Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 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
https://cdn.kscope.io/ab6fe2fe16b62af9263b75e8b5c93ebf-logoa01.jpg
FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
(Exact name of registrant as specified in its charter)

Delaware
 
32-0434238
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1345 Avenue of the Americas,
New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (212) 798-6100
 
_______________________________________________
(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 75,750,943 common shares representing limited liability company interests outstanding at November 3, 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

September 30, 2016

December 31, 2015



Assets





Cash and cash equivalents


$
197,874


$
381,703

Restricted cash
2

63,891


21,610

Accounts receivable, net


21,798


14,466

Leasing equipment, net
3

694,568


636,681

Finance leases, net
4

9,824


82,521

Property, plant, and equipment, net
5

345,146


299,678

Investments in and advances to unconsolidated entities
6

10,522


10,675

Intangible assets, net
7

37,328


44,129

Goodwill


116,584


116,584

Other assets
2

57,048


36,758

Total assets


$
1,554,583


$
1,644,805







Liabilities





Accounts payable and accrued liabilities


$
32,382


$
34,995

Debt, net
8

261,543


266,221

Maintenance deposits


39,570


30,494

Security deposits


18,442


15,990

Other liabilities


17,460


6,419

Total liabilities


369,397


354,119







Commitments and contingencies
16










Equity





Common shares ($0.01 par value per share; 2,000,000,000 shares authorized; 75,750,943 and 75,718,183 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively)


758


757

Additional paid in capital


1,109,755


1,184,198

Accumulated deficit

 
(37,020
)
 
(18,769
)
Accumulated other comprehensive income




97

Shareholders' equity


1,073,493


1,166,283

Non-controlling interest in equity of consolidated subsidiaries


111,693


124,403

Total equity


1,185,186


1,290,686

Total liabilities and equity


$
1,554,583


$
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 September 30,

Nine Months Ended September 30,

Notes

2016
 
2015

2016
 
2015
Revenues









Equipment leasing revenues


$
30,054


$
24,360


$
71,980


$
70,031

Infrastructure revenues


11,672


10,873


34,394


32,739

Total revenues
10

41,726


35,233


106,374


102,770











Expenses









Operating expenses


17,028


17,879


48,937


50,198

General and administrative


3,205


2,568


9,154


4,905

Acquisition and transaction expenses


1,688


2,206


4,622


4,172

Management fees and incentive allocation to affiliate
13

4,146


4,606


12,725


10,505

Depreciation and amortization
3, 5, 7

15,376


11,548


43,294


32,875

Interest expense


5,416


4,668


15,839


14,240

Total expenses


46,859


43,475


134,571


116,895











Other income (expense)









Equity in losses of unconsolidated entities
6

(1,161
)

(9,584
)

(1,335
)

(7,118
)
Gain on sale of equipment and finance leases, net


40


1,746


3,307


2,037

Loss on extinguishment of debt






(1,579
)


Asset impairment
 
 

 

 
(7,450
)
 

Interest income


206


159


87


462

Other income


485


15


583


6

Total other expense


(430
)

(7,664
)

(6,387
)

(4,613
)










Loss before income taxes


(5,563
)

(15,906
)

(34,584
)

(18,738
)
Provision for income taxes
12

83


150


195


646

Net loss


(5,646
)

(16,056
)

(34,779
)

(19,384
)
Less: Net loss attributable to non-controlling interests in consolidated subsidiaries


(4,370
)

(4,318
)

(16,528
)

(12,257
)
Net loss attributable to shareholders


$
(1,276
)

$
(11,738
)

$
(18,251
)

$
(7,127
)














Basic and Diluted Loss per Share
15

$
(0.02
)

$
(0.16
)

$
(0.24
)

$
(0.11
)
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
 
 
Basic


75,746,200


75,718,183


75,734,587


64,114,734

Diluted
 
 
75,746,200

 
75,718,183

 
75,734,587

 
64,114,734










See accompanying notes to consolidated financial statements.

4




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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(5,646
)
 
$
(16,056
)
 
$
(34,779
)
 
$
(19,384
)
Other comprehensive loss:
 
 
 
 
 
 
 
Change in fair value of cash flow hedge

 
(94
)
 
(97
)
 
(230
)
Comprehensive loss
$
(5,646
)
 
$
(16,150
)
 
$
(34,876
)
 
$
(19,614
)
Comprehensive loss attributable to non-controlling interest
(4,370
)
 
(4,318
)
 
(16,528
)
 
(12,257
)
Comprehensive loss attributable to shareholders
$
(1,276
)
 
$
(11,832
)
 
$
(18,348
)
 
$
(7,357
)




















































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 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:
 
 
 
 
 
 
 
 
 
 
 
Net loss for the period
 
 
 
 
(18,251
)
 
 
 
(16,528
)
 
(34,779
)
Other comprehensive loss
 
 
 
 

 
(97
)
 

 
(97
)
Total comprehensive loss

 

 
(18,251
)
 
(97
)
 
(16,528
)
 
(34,876
)
Capital contributions

 


 
 
 
 
 
8,074

 
8,074

Settlement of equity-based compensation
 
 
 
 
 
 
 
 
(200
)
 
(200
)
Dividends declared
 
 
(74,979
)
 
 
 
 
 
(38
)
 
(75,017
)
Issuance of common shares
1

 
336

 
 
 
 
 

 
337

Equity-based compensation
 
 
200

 
 
 
 
 
(4,018
)
 
(3,818
)
Equity - September 30, 2016
$
758

 
$
1,109,755

 
$
(37,020
)
 
$

 
$
111,693

 
$
1,185,186










































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)

 
Nine Months Ended September 30,
 
2016
 
2015
 Cash flows from operating activities:
 
 
 
 Net loss
$
(34,779
)
 
$
(19,384
)
 Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Equity in losses of unconsolidated entities
1,335

 
7,118

Gain on sale of equipment
(3,307
)
 
(2,037
)
Security deposits and maintenance claims included in earnings
(300
)
 
(439
)
Loss on extinguishment of debt
1,579

 

Equity-based compensation
(3,818
)
 
3,694

Depreciation and amortization
43,294

 
32,875

Asset impairment
7,450

 

Change in current and deferred income taxes
(399
)
 
127

Change in fair value of non-hedge derivative
3

 
14

Amortization of lease intangibles and incentives
4,783

 
5,380

Amortization of deferred financing costs
1,927

 
1,101

Operating distributions from unconsolidated entities
30

 
160

Bad debt expense
134

 
255

Other
100

 
(362
)
Change in:
 
 
 
 Accounts receivable
(6,263
)
 
(2,718
)
 Other assets
(4,070
)
 
(3,540
)
 Accounts payable and accrued liabilities
2,396

 
4,109

 Management fees payable to affiliate
1

 
(1,207
)
 Other liabilities
5,566

 
1,724

 Net cash provided by operating activities
15,662

 
26,870

 
 
 
 
 Cash flows from investing activities:
 
 
 
Release of restricted cash
22,733

 
4,915

Payments to restricted cash
(23,532
)
 

Investment in notes receivable
(3,066
)
 
(10,776
)
Investment in and advances to unconsolidated entity
(1,754
)
 

Principal collections on finance leases
2,406

 
17,412

Acquisition of leasing equipment
(114,012
)
 
(136,672
)
Acquisition of property plant and equipment
(47,454
)
 
(88,068
)
Acquisition of lease intangibles
(812
)
 
(2,447
)
Purchase deposit for aircraft and aircraft engines
(10,225
)
 
(250
)
Proceeds from sale of finance leases
71,000

 

Proceeds from sale of leasing equipment
15,905

 
9,000

Proceeds from sale of property, plant and equipment
125

 
253

Proceeds from deposit on sale of engine
250

 

Return of capital distributions from unconsolidated entities
432

 
2,921

 Net cash used in investing activities
$
(88,004
)
 
$
(203,712
)
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)

 
Nine Months Ended September 30,
 
2016
 
2015
 Cash flows from financing activities:
 
 
 
Proceeds from debt
$
110,658

 
$
200

Repayment of debt
(157,603
)
 
(19,764
)
Payment of other liabilities to non-controlling interest holder
(1,000
)
 

Payment of deferred financing costs
(3,935
)
 

Receipt of security deposits
3,340

 
1,695

Return of security deposits
(316
)
 
(710
)
Receipt of maintenance deposits
10,806

 
7,127

Release of maintenance deposits
(5,653
)
 
(10,673
)
Proceeds from issuance of common shares, net of underwriter's discount

 
354,057

Common shares issuance costs

 
(2,998
)
Capital contributions from shareholders

 
295,879

Capital distributions to shareholders

 
(44,917
)
Capital contributions from non-controlling interests
7,433

 
34,787

Capital distributions to non-controlling interests

 
(309
)
Settlement of equity-based compensation
(200
)
 

Cash dividends
(75,017
)
 
(11,358
)
 Net cash (used in) provided by financing activities
$
(111,487
)
 
$
603,016

 
 
 
 
 Net (decrease) increase in cash and cash equivalents
(183,829
)
 
426,174

 Cash and cash equivalents, beginning of period
381,703

 
22,125

 Cash and cash equivalents, end of period
$
197,874

 
$
448,299

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

 
$

Acquisition of leasing equipment
(3,451
)
 
(1,083
)
Acquisition of property, plant and equipment
(11,519
)
 
(59
)
Financing of property, plant and equipment
5,321

 

Settled and assumed security deposits
(272
)
 
2,463

Billed, assumed and settled maintenance deposits
3,923

 
(2,710
)
Deferred financing costs
(2,884
)
 

Common share issuance costs

 
(1,908
)








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 Worldwide Transportation and Infrastructure General Partnership (the “Partnership”), is engaged in the ownership and leasing of aviation equipment, offshore energy equipment and shipping containers, and also owns and operates a short line railroad in North America, Central Maine and Québec Railway (“CMQR”), 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”) that provides for the Company to bear obligations for management fees payable to the Manager as well as reimbursement of costs and expenses as provided therein (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.
WWTAI IES MT6015 Ltd
The Company has an interest in WWTAI IES MT6015 Ltd. (“MT6015”), an entity formed in 2014 which had 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)



At 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 of the Company or to its general credit.
During the second quarter of 2016, the Company determined not to proceed with the purchase of the Vessel. The shipbuilder delivered a notice of termination of the shipbuilding contract to MT6015 in July 2016. Correspondingly, in the second quarter of 2016, the Company recorded an impairment in its MT6015 investment of $7,450. The shipbuilder has no further recourse to the Company.
JGP Energy Partners LLC
During the quarter ended September 30, 2016, the Company initiated activities in its 50% owned joint venture, JGP Energy Partners LLC (“JGP”). The other 50% member to the joint venture is a third party ethanol producer. The purpose of the venture is to build storage capacity with capabilities to receive and/or distribute ethanol via water, rail or truck. Each member agreed to contribute up to $27,000 (for a total of $54,000) for the development and construction of the ethanol terminal facilities. JGP is governed by a designated operating committee selected by the members in proportion to their equity interests. JGP is solely reliant on its members to finance its activities and therefore is a variable interest entity. The Company concluded that it is not the primary beneficiary of JGP as the members share equally in the risks and rewards and decision making authority of the entity; therefore, the Company does not consolidate JGP and instead accounts for this investment in accordance with the equity method.
As of September 30, 2016, the Company’s investment in JGP was $1,754, which is included in investments in and advances to unconsolidated entities on the Company’s balance sheet. 
Delaware River Partners LLC
On July 1, 2016, the Company, through Delaware River Partners LLC (“DRP”), a consolidated subsidiary, purchased the assets of Repauno Delaware Port (“Repauno”), which consisted primarily of land, a storage cavern, and riparian rights for the acquired land, site improvements and rights. Currently there are no operational processes that could be applied to these assets that would result in outputs without significant green field development. DRP is solely reliant on the Company to finance its activities and therefore is a variable interest entity. The Company currently holds 100% of the voting interests in DRP. The non-controlling interest was valued at $641 at the acquisition date.
Refer to Note 5 for details.
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 $63,891 and $21,610 at September 30, 2016 and December 31, 2015, respectively, consists of prepaid interest and principal pursuant to the requirements of certain of the Company’s debt agreements (Note 8), and funds set aside for qualifying constructions projects at Jefferson Terminal.
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 and nine months ended September 30, 2016, the Company earned approximately

