WILLIS LEASE FINANCE CORPWLFC
WILLIS LEASE FINANCE CORP Income Taxes Disclosure
Income Taxes
The components of income before income taxes are as follows:
| Years ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| United States | $ | 165,339 | $ | 73,853 | |||||||
| Foreign | (12,694) | (6,723) | |||||||||
| Income before income taxes | $ | 152,645 | $ | 67,130 | |||||||
The components of income tax expense for the years ended December 31, 2024 and 2023 were as follows:
| Federal | State | Foreign | Total | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| Current | $ | 2,331 | $ | 2,916 | $ | 205 | $ | 5,452 | |||||||||||||||
| Deferred | 38,871 | (290) | — | 38,581 | |||||||||||||||||||
| Total | $ | 41,202 | $ | 2,626 | $ | 205 | $ | 44,033 | |||||||||||||||
| 2023 | |||||||||||||||||||||||
| Current | $ | 2,449 | $ | 1,387 | $ | (139) | $ | 3,697 | |||||||||||||||
| Deferred | 16,338 | 3,314 | — | 19,652 | |||||||||||||||||||
| Total | $ | 18,787 | $ | 4,701 | $ | (139) | $ | 23,349 | |||||||||||||||
The following is a reconciliation of the federal income tax expense at the statutory rate of 21% for the years ended December 31, 2024 and 2023 to the effective income tax expense:
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Statutory federal income tax expense | $ | 32,055 | $ | 14,097 | |||||||
| State taxes, net of federal benefit | 2,014 | 4,410 | |||||||||
| Foreign tax paid | (559) | (169) | |||||||||
| Foreign jurisdiction rate differential | 445 | 545 | |||||||||
| Permanent differences - nondeductible executive compensation | 6,553 | 2,929 | |||||||||
| Permanent differences and other | 1,355 | 1,046 | |||||||||
| Valuation allowance | 2,170 | 491 | |||||||||
| Effective income tax expense | $ | 44,033 | $ | 23,349 | |||||||
Permanent differences and other includes Subpart F income of $1.4 million from foreign operations for the year ended December 31, 2024. The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| (in thousands) | |||||
| Balance as of December 31, 2022 | $ | 19 | |||
| Increases related to current year tax positions | 435 | ||||
| Decreases due to tax positions expired | (5) | ||||
| Balance as of December 31, 2023 | 449 | ||||
| Increases related to current year tax positions | 123 | ||||
| Decreases due to tax positions expired | (5) | ||||
| Balance as of December 31, 2024 | $ | 567 | |||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
| As of December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Unearned lease revenue | $ | 8,335 | $ | 9,614 | |||||||
| State taxes | 590 | 167 | |||||||||
| Inventory | 2,770 | 2,426 | |||||||||
| Reserves and allowances | 4,629 | 5,471 | |||||||||
| Other accruals | 46,144 | 29,231 | |||||||||
| Lease liability | 584 | 934 | |||||||||
| Net operating loss carry forward | 40,906 | 51,240 | |||||||||
| Charitable contributions | — | 2 | |||||||||
| Total deferred tax assets | 103,958 | 99,085 | |||||||||
| Less: valuation allowance | (3,137) | (978) | |||||||||
| Net deferred tax assets | 100,821 | 98,107 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation and impairment on aircraft engines and equipment | (272,492) | (231,694) | |||||||||
| Notes receivable | (5,181) | (5,405) | |||||||||
| Lease liability | (597) | (930) | |||||||||
| Other deferred tax liabilities | (5,619) | (4,622) | |||||||||
| Net deferred tax liabilities | (283,889) | (242,651) | |||||||||
| Other comprehensive income deferred tax liability | (1,981) | (3,235) | |||||||||
| Net deferred tax liabilities | $ | (185,049) | $ | (147,779) | |||||||
As of December 31, 2024, the Company had net operating loss carry forwards of approximately $177.4 million for federal tax purposes, $0.7 million (tax effected) for state tax purposes, and $12.2 million for foreign tax purposes. The majority of the federal net operating loss carry forwards were generated in 2020 and can be carried forward indefinitely, and the state net operating loss carry forwards will expire at various times from 2026 to 2043. There is a $0.4 million valuation allowance for net operating losses in California that expires between 2034 and 2042 and a $0.1 million valuation allowance for net operating losses in Georgia that expires between 2032 and 2040. As of December 31, 2024, the Company had a $2.7 million valuation allowance for net operating losses in the UK, and there is a $3.1 million net operating loss carryforward in the UK that can be carried forward indefinitely. The Company’s ability to utilize the net operating loss and tax credit carry forwards in the future may be subject to restriction in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax law. Management believes that no valuation allowance is required on deferred tax assets related to federal net operating loss carry forwards, as it is more likely than not that all amounts are recoverable through future taxable income. The Company files U.S. federal, state, and foreign tax returns. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple foreign and state jurisdictions. The tax years that remain subject to examination are from 2021 onwards. To the extent that the Company claims a net operating loss carryforward against future taxable income, those losses may be examined by the taxing authorities. The net change in the total valuation allowance during the year ended December 31, 2024 was $2.2 million.
It is the Company’s intention to reinvest undistributed earnings of their wholly-owned foreign operations and thereby indefinitely postpone their remittance. A determination of the deferred tax liability is not practical. Accordingly, no provision has been made for foreign withholding taxes or U.S. income taxes.About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.