U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

For the quarterly period ended March 31,September 30, 2017

OR

For the transition period fromto.

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 RuleRule 12b-2 of the Exchange Act.

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in RuleRule 12b-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: 26,440,68826,629,188 shares outstanding as of May 4,November 3, 2017.

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 $1,839$222 and $376$155 as part of the consideration for business acquisitions during the nine monthsquarter ended March 31,September 30, 2016 and 2017, respectively (see Note 4).

On February 8, 2016 and February 7, 2017, the Board of Directors of Royal Wolf declared a dividend of AUS$0.03 and AUS$0.025 per RWH share payable on April 4, 2016 and April 4, 2017 to shareholders of record on March 16, 2016 and March 16, 2017, respectively. The condensed consolidated financial statements accrued the amount of the dividend pertaining to the noncontrolling interest, which totaled $1,132 (AUS$1,476) and $940 (AUS$1,230), as a charge directly to the equity of noncontrolling interests at March 31, 2016 and 2017, respectively (see Note 3).

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”); over 50%-owned Royal Wolf Holdings Limited, an Australian corporation publicly traded on the Australian Securities Exchange (“RWH”), and its Australian and New Zealand subsidiaries (collectively, “Royal Wolf”);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, 20162017 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, 2017.2018. 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, 20162017 filed with the Securities and Exchange Commission (“SEC”).

Unless otherwise indicated, references to “FY 2016”2017” and “FY 2017”2018” are to the nine monthsquarter ended March 31,September 30, 2016 and 2017, 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, 20162017 and March 31,September 30, 2017, the gross costs of the lease fleet were $503,817,000$534,197,000 and $527,714,000,$542,599,000, 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. At March 31, 2016,The Company’s annual impairment assessment at June 30, 2017 concluded that the Company determined that qualitative factors in its North American leasing and manufacturing operations, pertaining primarily to conditions in the oil and gas market, required an update of the step one impairment analysis for Lone Star and Southern Frac. This updated analysis calculated that even though the excess of the estimated fair value of Lone Star over the carrying valuegoodwill of each of its invested capital declined, its implied value of goodwillreporting units was still greater than its carrying value. However, the Company determined that the implied value of Southern Frac’s goodwill was less than the carrying value of its goodwill, resulting in an impairment charge of $2,681,000 at March 31, 2016. At June 30, 2016, the annual step one impairment analysis performed on the North American reporting units,Pac-Van and Lone Star, calculated that the value of goodwill was still greater than its carrying value and that the amount by which the excess of the estimated fair values exceeded their respective carrying value of invested capital at that date was approximately 21% and 12%, respectively, of their book value.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 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 were stock options.options 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 1,727,2131,605,587 and 1,734,9521,807,476 for both the quarter ended March 31, 2016 and FY 2016 and the quarter ended March 31, 2017 and FY 2017,2018, respectively, have been excluded from the computation of diluted earnings per share because the effect is anti-dilutive.

Recently Issued Accounting Pronouncements

In April 2015, the FASB issued ASUNo. 2015-03,Imputation of Interest (Subtopic835-30). The amendments in this update require that debt issuance (or deferred financing) 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 the presentation of debt discounts. In August 2015, the FASB issued ASUNo. 2015-15 which added SEC guidance that stated in the absence of authoritative guidance within ASU2015-03 of debt issuance costs related toline-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of theline-of-credit arrangement, regardless of whether there are any outstanding borrowings on theline-of-credit arrangement. The Company adopted these updates in FY 2017 and, as a result, unamortized debt issuance costs totaling $2,239,000 and $1,827,000 as of June 30, 2016 and March 31, 2017, respectively, have been deducted from the carrying amounts of the Credit Suisse Term Loan and Senior Notes (see Note 5) in the accompanying consolidated balance sheets. Unamortized deferred financing costs related to the Asia-Pacific and North American senior credit facilities are included in the caption “Other intangible assets, net” in the accompanying consolidated balance sheets.

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. TheWhile the Company is evaluatingcontinues 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 and has not determined the effect of this ASU in the presentation ofwill have a material impact on its consolidated financial statements.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes Additionally, the Company intends to Condensed Consolidated Financial Statements

(Unaudited)

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 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 ASU No.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

No. 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. TheDuring FY 2017, the Company believes the adoption of ASUNo. 2016-02 will have a material effectevaluated this new accounting standard and engaged professionals in the presentation of its consolidated financial statements, but has not determinednew lease accounting implementation and related real estate consulting industry to assist in determining the effect of this ASUthe new standard as of July 1, 2017. The Company currently has over 100 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, the Company estimates that the right of use asset to be recorded on its consolidated balance sheet would be approximately $34.0 million to $37.0 million and that the related liability would be approximately $35.0 million to $39.0 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 presentationranges is due to the presumed renewal of leases whereby the exercise of the renewal option is twelve months or less from July 1, 2017. 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 consolidated financial statements.equipment and other finance leases and its lessor accounting under the new standard. The Company will continue this effort in a manner to be appropriately prepared for its implementation on or before July 1, 2019.