10


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



10% and 11%, respectively, of its revenue from one customer in the Jefferson Terminal segment. During the three and nine months ended September 30, 2015, the Company earned approximately 12% and 23%, respectively, of its revenue from one customer in the Offshore Energy segment, and one customer in Offshore Energy and Jefferson Terminal segments, respectively. As of September 30, 2016, accounts receivable from two customers in the Offshore Energy segment each represented 20% and 23% of total accounts receivable, net. As of December 31, 2015, accounts receivable from two customers in the Offshore Segment each represented 27% and 25% 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 September 30, 2016 and December 31, 2015 was $434 and $392, respectively. Bad debt expense for the three and nine months ended September 30, 2016 was $79 and $134, respectively. Bad debt expense for the three and nine months ended September 30, 2015 was $96 and $255, 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 Consolidated Statements of Operations, adjusted for fair value changes related to derivatives accounted for as cash flow hedges.
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 first quarter of 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 nine months ended September 30, 2016.
The Company does not enter into speculative derivative transactions.
Other Assets—Other assets is primarily comprised of notes receivables of $22,422 and $19,468, leasing equipment purchase deposits of $10,236 and $7,450, capitalized costs for potential asset acquisitions of $1,795 and $5,473, prepaid expenses of $4,368 and $1,818, and receivables of $13,000 and $0 as of September 30, 2016 and December 31, 2015, respectively.
Dividends—Dividends are recorded when and if declared by the Board of Directors. For the three and nine months ended September 30, 2016, the Board of Directors declared a cash dividend of $0.33 and $0.99 per share, respectively. For the three and nine months ended September 30, 2015, the Board of Directors declared a cash dividend of $0.33 and $0.48 per share, respectively.
Recent Accounting Pronouncements—In February 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 sheets to present debt issuance costs as a direct deduction from debt rather than within other assets, for all periods presented.

11


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



In August 2015, the FASB issued ASU 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 sheets 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 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 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.
Unadopted Accounting Pronouncements—In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB deferred the effective date of this standard by one year, which will be for fiscal years, and interim periods within those years, beginning after December 15, 2017. Additionally, during 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing and ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, which clarify the guidance on reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, and assessing collectibility, present sales tax and treating noncash consideration. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In July 2015, the FASB issued ASU 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.

12


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



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 believes the impact of adopting this new guidance on its consolidated financial statements will be immaterial.
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.
In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses the following eight specific cash flow issues: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies (COLIs); (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; (viii) and separately identifiable cash flows and application of the predominance principle. ASU 2013-15 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

13


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:
 
September 30, 2016
Equipment
Aviation Leasing
 
Offshore Energy
 
Jefferson Terminal
 
Total
Leasing equipment:
$
536,714

 
$
185,614

 
$
44,326

 
$
766,654

Less: Accumulated depreciation
(55,078
)
 
(14,631
)
 
(2,377
)
 
(72,086
)
Leasing equipment, net
$
481,636

 
$
170,983

 
$
41,949

 
$
694,568

 
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 nine months ended September 30, 2016, the Company acquired seven aircraft and thirteen commercial jet engines and sold three commercial jet engines. Depreciation expense for leasing equipment for the three and nine months ended September 30, 2016 was $11,322 and $31,065, respectively. Depreciation expense for leasing equipment for the three and nine months ended September 30, 2015 was $7,888 and $22,072, respectively.
4.    FINANCE LEASES, NET
Finance leases, net are summarized as follows:
 
September 30, 2016
 
December 31, 2015
 
Offshore Energy
 
Offshore Energy
 
Shipping Containers
 
Total
Finance leases
$
18,528

 
$
20,037

 
$
82,332

 
$
102,369

Unearned revenue
(8,704
)
 
(9,915
)
 
(9,933
)
 
(19,848
)
Finance leases, net
$
9,824

 
$
10,122

 
$
72,399

 
$
82,521

During the first quarter of 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 September 30, 2016, future minimum lease payments to be received under finance leases for the remainder of the lease terms are as follows:
 
Total
2016
$
504

2017
2,008

2018
2,008

2019
2,008

2020
2,013

Thereafter
9,987

Total
$
18,528


14


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:
 
September 30, 2016
 
December 31, 2015
Land, site improvements and rights
 
$
57,597

 
$
19,492

Construction in progress
 
45,495

 
55,927

Buildings and improvements
 
2,750

 
2,750

Crude oil terminal machinery and equipment
 
236,656

 
210,857

Track and track related assets
 
17,433

 
17,159

Railroad equipment
 
999

 
1,050

Railcars and locomotives
 
2,642

 
1,720

Computer hardware and software
 
168

 
152

Furniture and fixtures
 
405

 
410

Vehicles
 
964

 
547

 
 
365,109

 
310,064

Less: Accumulated depreciation
 
(22,796
)
 
