10-Q
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, 2016
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
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
 
_______________________________________________
(Former name, former address and former fiscal year,
if changed since last report)

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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer  þ
Smaller reporting company ¨

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 75,730,165 common shares representing limited liability company interests outstanding at April 29, 2016.




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
INDEX TO FORM 10-Q
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

2






FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands, except share and per share data)

 
Notes
 
March 31,
2016
 
December 31, 2015
 
 
 
Assets
 
 
 
 
 
Cash and cash equivalents

 
$
347,912

 
$
381,703

Restricted cash
2
 
65,985

 
21,610

Accounts receivable, net
 
 
16,200

 
14,466

Leasing equipment, net
3
 
651,175

 
636,681

Finance leases, net
4
 
10,026

 
82,521

Property, plant, and equipment, net
5
 
301,822

 
299,678

Investments in and advances to unconsolidated entities
6
 
10,329

 
10,675

Intangible assets, net
7
 
41,545

 
44,129

Goodwill

 
116,584

 
116,584

Other assets
2
 
44,870

 
36,758

Total assets
 
 
$
1,606,448

 
$
1,644,805

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accounts payable and accrued liabilities
 
 
$
31,086

 
$
34,995

Debt, net
8
 
264,340

 
266,221

Maintenance deposits

 
28,353

 
30,494

Security deposits

 
16,145

 
15,990

Other liabilities
 
 
7,447

 
6,419

Total liabilities
 
 
347,371

 
354,119

 
 
 
 
 
 
Commitments and Contingencies
16
 

 

 
 
 
 
 
 
Equity
 
 
 
 
 
Common Shares ($0.01 par value per share; 2,000,000,000 shares authorized; 75,730,165 and 75,718,183 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively)
 
 
757

 
757

Additional Paid In Capital
 
 
1,159,319

 
1,184,198

Accumulated Deficit
 
 
(24,551
)
 
(18,769
)
Accumulated other comprehensive income
 
 

 
97

Shareholders' equity
 
 
1,135,525

 
1,166,283

Non-controlling interest in equity of consolidated subsidiaries
 
 
123,552

 
124,403

Total equity
 
 
1,259,077

 
1,290,686

Total liabilities and equity
 
 
$
1,606,448

 
$
1,644,805










See accompanying notes to consolidated financial statements.


3




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
 
2016
 
2015
Revenues
 
 
 
 
 
Equipment leasing revenues
 
 
$
19,575

 
$
23,038

Infrastructure revenues
 
 
11,878

 
10,935

Total revenues
10
 
31,453

 
33,973

 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating expenses
 
 
14,358

 
14,719

General and administrative
 
 
2,588

 
348

Acquisition and transaction expenses

 
1,059

 
368

Management fees and incentive allocation to affiliate
13
 
4,348

 
2,414

Depreciation and amortization
2, 5, 7
 
13,217

 
10,562

Interest expense
 
 
5,303

 
4,815

Total expenses
 
 
40,873

 
33,226

 
 
 
 
 
 
Other income
 
 
 
 
 
Equity in earnings of unconsolidated entities
6
 
85

 
1,241

Gain on sale of equipment and finance leases, net
 
 
1,722

 
3

Loss on extinguishment of debt
 
 
(1,579
)
 

Interest income
 
 
9

 
187

Other income (expense)
 
 
40

 
(6
)
Total other income
 
 
277

 
1,425

 
 
 
 
 
 
(Loss) Income before income taxes
 
 
(9,143
)
 
2,172

Provision (benefit) for income taxes
12
 
(66
)
 
230

Net (loss) income
 
 
(9,077
)
 
1,942

Less: Net income (loss) attributable to non-controlling
interests in consolidated subsidiaries
 
 
(3,295
)
 
(3,506
)
Net (loss) income attributable to shareholders
 
 
$
(5,782
)
 
$
5,448

 
 
 
 
 
 
Basic and Diluted (Loss) Earnings Per Share
15
 
$
(0.08
)
 
$
0.10

Weighted Average Shares Outstanding
 
 
75,727,369

 
53,502,873


















See accompanying notes to consolidated financial statements.

4




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
(Dollar amounts in thousands, unless otherwise noted)

 
Three Months Ended March 31,
 
2016
 
2015
Net (loss) income
$
(9,077
)
 
$
1,942

Other comprehensive (loss) income:
 
 
 
Change in fair value of cash flow hedge
(97
)
 
(139
)
Comprehensive (loss) income
$
(9,174
)
 
$
1,803

Comprehensive (loss) income attributable to non-controlling interest
$
(3,295
)
 
$
(3,506
)
Comprehensive (loss) income attributable to shareholders
$
(5,879
)
 
$
5,309













































See accompanying notes to consolidated financial statements.

5




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
(Dollar amounts in thousands, unless otherwise noted)

 
Common Stock
 
Additional Paid In Capital
 
Accumulated Deficit
 
 Accumulated Other Comprehensive (Loss) Income
 
 Non-Controlling Interest in Equity of Consolidated Subsidiaries
 
 Total Equity
Equity - December 31, 2015
$
757

 
$
1,184,198

 
$
(18,769
)
 
$
97

 
$
124,403

 
$
1,290,686

Comprehensive (loss) income:

 

 

 

 

 

Net (loss) income for the period


 


 
(5,782
)
 


 
(3,295
)
 
(9,077
)
Other comprehensive (loss) income


 


 

 
(97
)
 

 
(97
)
Total comprehensive (loss) income

 

 
(5,782
)
 
(97
)
 
(3,295
)
 
(9,174
)
Capital contributions

 

 


 


 
6,420

 
6,420

Issuance of common shares

 
112

 


 


 

 
112

Dividends declared


 
(24,991
)
 


 


 
(13
)
 
(25,004
)
Equity-based compensation


 

 


 


 
(3,963
)
 
(3,963
)
Equity - March 31, 2016
$
757

 
$
1,159,319

 
$
(24,551
)
 
$

 
$
123,552

 
$
1,259,077







































See accompanying notes to consolidated financial statements.

