The FY 2018 operating results prior to and since the respective date 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 Advantage acquisitionFY 2018 acquisitions is deductible for U.S. income tax purposes.

The Company incurred approximately $17,000$1,000 and $38,000 during the quarter ended March 31, 2017 and FY 2017, respectively, and $11,000$20,000 and $84,000 during the quarter ended March 31, 2018 and FY 2018, respectively, 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 WolfThe Company’s operations in the Asia-Pacific area had a $117,510,000 (AUS$150,000,000)an 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”). UnderOn October 26, 2017, RWH and its subsidiaries, Deutsche Bank AG, Sydney Branch (“Deutsche Bank”), CSL Fund (PB) Lux Sarl II, Aiguilles Rouges Lux Sarl II, Perpetual Corporate Trust Limited and P.T. Limited entered into a Syndicated Facility Agreement (the “Syndicated Facility Agreement”). Pursuant to the common deed arrangement ofSyndicated Facility Agreement, the parties entered into a three-year, $96,072,500 (AUS$125,000,000) senior secured credit facility (the “Deutsche Bank Credit Facility”) and repaid the ANZ/CBA Credit Facility ANZ’s proportionate share of the borrowing capacity was $70,506,000 (AUS$90,000,000) and CBA’s proportionate share was $47,004,000 (AUS$60,000,000).on November 3, 2017. The ANZ/CBADeutsche Bank Credit Facility was secured by substantially allconsists of the assets of the Company’s Australian and New Zealand subsidiaries and had $78,340,000a $15,371,600 (AUS$100,000,000) maturing on January 31, 2022 (Facility A), and $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 bore 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 on20,000,000) Facility A and 1.35% - 2.40% onthat will amortize semi-annually; a $65,329,300 (AUS$85,000,000) Facility B depending on the net debt leverage ratio (“NDLR”), as defined. The CBA proportionate share hadthat has no scheduled amortization; and a margin of 1.75% - 2.65% per annum on$15,371,600 (AUS$20,000,000) revolving Facility AC that is used for working capital, capital expenditures and 1.45% - 2.35% on Facility B. At September 30, 2017, the30-day and90-day BBSY and BKBM were 1.65% and 1.76% and 1.84% and 1.96%, respectively. The ANZ/CBA Credit Facility also included $2,350,000general corporate purposes.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(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, was 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.

At September 30, 2017, total borrowings and availability under the ANZ/CBA Credit Facility totaled $84,061,000 (AUS$107,303,000) and $13,500,000 (AUS$17,232,000), respectively. Of the total borrowings, $52,236,000 (AUS$66,678,000) was drawn under Facility A and $31,825,000 (AUS$40,625,000) was drawn under Facility B.

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. Amountsamounts borrowed will bear interest at the rate of 5.0% per annum until delivery of the first compliance certificate and thereafter at the BBSY,bank bill swap interest rate in Australia (“BBSY”), plus a margin of 4.25% to 5.50% per annum, as determined by net leverage. The Deutsche Bank Credit Facility will beis secured by substantially all of the assets and by the pledge of all capital stock of RWH and its subsidiaries and will bematures on November 3, 2020, at which time an exit fee of up to $865,000 (A$1,125,000) is owed depending on the final amounts borrowed. In addition, the Deutsche Bank Credit Facility is 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,earnings before interest, income taxes, impairment, depreciation and amortization and othernon-operating costs and income (“EBITDA”), as defined. At March 31, 2018, the Deutsche Bank Credit Facility totaled $81,206,000 (A$105,658,000), net of deferred financing costs of $2,195,000, and availability under the revolving Facility C totaled $18,052,000 (AUS$23,487,000).

The above amounts were translated based upon the exchange rate of one Australian dollar to $0.7834$0.76858 U.S. dollar at September 30, 2017.March 31, 2018.

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 Term 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 Bison Capital Notes may be prepaid at 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. 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,March 31, 2018, the Bison Capital Notes totaled $78,784,000, netprincipal balance of deferred financing costs of $1,216,000.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notesthe Senior Term Note was $55,669,000, which includes interest the Company has elected to Condensed Consolidated Financial Statements

(Unaudited)

defer.

