MUL Asset Finance Corporation (A Wholly Owned Subsidiary of Mitsubishi UFJ Lease & Finance Company Limited)

Consolidated Financial Statements as of and for the Year Ended December 31, 2018, and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholder of MUL Asset Finance Corporation:

We have audited the accompanying consolidated financial statements of MUL Asset Finance Corporation and its subsidiaries (collectively, the “Company”), which comprise the consolidated balance sheet as of December 31, 2018, and the related consolidated statements of income, changes in stockholder’s equity and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MUL Asset Finance Corporation and its subsidiaries as of December 31, 2018, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

May 20, 2019

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MUL ASSET FINANCE CORPORATION(A Wholly Owned Subsidiary of Mitsubishi UFJ Lease & Finance Company Limited)

CONSOLIDATED BALANCE SHEETAS OF DECEMBER 31, 2018(In thousands, except share information)

ASSETS

Cash and cash equivalents 179,494$ Operating lease receivables—net of allowance for doubtful accounts of $1,335 51,975 Leasing equipment—net of accumulated depreciation 3,904,376 Net investments in direct finance leases 133,859 Inventory 8,559 Equipment held for sale 1,879 Investment in affiliate 16,070 Loans receivable 84,686 Maintenance rights 91,279 Goodwill and intangible assets 27,713 Other assets 13,730

TOTAL ASSETS 4,513,620$

LIABILITIES AND EQUITY

LIABILITIES: Accounts payable and accrued expenses 163,790$ Debt 258,082 Maintenance reserves 235,209 Deferred tax liabilities 99,621 Other liabilities 364

Total liabilities 757,066

EQUITY: Stockholder’s equity: Common stock, $0.01 par value. Authorized 1,000 shares; issued and outstanding 139 shares 0 Additional paid-in capital 3,521,854 Retained earnings 231,941

Stockholder’s equity attributable to MUL Asset Finance Corporation 3,753,795

Non-controlling interest 2,759

Total equity 3,756,554

TOTAL LIABILITIES AND EQUITY 4,513,620$

See accompanying notes to consolidated financial statements.

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MUL ASSET FINANCE CORPORATION(A Wholly Owned Subsidiary of Mitsubishi UFJ Lease & Finance Company Limited)

CONSOLIDATED STATEMENT OF INCOMEFOR THE YEAR ENDED DECEMBER 31, 2018(In thousands)

REVENUES: Operating lease income 402,574$ Maintenance reserve revenue 70,201 Income from sale of parts 34,486 Gain from sale of equipment—net 8,577 Equity in income of investment in affiliate 474 Interest income 11,316 Others 1,094

Total revenues 528,722

COSTS AND EXPENSES: Depreciation and impairment 256,015 Operating and administrative expenses 68,695 Cost of parts sold 26,889 Interest expense 6,472

Total costs and expenses 358,071

INCOME BEFORE INCOME TAXES 170,651

INCOME TAXES 40,788

NET INCOME 129,863

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST 963

NET INCOME ATTRIBUTABLE TO MUL ASSET FINANCE CORPORATION 128,900$

See accompanying notes to consolidated financial statements.

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MUL ASSET FINANCE CORPORATION(A Wholly Owned Subsidiary of Mitsubishi UFJ Lease & Finance Company Limited)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITYFOR THE YEAR ENDED DECEMBER 31, 2018(In thousands, except number of shares)

AdditionalPaid-In Retained Stockholder’s Non-Controlling Total

Shares Amount Capital Earnings Equity Interest Equity

BALANCE At BEGINNING OF YEAR 137 0$ 3,471,854$ 158,573$ 3,630,427$ 2,421$ 3,632,848$

Issuance of common stock 2 0 50,000 - 50,000 - 50,000 Cash dividend - - - (55,532) (55,532) (625) (56,157) Net income - - - 128,900 128,900 963 129,863

BALANCE AT END OF YEAR 139 0$ 3,521,854$ 231,941$ 3,753,795$ 2,759$ 3,756,554$

See accompanying notes to consolidated financial statements.

Common Stock

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MUL ASSET FINANCE CORPORATION(A Wholly Owned Subsidiary of Mitsubishi UFJ Lease & Finance Company Limited)

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED DECEMBER 31, 2018(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES: Net income 129,863$ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and impairment 256,178 Gain from sale of equipment—net (8,577) Equity in income of investment in affiliate (474) Deferred income taxes 37,572 Changes in operating assets and liabilities: Operating lease receivables 1,181 Inventory (2,199) Other assets 356 Accounts payable and accrued expenses 10,928 Maintenance reserves 5,770 Other liabilities 364

Net cash provided by operating activities 430,962

CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of leasing equipment (662,822) Proceeds from sale of leasing equipment 162,896 Origination of direct finance leases (56,533) Principal collections from direct finance leases 22,239 Additional investment in affiliate (3,674) Addition of loans receivable (11,021) Collection of loans receivable 3,133 Distribution received from investment in affiliate 344

Net cash used in investing activities (545,438)

CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 50,000 Cash dividend paid (56,157) Proceeds from debt 144,044 Repayments of debt (12,335)

Net cash provided by financing activities 125,552

NET INCREASE IN CASH AND CASH EQUIVALENTS 11,076

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 168,418

CASH AND CASH EQUIVALENTS AT END OF YEAR 179,494$

CASH PAID DURING THE YEAR FOR: Income taxes 3,468$

Interest 5,570$

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Transfer of operating equipment to direct finance lease 12,912$

Acquisition of leasing equipment through accounts payable 47,463$

See accompanying notes to consolidated financial statements.

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MUL ASSET FINANCE CORPORATION (A Wholly Owned Subsidiary of Mitsubishi UFJ Lease & Finance Company Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2018

1. ORGANIZATION AND NATURE OF OPERATIONS

MUL Asset Finance Corporation (“MAF”) was incorporated in Delaware on June 9, 2014 as a wholly owned subsidiary of Mitsubishi UFJ Lease & Finance Company Limited (the “Parent” or “MUL”), a Japanese corporation. MAF is engaged in intermodal container and aircraft engine leasing through its wholly owned subsidiaries, Beacon Intermodal Leasing, LLC (“BIL”) and Engine Lease Finance Corporation (“ELF”). BIL, a limited liability company formed in Delaware, and its wholly owned subsidiaries are engaged in leasing intermodal containers to worldwide shipping line customers, providing maritime container management services and reselling containers worldwide. ELF, a corporation incorporated in Nevada, and its subsidiaries are engaged in aircraft engine leasing activities. MAF acquired BIL and ELF on November 13, 2014.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of MAF and its subsidiaries (collectively, the “Company”). The Company consolidates financial statements of wholly and majority owned subsidiaries and all entities in which it has a controlling financial interest, including the account of any variable interest entity in which its affiliates are the primary beneficiary. All intercompany profits, transactions and balances have been eliminated in consolidation.

Estimates—The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting period, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Such estimates include the evaluation of leasing equipment for impairment, residual value and estimated useful lives of leasing equipment, fair value of equipment held for sale, allowance for doubtful accounts and credit losses, valuation allowance for deferred tax assets, accrual of contingent loss, and estimates related to the liquidity of lessees among others. Actual results could differ from those estimates.

Cash and Cash Equivalents—The Company has defined cash and cash equivalents in the consolidated financial statements as cash and interest-bearing deposits with original maturities of less than three months at the date of acquisition.

Operating Lease Receivables—The Company maintains an allowance for doubtful accounts for its operating lease receivables. The adequacy of the allowance for doubtful accounts is regularly evaluated by management. The determination of the adequacy of the allowance for doubtful accounts is based upon management’s assessment of risk elements, including the age of the receivable balance, the customer’s ability to pay the outstanding balance, previous experience with customers in similar circumstances or locations, security held by the Company, historical collection information, credit rating of the customer,

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existing economic conditions, and any other pertinent information. The Company establishes an allowance for doubtful accounts when management determines that specific receivables may not be recovered in full. Operating lease receivables are written off and the relevant revenue is only recognized to the extent cash is received when management determines that the probability of recovery is remote.

Leasing Equipment—Leasing equipment consists of intermodal containers and aircraft engines held for use in operating leases and is stated at its depreciated cost, subject to periodic assessment for impairment. Depreciated cost includes discounts and applicable technical, legal, and other expenditures associated with the equipment, less accumulated depreciation.

Equipment held for use in operating leases is generally depreciated on a straight-line basis over the estimated useful lives to the estimated residual value. The intermodal containers are depreciated over 12 to 15 years. The aircraft engines are depreciated over 15 years. The Company periodically reviews the estimated residual value.

Certain repairs, maintenance and enhancements that add value or life to the leasing equipment are capitalized and depreciated over the estimated useful lives of the related equipment. The costs for these major maintenance and overhauls of aircraft engines are capitalized and depreciated over the period to the next expected maintenance or overhaul date.

The Company assesses the leasing equipment for impairment periodically or whenever changes in circumstances indicate the carrying value of the leasing equipment may not exceed the estimated undiscounted future cash flows expected to be generated by the leasing equipment. If the carrying value of the leasing equipment exceeds the total amount of the undiscounted cash flows expected from the use and disposal of the underlying equipment, the impairment charge is recognized equal to the amount by which the carrying value of the leasing equipment exceeds fair value.

Net Investments in Direct Finance Leases—Net investments in direct finance leases consist of the sum of the minimum lease payments, less unearned income. The Company defers certain fees and direct costs associated with the origination of new leases and amortizes them as an adjustment to the yield over the terms of the contracts using the effective interest method. The Company regularly monitors the direct finance lease portfolio for probable credit losses. An allowance for credit losses is recorded when management estimates that it is probable a loss has been incurred considering quantitative and qualitative factors affecting a lessee’s credit profile, with particular emphasis on financial performance, financial condition, the current market environment, and based on management’s judgements about the collectability of the contractual lease payments.

Equipment Held for Sale—Leasing equipment is classified as held for sale when the following criteria are met: management having the authority has committed to a plan to sell the asset, the asset is available for immediate sale (in the current condition and location), there is an active program to locate a buyer, a sale is likely to occur within a year, the asset is actively marketed at a price that is reasonable, and it is unlikely the asset will be withdrawn from the plan to sell. Equipment identified as held for sale is carried at the lower of its carrying value or the estimated fair value less costs to sell. Initial write downs of equipment held for sale are recorded as an impairment charge and are included in depreciation and impairment. Subsequent changes to the fair value of equipment held for sale, either increases or decreases, are recorded as adjustments to the carrying value; however, such adjustments may not exceed the respective carrying value

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at the time of its initial classification as held for sale. During the year ended December 31, 2018, the Company recorded impairment charge of $0.6 million in depreciation and impairment in the consolidated statement of income.

Investment in Affiliate—The Company owns 50% interest in C&E Engine Leasing Limited (“CEEL”) and accounts for the investment under the equity method as the Company has the ability to exercise significant influence over the financial and operational matters of CEEL. The Company evaluates the investment for impairment and recognizes an impairment loss when the decline in the value of investment below the carrying value is considered other-than-temporary.

Loans Receivable—Loans receivable is initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate. The Company periodically evaluates the collectability of receivables and provides an allowance for doubtful accounts to reflect management’s best judgment of the net realizable value of the receivables.

Goodwill—Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired in a business combination. Goodwill is not amortized, but assessed for impairment annually or more frequently if management believes indicators of impairment exist. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

Intangible Assets—Intangible assets consist of trade name, trade secrets, and customer relationships. The Company amortizes trade name, trade secrets and customer relationships over the estimated useful lives of 15 years, 15 years and 7 years, respectively. The Company evaluates the carrying value of its intangible assets, subject to amortization, to determine if any changes have occurred, which would require an impairment adjustment to the carrying value.

Maintenance Rights—The Company recognizes a maintenance right asset or liability when it acquires an aircraft engine with an in-place lease where a lessee is obligated to return the engine in a specific maintenance condition which varies from the actual maintenance condition at acquisition. A maintenance right asset represents the value of its contractual right under a lease to receive an aircraft engine in an improved maintenance condition at lease expiry as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company’s obligation to pay the lessee for the difference between the contractual maintenance condition of the aircraft engine at lease expiry and actual maintenance condition of the aircraft engine on the acquisition date. A maintenance right liability exists if, on the acquisition date, the maintenance condition of the aircraft engine is greater than the contractual return condition in the lease at lease expiry and the Company is required pay the lessee in cash for the improved maintenance condition.

In certain lease contracts, the lessee is obligated to comply with the return conditions which require the lessee to perform lease-end maintenance work or make cash compensation payments at the end of the lease to bring the aircraft engine into a specified

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maintenance condition. When the aircraft engine is returned at lease expiry in the contractually required maintenance condition without any cash payment to the Company by the lessee, the maintenance right asset is relieved and an aircraft engine improvement is recorded to the extent the improvement is substantiated and deemed to meet the Company’s capitalization policy. When the lessee pays the Company cash compensation at lease expiry in excess of the value of the maintenance right asset, the maintenance right asset is relieved and any excess is recognized as maintenance reserve revenue. When the lessee pays the Company cash compensation at lease expiry that is less than the value of the maintenance right asset, the cash is applied to the maintenance right asset and the remaining balance is relieved and recorded as an aircraft engine improvement to the extent the improvement is substantiated and meets the Company’s capitalization policy. Such improvement is depreciated over the period to the next scheduled maintenance date. When the aircraft engine is returned at lease expiry in the contractually required maintenance condition without cash payment by the Company to the lessee, the maintenance right liability is relieved and maintenance reserve revenue is recognized. When the Company pays the lessee cash compensation at lease expiry of less than the value of the maintenance right liability, the maintenance right liability is relieved and any difference is recognized as maintenance reserve revenue. When the Company pays the lessee cash compensation at lease expiry of the value of the maintenance right liability, the maintenance right liability is relieved and the excess amount is recorded as an aircraft engine improvement.

In some lease contracts, the lessee is required to make periodic payments to the Company based on the usage of the aircraft engine. When qualified maintenance is performed during the lease term, the Company is required to reimburse the lessee for the costs associated with such maintenance. At the end of lease, the Company is entitled to retain any cash receipts in excess of the required reimbursements to the lessee. When the aircraft engine is returned at lease expiry and no qualified maintenance is performed by the lessee since the acquisition date, the maintenance right asset is offset by the amount of associated maintenance reserves and any excess is recorded as maintenance reserve revenue. When the Company reimburses the lessee for the performance of qualified maintenance, the maintenance right asset is relieved and an aircraft engine improvement is recorded.

Revenue Recognition—Operating lease income is recognized on a straight-line basis over the related lease terms. Contracts that contain certain lease concessions, such as rent holidays, are accrued with the exception of short-term leases that are less than one year.

In certain leases for aircraft engines, the Company receives additional rentals based on usage which is recorded in maintenance reserve revenue when it is earned under the terms of the leases. The Company also receives lease-end adjustment payments at the end of the lease term based on usage of the aircraft engine and condition upon return. Lease-end adjustment payments are included in maintenance reserve revenue when they are received and once the engine is accepted back legally and technically.

Revenue from sales of aircraft engine parts is recognized when it is realized or realizable and earned. The Company considers revenue realized or realizable when it has persuasive evidence of an agreement, the product has been delivered, service has been provided to the customer, the sales price is fixed or determinable, and collectability is reasonably assured.

For direct finance leases, unearned interest income is accreted to income over the terms of the related leases to produce a constant rate of return on the net investments.

Interest income on loans receivable is accrued based on the outstanding principal balances.

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Maintenance Reserves—In most lease contracts, the lessee is responsible for all aircraft engine maintenance costs. Under the terms of the lease contracts, cash collected from lessees for future maintenance of aircraft engines is recorded as maintenance reserves. The Company does not recognize such cash receipts as revenue during the lease term. Maintenance reserves are attributable to specific aircraft engines and are typically based on the condition and utilization. Upon occurrence of qualified maintenance events, the maintenance reserves are relieved. In certain cases, the Company is obligated to contribute to maintenance related expenses on an aircraft engine during the term of the lease. In other lease contracts, the Company is responsible for the maintenance of the aircraft engines and is not obliged to reimburse the lessee. At lease termination, maintenance reserves are offset against any maintenance right balance for the aircraft engine, and the remainder is recognized as maintenance reserve revenue.

Income Taxes—Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company recognizes a liability for unrecognized tax benefits when it is more likely than not that the tax position will not be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. The amount recognized is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as part of income taxes.

Employee Benefit and Incentive Plans—The Company provides certain benefit and incentive compensation plans for eligible employees. Costs associated with these plans are accrued and charged to expense as the benefits are earned.

The Company has deferred compensation plans for certain employees. Cash amounts deferred are recognized over the period during which an employee is required to provide service in accordance with the terms of the plan.

Foreign Currency Transactions—The Company has determined a functional currency for each of its consolidated entities based on the currency of the primary economic environment in which the entity operates. The functional currency for each of the entities is the U.S. dollar. Monetary assets and liabilities denominated in a currency other than U.S. dollar have been remeasured into U.S. dollar at the balance sheet date with gains or losses recognized in income. Foreign currency exchange gains and losses that arise from exchange rate changes on transactions denominated in a foreign currency are recognized in operating and administrative expenses in the consolidated statement of income as incurred.

Fair Value Measurements—Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, establishes a framework for measuring fair value and requires disclosure of the fair value of financial instruments according to a fair value hierarchy as well as the methods and significant assumptions

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used. FASB ASC 825, Financial Instruments, requires the disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value. These financial instruments are subject to fair value adjustments only in certain circumstances, which would typically result from the application of lower of cost or fair value or fair value accounting or certain impairment measurements under U.S. GAAP.

Recently Issued Accounting Standards—In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASC 606). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. Recognition of leasing revenue and ancillary fees are specifically excluded from ASU No. 2014-09. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The standard is effective for the Company in fiscal year 2019 although early adoption is permitted. The standard allows adoption using either the “full retrospective” approach, meaning the standard is applied to all of the periods presented, or the “modified retrospective approach,” wherein the standard is applied only to the most current period presented in the financial statements. The Company is currently evaluating the effect of the adoption of ASU No. 2014-09 on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The update addresses certain aspect of recognition, measurement, presentation, and disclosure of financial instruments. Specifically, the amendments in this update: (i) require equity investments to be measured at fair value with changes in fair value recognized in net income, (ii) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, and (iv) require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets and financial liabilities on the balance sheet or the accompanying notes to the financial statements. ASU No. 2016-01 is effective for the Company in fiscal year 2019 although early adoption is permitted. The Company is currently evaluating the effect of the adoption of ASU No. 2016-01 on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will replace the existing guidance in ASC 840, Leases. ASC 842, Leases, generally requires lessors to account for sales-type leases, operating leases, and direct finance leases in a manner substantially similar to existing U.S. GAAP, and precludes recognition of either lease revenue or selling profit at the inception of a lease that does not transfer control of the underlying asset to the lessee. Lessees are generally required to evaluate lease classification following the principles of current lease requirements and recognize a right-of-use asset and lease liability on the consolidated balance sheet, except for leases commencing at or near the end of the economic life of the underlying asset. A lessee generally accounts for capital leases as finance leases and separately record the amortization of the right-of-use asset from interest on the corresponding lease liability. Most operating leases require recognition of both a right-of-use asset and liability with amortization of a single operating lease expense. The new standard is effective for the Company in fiscal year 2020 although early adoption is permitted. The Company is currently evaluating the effect of the adoption of ASU No. 2016-02 on its consolidated financial statements.

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. This standard sets forth a current expected credit loss model that, when adopted, requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, as well as certain off-balance-sheet credit exposures. The new standard is effective for the Company in fiscal year 2021 although early adoption is permitted. The Company is currently evaluating the effect of the adoption of ASU No. 2016-13 on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASC 805, Business Combinations, does not specify the minimum inputs and processes required for an integrated set of assets and activities (collectively referred to as a “set”) to meet the definition of a business. The amendments in this update: (i) provide the requirements needed for a set to be a business and establish a practical way to determine when a set is not a business, (ii) narrow the definition of outputs and align it with how outputs are described in ASC 606, Revenue from Contracts with Customers, and (iii) provide a more robust framework to use in determining when a set of assets and activities is a business. ASU No. 2017-01 is effective for the Company in fiscal year 2019. The Company is currently evaluating the effect, if any, of the adoption of ASU No. 2017-01 on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment testing. An entity no longer determines goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for the Company in fiscal year 2022 although early adoption is permitted. The Company is currently evaluating the effect of the adoption of ASU No. 2017-04 on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement. This update removes the disclosure requirements of: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) the policy for timing of transfers between levels, and (iii) the valuation processes for Level 3 fair value measurements, and adds the disclosure requirements of: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The update of ASU No. 2018-13 is effective for the Company in fiscal year 2020 although early adoption is permitted. The Company is currently evaluating the effect of the adoption of ASU No. 2018-13 on its consolidated financial statements.

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3. LEASING EQUIPMENT

A summary of leasing equipment at December 31, 2018 is as follows (in thousands):

AircraftContainers Engines Total

Original equipment cost 2,352,169$ 2,588,773$ 4,940,942$ Accumulated depreciation (650,934) (506,853) (1,157,787) Equipment held for lease 99,388 21,833 121,221

Leasing equipment 1,800,623$ 2,103,753$ 3,904,376$

Equipment held for lease represents newly purchased intermodal containers and aircraft engines that have not yet been put under leases and components of containers that are to be assembled for their intended use. The costs of such assets are initially capitalized and are subject to periodic assessment for impairment. Equipment held for lease will be placed under leases in the ordinary course of business.

The Company evaluated the carrying value of leasing equipment for impairment and recorded impairment charge of $2.9 million for the year ended December 31, 2018.

The depreciation expense for leasing equipment was $252.5 million for the year ended December 31, 2018.

Some leases are cancelable by the lessees annually, with lessee penalty payments. If the leases were to run their full terms, aggregate minimum future rentals would be as follows at December 31, 2018 (in thousands):

Years Ending AircraftDecember 31 Containers Engines Total

2019 201,705$ 188,501$ 390,206$ 2020 172,214 150,592 322,806 2021 157,435 127,231 284,666 2022 137,890 99,790 237,680 2023 103,784 78,697 182,481 2024 and thereafter 192,844 203,340 396,184

965,872$ 848,151$ 1,814,023$

Total minimum operating lease rentals do not include maintenance reserve revenue.

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4. NET INVESTMENTS IN DIRECT FINANCE LEASES

Net investments in direct finance leases at December 31, 2018 consist of the following (in thousands):

Finance receivables 176,489$ Initial direct costs 216 Unearned income (42,846)

Net investments in direct finance leases 133,859$

The Company provided no allowance for credit losses on finance receivables at December 31, 2018.

At December 31, 2018, finance receivables are due in the following contractual installments (in thousands):

Years EndingDecember 31

2019 44,238$ 2020 24,960 2021 15,249 2022 14,704 2023 13,166 2024 and thereafter 64,172

176,489$

5. OTHER ASSETS

Other assets at December 31, 2018 consist of the following (in thousands):

Unamortized lease costs and incentives 7,289$ Property, furniture and equipment—net of accumulated depreciation and amortization of $2,897 1,782 Deposits 942 Others 3,717

13,730$

Unamortized lease costs and incentives represent the unamortized portion of free days or credits in which a customer is not charged a full rental rate or other indirect costs associated with the lease contracts.

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6. DEBT

The Company’s debt at December 31, 2018 consists of the following (in thousands):

Affiliates—maturing in 2019, at interest rates of 2.74% to 6.64% 66,730$ Other: Financial institutions—maturing in 2022 through 2027, at interest rates of 3.22% to 3.87% (secured with aircraft engines) 92,308 U.S. private placement—maturing in 2026 through 2030, at interest rates of 4.48% to 4.73% 99,044

258,082$

Maturities of debt for the future years subsequent to December 31, 2018 are as follows (in thousands):

Years EndingDecember 31

2019 77,675$ 2020 10,945 2021 10,945 2022 16,695 2023 and thereafter 144,065

260,325

Deferred financing costs (2,243)

258,082$

Deferred financing costs include commissions and legal expenses associated with debt facilities and financing transactions. They are amortized over the terms of related debt as an adjustment to interest expense.

7. LOANS RECEIVABLE

At December 31, 2018, the Company had loans receivable of $43.3 million from CEEL, an equity method investee, and $41.4 million from an unrelated company. These loans receivable mature in 2019 through 2022. The Company provided no allowance for credit losses on loans receivable at December 31, 2018.

8. GOODWILL AND INTANGIBLE ASSETS

The Company has goodwill of $26.2 million at December 31, 2018 relating to the acquisition of ELF in 2014. The Company has intangible assets (other than goodwill) of $1.5 million, net of accumulated amortization, at December 31, 2018, which consists of trade name, trade secrets and customer relationships. No impairment was recognized on goodwill and intangible assets for the year ended December 31, 2018.

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9. INCOME TAXES

Income tax expense (benefit) for the year ended December 31, 2018 are summarized as follows (in thousands):

Current Deferred Total

Federal -$ 31,094$ 31,094$ States 2,174 6,527 8,701 Foreign 1,042 (49) 993

3,216$ 37,572$ 40,788$

Income taxes for the year ended December 31, 2018 differed from the amounts computed by applying the U.S. federal income tax rate of 21% to income before income taxes primarily due to state taxes, foreign rate differential, and permanent differences for expenses not deductible for tax purposes.

The significant components of the Company’s net deferred tax liabilities at December 31, 2018 are as follows (in thousands):

Deferred tax assets: Net operating loss carryforwards 48,788$ Goodwill 12,720 Accounts payable and accrued expenses 8,860 Foreign tax credit 600 Other 53

Total deferred tax assets 71,021

Deferred tax liabilities: Leasing equipment 167,802 Initial indirect costs 2,800 Other 40

Total deferred tax liabilities 170,642

Net deferred tax liabilities 99,621$

No valuation allowance was established for deferred tax assets at December 31, 2018 since the Company’s management believes that it is more likely than not the Company will realize the benefit of deductible temporary differences based on the level of historical taxable income and projected future taxable income. There was no change in valuation allowance for the year ended December 31, 2018.

At December 31, 2018, the Company had net operating loss carryforwards of approximately $222.5 million and $32.7 million for Federal and state tax purposes, respectively, to offset against future taxable income. If not utilized in future years, net operating loss carryforwards resulted in the years ended prior to January 1, 2018 expire through 2037 while net operating loss carryforwards after enactment of the Tax Cuts and Jobs Act are carried forward indefinitely.

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During the year ended December 31, 2018, the Company accrued liability for uncertain tax position related to its foreign operations, which was offset by the deferred tax assets recognized for foreign tax credit. The Company does not expect significant change in the uncertain tax benefits for the next twelve months.

At December 31, 2018, the earliest tax year open for examination is 2015 in the U.S. and 2012 for Ireland. There is no tax examination in process by the Internal Revenue Service or any state authority for any open tax year.

10. FAIR VALUE MEASUREMENTS

The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those levels:

• Level 1: Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2: Inputs other than quoted prices, which are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

• Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Nonrecurring Fair Value Measurements—The Company may be required to measure certain assets and liabilities at fair value from time to time such as leasing equipment, equipment held for sale, goodwill and intangible assets. These fair value measures typically result from the application of lower of cost or fair value accounting or certain impairment measurements under U.S. GAAP. Leasing equipment, equipment held for sale, goodwill, and intangible assets were primarily valued based on independent appraisal or discounted future cash flows whichever management considers most appropriate. Independent appraisals mainly used a market approach considering historical market transactions, market share, and overall age and conditions of equipment. Inputs used in discounted cash flows included rates of return on investments, estimated risk premiums as well as other economic variables.

During the year ended December 31, 2018, the Company recorded an impairment charge of $2.9 million on leasing equipment and an impairment loss of $0.8 million relating to equipment held for sale, using Level 3 inputs.

Fair Value of Financial Instruments Not Reported at Fair Value in the Consolidated Balance Sheet—The Company has certain financial instruments that are not measured at fair value on a recurring basis. The financial instruments are subject to fair value adjustments only in certain circumstances and include cash and cash equivalents, loans receivable, accounts payable, and debt. The carrying value of cash and cash equivalents and accounts payable approximates fair value due to the nature of these instruments. The fair value of these financial instruments would be categorized as Level 1 or Level 2 in the fair value hierarchy.

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The fair value of loans receivable and debt at December 31, 2018 is measured using Level 2 inputs by discounting the future cash flows using the current rate considering the credit risk and the remaining maturities, which is summarized as follows (in thousands):

Carrying FairValue Value

Loans receivable 84,686$ 83,757$ Debt 258,082 255,496

11. RELATED PARTY TRANSACTIONS

The Company enters into transactions with certain related parties which include the Parent, subsidiaries of the Parent, and the Company’s equity-method investee in the normal course of business.

At December 31, 2018, the Company had loans receivable from CEEL, an equity method investee, in the amount of $43.3 million, and debt to affiliates in the total amount of $66.7 million.

In November, 2018, the Company issued two shares of common stock, par value of $0.01 per share, to the Parent and received a cash contribution of $50 million.

12. COMMITMENTS AND CONTINGENCY

At December 31, 2018, the Company had commitments to purchase intermodal containers to be leased to third parties for approximately $25.4 million. Purchase commitments on operating lease assets represent amounts to be paid in future periods on equipment currently on order with manufacturers.

At December 31, 2018, the Company had commitments to acquire aircraft engines and parts in the amount of $33.5 million.

13. SUBSEQUENT EVENTS

The Company has evaluated subsequent events from the balance sheet date through May 20, 2019, the date at which the consolidated financial statements were issued, and determined that there are no other items to disclose except the following:

On March 25, 2019, the Board of Directors of the Company declared cash dividend of $73.4 million to the Parent, and the cash dividend was paid on March 28, 2019.

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