Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | May 01, 2017 | |
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 | Mar. 31, 2017 | |
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 | 6,464,157 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Mar. 31, 2017 | Dec. 31, 2016 |
ASSETS | ||
Cash and cash equivalents | $ 11,890 | $ 10,076 |
Restricted cash | 29,306 | 22,298 |
Equipment held for operating lease, less accumulated depreciation of $349,273 and $351,553 at March 31, 2017 and December 31, 2016, respectively | 1,094,673 | 1,136,603 |
Maintenance rights | 17,160 | 17,670 |
Equipment held for sale | 58,083 | 30,710 |
Operating lease related receivables, net of allowances of $1,350 and $787 at March 31, 2017 and December 31, 2016, respectively | 11,771 | 16,484 |
Spare parts inventory | 24,475 | 25,443 |
Investments | 44,540 | 45,406 |
Property, equipment & furnishings, less accumulated depreciation of $6,222 and $5,858 at March 31, 2017 and December 31, 2016, respectively | 16,638 | 16,802 |
Intangible assets, net | 2,081 | 2,182 |
Other assets | 12,372 | 14,213 |
Total assets | 1,322,989 | 1,337,887 |
Liabilities: | ||
Accounts payable and accrued expenses | 22,239 | 17,792 |
Deferred income taxes | 110,063 | 104,978 |
Notes payable | 872,201 | 900,255 |
Maintenance reserves | 66,751 | 71,602 |
Security deposits | 21,256 | 21,417 |
Unearned revenue | 5,243 | 5,823 |
Total liabilities | 1,097,753 | 1,121,867 |
Redeemable preferred stock ($0.01 par value, 1,000,000 shares authorized; 1,000,000 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively) | 19,767 | 19,760 |
Shareholders' equity: | ||
Common stock ($0.01 par value, 20,000,000 shares authorized; 6,525,373 and 6,401,929 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively) | 65 | 64 |
Paid-in capital in excess of par | 2,324 | 2,512 |
Retained earnings | 203,841 | 194,729 |
Accumulated other comprehensive loss, net of income tax benefit of $401 and $275 at March 31, 2017 and December 31, 2016, respectively. | (761) | (1,045) |
Total shareholders' equity | 205,469 | 196,260 |
Total liabilities, redeemable preferred stock and shareholders' equity | $ 1,322,989 | $ 1,337,887 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Mar. 31, 2017 | Dec. 31, 2016 |
Equipment held for operating lease, accumulated depreciation (in dollars) | $ 349,273 | $ 351,553 |
Operating lease related receivable, allowances (in dollars) | 1,350 | 787 |
Property, equipment & furnishings, accumulated depreciation (in dollars) | $ 6,222 | $ 5,858 |
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 | 6,525,373 | 6,401,929 |
Common stock, shares outstanding | 6,525,373 | 6,401,929 |
Accumulated other comprehensive loss, income tax benefit (in dollars) | $ 401 | $ 275 |
Restricted cash | 29,306 | 22,298 |
Other assets | 12,372 | 14,213 |
Notes payable | $ 872,201 | $ 900,255 |
Par value | $ 0.01 | $ 0.01 |
Shares authorized | 1,000,000 | 1,000,000 |
Shares issued | 1,000,000 | 1,000,000 |
Shares outstanding | 1,000,000 | 1,000,000 |
Variable Interest Entity [Member] | ||
Cash | $ 583 | $ 257 |
Restricted cash | 29,306 | 22,298 |
Equipment | 302,620 | 309,815 |
Other assets | 4,087 | 4,139 |
Notes payable | $ 268,695 | $ 273,380 |
Consolidated Statements of Inco
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
REVENUE | ||
Lease rent revenue | $ 30,233 | $ 28,276 |
Maintenance reserve revenue | 31,961 | 15,819 |
Spare parts and equipment sales | 12,596 | 2,632 |
Gain on sale of leased equipment | 983 | 2,992 |
Other revenue | 2,173 | 1,000 |
Total revenue | 77,946 | 50,719 |
EXPENSES | ||
Depreciation and amortization expense | 16,628 | 16,419 |
Cost of spare parts and equipment sales | 9,400 | 1,932 |
Write-down of equipment | 13,009 | 2,036 |
General and administrative | 13,201 | 11,752 |
Technical expense | 2,292 | 1,696 |
Net finance costs | 10,865 | 10,008 |
Total expenses | 65,395 | 43,843 |
Earnings from operations | 12,551 | 6,876 |
Earnings from joint ventures | 1,854 | 187 |
Income before income taxes | 14,405 | 7,063 |
Income tax expense | 6,238 | 3,052 |
Net income | 8,167 | 4,011 |
Preferred stock dividends | 321 | |
Accretion of preferred stock issuance costs | 7 | |
Net income attributable to common shareholders | $ 7,839 | $ 4,011 |
Basic earnings per common share: (in dollars per share) | $ 1.28 | $ 0.56 |
Diluted earnings per common share: (in dollars per share) | $ 1.26 | $ 0.55 |
Average common shares outstanding (in shares) | 6,114 | 7,149 |
Diluted average common shares outstanding (in shares) | 6,240 | 7,272 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Consolidated Statements of Comprehensive Income | ||
Net income | $ 8,167 | $ 4,011 |
Other comprehensive income (loss): | ||
Currency translation adjustment | 99 | (441) |
Unrealized gain on derivative instruments | 335 | |
Net gain (loss) recognized in other comprehensive income | 434 | (441) |
Tax benefit (expense) related to items of other comprehensive income | (150) | 153 |
Other comprehensive income (loss) | 284 | (288) |
Total comprehensive income | $ 8,451 | $ 3,723 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands | Common Stock | Paid-in Capital in Excess of par | Accumulated Other Comprehensive Income | Retained Earnings | Preferred Stock | Total |
Balances at Dec. 31, 2015 | $ 75 | $ 28,720 | $ (521) | $ 180,949 | $ 209,223 | |
Balances (in shares) at Dec. 31, 2015 | 7,548,000 | |||||
Increase (Decrease) in Shareholders' Equity | ||||||
Net income attributable to common shareholders | 4,011 | 4,011 | ||||
Net unrealized loss from currency translation adjustment, net of tax benefit | (288) | (288) | ||||
Shares repurchased | $ (2) | (4,451) | (4,453) | |||
Shares repurchased (in shares) | (200,000) | |||||
Shares issued under stock compensation plans | $ 1 | 81 | 82 | |||
Shares issued under stock compensation plans (in shares) | 98,000 | |||||
Cancellation of restricted stock units in satisfaction of withholding tax | (424) | (424) | ||||
Cancellation of restricted stock units in satisfaction of withholding tax (in shares) | (22,000) | |||||
Stock-based compensation, net of forfeitures | 944 | 944 | ||||
Tax benefit on disqualified disposition of shares | 55 | 55 | ||||
Balances at Mar. 31, 2016 | $ 74 | 24,925 | (809) | 184,960 | $ 209,150 | |
Balances (in shares) at Mar. 31, 2016 | 7,424,000 | |||||
Increase (Decrease) in Shareholders' Equity | ||||||
Issuance of preferred stock (in shares) | 1,000,000 | |||||
Cumulative-effect adjustment | 1,273 | $ 1,273 | ||||
Balance, adjusted | $ 64 | 2,512 | (1,045) | 196,002 | $ 19,760 | 197,533 |
Balances (Scenario, Previously Reported) at Dec. 31, 2016 | $ 64 | 2,512 | (1,045) | 194,729 | $ 19,760 | 196,260 |
Balances at Dec. 31, 2016 | 196,260 | |||||
Balances (in shares) (Scenario, Previously Reported) at Dec. 31, 2016 | 6,402,000 | 1,000 | ||||
Balances (in shares) at Dec. 31, 2016 | 6,402,000 | 1,000 | ||||
Increase (Decrease) in Shareholders' Equity | ||||||
Net income attributable to common shareholders | 8,167 | 8,167 | ||||
Net unrealized loss from currency translation adjustment, net of tax benefit | 65 | 65 | ||||
Net unrealized gain from derivative instruments, net of tax expense | 219 | 219 | ||||
Shares repurchased | $ (1) | (883) | (884) | |||
Shares repurchased (in shares) | (40,000) | |||||
Shares issued under stock compensation plans | $ 2 | 91 | 93 | |||
Shares issued under stock compensation plans (in shares) | 175,000 | |||||
Cancellation of restricted stock units in satisfaction of withholding tax | (270) | (270) | ||||
Cancellation of restricted stock units in satisfaction of withholding tax (in shares) | (11,000) | |||||
Stock-based compensation, net of forfeitures | 874 | 874 | ||||
Accretion of preferred stock issuance costs | (7) | $ 7 | (7) | |||
Preferred stock dividends paid | (321) | (321) | ||||
Balances at Mar. 31, 2017 | $ 65 | $ 2,324 | $ (761) | $ 203,841 | $ 19,767 | $ 205,469 |
Balances (in shares) at Mar. 31, 2017 | 6,526,000 | 1,000 | ||||
Increase (Decrease) in Shareholders' Equity | ||||||
Issuance of preferred stock (in shares) | 1,000,000 |
Consolidated Statements of Sha7
Consolidated Statements of Shareholders' Equity (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Consolidated Statements of Shareholders' Equity | ||
Net unrealized loss from derivative instruments, tax benefit | $ 116 | |
Net unrealized loss from currency translation adjustment, tax benefit | $ 34 | $ 153 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash flows from operating activities: | ||
Net income | $ 8,167 | $ 4,011 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization expense | 16,628 | 16,419 |
Write-down of equipment | 13,009 | 2,036 |
Stock-based compensation expenses | 874 | 944 |
Amortization of deferred costs | 1,198 | 1,071 |
Allowances and provisions | 563 | 209 |
Gain on sale of leased equipment | (983) | (2,992) |
Income from joint ventures | (1,854) | (187) |
Excess tax benefit from stock-based compensation | 55 | |
Deferred income taxes | 6,181 | 2,888 |
Changes in assets and liabilities: | ||
Receivables | 4,150 | (2,273) |
Spare parts inventory | 50 | 1,532 |
Other assets | (791) | (165) |
Accounts payable and accrued expenses | 3,834 | (282) |
Maintenance reserves | (4,340) | (5,500) |
Security deposits | (160) | 64 |
Unearned lease revenue | (580) | (739) |
Net cash provided by operating activities | 45,946 | 17,091 |
Cash flows from investing activities: | ||
Proceeds from sale of equipment (net of selling expenses) | 26,711 | 52,488 |
Capital contribution to joint ventures | (4,610) | |
Distributions received from joint ventures | 1,880 | 1,167 |
Maintenance rights payments received | 4,634 | |
Purchase of equipment held for operating lease | (35,304) | (44,433) |
Purchase of maintenance rights | (4,634) | |
Purchase of property, equipment and furnishings | (199) | (70) |
Net cash provided by ( used in) investing activities | (6,912) | 4,542 |
Cash flows from financing activities: | ||
Proceeds from issuance of notes payable | 18,000 | 20,000 |
Proceeds from shares issued under stock compensation plans | 94 | 82 |
Cancellation of restricted stock units in satisfaction of withholding tax | (270) | (424) |
Repurchase of common stock | (884) | (4,453) |
Preferred stock dividends | (305) | |
Principal payments on notes payable | (46,847) | (36,889) |
Net cash used in financing activities | (30,212) | (21,684) |
Increase (Decrease) in cash and cash equivalents | 8,822 | (51) |
Cash, cash equivalents and restricted cash at beginning of period | 32,374 | 42,758 |
Cash, cash equivalents and restricted cash at end of period | 41,196 | 42,707 |
Net cash paid for: | ||
Interest | 9,485 | 8,753 |
Income Taxes | 75 | 5 |
Supplemental disclosures of non-cash investing activities: | ||
Purchase of aircraft and engines, liability incurred but not paid | 623 | 6,778 |
Engines and equipment, transferred from Held for Operating Lease to Held for Sale but not settled | 37,883 | $ 12,806 |
Transfer from property, equipment and furnishings to assets held for lease | $ 2,925 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2017 | |
Organization and 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, 2016. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2017 and December 31, 2016, and the results of our operations for the three months ended March 31, 2017 and 2016, and our cash flows for the three months ended March 31, 2017 and 2016. The results of operations and cash flows for the period ended March 31, 2017 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2017. (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 in the notes to the consolidated financial statements in our Form 10-K for the fiscal year ended December 31, 2016. 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 adjustments to the previously reported Consolidated Statement of Income for the three month period ending March 31, 2016 were as follows: a decrease in Depreciation and Amortization Expense of $0.2 million; an increase in Income Tax Expense of $0.1 million, an increase in net income of $0.2 million; and an increase in basic and diluted earnings per share of $0.03. 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 three month month ended March 31, 2016. (d) 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 three months ended March 31, 2017 and 2016, and the losses recorded during the three months ended March 31, 2017 and 2016 on those assets: Assets at Fair Value Total Losses March 31, 2017 March 31, 2016 Three Months Ended March 31, Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 2017 2016 (in thousands) (in thousands) Equipment held for lease $ — $ 11,454 $ — $ 11,454 $ — $ — $ — $ — $ (9,019) $ — Equipment held for sale — 26,306 — 26,306 — 3,307 — 3,307 (3,071) (2,036) Spare parts inventory — 2,228 — 2,228 — — — — (919) — Total $ — $ 39,988 $ — $ 39,988 $ — $ 3,307 $ — $ 3,307 $ (13,009) $ (2,036) At March 31, 2017, 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 writedown of $12.1 million was recorded during the three months ended March 31, 2017 for four engines and two aircraft for which their leases ended or were modified in the period. We evaluated the equipment return condition, end of lease compensation, accumulated maintenance reserves and expected future proceeds from part out and sale to record our initial best estimate of impairment. An additional asset write-down of $0.9 million was recorded in the three months ended March 31, 2017 based upon a comparison of the spare parts net book values with the revised net proceeds expected from part sales. A write-down of equipment totaling $2.0 million was recorded in the three months ended March 31, 2016 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. (e) Reclassifications: Reclassifications have been made to our consolidated financial statements for the prior periods to conform to classifications used during the three ended March 31, 2017. (f) Foreign Currency Translation: The Company’s foreign investments have been converted at rates of exchange at March 31, 2017. The changes in exchange rates in our foreign investments reported under the equity method are included in stockholders’ equity as accumulated other comprehensive income. (g) Recent Accounting Pronouncements: In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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, 2017 and for interim periods therein. The Company adopted ASU 2015-11 during the quarter ended March 31, 2017 and it did not have a material impact on our consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-08 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a retrospective transition method to each period presented. The Company adopted this standard as of March 31, 2017 and included $29.3 million and $30.0 million of restricted cash in the total of cash, cash equivalents and restricted cash in its statements of consolidated cash flows for the three months ended March 31, 2017 and 2016, respectively. The adoption of this standard also resulted in an increase (decrease) in cash flows from operating, investing and financing activities of ($3.1 million), $1.3 million and ($1.3 million), respectively, for the three months ended March 31, 2016. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The new guidance became effective for the Company in the first quarter of fiscal 2017. The Company adopted ASU 2016-09 on January 1, 2017 on a modified retrospective method through a cumulative adjustment to retained earnings of $1.3 million. Starting this quarter, excess tax benefit from stock-based compensation of $25,000 were reflected in the Consolidated Statements of Income as income tax expense, whereas they previously were recognized in equity. Additionally, our Consolidated Statements of Cash Flows now present excess tax benefits as an operating activity, with the prior periods adjusted accordingly. We have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. As a result of the adoption of ASU 2016-09, the Consolidated Statement of Cash Flows for the three months ended March 31, 2016 was adjusted as follows: a $0.1 million increase to net cash provided by operating activities and a $0.1 million decrease to net cash used in financing activities. |
Management Estimates
Management Estimates | 3 Months Ended |
Mar. 31, 2017 | |
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 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. |
Commitments
Commitments | 3 Months Ended |
Mar. 31, 2017 | |
Commitments | |
Commitments | 3. Commitments We have made a purchase commitment to secure the purchase of three engines and related equipment for a gross purchase price of $13.5 million, for delivery in 2017. |
Investments
Investments | 3 Months Ended |
Mar. 31, 2017 | |
Investments | |
Investments | 4. 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 decreased to $31.8 million as of March 31, 2017 as a result of the Company receiving $1.9 million in distributions, recording $0.4 million as deferred gain as a result of the Company selling an engine to WMES and the Company’s share of WMES reported income of $1.6 million during the three months ended March 31, 2017. On June 3, 2014 we entered into an agreement with China Aviation Supplies Import & Export Corporation (“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. In October 2014, we made a $15.0 million initial capital contribution, representing our fifty percent, up-front funding contribution to the new joint venture. The company acquires and leases jet engines to Chinese airlines and concentrates on meeting the fast growing demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. During the three months ended March 31, 2017 the Company recording $0.5 million as deferred gain as a result of the Company selling an engine to CASC Willis, recorded $0.1 million foreign currency translation adjustment and the Company’s share of CASC Willis reported income of $0.2 million. Our investment in the joint venture is $12.8 million as of March 31, 2017. Three Months Ended March 31, 2017 WMES CASC Total (in thousands) Investment in joint ventures as of December 31, 2016 $ 32,470 $ 12,936 $ 45,406 Earnings from joint venture 1,635 219 1,854 Deferred gain on engine sale (443) (496) (939) Distribution (1,880) — (1,880) Foreign Currency Translation Adjustment — 99 99 Investment in joint ventures as of March 31, 2017 $ 31,782 $ 12,758 $ 44,540 “Other revenue” on the Consolidated Statement of Income includes management fees earned of $0.8 million and $0.6 million during the three months ended March 31, 2017 and 2016, 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 $0.9 million for the three months ended March 31, 2017 related to the sale of an engine to WMES ($0.4 million gain) and the sale of an engine to CASC Willis ($0.5 million gain). “Gain on sale of leased equipment” on the Consolidated Statement of Income includes $1.2 million for the three months ended March 31, 2016 related to the sale of four engines to WMES for $46.1 million. As 50% owners of WMES and CASC Willis, we deferred these gains 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 March 31, 2017 2016 (in thousands) Revenue $ 11,661 $ 9,246 Expenses 8,430 9,180 WMES net income $ 3,231 $ 66 March 31, December 31, 2017 2016 (in thousands) Total assets $ 273,121 $ 293,299 Total liabilities 200,265 219,881 Total WMES net equity $ 72,856 $ 73,418 |
Notes Payable
Notes Payable | 3 Months Ended |
Mar. 31, 2017 | |
Notes Payable | |
Notes Payable | 5. Notes Payable Notes payable consisted of the following: March 31, December 31, 2017 2016 (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 March 31, 2017, which revolves until the maturity date of April 2021. $ 585,000 $ 608,000 WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines. 274,467 279,541 Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft. 14,023 14,453 Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines. 11,366 11,709 Notes payable 884,856 913,703 Less: unamortized debt issuance costs (12,655) (13,448) Total notes payable $ 872,201 $ 900,255 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, 2016. The following is a summary of the aggregate maturities of our long-term debt at March 31, 2017: Year (in thousands) 2017 $ 17,777 2018 33,294 2019 23,430 2020 23,031 2021 608,268 Thereafter 179,056 $ 884,856 |
Derivative Instruments
Derivative Instruments | 3 Months Ended |
Mar. 31, 2017 | |
Derivative Instruments | |
Derivative Instruments | 6. Derivative Instruments We periodically hold interest rate derivative instruments to mitigate exposure to changes in interest rates, in particular one-month LIBOR, with $596.3 million and $619.7 million of our borrowings at March 31, 2017 and December 31, 2016, respectively, at variable rates. As a matter of policy, we do not use derivatives for speculative purposes. During 2016, we entered into one interest rate swap agreement which has notional outstanding amount of $100.0 million, with remaining terms of 49 months. The fair value of the swap at March 31, 2017 was $0.4 million representing a net asset for us. We recorded a $0.2 million and nil expense to net finance costs during the three months ended March 31, 2017 and 2016, respectively, from derivative instruments. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. We apply hedge accounting and account for the change in fair value of our cash flow hedges through other comprehensive income for all derivative instruments. Earnings Effects of Derivative Instruments on the Statements of Income The following table provides information about the income effects of our cash flow hedging relationships for the March 31, 2017 and 2016: Amount of Loss (Gain) Recognized on Derivatives in the Statements of Income Derivatives in Cash Flow Hedging Location of Loss (Gain) Recognized on Three Months Ended March 31, Relationships Derivatives in the Statements of Income 2017 2016 (in thousands) Interest rate contracts Interest expense $ 226 $ — Total $ 226 $ — Effect of Cash Flow Hedge Derivative Instruments The following tables provide additional information about the financial statement effects related to our cash flow hedges for the years ended March 31, 2017 and 2016: Amount of Gain (Loss) Recognized Location of Loss (Gain) Amount of Loss (Gain) Recognized in OCI on Derivatives Reclassified from from Accumulated OCI into Income Derivatives in (Effective Portion) Accumulated OCI into (Effective Portion) Cash Flow Hedging Three Months Ended March 31, Income Three Months Ended March 31, Relationships 2017 2016 (Effective Portion) 2017 2016 (in thousands) (in thousands) Interest rate contracts $ 335 $ — Interest expense $ 226 $ — Total $ 335 $ — Total $ 226 $ — The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings or it is probable that the forecasted transaction will not occur. The ineffective portion of the hedges is recorded in earnings in the current period. However, these are highly effective hedges and no significant ineffectiveness occurred in the periods presented. Counterparty Credit Risk The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The swap counterparty for the interest rate swap in place during 2017 was a large financial institution in the United States that possessed an investment grade credit rating. Based on this rating, the Company believes that the counterparty was creditworthy and that their continuing performance under the hedging agreement was probable, and did not require the counterparty to provide collateral or other security to the Company. |
Stock-Based Compensation Plans
Stock-Based Compensation Plans | 3 Months Ended |
Mar. 31, 2017 | |
Stock-Based Compensation Plans | |
Stock-Based Compensation Plans | 7. 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. 2,568,857 shares of restricted stock were granted under the 2007 Stock Incentive Plan by March 31, 2017. Of this amount, 155,745 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 386,888 shares which were available as of March 31, 2017 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, 2016 and the three months ended March 31, 2017 Shares Restricted stock at December 31, 2015 396,595 Granted in 2016 (vesting over 2 years) 20,000 Granted in 2016 (vesting over 3 years) 85,000 Granted in 2016 (vesting over 4 years) 13,250 Granted in 2016 (vesting on first anniversary from date of issuance) 18,395 Cancelled in 2016 (20,377) Vested in 2016 (213,528) Restricted stock at December 31, 2016 299,335 Granted in 2017 (vesting over 3 years) 168,500 Vested in 2017 (44,563) Cancelled in 2017 — Restricted stock at March 31, 2017 423,272 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 March 31, 2017 the stock compensation expense related to the restricted stock awards that will be recognized over the average remaining vesting period of 1.9 years totals $6.9 million. At March 31, 2017, the intrinsic value of unvested restricted stock awards is $9.5 million. The 2007 Plan terminates on May 24, 2017. |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2017 | |
Income Taxes | |
Income Taxes | 8. Income Taxes Income tax expense for the three month ended March 31, 2017 and March 31, 2016 was $6.2 million and $3.1 million, respectively. The effective tax rates for the three month ended March 31, 2017 and March 31, 2016 were 43.3% and 43.2%, respectively. 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 | 3 Months Ended |
Mar. 31, 2017 | |
Fair Value of Financial Instruments | |
Fair Value of Financial Instruments | 9. 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 March 31, 2017 and December 31, 2016 was estimated to have a fair value of approximately $825.3 million and $864.0 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 | 3 Months Ended |
Mar. 31, 2017 | |
Operating Segments | |
Operating Segments | 10. 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): |
Summary of Significant Accoun19
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Organization and 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, 2016. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2017 and December 31, 2016, and the results of our operations for the three months ended March 31, 2017 and 2016, and our cash flows for the three months ended March 31, 2017 and 2016. The results of operations and cash flows for the period ended March 31, 2017 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2017. |
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 in the notes to the consolidated financial statements in our Form 10-K for the fiscal year ended December 31, 2016. 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 adjustments to the previously reported Consolidated Statement of Income for the three month period ending March 31, 2016 were as follows: a decrease in Depreciation and Amortization Expense of $0.2 million; an increase in Income Tax Expense of $0.1 million, an increase in net income of $0.2 million; and an increase in basic and diluted earnings per share of $0.03. 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 three month month ended March 31, 2016. |
Fair Value Measurements | (d) 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 three months ended March 31, 2017 and 2016, and the losses recorded during the three months ended March 31, 2017 and 2016 on those assets: Assets at Fair Value Total Losses March 31, 2017 March 31, 2016 Three Months Ended March 31, Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 2017 2016 (in thousands) (in thousands) Equipment held for lease $ — $ 11,454 $ — $ 11,454 $ — $ — $ — $ — $ (9,019) $ — Equipment held for sale — 26,306 — 26,306 — 3,307 — 3,307 (3,071) (2,036) Spare parts inventory — 2,228 — 2,228 — — — — (919) — Total $ — $ 39,988 $ — $ 39,988 $ — $ 3,307 $ — $ 3,307 $ (13,009) $ (2,036) At March 31, 2017, 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 writedown of $12.1 million was recorded during the three months ended March 31, 2017 for four engines and two aircraft for which their leases ended or were modified in the period. We evaluated the equipment return condition, end of lease compensation, accumulated maintenance reserves and expected future proceeds from part out and sale to record our initial best estimate of impairment. An additional asset write-down of $0.9 million was recorded in the three months ended March 31, 2017 based upon a comparison of the spare parts net book values with the revised net proceeds expected from part sales. A write-down of equipment totaling $2.0 million was recorded in the three months ended March 31, 2016 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. |
Reclassifications | (e) Reclassifications: Reclassifications have been made to our consolidated financial statements for the prior periods to conform to classifications used during the three ended March 31, 2017. |
Foreign Currency Translation | (f) Foreign Currency Translation: The Company’s foreign investments have been converted at rates of exchange at March 31, 2017. 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 | (g) Recent Accounting Pronouncements: In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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, 2017 and for interim periods therein. The Company adopted ASU 2015-11 during the quarter ended March 31, 2017 and it did not have a material impact on our consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-08 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a retrospective transition method to each period presented. The Company adopted this standard as of March 31, 2017 and included $29.3 million and $30.0 million of restricted cash in the total of cash, cash equivalents and restricted cash in its statements of consolidated cash flows for the three months ended March 31, 2017 and 2016, respectively. The adoption of this standard also resulted in an increase (decrease) in cash flows from operating, investing and financing activities of ($3.1 million), $1.3 million and ($1.3 million), respectively, for the three months ended March 31, 2016. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The new guidance became effective for the Company in the first quarter of fiscal 2017. The Company adopted ASU 2016-09 on January 1, 2017 on a modified retrospective method through a cumulative adjustment to retained earnings of $1.3 million. Starting this quarter, excess tax benefit from stock-based compensation of $25,000 were reflected in the Consolidated Statements of Income as income tax expense, whereas they previously were recognized in equity. Additionally, our Consolidated Statements of Cash Flows now present excess tax benefits as an operating activity, with the prior periods adjusted accordingly. We have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. As a result of the adoption of ASU 2016-09, the Consolidated Statement of Cash Flows for the three months ended March 31, 2016 was adjusted as follows: a $0.1 million increase to net cash provided by operating activities and a $0.1 million decrease to net cash used in financing activities. |
Summary of Significant Accoun20
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Organization and 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 March 31, 2017 March 31, 2016 Three Months Ended March 31, Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 2017 2016 (in thousands) (in thousands) Equipment held for lease $ — $ 11,454 $ — $ 11,454 $ — $ — $ — $ — $ (9,019) $ — Equipment held for sale — 26,306 — 26,306 — 3,307 — 3,307 (3,071) (2,036) Spare parts inventory — 2,228 — 2,228 — — — — (919) — Total $ — $ 39,988 $ — $ 39,988 $ — $ 3,307 $ — $ 3,307 $ (13,009) $ (2,036) |
Investments (Tables)
Investments (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Investments | |
Schedule of investments | Three Months Ended March 31, 2017 WMES CASC Total (in thousands) Investment in joint ventures as of December 31, 2016 $ 32,470 $ 12,936 $ 45,406 Earnings from joint venture 1,635 219 1,854 Deferred gain on engine sale (443) (496) (939) Distribution (1,880) — (1,880) Foreign Currency Translation Adjustment — 99 99 Investment in joint ventures as of March 31, 2017 $ 31,782 $ 12,758 $ 44,540 |
Summarized financial information | Three Months Ended March 31, 2017 2016 (in thousands) Revenue $ 11,661 $ 9,246 Expenses 8,430 9,180 WMES net income $ 3,231 $ 66 March 31, December 31, 2017 2016 (in thousands) Total assets $ 273,121 $ 293,299 Total liabilities 200,265 219,881 Total WMES net equity $ 72,856 $ 73,418 |
Notes Payable (Tables)
Notes Payable (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Notes Payable | |
Schedule of notes payable | March 31, December 31, 2017 2016 (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 March 31, 2017, which revolves until the maturity date of April 2021. $ 585,000 $ 608,000 WEST II Series 2012-A term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037. Secured by engines. 274,467 279,541 Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024. Secured by an aircraft. 14,023 14,453 Note payable at a variable interest rate of LIBOR plus 2.25%, maturing in January 2018. Secured by engines. 11,366 11,709 Notes payable 884,856 913,703 Less: unamortized debt issuance costs (12,655) (13,448) Total notes payable $ 872,201 $ 900,255 |
Schedule or principal outstanding | Year (in thousands) 2017 $ 17,777 2018 33,294 2019 23,430 2020 23,031 2021 608,268 Thereafter 179,056 $ 884,856 |
Derivative Instruments (Tables)
Derivative Instruments (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Derivative Instruments | |
Schedule of income effects of cash flow hedging relationships | Amount of Loss (Gain) Recognized on Derivatives in the Statements of Income Derivatives in Cash Flow Hedging Location of Loss (Gain) Recognized on Three Months Ended March 31, Relationships Derivatives in the Statements of Income 2017 2016 (in thousands) Interest rate contracts Interest expense $ 226 $ — Total $ 226 $ — |
Schedule of information about financial statement effects related to cash flow hedges | Amount of Gain (Loss) Recognized Location of Loss (Gain) Amount of Loss (Gain) Recognized in OCI on Derivatives Reclassified from from Accumulated OCI into Income Derivatives in (Effective Portion) Accumulated OCI into (Effective Portion) Cash Flow Hedging Three Months Ended March 31, Income Three Months Ended March 31, Relationships 2017 2016 (Effective Portion) 2017 2016 (in thousands) (in thousands) Interest rate contracts $ 335 $ — Interest expense $ 226 $ — Total $ 335 $ — Total $ 226 $ — |
Stock-Based Compensation Plans
Stock-Based Compensation Plans (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Stock-Based Compensation Plans | |
Summary of activity under the 2007 Plan | Shares Restricted stock at December 31, 2015 396,595 Granted in 2016 (vesting over 2 years) 20,000 Granted in 2016 (vesting over 3 years) 85,000 Granted in 2016 (vesting over 4 years) 13,250 Granted in 2016 (vesting on first anniversary from date of issuance) 18,395 Cancelled in 2016 (20,377) Vested in 2016 (213,528) Restricted stock at December 31, 2016 299,335 Granted in 2017 (vesting over 3 years) 168,500 Vested in 2017 (44,563) Cancelled in 2017 — Restricted stock at March 31, 2017 423,272 |
Operating Segments (Tables)
Operating Segments (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Operating Segments | |
Summary of the operating segments | Leasing and For the three months ended March 31, 2017 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ 30,233 $ — $ — $ 30,233 Maintenance reserve revenue 31,961 — — 31,961 Spare parts and equipment sales 6,425 6,171 — 12,596 Gain on sale of leased equipment 983 — — 983 Other revenue 2,125 175 (127) 2,173 Total revenue 71,727 6,346 (127) 77,946 Expenses: Depreciation and amortization expense 16,540 88 — 16,628 Cost of spare parts and equipment sales 4,705 4,695 — 9,400 Write-down of equipment 12,091 918 — 13,009 General and administrative 12,414 787 — 13,201 Technical expense 2,292 — — 2,292 Net finance costs 10,865 — — 10,865 Total expenses 58,907 6,488 — 65,395 Earnings (loss) from operations $ 12,820 $ (142) $ (127) $ 12,551 Leasing and For the three months ended March 31, 2016 Related Operations Spare Parts Sales Eliminations (1) Total Revenue: Lease rent revenue $ 28,276 $ — $ — $ 28,276 Maintenance reserve revenue 15,819 — — 15,819 Spare parts sales — 2,632 — 2,632 Gain on sale of leased equipment 2,992 — — 2,992 Other revenue 933 358 (291) 1,000 Total revenue 48,020 2,990 (291) 50,719 Expenses: Depreciation and amortization expense 16,337 82 — 16,419 Cost of spare parts sales — 1,932 — 1,932 Write-down of equipment 2,036 — — 2,036 General and administrative 10,980 772 — 11,752 Technical expense 1,696 — — 1,696 Net finance costs 9,913 95 — 10,008 Total expenses 40,962 2,881 — 43,843 Earnings from operations $ 7,058 $ 109 $ (291) $ 6,876 (1) Represents revenue generated between our Total assets as of March 31, 2017 $ 1,293,122 $ 29,867 $ — $ 1,322,989 Total assets as of December 31, 2016 $ 1,307,460 $ 30,427 $ — $ 1,337,887 |
Organization and Summary of Sig
Organization and Summary of Significant Accounting Policies (Correction of Immaterial Errors) (Details) - Restatement adjustment $ / shares in Units, $ in Millions | 3 Months Ended |
Mar. 31, 2016USD ($)$ / shares | |
Error Corrections and Prior Period Adjustments Restatement [Line Items] | |
Decrease in depreciation and amortization expense | $ (0.2) |
Increase in income tax benefit | 0.1 |
Decrease in net income | $ 0.2 |
Decrease in basic and diluted earnings per share | $ / shares | $ 0.03 |
Organization and Summary of S27
Organization and Summary of Significant Accounting Policies (Fair Value on a Nonrecurring Basis) (Details) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2017USD ($)engineaircraft | Mar. 31, 2016USD ($)engine | Dec. 31, 2016USD ($) | |
Assets at fair value and gains (losses) recorded | |||
Equipment held for sale | $ 58,083 | $ 30,710 | |
Asset write-down | 13,009 | $ 2,036 | |
Engine Parts | |||
Assets at fair value and gains (losses) recorded | |||
Number of engines for which impairment is recorded earlier due to part out and sale | engine | 1 | ||
Asset write-down | $ 2,000 | ||
Additional write-down | 900 | ||
Nonrecurring | |||
Assets at fair value and gains (losses) recorded | |||
Equipment held for lease | 11,454 | ||
Equipment held for sale | 26,306 | 3,307 | |
Spare parts inventory | 2,228 | ||
Assets at fair value | 39,988 | 3,307 | |
Total losses on equipment held for lease | (9,019) | ||
Total losses on equipment held for sale | (3,071) | (2,036) | |
Total losses on spare parts inventory | (919) | ||
Total losses on assets | (13,009) | (2,036) | |
Nonrecurring | Level 2 | |||
Assets at fair value and gains (losses) recorded | |||
Equipment held for lease | 11,454 | ||
Equipment held for sale | 26,306 | 3,307 | |
Spare parts inventory | 2,228 | ||
Assets at fair value | $ 39,988 | $ 3,307 | |
Engines and related equipment | |||
Assets at fair value and gains (losses) recorded | |||
Number of engines | engine | 4 | ||
Number of aircraft | aircraft | 2 | ||
Asset write-down | $ 12,100 |
Organization and Summary of S28
Organization and Summary of Significant Accounting Policies (Recent Accounting Pronouncements) (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Restricted cash | $ 29,306 | $ 22,298 | |
Excess tax benefit from stock-based compensation | $ (55) | ||
Retained earnings | 203,841 | 194,729 | |
Income Tax Expense (Benefit) | 6,238 | 3,052 | |
ASU cumulative adjustment to retained earnings | $ 1,273 | ||
Accounting Standards Update 2016-18 | Scenario, Adjustment | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Restricted cash | 29,300 | 30,000 | |
Increase to net cash flows from operating activities | 3,100 | ||
Increase Decrease In Cash Flows From Investing Activities | 1,300 | ||
Increase Decrease In Cash Flows From Financing Activities | $ 1,300 | ||
Accounting Standards Update 2016-09 | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Increase to net cash flows from operating activities | 100 | ||
Increase Decrease In Cash Flows From Financing Activities | 100 | ||
Excess tax benefit from stock-based compensation | $ 25 |
Commitments (Details)
Commitments (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2017USD ($) | |
Engines Aircraft and Related Equipment | |
Purchase commitments | |
Purchase price | $ 13.5 |
Investments (Details)
Investments (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | |||||
Oct. 31, 2014 | Mar. 31, 2017 | Mar. 31, 2016 | Mar. 31, 2017 | Dec. 31, 2016 | Jun. 03, 2014 | May 25, 2011 | |
Investments | |||||||
Investment in WMES joint ventures at beginning of the period | $ 45,406 | ||||||
Investment | $ 4,610 | ||||||
Earnings from joint venture | 1,854 | ||||||
Distribution | (1,880) | ||||||
Foreign Currency Translation Adjustment | 99 | ||||||
Investment in WMES joint ventures at end of the period | 44,540 | ||||||
Deferred gain on engine sale | (939) | ||||||
Property Subject to or Available for Operating Lease, Net | $ 1,094,673 | $ 1,136,603 | |||||
Equity Method Investments | 45,406 | $ 44,540 | 45,406 | ||||
Sale of engines | 26,711 | 52,488 | |||||
Gain (Loss) on Sale of Leased Equipment | |||||||
Investments | |||||||
Gain on sale of equipemnt | 900 | ||||||
WMES | |||||||
Investments | |||||||
Ownership interest (as a percent) | 100.00% | 50.00% | |||||
Investment in WMES joint ventures at beginning of the period | 32,470 | ||||||
Earnings from joint venture | 1,635 | ||||||
Distribution | (1,880) | ||||||
Investment in WMES joint ventures at end of the period | 31,782 | ||||||
Deferred gain on engine sale | (443) | ||||||
Equity Method Investments | $ 32,470 | $ 31,782 | 32,470 | ||||
Sale of engines | 46,100 | ||||||
Amortized Gain Period | 15 years | ||||||
Amortized Gain Residual Value Percent | 55.00% | ||||||
Consolidated Statements of Income | |||||||
Revenue | $ 11,661 | 9,246 | |||||
Expenses | 8,430 | 9,180 | |||||
WMES net income | 3,231 | 66 | |||||
Consolidated Balance Sheets | |||||||
Total assets | 273,121 | 293,299 | |||||
Total liabilities | 200,265 | 219,881 | |||||
Total WMES net equity | 72,856 | 73,418 | |||||
WMES | Other Revenue | |||||||
Investments | |||||||
Management fees | 800 | 600 | |||||
WMES | Gain (Loss) on Sale of Leased Equipment | |||||||
Investments | |||||||
Gain on sale of equipemnt | $ 1,200 | ||||||
CASC | |||||||
Investments | |||||||
Ownership interest (as a percent) | 50.00% | ||||||
Investment in WMES joint ventures at beginning of the period | 12,936 | ||||||
Investment | $ 15,000 | ||||||
Earnings from joint venture | 219 | ||||||
Foreign Currency Translation Adjustment | 99 | ||||||
Investment in WMES joint ventures at end of the period | 12,758 | ||||||
Deferred gain on engine sale | (496) | ||||||
Equity Method Investments | $ 12,936 | $ 12,758 | $ 12,936 |
Notes Payable (Details)
Notes Payable (Details) - USD ($) $ in Thousands | Apr. 20, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | Apr. 19, 2016 |
Principal outstanding repayable | |||||
2,017 | $ 17,777 | ||||
2,018 | 33,294 | ||||
2,019 | 23,430 | ||||
2,020 | 23,031 | ||||
2,021 | 608,268 | ||||
Thereafter | 179,056 | ||||
Notes payable | 884,856 | $ 913,703 | |||
Less: unamortized debt issuance costs | (12,655) | (13,448) | |||
Total notes payable | 872,201 | $ 900,255 | |||
Net proceeds received from notes issued and sold | $ 18,000 | $ 20,000 | |||
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 | $ 274,467 | $ 279,541 | |||
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 | $ 14,023 | 14,453 | |||
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 | $ 11,366 | 11,709 | |||
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 | $ 585,000 | $ 608,000 | |||
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% |
Derivative Instruments (Details
Derivative Instruments (Details) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017USD ($)item | Dec. 31, 2016USD ($) | |
Derivative instruments | ||
Number of interest rate swap agreements | item | 1 | |
Notional amount outstanding | $ 100 | |
Remaining maturity term | 49 months | |
(Benefit) expense recorded to net finance costs | $ 0.2 | $ 0 |
Net fair value of swap liability | 0.4 | |
Interest rate contracts | ||
Derivative instruments | ||
Borrowings at variable interest rates | $ 596.3 | $ 619.7 |
Derivative Instruments (Detai33
Derivative Instruments (Details) - Cash Flow Hedging $ in Thousands | 3 Months Ended |
Mar. 31, 2017USD ($) | |
Effects of derivative instruments | |
Amount of loss recognized in the income statement as an increase in interest expense | $ 226 |
Interest rate contracts | Interest expense Member | |
Effects of derivative instruments | |
Amount of loss recognized in the income statement as an increase in interest expense | $ 226 |
Derivative Instruments (Detai34
Derivative Instruments (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Effects of derivative instruments | ||
Amount of Gain Recognized in OCI on Derivatives (Effective Portion) | $ 434 | $ (441) |
Cash Flow Hedging | ||
Effects of derivative instruments | ||
Amount of Gain Recognized in OCI on Derivatives (Effective Portion) | 335 | |
Amount of Loss (Gain) Reclassified from Accumulated OCI into Income (Effective Portion) | 226 | |
Cash Flow Hedging | Interest expense Member | ||
Effects of derivative instruments | ||
Amount of Loss (Gain) Reclassified from Accumulated OCI into Income (Effective Portion) | 226 | |
Cash Flow Hedging | Interest rate contracts | Interest expense Member | ||
Effects of derivative instruments | ||
Amount of Gain Recognized in OCI on Derivatives (Effective Portion) | $ 335 |
Stock-Based Compensation Plan35
Stock-Based Compensation Plans (Details) - shares | 3 Months Ended | ||
Mar. 31, 2017 | 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) | 155,745 | ||
Outstanding at the end of the period (in shares) | 386,888 | ||
Restricted stock | The 2007 plan | |||
Stock-based compensation plans | |||
Number of shares authorized | 2,568,857 |
Stock-Based Compensation Plan36
Stock-Based Compensation Plans - Restricted stock activity (Details) - The 2007 plan - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017 | Dec. 31, 2016 | |
Number Outstanding | ||
Balance at the beginning of the period (in shares) | 299,335 | 396,595 |
Shares vested | (44,563) | (213,528) |
Shares cancelled | (20,377) | |
Balance at the end of the period (in shares) | 423,272 | 299,335 |
Restricted stock | ||
Number Outstanding | ||
Remaining average vesting period for recognition of unrecognized compensation expense | 1 year 10 months 24 days | |
Unrecognized compensation expense (in dollars) | $ 6.9 | |
Intrinsic value of unvested awards (in dollars) | $ 9.5 | |
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 | 168,500 | 85,000 |
Vesting period | 3 years | 3 years |
Restricted stock | Awards vesting over four years [Member] | ||
Number Outstanding | ||
Shares granted | 13,250 | |
Vesting period | 4 years | |
Restricted stock | Awards vesting on first anniversary | ||
Number Outstanding | ||
Shares granted | 18,395 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Income Taxes | ||
Income tax expense | $ 6,238 | $ 3,052 |
Effective tax rate (as a percent) | 43.30% | 43.20% |
Fair Value of Financial Instr38
Fair Value of Financial Instruments (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Dec. 31, 2016 |
Level 3 | ||
Fair value of financial instruments | ||
Fair value of notes payable | $ 825.3 | $ 864 |
Operating Segments (Details)
Operating Segments (Details) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2017USD ($)segment | Mar. 31, 2016USD ($) | Dec. 31, 2016USD ($) | |
Operating segments | |||
Number of operating segments | segment | 2 | ||
Revenue: | |||
Lease rent revenue | $ 30,233 | $ 28,276 | |
Maintenance reserve revenue | 31,961 | 15,819 | |
Spare parts sales | 12,596 | 2,632 | |
Gain on sale of leased equipment | 983 | 2,992 | |
Other revenue | 2,173 | 1,000 | |
Total revenue | 77,946 | 50,719 | |
Expenses: | |||
Depreciation and amortization expense | 16,628 | 16,419 | |
Cost Of Spare Parts and Equipment Sales | 9,400 | 1,932 | |
Write-down of equipment | 13,009 | 2,036 | |
General and administrative | 13,201 | 11,752 | |
Technical expense | 2,292 | 1,696 | |
Net finance costs | 10,865 | 10,008 | |
Total expenses | 65,395 | 43,843 | |
Earnings from operations | 12,551 | 6,876 | |
Total assets | 1,322,989 | $ 1,337,887 | |
Operating Segments [Member] | Leasing and Related Operations | |||
Revenue: | |||
Lease rent revenue | 30,233 | 28,276 | |
Maintenance reserve revenue | 31,961 | 15,819 | |
Spare parts sales | 6,425 | ||
Gain on sale of leased equipment | 983 | 2,992 | |
Other revenue | 2,125 | 933 | |
Total revenue | 71,727 | 48,020 | |
Expenses: | |||
Depreciation and amortization expense | 16,540 | 16,337 | |
Cost Of Spare Parts and Equipment Sales | 4,705 | ||
Write-down of equipment | 12,091 | 2,036 | |
General and administrative | 12,414 | 10,980 | |
Technical expense | 2,292 | 1,696 | |
Net finance costs | 10,865 | 9,913 | |
Total expenses | 58,907 | 40,962 | |
Earnings from operations | 12,820 | 7,058 | |
Total assets | 1,293,122 | 1,307,460 | |
Operating Segments [Member] | Spare Parts Sales | |||
Revenue: | |||
Spare parts sales | 6,171 | 2,632 | |
Other revenue | 175 | 358 | |
Total revenue | 6,346 | 2,990 | |
Expenses: | |||
Depreciation and amortization expense | 88 | 82 | |
Cost Of Spare Parts and Equipment Sales | 4,695 | 1,932 | |
Write-down of equipment | 918 | ||
General and administrative | 787 | 772 | |
Net finance costs | 95 | ||
Total expenses | 6,488 | 2,881 | |
Earnings from operations | (142) | 109 | |
Total assets | 29,867 | $ 30,427 | |
Intersegment Eliminations [Member] | |||
Revenue: | |||
Other revenue | (127) | (291) | |
Total revenue | (127) | (291) | |
Expenses: | |||
Earnings from operations | $ (127) | $ (291) |