UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☒~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the ~~Quarterly Period Ended September 30, 2018~~

quarterly period ended March 31, 2019

☐~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~



¨	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)

~~Delaware~~			~~68-0070656~~

Delaware	68-0070656
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

4700 Lyons Technology Parkway, Coconut Creek, FL		33073
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (415) 408-4700

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 ☒x 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 ☒x 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”, ~~“non-accelerated filer”,~~ “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☐¨		Accelerated filer ☒x

Non-accelerated filer ☐¨		Smaller reporting company ☐¨

		Emerging growth company ☐¨

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 ☒x

~~Indicate the number of shares outstanding of each~~

Securities registered pursuant to Section 12(b) of the ~~issuer’s classes of common stock, as of the latest practicable date:~~

Act:

The number of shares of the registrant's Common Stock outstanding as of May 6, 2019 was 5,875,231.

~~Table of Contents~~

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

INDEX



PART I.	FINANCIAL INFORMATION	4 4

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4 4

	Condensed Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018	4 4

	Condensed Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	5 5

	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	6 6

	Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity for the three months ended March 31, 2019 and 2018	7

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	8 7

	Notes to Condensed Consolidated Financial Statements	9 8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25 28

Item 4.	Controls and Procedures	26 28

PART II.	OTHER INFORMATION	26 29

Item 1A.	Risk Factors	26 29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27 29

Item 5.	Other Information	27 30

Item 6.	Exhibits	28 31

~~Table of Contents~~

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. 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, ~~2017~~2018 filed with the Securities and Exchange Commission ~~(SEC)~~("SEC") on March ~~15, 2018~~14, 2019 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.

~~Table of Contents~~

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)~~

September 30,

December 31,

2018

2017
ASSETS

Cash and cash equivalents

$
8,436

$
7,052
Restricted cash

155,420

40,272
Equipment held for operating lease, less accumulated depreciation of $392,444 and $368,683 at September 30, 2018 and December 31, 2017, respectively

1,590,482

1,342,571
Maintenance rights

14,763

14,763
Equipment held for sale

40,931

34,172
Operating lease related receivables, net of allowances of $1,823 and $949 at September 30, 2018 and December 31, 2017, respectively

24,777

18,848
Spare parts inventory

24,409

16,379
Investments

44,438

50,641
Property, equipment & furnishings, less accumulated depreciation of $8,770 and $7,374 at September 30, 2018 and December 31, 2017, respectively

26,245

26,074
Intangible assets, net

1,430

1,727
Other assets

33,865

50,932
Total assets (1)

$
1,965,196

$
1,603,431

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

Liabilities:

Accounts payable and accrued expenses

$
40,879

$
22,072
Deferred income taxes

87,142

78,280
Debt obligations

1,392,113

1,085,405
Maintenance reserves

88,986

75,889
Security deposits

28,591

25,302
Unearned revenue

7,264

8,102
Total liabilities (2)

1,644,975

1,295,050

Redeemable preferred stock ($0.01 par value, 2,500 shares authorized; 2,500 shares issued at September 30, 2018 and December 31, 2017, respectively)

49,533

49,471

Shareholders’ equity:

Common stock ($0.01 par value, 20,000 shares authorized; 6,230 and 6,419 shares issued at September 30, 2018 and December 31, 2017, respectively)

62

64
Paid-in capital in excess of par

—

2,319
Retained earnings

269,664

256,301
Accumulated other comprehensive income, net of income tax expense of $273 and $83 at September 30, 2018 and December 31, 2017, respectively

962

226
Total shareholders’ equity

270,688

258,910
Total liabilities, redeemable preferred stock and shareholders' equity

$
1,965,196

$
1,603,431

(Unaudited)



	March 31, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	12,181		$	11,688
Restricted cash	68,452			70,261
Equipment held for operating lease, less accumulated depreciation of $389,320 and $385,483 at March 31, 2019 and December 31, 2018, respectively	1,605,120			1,673,135
Maintenance rights	14,763			14,763
Equipment held for sale	629			789
Receivables, net of allowances of $2,465 and $2,559 at March 31, 2019 and December 31, 2018, respectively	24,986			23,270
Spare parts inventory	47,038			48,874
Investments	54,253			47,941
Property, equipment & furnishings, less accumulated depreciation of $7,437 and $6,945 at March 31, 2019 and December 31, 2018, respectively	27,758			27,679
Intangible assets, net	1,359			1,379
Notes receivables	30,854			238
Other assets	18,109			14,926
Total assets (1)	$	1,905,502		$	1,934,943

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	32,410		$	42,939
Deferred income taxes	96,995			90,285
Debt obligations	1,297,836			1,337,349
Maintenance reserves	93,979			94,522
Security deposits	22,212			28,047
Unearned revenue	5,057			5,460
Total liabilities (2)	1,548,489			1,598,602

Redeemable preferred stock ($0.01 par value, 2,500 shares authorized; 2,500 shares issued at March 31, 2019 and December 31, 2018, respectively)	49,575			49,554

Shareholders’ equity:
Common stock ($0.01 par value, 20,000 shares authorized; 6,160 and 6,176 shares issued at March 31, 2019 and December 31, 2018, respectively)	62			62
Paid-in capital in excess of par	563			—
Retained earnings	306,912			286,623
Accumulated other comprehensive (loss) income, net of income tax expense of $23 and $83 at March 31, 2019 and December 31, 2018, respectively	(99		)	102
Total shareholders’ equity	307,438			286,787
Total liabilities, redeemable preferred stock and shareholders' equity	$	1,905,502		$	1,934,943

_____________________________


(1)		Total assets at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, include the following assets of variable interest entities (“VIEs”) that can only be used to settle the liabilities of the VIEs: Cash ~~$393~~$268 and ~~$130;~~$656; Restricted cash ~~$155,420~~$68,072 and ~~$40,272;~~$70,261; Equipment ~~$1,054,258~~$1,020,182 and ~~$657,333;~~$1,032,599; and Other assets ~~$834~~$328 and ~~$20,090,~~$1,075, respectively.


(2)		Total liabilities at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, include the following liabilities of VIEs for which the VIEs’ creditors do not have recourse to Willis Lease Finance Corporation: Debt obligations ~~$919,026~~$890,701 and ~~$577,056,~~$903,296, respectively.

See accompanying notes to the unaudited condensed consolidated financial statements.

~~Table of Contents~~

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,


2018

2017

2018

2017
REVENUE

Lease rent revenue

$
46,984

$
33,474

$
129,710

$
95,045
Maintenance reserve revenue

19,370

20,370

56,855

64,212
Spare parts and equipment sales

8,354

9,294

21,701

41,273
Gain on sale of leased equipment

1,256

174

2,142

4,684
Other revenue

2,010

2,549

5,762

6,439
Total revenue

77,974

65,861

216,170

211,653

EXPENSES

Depreciation and amortization expense

19,861

16,142

55,600

48,786
Cost of spare parts and equipment sales

5,848

7,148

16,537

32,121
Write-down of equipment

1,215

6,226

4,793

19,668
General and administrative

18,124

14,308

50,517

40,574
Technical expense

2,290

2,605

9,199

7,345
Interest expense

17,885

14,220

46,617

36,398
Total expenses

65,223

60,649

183,263

184,892

Earnings from operations

12,751

5,212

32,907

26,761
Earnings from joint ventures

506

3,040

1,569

6,055
Income before income taxes

13,257

8,252

34,476

32,816
Income tax expense

3,583

2,960

9,359

13,367
Net income

9,674

5,292

25,117

19,449
Preferred stock dividends

819

344

2,431

988
Accretion of preferred stock issuance costs

21

9

62

25
Net income attributable to common shareholders

$
8,834

$
4,939

$
22,624

$
18,436

Basic weighted average earnings per common share

$
1.50

$
0.82

$
3.80

$
3.04
Diluted weighted average earnings per common share

$
1.47

$
0.80

$
3.72

$
2.97

Basic weighted average common shares outstanding

5,900

6,055

5,960

6,068
Diluted weighted average common shares outstanding

6,004

6,184

6,083

6,215



	Three Months Ended March 31,
	2019		2018
REVENUE
Lease rent revenue	$	48,369	$	39,644
Maintenance reserve revenue	25,350		15,440
Spare parts and equipment sales	17,502		12,986
Gain on sale of leased equipment	9,570		545
Other revenue	2,978		1,882
Total revenue	103,769		70,497

EXPENSES
Depreciation and amortization expense	20,258		17,355
Cost of spare parts and equipment sales	14,412		11,388
Write-down of equipment	1,105		—
General and administrative	21,440		15,611
Technical expense	1,788		3,677
Interest expense	17,879		13,595
Total expenses	76,882		61,626

Earnings from operations	26,887		8,871
Earnings from joint ventures	946		747
Income before income taxes	27,833		9,618
Income tax expense	6,955		2,536
Net income	20,878		7,082
Preferred stock dividends	801		801
Accretion of preferred stock issuance costs	21		20
Net income attributable to common shareholders	$	20,056	$	6,261

Basic weighted average earnings per common share	$	3.47	$	1.03
Diluted weighted average earnings per common share	$	3.35	$	1.00

Basic weighted average common shares outstanding	5,779		6,104
Diluted weighted average common shares outstanding	5,978		6,256

See accompanying notes to the unaudited condensed consolidated financial statements.

~~Table of Contents~~

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

~~(Unaudited)~~

Three Months Ended September 30,

Nine Months Ended September 30,


2018

2017

2018

2017
Net income

$
9,674

$
5,292

$
25,117

$
19,449
Other comprehensive (loss) income:

Currency translation adjustment

(530)

294

(762)

620
Unrealized gain on derivative instruments

221

164

1,636

160
Net (loss) gain recognized in other comprehensive income

(309)

458

874

780
Tax benefit (expense) related to items of other comprehensive income

70

(158)

(197)

(270)
Impact from adoption of ASU 2018-02 (1)

—

—

59

—
Other comprehensive (loss) income

(239)

300

736

510
Total comprehensive income

$
9,435

$
5,592

$
25,853

$
19,959

(Unaudited)

~~(1)~~

~~Reflects the stranded tax effects from change in tax rate as a result of the early adoption of ASU 2018-02 which has been reclassified to retained earnings.~~



	Three Months Ended March 31,
	2019			2018
Net income	$	20,878		$	7,082
Other comprehensive income:
Currency translation adjustment	353			585
Unrealized (loss) gain on derivative instruments	(613		)	1,031
Net (loss) gain recognized in other comprehensive income	(260		)	1,616
Tax benefit (expense) related to items of other comprehensive income	59			(365		)
Other comprehensive (loss) income	(201		)	1,251
Total comprehensive income	$	20,677		$	8,333

See accompanying notes to the unaudited condensed consolidated financial statements.

~~Table of Contents~~

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity

Three Months Ended March 31, 2019 and 2018

(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 (Loss)			Equity
Balances at December 31, 2018	2,500	$	49,554	6,176		$	62		$	—		$	286,623		$	102		$	286,787
Net income	—	—		—		—			—			20,878			—			20,878
Net unrealized gain from currency translation adjustment, net of tax expense of $80	—	—		—		—			—			—			273			273
Net unrealized loss from derivative instruments, net of tax benefit of $139	—	—		—		—			—			—			(474		)	(474		)
Shares repurchased	—	—		(8	)	—			(317		)				—			(317		)
Shares issued under stock compensation plans	—	—		7		—			160			—			—			160
Cancellation of restricted stock in satisfaction of withholding tax	—	—		(15	)	—			(545		)	—			—			(545		)
Stock-based compensation expense	—	—		—		—			1,265			—			—			1,265
Accretion of preferred stock issuance costs	—	21		—		—			—			(21		)	—			(21		)
Preferred stock dividends ($0.32 per share)	—	—		—		—			—			(801		)	—			(801		)
Adoption of ASU 2016-02	—	—		—		—			—			233			—			233
Balances at March 31, 2019	2,500	$	49,575	6,160		$	62		$	563		$	306,912		$	(99	)	$	307,438


				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, 2017	2,500	$	49,471	6,419		$	64		$	2,319		$	256,301		$	226		$	258,910
Net income	—	—		—		—			—			7,082			—			7,082
Net unrealized gain from currency translation adjustment, net of tax expense of $132	—	—		—		—			—			—			453			453
Net unrealized gain from derivative instruments, net of tax expense of $233	—	—		—		—			—			—			799			799
Shares repurchased	—	—		(297	)	(2		)	(2,698		)	(7,483		)	—			(10,183		)
Shares issued under stock compensation plans	—	—		18		1			117			—			—			118
Cancellation of restricted stock in satisfaction of withholding tax	—	—		(24	)	(2		)	(663		)	—			—			(665		)
Stock-based compensation expense	—	—		—		—			925			—			—			925
Accretion of preferred stock issuance costs	—	20		—		—			—			(20		)	—			(20		)
Preferred stock dividends ($0.32 per share)	—	—		—		—			—			(801		)	—			(801		)
Adoption of ASU 2018-02	—	—		—		—			—			(59		)	59			—
Balances at March 31, 2018	2,500	$	49,491	6,116		$	61		$	—		$	255,020		$	1,537		$	256,618

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



	Nine Months Ended September 30,				Three Months Ended March 31,
	2018		2017		2019			2018
Cash flows from operating activities:
Net income	$	25,117	$	19,449	$	20,878		$	7,082
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		55,600		48,786	20,258			17,355
Write-down of equipment		4,793		19,668	1,105			—
Stock-based compensation expenses		4,004		3,228	1,265			925
Amortization of deferred costs		4,143		3,639	1,757			1,433
Allowances and provisions		1,022		282	274			242
Gain on sale of leased equipment		(2,142)		(4,684)	(9,570		)	(545		)
Gain on insurance settlement		—		(1,288)
Income from joint ventures		(1,569)		(6,055)	(946		)	(747		)
Deferred income taxes		9,359		13,367
Loss on disposal of property, equipment and furnishings					(36		)	—
Income taxes					7,014			2,300
Changes in assets and liabilities:
Receivables		(6,951)		(220)	(1,990		)	(6,026		)
Distributions received from joint ventures		5,540		1,880
Spare parts and equipment		(27,537)		7,021
Inventory					8,538			1,830
Other assets		(3,173)		(1,692)	(308		)	276
Accounts payable and accrued expenses		13,472		(687)	(8,954		)	(437		)
Maintenance reserves		16,431		1,706	(543		)	9,389
Security deposits		3,519		6,651	(2,711		)	1,038
Unearned revenue		(838)		990	(403		)	1,166
Net cash provided by operating activities		100,790		112,041	35,628			35,281

Cash flows from investing activities:
Proceeds from sale of equipment (net of selling expenses)		51,600		53,849	133,768			18,393
Distributions received from joint ventures		190		—
Issuance of notes receivables					(30,783		)	—
Payments received on notes receivables					166			8
Capital contributions to joint ventures					(5,013		)	—
Deposit received for proposed sale of equipment					—			3,400
Purchase of equipment held for operating lease		(320,186)		(177,263)	(92,226		)	(138,626		)
Purchase of property, equipment and furnishings		(1,574)		(493)	(606		)	(290		)
Net cash used in investing activities		(269,970)		(123,907)
Net cash provided by (used in) investing activities					5,306			(117,115		)

Cash flows from financing activities:
Proceeds from issuance of debt obligations		616,439		485,700	102,120			123,000
Debt issuance cost		(6,068)		(7,473)
Principal payments on debt obligations		(306,800)		(448,237)	(142,880		)	(29,779		)
Interest bearing security deposits		—		(3,261)
Proceeds from shares issued under stock compensation plans		292		177	160			118
Cancellation of restricted stock units in satisfaction of withholding tax		(1,252)		(747)	(545		)	(665		)
Repurchase of common stock		(14,459)		(3,546)	(286		)	(74		)
Proceeds from the issuance of preferred stock		—		29,700
Preferred stock dividends		(2,440)		(891)	(819		)	(917		)
Net cash provided by financing activities		285,712		51,422
Net cash (used in) provided by financing activities					(42,250		)	91,683

Increase in cash, cash equivalents and restricted cash		116,532		39,556
(Decrease)/Increase in cash, cash equivalents and restricted cash					(1,316		)	9,849
Cash, cash equivalents and restricted cash at beginning of period		47,324		32,374	81,949			47,324
Cash, cash equivalents and restricted cash at end of period	$	163,856	$	71,930	$	80,633		$	57,173

Supplemental disclosures of cash flow information:
Net cash paid for:
Interest	$	44,990	$	31,932	$	17,301		$	12,187
Income Taxes	$	1,074	$	346	$	(359	)	$	71

Supplemental disclosures of non-cash activities:
Purchase of aircraft and engines	$	3,600	$	2,931	$	—		$	3,762
Transfers from Equipment held for operating lease to Equipment held for sale	$	6,995	$	36,285	$	—		$	1,898
Transfers from Equipment held for operating lease to Spare parts inventory					$	6,702		$	—
Transfers from Equipment held for sale to Spare parts inventory					$	4,471		$	24,014
Accrued preferred stock dividends	$	819	$	988	$	667		$	667
Accrued share repurchases					$	100		$	10,109

See accompanying notes to the unaudited condensed consolidated financial statements.

~~Table of Contents~~

WILLIS LEASE FINANCE CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

~~September 30, 2018~~

(Unaudited)

Unless the context requires otherwise, references to ~~“the~~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 ~~2017~~2018 Annual Report on Form 10-K (“~~2017~~2018 Form 10-K”). There have been no significant changes in the Company’s significant accounting policies for the ~~nine~~three months ended ~~September 30, 2018.~~

March 31, 2019, except as disclosed in Note 1(d).

(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”) 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 ~~2017~~2018 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. 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 goodwill, intangible assets, long-lived assets, equipment held for sale, estimated income taxes and stock-based compensation. Actual results may differ from these estimates under different assumptions or conditions.

(b) ~~Reclassifications~~

~~In conjunction with our review of the fourth quarter of 2017,~~Adjustments to Prior Period

Effective January 1, 2018, the Company ~~reclassified scrap inventory write-offs~~adopted Accounting Standards Codification (“ASC”) 606 – “Revenue from Contracts with Customers” and ~~inventory lower~~has identified the transfer of ~~cost or market write-downs that were previously presented within Write-down of equipment~~engines and airframes from the lease portfolio to the Spare Parts segment for part out as sales to customers in accordance with the ordinary operations of our Spare Parts reportable segment. As such, the Company presents the sale of these assets on a gross basis and have reclassified the three months ended March 31, 2018 gross revenue and costs on sale to the Spare parts and equipment sales and Cost of spare parts and equipment sales line items from the net gain (loss) presentation within the Gain on sale of leased equipment line item. The ~~three~~reclassification resulted in an increase in Spare parts and ~~nine month periods ended September 30, 2017 were impacted by an adjustment~~equipment sales of ~~$0.7~~$6.7 million, a decrease in Gain on sale of leased equipment of $0.1 million and ~~$2.6 million, respectively, with the adjustment reflected as~~ an increase toin Cost of spare parts and equipment sales of $6.6 million with no impact to the Company's net income for the three months ended March 31, 2018. The Company's Consolidated Statement of Cash Flows for the three months ended March 31, 2018 were adjusted for this matter by increasing cash flows provided by operating activities by $4.9 million and decreasing cash flows provided by investing activities by a ~~decrease to Write-down of equipment. These reclassified items had no effect on the reported results of operations, financial condition or statements of cash flows.~~

similar amount.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including VIEs, where the Company is the primary beneficiary in accordance with consolidation guidance. The Company evaluates all entities in which it has an economic interest firstly to determine whether for accounting purposes the entity is a variable interest entity or voting interest entity. If the entity is a VIE, the Company consolidates the financial statements of that entity if it is the

primary beneficiary of the entities’ activities. If the entity is a voting interest entity, the Company consolidates the entity when it has a majority of voting interests. Intercompany transactions and balances have been eliminated in consolidation.

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(d) Recent Accounting Pronouncements

RecentAccounting Pronouncements Adopted by the Company

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting ~~Standard~~Standards Update (“ASU”) ~~2014-09, “Revenue from Contracts with Customers”~~2016-02, “Leases (Topic 842)” (“ASU ~~2014-09”~~2016-02”)~~. ASU 2014-09~~ that amends the accounting guidance on ~~revenue recognition.~~leases for both lessees and lessors. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. Under the new standard ~~revenue is recognized when~~establishes a ~~customer obtains control~~right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of ~~promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The principles~~expense recognition in the standard should be applied using a five-step model that includes 1) identifying the contract(s) with a customer, 2) identifying the performance obligations in the contract, 3) determining the transaction price, 4) allocating the transaction price to the performance obligations in the contract, and 5) recognizing revenue when (or as) the performance obligations are satisfied. The standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the standard amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, sales of real estate) to be consistent with the standard’s guidance on recognition and measurement (including the constraint on revenue).income statement. The FASB also subsequently issued ~~several~~ amendments to the standard, including ~~clarification on principal versus agent guidance, identifying performance obligations,~~providing an additional and ~~immaterial goods~~optional transition method to adopt the new standard, as well as certain practical expedients related to land easements and ~~services~~lessor accounting.

The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provided an additional and optional transition method that allowed entities to initially apply the new leases standard at the adoption date and recognize a ~~contract.~~

cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopted the new leases standard would continue to be in accordance with ASC Topic 840 if the optional transition method is elected. The Company adopted ~~ASU 2014-09 and its related amendments (collectively known as Accounting Standards Codification (“ASC”) 606) effective on January 1, 2018~~the standard using the ~~modified retrospective~~ ~~approach applied only to contracts not completed~~optional transition method with no restatement of comparative periods and a cumulative effect adjustment recognized as of the date of ~~adoption. Please see Note 2 "Revenue from Contracts with Customers" for the required disclosures related to the impact of adopting this standard and a discussion~~adoption.

Adoption of the ~~Company's updated policies related to revenue recognition and accounting for costs to obtain and fulfill a customer contract.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments a consensus of the Emerging Issues Task Force) to improve the diversity in practice in how certain cash receipts and cash payments are presented and classifiednew standard resulted in the ~~statement~~recording of ~~cash flows. The update provides guidance on specific cash flow classification issues including the following: (1) debt prepayment or debt extinguishment costs; (2) settlement~~ROU assets and lease liabilities of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions;approximately $4.5 million and (8) separately identifiable cash flows and application of the predominance principle. Prior GAAP did not include specific guidance on these eight cash flow classification issues. The Company adopted the guidance effective January 1, 2018 and utilizing the cumulative earnings approach on a retrospective basis, reclassified $1.9$4.3 million, of distributions from joint ventures during the nine months ended September 30, 2017 from cash flows from investing activities to cash flows from operating activities. The remaining provisions of this update did not have a material impact on the Company’s consolidated statements of cash flows.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” that eliminates “Step 2” from the goodwill impairment test. The Company has made the election to early adopt ASU 2017-04respectively, as of January 1, ~~2018 and the standard was applied on a prospective basis, as required.~~2019. The ~~adoption of this standard did not have an impact on the consolidated financial statements or the related disclosures.~~

~~In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” that provides guidance about which changes~~cumulative effect adjustment to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The new guidance became effective for the Company on January 1, 2018 and was applied on a prospective basis, as required. The adoption of this standard did not have an impact on the consolidated financial statements or the related disclosures.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” to address

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stakeholder concerns about the guidance in current GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The ASU must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company made the election to early adopt ASU 2018-02 as of January 1, 2018 (the period of adoption) and recorded a reclassification ~~of $59 thousand between Other comprehensive income and Retained~~ earnings as of January 1, ~~2018.~~

~~In September 2018,~~2019 was $0.2 million. The standard did not materially impact our consolidated financial statements.

As part of the ~~FASB issued ASU 2018-15, “Intangibles – Goodwill~~implementation process, the Company assessed its lease arrangements and ~~Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred~~evaluated practical expedients and accounting policy elections to meet the reporting requirements of this standard. The Company also evaluated the changes in controls and processes that were necessary to implement the new standard, and no material changes were required. The new standard provides a ~~Cloud Computing Arrangement That Is~~number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’ which permitted us not to reassess under the new standard the prior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to WLFC.

Under ASC 842, a ~~Service Contract”~~lease is a sales-type lease if any one of five criteria are met, each of which ~~requires cloud computing arrangements~~indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all the risks and benefits of the underlying asset to the lessee, the lease is a ~~service contact to follow~~direct financing lease. All leases that are not sales-type or direct financing leases are operating leases. Furthermore, the ~~internal-use software~~Company will assess on an ongoing basis, the updated guidance provided ~~by ASC 350-40 in determining the~~for sale leaseback transactions and whether failed sale leaseback accounting treatment is triggered. As lessor, the Company's leases remained as operating leases under the new standard. In addition, due to the new standard’s narrowed definition of ~~implementation costs. ASC 350-40 states~~initial direct costs, the Company expenses as incurred, certain lease origination costs that ~~only qualifying~~were previously capitalized as initial direct costs ~~incurred during~~and amortized to expense over the ~~application development stage may be capitalized.~~lease term.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company ~~made~~elected the ~~election~~short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, the Company did not recognize ROU assets or lease liabilities, including for existing short-term leases. The Company also elected the practical expedient to ~~early adopt ASU 2018-15 on a retrospective basis,~~not separate lease and ~~during 2018 has capitalized $1.0 million in cloud computing arrangement implementation costs. There was no prior period impact related to~~non-lease components for the ~~adoption~~majority of ~~ASU 2018-15.~~

~~Recent Accounting Pronouncements To Be Adopted by the Company~~

its leases as both lessee and lessor.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The ASU is targeted at simplifying the application of hedge accounting and aims at aligning the recognition and presentation of the effects of hedge instruments and hedge items. ~~ASU 2016-02 is~~This guidance became effective for ~~interim~~the Company on January 1, 2019 and ~~annual periods beginning after December 15,~~it did not result in an adjustment to the opening balance of retained earnings for the Company's existing cash flow hedge. Additionally, the presentation and disclosure aspect of ASU 2017-12 was applied on a prospective basis within Note 6.

In June 2018, ~~with early adoption permitted.~~the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting.” The ASU expands the scope of Topic 718 to include share-based payment transactions

for acquiring goods and services from non-employees. The Company ~~plans to adopt~~adopted this guidance effective January 1, 2019 and ~~is currently evaluating the potential~~it did not materially impact ~~adoption will have on the~~our consolidated financial ~~statements and related disclosures.~~

statements.

Recent Accounting Pronouncements To Be Adopted by the Company

In ~~February~~June 2016, the FASB issued ASU ~~2016-02, “Leases~~2016-13, “Financial Instruments – Credit Losses (Topic ~~842)”~~326) Measurement of Credit Losses on Financial Instruments” (“ASU ~~2016-02”~~2016-13”). ~~The~~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 ~~2016-02~~2018-19, “Codification Improvements to ~~increase transparency~~Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies that receivables from operating leases are accounted for using the lease guidance and comparability among organizations recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, lessors will account for leases using an approach that is substantially equivalent to existing GAAP for sales-type leases, direct financing leases and operating leases. Unlike current guidance, however, a lease with collectability uncertainties may be classifiednot as ~~a sales-type lease. If collectability of lease payments, plus any amount necessary to satisfy a lessee residual value guarantee, is not probable, lease payments received~~financial instruments. The effective date will be ~~recognized as a deposit liability and~~ the ~~underlying assets will not be derecognized until collectability~~first quarter of ~~the remaining amounts becomes probable. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018,~~fiscal year 2020, with early adoption ~~permitted, and must be adopted using a modified retrospective transition.~~permitted. The Company ~~plans to adopt this guidance effective January 1, 2019 utilizing the lessor practical expedient and~~ is ~~currently~~ evaluating the potential ~~impact adoption will have~~effects on the consolidated financial ~~statements~~statements.

2. Leases

As lessor, as of March 31, 2019, all of our leases were operating leases with the exception of two leases entered into during the first quarter of 2019 which are classified as notes receivables under the failed sale leaseback guidance provided by ASC 842.

The significant majority of leases the Company enters as lessee 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. The Company does not have any significant leases that have not yet commenced but that create significant rights and obligations. 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. 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. Our automobile leases include an option to purchase the vehicle at lease termination. The depreciable life of assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

The exercise of lease renewal options or purchase at lease termination is at the Company's sole discretion. If it is reasonably certain that we will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of our ROU assets and lease liabilities.

Supplemental balance sheet information related ~~disclosures.~~

2.to leases was as follows:



Leases	Classification	March 31, 2019
		(in thousands, except lease term and discount rate)
Assets
Operating lease right-of-use assets	Other assets	$	4,309
Total leased assets		$	4,309

Liabilities
Operating lease right-of-use liabilities	Accounts payable and accrued expenses	$	4,092
Total lease liabilities		$	4,092

Weighted average remaining lease term (years)
Operating leases		6
Weighted average discount rate
Operating leases		4.5		%

Future maturities of the Company's operating lease liabilities at March 31, 2019 are as follows:



Year	(in thousands)
Remaining for year ending December 31, 2019	$	639
2020	852
2021	752
2022	705
2023	510
Thereafter	1,276
Total lease payments	4,734
Less: interest	(642		)
Total lease liabilities	$	4,092

The following table represents future minimum lease payments under noncancelable operating leases at December 31, 2018 as presented in the Company’s Annual Report on Form 10-K filed March 14, 2019:



Year	(in thousands)
2019	$	1,172
2020	676
2021	638
2022	645
2023	483
Thereafter	1,183
	$	4,797

The components of lease expense for the three months ended March 31, 2019 were as follows:

Supplemental cash flow information related to leases for the three months ended March 31, 2019 was as follows:



	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	199

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—

3. Revenue from Contracts with Customers

As of January 1, 2018, the Company adopted ASU 2014-09 and all subsequent ASUs that modified ASC 606. While only a portion of the Company’s revenues is impacted by this guidance as it does not apply to contracts falling under the leasing standard, as part of the implementation process the Company performed an analysis to identify accounting policies that needed to change and additional disclosures that are required. The Company considered factors such as customer contracts with unique revenue recognition considerations, the nature and type of goods and services offered, the degree to which contracts include multiple performance obligations or variable consideration, and the pattern in which revenue is currently recognized, among other things. All revenue streams applicable to the new standard (Spare parts and equipment sales and Managed services which is reflected within Other revenue) were evaluated by management. The Company considered recognition under the new standard and concluded the timing of the Company’s revenue recognition will remain the same. The Company has also evaluated the changes in controls and processes that are necessary to implement the new standard, and no material changes were required.

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The following table disaggregates revenue by major source for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 (in thousands):

Leasing and




Three months ended�� September 30, 2018

Related Operations

Spare Parts Sales

Eliminations (1)

Total
Leasing revenue (2)

$
67,240

$
—

$
—

$
67,240
Gain on sale of leased equipment (3)

1,150

106

—

1,256
Spare parts and equipment sales

—

8,354

—

8,354
Managed services

1,124

—

—

1,124
Other revenue

—

274

(274)

—
Total revenue

$
69,514

$
8,734

$
(274)

$
77,974


Leasing and




Nine months ended September 30, 2018

Related Operations

Spare Parts Sales

Eliminations (1)

Total
Leasing revenue (2)

$
188,984

$
—

$
—

$
188,984
Gain on sale of leased equipment (3)

1,917

225

—

2,142
Spare parts and equipment sales

—

21,701

—

21,701
Managed services

3,297

—

—

3,297
Other revenue

—

1,596

(1,550)

46
Total revenue

$
194,198

$
23,522

$
(1,550)

$
216,170




Three months ended March 31, 2019	Leasing and Related Operations		Spare Parts Sales		Eliminations (1)			Total
Leasing revenue (2)	$	75,358	$	—	$	—		$	75,358
Spare parts and equipment sales	2,485		15,017		—			17,502
Gain on sale of leased equipment	9,570		—		—			9,570
Managed services	1,339		—		—			1,339
Other revenue	—		94		(94		)	—
Total revenue	$	88,752	$	15,111	$	(94	)	$	103,769

Three months ended March 31, 2018	Leasing and Related Operations		Spare Parts Sales		Eliminations (1)			Total
Leasing revenue (2)	$	56,014	$	—	$	—		$	56,014
Spare parts and equipment sales	—		12,986		—			12,986
Gain on sale of leased equipment	545		—		—			545
Managed services	921		—		—			921
Other revenue	—		1,113		(1,082		)	31
Total revenue	$	57,480	$	14,099	$	(1,082	)	$	70,497

_____________________________


(1)		Represents revenue generated between our reportable segments.


(2)		Leasing revenue is recognized under the lease accounting guidance, ~~in ASC 840 Leases,~~ and therefore qualifies for the scope exception under ASC 606. Total Leasing revenue includes $1.6 million and $0.9 million for the three months ended March 31, 2019 and 2018, respectively, that is presented in the Other revenue line item on the Consolidated Statements of Income.

~~(3)~~

~~Gain on sale of leased equipment is accounted for under ASC 610-20,Gains and losses from the derecognition of nonfinancial assets.~~

4. Investments

~~Leasing revenue~~

Revenue from leasing of engines, aircraft and related parts and equipment is recognized as operating lease revenue on a straight-line basis over the terms of the applicable lease agreements. Revenue is not recognized when cash collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.

~~Under the terms of some of the Company’s leases, the lessees pay use fees (also known as maintenance reserves) to~~

In 2011, the Company based on usage of the leased asset, which are designed to cover expected future maintenance costs. Some of these amounts are reimbursable to the lessee if they make specifically defined maintenance expenditures. Use fees received are recognized in revenue as maintenance reserve revenue if they are not reimbursable to the lessee. 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.

Certain lessees may be significantly delinquent in their rental payments and may default on their lease obligations. As of September 30, 2018, the Company had an aggregate of approximately $5.0 million in lease rent and $2.1 million in maintenance reserve receivables more than 30 days past due. Inability to collect receivables or to repossess engines or other leased equipment in the event of a default by a lessee could have a material adverse effect on the Company. The Company estimates an allowance for doubtful accounts for lease receivables it does not consider fully collectible. The allowance for doubtful accounts includes the following: (1) specific reserves for receivables which are impaired for which management believes full collection is doubtful; and (2) a general reserve for estimated losses based on historical experience.

~~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 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 engine are not included in the sale, any such amount is included in the calculation of gain or loss.

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~~Spare parts sales~~

The Spare Parts Sales reportable segment primarily engages in the sale of aircraft engine parts and materials through the acquisition or consignment of engines from third parties. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, and the buyer is responsible for any loss in transit, and the Company has a legal right to payment for the spare parts. Management has determined that physical acceptance of the spare parts to be a formality in accordance with ASC 606-10-5-86 and as the Company is not obliged to perform additional services under these arrangements, the shipment of the spare parts is the performance obligation.

The spare parts transaction price is a fixed dollar amount and is stated on each purchase order for a fixed amount by total number of parts. Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. 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. Additionally, there is no impact to the timing and amounts of revenue recognized for spare parts sales related to the implementation of 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~~entered 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. Management believes the asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. As such, management has identified the transfer of the asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of assets) and is explicitly stated in each contract. Equipment sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer to be the date the customer obtains control and title over the asset and the date which revenue is to be recognized and payment is due. As such, there is no impact to the timing and amounts of revenue recognized for equipment sales related to the implementation of ASC 606.

~~Managed Services~~

Managed Services revenue predominantly represents fleet management and engine storage services which may be combined on a single contract with a customer. Fleet management services are performed for a stated fixed fee as agreed upon in the services agreement. Engine storage services are for a fixed monthly fee. For a contract containing more than one performance obligation, the allocation of the transaction price is generally performed on the basis of the relative stand-alone selling price of each distinct good or service in the contract. The result of allocation consideration on this basis is consistent with the overall core principal of ASC 606 (to recognize revenue in an amount that depicts the consideration to which the Company expects to be entitled in exchange for the promised goods or services). As each of the services provided within the contract have separate prices, the Company allocates the stated price to its related performance obligation described above. Management has determined each of the revenue elements contain performance obligations that are satisfied over time and therefore recognizes revenue over time in accordance with ASC 606-10-25-27. The Company will continue utilizing the percentage-of-completion method (input method) for recognizing Fleet Management services and will calculate revenues based on labor hours incurred. Additionally, as is required by ASC 606-10-25-35, as circumstances change over time, the Company will update its measure of progress to reflect any changes in the outcome of the performance obligation. Engine storage services will continue to be recognized on a monthly basis utilizing the input method of days passed. Therefore, there is no impact to the timing and amounts of revenue recognized for Managed Services related to the implementation of ASC 606.

Amounts owed for Managed services are typically billed upon contract completion. At January 1, 2018, $0.4 million of unbilled revenue associated with outstanding contracts was reported in Other Assets, all of which was recognized by September 30, 2018. At September 30, 2018, unbilled revenue was $0.8 million and the Company

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~~expects it to be fully recognized by March 31, 2019. Additionally, Managed services are presented within the Other revenue line in the condensed consolidated statements of income.~~

~~3. Investments~~

~~The Company is a partner~~ with Mitsui & Co., Ltd. to participate in a joint venture ~~based in Dublin, Ireland —~~formed as a Dublin-based Irish limited company - Willis Mitsui & Company Engine Support Limited (“WMES”) ~~which acquires~~for the purpose of acquiring and ~~leases~~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 March 31, 2019, WMES owned a lease portfolio of 3533 engines and ~~one~~six aircraft with a net book value of ~~$266.1 million as of September 30, 2018.~~

~~The~~$318.4 million.

In 2014, the Company ~~is a partner~~entered into an agreement with China Aviation Supplies ~~Company Ltd.~~Import & Export Corporation (“CASC”) to participate in a joint venture named CASC Willis Engine Lease Company Limited (“CASC Willis”), ~~which is~~a joint venture based in Shanghai, China. ~~The Company~~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 March 31, 2019, CASC Willis owned a lease portfolio of four engines with a net book value of ~~$52.8 million as of September 30, 2018.~~

$52.7 million.

Nine Months Ended September 30, 2018

WMES

CASC Willis

Total

(in thousands)
Investment in joint ventures as of December 31, 2017

$
36,014

$
14,627

$
50,641
Earnings (losses) from joint ventures

1,831

(262)

1,569
Deferred gain on engine sale

(1,280)

—

(1,280)
Distribution

(5,730)

—

(5,730)
Foreign currency translation adjustment

—

(762)

(762)
Investment in joint ventures as of September 30, 2018

$
30,835

$
13,603

$
44,438



Three Months Ended March 31, 2019	WMES		CASC Willis		Total
	(in thousands)
Investment in joint ventures as of December 31, 2018	$	34,183	$	13,758	$	47,941
Earnings from joint ventures	747		199		946
Investment	5,013		—		5,013
Foreign currency translation adjustment	—		353		353
Investment in joint ventures as of March 31, 2019	$	39,943	$	14,310	$	54,253

“Other revenue” on the Condensed Consolidated Statements of Income includes management fees earned of $0.6 million and ~~$0.5~~$0.7 million during the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $1.8 million during the nine months ended September 30, 2018 and 2017,~~ respectively. These fees related to the servicing of engines

for the WMES lease portfolio. During the ~~nine~~three months ended ~~September 30,~~March 31, 2019, the Company sold five aircraft to WMES for $75.5 million. During the three months ended March 31, 2018, the Company sold ~~two engines~~one aircraft and one engine to WMES for ~~$23.2~~$21.4 million. ~~During the nine months ended September 30, 2017, the Company sold two engines to WMES for $14.8 million.~~

There were no engine sales to CASC Willis during the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Company sold one engine to CASC Willis for $11.2 million.

Summarized financial information for 100% of WMES is presented in the following tables:

Three Months Ended September 30,

Nine Months Ended September 30,


2018

2017


2018

2017

(in thousands)


(in thousands)
Revenue

$
9,987

$
12,286


$
26,633

$
32,146
Expenses

8,408

6,366



22,762

20,820
WMES income before income taxes

$
1,579

$
5,920


$
3,871

$
11,326

September 30,

December 31,

2018

2017

(in thousands)
Total assets

$
284,988

$
246,309
Total liabilities

211,981

165,228
Total WMES net equity

$
73,007

$
81,081



	Three Months Ended March 31
	2019		2018
	(in thousands)
Revenue	$	9,543	$	7,606
Expenses	8,205		6,904
WMES income before income taxes	$	1,338	$	702

~~Table of Contents~~

4.
March 31,
2019 December 31,
2018
(in thousands)
Total assets $ 325,763
$ 274,744
Total liabilities 238,318
198,534
Total WMES net equity $ 87,445
$ 76,210

5. Debt Obligations

Debt obligations consisted of the following:

September 30,

December 31,

2018

2017

(in thousands)
Credit facility at a floating rate of interest of one-month LIBOR plus 2.0% at September 30, 2018, secured by engines. The facility has a committed amount of $890.0 million at September 30, 2018, which revolves until the maturity date of April 2021

$
466,000

$
491,000
WEST IV Series A 2018 term notes payable at a fixed rate of interest of 4.75%, maturing in September 2043, secured by engines

326,759

—
WEST IV Series B 2018 term notes payable at a fixed rate of interest of 5.44%, maturing in September 2043, secured by engines

46,680

—
WEST III Series A 2017 term notes payable at a fixed rate of interest of 4.69%, maturing in August 2042, secured by engines

279,382

289,295
WEST III Series B 2017 term notes payable at a fixed rate of interest of 6.36%, maturing in August 2042, secured by engines

39,953

41,370
WEST II Series A 2012 term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037, secured by engines

243,221

259,022
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024, secured by an aircraft

11,388

12,720
Note payable at a variable interest rate of one-month LIBOR plus 2.25%, matured in January 2018, secured by engines

—

10,336

1,413,383

1,103,743
Less: unamortized debt issuance costs

(21,270)

(18,338)
Total debt obligations

$
1,392,113

$
1,085,405



	March 31, 2019			December 31, 2018
	(in thousands)
Credit facility at a floating rate of interest of one-month LIBOR plus 1.5% at March 31, 2019, secured by engines. The facility has a committed amount of $890.0 million at March 31, 2019, which revolves until the maturity date of April 2021	$	392,000		$	427,000
WEST IV Series A 2018 term notes payable at a fixed rate of interest of 4.75%, maturing in September 2043, secured by engines	319,390			323,075
WEST IV Series B 2018 term notes payable at a fixed rate of interest of 5.44%, maturing in September 2043, secured by engines	45,627			46,154
WEST III Series A 2017 term notes payable at a fixed rate of interest of 4.69%, maturing in August 2042, secured by engines	270,901			274,205
WEST III Series B 2017 term notes payable at a fixed rate of interest of 6.36%, maturing in August 2042, secured by engines	38,740			39,212
WEST II Series A 2012 term notes payable at a fixed rate of interest of 5.50%, maturing in September 2037, secured by engines	232,409			237,847
Note payable at three-month LIBOR plus a margin ranging from 1.85% to 5.25% at March 31, 2019, maturing in July 2022, secured by engines	8,120			—
Note payable at fixed interest rates ranging from 2.60% to 2.97%, maturing in July 2024, secured by an aircraft	10,483			10,937
	1,317,670			1,358,430
Less: unamortized debt issuance costs	(19,834		)	(21,081		)
Total debt obligations	$	1,297,836		$	1,337,349

Principal outstanding at ~~September 30, 2018,~~March 31, 2019, is repayable as follows:

Year

(in thousands)
2018

$
13,812
2019

55,380
2020

54,980
2021 (includes $466.0 million outstanding on revolving credit facility)

521,217
2022 (includes $173.8 million outstanding on WEST II Series A 2012 term notes)

207,733
Thereafter

560,261
Total

$
1,413,383

On August 22, 2018, Willis Engine Structured Trust IV (“WEST IV”), a direct, wholly-owned subsidiary of the Company closed its offering of $373.4 million in aggregate principal amount of fixed rate notes (the “WEST IV Notes”). The WEST IV Notes were issued in two series, with the Series A Notes issued in an aggregate principal amount of $326.8 million and the Series B Notes in an aggregate principal amount of $46.7 million. The WEST IV Notes are secured by, among other things, WEST IV’s direct and indirect interests in a portfolio of 55 engines and one airframe.

The Series A Notes have a fixed coupon of 4.75%, an expected maturity of approximately eight years and a final maturity date of September 15, 2043. The Series B Notes have a fixed coupon of 5.44%, an expected maturity of approximately eight years and a final maturity date of September 15, 2043. The Series A Notes were issued at a price of 99.99504% of par and the Series B Notes were issued at a price of 99.99853% of par. Principal and interest on the WEST IV Notes are payable monthly to the extent of available cash in accordance with a priority of payments included in the Indenture. Proceeds from asset sales by WEST IV will be used, at WEST IV’s election subject to certain conditions, to reduce WEST IV’s debt or to acquire other engines or airframes.

As of September 30, 2018, $373.4 million of the WEST IV Notes were outstanding. The assets of WEST IV are not available to satisfy the Company’s obligations other than the obligations specific to WEST IV. WEST IV is



Year	(in thousands)
2019	$	42,333
2020	56,128
2021 (includes $392.0 million outstanding on revolving credit facility)	448,418
2022 (includes $163.1 million outstanding on WEST II Series A 2012 term notes)	212,671
2023	34,008
Thereafter	524,112
Total	$	1,317,670

~~Table of Contents~~

consolidated for financial statement presentation purposes. WEST IV’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST IV’s maintenance of adequate reserves and capital. Under WEST IV, 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. Additionally, a portion of the maintenance reserve payments and lease security deposits are formulaically accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively.

The Company maintains a revolving credit facility to finance the acquisition of commercial aircraft and aircraft engines and related aircraft equipment for lease as well as for general working capital purposes. The $890 million revolving credit facility has an accordion feature which would expand the entire credit facility up to $1 billion. The interest rate is adjusted quarterly, based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility.

On February 28, 2019, the Company closed on a loan with a maturity date of July 2022 totaling $8.1 million. Interest is payable at three-month LIBOR plus a margin ranging from 1.85% to 5.25% and principal and interest are paid quarterly. The loan is secured by two engines.

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. These covenants are tested either monthly or quarterly and the Company was in full compliance with all financial covenant requirements at ~~September 30, 2018.~~

5.March 31, 2019.

6. Derivative Instruments

The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, in particular one-month LIBOR, with ~~$466.0~~$392.0 million and ~~$501.3~~$427.0 million of such borrowings at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, ~~at variable rates.~~tied to this rate. As a matter of policy, management does not use derivatives for speculative ~~purposes~~. purposes. During 2016, the Company entered into one interest rate swap agreement which has a notional outstanding amount of $100.0 million, with a remaining term of 3125 months as of ~~September 30, 2018.~~ March 31, 2019. The derivatives were designated in a cash flow hedging relationship.

The Company evaluated the effectiveness of the swap to hedge its interest rate risk associated with its variable rate debt and concluded at the swap inception date that the swap was highly effective in hedging that risk. The Company will evaluate the effectiveness of the hedging relationship on an ongoing basis.

The fair value of the swap at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 was ~~$2.8~~$1.0 million and ~~$1.1~~$1.7 million, respectively, representing a net asset. The Company recorded a ~~gain of $0.1~~$(0.2) million and ~~a loss of $0.1 million in~~$24.0 thousand adjustment to interest expense during the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and a gain of $0.2 million and a loss of $0.5 million during the nine months ended September 30, 2018 and 2017,~~ respectively, from derivative instruments.

The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and 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.

~~Table of Contents~~

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

The following tables provide additional information about the financial statement effects related to the cash flow hedges for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~

2018:

Amount of Gain Recognized

Location of Gain (Loss)

Amount of Gain (Loss) Recognized

in OCI on Derivatives

Reclassified from

from Accumulated OCI into Income

Derivatives in

(Effective Portion)

Accumulated OCI into

(Effective Portion)

Cash Flow Hedging

Three Months Ended September 30,

Income

Three Months Ended September 30,

Relationships

2018

2017

(Effective Portion)

2018

2017

(in thousands)

(in thousands)

Interest rate contracts

$
221

$
164

Interest expense

$
113

$
(117)

Total

$
221

$
164

Total

$
113

$
(117)

Amount of Gain Recognized

Location of Gain (Loss)

Amount of Gain (Loss) Recognized

in OCI on Derivatives

Reclassified from

from Accumulated OCI into Income

Derivatives in

(Effective Portion)

Accumulated OCI into

(Effective Portion)

Cash Flow Hedging

Nine Months Ended September 30,

Income

Nine Months Ended September 30,

Relationships

2018

2017

(Effective Portion)

2018

2017

(in thousands)

(in thousands)

Interest rate contracts

$
1,636

$
160

Interest expense

$
182

$
(517)

Total

$
1,636

$
160

Total

$
182

$
(517)

The derivatives were designated in a cash flow hedging relationship with the effective portion of the change in fair value of the derivative reported in the cash flow hedges subaccount of accumulated other comprehensive income.



Derivatives in Cash Flow Hedging Relationships	Amount of Loss (Gain) Recognized in OCI on Derivatives (Effective Portion)					Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Recognized from Accumulated OCI into Income (Effective Portion)
	Three Months Ended March 31,						Three Months Ended March 31,
	2019		2018				2019		2018
	(in thousands)						(in thousands)
Interest rate contracts	$	613	$	(1,031	)	Interest expense	$	203	$	(24	)
Total	$	613	$	(1,031	)	Total	$	203	$	(24	)

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. ~~However, these are highly effective hedges and~~There was no ~~significant~~ ineffectiveness ~~occurred~~ in the ~~periods presented.~~

hedge for the period ended March 31, 2019.

Counterparty Credit Risk

The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The counterparty for the interest rate swap was a large financial institution in the United States that possessed an investment grade credit rating. Based on this rating, the Company believes that the counterparty was creditworthy and that their continuing performance under the hedging agreement was probable, and did not require the counterparty to provide collateral or other security to the Company.

7. Income Taxes

Income tax expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 was ~~$3.6~~$7.0 million and ~~$9.4 million, respectively. Income tax expense for the three and nine months ended September 30, 2017 was $3.0 million and $13.4~~$2.5 million, respectively. The effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 was ~~27.0%~~25.0% and ~~27.1%~~26.4%, respectively. The effective tax rate for the three and nine months ended September 30, 2017 was 35.9% and 40.7%, respectively. The 2018 tax rate reflects the enactment of the Tax Cuts and Jobs Act of 2017 (the “Act”) which made significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017.

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 IRS code 162(m) and numerous other factors, including changes in tax law.

~~Table of Contents~~

7.8. 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, other than in 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, operating lease related receivables, and accounts payable: The amounts reported in the accompanying Consolidated Balance Sheets approximate fair value due to their short-term nature.~~

~~Debt obligations~~

Cash and cash equivalents, restricted cash, operating lease related receivables, and accounts payable: The amounts reported in the accompanying Consolidated Balance Sheets approximate fair value due to their short-term nature.: The carrying amount of the Company’s outstanding balance on its Debt obligations as of September 30, 2018 and December 31, 2017 was estimated to have a fair value of approximately $1,416.6 million and $1,090.0 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).

Notes receivables:The carrying amount of the Company’s outstanding balance on its Notes receivables as of March 31, 2019 and December 31, 2018 was estimated to have a fair value of approximately $31.1 million and $0.2 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).

Debt obligations: The carrying amount of the Company’s outstanding balance on its Debt obligations as of March 31, 2019 and December 31, 2018 was estimated to have a fair value of approximately $1,333.6 million and $1,348.1 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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company measured the fair value of its interest rate swap of $100.0 million (notional amount) 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 interest rate swap agreement had a net fair value of ~~$2.8~~$1.0 million and ~~$1.1~~$1.7 million as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. For the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~$0.2~~$(0.2) million ~~was realized through the income statement as a decrease in interest expense. For the nine months ended September 30, 2017, $0.5 million~~and $24.0 thousand was realized through the income statement as an ~~increase in interest~~adjustment to Interest expense.

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

~~Table of Contents~~

value. The Company used Level 2 inputs to measure write-downs of equipment held for lease and equipment held for sale ~~and spare parts inventory~~ as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~

2018.

Assets Written Down to Fair Value

Total Losses

September 30, 2018

December 31, 2017

Nine Months Ended September 30,


Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

2018

2017

(in thousands)

(in thousands)
Equipment held for lease

$
—

$
5,619

$
—

$
5,619

$
—

$
23,255

$
—

$
23,255

$
(3,434)

$
(9,019)
Equipment held for sale

—

2,110

—

2,110

—

39,261

—

39,261

(1,359)

(10,649)
Spare parts inventory

—

934

—

934

—

5,336

—

5,336

(2,169)

(2,575)
Total

$
—

$
8,663

$
—

$
8,663

$
—

$
67,852

$
—

$
67,852

$
(6,962)

$
(22,243)



	Assets Written Down to Fair Value																Total Losses
	March 31, 2019								December 31, 2018								Three Months Ended March 31,
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		2019		2018

	(in thousands)																(in thousands)
Equipment held for lease	$	—	$	—	$	—	$	—	$	—	$	17,756	$	—	$	17,756	$	1,105	$	—
Equipment held for sale	—		—		—		—		—		472		—		472		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	18,228	$	—	$	18,228	$	1,105	$	—

A write-down of ~~$4.8~~$1.1 million was recorded during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 for ~~four~~two engines ~~and six airframe parts packages. The engines were written down~~ due to a management decision to part-out the engines, in which the net book values exceeded the estimated proceeds. ~~The airframe parts packages~~There were ~~held for consignment sales with third party vendors, in which the net book values exceeded the estimated proceeds.~~

~~A write-down of $19.7 million was~~no write-downs recorded during the ~~nine~~three months ended September 30, 2017 for seven engines and three aircraft for which their leases ended or were modified in the period. Management evaluated the equipment return condition, end of lease compensation, accumulated maintenance reserves and expected future proceeds from part out and sale to record its initial best estimate of impairment.

8.March 31, 2018.

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 ~~during~~that would have had an antidilutive impact to earnings per share for the three months ended ~~September 30, 2018 or 2017. There were 0.2 million and 925 anti-dilutive shares excluded from the~~March 31, 2019. The computation of diluted weighted average earnings per ~~common~~ share ~~during~~do not include 275 restricted shares for the ~~nine~~three months ended ~~September 30,~~March 31, 2018, ~~and 2017, respectively. The difference between average common shares outstanding~~as the effect of their inclusion would have been antidilutive to ~~calculate basic and assuming full dilution is due to restricted stock issued under the 2007 Stock Incentive Plan.~~

earnings per share.

The following table presents the calculation of basic and diluted ~~EPS:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

(in thousands)

(in thousands)
Net income attributable to common shareholders

$
8,834

$
4,939

$
22,624

$
18,436

Basic weighted average common shares outstanding

5,900

6,055

5,960

6,068
Potentially dilutive common shares

104

129

123

147
Diluted weighted average common shares outstanding

6,004

6,184

6,083

6,215

Basic weighted average earnings per common share

$
1.50

$
0.82

$
3.80

$
3.04
Diluted weighted average earnings per common share

$
1.47

$
0.80

$
3.72

$
2.97

EPS (in thousands, except per share data):



	Three Months Ended March 31,
	2019		2018
Net income attributable to common shareholders	$	20,056	$	6,261

Basic weighted average common shares outstanding	5,779		6,104
Potentially dilutive common shares	199		152
Diluted weighted average common shares outstanding	5,978		6,256

Basic weighted average earnings per common share	$	3.47	$	1.03
Diluted weighted average earnings per common share	$	3.35	$	1.00

~~Table of Contents~~

9.10. Equity

Common Stock Repurchase

In September 2012, the Company announced that its Board of Directors authorized a plan to repurchase up to $100.0 million of its common stock over the next 5five years. The Board of Directors reaffirmed the repurchase plan in ~~October~~ 2016 and extended the plan to December 31, 2018. Effective December 31, 2018, the Board of Directors approved the renewal of the 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. Repurchased shares are immediately retired. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company repurchased a total of ~~423,629~~7,671 shares of common stock for approximately ~~$14.5~~$0.3 million ~~under this program,~~ at a weighted average price of ~~$34.27~~$41.34 per share. At ~~September 30, 2018,~~March 31, 2019, approximately ~~$14.8~~$59.7 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 ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, the Company paid total dividends of ~~$2.4~~$0.8 million and $0.9 million, respectively, on the Series A-1 and Series A-2 Preferred Stock. For additional disclosures on the Company’s Redeemable Preferred Stock, refer to Note 1011 in the ~~2017~~2018 Form 10-K.

~~10.~~

11. Stock-Based Compensation Plans

The components of stock-based compensation expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows:

Three months ended  September 30,

Nine months ended September 30,


2018

2017

2018

2017

(in thousands)

(in thousands)
2007 Stock Incentive Plan

$
1,392

$
1,134

$
3,957

$
3,193
Employee Stock Purchase Plan

27

20

47

35
Total Stock Compensation Expense

$
1,419

$
1,154

$
4,004

$
3,228



	Three months ended March 31,
	2019		2018
	(in thousands)
2007 Stock Incentive Plan	$	1,259	$	905
Employee Stock Purchase Plan	6		20
Total Stock Compensation Expense	$	1,265	$	925

The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted on May 24, 2007. Under this 2007 Plan, a total of 2,800,000 shares are authorized for stock based compensation available in the form of either restricted stock awards (“RSA’s”) or stock options. The RSA’s are subject to service-based vesting, typically between one and ~~four~~three 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. There are no stock options outstanding under the 2007 Plan.

The 2018 Stock Incentive Plan (the “2018 Plan”) was adopted on May 24, 2018. Under this 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 RSA’s. The RSA’s are subject to service-based vesting, typically between one and ~~four~~three 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 ~~September 30, 2018,~~March 31, 2019, the Company has granted 2,883,414 RSA’s under the 2007 Plan. Of this amount, 169,144 shares were cancelled and returned to the pool of shares which could be granted under the 2018 Plan resulting in a net number of 885,730890,730 shares available for future issuance. The fair value of the restricted stock awards equaled the stock price at the grant date.

As of ~~September 30, 2018,~~March 31, 2019, the Company has not granted RSA’s under the 2018 Plan.

~~Table of Contents~~

The following table summarizes restricted stock activity during the ~~nine~~three months ended ~~September 30, 2018:~~

March 31, 2019:


		~~Shares~~
	Shares
Restricted stock at December 31, ~~2017~~ 2018	417,890	~~328,122~~
Shares granted	—	~~267,454~~
Shares forfeited	—	~~(2,400)~~
Shares vested	(91,229	~~(167,870)~~ )
Restricted stock at ~~September 30, 2018~~ March 31, 2019	326,661	~~425,306~~

Under the Employee Stock Purchase Plan (“ESPP”), as amended and restated effective April 1, 2018, 325,000 shares of common stock have been reserved for issuance. Eligible employees may designate not more than 10% of their cash compensation to be deducted each pay period for the purchase of common stock under the Purchase Plan. Participants may purchase not 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. In the ~~nine~~three months ofended March 31, 2019 and 2018, 6,732 and ~~2017, respectively, 11,284 and 11,485~~5,497 shares of common stock, respectively, were issued under the ESPP. The Company issues new shares through its transfer agent upon employee stock purchase.

~~11.~~

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 and airframe 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.

During the second quarter of 2018, the Company moved certain sales of leased equipment to the Spare Parts Sales segment from the Leasing and Related Operations segment and had no change in the determination of operating segments. In accordance with ASC 280-10, the Company has restated prior period information presented below to reflect this change in composition of its reportable segments.

The following tables present a summary of the reportable segments (in thousands):



Three Months Ended March 31, 2019	Leasing and Related Operations		Spare Parts Sales		Eliminations (1)			Total
Revenue:
Lease rent revenue	$	48,369	$	—	$	—		$	48,369
Maintenance reserve revenue	25,350		—		—			25,350
Spare parts and equipment sales	2,485		15,017		—			17,502
Gain on sale of leased equipment	9,570		—		—			9,570
Other revenue	2,978		94		(94		)	2,978
Total revenue	88,752		15,111		(94		)	103,769

Expenses:
Depreciation and amortization expense	20,236		22		—			20,258
Cost of spare parts and equipment sales	1,836		12,576		—			14,412
Write-down of equipment	1,105		—		—			1,105
General and administrative	19,974		1,466		—			21,440
Technical expense	1,787		1		—			1,788
Interest expense	17,879		—		—			17,879
Total expenses	62,817		14,065		—			76,882
Earnings from operations	$	25,935	$	1,046	$	(94	)	$	26,887

~~Table of Contents~~


	Leasing and
Three months ended September 30, 2018	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Three months ended March 31, 2018									Leasing and Related Operations		Spare Parts Sales		Eliminations (1)			Total
Revenue:
Lease rent revenue	$	46,984	$	—	$	—	$	46,984	$	39,644	$	—	$	—		$	39,644
Maintenance reserve revenue		19,370		—		—		19,370	15,440		—		—			15,440
Spare parts and equipment sales		—		8,354		—		8,354
Gain on sale of leased equipment		1,150		106		—		1,256
Spare parts and equipment sales (2)									—		12,986		—			12,986
Gain on sale of leased equipment (2)									545		—		—			545
Other revenue		2,010		274		(274)		2,010	1,851		1,113		(1,082		)	1,882
Total revenue		69,514		8,734		(274)		77,974	57,480		14,099		(1,082		)	70,497

Expenses:
Depreciation and amortization expense		19,771		90		—		19,861	17,269		86		—			17,355
Cost of spare parts and equipment sales		—		5,848		—		5,848
Cost of spare parts and equipment sales (2)									—		11,388		—			11,388
Write-down of equipment		1,215		—		—		1,215	—		—		—			—
General and administrative		17,003		1,121		—		18,124	14,495		1,116		—			15,611
Technical expense		2,290		—		—		2,290	3,677		—		—			3,677
Interest expense		17,885		—		—		17,885	13,595		—		—			13,595
Total expenses		58,164		7,059		—		65,223	49,036		12,590		—			61,626
Earnings from operations	$	11,350	$	1,675	$	(274)	$	12,751	$	8,444	$	1,509	$	(1,082	)	$	8,871

	Leasing and
Nine months ended September 30, 2018	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	129,710	$	—	$	—	$	129,710
Maintenance reserve revenue		56,855		—		—		56,855
Spare parts and equipment sales		—		21,701		—		21,701
Gain on sale of leased equipment		1,917		225		—		2,142
Other revenue		5,716		1,596		(1,550)		5,762
Total revenue		194,198		23,522		(1,550)		216,170

Expenses:
Depreciation and amortization expense		55,336		264		—		55,600
Cost of spare parts and equipment sales		—		16,537		—		16,537
Write-down of equipment		4,793		—		—		4,793
General and administrative		47,181		3,336		—		50,517
Technical expense		9,199		—		—		9,199
Interest expense		46,617		—		—		46,617
Total expenses		163,126		20,137		—		183,263
Earnings from operations	$	31,072	$	3,385	$	(1,550)	$	32,907

Leasing and




Three months ended  September 30, 2017

Related Operations

Spare Parts Sales

Eliminations (1)

Total
Revenue:

Lease rent revenue

$
33,474

$
—

$
—

$
33,474
Maintenance reserve revenue

20,370

—

—

20,370
Spare parts and equipment sales

—

9,294

—

9,294
Gain on sale of leased equipment

22

152

—

174
Other revenue

2,538

247

(236)

2,549
Total revenue

56,404

9,693

(236)

65,861

Expenses:

Depreciation and amortization expense

16,056

86

—

16,142
Cost of spare parts and equipment sales (2)

—

7,148

—

7,148
Write-down of equipment (2)

6,226

—

—

6,226
General and administrative

13,387

921

—

14,308
Technical expense

2,605

—

—

2,605
Interest expense

14,220

—

—

14,220
Total expenses

52,494

8,155

—

60,649
Earnings from operations

$
3,910

$
1,538

$
(236)

$
5,212


Leasing and




Nine months ended September 30, 2017

Related Operations

Spare Parts Sales

Eliminations (1)

Total
Revenue:

Lease rent revenue

$
95,045

$
—

$
—

$
95,045
Maintenance reserve revenue

64,212

—

—

64,212
Spare parts and equipment sales

19,300

21,973

—

41,273
Gain on sale of leased equipment

4,463

221

—

4,684
Other revenue

6,314

697

(572)

6,439
Total revenue

189,334

22,891

(572)

211,653

Expenses:

Depreciation and amortization expense

48,526

260

—

48,786
Cost of spare parts and equipment sales (2)

14,623

17,498

—

32,121
Write-down of equipment (2)

19,668

—

—

19,668
General and administrative

38,008

2,566

—

40,574
Technical expense

7,345

—

—

7,345
Interest expense

36,398

—

—

36,398
Total expenses

164,568

20,324

—

184,892
Earnings from operations

$
24,766

$
2,567

$
(572)

$
26,761


(1)		Represents revenue generated between our operating segments.


(2)		~~The amounts herein include reclassifications~~Effective January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers and has identified the transfer of ~~scrap inventory write-offs~~engines and ~~lower of cost or market write-downs that were previously presented within Write-down of equipment~~airframes from the lease portfolio to the ~~Costs~~Spare Parts segment for part out as sales to customers in accordance with the ordinary operations of ~~spare~~our Spare Parts reportable segment. As such, the Company presents the sale of these assets on a gross basis and have reclassified the gross revenue and costs on sale to the Spare parts and equipment sales ~~expense line item. The three~~ and ~~nine months ended September 30, 2017 were impacted by a reclassification of $0.7 million and $2.6 million, respectively, reflected as an increase to~~ Cost of spare parts and equipment sales ~~and a decrease to Write-down~~line items from the net gain (loss) presentation within the Gain on sale of ~~equipment.~~ leased equipment line item.



	Leasing and Related Operations		Spare Parts Sales		Eliminations		Total
Total assets as of March 31, 2019	$	1,851,884	$	53,618	$	—	$	1,905,502
Total assets as of December 31, 2018	$	1,882,860	$	52,083	$	—	$	1,934,943

~~Table of Contents~~

Leasing and

Related Operations

Spare Parts Sales

Eliminations

Total
Total assets as of September 30, 2018

$
1,919,003

$
46,193

$
—

$
1,965,196
Total assets as of December 31, 2017

$
1,556,406

$
47,025

$
—

$
1,603,431

~~12.~~13. Related Party ~~Transaction~~

~~During~~Transactions

In January 2019, the third quarter of 2018, the Company’s Chief Executive Officer utilized the WASI spare parts warehouse to temporarily store personal equipment and has reimbursed the Company $450 as of September 30, 2018 for such usage.

~~On September 12, 2018, in a transaction approved by an independent committee~~Special Committee of the Board of Directors the Company purchased 88,000 shares of common stock directly from the Company’s Chief Executive Officer. The agreed and paid price per share was $34.2972, the volume weighted average price on September 12, 2018.

~~During the nine months of 2018, the Company accrued approximately $44,000 of expenses payable to Mikchalk Lake, LLC, an entity~~approved a transaction in which ~~our~~the Company's Chief Executive Officer, ~~retains an ownership interest. These expenses were~~Charles F. Willis, purchased a car for ~~lodging and other business related services. These transactions were approved by~~$0.1 million from the ~~Board’s independent Directors.~~

Company.

Item ~~2.Management’s~~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 ~~2017~~2018 Annual Report on Form 10-K (“~~2017~~2018 Form 10-K”). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. 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, ~~and the selective sale of such aircraft, engines and related equipment,~~ all of which we sometimes collectively refer to as “equipment.” As of ~~September 30, 2018,~~March 31, 2019, all of our leases were operating ~~leases.~~leases with the exception of two leases entered into during the first quarter of 2019 which are classified as notes receivables under Accounting Standards Update 2016-02, “Leases (Topic 842).” As of ~~September 30, 2018,~~March 31, 2019, we had ~~101~~81 lessees in 5147 countries. Our portfolio is continually changing due to equipment acquisitions and sales. As of ~~September 30, 2018,~~March 31, 2019, our lease portfolio consisted of ~~250~~244 engines, 1413 aircraft, ~~and~~ 10 other leased parts and equipment and one marine vessel with an aggregate net book value of ~~$1,590.5~~$1,605.1 million. As of ~~September 30, 2018,~~March 31, 2019, we also managed ~~423~~437 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 from third parties.~~

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 ~~III~~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, ~~McDonnell Douglas,~~ Bombardier and Embraer aircraft. ~~Also, on a more limited basis, we lease aircraft that typically utilize the engines that are in our portfolio.~~

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 ~~2017~~2018 Form ~~10-K.~~

10-K, with the exception of the adoption of ASU 2016-02.

~~Table of Contents~~

Results of Operations

Three months ended ~~September 30, 2018~~March 31, 2019 compared to the three months ended ~~September 30, 2017~~March 31, 2018:

Lease Rent Revenue.Lease rent revenue increased by ~~$13.5~~$8.7 million, or ~~40.4%~~22.0%, to ~~$47.0~~$48.4 million in the three months ended ~~September 30, 2018~~March 31, 2019 from ~~$33.5~~$39.6 million for the three months ended ~~September 30, 2017.~~March 31, 2018. Lease rent revenue consists of rental income from long-term and short-term engine leases, aircraft leases, and other leased parts and equipment. The increase is primarily driven by an increase in lease rates, ~~and~~ increased net book value of the leased ~~assets.~~assets and increased utilization. During the three months ended ~~September 30, 2018,~~March 31, 2019, we purchased equipment (including capitalized costs) totaling ~~$77.1~~$92.2 million, which primarily consisted of ~~eight~~five engines, four aircraft and one marine vessel purchased for our lease portfolio. During the three months ended ~~September 30, 2017,~~March 31, 2018, we purchased equipment (including capitalized costs) totaling ~~$65.0~~$138.6 million, which primarily ~~consisting~~consisted of ~~two~~20 engines ~~and five aircraft.~~purchased for our lease portfolio.

The aggregate net book value of equipment held for lease at ~~September 30,~~March 31, 2019 and March 31, 2018, ~~and September 30, 2017,~~ was ~~$1,590.5~~$1,605.1 million and ~~$1,199.9~~$1,466.1 million, respectively, an increase of ~~32.6%~~9.5%. Average utilization (based on net book value) for the three months ended ~~September 30, 2018 decreased~~March 31, 2019 increased to approximately ~~90%~~89% from ~~91%~~86% for the three months ended ~~September 30, 2017. Utilization was influenced by the Company’s acquisition of new equipment.~~

March 31, 2018.

Maintenance Reserve Revenue. Maintenance reserve revenue ~~decreased $1.0~~increased $9.9 million, or ~~4.9%~~64.2%, to ~~$19.4~~$25.4 million for the three months ended ~~September 30, 2018~~March 31, 2019 from ~~$20.4~~$15.4 million for the three months ended ~~September 30, 2017. We recognized $18.0~~March 31, 2018. The increase is primarily related to the increase in engines out on lease with “non-reimbursable” usage fees, generating $17.6 million of short term maintenance ~~reserve revenue on our short-term, non-reimbursable leases during the three months of 2018,~~revenues compared to ~~$11.6~~$13.0 million in the comparable prior ~~year~~ period.

~~During~~ Long term maintenance revenue increased to $7.8 million for the three months ended ~~September 30, 2018, two reimbursable leases terminated resulting~~March 31, 2019 compared to $2.4 million in the recognition of $1.4 million in maintenance reserve revenue. Comparatively, during the same three months of 2017, three reimbursable lease terminated resulting in the recognition of $8.8 million in maintenance reserve revenue.

comparable prior period.

Spare Parts and Equipment Sales. Spare parts and equipment sales ~~decreased~~increased by ~~$0.9~~$4.5 million, or ~~10.1%~~34.8%, to ~~$8.4~~$17.5 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared to ~~$9.3~~$13.0 million for the three months ended ~~September 30, 2017.~~March 31, 2018. Spare parts sales for the three months ended March 31, 2019 were $15.1 million compared to $13.0 million in 2018. Equipment sales for the three months ended March 31, 2019 were $2.5 million for the sale of an airframe. There were no equipment sales infor the ~~third quarter of 2018 or 2017.~~three months ended March 31, 2018.

Gain on Sale of Leased Equipment.Gain on sale of leased equipment increased by ~~$1.1~~$9.0 million to ~~$1.3~~$9.6 million in the three months ended ~~September 30, 2018~~March 31, 2019 from ~~$0.2~~$0.5 million in the three months ended ~~September 30, 2017~~.March 31, 2018. The ~~$1.3~~$9.6 million gain in the three months ended ~~September 30, 2018~~March 31, 2019 reflects the sale of six engines, six aircraft, and two ~~engines, one aircraft, one airframe and leased parts and equipment.~~airframes. The ~~$0.2~~$0.5 million gain in the three months ended ~~September 30, 2017~~March 31, 2018 reflects the sale of ~~leased parts~~one engine and ~~equipment.~~one aircraft.

Other Revenue. Other revenue ~~decreased~~increased by ~~$0.5~~$1.1 million, or ~~21.1%~~58.2%, to ~~$2.0~~$3.0 million in the three months ended ~~September 30, 2018~~March 31, 2019 from ~~$2.5~~$1.9 million in the three months ended ~~September 30, 2017.~~March 31, 2018. Other revenue primarily reflects fees earned related to engines managed on behalf of third parties, ~~and~~ service fee ~~revenue.~~revenue and interest.

Depreciation and Amortization Expense.Depreciation and amortization expense increased by ~~$3.7~~$2.9 million, or ~~23.0%~~16.7%, to ~~$19.9~~$20.3 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared to ~~$16.1~~$17.4 million for the three months ended ~~September 30, 2017.~~March 31, 2018. The increase reflects the larger net book value of the lease portfolio, and the change in mix of portfolio, as compared to the prior year period.

Cost of Spare Parts and Equipment Sales. C~~ost~~Cost of spare parts and equipment sales ~~decreased~~increased by ~~$1.3~~$3.0 million, or ~~18.2%~~26.6%, to ~~$5.8~~$14.4 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared to ~~$7.1~~$11.4 million for the three months ended ~~September 30, 2017. The decrease in the cost of spare parts sales is directly correlated to the decrease in spare parts sales.~~ March 31, 2018. Cost of spare parts sales for the three months ended ~~September 30, 2017 include $0.7~~ March 31, 2019 was $12.6 million ~~of reclassifications of scrap inventory write-offs and lower of cost or market write-downs that were previously presented within~~compared to $11.4 million in the ~~Write-down~~comparable prior year period. Cost of equipment ~~expense line item. The reclassification is reflected as an increase to Cost of spare parts and equipment~~ sales ~~and a decrease to Write-down of equipment.~~

for the three months ended March 31, 2019 was $1.8 million. There were no costs of equipment sales infor the ~~third quarter of 2018 or 2017.~~

three months ended March 31, 2018.

~~Table of Contents~~

Write-down of Equipment. Write-down of equipment ~~decreased by $5.0 million, or 80.5%,~~increased to ~~$1.2~~$1.1 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared to ~~$6.2~~zero for the three months ended March 31, 2018. During the three months ended March 31, 2019, we wrote down two engines. There were no write-downs during the three months ended March 31, 2018.

General and Administrative Expenses. General and administrative expenses increased by $5.8 million, or 37.3%, to $21.4 million for the three months ended ~~September 30, 2017. During the three months ended September 30, 2018, we wrote down one engine and six airframe parts packages,~~March 31, 2019 compared to ~~two engines and six airframe parts packages in the three months ended September 30, 2017.~~

~~General and Administrative Expenses.~~ ~~General and administrative expenses increased by $3.8 million, or 26.7%, to $18.1~~$15.6 million for the three months ended ~~September 30, 2018 compared to $14.3 million for the three months ended September 30, 2017.~~March 31, 2018. The increase, when compared to the prior year period, primarily reflects ~~additional expenses associated with the transition of personnel to our new Coconut Creek facility, other transition related expenses, and~~ increased bonus accrual due to operating ~~performance.~~performance and investment in technology infrastructure.

Technical Expense. Technical expense decreased by ~~$0.3~~$1.9 million, or ~~12.1%~~51.4%, to ~~$2.3~~$1.8 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared to ~~$2.6~~$3.7 million for the three months ended ~~September 30, 2017.~~March 31, 2018. Technical expense consists of the cost of engine repairs, engine thrust rental fees, outsourced technical support services, sublease engine rental expense, engine storage and freight costs. ~~This~~The decrease primarily reflects a decrease of ~~$0.7~~$2.1 million in engine maintenance costs, partly offset by an increase of ~~$0.4~~$0.5 million in ~~engine freight and storage~~technical services costs.

Interest Expense.Interest expense increased to $17.9 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared to ~~$14.2~~$13.6 million for the three months ended ~~September 30, 2017.~~March 31, 2018. This increase is a result of higher debt obligation balances and increased borrowing cost in ~~2018~~2019 associated with our LIBOR based borrowings and our ~~WEST III and~~ WEST IV notes. Debt obligations outstanding, net of unamortized debt issuance costs, as of ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ were ~~$1,392.1~~$1,297.8 million and ~~$932.1~~$1,179.7 million, ~~respectively, of which $466.0 million and $339.4, respectively, was~~respectively.

Debt obligations outstanding tied to one-month ~~LIBOR.~~LIBOR as of March 31, 2019 and 2018 were $392.0 million and $604.0 million, respectively. As of ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ one-month LIBOR was ~~2.26%~~2.49% and ~~1.24%,~~1.88% respectively.

Debt obligations outstanding tied to three-month LIBOR as of March 31, 2019 and 2018 were $8.1 million and zero, respectively. As of March 31, 2019, three-month LIBOR was 2.63%.

Income Tax Expense.Income tax expense was ~~$3.6~~$7.0 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared to ~~$3.0~~$2.5 million for the three months ended September 30, 2017. The effective tax rate for the third quarter of 2018 was 27.0% compared to 35.9% in the prior year period. This decrease was predominantly due to the Tax Cuts and Jobs Act of 2017 (the “Act”) that was signed into law making significant changes to the Internal Revenue Code, decreasing federal corporate tax rate from 35% to 21% for tax years beginning after DecemberMarch 31, ~~2017, lower forecasted permanent non-deductible expenses for executive compensation (IRS code 162(m) calculation) and changes in the proportions of revenue generated within and outside of California.~~

~~Nine months ended September 30, 2018 compared to the nine months ended September 30, 2017~~:

~~Lease Rent Revenue.~~ Lease rent revenue increased by $34.7 million or 36.5% to $129.7 million in the nine months ended September 30, 2018 from $95.0 million for the nine months ended September 30, 2017. The increase is primarily driven by an increase in lease rates and increased net book value of the leased assets. During the nine months ended September 30, 2018, we purchased equipment (including capitalized costs) totaling $320.2 million, which primarily included 37 engines purchased for our lease portfolio. During the nine months ended September 30, 2017, we purchased equipment (including capitalized costs) totaling $177.3 million, which primarily included 16 engines and 13 aircraft.

The aggregate net book value of equipment held for lease at September 30, 2018 and September 30, 2017, was $1,590.5 million and $1,199.9 million, respectively, an increase of 32.6%. Average utilization (based on net book value) for the nine months ended September 30, 2018 decreased to approximately 88% from 89% for the nine months ended September 30, 2017. Utilization was influenced by the Company’s acquisition of new equipment.

~~Maintenance Reserve Revenue~~. Maintenance reserve revenue decreased $7.4 million, or 11.5%, to $56.9 million for the nine months ended September 30, 2018 from $64.2 million for the nine months ended September 30, 2017. We recognized $44.8 million maintenance reserve revenue on our short-term, non-reimbursable leases during the nine months of 2018, compared to $31.8 million in the prior year period.

During the nine months ended September 30, 2018, one lease modification and five reimbursable lease terminations resulted in the recognition of $12.1 million in maintenance reserve revenue. Comparatively, during the same period of 2017, 10 reimbursable leases terminated resulting in the recognition of $32.4 million in maintenance reserve revenue.

~~Table of Contents~~

~~Spare Parts and Equipment Sales~~. Spare parts and equipment sales decreased by $19.6 million, or 47.4%, to $21.7 million for the nine months ended September 30, 2018 compared to $41.3 million for the nine months ended September 30, 2017. Spare parts sales for the nine months ended September 30, 2018 were $21.7 million compared to $22.0 million in the comparable period in 2017. There were no equipment sales for the nine months ended September 30, 2018, compared to the sale of five airframes for $19.3 million in the prior year period.

~~Gain on Sale of Leased Equipment.~~ Gain on sale of leased equipment decreased by $2.5 million, or 54.3% to $2.1 million in the nine months ended September 30, 2018 from $4.7 million in the nine months ended September 30, 2017. During the nine months ended September 30, 2018 we sold five engines, three aircraft, one airframe and other related equipment for a net gain of $2.1 million, compared to seven engines and other related equipment generating a net gain of $4.7 million during the nine months ended September 30, 2017.

~~Other Revenue. Other revenue decreased by $0.7 million, or 10.5%, to $5.8 million in the nine months ended September 30, 2018 from $6.4 million in the nine months ended September 30, 2017.~~

~~Depreciation and Amortization Expense.~~ Depreciation and amortization expense increased by $6.8 million, or 14.0%, to $55.6 million for the nine months ended September 30, 2018 compared to $48.8 million for the nine months ended September 30, 2017. The increase reflects the larger net book value of the lease portfolio, and the change in mix of portfolio, as compared to the prior year period.

~~Cost of Spare Parts and Equipment Sales~~. Cost of spare parts and equipment sales decreased by $15.6 million, or 48.5%, to $16.5 million for the nine months ended September 30, 2018 compared to $32.1 million for the nine months ended September 30, 2017. The decrease in the cost of spare parts sales is directly correlated to the decrease in spare parts sales. Cost of spare parts sales for the nine months ended September 30, 2017 include $2.6 million of reclassifications of scrap inventory write-offs and lower of cost or market write-downs that were previously presented within the Write-down of equipment expense line item. The reclassification is reflected as an increase to Cost of spare parts and equipment sales and a decrease to Write-down of equipment.

~~There were no costs of equipment sales for the nine months ended September 30, 2018, compared to $14.6 million in the prior year period.~~

~~Write-down of Equipment.~~ Write-down of equipment decreased by $14.9 million, or 75.6%, to $4.8 million for the nine months ended September 30, 2018 compared to $19.7 million for the nine months ended September 30, 2017. The $4.8 million for the nine months ended September 30, 2018 reflects the write-down of four engines and six airframe parts packages. A write-down of equipment totaling $19.7 million was recorded in the nine months ended September 30, 2017 due to a management decision to consign four engines for part-out and sale, in which the asset’s net book value exceeded the estimated proceeds. A further write-down of $3.0 million was recorded due to the adjustment of the carrying value for four engines within the portfolio to reflect estimated market value.

~~General and Administrative Expenses.~~ General and administrative expenses increased by $9.9 million, or 24.5%, to $50.5 million for the nine months ended September 30, 2018 compared to $40.6 million for the nine months ended September 30, 2017. The increase, when compared to the prior year period, primarily reflects additional expenses associated with the transition of personnel to our new Coconut Creek facility, other transition related expenses, and increased bonus accrual due to operating performance.

~~Technical Expense.~~ Technical expense increased by $1.9 million, or 25.2%, to $9.2 million for the nine months ended September 30, 2018 compared to $7.3 million for the nine months ended September 30, 2017. This increase primarily reflects an increase of $1.3 million in engine maintenance costs.

~~Interest Expense.~~ Interest expense increased to $46.6 million for the nine months ended September 30, 2018 compared to $36.4 million for the nine months ended September 30, 2017. This increase is a result of higher debt obligation balances and increased borrowing cost in 2018 associated with our LIBOR based borrowings and our WEST III and WEST IV notes.

~~Income Tax Expense.~~ ~~Income tax expense was $9.4 million for the nine months ended September 30, 2018 compared to $13.4 million for the nine months ended September 30, 2017.~~2018. The effective tax rate for the first ~~nine months~~quarter of ~~2018~~2019 was ~~27.1%~~25.0% compared to ~~40.7%~~26.4% in the prior year period. ~~This~~The decrease in the effective tax rate was predominantly due to the ~~Tax Cuts and Jobs Act of 2017 (the “Act”) that was signed into law making significant changes to the Internal Revenue~~increase in foreign income.

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Code, decreasing federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, the effect of lower forecasted permanent non-deductible expenses for executive compensation (IRS code 162(m) calculation) and changes in the proportions of revenue generated within and outside of California.

Financial Position, Liquidity and Capital Resources

At ~~September 30, 2018,~~March 31, 2019, the Company had ~~$163.9~~$80.6 million of cash, cash equivalents and restricted cash. We finance our growth through borrowings secured by our equipment lease portfolio. Cash of approximately ~~$616.4~~$102.1 million and ~~$485.7~~$123.0 million in the ~~nine~~three months

ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, was derived from this activity. In these same time periods, ~~$306.8~~$142.9 million and ~~$448.2~~$29.8 million, respectively, was used to pay down related debt.

Cash Flows Discussion

Cash flows provided by operating activities was ~~$100.8~~$35.6 million and ~~$112.0~~$35.3 million in the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. ~~The decrease was primarily due to the increase in spare parts and equipment, partly offset by the change in maintenance reserves.~~

Cash flows from operations are driven significantly by payments made under our lease agreements, which comprise lease ~~rent~~ revenue, security deposits and maintenance reserves, and are offset by interest expense and general and administrative costs. Cash received ~~from~~as maintenance reserve ~~arrangements and lease security deposits~~payments for some of our engines on lease are partially restricted ~~per~~by our debt ~~agreements.~~arrangements. The lease revenue stream, in the short-term, is at fixed rates while a portion of our debt is at variable rates. If interest rates increase, it is unlikely we could increase lease rates in the short term and this would cause a reduction in our earnings and operating cash flows. ~~Lease rent revenue~~Revenue and maintenance reserves are also affected by the amount of equipment ~~off-lease.~~off lease. Approximately ~~92% and 89%~~88%, by book value, of our ~~lease~~ assets were ~~on lease at September 30, 2018~~on-lease as of March 31, 2019 and December 31, ~~2017, respectively.~~2018. The average utilization rate for the three months ended March 31, 2019 and 2018 was approximately ~~88%~~89% and ~~89% for the nine months ended September 30, 2018 and 2017,~~86%, respectively. ~~The decline in percentage year over year is a direct result of purchases made in the nine months of 2018, a large portion of which were off-lease.~~ If there is ~~any~~an increase in off-lease rates or deterioration in lease rates that are not offset by reductions in interest rates, there will be a negative impact on earnings and cash flows from operations.

Cash flows provided by investing activities was $5.3 million for the three months ended March 31, 2019 and primarily reflected $133.8 million in proceeds from sales of equipment (net of selling expenses), partly offset by $92.2 million for the purchase of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period) and $30.8 million related to two leases entered into during the first quarter of 2019 which are classified as notes receivables under ASU 2016-02, Leases (Topic 842). Cash flows used in investing activities was ~~$270.0 million and $123.9~~$117.1 million in the ~~nine~~three months ended ~~September 30, 2018 and 2017, respectively.~~March 31, 2018. Our primary use of funds iswas for the purchase of equipment for operating lease. Purchases of equipment held for operating lease (including capitalized costs and prepaid deposits made in the period) totaled ~~$320.2 million and $177.3~~$138.6 million.

Cash flows used in financing activities was $42.3 million for the ~~nine~~three months ended ~~September 30, 2018 and 2017, respectively.~~

~~Cash flows provided by financing activities was $285.7 million for the nine months ended September 30, 2018~~March 31, 2019 and primarily reflected ~~$616.4~~$142.9 million in principal payments and $0.3 million in share repurchases, partly offset by $102.1 million inproceeds from the issuance of debt ~~obligations, partly offset by $306.8 million in principal payments and $14.5 million in share repurchases.~~obligations. Cash flows provided by financing activities of ~~$51.4~~$91.7 million in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and primarily reflected ~~$485.7~~$123.0 million in proceeds from debt obligations, partly offset by ~~$448.2~~$29.8 million in principal ~~payments.~~

payments and $0.1 million in share repurchases.

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 ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, the Company paid total dividends of ~~$2.4~~$0.8 million and $0.9 million, respectively, on the Series A-1 and Series A-2 Preferred Stock.

Debt Obligations and Covenant Compliance

The Series A Notes have a fixed coupon of 4.75%, an expected maturity of approximately eight years and a final maturity date of September 15, 2043 and Series B Notes will have a fixed coupon of 5.44%, an expected maturity of

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approximately eight years and a final maturity date of September 15, 2043. The Series A Notes were issued at a price of 99.99504% of par and the Series B Notes were issued at a price of 99.99853% of par. Principal and interest on the WEST IV Notes are payable monthly to the extent of available cash in accordance with a priority of payments included in the Indenture. Proceeds from asset sales by WEST IV will be used, at WEST IV’s election subject to certain conditions, to reduce WEST IV’s debt or to acquire other engines or airframes.

The assets of WEST IV are not available to satisfy our or our affiliates’ obligations other than the obligations specific to WEST IV. WEST IV is consolidated for financial statement presentation purposes. WEST IV’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and WEST IV’s maintenance of adequate reserves and capital. Under WEST IV, 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. Additionally, a portion of the maintenance reserve payments and lease security deposits are formulaically accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively.

At ~~September 30, 2018,~~March 31, 2019, Debt obligations consist of loans totaling ~~$1,392.1~~$1,297.8 million, net of unamortized issuance costs, payable with interest rates varying between approximately 2.6% and 6.4%. Substantially all of our assets are pledged to secure our obligations to creditors. For further information on our debt instruments, see the ~~"Debt Obligations"~~“Debt Obligations” Note 45 in Part I, Item 1 of this Form 10-Q.

On February 28, 2019, we closed on a loan with a maturity date of July 2022 totaling $8.1 million. Interest is payable at three-month LIBOR plus a margin ranging from 1.85% to 5.25% and principal and interest are paid quarterly. The loan is secured by two engines.

Virtually all of the Company’s debt requires our 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. Under our revolving credit facility, we can borrow no more than 85% of an engine’s net book value and 65% of an airframe’s or spare parts inventory’s net book value. Therefore we must have other available funds for the balance of the purchase price of any new equipment to be purchased or we will not be permitted to draw on our revolver. The facilities are also cross-defaulted against other facilities. If we do not comply with the covenants or eligibility requirements, we may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, much of the debt is secured by engines and aircraft, and to the extent that engines or aircraft are sold, repayment of that portion of the debt could be required.

At ~~September 30, 2018,~~March 31, 2019, we are in compliance with the covenants specified in our revolving credit facility, including the Interest Coverage Ratio requirement of at least 2.25 to 1.00, and the Total Leverage Ratio requirement to remain below 4.25 to 1.00. The

Interest Coverage Ratio, as defined in the credit facility, is the ratio of: earnings before interest, taxes, depreciation and amortization (EBITDA) and other one-time charges to consolidated interest expense. The Total Leverage Ratio, as defined in the credit facility, is the ratio of total indebtedness to tangible net worth. At ~~September 30, 2018,~~March 31, 2019, we are in compliance with the covenants specified in the WEST II, WEST III and WEST IV indentures, servicing and other debt related agreements.

Contractual Obligations and Commitments

Repayments of our gross debt obligations primarily consist of scheduled installments due under term loans and are funded by the use of unrestricted cash reserves and from cash flows from ongoing operations. The table below summarizes our contractual commitments at ~~September 30, 2018:~~

March 31, 2019:

Payment due by period (in thousands)

Less than

More than


Total

1 Year

1-3 Years

3-5 Years

5 Years
Debt obligations

$
1,413,383

$
55,547

$
576,044

$
247,029

$
534,763
Interest payments under debt obligations

339,157

68,305

118,458

65,581

86,813
Operating lease obligations

4,764

891

1,386

1,141

1,346
Purchase obligations

70,584

70,584

—

—

—
Total

$
1,827,888

$
195,327

$
695,888

$
313,751

$
622,922



			Payment due by period (in thousands)
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Debt obligations	$	1,317,670	$	56,299	$	504,721	$	241,049	$	515,601
Interest payments under debt obligations	294,018		48,947		108,745		62,221		74,105
Operating lease obligations	5,466		1,227		1,910		1,145		1,184
Purchase obligations	103,400		103,400		—		—		—
Total	$	1,720,554	$	209,873	$	615,376	$	304,415	$	590,890

We have estimated the interest payments due under debt obligations by applying the interest rates applicable at ~~September 30, 2018~~March 31, 2019 to the remaining debt, adjusted for the estimated debt repayments identified in the table above. Actual interest payments made will vary due to changes in the rates for one-month and three-month LIBOR.

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We believe our equity base, internally generated funds, including rental income and proceeds from sale of parts and of rental equipment, and existing debt facilities are sufficient to maintain our level of operations through the next twelve months. However, a decline in the level of internally generated funds or an inability to obtain lease commitments for our off-lease engines (including new engines from manufacturers), would limit availability of funding under our existing debt facilities, and/or result in a significant step-up in borrowing costs. Such limits on availability of funding and increased borrowing costs would impair our ability to sustain our level of operations. We continue to discuss additions to our capital base with our commercial and investment banks. If we are not able to access additional capital, our ability to continue to grow our asset base consistent with historical trends could be constrained and our future growth limited to that which can be funded from internally generated capital.

For any interest rate swaps that we enter into, we will be exposed to risk in the event of non-performance of the interest rate hedge counter-parties. We anticipate that we may hedge additional amounts of our floating rate debt in the future.

Off-Balance Sheet Arrangements

As of March 31, 2019, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Recent Accounting Pronouncements

The most recent adopted accounting pronouncements and accounting pronouncements to be adopted by the Company are described in Note 1 to our ~~unaudited consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposure is that of interest rate risk. A change in LIBOR rates would affect our cost of borrowing. Increases in interest rates, which may cause us to raise the implicit rates charged to our customers, could result in a reduction in demand for our leases. Alternatively, we may price our leases based on market rates so as to keep the fleet on-lease and suffer a decrease in our operating margin due to interest costs that we are unable to pass on to our customers. As of ~~September 30, 2018, $466.0~~March 31, 2019, $400.1 million of our outstanding debt is variable rate debt. We estimate that for every one percent increase or decrease in interest rates on our variable rate debt, our annual interest expense would increase or decrease ~~$3.7~~$3.0 million.

We hedge a portion of our borrowings from time to time, effectively fixing the rate of these borrowings. This hedging activity helps protect us against reduced margins on longer term fixed rate leases. Such hedging activities may limit our ability to participate in the benefits of any decrease in interest rates, but may also protect us from increases in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is possible that we can adjust lease rates for the effect of change in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates.

We are also exposed to currency devaluation risk. Most of our leases require payment in U.S. dollars. During the ~~nine~~three months ended ~~September 30, 2018, 78%~~March 31, 2019, 79% of our lease rent revenues came from non-United States domiciled lessees. If these lessees’ currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making their lease payments.

One customer accounted for more than 10% of total lease rent revenue during the ~~nine~~three months ended ~~September 30, 2018 and 2017, respectively.~~

March 31, 2019.

Item ~~4.Controls~~4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.In accordance with Rule 13a-15b under the Securities Exchange Act of 1934, as amended (Exchange Act) we ~~(with~~carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ~~(CEO)~~(“CEO”) and Chief Financial Officer ~~(CFO)~~(“CFO”) ~~carried out an evaluation~~, of the effectiveness and design of our disclosure controls and procedures (as defined in Rules 13-15(e) and 15d-15(e) of the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that ~~such~~as of March 31, 2019 our disclosure controls and procedures, ~~are~~were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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(b)Inherent Limitations on Controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

(c) Changes in internal control over financial reporting.There has been no change in our internal controls over financial reporting during our fiscal quarter ended ~~September 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item ~~1A.Risk~~1A. Risk Factors

Before making an investment decision, investors should carefully consider the risks in the “Risk Factors” in Part 1: Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the SEC on March ~~15, 2018.~~14, 2019. These risks are not the only ones facing the Company. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations. Any of these risks could adversely affect our business, cash flows, financial condition and results of operations. The trading price of our common stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. ~~Except as described below, there~~There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

~~Changes to trade policy, tariff, sanction and import/export regulations may have a material adverse effect on our business, financial condition and results of operations.~~

Changes in U.S. or international, political, regulatory and economic conditions or in laws and policies governing foreign trade and investment in the territories or countries where we currently conduct our business, could adversely affect our business. The executive branch of the United States government has instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the U.S., economic sanctions on corporations or countries, and other government regulations affecting trade between the U.S. and other countries that will affect the manner in which we conduct our business. Trading partners of the United States have also implemented and threatened to implement retaliatory tariffs and/or other impediments to trade.

As a result of new or threatened tariffs, sanctions and/or impediments to trade, both from the United States and other countries, there may be greater restrictions and economic disincentives on international trade. The new or threatened tariffs, sanctions and other changes in trade policy could trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing tariffs and/or economic sanctions on certain U.S. goods. We do a significant amount of business that would be impacted by changes to the trade policies of the U.S. and foreign countries (including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products and services, and as a result, could have an adverse effect on our business, financial condition and results of operations.

2018.

Item ~~2.Unregistered~~2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c) Issuer Purchases of Equity Securities.In September 2012, the Company announced that its Board of Directors authorized a plan to repurchase up to $100.0 million of its common stock over the next 5 years. The Board of Directors reaffirmed the repurchase plan in ~~October~~ 2016 and extended the plan to December 31, 2018. Effective December 31, 2018, the Board of Directors approved the renewal of the 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.

~~Table of Contents~~

Common stock repurchases, under our authorized plan, in the three months ended ~~September 30, 2018~~March 31, 2019 were as follows:

Approximate

Total Number of

Dollar Value of

Average

Shares Purchased

Shares that May

Total Number of

Price

as Part of Publicly

Yet be Purchased
Period

Shares Purchased

per Share

Announced Plans

Under the Plans

(in thousands, except share and per share data)
July 2018

—

$
—

—

$
19,157
August 2018

10,468

$
34.15

10,468

$
18,800
September 2018

115,794

$
34.34

115,794

$
14,823
Total

126,262

$
34.33

126,262

$
14,823



Period	Total Number of Shares Purchased	Average Price per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans
	(in thousands, except share and per share data)
January 2019	—	$	—	—	$	60,000
February 2019	—	$	—	—	$	60,000
March 2019	7,671	$	41.34	7,671	$	59,683
Total	7,671	$	41.34	7,671	$	59,683

Item ~~5.Other~~5. Other Information

~~None.~~

None.

Item 6.

EXHIBITS

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~~Item 6.~~

~~EXHIBITS~~


Exhibit Number	~~Description~~
10.34* Exhibit Number		Administrative Agency Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, the Registrant, Deutsche Bank Trust Company Americas, as trustee, and each Managed Group Member referred to therein and from time to time made a party thereto. Description
10.35* 10.43*	~~Asset Purchase Agreement dated as of August 22, 2018 between the Registrant and Willis Engine Structured Trust IV.~~
10.36*	T~~rust~~ ~~Indenture dated as of August 22, 2018 among Willis Engine Structured Trust IV, Deutsche Bank Trust Company Americas, as Trustee, the Registrant and Bank of America,~~ ~~N.A.~~
10.37*	~~Revolving Credit Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, Bank of America, N.A.~~ ~~and the Registrant.~~
10.38*	~~Servicing Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, the Registrant and each Service Group Member referred to therein and from time to time made a party thereto.~~
10.39*	Security Trust Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, each Grantor referred to therein and from time to time made a party thereto and Deutsche Bank Trust Company Americas, as s~~ecurity~~ ~~trustee~~ ~~and operating bank~~.
10.40*	Amendment ~~No. 1~~No.3 to Agreement to Purchase Spare Engines, dated ~~July 25, 2018,~~March 22, 2019, between IAE International Aero Engines AG and Willis Lease Finance Corporation.
10.41*	~~Amendment No. 2 to Agreement to Purchase Spare Engines, dated August 9, 2018, between IAE International Aero Engines AG and Willis Lease Finance Corporation.~~
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.
31.2		Certification of Scott B. Flaherty, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Labels Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

_____________________________

*Confidential treatment has been requested for certain portions of this exhibit. These portions have been omitted and filed separately with the SEC.

SIGNATURES

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~~SIGNATURES~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 7, 2018~~

May 8, 2019



	Willis Lease Finance Corporation

	By:	/s/ Scott B. Flaherty
		Scott B. Flaherty
		Chief Financial Officer
		(Principal Accounting Officer)


	September 30,		December 31,
	2018		2017
ASSETS
Cash and cash equivalents	$	8,436	$	7,052
Restricted cash		155,420		40,272
Equipment held for operating lease, less accumulated depreciation of $392,444 and $368,683 at September 30, 2018 and December 31, 2017, respectively		1,590,482		1,342,571
Maintenance rights		14,763		14,763
Equipment held for sale		40,931		34,172
Operating lease related receivables, net of allowances of $1,823 and $949 at September 30, 2018 and December 31, 2017, respectively		24,777		18,848
Spare parts inventory		24,409		16,379
Investments		44,438		50,641
Property, equipment & furnishings, less accumulated depreciation of $8,770 and $7,374 at September 30, 2018 and December 31, 2017, respectively		26,245		26,074
Intangible assets, net		1,430		1,727
Other assets		33,865		50,932
Total assets (1)	$	1,965,196	$	1,603,431

LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	40,879	$	22,072
Deferred income taxes		87,142		78,280
Debt obligations		1,392,113		1,085,405
Maintenance reserves		88,986		75,889
Security deposits		28,591		25,302
Unearned revenue		7,264		8,102
Total liabilities (2)		1,644,975		1,295,050

Redeemable preferred stock ($0.01 par value, 2,500 shares authorized; 2,500 shares issued at September 30, 2018 and December 31, 2017, respectively)		49,533		49,471

Shareholders’ equity:
Common stock ($0.01 par value, 20,000 shares authorized; 6,230 and 6,419 shares issued at September 30, 2018 and December 31, 2017, respectively)		62		64
Paid-in capital in excess of par		—		2,319
Retained earnings		269,664		256,301
Accumulated other comprehensive income, net of income tax expense of $273 and $83 at September 30, 2018 and December 31, 2017, respectively		962		226
Total shareholders’ equity		270,688		258,910
Total liabilities, redeemable preferred stock and shareholders' equity	$	1,965,196	$	1,603,431


	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
REVENUE
Lease rent revenue	$	46,984	$	33,474	$	129,710	$	95,045
Maintenance reserve revenue		19,370		20,370		56,855		64,212
Spare parts and equipment sales		8,354		9,294		21,701		41,273
Gain on sale of leased equipment		1,256		174		2,142		4,684
Other revenue		2,010		2,549		5,762		6,439
Total revenue		77,974		65,861		216,170		211,653

EXPENSES
Depreciation and amortization expense		19,861		16,142		55,600		48,786
Cost of spare parts and equipment sales		5,848		7,148		16,537		32,121
Write-down of equipment		1,215		6,226		4,793		19,668
General and administrative		18,124		14,308		50,517		40,574
Technical expense		2,290		2,605		9,199		7,345
Interest expense		17,885		14,220		46,617		36,398
Total expenses		65,223		60,649		183,263		184,892

Earnings from operations		12,751		5,212		32,907		26,761
Earnings from joint ventures		506		3,040		1,569		6,055
Income before income taxes		13,257		8,252		34,476		32,816
Income tax expense		3,583		2,960		9,359		13,367
Net income		9,674		5,292		25,117		19,449
Preferred stock dividends		819		344		2,431		988
Accretion of preferred stock issuance costs		21		9		62		25
Net income attributable to common shareholders	$	8,834	$	4,939	$	22,624	$	18,436

Basic weighted average earnings per common share	$	1.50	$	0.82	$	3.80	$	3.04
Diluted weighted average earnings per common share	$	1.47	$	0.80	$	3.72	$	2.97

Basic weighted average common shares outstanding		5,900		6,055		5,960		6,068
Diluted weighted average common shares outstanding		6,004		6,184		6,083		6,215


	Leasing and
Three months ended�� September 30, 2018	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Leasing revenue (2)	$	67,240	$	—	$	—	$	67,240
Gain on sale of leased equipment (3)		1,150		106		—		1,256
Spare parts and equipment sales		—		8,354		—		8,354
Managed services		1,124		—		—		1,124
Other revenue		—		274		(274)		—
Total revenue	$	69,514	$	8,734	$	(274)	$	77,974


	Leasing and
Nine months ended September 30, 2018	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Leasing revenue (2)	$	188,984	$	—	$	—	$	188,984
Gain on sale of leased equipment (3)		1,917		225		—		2,142
Spare parts and equipment sales		—		21,701		—		21,701
Managed services		3,297		—		—		3,297
Other revenue		—		1,596		(1,550)		46
Total revenue	$	194,198	$	23,522	$	(1,550)	$	216,170


	Amount of Gain Recognized				Location of Gain (Loss)	Amount of Gain (Loss) Recognized
	in OCI on Derivatives				Reclassified from	from Accumulated OCI into Income
Derivatives in	(Effective Portion)				Accumulated OCI into	(Effective Portion)
Cash Flow Hedging	Three Months Ended September 30,				Income	Three Months Ended September 30,
Relationships	2018		2017		(Effective Portion)	2018		2017
	(in thousands)					(in thousands)
Interest rate contracts	$	221	$	164	Interest expense	$	113	$	(117)
Total	$	221	$	164	Total	$	113	$	(117)


	Amount of Gain Recognized				Location of Gain (Loss)	Amount of Gain (Loss) Recognized
	in OCI on Derivatives				Reclassified from	from Accumulated OCI into Income
Derivatives in	(Effective Portion)				Accumulated OCI into	(Effective Portion)
Cash Flow Hedging	Nine Months Ended September 30,				Income	Nine Months Ended September 30,
Relationships	2018		2017		(Effective Portion)	2018		2017
	(in thousands)					(in thousands)
Interest rate contracts	$	1,636	$	160	Interest expense	$	182	$	(517)
Total	$	1,636	$	160	Total	$	182	$	(517)


	Assets Written Down to Fair Value																Total Losses
	September 30, 2018								December 31, 2017								Nine Months Ended September 30,
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		2018		2017
	(in thousands)																(in thousands)
Equipment held for lease	$	—	$	5,619	$	—	$	5,619	$	—	$	23,255	$	—	$	23,255	$	(3,434)	$	(9,019)
Equipment held for sale		—		2,110		—		2,110		—		39,261		—		39,261		(1,359)		(10,649)
Spare parts inventory		—		934		—		934		—		5,336		—		5,336		(2,169)		(2,575)
Total	$	—	$	8,663	$	—	$	8,663	$	—	$	67,852	$	—	$	67,852	$	(6,962)	$	(22,243)


	Leasing and
Three months ended September 30, 2017	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	33,474	$	—	$	—	$	33,474
Maintenance reserve revenue		20,370		—		—		20,370
Spare parts and equipment sales		—		9,294		—		9,294
Gain on sale of leased equipment		22		152		—		174
Other revenue		2,538		247		(236)		2,549
Total revenue		56,404		9,693		(236)		65,861

Expenses:
Depreciation and amortization expense		16,056		86		—		16,142
Cost of spare parts and equipment sales (2)		—		7,148		—		7,148
Write-down of equipment (2)		6,226		—		—		6,226
General and administrative		13,387		921		—		14,308
Technical expense		2,605		—		—		2,605
Interest expense		14,220		—		—		14,220
Total expenses		52,494		8,155		—		60,649
Earnings from operations	$	3,910	$	1,538	$	(236)	$	5,212

	Leasing and
Nine months ended September 30, 2017	Related Operations		Spare Parts Sales		Eliminations (1)		Total
Revenue:
Lease rent revenue	$	95,045	$	—	$	—	$	95,045
Maintenance reserve revenue		64,212		—		—		64,212
Spare parts and equipment sales		19,300		21,973		—		41,273
Gain on sale of leased equipment		4,463		221		—		4,684
Other revenue		6,314		697		(572)		6,439
Total revenue		189,334		22,891		(572)		211,653

Expenses:
Depreciation and amortization expense		48,526		260		—		48,786
Cost of spare parts and equipment sales (2)		14,623		17,498		—		32,121
Write-down of equipment (2)		19,668		—		—		19,668
General and administrative		38,008		2,566		—		40,574
Technical expense		7,345		—		—		7,345
Interest expense		36,398		—		—		36,398
Total expenses		164,568		20,324		—		184,892
Earnings from operations	$	24,766	$	2,567	$	(572)	$	26,761


			Payment due by period (in thousands)
			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Debt obligations	$	1,413,383	$	55,547	$	576,044	$	247,029	$	534,763
Interest payments under debt obligations		339,157		68,305		118,458		65,581		86,813
Operating lease obligations		4,764		891		1,386		1,141		1,346
Purchase obligations		70,584		70,584		—		—		—
Total	$	1,827,888	$	195,327	$	695,888	$	313,751	$	622,922


							Approximate
					Total Number of		Dollar Value of
			Average		Shares Purchased		Shares that May
	Total Number of		Price		as Part of Publicly		Yet be Purchased
Period	Shares Purchased		per Share		Announced Plans		Under the Plans
	(in thousands, except share and per share data)
July 2018		—	$	—		—	$	19,157
August 2018		10,468	$	34.15		10,468	$	18,800
September 2018		115,794	$	34.34		115,794	$	14,823
Total		126,262	$	34.33		126,262	$	14,823

Title of Each Class

~~Outstanding at November 5, 2018~~
Trading Symbol

Name of exchange on which registered

Common Stock, $0.01 par value per share

~~6,208,941~~
WLFC