UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2019 | |||||
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: | 001-37552 | ||||
WILLSCOT CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 82-3430194 | |||||||
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |||||||
901 S. Bond Street, #600
Baltimore, Maryland 21231
(Address, including zip code, of principal executive offices)
(410) 931-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Principal US Public Trading Market | ||||||
| Class A common stock, par value $0.0001 per share | WSC | The Nasdaq Capital Market | ||||||
| Warrants to purchase Class A common stock(1) | WSCWW | OTC Markets Group Inc. | ||||||
| Warrants to purchase Class A common stock(2) | WSCTW | OTC Markets Group Inc. | ||||||
(1) Issued in connection with the initial public offering of Double Eagle Acquisition Corp., the registrant’s legal predecessor company, in September 2015, which are exercisable for one-half of one share of the registrant’s Class A common stock for an exercise price of $5.75.
(2) Issued in connection with the registrant’s acquisition of Modular Space Holdings, Inc. in August 2018, which are exercisable for one share of the registrant’s Class A common stock at an exercise price of $15.50 per share.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ | ||||
Non-accelerated filer ☐ | Smaller reporting company ☐ | ||||
Emerging growth company ☒ | |||||
1
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Shares of Class A common stock, par value $0.0001 per share, outstanding: 108,693,209 shares at April 22, 2019.
Shares of Class B common stock, par value $0.0001 per share, outstanding: 8,024,419 shares at April 22, 2019.
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WILLSCOT CORPORATION
Quarterly Report on Form 10-Q
Table of Contents
PART I Financial Information | |||||||||||
| Condensed Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2019 and 2018 | |||||||||||
PART II Other Information | |||||||||||
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PART I
ITEM 1. Financial Statements
WillScot Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share data) | March 31, 2019 (unaudited) | December 31, 2018 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade receivables, net of allowances for doubtful accounts at March 31, 2019 and December 31, 2018 of $11,889 and $9,340, respectively | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
| Rental equipment, net | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other non-current assets | |||||||||||
| Total long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and equity | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Accrued interest | |||||||||||
| Deferred revenue and customer deposits | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred tax liabilities | |||||||||||
| Deferred revenue and customer deposits | |||||||||||
| Other non-current liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (see Note 14) | |||||||||||
| Class A common stock: $0.0001 par, 400,000,000 shares authorized at March 31, 2019 and December 31, 2018; 108,693,209 and 108,508,997 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | |||||||||||
| Class B common stock: $0.0001 par, 100,000,000 shares authorized at March 31, 2019 and December 31, 2018; 8,024,419 shares issued and outstanding at March 31, 2019 and December 31, 2018 | |||||||||||
| Additional paid-in-capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders' equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
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WillScot Corporation
Condensed Consolidated Statements of Operations (Unaudited)
| Three Months Ended March 31, | |||||||||||
(in thousands, except share and per share data) | 2019 | 2018 | |||||||||
| Revenues: | |||||||||||
| Leasing and services revenue: | |||||||||||
| Modular leasing | $ | $ | |||||||||
| Modular delivery and installation | |||||||||||
| Sales: | |||||||||||
| New units | |||||||||||
| Rental units | |||||||||||
| Total revenues | |||||||||||
| Costs: | |||||||||||
| Costs of leasing and services: | |||||||||||
| Modular leasing | |||||||||||
| Modular delivery and installation | |||||||||||
| Costs of sales: | |||||||||||
| New units | |||||||||||
| Rental units | |||||||||||
| Depreciation of rental equipment | |||||||||||
| Gross profit | |||||||||||
| Expenses: | |||||||||||
| Selling, general and administrative | |||||||||||
| Other depreciation and amortization | |||||||||||
| Impairment losses on property, plant and equipment | |||||||||||
| Restructuring costs | |||||||||||
| Currency (gains) losses, net | ( | ||||||||||
| Other income, net | ( | ( | |||||||||
| Operating income | |||||||||||
| Interest expense | |||||||||||
| Loss from operations before income tax | ( | ( | |||||||||
| Income tax expense (benefit) | ( | ||||||||||
| Net loss | ( | ( | |||||||||
| Net loss attributable to non-controlling interest, net of tax | ( | ( | |||||||||
| Net loss attributable to WillScot | $ | ( | $ | ( | |||||||
| Net loss per share attributable to WillScot – basic and diluted | $ | ( | $ | ( | |||||||
| Weighted average shares - basic and diluted | |||||||||||
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
5
WillScot Corporation
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
| Three Months Ended March 31, | |||||||||||
(in thousands) | 2019 | 2018 | |||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustment, net of income tax expense of $0 and $148 for the three months ended March 31, 2019 and 2018, respectively | |||||||||||
| Net losses on derivatives, net of income tax benefit of $673 and $0 for the three months ended March 31, 2019 and 2018, respectively | ( | ||||||||||
| Comprehensive loss | ( | ( | |||||||||
| Comprehensive loss attributable to non-controlling interest | ( | ( | |||||||||
| Total comprehensive loss attributable to WillScot | $ | ( | $ | ( | |||||||
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
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WillScot Corporation
Condensed Consolidated Statements of Changes in Equity (Unaudited)
| Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-in-Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Shareholders' Equity | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Adoption of Topic 606 | — | — | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended March 31, 2018 | ||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-in-Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Shareholders' Equity | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||
| Balance at December 31, 2017 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Adoption of ASU 2018-02 | — | — | — | — | — | ( | — | |||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Balance at March 31, 2018 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||
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WillScot Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Three Months Ended March 31, | |||||||||||
(in thousands) | 2019 | 2018 | |||||||||
| Operating Activities: | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
| Adjustments for non-cash items: | |||||||||||
| Depreciation and amortization | |||||||||||
| Provision for doubtful accounts | |||||||||||
| Impairment losses on property, plant and equipment | |||||||||||
| Gain on sale of rental equipment and other property, plant and equipment | ( | ( | |||||||||
| Amortization of debt discounts and debt issuance costs | |||||||||||
| Share based compensation expense | |||||||||||
| Deferred income tax benefit | ( | ||||||||||
| Unrealized currency (gains) losses | ( | ||||||||||
| Changes in operating assets and liabilities, net of effect of businesses acquired: | |||||||||||
| Trade receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid and other assets | ( | ||||||||||
| Accrued interest | ( | ||||||||||
| Accounts payable and other accrued liabilities | ( | ||||||||||
| Deferred revenue and customer deposits | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing Activities: | |||||||||||
| Acquisition of business | ( | ||||||||||
| Proceeds from sale of rental equipment | |||||||||||
| Purchase of rental equipment and refurbishments | ( | ( | |||||||||
| Proceeds from the sale of property, plant and equipment | |||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing Activities: | |||||||||||
| Receipts from borrowings | |||||||||||
| Payment of financing costs | ( | ||||||||||
| Repayment of borrowings | ( | ||||||||||
| Principal payments on capital lease obligations | ( | ( | |||||||||
| Withholding taxes paid on behalf of employees on net settled stock-based awards | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | |||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at the beginning of the period | |||||||||||
| Cash and cash equivalents at the end of the period | $ | $ | |||||||||
| Supplemental Cash Flow Information: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes (refunded) paid, net | $ | ( | $ | ||||||||
| Capital expenditures accrued or payable | $ | $ | |||||||||
See the accompanying notes which are an integral part of these condensed consolidated financial statements.
8
WillScot Corporation
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 - Summary of Significant Accounting Policies
Organization and Nature of Operations
WillScot Corporation (“WillScot” and, together with its subsidiaries, the “Company”), is a leading provider of modular space and portable storage solutions in the United States (“US”), Canada and Mexico. The Company leases, sells, delivers and installs mobile offices, modular buildings and storage products through an integrated network of branch locations that spans North America.
WillScot, whose Class A common shares are listed on the Nasdaq Capital Market (Nasdaq: WSC), serves as the holding company for the Williams Scotsman family of companies. All of the Company’s assets and operations are owned through Williams Scotsman Holdings Corp. (“WS Holdings”). WillScot operates and owns 91.0 % of WS Holdings, and Sapphire Holding S.à r.l. (“Sapphire”), an affiliate of TDR Capital LLP (“TDR Capital”), owns the remaining 9.0 %.
WillScot was incorporated as a Cayman Islands exempt company under the name, Double Eagle Acquisition Corporation ("Double Eagle"), on June 26, 2015. Prior to November 29, 2017, Double Eagle was a Nasdaq-listed special purpose acquisition company formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination. On November 29, 2017, Double Eagle indirectly acquired Williams Scotsman International, Inc. (“WSII”) from Algeco Scotsman Global S.à r.l., (together with its subsidiaries, the “Algeco Group”), which is majority owned by an investment fund managed by TDR Capital. As part of the transaction (the “Business Combination”), Double Eagle domesticated to Delaware and changed its name to WillScot Corporation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by accounting principles generally accepted in the US (“GAAP”) for complete financial statements. The accompanying unaudited condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position, the results of operations and cash flows, for the interim periods presented.
The results of operations for the three months ended March 31, 2019 and 2018 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and notes included in WillScot's Annual Report on Form 10-K for the year ended December 31, 2018.
Principles of Consolidation
The unaudited condensed consolidated financial statements comprise the financial statements of WillScot and its subsidiaries that it controls due to ownership of a majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All intercompany balances and transactions are eliminated.
Recently Issued and Adopted Accounting Standards
The Company qualifies as an emerging growth company (“EGC”) as defined under the Jumpstart Our Business Startups Act (the “JOBS Act”). Using exemptions provided under the JOBS Act provided to EGCs, the Company has elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley Act of 2002) is required to comply with such standards. As such, compliance dates included below pertain to non-issuers, and as permitted, early adoption dates for non-issuers are indicated.
WillScot will cease to be EGC on the earlier of (i) the last day of the fiscal year in which WillScot’s annual gross revenues exceed $1.07 billion, (ii) the date on which the Company issues more than $1.0 billion in nonconvertible debt securities during the preceding three-year period, and (iii) the date on which WillScot is deemed to be a large accelerated filer under the US Securities and Exchange Commission's (the "SEC") rules. Based on the ModSpace (defined below) acquisition described in Note 2, WillScot anticipates that its 2019 annual gross revenues will exceed $1.07 billion, in which case WillScot would be deemed to be a large accelerated filer as of December 31, 2019.
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), which prescribes that financial assets (or a group of financial assets) should be measured at amortized cost basis to be presented at the net amount expected to be collected. Credit losses relating to these financial assets should be recorded through an allowance for credit losses. The new standard is effective for non-public entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted for all entities for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company continues to evaluate the impacts of adopting the standard on the financial statements and will adopt the standard within the required adoption period. Adoption of the new standard would be required sooner if WillScot loses EGC eligibility earlier than anticipated.
9
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASC 842"). This guidance revises existing practice related to accounting for leases under ASC Topic 840, Leases (“ASC 840”) for both lessees and lessors. The new guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Accounting guidance for lessors is largely unchanged. This guidance is effective for non-public entities for fiscal years beginning after December 15, 2019 and interim periods within those annual periods using a modified retrospective transition approach. Early adoption is permitted for all entities. However, based on WillScot's expectation that it will cease to be an EGC as of December 31, 2019, the Company plans to adopt the new standard no later than in the fourth quarter of 2019. Adoption of the new standard could be required earlier in 2019 if WillScot loses EGC status earlier than anticipated.
The Company is currently in the process of assessing the potential impact this guidance may have on its financial position, results of operations and cash flows, including which of its existing lease arrangements will be impacted by the new guidance and whether other arrangements that are not currently classified as leases may become subject to the guidance. The Company plans to take advantage of the transition package of practical expedients permitted within the new standard which, among other things, allows the historical lease classification to be carried forward. Additionally, the Company is implementing a lease management system to assist in the accounting and is evaluating additional changes to its processes and internal controls to ensure the new reporting and disclosure requirements are met upon adoption.
Additionally, as discussed in Note 3, most of the Company's equipment rental revenues will be accounted for under the current lease accounting standard, ASC 840, until the adoption of the new lease accounting standard ASC 842. The Company is continuing to evaluate the impact of adopting ASC 842 on the Company's accounting for equipment rental revenue.
Recently Adopted Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date.
In June 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments to clarify how certain cash receipts and payments are presented in the statement of cash flows. The guidance is effective for annual reporting periods beginning after December 15, 2018. The Company adopted this standard as of January 1, 2019, with no impact to the financial statements for the period ended March 31, 2019.
In May 2017, the FASB issued ASU 2017-10, Determining the Customer of the Operation Services, to clarify how operating entities should determine the customer of the operation services for transactions within the scope of ASC 853, Service Concession Arrangements. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company adopted this guidance concurrently with the adoption of ASU 2014-09 using a modified retrospective transition approach.
In August 2018, the SEC adopted the final rule under Release No. 33-10532 Disclosure Update and Simplification, to eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of GAAP or other regulatory requirements. The amendments provide that disclosure requirements related to the analysis of shareholders' equity are expanded for interim financial statements. An analysis of the changes in each caption of shareholders' equity presented in the balance sheet must be provided in a note or separate statement, as well as the amount of dividends per share for each class of shares. The Company has provided this disclosure beginning in the first quarter of 2019 within the condensed consolidated statements of changes in equity.
Revenue
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("Topic 606"). Topic 606, along with its subsequent related updates prescribe a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers. The core principle contemplated by this new standard was that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required.
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NOTE 2 - Acquisitions and Assets Held for Sale
Tyson Acquisition
On January 3, 2018, the Company acquired all of the issued and outstanding membership interests of Onsite Space LLC (d/b/a Tyson Onsite (“Tyson”)) for $24.0 million in cash consideration, net of cash acquired. Tyson provided modular space rental services in the Midwest, primarily in Indiana, Illinois and Missouri. The transaction was funded by borrowings under the ABL Facility (defined in Note 7).
The Company finalized its accounting for the Tyson acquisition in the fourth quarter of 2018 and recorded goodwill of $3.1 million as a result of the Tyson acquisition. Tyson results were immaterial to the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018, respectively, and as a result, the Company is not presenting pro forma information related to this acquisition.
ModSpace Acquisition
On August 15, 2018, the Company acquired Modular Space Holdings, Inc. ("ModSpace"), a privately-owned national provider of office trailers, portable storage units and modular buildings. The acquisition was consummated by merging a special purpose subsidiary of the Company with and into ModSpace, with ModSpace surviving the merger as a subsidiary of WSII.
Purchase Price
The aggregate purchase price for ModSpace was $1.2 billion and consisted of (i) $1.1 billion in cash, (ii) 6,458,229 shares of WillScot's Class A common stock (the "Stock Consideration") with a fair market value of $95.8 million and (iii) warrants to purchase an aggregate of 10,000,000 shares of WillScot’s Class A common stock at an exercise price of $15.50 per share (the "2018 Warrants") with a fair market value of $52.3 million, and (iv) a working capital adjustment of $4.7 million.
The acquisition was funded by the net proceeds of WillScot's issuance of 9,200,000 shares of Class A common stock, the net proceeds of WSII’s issuance of $300.0 million in senior secured notes and $200.0 million in senior unsecured notes (see Note 7), and borrowings under the ABL Facility (see Note 7).
As of the date of acquisition, August 15, 2018, the fair market values of the Stock Consideration and 2018 Warrants were $14.83 per share and $5.23 per warrant, respectively, as determined using a Black-Scholes valuation model. The fair market value of the Class A shares was determined utilizing the $15.78 per share closing price of the Company's shares on August 15, 2018, discounted by 6.0 %, to reflect a lack of marketability based on the lock-up restrictions contemplated by the merger agreement.
The estimated fair values of the Stock Consideration and 2018 Warrants are Level 3 fair value measurements. The fair value of each share and warrant was estimated using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield, expected stock price volatility, weighted-average risk-free interest rate, the average expected term of the lock up period on the shares, and the weighted-average expected term of the warrants. The volatility assumption used in the Black-Scholes model is derived from the historical daily change in the market price of the Company's common stock, as well as the historical daily changes in the market price of its peer group, based on weighting, as determined by the Company, and over a time period equivalent to the lock-up restriction (for the shares) and the warrant term. The risk-free interest rate used in the Black-Scholes model is based on the implied US Treasury bill yield curve at the date of grant with a remaining term equal to the Company’s expected term assumption. The Company has never declared or paid a cash dividend on common shares. The following table summarizes the key inputs utilized to determine the fair value of the Stock Consideration and 2018 Warrants included within the purchase price of ModSpace.
| Stock Consideration fair value inputs | 2018 Warrants fair value inputs | ||||||||||
| Expected volatility | % | % | |||||||||
| Risk-free rate of interest | % | % | |||||||||
| Dividend yield | % | % | |||||||||
| Expected life (years) | |||||||||||
11
Opening Balance Sheet
The purchase price of ModSpace was assigned to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition, August 15, 2018. The Company estimated the fair values based on independent valuations, discounted cash flow analyses, quoted market prices, contributory asset charges, and estimates made by management. The final assignment of the fair value of the ModSpace acquisition, including the final assignment of goodwill to our reporting units was not complete as of March 31, 2019, but will be finalized within the allowable one year measurement period. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date, August 15, 2018, and adjustments made to these balances during the allowable measurement period.
| (in thousands) | Preliminary Balance | Adjustments | Balance at March 31, 2019 | ||||||||||||||
| Trade receivables, net (a) | $ | $ | ( | $ | |||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Inventories | |||||||||||||||||
| Rental equipment | |||||||||||||||||
| Property, plant and equipment | |||||||||||||||||
| Intangible assets: | |||||||||||||||||
| Favorable leases (b) | |||||||||||||||||
| Trade name (b) | |||||||||||||||||
| Deferred tax assets, net | |||||||||||||||||
| Total identifiable assets acquired | $ | $ | $ | ||||||||||||||
| Accrued liabilities | $ | $ | ( | $ | |||||||||||||
| Accounts payable | |||||||||||||||||
| Deferred revenue and customer deposits | |||||||||||||||||
| Total liabilities assumed | $ | $ | ( | $ | |||||||||||||
| Total goodwill (c) | $ | $ | ( | $ | |||||||||||||
(a) The fair value of accounts receivable was $80.6 million and the gross contractual amount was $86.1 million. The Company estimated that $5.5 million is uncollectible.
(b) The trade name has an estimated useful life of 3 years. The favorable lease asset has an estimated useful life of 6 years.
(c) The goodwill is reflective of ModSpace’s going concern value and operational synergies that the Company expects to achieve that would not be available to other market participants. The goodwill represented on the balance sheet is not deductible for income tax purposes. The goodwill is assigned to the Modular – US and Modular – Other North America segments, defined in Note 15, in the amounts of $176.1 million and $34.9 million, respectively.
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Pro Forma Information
The pro forma information below has been prepared using the purchase method of accounting, giving effect to the ModSpace acquisition as if it had been completed on January 1, 2018. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisition been completed on the above date, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, and also does not reflect additional revenue opportunities following the acquisition. The tables below present unaudited pro forma consolidated statements of operations information as if ModSpace had been included in the Company’s consolidated results for the three months ended March 31, 2018:
| (in thousands) | Three Months Ended March 31, 2018 | ||||
| WillScot revenues | $ | ||||
| ModSpace revenues | |||||
| Pro forma revenues | $ | ||||
| WillScot pre-tax loss | $ | ( | |||
| ModSpace pre-tax gain | |||||
| Pre-tax loss before pro forma adjustments | ( | ||||
| Pro forma adjustments to combined pre-tax loss: | |||||
| Impact of fair value mark-ups/useful life changes on depreciation (a) | ( | ||||
| Intangible asset amortization (b) | ( | ||||
| Interest expense (c) | ( | ||||
| Elimination of ModSpace interest (d) | |||||
| Pro forma pre-tax loss (e) | ( | ||||
| Income tax benefit (g) | ( | ||||
| Pro forma net loss | $ | ( | |||
(a) Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups of equipment acquired in the ModSpace acquisition. The useful lives assigned did not change significantly from the useful lives used by ModSpace.
(b) Amortization of the trade name acquired in ModSpace acquisition.
(c) In connection with the ModSpace acquisition, the Company drew an incremental $419.0 million on the ABL Facility as defined in Note 7, and issued $300.0 million of secured notes and $200.0 million of unsecured notes. As of March 31, 2019, the weighted-average interest rate for the aforementioned borrowings was 6.54 %. Interest expense includes amortization of related deferred financing fees on debt incurred in conjunction with ModSpace acquisition.
(d) Interest on ModSpace historic debt was eliminated.
(e) Pro forma pre-tax loss includes $0.6 million and $2.6 million of restructuring expense and integration costs incurred by WillScot for the three months ended March 31, 2018.
(g) The pro forma tax rate applied to the ModSpace pre-tax loss is the same as the WillScot effective rate for the period.
Transaction and Integration Costs
The Company incurred $10.1 million and $2.6 million in integration costs within selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2019 and 2018, respectively. The 2019 integration costs relate to the ModSpace acquisition, and the 2018 costs relate to the Acton and Tyson acquisitions.
Assets Held for Sale
In connection with the integration of ModSpace, during the three months ended March 31, 2019, the Company reclassified seven additional legacy ModSpace branch facilities from property, plant and equipment to held for sale, in addition to the three held for sale properties that were recognized at December 31, 2018. The net book value of assets transferred from property, plant and equipment to held for sale during the three months ended March 31, 2019 was $18.2 million, reflecting an additional impairment of $2.3 million recorded during the period. The total fair value of held for sale assets less costs to sell was $21.0 million and $2.8 million as of March 31, 2019 and December 31, 2018, respectively.
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NOTE 3 - Revenue
Adoption of Topic 606
On January 1, 2019, the Company adopted Topic 606 as well as subsequent updates using the modified retrospective method applied to those contracts that were not completed as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under the guidance required by Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, Revenue Recognition ("Topic 605"). The implementation of Topic 606 did not have a material impact on the Company’s financial results for the period ending March 31, 2019.
Revenue Recognition Policy
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Modular Leasing and Services Revenue
The majority of revenue (68 % and 70 % in the periods ending March 31, 2019 and 2018, respectively) is generated by rental income subject to the guidance of ASC 840. The remaining revenue is generated by contracts with customers subject to the guidance in Topic 606 or Topic 605 for 2019 and 2018, respectively.
Leasing Revenue (ASC 840)
Income from operating leases is recognized on a straight-line basis over the lease term. Our lease arrangements typically include multiple lease and non-lease components. Examples of lease components include, but are not limited to, the lease of modular space or portable storage units, and examples of non-lease components include, but are not limited to, the delivery, installation, maintenance, and removal services commonly provided in a bundled transaction with the lease components. Arrangement consideration is allocated between lease deliverables and non-lease components based on the relative estimated selling (leasing) price of each deliverable. Estimated selling (leasing) price of the lease deliverables is based upon the estimated stand-alone selling price of the related performance obligations using an adjusted market approach.
When leases and services are billed in advance, recognition of revenue is deferred until services are rendered. If equipment is returned prior to the contractually obligated period, the excess, if any, between the amount the customer is contractually required to pay over the cumulative amount of revenue recognized to date, is recognized as incremental revenue upon return.
Rental equipment is leased primarily under operating leases and, from time to time, under sales-type lease arrangements. Operating lease minimum contractual terms generally range from 1 month to 60 months, and averaged approximately 10 months across our rental fleet for the three months ended March 31, 2019.
Services Revenue (Topic 606)
The Company generally has three non-lease service-related performance obligations in its contracts with customers:
•Delivery and installation of the modular or portable storage unit;
•Maintenance and other ad-hoc services performed during the lease term; and
•Removal services that occur at the end of the lease term.
Consideration is allocated to each of these performance obligations within the contract based upon their estimated relative standalone selling prices using the estimated cost plus margin approach. Revenue from these activities is recognized as the services are performed.
Sales Revenue (Topic 606)
Sales revenue is generated by the sale of new and used units. Revenue from the sale of new and used units is generally recognized at a point in time upon the transfer of control to the customer, which occurs when the unit is delivered and installed in accordance with the contract. Sales transactions constitute a single performance obligation.
Revenue Disaggregation
Geographic Areas
The Company had total revenue in the following geographic areas for the three months ended March 31:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2019 | 2018 | |||||||||
| US | $ | ||||||||||
| Canada | |||||||||||
| Mexico | |||||||||||
| Total | $ | ||||||||||
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Major Product and Service Lines
Rental equipment leasing is the Company’s core business, which significantly impacts the nature, timing, and uncertainty of the Company’s revenue and cash flows. This includes both modular space and portable storage units along with value added products and services ("VAPS"), which include furniture, steps, ramps, basic appliances, internet connectivity devices, and other items used by customers in connection with our products. Rental equipment leasing is complemented by new product sales and sales of rental units. In connection with its leasing and sales activities, the Company provides services including delivery and installation, maintenance and ad-hoc services, and removal services at the end of lease transactions.
The Company’s revenue by major product and service line for the three months ended March 31 is as follows:
| Three Months Ended March 31, | |||||||||||
| 2019 | 2018 | ||||||||||
| (in thousands) | Total | Total | |||||||||
| Modular space leasing revenue | $ | $ | |||||||||
| Portable storage leasing revenue | |||||||||||
| VAPS (a) | |||||||||||
| Other leasing-related revenue (b) | |||||||||||
| Modular leasing revenue | |||||||||||
| Modular delivery and installation revenue | |||||||||||
| Total leasing and services revenue | |||||||||||
| Sale of new units | |||||||||||
| Sale of rental units | |||||||||||
| Total revenues | $ | $ | |||||||||
(a) Includes $3.8 million and $2.3 million of VAPS service revenue for the three months ended March 31, 2019 and 2018, respectively.
(b) Primarily damage billings, delinquent payment charges, and other processing fees.
Receivables, Contract Assets and Liabilities
As reflected above, approximately 70 % of our rental revenue is accounted for under Topic 840. The customers that are responsible for the remaining revenue that is accounted for under Topic 606 (and Topic 605 prior to 2019) are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. Because the same customers generate the revenues that are accounted for under both Topic 606 and Topic 840, the discussions below on credit risk and our allowance for doubtful accounts address our total revenues.
Concentration of credit risk with respect to our receivables is limited because of a large number of geographically diverse customers who operate in a variety of end user markets. Our top five customers with the largest open receivables balances represent 3.8 % of the total receivables balance as of March 31, 2019. We manage credit risk through credit approvals, credit limits, and other monitoring procedures.
Our allowance for doubtful accounts reflects our estimate of the amount of receivables that we will be unable to collect based on specific customer risk and historical write-off experience. Our estimates reflect changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance. During the period ended March 31, 2019 and March 31, 2018, we recognized bad debt expenses of $2.9 million and $1.6 million, respectively, within SG&A in our consolidated statements of income, which included amounts written-off and changes in our allowances for doubtful accounts.
When customers are billed in advance, we defer recognition of revenue and reflect unearned revenue at the end of the period. As of January 1, 2019, we had approximately $32.1 million of deferred revenue that relates to removal services for lease transactions and advance billings for sale transactions, which are within the scope of Topic 606. As of March 31, 2019, we had approximately $38.0 million of deferred revenue relating to these services. These items are included in deferred revenue and customer deposits in the condensed consolidated balance sheets. During the three months ended March 31, 2019, $5.7 million of previously deferred revenue relating to removal services for lease transactions and advance billings for sale transactions was recognized as revenue.
We do not have material contract assets and we did not recognize any material impairments of any contract assets or receivables.
Our uncompleted contracts with customers have unsatisfied (or partially satisfied) performance obligations. For the future services 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 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.
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The primary costs to obtain contracts with our customers are commissions. We pay our sales force commissions on the sale of new and used units. For new and used sales, the period benefited by each commission is less than one year. As a result, we have applied the practical expedient for incremental costs of obtaining a sales contract and will expense commissions as incurred.
Other Matters
Our Topic 606 revenues do not include material amounts of variable consideration, other than the variability noted for services arrangements expected to be performed beyond a twelve month period.
Our payment terms vary by the type and location of our customer and the product or services offered. The time between invoicing and when payment is due is not significant. While the Company may bill certain customers in advance, our contracts do not contain a significant financing component based on the short length of time between upfront billings and the performance of contracted services. For certain products, services, or customer types, we require payment before the products or services are delivered to the customer.
Revenue is recognized net of taxes collected from customers, which are subsequently remitted to governmental authorities.
NOTE 4 - Inventories
Inventories at the respective balance sheet dates consisted of the following:
| (in thousands) | March 31, 2019 | December 31, 2018 | |||||||||
| Raw materials and consumables | $ | $ | |||||||||
| Work in process | |||||||||||
| Total inventories | $ | $ | |||||||||
NOTE 5 - Rental Equipment, net
Rental equipment, net, at the respective balance sheet dates consisted of the following:
(in thousands) | March 31, 2019 | December 31, 2018 | |||||||||
| Modular units and portable storage | $ | $ | |||||||||
| Value added products | |||||||||||
| Total rental equipment | |||||||||||
| Less: accumulated depreciation | ( | ( | |||||||||
| Rental equipment, net | $ | $ | |||||||||
During the three months ended March 31, 2018, the Company received $7.5 million in insurance proceeds related to assets damaged during Hurricane Harvey. The insurance proceeds exceeded the book value of damaged assets, and the Company recorded a gain of $3.0 million which is reflected in other income, net, on the condensed consolidated statements of operations for three months ended March 31, 2018, respectively. The Company did not receive any insurance proceeds during the three months ended March 31, 2019.
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NOTE 6 - Goodwill and Intangible Assets
Goodwill
Changes in the carrying amount of goodwill were as follows:
(in thousands) | Modular – US | Modular – Other North America | Total | ||||||||||||||
| Balance at January 1, 2018 | $ | $ | $ | ||||||||||||||
| Acquisition of a business | |||||||||||||||||
| Changes to preliminary purchase price allocations | |||||||||||||||||
| Effects of movements in foreign exchange rates | ( | ( | |||||||||||||||
| Balance at December 31, 2018 | |||||||||||||||||
| Acquisition of businesses | |||||||||||||||||
| Changes to preliminary purchase price allocations | ( | ( | ( | ||||||||||||||
| Effects of movements in foreign exchange rates | |||||||||||||||||
| Balance at March 31, 2019 | $ | $ | $ | ||||||||||||||
As described in Note 2, the Company acquired ModSpace in August 2018. A preliminary valuation of the acquired net assets of ModSpace resulted in the recognition of $176.1 million and $34.9 million of goodwill in the Modular - US segment and Modular - Other North America segments, respectively, which the Company expects will be non-deductible for income tax purposes.
Impairment Indicator Analysis
The Company had no goodwill impairment during the periods ended March 31, 2019 or December 31, 2018. There were no indicators of impairment as of March 31, 2019. There were indicators of impairment as of December 31, 2018, as detailed below.
In December 2018, there was a significant decline in the debt and equity capital markets, including the Company’s stock price, which constituted an indicator of potential impairment in management's judgment. As a result, the Company performed an interim goodwill impairment test as of December 31, 2018. The interim impairment analysis determined that there was no impairment of goodwill for either the US or Canadian reporting units as of December 31, 2018. As of December 31, 2018, the US reporting unit continued to have a fair in excess of carrying value of over 100 %. The Canadian reporting unit was determined to have a fair value in excess of carrying value of less than 1 % as of December 31, 2018.
The fair value of the reporting units at December 31, 2018 was determined based on the income approach, which requires management to make certain estimates and judgments for estimates of economic and market information in the discounted cash flow analyses.
There are inherent uncertainties and judgments involved when determining the fair value of the reporting units because the success of the reporting unit depends on the achievement of key assumptions developed by management including, but not limited to (i) achieving revenue growth through pricing, increased units on rent, increased penetration of value-added products and services, and other commercial strategies, (ii) efficient management of our operations and our fleet through maintenance and capital investment, and, (iii) achieving margin expectations, including integration synergies with acquired companies.
In addition, some of the estimates and assumptions used in determining fair value of the reporting units utilize inputs that are outside the control of management and are dependent on market and economic conditions, such as the discount rate, foreign currency rates, and growth rates. These assumptions are inherently uncertain and deterioration of market and economic conditions would adversely impact the Company's ability to meet its projected results and would affect the fair value of the reporting units.
Of the key assumptions that impact the goodwill impairment test, the expected future cash flows, discount rate and foreign exchange rates are among the most sensitive and are considered to be critical assumptions. If any one of the above inputs changes, it could reduce or increase the estimated fair value of the affected reporting unit. A reduction in the fair value of a reporting unit could result in an impairment charge up to the full amount of goodwill reported.
Although the Company believes that it has sufficient historical and projected information available to test for goodwill impairment, it is possible that actual results could differ from the estimates used in its impairment tests. As a result, the Company continues to monitor actual results versus forecast results and internal and external factors that may impact the enterprise value of the reporting unit.
Intangible Assets
The Company also preliminarily assigned $3.0 million and $4.0 million to definite-lived intangible assets, related to the ModSpace trade name and favorable lease rights, to the Modular - US segment. The trade name has an estimated useful life of years and the favorable lease asset has an estimated useful life of years. The Company expects the intangibles to be non-deductible for income tax purposes. The Company expects to finalize the valuation of the acquired net assets of ModSpace, including the related intangible assets, within the one-year measurement period from the date of acquisition.
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NOTE 7 - Debt
The carrying value of debt outstanding at the respective balance sheet dates consisted of the following:
(in thousands, except rates) | Interest rate | Year of maturity | March 31, 2019 | December 31, 2018 | |||||||||||||||||||
| 2022 Secured Notes | 2022 | $ | $ | ||||||||||||||||||||
| 2023 Secured Notes | 2023 | ||||||||||||||||||||||
| Unsecured Notes | 2023 | ||||||||||||||||||||||
| US ABL Facility | Varies | 2022 | |||||||||||||||||||||
| Canadian ABL Facility (a) | Varies | 2022 | |||||||||||||||||||||
| Capital lease and other financing obligations | |||||||||||||||||||||||
| Total debt | |||||||||||||||||||||||
| Less: current portion of long-term debt | ( | ( | |||||||||||||||||||||
| Total long-term debt | $ | $ | |||||||||||||||||||||
(a) As of March 31, 2019, the Company had no outstanding principal borrowings remaining on the Canadian ABL Facility and $2.7 million of related debt issuance costs. As there were no principal borrowings outstanding on the Canadian ABL Facility as of March 31, 2019, $2.7 million of debt issuance costs related to that facility are included in other non-current assets on the unaudited condensed consolidated balance sheet. As of December 31, 2018, the Company had $0.9 million of outstanding principal borrowings on the Canadian ABL Facility and $2.9 million of related debt issuance costs. $0.9 million of the related debt issuance costs are recorded as a direct offset against the principal of the Canadian ABL Facility and the remaining $2.0 million, in excess of principal, has been included in other non-current assets on the condensed consolidated balance sheet.
The Company is subject to various covenants and restrictions for the ABL Facility, the 2022 Secured Notes, the 2023 Secured Notes and the Unsecured Notes, as defined below. The Company is in compliance with all covenants related to debt as of March 31, 2019 and December 31, 2018, respectively.
ABL Facility
On November 29, 2017, WS Holdings, WSII and certain of its subsidiaries entered into an ABL credit agreement (the “ABL Facility”), as amended in July and August 2018, that provides a senior secured revolving credit facility that matures on May 29, 2022.
The ABL Facility consists of (i) a $1.285 billion asset-backed revolving credit facility (the “US ABL Facility”) for WSII and certain of its domestic subsidiaries (the “US Borrowers”), (ii) a $140.0 million asset-based revolving credit facility (the “Canadian ABL Facility”) for certain Canadian subsidiaries of WSII (the “Canadian Borrowers,” and together with the US Borrowers, the “Borrowers”), and (iii) an accordion feature that permits the Borrowers to increase the lenders’ commitments in an aggregate amount not to exceed $375.0 million, subject to the satisfaction of customary conditions, plus any voluntary prepayments that are accompanied by permanent commitment reductions under the ABL Facility.
The obligations of the US Borrowers are unconditionally guaranteed by WS Holdings and each existing and subsequently acquired or organized direct or indirect wholly-owned US organized restricted subsidiary of WS Holdings, other than excluded subsidiaries (together with WS Holdings, the "US Guarantors"). The obligations of the Canadian Borrowers are unconditionally guaranteed by the US Borrowers and the US Guarantors, and each existing and subsequently acquired or organized direct or indirect wholly-owned Canadian organized restricted subsidiary of WS Holdings other than certain excluded subsidiaries (together with the US Guarantors, the "ABL Guarantors").
At March 31, 2019, the weighted average interest rate for borrowings under the ABL Facility was 4.99 %. The weighted average interest rate on the balance outstanding, as adjusted for the effects of the interest rate swap agreements was 5.24%. Refer to Note 13 for a more detailed discussion on interest rate management.
At March 31, 2019, the Borrowers had $468.9 million of available borrowing capacity under the ABL Facility, including $328.9 million under the US ABL Facility and $140.0 million under the Canadian ABL Facility. At December 31, 2018, the Borrowers had $532.6 million of available borrowing capacity under the ABL Facility, including $393.5 million under the US ABL Facility and $139.1 million under the Canadian ABL Facility.
The Company had issued $13.0 million of standby letters of credit under the ABL Facility at March 31, 2019 and December 31, 2018. At March 31, 2019, letters of credit and guarantees carried fees of 2.625 %.
The Company had $910.5 million and $879.4 million in outstanding principal under the ABL Facility at March 31, 2019 and December 31, 2018, respectively.
Debt issuance costs and discounts of $23.3 million and $26.0 million are included in the carrying value of the ABL Facility at March 31, 2019 and December 31, 2018, respectively.
2022 Senior Secured Notes
In connection with the closing of the Business Combination, WSII issued $300.0 million aggregate principal amount of 7.875 % senior secured notes due December 15, 2022 (the “2022 Secured Notes”) under an indenture dated November 29, 2017, entered into by and among WSII, the guarantors named therein (the "Note Guarantors"), and Deutsche Bank Trust
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Company Americas, as trustee and as collateral agent. Interest is payable semi-annually on June 15 and December 15, beginning June 15, 2018.
Unamortized debt issuance costs pertaining to the 2022 Secured Notes was $7.3 million and $7.7 million as of March 31, 2019 and December 31, 2018, respectively.
2023 Senior Secured Notes
On August 6, 2018, a special purpose subsidiary of WSII completed a private offering of $300.0 million in aggregate principal amount of its 6.875 % senior secured notes due August 15, 2023 (the “2023 Secured Notes”, and together with the 2022 Secured Notes, the "Senior Secured Notes"). The issuer entered into an indenture dated August 6, 2018 with Deutsche Bank Trust Company Americas, as trustee, which governs the terms of the 2023 Secured Notes. In connection with the ModSpace acquisition, the issuer merged with and into WSII and WSII assumed the 2023 Secured Notes. Interest is payable semi-annually on February 15 and August 15 of each year, beginning February 15, 2019.
Unamortized debt issuance costs and discounts pertaining to the 2023 Secured Notes were $5.9 million and $6.1 million as of March 31, 2019 and December 31, 2018, respectively.
2023 Senior Unsecured Notes
On August 3, 2018, a special purpose subsidiary of WSII completed a private offering of $200.0 million in aggregate principal amount of its senior unsecured notes due November 15, 2023 (the “Unsecured Notes”). The issuer entered into an indenture with Deutsche Bank Trust Company Americas, as trustee, which governs the terms and conditions of the Unsecured Notes. In connection with the ModSpace acquisition, the issuer merged with and into WSII and WSII assumed the Unsecured Notes.
If paid in cash, the Unsecured Notes bear interest at a rate of 10 % per annum, on or before February 15, 2021, and at an increased rate per annum of 12.5 % thereafter. Interest is payable semi-annually on February 15 and August 15 of each year, beginning February 15, 2019.
Unamortized debt issuance costs and discounts pertaining to the Unsecured Notes were $1.0 million and $1.1 million as of March 31, 2019 and December 31, 2018, respectively.
Capital Lease and Other Financing Obligations
The Company’s capital lease and financing obligations primarily consisted of $38.2 million and $37.9 million under sale-leaseback transactions and $0.1 million and $0.1 million of capital leases at March 31, 2019 and December 31, 2018, respectively. The Company’s capital lease and financing obligations are presented net of $1.5 million and $1.6 million of debt issuance costs at March 31, 2019 and December 31, 2018, respectively. The Company’s capital leases primarily relate to real estate, equipment and vehicles and have interest rates ranging from 1.2 % to 11.9 %.
NOTE 8 – Equity
Common Stock and Warrants
Common Stock
In connection with the stock compensation vesting event described in Note 12, the Company issued 184,212 shares of common stock during the three months ended March 31, 2019.
Warrants
Double Eagle issued warrants to purchase its common stock as components of units sold in its initial public offering (the “Public Warrants”). Double Eagle also issued warrants to purchase its common stock in a private placement concurrently with its initial public offering (the “Private Warrants,” and together with the Public Warrants, the "2015 Warrants").
At March 31, 2019, 24,367,867 of the 2015 Warrants and 9,999,579 of the 2018 Warrants were outstanding.
Registration Statements
On February 12, 2019, a registration statement filed by WillScot with the SEC became effective. Under the shelf registration statement, 562,542 shares of WillScot Class A common stock issued to the former ModSpace shareholders, 8,914,969 2018 Warrants and up to 9,999,579 new WillScot Class A shares issuable upon the exercise of the 2018 Warrants were registered for resale.
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Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss ("AOCL"), net of tax, for the three months ended March 31, 2019 and 2018 were as follows:
(in thousands) | Foreign Currency Translation | Unrealized losses on hedging activities | Total | |||||||||||||||||
| Balance at December 31, 2018 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Total other comprehensive income (loss) prior to reclassifications | ( | |||||||||||||||||||
| Reclassifications to the statements of operations | ||||||||||||||||||||
| Less other comprehensive (income) loss attributable to non-controlling interest | ( | ( | ||||||||||||||||||
| Balance at March 31, 2019 | $ | ( | $ | ( | $ | ( | ||||||||||||||
(in thousands) | Foreign Currency Translation Adjustment | Unrealized losses on hedging activities | Total | |||||||||||||||||
| Balance at December 31, 2017 | $ | ( | $ | $ | ( | |||||||||||||||
| Total other comprehensive income prior to reclassifications | ||||||||||||||||||||
Reclassifications to accumulated deficit(a) | ( | ( | ||||||||||||||||||
| Less other comprehensive income attributable to non-controlling interest | ( | ( | ||||||||||||||||||
| Balance at March 31, 2018 | $ | ( | $ | $ | ( | |||||||||||||||
For the three months ended March 31, 2019, $0.6 million was reclassified from AOCL into the consolidated statement of operations within interest expense related to the interest rate swaps discussed in Note 13. The Company recorded a tax benefit of $0.1 million associated with this reclassification.
Non-Controlling Interest
The changes in the non-controlling interest for the three months ended March 31, 2019 and 2018 were as follows:
| Three Months Ended March 31, | |||||||||||
(in thousands) | 2019 | 2018 | |||||||||
| Balance at beginning of the period | $ | $ | |||||||||
| Net loss attributable to non-controlling interest | ( | ( | |||||||||
| Other comprehensive income | |||||||||||
| Balance at end of the period | $ | $ | |||||||||