6




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands, unless otherwise noted)

 
Three Months Ended March 31,
 
2016
 
2015
 Cash flows from operating activities:
 
 
 
 Net (loss) income
$
(9,077
)
 
$
1,942

 Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 Equity in earnings of unconsolidated entities
(85
)
 
(1,241
)
 Gain on sale of equipment
(1,722
)
 
(3
)
 Security deposits and maintenance claims included in earnings

 
(1,120
)
 Loss on extinguishment of debt
1,579

 

 Equity based compensation
(3,963
)
 
1,420

 Depreciation and amortization
13,217

 
10,562

 Change in current and deferred income taxes
(389
)
 
32

 Change in fair value of non-hedge derivative
3

 
8

 Amortization of lease intangibles and incentives
1,637

 
2,156

 Amortization of deferred financing costs
585

 
366

 Operating distributions from unconsolidated entities
30

 
54

 Bad debt expense
32

 
4

 Other
138

 
(207
)
 Change in:
 
 

 Accounts receivable
(1,769
)
 
(141
)
 Other assets
(2,849
)
 
441

 Accounts payable and accrued liabilities
(1,284
)
 
(7,387
)
 Management fees payable to affiliate
(81
)
 
(1,212
)
 Other liabilities
199

 
548

 Net cash (used in) provided by operating activities
$
(3,799
)
 
$
6,222

 
 
 
 
 Cash flows from investing activities:
 
 
 
 Release of restricted cash
$
14,207

 
$
4,653

 Payments to restricted cash
(17,124
)
 

 Investment in notes receivable
(408
)
 

 Principal collections on finance leases
2,204

 
2,941

 Acquisition of leasing equipment
(27,317
)
 
(33
)
 Acquisition of property plant and equipment
(8,622
)
 
(44,296
)
 Purchase deposit for aircraft and aircraft engines
(3,275
)
 

 Proceeds from sale of finance leases
71,000

 

 Proceeds from sale of property, plant and equipment
36

 
121

 Proceeds from sale of leasing equipment
4,392

 

 Return of capital distributions from unconsolidated entities
401

 
933

 Net cash provided by (used in) investing activities
$
35,494

 
$
(35,681
)




See accompanying notes to consolidated financial statements.

7




FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands, unless otherwise noted)

 
Three Months Ended March 31,
 
2016
 
2015
 Cash flows from financing activities:
 
 
 
Proceeds from debt
$
103,158

 
$
200

Repayment of debt
(146,410
)
 
(4,255
)
Payment of deferred financing costs
(2,494
)
 

Receipt of security deposits
455

 
500

Return of security deposits
(124
)
 
(69
)
Receipt of maintenance deposits
3,071

 
1,552

Release of maintenance deposits
(5,385
)
 
(3,386
)
Capital contributions from shareholders

 
61,991

Capital distributions to shareholders

 
(23,718
)
Capital contributions from non-controlling interests
6,420

 
11,922

Capital distributions to non-controlling interests

 
(111
)
Cash dividends paid
(24,177
)
 

 Net cash (used in) provided by financing activities
$
(65,486
)
 
$
44,626

 
 
 
 
 Net (decrease) increase in cash and cash equivalents
(33,791
)
 
15,167

 Cash and cash equivalents, beginning of period
381,703

 
22,125

 Cash and cash equivalents, end of period
$
347,912

 
$
37,292

 
 
 
 
 Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Restricted cash proceeds from borrowings of debt
$
44,342

 
$

Acquisition of leasing equipment
(1,920
)
 
(555
)
Proceeds from sale of leasing equipment
500

 

Acquisition of property, plant and equipment
(353
)
 

Settled and assumed security deposits
(176
)
 
(143
)
Billed and assumed maintenance deposits
173

 
1,523

Issuance of common stock
112

 

Deferred financing costs
(3,072
)
 

Dividends payable
(827
)
 

Change in fair value of cash flow hedge

 
(139
)











See accompanying notes to consolidated financial statements.

8


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 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”), and a multi-modal crude oil and refined products terminal in Beaumont, Texas (“Jefferson Terminal”). The Company has five reportable segments, Aviation Leasing, Offshore Energy, Shipping Containers, Jefferson Terminal and Railroad, which operate in two primary businesses, Equipment Leasing and Infrastructure (Note 14).
The Company is managed by FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), pursuant to a management agreement (the “Management Agreement”) which provides for the Company to bear obligations for management fees and expense reimbursements payable to the Manager (Note 13).
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting—-The unaudited consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The consolidated balance sheet at December 31, 2015 has been derived from audited financial statements but does not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. The interim financial information contained herein should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2015 included in Form 10-K.
Principles of Consolidation—The 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.
Variable Interest Entities—The 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.
The VIE in which the Company has an interest is WWTAI IES MT6015 Ltd. (“MT6015”), an entity formed in 2014 which has entered into a contract with a shipbuilder for the construction of an offshore multi service / inspection, maintenance and repair vessel (the “Vessel”) for a price of approximately $75 million. A subsidiary of the Company and a third party each hold a 50% interest in MT6015 and have equal representation on its board of directors. In connection with the initial capitalization of MT6015, another subsidiary of the Company provided the third party partner with a $3,725 loan which was utilized by the third party partner to fund its equity contribution to MT6015. In addition, the agreement provides the Company with disproportionate voting rights, in certain situations, as defined in the agreement. Accordingly, the Company determined that MT6015 is a VIE and that it was the primary beneficiary; accordingly, MT6015 has been presented on a consolidated basis in the accompanying financial statements.