In OctoberMarch 2016, the FASB issued ASUNo. 2016-16,2016-09, Income TaxesCompensation – Stock Compensation (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory718). Under ASU2016-16No. 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 recognitiontax 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 windfall until it reduces current taxes payable. ASUNo. 2016-09 will also change the cash flow presentation of excess tax benefits, classifying them as operating inflows, consistent with other cash flows related to income tax consequences of an intra-entity transfer of an asset other than inventory whentaxes. In addition, this ASU allows a policy election to either continue to reduce share-based compensation expense for forfeitures in future periods, or to recognize forfeitures as they occur. The Company implemented ASUNo. 2016-09 in FY 2018, elected to recognize forfeitures as they occur and, because it was not significant, recorded the transfer occurs. This ASU is effective$135,000 benefit for annual reporting periods after December 15, 2017, including interim periods therein, with early adoption permitted and should be applied on a modified retrospective basis through athe cumulative-effect adjustment directly to retained earnings asfor previously unrecognized excess tax benefits and thetax-effect of the beginningdifference between the fair value estimate of awards historically expected to be forfeited and the periodfair value estimate of adoption. The Company is evaluating the requirements of this ASU and has not determined the effect of this ASUawards actually forfeited in the presentationaccompanying consolidated statement of its consolidated financial statements.operations.

In JanuaryAugust 2017, the FASB issued ASUNo. 2017-01,2017-12,Business CombinationsDerivatives and Hedging (Topic 842): Clarifying the Definition of a Business.815) – Targeted Improvements to Accounting for Hedging Activities. ASUNo. 2017-012017-12 clarifiesexpands hedge accounting for bothnon-financial and financial risk components and refines the definitionmeasurement of a businesshedge results in an attempt to help companies evaluate whether acquisition or disposal transactions should be accounted for as asset groups or as businesses. Thisbetter reflect an entity’s hedging strategies. The ASU will take effectalso amends the presentation and disclosure requirements and changes how entities assess hedge effectiveness. The effective date of ASUNo. 2017-12 for public companies inis for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not believe the requirements of ASUNo. 2017-01 will have a material effect to its consolidated financial statements.

In January 2017, the FASB issued ASUNo. 2017-04,Intangibles - Goodwill2018 and Other (Topic 350): Simplifying the Test for Goodwill Impairment.ASUNo. 2017-04 removes Step 2 of the goodwill impairment test, which requires the assessment of fair value of individual assets and liabilities of a reporting unit to measure goodwill impairments. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU will take effect for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, andthough early adoption is permitted for interim or annual goodwill impairment tests performed on dates on or after January 1, 2017.permitted. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. The Company intends to adoptis evaluating the effect that ASUNo. 2017-042017-12 for its next annual impairment tests,will have on the consolidated financial statements and related disclosures, but does not currently believe the requirements of this ASUit will have a material effect to its consolidated financial statements.be significant.

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, 20162017 and March 31,September 30, 2017, 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.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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, 20162017 and March 31,September 30, 2017, the Company had outstanding 400,000 shares of Series C Preferred Stock with an aggregate liquidation preference totaling $40,620,000 and $40,600,000, respectively.$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.”

Dividends

As of March 31,September 30, 2017, since issuance, dividends paid or payable totaled $83,000$87,000 for the Series B Preferred Stock and dividends paid totaled $13,550,000$15,360,000 for the Series C Preferred Stock. The characterization of dividends to the recipients for Federal income tax purposes is made based upon the earnings and profits of the Company, as defined by the Internal Revenue Code.

Royal Wolf Dividends

On August 12, 2015, the Board of Directors of2, 2017, Royal Wolf declaredpaid a special dividend of AUS$0.050.0265 per RWH share payable on October 2, 2015 to shareholders of record on September 17, 2015; and on February 8, 2016, the Board of Directors of Royal Wolf declared a dividend of AUS$0.03 per RWH share payable on April 4, 2016 to shareholders of record on March 16, 2016.

On August 10, 2016, the Board of Directors of Royal Wolf declared a dividend of AUS$0.025 per RWH share payable on October 4, 2016 to shareholders of record on September 16, 2016 and on February 7,July 18, 2017 the Board of Directors of Royal Wolf declared a dividend of AUS$0.025 per RWH share payable on April 4, 2017 to shareholders of record on March 16, 2017.

(see Note 4). The consolidated financial statements reflect the amount of the dividendsdividend pertaining to the noncontrolling interest.

Note 4. Acquisitions

Acquistion of Noncontrolling Interest of Royal Wolf

On July 12, 2017, the Company announced that it commenced, through GFNAPH, anoff-market takeover offer and entered into a binding takeover bid implementation agreement with the independent directors of RWH to acquire the approximately 49.2 million ordinary (common) shares of RWH not owned by the Company. The takeover offer was for AUS$1.83 per share in cash, less a special dividend declared by RWH of AUS$0.0265 per share (see Note 3), for total purchase consideration to be paid by the Company of AUS$88,712,000 ($70,402,000), or AUS$1.8035 per share. For the takeover offer, the Company used AUS$2,516,000 ($1,997,000) borrowed under its North America senior secured revolving credit facility (see Note 5) and received financing totaling $80,000,000 from Bison Capital Equity Partners V, L.P. (“Bison Capital”) and its affiliates, of which $10,000,000 was used for the repayment of the term loan due to Credit Suisse AG, Singapore Branch (“Credit Suisse”) (See Note 5). At September 8, 2017, the closing of the takeover bid offer period, the Company received valid acceptances for approximately 48.1 million shares, which in combination with the 51.2 million RWH shares previously owned by the Company represented approximately 99% of the total shares outstanding. The Company deposited in escrow the entire amount of the purchase consideration required to acquire all 49.2 million of the RWH shares owned by the noncontrolling interest shareholders, with owners of the 48.1 million shares accepting the takeover bid offer paid on or before September 29, 2017, and the remaining 1.1 million shares to be paid on or around October 31, 2017.