Convertible Note

At any time prior to maturity, Bison Capital may convert unpaid principal and interest under the 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 the aggregate 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 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. This minimum rate of return will be recorded at $806,000

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

per year, or $201,500 per quarter, as an accretion in the accompanying consolidated statements of operations. 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 Company evaluated the Convertible Note and determined that certain conversion rights were an embedded derivative that required bifurcation because they were not deemed to be clearly and closely related to the Convertible Note. As a result, the Company will separately accountaccounts for these conversion rights as a standalone derivative. As of the date of issuance on September 30,25, 2017, the fair value of this standalonebifurcated derivative is included aswas determined to be $1,864,000, resulting in a partprincipal balance of senior and other debt in$24,136,000 for the accompanying consolidated balance sheets.Convertible Note. The Company will determinedetermines the fair value of the embeddedbifurcated derivative using a valuation model and market prices and will reassess thereassesses its 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 its first anniversary At March 31, 2018, the fair value of issuance. GFNAPHthis bifurcated derivative was $4,085,000 and GFNAPF may prepay the Senior Note at 102%principal balance of the original principal amount, plus accrued interest, afterConvertible Note was $24,539,000, which includes accretion for the first anniversary and prior tominimum rate of return.

At March 31, 2018, the second anniversaryBison Capital Notes totaled $79,147,000, net of issuance, at 101%deferred financing costs 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.$1,061,000.

North America Senior Credit Facility

The North America leasing(Pac-Van and Lone Star) and manufacturing operations (Southern Frac) have a combined $237,000,000 senior secured revolving credit facility, as amended, with a syndicate led by Wells Fargo Bank, National Association (“Wells Fargo”) that also includes East West Bank, CIT Bank, N.A., the PrivateCanadian Imperial Bank and Trust Company,of Commerce (“CIBC”), KeyBank, National Association, 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. There 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 $237,000,000 total amount. The FILO Term Loan has the same maturity date and commences principal amortization on 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,

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Borrowings under the Wells Fargo Credit Facility accrue interest, at the Company’s option, either at the base rate, plus 0.5% and a range of 1.00% to 1.50%, or the LIBOR rate, plus 1.0% and a range of 2.50% to 3.00%. The FILO Term Loan within the Wells Fargo Credit Facility bears interest at 11.00% above the LIBOR rate, with a LIBOR rate floor of 1.00%. The Wells Fargo Credit Facility contains, among other things, certain financial covenants, including fixed charge coverage ratios, and other covenants,

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 September 30, 2017,March 31, 2018, borrowings and availability under the Wells Fargo Credit Facility totaled $187,654,000$195,631,000 and $35,044,000,$35,431,000, 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 provided that the amount borrowed would bear interest at LIBOR plus 7.50% per year, would be payable quarterly and that all principal and interest would mature on July 1, 2018. In addition, the Credit Suisse Term Loan was secured by a first ranking pledge over substantially all shares of RWH owned by GFN U.S., required 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 interest be deposited in an interest reserve account pledged to secure repayment of all amounts borrowed. The Company had repaid, prior to maturity, $15,000,000 of the outstanding borrowings of the Credit Suisse Term Loan and, as of June 30, 2017, $9,920,000 remained outstanding, net of unamortized debt issuance costs of $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

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 in an aggregate principal amount of $77,390,000 ($75,319,000 and $75,446,000,$75,697,000, net of unamortized debt issuance costs of $2,071,000 and 1,944,000,$1,693,000, at June 30, 2017 and September 30, 2017,March 31, 2018, 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,

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 had 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 have 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.”

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other

At September 30, 2017,March 31, 2018, other debt totaled $9,683,000.$7,742,000.

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

The weighted-average interest rate in the Asia-Pacific area was 5.0%4.9% and 4.6%10.4% and 4.9% and 10.0% in the quarter ended March 31, 2017 and 2018 and in FY 2017 and FY 2018, respectively; which does not include the effect of translation, interest rate swap contracts and options and thederivative valuation, amortization of deferred financing costs.costs and accretion. The weighted-average interest rate in North America was 4.9%5.2% and 6.2% and 5.0% and 6.0% in the quarter ended March 31, 2017 and 2018 and in FY 2017and2017 and FY 2018, respectively, which does not include the effect of the amortization of deferred financing costs and accretion of interest.accretion.

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:

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):

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 entershas entered into interest rate swaps and interest rate options, in which the Company agreesagreed 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 arewere designated to hedge changes in the interest rate of a portion of the outstanding borrowings in the Asia-Pacific area. TheIn FY 2017, the Company entered into one interest rate swap contract prior to FY 2015 and two interest rate swap contracts in FY 2017swaps that have beenwere designated as cash flow hedges. The Company expectsexpected these derivatives to remain effective during thetheir remaining term of the swaps; however,terms, but recorded any changes in the portion of the hedges considered ineffective would be recorded in interest expense in the consolidated statement of operations. There was no ineffective portion recorded in FY 2017 and, onlyin FY 2018, these two interest rate swap contracts were closed, with the Company incurring break costs of $148,000. In January 2018, the Company entered into another interest rate swap contract that was also designated as a nominalcash flow hedge. The Company expects this derivative to remain highly effective during its term; however, any changes in the portion of the hedge considered ineffective would also be recorded in interest expense in the consolidated statement of operations. In the quarter ended March 31, 2018, the Company recorded in interest expense an unrealized gain FY 2018.of $9,000 for the portion considered ineffective.

The Company’s interest rate derivative instruments arewere not traded on a market exchange; therefore, the fair values arewere 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, 2017 and September 30, 2017, there were twoMarch 31, 2018, the open interest rate swap contracts one that matures in June 2019 and the other that matures in June 2021,were 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

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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, 2017, there were 16 open forward exchange contracts that mature between July 2017 and December 2017; and as of September 30, 2017,March 31, 2018, there were 2312 open forward exchange that mature between October 2017April 2018 and FebruaryJuly 2018, as follows (dollars in thousands):

For the quarter ended March 31, 2017 and 2018, net unrealized and realized foreign exchange gains (losses) totaled $39,000 and $(33,000) and $(1,390,000) and $37,000, respectively. In FY 2017 and FY 2018, net unrealized and realized foreign exchange gains (losses) totaled $(153,000) $(506,000)and $(17,000)$84,000, and $(984,000)$(2,722,000) and $(430,000)$(369,000), respectively.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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, 2017 was determined to be approximately $347,236,000. The Company also determined that the fair value of its other debt of $8,402,000 at June 30, 2017 approximated or would not vary significantly from their carrying values. The Company believes that market conditions at September 30, 2017March 31, 2018 have not changed significantly from June 30, 2017. Therefore, the proportion of the fair value to the carrying value of the Company’s senior credit facilities and other debt at September 30, 2017March 31, 2018 would not vary significantly from the proportion determined at June 30, 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 officerthen Chief Executive Officer (now Executive Chairman of the Board of Directors) 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 the first option to renew the lease for an additional five-year term commencing February 1, 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 $28,000 during both the quarters ended March 31, 2017 and 2018, and $84,000 during both FY 2017 and FY 2018.

The premises ofPac-Van’s Las Vegas branch are owned by and were leased from the acting branch manager through December 31, 2016. From January 1, 2017 through May 12, 2017, the use of the premises was 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 on these premises totaled $30,000$33,000 during both the quarters ended March 31, 2017 and 2018 and $92,000 and $98,000 during FY 2017 and $33,000 during FY 2018.2018, respectively.    

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

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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.

GENERAL FINANCE CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The 2006 Plan expired on June 30, 2016 and the 2009 Plan will expire on December 10, 2019. On December 7, 2017, the stockholders approved an amendment unanimously approved by the Board of Directors of the Company that increased the number of shares reserved for issuance under the 2014 Plan by 1,000,000 shares, from 1,500,000 to 2,500,000 shares of common stock, plus any options which were forfeited or are available for grant under the 2009 Plan. 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”) and,non-vested equity shares.shares (“restricted stock”) and restricted stock units (“RSU”). At September 30, 2017, 557,194March 31, 2018, 960,948 shares remained available for grant.

On December 15, 2017 (the “December 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 $6.25 per share. The options under the December 2017 Grant vest over 36 months from the date of grant. The fair value of the stock options in the December 2017 Grant was $3.45, determined using the Black-Scholes option-pricing model using the following assumptions: a risk-free interest rate of 2.26%, an expected life of 7.5 years, an expected volatility of 50.5% and no expected dividend.

On February 6, 2018 (the “February 2018 Grant”), the Company granted time-based options to a key employee of Royal Wolf to purchase 81,280 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 $7.15 per share. The options under the February 2018 Grant vest over 28.8 months from the date of grant. The fair value of the stock options in the February 2018 Grant was $4.00, determined using the Black-Scholes option-pricing model using the following assumptions: a risk-free interest rate of 2.66%, an expected life of 7.5 years, an expected volatility of 50.5% and no expected dividend.

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 September 30, 2017,March 31, 2018, 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 2018 follows: