Fourth Quarter 2013 Earnings Call February 25, 2014
Forward-Looking Statements / Property of Aircastle Certain items in this presentation and other information we provide from time to time, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not necessarily limited to, statements relating to our ability to acquire, sell, lease or finance aircraft, raise capital, pay dividends, and increase revenues, earnings, EBITDA, Adjusted EBITDA, Adjusted Net Income, Operating Cash Flow, Cash Earnings and Cash ROE 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 management s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forwardlooking statements; Aircastle can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this report. Factors that could have a material adverse effect on our operations and future prospects or that could cause actual results to differ materially from Aircastle expectations include, but are not limited to, capital markets disruption or volatility which could adversely affect our continued ability to obtain additional capital to finance new investments or our working capital needs; government fiscal or tax policies, general economic and business conditions or other factors affecting demand for aircraft or aircraft values and lease rates; our continued ability to obtain favorable tax treatment in Bermuda, Ireland and other jurisdictions; our ability to pay dividends; high or volatile fuel prices, lack of access to capital, reduced load factors and/or reduced yields, operational disruptions caused by political unrest and other factors affecting the creditworthiness of our airline customers and their ability to continue to perform their obligations under our leases and other risks detailed from time to time in Aircastle s filings with the SEC, including as previously disclosed in Aircastle s 2012 Annual Report on Form 10-K, and elsewhere in this report. 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 report. Aircastle Limited expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or change in events, conditions or circumstances on which any statement is based. The information contained herein is the property of Aircastle Limited and shall not be disclosed, copied, distributed or transmitted, or used for any purpose, without the express written consent of Aircastle Limited. 2
Q4 2013 Highlights Operating and finance lease rental revenue of $173.3 million vs. $162.0 million in Q4:12, up 7% Adjusted EBITDA of $196.0 million vs. $172.3 million in Q4:12, up 14% Net income of $48.4 million, or $0.60 per diluted share Adjusted net income of $54.9 million, or $0.68 per diluted share Acquired eight aircraft for $472.3 million 99.5% fleet utilization and 13.6% rental yield Gain on sale of flight equipment of $11.6 million Issued $400 million of 4.625% unsecured senior notes due 2018 Common dividend of $0.20 declared Established a joint venture with Ontario Teachers Pension Plan to acquire aircraft and sold two A330s leased to Garuda (Indonesia) to the joint venture NOTE: See appendix for GAAP to Non-GAAP reconciliation 3
Full Year 2013 Highlights Operating and finance lease rental revenue of $661.1 million vs. $631.9 million in 2012, up 5% Adjusted EBITDA of $717.2 million vs. $647.6 million in 2012, up 11% Net income of $29.8 million, or $0.40 per diluted share Adjusted net income of $59.3 million, or $0.80 per diluted share Excluding aircraft impairment charges related to our Q3:13 fleet review, full year Net Income and Adjusted Net Income of $125.4 million and $154.9 million, or $1.70 and $2.10, respectively Closed $1.45 billion of aircraft investments 98.7% fleet utilization and 13.6% rental yield Gain on sale of flight equipment of $37.2 million Dividend increased 21% to $0.20 per share; fourth dividend increase in three years NOTE: See appendix for GAAP to Non-GAAP reconciliation 4
Q1 2014/ Recent Developments Agreed to ~$900 million purchase and lease back with LATAM for eight 777-300ER aircraft Over $200 million in other acquisitions closed or expected to close in Q1 2014 Signed lease extension / placement deal with Air Atlanta (Iceland) for three 747-400 freighters Began delivery of six mid-aged 737-800s on long-term leases to SunExpress (Turkey) Closed ~$300 million in secured long-term financings during Q1 2014 Repaid 2006-1 securitization in Feb 2014 providing more portfolio management flexibility 5
LATAM Transaction Agreed to purchase and lease back eight Boeing 777-300ERs for ~$900 million LATAM is the largest airline group in South America Four aircraft built in 2012 expected to close in early Q2 2014 with leaseback periods averaging 60 months Four aircraft built in 2008 expected to close when the existing financing is unwound * Leases will expire in 2017 and 2018 Deal provides LATAM with a complete 777-300ER fleet solution Aircraft will come off lease at a time when few comparable new generation aircraft anticipated to be available * Subject to an outside closing date of June 30, 2015. 6
Q4:13 Revenue Summary Lease rental and finance lease revenue of $173.3 million was higher by $11.3 million, or 7.0%, versus Q4:12 Positive impact of new aircraft acquisitions net of sales of $16.7 million, partially offset by Reductions from lease extensions, transitions and terminations of $(3.4) million Maintenance revenue increased by $9.2 million, primarily due to lease terminations associated with two 747-400 freighter aircraft in Q4:13 and two 767-300ER aircraft that were sold during the quarter Interest and other revenue declined $4.7 million primarily due to: $1.2 million of interest earned in Q4:12 from a debt investment repaid in the first quarter of 2013, and Other revenue was $3.5 million lower primarily due to a large termination fee that was earned in the fourth quarter of 2012 Q1:14 annualized lease rental (1) exit run rate of $701 million, including $349 million from unencumbered aircraft Revenue Summary $ millions Q4:12 Q4:13 Lease Rental and Finance Lease Revenue $ 162.0 $ 173.3 Amortization of Net Lease Discounts and Lease Incentives (6.5) (6.9) Maintenance Revenue 16.2 25.4 Total Lease Rentals 171.7 191.8 Interest Income and Other Revenue 4.9 0.2 Total Revenues $ 176.6 $ 192.0 (1) Rents collected under our finance leases are included in the lease rental exit run rate, and represents $27.0 million of the total lease rental exit run rate. 7
Q4:13 Earnings Summary Adjusted net income of $54.9 million, up $18.5 million Revenues increased by $15.4 million and gains from the sale of aircraft were $8.9 million higher Aircraft transactional impairment charges were $2.7 million lower, partially offset by Adjusted interest expense which increased $5.2 million, depreciation expense which increased $2.6 million, and other operating expenses, net which increased $1.2 million Adjusted EBITDA was $196.0 million, up $23.7 million Total revenues, excluding amortization, increased by $15.8 million and gains from the sale of aircraft increased by $8.9 million, partially offset by SG&A and other operating expenses which increased $1.2 million, net Earnings Summary $ millions, except per share amounts Q4:12 Q4:13 Net Income (loss) $ 29.8 $ 48.4 per diluted common share $ 0.43 $ 0.60 Adjusted Net Income (loss) $ 36.4 $ 54.9 per diluted common share $ 0.52 $ 0.68 EBITDA $ 163.6 $ 190.4 Adjusted EBITDA $ 172.3 $ 196.0 NOTE: See appendix for GAAP to Non-GAAP reconciliation 8
Consistently Strong Portfolio Performance Diversification and Active Asset Management Drive Results Portfolio utilization of 98-99% and rental yield of 14% over past six years Q4 2013 utilization of 99.5% and rental yield of 13.6% Historical Revenue Utilization 1 and Yield 2 100% 16% 98% 15% 96% 14% 94% 13% 92% 12% 90% 11% 88% 10% 86% 9% 84% 8% 82% 7% 80% 6% Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Utilization Yield 1. Aircraft on-lease days as a percent of total days in period weighted by NBV. 2. Calculated as lease rental revenue / average NBV of flight equipment for the period. Rental revenue does not include maintenance revenue. 9
Good Progress with Lease Placements Delivered on lease, extended or sold 39 aircraft during 2013 One of Aircastle s busiest years ever 16 aircraft coming off lease in 2014 (5.2% of NBV) which are to be placed / sold Expect as many as ten of these (2.3% of NBV) will be sold Signed lease extension / placement with Air Atlanta for three 747-400 freighters Lease roll-off in future years is well dispersed Number of Scheduled Lease Expirations % of Total NBV 2015 23 8% 2016 27 12% 2017 33 23% 2018 19 12% Figures as of December 31, 2013 except where otherwise noted. 10
Broad Diversification by Customer and Geography 64 customers in 37 countries Largest customer exposure is less than 7% of Total NBV* Largest country exposure is 8% of Total NBV* Leases to Asian airlines accounting for an increasing part of our fleet Asia represents 41% of the portfolio by NBV versus 26% in 2010 European exposure now 30% versus 46% in 2010 % of NBV * Customer Country # Aircraft Greater than 6% per customer South African Airways South Africa 4 Thai Airways Thailand 2 All Other (22 Countries) 27% Russia 8% Thailand 6% South Africa 6% 3% to 6% per customer Martinair 1 Netherlands 5 Emirates United Arab Emirates 2 Garuda Indonesia 4 US Airways 2 USA 11 Jet Airways India 8 Virgin Australia Australia 2 Airbridge Cargo 3 Russia 2 EVA Airways Taiwan 4 Off Lease 1% Singapore 3% Taiwan 3% Germany 3% Australia 4% India 4% China 4% Indonesia 4% Netherlands 6% Brazil 5% USA 6% South Korea 5% United Arab Emirates 5% * Percentage of net book value. Figures as of December 31, 2013. (1) Martinair is a wholly owned subsidiary of KLM. If combined with one other affiliated customer, the two customers represents 6% of flight equipment held for lease. (2) US Airways has now merged with American Airlines. (3) Guaranteed by Volga-Dnepr Airlines. 11
Positive Portfolio Trends Owned Aircraft as of December 31, 2010 (1) Owned Aircraft as of December 31, 2011 (1) Owned Aircraft as of December 31, 2012 (1) Owned Aircraft as of December 31, 2013 (1) Flight Equipment Held for Lease ($ millions) $4,066 $4,388 $4,783 $5,190 Unencumbered Flight Equipment ($ millions) $595 $677 $2,092 $2,655 Number of Aircraft 136 144 159 162 Number of Unencumbered Aircraft 18 27 72 80 Passenger Aircraft (% of NBV) 67% 69% 71% 81% Freighter Aircraft (% of NBV) 33% 31% 29% 19% Weighted Avg. Fleet Age (years) (2) 11.0 10.9 10.7 9.9 Weighted Avg. Lease Term (years) (3) 4.7 4.9 5.0 5.0 Weighted Avg. Utilization (year-ended) (4) 99% 99% 99% 99% Portfolio Yield (year-ended) (5) 14% 14% 14% 14% (1) Calculated using net book value of flight equipment held for lease and net investment in finance leases at period end. (2) Weighted average age (years) by net book value. (3) Weighted average remaining lease term (years) by net book value. (4) Aircraft on-lease days as a percent of total days in period weighted by net book value. (5) Lease rental revenue for the period as a percent of average net book value of flight equipment held for lease for the period. 12
New Investments Transforming the Portfolio Flexible, value-oriented approach Acquired $1.45 billion in aviation assets during 2013 64% invested in aircraft less than five years old, mostly in mid- and wide-body aircraft Mid-aged aircraft investments continue to play an important role Aircraft Fleet (% of NBV) 2009 2011 2013 Current Generation Mid- and Wide-Bodies A330s 17% 23% 30% 777ERs 2% 5% 12% Current Generation Narrow-Bodies (1) 737 NGs 18% 17% 18% A320 CEOs 17% 14% 12% Freighters 747-400s 27% 22% 17% A330s and Others 3% 9% 2% Classic Generation Aircraft 737s and A320s 4% 2% 1% 757s and 767s 12% 8% 5% Regional Jets 0% 0% 3% 13
Significant Asset Sales Activity Sold 22 aircraft for $548 million during 2013 Sales generated total gains of $37 million 2013 sales included: three A330 freighters two A330s sold to our joint venture with Ontario Teachers 17 aircraft with a weighted average age of 18 years 1 ; several end-of-life aircraft dispositions Activity reflects our success both in managing end-of-life dispositions and portfolio concentrations as well as is seizing on market opportunities Since our inception we ve sold 60 aircraft for $1.5 billion Includes 37 aircraft that were 15 years or older at the time of sale Asset Sales Have Been a Successful Part of Our Portfolio Management Plan 1. Weighted average age (years) by net book value. 14
Cash Returns Illustrate a Consistently Strong Underlying Business Maintenance revenue, non-cash interest expense and other non-cash charges contribute to GAAP ROE 1 volatility 16% Return on Average Shareholder s Equity 14% 12% 10% 8% 6% 4% 2% 0% 2007 2008 2009 2010 2011 2012 2013 1 GAAP ROE 13.2% 9.6% 8.5% 5.0% 9.0% 2.3% 1.9% 2 Cash ROE 13.2% 11.5% 9.9% 10.9% 11.4% 11.8% 12.1% 1. Net income as reported, divided by average shareholder s equity. 2. Cash ROE = Cash Flow From Operations plus collections on finance leases and gain (loss) on sale of flight equipment less depreciation, divided by average shareholder s equity. NOTE: See appendix for GAAP to Non-GAAP reconciliation. 15
Operating Cash Flow 1 Outpaces Asset Growth $5,000 $450 $4,500 $400 $4,000 $350 $3,500 $300 $ millions $3,000 $2,500 $ millions $250 $2,000 $200 $1,500 $150 $1,000 $100 $500 $50 $0 2007 2008 2009 2010 2011 2012 2013 $0 2007 2008 2009 2010 2011 2012 2013 NBV of Flight Equipment 2 Operating Cash Flow 1 1. Cash flow from operations plus collections on finance leases. 2. Total period end Net Book Value of flight equipment plus finance leases and assets held for sale. NOTE: See appendix for GAAP to Non-GAAP reconciliation. 16
Capital Structure and Liquidity Summary YE13 unrestricted cash of $655 million; $335 million undrawn revolving credit facility YE13 net debt to equity ratio of 1.9x; net debt to total capitalization ratio of 57% No significant debt maturities until 2017 During Q1:14 Repaid Securitization No. 1 and related swap: $255 million Raised $303 million in new secured debt ($ in millions) Unrestricted cash and cash equivalents As of Dec. 31, 2011 $ 296 As of Dec. 31, 2012 $ 618 As of Dec. 31, 2013 $ 655 Debt O / S Rate 1 O / S Rate 1 O / S Rate 1 Securitization No. 1 387 5.78% 310 5.78% 225 5.78% Securitization No. 2 892 5.56% 773 1.58% 604 1.58% Term Financing No. 1 595 5.79% ECA Term Financings 536 3.31% 653 3.22% 494 3.57% Bank Financings 126 4.31% 113 4.31% 264 3.81% Total Secured Debt 2,536 5.11% 1,848 3.03% 1,587 3.17% Senior Notes due 2018 451 9.75% 451 9.75% 451 9.75% Senior Notes due 2017 - - 500 6.75% 500 6.75% Senior Notes due 2019 - - 500 6.25% 500 6.25% Senior Notes due 2020 - - 300 7.63% 300 7.63% Senior Notes due 2018 - - - - 400 4.63% Total Unsecured Debt 451 9.75% 1,751 7.53% 2,151 6.99% Total Debt and Weighted Avg. Rate 2,986 5.81% 3,599 5.22% 3,737 5.37% Shareholders equity 1,405 1,416 1,645 Total capitalization $ 4,391 $ 5,014 $ 5,383 Net debt to equity 1.9 x 2.1 x 1.9 x Secured debt to total debt 85% 51% 42% Net debt to total capitalization 61% 59% 57% Weighted average debt maturity (years) 4.2 4.9 4.3 (1) Reflects fixed swap rate in effect plus the margin except for the ECA Term Financings, Bank Financings and the Senior Notes due 2017, 2018, 2019 and 2020, which are fixed rate financings. 17
Strong, Well Diversified Capital Markets Access Raised approximately $1.0 billion of total external liquidity / capital in 2013 $209 million common equity issuance to Marubeni Corporation $400 million Senior Unsecured Notes $177 million Secured Bank Debt $185 million Revolving Credit increase; facility expanded from four to seven banks $ millions 2011 2012 2013 Unsecured Senior Notes $150 $1,300 $400 Secured Borrowings 467 160 177 Increase in Bank Revolver (1) - 100 185 Common Equity from Marubeni - - 209 Total Financing Raised $617 $1,560 $971 1. Reflects change to undrawn Revolving Line of Credit in Q3:13 18
Mid-life 737-800 Lease Return Maintenance Payments Began delivery of six mid-aged 737-800s on long-term leases; five to SunExpress in Turkey Expect to complete four in 1H:14 and two in Q3:14 Aircraft are being returned by the existing lessee immediately after major engine shop visits This maintenance work enabled us to secure attractive leases for these aircraft We typically expect such engine maintenance work to have a useful life of several years We anticipate reimbursing ~$30 million for this work, across the six aircraft, in 2014 This is what we expected when we purchased these aircraft and entered into the existing leases These end-of-lease maintenance payments are expensed, under our accounting policy These payments have been very infrequent for us and in the past have been quite small During 2013, these payments totaled $1.4 million These payments will be treated as contra maintenance revenue in 2014 Timing: expect ~$20 million in 1H:14 and ~$10 million in Q3:14 Looking forward, we do not expect any significant payments like this over the next few years 19
Selected Financial Guidance Elements Anticipate $1 billion of new investments for 2014 ~$200M in Q1; ~$500M in Q2 Several aircraft sale and lease end (maintenance revenue) transactions expected during the 1H:14 Quarter-specific timing difficult to forecast accurately at this time For the full year 2014 we are forecasting gains from asset sales of $15 20 million Guidance Item Q1:14 Guidance 1H:14 Guidance Lease rental revenue $171 to $173 million $347 to $352 million Finance lease revenue ~$4 million ~$8 million Maintenance revenue (1) $1 to 3 million $11 to 14 million Contra-Maintenance revenue ($13) to ($15) million ($18) to ($21) million Amortization of net lease discounts and lease incentives ($7) to ($9) million ($15) to ($17) million SG&A $14 to $15 million $27 to $29 million Depreciation $74 to $76 million $147 to $151 million Interest, net (2) $64 to 66 million $127 to $129 million Tax rate 9 11% 9 11% (1) Does NOT include maintenance revenue from lease-end part-out opportunities (2) Includes hedge loss amortization charges. 20
Cash Interest Expense versus Reported Interest Aircastle s cash interest expense is considerably lower than reported Interest, net Cash interest was higher in 2013 driven by a higher average outstanding debt balance reflecting fleet growth $ in Millions 2011 2012 2013 Interest on borrowings, net settlements on interest rate derivatives, and other liabilities ("Cash Interest Expense") $ 172.8 $ 178.6 $ 196.2 Hedge ineffectiveness losses (gains) (0.1) 2.9 0.4 Amortization related to deferred losses 23.1 30.8 33.3 Amortization of deferred financing fees 15.3 12.4 14.7 Interest Expense 211.0 224.7 244.5 Less: interest income (0.4) (0.6) (0.8) Less: capitalized interest (6.5) (1.3) - Interest, Net ("GAAP Interest Expense") $ 204.2 $ 222.8 $ 243.8 21
Reporting Impact of Securitization No. 1 Repayment Repayment included swap termination payment of $35 million 1 which will amortize through interest expense until June 2016 (date of original swap expiry) $ in Millions Reporting Implications from Refinancings 2014 2015 2016 Total Amortization of hedge loss (Term Financing No. 1) $ 14.9 $ 4.4 $ - $ 19.3 Amortization of hedge loss (Securitization No. 1) $ 11.4 $ 10.9 $ 4.9 $ 27.2 $ 26.3 $ 15.3 $ 4.9 $ 46.5 1 Includes accrued interest. As a result of hedge ineffectiveness a portion of the swap liability has already been expensed during 2013 and the undesignated portion in 2014 and therefore the amount of the loss to be amortized on a straight-lined basis will be approximately $27 million. This amount will be amortized over the remaining life of the swap (through June 15, 2016). 22
Appendix
Supplemental Financial Information (In thousands, except per share amounts) Three Months Ended December 31, Twelve Months Ended December 31, 2012 2013 2012 2013 Revenues $ 176,710 $ 191,988 $ 686,572 $ 708,645 EBITDA $ 163,611 $ 190,383 $ 546,285 $ 600,087 Adjusted EBITDA $ 172,279 $ 195,965 $ 647,622 $ 717,209 Adjusted net income (loss) $ 36,372 $ 54,899 $ 57,009 $ 59,260 Adjusted net income (loss) allocable to common shares $ 36,079 $ 54,433 $ 56,539 $ 58,786 Per common share - Basic $ 0.52 $ 0.68 $ 0.80 $ 0.80 Per common share - Diluted $ 0.52 $ 0.68 $ 0.80 $ 0.80 Basic common shares outstanding 69,120 80,154 70,717 73,653 Diluted common shares outstanding 69,120 80,154 70,717 73,653 24
Reconciliation of GAAP to Non-GAAP Measures EBITDA and Adjusted EBITDA ($ in thousands) Three Months Ended December 31, Twelve Months Ended December 31, 2012 2013 2012 2013 Net income (loss) $ 29,789 $ 48,421 $ 32,868 $ 29,781 Depreciation Amortization of net lease discounts and lease incentives Interest, net Income tax provision EBITDA 69,896 6,452 55,605 1,869 163,611 72,476 6,884 60,106 2,496 190,383 269,920 12,844 222,808 7,845 546,285 284,924 32,411 243,757 9,215 600,088 Adjustments: Impairment of Aircraft 7,667 4,971 96,454 117,306 Non-cash share based payment expense Loss (gain) on mark to market of interest rate derivative contracts Contract termination expense Adjusted EBITDA $ 999 2-172,279 $ 1,638 (1,027) - 195,965 $ 4,232 (597) 1,248 647,622 $ 4,569 (4,754) - 717,209 We define EBITDA as income 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-gaap measure is helpful in identifying trends in our performance. Using EBITDA assists us in comparing our operating performance on a consistent basis by removing the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. 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. 25
Reconciliation of GAAP to Non-GAAP Measures Adjusted Net Income (Loss) Three Mos. Ended Dec. 31, Twelve Mos. Ended Dec. 31, 2012 2013 2012 2013 (Dollars in thousands) Net income (loss) $ 29,789 $ 48,421 $ 32,868 $ 29,781 Loan termination fee (1) - - - 2,954 Ineffective portion and termination of hedges (1) 1,053 171 2,893 2,393 (Gain)/Loss on mark to market of interest rate derivative contracts (2) 2 (1,027) (597) (4,754) Write-off of deferred financing fees (1) 120-3,034 3,975 Stock compensation expense (3) 999 1,638 4,232 4,569 Term Financing No. 1 hedge loss amortization charges (1) 4,409 4,365 13,331 17,843 Securitization No. 1 hedge loss amortization charges (1) - 1,331-2,499 Contract Termination Expense - - 1,248 - Adjusted net income $ 36,372 $ 54,899 $ 57,009 $ 59,260 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 US GAAP and the below reconciliation, provides useful information about operating and periodover-period performance, and provides 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 and gains or losses related to flight equipment and debt investments. 26
Reconciliation of GAAP to Non-GAAP Measures Operating Cash Flow $ in thousands 2007 2008 2009 2010 2011 2012 2013 Net cash provided by operating activities $ 243,236 $ 333,626 $ 327,641 $ 356,530 $ 359,377 $ 427,277 $ 424,037 Collections on Finance Leases - - - - - 3,852 9,508 Operating Cash Flow $ 243,236 $ 333,626 $ 327,641 $ 356,530 $ 359,377 $ 431,129 $ 433,545 Management believes that Operating Cash Flow when viewed in conjunction with the Company s results under US 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 elements related to non-cash revenue and expense items and interest rate derivative accounting. 27
Reconciliation of GAAP to Non-GAAP Measures Cash Earnings and Cash ROE $ in thousands 2007 2008 2009 2010 2011 2012 2013 Net cash provided by operating activities $ 243,236 $ 333,626 $ 327,641 $ 356,530 $ 359,377 $ 427,277 $ 424,037 Collections on Finance Leases - - - - - 3,852 9,508 Gain on Sale of Flight Equipment 11,566 6,525 1,162 7,084 39,092 5,747 37,220 Less: Depreciation (127,164) (201,759) (209,481) (220,476) (242,103) (269,920) (284,924) Cash Earnings $ 127,638 $ 138,392 $ 119,322 $ 143,138 $ 156,366 $ 166,956 $ 185,841 Average Shareholder's Equity $965,887 $1,203,372 $1,201,702 $1,316,978 $1,373,663 $1,410,117 $1,530,516 Cash Earnings / Average Shareholder's Equity 13.2% 11.5% 9.9% 10.9% 11.4% 11.8% 12.1% Note: Average Shareholder s Equity is the sum of the current and prior year shareholder s equity divided by two. Management believes that the cash return on equity metric (Cash ROE) when viewed in conjunction with the Company s results under US 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. 28
Reconciliation of GAAP to Non-GAAP Measures Impairment Charges For the twelve months ended December 31, 2013, the impact of the Q3:13 non-cash impairment charge related to our annual fleet review was $1.30 per diluted common share Twelve Months Ended December 31, 2013 $ in thousands Per Share Net income, excluding non-cash impairment charges $ 125,379 $ 1.70 Asset impairment charges related to annual fleet review, after tax (95,598 ) (1.30 ) Net income (loss), as reported $ 29,781 $.40 Twelve Months Ended December 31, 2013 $ in thousands Per Share Adjusted net income, excluding non-cash impairment charges $ 154,858 $ 2.10 Asset impairment charges related to annual fleet review, after-tax (95,598 ) (1.30 ) Adjusted net income (loss), including impairment charges $ 59,260 $.80 29
Supplemental Financial Information Three Months Ended Twelve Months Ended December 31, 2013 December 31, 2013 Weighted-average shares: Shares Percent 2 Shares Percent 2 Common shares outstanding Basic 80,154 99.15% 73,653 99.20% Unvested restricted common shares 686 0.85% 594 0.80% Total weighted-average shares outstanding 80,839 100.00% 74,247 100.00% Common shares outstanding Basic 80,154 100.00% 73,653 100.00% Effect of dilutive shares 1 --- --- --- --- Common shares outstanding Diluted 80,154 100.00% 73,653 100.00% Net income (loss) allocation Net income (loss) 48,421 100.00% $ 29,781 100.00% Distributed and undistributed earnings allocated to unvested restricted shares (411 ) 0.85% (238 ) 0.80% Earnings (loss) available to common shares $ 48,010 100.00% $ 29,543 100.00% Adjusted net income (loss) allocation Adjusted net income (loss) $ 54,899 100.00% $ 59,260 100.00% Amounts allocated to unvested restricted shares (466 ) 0.85% ( 474 ) 0.80% Amounts allocated to common shares $ 54,433 100.00% $ 58,786 99.20% Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. Because the holders of the participating restricted common shares were not contractually required to share in the Company s losses, in applying the two-class method to compute basic and diluted net loss per common share, no allocation to restricted common shares was made for the three months ended December 31, 2013 and the twelve months ended December 31, 2013. Under the two-class method, adjusted net income (loss) per common share are computed by dividing the sum of distributed adjusted net income (loss) allocated to common shareholders and undistributed adjusted net income (loss) allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed adjusted net income (loss) are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. Because the holders of the participating restricted common shares were not contractually required to share in the Company s losses, in applying the twoclass method to compute basic and diluted adjusted net loss per common share, no allocation to restricted common shares was made for the three months ended December 31, 2013 and the twelve months ended December 31, 2013. 1. The Company had no dilutive common share equivalents for the period presented. 2. Percentages rounded to two decimal places. 30
Supplemental Financial Information Three Months Ended Twelve Months Ended December 31, 2012 December 31, 2012 Weighted-average shares: Shares Percent 2 Shares Percent 2 Common shares outstanding Basic 69,120 99.19% 70,717 99.18% Unvested restricted common shares 561 0.81% 588 0.82% Total weighted-average shares outstanding 69,681 100.00% 71,305 100.00% Common shares outstanding Basic 69,120 100.00% 70,717 100.00% Effect of dilutive shares 1 -- --- --- --- Common shares outstanding Diluted 69,120 100.00% 70,717 100.00% Net income (loss) allocation Net income (loss) $ 29,789 100.00% $ 32,868 100.00% Distributed and undistributed earnings allocated to unvested restricted shares (240 ) 0.81% ( 271 ) ( 0.82% ) Earnings (loss) available to common shares $ ( 29,549 ) 99.19% $ 32,597 99.18% Adjusted net income (loss) allocation Adjusted net income (loss) $ 36,372 100.00% $ 57,009 100.00% Amounts allocated to unvested restricted shares (293 ) 0.81% ( 470 ) ( 0.82% ) Amounts allocated to common shares $ 36,079 99.19% $ 56,539 99.18% Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. Because the holders of the participating restricted common shares were not contractually required to share in the Company s losses, in applying the two-class method to compute basic and diluted net loss per common share, no allocation to restricted common shares was made for the three months ended December 31, 2012 and the twelve months ended December 31, 2012. Under the two-class method, adjusted net income (loss) per common share are computed by dividing the sum of distributed adjusted net income (loss) allocated to common shareholders and undistributed adjusted net income (loss) allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed adjusted net income (loss) are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. Because the holders of the participating restricted common shares were not contractually required to share in the Company s losses, in applying the twoclass method to compute basic and diluted adjusted net loss per common share, no allocation to restricted common shares was made for the three months ended December 31, 2012 and the twelve months ended December 31, 2012. 1. The Company had no dilutive common share equivalents for the period presented. 2. Percentages rounded to two decimal places. 31
Limitations of EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow An investor or potential investor may find EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow important measures in evaluating our performance, results of operations and financial position. We use these non-us GAAP measures to supplement our US GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. EBITDA, Adjusted EBITDA, Cash Earnings, Cash ROE and Operating Cash Flow have limitations as analytical tools and should not be viewed in isolation or as substitutes for US GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow, and using these non-us GAAP measures as compared to US GAAP net income, income from continuing operations and cash flows provided by or used in operations, include: depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our aircraft, which affects the aircraft s availability for use and may be indicative of future needs for capital expenditures; the cash portion of income tax (benefit) provision generally represents charges (gains), which may significantly affect our financial results; elements of our interest rate derivative accounting may be used to evaluate the effectiveness of our hedging policy; hedge loss amortization charges related to Term Financing No. 1 and Securitization No. 1; and adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes. EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow are not alternatives to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with US GAAP. You should not rely on these non-us GAAP measures as a substitute for any such US GAAP financial measure. We strongly urge you to review the reconciliations to US GAAP net income, along with our consolidated financial statements included elsewhere in our Annual Report. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow are not measures of financial performance under US GAAP and are susceptible to varying calculations, EBITDA, Adjusted EBITDA, Cash ROE and Operating Cash Flow as presented here, may differ from and may not be comparable to, similarly titled measures used by other companies. 32