under the caption In re Modular Space Holdings, Inc., et al (Case No. 16-12825) (the “Chapter 11 Cases”). In connection with the filing of the Chapter 11 Cases, a recognition proceeding for the Company’s Canadian subsidiary, under Part IV of the Companies’ Creditors Arrangement Act (Canada) was filed in Toronto, Ontario, Canada before the Ontario Superior Court of Justice.  The Company and the Chapter 11 Subsidiaries received bankruptcy court confirmation of their joint prepackaged plan of reorganization (the “Plan”) on February 15, 2017, and subsequently emerged from bankruptcy on March 2, 2017 (the “Effective Date”).

 

Upon the Company’s emergence from Chapter 11 bankruptcy, the Company adopted fresh start accounting, pursuant to FASB ASC 852, “Reorganizations”, and applied fresh start accounting to its financial statements because (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims.  Adopting fresh start accounting results in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit as of the fresh start reporting date.

 

6



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

The cancellation of all existing shares outstanding on the Effective Date and issuance of new shares of the Successor Company caused a related change of control of the Company under ASC 852. As a result of the application of fresh start accounting, as well as the effects of the implementation of the Plan, the condensed consolidated financial statements as of March 2, 2017 forward are not comparable with the condensed consolidated financial statements prior to that date which were prepared on a historical basis of accounting. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to March 2, 2017. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company prior to and including March 2, 2017. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the financial statements on or after March 3, 2017 are not comparable to the financial statements prior to that date.

 

The Company elected to apply fresh start accounting effective March 1, 2017, to coincide with the start of its normal monthly accounting period, which resulted in the Company becoming a new entity for financial reporting purposes. The Company evaluated and concluded that events between March 1, 2017 and March 3, 2017 were immaterial and use of an accounting convenience date of March 1, 2017 was appropriate. As such, fresh start accounting is reflected in the accompanying condensed consolidated balance sheet as of September 30, 2017 and related fresh start adjustments are included in the accompanying statement of operations for the Predecessor period from October 1, 2016 through March 2, 2017.

 

2.                            Operating Lease Receivables

 

As of March 31, 2018, future minimum rental payments due to the Company under non-cancellable operating leases of rental equipment to be received in the remainder of 2018 and the fiscal years thereafter are as follows:

 

Fiscal year ending September 30,

 

 

 

2018

 

$

76,103

 

2019

 

49,079

 

2020

 

17,358

 

2021

 

6,585

 

2022

 

2,824

 

Thereafter

 

536

 

Minimum Operating Lease Receivables

 

$

152,485

 

 

7



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

3.                            Rental Equipment

 

The components of rental equipment at March 31, 2018 and September 30, 2017 are as follows:

 

 

 

Successor

 

Successor

 

 

 

March 31, 2018

 

September 30, 2017

 

Mobile offices and modular structures

 

$

893,389

 

$

883,202

 

Additional lease costs

 

1,882

 

1,771

 

 

 

895,271

 

884,973

 

Less accumulated depreciation

 

(48,759

)

(29,571

)

Rental equipment, net

 

$

846,512

 

$

855,402

 

 

Depreciation expense of rental equipment of $11,762, $3,726 and $10,808 for the Successor three months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017 and the Predecessor period from January 1, 2017 to March 2, 2017, respectively, is included in total leasing and sales costs in the condensed consolidated statements of operations.

 

Depreciation expense of rental equipment of $23,629, $3,726 and $26,288 for the Successor six months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017 and the Predecessor period from October 1, 2016 to March 2, 2017, respectively, is included in the total leasing and sales costs in the condensed consolidated statements of operations.

 

Included in depreciation expense is $136, $529 and $3,813 of accelerated depreciation expense for the Successor three months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017, the Predecessor period from January 1, 2017 to March 2, 2017, respectively, in connection with assets that were rebuilt as part of the Company’s refurbishment capabilities.

 

Included in depreciation expense is $230, $529 and $4,490 of accelerated depreciation expense for the Successor six months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017 and the Predecessor period from October 1, 2016 to March 2, 2017, respectively, in connection with assets that were rebuilt as part of the Company’s refurbishment capabilities.

 

8



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

4.                            Other Property and Equipment

 

The components of other property and equipment at March 31, 2018 and September 30, 2017 are as follows:

 

 

 

Successor

 

 

 

March 31, 2018

 

September 30, 2017

 

Buildings

 

$

18,213

 

$

17,295

 

Modular Offices and related improvements

 

7,381

 

7,355

 

Leasehold Improvements

 

17,652

 

16,966

 

Computer equipment and software

 

7,862

 

7,767

 

Office Furniture, Fixtures, and Other

 

3,042

 

2,335

 

 

 

54,150

 

51,718

 

Less accumulated depreciation and amortization

 

(9,854

)

(4,665

)

 

 

44,296

 

47,053

 

Land

 

79,250

 

79,987

 

 

 

$

123,546

 

$

127,040

 

 

Depreciation and amortization expense of other property and equipment of $2,631, $724 and $1,384 for the Successor three months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017, the Predecessor period from January 1, 2017 to March 2, 2017, respectively, is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

 

Depreciation and amortization expense of other property and equipment of $5,189, $724 and $3,419 for the Successor six months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017 and the Predecessor period from October 1, 2016 to March 2, 2017, respectively, is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

 

5.                            Other Intangible Assets

 

The following table reflects the components of other intangible assets as of March 31, 2018 and September 30, 2017:

 

9



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

 

 

 

 

Successor

 

 

Successor

 

 

 

 

 

March 31, 2018

 

 

September 30, 2017

 

 

 

Remaining

 

Gross

 

 

 

 

Gross

 

 

 

 

 

Useful

 

Carrying

 

Accumulated

 

 

Carrying

 

Accumulated

 

 

 

Life (Years)

 

Amount

 

Amortization

 

 

Amount

 

Amortization

 

Trade name / Trademark

 

Indefinite

 

$

8,718

 

$

 

 

$

8,718

 

$

 

Leasehold interest

 

6.8

 

4,810

 

714

 

 

4,810

 

384

 

 

 

 

 

$

13,528

 

$

714

 

 

$

13,528

 

$

384

 

 

 

6.                            Debt

 

As of March 31, 2018, there was $508,663 of borrowings outstanding under the Credit Agreement, inclusive of $64,568 of term loans as follows:

 

 

 

Successor

 

 

 

March 31, 2018

 

September 30, 2017

 

Term loans

 

$

64,568

 

$

67,613

 

Less: current portion of term loans

 

(5,664

)

(5,664

)

Total long-term debt

 

$

58,904

 

$

61,949

 

 

 

Included within the reported asset based revolver balance on the condensed consolidated balance sheet at March 31, 2018 is $5,266 of bank overdrafts that have been reclassified from cash for financial reporting purposes.

 

Scheduled repayments of the term loans for the remainder of 2018 and the succeeding fiscal years are as follows:

 

Fiscal year ending September 30,

 

 

 

2018

 

$

2,832

 

2019

 

7,788

 

2020

 

9,912

 

2021

 

44,036

 

 

 

$

64,568

 

 

There was approximately $98,857 of additional borrowing availability under the Credit Agreement as of March 31, 2018. In addition, letters of credit totaling $4,030, were issued under the Credit Agreement and were outstanding at March 31, 2018.

 

Borrowings under the Credit Agreement are secured by a first priority lien on, and security interest in, substantially all of the assets of Modular Space Corporation (“MSC”), Resun ModSpace, Inc. (“RMI”) and ModSpace Government Financial Services, Inc. (“MGFS”) including rental equipment, accounts receivable, and other property and equipment. Chippewa has guaranteed all of the

 

10



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

obligations of the borrowers and the other guarantors under the New Credit Agreement and such guarantee is secured by a first priority lien on, and security interest in, substantially all of Resun Chippewa, LLC’s (“Chippewa”) assets (which consist of a substantial portion of the Company’s rental equipment and related lease payments due from MSC). Chippewa has not otherwise agreed to guarantee, and its assets are generally not available to support, other liabilities of such borrowers and guarantors. MSC, RMI and MGFS guaranteed all of MFSC’s obligations under the Canadian facility and such guarantees are secured by a first priority lien on, and security interest in, substantially all of the assets of MSC, RMI and MGFS.