The accounting for the purchase consideration and estimated total transaction-related costs of $70,402,000 and $2,815,000, respectively, as well as the preliminary adjustment to the accumulated other comprehensive income (loss) and reclassification of the noncontrolling interest of Royal Wolf to the Company’s equity accounts, have been recorded as equity transactions in the accompanying consolidated balance sheet in FY 2018.

FY 2018 Acquisitions

The Company can enhance its business and market share by entering into new markets in various ways, including starting up a

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

new location or acquiring a business consisting of container, modular unit or mobile office assets of another entity. An acquisition generally provides the Company with operations that enables it to at least cover existing overhead costs and is preferable to astart-up or greenfield location. The businessesacquisition(s) discussed below were acquiredcompleted primarily to expand the Company’s container lease fleet. The accompanying consolidated financial statements include the operations of the acquired businessesbusiness(es) from the dates of acquisition.

On July 22, 2016,September 1, 2017, the Company, throughPac-Van, purchased the container businessbusinesses of The GreatAdvantage Storage Trailer, LLC and Big Star Container, Company, Ltd. (“GCC”LLC (collectively “Advantage”), for $662,000 (C$869,000),approximately $1,576,000, which included a general indemnity holdback and other adjustment amounts totaling $102,000 (C$133,000). GCCof $155,000. Advantage is located in Vancouver, British Columbia.

On July 27, 2016, the Company, throughPac-Van, purchased the business of Container Systems Storage, Inc. (“CSS”), for $1,667,000, which included holdbackAustin and other adjustment amounts totaling approximately $120,000. CSS, which is located in Yakima, Washington, leases and sells storage containers in the state of Washington and in northern Oregon.

On December 1, 2016, the Company, through Royal Wolf, purchased the container businesses of All Direct Container Sales Pty Limited and ADC Storage Pty Limited as Trustee for the ADC Storage Unit Trust (collectively “All Direct”), for $3,040,000 (AUS$4,109,000), which included holdback and other adjustment amounts totaling $154,000 (AUS$209,000). All Direct leases and sells containers in the southeast Queensland market, particularly in the Brisbane, Gold Coast and Toowoomba regions.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

San Antonio, Texas.

The preliminary allocation for the acquisition in FY 20172018 to tangible and intangible assets acquired and liabilities assumed based on their estimated fair market values was as follows (in thousands):

The FY 20172018 operating results of all acquisitions prior to and since theirthe respective datesdate of acquisition were not considered significant.

Goodwill recognized is attributable primarily to expected corporate synergies, the assembled workforce and other factors. The goodwill recognized in the GCC, CSS and All Direct acquisitions are notAdvantage acquisition is deductible for U.S. income tax purposes.

The Company incurred approximately $28,000 and $137,000 and $1,000 and $38,000$17,000 during the quarter ended March 31, 2016 and FY 2016 and during the quarter ended March 31, 2017 and $11,000 during FY 2017, respectively,2018 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.

Note 5. Senior and Other Debt

Asia-Pacific Leasing Senior Credit Facility

ANZ/CBA Credit Facility

At September 30, 2017, Royal Wolf hashad a $114,672,000$117,510,000 (AUS$150,000,000) secured senior credit facility, as last amended in December 2016, 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”). Under the common deed arrangement of the ANZ/CBA Credit Facility, ANZ’s proportionate share of the borrowing capacity is $68,803,000was $70,506,000 (AUS$90,000,000) and CBA’s proportionate share is $45,869,000was $47,004,000 (AUS$60,000,000). The ANZ/CBA Credit Facility iswas secured by substantially all of the assets of the Company’s Australian and New Zealand subsidiaries and has $76,448,000had $78,340,000 (AUS$100,000,000) maturing on January 31, 2022 (Facility A), and $38,224,000$39,170,000 (AUS$50,000,000) maturing on July 31, 2019 (Facility B).

For the ANZ proportionate share, borrowings under the ANZ/CBA Credit Facility bearbore interest at the bank bill swap interest rate in Australia (“BBSY”) or New Zealand (“BKBM”), plus a margin of 1.40% - 2.40% per annum on Facility A and 1.35% - 2.40% on Facility B, depending on the net debt leverage ratio (“NDLR”), as defined. The CBA proportionate share hashad a margin of 1.75% - 2.65% per annum on Facility A and 1.45% - 2.35% on Facility B. At March 31,September 30, 2017, the30-day and90-day BBSY and BKBM were 1.675%1.65% and 1.845%1.76% and 1.93667%1.84% and 2.050%1.96%, respectively. The ANZ/CBA Credit Facility also include $2,293,000 included $2,350,000

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(AUS$3,000,000)sub-facilities to, among other things, facilitate direct and global payments using electronic banking services. The ANZ/CBA Credit Facility, as amended, iswas subject to certain financial and other customary covenants, including, among other things, compliance with specified interest coverage and net debt ratios based on earnings before interest, income taxes, impairment, depreciation and amortization and othernon-operating costs and income (“EBITDA”) on a semi-annual basis and that borrowings may not exceed a multiple of 3.25 times EBITDA, as defined.

Deutsche Bank Credit Facility

On July 11, 2017, Deutsche Bank AG, Sydney Branch (“Deutsche Bank”), GFN and GFNAPH entered into an agreement (the “Commitment Letter”) wherein Deutsche Bank committed to arrange, underwrite and syndicate a three-year, $97,925,000 (AUS$125,000,000) senior secured credit facility (the “Deutsche Bank Credit Facility”) to refinance, subsequent to September 30, 2017, the existing ANZ/CBA Credit Facility following completion of the acquisition of the noncontrolling interest of Royal Wolf (see Note 4).

Pursuant to the Commitment Letter, Deutsche Bank committed to enter into the Deutsche Bank Credit Facility subject to the terms and conditions of a syndicated facility agreement attached to the Commitment Letter. The Deutsche Bank Credit Facility would consist of a $15,668,000 (AUS$20,000,000) Facility A that would amortize semi-annually; a $66,589,000 (AUS$85,000,000) Facility B with no scheduled amortization; and a $15,668,000 (AUS$20,000,000) revolving Facility C to be used for working capital purposes. Amounts borrowed will bear interest at the rate of 5.0% per annum until delivery of the first compliance certificate and thereafter at the BBSY, plus a margin of 4.25% to 5.50% per annum, as determined by net leverage. The Deutsche Bank Credit Facility will be secured by substantially all of the assets and by the pledge of all capital stock of RWH and its subsidiaries and will be subject to certain financial and other customary covenants, including, among other things, compliance with specified net leverage and debt requirement or fixed charge ratios based on EBITDA, as defined.

The above amounts were translated based upon the exchange rate of one Australian dollar to $0.7834 U.S. dollar at September 30, 2017.

Bison Capital Notes

General

On September 19, 2017, Bison Capital, GFN, GFN U.S., GFNAPH and GFNAPF, entered into that certain Amended and Restated Securities Purchase Agreement dated September 19, 2017 (the “Amended Securities Purchase Agreement”). On September 25, 2017, pursuant to the Amended Securities Purchase Agreement, GFNAPH and GFNAPF issued and sold to Bison an 11.9% secured senior convertible promissory note dated September 25, 2017 in the original principal amount of $26,000,000 (the “Convertible Note”) and an 11.9% secured senior promissory note dated September 25, 2017 in the original principal amount of $54,000,000 (the “Senior Note” and collectively with the Convertible Note, the “Bison Capital Notes”). Net proceeds from the sale of the Bison Capital Notes were used to repay in full all principal, interest and other amounts due under the term loan to Credit Suisse (see below), to acquire the 49,188,526 publicly-traded shares of RWH not owned by the Company and to pay all related fees and expenses.

The Bison Capital Notes have a maturity of five years and bear interest from the date of issuance, payable quarterly in arrears beginning on January 2, 2018. The Company may elect to defer interest under the Bison Capital Notes until the second anniversary of issuance. Interest on the Bison Capital Notes are payable in Australian dollars, but the principal must be repaid in U.S. dollars. The Bison Capital Notes are secured by a first priority security interest over all of the assets of GFN U.S., GFNAPH and GFNAPF, by the pledge by GFN U.S. of the capital stock of GFNAPH and GFNAPF and by of all of the capital stock of RWH. The Bison Capital Notes are subject to all terms, conditions and covenants set forth in the Amended Securities Purchase Agreement. The Amended Securities Purchase Agreement contains certain financial and other customary and restrictive covenants, including, among other things, a minimum EBITDA requirement to equal or exceed AUS$30,000,000 per trailing12-month period. In addition, the Bison Capital Notes must be repaid upon a change of control, as defined. At September 30, 2017, the Bison Capital Notes totaled $78,784,000, net of deferred financing costs of $1,216,000.

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Convertible Note

At March 31, 2017, total borrowingsany time prior to maturity, Bison Capital may convert unpaid principal and availabilityinterest under the ANZ/CBA Credit Facility totaled $87,126,000 (AUS$113,968,000)Convertible Note into shares of GFN common stock based upon a price of $8.50 per share, 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 $11,738,000 (AUS$15,354,000), respectively. Of the total borrowings, $54,033,000 (AUS$70,680,000) is drawn under Facility Aaggregate dollar value of all GFN common stock traded on NASDAQ exceed $600,000 over a period of 20 consecutive days, 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, and $33,093,000 (AUS$43,288,000) is drawn under Facility B.GFN shall not be obligated, to convert the Convertible Note into shares of GFN 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. 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 includes a provision which requires GFNAPH and GFNAPF to pay Bison Capital, via the payment of principal, interest and the value of GFN common stock received upon conversion of all or a portion of the Convertible Note, a minimum return of 1.75 times the original $26,000,000 principal amount. The Convertible Note must also be repaid upon a change of control, as defined. In the event that Bison Capital or holders of the Convertible Note receive aggregate proceeds in excess of $48,900,000 from the sale of GFN common stock received from conversion of the Convertible Note, then 50% of the interest accrued and actually paid to Bison Capital (such amount, the “Price Increase”) shall be repaid by Bison Capital or holders of the Convertible Note by either (i) paying such Price Increase to GFNAPH or GFNAPF in the form of cash, (ii) returning to GFN shares of GFN Common Stock with a value equal to the Price Increase or (iii) any combination of (i) or (ii) above that if the aggregate equals the Price Increase. The value of the GFN common stock for purposes of the return of shares to GFN by the shall be deemed to be the average price per share of GFN common stock realized by the Convertible Note holder in the sale of such shares. The Convertible Note holder may satisfy such obligations by returning to GFN shares of GFN common stock with an aggregate value equivalent to the Price Increase.

The above amountsCompany evaluated the Convertible Note and determined that certain conversion rights were translated based uponan embedded derivative that required bifurcation because they were not deemed to be clearly and closely related to the exchange rateConvertible Note. As a result, the Company will separately account for these conversion rights as a standalone derivative. As of one Australian dollarSeptember 30, 2017, the fair value of this standalone derivative is included as a part of senior and other debt in the accompanying consolidated balance sheets. The Company will determine the fair value of the embedded derivative using a valuation model and market prices and will reassess the fair value of the embedded derivative at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in the accompanying consolidated statements of operations.

Senior Note

The Senior Note may not be prepaid prior to $0.76448 U.S. dollarits first anniversary of issuance. GFNAPH and GFNAPF may prepay the Senior Note at March 31, 2017.102% of the original principal amount, plus accrued interest, after the first anniversary and prior to the second anniversary of issuance, at 101% of the original principal amount, plus accrued interest, after the second anniversary and prior to the third anniversary of issuance and with no prepayment premium after the third anniversary of issuance.

North America Senior Credit Facility

The North America leasing(Pac-Van and Lone Star) and manufacturing operations (Southern Frac) have a combined $230,000,000$237,000,000 senior secured revolving credit facility, as last amended, in March 2017, with a syndicate led by Wells Fargo Bank, National Association (“Wells Fargo”) that also includes East West Bank, CIT Bank, N.A., the Private Bank and Trust Company, KeyBank, National Association, and Bank Hapoalim B.M. and Associated Bank, N.A. (the “Wells Fargo Credit Facility”). The Wells Fargo Credit Facility matures on March 24, 2022, assuming the Company’s publicly-traded senior notes due July 31, 2021(see below) are extended at least 90 days past this scheduled maturity date; otherwise the Wells Fargo Credit Facility would mature on March 24, 2021. In addition, subject to certain conditions, the amount that may be borrowed under the Wells Fargo Credit Facility may increase by $7,000,000 to a maximum of $237,000,000. In conjunction with the closing of the Wells Fargo Facility, the Company entered intoThere is also a separate loan agreement with Great American Capital Partners (“GACP”), where GACP provided a First In Last Out Term Loan (“(”FILO Term Loan”) within the Wells Fargo Credit Facility in the amount of $20,000,000, and inclusive in the $230,000,000$237,000,000 total amount. The FILO Term Loan has the same maturity date and commences principal amortization after 18 months from the anniversary date of March 27, 2017on October 1, 2018 at $500,000 per quarter. The FILO Term Loan has a prepayment fee of 3.00% of the prepaid amount if prepaid prior to the first anniversary, 2.00% of the prepaid amount if prepaid prior to the second anniversary and 1.00% of the prepaid amount if prepaid prior to the third anniversary.

The Wells Fargo Credit Facility is secured by substantially all of the rental fleet, inventory and other assets of the Company’s North American leasing and manufacturing operations. The FILO Term Loan also contains a first priority lien on the same collateral,

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but on a “last out basis,” after all of the outstanding obligations to the primary lenders in the Wells Fargo Credit Facility have been satisfied. The Wells Fargo Credit Facility effectively not only finances the North American operations, but also the funding requirements for the Series C Preferred Stock (see Note 3), the term loan with Credit Suisse (see below) and the publicly-traded unsecured senior notes. The maximum amount of intercompany dividends thatPac-Van and Lone Star are allowed to pay in each fiscal year to GFN for the funding requirements of GFN’s senior and other debt and the Series C Preferred Stock are (a) the lesser of $5,000,000 for the Series C Preferred 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; (b) the actual annual interest to be paid for the term loan with Credit Suisse; and (c) $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 March 31,September 30, 2017, borrowings and availability under the Wells Fargo Credit Facility totaled $189,743,000$187,654,000 and $26,885,000,$35,044,000, respectively.

Credit Suisse Term Loan

On March 31, 2014, the Company entered into a $25,000,000 facility agreement, as amended, with Credit Suisse (“Credit Suisse Term Loan”) as part of the financing for the acquisition of Lone Star and, on April 3, 2014, the Company borrowed the $25,000,000 available to it. The Credit Suisse Term Loan providesprovided that the amount borrowed willwould bear interest at LIBOR plus 7.50% per year, willwould be payable quarterly and that all principal and interest willwould mature on July 1, 2017.2018. In addition, the Credit Suisse Term Loan iswas secured by a first ranking pledge over substantially all shares of RWH owned by GFN U.S., requiresrequired a certain coverage maintenance ratio in U.S. dollars based on the value of the RWH shares and, among other things, that an amount equal tosix-months

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interest be deposited in an interest reserve account pledged to secure repayment of all amounts borrowed. The Company hashad repaid, prior to maturity, $15,000,000 of the outstanding borrowings of the Credit Suisse Term Loan and, as of March 31,June 30, 2017, $9,966,000$9,920,000 remained outstanding, net of unamortized debt issuance costs of $34,000.$80,000.

On September 25, 2017, in connection with the acquisition of the noncontrolling interest of Royal Wolf (see Note 4), the Credit Suisse Term Loan was fully repaid.

Senior Notes

At March 31,On June 18, 2014, the Company completed the sale of unsecured senior notes (the “Senior Notes”) in a public offering for an aggregate principal amount of $72,000,000. On April 24, 2017, the Company completed the sale of a“tack-on” offering of its publicly-traded Senior Notes for an aggregate principal amount of $5,390,000 that was priced at $24.95 per denomination. Net proceeds were $5,190,947, after deducting an aggregate original issue discount (“OID”) of $10,780 and underwriting discount of $188,273. In both offerings, the Company used at least 80% of the gross proceeds to reduce indebtedness atPac-Van and Lone Star under the Wells Fargo Credit Facility in order to permit the payment of intercompany dividends byPac-Van and Lone Star to GFN to fund the interest requirements of the Senior Notes. For the‘tack-on” offering, this amounted to $4,303,376 of the net proceeds. The Company has total outstanding publicly-traded senior notes (“Senior Notes”)Notes in an aggregate principal amount of $72,000,000$77,390,000 ($70,207,000,75,319,000 and $75,446,000, net of unamortized debt issuance costs of $1,793,000)$2,071,000 and 1,944,000, at June 30, 2017 and September 30, 2017, respectively).

The Senior Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof and pursuant to the First Supplemental Indenture (the “First Supplemental Indenture”) dated as of June 18, 2014 by and between the Company and Wells Fargo, as trustee (the “Trustee”). The First Supplemental Indenture supplements the Indenture entered into by and between the Company and the Trustee dated as of June 18, 2014 (the “Base Indenture” and, together with the First Supplemental Indenture, the “Indenture”). The Senior Notes bear interest at the rate of 8.125% per annum, mature on July 31, 2021 and are not subject to any sinking fund. Interest on the Senior Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31,

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commencing on July 31, 2014.

The Senior Notes rank equally in right of payment with all of the Company’s existing and future unsecured senior debt and senior in right of payment to all of its existing and future subordinated debt. The Senior Notes are effectively subordinated to any of the Company’s existing and future secured debt, to the extent of the value of the assets securing such debt. The Senior Notes are structurally subordinated to all existing and future liabilities of the Company’s subsidiaries and are not guaranteed by any of the Company’s subsidiaries.

The Company may, at itshad an option, prior to July 31, 2017, to redeem the Senior Notes in whole or in part upon the payment of 100% of the principal amount of the Senior Notes being redeemed, plus any additional amount required by the Indenture. In addition, the Company may from time to time redeemhave redeemed up to 35% of the aggregate outstanding principal amount of the Senior Notes before July 31, 2017 with the net cash proceeds from certain equity offerings at a redemption price of 108.125% of the principal amount plus accrued and unpaid interest. The Company has not redeemed any of its Senior Notes as July 31, 2017.

If the Company sells certain of its assets or experiences specific kinds of changes in control, as defined, it must offer to redeem the Senior Notes. The Company may, at its option, at any time and from time to time, on or after July 31, 2017, redeem the Senior Notes in whole or in part. The Senior Notes will be redeemable at a redemption price initially equal to 106.094% of the principal amount of the Senior Notes (and which declines each year on July 31) plus accrued and unpaid interest to the date of redemption. On and after any redemption date, interest will cease to accrue on the redeemed Senior Notes.

The Indenture contains covenants which, among other things, limit the Company’s ability to make certain payments, to pay dividends and to incur additional indebtedness if the incurrence of such indebtedness would cause the company’s consolidated fixed charge coverage ratio, as defined in the Indenture, to be below 2.0 to 1.0. The Senior Notes are listed on NASDAQ under the symbol “GFNSL.”

Other

At March 31,September 30, 2017, other debt totaled $8,314,000.$9,683,000.

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

The weighted-average interest rate in the Asia-Pacific area was 4.9%5.0% and 4.9% and 5.3% and 4.9%4.6% in the quarter ended March 31, 2016 andFY 2017 and in FY 2016 and FY 2017,2018, respectively; which does not include the effect of translation, interest rate swap contracts and options and the amortization of deferred financing costs. The weighted-average interest rate in North America was 4.9% and 5.2% and 4.9% and 5.0% in the quarter ended March 31, 2016 and 2017 and6.0% in FY 2016 and2017and FY 2017,2018, respectively, which does not include the effect of the amortization of deferred financing costs and accretion of interest.

Note 6. Financial Instruments

Fair Value Measurements

FASB ASC Topic 820,Fair Value Measurements and Disclosures, defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, FASB ASC Topic 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

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Level 1 - Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 - Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and

Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s derivative instruments are not traded on a market exchange; therefore, the fair values are determined using valuation models that include assumptions about yield curve at the reporting dates as well as counter-party credit risk. The assumptions are generally derived from market-observable data. The Company has consistently applied these calculation techniques to all periods presented, which are considered Level 2. Derivative instruments measured at fair value and their classification in the consolidated balances sheets and statements of operations are as follows (in thousands):

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Interest Rate Swap Contracts

The Company’s exposure to market risk for changes in interest rates relates primarily to its senior and other debt obligations. The Company’s policy is to manage its interest expense by using a mix of fixed and variable rate debt.

To manage its exposure to variable interest rates in a cost-efficient manner, the Company enters into interest rate swaps and interest rate options, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps and options are designated to hedge changes in the interest rate of a portion of the outstanding borrowings in the Asia-Pacific area. In August 2012, theThe Company entered into anone interest rate swap contract prior to FY 2015 and two interest rate swap contracts in FY 2017 that washave been designated as a cash flow hedge. This cash flow hedge was determined to be highly effective and, therefore, changes in the fair value of the effective portion were recorded in accumulated other comprehensive income.hedges. The Company expects this derivativethese derivatives to remain effective during the remaining term of the swap;swaps; however, any changes in the portion of the hedgehedges considered ineffective would be recorded in interest expense in the consolidated statement of operations. There was no ineffective portion recorded in FY 20162017 and only a nominal gain FY 2017.

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2018.

The Company’s interest rate derivative instruments are not traded on a market exchange; therefore, the fair values are determined using valuation models which include assumptions about the interest rate yield curve at the reporting dates (Level 2 fair value measurement). As of June 30, 20162017 and March 31,September 30, 2017, there was onewere two open interest rate swap contractcontracts, one that was designated as a cash flow hedge and matures in June 2017,2019 and the other that matures in June 2021, as follows (dollars in thousands):

Foreign Currency Risk

The Company has transactional currency exposures. Such exposure arises from sales or purchases in currencies other than the functional currency. The currency giving rise to this risk is primarily U.S. dollars. Royal Wolf has a bank account denominated in U.S. dollars into which a small number of customers pay their debts. This is a natural hedge against fluctuations in the exchange rate. The funds are then used to pay suppliers, avoiding the need to convert to Australian dollars. Royal Wolf uses forward currency and participating forward contracts to eliminate the currency exposures on the majority of its transactions denominated in foreign

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currencies, either by transaction if the amount is significant, or on a general cash flow hedge basis. The forward currency and participating forward contracts are always in the same currency as the hedged item. The Company believes that financial instruments designated as foreign currency hedges are highly effective. However documentation of such as required by ASC Topic 815 does not exist. Therefore, all movements in the fair values of these hedges are reported in the statement of operations in the period in which fair values change. As of June 30, 2016,2017, there were 4916 open forward exchange contracts that mature between July 20162017 and November 2016;December 2017; and as of March 31,September 30, 2017, there were 1323 open forward exchange contracts that mature between AprilOctober 2017 and August 2017,February 2018, as follows (dollars in thousands):

For the quarter ended March 31, 2016In FY 2017 and 2017,FY 2018, net unrealized and realized foreign exchange gains (losses) totaled $349,000$(153,000) and 44,000,$(17,000) and $39,000$(984,000) and $(33,000)$(430,000), respectively. In FY 2016 and FY 2017, net unrealized and realized foreign exchange gains (losses) totaled $(19,000)and $74,000, and $(506,000) and $84,000, respectively.

Fair Value of Other Financial Instruments

The fair value of the Company’s borrowings under the Senior Notes was determined based on a Level 1 input and for borrowings under its senior credit facilities and Credit Suisse Term Loan determined based on Level 3 inputs; including a comparison to a group of comparable industry debt issuances (“Industry Comparable Debt Issuances”) and a study of credit (“Credit Spread Analysis”). Under the Industry Comparable Debt Issuance method, the Company compared the debt facilities to several industry comparable debt issuances. This method consisted of an analysis of the offering yields compared to the current yields on publicly traded debt securities. Under the Credit Spread Analysis, the Company first examined the implied credit spreads of the United States Federal Reserve. Based on this analysis the Company was able to assess the credit market. The fair value of the Company’s senior credit facilities as of June 30, 20162017 was determined to be approximately $336,901,000.$347,236,000. The Company also determined that the fair value of its other debt of $8,818,000$8,402,000 at June 30, 2016,2017 approximated or would not vary significantly from their carrying values. The Company believes that market conditions at March 31,September 30, 2017 have not changed significantly from June 30, 2016.2017. Therefore, the proportion of the fair value to the carrying value of the Company’s senior credit facilities and other debt at March 31,September 30, 2017 would not vary significantly from the proportion determined at June 30, 2016.

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2017.

Under the provisions of FASB ASC Topic 825,Financial Instruments,the carrying value of the Company’s other financial instruments (consisting primarily of cash and cash equivalents, net receivables, trade payables and accrued liabilities) approximate fair value.

Note 7. Related-Party Transactions

Effective January 31, 2008, the Company entered into a lease with an affiliate of the Company’s chief executive officer for its corporate headquarters in Pasadena, California. The rent is $7,393 per month, effective March 1, 2009, plus allocated charges for common area maintenance, real property taxes and insurance, for approximately 3,000 square feet of office space. The term of the lease is five years, with two five-year renewal options, and the rent is adjusted yearly based on the consumer price index. On October 11, 2012, the Company exercised itsthe first option to renew the lease for an additional five-year term commencing February 1, 2013.2013 and on August 7, 2017, it exercised its second option for an additional five-year term commencing on February 1, 2018. Rental payments were $27,000 and $83,000$28,000 during the quarter ended March 31, 2016 andboth FY 2016 and $28,000 and $84,000 during the quarter ended March 31, 2017 and FY 2017, respectively.2018.

The premises ofPac-Van’s Las Vegas branch isare owned by and waswere leased from the acting branch manager through December 31, 2016. EffectiveFrom January 1, 2017 through May 12, 2017, the use of the premises iswas rented from the acting branch manager on amonth-to-month basis. Effective May 12, 2017, the Company entered into a lease agreement through December 31, 2020 for rental of $10,876 per month and the right to extend the term of the lease for threetwo-year options, with the monthly rental increasing at each option period from $11,420 to $12,590 per month. Rental payments haveon these premises totaled $30,000 and $89,000 during the quarter ended March 31, 2016 and FY 2016,2017 and $33,000 and $92,000 during the quarter ended March 31, 2017and FY 2017, respectively.2018.

Note 8. Equity Plans

On September 11, 2014, the Board of Directors of the Company adopted the 2014 Stock Incentive Plan (the “2014 Plan”), which was approved by the stockholders at the Company’s annual meeting on December 4, 2014 and amended and restated by the

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stockholders at the annual meeting on December 3, 2015. The 2014 Plan is an “omnibus” incentive plan permitting a variety of equity programs designed to provide flexibility in implementing equity and cash awards, including incentive stock options, nonqualified stock options, restricted stock grants(“non-vested equity shares”), restricted stock units, stock appreciation rights, performance stock, performance units and other stock-based awards. Participants in the 2014 Plan may be granted any one of the equity awards or any combination of them, as determined by the Board of Directors or the Compensation Committee. Upon the approval of the 2014 Plan by the stockholders, the Company suspended further grants under its previous equity plans, the General Finance Corporation 2006 Stock Option Plan (the “2006 Plan”) and the 2009 Stock Incentive Plan (the “2009 Plan”) (collectively the “Predecessor Plans”), which had a total of 2,500,000 shares reserved for grant. Any stock options which are forfeited under the Predecessor Plans will become available for grant under the 2014 Plan, but the total number of shares available under the 2014 Plan will not exceed the 1,500,000 shares reserved for grant under the 2014 Plan, plus any options which were forfeited or are available for grant under the Predecessor Plans. If not sooner terminated by the Board of Directors, the 2014 Plan will expire on December 4, 2024, which is the tenth anniversary of the date it was approved by the Company’s stockholders. The 2006 Plan expired on June 30, 2016 and the 2009 Plan will expire on December 10, 2019. The Predecessor Plans and the 2014 Plan are referred to collectively as the “Stock Incentive Plan.”

There have been no grants or awards of restricted stock units, stock appreciation rights, performance stock or performance units under the Stock Incentive Plan. All grantsto-date consist of incentive andnon-qualified stock options that vest over a period of up to five years (“time-based”),non-qualified stock options that vest over varying periods that are dependent on the attainment of certain defined EBITDA and other targets (“performance-based”) andnon-vested equity shares. At March 31,September 30, 2017, 628,194557,194 shares remained available for grant.

On February 7, 2017 (the “February 2017 Grant”), the Company granted time-based options to an officer of GFN to purchase 225,000 shares of common stock at an exercise price equal to the closing market price of the Company’s common stock as of that date, or $5.10 per share. The options under the February 2017 Grant vest over 36 months from the date of grant. The weighted-average fair value of the stock options in the February 2017 Grant was $3.35, determined using the Black-Scholes option-pricing model using the following assumptions: a risk-free interest rate of 2.13%, an expected life of 7.5 years, an expected volatility of 65.1% and no expected dividend.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Since inception, the range of the fair value of the stock options granted (other than tonon-employee consultants) and the assumptions used are as follows:

At March 31,September 30, 2017, there were no significant outstanding stock options held bynon-employee consultants that were not fully vested. A summary of the Company’s stock option activity and related information for FY 2017follows:2018 follows: