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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-15369
______________________________________________________________________
WILLIS LEASE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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68-0070656 |
(State or other jurisdiction of incorporation or
organization) |
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(IRS Employer Identification No.) |
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4700 Lyons Technology Parkway |
Coconut Creek |
Florida |
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33073 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area
code (561)
349-9989
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
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Trading Symbol |
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Name of exchange on which registered |
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Common Stock, $0.01 par value per share |
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WLFC |
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Nasdaq Global Market |
______________________________________________________________________
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer |
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Accelerated Filer |
☒
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Non-Accelerated Filer |
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Smaller Reporting Company |
☒
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
The number of shares of the registrant's Common Stock outstanding
as of August 3, 2022 was 6,097,024.
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements, including, without limitation, statements concerning
the conditions in our industry, our operations, our economic
performance and financial condition, including, in particular,
statements relating to our business, operations, growth strategy
and service development efforts and potential impact of the
COVID-19 pandemic on the Company's business, operating results and
financial condition. The Private Securities Litigation Reform Act
of 1995 provides a “safe harbor” for certain forward-looking
statements so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual
results to differ materially from those projected in the
information. When used in this Quarterly Report on Form 10-Q, the
words “may,” “might,” “should,” “estimate,” “project,” “plan,”
“anticipate,” “expect,” “intend,” “outlook,” “believe” and other
similar expressions are intended to identify forward-looking
statements and information. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as
of their dates. These forward-looking statements are based on
estimates and assumptions by our management that, although we
believe to be reasonable, are inherently uncertain and subject to a
number of risks and uncertainties. These risks and uncertainties
include, without limitation, those in our Annual Report on Form
10-K for the year ended December 31, 2021 filed with the
Securities and Exchange Commission (“SEC”) on March 14, 2022,
this quarterly report on Form 10-Q for the three and six months
ended June 30, 2022, and our other reports filed with the SEC.
We undertake no obligation to publicly update or revise any
forward-looking statement as a result of new information, future
events or otherwise, except as otherwise required by law. Reference
is also made to such risks and uncertainties detailed from time to
time in our other filings with the SEC.
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
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June 30, 2022 |
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December 31, 2021 |
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ASSETS |
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Cash and cash equivalents |
$ |
12,858 |
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$ |
14,329 |
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Restricted cash |
60,982 |
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81,312 |
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Equipment held for operating lease, less accumulated depreciation
of $518,249 and $524,968 at June 30, 2022 and
December 31, 2021, respectively
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1,957,638 |
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1,991,368 |
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Maintenance rights |
22,511 |
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22,511 |
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Equipment held for sale |
4,380 |
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6,952 |
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Receivables, net of allowances of $1,291 and $1,154 at
June 30, 2022 and December 31, 2021,
respectively
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40,472 |
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39,623 |
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Spare parts inventory |
43,396 |
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50,959 |
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Investments |
55,341 |
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55,927 |
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Property, equipment & furnishings, less accumulated
depreciation of $14,676 and $13,484 at June 30, 2022 and
December 31, 2021, respectively
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32,737 |
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31,327 |
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Intangible assets, net |
1,158 |
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1,188 |
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Notes receivable |
83,295 |
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115,456 |
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Investment in sales-type leases |
7,025 |
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— |
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Other assets |
74,590 |
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51,975 |
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Total assets (1) |
$ |
2,396,383 |
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$ |
2,462,927 |
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LIABILITIES,
REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY |
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Liabilities: |
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Accounts payable and accrued expenses |
$ |
26,183 |
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$ |
26,858 |
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Deferred income taxes |
127,400 |
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124,332 |
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Debt obligations |
1,731,807 |
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1,790,264 |
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Maintenance reserves |
56,811 |
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65,976 |
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Security deposits |
18,037 |
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19,349 |
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Unearned revenue |
11,404 |
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10,458 |
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Total liabilities (2) |
1,971,642 |
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2,037,237 |
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Redeemable preferred stock ($0.01 par value, 2,500 shares
authorized; 2,500 shares issued at June 30, 2022 and
December 31, 2021, respectively)
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49,847 |
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49,805 |
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Shareholders’ equity: |
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Common stock ($0.01 par value, 20,000 shares authorized; 6,609 and
6,531 shares issued at June 30, 2022 and December 31,
2021, respectively)
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63 |
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65 |
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Paid-in capital in excess of par |
14,562 |
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15,401 |
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Retained earnings |
338,441 |
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355,388 |
|
|
Accumulated other comprehensive income, net of income tax expense
of $6,328 and $1,469 at June 30, 2022 and December 31,
2021, respectively
|
21,828 |
|
|
5,031 |
|
|
Total shareholders’ equity |
374,894 |
|
|
375,885 |
|
|
Total liabilities, redeemable preferred stock and shareholders’
equity |
$ |
2,396,383 |
|
|
$ |
2,462,927 |
|
_____________________________
(1)Total
assets at June 30, 2022 and December 31, 2021,
respectively, include the following assets of variable interest
entities (“VIEs”) that can only be used to settle the liabilities
of the VIEs: Restricted cash $60,982 and $81,312; Equipment
$1,205,623 and $1,226,395; Maintenance Rights $5,433 and $5,433;
Inventory $0 and $4,367; Notes receivable $81,621 and $90,868; and
Other assets $5,519 and $4,775, respectively.
(2)Total
liabilities at June 30, 2022 and December 31, 2021,
respectively, include the following liabilities of VIEs for which
the VIEs’ creditors do not have recourse to Willis Lease Finance
Corporation: Debt obligations $1,160,849 and $1,197,922,
respectively.
See accompanying notes to the unaudited condensed consolidated
financial statements.
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
REVENUE |
|
|
|
|
|
|
|
|
Lease rent revenue |
$ |
36,704 |
|
|
$ |
32,431 |
|
|
$ |
74,829 |
|
|
$ |
63,951 |
|
|
Maintenance reserve revenue |
24,245 |
|
|
17,278 |
|
|
39,079 |
|
|
37,090 |
|
|
Spare parts and equipment sales |
6,792 |
|
|
3,569 |
|
|
13,422 |
|
|
8,135 |
|
|
Gain on sale of leased equipment |
498 |
|
|
— |
|
|
2,796 |
|
|
— |
|
|
Gain on sale of financial assets |
3,116 |
|
|
— |
|
|
3,116 |
|
|
— |
|
|
Asset transition fee |
— |
|
|
6,256 |
|
|
— |
|
|
6,256 |
|
|
Other revenue |
6,720 |
|
|
6,938 |
|
|
13,650 |
|
|
12,165 |
|
|
Total revenue |
78,075 |
|
|
66,472 |
|
|
146,892 |
|
|
127,597 |
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
21,612 |
|
|
23,340 |
|
|
43,421 |
|
|
47,481 |
|
|
Cost of spare parts and equipment sales |
7,014 |
|
|
3,278 |
|
|
11,876 |
|
|
7,087 |
|
|
Write-down of equipment |
78 |
|
|
2,246 |
|
|
21,195 |
|
|
4,113 |
|
|
General and administrative |
20,427 |
|
|
19,499 |
|
|
44,032 |
|
|
35,650 |
|
|
Technical expense |
3,436 |
|
|
2,296 |
|
|
9,082 |
|
|
3,606 |
|
|
Net finance costs: |
|
|
|
|
|
|
|
|
Interest expense |
16,023 |
|
|
16,987 |
|
|
32,906 |
|
|
32,006 |
|
|
Total net finance costs |
16,023 |
|
|
16,987 |
|
|
32,906 |
|
|
32,006 |
|
|
Total expenses |
68,590 |
|
|
67,646 |
|
|
162,512 |
|
|
129,943 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
9,485 |
|
|
(1,174) |
|
|
(15,620) |
|
|
(2,346) |
|
|
Income (loss) from joint ventures |
1,469 |
|
|
(685) |
|
|
(1,147) |
|
|
(1,204) |
|
|
Income (loss) before income taxes |
10,954 |
|
|
(1,859) |
|
|
(16,767) |
|
|
(3,550) |
|
|
Income tax expense (benefit) |
5,046 |
|
|
(1,917) |
|
|
(1,474) |
|
|
(2,276) |
|
|
Net income (loss) |
5,908 |
|
|
58 |
|
|
(15,293) |
|
|
(1,274) |
|
|
Preferred stock dividends |
811 |
|
|
811 |
|
|
1,612 |
|
|
1,612 |
|
|
Accretion of preferred stock issuance costs |
21 |
|
|
21 |
|
|
42 |
|
|
42 |
|
|
Net income (loss) attributable to common shareholders |
$ |
5,076 |
|
|
$ |
(774) |
|
|
$ |
(16,947) |
|
|
$ |
(2,928) |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average income (loss) per common share |
$ |
0.83 |
|
|
$ |
(0.12) |
|
|
$ |
(2.81) |
|
|
$ |
(0.48) |
|
|
Diluted weighted average income (loss) per common share |
$ |
0.81 |
|
|
$ |
(0.12) |
|
|
$ |
(2.81) |
|
|
$ |
(0.48) |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
6,129 |
|
|
6,218 |
|
|
6,040 |
|
|
6,107 |
|
|
Diluted weighted average common shares outstanding |
6,246 |
|
|
6,218 |
|
|
6,040 |
|
|
6,107 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive
Income
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net income (loss) |
$ |
5,908 |
|
|
$ |
58 |
|
|
$ |
(15,293) |
|
|
$ |
(1,274) |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Currency translation adjustment |
(901) |
|
|
(2,674) |
|
|
(848) |
|
|
158 |
|
|
Unrealized gain (loss) on derivative instruments |
3,945 |
|
|
(769) |
|
|
21,096 |
|
|
5,727 |
|
|
Unrealized gain on derivative instruments at joint
venture |
319 |
|
|
157 |
|
|
1,409 |
|
|
711 |
|
|
Net gain (loss) recognized in other comprehensive income
(loss) |
3,363 |
|
|
(3,286) |
|
|
21,657 |
|
|
6,596 |
|
|
Tax expense (benefit) related to items of other comprehensive
income (loss) |
759 |
|
|
(720) |
|
|
4,860 |
|
|
1,495 |
|
|
Other comprehensive income (loss) |
2,604 |
|
|
(2,566) |
|
|
16,797 |
|
|
5,101 |
|
|
Total comprehensive income (loss) |
$ |
8,512 |
|
|
$ |
(2,508) |
|
|
$ |
1,504 |
|
|
$ |
3,827 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Redeemable Preferred Stock and
Shareholders' Equity
Three months ended June 30, 2022 and 2021
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Paid in Capital in |
|
Retained |
|
Comprehensive |
|
Total Shareholders' |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Excess of par |
|
Earnings |
|
Income |
|
Equity |
|
Balances at March 31, 2022
|
|
2,500 |
|
|
$ |
49,826 |
|
|
6,488 |
|
|
$ |
65 |
|
|
$ |
18,353 |
|
|
$ |
333,365 |
|
|
$ |
19,224 |
|
|
$ |
371,007 |
|
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,908 |
|
|
— |
|
|
5,908 |
|
|
Net unrealized loss from currency translation adjustment, net of
tax benefit of $202
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(698) |
|
|
(698) |
|
|
Net unrealized gain from derivative instruments, net of tax expense
of $961
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,302 |
|
|
3,302 |
|
|
Shares repurchased |
|
— |
|
|
— |
|
|
(101) |
|
|
(1) |
|
|
(3,337) |
|
|
— |
|
|
— |
|
|
(3,338) |
|
|
Shares issued under stock compensation plans |
|
— |
|
|
— |
|
|
330 |
|
|
(1) |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of restricted stock in satisfaction of withholding
tax |
|
— |
|
|
— |
|
|
(108) |
|
|
— |
|
|
(3,496) |
|
|
— |
|
|
— |
|
|
(3,496) |
|
|
Stock-based compensation expense, net of forfeitures |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,041 |
|
|
— |
|
|
— |
|
|
3,041 |
|
|
Accretion of preferred shares issuance costs |
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
— |
|
|
(21) |
|
|
— |
|
|
(21) |
|
|
Preferred stock dividends ($0.32 per share)
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(811) |
|
|
— |
|
|
(811) |
|
|
Balances at June 30, 2022
|
|
2,500 |
|
|
$ |
49,847 |
|
|
6,609 |
|
|
$ |
63 |
|
|
$ |
14,562 |
|
|
$ |
338,441 |
|
|
$ |
21,828 |
|
|
$ |
374,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Paid in Capital in |
|
Retained |
|
Comprehensive |
|
Total Shareholders' |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Excess of par |
|
Earnings |
|
(Loss) Income |
|
Equity |
|
Balances at March 31, 2021
|
|
2,500 |
|
|
$ |
49,743 |
|
|
6,577 |
|
|
$ |
66 |
|
|
$ |
16,580 |
|
|
$ |
353,216 |
|
|
$ |
2,550 |
|
|
$ |
372,412 |
|
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
58 |
|
|
— |
|
|
58 |
|
|
Net unrealized loss from currency translation adjustment, net of
tax benefit of $600
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,074) |
|
|
(2,074) |
|
|
Net unrealized loss from derivative instruments, net of tax benefit
of $120
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(492) |
|
|
(492) |
|
|
Shares issued under stock compensation plans |
|
— |
|
|
— |
|
|
287 |
|
|
2 |
|
|
(2) |
|
|
— |
|
|
— |
|
|
— |
|
|
Cancellation of restricted stock in satisfaction of withholding
tax |
|
— |
|
|
— |
|
|
(115) |
|
|
(1) |
|
|
(4,918) |
|
|
— |
|
|
— |
|
|
(4,919) |
|
|
Stock-based compensation expense, net of forfeitures |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,536 |
|
|
— |
|
|
— |
|
|
4,536 |
|
|
Accretion of preferred shares issuance costs |
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
— |
|
|
(21) |
|
|
— |
|
|
(21) |
|
|
Preferred stock dividends ($0.32 per share)
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(811) |
|
|
— |
|
|
(811) |
|
|
Balances at June 30, 2021
|
|
2,500 |
|
|
$ |
49,764 |
|
|
6,749 |
|
|
$ |
67 |
|
|
$ |
16,196 |
|
|
$ |
352,442 |
|
|
$ |
(16) |
|
|
$ |
368,689 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Redeemable Preferred Stock and
Shareholders' Equity
Six months ended June 30, 2022 and 2021
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Paid in Capital in |
|
Retained |
|
Comprehensive |
|
Total Shareholders' |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Excess of par |
|
Earnings |
|
Income |
|
Equity |
|
Balances at December 31, 2021
|
|
2,500 |
|
|
$ |
49,805 |
|
|
6,531 |
|
|
$ |
65 |
|
|
$ |
15,401 |
|
|
$ |
355,388 |
|
|
$ |
5,031 |
|
|
$ |
375,885 |
|
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(15,293) |
|
|
— |
|
|
(15,293) |
|
|
Net unrealized loss from currency translation adjustment, net of
tax benefit of $191
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(657) |
|
|
(657) |
|
|
Net unrealized gain from derivative instruments, net of tax expense
of $5,051
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
17,454 |
|
|
17,454 |
|
|
Shares repurchased |
|
— |
|
|
— |
|
|
(154) |
|
|
(1) |
|
|
(5,179) |
|
|
— |
|
|
— |
|
|
(5,180) |
|
|
Shares issued under stock compensation plans |
|
— |
|
|
— |
|
|
340 |
|
|
(1) |
|
|
166 |
|
|
— |
|
|
— |
|
|
165 |
|
|
Cancellation of restricted stock in satisfaction of withholding
tax |
|
— |
|
|
— |
|
|
(108) |
|
|
— |
|
|
(3,496) |
|
|
— |
|
|
— |
|
|
(3,496) |
|
|
Stock-based compensation expense, net of forfeitures |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,670 |
|
|
— |
|
|
— |
|
|
7,670 |
|
|
Accretion of preferred shares issuance costs |
|
— |
|
|
42 |
|
|
— |
|
|
— |
|
|
— |
|
|
(42) |
|
|
— |
|
|
(42) |
|
|
Preferred stock dividends ($0.64 per share)
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,612) |
|
|
— |
|
|
(1,612) |
|
|
Balances at June 30, 2022
|
|
2,500 |
|
|
$ |
49,847 |
|
|
6,609 |
|
|
$ |
63 |
|
|
$ |
14,562 |
|
|
$ |
338,441 |
|
|
$ |
21,828 |
|
|
$ |
374,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Paid in Capital in |
|
Retained |
|
Comprehensive |
|
Total Shareholders' |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Excess of par |
|
Earnings |
|
Loss |
|
Equity |
|
Balances at December 31, 2020
|
|
2,500 |
|
|
$ |
49,722 |
|
|
6,570 |
|
|
$ |
66 |
|
|
$ |
13,696 |
|
|
$ |
355,370 |
|
|
$ |
(5,117) |
|
|
$ |
364,015 |
|
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,274) |
|
|
— |
|
|
(1,274) |
|
|
Net unrealized gain from currency translation adjustment, net of
tax expense of $35
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
123 |
|
|
123 |
|
|
Net unrealized gain from derivative instruments, net of tax expense
of $1,460
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,978 |
|
|
4,978 |
|
|
Shares issued under stock compensation plans |
|
— |
|
|
— |
|
|
295 |
|
|
2 |
|
|
167 |
|
|
— |
|
|
— |
|
|
169 |
|
|
Cancellation of restricted stock in satisfaction of withholding
tax |
|
— |
|
|
— |
|
|
(116) |
|
|
(1) |
|
|
(4,965) |
|
|
— |
|
|
— |
|
|
(4,966) |
|
|
Stock-based compensation expense, net of forfeitures |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,298 |
|
|
— |
|
|
— |
|
|
7,298 |
|
|
Accretion of preferred shares issuance costs |
|
— |
|
|
42 |
|
|
— |
|
|
— |
|
|
— |
|
|
(42) |
|
|
— |
|
|
(42) |
|
|
Preferred stock dividends ($0.64 per share)
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,612) |
|
|
— |
|
|
(1,612) |
|
|
Balances at June 30, 2021
|
|
2,500 |
|
|
$ |
49,764 |
|
|
6,749 |
|
|
$ |
67 |
|
|
$ |
16,196 |
|
|
$ |
352,442 |
|
|
$ |
(16) |
|
|
$ |
368,689 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
Cash flows from operating activities: |
|
|
|
|
Net loss |
$ |
(15,293) |
|
|
$ |
(1,274) |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization expense |
43,421 |
|
|
47,481 |
|
|
Write-down of equipment |
21,195 |
|
|
4,113 |
|
|
Stock-based compensation expense |
7,670 |
|
|
7,298 |
|
|
Amortization of deferred costs |
2,667 |
|
|
2,377 |
|
|
Allowances and provisions |
400 |
|
|
25 |
|
|
Gain on sale of leased equipment |
(2,796) |
|
|
— |
|
|
Gain on sale of financial assets |
(3,116) |
|
|
— |
|
|
Loss from joint ventures |
1,147 |
|
|
1,204 |
|
|
Loss on disposal of property, equipment and furnishings |
— |
|
|
40 |
|
|
Deferred income taxes |
(1,792) |
|
|
(2,677) |
|
|
Changes in assets and liabilities: |
|
|
|
|
Receivables |
(1,249) |
|
|
(16,868) |
|
|
Inventory |
8,684 |
|
|
2,484 |
|
|
Other assets |
(2,576) |
|
|
(1,796) |
|
|
Accounts payable and accrued expenses |
(46) |
|
|
9,048 |
|
|
Maintenance reserves |
(1,266) |
|
|
(9,086) |
|
|
Security deposits |
(81) |
|
|
1,052 |
|
|
Unearned revenue |
796 |
|
|
(603) |
|
|
Net cash provided by operating activities |
57,765 |
|
|
42,818 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Proceeds from sale of equipment (net of selling
expenses) |
47,657 |
|
|
— |
|
|
Proceeds from sale of notes receivable |
40,705 |
|
|
— |
|
|
Issuance of notes receivable |
(15,270) |
|
|
(42,495) |
|
|
Payments received on notes receivable |
2,118 |
|
|
5,558 |
|
|
Purchase of equipment held for operating lease |
(81,336) |
|
|
(63,791) |
|
|
Purchase of property, equipment and furnishings |
(2,623) |
|
|
(753) |
|
|
Net cash used in investing activities |
(8,749) |
|
|
(101,481) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from debt obligations |
59,000 |
|
|
395,700 |
|
|
Debt issuance costs |
— |
|
|
(4,556) |
|
|
Principal payments on debt obligations |
(119,685) |
|
|
(175,799) |
|
|
Proceeds from shares issued under stock compensation
plans |
165 |
|
|
169 |
|
|
Cancellation of restricted stock units in satisfaction of
withholding tax |
(3,496) |
|
|
(4,966) |
|
|
Repurchase of common stock |
(5,180) |
|
|
— |
|
|
Preferred stock dividends |
(1,621) |
|
|
(1,621) |
|
|
Net cash (used in) provided by financing activities |
(70,817) |
|
|
208,927 |
|
|
|
|
|
|
|
(Decrease) increase in cash, cash equivalents and restricted
cash |
(21,801) |
|
|
150,264 |
|
|
Cash, cash equivalents and restricted cash at beginning of
period |
95,641 |
|
|
78,925 |
|
|
Cash, cash equivalents and restricted cash at end of
period |
$ |
73,840 |
|
|
$ |
229,189 |
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
Net cash paid for: |
|
|
|
|
Interest |
$ |
31,269 |
|
|
$ |
30,221 |
|
|
Income Taxes |
$ |
879 |
|
|
$ |
1,230 |
|
|
|
|
|
|
|
Supplemental disclosures of non-cash activities: |
|
|
|
|
Transfers from Equipment held for operating lease to Investment in
sales-type leases |
$ |
7,025 |
|
|
$ |
— |
|
|
Transfers from Equipment held for operating lease to Spare parts
inventory |
$ |
1,121 |
|
|
$ |
488 |
|
|
Transfers from Equipment held for operating lease to Equipment held
for sale |
$ |
4,749 |
|
|
$ |
9,613 |
|
|
Transfers from Spare parts inventory to Equipment held for
operating lease |
$ |
— |
|
|
$ |
1,555 |
|
|
|
|
|
|
Accrued preferred stock dividends |
$ |
9 |
|
|
$ |
9 |
|
See accompanying notes to the unaudited condensed consolidated
financial statements.
WILLIS LEASE FINANCE CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022
(Unaudited)
Unless the context requires otherwise, references to the “Company,”
“WLFC,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q
refer to Willis Lease Finance Corporation and its
subsidiaries.
1. Summary of Significant Accounting Policies
The significant accounting policies of the Company were described
in Note 1 to the audited consolidated financial statements included
in the Company’s Form 10-K for the fiscal year ended December 31,
2021 (the “2021 Form 10-K”). There have been no significant changes
in the Company’s significant accounting policies for the six months
ended June 30, 2022.
(a) Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial
Statements of the Company have been prepared in conformity with
accounting principles generally accepted in the United States
(“GAAP”), consistent in all material respects with those applied in
the 2021 Form 10-K, for interim financial information and in
accordance with the rules and regulations of the Securities and
Exchange Commission. Therefore, they do not include all information
and footnotes normally included in annual consolidated financial
statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the 2021 Form
10-K. In the opinion of management, the Unaudited Condensed
Consolidated Financial Statements contain all adjustments
(consisting principally of normal recurring accruals) necessary for
a fair presentation of the condensed consolidated balance sheets,
statements of income, statements of comprehensive income,
statements of redeemable preferred stock and shareholders’ equity
and statements of cash flows for such interim periods presented.
Additionally, operating results for interim periods are not
necessarily indicative of the results that can be expected for a
full year.
In accordance with GAAP, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. In preparing
these financial statements, management has made its best estimates
and judgments of certain amounts included in the financial
statements, giving due consideration to materiality. These
estimates and judgments are based on historical experience and
other assumptions that management believes are reasonable and the
inputs into management's estimates and judgment consider the
economic implications of the COVID-19 pandemic on the Company’s
critical and significant accounting estimates. However, application
of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result,
actual results could differ materially from these estimates. The
significant estimates made in the accompanying Unaudited Condensed
Consolidated Financial Statements include certain assumptions
related to intangible assets, long-lived assets, equipment held for
sale, allowance for doubtful accounts, inventory and estimated
income taxes. Actual results may differ materially from these
estimates under different assumptions or conditions. Given the
uncertainty in the rapidly changing market and economic conditions
related to the COVID-19 pandemic, the Company will continue to
evaluate the nature and extent of the impact to its business,
results of operations and financial condition.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries,
including variable interest entities (“VIEs”), where the Company is
the primary beneficiary in accordance with consolidation guidance.
The Company first evaluates all entities in which it has an
economic interest to determine whether for accounting purposes the
entity is either a VIE or a voting interest entity. If the entity
is a VIE, the Company consolidates the financial statements of that
entity if it is the primary beneficiary of such entity's
activities. If the entity is a voting interest entity,
the Company consolidates the entity when it has a majority of
voting interests in such entity. Intercompany transactions and
balances have been eliminated in consolidation.
(c) Risks and Uncertainties
As a result of the COVID-19 pandemic, the Company had temporarily
closed its headquarters and other offices, required its employees
and contractors to predominately work remotely, and implemented
travel restrictions, all of which represented a significant
disruption in how the Company operates its business. In January
2022, the Company lifted travel restrictions and has also
subsequently opened its corporate headquarters and other offices
for employees and contractors to work from offices at their
discretion. The Company has also taken various proactive actions in
an attempt to mitigate the financial impact of the COVID-19
pandemic. The operations of the Company's partners and customers
have likewise been disrupted. The worldwide spread of the COVID-19
virus has resulted in a global slowdown of economic activity. While
the duration and extent of the COVID-19 pandemic depends on future
developments that cannot be accurately predicted at this time, such
as the extent and effectiveness of containment actions, it has had
an adverse effect on the global economy, and the ultimate societal
and economic impact of the COVID-19 pandemic remains unknown. In
particular, the ongoing COVID-19 pandemic has caused significant
disruptions to the airline industry and has resulted in a dramatic
reduction in demand for air travel domestically and abroad, which
is likely to continue for the foreseeable future. Lower demand for
air travel in turn presents significant risks to the Company,
resulting in impacts which have adversely affected the Company's
business, results of operations, and financial condition. Lower
demand for spare parts and engine and airframe leasing has
negatively impacted collections of accounts receivable, caused the
Company's lessee customers to not enter into new leases, resulted
in reduced spending by new and existing customers for leases or
spare parts or equipment, resulted in lower usage fees, caused some
of the Company's customers to go out of business, and limited the
ability of the Company's personnel to travel to customers and
potential customers. The Company is not able to evaluate or foresee
the full extent of these impacts at the current time.
Other than what has been reflected in the Unaudited Condensed
Consolidated Financial Statements, the Company is not aware of any
specific event or circumstance related to the COVID-19 pandemic
that would require it to update its estimates or judgments or
adjust the carrying value of its assets or liabilities. Actual
results could differ from those estimates, and any such differences
may be material to the Unaudited Condensed Consolidated Financial
Statements.
In February 2022, Russia commenced military action with Ukraine. As
a result of this action, various nations, including the United
States, have instituted economic sanctions against Russia. Further,
the full impact of this action and related sanctions on the world
economy is not determinable as of the date of these financial
statements, and the specific impact on the Company's financial
condition, results of operations and cash flows is also not
determinable as of the date of these financial
statements.
(d) Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted by the
Company
In July 2021, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2021-05, “Lease (Topic
842): Lessors – Certain Leases with Variable Lease Payments”
related to accounting for sales-type leases or direct financing
leases with variable lease payments. This ASU is effective for
interim and annual years beginning after December 15, 2021, with
early adoption permitted. The Company adopted this guidance
effective January 1, 2022, and the adoption had no impact to the
Company’s consolidated financial statements and related
disclosures.
In November 2021, the FASB issued ASU 2021-10, “Government
Assistance (Topic 832): Disclosures by Business Entities about
Government Assistance” related to disclosures about transactions
with a government that are accounted for by applying a grant or
contribution accounting model by analogy. This ASU is effective for
annual periods beginning after December 15, 2021, with early
application permitted. The Company adopted this guidance effective
January 1, 2022, and the adoption had no impact to the Company's
consolidated financial statements and related
disclosures.
Recent Accounting Pronouncements To Be Adopted by the
Company
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments –
Credit Losses (Topic 326) Measurement of Credit Losses on Financial
Instruments” (“ASU 2016-13”). ASU 2016-13 revises the measurement
of credit losses for financial assets measured at amortized cost
from an incurred loss methodology to an expected loss methodology.
ASU 2016-13 affects trade receivables, debt securities, net
investment in leases, and most other financial assets that
represent a right to receive cash. Additional disclosures about
significant estimates and credit quality are also required. In
November 2018, the FASB issued ASU 2018-19, “Codification
Improvements to Topic 326, Financial Instruments – Credit Losses.”
This ASU clarifies receivables from operating leases are accounted
for using the lease guidance and not as financial instruments. In
April 2019, the FASB issued ASU 2019-04, “Codification Improvements
to Topic 326, Financial Instruments – Credit Losses, Topic 815,
Derivatives and Hedging, and Topic 825, Financial Instruments.”
This ASU clarifies various scoping and other issues arising from
ASU 2016-13. In March 2020, the FASB issued ASU 2020-03,
“Codification Improvements to Financial Instruments.” This ASU
improves the Codification and amends the interaction of Topic 842
and Topic 326. In March 2022, the FASB issued ASU 2022-02,
“Financial Instruments – Credit Losses (Topic 326)” which
eliminated the accounting guidance for Troubled Debt Restructurings
by creditors and enhances disclosure requirements for certain loan
refinancing and restructurings. The amendment also requires an
entity disclose current-period gross write-offs by year of
origination for financing receivables and net investments in
leases. The amendments in this ASU are effective for the Company on
January 1, 2023, with early adoption permitted. The Company expects
to adopt this accounting standard update effective January 1, 2023.
The Company is evaluating the potential effects on the consolidated
financial statements.
2. Revenue from Contracts with Customers
The following tables disaggregate revenue by major source for the
three and six months ended June 30, 2022 and 2021 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2022 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Lease rent revenue |
|
$ |
36,704 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
36,704 |
|
|
Maintenance reserve revenue |
|
24,245 |
|
|
— |
|
|
— |
|
|
24,245 |
|
|
Spare parts and equipment sales |
|
49 |
|
|
6,743 |
|
|
— |
|
|
6,792 |
|
|
Gain on sale of leased equipment |
|
498 |
|
|
— |
|
|
— |
|
|
498 |
|
|
Gain on sale of financial assets |
|
3,116 |
|
|
— |
|
|
— |
|
|
3,116 |
|
|
Managed services |
|
4,787 |
|
|
— |
|
|
— |
|
|
4,787 |
|
|
|
|
|
|
|
|
|
|
|
Other revenue |
|
1,904 |
|
|
58 |
|
|
(29) |
|
|
1,933 |
|
|
Total revenue |
|
$ |
71,303 |
|
|
$ |
6,801 |
|
|
$ |
(29) |
|
|
$ |
78,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Lease rent revenue |
|
$ |
32,431 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
32,431 |
|
|
Maintenance reserve revenue |
|
17,278 |
|
|
— |
|
|
— |
|
|
17,278 |
|
|
Spare parts and equipment sales |
|
84 |
|
|
3,375 |
|
|
110 |
|
|
3,569 |
|
|
|
|
|
|
|
|
|
|
|
Managed services |
|
3,247 |
|
|
— |
|
|
— |
|
|
3,247 |
|
|
Asset transition fee (1) |
|
6,256 |
|
|
— |
|
|
— |
|
|
6,256 |
|
|
Other revenue |
|
3,669 |
|
|
41 |
|
|
(19) |
|
|
3,691 |
|
|
Total revenue |
|
$ |
62,965 |
|
|
$ |
3,416 |
|
|
$ |
91 |
|
|
$ |
66,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2022 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Lease rent revenue |
|
$ |
74,829 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
74,829 |
|
|
Maintenance reserve revenue |
|
39,079 |
|
|
— |
|
|
— |
|
|
39,079 |
|
|
Spare parts and equipment sales |
|
251 |
|
|
13,171 |
|
|
— |
|
|
13,422 |
|
|
Gain on sale of leased equipment |
|
2,796 |
|
|
— |
|
|
— |
|
|
2,796 |
|
|
Gain on sale of financial assets |
|
3,116 |
|
|
— |
|
|
— |
|
|
3,116 |
|
|
Managed services |
|
9,431 |
|
|
— |
|
|
— |
|
|
9,431 |
|
|
Other revenue |
|
4,072 |
|
|
234 |
|
|
(87) |
|
|
4,219 |
|
|
Total revenue |
|
$ |
133,574 |
|
|
$ |
13,405 |
|
|
$ |
(87) |
|
|
$ |
146,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2021 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Lease rent revenue |
|
$ |
63,951 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
63,951 |
|
|
Maintenance reserve revenue |
|
37,090 |
|
|
— |
|
|
— |
|
|
37,090 |
|
|
Spare parts and equipment sales |
|
169 |
|
|
7,966 |
|
|
— |
|
|
8,135 |
|
|
Managed services |
|
5,515 |
|
|
— |
|
|
— |
|
|
5,515 |
|
|
Asset transition fee (1) |
|
6,256 |
|
|
— |
|
|
— |
|
|
6,256 |
|
|
Other revenue |
|
6,607 |
|
|
97 |
|
|
(54) |
|
|
6,650 |
|
|
Total revenue |
|
$ |
119,588 |
|
|
$ |
8,063 |
|
|
$ |
(54) |
|
|
$ |
127,597 |
|
_____________________________
(1)Asset
transition fee reflects the settlement received from the close out
of an engine transition program.
3. Equipment Held for Operating Lease and Notes
Receivable
As of June 30, 2022, the Company had $1,957.6 million
equipment held in our operating lease portfolio, $83.3 million
notes receivable, and $7.0 million investment in sales-type leases,
which represented 293 engines, twelve aircraft, one marine vessel
and other leased parts and equipment. As of December 31, 2021, the
Company had $1,991.4 million equipment held in our operating
lease portfolio and $115.5 million notes receivable which
represented 304 engines, twelve aircraft, one marine vessel and
other leased parts and equipment.
The following table disaggregates equipment held for operating
lease by asset class (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
Gross Value |
|
Accumulated Depreciation |
|
Net Book Value |
|
Gross Value |
|
Accumulated Depreciation |
|
Net Book Value |
|
Engines and related equipment |
$ |
2,323,147 |
|
|
$ |
(506,318) |
|
|
$ |
1,816,829 |
|
|
$ |
2,368,496 |
|
|
$ |
(515,442) |
|
|
$ |
1,853,054 |
|
|
Aircraft and airframes |
139,270 |
|
|
(9,830) |
|
|
129,440 |
|
|
134,370 |
|
|
(7,790) |
|
|
126,580 |
|
|
Marine vessel |
13,470 |
|
|
(2,101) |
|
|
11,369 |
|
|
13,470 |
|
|
(1,736) |
|
|
11,734 |
|
|
|
$ |
2,475,887 |
|
|
$ |
(518,249) |
|
|
$ |
1,957,638 |
|
|
$ |
2,516,336 |
|
|
$ |
(524,968) |
|
|
$ |
1,991,368 |
|
Notes Receivable
During the three months ended June 30, 2022 and 2021, the
Company recorded interest income related to the notes receivable of
$1.9 million and $3.6 million, respectively, and $4.0 million and
$6.5 million during the six months ended June 30, 2022 and
2021, respectively, and is presented within Other revenue. The
effective interest rates on our notes receivable ranged from 7.1%
to 12.2% as of June 30, 2022 and 6.3% to 12.2% as of
June 30, 2021.
4. Investments
In 2011, the Company 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. As of June 30, 2022, WMES owned
a lease portfolio, inclusive of 36 engines and five aircraft with a
net book value of $258.9 million.
In 2014, the Company 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 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. CASC Willis acquires and leases jet engines to Chinese
airlines and concentrates on the demand for leased commercial
aircraft engines and aviation assets in the People’s Republic of
China. As of June 30, 2022, CASC Willis owned a lease
portfolio of four engines with a net book value of $45.5
million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2022 |
|
WMES |
|
CASC Willis |
|
Total |
|
|
|
(in thousands) |
|
Investment in joint ventures as of December 31, 2021 |
|
$ |
39,069 |
|
|
$ |
16,858 |
|
|
$ |
55,927 |
|
|
Loss from joint ventures |
|
(931) |
|
|
(216) |
|
|
(1,147) |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
— |
|
|
(848) |
|
|
(848) |
|
|
Other comprehensive gain from joint ventures |
|
1,409 |
|
|
— |
|
|
1,409 |
|
|
Investment in joint ventures as of June 30, 2022 |
|
$ |
39,547 |
|
|
$ |
15,794 |
|
|
$ |
55,341 |
|
“Other revenue” on the Condensed Consolidated Statements of Income
includes $0.5 million and $0.4 million of management fees
earned during the three months ended June 30, 2022 and 2021,
respectively, and $1.0 million and $0.7 million during the six
months ended June 30, 2022 and 2021, respectively, related to
the servicing of engines for the WMES lease portfolio.
There were no aircraft or engine sales to WMES or CASC Willis
during the six months ended June 30, 2022 and
2021.
Unaudited summarized financial information for 100% of WMES is
presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
(in thousands) |
|
(in thousands) |
|
Revenue |
$ |
21,185 |
|
|
$ |
4,885 |
|
|
$ |
30,726 |
|
|
$ |
9,646 |
|
|
Expenses |
17,687 |
|
|
6,606 |
|
|
32,690 |
|
|
12,775 |
|
|
WMES net income (loss) |
$ |
3,498 |
|
|
$ |
(1,721) |
|
|
$ |
(1,964) |
|
|
$ |
(3,129) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2022 |
|
December 31,
2021 |
|
(in thousands) |
|
Total assets |
$ |
285,114 |
|
|
$ |
310,260 |
|
|
Total liabilities |
202,735 |
|
|
225,917 |
|
|
Total WMES net equity |
$ |
82,379 |
|
|
$ |
84,343 |
|
The difference between the Company’s investment in WMES and 50% of
total WMES net equity is primarily attributable to the recognition
of deferred gains, prior to the adoption of ASU 2017-05, related to
engines sold by the Company to WMES.
