U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

For the quarterly period ended December 31, 2017September 30, 2018

OR

For the transition period from __________________ to. ______________________.

Commission file number001-32845

(Exact Name of Registrant as Specified in its Charter)

39 East Union Street

Pasadena, CA 91103

(Address of Principal Executive Offices)

(626)584-9722

(Registrant’s Telephone Number, Including Area Code)

Indicate by check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes     ☒            No     ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes     ☒            No     ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

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 Rule12b-2 of the Exchange Act):

Yes     ☐            No     ☒

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 26,721,97430,282,966 shares outstanding as of FebruaryNovember 2, 2018.

GENERAL FINANCE CORPORATION

INDEX TO FORM10-Q

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

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

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

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

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS

(In thousands, except share and per share data)

(Unaudited)

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

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share and share data)

(Unaudited)

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

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Non-cash investing and financing activities:

The Company includednon-cash holdback and other adjustment amounts totaling $376$155 and $612$1,129 as part of the consideration for business acquisitions during the six monthsquarter ended December 31, 2016September 30, 2017 and 2017,2018, respectively (see Note 4).

On September 10, 2018, the Company forced the conversion of the aggregate $26,000,000 principal balance of the Convertible Note into 3,058,824 shares of GFN common stock (see Note 5).

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

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Organization and Business Operations

General Finance Corporation (“GFN”) was incorporated in Delaware in October 2005. References to the “Company” in these Notes are to GFN and its consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (“GFN U.S.”); GFN Insurance Corporation, an Arizona corporation (“GFNI”); GFN North America Leasing Corporation, a Delaware corporation (“GFNNA Leasing”); GFN North America Corp., a Delaware corporation (“GFNNA”); GFN Realty Company, LLC, a Delaware limited liability company (“GFNRC”); GFN Manufacturing Corporation, a Delaware corporation (“GFNMC”), and its subsidiary, Southern Frac, LLC, a Texas limited liability company (collectively “Southern Frac”);Pac-Van, Inc., an Indiana corporation, and its Canadian subsidiary, PV Acquisition Corp., an Alberta corporation (collectively“Pac-Van”); and Lone Star Tank Rental Inc., a Delaware corporation (“Lone Star”); GFN Asia Pacific Holdings Pty Ltd, an Australian corporation (“GFNAPH”), and its subsidiaries, GFN Asia Pacific Finance Pty Ltd, an Australian corporation (“GFNAPF”), Royal Wolf Holdings Limited, an Australian corporation (“RWH”), and its Australian and New Zealand subsidiaries (collectively, “Royal Wolf”).

The Company does business in three distinct, but related industries, mobile storage, modular space and liquid containment (which are collectively referred to as the “portable services industry”), in two geographic areas; the Asia-Pacific (orPan-Pacific) area, consisting of Royal Wolf (which leases and sells storage containers, portable container buildings and freight containers in Australia and New Zealand) and North America, consisting ofPac-Van (which leases and sells storage, office and portable liquid storage tank containers, modular buildings and mobile offices) and Lone Star (which leases portable liquid storage tank containers and containment products, as well as provides certain fluid management services, to the oil and gas industry in the Permian and Eagle Ford basins of Texas), which are combined to form our North American leasing operations, and Southern Frac (which manufactures portable liquid storage tank containers and other steel-related products).

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”) applicable to interim financial information and the instructions to Form10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements, although the Condensed Consolidated Balance Sheet at June 30, 20172018 was derived from the audited Consolidated Balance Sheet at that date. In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The accompanying results of operations are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending June 30, 2018.2019. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto of the Company, which are included in the Company’s Annual Report on Form10-K for the fiscal year ended June 30, 20172018 filed with the Securities and Exchange Commission (“SEC”).

Unless otherwise indicated, references to “FY 2017”2018” and “FY 2018”2019” are to the six monthsquarter ended December 31, 2016September 30, 2017 and 2017,2018, respectively.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes include assumptions used in assigning value to identifiable intangible assets at the acquisition date, the assessment for impairment of goodwill, the assessment for impairment of other intangible assets, the allowance for doubtful accounts, share-based compensation expense, residual value of the lease fleet and deferred tax assets and liabilities. Assumptions and factors used in the estimates are evaluated on an annual basis or whenever events or changes in circumstances indicate that the previous assumptions and factors have changed. The results of the analysis could result in adjustments to estimates.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Inventories

Inventories are comprised of the following (in thousands):

Property, Plant and Equipment

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

Lease Fleet

The Company has a fleet of storage, portable building, office and portable liquid storage tank containers, mobile offices, modular buildings and steps that it primarily leases to customers under operating lease agreements with varying terms. Units in the lease fleet are also available for sale. The cost of sales of a unit in the lease fleet is recognized at the carrying amount at the date of sale. At June 30, 20172018 and December 31, 2017,September 30, 2018, the gross costs of the lease fleet were $534,197,000$555,263,000 and $554,706,000,$567,230,000, respectively.

Goodwill and Other Intangible Assets

The purchase consideration of acquired businesses have been allocated to the assets and liabilities acquired based on the estimated fair values on the respective acquisition dates (see Note 4). Based on these values, the excess purchase consideration over the fair value of the net assets acquired was allocated to goodwill. The Company accounts for goodwill in accordance with FASB ASC Topic 350,Intangibles — Goodwill and Other.FASB ASC Topic 350 prohibits the amortization of goodwill and intangible assets with indefinite lives and requires these assets be reviewed for impairment. The Company operates two reportable geographic areas and the vast majority of goodwill recorded was in the acquisitions of Royal Wolf,Pac-Van, Southern Frac and Lone Star. The Company assesses the potential impairment of goodwill on an annual basis or if a determination is made based on a qualitative assessment that it is more likely than not (i.e., greater than 50%) that the fair value of the reporting unit is less than its carrying amount. The Company’s annual impairment assessment at June 30, 20172018 concluded that the fair value of the goodwill of each of its reporting units was greater than their respective carrying amounts. Determining the fair value of a reporting unit requires judgment and involves the use of significant estimates and assumptions. The Company based its fair value estimates on assumptions that it believes are reasonable but are uncertain and subject to changes in market conditions.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Net Income per Common Share

Basic net income per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the periods. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, vested or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The potential dilutive securities (common stock equivalents) the Company had outstanding wererelated to stock options,non-vested equity shares, restricted stock units and convertible debt. The following is a reconciliation of weighted average shares outstanding used in calculating earnings per common share:

Potential common stock equivalents totaling 1,460,8621,807,476 and 2,240,081 for both the quarter ended December 31, 2016FY 2018 and FY 2017 and 4,415,574 and 4,417,256 for the quarter ended December 31, 2017 and FY 2018,2019, respectively, have been excluded from the computation of diluted earnings per share because the effect is anti-dilutive.

Recently Enacted U.S. Federal Tax LegislationRevenue from Contracts with Customers

Introduced initiallyThe Company leases and sells new and used storage, office, building and portable liquid storage tank containers, modular buildings and mobile offices to its customers, as the Tax Cutswell as provides other ancillary products and Jobs Act, the Act to Provide for Reconciliation Pursuant to Titles II and Vservices. The Company recognizes revenue in accordance with two accounting standards. The portions of the Concurrent ResolutionCompany’s revenues that arise from lease arrangements are accounted for in accordance with Topic 840,Leases. Revenues determined to benon-lease related are accounted for in accordance with ASUNo. 2014-09,Revenue from Contracts with Customers(Topic 606), which was adopted by the Company under the modified retrospective method at July 1, 2018. The adoption did not have a material impact on the BudgetCompany’s consolidated financial statements, nor was there a significant cumulative effect of initially applying the new standard.

Our portable storage and modular space rental customers are generally billed in advance for Fiscal Year 2018 (the “Act”) was enacted on December 22, 2017. The Act applies to corporationsservices, which generally beginning with taxable years starting after December 31, 2017, or the fiscal year ending June 30, 2019 for the Company,includes fleet pickup. Liquid containment rental customers are typically billed in arrears monthly and reduces the corporate tax rate from a graduated set of rates with a maximum 35% tax rate to a flat 21% tax rate. Additionally, the Act introduces other changes that impact corporations, including a net operating loss (“NOL”) deduction annual limitation, an interest expense deduction annual limitation, eliminationsales transactions are generally billed upon transfer of the alternative minimum tax,sold items. Payments from customers are generally due upon receipt or30-day payment terms. Specific customers have extended terms for payment, but no terms are greater than one year from the invoice date.

Leasing Revenue

Typical rental contracts include the direct rental of fleet, which is accounted for under Topic 840. Rental-related services include fleet delivery and immediate expensingfleet pickup, as well as other ancillary services, which are primarily accounted for under Topic 606. The total rental-related services amount related to Topic 606 recognized during FY 2019 and FY 2018 was $12,893,000 and $10,930,000, respectively. A small portion of the fullrental-related services, include subleasing, special events leases and other miscellaneous streams, are accounted for under Topic 840. For contracts that have multiple performance obligations, revenue is allocated to each performance obligation in the contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation. The standalone selling price is determined using methods and assumptions developed consistently across similar customers and markets generally applying an expected cost of qualified property. The Act also introducesplus an international tax reform that moves the U.S. toward a territorial system, in which income earned in other countries will generally not be subjectestimated margin to U.S. taxation. However, the accumulated foreign earnings of certain foreign corporations will be subject to aone-time transition tax, which can be elected to be paid over an eight-year tax transition period, using specified percentages, or in one lump sum. NOL and foreign tax credit (“FTC”) carryforwards can be used to offset the transition tax liability. Any transition tax to be paid on accumulated foreign earnings is not expected to be significant since the Company has available NOL and FTC carryforwards to offset any transitional taxes that would be otherwise payable.

In accordance with ASC Topic 740,Income Taxes, the Companyre-measured its deferred income tax assets and liabilities for, among other things, temporary differences and NOL and FTC carryforwards reasonably estimated to be existing at December 22, 2017, from the current statutory rate of 35% to the new corporate rate of either 28% (if the temporary timing differences are expected to roll off in FY 2018) or 21 percent (if the temporary timing differences and NOL carryforwards are expected to remain as of June 30, 2018).each performance obligation.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

ThisRental contracts are based on a monthly rate for our portable storage and modular space fleet and a daily rate for our liquid containment fleet. Rental revenue is recognized ratably over the rental period. The rental continues until the end of the initial term of the lease or when cancelled by the customer or the Company. If equipment is returned prior to the end of the contractual lease period, customers are typically billed a cancellation fee, which is recorded as rental revenue in the period billed. Customers may utilize our equipment transportation services and otherre-measurementon-site resultedservices in an estimated benefitconjunction with the rental of equipment, but are not required to do so. Given the short duration of these services, equipment transportation services and otheron-site services revenue of a rented unit is recognized in leasing revenue upon completion of the service.

Non-Lease Revenue

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

Contract Costs and Liabilities

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

When customers are billed in advance for rentals, end of lease services, and deposit payments, we defer revenue and reflect unearned rental revenue at the end of the period. As of September 30, 2018 and June 30, 2018, we had approximately $6,500,000, which was recognized through the provision (benefit) for income taxes$20,844,000 and $19,226,000, respectively, of unearned rental revenue included in trade payables and accrued liabilities in the accompanying consolidated statementsbalance sheets. Rental revenues of operations as a discrete item$7,224,000, which were included in the quarter ended December 31, 2017. This estimated tax benefit was offsetunearned rental revenue balance at June 30, 2018, were recognized during FY 2019. We expect to perform the remaining performance obligations and recognize the unearned rental revenue generally within the next twelve months.

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

Sales of new modular buildings not manufactured by approximately $5,200,000 for both the estimated transition tax and a valuation allowance that was established to offset previously recognized FTC carryforward deferred tax assets that the Company believes will not be realized, and other adjustments totaling approximately $550,000. Bothare typically covered by warranties provided by the estimated transition tax and valuation allowance are considered provisional amounts that require further analysis. These provisional amounts are subject to adjustment during a measurement period which should not extend beyond one year from the enactment datemanufacturer of the Actproducts sold. Certain sales of manufactured units are covered by assurance-type warranties and as of September 30, 2018 and June 30, 2018, the Company had $233,616 and $238,956, respectively, of warranty reserve included in accordance with Staff Accounting Bulletin No. 118.trade payables and accrued liabilities in the accompanying consolidated balance sheets.

Disaggregated Rental Revenue

In the following table, total revenue is disaggregated by revenue type for the periods indicated. The table also includes a reconciliation of the disaggregated rental revenue to our reportable segments.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”)No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU2014-09 completes the joint effort by the FASB and IASB to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards (“IFRS”). The ASU2014-09 revenue recognition model virtually replaces all existing revenue recognition guidance and applies to all companies that enter into contracts with customers to transfer goods or services. ASU2014-09 (as updated by ASU2015-14 in August 2015, ASUNo. 2016-08 in March 2016, ASU No. 10 in April 2016 and ASU No. 12 in May 2016) is effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Public and nonpublic entities have the choice to apply ASU2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU2014-09 at the date of initial application and not adjusting comparative information. While the Company continues to evaluate the requirements ofASU-204.09, it believes the majority of its revenues, as it relates to contractual rental revenue, is excluded from the scope of this ASU and the accounting for the remaining revenue streams will not be materially affected. Accordingly, the Company does not expect the adoption of ASU2014-09 will have a material impact on its consolidated financial statements. Additionally, the Company intends to utilize the modified retrospective adoption and recognize the cumulative effect of initially applying ASU2014-09, if significant, as an adjustment to the opening balance of accumulated deficit at the date of initial application.

In February 2016, the FASB issued new lease accounting guidance in ASUNo. 2016-02,Leases (Topic 842). This new guidance was initiated as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and comparability of financial information for users. This new guidance, as updated by ASUNo. 2018-01 (January 2018), ASUNo. 2018-10 (July 2018) and ASUNo. 2018-11 (July 2018), would eliminate the concept ofoff-balance sheet treatment for “operating leases” for lessees for the vast majority of lease contracts. Under ASUNo. 2016-02, at inception, a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting in the recognition of a defined“right-of-use” asset and a lease liability on the balance sheet. However, recognition in the income statement will differ depending on the lease classification, with finance leases recognizing the amortization of theright-of-use asset separate from the interest on the lease liability and operating leases recognizing a single total lease expense. Lessor accounting under ASUNo. 2016-02 would be substantially unchanged from the previous lease requirements under U.S. GAAP. ASUNo. 2016-02 will take effect for public companies in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted and for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition approach. During FY 2017,2018, the Company evaluated this new accounting standard and engaged professionals in the new lease accounting implementation and related real estate consulting industry to assist in determining the effect of the new standard as of July 1, 2017. The2018. At that date, the Company currently hashad over 100120 real estate leases worldwide and evaluated each of these leases in accordance with the new lease accounting standard under ASC Topic 842. As of July 1, 2017,2018, the Company estimates that the right of use asset to be recorded on its consolidated balance sheet would be approximately $34.0$59.0 million to $37.0$68.3 million and that the related liability would be approximately $35.0$60.8 million to $39.0$70.2 million related to operating leases. The difference between the right of use asset and related lease liability is predominantly deferred rent and other related lease expenses under the new lease accounting standard. The difference in the ranges is due to the presumed renewal of leases whereby the exercise of the renewal option is twelve months or less from July 1, 2017.2018. The Company will continue to evaluate existing renewal options in excess of one year as to the probability of exercising renewal options and is currently evaluating its equipment and other finance leases and its lessor accounting under the new standard. In addition, the Company is evaluating its proposed transition method in accordance with guidance issued by the FASB in July 2018. The Company will continue this effort in a manner to be appropriately prepared for its implementation on or before July 1, 2019.

In March 2016, the FASB issued ASUNo. 2016-09,Compensation – Stock Compensation (Topic 718). Under ASUNo. 2016-09, all excess tax benefits and tax deficiencies will be recognized in the income statement as they occur. This will replace the current guidance, which requires tax benefits that exceed compensation cost (windfalls) to be recognized in equity, and tax deficiencies (shortfalls) to be recognized in equity to the extent of previously recognized windfalls. It will also eliminate the need to maintain a “windfall pool,” and will remove the requirement to delay recognizing a

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 3. Equity Transactions

Preferred Stock

Upon issuance of shares of preferred stock, the Company records the liquidation value as the preferred equity in the consolidated balance sheet, with any underwriting discount and issuance or offering costs recorded as a reduction in additionalpaid-in capital.

Series B Preferred Stock

The Company has outstanding privately-placed 8.00% Series B Cumulative Preferred Stock, par value of $0.0001 per share and liquidation value of $1,000 per share (“Series B Preferred Stock”). The Series B Preferred Stock is offered primarily in connection with business combinations. At June 30, 20172018 and December 31, 2017,September 30, 2018, the Company had outstanding 100 shares of Series B Preferred Stock with an aggregate liquidation preference totaling $102,000. The Series B Preferred Stock is not convertible into GFN common stock, has no voting rights, except as required by Delaware law, and is redeemable after February 1, 2014; at which time it may be redeemed at any time, in whole or in part, at the Company’s option. Holders of the Series B Preferred Stock are entitled to receive, when declared by the Company’s Board of Directors, annual dividends payable quarterly in arrears on the 31^st day of January, July and October and on the 30^th day of April of each year. In the event of any liquidation or winding up of the Company, the holders of the Series B Preferred Stock will have preference to holders of common stock.

Series C Preferred Stock

The Company has outstanding publicly-traded 9.00% Series C Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $100.00 per share (the “Series C Preferred Stock”). At June 30, 20172018 and December 31, 2017,September 30, 2018, the Company had outstanding 400,000 shares of Series C Preferred Stock with an aggregate liquidation preference totaling $40,620,000. Dividends on the Series C Preferred Stock are cumulative from the date of original issue and will be payable on the 31^st day of each January, July and October and on the 30^thday of April when, as and if declared by the Company’s Board of Directors. Commencing on May 17, 2018, the Company may redeem, at its option, the Series C Preferred Stock, in whole or in part, at a cash redemption price of $100.00 per share, plus any accrued and unpaid dividends to, but not including, the redemption date. Among other things, the Series C Preferred Stock has no stated maturity, is not subject to any sinking fund or other mandatory redemption, and is not convertible into or exchangeable for any of the Company’s other securities. Holders of the Series C Preferred Stock generally will have no voting rights, except for limited voting rights if dividends payable on the outstanding Series C Preferred Stock are in arrears for six or more consecutive ornon-consecutive quarters, and under certain other circumstances. If the Company fails to maintain the listing of the Series C Preferred Stock on the NASDAQ Stock Market (“NASDAQ”) for 30 days or more, the per annum dividend rate will increase by an additional 2.00% per $100.00 stated liquidation value ($2.00 per annum per share) so long as the listing failure continues. In addition, in the event of any liquidation or winding up of the Company, the holders of the Series C Preferred Stock will have preference to holders of common stock and are pair passu with the Series B Preferred Stock. The Series C Preferred Stock is listed on NASDAQ under the symbol “GFNCP.”

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

FY 2019 Acquisitions

On July 2, 2018, the Company, through Royal Wolf, purchased the container business of Spacewise (N.Z.) Limited (“Spacewise NZ”), for approximately $7,337,000 (NZ$10,901,000) which included holdback and other adjustment amounts totaling approximately $615,000 (NZ$914,000). Spacewise operates from eight major locations in New Zealand.

On August 9, 2018, the Company, throughPac-Van, purchased the container and trailer business of Delmarva Trailer Sales and Rentals, Inc. (“Delmarva”) for approximately $358,000, which included a general indemnity and other adjustment amounts of $50,000. Delmarva is located in Elkridge (Baltimore/D.C. area), Maryland.

On September 21, 2018, the Company, throughPac-Van, purchased the container and trailer business of Instant Storage and Instant Storage of Florida, Inc. (“Instant Storage”) for approximately $4,568,000, which included a general indemnity and other adjustment amounts of $464,000. Instant Storage is located in Bakersfield, California andOpa-Locka (Miami area), Florida.

The preliminary allocation for the acquisition in FY 20182019 to tangible and intangible assets acquired and liabilities assumed based on their estimated fair market values was as follows (in thousands):

The FY 20182019 operating results prior to and since the respective date of acquisition were not considered significant.

The estimated fair value of the tangible and intangible assets acquired and liabilities assumed exceeded the purchase prices of Spacewise NZ and Delmarva resulting in estimated bargain purchase gains of $1,142,000 and $625,000, respectively. These gains have been recorded asnon-operating income in the accompanying consolidated statements of operations.

Goodwill recognized is attributable primarily to expected corporate synergies, the assembled workforce and other factors. The goodwill recognized in the FY 2018 acquisitionsInstant Storage acquisition is deductible for U.S. income tax purposes.

The Company incurred approximately $20,000 and $37,000$11,000 during the quarter ended December 31, 2016 and FY 2017, respectively, and $53,000 and $64,000 during the quarter ended December 31, 2017 and FY 2018 respectively,and $65,000 during FY 2019 of incremental transaction costs associated with acquisition-related activity that were expensed as incurred and are included in selling and general expenses in the accompanying consolidated statements of operations.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 5. Senior and Other Debt

Asia-Pacific Leasing Senior Credit Facility

The Company’s operations in the Asia-Pacific area had an AUS$150,000,000 secured senior credit facility, as amended, under a common terms deed arrangement with the Australia and New Zealand Banking Group Limited (“ANZ”) and Commonwealth Bank of Australia (“CBA”) (the “ANZ/CBA Credit Facility”). On October 26, 2017, RWH and its subsidiaries, Deutsche Bank AG, Sydney Branch (“Deutsche Bank”), CSL Fund (PB) Lux Sarl II, Aiguilles Rouges Lux Sarl II, Perpetual Corporate Trust Limited and P.T. Limited entered into a Syndicated Facility Agreement (the “Syndicated Facility Agreement”). Pursuant to the Syndicated Facility Agreement, the parties entered into a three-year, $97,586,000$90,311,000 (AUS$125,000,000) senior secured credit facility (the “Deutsche Bank Credit Facility”) and repaid the ANZ/CBA Credit Facility on November 3, 2017. The Deutsche Bank Credit Facility consistsinitially consisted of a $15,614,000$14,450,000 (AUS$20,000,000) Facility A that will amortize semi-annually; a $66,358,000$61,411,000 (AUS$85,000,000) Facility B that has no scheduled amortization; and a $15,614,000$14,450,000 (AUS$20,000,000) revolving Facility C that is used for working capital, capital expenditures and general corporate purposes. The amountsOn June 25, 2018, RWH and its subsidiaries amended the Deutsche Bank Credit Facility to increase by approximately $6,629,000 (NZ$10,000,000) the amount that can be borrowed under Facility B. Borrowings bear interest at the rate of 5.0% per annum until delivery of the first compliance certificate and thereafter at the bank bill swap interest rate in Australia (“BBSY”), plus a margin of 4.25% to 5.50% per annum, as determined by net leverage. The Deutsche Bank Credit Facility is secured by substantially all of the assets and by the pledge

