Aircastle Limited
Aircastle LTD (Form: 8-K, Received: 11/03/2017 16:52:45)
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 3, 2017 ( November 2, 2017 )
 
 
Aircastle Limited
(Exact name of registrant as specified in its charter)
 
 
 
Bermuda
 
001-32959
 
98-0444035
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
c/o Aircastle Advisor LLC,
One Stamford Forum, 201 Tresser Boulevard, 4 th  Floor, Stamford, CT
 
06901
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (203) 504-1020
(Former name or former address, if changed since last report.)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):  
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.  ☐

 



Section 2 – Financial Information
Item 2.02 Results of Operations and Financial Condition.
On November 2, 2017 , Aircastle Limited announced financial results for its third quarter 2017 as described in the press release furnished hereto as Exhibit 99.1, which is incorporated herein by reference.
The information furnished pursuant to this Current Report on Form 8-K, including the exhibit hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly set forth as being incorporated by reference into such filing.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1
Press Release dated November 2, 2017 which is being furnished hereto pursuant to Item 2.02.






SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
AIRCASTLE LIMITED
            (Registrant)
 
/s/ Christopher Beers
Christopher Beers
General Counsel
Date: November 3, 2017






EXHIBIT INDEX  
Exhibit Number
Description



AIRCASTLELOGOA01.JPG     

FOR IMMEDIATE RELEASE
Contact:
Aircastle Advisor LLC    The IGB Group
Frank Constantinople, SVP Investor Relations    Leon Berman
Tel: +1-203-504-1063    Tel: +1-212-477-8438
fconstantinople@aircastle.com      lberman@igbir.com

Aircastle Announces Third Quarter 2017 Results
Quarterly Dividend Increased 7.7% to $0.28 per Common Share

Key Financial Metrics
Total lease rental and finance and sales-type lease revenues were $178.1 million , down 4.9%
Total revenues were $191.4 million , down 1.7%
Net income was $57.4 million , or $0.73 per diluted common share versus net income of $27.4 million , or $0.35 per diluted common share in the third quarter of 2016
Adjusted net income (1) was $64.4 million , or $0.82 per diluted common share versus adjusted net income of $29.7 million , or $0.38 per diluted common share in the third quarter of 2016
Adjusted EBITDA (1) was $199.5 million , up 10.2%
Cash ROE (1) was 15.2% ; net cash interest margin (1) was 8.8%
Highlights
Acquired thirteen narrow-body aircraft for $359 million during the third quarter, and 28 aircraft year-to-date for $635 million
Closed or committed to acquire 39 additional mid-age narrow-body aircraft in the fourth quarter of 2017 for $860 million
Sold fifteen aircraft during the third quarter and 29 aircraft year-to-date; sales included three wide-bodies, three freighters, and one classic aircraft; year-to-date gain on sale of $35.9 million
Declared our 46th consecutive quarterly dividend and increased it to $0.28 from $0.26, or 7.7%; This is our eighth dividend increase in seven years

Stamford, CT.  November 2, 2017 – Aircastle Limited (the “Company” or “Aircastle”) (NYSE: AYR) reported third quarter 2017 net income of $57.4 million , or $0.73 per diluted common share, and adjusted net income of $64.4 million , or $0.82 per diluted common share. The third quarter results included total revenues of $191.4 million , a decrease of 1.7% , versus $194.7 million in the third quarter of 2016 .
Commenting on the results, Mike Inglese, Aircastle’s CEO, stated, “During the third quarter, we continued to have success in a competitive market, sourcing profitable acquisitions while simultaneously optimizing our fleet mix and realizing substantial gains on sale. With our recently announced acquisition of 20 high-quality, mid-age, narrow-body aircraft, we expect to complete $1.5 billion in aircraft investments during

________________________________________
(1) Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.



2017. This will expand our owned and managed fleet to over 220 aircraft by year end, while maintaining our conservative balance sheet and limited long-term purchase commitments.”

Mr. Inglese concluded, “We are pleased with the success we’ve had growing our business over time and establishing Aircastle’s leading competitive position in the mid-life market segment. On this basis, we are increasing our quarterly dividend by 7.7% to $0.28 per share, our eighth quarterly dividend increase in seven years. By executing our proven investment strategy, we will continue to grow profitably and responsibly in order to create long-term value for our investors.”

Financial Results
(In thousands, except share data)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Total revenues
$
191,411

 
$
194,652

 
$
619,218

 
$
568,305

Lease rental and finance and sales-type lease revenues
$
178,099

 
$
187,329

 
$
567,734

 
$
550,696

Adjusted EBITDA (1)
$
199,535

 
$
181,145

 
$
617,031

 
$
547,460

Net income
$
57,431

 
$
27,437

 
$
92,754

 
$
83,729

   Per common share - Diluted
$
0.73

 
$
0.35

 
$
1.18

 
$
1.06

Adjusted net income (1)
$
64,387

 
$
29,706

 
$
112,526

 
$
98,002

   Per common share - Diluted
$
0.82

 
$
0.38

 
$
1.43

 
$
1.24


(1) Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers.

Third Quarter Results
Total revenues were $191.4 million , a decrease of $3.2 million , or 1.7% , from the prior year. The decrease was due to a $9.2 million decline in lease rental and finance and sales-type lease revenues, partially offset by a $7.7 million increase in maintenance revenues primarily due to the transition of one narrow-body and one wide-body aircraft during the third quarter of 2017.
Lease rental and finance and sales-type lease revenues were $178.1 million versus $187.3 million the prior year. The 4.9% decrease reflects the net year-over-year impact from aircraft acquisitions, dispositions and lease extensions.
Net income was $57.4 million , an improvement of $30.0 million compared to net income of $27.4 million in the previous year. Lower total revenues of $3.2 million were offset by a $21.7 million increase in gains from the sale of flight equipment and a $10.5 million reduction in aircraft impairment charges.

Adjusted net income improved by $34.7 million to $64.4 million . Lower revenues of $3.2 million were offset by a $32.2 million combined increase in gains from the sale of flight equipment and lower aircraft impairment charges, and a $4.1 million positive adjustment associated with deferred financing and loan termination fees that were recognized during the third quarter of 2017.

Adjusted EBITDA was $199.5 million , up 10.2% , or $18.4 million , versus the same quarter last year. This result is driven primarily by increases of $21.7 million in gains from aircraft sales and $7.7 million of higher maintenance revenue, partially offset by lower total lease revenue and finance and sales-type lease revenue of $9.2 million .

Aviation Assets


2



During the third quarter, we acquired thirteen aircraft for $359 million. For the first nine months of 2017 , we purchased 28 aircraft for $635 million . The aircraft we've acquired year to date had a weighted average age of 9.9 years and a weighted average remaining lease term of 7.1 years. For the full year, we expect to complete $1.5 billion in aircraft acquisitions.

During the third quarter of 2017, we sold fifteen aircraft, including two freighters, three wide-bodies and one classic aircraft, for total sales proceeds of $527 million.

During the first three quarters of 2017 , we sold 29 aircraft for proceeds of $765 million and a net gain on sale of $35.9 million . The average age of the aircraft sold was 11.8 years with an average remaining lease term of 5.2 years. We expect to record additional asset sales activity during the fourth quarter of 2017, including all five remaining classic aircraft that we own. For the full year, we expect total sales proceeds of almost $900 million.

Our fleet utilization during the third quarter was 100% . As of September 30, 2017, Aircastle owned 192 aircraft having a net book value of $6.0 billion . We also manage thirteen aircraft with a net book value of $661 million dollars on behalf of our joint ventures with Ontario Teachers’ Pension Plan and IBJ Leasing of Japan.

Owned Aircraft
As of
September 30, 
2017 (1)
 
As of
September 30, 
2016 (1)
Net Book Value of Flight Equipment ($ mils.)
$
5,979

 
$
6,270

Net Book Value of Unencumbered Flight Equipment ($ mils.)
$
4,572

 
$
4.343

Number of Aircraft
192

 
175

Number of Unencumbered Aircraft
163

 
139

Weighted Average Fleet Age (years) (2)
8.7

 
7.6

Weighted Average Remaining Lease Term (years) (2)
4.7

 
5.3

Weighted Average Fleet Utilization for the quarter ended (3)
100.0
%
 
98.2
%
Portfolio Yield for the quarter ended (2)(4)
12.3
%
 
12.4
%
Net Cash Interest Margin (5)
8.8
%
 
8.7
%
 
 
 
 
Managed Aircraft on behalf of Joint Ventures
 
 
 
Net Book Value of Flight Equipment ($ mils.)
$
661

 
$
629

Number of Aircraft
13

 
11

_______________
(1)
Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end.
(2)
Weighted by net book value.
(3)
Aircraft on-lease days as a percent of total days in period weighted by net book value.
(4)
Lease rental revenue and interest income and cash collections on finance and sales-type leases for the period as a percent of the average net book value of flight equipment held for lease and our investment in finance and sales-type leases for the period; quarterly information is annualized.
(5)
Refer to the selected financial information accompanying this press release for a reconciliation of GAAP to Non-GAAP numbers. The calculation of Net Cash Interest Margin has been revised in this presentation to include collections from finance and sales-type leases minus interest on borrowings.


Financing Activity


3



Year-to-date, we’ve secured $500 million of new financing. During the first quarter of 2017, we issued $500 million in unsecured Senior Notes due 2024 bearing a coupon of 4.125%. On April 17, 2017 we repaid $500 million of maturing, unsecured Senior Notes bearing a coupon of 6.75%. The associated annual interest expense savings is approximately $13.1 million.

Common Dividend

On October 31, 2017, Aircastle’s Board of Directors declared a fourth quarter 2017 cash dividend on its common shares of $0.28 per share, payable on December 15, 2017 to shareholders of record on November 30, 2017. This is our 46 th consecutive dividend and represents a 7.7% increase over the previous quarter’s cash dividend. Over the last seven years, Aircastle has increased its dividend eight times.

Conference Call

In connection with this earnings release, management will host an earnings conference call on Thursday, November 2, 2017 at 10:00 A.M. Eastern time. All interested parties are welcome to participate on the live call. The conference call can be accessed by dialing (800) 239-9838 (from within the U.S. and Canada) or (323) 794-2551 (from outside of the U.S. and Canada) ten minutes prior to the scheduled start and referencing the passcode "4661189".

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.aircastle.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. In addition to this earnings release an accompanying power point presentation has been posted to the Investor Relations section of Aircastle’s website.

For those who are not available to listen to the live call, a replay will be available until 1:00 P.M. Eastern time on Saturday, December 2, 2017 by dialing (888) 203-1112 (from within the U.S. and Canada) or (719) 457-0820 (from outside of the U.S. and Canada); please reference passcode “1757279”.

About Aircastle Limited

Aircastle Limited acquires, leases and sells commercial jet aircraft to airlines throughout the world. As of September 30, 2017 , Aircastle owned and managed on behalf of its joint ventures 205 aircraft leased to 71 customers located in 38 countries.

Safe Harbor

All statements in this press release, other than characterizations of historical fact, are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not necessarily limited to, statements relating to our proposed public offering of notes and our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA, Adjusted EBITDA, Adjusted Net Income, Cash Return on Equity and Net Cash Interest Margin and the global aviation industry and aircraft leasing sector. Words such as "anticipates," "expects," "intends," "plans," "projects," "believes," "may," "will," "would," "could," "should," "seeks," "estimates" and variations on these words and similar expressions are intended to identify such forward-looking statements. These statements are based on our historical performance and that of our subsidiaries and on our current plans, estimates and expectations and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any such forward-looking statements which

4



are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this press release. These risks or uncertainties include, but are not limited to, those described from time to time in Aircastle's filings with the SEC and previously disclosed under "Risk Factors" in Item 1A of Aircastle's 2016 Annual Report on Form 10- K. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Aircastle to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. Aircastle expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

5



Aircastle Limited and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)

 
September 30, 2017
 
December 31, 2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
662,649

 
$
455,579

Restricted cash and cash equivalents
20,536

 
53,238

Accounts receivable
5,708

 
6,035

Flight equipment held for lease, net of accumulated depreciation of $1,168,064 and $1,224,899, respectively
5,490,164

 
6,247,585

Net investment in finance and sales-type leases
488,408

 
260,853

Unconsolidated equity method investments
76,098

 
72,977

Other assets
131,395

 
148,398

Total assets
$
6,874,958

 
$
7,244,665

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
LIABILITIES
 
 
 
Borrowings from secured financings, net of debt issuance costs
$
874,874

 
$
1,219,034

Borrowings from unsecured financings, net of debt issuance costs
3,286,240

 
3,287,211

Accounts payable, accrued expenses and other liabilities
145,691

 
127,527

Lease rentals received in advance
51,937

 
62,225

Security deposits
120,320

 
122,597

Maintenance payments
523,922

 
591,757

Total liabilities
5,002,984

 
5,410,351

Commitments and Contingencies
 
 
 
SHAREHOLDERS’ EQUITY
 
 
 
Preference shares, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding

 

Common shares, $0.01 par value, 250,000,000 shares authorized, 78,707,968 shares issued and outstanding at September 30, 2017; and 78,593,133 shares issued and outstanding at December 31, 2016
787

 
786

Additional paid-in capital
1,525,766

 
1,521,190

Retained earnings
347,248

 
315,890

Accumulated other comprehensive loss
(1,827
)
 
(3,552
)
Total shareholders’ equity
1,871,974

 
1,834,314

Total liabilities and shareholders’ equity
$
6,874,958

 
$
7,244,665




6



Aircastle Limited and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Lease rental revenue
$
171,687

 
$
181,975

 
$
551,371

 
$
537,670

Finance and sales-type lease revenue
6,412

 
5,354

 
16,363

 
13,026

Amortization of lease premiums, discounts and incentives
(2,388
)
 
(521
)
 
(8,780
)
 
(5,419
)
Maintenance revenue
14,507

 
6,829

 
55,738

 
20,603

Total lease revenue
190,218

 
193,637

 
614,692

 
565,880

Other revenue
1,193

 
1,015

 
4,526

 
2,425

Total revenues
191,411

 
194,652

 
619,218

 
568,305

Operating expenses:
 
 
 
 
 
 
 
Depreciation
70,018

 
76,201

 
227,446

 
227,918

Interest, net
60,636

 
61,797

 
185,376

 
188,490

Selling, general and administrative (including non-cash share-based payment expense of $2,506 and $2,059 for the three months ended, and $10,636 and $5,796 for the nine months ended September 30, 2017 and 2016, respectively)
17,137

 
15,985

 
55,491

 
46,883

Impairment of flight equipment

 
10,462

 
80,430

 
27,185

Maintenance and other costs
2,572

 
1,834

 
7,846

 
5,504

Total expenses
150,363

 
166,279

 
556,589

 
495,980

Other income (expense):
 
 
 
 
 
 
 
Gain (loss) on sale of flight equipment
21,642

 
(73
)
 
35,926

 
14,932

Other
(360
)
 
(210
)
 
(3,069
)
 
(136
)
Total other income (expense)
21,282

 
(283
)
 
32,857

 
14,796

Income from continuing operations before income taxes and earnings of unconsolidated equity method investments
62,330

 
28,090

 
95,486

 
87,121

Income tax provision
6,195

 
2,458

 
8,536

 
8,782

Earnings of unconsolidated equity method investments, net of tax
1,296

 
1,805

 
5,804

 
5,390

Net income
$
57,431

 
$
27,437

 
$
92,754

 
$
83,729

Earnings per common share — Basic:
 
 
 
 
 
 
 
Net income per share
$
0.73

 
$
0.35

 
$
1.18

 
$
1.06

Earnings per common share — Diluted:
 
 
 
 
 
 
 
Net income per share
$
0.73

 
$
0.35

 
$
1.18

 
$
1.06

Dividends declared per share
$
0.26

 
$
0.24

 
$
0.78

 
$
0.72




7



Aircastle Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
92,754

 
$
83,729

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
227,446

 
227,918

Amortization of deferred financing costs
15,860

 
13,567

Amortization of lease premiums, discounts and incentives
8,780

 
5,419

Deferred income taxes
(1,369
)
 
3,129

Non-cash share-based payment expense
10,636

 
5,796

Cash flow hedges reclassified into earnings
1,725

 
9,074

Security deposits and maintenance payments included in earnings
(17,147
)
 
(12,844
)
Gain on sale of flight equipment
(35,926
)
 
(14,932
)
Impairment of flight equipment
80,430

 
27,185

Other
2,078

 
(4,712
)
Changes in certain assets and liabilities:
 
 
 
Accounts receivable
415

 
1,699

Other assets
(6,980
)
 
3,815

Accounts payable, accrued expenses and other liabilities
17,648

 
16,459

Lease rentals received in advance
(2,892
)
 
2,111

Net cash and restricted cash provided by operating activities
393,458

 
367,413

Cash flows from investing activities:
 
 
 
Acquisition and improvement of flight equipment
(353,492
)
 
(792,270
)
Proceeds from sale of flight equipment
764,984

 
488,749

Net investment in finance and sales-type leases
(246,871
)
 
(78,892
)
Collections on finance and sales-type leases
23,673

 
14,413

Aircraft purchase deposits and progress payments, net of returned deposits and aircraft sales deposits
(14,068
)
 
(14,035
)
Unconsolidated equity method investments and associated costs

 
(12,686
)
Other
(405
)
 
(812
)
Net cash and restricted cash provided by (used in) investing activities
173,821

 
(395,533
)
Cash flows from financing activities:
 
 
 
Repurchase of shares
(4,862
)
 
(36,573
)
Proceeds from secured and unsecured debt financings
500,000

 
999,350

Repayments of secured and unsecured debt financings
(852,451
)
 
(489,134
)
Deferred financing costs
(8,540
)
 
(17,273
)
Restricted secured liquidity facility collateral

 
65,000

Liquidity facility

 
(65,000
)
Security deposits and maintenance payments received
138,813

 
123,767

Security deposits and maintenance payments returned
(104,475
)
 
(37,036
)
Dividends paid
(61,396
)
 
(56,702
)
Other

 
(2,073
)
Net cash and restricted cash (used in) provided by financing activities
(392,911
)
 
484,326

Net increase in cash and restricted cash
174,368

 
456,206

Cash and restricted cash at beginning of period
508,817

 
254,041

Cash and restricted cash at end of period
$
683,185

 
$
710,247



8



Aircastle Limited and Subsidiaries
Selected Financial Guidance Elements for the Fourth Quarter of 2017
($ in millions, except for percentages)
(Unaudited)


Guidance Item
Q4:17
Lease rental revenue
$172 - $176
Finance lease revenue
$8 - $9
Maintenance revenue
$0 - $2
Amortization of net lease discounts and lease incentives
$(2) - $(3)
SG&A (1)
$17 - $18
Depreciation
$71 - $75
Interest, net
$55 - $57
Gain on sale
$12 - $20
Full year effective tax rate
9% - 10%

(1)
Includes ~$2.4M of non-cash share-based payment expense.


9



Aircastle Limited and Subsidiaries
Supplemental Financial Information
(Amount in thousands, except per share amounts)
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenues
$
191,411

 
$
194,652

 
$
619,218

 
$
568,305

 
 
 
 
 
 
 
 
EBITDA (1)
$
196,668

 
$
168,414

 
$
522,892

 
$
514,338

 
 
 
 
 
 
 
 
Adjusted EBITDA (1)
$
199,535

 
$
181,145

 
$
617,031

 
$
547,460

 
 
 
 
 
 
 
 
Net income
$
57,431

 
$
27,437

 
$
92,754

 
$
83,729

Net income allocable to common shares
$
57,016

 
$
27,200

 
$
92,083

 
$
83,043

Per common share - Basic
$
0.73

 
$
0.35

 
$
1.18

 
$
1.06

Per common share - Diluted
$
0.73

 
$
0.35

 
$
1.18

 
$
1.06

 
 
 
 
 
 
 
 
Adjusted net income (1)
$
64,387

 
$
29,706

 
$
112,526

 
$
98,002

Adjusted net income allocable to common shares
$
63,922

 
$
29,449

 
$
111,712

 
$
97,199

Per common share - Basic
$
0.82

 
$
0.38

 
$
1.43

 
$
1.24

Per common share - Diluted
$
0.82

 
$
0.38

 
$
1.43

 
$
1.24

 
 
 
 
 
 
 
 
Basic common shares outstanding
78,237

 
77,990

 
78,197

 
78,230

Diluted common shares outstanding (2)
78,375

 
78,022

 
78,366

 
78,266

_______________

(1)
Refer to the selected information accompanying this press release for a reconciliation of GAAP to Non-GAAP information.
(2)
For the three and nine months ended September 30, 2017, includes 137,810 and 169,053 dilutive shares, respectively. For the three and nine months ended September 30, 2016, includes 32,235 and 35,804 dilutive shares, respectively.


10



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
EBITDA and Adjusted EBITDA Reconciliation
(Dollars in thousands)
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
57,431

 
$
27,437

 
$
92,754

 
$
83,729

Depreciation
70,018

 
76,201

 
227,446

 
227,918

Amortization of lease premiums, discounts and incentives
2,388

 
521

 
8,780

 
5,419

Interest, net
60,636

 
61,797

 
185,376

 
188,490

Income tax provision
6,195

 
2,458

 
8,536

 
8,782

EBITDA
196,668

 
168,414

 
522,892

 
514,338

Adjustments:
 
 
 
 
 
 
 
Impairment of flight equipment

 
10,462

 
80,430

 
27,185

Non-cash share-based payment expense
2,506

 
2,059

 
10,636

 
5,796

Loss on mark-to-market of interest rate derivative contracts
361

 
210

 
3,073

 
141

Adjusted EBITDA
$
199,535

 
$
181,145

 
$
617,031

 
$
547,460


We define EBITDA as income (loss) from continuing operations before income taxes, interest expense, and depreciation and amortization. We use EBITDA to assess our consolidated financial and operating performance, and we believe this non-U.S. GAAP measure is helpful in identifying trends in our performance.
This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieving optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.
EBITDA provides us with a measure of operating performance because it assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. Accordingly, this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure, or expenses, of the organization. EBITDA is one of the metrics used by senior management and the Board of Directors to review the consolidated financial performance of our business.
We define Adjusted EBITDA as EBITDA (as defined above) further adjusted to give effect to adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes. Adjusted EBITDA is a material component of these covenants.


11



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
Adjusted Net Income Reconciliation
(Dollars in thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
57,431

 
$
27,437

 
$
92,754

 
$
83,729

Loan termination fee (1)
1,070

 

 
2,058

 
1,509

Loss on mark-to-market of interest rate derivative contracts (2)
361

 
210

 
3,073

 
141

Write-off of deferred financing fees (1)
3,019

 

 
4,005

 
1,972

Non-cash share-based payment expense (3)
2,506

 
2,059

 
10,636

 
5,796

Hedge loss amortization charges (1)

 

 

 
4,855

Adjusted net income
$
64,387

 
$
29,706

 
$
112,526

 
$
98,002

_______________
(1)
Included in Interest, net.
(2)
Included in Other income (expense).
(3)
Included in Selling, general and administrative expenses.

Management believes that ANI, when viewed in conjunction with the Company’s results under U.S. GAAP and the above reconciliation, provides useful information about operating and period-over-period performance and additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting elements related to interest rate derivative accounting, changes related to refinancing activity and non-cash share-based payment expense.


12



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
Cash Return on Equity Calculation
(Dollars in thousands)
(Unaudited)
Period
CFFO
 
Finance
Lease
Collections
 
Gain on Sale of Flt. Eqt.
 
Deprec.
 
Distributions
in excess
(less than)
Equity Earnings
 
Cash Earnings
 
Average
Shareholders
Equity
 
Trailing 12 Month Cash ROE
2011
$
359,377

 
$

 
$
39,092

 
$
242,103

 
$

 
$
156,366

 
$
1,370,513

 
11.4
%
2012
$
427,277

 
$
3,852

 
$
5,747

 
$
269,920

 
$

 
$
166,956

 
$
1,425,658

 
11.7
%
2013
$
424,037

 
$
9,508

 
$
37,220

 
$
284,924

 
$

 
$
185,841

 
$
1,513,156

 
12.3
%
2014
$
458,786

 
$
10,312

 
$
23,146

 
$
299,365

 
$
667

 
$
193,546

 
$
1,661,228

 
11.7
%
2015
$
526,285

 
$
9,559

 
$
58,017

 
$
318,783

 
$
(530
)
 
$
274,548

 
$
1,759,871

 
15.6
%
2016
$
468,092

 
$
19,413

 
$
39,126

 
$
305,216

 
$
(1,782
)
 
$
219,633

 
$
1,789,256

 
12.3
%
LTM Q3:17
$
494,137

 
$
28,673

 
$
60,120

 
$
304,744

 
$
575

 
$
278,761

 
$
1,836,511

 
15.2
%


Note: LTM Average Shareholders’ Equity is the average of the most recent five quarters period end Shareholders’ Equity. Management believes that the cash return on equity metric (“Cash ROE”) when viewed in conjunction with the Company’s results under U.S. GAAP and the above reconciliation, provide useful information about operating and period-over-period performance, and provide additional information that is useful for evaluating the underlying operating performance of our business without regard to periodic reporting impacts related to non-cash revenue and expense items and interest rate derivative accounting, while recognizing the depreciating nature of our assets.


13



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
Net Cash Interest Margin Calculation
(Dollars in thousands)
(Unaudited)
Period
 
Average NBV
 
Quarterly Rental Revenue (1)
 
Cash Interest (2)
 
Annualized Net Cash Interest Margin (1)(2)
Q1:12
 
$
4,388,008

 
$
152,242

 
$
44,969

 
9.8
%
Q2:12
 
$
4,542,477

 
$
156,057

 
$
48,798

 
9.4
%
Q3:12
 
$
4,697,802

 
$
163,630

 
$
41,373

 
10.4
%
Q4:12
 
$
4,726,457

 
$
163,820

 
$
43,461

 
10.2
%
Q1:13
 
$
4,740,161

 
$
162,319

 
$
48,591

 
9.6
%
Q2:13
 
$
4,840,396

 
$
164,239

 
$
44,915

 
9.9
%
Q3:13
 
$
4,863,444

 
$
167,876

 
$
47,682

 
9.9
%
Q4:13
 
$
5,118,601

 
$
176,168

 
$
49,080

 
9.9
%
Q1:14
 
$
5,312,651

 
$
181,095

 
$
51,685

 
9.7
%
Q2:14
 
$
5,721,521

 
$
190,574

 
$
48,172

 
10.0
%
Q3:14
 
$
5,483,958

 
$
182,227

 
$
44,820

 
10.0
%
Q4:14
 
$
5,468,637

 
$
181,977

 
$
44,459

 
10.1
%
Q1:15
 
$
5,743,035

 
$
181,027

 
$
50,235

 
9.1
%
Q2:15
 
$
5,967,898

 
$
189,238

 
$
51,413

 
9.2
%
Q3:15
 
$
6,048,330

 
$
191,878

 
$
51,428

 
9.3
%
Q4:15
 
$
5,962,874

 
$
188,491

 
$
51,250

 
9.2
%
Q1:16
 
$
5,988,076

 
$
186,730

 
$
51,815

 
9.0
%
Q2:16
 
$
5,920,030

 
$
184,469

 
$
55,779

 
8.7
%
Q3:16
 
$
6,265,175

 
$
193,909

 
$
57,589

 
8.7
%
Q4:16
 
$
6,346,361

 
$
196,714

 
$
58,631

 
8.7
%
Q1:17
 
$
6,505,355

 
$
200,273

 
$
58,839

 
8.7
%
Q2:17
 
$
6,512,100

 
$
199,522

 
$
55,871

 
8.8
%
Q3:17
 
$
5,985,908

 
$
184,588

 
$
53,457

 
8.8
%
_______________
(1)
Management’s Use of Net Cash Interest Margin: Beginning with this earnings release for the three months ended September 30, 2016, based on the growing level of finance and sales-type lease revenue, management revised the calculation of net cash interest margin to include our net investment in finance and sales-type leases in the average net book value and to include the interest income and cash collections on our net investment in finance and sales-type lease in lease rentals. The calculation of net cash interest margin for all prior periods presented is revised to be comparable with the current period presentation.
(2)
Excludes loan termination payments of $3.0 million in the second quarter of 2013, $1.5 million and $3.5 million in the first quarter and fourth quarter of 2016, respectively, and loan termination payments of $1.0 million in both the second and third quarters of 2017.

We define net cash interest margin as lease rentals from operating leases, interest income and cash collections from finance and sales-type leases minus interest on borrowings, net settlements on interest rate derivatives and other liabilities adjusted for loan termination payments divided by the average net book of flight equipment (which includes net investment on finance and sales-type leases) for the period calculated on a quarterly and annualized basis.

Management believes that net cash interest margin, when viewed in conjunction with the Company’s results under U.S. GAAP and the above reconciliation, provides useful information about the effective deployment of our capital in the context of the yield on our aircraft assets, the utilization of those assets by our lessees, and our ability to borrow efficiently.

14



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
Reconciliation of Net Income Allocable to Common Shares
(In thousands)
(Unaudited)

 
Three Months Ended
September 30, 2017
 
Nine Months Ended
September 30, 2017
Weighted-average shares:
Shares
 
Percent
 
Shares
 
Percent
Common shares outstanding – Basic
78,237

 
99.28
 %
 
78,197

 
99.28
 %
Unvested restricted common shares
570

 
0.72
 %
 
569

 
0.72
 %
Total weighted-average shares outstanding
78,807

 
100.00
 %
 
78,767

 
100.00
 %
 
 
 
 
 
 
 
 
Common shares outstanding – Basic
78,237

 
99.82
 %
 
78,197

 
99.78
 %
Effect of dilutive shares (1)
138

 
0.18
 %
 
169

 
0.22
 %
Common shares outstanding – Diluted
78,375

 
100.00
 %
 
78,366

 
100.00
 %
 
 
 
 
 
 
 
 
Net income allocation
 
 
 
 
 
 
 
Net income
$
57,431

 
100.00
 %
 
$
92,754

 
100.00
 %
Distributed and undistributed earnings allocated to unvested restricted shares (2)
(415
)
 
(0.72
)%
 
(671
)
 
(0.72
)%
Earnings available to common shares
$
57,016

 
99.28
 %
 
$
92,083

 
99.28
 %
 
 
 
 
 
 
 
 
Adjusted net income allocation
 
 
 
 
 
 
 
Adjusted net income
$
64,387

 
100.00
 %
 
$
112,526

 
100.00
 %
Amounts allocated to unvested restricted shares
(465
)
 
(0.72
)%
 
(814
)
 
(0.72
)%
Amounts allocated to common shares – Basic and Diluted
$
63,922

 
99.28
 %
 
$
111,712

 
99.28
 %
_______________
(1)
For the three and nine months ended September 30, 2017, distributed and undistributed earnings to restricted shares were 0.72% of net income and adjusted net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.
(2)
For all periods presented, dilutive shares represented contingently issuable shares.


15



Aircastle Limited and Subsidiaries
Reconciliation of GAAP to Non-GAAP Measures
Reconciliation of Net Income Allocable to Common Shares
(In thousands)
(Unaudited)

 
Three Months Ended
September 30, 2016
 
Nine Months Ended
September 30, 2016
Weighted-average shares:
Shares
 
Percent
 
Shares
 
Percent
Common shares outstanding – Basic
77,990

 
99.14
 %
 
78,230

 
99.18
 %
Unvested restricted common shares
680

 
0.86
 %
 
646

 
0.82
 %
Total weighted-average shares outstanding
78,670

 
100.00
 %
 
78,876

 
100.00
 %
 
 
 
 
 
 
 
 
Common shares outstanding – Basic
77,990

 
99.96
 %
 
78,230

 
99.95
 %
Effect of dilutive shares (1)
32

 
0.04
 %
 
36

 
0.05
 %
Common shares outstanding – Diluted
78,022

 
100.00
 %
 
78,266

 
100.00
 %
 
 
 
 
 
 
 
 
Net income allocation
 
 
 
 
 
 
 
Net income
$
27,437

 
100.00
 %
 
$
83,729

 
100.00
 %
Distributed and undistributed earnings allocated to unvested restricted shares (2)
(237
)
 
(0.86
)%
 
(686
)
 
(0.82
)%
Earnings available to common shares
$
27,200

 
99.14
 %
 
$
83,043

 
99.18
 %
 
 
 
 
 
 
 
 
Adjusted net income allocation
 
 
 
 
 
 
 
Adjusted net income
$
29,706

 
100.00
 %
 
$
98,002

 
100.00
 %
Amounts allocated to unvested restricted shares
(257
)
 
(0.86
)%
 
(803
)
 
(0.82
)%
Amounts allocated to common shares – Basic and Diluted
$
29,449

 
99.14
 %
 
$
97,199

 
99.18
 %
_______________
(1)
For the three and nine months ended September 30, 2016, distributed and undistributed earnings to restricted shares were 0.86% and 0.82%, respectively, of net income and adjusted net income. The amount of restricted share forfeitures for all periods present is immaterial to the allocation of distributed and undistributed earnings.
(2)
For all periods presented, dilutive shares represented contingently issuable shares.


16