 

Outstanding amounts under the Credit Agreement, including the term loans, bear interest at our option at either: (i) LIBOR or Banker’s Acceptance rate (“BA Rate”) plus a defined margin, or (ii) the Agent (as defined in the Credit Agreement) bank’s prime rate or base rate plus a margin. The applicable margin for each type of loan is based on a leverage-based pricing grid and ranges from 3.75% to 4.50% for LIBOR and BA loans and 3.25% to 4.00% for prime rate or base rate loans at each measurement date. As of March 31, 2018, the applicable margins were 4.25% for LIBOR and BA loans and 3.75% for prime rate or base rate loans. The effective interest rate was 6.15% at March 31, 2018.  A fee is payable monthly on the average unused portion of the maximum applicable rollover amount for the preceding month.

 

Availability of borrowings under the revolving credit facilities pursuant to the Credit Agreement is subject to a borrowing base calculation based upon a valuation of our eligible accounts receivable, and eligible rental equipment/lease fleet, subject to certain availability blocks. The lease fleet is appraised at least twice annually by a third-party appraisal firm. The rental equipment advance rate is the lesser of (a) 80% of the net book value (excluding any fresh start adjustments) of the applicable eligible rental equipment or (b) the percentage obtained by dividing (i) the NOLV Percentage of the Net Orderly Liquidation Value of all Eligible Rental Equipment of U.S. Domiciled Obligors (or of Canadian Domiciled Obligors, in the case of the Rental Equipment Advance Rate applicable to the Canadian Borrowing Base) set forth in the most recent appraisal by (ii) the book value of all eligible rental equipment of U.S. Domiciled Obligors (or of Canadian Domiciled Obligors, in the case of the Rental Equipment Advance Rate applicable to the Canadian Borrowing Base) set forth in such appraisal. The advance rate on eligible accounts receivable is 85%.

 

In addition, the Credit Agreement requires the maintenance of certain financial covenants, which primarily consist of leverage ratio, fixed charge coverage ratio, and limits on net capital expenditures, negative covenants, and affirmative covenants.  The Company was in compliance with all applicable covenants under the New Credit Agreement as of March 31, 2018.

 

The Company’s borrowings under the New Credit Facility are legally long-term.   However, the Company classifies the ABL facility as current as it includes a sweep feature whereby remittances from the Company’s customers are used to reduce the revolving debt outstanding.

 

7.                            Stock Based Compensation

 

During the Successor six months ended March 31, 2018, the Company recorded $1,685 of stock based compensation. The Company granted 49,548 Time-Based RSUs in October 2017 to certain members of the Board of Directors. Additionally, the Company granted 24,137 Time-Based RSUs,

 

11



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

29,885 Equity Value-Based RSUs and 14,943 ROIC-based RSU’s in March 2018. There were no RSUs forfeited or expired during the six months ended March 31, 2018.

 

The Company has determined that the consummation of a public offering, or change in control is not probable as of the reporting date and therefore, has not recorded compensation expense for the Equity Value Based RSU’s. As of March 31, 2018, total compensation cost related to nonvested Equity Value-Based restricted stock units not yet recognized in expense is $4,764, which will be recognized once the Company determines that the performance conditions are probable to occur.

 

As of March 31, 2018, total compensation cost related to nonvested time based restricted stock units not yet recognized in expense is $8,999 which is expected to be recognized over a weighted-average period of 2.9 years.

 

As of March 31, 2018, total compensation cost related to ROIC-based restricted stock units not yet recognized in expense is $2,205 which is expected to be recognized over a weighted-average period of 3.8 years.

 

8.                            Income Taxes

 

The Company’s tax provision and the corresponding effective tax rate are based on expected income, statutory tax rates and tax planning opportunities available in the jurisdictions in which the Company operates. For interim financial reporting the Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly tax provision in accordance with the anticipated annual rate. As the year progresses, the Company refines the estimates of the year’s taxable income as new information becomes available, including year-to-date financial results. This continual estimation process can result in a change to the Company’s expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate. Significant judgment is required in determining the Company’s effective interim tax rate and in evaluating its tax positions.