5. Debt Obligations
Debt obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2022 |
|
December 31,
2021 |
|
(in thousands) |
|
Credit facility at a floating rate of interest of one-month LIBOR
plus 1.375% at June 30, 2022, secured by engines. The facility
has a committed amount of $1.0 billion at June 30, 2022, which
revolves until the maturity date of June 2024
|
$ |
569,000 |
|
|
$ |
590,000 |
|
|
WEST VI Series A 2021 term notes payable at a fixed rate of
interest of 3.10%, maturing in May 2046, secured by engines and one
airframe
|
266,982 |
|
|
273,723 |
|
|
WEST VI Series B 2021 term notes payable at a fixed rate of
interest of 5.44%, maturing in May 2046, secured by engines and one
airframe
|
37,086 |
|
|
38,022 |
|
|
WEST VI Series C 2021 term notes payable at a fixed rate of
interest of 7.39%, maturing in May 2046, secured by engines and one
airframe
|
16,762 |
|
|
18,158 |
|
|
WEST V Series A 2020 term notes payable at a fixed rate of interest
of 3.23%, maturing in March 2045, secured by engines
|
263,489 |
|
|
272,909 |
|
|
WEST V Series B 2020 term notes payable at a fixed rate of interest
of 4.21%, maturing in March 2045, secured by engines
|
36,609 |
|
|
38,004 |
|
|
WEST V Series C 2020 term notes payable at a fixed rate of interest
of 6.66%, maturing in March 2045, secured by engines
|
14,646 |
|
|
16,342 |
|
|
WEST IV Series A 2018 term notes payable at a fixed rate of
interest of 4.75%, maturing in September 2043, secured by
engines
|
251,949 |
|
|
262,260 |
|
|
WEST IV Series B 2018 term notes payable at a fixed rate of
interest of 5.44%, maturing in September 2043, secured by
engines
|
38,885 |
|
|
38,885 |
|
|
WEST III Series A 2017 term notes payable at a fixed rate of
interest of 4.69%, maturing in August 2042, secured by
engines
|
217,020 |
|
|
223,815 |
|
|
WEST III Series B 2017 term notes payable at a fixed rate of
interest of 6.36%, maturing in August 2042, secured by
engines
|
32,195 |
|
|
32,195 |
|
|
Note payable at a fixed rate of interest of 3.18%, maturing in July
2024, secured by an aircraft
|
4,313 |
|
|
5,307 |
|
|
|
1,748,936 |
|
|
1,809,620 |
|
|
Less: unamortized debt issuance costs |
(17,129) |
|
|
(19,356) |
|
|
Total debt obligations |
$ |
1,731,807 |
|
|
$ |
1,790,264 |
|
One-month LIBOR was 1.79% and 0.10% as of June 30, 2022 and
December 31, 2021, respectively.
Principal outstanding at June 30, 2022, is expected to be
repayable as follows:
|
|
|
|
|
|
|
|
|
|
Year |
|
(in thousands) |
|
2022 |
|
$ |
50,832 |
|
|
2023 |
|
62,369 |
|
|
2024 |
|
630,536 |
|
|
2025 |
|
60,300 |
|
|
2026 |
|
282,048 |
|
|
Thereafter |
|
662,851 |
|
|
Total |
|
$ |
1,748,936 |
|
Virtually all of the above debt requires ongoing compliance with
certain financial covenants, including debt/equity ratios, minimum
tangible net worth and minimum interest coverage ratios, and other
eligibility criteria including customer and geographic
concentration restrictions. The Company also has certain negative
financial covenants such as liens, advances, change in business,
sales of assets, dividends and stock repurchases. These covenants
are tested either monthly, quarterly or annually, and the Company
was in full compliance with all financial covenant requirements at
June 30, 2022.
6. Derivative Instruments
The Company periodically holds interest rate derivative instruments
to mitigate exposure to changes in interest rates, predominantly
one-month LIBOR, with $569.0 million and $590.0 million of variable
rate borrowings at June 30, 2022 and December 31, 2021,
respectively. As a matter of policy, management does not use
derivatives for speculative purposes. As of June 30, 2022, the
Company had five interest rate swap agreements. During the first
quarter of 2021, the Company entered into four fixed-rate interest
swap agreements, each having notional amounts of
$100.0 million, two with remaining terms of 19 months and two
with remaining terms of 43 months as of June 30, 2022. One
interest rate swap agreement was entered into during 2019 which has
a notional outstanding amount of $100.0 million with a remaining
term of 24 months as of June 30, 2022. One interest rate swap
agreement which the Company entered into in 2016 expired in April
2021. The derivative instruments were each designated as cash flow
hedges at inception and recorded at fair value.
The Company evaluated the effectiveness of the swap agreements to
hedge the interest rate risk associated with its variable rate debt
and concluded at the swap inception dates that each swap was highly
effective in hedging that risk. The Company evaluates the
effectiveness of the hedging relationships on an ongoing basis and
concluded there was no ineffectiveness in the hedges for the period
ended June 30, 2022.
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
when evaluating the Company’s and counterparty’s 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. The Company applies hedge accounting and accounts for
the change in fair value of its cash flow hedges through other
comprehensive income for all derivative instruments.
The net fair value of the interest rate swaps as of June 30,
2022 was $28.4 million, representing an asset and is reflected
within other assets on the condensed consolidated balance sheet.
The net fair value of the interest rate swaps as of
December 31, 2021 was $7.3 million, representing an asset of
$8.0 million and a liability of $0.7 million, reflected
within other assets and accounts payable and accrued expenses on
the condensed consolidated balance sheet, respectively. The Company
recorded an adjustment to interest expense of $(0.9) million and
$0.5 million during the three months ended June 30, 2022 and
2021, respectively, and $(0.6) million and $1.4 million during the
six months ended June 30, 2022 and 2021, respectively, from
derivative instruments.
Effect of Derivative Instruments on Earnings in the Condensed
Consolidated Statements of Income and Comprehensive
Income
The following tables provide additional information about the
financial statement effects related to the cash flow hedges for the
three and six months ended June 30, 2022 and
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
Relationships |
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
(Effective Portion) |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
(in thousands) |
|
(in thousands) |
|
Interest rate contracts |
|
$ |
3,945 |
|
|
$ |
(769) |
|
|
$ |
21,096 |
|
|
$ |
5,727 |
|
|
Total |
|
$ |
3,945 |
|
|
$ |
(769) |
|
|
$ |
21,096 |
|
|
$ |
5,727 |
|
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, if any, is
recorded in earnings in the current period.
Counterparty Credit Risk
The Company evaluates the creditworthiness of the counterparties
under its hedging agreements. The counterparties for the interest
rate swaps are large financial institutions that possessed
investment grade credit ratings. Based on these ratings, the
Company believes that the counterparties were credit-worthy and
that their continuing performance under the hedging agreements was
probable and did not require the counterparties to provide
collateral or other security to the Company.
7. Income Taxes
Income tax expense (benefit) for the three and six months ended
June 30, 2022 was $5.0 million and $(1.5) million,
respectively. The effective tax rate for the three and six months
ended June 30, 2022 was 46.1% and 8.8%, respectively. Income
tax benefit for the three and six months ended June 30, 2021
was $1.9 million and $2.3 million, respectively. The effective tax
rate for the three and six months ended June 30, 2021 was
103.1% and 64.1%, respectively. The Company’s effective tax rates
differed from the U.S. federal statutory rate of 21.0% primarily
due to executive compensation exceeding $1.0 million as
defined in Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), and a discrete item recorded in the prior
quarter associated with a write-down of engines due to the Russia
and Ukraine conflict. Refer to Note 8 "Fair Value Measurements" for
further detail on the write-downs related to Russia.
The Company records tax expense or benefit for unusual or
infrequent items discretely in the period in which they occur. The
Company’s 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
Section 162(m) of the Code and numerous other factors, including
changes in tax law.
The Company qualified for the Employment Retention Credit (“ERC”)
and recognized a credit of $0.7 million and $1.4 million
for the three and six months ended June 30 2021, respectively, as a
reduction to payroll tax.
8. Fair Value Measurements
The fair value of a financial instrument represents the amount at
which the instrument could be exchanged in a current transaction
between willing parties in contrast to a forced sale or
liquidation. Fair value estimates are made at a specific point in
time, based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of judgment, and therefore cannot be
determined with precision.
Accounting standards define fair value as the price that would be
received from selling an asset or paid to transfer a liability in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at
the measurement date. Accounting standards establish a fair value
hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value and also establishes the following three
levels of inputs that may be used to measure fair
value:
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.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial
instruments:
•Cash
and cash equivalents, restricted cash, receivables, and accounts
payable:
The amounts reported in the accompanying Condensed Consolidated
Balance Sheets approximate fair value due to their short-term
nature.
•Notes
receivable:
The carrying amount of the Company’s outstanding balance on its
Notes receivable as of June 30, 2022 and December 31,
2021 was estimated to have a fair value of approximately $85.3
million and $117.7 million, respectively, based on the fair value
of estimated future payments calculated using interest rates that
approximate prevailing market rates at each period end (Level 2
inputs).
•Investment
in sales-type leases:
The carrying amount of the Company's outstanding balance on its
Investment in sales-type leases as of June 30, 2022 was estimated
to have a fair value of approximately $7.0 million based on the
fair value of estimated future payments calculated using interest
rates that approximate prevailing market rates at each period end
(Level 2 inputs). The Company did not have investment in sales-type
leases at December 31, 2021.
•Debt
obligations:
The carrying amount of the Company’s outstanding balance on its
Debt obligations as of June 30, 2022 and December 31,
2021 was estimated to have a fair value of approximately $1,549.0
million and $1,827.4 million, respectively, based on the fair value
of estimated future payments calculated using interest rates that
approximate prevailing market rates at each period end (Level 2
inputs).
Assets Measured and Recorded at Fair Value on a Recurring
Basis
As of June 30, 2022 and December 31, 2021, the Company
measured the fair value of its interest rate swap agreements based
on Level 2 inputs, due to the usage of inputs that can be
corroborated by observable market data. 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. The net fair value of the interest rate
swaps as of June 30, 2022 was $28.4 million, representing an
asset. The net fair value of the interest rate swaps as of
December 31, 2021 was $7.3 million, representing an asset of
$8.0 million and a liability of $0.7 million. The Company
recorded an adjustment to interest expense of $(0.9) million and
$0.5 million during the three months ended June 30, 2022 and
2021, respectively, and $(0.6) million and $1.4 million during the
six months ended June 30, 2022 and 2021, respectively, from
derivative instruments.
Assets Measured and Recorded at Fair Value on a Nonrecurring
Basis
The Company determines 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 Company uses Level 2 inputs to measure write-downs
of equipment held for lease and equipment held for
sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Losses |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
(in thousands) |
|
(in thousands) |
|
Equipment held for lease |
$ |
— |
|
|
$ |
2,246 |
|
|
$ |
21,117 |
|
|
$ |
4,113 |
|
|
Equipment held for sale |
78 |
|
|
— |
|
|
78 |
|
|
— |
|
|
Total |
$ |
78 |
|
|
$ |
2,246 |
|
|
$ |
21,195 |
|
|
$ |
4,113 |
|
Write-downs of equipment to their estimated fair values totaled
$0.1 million for the three months ended June 30, 2022.
Write-downs of equipment to their estimated fair values totaled
$21.2 million for the six months ended June 30, 2022,
primarily reflecting an adjustment of the carrying value of three
impaired engines. Of this write-down, $20.4 million reflects
the impairment of two engines located in Russia which were
determined due to the Russia and Ukraine conflict to be
unrecoverable. The remaining write-downs were in the ordinary
course of business. As of June 30, 2022, included within
equipment held for lease and equipment held for sale was $32.8
million in remaining book values of 19 assets which were previously
written down.
Write-downs of equipment to their estimated fair values totaled
$2.2 million for the three months ended June 30, 2021,
reflecting an adjustment of the carrying value of four impaired
engines. Write-downs of equipment to their estimated fair values
totaled $4.1 million for the six months ended June 30, 2021,
reflecting an adjustment of the carrying value of four impaired
engines and one airframe.
9. Earnings Per Share
Basic earnings per common share is computed by dividing net income,
less preferred stock dividends and accretion of preferred stock
issuance costs, by the weighted average number of common shares
outstanding for the period. Treasury stock is excluded from the
weighted average number of shares of common stock outstanding.
Diluted earnings per share attributable to common stockholders is
computed based on the weighted average number of shares of common
stock and dilutive securities outstanding during the period.
Dilutive securities are common stock equivalents that are freely
exercisable into common stock at less than market prices or
otherwise dilute earnings if converted. The net effect of common
stock equivalents is based on the incremental common stock that
would be issued upon the vesting of restricted stock using the
treasury stock method. Common stock equivalents are not included in
diluted earnings per share when their inclusion is antidilutive.
Additionally, redeemable preferred stock is not convertible and
does not affect dilutive shares.
There were no anti-dilutive shares for the three months ended
June 30, 2022. There were 0.2 million anti-dilutive shares
excluded from the computation of diluted weighted average earnings
per common share for the six months ended June 30, 2022. There were
0.2 million and 0.3 million anti-dilutive shares for the three and
six months ended June 30, 2021, respectively.
The following table presents the calculation of basic and diluted
EPS (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
Net income (loss) attributable to common shareholders |
$ |
5,076 |
|
|
$ |
(774) |
|
|
$ |
(16,947) |
|
|
$ |
(2,928) |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
6,129 |
|
|
6,218 |
|
|
6,040 |
|
|
6,107 |
|
|
Potentially dilutive common shares |
117 |
|
|
— |
|
|
— |
|
|
— |
|
|
Diluted weighted average common shares outstanding |
6,246 |
|
|
6,218 |
|
|
6,040 |
|
|
6,107 |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average income (loss) per common share |
$ |
0.83 |
|
|
$ |
(0.12) |
|
|
$ |
(2.81) |
|
|
$ |
(0.48) |
|
|
Diluted weighted average income (loss) per common share |
$ |
0.81 |
|
|
$ |
(0.12) |
|
|
$ |
(2.81) |
|
|
$ |
(0.48) |
|
10. Equity
Common Stock Repurchase
Effective December 31, 2018, the Board of Directors approved the
renewal of the existing common stock repurchase plan, extending the
plan through December 31, 2020 and amending the plan to allow for
repurchases of up to $60.0 million of the Company's common stock
until such date. Effective December 31, 2020, the Board of
Directors approved the renewal of the existing common stock
repurchase plan, extending the plan through December 31, 2022.
Repurchased shares are immediately retired. During the six months
ended June 30, 2022, the Company repurchased a total of
154,215 shares of common stock for approximately $5.2 million
at a weighted average price of $33.98 per share. During the six
months ended June 30, 2021, no shares were repurchased. At
June 30, 2022, approximately $39.6 million is available
to purchase shares under the plan.
Redeemable Preferred Stock
Dividends:
The Company’s Series A-1 Preferred Stock and Series A-2 Preferred
Stock accrue quarterly dividends at the rate per annum of 6.5% per
share. During the six months ended June 30, 2022 and 2021, the
Company paid total dividends of $1.6 million, respectively, on the
Series A-1 and Series A-2 Preferred Stock.
11. Stock-Based Compensation Plans
The components of stock-based compensation expense were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
(in thousands) |
|
(in thousands) |
|
2007 Stock Incentive Plan |
$ |
— |
|
|
$ |
957 |
|
|
$ |
— |
|
|
$ |
1,642 |
|
|
2021 Stock Incentive Plan |
3,027 |
|
|
3,507 |
|
|
7,634 |
|
|
5,506 |
|
|
Employee Stock Purchase Plan |
14 |
|
|
72 |
|
|
36 |
|
|
150 |
|
|
Total Stock Compensation Expense |
$ |
3,041 |
|
|
$ |
4,536 |
|
|
$ |
7,670 |
|
|
$ |
7,298 |
|
The significant stock compensation plans are described
below.
The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted in May
2007. Under the 2007 Plan, a total of 2,800,000 shares were
authorized for stock-based compensation available in the form of
either restricted stock awards (“RSAs”) or stock options. The RSAs
are subject to service-based vesting, typically between
one and four years, where a specific period of continued
employment must pass before an award vests. The expense associated
with these awards is recognized on a straight-line basis over the
respective vesting period, with forfeitures accounted for as they
occur. For any vesting tranche of an award, the cumulative amount
of compensation cost recognized is equal to the portion of the
grant‑date fair value of the award tranche that is actually vested
at that date. As of June 30, 2022, there were no stock options
outstanding under the 2007 Plan.
The 2018 Stock Incentive Plan (the “2018 Plan”) was adopted in May
2018. Under the 2018 Plan, a total of 800,000 shares are authorized
for stock-based compensation, plus the number of shares remaining
under the 2007 Plan and any future forfeited awards under the 2007
Plan, in the form of RSAs. In November 2021, the 2018 Plan was
amended and restated as the 2021 Stock Incentive Plan (the “2021
Plan”) to increase the number of shares reserved for issuance under
the 2021 Plan by 1,000,000 shares. The RSAs are subject to service
and performance-based vesting, typically between
one and four years, where a specific period of continued
employment or service must pass before an award vests. The expense
associated with these awards is recognized on a straight-line basis
over the respective vesting period, with forfeitures accounted for
as they occur. For any vesting tranche of an award, the cumulative
amount of compensation cost recognized is equal to the portion of
the grant‑date fair value of the award tranche that is actually
vested at that date.
As of June 30, 2022, the Company had granted 1,256,700 RSAs
under the 2021 Plan and had 637,896 shares available for future
issuance. The fair value of the restricted stock awards equaled the
stock price at the grant date.
The following table summarizes the restricted stock activity during
the six months ended June 30, 2022:
|
|
|
|
|
|
|
Shares |
|
Balance of unvested shares as of December 31, 2021 |
560,608 |
|
|
Shares granted |
330,400 |
|
|
Shares forfeited |
— |
|
|
Shares vested |
(368,810) |
|
|
Balance of unvested shares as of June 30, 2022 |
522,198 |
|
Under the Employee Stock Purchase Plan (“ESPP”), as amended and
restated effective November 10, 2021, 425,000 shares of common
stock have been reserved for issuance. Eligible employees
may designate no more than 10% of their base cash compensation
to be deducted each pay period for the purchase of common stock
under the ESPP. Participants may purchase no more than 1,000
shares or $25,000 of common stock in any one calendar year. Each
January 31 and July 31, shares of common stock are
purchased with the employees’ payroll deductions from the
immediately preceding six months at a price per share of 85% of the
lesser of the market price of the common stock on the purchase date
or the market price of the common stock on the date of entry into
an offering period. During the six months ended June 30, 2022
and 2021, 9,919 and 8,307 shares of common stock, respectively,
were issued under the ESPP. The Company issues new shares through
its transfer agent upon an employee stock purchase.
12. Reportable Segments
The Company has two reportable 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 other
related businesses and (ii) Spare Parts Sales which involves the
purchase and resale of after-market engine parts, whole engines,
engine modules and portable aircraft components.
The Company evaluates the performance of each of the segments based
on profit or loss after general and administrative expenses. 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 reportable segments
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2022 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
Lease rent revenue |
|
$ |
36,704 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
36,704 |
|
|
Maintenance reserve revenue |
|
24,245 |
|
|
— |
|
|
— |
|
|
24,245 |
|
|
Spare parts and equipment sales |
|
49 |
|
|
6,743 |
|
|
— |
|
|
6,792 |
|
|
Gain on sale of leased equipment |
|
498 |
|
|
— |
|
|
— |
|
|
498 |
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of financial assets |
|
3,116 |
|
|
— |
|
|
— |
|
|
3,116 |
|
|
Other revenue |
|
6,691 |
|
|
58 |
|
|
(29) |
|
|
6,720 |
|
|
Total revenue |
|
71,303 |
|
|
6,801 |
|
|
(29) |
|
|
78,075 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
21,585 |
|
|
27 |
|
|
— |
|
|
21,612 |
|
|
Cost of spare parts and equipment sales |
|
4 |
|
|
7,010 |
|
|
— |
|
|
7,014 |
|
|
|
|
|
|
|
|
|
|
|
Write-down of equipment |
|
78 |
|
|
— |
|
|
— |
|
|
78 |
|
|
General and administrative |
|
19,581 |
|
|
846 |
|
|
— |
|
|
20,427 |
|
|
Technical expense |
|
3,436 |
|
|
— |
|
|
— |
|
|
3,436 |
|
|
Net finance costs: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
16,023 |
|
|
— |
|
|
— |
|
|
16,023 |
|
|
|
|
|
|
|
|
|
|
|
Total finance costs |
|
16,023 |
|
|
— |
|
|
— |
|
|
16,023 |
|
|
Total expenses |
|
60,707 |
|
|
7,883 |
|
|
— |
|
|
68,590 |
|
|
Earnings (loss) from operations |
|
$ |
10,596 |
|
|
$ |
(1,082) |
|
|
$ |
(29) |
|
|
$ |
9,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
Lease rent revenue |
|
$ |
32,431 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
32,431 |
|
|
Maintenance reserve revenue |
|
17,278 |
|
|
— |
|
|
— |
|
|
17,278 |
|
|
Spare parts and equipment sales |
|
84 |
|
|
3,375 |
|
|
110 |
|
|
3,569 |
|
|
|
|
|
|
|
|
|
|
|
Asset transition fee (1) |
|
6,256 |
|
|
— |
|
|
— |
|
|
6,256 |
|
|
Other revenue |
|
6,916 |
|
|
41 |
|
|
(19) |
|
|
6,938 |
|
|
Total revenue |
|
62,965 |
|
|
3,416 |
|
|
91 |
|
|
66,472 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
23,311 |
|
|
29 |
|
|
— |
|
|
23,340 |
|
|
Cost of spare parts and equipment sales |
|
2 |
|
|
3,276 |
|
|
— |
|
|
3,278 |
|
|
Write-down of equipment |
|
2,246 |
|
|
— |
|
|
— |
|
|
2,246 |
|
|
General and administrative |
|
19,143 |
|
|
466 |
|
|
(110) |
|
|
19,499 |
|
|
Technical expense |
|
2,296 |
|
|
— |
|
|
— |
|
|
2,296 |
|
|
Net finance costs: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
16,987 |
|
|
— |
|
|
— |
|
|
16,987 |
|
|
|
|
|
|
|
|
|
|
|
Total finance costs |
|
16,987 |
|
|
— |
|
|
— |
|
|
16,987 |
|
|
Total expenses |
|
63,985 |
|
|
3,771 |
|
|
(110) |
|
|
67,646 |
|
|
(Loss) earnings from operations |
|
$ |
(1,020) |
|
|
$ |
(355) |
|
|
$ |
201 |
|
|
$ |
(1,174) |
|
_____________________________
(1)Asset
transition fee reflects the settlement received from the close out
of an engine transition program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2022 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
Lease rent revenue |
|
$ |
74,829 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
74,829 |
|
|
Maintenance reserve revenue |
|
39,079 |
|
|
— |
|
|
— |
|
|
39,079 |
|
|
Spare parts and equipment sales |
|
251 |
|
|
13,171 |
|
|
— |
|
|
13,422 |
|
|
Gain on sale of leased equipment |
|
2,796 |
|
|
— |
|
|
— |
|
|
2,796 |
|
|
Gain on sale of financial assets |
|
3,116 |
|
|
— |
|
|
— |
|
|
3,116 |
|
|
Other revenue |
|
13,503 |
|
|
234 |
|
|
(87) |
|
|
13,650 |
|
|
Total revenue |
|
133,574 |
|
|
13,405 |
|
|
(87) |
|
|
146,892 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
43,367 |
|
|
54 |
|
|
— |
|
|
43,421 |
|
|
Cost of spare parts and equipment sales |
|
10 |
|
|
11,866 |
|
|
— |
|
|
11,876 |
|
|
Write-down of equipment |
|
21,195 |
|
|
— |
|
|
— |
|
|
21,195 |
|
|
General and administrative |
|
42,387 |
|
|
1,645 |
|
|
— |
|
|
44,032 |
|
|
Technical expense |
|
9,082 |
|
|
— |
|
|
— |
|
|
9,082 |
|
|
Net finance costs: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
32,906 |
|
|
— |
|
|
— |
|
|
32,906 |
|
|
|
|
|
|
|
|
|
|
|
Total finance costs |
|
32,906 |
|
|
— |
|
|
— |
|
|
32,906 |
|
|
Total expenses |
|
148,947 |
|
|
13,565 |
|
|
— |
|
|
162,512 |
|
|
Loss from operations |
|
$ |
(15,373) |
|
|
$ |
(160) |
|
|
$ |
(87) |
|
|
$ |
(15,620) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
Lease rent revenue |
|
$ |
63,951 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
63,951 |
|
|
Maintenance reserve revenue |
|
37,090 |
|
|
— |
|
|
— |
|
|
37,090 |
|
|
Spare parts and equipment sales |
|
169 |
|
|
7,966 |
|
|
— |
|
|
8,135 |
|
|
Asset transition fee (1) |
|
6,256 |
|
|
— |
|
|
— |
|
|
6,256 |
|
|
Other revenue |
|
12,122 |
|
|
97 |
|
|
(54) |
|
|
12,165 |
|
|
Total revenue |
|
119,588 |
|
|
8,063 |
|
|
(54) |
|
|
127,597 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
47,423 |
|
|
58 |
|
|
— |
|
|
47,481 |
|
|
Cost of spare parts and equipment sales |
|
8 |
|
|
7,093 |
|
|
(14) |
|
|
7,087 |
|
|
Write-down of equipment |
|
4,113 |
|
|
— |
|
|
— |
|
|
4,113 |
|
|
General and administrative |
|
34,700 |
|
|
950 |
|
|
— |
|
|
35,650 |
|
|
Technical expense |
|
3,606 |
|
|
— |
|
|
— |
|
|
3,606 |
|
|
Net finance costs: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
32,006 |
|
|
— |
|
|
— |
|
|
32,006 |
|
|
Total finance costs |
|
32,006 |
|
|
— |
|
|
— |
|
|
32,006 |
|
|
Total expenses |
|
121,856 |
|
|
8,101 |
|
|
(14) |
|
|
129,943 |
|
|
Loss from operations |
|
$ |
(2,268) |
|
|
$ |
(38) |
|
|
$ |
(40) |
|
|
$ |
(2,346) |
|
_____________________________
(1)Asset
transition fee reflects the settlement received from the close out
of an engine transition program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing and
Related Operations |
|
Spare Parts Sales |
|
Eliminations |
|
Total |
|
Total assets as of June 30, 2022 |
|
$ |
2,345,586 |
|
|
$ |
50,797 |
|
|
$ |
— |
|
|
$ |
2,396,383 |
|
|
Total assets as of December 31, 2021 |
|
$ |
2,415,635 |
|
|
$ |
47,292 |
|
|
$ |
— |
|
|
$ |
2,462,927 |
|
13. Related Party Transactions
Joint Ventures
“Other revenue” on the Condensed Consolidated Statements of Income
includes management fees earned of $0.5 million and
$0.4 million during the three months ended June 30,
2022 and 2021, respectively, and $1.0 million and $0.7 million
during the six months ended June 30, 2022 and 2021,
respectively, related to the servicing of engines for the WMES
lease portfolio.
14. Subsequent Event
In July 2022, Scandinavian Airlines System ("SAS") announced that
it had filed for relief under Chapter 11 of the U.S. Bankruptcy
Code. The impact to the Company for the three and six months ended
June 30, 2022 was de minimis. The full impact of the SAS bankruptcy
on the Company's financial condition, results of operations and
cash flows is not determinable as of the date of these financial
statements.
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the
Unaudited Condensed Consolidated Financial Statements and notes
thereto included under Part I, Item 1 of this Quarterly Report
on Form 10-Q. In addition, reference should be made to our audited
Consolidated Financial Statements and notes thereto and related
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” included in our Form 10-K for the fiscal
year ended December 31, 2021 (the “2021 Form 10-K”). In addition to
historical consolidated financial information, the following
discussion contains forward-looking statements that reflect our
plans, estimates and beliefs, including potential impacts of the
COVID-19 pandemic on our business, results of operations and
financial condition. Our actual results may differ materially from
those contained in or implied by any forward-looking
statements. The financial information included in this
discussion and in our consolidated financial statements may not be
indicative of our consolidated financial position, operating
results, changes in equity and cash flows in the future. See
“Special Note Regarding Forward-Looking Statements” included
earlier in this report.
Overview
Our core business is acquiring and leasing commercial aircraft
and aircraft engines and related aircraft equipment pursuant to
operating leases, all of which we sometimes collectively refer to
as “equipment.” As of June 30, 2022, the majority of our
leases were operating leases, with the exception of certain failed
sale-leaseback transactions classified as notes receivable under
the guidance provided by Accounting Standards Codification (“ASC”)
842 and a $7.0 million investment in sales-type leases. As of
June 30, 2022, we had 79 lessees in 42 countries. Our
portfolio is continually changing due to equipment acquisitions and
sales. As of June 30, 2022, $1,957.6 million of equipment held
in our operating lease portfolio, $83.3 million of notes
receivable, and $7.0 million of investment in sales-type leases
represented 293 engines, twelve aircraft, one marine vessel and
other leased parts and equipment. As of June 30, 2022, we also
managed 351 engines, aircraft and related equipment on behalf of
other parties.
Our wholly owned subsidiary Willis Asset Management Limited
(“Willis Asset Management”) is focused on the engine management and
consulting business. Willis Aeronautical Services, Inc. (“Willis
Aero”) is a wholly owned subsidiary whose primary focus is the sale
of aircraft engine parts and materials through the acquisition or
consignment of aircraft and engines.
We actively manage our portfolio and structure our leases to
maximize the residual values of our leased assets. Our leasing
business focuses on popular Stage IV commercial jet engines
manufactured by CFMI, General Electric, Pratt & Whitney,
Rolls Royce and International Aero Engines. These engines are the
most widely used engines in the world, powering Airbus, Boeing,
Bombardier and Embraer aircraft.
Risks and Uncertainties
As a result of the COVID-19 pandemic, the Company had temporarily
closed its headquarters and other offices, required its employees
and contractors to predominately work remotely, and implemented
travel restrictions, all of which represented a significant
disruption in how the Company operates its business. In January
2022, the Company lifted travel restrictions and has also
subsequently opened its corporate headquarters and other offices
for employees and contractors to work from offices at their
discretion. The Company has also taken various proactive actions in
an attempt to mitigate the financial impact of the COVID-19
pandemic. The operations of the Company’s partners and customers
have likewise been disrupted. The worldwide spread of the COVID-19
virus has resulted in a global slowdown of economic activity. While
the duration and extent of the COVID-19 pandemic depends on future
developments that cannot be accurately predicted at this time, such
as the extent and effectiveness of containment actions, it has had
an adverse effect on the global economy and the ultimate societal
and economic impact of the COVID-19 pandemic remains unknown. In
particular, the ongoing COVID-19 pandemic has caused significant
disruptions to the airline industry and has resulted in a dramatic
reduction in demand for air travel domestically and abroad, which
is likely to continue for the foreseeable future. Lower demand for
air travel in turn presents significant risks to the Company,
resulting in impacts which have adversely affected the Company’s
business, results of operation, and financial condition. Lower
demand for spare parts and engine and airframe leasing has
negatively impacted collections of accounts receivable, caused the
Company’s lessee customers to not enter into new leases, resulted
in reduced spending by new and existing customers for leases or
spare parts or equipment, resulted in lower usage fees, caused some
of the Company’s customers to go out of business, and limited the
ability of the Company’s personnel to travel to customers and
potential customers. The Company is not able to evaluate or foresee
the full extent of these impacts at the current time.
The scope and nature of the impact of COVID-19 on the airline
industry, and in turn our business, continue to evolve and the
outcomes are uncertain. Given the uncertainty in the rapidly
changing market and economic conditions related to COVID-19, we
will continue to evaluate the nature and extent of the impact to
our business and financial position. The ultimate extent of the
effects of the COVID-19 pandemic on our Company will depend on
future developments, and such effects could exist for an extended
period of time.
In February 2022, Russia commenced a military action with Ukraine.
As a result of this action, various nations, including the United
States, have instituted economic sanctions against Russia. Further,
the full impact of this action and related sanctions on the world
economy is not determinable as of the date of these financial
statements, and the specific impact on the Company’s financial
condition, results of operations and cash flows is also not
determinable as of the date of these financial
statements.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting
policies and estimates from the information provided in Item 7.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations included in our 2021
Form 10-K.
Results of Operations
Three months ended June 30, 2022 compared to the three months
ended June 30, 2021
Revenue is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
2022 |
|
2021 |
|
% Change |
|
(dollars in thousands) |
|
Lease rent revenue |
$ |
36,704 |
|
|
$ |
32,431 |
|
|
13.2 |
% |
|
Maintenance reserve revenue |
24,245 |
|
|
17,278 |
|
|
40.3 |
% |
|
Spare parts and equipment sales |
6,792 |
|
|
3,569 |
|
|
90.3 |
% |
|
Gain on sale of leased equipment |
498 |
|
|
— |
|
|
N/A |
|
|
|
|
|
|
|
Gain on sale of financial assets |
3,116 |
|
|
— |
|
|
N/A |
|
Asset transition fee |
— |
|
|
6,256 |
|
|
(100.0) |
% |
|
Other revenue |
6,720 |
|
|
6,938 |
|
|
(3.1) |
% |
|
Total revenue |
$ |
78,075 |
|
|
$ |
66,472 |
|
|
17.5 |
% |
Lease Rent Revenue.
Lease rent revenue consists of rental income from long-term and
short-term engine leases, aircraft leases, and other leased parts
and equipment. Lease rent revenue increased by $4.3 million, or
13.2%, to $36.7 million in the three months ended June 30,
2022 from $32.4 million for the three months ended June 30,
2021. The increase is due to an increase in the number of
engines
placed on lease as supported by an increase in utilization compared
to the prior year period. During the three months ended
June 30, 2022, we purchased equipment (including capitalized
costs) totaling $57.1 million, which consisted of four engines and
other parts and equipment purchased for our lease portfolio. During
the three months ended June 30, 2021, we purchased equipment
(including capitalized costs) totaling $37.3 million, which
consisted of five engines and one aircraft purchased for our lease
portfolio.
One customer accounted for more than 10% of total lease rent
revenue during the three months ended June 30, 2022 and 2021,
respectively.
At June 30, 2022, the aggregate net book value of equipment
held for lease consisted of $1,957.6 million, $83.3 million notes
receivable, and $7.0 million investment in sales-type leases. At
June 30, 2021, the aggregate net book value of equipment held for
lease consisted of $1,889.9 million and $195.6 million notes
receivable. Average utilization (based on net book value) was
approximately 82% and 81% for the three months ended June 30,
2022 and 2021, respectively.
Maintenance Reserve Revenue.
Maintenance reserve revenue increased $7.0 million, or 40.3%, to
$24.2 million for the three months ended June 30, 2022 from
$17.3 million for the three months ended June 30, 2021.
Long-term maintenance revenue is influenced by end of lease
compensation and the realization of long-term maintenance reserves
associated with engines coming off lease. Long-term maintenance
revenue was $15.1 million for the three months ended June 30,
2022 compared to $14.8 million in the comparable prior period.
“Non-reimbursable” maintenance reserve revenue is directly
influenced by on lease engine flight hours and cycles. Engines out
on lease with “non-reimbursable” usage fees generated $9.2 million
of short-term maintenance revenues compared to $2.5 million in the
comparable prior period, resulting from an increase in global
flight traffic subsequent to the most significant impacts of the
COVID-19 pandemic.
Spare Parts and Equipment Sales.
Spare parts sales increased by $3.2 million, or 90.3%, to $6.8
million for the three months ended June 30, 2022 compared to
$3.6 million for the three months ended June 30, 2021. The
increase in spare parts sales for the second quarter of 2022 was
driven by an industry-wide increase in engine and aircraft
utilization and the demand for parts associated with such increase
compared to the prior year period. There were no equipment sales
for the three months ended June 30, 2022 and
2021.
Gain on Sale of Leased Equipment.
During the three months ended June 30, 2022, we sold eight
engines from the lease portfolio for a net gain of $0.5 million.
There was no gain on sale of leased equipment during the three
months ended June 30, 2021.
Gain on Sale of Financial Assets.
During the three months ended June 30, 2022, we sold four notes
receivable for a net gain of $3.1 million. There was no gain on
sale of financial assets during the three months ended June 30,
2021.
Asset Transition Fee.
There was no asset transition fee in the three months ended June
30, 2022. Asset transition fee of $6.3 million during the three
months ended June 30, 2021 reflects a settlement received from the
close out of an engine transition program.
Other Revenue.
Other revenue decreased by $0.2 million, or 3.1%, to $6.7 million
for the three months ended June 30, 2022 from $6.9 million for
the three months ended June 30, 2021. Other revenue consists
primarily of management fee income, lease administration fees,
third party consignment commissions earned, service fee revenue,
interest income on notes receivable related to failed
sale-leasebacks where the Company was the buyer-lessor, and other
discrete revenue items.
Depreciation and Amortization Expense.
Depreciation and amortization expense decreased by $1.7 million, or
7.4%, to $21.6 million for the three months ended June 30,
2022 compared to $23.3 million for the three months ended
June 30, 2021. The decrease reflects certain assets reaching
their residual values as compared to the prior year
period.
Cost of Spare Parts and Equipment Sales.
Cost of spare parts sales increased by $3.7 million, or 114.0%, to
$7.0 million for the three months ended June 30, 2022 compared
to $3.3 million for the three months ended June 30, 2021 due
to higher spare parts sales and aged lot write-downs of $1.4
million. There was no equipment or cost of equipment sales for the
three months ended June 30, 2022 and 2021.
Write-down of Equipment.
Write-down of equipment was $0.1 million for the three months ended
June 30, 2022. Write-down of equipment was $2.2 million for
the three months ended June 30, 2021, reflecting the
write-down of four engines.
General and Administrative Expenses.
General and administrative expenses increased by $0.9 million, or
4.8%, to $20.4 million for the three months ended June 30,
2022 compared to $19.5 million for the three months ended
June 30, 2021.
Technical Expense. Technical
expense consists of the non-capitalized cost of engine repairs,
engine thrust rental fees, outsourced technical support services,
sublease engine rental expense, engine storage and freight costs.
Technical expense increased by $1.1 million to $3.4 million for the
three months ended June 30, 2022 compared to $2.3 million for
the three months ended June 30, 2021. The increase is
primarily due to an increase in engine maintenance due to
industry-wide increase in engine and aircraft utilization and
engine hub repairs resulting from a Federal Aviation Administration
("FAA") airworthiness directive, as compared to the prior year
period.
Net Finance Costs.
Net finance costs decreased $1.0 million, or 5.7%, to $16.0 million
for the three months ended June 30, 2022 compared to $17.0
million for the three months ended June 30, 2021.
Income Tax Expense (Benefit).
Income tax expense (benefit) was $5.0 million for the three months
ended June 30, 2022 compared to $(1.9) million for the three
months ended June 30, 2021. The effective tax rate for the
second quarter of 2022 was 46.1% compared to 103.1% in the prior
year period. The Company’s effective tax rate differed from the
U.S. federal statutory rate of 21.0% primarily due to executive
compensation exceeding $1.0 million as defined in Section 162(m) of
the Internal Revenue Code of 1986, as amended (the
"Code").
Six months ended June 30, 2022 compared to the six months
ended June 30, 2021
Revenue is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
% Change |
|
(dollars in thousands) |
|
Lease rent revenue |
$ |
74,829 |
|
|
$ |
63,951 |
|
|
17.0 |
% |
|
Maintenance reserve revenue |
39,079 |
|
|
37,090 |
|
|
5.4 |
% |
|
Spare parts and equipment sales |
13,422 |
|
|
8,135 |
|
|
65.0 |
% |
|
Gain on sale of leased equipment |
2,796 |
|
|
— |
|
|
N/A |
|
Gain on sale of financial assets |
3,116 |
|
|
— |
|
|
N/A |
|
Asset transition fee |
— |
|
|
6,256 |
|
|
(100.0) |
% |
|
Other revenue |
13,650 |
|
|
12,165 |
|
|
12.2 |
% |
|
Total revenue |
$ |
146,892 |
|
|
$ |
|