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You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this report.
−Removed: The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Risk Factors” and included in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Form 10-Q for the quarterly period ended June 30, 2019, filed with the Securities and Exchange Commission (the “SEC”).
+Added: The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those described under “Risk Factors” and included in our Annual Report on Form 10-K for the year ended December 31, 2019 , and in this report filed with the Securities and Exchange Commission (the “SEC”).
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S.
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All statements included or incorporated by reference in this Quarterly Report on Form 10-Q (this “report”), 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.
−Removed: Examples of forward-looking statements include, but are 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 and Adjusted Net Income and the global aviation industry and aircraft leasing sector.
+Added: Examples of forward-looking statements include, but are 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 and Adjusted EBITDA 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.
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WEBSITE AND ACCESS TO THE COMPANY’S REPORTS
−Removed: The Company’s Internet website can be found at www.aircastle.com.
−Removed: Our annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available free of charge through our website under “Investors — Financial Information — SEC Filings” as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
Statements and information concerning our status as a Passive Foreign Investment Company (“PFIC”) for U.S.
−Removed: taxpayers are also available free of charge through our website under “Investors — Tax Information (PFIC).”
−Removed: Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Board of Directors committee charters (including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee) are available free of charge through our website under “Investors — Corporate Governance.” In addition, our Code of Ethics for the Chief Executive and Senior Financial Officers, which applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller, is available in print, free of charge, to any shareholder upon request to Investor Relations, Aircastle Limited, c/o Aircastle Advisor LLC, 201 Tresser Boulevard, Suite 400, Stamford, Connecticut 06901.
−Removed: The information on the Company’s Internet website is not part of, or incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.
+Added: taxpayers are available free of charge through our website at www.aircastle.com under “Investors — Tax Information (PFIC).”
+Added: The information on the Company’s Internet website is not part of, nor incorporated by reference, into this report, or any other report we file with, or furnish to, the SEC.
Aircastle acquires, leases, and sells commercial jet aircraft to airlines throughout the world.
−Removed: As of September 30, 2019 , we owned and managed on behalf of our joint ventures 277 aircraft leased to 87 lessees located in 48 countries.
+Added: As of March 31, 2020 , we owned and managed on behalf of our joint ventures 283 aircraft leased to 84 lessees located in 46 countries.
Our aircraft are managed by an experienced team based in the United States, Ireland and Singapore.
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In many cases we are, however, obligated to pay a specified portion of maintenance or modification costs.
−Removed: As of September 30, 2019 , the net book value (including flight equipment held for lease and net investment in direct financing and sales-type leases, or “net book value”) was $7.74 billion compared to $7.40 billion at December 31, 2018 .
−Removed: Our revenues and net income for the three and nine months ended September 30, 2019 were $236.9 million and $674.2 million , and $43.3 million and $109.3 million , respectively.
+Added: As of March 31, 2020 , the net book value (including flight equipment held for lease and net investment in leases, or “net book value”) was $7.56 billion compared to $7.79 billion at December 31, 2019 .
+Added: Our revenues and net loss for the three months ended March 31, 2020 were $282.5 million and $34.2 million , respectively.
+Added: On March 27, 2020, the Company successfully completed its merger (the “Merger”) with MM Air Merger Sub Limited, a Bermuda exempted company (“Merger Sub”), pursuant to the Agreement and Plan of Merger, dated as of November 5, 2019 (the “Merger Agreement”), by and among the Company, MM Air Limited, a Bermuda exempted company (“Parent”), and Merger Sub.
+Added: As a result of the Merger, Aircastle’s shareholders (other than Marubeni Corporation and its affiliates) received cash consideration of $32.00 per common share and the Company is now controlled by affiliates of Marubeni Corporation and Mizuho Leasing Company, Limited (“Mizuho Leasing”).
+Added: The Merger is not expected to result in any change of the Company’s business strategy and we believe the Company will benefit by having stable investors with a long-term investment horizon.
+Added: We also may benefit by being affiliated with Mizuho Leasing, part of the Mizuho Financial Group, one of the largest Japanese financial institutions.
Growth in commercial air traffic is broadly correlated with world economic activity.
In recent years commercial air traffic growth has expanded at a rate 1.5 to 2 times that of global GDP growth.
−Removed: The expansion of air travel has driven a rise in the world aircraft fleet.
−Removed: There are currently approximately 22,100 commercial mainline passenger and freighter aircraft in operation worldwide.
−Removed: This fleet is expected to continue expanding at a three to four percent average annual rate over the next twenty years.
−Removed: Aircraft leasing companies own approximately 44% of the world’s commercial jet aircraft.
−Removed: 2019 continues to show strong growth in air traffic.
−Removed: According to the International Air Transport Association, during the first eight months of 2019 , global passenger traffic increased 4.5% compared to the same period in 2018 .
−Removed: Demand for air travel varies by region.
−Removed: Emerging market economies have generally been experiencing greater increases in air traffic, driven by rising levels of per capita income leading to an increased propensity to fly.
−Removed: Mature markets, such as North America and Western Europe, have been growing more slowly in tandem with their economies.
−Removed: Air traffic growth is also being driven by the proliferation of low cost carriers, which have stimulated demand through lower prices.
−Removed: The outlook for airlines operating in areas with political instability or weakening economies is more uncertain.
−Removed: On balance, we believe air travel will increase over time and, as a result, we expect demand for modern aircraft will continue to remain strong over the long-term.
−Removed: Notwithstanding the sector’s long-term growth, the aviation market is subject to economic variability due to changes in macroeconomic variables, such as interest rates, fuel price levels and foreign exchange rates.
−Removed: The aviation industry is also susceptible to external shocks, such as regional conflicts and terrorist events.
−Removed: Mitigating this risk is the portability of the assets, allowing aircraft to be redeployed to locations where there is demand.
−Removed: Fuel prices and interest rates have had a substantial effect on our industry.
−Removed: After dropping to a low of $36 per barrel in December 2015, the price of fuel has risen to an average of $60 per barrel during 2019 .
−Removed: While still below historic highs, higher fuel prices have impacted airline profitability.
−Removed: The prolonged low interest rate environment and the strong overall performance of the aircraft financing sector attracted significant new capital, increasing competition for new investments and putting pressure on margins and returns.
−Removed: After the Federal Reserve increased interest rates in the U.S.
−Removed: during 2018, the Federal Reserve cut the Funds rate by 25 basis points three times during the first ten months of 2019, its first interest rate cuts since December 2008.
−Removed: Future cuts to the interest rate by the Federal Reserve are possible depending upon domestic and global economic conditions at such time.
−Removed: Capital availability for aircraft has varied over time, and we consider this variability to be a basic characteristic of our business.
−Removed: If pursued properly, this represents an important source of investment opportunity.
−Removed: debt capital market conditions benefit borrowers by permitting access to financing at historic lows.
−Removed: Commercial bank debt also continues to play a critical role for aircraft finance.
−Removed: While financial market conditions remain attractive, geopolitical issues may increase capital costs and limit availability going forward.
−Removed: We believe capital market developments should generate attractive additional investment and trading opportunities for which we are well placed to capitalize given our access to different financing sources, our limited capital commitments and our reputation as a reliable trading partner.
−Removed: Our investment grade credit ratings from Moody’s, Standard & Poor’s and Fitch allowed us to reduce our borrowing costs for our two most recent bond deals and will enable us to more reliably access debt capital throughout the business cycle.
−Removed: Our business approach is differentiated from those of other large leasing companies.
−Removed: Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, so the nature and volume of assets we buy will vary over time with market conditions.
+Added: The expansion of air travel has driven the growth in the world aircraft fleet.
+Added: There are currently approximately 22,000 commercial mainline passenger and freighter aircraft globally.
+Added: In a normal economic environment, we would expect this fleet to continue expanding at a three to four percent average annual rate.
+Added: Aircraft leasing companies currently own approximately 45% of the world’s commercial jet aircraft.
+Added: The COVID-19 virus has had an unprecedented negative impact on the global economy, and in particular on the aviation sector.
+Added: There has been a dramatic slowdown in air traffic, with many markets in near complete shutdown.
+Added: According to IATA air travel is down to approximately 20% of normal levels and a recovery to pre-pandemic levels is not expected for several years.
+Added: Substantially all of the world’s airlines are experiencing financial difficulties and liquidity challenges.
+Added: While we believe the long-term demand for air travel will return to historical trends over time, the near-term impacts of the COVID-19 virus’ economic shock are material;
+Added: the extent and duration of which cannot currently be determined.
+Added: Airlines have been seeking to preserve liquidity through a combination of requesting government support, raising debt and equity, delaying or canceling new aircraft orders, furloughing employees, as well as requesting deferrals from lessors.
+Added: We have agreed to defer near-term lease payments with certain of our airline customers, which they are obliged to repay over time.
+Added: As of May 7, 2020, we have agreed to defer approximately $70.0 million in near-term lease payments with 35 airlines, including $18.5 million that appear in our Consolidated Balance Sheet as components of Accounts receivable, Net investment in leases, or Other assets as of March 31, 2020 .
+Added: If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, governmental or other sources, we may need to extend further deferrals to some of our other customers or to extend the deferrals we have already made.
+Added: We may ultimately not be able to collect all the amounts we have deferred.
+Added: Subsequent to March 31, 2020, two of our customers entered judicial insolvency proceedings.
+Added: We lease two aircraft to each of these customers, comprising an aggregate of $127.7 million of our flight equipment held for lease as of March 31, 2020.
+Added: As of the date of this filing, our aircraft leases have been neither terminated nor rejected by the airlines.
+Added: Accounts receivable from these customers as of March 31, 2020, is not material.
+Added: We believe we have sufficient liquidity to meet all of our contractual obligations over the next twelve months.
+Added: We have $1.1 billion of liquidity from cash on hand, working capital and/or available credit lines.
+Added: We believe that our long-standing business strategy of maintaining conservative leverage, limiting long-term financial commitments and focusing our portfolio on more liquid narrow-body aircraft will enable us to manage through the COVID-19 crisis.
+Added: Our portfolio of mainly mid-life, narrow-body aircraft should remain attractive relative to new technology aircraft due to their lower capital
+Added: costs in an environment of tight airline margins and low fuel prices.
+Added: We believe our platform and personnel position us to effectively manage through the COVID-19 crisis and will able us to take advantage of new investment opportunities when they arise.
+Added: Our Company employs a team of experienced senior professional with extensive industry and financial experience.
+Added: Our leadership team members have an average of more than 30 years of relevant industry experience, including managing through prior downturns in the aviation industry, like the 2008 Global Financial Crisis and the September 11, 2001 terror attacks.
+Added: Our business approach will be to remain differentiated from those of other large leasing companies.
+Added: Our investment strategy is to seek out the best risk-adjusted return opportunities across the commercial jet market, so the volume and types of assets we buy will vary over time with market conditions.
We plan to grow our business and profits over the long-term while maintaining a conservative, flexible capital structure.
−Removed: We prefer to have capital resources available to capture investment opportunities
−Removed: that arise in the context of changing market circumstances.
−Removed: As such, we limit large, long-term capital commitments and are therefore less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments than many of our competitors.
−Removed: Our business strategy entails the following elements:
−Removed: Pursuing a disciplined and differentiated investment strategy.
−Removed: In our view, the relative values of different aircraft change over time.
−Removed: We continually evaluate investments across different aircraft models, ages, lessees and acquisition sources and re-evaluate these choices as market conditions and relative investment values change.
−Removed: We believe our team’s experience with a wide range of asset types and the financing flexibility offered through unsecured debt provides us with a competitive advantage.
−Removed: We view orders from equipment manufacturers to be part of our investment opportunity set, but choose to keep our long term capital commitments limited.
−Removed: Originating investments from many different sources across the globe.
−Removed: Our strategy is to seek out worthwhile investments by leveraging our team’s wide range of contacts.
−Removed: We utilize a multi-channel approach to sourcing acquisitions and have purchased aircraft from a large number of airlines, lessors, original equipment manufacturers, lenders and other aircraft owners.
−Removed: Since our formation in 2004, we have acquired aircraft from 94 different sellers.
−Removed: Selling assets when attractive opportunities arise.
−Removed: We sell assets with the aim of realizing profits and reinvesting proceeds.
−Removed: We also use asset sales for portfolio management purposes, such as reducing lessee specific concentrations and lowering residual value exposures to certain aircraft types.
−Removed: Since our formation, we have sold aircraft to 69 buyers.
−Removed: Maintaining efficient access to capital from a wide set of sources and leveraging our recent investment grade credit rating.
−Removed: We believe the aircraft investment market is influenced by the business cycle.
−Removed: Our strategy is to increase our purchase activity when prices are low and to emphasize asset sales when prices are high.
−Removed: To implement this approach, we believe it is important to maintain access to a wide variety of financing sources.
−Removed: During 2018, we achieved our objective of improving our corporate credit ratings to an investment grade level by maintaining strong portfolio and capital structure metrics while achieving a critical size through accretive growth.
−Removed: We believe our improved credit rating will not only reduce our borrowing costs, but also facilitate more reliable access to both unsecured and secured debt capital throughout the business cycle.
−Removed: Leveraging our strategic relationships.
−Removed: We intend to capture the benefits provided through the extensive global contacts and relationships maintained by Marubeni Corporation (“Marubeni”), which is our largest shareholder and is one of the largest Japanese trading companies.
−Removed: Marubeni has enabled greater access to Japanese-based financing and helped source and develop our joint venture with the leasing arm of the Industrial Bank of Japan, Limited.
−Removed: Capturing the value of our efficient operating platform and strong operating track record.
−Removed: We believe our team’s capabilities in the global aircraft leasing market places us in a favorable position to source and manage new income-generating activities.
−Removed: We intend to continue to focus our efforts in areas where we believe we have competitive advantages, including new direct investments as well as ventures with strategic business partners.
−Removed: Intending to pay quarterly dividends to our shareholders based on the Company’s sustainable earnings levels.
−Removed: Aircastle has paid dividends each quarter since our initial public offering in 2006.
−Removed: On August 2, 2019 , our Board of Directors declared a regular quarterly dividend of $0.30 per common share, or an aggregate of $22.4 million for the three months ended September 30, 2019 , which was paid on September 16, 2019 , to holders of record on August 30, 2019 .
−Removed: These dividends may not be indicative of the amount of any future dividends.
−Removed: Our ability to pay quarterly dividends will depend upon many factors, including those as described in Item 1A.
−Removed: “Risk Factors” and elsewhere in our 2018 Annual Report on Form 10-K.
−Removed: Recent Developments
−Removed: In October 2019, the Company entered into lease agreements with an affiliate of a top-tier European flag carrier for eleven Embraer E195-E2 aircraft with delivery dates between 2021 and 2024.
−Removed: As a result of these leases, the Company amended its purchase agreement with Embraer to reflect these new delivery dates and the related purchase commitments.
−Removed: On November 5, 2019, Aircastle entered into an Agreement and Plan of Merger (the “Merger Agreement”), with MM Air Limited, a Bermuda exempted company (“Parent”), and MM Air Merger Sub Limited, a Bermuda exempted company and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, among other things, Merger Sub will merge with and into Aircastle, with Aircastle surviving as a wholly owned subsidiary of Parent (the “Merger”).
−Removed: Parent and Merger Sub
−Removed: are newly-formed entities controlled by affiliates of Marubeni Corporation (“Marubeni”) and Mizuho Leasing Company, Limited.
−Removed: Pursuant to the Merger Agreement, subject to certain conditions set forth therein, at the effective time of the Merger, each issued and outstanding common share of Aircastle (other than (i) shares to be canceled or converted into shares of the surviving company pursuant to the Merger Agreement and (ii) restricted shares to be canceled and exchanged pursuant to the Merger Agreement), shall be converted into the right to receive $32.00 in cash, without interest.
−Removed: The Merger is subject to customary closing conditions, including approval by Aircastle’s shareholders and receipt of certain regulatory approvals.
−Removed: Marubeni has agreed to vote the common shares of Aircastle that Marubeni and its affiliates beneficially own in favor of the transaction, subject to certain customary exceptions.
−Removed: Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from retained maintenance payments related to lease expirations, lease termination payments, lease incentive amortization, interest recognized from direct financing and sales-type leases and gains from aircraft sales.
+Added: We prefer to have capital resources available to capture investment opportunities that arise in the context of changing market circumstances.
+Added: As such, we limit large, long-term capital commitments and are less reliant on orders for new aircraft from aircraft manufacturers as a source of new investments than many of our competitors.
+Added: Our revenues are comprised primarily of operating lease rentals on flight equipment held for lease, revenue from maintenance payments related to lease expirations, lease termination payments, interest recognized from direct financing and sales-type leases and gains on the sale of flight equipment.
Typically, our aircraft are subject to net leases whereby the lessee pays lease rentals and is generally responsible for maintaining the aircraft and paying operational, maintenance and insurance costs arising during the term of the lease.
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An increase in the percentage of off-lease aircraft or a reduction in lease rates upon remarketing would negatively impact our revenues.
−Removed: Under an operating lease, the lessee will be responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft.
+Added: As a result of the COVID-19 pandemic, the Company has provided lease concessions to certain customers in the form of lease rental deferrals.
+Added: While these deferral arrangements affect the timing of lease rental payments, the total amount of lease rental payments required over the lease is generally the same as that which was required under the original lease agreement.
+Added: We account for the deferrals as if no modifications to the lease agreements were made, and record the deferred rentals as a receivable within Other assets in our consolidated balance sheet.
+Added: We continue to recognize lease rental revenue for such receivables, to the extent collectability is probable.
+Added: When collectability is not probable, the customer is placed on non-accrual status, and revenue is recognized when cash payments are received.
+Added: Under a lease, the lessee is responsible for performing maintenance on the relevant aircraft and will typically be required to make payments to us for heavy maintenance, overhaul or replacement of certain high-value components of the aircraft.
These maintenance payments are based on hours or cycles of utilization or on calendar time, depending upon the component, and would be made either monthly in arrears or at the end of the lease term.
For maintenance payments made monthly in arrears during a lease term, we will typically be required to reimburse all or a portion of these payments to the lessee upon their completion of the relevant heavy maintenance, overhaul or parts replacement.
−Removed: We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we generally do not recognize maintenance revenue during the lease.
−Removed: Maintenance revenue recognition would occur at or near the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement.
+Added: We record maintenance payments paid by the lessee during a lease as accrued maintenance liabilities in recognition of our obligation in the lease to refund such payments, and therefore we typically do not recognize maintenance revenue during the lease.
+Added: Maintenance revenue recognition would occur at the end of a lease, when we are able to determine the amount, if any, by which reserve payments received exceed the amount we are required under the lease to reimburse to the lessee for heavy maintenance, overhaul or parts replacement.
The amount of maintenance revenue we recognize in any reporting period is inherently volatile and is dependent upon a number of factors, including the timing of lease expiries, including scheduled and unscheduled expiries, the timing of maintenance events and the utilization of the aircraft by the lessee.
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We account for these expected payments as lease incentives, which are amortized as a reduction of revenue over the life of the lease.
−Removed: We estimate the amount of our portion for such costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.
+Added: We estimate the amount of our portion for such
+Added: costs, typically for the first major maintenance event for the airframe, engines, landing gear and auxiliary power units, expected to be paid to the lessee based on assumed utilization of the related aircraft by the lessee, the anticipated cost of the maintenance event and the estimated amounts the lessee is responsible to pay.
This estimated lease incentive is not recognized as a lease incentive liability at the inception of the lease.
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2020 Lease Expirations and Lease Placements
−Removed: At September 30, 2019 , the Company had two off-lease aircraft and nine aircraft with scheduled lease expirations in 2019.
−Removed: As of November 1, 2019 , of these eleven aircraft, we have only one aircraft, which accounts for less than 1% of our net book value at September 30, 2019 , still to be placed or sold.
+Added: At March 31, 2020 , the Company had five off-lease aircraft and twenty aircraft with scheduled lease expirations in 2020.
+Added: As of May 8, 2020 , of these 25 aircraft, we have thirteen aircraft, which account for less than 5% of our net book value at March 31, 2020 , still to be placed or sold.
2021-2024 Lease Expirations and Lease Placements
−Removed: Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the period 2020-2023, representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in direct financing and sales-type leases) at September 30, 2019 , specified below:
+Added: Taking into account lease and sale commitments, we currently have the following number of aircraft with lease expirations scheduled in the period 2021-2024, representing the percentage of our net book value of flight equipment (including flight equipment held for lease and net investment in leases) at March 31, 2020 , specified below:
15 aircraft, representing 4%;
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Operating Expenses
−Removed: Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, selling, general and administrative expenses, aircraft impairment charges and maintenance and other costs.
−Removed: Because our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and other costs relating to aircraft reflected in our statement of income primarily relates to expenses for scheduled transitions and unscheduled lease terminations.
+Added: Operating expenses are comprised of depreciation of flight equipment held for lease, interest expense, SG&A expenses, aircraft impairment charges and maintenance and other costs.
+Added: Because our operating lease terms generally require the lessee to pay for operating, maintenance and insurance costs, our portion of maintenance and other costs relating to aircraft reflected in our statement of income primarily relates to expenses for unscheduled lease terminations.
Income Tax Provision
We obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda.
−Removed: Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily the United States and Ireland.
+Added: Consequently, the provision for income taxes recorded relates to income earned by certain subsidiaries of the Company which are located in, or earn income in, jurisdictions that impose income taxes, primarily Ireland and the United States.
Our aircraft-owning subsidiaries that are recognized as corporations for U.S.
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are subject to tax in those respective jurisdictions.
−Removed: We have a U.S.
−Removed: based subsidiary which provides management services to our subsidiaries and is subject to U.S.
+Added: We have a U.S.-based subsidiary which provides management services to our non-U.S.
+Added: subsidiaries and is subject to U.S.
federal, state and local income taxes.
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subsidiaries and are subject to tax in those respective jurisdictions.
+Added: The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020.
+Added: The CARES Act, among other things, includes provisions relating to net operating loss carrybacks, alternative minimum tax credit refunds, modification to the net interest expense deduction limitation and technical correction to the tax depreciation methods for qualified improvement property.
+Added: While we continue to evaluate the potential application of the CARES Act
+Added: provisions, the CARES Act did not materially impact the Company’s effective tax rate for the three months ended March 31, 2020.
Acquisitions and Sales
−Removed: During the first nine months of 2019 , we acquired 33 aircraft for $998.4 million .
−Removed: As of November 1, 2019 , we have acquired six additional aircraft.
−Removed: At September 30, 2019 , we had commitments to acquire 32 additional aircraft for $1.15 billion , including the acquisition of 25 new E-Jet E2 aircraft from Embraer, with delivery beginning in the third quarter of 2020.
+Added: During the first three months of 2020 , we acquired four aircraft for $82.3 million .
+Added: As of May 8, 2020 , we have not acquired any additional aircraft.
+Added: At March 31, 2020 , we had commitments to acquire 27 additional aircraft for $1.02 billion , including the acquisition of 25 new E-Jet E2 aircraft from Embraer, and we are in the process of documenting deferring our first E Jet E-2 delivery scheduled for the third quarter of 2020.
Of this amount, approximately $125.8 million represents commitments for the remainder of 2020 .
−Removed: As of November 1, 2019 , we have commitments to acquire 28 aircraft for $1.03 billion .
−Removed: During the first nine months of 2019 , we sold twelve aircraft for net proceeds of $229.1 million , and recognized net gains on sales of $25.4 million , comprised of $21.7 million from the sale of these aircraft and $3.7 million resulting from the transition of two aircraft from operating to net investment in direct financing and sales-type leases.
−Removed: As of November 1,
−Removed: 2019 , we have sold four additional aircraft.
−Removed: As of September 30, 2019 , all eight aircraft were sold from the Company’s joint venture with an affiliate of Ontario Teachers’ Pension Plan.
−Removed: The following table sets forth certain information with respect to the aircraft owned by us as of September 30, 2019 :
+Added: As of May 8, 2020 , we have commitments to acquire 27 aircraft for $1.02 billion .
+Added: During the first three months of 2020 , we sold eight aircraft for net proceeds of $150.0 million , and recognized net gains on sales of $27.0 million .
+Added: As of May 8, 2020 , we have not sold any additional aircraft.
+Added: The following table sets forth certain information with respect to the aircraft owned by us as of March 31, 2020 :
AIRCASTLE AIRCRAFT INFORMATION (dollars in millions)
Owned Aircraft
−Removed: September 30,
−Removed: September 30,
Net Book Value of Flight Equipment
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Weighted Average Remaining Lease Term (years) (2)
−Removed: Weighted Average Fleet Utilization during the three months ended September 30, 2019 and 2018 (3)
−Removed: Weighted Average Fleet Utilization during the nine months ended September 30, 2019 and 2018 (3)
−Removed: Portfolio Yield for the three months ended September 30, 2019 and 2018 (4)
−Removed: Portfolio Yield for the nine months ended September 30, 2019 and 2018 (4)
−Removed: Managed Aircraft on behalf of Joint Ventures
+Added: Weighted Average Fleet Utilization during the three months ended March 31, 2020 and 2019 (3)
+Added: Managed Aircraft on behalf of Joint Venture
Net Book Value of Flight Equipment
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Aircraft on-lease days as a percent of total days in period weighted by net book value.
−Removed: The decrease from our historical utilization rate was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.
−Removed: Lease rental revenue, interest income and cash collections on our net investment in direct financing and sales-type leases for the period as a percent of the average net book value for the period;
+Added: The decrease from our historical utilization rate for the three months ended March 31, 2019, was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.
+Added: Lease rental revenue, interest income and cash collections on our net investment in leases for the period as a percent of the average net book value for the period;
quarterly information is annualized.
−Removed: The decrease from our historical portfolio yield was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.
−Removed: The calculation of portfolio yield includes our net investment in direct financing and sales-type leases in the average net book value, and the interest income and cash collections from our net investment in direct financing and sales-type leases in lease rentals.
−Removed: Our owned aircraft portfolio as of September 30, 2019 is listed in Exhibit 99.1 to this report.
+Added: The decrease from our historical portfolio yield for the three months ended March 31, 2019, was due to the early termination of the leases for eleven aircraft from Avianca Brazil and seven aircraft from Jet Airways.
+Added: The calculation of portfolio yield includes our net investment in leases in the average net book value, and the interest income and cash collections from our net investment in lease rentals.
PORTFOLIO DIVERSIFICATION
Owned Aircraft as of
−Removed: September 30, 2019
+Added: March 31, 2020
Owned Aircraft as of
−Removed: September 30, 2018
+Added: March 31, 2019
Book Value (1)
8 unchanged sentences
Calculated using net book value at period end.
−Removed: Consisted of one Airbus A320-200 aircraft, which is scheduled to be delivered to a lessee in Europe during the fourth quarter of 2019, and one Airbus A330-200 aircraft, which we are marketing for lease or sale.
−Removed: Our largest single customer represents approximately 9% of the net book value at September 30, 2019 .
−Removed: Our top fifteen customers with respect to aircraft we owned as of September 30, 2019 , representing 130 aircraft and 53% of the net book value, are as follows:
+Added: Consisted of one Airbus A320-200 and one Airbus A330-200 aircraft, which are each scheduled to be delivered during the second quarter of 2020 to lessees in North America and Europe, respectively, and one Airbus A330-200 and two Boeing 737-800 aircraft, which we are marketing for lease or sale.
+Added: Consisted of ten Airbus A320-200 aircraft, which were delivered on lease to a customer in South America during the second and third quarters of 2019, and two Airbus A330-200 aircraft, one of which was delivered on lease to a customer in South America during the third quarter of 2019 and one of which will be delivered to a customer in Europe during the second quarter of 2020.
+Added: Our top ten customers with respect to aircraft we owned as of March 31, 2020 , representing 112 aircraft and 42.4% of the net book value, are as follows:
Percent of Net Book Value
−Removed: Greater than 6% per customer
−Removed: 3% to 6% per customer
−Removed: South African Airways
United Kingdom
−Removed: Less than 3% per customer
Aerolineas Argentinas
2 unchanged sentences
AirBridgeCargo (1)
−Removed: Asiana Airlines
−Removed: Total top fifteen customers
+Added: Total top ten customers
All other customers
Total all customers
−Removed: (1) If combined with four aircraft on lease to an affiliate, would represent over 4% of net book value.
(1) Guaranteed by Volga-Dnepr Airlines.
We have one additional aircraft on lease with an affiliate.
−Removed: We believe that cash on hand, payments received from lessees and other funds generated from operations, secured borrowings for aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months.
+Added: We operate in a capital intensive industry and have a demonstrated track record of raising substantial amounts of capital over the last fifteen years.
+Added: Since our inception in late 2004, we have raised $1.69 billion in equity capital from private and public investors.
+Added: We also raised $17.55 billion in debt capital from a variety of sources including export credit agency-backed debt, commercial bank debt, the aircraft securitization markets and the unsecured bond market.
+Added: The diversity and global nature of our financing sources demonstrates our ability to adapt to changing market conditions and seize new growth opportunities.
+Added: We intend to fund new investments through cash on hand, funds generated from operations, maintenance payments received from lessees, secured borrowings for aircraft, draws on our revolving credit facilities and proceeds from any future aircraft sales.
We may repay all or a portion of such borrowings from time to time with the net proceeds from subsequent long-term debt financings, additional equity offerings or cash generated from operations and asset sales.
Therefore, our ability to execute our business strategy, particularly the acquisition of additional commercial jet aircraft or other aviation assets, depends to a significant degree on our ability to obtain additional debt and equity capital on terms we deem attractive.
−Removed: See “Liquidity and Capital Resources” below.
−Removed: RESULTS OF OPERATIONS
−Removed: Comparison of the three months ended September 30, 2019 to the three months ended September 30, 2018 :
−Removed: Three Months Ended September 30,
−Removed: (Dollars in thousands)
−Removed: Lease rental revenue
−Removed: Direct financing and sales-type lease revenue
−Removed: Amortization of lease premiums, discounts and incentives
−Removed: Maintenance revenue
−Removed: Total lease revenue
−Removed: Gain on sale of flight equipment
−Removed: Other revenue
−Removed: Total revenues
−Removed: Operating expenses:
−Removed: Interest, net
−Removed: Selling, general and administrative
−Removed: Maintenance and other costs
−Removed: Total operating expenses
−Removed: Other income (expense):
−Removed: Loss on extinguishment of debt
−Removed: Total other income (expense)
−Removed: Income from continuing operations before income taxes and earnings of unconsolidated
−Removed: equity method investments
−Removed: Income tax provision
−Removed: Earnings of unconsolidated equity method investments, net of tax
−Removed: Total revenues increased by $46.0 million for the three months ended September 30, 2019 , as compared to the three months ended September 30, 2018 .
−Removed: Lease rental revenue .
−Removed: The increase in lease rental revenue of $21.0 million for the three months ended September 30, 2019 , as compared to the same period in 2018 , was primarily the result of a $45.0 million increase in revenue, reflecting the partial period impact of 32 aircraft purchased in 2019 and the full period impact due to the acquisition of 24 aircraft since July 1, 2018.
−Removed: This increase was partially offset by:
−Removed: a $17.2 million decrease due to lease extensions, amendments, transitions and other changes ($8.3 million of which is attributable to aircraft previously on lease to Avianca Brazil and Jet Airways which we have since transitioned to new lessees);
−Removed: a $6.8 million decrease due to the sale of thirteen aircraft since July 1, 2018.
−Removed: Direct financing and sales-type lease revenue.
−Removed: For the three months ended September 30, 2019 , $8.2 million of interest income from direct financing and sales-type leases was recognized, as compared to $8.8 million recorded for the same period in 2018 , attributable to a lower average net investment due to lease payments and the termination of one lease, partially offset by the reclassification of two aircraft from operating to direct financing and sales-type leases.
−Removed: Amortization of lease premiums, discounts and lease incentives consisted of the following:
−Removed: Three Months Ended September 30,
−Removed: (Dollars in thousands)
−Removed: Amortization of lease premiums
−Removed: Amortization of lease discounts
−Removed: Amortization of lease incentives
−Removed: Amortization of lease premiums, discounts and incentives
−Removed: The increase in amortization of lease premiums of $1.2 million for the three months ended September 30, 2019 , as compared to the same period in 2018 , was due to a net increase in amortization resulting from aircraft acquisitions.
−Removed: The decrease in amortization of lease discounts of $1.0 million for the three months ended September 30, 2019 , as compared to the same period in 2018 , was primarily due to fully amortized lease discounts for aircraft that transitioned to new lessees or extended.
−Removed: Maintenance revenue.
−Removed: For the three months ended September 30, 2019 , we recorded $11.1 million of maintenance revenue, primarily due to lease expirations and the transition of one narrow-body and two wide-body aircraft.
−Removed: For the same period in 2018 , we recorded no maintenance revenue.
−Removed: Gain on sale of flight equipment increased by $10.1 million to $13.1 million for the three months ended September 30, 2019 , as compared to gains of $3.0 million for the same period in 2018 .
−Removed: During the third quarter of 2019 , eight aircraft were sold as compared to three aircraft sold during the third quarter of 2018 .
−Removed: Other revenue increased by $6.3 million to $7.3 million for the three months ended September 30, 2019 , as compared to $1.1 million for the same period in 2018 , primarily due to $5.4 million of fees earned in relation to the sale of all eight aircraft in our Lancaster joint venture and $1.0 million in fees earned from the sale of two aircraft to our IBJ Air joint venture.
−Removed: Operating expenses
−Removed: Total operating expenses increased by $25.8 million for the three months ended September 30, 2019 , as compared to the three months ended September 30, 2018 .
−Removed: Depreciation expense increased by $12.9 million for the three months ended September 30, 2019 as compared to the same period in 2018 .
−Removed: The increase is primarily the result of higher depreciation of $16.5 million due to the effect of 56 aircraft acquired since July 1, 2018.
−Removed: These increases were partially offset by a decrease of $3.9 million in depreciation due to the sale of thirteen aircraft.
−Removed: Interest, net consisted of the following:
−Removed: Three Months Ended September 30,
−Removed: (Dollars in thousands)
−Removed: Interest on borrowings and other liabilities (1)
−Removed: Amortization of deferred losses related to interest rate derivatives
−Removed: Amortization of deferred financing fees and debt discount (2)
−Removed: Interest expense
−Removed: Interest income
−Removed: Capitalized interest
−Removed: Interest, net
−Removed: Includes a loan termination gain of $0.8 million related to the sale of aircraft during the three months ended September 30, 2018 .
−Removed: Includes $0.3 million in deferred financing fees written off related to the sale of aircraft during the three months ended September 30, 2018 .
−Removed: Interest, net increased by $8.1 million as compared to the three months ended September 30, 2018 .
−Removed: This increase was primarily the result of higher weighted average debt outstanding, partially offset by lower weighted average interest rates.
−Removed: Selling, general and administrative expenses for the three months ended September 30, 2019 were flat as compared to the same period in 2018 .
−Removed: Maintenance and other costs were $7.3 million for the three months ended September 30, 2019 , an increase of $5.1 million compared to the same period in 2018 .
−Removed: T he net increase is primarily attributable to unscheduled transitions due to early lease terminations related to Avianca Brazil and Jet Airways for the three months ended September 30, 2019 versus the same period in 2018 .
−Removed: Other income (expense)
−Removed: Total other income (expense) decreased by $8.2 million for the three months ended September 30, 2019 , as compared to the three months ended September 30, 2018 .
−Removed: The net decrease in other income was primarily attributable to a $7.6 million dollar loss on extinguishment of debt related to the early retirement of our 6.25% Senior Notes due 2019.
−Removed: Income tax provision
−Removed: Our provision for income taxes for the three months ended September 30, 2019 and 2018 was $5.5 million and $1.2 million , respectively.
−Removed: Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States.
−Removed: The increase in our income tax provision of $4.3 million for the three months ended September 30, 2019 , as compared to the same period in 2018 , was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.
+Added: See “Liquidity and Capital Resources — Secured Debt Financings” and “Liquidity and Capital Resources — Unsecured Debt Financings” below.
RESULTS OF OPERATIONS
−Removed: Comparison of the nine months ended September 30, 2019 to the nine months ended September 30, 2018 :
−Removed: Nine Months Ended September 30,
+Added: Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019 :
+Added: Three Months Ended March 31,
(Dollars in thousands)
13 unchanged sentences
Total operating expenses
−Removed: Other income (expense):
+Added: Other expense:
Loss on extinguishment of debt
−Removed: Total other income (expense)
−Removed: Income from continuing operations before income taxes and earnings of unconsolidated equity
−Removed: method investments
+Added: Merger expenses
+Added: Total other expense
+Added: Income (loss) from continuing operations before income taxes and earnings (loss) of unconsolidated equity method investments
Income tax provision
−Removed: Earnings of unconsolidated equity method investments, net of tax
−Removed: Total revenues increased by $76.4 million for the nine months ended September 30, 2019 , as compared to the nine months ended September 30, 2018 .
+Added: Earnings (loss) of unconsolidated equity method investments, net of tax
+Added: Net income (loss)
+Added: Total revenues increased by $68.6 million for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 .
Lease rental revenue .
−Removed: The increase in lease rental revenue of $39.1 million for the nine months ended September 30, 2019 , as compared to the same period in 2018 , was primarily the result of increases in revenue of $128.8 million, reflecting the partial period impact of 32 aircraft purchased in 2019, and the full period impact due to the acquisition of 37 aircraft since January 1, 2018.
−Removed: This increase was offset by:
−Removed: a $64.4 million decrease due to lease extensions, amendments, transitions and other changes ($39.4 million of which is attributable to aircraft previously on lease to Avianca Brazil and Jet Airways which we have since transitioned to new lessees);
−Removed: a $25.4 million decrease due to the sale of twenty aircraft since January 1, 2018.
+Added: The increase in lease rental revenue of $17.7 million for the three months ended March 31, 2020 , as compared to the same period in 2019 , was primarily the result of:
+Added: a $29.7 million increase in revenue, reflecting the impact of 52 aircraft purchased since January 1, 2019;
+Added: a $2.6 million increase due to lease extensions, amendments, transitions and other changes.
+Added: This increase was partially offset by a $14.6 million decrease due to the sale of 22 aircraft since January 1, 2019.
Direct financing and sales-type lease revenue.
−Removed: For the nine months ended September 30, 2019 , $25.0 million of interest income from direct financing and sales-type leases was recognized, as compared to $27.1 million for the same period in 2018 , primarily attributable to a lower average net investment due to lease payments and the termination of one lease, partially offset by the reclassification of two aircraft from operating to direct financing and sales-type leases since January 1, 2018.
+Added: For the three months ended March 31, 2020 , $6.8 million of interest income from direct financing and sales-type leases was recognized, as compared to $8.4 million recorded for the same period in 2019 , primarily attributable to the sale of two aircraft subject to direct financing and sales-type leases during the fourth quarter of 2019.
Amortization of lease premiums, discounts and lease incentives consisted of the following:
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
(Dollars in thousands)
3 unchanged sentences
Amortization of lease premiums, discounts and incentives
−Removed: The increase in amortization of lease premiums of $4.4 million for the nine months ended September 30, 2019 , as compared to the same period in 2018 , was due to a net increase in amortization resulting from net aircraft acquisitions.
−Removed: The decrease in amortization of lease discounts of $2.2 million for the nine months ended September 30, 2019 , as compared to the same period in 2018 , was primarily due to fully amortized lease discounts for aircraft that transitioned to new lessees or extended.
Maintenance revenue.
−Removed: For the nine months ended September 30, 2019 , we recorded $54.1 million of maintenance revenue, due to lease expirations and the transition of 22 narrow-body aircraft and six wide-body aircraft, including cash maintenance revenue received for ten narrow-body aircraft from Avianca Brazil and $17.6 million related to the early lease terminations with Jet Airways.
−Removed: See “Summary of Recoverability Assessment and Other Impairments” below.
−Removed: For the same period in 2018 , we recorded $12.0 million of maintenance revenue primarily due to the transition of one freighter aircraft.
−Removed: Gain on sale of flight equipment decreased by $3.2 million to $25.4 million for the nine months ended September 30, 2019 , as compared to gains of $28.6 million for the same period in 2018 .
−Removed: During the nine months ended September 30, 2019 , we sold twelve aircraft, as compared to the sale of eleven aircraft during the same period in 2018 .
−Removed: Gain on sale of flight equipment for the nine months ended September 30, 2019 , includes $3.7 million resulting from the transition of two aircraft from operating to net investment in direct financing and sales-type leases.
−Removed: Other revenue increased by $6.8 million to $9.6 million for the nine months ended September 30, 2019 , as compared to $2.8 million for the same period in 2018 , primarily due to $5.4 million of fees earned in relation to the sale of all eight aircraft in our Lancaster joint venture and $2.0 million in fees earned from the sale of four aircraft to our IBJ Air joint venture.
+Added: For the three months ended March 31, 2020 , we recorded $46.6 million of maintenance revenue, of which $38.8 million related to four Airbus A330-200 aircraft on lease with South African Airways for which the Company initiated a process to accept early redelivery of the aircraft due to lessee default - see “Summary of Recoverability Assessment and Other Impairments” below.
+Added: We also recorded maintenance revenue related to the scheduled lease expirations of three narrow-body aircraft during the three months ended March 31, 2020.
+Added: For the same period in 2019 , we recorded $16.4 million maintenance revenue, primarily due to the transition of one narrow-body aircraft and two wide-body aircraft, in addition to cash maintenance revenue received for ten narrow-body aircraft.
+Added: Gain on sale of flight equipment increased by $15.0 million to $27.0 million for the three months ended March 31, 2020 , as compared to gains of $12.0 million for the same period in 2019 .
+Added: During the first quarter of 2020 , we sold eight aircraft, including the receipt of insurance proceeds for one aircraft, as compared to the sale four aircraft during the first quarter of 2019 .
+Added: Other revenue increased by $7.3 million to $8.9 million for the three months ended March 31, 2020 , as compared to $1.6 million for the same period in 2019 , primarily due to $8.7 million of security deposits recognized into revenue related to the South African Airways Transaction, partially offset by lower service fees of $1.3 million primarily related to the liquidation of our joint venture with an affiliate of the Ontario Teachers’ Pension Plan.
Operating expenses
−Removed: Total operating expenses increased by $81.6 million for the nine months ended September 30, 2019 , as compared to the nine months ended September 30, 2018 .
−Removed: Depreciation expense increased by $36.1 million for the nine months ended September 30, 2019 , as compared to the same period in 2018 .
−Removed: The increase is primarily the result of:
−Removed: $47.5 million due to the effect of 69 aircraft acquired since January 1, 2018;
−Removed: $2.0 million due to changes in asset lives, residual values and other changes.
−Removed: These increases were partially offset by a decrease of $13.6 million in depreciation due to the sale of twenty aircraft.
+Added: Total operating expenses increased by $107.4 million for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 .
+Added: Depreciation expense increased by $5.0 million for the three months ended March 31, 2020 as compared to the same period in 2019 .
+Added: The increase is primarily the result of higher depreciation of $11.4 million due to 52 aircraft acquired since January 1, 2019, partially offset by a decrease of $6.6 million resulting from 24 aircraft sold since January 1, 2019.
Interest, net consisted of the following:
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
(Dollars in thousands)
4 unchanged sentences
Interest income
−Removed: Capitalized interest
Interest, net
−Removed: Includes a loan termination gain of $0.8 million related to the sale of aircraft during the nine months ended September 30, 2018 .
−Removed: Includes $0.3 million in deferred financing fees written off related to the sale of aircraft during the nine months ended September 30, 2018 .
−Removed: Interest, net increased by $23.5 million , as compared to the nine months ended September 30, 2018 .
−Removed: This increase was the result of higher weighted average debt outstanding, partially offset by lower weighted average interest rates.
−Removed: Selling, general and administrative expenses for the nine months ended September 30, 2019 were flat as compared to the same period in 2018 .
−Removed: Impairment of Flight Equipment.
+Added: Interest, net decreased by $2.0 million as compared to the three months ended March 31, 2019 , primarily as a result of lower weighted average interest rates, partially offset by higher weighted average debt outstanding.
+Added: Selling, general and administrative expenses for the three months ended March 31, 2020 increased $44.4 million as compared to the same period in 2019, primarily attributable to share-based compensation expense of $38.7 million recognized
+Added: as a result of the Merger and a provision for credit losses of $3.6 million related to the change in our allowance for credit losses since the adoption of ASC 326 on January 1, 2020.
+Added: Impairment of aircraft.
+Added: We recorded impairment charges of $62.7 million during the three months ended March 31, 2020 related to four Airbus A330-200 aircraft on lease to South African Airways.
See “Summary of Recoverability Assessment and Other Impairments” below for a detailed discussion of impairment charges related to certain aircraft.
−Removed: Maintenance and other costs were $19.9 million for the nine months ended September 30, 2019 , an increase of $15.1 million compared to the same period in 2018 .
−Removed: T he net increase is primarily attributable to scheduled and the eighteen unscheduled transitions due to early lease terminations related to Avianca Brazil and Jet Airways for the nine months ended September 30, 2019 versus the same period in 2018 and higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases of $4.7 million.
−Removed: Other income (expense)
−Removed: Total other income (expense) decreased by $16.2 million for the nine months ended September 30, 2019 , as compared to the nine months ended September 30, 2018 .
−Removed: The net decrease in other income was attributable to a $7.6 million dollar loss on extinguishment of debt related to the early retirement of our 6.25% Senior Notes due 2019 and to unfavorable mark-to-market adjustments on our interest rate caps of $8.9 million.
+Added: No impairments were recorded during the three months ended March 31, 2019.
+Added: Maintenance and other costs were $4.8 million for the three months ended March 31, 2020 , a decrease of $2.6 million compared to the same period in 2019 .
+Added: The three months ended March 31, 2019 included higher than projected lessor contributions towards the cost of maintenance events for aircraft acquired with attached leases and costs for scheduled transitions.
+Added: Other expense
+Added: Total other expense increased by $34.2 million for the three months ended March 31, 2020 , as compared to the three months ended March 31, 2019 .
+Added: The increase was primarily attributable to $32.2 million of legal and banking expenses related to the Merger and a $4.0 million loss on extinguishment of debt due to the early repayment of secured debt for five aircraft, partially offset by favorable mark-to-market adjustments on our interest rate caps of $2.0 million.
Income tax provision
−Removed: Our income tax provision for the nine months ended September 30, 2019 and 2018 was $14.6 million and $3.5 million , respectively.
+Added: Our provision for income taxes for the three months ended March 31, 2020 and 2019 was $0.1 million and $3.1 million , respectively.
Income taxes have been provided based on the applicable tax laws and rates of those countries in which operations are conducted and income is earned, primarily Ireland and the United States.
−Removed: The increase in our income tax provision of $11.1 million for the nine months ended September 30, 2019 , as compared to the same period in 2018 , was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions, and the recording of a $2.8 million non-cash tax expense related to a fair value adjustment on an intercompany asset transfer, which was treated as a discrete item.
−Removed: Pre-tax earnings for the nine months ended September 30, 2018 included the recording of a $2.8 million tax benefit related to the Singapore rate reduction from 10% to 8%, which was treated as a discrete item.
−Removed: Excluding these discrete items, the income tax provision for the nine months ended September 30, 2019 and 2018 would have been $11.7 million and $6.3 million, respectively.
+Added: The decrease in our income tax provision of $2.9 million for the three months ended March 31, 2020 , as compared to the same period in 2019 , was primarily attributable to changes in operating income subject to tax in Ireland, the United States and other jurisdictions.
+Added: The three months ended March 31, 2020, included net impairment charges of $9.3 million in a low-tax jurisdiction and a significant decrease in Bermuda income, primarily related to Merger expenses of $32.2 million.
+Added: The three months ended March 31, 2020, also included discrete items totaling $3.0 million in tax expense.
+Added: During the three months ended March 31, 2019, we reported a significant decrease in Bermuda income primarily relating to Avianca Brazil.
Summary of Recoverability Assessment and Other Impairments
Transactional Impairments
−Removed: On April 10, 2019, the Company early terminated the leases for seven Boeing 737NG aircraft on lease to Jet Airways due to lessee default.
−Removed: As a result of these lease terminations, the Company recognized net maintenance revenue of $17.6 million and impairment charges of $7.4 million in the second quarter of 2019 related to these aircraft.
−Removed: Annual Recoverability Assessment
−Removed: We completed our annual recoverability assessment of our aircraft in the second quarter this year.
−Removed: We also performed aircraft-specific analyses where there were changes in circumstances, such as approaching lease expirations.
−Removed: Other than the transactional impairment discussed above, no other impairments were recorded as a result of our annual recoverability assessment.
−Removed: The recoverability assessment is a comparison of the carrying value of each aircraft to its undiscounted expected future cash flows.
−Removed: We develop the assumptions used in the recoverability assessment, including those relating to current and future demand for each aircraft type, based on management’s experience in the aircraft leasing industry, as well as information received from third-party sources.
−Removed: Estimates of the undiscounted cash flows for each aircraft type are impacted by changes in contracted and future expected lease rates, residual values, expected scrap values, economic conditions and other factors.
−Removed: Management believes that the net book value of each aircraft is currently supported by the estimated future undiscounted cash flows expected to be generated by that aircraft, and accordingly, no aircraft were impaired as a consequence of our annual recoverability assessment.
−Removed: However, if our estimates or assumptions change, we may revise our cash flow assumptions and record future impairment charges.
−Removed: While we believe that the estimates and related assumptions used in the annual recoverability assessment are appropriate, actual results could differ from those estimates.
+Added: In February 2020, the Company initiated a process to accept the redelivery of four Airbus A330-200 aircraft on lease to South African Airways prior to their scheduled lease expirations due to lessee default.
+Added: As a result, the Company recognized impairment charges of $62.7 million and recorded $38.8 million of maintenance revenue, $5.9 million of lease rentals received in advance and $8.7 million of security deposits into revenue during the first quarter of 2020.
Aircraft Monitoring List
−Removed: At September 30, 2019 , no aircraft were on our monitoring list.
We monitor our fleet for aircraft that are more susceptible to failing our recoverability assessments within one year due to their sensitivity to changes in contractual cash flows, future cash flow estimates, and aircraft residual or scrap values.
+Added: The COVID-19 virus has had an unprecedented negative impact on the global economy, and in particular the aviation sector.
+Added: The extent and duration of the impact of the virus on air traffic, lease rental rates, and aircraft valuations is currently indeterminable.
+Added: We will perform our annual recoverability assessment of our aircraft in the second quarter of 2020, and will have a particular focus on aircraft with near-term lease expirations and certain aircraft variants that are more susceptible to the impact of COVID-19 and value deteriorations.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
6 unchanged sentences
We have also met our liquidity and capital resource needs by utilizing several sources over time, including:
−Removed: unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;
various forms of borrowing secured by our aircraft, including bank term facilities, limited recourse securitization financings, and ECA-backed financings for new aircraft acquisitions;
−Removed: sales of common shares.
+Added: unsecured indebtedness, including our current unsecured revolving credit facilities, term loan and senior notes;
+Added: contributions from our shareholders.
Going forward, we expect to continue to seek liquidity from these sources and other sources, subject to pricing and conditions we consider satisfactory.
−Removed: During the first nine months of 2019 , we met our liquidity and capital resource needs with $393.1 million of cash flow from operations, $2.07 billion in gross proceeds from the issuance of our Senior Notes due 2026, bank debt and our revolving credit facilities and $229.1 million of cash from aircraft sales.
−Removed: As of September 30, 2019 , the weighted-average maturity of our secured and unsecured debt financings was 3.6 years and we were in compliance with all applicable covenants.
−Removed: We believe that cash on hand, payments received from lessees and other funds generated from operations, secured borrowings for aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months.
+Added: During the first three months of 2020 , we met our liquidity and capital resource needs with $69.2 million of cash flow from operations, $650.0 million from our revolving credit facilities and $150.0 million of cash from aircraft sales.
+Added: As of March 31, 2020 , the weighted-average maturity of our secured and unsecured debt financings was 3.1 years and we were in compliance with all applicable covenants.
+Added: We have agreed to defer some near-term lease payments with certain of our airline customers.
+Added: As of May 7, 2020, we have agreed to defer approximately $70.0 million in near-term lease payments with 35 airlines, which these airline customers have agreed to repay over time.
+Added: If air traffic remains depressed over an extended period and if our customers are unable to obtain sufficient funds from private, government or other sources, we may need to extend further deferrals to some of our other customers or to extend the deferrals we have already made.
+Added: We may ultimately be unable to collect all the amounts we have deferred.
+Added: We believe we have sufficient liquidity to meet all of our contractual obligations over the next twelve months and have $1.1 billion of liquidity from cash on hand, working capital and/or available credit lines.
+Added: In addition, we believe payments received from lessees and other funds generated from operations, unsecured bond offerings, secured borrowings for aircraft, borrowings under our revolving credit facilities and other borrowings and proceeds from future aircraft sales will be sufficient to satisfy our liquidity and capital resource needs over the next twelve months.
Our liquidity and capital resource needs include payments due under our aircraft purchase obligations, required principal and interest payments under our long-term debt facilities, expected capital expenditures, lessee maintenance payment reimbursements and lease incentive payments over the next twelve months.
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
(Dollars in thousands)
Net cash flow provided by operating activities
−Removed: Net cash flow used in investing activities
+Added: Net cash flow provided by (used in) investing activities
Net cash flow provided by financing activities
Operating Activities:
−Removed: Cash flow provided by operations was $393.1 million and $415.9 million for the nine months ended September 30, 2019 and 2018 , respectively.
−Removed: The decrease in cash flow provided by operations of $22.9 million for the nine months ended September 30, 2019 versus the same period in 2018 was primarily a result of a $36.5 million increase in cash paid for interest and a $15.1 million increase in cash paid for maintenance.
−Removed: These outflows were offset by a $23.0 million increase in cash from lease rentals and direct financing and sales-type leases and a $6.5 million decrease in cash paid for taxes.
+Added: Cash flow provided by operations was $69.2 million and $106.4 million for the three months ended March 31, 2020 and 2019 , respectively.
+Added: The decrease in cash flow provided by operations of $37.1 million for the three months ended March 31, 2020 versus the same period in 2019 was primarily a result of $35.6 million of cash paid for Merger expenses and an $8.4 million increase in cash paid for selling, general and administrative expenses.
+Added: These outflows were offset by a $6.1 million increase in cash received from maintenance revenue.
Investing Activities:
−Removed: Cash flow used in investing activities was $658.9 million and $371.3 million for the nine months ended September 30, 2019 and 2018 , respectively.
−Removed: The increase in cash flow used in investing activities of $287.6 million for the nine months ended September 30, 2019 versus the same period in 2018 was primarily a result of a $250.4 million net increase in the acquisition and improvement of flight equipment and net investments in direct financing and sales-type leases and a $15.2 million increase in unconsolidated equity method investments and associated costs.
−Removed: These outflows were offset by a $47.1 million decrease in aircraft proceeds from the sale of flight equipment and a $25.4 million decrease in aircraft purchase deposits and progress payments, net of returned deposits.
+Added: Cash flow provided by investing activities was $92.4 million and cash flow used in investing activities was $286.2 million for the three months ended March 31, 2020 and 2019 , respectively.
+Added: The increase in cash flow provided by investing activities of $378.7 million for the three months ended March 31, 2020 versus the same period in 2019 was primarily a result of a $306.7 million decrease in the acquisition and improvement of flight equipment and a $93.7 million increase in aircraft proceeds from the sale of flight equipment.
+Added: These inflows were offset by a $28.1 million increase in aircraft purchase deposits and progress payments, net of returned deposits.
Financing Activities:
−Removed: Cash flow provided by financing activities was $368.3 million and $331.7 million for the nine months ended September 30, 2019 and 2018 , respectively.
−Removed: The increase in cash flow provided by financing activities of $36.6 million for the nine months ended September 30, 2019 versus the same period in 2018 was primarily a result of a $1.2 billion increase in proceeds from secured and unsecured financings.
−Removed: These inflows were offset by a $1.1 billion increase in secured and unsecured debt financing repayments and a $54.7 million net increase in net maintenance payments and security deposits returned.
+Added: Cash flow provided by financing activities was $356.1 million and $120.2 million for the three months ended March 31, 2020 and 2019 , respectively.
+Added: The increase in cash flow provided by financing activities of $235.9 million for the three months ended March 31, 2020 versus the same period in 2019 was primarily a result of a $435.0 million increase in proceeds from secured and unsecured financings.
+Added: These inflows were offset by a $206.3 million increase in secured and unsecured debt financing repayments.
Debt Obligations
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Contractual Obligations
−Removed: Our contractual obligations consist of principal and interest payments on debt, other aircraft acquisition agreements and rent payments related to our office leases.
−Removed: Total contractual obligations increased to $7.27 billion at September 30, 2019 from $6.95 billion at December 31, 2018 , due primarily to an increase in borrowings, partially offset by a decrease in aircraft purchase obligations.
−Removed: The following table presents our actual contractual obligations and their payment due dates as of September 30, 2019 :
−Removed: Payments Due by Period as of September 30, 2019
+Added: Our contractual obligations consist of principal and interest payments on debt financings, aircraft acquisitions and rent payments related to our office leases.
+Added: Total contractual obligations increased to $7.25 billion at March 31, 2020 from $7.03 billion at December 31, 2019 , primarily due to an increase in borrowings under our revolving credit facilities, partially offset by a decrease in aircraft purchase obligations.
+Added: The following table presents our actual contractual obligations and their payment due dates as of March 31, 2020 :
+Added: Payments Due by Period as of March 31, 2020
Contractual Obligations
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Senior Notes due 2020 - 2026
−Removed: Unsecured Term Loans
+Added: DBJ Term Loan
Revolving Credit Facilities
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Purchase obligations (3)
−Removed: Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at September 30, 2019 .
+Added: Future interest payments on variable rate, LIBOR-based debt obligations are estimated using the interest rate in effect at March 31, 2020 .
Represents contractual payment obligations for our office leases in Stamford, Connecticut;
Dublin, Ireland and Singapore.
−Removed: At September 30, 2019 , we had commitments to acquire 32 aircraft for $1.15 billion , including 25 new E-Jet E2 aircraft from Embraer S.A.
+Added: At March 31, 2020 , we had commitments to acquire 27 aircraft for $1.02 billion , including 25 new E-Jet E2 aircraft from Embraer S.A.
These amounts include estimates for pre-delivery deposits, contractual price escalation and other adjustments.
−Removed: As of November 1, 2019 , we have commitments to acquire 28 aircraft for $1.03 billion .
+Added: As of May 8, 2020 , we have commitments to acquire 27 aircraft for $1.02 billion .
Capital Expenditures
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These expenditures include the cost of major overhauls necessary to place an aircraft in service and modifications made at the request of lessees.
−Removed: For the nine months ended September 30, 2019 and 2018 , we incurred a total of $24.0 million and $7.7 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.
−Removed: As of September 30, 2019 , the weighted average age by net book value of our aircraft was approximately 9.8 years.
+Added: For the three months ended March 31, 2020 and 2019 , we incurred a total of $10.1 million and $7.9 million, respectively, of capital expenditures (including lease incentives) related to the improvement of aircraft.
+Added: As of March 31, 2020 , the weighted average age by net book value of our aircraft was approximately 10.1 years.
In general, the costs of operating an aircraft, including maintenance expenditures, increase with the age of the aircraft.
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Off-Balance Sheet Arrangements
−Removed: We entered into two joint venture arrangements in order to help expand our base of new business opportunities.
−Removed: Neither of these joint ventures qualifies for consolidated accounting treatment.
−Removed: The assets and liabilities of these entities are not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting.
+Added: We entered into a joint venture arrangement in order to help expand our base of new business opportunities.
+Added: This joint venture does not qualify for consolidated accounting treatment.
+Added: The assets and liabilities of this entity is not included in our Consolidated Balance Sheets and we record our net investment under the equity method of accounting.
See Note 5 - “Unconsolidated Equity Method Investments” in the Notes to Unaudited Consolidated Financial Statements above.
−Removed: We hold a 30% equity interest in our joint venture with Teachers’ and a 25% equity interest in our IBJ Air joint venture.
−Removed: At September 30, 2019 , the net book value of IBJ Air’s nine aircraft was $331.2 million .
−Removed: As of September 30, 2019 , the sale of all eight aircraft held by the joint venture with Teachers’ to a single buyer was completed.
−Removed: Teachers’, as majority shareholder, has chosen to liquidate the joint venture.
−Removed: In March of 2019, we sold two aircraft to IBJ Air and an additional two aircraft in August of 2019.
−Removed: These transactions were approved by our Audit Committee as arm’s length transactions under our related party policy.
+Added: We hold a 25% equity interest in our joint venture with Mizuho Leasing and as of March 31, 2020 , the net book value of its nine aircraft was $324.5 million .
Foreign Currency Risk and Foreign Operations
−Removed: At September 30, 2019 , all of our leases are payable to us in U.S.
+Added: At March 31, 2020 , all of our leases are payable to us in U.S.
However, we incur Euro and Singapore dollar-denominated expenses in connection with our subsidiaries in Ireland and Singapore.
−Removed: For the nine months ended September 30, 2019 , expenses, such as payroll and office costs, denominated in currencies other than the U.S.
+Added: For the three months ended March 31, 2020 , expenses, such as payroll and office costs, denominated in currencies other than the U.S.
dollar aggregated approximately $7.6 million in U.S.
−Removed: dollar equivalents and represented approximately 21% of total selling, general and administrative expenses.
+Added: dollar equivalents and represented approximately 12% of total selling, general and administrative expenses (or 18% when excluding share-based compensation expense, of which a large portion relates to employees domiciled in the U.S.).
Our international operations are a significant component of our business strategy and permit us to more effectively source new aircraft, service the aircraft we own and maintain contact with our lessees.
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Although we have not yet entered into foreign currency hedges because our exposure to date has not been significant, if our foreign currency exposure increases, we may enter into hedging transactions in the future to mitigate this risk.
−Removed: For the nine months ended September 30, 2019 and 2018 , we incurred insignificant net gains and losses on foreign currency transactions.
+Added: For the three months ended March 31, 2020 and 2019 , we incurred insignificant net gains and losses on foreign currency transactions.
Management’s Use of EBITDA and Adjusted EBITDA
9 unchanged sentences
Adjusted EBITDA is a material component of these covenants.
−Removed: The table below shows the reconciliation of net income to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2019 and 2018 :
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
+Added: The table below shows the reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the three months ended March 31, 2020 and 2019 :
+Added: Three Months Ended March 31,
(Dollars in thousands)
+Added: Net income (loss)
Amortization of lease premiums, discounts and incentives
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Non-cash share-based payment expense
−Removed: Loss (gain) on mark-to-market of interest rate derivative contracts
+Added: Merger related expenses (1)
+Added: Loss on mark-to-market of interest rate derivative contracts
Adjusted EBITDA
−Removed: Management’s Use of Adjusted Net Income (“ANI”)
−Removed: Management believes that ANI, when viewed in conjunction with the Company’s results under U.S.
−Removed: GAAP and the below 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.
−Removed: The table below shows the reconciliation of net income to ANI for the three and nine months ended September 30, 2019 and 2018 :
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
−Removed: (Dollars in thousands)
−Removed: Loss on extinguishment of debt (1)
−Removed: Loan termination gain (2)
−Removed: Loss (gain) on mark-to-market of interest rate derivative contracts (1)
−Removed: Write-off of deferred financing fees (2)
−Removed: Non-cash share-based payment expense (3)
−Removed: Adjusted net income
−Removed: (1) Included in Other income (expense).
−Removed: (2) Included in Interest, net.
−Removed: (3) Included in Selling, general and administrative expenses.
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
−Removed: Weighted-average shares:
−Removed: Common shares outstanding
−Removed: Restricted common shares
−Removed: Total weighted-average shares
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
−Removed: Percentage of weighted-average shares:
−Removed: Common shares outstanding
−Removed: Restricted common shares (1)
−Removed: Total percentage of weighted-average shares
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
−Removed: Weighted-average common shares outstanding – Basic
−Removed: Effect of dilutive shares (2)
−Removed: Weighted average common shares outstanding – Diluted
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
−Removed: (Dollars in thousands, except per share amounts)
−Removed: Adjusted net income allocation:
−Removed: Adjusted net income
−Removed: Distributed and undistributed earnings allocated to restricted common shares (2)
−Removed: Adjusted net income allocable to common shares – Basic and Diluted
−Removed: Adjusted net income per common share – Basic
−Removed: Adjusted net income per common share – Diluted
−Removed: For the three months ended September 30, 2019 and 2018 , distributed and undistributed earnings to restricted shares were 0.69% and 0.63% , respectively, of net income.
−Removed: For the nine months ended September 30, 2019 and 2018 , distributed and undistributed earnings to restricted shares were 0.66% and 0.60% , respectively, of net income.
−Removed: The amount of restricted share forfeitures for all periods presented are immaterial to the allocation of distributed and undistributed earnings.
−Removed: For all periods presented, dilutive shares represent contingently issuable shares.
−Removed: Limitations of EBITDA, Adjusted EBITDA and ANI
−Removed: An investor or potential investor may find EBITDA, Adjusted EBITDA and ANI important measures in evaluating our performance, results of operations and financial position.
+Added: ______________
+Added: (1) Included $32.2 million in Other expense and $2.6 million in Selling, general and administrative expenses.
+Added: Limitations of EBITDA and Adjusted EBITDA
+Added: An investor or potential investor may find EBITDA and Adjusted EBITDA important measures in evaluating our performance, results of operations and financial position.
We use these non-U.S.
1 unchanged sentence
GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
−Removed: EBITDA, Adjusted EBITDA and ANI have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S.
+Added: EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be viewed in isolation or as substitutes for U.S.
GAAP measures of earnings (loss).
−Removed: Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA, Adjusted EBITDA and ANI, and using these non-U.S.
+Added: Material limitations in making the adjustments to our earnings (loss) to calculate EBITDA and Adjusted EBITDA, and using these non-U.S.
GAAP measures as compared to U.S.
5 unchanged sentences
adjustments required in calculating covenant ratios and compliance as that term is defined in the indenture governing our senior unsecured notes.
−Removed: EBITDA, Adjusted EBITDA and ANI are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S.
+Added: EBITDA and Adjusted EBITDA are not alternatives to net income (loss), income (loss) from operations or cash flows provided by or used in operations as calculated and presented in accordance with U.S.
You should not rely on these non-U.S.
4 unchanged sentences
We also strongly urge you to not rely on any single financial measure to evaluate our business.
−Removed: In addition, because EBITDA, Adjusted EBITDA and ANI are not measures of financial performance under U.S.
−Removed: GAAP and are susceptible to varying calculations, EBITDA, Adjusted EBITDA and ANI as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.
+Added: In addition, because EBITDA and Adjusted EBITDA are not measures of financial performance under U.S.
+Added: GAAP and are susceptible to varying calculations, EBITDA and Adjusted EBITDA as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.