 

The Company does not have any uncertain tax positions for which it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of selling, general and administrative expense. During the Successor three and six months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017, the Predecessor period from January 1, 2017 to March 2, 2017 and the Predecessor period from October 1, 2016 to March 2, 2017, interest and penalties accrued were not material.

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. The Act represents sweeping changes in U.S. tax law.  On December 22, 2017 in response to the Act, the Staff of the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB No. 118”) to provide guidance to registrants in applying ASC Topic 740 in connection with the Act. SAB No. 118 provides that in the period of enactment, the income tax effects of the ACT may be reported as a provisional amount based on a reasonable estimate (to the extent a reasonable estimate can be determined), which would be subject to adjustment during a “measurement period”. The measurement period begins in the reporting period of the Act’s enactment and ends when a registrant has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740. SAB No. 118

 

12



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

also describes supplemental disclosures that should accompany the provisional amounts.

 

13



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

For the Successor six months ended March 31, 2018, the Company has provisionally recorded an income tax benefit for the impact of the Act.  The Company provisionally recognized a decrease to deferred taxes and corresponding income tax benefit in the U.S. of approximately $5,100 based on an estimate of the impact of the Act.  In addition, the Company provisionally included in tax expense, the estimated impacts of the Transition Tax which when offset by net operating losses and release of valuation allowance is not material.  Adjustments to provisional amounts will be recorded as our analyses are refined.

 

9.         Commitments and Contingencies

 

The Company leases certain facilities under non-cancellable operating leases. Total rent expense under all operating leases was approximately $8,354, $1,295 and $6,704 for the Successor six months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017 and the Predecessor period from October 1, 2016 to March 2, 2017, respectively.

 

Total rent expense under all operating leases was approximately $3,973, $1,295 and $2,742 for the Successor three months ended March 31, 2018, the Successor period from March 3, 2017 to March 31, 2017 and the Predecessor period from January 1, 2017 to March 2, 2017, respectively.

 

The future minimum rental commitments under all non-cancellable operating leases for the remainder of 2018 and the succeeding fiscal years are as follows:

 

Fiscal year ending September 30,

 

 

 

2018

 

$

7,778

 

2019

 

14,782

 

2020

 

11,224

 

2021

 

9,062

 

2022

 

8,264

 

Thereafter

 

19,522

 

Total

 

$

70,632

 

 

10.       Related Party Transactions

 

In connection with the Company’s Joint Prepackaged Plan of Reorganization (the “Plan”), Calera Capital has a subordinated management agreement claim contingent upon a Qualifying Liquidity Event (as defined in the Plan), which is capped in the amount of $1,100.  The claim is extinguished if no Qualifying Liquidity Event occurs within five years after the Effective Date of the Plan.  The Company has determined that a Qualifying Liquidity Event is not probable as of March 31, 2018, and therefore has not recorded any amounts related to the claim.

 

11.       Subsequent Events

 

On June 21, 2018, Modular Space Holdings, Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, WillScot Corporation, a Delaware corporation (“Parent”), Mason Merger Sub, Inc., a Delaware corporation and an indirect, majority-

 

14



 

Modular Space Holdings, Inc. and Subsidiaries

Unaudited Notes to Condensed Consolidated Financial Statements

(In thousands except share data)

 

owned subsidiary of Parent (“Merger Sub”), and NANOMA LLC, solely in its capacity as the representative of the Holders (the “Holder Representative”), pursuant to which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and an indirect, majority-owned subsidiary of Parent (the “Merger”).

 

WillScot Corporation will indirectly acquire the Company for a purchase price comprising $1,063,750 of cash consideration, 6,458,500 shares of WillScot Corporation Class A common sock and warrants to purchase 10,000,000 shares of WillScot Corporation Class A common stock at an exercise price of $15.50 per share, subject to customary adjustments.

 

The Company evaluated all events or transactions that occurred after March 31, 2018 through July 20, 2018, the date these consolidated financial statements were available to be issued, and concluded that there were no other subsequent events required to be disclosed in the Company’s consolidated financial statements that have not been previously disclosed elsewhere.

 

15