What changed in this filing

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Item 9A. Controls and Procedures

2023-03-10 compared with 2022-03-14 · 216 added, 266 removed, 1087 unchanged (31% of the section changed)

8 unchanged sentences

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting includes policies and procedures that:

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and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

internal control over financial reporting is a process designed with the participation of our principal executive officer and principal financial officer or persons performing similar functions to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounted principles.

Our internal control over financial reporting is a process designed with the participation of our principal executive officer and principal financial officer or persons performing similar functions to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounted principles.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.

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10.2† Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to the Registrant’s Proxy Statement for 2015 Annual Meeting of Stockholders filed on April 28, 2015).

10.3† Amended and Restated Employment Agreement between the Registrant and Charles F.

Willis IV dated as of December 1, 2008 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on December 22, 2008).

10.3† Employment Agreement, dated as of March 3, 2022 and effective as of April 1, 2022, by and between the Registrant and Charles F.

Willis IV (incorporated by reference to Exhibit 10.2 to our report on Form 10-Q filed on May 10, 2022).

10.4† Employment Agreement between the Registrant and Scott B.

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as administrative agent and security agent, and certain other lenders and financial institutions named therein (incorporated by reference to Exhibit 10.15 to our report on Form 10-Q filed on August 16, 2016).

10.12† Employment Agreement between the Company and Brian R.

Hole dated January 14, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on February 16, 2016).

10.13† Employment Agreement between the Company and Austin C.

Willis dated February 9, 2016 (incorporated by reference to Exhibit 10.2 to our report on Form 8-K filed on February 16, 2016).

10.12† Employment Agreement, dated as of August 2, 2022, by and between the Registrant and Brian R.

Hole (incorporated by reference to Exhibit 10.1 to our report on Form 10-Q filed on November 4, 2022).

10.13† Employment Agreement, dated as of March 2022 and effective as of April 1, 2022, by and between the Registrant and Austin C.

Willis (incorporated by reference to Exhibit 10.1 to our report on Form 10-Q filed on May 10, 2022).

10.14 Trust Amendment No.

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10.58# Amendment No.

2 to Fourth Amended and Restated Credit Agreement, dated as of June 23, 2021, among the Registrant, MUFG Union Bank, Ltd., as administrative agent, MUFG Union Bank, Inc., as security agent, and certain other lenders and financial institutions named therein (incorp orated by reference to Exhibit 10.58 to our report on F or m 10-Q filed Augus t 8, 2021) .

2 to Fourth Amended and Restated Credit Agreement, dated as of June 23, 2021, among the Registrant, MUFG Union Bank, Ltd., as administrative agent, MUFG Union Bank, Inc., as security agent, and certain other lenders and financial institutions named therein (incorporated by reference to Exhibit 10.58 to our report on Form 10-Q filed August 8, 2021).

10.59# Administrative Agency Agreement, dated as of May 17, 2021, among Willis Engine Structured Trust VI, the Registrant, U.S.

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Bank National Association, as security trustee and operating bank (incorporated by reference to Exhibit 10.64 to our report on Form 10-Q filed August 8, 2021).

16.1 Letter from KPMG to the Securities and Exchange Commission dated January 8, 2021 (incorporated by reference to Exhibit 16.1 to our report on Form 8-K filed January 8, 2021).

21.1 Subsidiaries of the Registrant.

23.1 Consent of KPMG LLP.

23.1 Consent of Grant Thornton LLP.

31.1 Certification of Charles F.

Willis, IV, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.1 Certification of Austin C.

Willis, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Scott B.

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________________________________________________________

* Certain portions of this exhibit have been redacted pursuant to an SEC order granting confidential treatment or constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10).

* Certain portions of this exhibit have been redacted pursuant to a Securities and Exchange Commission order granting confidential treatment or constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10).

# Portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K.

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Willis Lease Finance Corporation

/s/ CHARLES F.

Chairman of the Board and

Chief Executive Officer

/s/ AUSTIN C.

Chief Executive Officer and Director

Title Signature

March 14, 2022 Chief Executive Officer and Director /s/ CHARLES F.

(Principal Executive Officer) Charles F.

March 10, 2023 Chief Executive Officer and Director /s/ AUSTIN C.

(Principal Executive Officer) Austin C.

March 10, 2023 Chief Financial Officer /s/ SCOTT B.

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Rae Ann McKeating

March 14, 2022 Director /s/ AUSTIN C.

March 10, 2023 Executive Chairman and Director /s/ CHARLES F.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm ( Grant Thornton LLP , Cincinnati, OH Auditor Firm ID Number 248 )

Report of Independent Registered Public Accounting Firm ( KPMG LLP , Fort Lauderdale, FL Auditor Firm ID Number 185 )

Reports of Independent Registered Public Accounting Firm ( PCA OB ID Number 248 )

Consolidated Balance Sheets as of December 31, 202 2 and December 31, 202 1

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Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Willis Lease Finance Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statements of income, comprehensive income, redeemable preferred stock and shareholders’ equity, and cash flows for the year then ended, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Willis Lease Finance Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, redeemable preferred stock and shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 10, 2023 expressed an unqualified opinion.

1 unchanged sentence

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relate.

Valuation of equipment held for operating lease

As described further in Notes 1(d) and 9 to the consolidated financial statements, the Company reviews its equipment held for operating lease (which is inclusive of certain failed sale-leaseback transactions classified as notes receivable), for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and annually, for certain equipment held for operating lease.

As described further in Notes 1(d) and 9 to the consolidated financial statements, the Company reviews its equipment held for operating lease (which is inclusive of certain failed sale-leaseback transactions classified as notes receivable and investments in sales-type leases), for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and annually, for certain equipment held for operating lease.

With respect to the annual review, indicators of impairment are identified by review of independent appraisals.

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Fair value is determined by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors considered relevant by the Company.

As a result of the annual impairment test, the Company recorded impairment charges of $3.5 million for the year ended December 31, 2021.

As of December 31, 2021, the balance of equipment held for operating lease and notes receivable was $2.0 billion and $115.5 million, respectively.

As a result of the annual impairment test, the Company recorded no impairment charges for the year ended December 31, 2022.

As of December 31, 2022, the balance of equipment held for operating lease, notes receivable and investments in sales-type leases was $2.1 billion, $81.4 million and $6.4 million, respectively.

We identified the valuation of equipment held for operating lease as a critical audit matter.

1 unchanged sentence

(i) the assumptions used by management engaged independent appraisers, including the accuracy of data provided to management’s specialist to determine the fair value;

and (ii) the assumptions used by management to calculate the undiscounted future cash flows, including assumptions of estimated lease rates, maintenance revenues, remaining lease periods and sales proceeds.

and (ii) the assumptions used by management to calculate the undiscounted future cash flows, including assumptions of estimated lease rates, maintenance revenues, and remaining lease periods.

Our audit procedures related to the valuation of equipment held for operating lease included the following, among others:

• We evaluated the design and operating effectiveness of certain internal controls related to management’s review of the independent appraisers report, including the accuracy of data provided to management’s specialist and the review of assumptions used to determine undiscounted future cash flows.