9


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



In connection with the formation of MT6015, the joint venture partner is obligated to fund an additional equity contribution of $11,925 and secure a charter for the vessel, at which time the Company would be obligated to contribute additional equity of $11,925.
At March 31, 2016 and December 31, 2015, MT6015 had total assets of $7,533, which are available only to settle the obligations of MT6015. Other than entering into the above commitment, MT6015 has conducted no operations, and no creditors of MT6015 have recourse to any assets or to the general credit of the Company.
Reclassifications—Certain prior period amounts have been reclassified to conform to current period presentation.
Use of Estimates—The 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 Uncertainties—In 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.
Restricted Cash—Restricted cash of $65,985 and $21,610 at March 31, 2016 and December 31, 2015, respectively, consists of cash held in segregated accounts pursuant to the requirements of the Company’s debt agreements (Note 8).
Concentration of Credit Risk—The Company is subject to concentrations of credit risk with respect to amounts due from customers on its finance leases and operating leases. The Company attempts to limit its credit risk by performing ongoing credit evaluations. During the three months ended March 31, 2016, the Company earned approximately 12.3% of its revenue from one customer in the Jefferson Terminal segment. During the three months ended March 31, 2015, the Company earned approximately 14% of its revenue from one lessee in the offshore energy segment. As of March 31, 2016, accounts receivable from two customers in the offshore segment each represented 23.6% and 22.7% of total accounts receivable, net. As of December 31, 2015, accounts receivable from two customers in the offshore segment each represented 27.1% and 25.4% 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 Accounts—The 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, 2016 and December 31, 2015 was $444 and $392, respectively. Bad debt expense was $32 and $4 for the three months ended March 31, 2016 and 2015, respectively.
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 accompanying Consolidated Statements of Operations, adjusted for fair value changes related to derivatives accounted for as cash flow hedges and the Company’s pro-rata share of items of comprehensive income derived from investments in unconsolidated entities.
The Company had reclassification adjustments of $97 and $37, which impacted accumulated other comprehensive income during the three months ended March 31, 2016 and 2015, respectively.

10


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



Derivative Financial Instruments—In the normal course of business the Company may utilize interest rate derivatives to manage its exposure to interest rate risks, principally related to the hedging of variable rate interest payments on various debt facilities. If certain conditions are met, an interest rate derivative may be specifically designated as a cash flow hedge. In connection with its debt obligations, the Company had entered into one interest rate derivative designated as a cash flow hedge and one non-hedge derivative. The Company terminated both derivatives during the three months ended March 31, 2016 when the related debt obligations were paid in full. For the interest rate derivative designated as a cash flow hedge, all remaining net gains or losses in accumulated other comprehensive income at the date of termination were reclassified into earnings during the three months ended March 31, 2016.
The Company does not enter into speculative derivative transactions.
Other Assets—Other Assets is primarily comprised of notes receivables of $19,656 and $19,468, leasing equipment purchase deposits of $10,728 and $7,450, capitalized costs for potential asset acquisitions of $7,007 and $5,473, as of March 31, 2016 and December 31, 2015, respectively. Additionally, during the three months ended March 31, 2016, the Company purchased and took physical delivery of heavy crude for blending for $1,558.  The crude inventory has been also been recorded within Other Assets on the Consolidated Balance Sheet, at lower of cost or market as of March 31, 2016.
Dividends—Dividends are recorded when declared by the Board of Directors. During the three months ended March 31, 2016, the Board of Directors declared a cash dividend of $0.33 per share.
Recent Accounting Pronouncements—In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amends the consolidation guidance for VIEs and general partners’ investments in limited partnerships and modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company has adopted ASU 2015-02 as of January 1, 2016 and the adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for reporting periods beginning after December 15, 2015 and interim periods within those fiscal years with early adoption permitted. ASU 2015-03 should be applied on a retrospective basis, wherein the balance sheet of each period presented should be adjusted to reflect the effects of adoption. The Company has adopted ASU 2015-03 as of January 1, 2016 and revised its consolidated balance sheet to present debt issuance costs as a direct deduction from Debt rather than within Other Assets, for all periods presented.
In August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-Of-Credit Arrangements (“ASU 2015-15”). ASU 2015-15 provides further guidance related to the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements.  ASU 2015-15 allows companies to defer and present debt issuance costs as an asset or as a direct deduction from the carrying amount of that debt liability and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings of the line-of-credit arrangement. The guidance is effective for reporting periods beginning after December 15, 2015 and interim periods within those fiscal years with early adoption permitted. The Company has adopted ASU 2015-15 as of January 1, 2016 and revised its consolidated balance sheet to present debt issuance costs related to debt drawn under a line-of-credit arrangements as a direct deduction from Debt rather than within Other Assets, for all periods presented.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations- Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires an acquirer in a business combination to recognize adjustments to the initial purchase accounting that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU No. 2015-16 is effective for annual and interim reporting periods beginning after December 15, 2015. The Company has adopted ASU 2015-16 as of January 1, 2016 and the adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

11


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



Unadopted Accounting Pronouncements—In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU-2014-09”) which provides a single comprehensive model for recognizing revenue from contracts with customers and supersedes existing revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to defer the effective date of ASU 2014-09 by one year, making it effective for annual reporting periods beginning after December 15, 2017 while also providing for early adoption but not before the original effective date. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In August 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory” (Topic 330) (“ASU 2015-11”), which simplifies the measurement of inventory by requiring certain inventory to be measured at the “lower of cost and net realizable value” and the previous parameters for “market value” will be eliminated. ASU 2015-11 defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.”  The standard will be effective for fiscal years beginning after December 15, 2016, with earlier adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its 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 method(s) 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 periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In 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 is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06, Contingent put and call options in debt instruments ("ASU 2016-06"). ASU 2016-06 simplifies the embedded derivative analysis for debt instruments containing contingent call or put options. ASU 2016-06 will be effective fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Consideration (Reporting Revenue Gross versus Net) ("ASU 2016-08"). ASU 2016-08 clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation, how it should apply the control principle to certain types of arrangements, and provides indicators of when an entity controls the good or service and is acting as principal. ASU 2016-08 will be effective beginning in the first quarter of 2018, with early adoption permitted in the first quarter of 2017. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 requires the income tax effects of awards to be recognized in the income statement when the awards vest or are settled, increases the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification, and allow recognizing forfeitures of awards as they occur. ASU 2016-09 will be effective beginning in the first quarter of 2017, with early adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

12


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



3.
LEASING EQUIPMENT, NET
Leasing equipment, net is summarized as follows:
 
March 31, 2016
Equipment
Aviation Leasing
 
Offshore Energy
 
Jefferson Terminal
 
Total
Leasing equipment:
$
475,677

 
$
184,995

 
$
44,326

 
$
704,998

Less: Accumulated depreciation
(40,708
)
 
(11,292
)
 
(1,823
)
 
(53,823
)
Leasing equipment, net
$
434,969

 
$
173,703

 
$
42,503

 
$
651,175

 
December 31, 2015
Equipment
Aviation Leasing
 
Offshore Energy
 
Jefferson Terminal
 
Total
Leasing equipment:
$
452,602

 
$
184,284

 
$
44,326

 
$
681,212

Less: Accumulated depreciation
(33,281
)
 
(9,704
)
 
(1,546
)
 
(44,531
)
Leasing equipment, net
$
419,321

 
$
174,580

 
$
42,780

 
$
636,681

During the three months ended March 31, 2016, the Company acquired six commercial jet engines and sold one commercial jet engine. During the three months ended March 31, 2015, the Company did not acquire or sell any equipment held for lease. Depreciation expense for leasing equipment for the three months ended March 31, 2016 and 2015 was $9,292 and $7,022, respectively.
4.
FINANCE LEASES, NET
Finance leases, net are summarized as follows:
 
March 31, 2016
 
December 31, 2015
 
Total
 
Offshore Energy
 
Shipping Containers
 
Total
Finance leases
$
19,535

 
$
20,037

 
$
82,332

 
$
102,369

Unearned revenue
(9,509
)
 
(9,915
)
 
(9,933
)
 
(19,848
)
Finance leases, net
$
10,026

 
$
10,122

 
$
72,399

 
$
82,521

During the three months ended March 31, 2016, the Company completed the sale of approximately 42,000 shipping containers that were subject to direct finance leases for a modest gain. As of March 31, 2016, the Company's remaining finance lease is related to the Offshore Energy segment.
At March 31, 2016, future minimum lease payments to be received under finance leases for the remainder of the lease terms are as follows:
 
 
Total
2016
 
$
1,511

2017
 
2,008

2018
 
2,008

2019
 
2,008

2020
 
2,013

Thereafter
 
9,987

Total
 
$
19,535


13


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



5.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net is summarized as follows:
 
March 31, 2016
 
Railroad
 
Jefferson Terminal
 
Total
Land and site improvements
$
5,478

 
$
14,049

 
$
19,527

Construction in progress
1,583

 
44,232

 
45,815

Buildings and improvements
557

 
2,193

 
2,750

Crude oil terminal machinery and equipment

 
225,210

 
225,210

Track and track related assets
17,433

 

 
17,433

Railroad equipment
777

 

 
777

Railcars and locomotives
2,361

 

 
2,361

Computer hardware and software
133

 
34

 
167

Furniture and fixtures
121

 
289

 
410

Vehicles
766

 
44

 
810

 
29,209

 
286,051

 
315,260

Less: accumulated depreciation
(3,450
)
 
(12,819
)
 
(16,269
)
Spare parts

 
2,831

 
2,831

Property, plant and equipment, net
$
25,759

 
$
276,063

 
$
301,822

 
December 31, 2015
 
Railroad
 
Jefferson Terminal
 
Total
Land and site improvements
$
5,478

 
$
14,014

 
$
19,492

Construction in progress
893

 
55,034

 
55,927

Buildings and improvements
557

 
2,193

 
2,750

Crude oil terminal machinery and equipment

 
210,857

 
210,857

Track and track related assets
17,159

 

 
17,159

Railroad equipment
1,050

 

 
1,050

Railcars and locomotives
1,720

 

 
1,720

Computer hardware and software
118

 
34

 
152

Furniture and fixtures
121

 
289

 
410

Vehicles
503

 
44

 
547

 
27,599

 
282,465

 
310,064

Less: accumulated depreciation
(2,907
)
 
(10,308
)
 
(13,215
)
Spare parts

 
2,829

 
2,829

Property, plant and equipment, net
$
24,692

 
$
274,986

 
$
299,678

During three months ended March 31, 2016 additional property, plant and equipment of $5,234 was acquired, and is included within construction in progress, vehicles, land and site improvements, and computer hardware and software. During the three months ended March 31, 2016, disposals of railroad equipment totaled $36. During the three months ended March 31, 2015, additional property, plant and equipment of $38,857 was acquired, and is included within land and improvements, buildings and improvements, crude oil machinery and equipment, and construction in progress. During the three months ended March 31, 2015, disposals of railroad equipment totaled $119. Depreciation expense for property, plant and equipment was $3,026 and $2,645, for the three months ended March 31, 2016 and 2015, respectively.

14


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



6.
INVESTMENT IN UNCONSOLIDATED ENTITY
The Company acquired a 51% non-controlling interest in Intermodal Finance I, Ltd., a joint venture, in 2012. Intermodal Finance I, Ltd owns a portfolio of multiple finance leases, representing six customers and comprising approximately 57,000 shipping containers as well as a portfolio of approximately 37,000 shipping containers subject to multiple operating leases. As of March 31, 2016 and December 31, 2015, the carrying value of this investment was $10,329 and $10,675, respectively.
Summary financial information for Intermodal Finance I, Ltd is follows:
 
Three Months Ended March 31,
 
2016
 
2015
Revenue
 
 
 
Total revenues
$
3,400

 
$
4,318

 
 
 
 
Expenses


 


Operating expenses
230

 
193

General and administrative
302

 
161

Depreciation and amortization
1,794

 
597

Interest expense
791

 
1,043

Total expenses
3,117

 
1,994

 
 
 
 
Other Income
 
 
 
Loss on disposal of equipment
(179
)
 

Total Other Income
(179
)
 

Net income
104

 
2,324

Other comprehensive income

 

Comprehensive income
$
104

 
$
2,324

 

 

Company's equity in earnings
$
85

 
$
1,241


15


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



 
March 31,
 
December 31,
 
2016
 
2015
Assets
 
 
 
Cash and cash equivalents
$
6

 
$
4,796

Restricted cash
6,083

 
2,117

Accounts Receivable
961

 
1,153

Leasing equipment, net of accumulated depreciation of $8,822 and $7,305, respectively
44,445

 
47,735

Finance Leases, net
29,515

 
34,261

Other assets
149

 
31

Total Assets
$
81,159

 
$
90,093

 
 
 
 
Liabilities
 
 
 
Accounts payable and accrued liabilities
157

 
154

Syndication liabilities
2,209

 
3,201

Debt, net
75,772

 
82,991

Other liabilities
4

 
458

Total Liabilities
$
78,142

 
$
86,804

 
 
 
 
Members' Equity
 
 
 
Members' Equity
3,017

 
3,289

Total members' equity
3,017

 
3,289

Total liabilities and members' equity
$
81,159

 
$
90,093

 
 
 
 
Company's investment in and advances to unconsolidated entity
$
10,329

 
$
10,675


16


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



7.
INTANGIBLE ASSETS AND LIABILITIES, NET
The Company’s intangible assets and liabilities, net are summarized as follows:
 
March 31, 2016
 
Aviation Leasing
 
Jefferson Terminal
 
Railroad
 
Total
Intangible assets:
 
 
 
 
 
 
 
Acquired favorable lease intangibles
$
22,881

 
$

 
$

 
$
22,881

Accumulated amortization
(11,382
)
 

 

 
(11,382
)
Total acquired favorable lease intangibles, net
11,499

 

 

 
11,499

 
 
 
 
 
 
 
 
Customer relationships

 
35,513

 
225

 
35,738

Accumulated amortization

 
(5,606
)
 
(86
)
 
(5,692
)
Total acquired customer relationships, net

 
29,907

 
139

 
30,046

 
 
 
 
 
 
 
 
Total intangible assets, net
$
11,499

 
$
29,907

 
$
139

 
$
41,545

 
 
 
 
 
 
 
 
Intangible liabilities:
 
 
 
 
 
 
 
Acquired unfavorable lease intangibles
$
1,171

 
$

 
$

 
$
1,171

Accumulated amortization
(258
)
 

 

 
(258
)
Total acquired unfavorable lease intangibles, net
$
913

 
$

 
$

 
$
913

 
December 31, 2015
 
Aviation Leasing
 
Jefferson Terminal
 
Railroad
 
Total
Intangible assets:
 
 
 
 
 
 
 
Acquired favorable lease intangibles
$
22,881

 
$

 
$

 
$
22,881

Accumulated amortization
(9,697
)
 

 

 
(9,697
)
Total acquired favorable lease intangibles, net
13,184

 

 

 
13,184

 
 
 
 
 
 
 
 
Customer relationships

 
35,513

 
225

 
35,738

Accumulated amortization

 
(4,718
)
 
(75
)
 
(4,793
)
Total acquired customer relationships, net

 
30,795

 
150

 
30,945

 
 
 
 
 
 
 
 
Total intangible assets, net
$
13,184

 
$
30,795

 
$
150

 
$
44,129

 
 
 
 
 
 
 
 
Intangible liabilities:
 
 
 
 
 
 
 
Acquired unfavorable lease intangibles
$
1,171

 
$

 
$

 
$
1,171

Accumulated amortization
(151
)
 

 

 
(151
)
Total acquired unfavorable lease intangibles, net
$
1,020

 
$

 
$

 
$
1,020

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:

17


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



 
Three Months Ended March 31,
 
Classification in Consolidated Statements of Operations
 
2016
 
2015
 
 
Lease intangibles
$
1,578

 
$
2,096

 
Equipment leasing revenues
Customer relationships
899

 
895

 
Depreciation and amortization
Total
$
2,477

 
$
2,991

 
 
As of March 31, 2016, estimated net annual amortization of intangibles is as follows:
2016
$
6,796

2017
6,757

2018
5,941

2019
4,530

2020
3,580

Thereafter
13,028

Total
$
40,632

8.
DEBT, NET
The Company’s debt, net is summarized as follows:
 
March 31,
 
December 31,
 
2016
 
2015
Loans payable
 
 
 
Container Loan #1
$

 
$
34,761

Container Loan #2

 
11,338

FTAI Pride Credit Agreement
65,625

 
67,188

CMQR Credit Agreement
12,860

 
9,407

Jefferson Terminal Credit Agreement

 
98,750

Total loans payable
78,485

 
221,444

Bonds payable
 
 
 
Series 2012 Bonds (including unamortized premium of $1,738 and $1,751 at March 31, 2016 and December 31, 2015, respectively)
47,248

 
47,261

Series 2016 Bonds
144,200

 

Total bonds payable
191,448

 
47,261

Note payable to non-controlling interest
 
 
 
Note payable to non-controlling interest
2,352

 
2,352

Total note payable to non-controlling interest
2,352

 
2,352

 
 
 
 
Debt
$
272,285

 
$
271,057

less: Debt issuance costs
(7,945
)
 
(4,836
)
Total debt, net
264,340

 
266,221

 
 
 
 
Debt due within one year
$
8,243

 
$
24,791



18


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



Container Loan #1—On December 27, 2012, a subsidiary of the Company entered into a Credit Agreement (“Container Loan #1”) with a bank for an initial aggregate amount of approximately $55,991 in connection with the acquisition of a portfolio of shipping containers subject to finance leases. Container Loan #1 required monthly payments of interest and scheduled principal payments through its maturity on December 27, 2017 and could be prepaid without penalty after the third anniversary of the closing of the loan. In connection with Container Loan #1, the Company entered into an interest rate swap agreement (the “Swap”) on January 17, 2013 with respect to 70% of the outstanding balance of Container Loan #1 and designated as a cash flow hedge which fixed the LIBOR rate at 0.681%. During the three months ended March 31, 2016, all amounts outstanding under Container Loan #1 and the Swap were paid in full using the proceeds from the sale of the underlying assets, and such agreements were terminated.
Container Loan #2—On August 15, 2013, a subsidiary of the Company entered into a Credit Agreement (“Container Loan #2”) with a bank for an initial aggregate amount of approximately $21,548 in connection with the acquisition of a portfolio of shipping containers subject to finance leases. Container Loan #2 required quarterly payments of interest and scheduled principal payments through its maturity on August 28, 2018 and could be prepaid without penalty at any time. In connection with Container Loan #2, the Company entered into an interest rate cap agreement (the “Cap”) on September 20, 2013, with respect to 50% of the portion of the outstanding balance of Container Loan #2, not designated as a cash flow hedge, which capped LIBOR at 2.5%. During the three months ended March 31, 2016, all amounts outstanding under Container Loan #2 and the Cap were paid in full using the proceeds from the sale of the underlying assets, and such agreements were terminated.
CMQR Credit Agreement—On March 28, 2016, 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 $10,000 to $20,000 and to extend the maturity date to September 18, 2018. 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 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 million 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.
Jefferson Terminal Credit Agreement—On August 27, 2014, a subsidiary of the Company, entered into a credit agreement (the “Jefferson Terminal Credit Agreement”) with a financial institution for an aggregate amount of $100,000. The Jefferson Terminal Credit Agreement required quarterly payments of $250 beginning with the quarter ending December 31, 2014, with such quarterly payments increasing to $1,250 beginning with the quarter ending December 31, 2016, and could be prepaid or repaid at any time prior to its maturity on February 27, 2018. On March 8, 2016, all amounts outstanding under the Jefferson Terminal Credit Agreement were paid in full and such agreement was terminated. Accordingly, during the three months ended March 31, 2016, the Company recorded a loss on extinguishment of debt of $1,579.
Series 2016 Bonds—On 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. 

19


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



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, 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, 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 such affiliate, 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 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.
The Company was in compliance with all debt covenants as of March 31, 2016.
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, 2016 and December 31, 2015, 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.

