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AeroCentury Corp. Reports Second Quarter 2014 Results

Companies mentioned in this article: AeroCentury Corp.

BURLINGAME, Calif., Aug. 12, 2014 /PRNewswire/ -- AeroCentury Corp. (NYSE MKT: ACY), an independent aircraft leasing company, today reported its operating results for the second quarter ended June 30, 2014. Effective as of January 1, 2014, the Company adopted an alternate method of accounting for non-refundable maintenance reserves and certain lessor maintenance costs. In order to provide a meaningful comparison for second quarter 2014 results, the June 30, 2013 and December 31, 2013 results stated below and in the accompanying tables were calculated as if the new method of accounting were in effect throughout the applicable periods ending on those dates.

The Company reported a net loss of $3.9 million, or ($2.54) per diluted share, for the second quarter of 2014, compared to net income of $1.3 million, or $0.84 per diluted share, for the second quarter of 2013. The Company reported a net loss of $3.6 million, or ($2.30) per diluted share, for the first six months of 2014, compared to net income of $5.2 million, or $3.25 per diluted share, for the first six months of 2013.

Total revenues were $7.9 million and $15.9 million for the second quarter and six months ended June 30, 2014, respectively, compared to total revenues of $7.9 million and $20.0 million, respectively, for the same periods a year ago.

Operating lease revenue was higher in the second quarter and six months ended June 30, 2014, compared to the same periods a year ago primarily as a result of increases in operating lease revenue from assets purchased during 2013 and 2014. The effect of these increases was partially offset by the effect of assets that were on lease in the 2013 periods but off lease for all or a portion of the 2014 periods, asset sales during 2013, and lower revenue in the 2014 periods from those lessees for which the Company records revenue only on cash receipt as a result of substantial uncertainty of collectability.

Maintenance reserves revenue is dependent upon the amount of reserves retained at lease terminations. As a result of the aircraft returned to the Company during each period, maintenance reserves revenue was higher in the second quarter of 2014 compared to the same period a year ago but lower in the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

The Company recorded a net gain from the sale of two aircraft and an aircraft engine in the second quarter of 2014 and recorded a net gain in the second quarter of 2013 from the sale of one aircraft. The Company had previously sold two aircraft and one aircraft, and recognized net gains, during each of the first quarters of 2014 and 2013, respectively.

During the first half of 2013, the Company also recorded other income of $0.5 million related to security deposits retained upon early termination of two leases following the lessee's bankruptcy.

Total expenses increased by $8.0 million and $8.8 million, respectively, in the second quarter of and first six months of 2014 as compared to the same periods in 2013.

During the second quarter of 2014, the Company recorded impairments totaling $6.8 million for five of its Fokker 100 aircraft, based on appraisal.

The Company's interest expense was higher in the second quarter and six months ended June 30, 2014 than in the same periods of 2013, primarily as a result of a higher average outstanding debt balance.

The Company's professional fees and other expenses were higher in the second quarter and six months ended June 30, 2014 than in the same periods of 2013, primarily as a result of expenses incurred in connection with the return of six aircraft and two engines by one of the Company's customers when it ceased operations in the second quarter of 2014.

As of June 30, 2014, the Company's portfolio consisted of five aircraft engines and forty aircraft, covering nine different aircraft types. As of June 30, 2014, our customer base consisted exclusively of regional carriers - eleven different airlines operating worldwide.

AeroCentury is an aircraft operating lessor and finance company specializing in leasing regional aircraft and engines utilizing triple net leases. The Company's aircraft and engines are leased to regional airlines and commercial users worldwide.

(see tables following)

                                                                 AeroCentury Corp.

                                                          Selected Financial Information

                                                  (in thousands, except share and per share data)

                                                                    (Unaudited)


                                                                                                   For the Three Months         For the Six Months

                                                                                                    Ended June 30,           Ended June 30,

                                                                                                       2014          2013(1)       2014           2013(1)
                                                                                                       ----           ------       ----            ------

    Revenues and other income:

    Operating lease revenue                                                                          $5,332           $4,673    $11,183            $9,573

    Maintenance reserves revenue                                                                      1,718            1,191      3,394             7,720

    Net gain on disposal of assets                                                                      762            1,944      1,154             2,162

    Other income                                                                                         67               57        151               607
                                                                                                        ---              ---        ---               ---

                                                                                                      7,879            7,865     15,882            20,062
                                                                                                      -----            -----     ------            ------

    Expenses:

    Provision for impairment in value of aircraft                                                     6,800                -     6,800                 -

    Depreciation                                                                                      2,013            1,816      3,878             3,573

    Management fees                                                                                   1,333            1,077      2,660             2,173

    Maintenance costs                                                                                 1,302            1,330      3,647             3,470

    Interest                                                                                          1,261            1,003      2,568             2,068

    Professional fees and other                                                                       1,158              617      1,793             1,221

                                                                                                     13,867            5,843     21,346            12,505
                                                                                                     ------            -----     ------            ------

    (Loss)/income before income tax provision                                                       (5,988)           2,022    (5,464)            7,557

    Income tax (benefit)/provision                                                                  (2,068)             686    (1,913)            2,403
                                                                                                     ------              ---     ------             -----

    Net (loss)/income                                                                              $(3,920)          $1,336   $(3,551)           $5,154
                                                                                                    =======           ======    =======            ======

    (Loss)/earnings per share:

      Basic                                                                                         $(2.54)           $0.87    $(2.30)            $3.34
                                                                                                     ======            =====     ======             =====

      Diluted                                                                                       $(2,54)           $0.84    $(2.30)            $3.25
                                                                                                     ======            =====     ======             =====

    Weighted average shares used in
         (loss)/earnings per share computations:

      Basic                                                                                       1,543,257        1,543,257  1,543,257         1,543,257
                                                                                                  =========        =========  =========         =========

      Diluted                                                                                     1,543,257        1,588,331  1,543,257         1,585,666
                                                                                                  =========        =========  =========         =========

    Summary Balance Sheet
     (Unaudited):         June 30,          December 31,          June 30,

                                       2014               2013(1)           2013(1)
                                       ----                ------            ------

    Total assets                   $182,090              $164,634          $157,597

    Total liabilities              $139,506              $118,499          $114,652

    Stockholders' equity            $42,584               $46,135           $42,945

    (1)              Effective January 1, 2014, the Company
                     adopted an alternate method of
                     accounting for maintenance reserves
                     and lessor maintenance obligations
                     to: (i) recognize non-refundable
                     maintenance reserves as liabilities
                     for deposits against future
                     maintenance reimbursements of
                     maintenance reserves received in the
                     normal course of ongoing leases; (ii)
                     recognize reimbursements from such
                     collected reserves as disbursements
                     against the liability when claims are
                     submitted for payment against
                     previously collected maintenance
                     reserves; (iii) reflect as
                     liabilities non-refundable reserves
                     received by the prior lessor upon
                     acquisition of an aircraft which are
                     claimable by the lessee when
                     maintenance is performed; (iv)
                     recognize as income non-refundable
                     reserves not refunded to lessees upon
                     termination of the lease and return
                     of the aircraft to the Company in
                     accordance with all lease return
                     requirements; and (v) record lessor
                     maintenance obligations as
                     liabilities upon acquisition of an
                     aircraft subject to a lease under
                     which the Company assumes the prior
                     lessor's obligation to pay a portion
                     of a first-time maintenance event.
                     The selected financial information
                     for the three months and six months
                     ended June 30, 2013 and as of
                     December 31, 2013 reflects the
                     retrospective application of the
                     alternate method of accounting in
                     accordance with ASC 250, Accounting
                     Changes and Error Corrections.

SOURCE AeroCentury Corp.