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Convertible Note

At any time prior to maturity, Bison Capital may converthave converted unpaid principal and interest under the Convertible Note into shares of GFN common stock based upon a price of $8.50 per share (3,058,824 shares based on the original $26,000,000 principal amount), subject to adjustment as described in the Convertible Note. If GFN common stock trades above 150% of the conversion price over 30 consecutive trading days and the aggregate dollar value of all GFN common stock traded on NASDAQ exceedexceeds $600,000 over a period ofthe last 20 consecutive days of the same30-day period, GFN may force Bison Capital to convert all or a portion of the Convertible Note. The Convertible Note also provides that Bison Capital shall not be entitled,Such a conversion threshold occurred on September 5, 2018, and GFN shall not be obligated,on September 6, 2018 the Company elected to convertforce the conversion and delivered a notice to the holders requiring the conversion of the Convertible Note into 3,058,824 shares of GFNthe Company’s common stock if such conversion would result in holders of the Convertible Note beneficially owning in excess of 5,200,000 shares of GFN common stock, or approximately 19.5% of the number of shares of GFN common stock outstanding immediately prior to issuance of the Convertible Note.effective September 10, 2018. The Convertible Note grants Bison Capital and holders of the Convertible Note a preemptive right to invest in any issuance GFN equity securities, options or warrants to maintain its proportionate interest in GFN common stock, after giving effect to the conversion of the entire Convertible Note. In addition, the Convertible Note includesincluded a provision which requiresrequired GFNAPH and GFNAPF to pay Bison Capital, via the payment of principal, interest and the realized value of GFN common stock received uponafter conversion of all or a portion of the Convertible Note, a minimum return of 1.75 times the original $26,000,000 principal amount. ThisAs a result of the forced conversion, the Company determined that this minimum ratereturn provision was an embedded derivative with a fair value of return$8,918,000 at September 10, 2018 that required to be separately accounted on a standalone basis. The Company determined the fair value using a valuation model and market prices and will be recordedreassess its value at $806,000 per year, or $201,500 per quarter, as an accretioneach reporting period, with any changes in value reported in the accompanying consolidated

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Stock or the amount equal to the dividend rate of the Series C Preferred Stock and its aggregate liquidation preference and the actual amount of dividends required to be paid to the Series C Preferred Stock; and (b) $6,300,000 for the public offering of unsecured senior notes or the actual amount of annual interest required to be paid; provided that (i) the payment of such dividends does not cause a default or event of default; (ii) each ofPac-Van and Lone Star is solvent; (iii) excess availability, as defined, is $5,000,000 or more under the Wells Fargo Credit Facility; (iv) the fixed charge coverage ratio, as defined, will be greater than 1.25 to 1.00; and (v) the dividends are paid no earlier than ten business days prior to the date they are due.

Borrowings under the Wells Fargo Credit Facility accrue interest, at the Company’s option, either at the base rate, plus 0.5% and a range of 1.00% to 1.50%, or the LIBOR rate, plus 1.0% and a range of 2.50% to 3.00%. The FILO Term Loan within the Wells Fargo Credit Facility bears interest at 11.00% above the LIBOR rate, with a LIBOR rate floor of 1.00%. The Wells Fargo Credit Facility contains, among other things, certain financial covenants, including fixed charge coverage ratios, and other covenants, representations, warranties, indemnification provisions, and events of default that are customary for senior secured credit facilities; including a covenant that would require repayment upon a change in control, as defined.

At December 31, 2017,September 30, 2018, borrowings and availability under the Wells Fargo Credit Facility totaled $195,030,000$186,767,000 and $33,970,000,$44,106,000, respectively.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other

At December 31, 2017,September 30, 2018, equipment financing and other debt totaled $9,207,000.$8,781,000.

The Company was in compliance with the financial covenants under all its credit facilities as of December 31, 2017.September 30, 2018.

The weighted-average interest rate in the Asia-Pacific area was 4.9%4.6% and 10.0% and 4.9% and 7.4% in the quarter ended December 31, 2016 and 2017 and10.6% in FY 20172018 and FY 2018,2019, respectively; which does not include the effect of translation, derivative valuation, amortization of deferred financing costs and accretion. The weighted-average interest rate in North America was 5.0%6.0% and 5.9% and 5.0% and 6.0% in the quarter ended December 31, 2016 and 2017 and6.6% in FY 20172018 and FY 2018,2019, respectively, which does not include the effect of the amortization of deferred financing costs and accretion.