• We evaluated the design and operating effectiveness of certain internal controls related to management’s review of the independent appraiser’s report, including the accuracy of data provided to management’s specialist and the review of assumptions used to determine undiscounted future cash flows.

• We evaluated management’s method for determining indicators of impairment, including the potential of management bias.

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• Evaluated the reasonableness of the following assumptions used in the undiscounted cash flows by comparing them to historical and Company specific data:

estimated lease rates, maintenance revenues, remaining lease periods and sales proceeds;

estimated lease rates, maintenance revenues, and remaining lease periods;

• With the assistance of valuation professionals with specialized skills and knowledge, we:

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March 10, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

WILLIS LEASE FINANCE CORPORATION

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Willis Lease Finance Corporation and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of income, comprehensive income, redeemable preferred stock and shareholders’ equity, and cash flows for the year then ended, and the related notes and financial statement Schedule II, Valuation Accounts (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We have not been able to determine the specific year that we began serving as the Company’s auditor;

however, we are aware that we have served as the Company’s auditor since at least 1991 through 2021.

Fort Lauderdale, Florida

March 15, 2021

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

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Notes receivable 81,439 115,456

Investments in sales-type leases 6,440 —

Other assets 87,205 51,975

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Redeemable preferred stock ($ 0.01 par value, 2,500 shares authorized;

2,500 shares issued and outstanding at December 31, 2021 and 2020, respectively)

2,500 shares issued and outstanding at December 31, 2022 and 2021)

49,889 49,805

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Retained earnings 357,493 355,388

Accumulated other comprehensive income (loss), net of income tax expense (benefit) of $ 1,469 and $( 1,428 ) at December 31, 2021 and 2020, respectively.

5,031 ( 5,117 )

Accumulated other comprehensive income, net of income tax expense of $ 7,587 and $ 1,469 at December 31, 2022 and 2021, respectively

Total shareholders’ equity 404,688 375,885

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Spare parts and equipment sales 27,009 17,417

Interest income 7,579 12,938

Gain on sale of leased equipment 3,133 5,975

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Interest expense 66,743 67,985

Loss on debt extinguishment — 4,688

Gain on debt extinguishment ( 2,558 ) —

Total net finance costs 64,185 67,985

Total expenses 302,072 265,862

Earnings from operations 8,340 14,694

Earnings from joint ventures 800 2,642

Income from operations 9,855 8,340

(Loss) Income from joint ventures ( 62 ) 800

Income before income taxes 9,793 9,140

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Net income $ 5,439 $ 3,352

Other comprehensive income (loss):

Other comprehensive income:

Currency translation adjustment ( 1,373 ) 398

Unrealized gain (loss) on derivative instruments 11,250 ( 2,298 )

Unrealized gain (loss) on derivative instruments at joint venture 1,454 ( 1,121 )

Net gain (loss) recognized in other comprehensive income 13,102 ( 2,401 )

Tax (expense) benefit related to items of other comprehensive income (loss) ( 2,954 ) 532

Other comprehensive income (loss) 10,148 ( 1,869 )

Unrealized gain on derivative instruments 27,508 11,250

Unrealized gain on derivative instruments at joint venture 1,697 1,454

Net gain recognized in other comprehensive income 27,832 13,102

Tax expense related to items of other comprehensive income 6,120 2,954

Other comprehensive income 21,712 10,148

Total comprehensive income $ 27,151 $ 13,500

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— — — — — — 309 309

Net unrealized loss from derivative instruments, net of tax benefit of $ 757

Net unrealized gain from derivative instruments, net of tax expense of $ 2,865

— — — — — — 9,839 9,839

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Net income — — — — — 5,439 — 5,439

Net unrealized gain from currency translation adjustment, net of tax expense of $ 89

Net unrealized loss from currency translation adjustment, net of tax benefit of $ 302

— — — — — — ( 1,071 ) ( 1,071 )

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Write-down of equipment 21,849 7,715

Stock-based compensation expenses 16,578 11,378

Stock-based compensation expense 13,551 16,578

Amortization of deferred costs 5,319 5,016

Allowances and provisions 837 ( 164 )

Payments received on sales-type leases 584 —

Gain on sale of leased equipment ( 3,133 ) ( 5,975 )

Income from joint ventures ( 800 ) ( 2,642 )

(Gain) Loss on sale of note receivable ( 10,874 ) 79

Loss (Gain) on disposal of property, equipment and furnishings 44 ( 9 )

Loss on debt extinguishment — 4,688

Gain on sale of financial assets ( 3,116 ) ( 10,874 )

Loss (Income) from joint ventures 62 ( 800 )

(Gain) Loss on disposal of property, equipment and furnishings ( 71 ) 44

Gain on debt extinguishment ( 2,558 ) —

Deferred income taxes 2,065 4,193

1 unchanged sentence

Receivables ( 3,168 ) ( 11,191 )

Distributions received from joint ventures — 7,200

Inventory 14,288 7,923

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Cash flows from investing activities:

Purchase of equipment held for operating lease and for sale ( 286,393 ) ( 205,779 )

Proceeds from sale of equipment (net of selling expenses) 69,238 37,626

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Issuance of notes receivable ( 15,270 ) ( 44,444 )

Payments received on notes receivable 8,404 7,630

Purchase of equipment held for operating lease and for sale ( 205,779 ) ( 409,250 )

Purchase of property, equipment and furnishings ( 6,630 ) ( 2,165 )

Payments received on notes receivable 3,974 8,404

Net cash used in investing activities ( 194,376 ) ( 147,995 )

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Proceeds from issuance of debt obligations 284,000 513,700

Debt issuance costs ( 4,556 ) ( 6,065 )

Principal payments on debt obligations ( 228,840 ) ( 416,966 )

Debt prepayment costs — ( 2,373 )

Proceeds from shares issued under stock compensation plans 186 428

Repurchase of common stock ( 5,245 ) ( 10,086 )

Preferred stock dividends ( 3,251 ) ( 3,259 )

Cancellation of restricted stock units in satisfaction of withholding tax ( 3,655 ) ( 4,974 )

Preferred stock dividends ( 3,268 ) ( 3,251 )

Proceeds from shares issued under stock compensation plans 335 186

Debt issuance costs — ( 4,556 )

Net cash provided by financing activities 43,327 74,053

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Supplemental disclosures of non-cash activities:

Liabilities assumed in purchase of equipment held for operating lease $ — $ 8,868

Transfers from Equipment held for sale to Equipment held for operating lease $ 542 $ —

Transfers from Equipment held for operating lease to Equipment held for sale $ 7,183 $ 13,368

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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 engines.

Willis Asset Management Limited (“Willis Asset Management”) is a wholly-owned subsidiary whose primary focus is the engine management and consulting business.

(“Willis Aero”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft engines.

Willis Asset Management Limited (“Willis Asset Management”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business.

Willis Engine Securitization Trust III (“WEST III” or the “WEST III Notes”) is a bankruptcy remote special purpose vehicle which was established for the purpose of financing aircraft engines through an asset-backed securitization (“ABS”), of which the Company is the sole beneficiary.

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WEST IV is a VIE which the Company owns 100 % of the interest and consolidates in its financial statements.

In March 2020, the Company and its direct, consolidated VIE Willis Engine Structured Trust V (“WEST V”) (formerly Willis Engine Securitization Trust II), closed its offering of $ 366.2 million aggregate principal amount of fixed rate notes (the “WEST V Notes”).

The WEST V Notes were issued in three series, with the Series A Notes issued in an aggregate principal amount of $ 303.0 million, the Series B Notes issued in an aggregate principal amount of $ 42.1 million and the Series C Notes issued in an aggregate principal amount of $ 21.1 million.

Willis Engine Structured Trust V (“WEST V” or the “WEST V Notes”) is a bankruptcy remote special purpose vehicle which was established for the purpose of financing aircraft engines through an ABS, of which the Company is the sole beneficiary.

WEST V is a VIE which the Company owns 100 % of the interest and consolidates in its financial statements.

In May 2021, the Company and its direct, consolidated VIE Willis Engine Structured Trust VI (“WEST VI”), closed its offering of $ 336.7 million aggregate principal amount of fixed rate notes (the “WEST VI Notes”).

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The WEST III, WEST IV, WEST V and WEST VI Notes are secured by, among other things, the respective ABS’s direct and indirect interests in a portfolio of assets.

The WEST III, WEST IV, WEST V and WEST VI Notes have scheduled amortizations and are payable solely from revenue received from the engines and the engine leases, after payment of certain expenses of the respective ABS.

The WEST III, WEST IV, WEST V and WEST VI Notes have scheduled amortizations and are payable solely from revenue received from the lease portfolios, after payment of certain expenses of the respective ABS.

The assets of WEST III, WEST IV, WEST V and WEST VI are not available to satisfy the Company’s obligations other than the obligations specific to the respective ABS.

WEST III, WEST IV, WEST V and WEST VI are consolidated for financial statement presentation purposes, with the respective assets and liabilities on the Company’s balance sheet.

The ABS’ ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and maintenance of adequate reserves and capital.

Each ABS’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and maintenance of adequate reserves and capital.

Under each ABS, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company.

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(b) Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of WLFC and its wholly owned subsidiaries, including VIEs where the Company is the primary beneficiary, in accordance with consolidation guidance.

The accompanying consolidated financial statements include the accounts of WLFC and its wholly-owned subsidiaries, including VIEs in which 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 voting interest entity.

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Use fees that are reimbursable are recorded as a maintenance reserve liability until they are reimbursed to the lessee, the lease terminates, or the obligation to reimburse the lessee for such reserves ceases to exist, at which time they are recognized in revenue as maintenance reserve revenue.

Unearned Revenue includes deferred nonrefundable use fees which qualify as in-substance fixed lease payments due to the lessee being required to make certain minimum payments.

These in-substance fixed lease payments are recognized ratably over the expected lease term rather than when the variable use fees are invoiced.

As of December 31, 2022, there was $ 6.3 million of deferred in-substance fixed payment use fees included in Unearned Revenue.

Certain lessees may be significantly delinquent in their rental payments and may default on their lease obligations.

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and (2) a general reserve for estimated losses based on historical experience.

One customer accounted for more than 10 % of total lease rent revenue during the year ended December 31, 2021 and 2020, respectively.

Gain on sale of leased equipment

The Company regularly sells equipment from its lease portfolio.

This equipment may or may not be subject to a lease at the time of sale.

The net gain or loss on such sales is recognized as revenue and consists of proceeds associated with the sale less the net book value of the asset sold and any direct costs associated with the sale.

To the extent that deposits associated with the equipment are not included in the sale, any such amount is included in the calculation of gain or loss.

One customer accounted for more than 10 % of total lease rent revenue during the years ended December 31, 2022 and 2021.

Spare parts sales

7 unchanged sentences

The performance obligation is completed once the parts have shipped and, as a result, all of the transaction price is allocated to that performance obligation.

Management has determined that it is appropriate for the Company to recognize spare parts sales at a point in time (i.e., the date the parts are shipped) under ASC 606.

Management has determined that it is appropriate for the Company to recognize spare parts sales at a point in time ( i.e.

, the date the parts are shipped) under ASC 606.

Equipment sales

Equipment sales represent the selective purchase and resale of commercial aircraft engines and other aircraft equipment.

The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, payment terms, condition of

the asset, bill of sale, and the assignment of rights and warranties from the Company to the customer.

The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, payment terms, condition of the asset, bill of sale, and the assignment of rights and warranties from the Company to the customer.

Management has identified the promise in the equipment sale contract to be the transfer of ownership of the asset.

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Additionally, managed services are presented within the Other revenue line in the Consolidated Statements of Income.

Interest income

Interest income represents interest earned on notes receivable related to failed sale-leasebacks in which the Company was the buyer-lessor and on sales-type leases.

Gain on sale of leased equipment

The Company regularly sells equipment from its lease portfolio.

This equipment may or may not be subject to a lease at the time of sale.

The net gain or loss on such sales is recognized as revenue and consists of proceeds associated with the sale less the net book value of the asset sold and any direct costs associated with the sale.

To the extent that deposits associated with the equipment are not included in the sale, any such amount is included in the calculation of gain or loss.

Gain on sale of financial assets

Some of the Company's leases are recorded as financial assets and classified as notes receivable under ASC 842 as they are failed sale-leaseback transactions.

The Company may sell its engines that are classified as notes receivable, and the net gain or loss on such sales is recognized as revenue and consists of proceeds associated with the sale less the net book value of the asset sold and any direct costs associated with the sale.

To the extent that deposits associated with the equipment are not included in the sale, any such amount is included in the calculation of gain or loss.

Other revenue

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.

Other revenue consists primarily of management fee income, lease administration fees, third-party consignment commissions earned, service and maintenance fee revenue, revenue related to the management of fixed base operator services, and other discrete revenue items.

(d) Equipment Held for Operating Lease

1 unchanged sentence

Certain costs incurred in connection with the acquisition of aircraft assets are capitalized as part of the cost of such assets.

Major overhauls paid for by the Company, which improve functionality or extend the original useful life, are capitalized and depreciated over the shorter of the estimated period to the next overhaul (“deferral method”) or the remaining useful life of the equipment.

Major overhauls paid for by the Company, which improve functionality or extend the original useful life, are capitalized and depreciated over the shorter of the estimated period to the

next overhaul (“deferral method”) or the remaining useful life of the equipment.

The Company does not accrue for planned major maintenance.

8 unchanged sentences

The other leased parts and related equipment owned by the Company are generally depreciated on a straight-line basis over an estimated useful life of 14 to 15 years to a 25 % residual value.

The following table disaggregates equipment held for operating lease by asset class (in thousands):

As of December 31,

Gross value Accumulated depreciation Net book value Gross value Accumulated depreciation Net book value

(in thousands)

Engines and related equipment $ 2,368,496 $ ( 515,442 ) $ 1,853,054 $ 2,238,160 $ ( 445,780 ) $ 1,792,380

Aircraft and airframes 134,370 ( 7,790 ) 126,580 89,613 ( 7,312 ) 82,301

Marine vessel 13,470 ( 1,736 ) 11,734 12,963 ( 1,031 ) 11,932

$ 2,516,336 $ ( 524,968 ) $ 1,991,368 $ 2,340,736 $ ( 454,123 ) $ 1,886,613

The useful life of older generation engines and aircraft may be significantly less based upon the technical status of the engine, as well as supply and demand factors.

1 unchanged sentence

For older generation engines or aircraft that are unlikely to be repaired at the end of the current expected useful lives, the Company depreciates the engines or aircraft over their estimated lives to a residual value based on an estimate of the wholesale value of the parts after disassembly.

As of December 31, 2021, 40 engines having a net book value of $ 37.0 million were depreciated under this policy with estimated useful lives ranging from 1 to 113 months.

As of December 31, 2022, 28 engines having a net book value of $ 24.2 million were depreciated under this policy with estimated remaining useful lives ranging from 1 to 101 months.

The Company adjusts its estimates annually for these older generation assets, including updating estimates of an engine’s or aircraft’s remaining operating life as well as future residual value expected from part-out based on the current technical status of the engine or aircraft.

The Company reviews its long-lived assets, including certain failed sale-leaseback transactions classified as notes receivable under ASC 842, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company reviews its long-lived assets, including certain failed sale-leaseback transactions classified as notes receivable or investments in sales-type leases under ASC 842, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Long-lived assets to be disposed are reported at the lower of carrying amount or fair value less cost to sell.

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The Company evaluates assets during the year if a triggering event is identified indicating impairment is possible and also conducts a formal annual review of the carrying value of long-lived assets.

The formal annual review resulted in an impairment charge of $ 3.5 million and $ 4.9 million in 2021 and 2020, respectively.

Additionally, the Company recorded an impairment charge of $ 4.2 million and $ 15.6 million in 2021 and 2020, respectively, as a result of triggering events occurring during the year.

The formal annual review resulted in no impairment charge in 2022 and a total impairment charge of $ 3.5 million in 2021.

Additionally, the Company recorded impairment charges of $ 21.8 million and $ 4.2 million in 2022 and 2021, respectively, as a result of triggering events occurring during the year.

These write-downs are included in “Write-down of equipment” in the Consolidated Statements of Income.

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The derivative instruments are fixed-rate interest swaps that are recorded at fair value as either an asset or liability.

While substantially all of the Company’s derivative transactions are entered into for the purposes described above, hedge accounting is only applied where specific criteria have been met and it is practicable to do so.

While substantially all of the Company’s derivative transactions are entered into for the purposes described above, hedge accounting is only applied when specific criteria have been met and it is practicable to do so.

In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective.

The hedging instrument’s effectiveness is assessed utilizing regression analysis at the inception of the hedge and on at least a quarterly basis throughout its life.

The hedging instrument’s effectiveness is assessed utilizing regression at the inception of the hedge and either regression or qualitative analysis on at least a quarterly basis throughout its life.

All of the transactions that the Company has designated as hedges are cash flow hedges.

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Intangible assets are accounted for in accordance with ASC 350, “Intangibles — Goodwill and Other.”

Customer relationships are amortized on a straight line basis over their estimated useful life of five years .

Customer relationships are amortized on a straight-line basis over their estimated useful life of eight years .

Aside from goodwill, the Company has no intangible assets with indefinite useful lives.

Goodwill is assessed for impairment annually.

Goodwill is assessed for impairment annually, at each year end.

(n) Other Assets

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(o) Management Estimates

These financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.

These financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S.”).

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

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Significant management judgment is required in the forecasting of future operating results, which are used in the preparation of projected undiscounted cash-flows and should different conditions prevail, material impairment write-downs may occur.

(p) Earnings per share information

(p) Earnings Per Share

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period.

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(q) Investments

The Company’s investments are joint ventures, where it owns 50 % of the equity of the ventures and are accounted for using the equity method of accounting.

The Company’s investments are joint ventures, in which it owns 50 % of the equity of the ventures and are accounted for using the equity method of accounting.

The investments are recorded at the amount invested plus or minus our 50 % share of net income or loss, less any distributions or return of capital received from the entities.

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(s) Initial Direct Costs Associated with Leases

The Company accounts for the initial direct costs, including sales commissions and legal fees, incurred in obtaining a new lease by deferring and amortizing those costs over the term of the lease.

The Company accounts for the initial direct costs, including sales commissions, incurred in obtaining a new lease by deferring and amortizing those costs over the term of the lease.

The amortization of these costs is recorded under general and administrative expenses in the Consolidated Statements of Income.

The amounts amortized were $ 1.5 million for the years ended December 31, 2021 and 2020, respectively.

The amounts amortized were $ 0.9 million and $ 0.7 million for the years ended December 31, 2022 and 2021, respectively.

(t) Maintenance Rights

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When a capital event is performed on the equipment by the lessee, which satisfies their maintenance right obligation, the maintenance rights are added to the equipment basis and depreciated to the next capital event.

When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and

the remaining balance is applied to the disposition gain or loss.

When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and the remaining balance is applied to the disposition gain or loss.

When a lease terminates, an end of lease true-up is performed and the maintenance right is applied against the accumulated maintenance reserves or, for non-reserve lessees the final settlement payment, and any remaining net maintenance right is recorded in the income statement.

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(w) Risks and Uncertainties

As a result of the COVID-19 pandemic, the Company has continued to temporarily close its headquarters and other offices, require its employees and contractors to predominately work remotely, and implement travel restrictions, all of which represent a significant disruption in how the Company operates its business.

The Company has also taken various proactive actions in an attempt to mitigate the financial impact of the COVID-19 pandemic.

During 2020, 9 % of our employees were either furloughed, or subject to a form of reduced compensation which was subsequently reversed in 2021.

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.

In January 2022, the Company lifted travel restrictions and subsequently reopened its corporate headquarters and other offices for employees and contractors to work from.

The Company has experienced and continues to experience various degrees of disruption due to the COVID-19 pandemic.

Lower demand for air travel presents significant risks to the Company, resulting in impacts which have adversely affected the Company's business, results of operations, and financial condition.

The Company is not able to evaluate or foresee the full extent of these impacts at the current time.

During the year ended December 31, 2021, the Company experienced declining lease rent revenue and maintenance reserve revenue as compared to the prior year.

Additionally, as of December 31, 2021, the Company has, in certain situations, agreed to rent concessions which resulted in a total reduction to rent revenues of $ 0.5 million for the year ended December 31, 2021.

Rent concessions for the year ended December 31, 2020 resulted in a total reduction of rent revenue of $ 6.5 million.

The rent concessions provide lessees with payment deferral options or reduced rent, where the revised cash flows are substantially the same or less (i.e., the rights of the lessor and obligations of the lessee have not substantially increased) as the original lease agreements.

There is no impact on the timing of revenue recognition for rent concessions that result in short term payment deferrals.

The rent concessions with reduced rent qualify for the COVID-19 practical expedient to account for the rent concessions outside of the modification framework.

The scope and nature of the impact of COVID-19 on the airline industry, and in turn the Company's 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 the Company's business and financial position.

The ultimate extent of the effects of the COVID-19 pandemic on the Company will depend on future developments, and such effects could exist for an extended period of time.

Other than what has been reflected in the 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.

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Recent Accounting Pronouncements Adopted by the Company

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12,

“Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

ASU 2019-12 also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The Company adopted this guidance effective January 1, 2021 and it did not impact our consolidated financial statements and related disclosures.

In March 2021, the FASB issued ASU No.

2021-01, “Reference Rate Reform (Topic 848), Scope”, which clarifies certain optional expedients to all derivatives affected by the discounting transition, regardless of whether the derivatives reference the London Interbank Offered Rate (“LIBOR”) or another rate expected to be discounted or whether the modification replaces or has the potential to replace the reference rate expected to be discounted.

The amendments in this guidance are effective upon issuance through December 31, 2022.

The Company adopted this guidance upon issuance.

In July 2021, the Financial Accounting Standards Board (“FASB”) issued 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.

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848,” which extended the sunset date to apply the relief in Topic 848 from December 31, 2022 to December 31, 2024.

The amendment in this guidance should be applied on a prospective basis and, for companies with a fiscal year ending December 31, are effective December 1, 2022.

When the transition occurs, the Company expects to apply this expedient to its existing debt instruments and interest rate swaps that reference LIBOR, and to any other new transactions that reference LIBOR or another reference rate that is discontinued, through December 31, 2024.

The adoption of this ASU did not impact the Company’s consolidated financial statements.

The adoption of this ASU did not impact the Company’s consolidated financial statements and related disclosures.

Recent Accounting Pronouncements To Be Adopted by the Company

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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.

In July 2021, the FASB issued 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 plans to adopt this guidance effective January 1, 2022 on a prospective basis for sales-type leases entered into after the effective date and is currently evaluating the potential impact adoption will have on the consolidated financial statements and related disclosures.

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832):

This ASU is effective for annual periods beginning after December 15, 2021, with early application permitted.

The Company plans to adopt this guidance effective January 1, 2022 on a prospective basis and is currently evaluating the potential impact adoption will have on the consolidated financial statements and related disclosures.

As lessor, and as of December 31, 2021, 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 ASC 842.

The Company will adopt this accounting standard update effective January 1, 2023.

We expect that the adoption of the standard will not have a material impact on our consolidated financial statements.

As lessor, and as of December 31, 2022, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable or investments in sales-type leases under the guidance provided by ASC 842.

As lessee, the significant majority of leases the Company enters are for real estate (office and warehouse space for our operations) as well as automobiles.

These lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Additionally, in December 2022, the Company subleased a Willis Mitsui & Company Engine Support Limited (“WMES”) engine to a third party, with WMES as the head lessor.

Under ASC 842, the Company recognized a ROU asset of $ 4.9 million and a lease liability of $ 4.9 million for this lease during the year ended December 31, 2022.

Leases with terms of 12 months or less are not recorded on the balance sheet;

the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Some of the Company’s leases include variable non-lease components (e.g., taxes) which are not separated from associated lease components (e.g.

Some of the Company’s leases include variable non-lease components ( e.g.

, taxes) which are not separated from associated lease components ( e.g.

, fixed rent, common-area maintenance costs, vehicle protection plans and other service fees) as elected under the practical expedient package provided by ASC 842.

The Company’s leases have remaining lease terms of one to eight years , some of which include options to renew or extend the lease term from one to five years .

The Company’s leases have remaining lease terms of approximately one to seven years , some of which include options to renew or extend the lease term from one to five years .

Our automobile leases include an option to purchase the vehicle at lease termination.

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Related Operations Spare Parts Sales Eliminations Total

Leasing revenue $ 134,831 $ — $ — $ 134,831

Lease rent revenue $ 162,571 $ — $ — $ 162,571

Maintenance reserve revenue 83,424 — — 83,424

Spare parts and equipment sales 1,595 25,414 — 27,009

Interest income 7,579 — — 7,579

Gain on sale of leased equipment 3,133 — — 3,133

Gain on sale of financial assets 3,116 — — 3,116

Asset transition fee (2) 6,256 — — 6,256

Managed services 23,613 — — 23,613

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Related Operations Spare Parts Sales Eliminations Total

Leasing revenue $ 142,895 $ — $ — $ 142,895

Lease rent revenue $ 134,831 $ — $ — $ 134,831

Maintenance reserve revenue 73,961 — — 73,961

Spare parts and equipment sales 365 17,042 10 17,417

Interest income 12,938 — — 12,938

Gain on sale of leased equipment 5,975 — — 5,975

Gain on sale of financial assets 10,874 — — 10,874

Asset transition fee (1) 6,256 — — 6,256

Managed services 11,434 — — 11,434

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________________________________________________________

(1) Gain on sale of financial assets reflects the sales of two notes receivable during 2021.

(1) Asset transition fee reflects the settlement received from the close out of an engine transition program.

Equipment Held for Operating Lease

As of December 31, 2021, the Company’s $ 1,991.4 million equipment held for operating lease portfolio and $ 115.5 million notes receivable represented 304 engines, twelve aircraft, one marine vessel and other leased parts and equipment.

As of December 31, 2020, the Company’s $ 1,886.6 million equipment held for operating lease portfolio and $ 158.7 million notes receivable represented 291 engines, eight aircraft, one marine vessel and other leased parts and equipment.

As of December 31, 2022, the Company had $ 2,111.9 million of equipment held in our operating lease portfolio, $ 81.4 million of notes receivable, $ 17.7 million of maintenance rights, and $ 6.4 million of investments in sales-type leases, which represented 339 engines, 13 aircraft, one marine vessel and other leased parts and equipment.

As of December 31, 2021, the Company had $ 1,991.4 million of equipment held in our operating lease portfolio, $ 115.5 million of notes receivable, and $ 22.5 million of maintenance rights, which represented 304 engines, 12 aircraft, one marine vessel and other leased parts and equipment.

The following table disaggregates equipment held for operating lease by asset class (in thousands):

As of December 31,

Gross value Accumulated depreciation Net book value Gross value Accumulated depreciation Net book value

(in thousands)

Engines and related equipment $ 2,491,448 $ ( 525,172 ) $ 1,966,276 $ 2,368,496 $ ( 515,442 ) $ 1,853,054

Aircraft and airframes 150,089 ( 15,543 ) 134,546 134,370 ( 7,790 ) 126,580

Marine vessel 13,581 ( 2,468 ) 11,113 13,470 ( 1,736 ) 11,734

$ 2,655,118 $ ( 543,183 ) $ 2,111,935 $ 2,516,336 $ ( 524,968 ) $ 1,991,368

Notes Receivable

During the years ended December 31, 2022 and 2021, the Company recorded interest income related to the notes receivable, recorded in Other revenue of $ 7.6 million and $ 12.9 million, respectively.

The effective interest rates on our notes receivable ranged from 7.1 % to 12.2 % as of December 31, 2022 and 6.3 % to 12.2 % as of December 30, 2021.

A majority of the equipment is leased and operated internationally.

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United States $ 64,767 $ 61,947

Asia-Pacific 40,270 27,117

Europe 35,621 29,769

Asia 26,587 32,198

South America 12,246 11,338

Mexico 2,461 3,670

Canada 5,083 1,245

Central America 3,391 2,461

Middle East 1,193 954

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Region (in thousands)

Europe $ 479,921 $ 460,664

Asia-Pacific $ 485,737 $ 371,554

United States 471,184 425,822

Asia 365,831 324,946

Mexico 163,526 168,593

Europe 353,661 474,198

South America 141,145 111,941

Central America 130,187 163,526

Canada 69,030 55,109

Middle East 42,853 22,320

Off-lease and other 366,898 408,869

Off-lease 418,138 366,898

Totals $ 2,111,935 $ 1,991,368

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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.

to participate in a joint venture formed as a Dublin-based Irish limited company, WMES, for the purpose of acquiring and leasing jet engines.

Each partner holds a 50 % interest in the joint venture and the Company uses the equity method in recording investment activity.

As of December 31, 2021, WMES owned a lease portfolio, inclusive of a note receivable, of 37 engines and five aircraft with a net book value of $ 292.5 million.

As of December 31, 2022, WMES owned a lease portfolio of 35 engines and five aircraft with a net book value of $ 255.5 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 Lease Finance Company Limited (“CASC Willis”), a joint venture based in Shanghai, China.

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Investment in joint ventures as of December 31, 2020 $ 37,365 $ 15,910 $ 53,275

Earnings from joint ventures 1,552 1,090 2,642

Distribution ( 7,200 ) — ( 7,200 )

Income from joint ventures 250 550 800

Foreign currency translation adjustment — 398 398

Other comprehensive loss from joint ventures ( 1,121 ) — ( 1,121 )

Other comprehensive gain from joint ventures 1,454 — 1,454

Investment in joint ventures as of December 31, 2021 39,069 16,858 55,927

Earnings from joint ventures 250 550 800

Income (loss) from joint ventures 248 ( 310 ) ( 62 )

Foreign currency translation adjustment — ( 1,373 ) ( 1,373 )

Other comprehensive loss from joint ventures 1,454 — 1,454

Other comprehensive gain from joint ventures 1,697 — 1,697

Investment in joint ventures as of December 31, 2022 $ 41,014 $ 15,175 $ 56,189

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During 2022, the Company sold two engines to WMES for $ 12.6 million.

During 2020, the Company sold one note receivable to WMES for $ 8.4 million.

During 2021, the Company sold two engines to WMES for $ 25.0 million.

There were no aircraft or engine sales to CASC Willis during 2022 or 2021.

In December 2022, the Company subleased a WMES engine to a third party, with WMES as the head lessor.

Under ASC 842, the Company recognized a ROU asset of $ 4.9 million and a lease liability of $ 4.9 million for this lease during the year ended December 31, 2022.

Unaudited summarized financial information for 100% of WMES is presented in the following table:

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WEST VI Series A 2021 term notes payable at a fixed rate of interest of 3.10 %, maturing in May 2046, secured by engines

262,779 273,723

WEST VI Series B 2021 term notes payable at a fixed rate of interest of 5.44 %, maturing in May 2046, secured by engines

36,502 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

14,738 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

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30,255 32,195

Note payable at three-month LIBOR plus a margin ranging from 1.85 % to 2.50 %, repaid in May 2021, secured by engines

Note payable at a fixed rate of interest of 3.18 %, maturing in July 2024, secured by an aircraft

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Pursuant to the Amended Credit Agreement, all obligations under the revolving credit facility are collateralized by the title and interest of the Company and certain of its subsidiaries, and to substantially all of its assets and properties.

In October 2020, the Company entered into a Limited Waiver (the “Waiver”) to its Amended Credit Agreement.

The Waiver provides for the partial exclusion for specified periods of certain asset book values in the calculation of customer concentration limits, as such limits are defined in the Amended Credit Agreement.

In June 2021, the Company entered into Amendment No.

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The guarantee would be triggered by a default under the agreement.

In March 2020, WLFC and its direct, wholly-owned subsidiary WEST V, closed its offering of $ 366.2 million aggregate principal amount of fixed rate notes.

The WEST V Notes are secured by, among other things, WEST V’s direct and indirect ownership interests in a portfolio of aircraft engines and airframes.

The Series A Notes have a fixed coupon of 3.228 %, an expected maturity of approximately eight years and a final maturity date in March 2045, the Series B Notes have a fixed coupon of 4.212 %, an expected maturity of approximately eight years and a final maturity date in March 2045 and the Series C Notes have a fixed coupon of 6.657 %, an expected maturity of approximately eight years and a final maturity date in March 2045.

The Series A Notes were issued at a price of 99.99859 % of par, the Series B Notes were issued at a price of 99.99493 % of par and the Series C Notes were issued at a price of 99.99918 % of par.

Principal on the WEST V Notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture for the WEST V Notes.

Proceeds from asset sales by WEST V will be used, at WEST V’s election subject to certain conditions, to reduce WEST V's debt or to acquire other engines or airframes.

The Company recognized a $ 4.7 million loss on debt extinguishment upon the repayment of the WEST II Series A 2012 term notes in March 2020.

In May 2021, WLFC and its direct, wholly-owned subsidiary WEST VI, closed its offering of $ 336.7 million aggregate principal amount of fixed rate notes.

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Principal on the WEST VI Notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture.

In May 2021, WLFC repaid an existing note payable that was secured by two engines.

In May 2021, WLFC repaid an existing note payable with a balance of $ 5.8 million that was secured by two engines.

In December 2022, the Company recognized a $ 2.6 million gain on debt extinguishment associated with the repurchase of six tranches of ABS notes with a balance of $ 12.2 million.

The assets of WEST III, WEST IV, WEST V and WEST VI are not available to satisfy the Company’s obligations other than the obligations specific to that WEST entity.

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The WEST III, WEST IV, WEST V and WEST VI indentures require that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts.

Virtually all of the above debt requires ongoing compliance with the covenants of each financing, 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.

Virtually all of our debt requires ongoing compliance with the covenants of each financing, 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 or quarterly, and the Company was in full compliance with all financial covenant requirements at December 31, 2022.

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As a matter of policy, management does not use derivatives for speculative purposes.

As of December 31, 2021, the Company has five interest rate swap agreements.

As of December 31, 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 13 months and two with remaining terms of 37 months as of December 31, 2022.

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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 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 net fair value of the interest rate swaps as of December 31, 2020 was $ 4.0 million, representing a liability.

The Company recorded interest expense of $ 2.4 million and $ 2.0 million during the years ended December 31, 2021 and 2020, respectively, from derivative investments.

As of December 31, 2021 the accumulative derivative gain was $ 7.3 million and as of December 31, 2020 the accumulative derivative loss was $ 3.8 million.

The net fair value of the interest rate swaps as of December 31, 2022 was $ 34.8 million, representing an asset and is reflected within other assets on the Consolidated Balance Sheets.

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 Consolidated Balance Sheets, respectively.

The Company recorded an adjustment to interest expense of $( 7.8 ) million and $ 2.4 million during the years ended December 31, 2022 and 2021, respectively, from derivative investments.

As of December 31, 2022, the accumulative derivative gain was $ 34.8 million and as of December 31, 2021 the accumulative derivative gain was $ 7.3 million.

Effect of Derivative Instruments on Earnings in the Statements of Income and of Comprehensive Income

The following table provides additional information about the financial statement effects related to the cash flow hedges for the years ended December 31, 2022 and 2021:

Derivatives in Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in OCI on Derivatives

Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in OCI on Derivatives

(Effective Portion)

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Balance as of December 31, 2020 $ 330

Increases related to current year tax positions 66

Decreases related to current year tax positions —

Decreases due to tax positions expired ( 317 )

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Balance as of December 31, 2022 $ 19

A $ 0.0 and $ 0.3 million reserve was established as of December 31, 2021 and 2020, respectively, for the exposure in Europe.

Due to law changes in the United Kingdom, the Company believes that it is at a more likely than not position and has released the 2020 $ 0.3 million reserve.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

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Other accruals 15,973 2,577

Foreign tax credit — —

Lease liability 1,366 146

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Depreciation and impairment on aircraft engines and equipment ( 208,389 ) ( 183,131 )

Inventory — —

Notes receivable ( 5,479 ) ( 15,911 )

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Net deferred tax liabilities ( 219,818 ) ( 203,776 )

Other comprehensive (income) loss deferred tax liability ( 1,448 ) 1,481

Other comprehensive income deferred tax liability ( 7,548 ) ( 1,448 )

Net deferred tax liabilities $ ( 132,516 ) $ ( 124,332 )

As of December 31, 2022, the Company had net operating loss carry forwards of approximately $ 315.9 million for federal tax purposes and $ 1.3 million (tax effected) for state tax purposes.

The majority of the federal net operating loss carry forwards were generated in 2020 and can be carried forward indefinitely, the remainder will expire at various times from 2032 to 2037, and the state net operating loss carry forwards will expire at various times from 2026 to 2042.

The majority of the federal net operating loss carry forwards were generated in 2020 and can be carried forward indefinitely.

The remainder will expire at various times from 2033 to 2037, and the state net operating loss carry forwards will expire at various times from 2026 to 2043.

There is a $ 0.4 million valuation allowance for net operating losses in California that expire between 2034 and 2042 and a $ 0.1 million valuation allowance for net operating losses in Georgia that expire between 2032 and 2040.

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Management believes that no valuation allowance is required on deferred tax assets related to federal net operating loss carry forwards, as it is more likely than not that all amounts are recoverable through future taxable income.

The open tax years for federal and state tax purposes are from 2004 to 2021, respectively.

It is the Company's intention to reinvest undistributed earnings of their wholly owned foreign operations and thereby indefinitely postpone their remittance.

The open tax years for federal and state tax purposes are from 2005 to 2022.

Other than $ 6.2 million held at a subsidiary in China, for which the tax impact of the planned repatriation has been accrued, it is the Company's intention to reinvest undistributed earnings of their wholly-owned foreign operations and thereby indefinitely postpone their remittance.

Accordingly, no provision has been made for foreign withholding taxes or U.S.

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The carrying amount of the Company’s outstanding balance on its Notes receivable as of December 31, 2022 and 2021 was estimated to have a fair value of approximately $ 83.5 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).

• Investments in sales-type leases:

The carrying amount of the Company's outstanding balance on its Investments in sales-type leases as of December 31, 2022 was estimated to have a fair value of approximately $ 6.4 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 had no Investments 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 December 31, 2022 and 2021 was estimated to have a fair value of approximately $ 1,540.2 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 year end (Level 2 inputs).

Assets Measured and Recorded at Fair Value on a Recurring Basis

Assets Measured and Recorded at Fair Value on a Recurring Basis and a Nonrecurring Basis

As of December 31, 2022 and 2021, the Company measured the fair value of its interest rate swaps 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 December 31, 2022 was $ 34.8 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 net fair value of the interest rate swaps as of December 31, 2020 was $ 4.0 million, representing a liability.

The Company recorded interest expense of $ 2.4 million and $ 2.0 million during the years ended December 31, 2021 and 2020, respectively, from derivative investments.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company recorded an adjustment to interest expense of $( 7.8 ) million and $ 2.4 million during the years ended December 31, 2022 and 2021, respectively, from derivative investments.

Goodwill is assessed for impairment annually, at each year end by comparing the fair values of the reporting units to their carrying amounts.

The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.

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.

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Total $ 21,849 $ 7,715

Write-downs of equipment to their estimated fair values totaled $ 7.7 million for the year ended December 31, 2021 which included write-downs of $ 3.9 million due to a management decision to monetize three engines and one airframe either by sale to a third party or for part-out and $ 3.8 million for the adjustment of the carrying value of seven impaired engines.

Write-downs of equipment to their estimated fair values totaled $ 21.8 million for the year ended December 31, 2022, primarily reflecting an adjustment of the carrying value of four impaired engines.

Of these write-downs, $ 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 December 31, 2022, included within equipment held for lease and equipment held for sale was $ 32.4 million in remaining book value of 16 assets which were previously written down.

Write-downs of equipment to their estimated fair values totaled $ 20.5 million for the year ended December 31, 2020 which included write-downs of $ 15.2 million due to a management decision to monetize 10 engines and two airframes either by sale to a third party or for part-out and $ 5.3 million for the adjustment of the carrying value of seven impaired engines.

Earnings Per Share

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The purchase obligations are subject to escalation based on the closing date of each transaction.

In May 2021, the Company entered into a commitment for future maintenance services which are anticipated to cost $ 24.0 million by 2024.

In December 2020, the Company entered into definitive agreements for the purchase of 25 modern technology aircraft engines.

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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.

At its October 26, 2022 meeting, the Board of Directors approved the renewal of the existing common stock repurchase plan which allows for repurchases of up to $ 60.0 million of the Company’s common stock, extending the plan through December 31, 2024.

Repurchased shares are immediately retired.

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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 years ended December 31, 2021 and 2020, the Company paid total dividends of $ 3.3 million on the Series A-1 and Series A-2 Preferred Stock, respectively.

During each of the years ended December 31, 2022 and 2021, the Company paid total dividends of $ 3.3 million on the Series A-1 and Series A-2 Preferred Stock, respectively.

Liquidation Preference:

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Under this 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.

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 RSAs are subject to service-based vesting, typically between one and four years , in which 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 December 31, 2021, there are no stock options outstanding under the 2007 Plan.

As of December 31, 2022, there were no stock options outstanding under the 2007 Plan.

The 2018 Stock Incentive Plan (the “2018 Plan”) was adopted in May 2018.

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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-based vesting, typically between one and four years , where a specific period of continued employment must pass before an award vests.

The RSAs are subject to either service-based vesting, which is typically between one and four years , in which a specific period of continued employment must pass before an award vests, or performance-based vesting, which is typically over one year .

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.

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Balance as of December 31, 2022 495,948 $ 32.30

At December 31, 2021 the stock compensation expense related to the RSAs that will be recognized over the average remaining vesting period of 1.0 years totaled $ 9.7 million.

At December 31, 2022, the stock compensation expense related to the RSAs that will be recognized over the average remaining vesting period of approximately one year totaled $ 13.5 million.

At December 31, 2022, the intrinsic value of unvested RSAs was $ 29.3 million.

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 Purchase Plan.

Full-time 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 Purchase Plan.

Participants may purchase no more than 1,000 shares or $ 25,000 of common stock in any one calendar year.

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The 401(k) Plan provides for deferred compensation as described in Section 401(k) of the Internal Revenue Code.

The 401(k) Plan is a contributory plan available to all full-time and part-time employees in the United States.

The 401(k) Plan is a contributory plan available to all full-time and part-time employees in the U.S.

In 2022, employees who participated in the 401(k) Plan could elect to defer and contribute to the 401(k) Plan up to 75 % of pretax salary or wages up to $ 19,500 (or $ 26,000 for employees at least 50 years of age).

The Company matches 50 % of employee contributions and was capped at $ 13,500 per employee in 2022.

The Company match totaled $ 0.7 million and $ 0.8 million for the years ended December 31, 2021 and 2020, respectively.

The Company match totaled $ 0.7 million for each of the years ended December 31, 2022 and 2021, respectively.

Related Party Transactions

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During 2022, the Company sold two engines to WMES for $ 12.6 million.

During 2020, the Company sold one note receivable to WMES for $ 8.4 million.

During 2021, the Company sold two engines to WMES for $ 25.0 million.

There were no aircraft or engine sales to CASC Willis during 2022 or 2021.

On December 2, 2021, in a transaction approved by an independent committee, as well as the Audit Committee, of the Board of Directors, the Company purchased 60,000 shares of its common stock directly from the Company’s Chief Executive Officer (“CEO”), Charles F.

The agreed and paid price per share was $ 35.43 , the discounted volume weighted average price on December 2, 2021.

On October 1, 2021, the Board’s Independent Directors approved the payment of $ 0.2 million to the Company’s CEO, Charles F.

Willis, for reimbursement of a golf club membership fee, as well as future payments of reasonable annual golf club dues.

During 2021, the Company paid approximately $ 27,000 of expenses payable to Mikchalk Lake, LLC, an entity in which our Chief Executive Officer (“CEO”) retains an ownership interest.

In December 2022, the Company subleased a WMES engine to a third party, with WMES as the head lessor.

Under ASC 842, the Company recognized a ROU asset of $ 4.9 million and a lease liability of $ 4.9 million for this lease during the year ended December 31, 2022.

During 2022, the Company paid approximately $ 35,000 of expenses payable to Mikchalk Lake, LLC, an entity in which our Executive Chairman retains an ownership interest.

These expenses were for lodging and other business-related services.

Additionally, during the year ended December 31, 2022, the Company paid a third-party vendor approximately $ 0.1 million under an exclusive use agreement for an aircraft used for business-related purposes.

The third-party vendor leased the aircraft from a company which our Executive Chairman owns.

These transactions were approved by the Board’s Independent Directors.

During 2020, the Board’s Independent Directors approved the Company’s agreement to a lease with our CEO in support of the Company’s marine vessel leasing business.

That lease provides for a payment to our CEO of $ 750 per day for the use of his tender in support of our vessel lease to a third-party lessee.

In addition, the Company purchased a hull insurance policy, for our CEO’s tender, at a rate of $ 6,800 per annum, plus a one-time subscriber fee of $ 695 to insure his tender while in the service of the Company’s vessel leasing business.

The Company has paid a total of $ 41,250 and $ 9,750 during the years ended December 31, 2021 and 2020, respectively, for usage of the tender.

On November 11, 2021, in a transaction approved by the Independent Compensation Committee, the Company purchased the tender for $ 0.5 million.

Additionally, during 2020, our CEO was charged $ 4,000 for personal expenses while onboard the Company’s marine vessel.

During 2020, the Company’s CEO was charged $ 9,100 for the purchase of artwork.

Reportable Segments

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Spare parts and equipment sales 1,595 25,414 — 27,009

Interest income 7,579 — — 7,579

Gain on sale of leased equipment 3,133 — — 3,133

Gain on sale of financial assets 3,116 — — 3,116

Asset transition fee (2) 6,256 — — 6,256

Other revenue 24,607 673 ( 185 ) 25,095

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Interest expense 66,743 — — 66,743

Gain on debt extinguishment ( 2,558 ) — — ( 2,558 )

Total finance costs 64,185 — — 64,185

Total expenses 276,665 25,407 — 302,072

Earnings (loss) from operations $ 8,950 $ ( 473 ) $ ( 137 ) $ 8,340

Income from operations $ 9,360 $ 680 $ ( 185 ) $ 9,855

For the Year ended December 31, 2021 Leasing and

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Spare parts and equipment sales 365 17,042 10 17,417

Interest income 12,938 — — 12,938

Gain on sale of leased equipment 5,975 — — 5,975

Gain on sale of financial assets 10,874 — — 10,874

Asset transition fee (1) 6,256 — — 6,256

Other revenue 11,584 523 ( 157 ) 11,950

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Interest expense 67,985 — — 67,985

Loss on debt extinguishment 4,688 — — 4,688

Total finance costs 67,985 — — 67,985

Total expenses 247,834 18,038 ( 10 ) 265,862

Earnings (loss) from operations $ 18,193 $ ( 2,378 ) $ ( 1,121 ) $ 14,694

Income (loss) from operations $ 8,950 $ ( 473 ) $ ( 137 ) $ 8,340

_____________________

(1) Gain on sale of financial assets reflects the sales of two notes receivable during 2021.

(1) Asset transition fee reflects the settlement received from the close out of an engine transition program.

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Total assets as of December 31, 2021 $ 2,415,635 $ 47,292 $ — $ 2,462,927

Subsequent Event

On March 3, 2022, the Board appointed Austin C.

Willis, currently a member of the Board and the Company’s Senior Vice President, Corporate Development, as the Company’s Chief Executive Officer, effective April 1, 2022.

In connection with the appointment of Austin C.

Willis, Charles F.

Willis, IV, the Chairman and Chief Executive Officer of the Company, notified the Board of his decision to step down as Chief Executive Officer, effective April 1, 2022.

Willis, IV will continue to serve as the Chairman of the Board and will assume the role of Executive Chairman on April 1, 2022.

On March 3, 2022, the Company entered into an employment agreement with Charles F.

Willis IV in connection with his assumption of the role of Executive Chairman of the Board, effective as of April 1, 2022.

The agreement provides that Charles F.

Willis IV is entitled to an initial annual base salary of $ 1,097,000 and establishes his target annual bonus opportunity at 100 % of his annual base salary.

In addition, the agreement provides for a $ 1,000,000 signing bonus.

Also, on March 3, 2022, the Company entered into an employment agreement with Austin C.

Willis in connection with his appointment as Chief Executive Officer of the Company, effective as of April 1, 2022.

The agreement provides that Austin C.

Willis is entitled to an initial annual base salary of $ 640,000 and establishes his target annual bonus opportunity at 90 % of his annual base salary.

WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures