Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Nov. 02, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | WILLIS LEASE FINANCE CORP | |
Entity Central Index Key | 1,018,164 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 6,489,618 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q3 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
ASSETS | ||
Cash and cash equivalents | $ 10,653 | $ 9,732 |
Restricted cash | 28,217 | 33,026 |
Equipment held for operating lease, less accumulated depreciation of $350,595 and $316,366 at September 30, 2016 and December 31, 2015, respectively | 1,118,202 | 1,109,168 |
Maintenance rights | 16,774 | 12,140 |
Equipment held for sale | 13,899 | 23,454 |
Operating lease related receivables, net of allowances of $761 and $912 at September 30, 2016 and December 31, 2015, respectively | 12,128 | 13,626 |
Spare parts inventory | 19,235 | 20,826 |
Investments | 43,314 | 41,295 |
Property, equipment & furnishings, less accumulated depreciation of $5,512 and $11,102 at September 30, 2016 and December 31, 2015, respectively | 16,545 | 20,247 |
Other intangible assets, net | 758 | 932 |
Other assets | 11,603 | 9,839 |
Total assets | 1,291,328 | 1,294,285 |
Liabilities: | ||
Accounts payable and accrued expenses | 15,700 | 21,665 |
Deferred income taxes | 102,788 | 96,154 |
Notes payable | 885,643 | 866,089 |
Maintenance reserves | 61,160 | 71,054 |
Security deposits | 24,530 | 25,010 |
Unearned lease revenue | 5,033 | 5,090 |
Total liabilities | 1,094,854 | 1,085,062 |
Shareholders' equity: | ||
Common stock ($0.01 par value, 20,000,000 shares authorized; 6,576,369 and 7,548,395 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively) | 66 | 75 |
Paid-in capital in excess of par | 5,940 | 28,720 |
Retained earnings | 192,311 | 180,949 |
Accumulated other comprehensive loss, net of income tax benefit of $974 and $275 at September 30, 2016 and December 31, 2015, respectively. | (1,843) | (521) |
Total shareholders' equity | 196,474 | 209,223 |
Total liabilities and shareholders' equity | $ 1,291,328 | $ 1,294,285 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Equipment held for operating lease, accumulated depreciation (in dollars) | $ 350,595 | $ 316,366 |
Operating lease related receivable, allowances (in dollars) | 761 | 912 |
Property, equipment & furnishings, accumulated depreciation (in dollars) | $ 5,512 | $ 11,102 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 6,576,369 | 7,548,395 |
Common stock, shares outstanding | 6,576,369 | 7,548,395 |
Accumulated other comprehensive loss, income tax benefit (in dollars) | $ 974 | $ 275 |
Other assets | 11,603 | 9,839 |
Notes payable | 885,643 | 866,089 |
Variable Interest Entity [Member] | ||
Cash | 28,427 | 33,776 |
Equipment | 316,206 | 328,118 |
Other assets | 3,901 | 6,329 |
Notes payable | $ 278,426 | $ 293,331 |
Consolidated Statements of Inco
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
REVENUE | ||||
Lease rent revenue | $ 31,270 | $ 28,055 | $ 88,727 | $ 79,197 |
Maintenance reserve revenue | 14,229 | 16,119 | 45,562 | 39,035 |
Spare parts and equipment sales | 4,160 | 9,133 | 10,465 | 15,000 |
Gain on sale of leased equipment | 180 | 3,804 | 3,430 | 7,666 |
Other revenue | 1,622 | 619 | 3,614 | 1,978 |
Total revenue | 51,461 | 57,730 | 151,798 | 142,876 |
EXPENSES | ||||
Depreciation and amortization expense | 16,628 | 17,102 | 49,235 | 52,390 |
Cost of spare parts and equipment sales | 3,066 | 5,919 | 7,785 | 10,219 |
Write-down of equipment | 1,995 | 5,498 | 5,924 | 8,580 |
General and administrative | 12,257 | 11,742 | 34,694 | 30,826 |
Technical expense | 1,414 | 3,570 | 4,913 | 7,836 |
Net finance costs: | ||||
Interest expense | 10,230 | 9,805 | 30,635 | 29,232 |
Loss (gain) on debt extinguishment | 137 | (1,151) | ||
Total net finance costs | 10,230 | 9,805 | 30,772 | 28,081 |
Total expenses | 45,590 | 53,636 | 133,323 | 137,932 |
Earnings from operations | 5,871 | 4,094 | 18,475 | 4,944 |
Earnings from joint ventures | 631 | 558 | 874 | 1,127 |
Income before income taxes | 6,502 | 4,652 | 19,349 | 6,071 |
Income tax expense | 2,517 | 2,101 | 7,987 | 2,648 |
Net income | $ 3,985 | $ 2,551 | $ 11,362 | $ 3,423 |
Basic earnings per common share: (in dollars per share) | $ 0.63 | $ 0.33 | $ 1.69 | $ 0.44 |
Diluted earnings per common share: (in dollars per share) | $ 0.62 | $ 0.32 | $ 1.66 | $ 0.43 |
Average common shares outstanding (in shares) | 6,307 | 7,839 | 6,711 | 7,843 |
Diluted average common shares outstanding (in shares) | 6,448 | 7,963 | 6,849 | 8,011 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Consolidated Statements of Comprehensive Income | ||||
Net income | $ 3,985 | $ 2,551 | $ 11,362 | $ 3,423 |
Other comprehensive income: | ||||
Currency translation adjustment | (2,547) | (304) | (2,021) | (304) |
Tax benefit related to items of other comprehensive income | 881 | 104 | 699 | 104 |
Other comprehensive income | (1,666) | (200) | (1,322) | (200) |
Total comprehensive income | $ 2,319 | $ 2,351 | $ 10,040 | $ 3,223 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Equity - USD ($) shares in Thousands, $ in Thousands | Common Stock | Paid-in Capital in Excess of par | Accumulated Other Comprehensive Income | Retained Earnings | Total |
Balances at Dec. 31, 2014 | $ 83 | $ 42,076 | $ 174,489 | $ 216,648 | |
Balances (in shares) at Dec. 31, 2014 | 8,346 | ||||
Increase (Decrease) in Shareholders' Equity | |||||
Net income | 3,423 | 3,423 | |||
Net unrealized loss from derivative instruments, net of tax benefit | $ (200) | (200) | |||
Shares repurchased | $ (2) | (3,648) | (3,650) | ||
Shares repurchased (in shares) | (208) | ||||
Shares issued under stock compensation plans | $ 3 | 516 | 519 | ||
Shares issued under stock compensation plans (in shares) | 207 | ||||
Cancellation of restricted stock units in satisfaction of withholding tax | $ (1) | (1,100) | (1,101) | ||
Cancellation of restricted stock units in satisfaction of withholding tax (in shares) | (64) | ||||
Stock-based compensation, net of forfeitures | 2,961 | 2,961 | |||
Tax benefit on disqualified disposition of shares | 75 | 75 | |||
Balances at Sep. 30, 2015 | $ 83 | 40,880 | (200) | 177,912 | 218,675 |
Balances (in shares) at Sep. 30, 2015 | 8,281 | ||||
Balances at Dec. 31, 2015 | $ 75 | 28,720 | (521) | 180,949 | 209,223 |
Balances (in shares) at Dec. 31, 2015 | 7,548 | ||||
Increase (Decrease) in Shareholders' Equity | |||||
Net income | 11,362 | 11,362 | |||
Net unrealized loss from derivative instruments, net of tax benefit | (1,322) | (1,322) | |||
Shares repurchased | $ (10) | (25,012) | (25,022) | ||
Shares repurchased (in shares) | (1,058) | ||||
Shares issued under stock compensation plans | $ 1 | 154 | 155 | ||
Shares issued under stock compensation plans (in shares) | 127 | ||||
Cancellation of restricted stock units in satisfaction of withholding tax | (866) | (866) | |||
Cancellation of restricted stock units in satisfaction of withholding tax (in shares) | (41) | ||||
Stock-based compensation, net of forfeitures | 2,755 | 2,755 | |||
Tax benefit on disqualified disposition of shares | 189 | 189 | |||
Balances at Sep. 30, 2016 | $ 66 | $ 5,940 | $ (1,843) | $ 192,311 | $ 196,474 |
Balances (in shares) at Sep. 30, 2016 | 6,576 |
Consolidated Statements of Sha7
Consolidated Statements of Shareholders' Equity (Parenthetical) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Consolidated Statements of Shareholders' Equity | ||
Net unrealized loss from derivative instruments, tax benefit | $ 699 | $ 104 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Cash flows from operating activities: | ||
Net income | $ 11,362 | $ 3,423 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization expense | 49,235 | 52,390 |
Write-down of equipment | 5,924 | 8,580 |
Stock-based compensation expenses | 2,755 | 2,961 |
Amortization of deferred costs | 3,231 | 3,254 |
Allowances and provisions | (597) | 181 |
Gain on sale of leased equipment | (3,430) | (7,666) |
Loss (gain) on extinguishment of debt | 137 | (1,151) |
Income from joint ventures | (874) | (1,127) |
Deferred income taxes | 7,332 | 2,429 |
Changes in assets and liabilities: | ||
Receivables | 2,094 | (8,049) |
Spare parts inventory | 1,116 | 1,843 |
Other assets | (664) | (1,221) |
Accounts payable and accrued expenses | (1,729) | (7,740) |
Restricted cash | 3,409 | 10,238 |
Maintenance reserves | (9,895) | 3,315 |
Security deposits | (479) | 5,204 |
Unearned lease revenue | (57) | 773 |
Net cash provided by operating activities | 68,870 | 67,637 |
Cash flows from investing activities: | ||
Proceeds from sale of equipment (net of selling expenses) | 61,825 | 39,300 |
Restricted cash for investing activities | 55 | (11,222) |
Capital contribution to joint ventures | (5,545) | (630) |
Distributions received from joint ventures | 1,167 | 1,304 |
Maintenance rights payments received | 1,709 | |
Purchase of equipment held for operating lease | (113,249) | (137,959) |
Purchase of maintenance rights | (4,634) | 5,802 |
Purchase of property, equipment and furnishings | (357) | (3,734) |
Net cash used in investing activities | (60,738) | (105,430) |
Cash flows from financing activities: | ||
Proceeds from issuance of notes payable | 87,000 | 140,700 |
Debt issuance cost | (3,808) | (13) |
Restricted cash from financing activities | 1,345 | 25,359 |
Proceeds from shares issued under stock compensation plans | 155 | 519 |
Cancellation of restricted stock units in satisfaction of withholding tax | (866) | (1,101) |
Excess tax benefit from stock-based compensation | 189 | 75 |
Repurchase of common stock | (25,022) | (3,650) |
Principal payments on notes payable | (66,204) | (128,344) |
Net cash provided by (used in) financing activities | (7,211) | 33,545 |
Increase in cash and cash equivalents | 921 | (4,248) |
Cash and cash equivalents at beginning of period | 9,732 | 13,493 |
Cash and cash equivalents at end of period | 10,653 | 9,245 |
Net cash paid for: | ||
Interest | 27,855 | 26,637 |
Income Taxes | 137 | 99 |
Supplemental disclosures of non-cash investing activities: | ||
Purchase of aircraft and engines, liability incurred but not paid | 3,089 | 3,260 |
Engines and equipment, transferred from Held for Operating Lease to Held for Sale but not settled | 9,266 | $ 19,654 |
Transfer from property, equipment and furnishings to assets held for lease | $ 2,925 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2016 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies (a) Basis of Presentation: Our unaudited consolidated financial statements include the accounts of Willis Lease Finance Corporation and its subsidiaries (“we” or the “Company”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2016 and December 31, 2015, and the results of our operations for the three and nine months ended September 30, 2016 and 2015, and our cash flows for the nine months ended September 30, 2016 and 2015. The results of operations and cash flows for the period ended September 30, 2016 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2016. (b) Principles of Consolidation: We evaluate all entities in which we have an economic interest firstly to determine whether for accounting purposes the entity is a variable interest entity or voting interest entity. If the entity is a variable interest entity we consolidate the financial statements of that entity if we are the primary beneficiary of the entities’ activities. If the entity is a voting interest entity we consolidate the entity when we have a majority of voting interests. All inter-company balances are eliminated upon consolidation. (c) Correction of Immaterial Errors – Consolidated Financial Statements: During the second quarter of 2016 the Company determined that its financial statements for the years ended December 31, 2015, 2014 and 2013 and for prior years and for the quarter ended March 31, 2016 contained errors resulting from the incorrect accounting for equipment purchased with in-place leases. The Company previously did not identify, measure and account for maintenance rights acquired. The Company’s accounting policy for maintenance rights is described below as note 1(d). Management evaluated the materiality of the errors described above from a qualitative and quantitative perspective in accordance with the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality (SAB 99). Based on such evaluation, we have concluded that these corrections would not be material to any individual prior period and have corrected such balances herein. The associated correcting entries were recorded in the respective period starting with the opening consolidated balance sheet of December 31, 2015. The Consolidated Balance Sheet as of December 31, 2015 presented herein has been revised as follows: decrease in Equipment Held for Operating Lease by $13.7 million, increase in Maintenance Rights by $12.1 million, decrease in Deferred Income Taxes by $0.6 million and decrease in retained earnings by $1.1 million as of December 31, 2015. The adjustments to the previously reported Consolidated Statement of Income for the three and nine month periods ending September 30, 2015 were as follows: a decrease in Maintenance Reserve Revenue of nil and $1.7 million, respectively; a decrease in Gain on Sale of Leased Equipment of nil and $34,000, respectively; an increase (decrease) in Depreciation and Amortization expense of $13,000 and ($72,000), respectively; and a decrease in Income Tax Expense of $15,000 and $0.5 million, a decrease in net income of $26,000 and $1.0 million, respectively; and a decrease in basic and diluted earnings per share of nil and $0.12, respectively. The adjustments to the previously reported Consolidated Statement of cash flows for the nine month periods ending September 30, 2015 were as follows: a decrease in cash provided by operating income of $1.7 million; and a decrease in the cash used by investing activities of $1.7 million. There were other immaterial out of period adjustments recorded that affected lease rent revenue, spare part sales revenue and expense and general and administrative expenses for the nine month months ended September 30, 2016 and 2015. (d) Maintenance rights We identify, measure and account for maintenance right assets and liabilities associated with acquisitions of equipment with in-place leases. A maintenance right asset represents the fair value of the contractual right under a lease to receive equipment in an improved maintenance condition as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company's obligation to pay the lessee for the difference between the lease-end contractual maintenance condition of the equipment and the actual maintenance condition of the equipment on the acquisition date. The equipment condition at the end of the lease term may result in either overhaul work being performed by the lessee to meet the required return condition or a financial settlement. When a capital event is performed on the equipment by the lessee, which satisfies their maintenance right obligation, the maintenance rights are added to the equipment basis and depreciated to the next capital event. When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and the remaining balance is applied to the disposition gain or loss. When a lease terminates, an end of lease true-up is performed and the maintenance right is applied against the accumulated maintenance reserves or, for non-reserve lessees the final settlement payment, and any remaining net maintenance right is recorded in the income statement. Maintenance right assets were $16.8 million and $12.1 million as of September 30, 2016 and December 31, 2015, respectively. (e) Fair Value Measurements : Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value which are the following: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets Measured and Recorded at Fair Value on a Nonrecurring Basis We determine fair value of long-lived assets held and used, such as Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. The following table shows by level, within the fair value hierarchy, the Company’s assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2016 and 2015, and the losses recorded during the nine months ended September 30, 2016 and 2015 on those assets: Assets at Fair Value Total Losses September 30, 2016 September 30, 2015 Nine Months Ended September 30, Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 2016 2015 (in thousands) (in thousands) Equipment held for lease $ $ — $ $ — $ $ — $ $ — $ $ Equipment held for sale — — — — Spare parts inventory — — — — — — — Total $ $ — $ $ — $ $ — $ $ — $ $ At September 30, 2016, the Company used Level 2 inputs to measure equipment held for sale. Level 2 inputs include quoted prices for similar assets in inactive markets. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. A write-down of equipment totaling $5.9 million was recorded during the nine months ended September 30, 2016, of which $2.0 million was recorded due to a management decision to consign one engine for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds. An additional asset write-down of $2.0 million was recorded in the nine months ended September 30, 2016 based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the parts. A further writedown of $1.9 million was recorded due to the adjustment of the carrying value for an impaired engine within the portfolio to reflect estimated market value. A write-down of equipment totaling $5.5 million was recorded in the nine month period ended September 30, 2015 due to a management decision to consign four engines for part-out and sale, in which the assets net book value exceeds the estimated proceeds from part-out. A further write-down of equipment totaling $3.1 million was recorded in the three months ended September 30, 2015 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed. (f) Reclassifications: Reclassifications have been made to our consolidated financial statements for the prior periods to conform to classifications used during the three and nine months ended September 30, 2016. (g) Foreign Currency Translation: The Company’s foreign investments have been converted at rates of exchange at September 30, 2016. The changes in exchange rates in our foreign investments reported under the equity method are included in stockholders’ equity as accumulated other comprehensive income. (h) Recent Accounting Pronouncements: In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company beginning January 1, 2017, with early application permitted. The Company is currently evaluating the impact that the guidance will have on the Consolidated Financial Statements. In February 2016, the FASB issued ASU No. 2016-02, “ Leases ” (topic 842) . Under the new standard, the accounting for leases by lessors would basically remain unchanged from the existing concepts in ASC 840, Leases. In addition, FASB has decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. The standard will be effective for public business entities for annual periods (including interim periods), beginning after December 15, 2018, and early adoption will be permitted. The Company is currently evaluating the potential impact the adoption of the standard will have on its consolidated financial condition, results of operations or cash flows. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We are evaluating the impact that this new guidance will have on our consolidated financial position. In April 2015, the FASB issued ASU. 2015-03, "Simplifying the Presentation of Debt Issuance Costs". ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the accounting treatment for debt discounts. We have adopted ASU 2015-03 during the nine-month period ended September 30, 2016. Other assets and Long-term debt, net of discount have been revised as of December 31, 2015 to reflect the retroactive reclassification of $12.6 million of debt issuance costs that have been reclassified from Other assets to Notes payable. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements. |
Management Estimates
Management Estimates | 9 Months Ended |
Sep. 30, 2016 | |
Management Estimates | |
Management Estimates | 2. Management Estimates These financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to residual values, estimated asset lives, impairments, maintenance rights and bad debts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the accounting policies on revenue recognition, maintenance reserves and expenditures, useful life of equipment, asset residual values, asset impairment and allowance for doubtful accounts are critical to the results of operations. If the useful lives or residual values are lower than those estimated by us, upon sale of the asset a loss may be realized. Significant management judgment is required in the forecasting of future operating results, which are used in the preparation of projected undiscounted cash-flows and should different conditions prevail, material impairment write-downs may occur. |
Investments
Investments | 9 Months Ended |
Sep. 30, 2016 | |
Investments | |
Investments | 3. Investments On May 25, 2011, we entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company — Willis Mitsui & Company Engine Support Limited (“WMES”) for the purpose of acquiring and leasing jet engines. Each partner holds a fifty percent interest in the joint venture and the Company uses the equity method in recording investment activity. The investment has increased to $31.4 million as of September 30, 2016 as a result of the Company making $5.5 million in capital contributions to WMES, receiving $1.2 million in distributions, recording $1.2 million as deferred gain as a result of the Company selling four engines to WMES and the Company’s share of WMES reported income of $0.9 million during the nine months ended September 30, 2016. On June 3, 2014 we entered into an agreement with China Aviation Supplies Import & Export Corporation Limited (“CASC”) to participate in a joint venture named CASC Willis Engine Lease Company Limited (“CASC Willis”), a new joint venture based in Shanghai, China. Each partner holds a fifty percent interest in the joint venture and the Company uses the equity method in recording investment activity. In October 2014, each partner made a $15.0 million initial capital contribution representing the up-front funding for the new joint venture. The new company will acquire and lease jet engines to Chinese airlines and will concentrate on meeting the fast growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. The investment has decreased to $11.9 million as of September 30, 2016 as a result of a foreign currency translation adjustment of $2.0 million and by the Company’s share of CASC Willis reported loss of $0.1 million during the nine months ended September 30, 2016. Nine Months Ended September 30, 2016 WMES CASC Total (in thousands) Investment in joint ventures as of December 31, 2015 $ $ $ Capital contribution — Earnings from joint venture Deferred gain on engine sale — Distribution — Foreign currency translation adjustment — Investment in joint ventures as of September 30, 2016 $ $ $ “Other revenue” on the Consolidated Statement of Income includes management fees earned of $0.5 million and $0.4 million during the three months ended September 30, 2016 and 2015, respectively, related to the servicing of engines for the WMES lease portfolio. “Other revenue” on the Consolidated Statement of Income includes management fees earned of $1.3 million and $1.2 million during the nine months ended September 30, 2016 and 2015, respectively, related to the servicing of engines for the WMES lease portfolio. “Gain on sale of leased equipment” on the Consolidated Statement of Income includes $1.2 million for the nine months ended September 30, 2016 related to the sale of four engines to WMES for $46.1 million. As 50% owners of WMES, we deferred an incremental $1.2 million gain to our investment which is being amortized over a 15-year period to a 55% residual value. Summarized financial information for 100% of WMES is presented in the following tables: Three Months Ended September 30, 2016 2015 (in thousands) Revenue $ $ Expenses WMES net income $ $ Nine Months Ended September 30, 2016 2015 (in thousands) Revenue $ $ Expenses WMES net income $ $ September 30, December 31, 2016 2015 (in thousands) Total assets $ $ Total liabilities Total WMES net equity $ $ |
Notes Payable
Notes Payable | 9 Months Ended |
Sep. 30, 2016 | |
Notes Payable | |
Notes Payable | 4. Notes Payable Notes payable consisted of the following: September 30, December 31, 2016 2015 (in thousands) Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines. The facility has a committed amount of $890.0 million at September 30, 2016, which revolves until the maturity date of April 2021. $ $ WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines. Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft. Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines. Notes payable Less: unamortized debt issuance costs Total notes payable $ $ We maintain a revolving credit facility to finance the acquisition of aircraft engines for lease as well as for general working capital purposes. On April 20, 2016 we entered into a Third Amended and Restated Credit Agreement which increased the revolving credit facility to $890.0 million from $700.0 million and extended the term to April 2021. This $890 million revolving credit facility has an accordion feature which would expand the entire credit facility up to $1 billion. The initial interest rate on the facility is LIBOR plus 2.75%. The interest rate is adjusted quarterly, based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility. For further information on our debt instruments, see the "Notes Payable" note in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015. The following is a summary of the aggregate maturities of our long-term debt at September 30, 2016: Year (in thousands) 2016 $ 2017 2018 2019 2020 Thereafter $ |
Stock-Based Compensation Plans
Stock-Based Compensation Plans | 9 Months Ended |
Sep. 30, 2016 | |
Stock-Based Compensation Plans | |
Stock-Based Compensation Plans | 5. Stock-Based Compensation Plans Our 2007 Stock Incentive Plan (the 2007 Plan) was adopted on May 24, 2007. Under this 2007 Plan, a total of 2,000,000 shares are authorized for stock based compensation, available in the form of either restricted stock or stock options. On May 28, 2015, the Company’s shareholders authorized an increase in the number of shares of Common Stock available for grant by 800,000 shares bringing the total to 2,800,000 shares authorized. 2,400,357 shares of restricted stock were granted under the 2007 Stock Incentive Plan by September 30, 2016. Of this amount, 155,579 shares of restricted stock were cancelled and returned to the pool of shares which could be granted under the 2007 Stock Incentive Plan resulting in a net number of 555,222 shares which were available as of September 30, 2016 for future issuance under the 2007 Incentive Plan. The fair value of the restricted stock awards equaled the stock price at the date of grants. The following table summarizes restricted stock activity during the year ended December 31, 2015 and the nine months ended September 30, 2016. Shares Restricted stock at December 31, 2014 Granted in 2015 (vesting over 3 years) Granted in 2015 (vesting over 4 years) Granted in 2015 (vesting on first anniversary from date of issuance) Vested in 2015 Restricted stock at December 31, 2015 Granted in 2016 (vesting over 1 year) Granted in 2016 (vesting over 2 years) Granted in 2016 (vesting over 3 years) Granted in 2016 (vesting over 4 years) Vested in 2016 Cancelled in 2016 Restricted stock at September 30, 2016 All cancelled shares have returned to the share reserve and are available for issuance at a later date, in accordance with the 2007 Plan. Our accounting policy is to recognize the associated expense of such awards on a straight-line basis over the vesting period. At September 30, 2016, the stock compensation expense related to the restricted stock awards that will be recognized over the average remaining vesting period of 1.6 years totals $4.7 million. At September 30, 2016, the intrinsic value of unvested restricted stock awards is $8.7 million. The 2007 Plan terminates on May 24, 2017. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2016 | |
Income Taxes | |
Income Taxes | 6. Income Taxes Income tax expense for the three and nine months ended September 30, 2016 was $2.5 million and $8.0 million, respectively. Income tax expense for the three and nine months ended September 30, 2015 was $2.1 million and $2.6 million respectively. The effective tax rates for the three month and nine months ended September 30, 2016 were 38.7% and 41.3%, respectively. The effective tax rate for the three and nine months ended September 30, 2015 was 45.2% and 43.6%, respectively. The decrease in the effective tax rate was primarily due to the impact of the IRS code 162(m) calculation for executive compensation for the three months ended September 30, 2016. The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur. Our tax rate is subject to change based on changes in the mix of assets leased to domestic and foreign lessees, the proportions of revenue generated within and outside of California, the amount of executive compensation exceeding $1.0 million as defined in IRS code 162(m) and numerous other factors, including changes in tax law. |
Fair Value of Financial Instrum
Fair Value of Financial Instruments | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value of Financial Instruments | |
Fair Value of Financial Instruments | 7. Fair Value of Financial Instruments The carrying amount reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, operating lease related receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount of the Company’s outstanding balance on its Notes Payable as of September 30, 2016 and December 31, 2015 was estimated to have a fair value of approximately $877.8 million and $890.1 million, respectively, based on the fair value of estimated future payments calculated using the prevailing interest rates at each period end. |
Operating Segments
Operating Segments | 9 Months Ended |
Sep. 30, 2016 | |
Operating Segments | |
Operating Segments | 8. Operating Segments The Company operates in two business segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft engines and other aircraft equipment and the selective purchase and resale of commercial aircraft engines and other aircraft equipment and (ii) Spare Parts Sales which involves the purchase and resale of after-market engine and airframe parts, whole engines, engine modules and portable aircraft components and leasing of engines destined for disassembly and sale of parts. The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses and inter-company allocation of interest expense. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies. The following tables present a summary of the operating segments (amounts in thousands): Leasing and For the three months ended September 30, 2016 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — Total expenses — Earnings from operations $ $ $ $ Leasing and For the nine months ended September 30, 2016 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — Total expenses — Earnings from operations $ $ $ $ (1) Represents revenue generated between our operating segments Leasing and For the three months ended September 30, 2015 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — — Total expenses — Earnings from operations $ $ $ $ Leasing and For the nine months ended September 30, 2015 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — — Total expenses — Earnings from operations $ $ $ $ (1) Represents revenue generated between our operating segments Total assets as of September 30, 2016 $ $ $ — $ Total assets as of December 31, 2015 $ $ $ — $ |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2016 | |
Subsequent Events | |
Subsequent Events | 9. Subsequent Events Preferred Stock On October 11, 2016, the Company entered into a Stock Purchase Agreement with Development Bank of Japan Inc., relating to the sale and issuance of an aggregate of 1,000,000 shares of the Company’s 6.5% Series A Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”) at a purchase price of $20.00 per share. The Series A Preferred Stock carries a quarterly dividend at the rate per annum of 6.5% per share, with a $20.00 liquidation preference per share. The purchase and sale of the Series A Preferred Stock closed on October 14, 2016 and the first dividend is expected to be paid on January 16, 2017. The net proceeds to the Company after deducting investor fees were $19.8 million. Total Engine Support Limited Acquisition On October 26, 2016, the Company announced the purchase of the business and assets of Total Engine Support Limited (“TES”). TES has been the engine management and consulting business of the TES Aviation Group. TES has approximately 500 engines under management. Pro forma results of operations for this acquisition have not been presented because it was not material to the consolidated results of operations. |
Summary of Significant Accoun18
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2016 | |
Summary of Significant Accounting Policies | |
Basis of Presentation: | (a) Basis of Presentation: Our unaudited consolidated financial statements include the accounts of Willis Lease Finance Corporation and its subsidiaries (“we” or the “Company”) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2016 and December 31, 2015, and the results of our operations for the three and nine months ended September 30, 2016 and 2015, and our cash flows for the nine months ended September 30, 2016 and 2015. The results of operations and cash flows for the period ended September 30, 2016 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2016. |
Principles of Consolidation | (b) Principles of Consolidation: We evaluate all entities in which we have an economic interest firstly to determine whether for accounting purposes the entity is a variable interest entity or voting interest entity. If the entity is a variable interest entity we consolidate the financial statements of that entity if we are the primary beneficiary of the entities’ activities. If the entity is a voting interest entity we consolidate the entity when we have a majority of voting interests. All inter-company balances are eliminated upon consolidation. |
Correction of Immaterial Errors – Consolidated Financial Statements | (c) Correction of Immaterial Errors – Consolidated Financial Statements: During the second quarter of 2016 the Company determined that its financial statements for the years ended December 31, 2015, 2014 and 2013 and for prior years and for the quarter ended March 31, 2016 contained errors resulting from the incorrect accounting for equipment purchased with in-place leases. The Company previously did not identify, measure and account for maintenance rights acquired. The Company’s accounting policy for maintenance rights is described below as note 1(d). Management evaluated the materiality of the errors described above from a qualitative and quantitative perspective in accordance with the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality (SAB 99). Based on such evaluation, we have concluded that these corrections would not be material to any individual prior period and have corrected such balances herein. The associated correcting entries were recorded in the respective period starting with the opening consolidated balance sheet of December 31, 2015. The Consolidated Balance Sheet as of December 31, 2015 presented herein has been revised as follows: decrease in Equipment Held for Operating Lease by $13.7 million, increase in Maintenance Rights by $12.1 million, decrease in Deferred Income Taxes by $0.6 million and decrease in retained earnings by $1.1 million as of December 31, 2015. The adjustments to the previously reported Consolidated Statement of Income for the three and nine month periods ending September 30, 2015 were as follows: a decrease in Maintenance Reserve Revenue of nil and $1.7 million, respectively; a decrease in Gain on Sale of Leased Equipment of nil and $34,000, respectively; an increase (decrease) in Depreciation and Amortization expense of $13,000 and ($72,000), respectively; and a decrease in Income Tax Expense of $15,000 and $0.5 million, a decrease in net income of $26,000 and $1.0 million, respectively; and a decrease in basic and diluted earnings per share of nil and $0.12, respectively. The adjustments to the previously reported Consolidated Statement of cash flows for the nine month periods ending September 30, 2015 were as follows: a decrease in cash provided by operating income of $1.7 million; and a decrease in the cash used by investing activities of $1.7 million. There were other immaterial out of period adjustments recorded that affected lease rent revenue, spare part sales revenue and expense and general and administrative expenses for the nine month months ended September 30, 2016 and 2015. |
Maintenance rights | (d) Maintenance rights We identify, measure and account for maintenance right assets and liabilities associated with acquisitions of equipment with in-place leases. A maintenance right asset represents the fair value of the contractual right under a lease to receive equipment in an improved maintenance condition as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company's obligation to pay the lessee for the difference between the lease-end contractual maintenance condition of the equipment and the actual maintenance condition of the equipment on the acquisition date. The equipment condition at the end of the lease term may result in either overhaul work being performed by the lessee to meet the required return condition or a financial settlement. When a capital event is performed on the equipment by the lessee, which satisfies their maintenance right obligation, the maintenance rights are added to the equipment basis and depreciated to the next capital event. When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and the remaining balance is applied to the disposition gain or loss. When a lease terminates, an end of lease true-up is performed and the maintenance right is applied against the accumulated maintenance reserves or, for non-reserve lessees the final settlement payment, and any remaining net maintenance right is recorded in the income statement. Maintenance right assets were $16.8 million and $12.1 million as of September 30, 2016 and December 31, 2015, respectively. |
Fair Value Measurements | (e) Fair Value Measurements : Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value which are the following: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets Measured and Recorded at Fair Value on a Nonrecurring Basis We determine fair value of long-lived assets held and used, such as Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. The following table shows by level, within the fair value hierarchy, the Company’s assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2016 and 2015, and the losses recorded during the nine months ended September 30, 2016 and 2015 on those assets: Assets at Fair Value Total Losses September 30, 2016 September 30, 2015 Nine Months Ended September 30, Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 2016 2015 (in thousands) (in thousands) Equipment held for lease $ $ — $ $ — $ $ — $ $ — $ $ Equipment held for sale — — — — Spare parts inventory — — — — — — — Total $ $ — $ $ — $ $ — $ $ — $ $ At September 30, 2016, the Company used Level 2 inputs to measure equipment held for sale. Level 2 inputs include quoted prices for similar assets in inactive markets. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. A write-down of equipment totaling $5.9 million was recorded during the nine months ended September 30, 2016, of which $2.0 million was recorded due to a management decision to consign one engine for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds. An additional asset write-down of $2.0 million was recorded in the nine months ended September 30, 2016 based upon a comparison of the asset net book values with the revised net proceeds expected from part sales arising from consignment of the parts. A further writedown of $1.9 million was recorded due to the adjustment of the carrying value for an impaired engine within the portfolio to reflect estimated market value. A write-down of equipment totaling $5.5 million was recorded in the nine month period ended September 30, 2015 due to a management decision to consign four engines for part-out and sale, in which the assets net book value exceeds the estimated proceeds from part-out. A further write-down of equipment totaling $3.1 million was recorded in the three months ended September 30, 2015 to adjust the carrying value of engine parts held on consignment for which market conditions for the sale of parts has changed. |
Reclassifications | (f) Reclassifications: Reclassifications have been made to our consolidated financial statements for the prior periods to conform to classifications used during the three and nine months ended September 30, 2016. |
Foreign Currency Translation | (g) Foreign Currency Translation: The Company’s foreign investments have been converted at rates of exchange at September 30, 2016. The changes in exchange rates in our foreign investments reported under the equity method are included in stockholders’ equity as accumulated other comprehensive income. |
Recent Accounting Pronouncements | (h) Recent Accounting Pronouncements: In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company beginning January 1, 2017, with early application permitted. The Company is currently evaluating the impact that the guidance will have on the Consolidated Financial Statements. In February 2016, the FASB issued ASU No. 2016-02, “ Leases ” (topic 842) . Under the new standard, the accounting for leases by lessors would basically remain unchanged from the existing concepts in ASC 840, Leases. In addition, FASB has decided that lessors would be precluded from recognizing selling profit and revenue at lease commencement for any sales-type or direct finance lease that does not transfer control of the underlying asset to the lessee. The standard will be effective for public business entities for annual periods (including interim periods), beginning after December 15, 2018, and early adoption will be permitted. The Company is currently evaluating the potential impact the adoption of the standard will have on its consolidated financial condition, results of operations or cash flows. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. We are evaluating the impact that this new guidance will have on our consolidated financial position. In April 2015, the FASB issued ASU. 2015-03, "Simplifying the Presentation of Debt Issuance Costs". ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the accounting treatment for debt discounts. We have adopted ASU 2015-03 during the nine-month period ended September 30, 2016. Other assets and Long-term debt, net of discount have been revised as of December 31, 2015 to reflect the retroactive reclassification of $12.6 million of debt issuance costs that have been reclassified from Other assets to Notes payable. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements. |
Summary of Significant Accoun19
Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Summary of Significant Accounting Policies | |
Schedule of fair value hierarchy of assets measured on nonrecurring basis and gain (losses) recorded | Assets at Fair Value Total Losses September 30, 2016 September 30, 2015 Nine Months Ended September 30, Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 2016 2015 (in thousands) (in thousands) Equipment held for lease $ $ — $ $ — $ $ — $ $ — $ $ Equipment held for sale — — — — Spare parts inventory — — — — — — — Total $ $ — $ $ — $ $ — $ $ — $ $ |
Investments (Tables)
Investments (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Investments | |
Schedule of investments | Nine Months Ended September 30, 2016 WMES CASC Total (in thousands) Investment in joint ventures as of December 31, 2015 $ $ $ Capital contribution — Earnings from joint venture Deferred gain on engine sale — Distribution — Foreign currency translation adjustment — Investment in joint ventures as of September 30, 2016 $ $ $ |
Summarized financial information | Three Months Ended September 30, 2016 2015 (in thousands) Revenue $ $ Expenses WMES net income $ $ Nine Months Ended September 30, 2016 2015 (in thousands) Revenue $ $ Expenses WMES net income $ $ September 30, December 31, 2016 2015 (in thousands) Total assets $ $ Total liabilities Total WMES net equity $ $ |
Notes Payable (Tables)
Notes Payable (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes Payable | |
Schedule of notes payable | September 30, December 31, 2016 2015 (in thousands) Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines. The facility has a committed amount of $890.0 million at September 30, 2016, which revolves until the maturity date of April 2021. $ $ WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines. Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft. Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines. Notes payable Less: unamortized debt issuance costs Total notes payable $ $ |
Schedule or principal outstanding | Year (in thousands) 2016 $ 2017 2018 2019 2020 Thereafter $ |
Stock-Based Compensation Plans
Stock-Based Compensation Plans (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Stock-Based Compensation Plans | |
Summary of activity under the 2007 Plan | Shares Restricted stock at December 31, 2014 Granted in 2015 (vesting over 3 years) Granted in 2015 (vesting over 4 years) Granted in 2015 (vesting on first anniversary from date of issuance) Vested in 2015 Restricted stock at December 31, 2015 Granted in 2016 (vesting over 1 year) Granted in 2016 (vesting over 2 years) Granted in 2016 (vesting over 3 years) Granted in 2016 (vesting over 4 years) Vested in 2016 Cancelled in 2016 Restricted stock at September 30, 2016 |
Operating Segments (Tables)
Operating Segments (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Operating Segments | |
Summary of the operating segments | The following tables present a summary of the operating segments (amounts in thousands): Leasing and For the three months ended September 30, 2016 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — Total expenses — Earnings from operations $ $ $ $ Leasing and For the nine months ended September 30, 2016 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — Total expenses — Earnings from operations $ $ $ $ (1) Represents revenue generated between our operating segments Leasing and For the three months ended September 30, 2015 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — — Total expenses — Earnings from operations $ $ $ $ Leasing and For the nine months ended September 30, 2015 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ $ — $ — $ Maintenance reserve revenue — — Spare parts and equipment sales — Gain on sale of leased equipment — — Other revenue Total revenue Expenses: Depreciation and amortization expense — Cost of spare parts and equipment sales — General and administrative — Net finance costs — Other expense — — Total expenses — Earnings from operations $ $ $ $ (1) Represents revenue generated between our operating segments Total assets as of September 30, 2016 $ $ $ — $ Total assets as of December 31, 2015 $ $ $ — $ |
Summary of Significant Accoun24
Summary of Significant Accounting Policies (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Error Corrections and Prior Period Adjustments Restatement [Line Items] | ||||
Decrease in deferred income taxes | $ (7,332,000) | $ (2,429,000) | ||
Maintenance Rights | $ 16,774,000 | $ 12,140,000 | ||
Restatement adjustment | ||||
Error Corrections and Prior Period Adjustments Restatement [Line Items] | ||||
Decrease in equipment held for operating lease | 13,700,000 | |||
Increase maintenance rights | 12,100,000 | |||
Decrease in net income | $ 26,000 | 1,000,000 | ||
Decrease in deferred income taxes | 600,000 | |||
Decrease in retained earnings | $ 1,100,000 | |||
Decrease in maintenance reserve revenue | 0 | (1,700,000) | ||
Increase (decrease) in gain on sale of leased equipment | 34,000 | |||
Decrease in depreciation and amortization expense | 13,000 | (72,000,000,000) | ||
Increase in income tax benefit | $ 15,000,000,000 | |||
Decrease in income tax expense | $ 500,000 | |||
Decrease in basic and diluted earnings per share | $ 0 | $ 0.12 | ||
Decrease in cash provided by operating income | $ 1,700,000 | |||
Decrease in the cash used by investing activities | $ 1,700,000 |
Summary of Significant Accoun25
Summary of Significant Accounting Policies - Fair Value on a Nonrecurring Basis (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Assets at fair value and gains (losses) recorded | |||||
Equipment held for sale | $ 13,899 | $ 13,899 | $ 23,454 | ||
Total losses on equipment held for lease | (1,893) | $ (1,936) | |||
Total losses on equipment held for sale | (3,556) | (6,644) | |||
Total losses on spare parts inventory | (475) | ||||
Total losses on assets | (5,924) | (8,580) | |||
Asset write-down | 1,995 | $ 5,498 | 5,924 | 8,580 | |
Additional write-down | 2,000 | ||||
Unamortized debt issuance cost | 12,600 | 12,600 | |||
Level 1 | |||||
Assets at fair value and gains (losses) recorded | |||||
Equipment held for lease | |||||
Equipment held for sale | |||||
Spare parts inventory | |||||
Assets at fair value | |||||
Nonrecurring | |||||
Assets at fair value and gains (losses) recorded | |||||
Equipment held for lease | 337 | 1,555 | 337 | 1,555 | |
Equipment held for sale | 589 | 7,477 | 589 | 7,477 | |
Spare parts inventory | 1,731 | 1,731 | |||
Assets at fair value | 2,657 | 9,032 | 2,657 | 9,032 | |
Nonrecurring | Level 2 | |||||
Assets at fair value and gains (losses) recorded | |||||
Equipment held for lease | 337 | 1,555 | 337 | 1,555 | |
Equipment held for sale | 589 | 7,477 | 589 | 7,477 | |
Spare parts inventory | 1,731 | 1,731 | |||
Assets at fair value | $ 2,657 | $ 9,032 | $ 2,657 | $ 9,032 |
Investments (Details)
Investments (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||||
Oct. 31, 2014 | Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | Jun. 03, 2014 | |
Investments | |||||||
Capital contribution | $ 5,545 | $ 630 | |||||
Investment in WMES joint ventures at beginning of the period | 41,295 | ||||||
Earnings from joint venture | 874 | ||||||
Deferred gain on engine sale | (1,212) | ||||||
Distribution | (1,167) | ||||||
Foreign currency translation adjustment | $ (2,547) | $ (304) | (2,021) | (304) | |||
Investment in WMES joint ventures at end of the period | 43,314 | 43,314 | |||||
Management fees | $ 500 | $ 400 | $ 1,300 | $ 1,200 | |||
WMES | |||||||
Investments | |||||||
Ownership interest (as a percent) | 100.00% | 50.00% | 100.00% | 50.00% | |||
Capital contribution | $ 5,545 | ||||||
Investment in WMES joint ventures at beginning of the period | 27,272 | ||||||
Earnings from joint venture | 929 | ||||||
Deferred gain on engine sale | (1,212) | ||||||
Distribution | (1,167) | ||||||
Investment in WMES joint ventures at end of the period | $ 31,367 | 31,367 | |||||
Gain on sale of equipemnt | $ 1,200 | ||||||
Amortized Gain Period | 15 years | ||||||
Amortized Gain Residual Value Percent | 55.00% | ||||||
Consolidated Statements of Income | |||||||
Revenue | 8,549 | $ 7,067 | $ 25,547 | $ 19,997 | |||
Expenses | 7,496 | 6,302 | 23,886 | 18,052 | |||
WMES net income | 1,053 | $ 765 | 1,661 | $ 1,945 | |||
Consolidated Balance Sheets | |||||||
Total assets | 292,412 | 292,412 | $ 256,126 | ||||
Total liabilities | 221,127 | 221,127 | 195,258 | ||||
Total WMES net equity | 71,285 | 71,285 | $ 60,868 | ||||
CASC | |||||||
Investments | |||||||
Ownership interest (as a percent) | 50.00% | ||||||
Capital contribution | $ 15,000 | ||||||
Investment in WMES joint ventures at beginning of the period | 14,023 | ||||||
Earnings from joint venture | (55) | ||||||
Foreign currency translation adjustment | (2,021) | ||||||
Investment in WMES joint ventures at end of the period | $ 11,947 | $ 11,947 |
Notes Payable (Details)
Notes Payable (Details) - USD ($) $ in Thousands | Apr. 20, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | Apr. 19, 2016 | Dec. 31, 2015 |
Principal outstanding repayable | |||||
2,016 | $ 5,777 | ||||
2,017 | 23,624 | ||||
2,018 | 33,294 | ||||
2,019 | 23,430 | ||||
2,020 | 23,031 | ||||
Thereafter | 790,324 | ||||
Notes payable | 899,480 | $ 878,684 | |||
Notes payable | 899,480 | 878,684 | |||
Less: unamortized debt issuance costs | (13,837) | (12,595) | |||
Total notes payable | 885,643 | 866,089 | |||
Notes payable | 885,643 | $ 866,089 | |||
Net proceeds received from notes issued and sold | $ 87,000 | $ 140,700 | |||
WEST II Series 2012-A term notes payable at a fixed rate of interest maturing in September 2037. Secured by engines | WEST II | |||||
Long Term Debt | |||||
Fixed rate (as a percent) | 5.50% | 5.50% | |||
Principal outstanding repayable | |||||
Notes payable | $ 284,549 | $ 300,467 | |||
Notes payable | 284,549 | 300,467 | |||
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft | |||||
Principal outstanding repayable | |||||
Notes payable | 14,879 | 16,135 | |||
Notes payable | $ 14,879 | 16,135 | |||
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft | Minimum | |||||
Long Term Debt | |||||
Fixed rate (as a percent) | 2.60% | ||||
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft | Maximum | |||||
Long Term Debt | |||||
Fixed rate (as a percent) | 2.97% | ||||
Note payable at a fixed interest rate of 2.25%, maturing in January 2018, secured by engines | |||||
Principal outstanding repayable | |||||
Notes payable | $ 12,052 | 13,082 | |||
Notes payable | $ 12,052 | 13,082 | |||
Note payable at a fixed interest rate of 2.25%, maturing in January 2018, secured by engines | LIBOR | |||||
Long Term Debt | |||||
Basis spread on variable rate (as a percent) | 2.25% | ||||
Revolving credit facility | |||||
Long Term Debt | |||||
Basis spread on variable rate (as a percent) | 2.75% | ||||
Maximum borrowing capacity under credit facility | $ 890,000 | $ 700,000 | |||
Amount of debt available under accordion feature | $ 1,000,000 | ||||
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines | |||||
Long Term Debt | |||||
Maximum borrowing capacity under credit facility | $ 890,000 | ||||
Principal outstanding repayable | |||||
Notes payable | 588,000 | 549,000 | |||
Notes payable | $ 588,000 | $ 549,000 | |||
Credit facility at a floating rate of interest of LIBOR plus 2.75%, secured by engines | LIBOR | |||||
Long Term Debt | |||||
Basis spread on variable rate (as a percent) | 2.75% |
Stock-Based Compensation Plan28
Stock-Based Compensation Plans (Details) - The 2007 plan - shares | 9 Months Ended | ||
Sep. 30, 2016 | May 28, 2015 | May 24, 2007 | |
Stock-based compensation plans | |||
Number of shares authorized | 2,800,000 | 800,000 | 2,000,000 |
Options cancelled (in shares) | 155,579 | ||
Outstanding at the end of the period (in shares) | 555,222 | ||
Restricted stock | |||
Stock-based compensation plans | |||
Number of shares authorized | 2,400,357 |
Stock-Based Compensation Plan29
Stock-Based Compensation Plans - Restricted stock activity (Details) - The 2007 plan - USD ($) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Number Outstanding | ||
Balance at the beginning of the period (in shares) | 396,595 | 525,356 |
Shares vested | (146,190) | (275,201) |
Shares cancelled | (20,211) | |
Balance at the end of the period (in shares) | 366,839 | 396,595 |
Restricted stock | ||
Number Outstanding | ||
Remaining average vesting period for recognition of unrecognized compensation expense | 1 year 7 months 6 days | |
Unrecognized compensation expense (in dollars) | $ 4.7 | |
Intrinsic value of unvested awards (in dollars) | $ 8.7 | |
Restricted stock | Awards vesting on first anniversary | ||
Number Outstanding | ||
Shares granted | 16,440 | |
Restricted stock | Awards Vesting Over One Year [Member] | ||
Number Outstanding | ||
Shares granted | 18,395 | |
Vesting period | 1 year | |
Restricted stock | Awards Vesting Over Two Year Member | ||
Number Outstanding | ||
Shares granted | 20,000 | |
Vesting period | 2 years | |
Restricted stock | Awards Vesting Over Three Years [Member] | ||
Number Outstanding | ||
Shares granted | 75,000 | 125,000 |
Vesting period | 3 years | 3 years |
Restricted stock | Awards vesting over four years [Member] | ||
Number Outstanding | ||
Shares granted | 23,250 | 5,000 |
Vesting period | 4 years | 4 years |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Income Taxes | ||||
Income tax expense | $ 2,517 | $ 2,101 | $ 7,987 | $ 2,648 |
Effective tax rate (as a percent) | 38.70% | 45.20% | 41.30% | 43.60% |
Fair Value of Financial Instr31
Fair Value of Financial Instruments (Details) - USD ($) $ in Millions | Sep. 30, 2016 | Dec. 31, 2015 |
Level 3 | ||
Fair value of financial instruments | ||
Fair value of notes payable | $ 877.8 | $ 890.1 |
Operating Segments (Details)
Operating Segments (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($)segment | Sep. 30, 2015USD ($) | Dec. 31, 2015USD ($) | |
Operating segments | |||||
Number of operating segments | segment | 2 | ||||
Revenue: | |||||
Lease rent revenue | $ 31,270 | $ 28,055 | $ 88,727 | $ 79,197 | |
Maintenance reserve revenue | 14,229 | 16,119 | 45,562 | 39,035 | |
Spare parts sales | 4,160 | 9,133 | 10,465 | 15,000 | |
Gain on sale of leased equipment | 180 | 3,804 | 3,430 | 7,666 | |
Other revenue | 1,622 | 619 | 3,614 | 1,978 | |
Total revenue | 51,461 | 57,730 | 151,798 | 142,876 | |
Expenses: | |||||
Depreciation and amortization expense | 16,628 | 17,102 | 49,235 | 52,390 | |
Cost Of Spare Parts and Equipment Sales | 3,066 | 5,919 | 7,785 | 10,219 | |
General and administrative | 12,257 | 11,742 | 34,694 | 30,826 | |
Net finance costs | 10,230 | 9,805 | 30,772 | 28,081 | |
Other expense | 3,409 | 9,068 | 10,837 | 16,416 | |
Total expenses | 45,590 | 53,636 | 133,323 | 137,932 | |
Earnings from operations | 5,871 | 4,094 | 18,475 | 4,944 | |
Total assets | 1,291,328 | 1,291,328 | $ 1,294,285 | ||
Operating Segments [Member] | Leasing and Related Operations | |||||
Revenue: | |||||
Lease rent revenue | 31,270 | 28,055 | 88,727 | 79,197 | |
Maintenance reserve revenue | 14,229 | 16,119 | 45,562 | 39,035 | |
Spare parts sales | 900 | 4,600 | 1,800 | 5,450 | |
Gain on sale of leased equipment | 180 | 3,804 | 3,430 | 7,666 | |
Other revenue | 1,487 | 597 | 3,392 | 1,796 | |
Total revenue | 48,066 | 53,175 | 142,911 | 133,144 | |
Expenses: | |||||
Depreciation and amortization expense | 16,541 | 17,035 | 48,981 | 52,179 | |
Cost Of Spare Parts and Equipment Sales | 640 | 2,461 | 1,288 | 3,081 | |
General and administrative | 11,500 | 10,948 | 32,438 | 28,751 | |
Net finance costs | 10,116 | 9,707 | 30,443 | 27,789 | |
Other expense | 2,934 | 9,068 | 10,362 | 16,416 | |
Total expenses | 41,731 | 49,219 | 123,512 | 128,216 | |
Earnings from operations | 6,335 | 3,956 | 19,399 | 4,928 | |
Total assets | 1,266,245 | 1,266,245 | 1,267,414 | ||
Operating Segments [Member] | Spare Parts Sales | |||||
Revenue: | |||||
Spare parts sales | 3,260 | 4,533 | 8,665 | 9,550 | |
Other revenue | 786 | 135 | 1,734 | 531 | |
Total revenue | 4,046 | 4,668 | 10,399 | 10,081 | |
Expenses: | |||||
Depreciation and amortization expense | 87 | 67 | 254 | 211 | |
Cost Of Spare Parts and Equipment Sales | 2,426 | 3,458 | 6,497 | 7,138 | |
General and administrative | 757 | 794 | 2,256 | 2,075 | |
Net finance costs | 114 | 98 | 329 | 292 | |
Other expense | 475 | 475 | |||
Total expenses | 3,859 | 4,417 | 9,811 | 9,716 | |
Earnings from operations | 187 | 251 | 588 | 365 | |
Total assets | 25,083 | 25,083 | $ 26,871 | ||
Intersegment Eliminations [Member] | |||||
Revenue: | |||||
Other revenue | (651) | (113) | (1,512) | (349) | |
Total revenue | (651) | (113) | (1,512) | (349) | |
Expenses: | |||||
Earnings from operations | $ (651) | $ (113) | $ (1,512) | $ (349) |
Subsequent Event - Preferred St
Subsequent Event - Preferred Stock (Details) - Subsequent event - Series A Preferred Stock - Development Bank of Japan Inc. $ / shares in Units, $ in Millions | Oct. 11, 2016USD ($)$ / sharesshares |
Subsequent events | |
Sale and issuance of shares | shares | 1,000,000 |
Dividend rate (as a percent) | 6.50% |
Preferred stock, par value (in dollars per share) | $ 0.01 |
Purchase price (in dollars per share) | 20 |
Preferred stock liquidation preference (in dollars per share) | $ 20 |
Net proceeds from preferred stock | $ | $ 19.8 |
Subsequent Event - Total Engine
Subsequent Event - Total Engine Support limited Acquisition (Details) | Oct. 26, 2016engine |
Subsequent event | TES | |
Subsequent events | |
Number of engines | 500 |