(13,215
)
Spare parts
 
2,833

 
2,829

Property, plant and equipment, net
 
$
345,146

 
$
299,678

During nine months ended September 30, 2016 additional property, plant and equipment of $55,174 was acquired, consisting primarily of the purchase of land, construction in progress, crude oil machinery and equipment, and railcars and locomotives.
On July 1, 2016, the Company, through one of its consolidated subsidiaries, purchased the assets of Repauno for a cash purchase price of approximately $24,000. These amounts consist primarily of land, a storage cavern, riparian rights for the acquired land, site improvements and rights. As part of the transaction, additional amounts of $13,991 were capitalized for costs directly related to the purchase, including costs for legal advice, exploratory diligence, and regulatory permitting costs in an effort to close the transaction and pre-acquisition services provided by our third party shareholder in exchange for a minority interest. Payment obligations of $5,321 relating to the non-controlling interest shareholder were classified in other liabilities. Further post acquisition costs of $3,406 have been capitalized and are included in construction in progress, as development has commenced on the storage cavern and warehouse facilities. As of September 30, 2016, Repauno is part of the Corporate segment.
During the nine months ended September 30, 2016, disposals of railroad equipment totaled $125. Depreciation expense for property, plant and equipment was $3,154 and $9,530, for the three and nine months ended September 30, 2016, respectively. Depreciation expense for property, plant and equipment was $2,764 and $8,114, for the three and nine months ended September 30, 2015, respectively.
6.
INVESTMENTS IN UNCONSOLIDATED ENTITIES
The following table presents the ownership interests and carrying values of the Company’s investments in unconsolidated entities:
 
 
 
Carrying Value
 
Ownership Percentage
 
September 30, 2016
 
December 31, 2015
JGP Energy Partners LLC
50%
 
$
1,754

 
$

Intermodal Finance I, Ltd.
51%
 
$
8,768

 
$
10,675


15


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



JGP
In 2016, the Company initiated activities in a 50% non-controlling interest in JGP, a joint venture. JGP is governed by a designated operating committee selected by the members in proportion to their equity interests. JGP is solely reliant on its members to finance its activities and therefore is a variable interest entity. The Company concluded it is not the primary beneficiary of JGP as the members share equally in the risks and rewards and decision making authority of the entity; therefore, the Company does not consolidate JGP and instead accounts for this investment in accordance with the equity method. The primary financial activities for JGP relate to member investments and therefore JGP summary financial information has not been presented.
Intermodal Finance I, Ltd.
In 2012, the Company acquired a 51% non-controlling interest in Intermodal Finance I, Ltd. (“Intermodal”), a joint venture. Intermodal is governed by a board of directors and its shareholders have voting rights through their equity interests. As such, Intermodal is not within the scope of ASC 810-20 and should be evaluated for consolidation under the voting interest model. Due to the existence of substantive participating rights of the 49% equity investor, including the joint approval of material operating and capital decisions, such as material contracts and capital expenditures consistent with ASC 810-10-25-11, the Company does not have unilateral rights over this investment; therefore, the Company does not consolidate Intermodal but accounts for this investment in accordance with the equity method. The Company does not have a variable interest in this investment as none of the criteria of ASC 810-10-15-14 were met.
Intermodal owns a portfolio of multiple finance leases, representing five customers and comprising approximately 53,000 shipping containers, as well as a portfolio of approximately 30,000 shipping containers subject to multiple operating leases.
Summary financial information for Intermodal is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Total revenues
$
2,470

 
$
3,935

 
$
8,931

 
$
12,429

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Operating expenses
387

 
296

 
810

 
722

General and administrative
799

 
241

 
1,474

 
614

Depreciation and amortization
1,275

 
586

 
4,738

 
1,785

Interest expense
529

 
930

 
1,826

 
2,788

Impairment expense

 
20,604

 

 
20,604

Total expenses
2,990

 
22,657

 
8,848

 
26,513

 
 
 
 
 
 
 
 
Other income (loss)
 
 
 
 
 
 
 
Loss on disposal of equipment
(1,848
)
 
(266
)
 
(2,975
)
 
(317
)
Other income

 
96

 

 
130

Total other loss
(1,848
)
 
(170
)
 
(2,975
)
 
(187
)
 
 
 
 
 
 
 
 
Net loss
(2,368
)
 
(18,892
)
 
(2,892
)
 
(14,271
)
 
 
 
 
 
 
 
 
Comprehensive loss
$
(2,368
)
 
$
(18,892
)
 
$
(2,892
)
 
$
(14,271
)
 
 
 
 
 
 
 
 
Company's equity in losses
$
(1,161
)
 
$
(9,584
)
 
$
(1,335
)
 
$
(7,118
)

16


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



 
September 30,
 
December 31,
 
2016
 
2015
Assets
 
 
 
Cash and cash equivalents
$
4,406

 
$
4,796

Restricted cash
1,215

 
2,117

Accounts receivable
1,116

 
1,153

Other receivables
763

 

Leasing equipment, net of accumulated depreciation of $9,312 and $7,305, respectively
32,846

 
47,735

Finance leases, net
20,988

 
34,261

Other assets
12

 
31

Total assets
$
61,346

 
$
90,093

 
 
 
 
Liabilities
 
 
 
Accounts payable and accrued liabilities
148

 
154

Syndication liabilities
1,710

 
3,201

Debt, net
59,115

 
82,991

Other liabilities
417

 
458

Total liabilities
61,390

 
86,804

 
 
 
 
Members’ Equity
 
 
 
Members’ equity
(44
)
 
3,289

Total members’ equity
(44
)
 
3,289

Total liabilities and members’ equity
$
61,346

 
$
90,093

 
 
 
 
Company’s investment in and advances to unconsolidated entities
$
8,768

 
$
10,675

7.    INTANGIBLE ASSETS AND LIABILITIES, NET
The Company’s intangible assets and liabilities, net are summarized as follows:
 
September 30, 2016
 
Aviation Leasing
 
Jefferson Terminal
 
Railroad
 
Total
Intangible assets
 
 
 
 
 
 
 
Acquired favorable lease intangibles
$
23,693

 
$

 
$

 
$
23,693

Less: Accumulated amortization
(14,611
)
 

 

 
(14,611
)
Acquired favorable lease intangibles, net
9,082

 

 

 
9,082

 
 
 
 
 
 
 
 
Customer relationships

 
35,513

 
225

 
35,738

Less: Accumulated amortization

 
(7,383
)
 
(109
)
 
(7,492
)
Acquired customer relationships, net

 
28,130

 
116

 
28,246

 
 
 
 
 
 
 
 
Total intangible assets, net
$
9,082

 
$
28,130

 
$
116

 
$
37,328

 
 
 
 
 
 
 
 
Intangible liabilities
 
 
 
 
 
 
 
Acquired unfavorable lease intangibles
$
1,506

 
$

 
$

 
$
1,506

Less: Accumulated amortization
(508
)
 

 

 
(508
)
Acquired unfavorable lease intangibles, net
$
998

 
$

 
$

 
$
998


17


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



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

 
$

 
$

 
$
22,881

Less: Accumulated amortization
(9,697
)
 

 

 
(9,697
)
Acquired favorable lease intangibles, net
13,184

 

 

 
13,184

 
 
 
 
 
 
 
 
Customer relationships

 
35,513

 
225

 
35,738

Less: Accumulated amortization

 
(4,718
)
 
(75
)
 
(4,793
)
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

Less: Accumulated amortization
(151
)
 

 

 
(151
)
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:
 
Classification in Consolidated Statements of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2016
 
2015
 
2016
 
2015
Lease intangibles
Equipment leasing revenues
 
$
1,403

 
$
1,405

 
$
4,557

 
$
5,198

Customer relationships
Depreciation and amortization
 
900

 
896

 
2,699

 
2,689

Total
 
 
$
2,303

 
$
2,301

 
$
7,256

 
$
7,887

As of September 30, 2016, estimated net annual amortization of intangibles is as follows:
 
Total
2016
$
2,142

2017
6,953

2018
6,138

2019
4,496

2020
3,574

Thereafter
13,027

Total
$
36,330


18


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



8.
DEBT, NET
The Company’s debt, net is summarized as follows:
 
September 30, 2016
 
December 31, 2015
Loans payable
 
 
 
Container Loan #1
$

 
$
34,761

Container Loan #2

 
11,338

FTAI Pride Credit Agreement
62,500

 
67,188

CMQR Credit Agreement
13,625

 
9,407

Jefferson Terminal Credit Agreement

 
98,750

Total loans payable
76,125

 
221,444

Bonds payable
 
 
 
Series 2012 Bonds (including unamortized premium of $1,710 and $1,751 at September 30, 2016 and December 31, 2015, respectively)
45,901

 
47,261

Series 2016 Bonds
144,200

 

Total bonds payable
190,101

 
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
268,578

 
271,057

Less: Debt issuance costs
(7,035
)
 
(4,836
)
Total debt, net
$
261,543

 
$
266,221

 
 
 
 
Total debt due within one year
$
8,548

 
$
24,791

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 first quarter of 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 first quarter of 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.

19


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



FTAI Pride Credit Agreement—On September 15, 2014, FTAI Pride, LLC, (“FTAI Pride”) a subsidiary of the Company entered into a credit agreement (the “FTAI Pride Credit Agreement”) with a financial institution for a term loan in an aggregate amount of $75,000. The loan proceeds were used in connection with the acquisition of an offshore construction vessel. The FTAI Pride Credit Agreement requires quarterly payments of interest and scheduled principal payments of $1,562 beginning in the quarter ending December 31, 2015, through its maturity and can be prepaid without penalty at any time. The FTAI Pride Credit Agreement is secured on a first priority basis by the offshore construction vessel and charter. Borrowings under the FTAI Pride Credit Agreement bear interest at the LIBOR rate plus a spread of 4.50%.
The FTAI Pride Credit Agreement contains affirmative and negative covenants which limit certain actions of the borrower and a financial covenant requiring the borrower to maintain a Fixed Charges Coverage Ratio, as defined, of not less than 1.15:1.00 in any twelve month period ending December 31, 2014, or later.
CMQR Credit 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 first quarter of 2016, the Company recorded a loss on extinguishment of debt of $1,579.
Series 2012 Bonds—On August 1, 2012, Jefferson County Development Corporation issued $46,875 of tax-exempt industrial bonds (“Series 2012 Bonds”), to specifically fund construction and operation of an intermodal transfer facility for crude oil and refined petroleum products. The proceeds of this issuance were loaned to Jefferson Terminal, to be held in trust, as restricted cash, to ensure adherence to the restrictions of use of the funds. Use of the proceeds requires approval from a trustee prior to release of funds. Such restricted cash may only be released to us after payment of applicable reserves, including a six-month interest reserve, and expenses, as determined by the trustee. The Series 2012 Bonds have a stated maturity of July 1, 2032, bear interest at 8.25%, and require scheduled principal payments. The principal of the Series 2012 Bonds is payable annually at varying amounts.
In connection with the Company’s acquisition of Jefferson Terminal, the Series 2012 Bonds were recorded at a fair value of $48,554, which represented a premium of $1,823 as compared to their face value at the date of acquisition; such premium is being amortized using the effective interest method over the remaining contractual term of the Series 2012 Bonds.

The Series 2012 Bond agreement contains a financial covenant requiring a subsidiary of the Company to maintain a long-term debt service coverage ratio, as defined in the agreement, of 1.25 to 1, in each fiscal year, beginning with December 31, 2014.
Series 2016 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.

20


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



The transaction described above did not qualify for sale-leaseback accounting due to the continuing involvement of the Company resulting from the mandatory tender feature and, as a result, the leases were classified as a financing transaction in the Company’s consolidated financial statements. Under the financing method, the assets constructed or to be constructed will remain on the consolidated balance sheet and the net proceeds received by the Company are recorded as financial debt. Payments under these leases are recorded as interest expense and reduction of principal in accordance with the terms of the bond agreement with annual interest payments and a principal repayment at February 13, 2020 barring a remarketing of the bond on new terms. 
Under a Capital Call Agreement, the Company has agreed to make funds available to Jefferson Holdings in order to satisfy its obligation under the Standby Bond Purchase Agreement. The Capital Call Agreement contains certain covenants applicable to the Company, including a negative lien covenant regarding Aviation Assets, as defined therein, as well as maintenance of a minimum total asset value of Aviation Assets and minimum total equity of the Company. In connection with the above, and related to the Series 2016 Bonds, a subsidiary of the Company and an affiliate of its Manager entered into a Fee and Support Agreement with FTAI Energy Partners LLC and certain of its subsidiaries. The Fee and Support Agreement provides that both such subsidiary of the Company and affiliate of the Manager will effectively guarantee a pro rata portion of the obligations under the Standby Bond Purchase Agreement in return for a guarantee fee of $6,873 (shared on the same pro rata basis). This fee will be amortized as interest expense to the earlier of the redemption date or February 13, 2020.
The Series 2016 Bonds bear interest at an initial rate of 7.25% and require scheduled interest payments. The Series 2016 Bonds have a stated maturity of February 1, 2036 but are subject to mandatory tender for purchase at par on February 13, 2020 if they have not been repurchased from proceeds of a remarketing of the Series 2016 Bonds or redeemed prior to such date. In the event all of the Series 2016 Bonds are not repurchased from proceeds of a remarketing or redeemed at February 13, 2020, Jefferson Railport and Jefferson Railport Terminal II Holdings LLC (“Jefferson Holdings”), a Delaware limited liability company and parent of Jefferson Railport II, have agreed to purchase the Series 2016 Bonds from the Holders thereof at par pursuant to a Standby Bond Purchase Agreement.  In addition, pursuant to the Standby Purchase Agreement, Jefferson Holdings will guarantee the payment of all Rent (as defined in the Facilities Lease), and all principal of and premium and interest on the Series 2016 Bonds payable prior to repurchase or redemption at February 13, 2020.
The Company was in compliance with all debt covenants as of September 30, 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 September 30, 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.

21


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 Using Fair Value Hierarchy as of
 
 
 
September 30, 2016
 
September 30, 2016
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Valuation Technique
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
197,874

 
$
197,874

 
$

 
$

 
Market
Restricted cash
63,891

 
63,891

 

 

 
Market
Total
$
261,765

 
$
261,765

 
$

 
$

 

 
 
 
 
 
 
 
 
 
 
 
Fair Value as of
 
Fair Value Measurements Using Fair Value Hierarchy as of
 
 
 
December 31, 2015
 
December 31, 2015
 
 
 
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 September 30, 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 September 30, 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 September 30, 2016 and December 31, 2015, the Company’s notes receivable also included a $17,935 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, net on the Consolidated Balance Sheets, was approximately $48,062 and $49,268, respectively, at September 30, 2016 and December 31, 2015, based upon market prices for similar municipal securities. The fair value of Series 2016 bonds, reported in debt, net on the Consolidated Balance Sheets, was approximately $151,392 at September 30, 2016 based upon market prices for similar municipal securities. The fair values of all other items reported as debt, net in the Consolidated Balance Sheet approximate their carrying values due to their bearing market rates of interest, and are classified as Level 2 within the fair value hierarchy.
The Company measures the fair value of certain assets and liabilities on a non-recurring basis when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include goodwill, intangible assets, property, plant and equipment and leasing equipment. The Company records such assets at fair value when it is determined the carrying value may not be recoverable. Fair value measurements for assets subject to impairment tests are based on an income approach which uses Level 3 inputs, which include the Company’s assumptions as to future cash flows from operation of the underlying businesses and the leasing and eventual sale of assets.

22


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 September 30, 2016
 
Equipment Leasing
 
Infrastructure
 
 
 
 
Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Corporate
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
19,039

 
$
2,561

 
$

 
$

 
$

 
$

 
$
21,600

Maintenance revenue
7,646

 

 

 

 

 

 
7,646

Finance lease income

 
403

 

 

 

 

 
403

Other revenue
375

 
5

 
25

 

 

 

 
405

Total equipment leasing revenues
27,060

 
2,969

 
25

 

 

 

 
30,054

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 Lease income

 

 

 

 

 
16

 
16

 Rail revenues

 

 

 

 
7,401

 

 
7,401

 Terminal services revenues

 

 

 
4,255

 

 

 
4,255

Total infrastructure revenues

 

 

 
4,255

 
7,401

 
16

 
11,672

Total revenues
$
27,060

 
$
2,969

 
$
25

 
$
4,255

 
$
7,401

 
$
16

 
$
41,726

 
Three Months Ended September 30, 2015
 
Equipment Leasing
 
Infrastructure
 
 
 
 
Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Corporate
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
10,664

 
$
5,816

 
$

 
$

 
$

 
$

 
$
16,480

Maintenance revenue
5,510

 

 

 

 

 

 
5,510

Finance lease income

 
418

 
1,726

 

 

 

 
2,144

Other revenue

 
201

 
25

 

 

 

 
226

Total equipment leasing revenues
16,174

 
6,435

 
1,751

 

 

 

 
24,360

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 Lease income

 

 

 
1,030

 

 

 
1,030

 Rail revenues

 

 

 

 
6,641

 

 
6,641

 Terminal services revenues

 

 

 
3,202

 

 

 
3,202

Total infrastructure revenues

 

 

 
4,232

 
6,641

 

 
10,873

Total revenues
$
16,174

 
$