Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
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 001-37386
https://cdn.kscope.io/aa7f42232fffb72c7889488c5c39b414-logoa04.jpg
FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
(Exact name of registrant as specified in its charter)
Delaware
 
32-0434238
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1345 Avenue of the Americas,
New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (212) 798-6100
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 þ No ¨ 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 þ  
Accelerated filer ¨ 
Non-accelerated filer  ¨  
 
Smaller reporting company ¨  
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
There were 82,779,232 common shares representing limited liability company interests outstanding at May 4, 2018.




FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead are based on our present beliefs and assumptions and on information currently available to the Company. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us, that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:
changes in economic conditions generally and specifically in our industry sectors, and other risks relating to the global economy;
reductions in cash flows received from our assets, as well as contractual limitations on the use of our aviation assets to secure debt for borrowed money;
our ability to take advantage of acquisition opportunities at favorable prices;
a lack of liquidity surrounding our assets, which could impede our ability to vary our portfolio in an appropriate manner;
the relative spreads between the yield on the assets we acquire and the cost of financing;
adverse changes in the financing markets we access affecting our ability to finance our acquisitions;
customer defaults on their obligations;
our ability to renew existing contracts and win additional contracts with existing or potential customers;
the availability and cost of capital for future acquisitions;
concentration of a particular type of asset or in a particular sector;
competition within the aviation, energy, intermodal transport and rail sectors;
the competitive market for acquisition opportunities;
risks related to operating through joint ventures or partnerships or through consortium arrangements;
obsolescence of our assets or our ability to sell, re-lease or re-charter our assets;
exposure to uninsurable losses and force majeure events;
infrastructure operations may require substantial capital expenditures;
the legislative/regulatory environment and exposure to increased economic regulation;
exposure to the oil and gas industry’s volatile oil and gas prices;
difficulties in obtaining effective legal redress in jurisdictions in which we operate with less developed legal systems;
our ability to maintain our exemption from registration under the Investment Company Act of 1940 and the fact that maintaining such exemption imposes limits on our operations;
our ability to successfully utilize leverage in connection with our investments;
foreign currency risk and risk management activities;
effectiveness of our internal control over financial reporting;
exposure to environmental risks, including increasing environmental legislation and the broader impacts of climate change;
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
actions taken by national, state, or provincial governments, including nationalization, or the imposition of new taxes, could materially impact the financial performance or value of our assets;
our dependence on our Manager and its professionals and actual, potential or perceived conflicts of interest in our relationship with our Manager;
effects of the recently completed merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.;

2




volatility in the market price of our common shares;
the inability to pay dividends to our shareholders in the future; and
other risks described in the “Risk Factors” section of this report.
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.

3




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
INDEX TO FORM 10-Q

 
PART I - FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


4




PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED BALANCE SHEETS

 
 
 
(Unaudited)
 
 

Notes

March 31,
 
December 31,
(Dollar amounts in thousands, except share and per share data)

2018

2017
Assets





Cash and cash equivalents
2

$
80,916


$
59,400

Restricted cash
2

25,823


33,406

Accounts receivable, net


36,847


31,076

Leasing equipment, net
3

1,128,493


1,074,130

Finance leases, net
4

9,115


9,244

Property, plant, and equipment, net
5

512,052


489,949

Investments
6

43,702


42,538

Intangible assets, net
7

37,978


40,043

Goodwill


116,584


116,584

Other assets
2

56,316


59,436

Total assets


$
2,047,826


$
1,955,806







Liabilities





Accounts payable and accrued liabilities


$
56,031


$
68,226

Debt, net
8

710,638


703,264

Maintenance deposits
 

107,444


103,464

Security deposits
 

28,921


27,257

Other liabilities


18,298


18,520

Total liabilities


$
921,332


$
920,731







Commitments and contingencies
16










Equity





Common shares ($0.01 par value per share; 2,000,000,000 shares authorized; 82,779,232 and 75,771,738 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively)


828


758

Additional paid in capital


1,085,492


985,009

Accumulated deficit

 
(39,271
)
 
(38,699
)
Accumulated other comprehensive income





Shareholders' equity


1,047,049


947,068

Non-controlling interest in equity of consolidated subsidiaries


79,445


88,007

Total equity


1,126,494


1,035,075

Total liabilities and equity


$
2,047,826


$
1,955,806






See accompanying notes to consolidated financial statements.

5




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Dollar amounts in thousands, except share and per share data)


Three Months Ended March 31,
Notes

2018
 
2017
Revenues





Equipment leasing revenues


$
55,784


$
31,388

Infrastructure revenues


13,060


13,285

Total revenues
10

68,844


44,673







Expenses





Operating expenses


27,579


21,013

General and administrative


3,586


3,835

Acquisition and transaction expenses


1,766


1,452

Management fees and incentive allocation to affiliate
13

3,739


3,893

Depreciation and amortization
3, 5, 7

29,587


17,377

Interest expense


11,871


4,694

Total expenses


78,128


52,264







Other income (expense)





Equity in earnings (losses) of unconsolidated entities
6

95


(1,266
)
(Loss) gain on sale of equipment, net


(5
)

2,018

Loss on extinguishment of debt
8



(2,456
)
Interest income


176


283

Other income


180


12

Total other income (expense)


446


(1,409
)






Loss before income taxes


(8,838
)

(9,000
)
Provision for income taxes
12

495


212

Net loss


(9,333
)

(9,212
)
Less: Net loss attributable to non-controlling interests in consolidated subsidiaries


(8,761
)

(4,798
)
Net loss attributable to shareholders


$
(572
)

$
(4,414
)








Loss per share
15

 

 
Basic and Diluted


$
(0.01
)
 
$
(0.06
)
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
Basic


81,534,454


75,762,283

Diluted
 
 
81,534,454

 
75,762,283













See accompanying notes to consolidated financial statements.

6




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

 
 
Three Months Ended March 31,
(Dollar amounts in thousands)
 
2018
 
2017
Net loss
 
$
(9,333
)
 
$
(9,212
)
Other comprehensive loss:
 
 
 
 
Change in fair value of available-for-sale securities
 

 
4,859

Comprehensive loss
 
(9,333
)
 
(4,353
)
Comprehensive loss attributable to non-controlling interest
 
(8,761
)
 
(4,798
)
Comprehensive (loss) income attributable to shareholders
 
$
(572
)
 
$
445






















































See accompanying notes to consolidated financial statements.

7




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

(Dollar amounts in thousands)
Common Shares
 
Additional Paid In Capital
 
Accumulated Deficit
 
 Accumulated Other Comprehensive Income
 
 Non-Controlling Interest in Equity of Consolidated Subsidiaries
 
Total Equity
Equity - December 31, 2017
$
758

 
$
985,009

 
$
(38,699
)
 
$

 
$
88,007

 
$
1,035,075

Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Net loss for the period
 
 
 
 
(572
)
 
 
 
(8,761
)
 
(9,333
)
Other comprehensive loss
 
 
 
 

 

 

 

Total comprehensive loss

 

 
(572
)
 

 
(8,761
)
 
(9,333
)
Dividends declared
 
 
(27,333
)
 
 
 
 
 

 
(27,333
)
Issuance of common shares
70

 
127,807

 
 
 
 
 

 
127,877

Equity-based compensation
 
 
9

 
 
 
 
 
199

 
208

Equity - March 31, 2018
$
828

 
$
1,085,492

 
$
(39,271
)
 
$

 
$
79,445

 
$
1,126,494












































See accompanying notes to consolidated financial statements.

8




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 
Three Months Ended March 31,
(Dollar amounts in thousands)
2018
 
2017
 Cash flows from operating activities:
 
 
 
 Net loss
$
(9,333
)
 
$
(9,212
)
 Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Equity in (earnings) losses of unconsolidated entities
(95
)
 
1,266

Loss (gain) on sale of equipment, net
5

 
(2,018
)
Security deposits and maintenance claims included in earnings
(383
)
 

Loss on extinguishment of debt

 
2,456

Equity-based compensation
208

 
87

Depreciation and amortization
29,587

 
17,377

Change in current and deferred income taxes
504

 
209

Change in fair value of non-hedge derivative
(624
)
 

Amortization of lease intangibles and incentives
7,226

 
1,949

Amortization of deferred financing costs
1,151

 
1,133

Bad debt expense
1,441

 
31

Other
9

 
37

Change in:
 
 
 
 Accounts receivable
(7,387
)
 
(1,626
)
 Other assets
1,176

 
11,227

 Accounts payable and accrued liabilities
(9,768
)
 
(4,992
)
 Management fees payable to affiliate
(1,300
)
 
(347
)
 Other liabilities
(947
)
 
103

 Net cash provided by operating activities
11,470

 
17,680

 
 
 
 
 Cash flows from investing activities:
 
 
 
Investment in notes receivable
(912
)
 

Investment in unconsolidated entities and available for sale securities
(1,115
)
 
(14,654
)
Principal collections on finance leases
129

 
110

Acquisition of leasing equipment
(86,043
)
 
(67,695
)
Acquisition of property plant and equipment
(23,641
)
 
(14,796
)
Acquisition of lease intangibles
(1,029
)
 

Purchase deposits for acquisitions
(6,886
)
 
(1,120
)
Proceeds from sale of leasing equipment
6,136

 
9,834

Proceeds from sale of property, plant and equipment
38

 
52

Proceeds from deposit on sale of leasing equipment
240

 
60

Return of deposit on sale of engine
(400
)
 

 Net cash used in investing activities
$
(113,483
)
 
$
(88,209
)













See accompanying notes to consolidated financial statements.

9




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 
Three Months Ended March 31,
(Dollar amounts in thousands)
2018
 
2017
 Cash flows from financing activities:
 
 
 
Proceeds from debt
$
18,600

 
$
235,411

Repayment of debt
(12,612
)
 
(1,562
)
Payment of deferred financing costs
(71
)
 
(366
)
Receipt of security deposits
1,864

 
1,425

Return of security deposits
(700
)
 
(32
)
Receipt of maintenance deposits
9,720

 
4,424

Release of maintenance deposits
(1,840
)
 

Proceeds from issuance of common shares, net of underwriter's discount
128,450

 

Common shares issuance costs
(132
)
 

Cash dividends
(27,333
)
 
(25,013
)
 Net cash provided by financing activities
$
115,946

 
$
214,287

 
 
 
 
 Net increase in cash and cash equivalents and restricted cash
13,933

 
143,758

 Cash and cash equivalents and restricted cash, beginning of period
92,806

 
133,496

 Cash and cash equivalents and restricted cash, end of period
$
106,739

 
$
277,254

 
 
 
 
 Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Proceeds from borrowings of debt
$
511

 
$
108,089

Repayment and settlement of debt

 
(100,000
)
Acquisition of leasing equipment
(2,938
)
 
(18,324
)
Acquisition of property, plant and equipment
(5,849
)
 
(303
)
Settled and assumed security deposits
500

 
296

Billed, assumed and settled maintenance deposits
(3,517
)
 
2,398

Deferred financing costs

 
(9,117
)
Issuance of common shares
150

 
160

Common share issuance costs
(591
)
 
























See accompanying notes to consolidated financial statements.

10


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)


1.
ORGANIZATION
Fortress Transportation and Infrastructure Investors LLC (the “Company”) is a Delaware limited liability company which, through its subsidiary, Fortress Worldwide Transportation and Infrastructure General Partnership (the “Partnership”), is engaged in the ownership and leasing of aviation equipment, offshore energy equipment and shipping containers, and also owns and operates a short line railroad in North America, Central Maine and Québec Railway (“CMQR”), a multi-modal crude oil and refined products terminal in Beaumont, Texas (“Jefferson Terminal”), a deep-water port located along the Delaware River with an underground storage cavern and multiple industrial development opportunities (“Repauno”), and a multi-modal terminal located along the Ohio River with multiple industrial development opportunities (“Long Ridge”). The Company has six reportable segments, (i) Aviation Leasing, (ii) Offshore Energy, (iii) Shipping Containers, (iv) Jefferson Terminal, (v) Railroad, and (vi) Ports and Terminals, which operate in two primary businesses, Equipment Leasing and Infrastructure (Note 14).
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of AccountingThe accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its subsidiaries.
Principles of ConsolidationThe Company consolidates all entities in which it has a controlling financial interest and in which it has control over significant operating decisions, as well as variable interest entities (“VIEs”) in which the Company is the primary beneficiary. All significant intercompany transactions and balances have been eliminated. The ownership interest of other investors in consolidated subsidiaries is recorded as non-controlling interest.
The Company uses the equity method of accounting for investments in entities in which the Company exercises significant influence but which do not meet the requirements for consolidation. Under the equity method, the Company records its proportionate share of the underlying net income (loss) of these entities.
Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and UncertaintiesIn the normal course of business, the Company encounters several significant types of economic risk including credit, market, and capital market risks. Credit risk is the risk of the inability or unwillingness of a lessee, customer, or derivative counterparty to make contractually required payments or to fulfill its other contractual obligations. Market risk reflects the risk of a downturn or volatility in the underlying industry segments in which the Company operates which could adversely impact the pricing of the services offered by the Company or a lessee’s or customer’s ability to make payments, increase the risk of unscheduled lease terminations and depress lease rates and the value of the Company’s leasing equipment or operating assets. Capital market risk is the risk that the Company is unable to obtain capital at reasonable rates to fund the growth of its business or to refinance existing debt facilities. The Company, through its subsidiaries, also conducts operations outside of the United States; such international operations are subject to the same risks as those associated with its United States operations as well as additional risks, including unexpected changes in regulatory requirements, heightened risk of political and economic instability, potentially adverse tax consequences and the burden of complying with foreign laws. The Company does not have significant exposure to foreign currency risk as all of its leasing arrangements, terminal services revenue and the majority of freight rail revenue are denominated in U.S. dollars.
Variable Interest EntitiesThe assessment of whether an entity is a VIE and the determination of whether to consolidate a VIE requires judgment. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.


11


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

JGP Energy Partners LLC
During the quarter ended September 30, 2016, the Company initiated activities in its 50% owned joint venture, JGP Energy Partners LLC (“JGP”). The other 50% member to the joint venture is a third party ethanol producer. The purpose of the venture is to build storage capacity with capabilities to receive and/or distribute ethanol via water, rail or truck. Each member agreed to contribute up to $27,000 (for a total of $54,000) for the development and construction of the ethanol terminal facilities. JGP is governed by a designated operating committee selected by the members in proportion to their equity interests. JGP is solely reliant on its members to finance its activities and therefore is a VIE. The Company concluded that it is not the primary beneficiary of JGP as the members share equally in the risks and rewards and decision making authority of the entity; therefore, the Company does not consolidate JGP and accounts for this investment in accordance with the equity method. Refer to Note 6 for details.
Delaware River Partners LLC
On July 1, 2016, the Company, through Delaware River Partners LLC (“DRP”), a consolidated subsidiary, purchased the assets of Repauno, which consisted primarily of land, a storage cavern, and riparian rights for the acquired land, site improvements and rights. Upon acquisition there were no operational processes that could be applied to these assets that would result in outputs without significant green field development. The Company currently holds a 90% economic interest and a 100% voting interest in DRP. DRP is solely reliant on the Company to finance its activities and therefore is a VIE. The Company concluded it was the primary beneficiary; and accordingly, DRP has been presented on a consolidated basis in the accompanying financial statements. The Company has the right to purchase an additional 8% economic interest from the non-controlling party after the second anniversary but prior to the fifth year anniversary of the acquisition of Repauno. At the time of the purchase, the Company concluded that 8% of the 10% interest held by the non-controlling party does not share in the risks or rewards of true equity.
Ohio River Partners LLC
On June 16, 2017, the Company, through Ohio River Partners LLC (“ORP”), a consolidated subsidiary, purchased the assets of Long Ridge which consisted primarily of land, buildings, railroad track, docks, water rights, site improvements and other rights. The Company purchased 100% of the interests in these assets. ORP is solely reliant on the Company to finance its activities and therefore is a VIE. The Company concluded it was the primary beneficiary; accordingly, ORP has been presented on a consolidated basis in the accompanying financial statements.
Cash and Cash EquivalentsThe Company considers all highly liquid short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.
Restricted CashRestricted cash of $25,823 and $33,406 as of March 31, 2018 and December 31, 2017, respectively, consists of prepaid interest and principal pursuant to the requirements of certain of the Company’s debt agreements (Note 8), and funds set aside for qualifying construction projects at Jefferson Terminal.
Available-For-Sale SecuritiesThe Company considers listed equity securities as available-for-sale securities recorded at fair value with unrealized gains (losses) recorded in other comprehensive income (loss) and realized gains (losses) recorded in earnings. The Company’s basis on which the cost of the security sold or the amount reclassified out of other comprehensive income into earnings is determined using specific identification. Available-for-sale securities are included as a component of investments on the accompanying Consolidated Balance Sheets. At each balance sheet date, the Company evaluates its available for sale securities holdings with unrealized losses to determine if an other-than-temporary impairment has occurred. Refer to Note 6 and Note 9 for details.
InventoryCrude oil is carried at the lower of cost or net realizable value on the Company’s balance sheet. Crude oil is removed from inventory based on the average cost at the time of sale. At March 31, 2018 and December 31, 2017, the Company had crude oil inventory of $4,892 and $8,877, respectively. The Company records its inventory as a component of other assets on the accompanying Consolidated Balance Sheets.
Deferred Financing CostsCosts incurred in connection with obtaining long term financing are capitalized and amortized to interest expense over the term of the underlying loans. Unamortized deferred financing costs of $10,559 and $11,423 as of March 31, 2018 and December 31, 2017, respectively, are recorded as a component of debt in the accompanying Consolidated Balance Sheets. In connection with the Jefferson Revolver, the Company incurred $511 of deferred financing costs as of March 31, 2018 which are recorded as a component of other assets in the accompanying Consolidated Balance Sheet. Refer to Note 8 for details.
Amortization expense was $1,151 and $1,133 for the three months ended March 31, 2018 and 2017, respectively. Amortization expense is included as a component of interest expense in the accompanying Consolidated Statements of Operations.

12


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

Revenue Recognition
Effective January 1, 2018, the Company adopted FASB ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) and related updates. The standard’s core principle is that a Company will recognize revenue when it transfers promised goods or services to customers in an amount that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The adoption of this standard is applied using the modified retrospective approach. See below for a detailed description of revenue recognition by our two strategic business units, Equipment Leasing and Infrastructure.
Lease contracts, within the scope of ASC 840, Leases, are specifically excluded from ASU 2014-09. Infrastructure revenues that do not qualify as leases or leases that are combined with other services are recognized as revenue only when the services have been performed or goods transferred and the Company expects to be entitled in exchange for the goods delivered or services performed in accordance with contractual obligations. See Note 11 for additional details regarding the disaggregation of our revenues by segment.
The adoption of the standard did not have a material impact on our consolidated financial statements and related disclosures.
Equipment Leasing Revenues
Operating Leases—The Company leases equipment pursuant to net operating leases. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the lease, assuming no renewals. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.
The Company also recognizes maintenance revenue related to the portion of maintenance payments received from lessees of aviation equipment that are not expected to be reimbursed in connection with major maintenance events.
Finance Lease—The Company owns one anchor handling tug supply vessel subject to a finance lease, as of March 31, 2018 and 2017. This lease generally includes a lessee obligation to purchase the leased equipment at the end of the lease term, a bargain purchase option, or provides for minimum lease payments with a present value of 90% or more of the fair value of the leased equipment at the date of lease inception. Net investment in finance lease represents the minimum lease payments due from lessee, net of unearned income. The lease payments are segregated into principal and interest components similar to a loan. Unearned income is recognized on an effective interest method over the lease term and is recorded as finance lease income. The principal component of the lease payment is reflected as a reduction to the net investment in finance leases.
Infrastructure Revenues
Rail Revenues—Rail revenues are recognized proportionally as freight moves from origin to destination. Other miscellaneous revenues, such as unloading and switching revenue, are recognized as the service is performed or contractual obligations are met.
Terminal Services Revenues—Terminal services revenues are recognized when services have been provided to the customer, the product has been delivered, the price is considered to be fixed or determinable and collectability is reasonably assured. Prepayments for services are deferred until the period in which the above criteria are met. Terminal services fees include services provided to third-party customers related to receipt and redelivery of crude oil products.
Lease Revenues—Ports and Terminals revenue are recognized as various tenants lease out storage space including equipment, piping and frac sand. Lease revenue is recognized based on the terms of the lease agreement.
Concentration of Credit RiskThe Company is subject to concentrations of credit risk with respect to amounts due from customers on its finance lease and operating leases. The Company attempts to limit its credit risk by performing ongoing credit evaluations. During the three months ended March 31, 2018 and 2017, the Company had no revenue concentration over 10% of total revenue from any one customer.
As of March 31, 2018, accounts receivable from two customers in the Offshore Energy segment each represented 12% of total accounts receivable, net. As of December 31, 2017, accounts receivable from two customers in the Offshore Segment represented 17% and 10%, respectively, of total accounts receivable, net.
The Company maintains cash and restricted cash balances, which generally exceed federally insured limits, and subject the Company to credit risk, in high credit quality financial institutions. The Company monitors the financial condition of these institutions and has not experienced any losses associated with these accounts.
Provision for Doubtful AccountsThe Company determines the provision for doubtful accounts based on its assessment of the collectability of its receivables on a customer-by-customer basis. The provision for doubtful accounts at March 31, 2018 and December 31, 2017 was $2,084 and $983, respectively. Bad debt expense was $1,441 and $31 for the three months ended March 31, 2018 and 2017, respectively.

13


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

Comprehensive Income (Loss)Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. The Company’s comprehensive income (loss) represents net income (loss), as presented in the Consolidated Statements of Operations, adjusted for fair value changes related to the available-for-sale securities and derivatives accounted for as cash flow hedges.
Derivative Financial InstrumentsIn 2017 the Company entered into short-term crude forward contracts. The fair value of the short-term derivative asset at March 31, 2018 and December 31, 2017 was $398 and $1,022, respectively, recorded in other assets.
Other Assets—Other assets is primarily comprised of crude oil of $4,892 and $8,877, notes receivable of $3,367 and $2,623, purchase deposits for acquisitions of $13,535 and $12,299, lease incentives of $23,176 and $23,811, and prepaid expenses of $4,291 and $4,149 as of March 31, 2018 and December 31, 2017, respectively.
Dividends—Dividends are recorded if and when declared by the Board of Directors. For both the three months ended March 31, 2018 and 2017, the Board of Directors declared a cash dividend of $0.33 per share.
Recent Accounting PronouncementsIn October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control (“ASU 2016-17”). ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. ASU 2016-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-17 as of January 1, 2017 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) (“ASU 2017-01”). ASU 2017-01 clarifying the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses or assets. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2017-01 as of January 1, 2017 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB deferred the effective date of this standard by one year, which will be for fiscal years, and interim periods within those years, beginning after December 15, 2017. Additionally, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing and ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606) and ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting which clarify the guidance on reporting revenue as a principal versus agent, identifying and disclosing performance obligations, accounting for intellectual property licenses, and assessing collectibility, present sales tax, treating noncash consideration. The Company has identified and evaluated relevant revenue contracts within the scope of the guidance. The Company adopted ASU 2014-09 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 requires (i) equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income, (ii) public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (iii) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset. ASU 2016-01 also eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The pronouncement is effective for fiscal years, and interim

14


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2016-01 as of January 1, 2018 and the adoption of this guidance did not have any impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses the following eight specific cash flow issues: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies (COLIs); (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; (viii) and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-15 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the presentation of the Company’s Statements of Cash Flows.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). ASU 2016-16 prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. In addition, interpretations of this guidance have developed in practice for transfers of certain intangible and tangible assets. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. To more faithfully represent the economics of intra-entity asset transfers, the amendments ASU 2016-16 require that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in ASU 2016-16 do not change GAAP for the pre-tax effects of an intra-entity asset transfer under Topic 810, Consolidation, or for an intra-entity transfer of inventory. ASU 2016-16 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual reporting periods. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-16 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 addresses the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230, Statement of Cash Flows. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-18 as of January 1, 2018 and the adoption of this guidance included changes in restricted cash in the Company’s Statements of Cash Flows for all periods presented.
In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017-05 amends the scope of the nonfinancial asset guidance in Subtopic 610-20. The amendments also clarify that the derecognition of all businesses and nonprofit activities (except those related to conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in accordance with the derecognition and deconsolidation guidance in Subtopic 810-10. In addition, the amendments eliminate the exception in the financial asset guidance for transfers of investments (including equity method investments) in real estate entities and supersede the guidance in the Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest Subsection within Topic 845. The amendments in ASU 2017-05 also provide guidance on the accounting for what often are referred to as partial sales of nonfinancial assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other noncontrolled investee. ASU 2017-05 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2017-05 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and early adoption is permitted, including in an interim period. ASU 2017-09 is to be applied on a prospective basis to an award modified on or after the adoption date. The Company adopted ASU 2017-09 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

15


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

Unadopted Accounting PronouncementsIn February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019, with early adoption permitted. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company’s evaluation of the impact of the new guidance on its consolidated financial statements is ongoing. The Company is currently identifying the lease arrangements within the scope of the new guidance, and evaluating the impact of the lease arrangements. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from contracts from customers (Topic 606), Leases (Topic 840) and Leases (Topic 842) (“ASU 2017-13”), which adds SEC paragraphs to the new revenue and lease sections of the codification on the announcement of the SEC observer made at the July 2017 EITF meeting.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 addresses concerns over the cost and complexity of the two-step goodwill impairment test by removing the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. ASU 2017-01 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
3.
LEASING EQUIPMENT, NET
Leasing equipment, net is summarized as follows:
 
March 31, 2018
 
December 31, 2017
Leasing equipment
$
1,292,473

 
$
1,217,862

Less: accumulated depreciation
(163,980
)
 
(143,732
)
Leasing equipment, net
$
1,128,493

 
$
1,074,130

During the three months ended March 31, 2018, the Company acquired eight aircraft and three commercial jet engines, and sold four commercial jet engines. During the three months ended March 31, 2017, the Company acquired six aircraft and 12 commercial jet engines, and sold one aircraft.
Depreciation expense for leasing equipment is summarized as follows:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Depreciation expense for leasing equipment
 
$
23,691

 
$
13,173


16


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

4.     FINANCE LEASES, NET
Finance leases, net are summarized as follows:
 
March 31, 2018
 
December 31, 2017
Finance leases
$
15,520

 
$
16,015

Unearned revenue
(6,405
)
 
(6,771
)
Finance leases, net
$
9,115

 
$
9,244

As of March 31, 2018, future minimum lease payments to be received under finance leases for the remainder of the lease terms are as follows:
 
Total
2018
$
1,513

2019
2,008

2020
2,013

2021
2,008

2022
2,008

Thereafter
5,970

Total
$
15,520

5.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net is summarized as follows:
 
March 31, 2018
 
December 31, 2017
Land, site improvements and rights
$
74,268

 
$
74,268

Construction in progress
86,844

 
100,420

Buildings and improvements
9,807

 
9,807

Terminal machinery and equipment
339,639

 
299,444

Track and track related assets
35,396

 
35,371

Railroad equipment
1,058

 
1,057

Railcars and locomotives
3,429

 
3,429

Computer hardware and software
3,490

 
3,105

Furniture and fixtures
544

 
544

Vehicles
1,480

 
1,480

 
555,955

 
528,925

Less: accumulated depreciation
(45,595
)
 
(40,605
)
Spare parts
1,692

 
1,629

Property, plant and equipment, net
$
512,052

 
$
489,949

During the three months ended March 31, 2018 and 2017, additional property, plant and equipment of $27,131 and $14,960 was acquired, respectively. Acquisitions primarily consist of terminal machinery and equipment, and computer hardware and software due to the ongoing development of Jefferson Terminal and Repauno.
During the three months ended March 31, 2018 and 2017, disposals of property, plant and equipment totaled $38 and $52, respectively.
Depreciation expense for property, plant and equipment is summarized as follows:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Depreciation expense for property, plant and equipment
 
$
4,996

 
$
3,304


17


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

6.
INVESTMENTS
The following table presents the ownership interests and carrying values of the Company’s investments:
 
 
 
 
 
Carrying Value
 
Investment
 
Ownership Percentage
 
March 31, 2018
 
December 31, 2017
Advanced Engine Repair JV
Equity method
 
25%
 
$
13,500

 
$
13,724

JGP Energy Partners LLC
Equity method
 
50%
 
26,184

 
24,920

Intermodal Finance I, Ltd.
Equity method
 
51%
 
4,018

 
3,894

Investments
 
 
 
 
$
43,702

 
$
42,538

The Company did not recognize any other-than-temporary impairments for the three months ended March 31, 2018 and 2017.
Equity Method Investments
Advanced Engine Repair JV
In December 2016, the Company invested $15,000 for 25% interest in an advanced engine repair joint venture. The Company will initially focus on developing new costs savings programs for engine repairs. The Company exercises significant influence over this investment and accounts for this investment as an equity method investment. The Company’s proportionate share of equity in losses was $224 and $736 for the three months ended March 31, 2018 and 2017, respectively.
JGP
In 2016, the Company initiated activities in a 50% non-controlling interest in JGP, a joint venture. JGP is governed by a designated operating committee selected by the members in proportion to their equity interests. JGP is solely reliant on its members to finance its activities and therefore is a variable interest entity. The Company concluded it is not the primary beneficiary of JGP as the members share equally in the risks and rewards and decision making authority of the entity; therefore, the Company does not consolidate JGP and instead accounts for this investment in accordance with the equity method. The Company’s proportionate share of equity in earnings (losses) was $148 and $(65) for the three months ended March 31, 2018 and 2017, respectively.
Intermodal Finance I, Ltd.
In 2012, the Company acquired a 51% non-controlling interest in Intermodal Finance I, Ltd. (“Intermodal”), a joint venture. Intermodal is governed by a board of directors, and its shareholders have voting rights through their equity interests. As such, Intermodal is not within the scope of ASC 810-20 and should be evaluated for consolidation under the voting interest model. Due to the existence of substantive participating rights of the 49% equity investor, including the joint approval of material operating and capital decisions, such as material contracts and capital expenditures consistent with ASC 810-10-25-11, the Company does not have unilateral rights over this investment; therefore, the Company does not consolidate Intermodal but accounts for this investment in accordance with the equity method. The Company does not have a variable interest in this investment as none of the criteria of ASC 810-10-15-14 were met.
As of March 31, 2018, Intermodal owns a portfolio of multiple finance leases, representing five customers and comprising approximately 24,000 shipping containers, as well as a portfolio of approximately 8,000 shipping containers subject to multiple operating leases. The Company’s proportionate share of equity in earnings (losses) was $171 and $(465) for the three months ended March 31, 2018 and 2017, respectively.

18


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The table below presents summarized financial information for the Company’s equity method investments:
 
 
 
Three Months Ended
Income Statement
 
March 31, 2018
 
March 31, 2017
Revenue
 
$
4,100

 
$
1,621

Total Revenue
 
4,100

 
1,621

Expenses
 
 
 
 
 
Total Expenses
 
$
4,454

 
$
5,709

 
 
 
 
 
 
Net loss
 
$
(354
)
 
$
(4,088
)
Company’s portion
 
$
95

 
$
(1,266
)

7.
INTANGIBLE ASSETS AND LIABILITIES, NET
The Company’s intangible assets and liabilities, net are summarized as follows:
 
March 31, 2018
 
Aviation Leasing
 
Jefferson Terminal
 
Railroad
 
Total
Intangible assets
 
 
 
 
 
 
 
Acquired favorable lease intangibles
$
37,775

 
$

 
$

 
$
37,775

Less: Accumulated amortization
(22,645
)
 

 

 
(22,645
)
Acquired favorable lease intangibles, net
15,130

 

 

 
15,130

Customer relationships

 
35,513

 
225

 
35,738

Less: Accumulated amortization

 
(12,714
)
 
(176
)
 
(12,890
)
Acquired customer relationships, net

 
22,799

 
49

 
22,848

Total intangible assets, net
$
15,130

 
$
22,799

 
$
49

 
$
37,978

 
 
 
 
 
 
 
 
Intangible liabilities
 
 
 
 
 
 
 
Acquired unfavorable lease intangibles
$
2,732

 
$

 
$

 
$
2,732

Less: Accumulated amortization
(1,576
)
 

 

 
(1,576
)
Acquired unfavorable lease intangibles, net
$
1,156

 
$

 
$

 
$
1,156


19


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

 
December 31, 2017
 
Aviation Leasing
 
Jefferson Terminal
 
Railroad
 
Total
Intangible assets
 
 
 
 
 
 
 
Acquired favorable lease intangibles
$
36,747

 
$

 
$

 
$
36,747

Less: Accumulated amortization
(20,452
)
 

 

 
(20,452
)
Acquired favorable lease intangibles, net
16,295

 

 

 
16,295

Customer relationships

 
35,513

 
225

 
35,738

Less: Accumulated amortization

 
(11,825
)
 
(165
)
 
(11,990
)
Acquired customer relationships, net

 
23,688

 
60

 
23,748

Total intangible assets, net
$
16,295

 
$
23,688

 
$
60

 
$
40,043

 
 
 
 
 
 
 
 
Intangible liabilities
 
 
 
 
 
 
 
Acquired unfavorable lease intangibles
$
2,732

 
$

 
$

 
$
2,732

Less: Accumulated amortization
(1,374
)
 

 

 
(1,374
)
Acquired unfavorable lease intangibles, net
$
1,358

 
$

 
$

 
$
1,358

Intangible liabilities relate to unfavorable lease intangibles and are included as a component of other liabilities in the accompanying Consolidated Balance Sheets.
Amortization of intangible assets and liabilities is recorded in the Consolidated Statements of Operations as follows:
 
Classification in Consolidated Statements of Operations
 
 
Three Months Ended March 31,
 
 
 
 
2018
 
2017
Lease intangibles
Equipment leasing revenues
 
 
$
1,992

 
$
1,282

Customer relationships
Depreciation and amortization
 
 
900

 
900

Total
 
 
 
$
2,892

 
$
2,182

As of March 31, 2018, estimated net annual amortization of intangibles is as follows:
 
Total
2018
$
8,176

2019
7,733

2020
6,383

2021
5,003

2022
3,596

Thereafter
5,931

Total
$
36,822


20


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

8.
DEBT, NET
The Company’s debt, net is summarized as follows:
 
March 31, 2018
 
December 31, 2017
Loans payable
 
 
 
FTAI Pride Credit Agreement
$
52,431

 
$
53,993

CMQR Credit Agreement
17,350

 
22,800

Revolving Credit Facility

 

Jefferson Revolver
13,511

 

Total loans payable
83,292

 
76,793

Bonds payable
 
 
 
Series 2012 Bonds(1)
44,389

 
44,404

Series 2016 Bonds
144,200

 
144,200

Senior Notes(2)
449,316

 
449,290

Total bonds payable
637,905

 
637,894


 
 
 
Debt
721,197

 
714,687

Less: Debt issuance costs
(10,559
)
 
(11,423
)
Total debt, net
$
710,638

 
$
703,264

 
 
 
 
Total debt due within one year
$
7,795

 
$
7,795

(1) Includes unamortized premium of $1,624 and $1,639 at March 31, 2018 and December 31, 2017, respectively.
(2) Includes unamortized discount of $6,177 and $6,506 at March 31, 2018 and December 31, 2017, respectively and an unamortized premium of $5,493 and $5,796 at March 31, 2018 and December 31, 2017, respectively.
FTAI Pride Credit AgreementOn September 15, 2014, FTAI Pride, LLC, (“FTAI Pride”) a subsidiary of the Company entered into a credit agreement (the “FTAI Pride Credit Agreement”) with a financial institution for a term loan in an aggregate amount of $75,000. The loan proceeds were used in connection with the acquisition of an offshore construction vessel. The FTAI Pride Credit Agreement requires quarterly payments of interest and scheduled principal payments of $1,562 beginning in the quarter ending December 31, 2015, through its maturity in September 2019 and can be prepaid without penalty at any time. The FTAI Pride Credit Agreement is secured on a first priority basis by the offshore construction vessel. Borrowings under the FTAI Pride Credit Agreement bear interest at the LIBOR rate plus a spread of 4.50%.
The FTAI Pride Credit Agreement contains affirmative and negative covenants which limit certain actions of the borrower and a financial covenant requiring the borrower to maintain a Fixed Charges Coverage Ratio, as defined, of not less than 1.15:1.00 in any twelve month period ending December 31, 2014, or later.
CMQR Credit AgreementOn June 30, 2017, CMQR amended its credit agreement (the “CMQR Credit Agreement”) with a financial institution for a revolving line of credit to increase the aggregate amount from $20,000 to $25,000 and to extend the maturity date to September 18, 2019. Borrowings under the CMQR Credit Agreement bear interest at either (i) Adjusted LIBOR plus a spread of 2.50% or 4.50%, (ii) the U.S. or Canadian Base Rate plus a spread of 1.50% or 3.50%, or (iii) the Canadian Fixed Rate plus a spread of 2.50% or 4.50%, as defined by the CMQR Credit Agreement. The weighted-average effective interest rate as of March 31, 2018 and December 31, 2017 was 4.28% and 3.95%, respectively.
The CMQR Credit Agreement is also indirectly supported by Fortress Transportation and Infrastructure Investors LLC (the “Sponsor”). In the event of a default under the credit agreement, CMQR’s lenders can cause CMQR to call up to a total of $29,000 in capital from the Sponsor, and in the event of CMQR’s bankruptcy, the lenders can put the debt back to the Sponsor. The CMQR Credit Agreement contains affirmative and negative covenants which limit certain actions of CMQR.
Series 2012 BondsOn August 1, 2012, Jefferson County Development Corporation issued $46,875 of tax-exempt industrial bonds (“Series 2012 Bonds”), to specifically fund construction and operation of an intermodal transfer facility for crude oil and refined petroleum products. The proceeds of this issuance were loaned to Jefferson Terminal, to be held in trust, as restricted cash, to ensure adherence to the restrictions of use of the funds. Use of the proceeds requires approval from a trustee prior to release of funds. Such restricted cash may only be released to us after payment of applicable reserves, including a six-month interest reserve, and expenses, as determined by the trustee. The Series 2012 Bonds have a stated maturity of July 1, 2032, bear interest at 8.25%, and require scheduled principal payments. The principal of the Series 2012 Bonds is payable annually at varying amounts.

21


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

In connection with the Company’s acquisition of Jefferson Terminal, the Series 2012 Bonds were recorded at a fair value of $48,554, which represented a premium of $1,823 as compared to their face value at the date of acquisition; such premium is being amortized using the effective interest method over the remaining contractual term of the Series 2012 Bonds.
The Series 2012 Bond agreement contains a financial covenant requiring a subsidiary of the Company to maintain a long-term debt service coverage ratio, as defined in the agreement, of 1.25 to 1, in each fiscal year, beginning with December 31, 2014.
Series 2016 BondsOn March 7, 2016, the Port of Beaumont Navigation District of Jefferson County, Texas (the “District”) issued $144,200 of Dock and Wharf Facility Revenue Bonds, Series 2016 (Jefferson Energy Companies Project) (the “Series 2016 Bonds”). Proceeds from the issuance of the Series 2016 Bonds were used, in part, to reimburse Jefferson Railport Terminal II, LLC (“Jefferson Railport II”) for certain costs related to the development, construction and acquisition of certain facilities for the transport, loading, unloading, and storage of petroleum products (the “Facilities”) on behalf of the District, and settle the Jefferson Terminal Credit Agreement. Construction of the Facilities has occurred, and will occur, on property leased by the District to Jefferson Railport II pursuant to a First Amended and Restated Ground Lease between Jefferson Railport II, as lessee, and the District, as lessor. All such Facilities will be leased by the District to Jefferson Railport II pursuant to a Lease and Development Agreement between the District and Jefferson Railport II.
The transaction described above did not qualify for sale-leaseback accounting due to the continuing involvement of the Company resulting from the mandatory tender feature and, as a result, the leases were classified as a financing transaction in the Company’s consolidated financial statements. Under the financing method, the assets constructed or to be constructed will remain on the consolidated balance sheet and the net proceeds received by the Company are recorded as financial debt. Payments under these leases are recorded as interest expense and reduction of principal in accordance with the terms of the bond agreement with annual interest payments and a principal repayment at February 13, 2020 barring a remarketing of the bond on new terms. 
Under a Capital Call Agreement, the Company has agreed to make funds available to Jefferson Holdings in order to satisfy its obligation under the Standby Bond Purchase Agreement. The Capital Call Agreement contains certain covenants applicable to the Company, including a negative lien covenant regarding Aviation Assets, as defined therein, as well as maintenance of a minimum total asset value of Aviation Assets and minimum total equity of the Company. In connection with the above, and related to the Series 2016 Bonds, a subsidiary of the Company and an affiliate of its Manager entered into a Fee and Support Agreement with FTAI Energy Partners LLC and certain of its subsidiaries. The Fee and Support Agreement provides that both such subsidiary of the Company and affiliate of the Manager will effectively guarantee a pro rata portion of the obligations under the Standby Bond Purchase Agreement in return for a guarantee fee of $6,873 (shared on the same pro rata basis). This fee will be amortized as interest expense to the earlier of the redemption date or February 13, 2020.
The Series 2016 Bonds bear interest at an initial rate of 7.25% and require scheduled interest payments. The Series 2016 Bonds have a stated maturity of February 1, 2036 but are subject to mandatory tender for purchase at par on February 13, 2020 if they have not been repurchased from proceeds of a remarketing of the Series 2016 Bonds or redeemed prior to such date. In the event all of the Series 2016 Bonds are not repurchased from proceeds of a remarketing or redeemed at February 13, 2020, Jefferson Railport and Jefferson Railport Terminal II Holdings LLC (“Jefferson Holdings”), a Delaware limited liability company and parent of Jefferson Railport II, have agreed to purchase the Series 2016 Bonds from the Holders thereof at par pursuant to a Standby Bond Purchase Agreement. In addition, pursuant to the Standby Purchase Agreement, Jefferson Holdings will guarantee the payment of all Rent (as defined in the Facilities Lease), and all principal of and premium and interest on the Series 2016 Bonds payable prior to repurchase or redemption at February 13, 2020.
Term LoanOn January 23, 2017, the Company entered into an unsecured credit agreement under which the Company, through its wholly owned subsidiaries, including the Partnership and WWTAI Finance Ltd., an exempted company incorporated with limited liability under the laws of Bermuda, borrowed $100,000 in term loans denominated in U.S. dollars (the “Term Loans”). The proceeds of the Term Loan are to be used for general corporate purposes, including future acquisitions by the Company and its subsidiaries of certain aviation and infrastructure assets. The Term Loans bear interest at the Base Rate (determined in accordance with the agreement) plus 2.75% per annum, or at the Adjusted Eurodollar Rate (determined in accordance with the agreement) plus 3.75% per annum, if the Company chooses to make Eurodollar Rate borrowings. The Term Loans mature on January 22, 2018, subject to the Company’s right to elect a one year extension, and require amortization payments in the amount of $250 on the last day of each fiscal quarter beginning on March 31, 2017. On March 15, 2017, all amounts outstanding under the Term Loan were repaid in full and the agreement was terminated. Accordingly, during the three months ended March 31, 2017, the Company recorded a loss on extinguishment of debt of $2,456.
Senior NotesOn March 15, 2017, the Company issued $250,000 aggregate principal amount of 6.75% senior unsecured notes due 2022 (the “Senior Notes”). The Senior Notes were issued pursuant to an indenture, dated as of March 15, 2017, between the Company and U.S. Bank National Association, as trustee. On August 23, 2017, the Company issued an additional $100,000 of Senior Notes. The additional notes were issued at an offering price of 102.75% of the principal amount plus accrued interest from March 15, 2017 to the date of issuance. On December 20, 2017, the Company issued an additional $100,000 of Senior Notes. The additional notes issued on December 20, 2017 were issued at an offering price of 103.25% of the principal amount plus accrued interest from September 15, 2017.

22


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The Senior Notes bear interest at a rate of 6.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2017, to persons who are registered holders of the Senior Notes on the immediately preceding March 1 and September 1, respectively.
The Senior Notes mature on March 15, 2022. Prior to March 15, 2020, the Company may redeem some or all of the Senior Notes at a redemption price equal to 100.00% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date, plus a “make-whole” premium. On or after March 15, 2020, the Company may redeem some or all of the Senior Notes at any time at declining redemption prices equal to (i) 105.063% beginning on March 15, 2020, and (ii) 100.000% beginning on March 15, 2021 and thereafter, plus, in each case, accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, at any time on or prior to March 15, 2020, the Company may at any time redeem up to 40% of the aggregate principal amount of the Senior Notes using net proceeds from certain equity offerings at a redemption price equal to 106.75% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.
The Company used a portion of the proceeds to fully repay all outstanding indebtedness under the Company’s Term Loan in the amount of $100,000, payment of fees related to the issuance of Senior Notes, and to fund the purchase of additional investments. The Company intends to use the remainder of the proceeds for general corporate purposes, including the funding of future investments.
Revolving Credit FacilityOn June 16, 2017, the Company entered into a revolving credit facility (the “Revolving Credit Facility”) with certain lenders. The Revolving Credit Facility provides for revolving loans in the aggregate principal amount of up to $75,000, of which $25,000 may be utilized for the issuance of letters of credit. The proceeds drawn on this facility will be used for working capital and general corporate purposes, including, without limitation, permitted acquisitions and other investments. The Revolving Credit Facility is secured by the capital stock of certain direct subsidiaries of the Company as defined in the related credit agreement.
Borrowings outstanding under the Revolving Credit Facility bear interest at the Adjusted Eurodollar Rate (determined in accordance with the credit agreement) plus 3.00% per annum, if the Company chooses to make Eurodollar Rate borrowings, or at the Base Rate (determined in accordance with the credit agreement) plus 2.00% per annum. The Company will also be required to pay a quarterly commitment fee at a rate per annum equal to 0.50% on the average daily unused portion of the Revolving Credit Facility, as well as customary letter of credit fees and agency fees.
The Revolving Credit Facility will mature, and commitments in respect of the Revolving Credit Facility will terminate, on June 16, 2020. Any amount borrowed under the Revolving Credit Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of Eurodollar Rate borrowings.
The Revolving Credit Facility includes financial covenants requiring the maintenance of (1) a minimum ratio of the appraised value of certain aviation assets to the aggregate commitments under the revolving credit facility of 3.00 to 1.00 and (2) a maximum ratio of debt to total equity (before reduction for minority interests) for the Company and its subsidiaries of 1.65 to 1.00 per the terms of the credit agreement.
At March 31, 2018 and December 31, 2017, the Company had no borrowings outstanding under the Revolving Credit Facility.
Jefferson Revolving Credit FacilityOn March 7, 2018, a subsidiary of the Company entered into a revolving credit facility (the “Jefferson Revolver”) with certain lenders. The Jefferson Revolver provides for revolving loans in the aggregate principal amount of up to $50,000. The proceeds drawn on this facility will be used for working capital and general purposes. The Jefferson Revolver is secured by the capital stock of certain direct subsidiaries of the Company as defined in the related credit agreement.
Borrowings outstanding under the Jefferson Revolver bear interest at the Base Rate (determined in accordance with the credit agreement) plus 1.50% per annum, or if the Company chooses to make Eurodollar Rate borrowings, at the Base Rate (determined in accordance with the credit agreement) plus 2.50% per annum. The Company will also be required to pay a quarterly commitment fee at a rate per annum equal to 0.50% on the average daily unused portion of the Jefferson Revolver, as well as customary letter of credit fees and agency fees.
The Jefferson Revolver will mature, and commitments in respect to the Jefferson Revolver will terminate, on March 7, 2021. Any amount borrowed under the Jefferson Revolver may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of Eurodollar Rate borrowings.
The Jefferson Revolver includes financial covenants requiring the maintenance of a maximum ratio of debt to total equity (before reduction for minority interests) for the Company and its subsidiaries of 1.65 to 1.00.
At March 31, 2018, the Company had $13,511 in borrowings outstanding under the Jefferson Revolver.
The Company was in compliance with all debt covenants as of March 31, 2018.

23


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

9.
FAIR VALUE MEASUREMENTS
Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.
Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants price the asset or liability.
The valuation techniques that may be used to measure fair value are as follows:
Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts.
Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
The following tables set forth the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, by level within the fair value hierarchy. Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
 
Fair Value as of
 
Fair Value Measurements Using Fair Value Hierarchy as of
 
 
 
March 31, 2018
 
March 31, 2018
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Valuation Technique
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
80,916

 
$
80,916

 
$

 
$

 
Market
Restricted cash
25,823

 
25,823

 

 

 
Market
Total
$
106,739

 
$
106,739

 
$

 
$

 

 
 
 
 
 
 
 
 
 
 
 
Fair Value as of
 
Fair Value Measurements Using Fair Value Hierarchy as of
 
 
 
December 31, 2017
 
December 31, 2017
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Valuation Technique
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
59,400

 
$
59,400

 
$

 
$

 
Market
Restricted cash
33,406

 
33,406

 

 

 
Market
Total
$
92,806

 
$
92,806

 
$

 
$

 

At March 31, 2018 and December 31, 2017, the Company had no liabilities that were measured at fair value on a recurring basis.
The Company’s cash and cash equivalents and restricted cash consist largely of demand deposit accounts with maturities of 90 days or less when purchased that are considered to be highly liquid. These instruments are valued using inputs observable in active markets for identical instruments and are therefore classified as Level 1 within the fair value hierarchy.
Except as discussed below, the Company’s financial instruments other than cash and cash equivalents and restricted cash consist principally of accounts receivable, accounts payable and accrued liabilities, loans payable, bonds payable, security deposits, maintenance deposits and management fees payable, whose fair value approximates their carrying value based on an evaluation of pricing data, vendor quotes, and historical trading activity or due to their short maturity profiles.

24


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

As of March 31, 2018 and December 31, 2017, the Company recorded a derivative asset related to short-term forward crude contracts in other assets. The fair value of the short-term derivative asset was $398 and $1,022 at March 31, 2018 and December 31, 2017, respectively, and was classified as Level 3 within the fair value hierarchy.
The fair value of the Company’s bonds and notes payable reported as debt, net in the Consolidated Balance Sheet are presented in the table below:
 
Fair Value as of
 
March 31, 2018
 
December 31, 2017
Series 2012 Bonds(1)
$
44,670

 
$
45,691

Series 2016 Bonds(1)
$
149,545

 
$
150,329

Senior Notes(2)
$
449,316

 
$
449,290

______________________________________________________________________________________ 
(1) Fair value is based upon market prices for similar municipal securities
(2) Carrying value approximates the market prices
The fair value of all other items reported as debt, net in the Consolidated Balance Sheet approximate their carrying values due to their bearing market rates of interest, and are classified as Level 2 within the fair value hierarchy.
The Company measures the fair value of certain assets and liabilities on a non-recurring basis when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include goodwill, intangible assets, property, plant and equipment and leasing equipment. The Company records such assets at fair value when it is determined the carrying value may not be recoverable. Fair value measurements for assets subject to impairment tests are based on an income approach which uses Level 3 inputs, which include the Company’s assumptions as to future cash flows from operation of the underlying businesses and the leasing and eventual sale of assets.


25


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

10. REVENUES
Components of revenue are as follows:
 
Three Months Ended March 31, 2018
 
Equipment Leasing

Infrastructure
 

Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
29,308

 
$
2,249

 
$

 
$

 
$

 
$

 
$
31,557

Maintenance revenue
23,427

 

 

 

 

 

 
23,427

Finance lease income

 
367

 

 

 

 

 
367

Other revenue

 
408

 
25

 

 

 

 
433

Total equipment leasing revenues
52,735

 
3,024

 
25

 

 

 

 
55,784

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income

 

 

 

 

 
382

 
382

Rail revenues

 

 

 

 
11,047

 

 
11,047

Terminal services revenues

 

 

 
1,253

 

 

 
1,253

Other revenue

 

 

 

 

 
378

 
378

Total infrastructure revenues

 

 

 
1,253

 
11,047

 
760

 
13,060

Total revenues
$
52,735

 
$
3,024

 
$
25

 
$
1,253

 
$
11,047

 
$
760

 
$
68,844

 
Three Months Ended March 31, 2017
 
Equipment Leasing
 
Infrastructure
 
 
Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
17,635

 
$
611

 
$

 
$

 
$

 
$

 
$
18,246

Maintenance revenue
12,669

 

 

 

 

 

 
12,669

Finance lease income

 
386

 

 

 

 

 
386

Other revenue
2

 
60

 
25

 

 

 

 
87

Total equipment leasing revenues
30,306

 
1,057

 
25

 

 

 

 
31,388

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 Lease income

 

 

 

 

 
16

 
16

 Rail revenues

 

 

 

 
8,403

 

 
8,403

 Terminal services revenues

 

 

 
4,866

 

 

 
4,866

Total infrastructure revenues

 

 

 
4,866

 
8,403

 
16

 
13,285

Total revenues
$
30,306

 
$
1,057

 
$
25

 
$
4,866

 
$
8,403

 
$
16

 
$
44,673


26


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

Presented below are the contracted minimum future annual revenues to be received under existing operating leases across several market sectors as of March 31, 2018:
 
Total
2018
$
103,657

2019
89,129

2020
58,598

2021
37,443

2022
19,437

Thereafter
8,617

Total
$
316,881

11. EQUITY-BASED COMPENSATION
In 2015, the Company established a Nonqualified Stock Option and Incentive Award Plan (“Incentive Plan”) which provides for the ability to award equity compensation awards in the form of stock options, stock appreciation rights, restricted stock, and performance awards to eligible employees, consultants, directors, and other individuals who provide services to the Company, each as determined by the Compensation Committee of the Board of Directors.
As of March 31, 2018, the Incentive Plan provides for the issuance of up to 30 million shares. The Company accounts for equity-based compensation expense in accordance with Accounting Standards Codification 718 Compensation-Stock Compensation (“ASC 718”) and is reported within operating expenses and general and administrative in the Consolidated Statements of Operations.
The Consolidated Statements of Operations includes the following expense related to its stock-based compensation arrangements:
 
 
Three Months Ended March 31,
 
Remaining Expense To Be Recognized, If All Vesting Conditions Are Met
Weighted Average Remaining Contractual Term, (in years)
 
 
2018
 
2017
 
Stock Options
 
$
9

 
$

 
$

8.22
Restricted Shares
 
90

 
59

 
416

3.10
Common Units
 
109

 
28

 
485

1.45
Total
 
$
208

 
$
87

 
$
901

 
Stock Options
In the three months ended March 31, 2018, the Company granted equity-based compensation awards of 10,000 stock options to its two new independent directors (5,000 options each) pursuant to the Incentive Plan with a grant date fair value of $9 which immediately vested upon grant and expire after 10 years. The fair value of each option was estimated on the grant date using a Black-Scholes option valuation model using the following weighted average assumptions:
Expected volatility
The expected stock volatility is based on an assessment of the stock volatility of the Company’s publicly traded stock over the preceding 12-month period
19.3
%
Risk free interest rate
The risk-free rate is determined using the implied yield currently available on U.S. government bonds with a term consistent with the expected term on the date of grant
2.7
%
Expected dividend yield
The expected dividend yield is based on management’s currently expected dividend rate
7.2
%
Expected term
Expected term used represents the period of time the options granted are expected to be outstanding
5 years


27


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

12. INCOME TAXES
The current and deferred components of the income tax provision included in the Consolidated Statements of Operations are as follows: 
 
Three Months Ended March 31,
 
2018
 
2017
Current:
 
 
 
Federal
$
129

 
$
121

State and local
19

 
53

Foreign
17

 
21

Total current provision
165

 
195

 
 
 
 
Deferred:
 
 
 
Federal
288

 
4

State and local
42

 

Foreign

 
13

Total deferred provision
330

 
17

 
 
 
 
Total provision for income taxes
$
495

 
$
212

The Company is taxed as a flow-through entity for U.S. income tax purposes and its taxable income or loss generated is the responsibility of its owners. Taxable income or loss generated by the Company’s corporate subsidiaries is subject to U.S. federal, state and foreign corporate income tax in locations where they conduct business.
The Company’s effective tax rate differs from the U.S. federal tax rate of 21% primarily due to a significant portion of its income not being subject to U.S. corporate tax rates, or being deemed to be foreign sourced and thus either not taxable or taxable at effectively lower tax rates.
As of and for the three month period ended March 31, 2018, the Company had not established a liability for uncertain tax positions as no such positions existed. In general, the Company’s tax returns and the tax returns of its corporate subsidiaries are subject to U.S. federal, state, local and foreign income tax examinations by tax authorities. Generally, the Company is not subject to examination by taxing authorities for tax years prior to 2014. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date of March 31, 2018.
On December 22, 2017, legislation referred to as the “Tax Cuts and Jobs Act” (the “TCJA”) was signed into law. The TCJA significantly revises the U.S. corporate income tax regime by, among other things, lowering corporate income tax rates. The Company has accounted for the effects of the TCJA for the year ended December 31, 2017 which relates to the remeasurement of deferred tax assets and liabilities due to the reduction in the corporate income tax rate. Due to the significant portion of the Company’s income that is not subject to entity level tax and the presence of a significant valuation allowance, the effects of the TCJA have had a minimal impact on the income tax provision for the year ended December 31, 2017.
13. MANAGEMENT AGREEMENT AND AFFILIATE TRANSACTIONS
The Manager is paid annual fees in exchange for advising the Company on various aspects of its business, formulating its investment strategies, arranging for the acquisition and disposition of assets, arranging for financing, monitoring performance, and managing its day-to-day operations, inclusive of all costs incidental thereto. In addition, the Manager may be reimbursed for various expenses incurred by the Manager on the Company’s behalf, including the costs of legal, accounting and other administrative activities. Additionally, the Company has entered into certain incentive allocation arrangements with Master GP, which owns 0.05% of the Partnership and is the general partner of the Partnership.
The Manager is entitled to a management fee, incentive allocations (comprised of income incentive allocation and capital gains incentive allocation, defined below) and reimbursement of certain expenses. The management fee is determined by taking the average value of total equity (excluding non-controlling interests) determined on a consolidated basis in accordance with GAAP at the end of the two most recently completed months multiplied by an annual rate of 1.50%, and is payable monthly in arrears in cash. The total management fees for the three months ended March 31, 2018 and 2017 were $3,739 and $3,893, respectively.

28


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The income incentive allocation is calculated and distributable quarterly in arrears based on the pre-incentive allocation net income for the immediately preceding calendar quarter (the “Income Incentive Allocation”). For this purpose, pre-incentive allocation net income means, with respect to a calendar quarter, net income attributable to shareholders during such quarter calculated in accordance with GAAP excluding the Company’s pro rata share of (1) realized or unrealized gains and losses, and (2) certain non-cash or one-time items, and (3) any other adjustments as may be approved by the Company’s independent directors. Pre-incentive allocation net income does not include any Income Incentive Allocation or Capital Gains Incentive Allocation (described below) paid to the Master GP during the relevant quarter.
A subsidiary of the Company allocates and distributes to the Master GP an Income Incentive Allocation with respect to its pre-incentive allocation net income in each calendar quarter as follows: (1) no Income Incentive Allocation in any calendar quarter in which pre-incentive allocation net income, expressed as a rate of return on the average value of the Company’s net equity capital (excluding non-controlling interests) at the end of the two most recently completed calendar quarters, does not exceed 2% for such quarter (8% annualized); (2) 100% of pre-incentive allocation net income with respect to that portion of such pre-incentive allocation net income, if any, that is equal to or exceeds 2% but does not exceed 2.2223% for such quarter; and (3) 10% of the amount of pre-incentive allocation net income, if any, that exceeds 2.2223% for such quarter. These calculations will be prorated for any period of less than three months. No Income Incentive Allocation was due to the Master GP for the three months ended March 31, 2018 and 2017.
Capital Gains Incentive Allocation is calculated and distributable in arrears as of the end of each calendar year and is equal to 10% of the Company’s pro rata share of cumulative realized gains from the date of the IPO through the end of the applicable calendar year, net of the Company’s pro rata share of cumulative realized or unrealized losses, the cumulative non-cash portion of equity-based compensation expenses and all realized gains upon which prior performance-based Capital Gains Incentive Allocation payments were made to the Master GP. No Capital Gains Incentive Allocation was due to the Master GP for the three months ended March 31, 2018 and 2017.
The Company will pay all of its operating expenses, except those specifically required to be borne by the Manager under the Management Agreement. The expenses required to be paid by the Company include, but are not limited to, issuance and transaction costs incident to the acquisition, disposition and financing of the company’s assets, legal and auditing fees and expenses, the compensation and expenses of the Company’s independent directors, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness of the Company (including commitment fees, legal fees, closing costs, etc.), expenses associated with other securities offerings of the Company, costs and expenses incurred in contracting with third parties (including affiliates of the Manager), the costs of printing and mailing proxies and reports to the Company’s shareholders, costs incurred by the Manager or its affiliates for travel on the Company’s behalf, costs associated with any computer software or hardware that is used for the Company, costs to obtain liability insurance to indemnify the Company’s directors and officers and the compensation and expenses of the Company’s transfer agent.
The Company will pay or reimburse the Manager and its affiliates for performing certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, provided that such costs and reimbursements are no greater than those which would be paid to outside professionals or consultants. The Manager is responsible for all of its other costs incident to the performance of its duties under the Management Agreement, including compensation of the Manager’s employees, rent for facilities and other “overhead” expenses; the Company will not reimburse the Manager for these expenses. During the three months ended March 31, 2018 and 2017, expense reimbursement of $2,181 and $2,204 was recorded in general and administrative expenses, respectively, and $1,604 and $1,150 was recorded in acquisition and transaction expenses, respectively, in the Consolidated Statements of Operations.
If the Company terminates the Management Agreement, it will generally be required to pay the Manager a termination fee. The termination fee is equal to the amount of the management fee during the 12 months immediately preceding the date of the termination. In addition, an Incentive Allocation Fair Value Amount will be distributable to the Master GP if the Master GP is removed due to the termination of the Management Agreement in certain specified circumstances. The Incentive Allocation Fair Value Amount is an amount equal to the Income Incentive Allocation and the Capital Gains Incentive Allocation that would be paid to the Master GP if the Company’s assets were sold for cash at their then current fair market value (as determined by an appraisal, taking into account, among other things, the expected future value of the underlying investments).
Upon the successful completion of a post-IPO offering of the Company’s common shares or other equity securities (including securities issued as consideration in an acquisition), the Company will grant the Manager options to purchase common shares in an amount equal to 10% of the number of common shares being sold in the offering (or if the issuance relates to equity securities other than the Company’s common shares, options to purchase a number of common shares equal to 10% of the gross capital raised in the equity issuance divided by the fair market value of a common share as of the date of issuance), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser or attributed to such securities in connection with an acquisition (or the fair market value of a common share as of the date of the equity issuance if it relates to equity securities other than our common shares). Any ultimate purchaser of common shares for which such options are granted may be an affiliate of Fortress. The Manager was granted 700,000 options as part of the equity offering in the first quarter of 2018 as discussed in Note 15.

29


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

As of March 31, 2018 and December 31, 2017, no amounts were recorded as a receivable from the Manager. As of March 31, 2018 and December 31, 2017, amounts due to the Manager or its affiliates of $1,155 and $2,073, respectively, excluding accrued management fees, are included within accounts payable and accrued liabilities on the Consolidated Balance Sheets. As of March 31, 2018 and December 31, 2017, amounts due to the Manager or its affiliates of $1,360 and $1,228, respectively, related to accrued management fees, are included within accounts payable and accrued liabilities on the Consolidated Balance Sheets.
Other Affiliate Transactions
As of March 31, 2018 and December 31, 2017 an affiliate of the Company’s Manager owns an approximately 20% interest in Jefferson Terminal which has been accounted for as a component of non-controlling interest in consolidated subsidiaries in the accompanying consolidated financial statements. The carrying amount of this non-controlling interest at March 31, 2018 and December 31, 2017 was $59,811 and $66,242, respectively. For the three months ended March 31, 2018 and 2017, the amount of this non-controlling interest share of net loss was $4,764 and $2,558, respectively.
In connection with the Capital Call Agreement related to the Series 2016 Bonds discussed in Note 8, the Company and an affiliate of its Manager entered into a Fee and Support Agreement. The Fee and Support Agreement provides that the affiliate of the Manager is compensated for its guarantee of a portion of the obligations under the Standby Bond Purchase Agreement. This affiliate of the Manager received fees of $1,740, which are amortized as interest expense to the earlier of the redemption date or February 13, 2020.
14. SEGMENT INFORMATION
The Company’s reportable segments represent strategic business units comprised of investments in different types of transportation and infrastructure assets. The Company has six reportable segments which operate in the Equipment Leasing and Infrastructure businesses across several market sectors. The Company’s reportable segments are (i) Aviation Leasing, (ii) Offshore Energy, (iii) Shipping Containers, (iv) Jefferson Terminal, (v) Railroad, and (vi) Ports and Terminals. Aviation Leasing consists of aircraft and aircraft engines held for lease and are typically held long-term. Offshore Energy consists of vessels and equipment that support offshore oil and gas drilling and production which are typically subject to long-term operating leases. Shipping Containers consists of an investment in an unconsolidated entity engaged in the acquisition and leasing of shipping containers (on both an operating lease and finance lease basis). Jefferson Terminal consists of a multi-modal crude oil and refined products terminal and other related assets. Railroad consists of our CMQR railroad operations. Ports and Terminals consists of Repauno, which is a 1,630 acre deep-water port located along the Delaware river with an underground storage cavern and multiple industrial development opportunities, and Long Ridge, which is a 1,660 acre multi-modal port located along the Ohio River with rail, dock, and multiple industrial development opportunities.
Corporate consists primarily of unallocated Company level general and administrative expenses, and management fees. The accounting policies of the segments are the same as those described in the summary of significant accounting policies; however, financial information presented by segment includes the impact of intercompany eliminations. The Company evaluates investment performance for each reportable segment primarily based on net income attributable to shareholders and Adjusted Net Income.
Adjusted Net Income is defined as net income attributable to shareholders, adjusted (a) to exclude the impact of provision for income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, and equity in earnings of unconsolidated entities; (b) to include the impact of cash income tax payments, the Company’s pro-rata share of the Adjusted Net Income from unconsolidated entities (collectively “Adjusted Net Income”), and (c) to exclude the impact of the non-controlling share of Adjusted Net Income.
The Company believes that net income attributable to shareholders, as defined by GAAP, is the most appropriate earnings measurement with which to reconcile Adjusted Net Income. Adjusted Net Income should not be considered as an alternative to net income attributable to shareholders as determined in accordance with GAAP.

30


FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The following tables set forth certain information for each reportable segment of the Company:
I. For the Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2018
 
Equipment Leasing
 
Infrastructure
 

 

 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment leasing revenues
$
52,735

 
$
3,024

 
$
25

 
$

 
$

 
$

 
$

 
$
55,784

Infrastructure revenues

 

 

 
1,253

 
11,047

 
760

 

 
13,060

Total revenues
52,735

 
3,024

 
25

 
1,253

 
11,047

 
760

 

 
68,844