20


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



 
Fair Value as of
 
Fair Value Measurements at March 31, 2016
 
 
 
March 31, 2016
 
Using Fair Value Hierarchy
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Valuation Technique
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
347,912

 
$
347,912

 
$

 
$

 
Market
Restricted cash
65,985

 
65,985

 

 

 
Market
Total
$
413,897

 
$
413,897

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value as of
 
Fair Value Measurements at December 31, 2015
 
 
 
December 31, 2015
 
Using Fair Value Hierarchy
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Valuation Technique
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
381,703

 
$
381,703

 
$

 
$

 
Market
Restricted cash
21,610

 
21,610

 

 

 
Market
Derivative assets
101

 

 
101

 

 
Income
Total
$
403,414

 
$
403,313

 
$
101

 
$

 
 
At March 31, 2016 and December 31, 2015, 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.
The Company’s notes receivable at March 31, 2016 and December 31, 2015, which is included as a component of other assets on the accompanying Consolidated Balance Sheets, consist of a $3,725 loan bearing interest at 12.0% made to the Company’s joint venture partner in MT 6015 (Note 2) which is collateralized by other property owned by the joint venture partner. At March 31, 2016 and December 31, 2015, the Company's notes receivable also included a $15,277 and $14,869, respectively, loan bearing interest at 10% related to a terminal site under development, collateralized by property at that site. The fair value of these notes receivable approximate carrying value due to both bearing a market rate of interest for similar types of loans and is classified as Level 2 within the fair value hierarchy.
The fair value of Series 2012 bonds, reported in Debt on the Consolidated Balance Sheets, was approximately $49,268 at both March 31, 2016 and December 31, 2015, based upon market prices for similar municipal securities. The fair values of all other items reported as Debt on the Consolidated Balance Sheets 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.
During the three months ended March 31, 2016 and 2015, no impairment charges were recognized.

21


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, 2016
 
Equipment Leasing
 
Infrastructure
 
 
Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
12,847

 
$
75

 
$

 
$

 
$

 
$
12,922

Maintenance revenue
5,106

 

 

 

 

 
5,106

Finance lease income

 
410

 
1,112

 

 

 
1,522

Other revenue

 

 
25

 

 

 
25

Total equipment leasing revenues
$
17,953


$
485


$
1,137


$


$


$
19,575

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 Lease income

 

 

 

 

 

 Rail revenues

 

 

 

 
7,999

 
7,999

 Terminal services revenues

 

 

 
3,879

 

 
3,879

Total infrastructure revenues
$

 
$


$


$
3,879


$
7,999


$
11,878

Total revenues
$
17,953

 
$
485


$
1,137


$
3,879


$
7,999


$
31,453

 
Three Months Ended March 31, 2015
 
Equipment Leasing
 
Infrastructure
 
 
Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
9,739

 
$
6,266

 
$

 
$

 
$

 
$
16,005

Maintenance revenue
3,386

 

 

 

 

 
3,386

Finance lease income

 
410

 
1,901

 

 

 
2,311

Other revenue
1,120

 
191

 
25

 

 

 
1,336

Total equipment leasing revenues
$
14,245

 
$
6,867

 
$
1,926

 
$

 
$

 
$
23,038

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 Lease income

 

 

 
1,410

 

 
1,410

 Rail revenues

 

 

 

 
6,289

 
6,289

 Terminal services revenues

 

 

 
3,236

 

 
3,236

Total infrastructure revenues

 

 

 
$
4,646

 
$
6,289

 
$
10,935

Total revenues
$
14,245

 
$
6,867

 
$
1,926

 
$
4,646

 
$
6,289

 
$
33,973

Minimum future annual revenues contracted to be received under existing operating leases of equipment at March 31, 2016 are as follows:
2016
$
39,997

2017
37,396

2018
24,779

2019
14,417

2020
7,206

Thereafter
1,452

Total
$
125,247


22


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



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. Amounts are in thousands except share data.
As of March 31, 2016, the Incentive Plan provides for the issuance of up to 30,000,000 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.
Information on equity based compensation as of March 31, 2016 is as follows:
Stock Options
 
 
Options
Weighted-Average Exercise Price (per share)
Weighted Average Remaining Contractual Term (in years)
Aggregate Intrinsic Value
Stock options outstanding at January 1, 2016
15,000

16.98




 
Granted







 
Exercised






 
Forfeited and cancelled






Stock options outstanding and exercisable as of March 31, 2016
15,000

16.98

9.17
$

Restricted Shares
The Company granted equity based compensation to employees of a subsidiary consisting of 1.3 million restricted shares of such subsidiary’s equity instruments in exchange for services to be provided. At issuance, the restricted shares had an assumed forfeiture rate of zero. One award for 1.25 million restricted shares can vest in three tranches over three years, subject to continued employment and the achievement of three separate performance conditions based on EBITDA for that subsidiary, as defined. The award expires in August 2017. The award is equity based, with compensation expense recognized ratably over the remaining service period when it is probable that the performance conditions will be achieved. The grant date fair value of the award is $23,879 which was based on the fair value per share on August 27, 2014, the date of grant, and estimated using a market approach. As of March 31, 2016, the achievement of all performance conditions was not deemed probable and accordingly expense previously recognized in prior periods was reversed of $4,402 in Operating Expenses in the Consolidated Statement of Operations.
A second award, expected to vest over four years, was partially accelerated and the remainder forfeited, according to the original terms of the agreement, when employment ended during the three months ended March 31, 2016. The grant date fair value of the award was $800, based on the fair value per share on the date of grant, estimated using a market approach. As of March 31, 2016, 50% of this award vested, with the remaining 50% forfeited.
As of March 31, 2016, 20,939 restricted shares were vested and 1.25 million restricted shares were unvested and outstanding. All restricted shares were outstanding and unvested December 31, 2015.
Common Units
The Company has granted equity based compensation to employees of a subsidiary consisting of 1.4 million common units of such subsidiary’s equity instruments with an aggregate grant date fair value of $1,688 in exchange for services to be provided. The awards have varying terms, ranging between 16 and 36 months, and vest subject to continued employment through each respective vesting date. The awards are equity based, with compensation expense recognized ratably over the vesting periods. The awards have an assumed forfeiture rate of zero. As of March 31, 2016 and December 31, 2015, 717 and 733 common units were nonvested, respectively. During the three months ended March 31, 2016, 16 common units vested, with a fair value of $23.
The fair value of the awards are based on the fair value of the operating subsidiary on each date of grant, which was estimated using a discounted cash flow analysis which requires the application of discount factors and terminal multiples

23


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



to projected cash flows. Discount factors and terminal multiples were based on market based inputs and transactions, as available at the measurement dates.
The Company’s Statements of Operations includes the following (income) expense related to its stock-based compensation arrangements:
 
Three Months Ended March 31, 2016
Remaining Expense To Be Recognized, If All Vesting Conditions Are Met
Stock Options
$

$

Restricted Shares
(4,168
)
23,879

Common Units
205

263

Total
$
(3,963
)
$
24,142

During the three months ended March 31, 2015, the Company recorded stock-based compensation expense related to restricted shares and common units of $853 and $567, respectively.
12.
INCOME TAXES
The current and deferred components of the income tax expense (benefit) included in the Consolidated Statements of Operations are as follows: 
 
March 31,
 
2016
 
2015
Current:
 
 
 
   Federal
$
20

 
$
29

   State and local
31

 
8

   Foreign
10

 
115

Total current provision
61

 
152

 
 
 
 
Deferred:
 
 
 
   Federal
4

 
15

   State and local

 
(1
)
   Foreign
(131
)
 
64

Total deferred provision
(127
)
 
78

 
 
 
 
Total provision (benefit) for income taxes
$
(66
)
 
$
230

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 35% primarily due to a significant portion of its income that is not subject to U.S. corporate tax rates or that is deemed to be foreign sourced and is either not taxable or taxable at effectively lower tax rates. 
As of and for the period ended March 31, 2016, 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 2012. 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.

24


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



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. In May 2015, in connection with the Company's initial public offering (the “IPO”), the Company entered into a new management agreement with the Manager, (the “Management Agreement”) which replaced its then-existing management agreement as a private fund. Additionally, the Company has entered into certain incentive allocation arrangements with the Master GP.
Pre-IPO Management Agreement
The pre-IPO management fee was calculated at an annual rate of 1.25% for any Onshore Fund or Offshore Fund investor (collectively, the “Fund Investors”) with a capital commitment of at least $100 million and 1.50% for any capital commitment of less than $100 million, payable semi-annually in arrears. Commencing with the date of the initial closing of the Onshore Fund and the Offshore Fund and continuing through the third anniversary of their final closing (the “Fund Commitment Period”), this percentage was applied to the weighted average of all capital called, reduced for any return of capital resulting from the partial or complete disposition of any Portfolio Investment, as defined therein. During the three months ended March 31, 2015, pre-IPO management fees were $2,414.
Post-IPO Management Agreement and Other Incentive Allocation
The Manager is entitled to a management fee and reimbursement of certain expenses. The post-IPO 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 post-IPO management fees for the three months ended March 31, 2016 was $4,348.
Additionally, the Company has entered into certain incentive allocation arrangements with the Master GP. No Income Incentive Allocation or Capital Gains Incentive Allocation was due to the Master GP for the three months ended March 31, 2016. During the three months ended March 31, 2016, expense reimbursement of $1,758 was recorded in General and Administrative and $1,013 was recorded in Acquisition and Transaction expenses in the Consolidated Statements of Operations.
As of March 31, 2016 and December 31, 2015, no amounts were receivable from the Manager. As of March 31, 2016 and December 31, 2015, amounts due to the Manager or its affiliates of $936 and $994, excluding accrued management fees, respectively, are included within other liabilities on the Consolidated Balance Sheets. As of March 31, 2016 and December 31, 2015, amounts due to the Manager or its affiliates of $1,479 and $1,506, 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, 2016 and December 31, 2015, 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, 2016 and December 31, 2015 was $76,108 and $71,321. For the three months ending March 31, 2016 and March 31, 2015, the amount of this non-controlling interest share of net loss was $1,633 and $1,549, 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 is compensated for its guarantee of a portion of the obligations under the Standby Bond Purchase Agreement. The affiliate will receive fees of $1,740, which will be amortized as interest expense to the redemption date or February 13, 2020.
A non-controlling interest holder of Jefferson Terminal provides construction services for Jefferson Terminal. At March 31, 2016 and December 31, 2015, accounts payable due to this vendor was $913 and $4,708, respectively.

25


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



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 five reportable segments which operate in the Equipment Leasing and Infrastructure businesses across several market sectors. The Company’s reportable segments are Aviation Leasing, Offshore Energy, Shipping Containers, Jefferson Terminal and Railroad. 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.
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.

26


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, 2016
 
Three Months Ended March 31, 2016
 
Equipment Leasing
 
Infrastructure
 
 
 
 
 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment leasing
$
17,953

 
$
485

 
$
1,137

 
$

 
$

 
$

 
$
19,575

Infrastructure

 

 

 
3,879

 
7,999

 

 
11,878

Total revenues
17,953

 
485

 
1,137

 
3,879

 
7,999

 

 
31,453