Annual Report Cover 3-10 3/3/10 11:55 AM Page 1
Worldwide • Regional Aircraft • Leasing
AeroCentury Corp.
1440 Chapin Ave., Suite 310
Burlingame, CA 94010
650-340-1888
Fax: 650-696-3929
www.aerocentury.com
2012 Annual Report
TO OUR STOCKHOLDERS
2012 was a rebound year for AeroCentury. After posting a loss of $0.94 per diluted share in 2011, the
Company reported net income of $3.32 per diluted share in 2012 on strong revenue growth and
decreased maintenance expense.
A 14% increase in the size of the Company’s lease portfolio and an increase in portfolio utilization,
from 78% in 2011 to 86% in 2012, boosted operating lease revenue by 22% in 2012 over 2011. The
Company recorded net income of $5.2 million in 2012, compared to a net loss of $1.5 million in 2011,
primarily due to $5.0 million more in lease and maintenance reserves revenue and $6.9 million less in
maintenance expense.
The Company continued to refresh its portfolio in 2012. The Company acquired a Bombardier Dash-8-
Q314 aircraft, two Bombardier Dash-8-Q400 aircraft and two Saab 340B Plus aircraft, all of which are
on lease to customers in Asia and Africa. The Company sold a Bombardier Dash-8-100 aircraft, a
Fokker 50 aircraft and a General Electric CT7-9B engine and recorded gains totaling $1.5 million. The
Company’s portfolio now consists of forty-four aircraft, covering nine different aircraft types, and six
aircraft engines. Our customer base continues to consist exclusively of regional carriers – twenty
different airlines operating worldwide.
The global downturn resulted in a significant reduction in airline passenger volume and, in reaction to
that, a reduction in the number of aircraft and aircraft engines needed for operation by carriers in nearly
all geographic areas, especially Europe. The slow recovery from this downturn and the ongoing
European financial crisis have created a challenging environment for the Company and its customers,
as evidenced by the bankruptcies of two of the Company’s customers during the second quarter of
2012, and another recently in January 2013. The Company’s challenge during these times will be to
exercise careful portfolio management and seize attractive business opportunities as they present
themselves.
The Company took a major step in meeting this challenge in March 2013, when the Company’s credit
facility was renewed for an additional 30 month term expiring in September 2015, and the maximum
availability was increased from $90 million to $130 million.
I appreciate your interest and support.
Neal D. Crispin
President and Chairman of the Board
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ____________ to ____________
Commission File Number: 001-13387
AeroCentury Corp.
(Exact name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
94-3263974
(IRS Employer Identification No.)
1440 Chapin Avenue, Suite 310
Burlingame, California 94010
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (650) 340-1888
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
NYSE MKT Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates (based upon the
closing price as of June 30, 2012) was $14,368,300.
The number of shares of the Registrant’s Common Stock outstanding as of March 14, 2013 was 1,543,257.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates information by reference from the Registrant’s Proxy
Statement for its 2013 Annual Meeting of Stockholders. Except as expressly incorporated by reference, the
Registrant’s Proxy Statement shall not be deemed to be a part of this Annual Report on Form 10-K.
2
Forward-Looking Statements
PART I
FINANCIAL INFORMATION
This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934,
as amended (“the Exchange Act”). All statements in this Report other than statements of historical fact are "forward-
looking statements" for purposes of these provisions, including any statements of plans and objectives for future
operations and any statements of assumptions underlying any of the foregoing. Statements that include the use of
terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," or the
negative thereof, or other comparable terminology are forward-looking statements. Forward-looking statements
include: (i) in Part I, Item 1, “Business,” the Company’s statements regarding its belief that the Company can
purchase assets at an appropriate price and maintain an acceptable overall on-lease rate for them; that the Company
is able to enter into transactions with a wider range of lessees than its competitors; that the Company expects it will
have sufficient cash flow to cover expenses and provide excess cash flow; that the Company expects to have
sufficient cash flow or borrowing availability under the Credit Facility to fund unusually large maintenance
expenses; that competition may increase if competitors who have traditionally neglected the regional air carrier
market begin to focus on that market; that the Company has a competitive advantage due to its experience and
operational efficiency in financing the transaction sizes that are desired by many in the regional air carrier market;
that the Company has a competitive advantage because JMC has developed a reputation as a global participant in the
regional aircraft leasing market; and that neither compliance with laws regulating discharge of greenhouse gas
and/or aircraft noise regulations, nor remedial agreements or other actions relating to the environment, are expected
to have a material effect on the Company’s capital expenditures, financial condition, and results of operations or
competitive position; (ii) in Part I, Item 3, “Legal Proceedings,” the Company’s statement regarding its belief that
none of the current lessee collection and lessee vendor mechanic’s lien collection litigation, if resolved adverse
to the Company, is anticipated to have a material adverse effect on the Company’s financial condition or results of
operations; (iii) in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources,” the Company’s statements regarding its belief that it will continue
to be in compliance with its Credit Facility covenants; and that the Company will have adequate cash flow to fund
operational needs and payments required under the Credit Facility and that this belief is based on reasonable
assumptions; (iv) in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations –– Outlook,” the Company’s statements that the Company will likely experience lower on-lease
utilization rates, longer lead times, as well as lower rental rates for remarketed assets and that this will continue to
affect the Company’s operating revenue for the remainder of 2013; that there is likely to be a significant decrease in
the pool of customers requiring aircraft; that the availability under the Credit Facility should be sufficient to meet
the Company’s continuing obligations as well as fund its anticipated asset acquisitions; and that the Company will
be in compliance with all Credit Facility covenants through its term; (v) in Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Factors that May Affect Future
Results,” the Company’s statements regarding its belief that it will have sufficient cash funds to make any payment
that arises due to any collateral base limitations; that the Company will continue to be in compliance with its Credit
Facility covenants; that the availability under the Credit Facility will be sufficient to fund projected acquisitions
through the term of the facility; that the overall industry experience of JMC’s personnel and its technical resources
should permit the Company to effectively manage new aircraft types and engines; that there are effective mitigating
factors against undue compensation-incented risk-taking by JMC; that the burden and costs of complying with
government regulations will fall on the operators of equipment and not the Company, and that future government
regulations could cause the value of any non-complying equipment owned by the Company to decline substantially;
that it is not expected that the costs of complying with current environmental regulations will have a material
adverse effect on the Company; that the Company has sufficient cyber-security measures in place commensurate
with the risks to the Company of a successful cyber-attack or breach of security; and that the Company believes that
sufficient replacement mechanisms exist in the event of an interruption in its internet communications ability; and
(vi) in Part II, Item 8, “Financial Statements,” that if litigation relating to a lessee liability to a vendor is not resolved
in the Company’s favor, it will not have a material adverse effect on the Company’s financial condition or results of
operations; and that it expects to sell an aircraft that was the subject of now-settled litigation with the lessee in the
second quarter of 2013.
These forward-looking statements involve risks and uncertainties, and it is important to note that the Company's
actual results could differ materially from those projected or assumed in such forward-looking statements. Among
the factors that could cause actual results to differ materially are the factors detailed under the heading
"Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May
Affect Future Results," including the speed of recovery of from the recent downturn on the Company’s customer
base of regional air carriers and certain current lessees of the Company, in particular; the compliance of the
Company's lessees with obligations under their respective leases; risks related to use of debt financing for
acquisitions; the Company’s success in finding appropriate assets to acquire with such financing; deviations from
assumptions regarding maintenance cost on returned aircraft and that future major maintenance expenses will be
relatively evenly spaced over the entire portfolio; and future trends and results which cannot be predicted with
certainty. The cautionary statements made in this Report should be read as being applicable to all related forward-
looking statements wherever they appear herein. All forward-looking statements and risk factors included in this
document are made as of the date hereof, based on information available to the Company as of the date hereof, and
the Company assumes no obligation to update any forward-looking statement or risk factor. You should consult the
risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission.
4
Item 1.
Business.
Business of the Company
AeroCentury Corp., a Delaware corporation incorporated in 1997 (the “Company”), acquires used regional aircraft
and aircraft engines for lease to regional carriers worldwide.
The business of the Company is managed by JetFleet Management Corp. ("JMC"), pursuant to a management
agreement between the Company and JMC (the “Management Agreement”), which is an integrated aircraft
management, marketing and financing business and a subsidiary of JetFleet Holding Corp. ("JHC"). Certain
officers of the Company are also officers of JHC and JMC and hold significant ownership positions in both JHC and
the Company.
Since its formation, the Company has been engaged in the business of investing in used regional aircraft equipment
leased to foreign and domestic regional air carriers. The Company’s principal business objective is to increase
stockholder value by acquiring aircraft assets and managing those assets in order to provide a return on investment
through lease revenue and, eventually, sale proceeds. The Company strives to achieve its business objective by
reinvesting cash flow and using short-term and long-term debt and/or equity financing.
The Company’s success in achieving its objective depends in large part on its success in three areas: asset selection,
lessee selection and obtaining financing for acquisition of aircraft and engines.
The Company typically acquires assets in one of three ways. The Company may purchase an asset already subject
to a lease and assume the rights and obligations of the seller, as lessor under the existing lease. Additionally, the
Company may purchase an asset from an air carrier and lease it back to the seller. Finally, the Company may
purchase an asset from a seller and then immediately enter into a new lease for the aircraft with a third party lessee.
In this last case, the Company typically does not purchase an asset unless a potential lessee has been identified and
has committed to lease the asset. Occasionally, the Company may also acquire an asset for which it does not have a
potential lessee.
The Company generally targets used regional aircraft and engines with purchase prices between $3 million and $10
million, and lease terms less than five years. In determining assets for acquisition, the Company evaluates, among
other things, the type of asset, its current price and projected future value, its versatility or specialized uses, the
current and projected availability of and demand for that asset, and the type and number of future potential lessees.
Because JMC has extensive experience in purchasing, leasing and selling used regional aircraft, the Company
believes it can purchase these assets at an appropriate price and maintain an acceptable overall on-lease rate for the
Company’s assets.
In order to improve the remarketability of an aircraft after expiration of the lease, the Company focuses on having
lease provisions for its aircraft that contain required maintenance and return conditions such that when the lessee
returns the aircraft, the Company receives the aircraft in a condition which allows it to expediently re-lease or sell
the aircraft, or receives sufficient payments based on usage over the lease term to cover any maintenance or overhaul
of the aircraft required to bring the aircraft to such a state.
When considering whether to accept transactions with a lessee, the Company examines the creditworthiness of the
lessee, its short and long-term growth prospects, its financial status and backing, the experience of its management,
and the impact of legal and regulatory matters in the lessee's market, all of which are weighed in determining the
deal terms offered to the lessee. In addition, where applicable, it is the Company’s policy to monitor the lessee’s
business and financial performance closely throughout the term of the lease, and if requested, provide assistance
drawn from the experience of the Company’s management in many areas of the air carrier industry. Because of its
“hands-on” approach to portfolio management, the Company believes it is able and willing to enter into transactions
with a wider range of lessees than would be possible for traditional, large lending institutions and leasing companies.
The Company has funded its asset acquisitions primarily through debt financing supplemented by free cash flow.
The Company’s primary source of debt financing has been secured credit facilities. In March of 2013, the
5
Company's credit facility ("Credit Facility") provided by a syndicate of banks, with Union Bank, N.A. as agent, was
amended to extend its expiration date to September 30, 2015.
An additional $14 million in debt financing was raised through the issuance of 16% senior unsecured subordinated
notes ("Subordinated Notes") in 2007 and 2008, the proceeds of which were used to pay down amounts previously
borrowed under the Credit Facility. The Subordinated Notes were fully repaid as required on December 30, 2011.
The Company has also occasionally financed asset acquisitions with lenders through asset-based term loans using
special purpose subsidiaries.
Working Capital Needs
The Company’s portfolio of assets has historically generated revenues that have exceeded the Company’s cash
expenses, which consist mainly of management fees, maintenance expense, principal and interest payments on debt,
professional fees, and insurance premiums.
The Company's management fees payable to JMC are based upon the size of the asset pool. Maintenance costs for
off-lease aircraft and costs funded by non-refundable reserves are recognized as an expense as incurred. Interest
expense is dependent on both the outstanding balances of the Company’s indebtedness and the applicable interest
rates. Professional fees are paid to third parties for expenses not covered by JMC under the Management
Agreement. Insurance expense includes amounts paid for directors and officers insurance, as well as product
liability insurance and aircraft hull insurance for periods when an aircraft is off lease.
So long as the Company succeeds in keeping the majority of its assets on lease and interest rates do not rise
significantly and rapidly, the Company’s cash flow should continue to be sufficient to cover these expenses and
provide excess cash flow. If the Company incurs unusually large maintenance expense in any given period, the
Company expects it will have sufficient cash flow, or borrowing availability under its credit facility, to fund such
maintenance.
Competition
The Company competes with other leasing companies, banks, financial institutions, and aircraft leasing partnerships
for customers that generally are regional commercial aircraft operators seeking to lease aircraft under operating
leases. Management believes that competition may increase if competitors who have traditionally neglected the
regional air carrier market begin to focus on that market. Because competition is largely based on price and lease
terms, the entry of new competitors into the market, and/or traditional large aircraft lessors into the regional aircraft
niche, particularly those with greater access to capital markets than the Company, could lead to fewer acquisition
opportunities for the Company and/or lease terms less favorable to the Company on acquisitions, as well as renewals
of existing leases or new leases of existing aircraft, all of which could lead to lower revenues for the Company.
The Company, however, believes that it has a competitive advantage due to its experience and operational efficiency
in financing the transaction sizes that are desired by many in the regional air carrier market. Management believes
that the Company also has a competitive advantage because JMC has developed a presence as a global participant in
the regional aircraft leasing market.
6
Dependence on Significant Customers
For the year ended December 31, 2012, the Company’s four largest customers accounted for 15%, 13%, 11% and
10% of lease revenue. Concentration of credit risk with respect to lease receivables will diminish in the future only
if the Company is able to re-lease assets currently on lease to significant customers to new customers and/or acquire
assets for lease to new customers.
Environmental Matters
Neither compliance with federal, state and local provisions regulating discharge of greenhouse gas emissions
(including carbon dioxide (CO2)) in the environment and/or aircraft noise regulations, nor remedial agreements or
other actions relating to the environment, has had, or is expected to have, a material effect on the Company’s capital
expenditures, financial condition, results of operations or competitive position.
Employees
Under the Company’s management contract with JMC, JMC is responsible for all administration and management
of the Company. Consequently, the Company does not have any employees.
Available Information
The headquarters of AeroCentury Corp. is located at 1440 Chapin Avenue, Suite 310, Burlingame, California
located at:
The main
94010.
http://www.aerocentury.com.
The Company’s website
is (650) 340-1888.
telephone number
is
The Company is subject to the reporting requirements of the Securities Exchange Act (the “Exchange Act”).
Therefore, the Company files periodic reports, proxy statements and other information with the Securities and
Exchange Commission (the “SEC”). The public may read and copy any materials the Company files with the SEC at
the SEC’s Public Reference Room of the SEC at 100 F Street N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC.
Item 1A.
Risk Factors.
Smaller reporting companies are not required to provide this information.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Properties.
As of December 31, 2012, the Company did not own or lease any real property, plant or materially important
physical properties. The Company maintains its principal office at 1440 Chapin Avenue, Suite 310, Burlingame,
California 94010. However, since the Company has no employees and the Company’s portfolio of leased aircraft
assets is managed and administered under the terms of the Management Agreement with JMC, all office facilities
are provided by JMC.
At December 31, 2012, the Company owned three Bombardier Dash-8-Q400, nine Bombardier Dash-8-300, one
deHavilland DHC-8-100, one deHavilland DHC-6, thirteen Fokker 50, one Saab 340A, five Saab 340B, four Saab
340B Plus, and seven Fokker 100 aircraft, as well as three General Electric CF34-8E aircraft engines and one
General Electric CT7-9B aircraft engine which are on lease or held for lease.
7
Item 3.
Legal Proceedings.
The Company from time to time engages in ordinary course litigation relating to lease collection matters against
defaulting lessees and mechanic’s lien claims by vendors hired by lessees. None of the current litigation, if resolved
adverse to the Company, is anticipated to have a material adverse effect on the Company’s financial condition or
results of operations.
Item 4.
Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
The shares of the Company’s Common Stock are traded on the NYSE MKT exchange ("NYSE MKT") under the
symbol “ACY.”
Market Information
The Company’s Common Stock has been traded on the NYSE MKT since January 16, 1998. The following table
sets forth the high and low sales prices reported on the NYSE MKT for the Company’s Common Stock for the
periods indicated:
Period
High
Low
Fiscal year ended December 31, 2012:
Fourth Quarter ..............................
Third Quarter .................................
Second Quarter ..............................
First Quarter ...................................
Fiscal year ended December 31, 2011:
Fourth Quarter ..............................
Third Quarter .................................
Second Quarter ..............................
First Quarter ...................................
$14.10
12.95
15.60
11.90
8.20
14.48
15.00
24.00
$11.35
9.95
10.32
6.00
5.30
6.27
9.54
11.51
On March 13, 2013, the closing sale price of the Company’s Common Stock on the NYSE MKT exchange was
$16.30 per share.
Number of Security Holders
According to the Company’s transfer agent, the Company had approximately 1,700 stockholders of record as of
March 11, 2013. Because brokers and other institutions on behalf of beneficial stockholders hold many of the
Company’s shares of Common Stock, the Company is unable to estimate the total number of beneficial stockholders
represented by those record holders.
Dividends
No dividends have been declared or paid to date. The Company has no plans at this time to declare or pay
dividends, and intends to re-invest any earnings into the acquisition of additional revenue-generating aircraft
equipment.
The terms of the Credit Facility prohibit the Company from declaring or paying dividends on its Common Stock,
except for cash dividends in an aggregate annual amount not to exceed 50% of the Company's net income in the
immediately preceding fiscal year so long as immediately prior to and immediately following such dividend the
8
Company is not in default under the Credit Facility.
Stockholder Rights Plan
In December 2009, the Company’s Board of Directors adopted a stockholder rights plan granting a dividend of one
stock purchase right for each share of the Company’s common stock outstanding as of December 18, 2009 and the
Company entered into a rights agreement dated December 1, 2009 in connection therewith. The rights become
exercisable only upon the occurrence of certain events specified in the rights agreement, including the acquisition of
15% of the Company’s outstanding common stock by a person or group in certain circumstances. Each right allows
the holder, other than an “acquiring person,” to purchase one one-hundredth of a share (a unit) of Series A Preferred
Stock at an initial purchase price of $97.00 under circumstances described in the rights agreement. The purchase
price, the number of units of preferred stock and the type of securities issuable upon exercise of the rights are subject
to adjustment. The rights expire at the close of business December 1, 2019 unless earlier redeemed or exchanged.
Until a right is exercised, the holder thereof, as such, has no rights as a stockholder of the Company, including the
right to vote or to receive dividends.
Item 6.
Selected Financial Data.
This report does not include information described under Item 301 of Regulation S-K pursuant to the rules of the
SEC that permit “smaller reporting companies” to omit such information.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company owns regional aircraft and engines, which are typically leased to customers under triple net leases
with terms that are less than the useful life of the assets. A “triple net operating lease” is an operating lease under
which, in addition to monthly rental payments, the lessee is generally responsible for the taxes, insurance and
maintenance and repair of the aircraft arising from the use and operation of the aircraft during the term of the lease.
The acquisition of such equipment is generally made using debt financing. The Company’s profitability and cash
flow are dependent in large part upon its ability to acquire equipment, obtain and maintain favorable lease rates on
such equipment, and re-lease or sell equipment that comes off lease. The Company is subject to the credit risk of its
lessees, both as to collection of rental payments and as to performance by lessees of their obligations to maintain the
equipment. Since lease rates for assets in the Company’s portfolio generally decline as assets age, the Company’s
ability to maintain and grow revenue and earnings is primarily dependent upon the Company’s ability to acquire and
lease additional assets.
The Company’s primary uses of cash are for purchases of aircraft and engines, maintenance expense, debt service
payments, management fees, insurance and professional fees.
The Company's most significant non-cash expenses include aircraft and engine depreciation, amortization of costs
associated with the Company’s indebtedness, which is included in interest expense, and, in some years, impairment
provisions, which are affected by significant estimates.
Critical Accounting Policies, Judgments and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon the
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure
of contingent assets and liabilities at the date of the financial statements. In the event that actual results differ from
these estimates or the Company adjusts these estimates in future periods, the Company’s operating results and
financial position could be materially affected.
The Company’s significant accounting policies are described in Notes 1 and 3 to the financial statements. The
Company believes that the most critical accounting policies include the following: Aircraft Capitalization and
9
Depreciation; Impairment of Long-lived Assets; Maintenance Reserves and Accrued Costs; Accounting for Income
Taxes; and Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts.
a.
Aircraft Capitalization and Depreciation
The Company’s interests in aircraft and aircraft engines are recorded at cost, which includes acquisition costs. Since
inception, the Company has purchased only used aircraft and aircraft engines. It is the Company’s policy to hold
aircraft for approximately twelve years unless market conditions dictate otherwise. Therefore, depreciation on
aircraft is initially computed using the straight-line method over the twelve-year period to an estimated residual
value based on appraisal. For an aircraft engine held for lease as a spare, the Company estimates the length of time
that it will hold the aircraft engine based upon estimated usage, repair costs and other factors, and depreciates it to
the appraised residual value over such period using the straight-line method. The amount of the depreciation expense
recognized by the Company during any accounting period with respect to a particular asset depends upon the
estimated holding period over which such asset is depreciated.
The Company periodically reviews plans for lease or sale of its aircraft and aircraft engines and changes, as
appropriate, the remaining expected holding period for such assets. Estimated residual values are reviewed and
adjusted periodically, based upon updated appraised residual estimates and the expected holding periods. Decreases
in the market value of aircraft assets could affect not only the current value, discussed above, but also the estimated
residual value. A change in the estimated residual value of an asset results in a change in the amount of depreciation
expense recognized by the Company during the remaining holding period of the asset.
b.
Impairment of Long-lived Assets
The Company reviews assets for impairment when there has been an event or a change in circumstances indicating
that the carrying amount of a long-lived asset may not be recoverable. In addition, the Company routinely reviews
all long-lived assets for impairment annually. Recoverability of an asset is measured by comparison of its carrying
amount to the future estimated undiscounted cash flows (without interest charges) that the asset is expected to
generate. Estimates are based on currently available market data and independent appraisals and are subject to
fluctuation from time to time. If these estimated cash flows are less than the carrying value of an asset at the time of
evaluation, any impairment to be recognized is measured by the amount by which the carrying amount of the asset
exceeds its fair value. Fair value is determined by reference to independent appraisals and other factors considered
relevant by management. Significant management judgment is required in the forecasting of future operating results
that are used in the preparation of future estimated undiscounted cash flows and, if different conditions prevail in the
future, material write-downs may occur. No impairment provision was recorded in 2012 or 2011.
c.
Maintenance Reserves and Accrued Costs
Maintenance costs under the Company’s triple net operating leases are typically the responsibility of the lessees, and
the majority of the Company’s leases require payment of monthly maintenance reserves. Maintenance reserves and
accrued costs in the accompanying balance sheets include: (i) refundable maintenance payments billed to lessees,
which are paid out as related maintenance is performed or at the end of the lease, (ii) for lessees that pay non-
refundable maintenance reserves, estimated maintenance costs accrued at the time a reimbursement claim or
sufficient information is received regarding maintenance work performed, and (iii) maintenance for work performed
for off-lease aircraft, which is not related to the release of reserves received from lessees.
Non-refundable maintenance reserves are reflected as revenue based on reported usage, if collectability is
reasonably assured. The Company uses the direct expense method, under which maintenance costs are expensed as
incurred.
Maintenance reserves are determined by mutual agreement of the Company and its lessee at inception of the lease
and are based on the Company's estimate of the total maintenance cost at some future point resulting from the
lessee’s usage. Reserve rates are typically subject to an annual adjustment provision that accounts for inflation of
maintenance costs. If a lessee is required to repair a component during the lease or perform a repair at lease end in
order to comply with aircraft return conditions, it will be entitled to collect the reserves related to that repair from
the Company, and any excess costs would then be the responsibility of the lessee. Therefore, if maintenance rates
10
do not accurately reflect the true cost of a repair, the Company will not incur any financial impact. If, however, the
Company repossesses an aircraft upon a lessee default, and the maintenance reserves collected under that defaulted
lease are less than the maintenance costs, the Company is responsible for such excess costs. It is also possible that,
in order to remarket a repossessed aircraft, certain inspections and repairs may need to be performed earlier than
otherwise required by the manufacturer or regulatory specifications. In such a case, the collected reserves from the
defaulted lessee, which were established assuming a normal interval between repairs, would likely be insufficient to
cover the total cost incurred by the Company.
In 2010 and 2012, several aircraft were returned to the Company prior to their respective lease expirations. The
Company incurred significant maintenance expense in 2011 and 2012 as a result of the returns, and, in some cases,
the reserves retained by the Company at the time of the returns were insufficient to cover the required maintenance.
d.
Accounting for Income Taxes
As part of the process of preparing the Company’s financial statements, management is required to estimate income
taxes in each of the jurisdictions in which the Company operates. This process involves estimating the Company’s
current tax exposure under the most recent tax laws and assessing temporary and permanent differences resulting
from differing treatment of items for tax and accounting principles generally accepted in the United States of
America (“GAAP”) purposes. These differences result in deferred tax assets and liabilities, which are included in
the balance sheet. Management also assesses the likelihood that the Company’s deferred tax assets will be
recovered from future taxable income, and, to the extent management believes it is more likely than not that some
portion or all of the deferred tax assets will not be realized, the Company establishes a valuation allowance. To the
extent the Company establishes a valuation allowance or changes the allowance in a period, the Company reflects
the corresponding increase or decrease in the tax provision in the statements of operations. The Company had no
material unrecognized tax positions in 2012 or 2011, and had valuation allowances of $158,600 in both 2012 and
2011.
Significant management judgment is required in estimating the Company’s future taxable income for purposes of
assessing the Company’s ability to realize any benefit from its deferred taxes. If actual taxable income is less than
these estimates or if the Company adjusts its estimates of future taxable income, the Company may realize less or no
benefit from its deferred tax assets and its financial results and financial condition could be materially affected.
e.
Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts
Revenue from leasing of aircraft assets is recognized as operating lease revenue on a straight-line basis over the
terms of the applicable lease agreements. A receivable for deferred rent is recorded when the cash rent received is
lower than the straight-line revenue recognized. Such receivables decrease over the term of the applicable leases.
Interest income is recognized on finance leases based on the interest rate implicit in the lease and the outstanding
balance of the lease receivable. Non-refundable maintenance reserves billed to lessees are accrued as maintenance
reserves revenue based on aircraft usage. In instances where collectability is not reasonably assured, the Company
recognizes revenue as cash payments are received. The Company estimates and charges to income a provision for
bad debts based on its business experience and, with each specific customer, the level of past due accounts, and the
Company's analysis of the lessee’s overall financial condition. If the financial condition of the Company’s customers
deteriorates, it could result in actual losses exceeding the estimated allowances.
Results of Operations
The Company recorded net income of $5.2 million in 2012 compared to a net loss of $1.5 million in 2011.
Annual operating lease revenue increased 22% from $19.4 million in 2011 to $23.7 million in 2012. The increase
primarily reflects higher portfolio utilization and an increase in the average size of the Company’s lease portfolio.
The average net book value of lease equipment during 2012 and 2011 was approximately $138.6 million and $122.0
million, respectively, representing an increase of 14%. The average utilization during 2012 and 2011 was 86% and
78%, respectively. At December 31, 2012 and 2011, respectively, approximately 87% and 83% of equipment held
for lease, based on net book value, was on lease.
11
Maintenance reserve revenue for the year ended December 31, 2012 increased 23% to $4.1 million from $3.3
million in 2011. The increase was principally due to revenues generated by assets that were acquired during 2012
and by reserves generated by assets that were off-lease in 2011.
The Company’s maintenance expense decreased 63% to $4.1 million in 2012 from $10.9 million in 2011, primarily
as a result of a decrease in maintenance performed on off-lease aircraft and a decrease in maintenance performed by
lessees using non-refundable reserves. During 2012 and 2011, $1.8 million and $7.8 million, respectively, of the
Company’s maintenance expense for off-lease aircraft and maintenance performed by lessees were funded by non-
refundable maintenance reserves that had been previously recorded as revenue when earned.
During 2012 and 2011, the Company added equipment to the lease portfolio of approximately $30.5 million and
$7.2 million, respectively. The Company sold approximately $4.9 million and $4.2 million during 2012 and 2011,
respectively. As a result, depreciation and management fees increased by 9% and 12%, respectively, from year to
year.
Interest expense increased by 18% to $4.6 million in 2012 from $3.9 million in 2011, primarily as a result of higher
fee amortization related to the one-year extension of the Company’s Credit Facility in March 2012, and a higher
average Credit Facility balance in 2012 as a result of aircraft acquisitions since late 2011. The effects of these
increases were partially offset by the absence in 2012 of interest expense and fee amortization related to the
Company’s Subordinated Notes, which were fully repaid in December 2011.
Liquidity and Capital Resources
The Company is currently financing its assets primarily through debt financing and excess cash flows.
(a)
Credit Facility
In March 2013, the Company’s Credit Facility provided by a syndicate of banks was increased to $130 million and
extended to September 30, 2015 on terms similar to the original agreement. The Credit Facility is secured by all of
the assets of the Company, including its aircraft and engine portfolio.
The Company borrowed $19.9 million and $6.5 million during 2012 and 2011, respectively, under the Credit
Facility. The Company repaid $17.3 million and $4.3 million of its Credit Facility debt during 2012 and 2011,
respectively. During 2011, the Company also repaid the $2.3 million balance of its Subordinated Notes, which
matured in December 2011.
As of March 14, 2013, the Company had an outstanding balance of $67.5 million under the Credit Facility.
Although the unused amount of the Credit Facility is currently $62.5 reduced advance rates for certain assets
included in the borrowing base has decreased the available credit to $12.9 million
As of December 31, 2012 and 2011, the Company was in compliance with all covenants under the Credit Facility
agreement. Although the Company believes it will continue to be in compliance with all of the Credit Facility
covenants, there can be no assurance of such compliance. Any default under the Credit Facility, if not waived by the
lenders, could result in foreclosure upon any or all of the assets of the Company.
The Company’s interest expense generally increases and decreases with prevailing interest rates. The Company has
the ability to enter into interest rate swaps to economically hedge against interest rate increases in its floating rate
debt under the Credit Facility and has done so in the past.
(b)
Cash flow
The Company’s primary sources of cash are (i) rent payments due under the Company’s operating and finance
leases and (ii) refundable and non-refundable maintenance reserves billed monthly to lessees based on aircraft
usage. Cash collected by the Company for maintenance reserves and security deposits is not required by the leases to
be segregated and is included in cash and cash equivalents on the Company’s balance sheets.
12
The Company’s primary uses of cash are for purchase of aircraft and engines, maintenance expense, management
fees, professional fees, insurance, and Credit Facility interest and principal payments. The amount of interest paid
by the Company depends on the outstanding balance of its Credit Facility, which carries a floating interest rate as
well as an interest rate margin, and is therefore also dependent on changes in prevailing interest rates.
The timing and amount of the Company’s payments for maintenance vary, depending on the timing of lessee-
performed maintenance that is eligible for reimbursement, the aggregate amount of such claims and the timing and
amount of maintenance incurred in connection with preparation of off-lease assets for re-lease to new customers.
The Company’s maintenance payments typically constitute a large portion of its cash needs, and the Company may
from time to time borrow additional funds under the Credit Facility to provide funding for such payments.
Management believes that the Company will have adequate cash flow to meet its ongoing operational needs,
including any required repayments under the Credit Facility due to borrowing base limitations, based upon its
estimates of future revenues and expenditures, which include assumptions regarding (i) revenues for assets to be re-
leased, (ii) required debt payments, (iii) interest rates, (iv) the cost and anticipated timing of maintenance to be
performed, and (v) timely use of proceeds of unused debt capacity toward additional acquisitions of income
producing assets.
Although the Company believes that the assumptions it has made in forecasting its cash flow are reasonable in light
of experience, actual results could deviate from such assumptions. Among the more significant factors that could
have an impact on the accuracy of cash flow assumptions are (i) lessee non-performance or non-compliance with
lease obligations, (ii) inability to locate new lessees for returned equipment within a reasonable remarketing period,
or at a rent level consistent with projected rental rates for the asset, (iii) lessee performance of maintenance, and
payment of related maintenance claims, earlier than anticipated, (iv) inability to locate and acquire a sufficient
volume of additional assets at prices that will produce acceptable net returns, (v) an increase in interest rates and (vi)
any one or a combination of the above factors that causes the Company to violate covenants of the Credit Facility
agreement, which may in turn require repayment of some or all of the amounts outstanding under the Credit Facility.
(i)
Operating activities
The Company’s cash flow from operations increased by $21.3 million in 2012 compared to 2011. As discussed
below, the change in cash flow was primarily a result of an increase in payments received for rent and maintenance
reserves and a decrease in expenditures for maintenance.
Payments for operating lease revenue and maintenance reserves revenue
Payments received from lessees for rent increased by $4.6 million in 2012 compared to 2011 primarily due to rent
for several assets that were on lease in 2012 had been off lease for all or part of 2011, as well as rent on seven
aircraft purchased by the Company beginning in late 2011. Payments received for maintenance reserves increased
by $8.6 million in 2012 compared to 2011, as a result of asset acquisitions and a $6.5 million payment, based on the
condition of the aircraft, received from a lessee when its two aircraft leases were assigned to a new lessee upon sale
of the original lessee's assets. Such payment will be recognized as maintenance reserves revenue in the first quarter
of 2013, upon termination of the leases.
The Company is receiving no lease revenue for its assets that are currently off lease, which assets are comprised of
five Fokker 50, four Saab 340B and four Fokker 100 aircraft.
Payments for maintenance
Payments for maintenance decreased by $8.0 million in 2012 compared to 2011 as a result of a decrease in
maintenance costs for off-lease aircraft. The amount of payments for maintenance in future periods will depend on
the amount and timing of maintenance paid as reimbursement to lessees for maintenance reserves claims, which are
dependent upon utilization and required maintenance intervals, and maintenance paid for off-lease assets.
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(ii)
Investing activities
During 2012 and 2011, the Company received cash of $5.0 million and $2.1 million, respectively, from the sale of
aircraft. During the same time periods, the Company used cash of $30.4 million and $7.5 million, respectively, for
the purchase and capital improvement of aircraft.
(iii)
Financing activities
The Company borrowed $19.9 million and $6.5 million under the Credit Facility during 2012 and 2011,
respectively. In these same time periods, the Company repaid $17.3 million and $6.6 million, respectively, of its
total outstanding debt under the Credit Facility. Such repayments were funded by excess cash flow. During 2012,
the Company paid $1.6 million of fees related to the extension of the Company’s Credit Facility. Such fees are
amortized over the term of the Credit Facility.
Outlook
(a)
General
The global downturn has resulted in a significant reduction in airline passenger volume and, in reaction to that, a
reduction in the number of aircraft and aircraft engines needed for operation by carriers in nearly all geographic
areas, especially Europe. The slow recovery from this downturn and the ongoing European financial crisis have
created a challenging environment for the Company in three respects:
•
•
•
The global economic situation has increased the possibility of an unanticipated lessee default, as evidenced
by the bankruptcies of two of the Company’s customers during the second quarter of 2012, and another
recently in January 2013. A lessee’s default and the unscheduled return of an asset to the Company for
remarketing could result not only in reduced operating lease revenue but also in unanticipated,
unrecoverable expenses arising from the lessee’s default on its maintenance and return condition
obligations. The Company monitors the performance of all of its customers and has noted that several of
the Company’s customers have experienced weakened financial conditions and operating results and have
not yet achieved financial stability.
The reduction in demand for aircraft and aircraft engines has increased the possibility that the Company’s
current lessees will choose to return leased assets at lease expiration rather than renew the existing leases,
notwithstanding that any such lessee may incur significant expenses to satisfy return conditions. Due to
decreased demand for aircraft capacity, it is likely that the Company will experience lower on-lease
utilization rates and longer lead times for remarketing of returned assets, as well as lower rental rates for
remarketed assets, as was the case with several lease extensions and re-leases since 2011. This trend is
expected to continue to affect the Company’s operating revenue for the remainder of 2013.
Finally, the downturn and slow recovery creates fewer opportunities for acquisitions for the Company. The
Company’s customers are generally carriers needing additional aircraft to expand their route systems or
increase frequencies. In the current environment of diminished demand for leisure and business air travel
and consequently reduced capacity by carriers, there is likely to be a significant decrease in the pool of such
customers requiring aircraft.
(b)
Remarketing Efforts
Unless they are renewed, leases for five of the Company’s assets will expire during the first half of 2013.
The Company is seeking remarketing opportunities for the following assets, which are off lease as of March 14,
2013:
•
Five of the six Fokker 50 aircraft that were returned in the second quarter of 2012 after the lessee declared
bankruptcy;
14
•
•
Four Saab 340B aircraft, which were also returned in the second quarter of 2012 after the lessee declared
bankruptcy; and
Four Fokker 100 aircraft, two of which were returned to the Company in 2010 prior to lease expiration due
to the lessee’s cessation of business and two of which were returned to the Company in early 2013 prior to
lease expiration due to the lessee’s cessation of business.
The Company is considering selling some or all of its off-lease aircraft. The Company is analyzing the amount and
timing of maintenance required to remarket the aircraft, the amount of which may differ significantly if the aircraft
are sold rather than re-leased.
(c)
Credit Facility
The Company’s Credit Facility was recently extended to September 30, 2015 and increased to $130 million.
Under the Credit Facility, the amount available to be borrowed is limited to the total amount of asset-specific
advance rates (expressed as a percentage of each asset's net book or appraised value). Lessee arrearages or asset off-
lease periods may reduce the advance rate for the related assets and, therefore, the permitted borrowing under the
facility. Additionally, the Credit Facility contains financial and other covenants.
The Company believes that available borrowings under the Credit Facility, considering possible lessee arrearages or
off-lease periods, will be sufficient to meet its continuing obligations and repayment obligations as well as fund
anticipated acquisitions. However, there can be no assurance the Company's beliefs will prove to be correct and that
the Company will have sufficient cash to make any required repayments.
Although the Company believes it will be in compliance with the covenants of the Credit Facility through its term,
as discussed below in “Factors that May Affect Future Results – Credit Facility Obligations,” there can be no
assurance of such compliance. Any default under the Credit Facility, if not cured in the time permitted under the
facility or waived by the lenders, could result in foreclosure upon any or all of the assets of the Company.
(d)
Deferral Agreements
The Company regularly evaluates the financial performance of all of its lessees and is closely monitoring two
customers in particular. In the past, the Company has granted deferral of certain overdue and/or future rental or
reserves payment obligations pursuant to agreements with certain customers that had experienced financial
difficulties. The Company currently has no deferral agreement balances outstanding. The Company may agree to
deferral agreements with certain lessees in the future, which would reduce the Company’s borrowing ability under
the Credit Facility.
Factors that May Affect Future Results
Credit Facility Obligations. Under the Credit Facility, the amount available to be borrowed is limited to the total
amount of asset-specific advance rates (expressed as a percentage of each asset's net book or appraised value).
Lessee arrearages or asset off-lease periods may reduce the advance rate for the related assets and, therefore, the
permitted borrowing under the facility. Amounts subject to deferral agreements also reduce the borrowing base.
The Company believes it will have sufficient cash funds to make any required principal repayment that arises due to
any such borrowing base limitations. Although the Company believes, based in part on certain assumptions
discussed below, that it will continue to be in compliance with the covenants of the Credit Facility, there can be no
assurance that the Company’s assumptions will be correct, and if not, the Company will need to seek waivers from
its lenders if such compliance failure is not timely remedied. Any default under the Credit Facility, if not waived by
the lenders, could result in foreclosure upon any or all of the existing assets of the Company.
The Company’s beliefs regarding compliance with its Credit Facility covenants are based on certain assumptions
regarding the timing of the incurrence of maintenance expense, remarketing of off-lease assets within the time
period anticipated by the Company, certain lease renewals, interest rate levels, the Company’s profitability, lessee
defaults or bankruptcies, and certain other matters that the Company deems reasonable in light of its experience in
15
the industry (See “Liquidity and Capital Resources – Cash flow,” above). There can be no assurance that the
Company’s assumptions will prove to be correct. If the assumptions are incorrect and the Company has not
obtained an applicable waiver or amendment of applicable covenants from its lenders to mitigate the situation, the
Company may have to sell a significant portion of its portfolio in order to avoid or cure a default under the Credit
Facility agreement.
Risks of Debt Financing. The Company’s use of debt as the primary form of acquisition financing subjects the
Company to increased risks associated with leveraging. In addition to payment obligations, the Credit Facility also
requires the Company to comply with certain financial covenants, including a requirement of positive earnings and
compliance with interest coverage ratios and required net worth. The Company’s assets secure its debt financing,
and any default in payment obligations or other covenants under the Credit Facility, if not waived by the lenders,
could result in foreclosure upon any or all of the assets of the Company.
General Economic Conditions and Lowered Demand for Travel. The Company’s business is dependent upon
general economic conditions and the strength of the travel and transportation industry. The industry is continuing to
experience financial difficulty and contraction due to the downturn and slow recovery in the global economy.
Passenger volume has fallen significantly for carriers, and the loss of revenue has affected many carriers’ financial
condition. The slow recovery from the credit crisis has made it difficult or impossible for many regional carriers to
find the additional debt financing on which they have traditionally relied. The confluence of these economic factors
increases the likelihood of failures among the Company’s customers. The spread of a disease epidemic, the threat or
execution of a terrorist attack against aviation, a worsening financial/bank crisis in Europe, a natural event that
interrupts air traffic (such as the 2010 Iceland volcano eruption), political crises or other events that cause a
prolonged spike in fuel prices, or other like events could exacerbate an already weakened condition and lead to
widespread failures in the air carrier industry. If lessees experience financial difficulties and are unable to meet
lease obligations, this will, in turn, negatively affect the Company’s financial performance.
During the current period of economic weakness, many airlines have reduced capacity in response to lower
passenger loads, and as a result, there has been reduced demand for aircraft and aircraft engines and a corresponding
decrease in market lease rental rates and aircraft values for many aircraft types. This reduced market value could
affect the Company’s results if the market value of an asset or assets in the Company’s portfolio falls below carrying
value, and the Company determines that a write-down of the value on its balance sheet is appropriate. Furthermore,
if older, expiring leases are replaced with leases at decreased lease rates, the lease revenue from the Company’s
existing portfolio is likely to decline, with the magnitude of the decline dependent on the length of the downturn and
the depth of the decline in market rents.
Economic downturns can affect certain regions of the world more than others. As the Company’s portfolio is not
entirely globally diversified, a localized downturn in one of the key regions in which the Company leases assets
could have a significant adverse impact on the Company. Currently, 29%, 29%, 19% and 16% of the Company’s
lease revenue comes from the Caribbean, African, Asian and European regions, respectively, with two, two, four
and five lessees, respectively.
Over the last few years, several of the Company’s customers have experienced financial difficulties arising from a
combination of the weakened air carrier market and their own unique financial circumstances and have requested
and been granted deferral of certain overdue and/or future rental or reserve payment obligations. It is possible that
the Company may enter into additional deferral agreements if the current weakened air carrier environment
continues. When a customer requests a deferral of lease obligations, the Company evaluates the lessee’s financial
plan, the likelihood that the lessee can remain a viable carrier, and whether the deferral will be repaid according to
the agreed schedule. The Company may elect to record the deferred rent and reserve payments from the lessee on a
cash basis, which could have a material effect on the Company’s financial results in the applicable periods.
Availability of Financing. The Company believes that the availability of financing under the current Credit Facility
should be sufficient to fund anticipated asset acquisitions through the term of such facility, which was recently
extended to September 30, 2015. The Company’s continued growth will depend on its ability to continue to obtain
capital, either through debt or equity financings. The financial markets have experienced significant setbacks that
have made access to capital more costly and difficult. As a result, commercial lending origination has dramatically
decreased, and asset-based debt financing remains difficult to obtain. There can be no assurance that the rent
16
arrearages by certain of the Company’s lessees will be cured in the near term, that the Company’s belief regarding
the availability of financing under the current Credit Facility will prove to be correct, or that the Company will
succeed in finding additional funding, and if such financing is found, it may be on terms less favorable than the
Company’s current debt financings.
Ownership Risks. The Company’s leases are typically less than the entire anticipated remaining useful life of the
leased assets. The Company’s ability to recover its investment in an asset subject to such a lease is dependent upon
the Company’s ability to profitably re-lease or sell the asset after the expiration of the lease term. Some of the
factors that have an impact on the Company’s ability to re-lease or sell the asset include worldwide economic
conditions, general aircraft market conditions, regulatory changes that may make an asset’s use more expensive or
preclude use unless the asset is modified, changes in the supply or cost of aircraft equipment and technological
developments that cause the asset to become obsolete. If the Company is unable to remarket its assets on favorable
terms when the leases for such assets expire, the Company’s business, financial condition, cash flow, ability to
service debt and results of operations could be adversely affected.
The Company acquires used aircraft equipment. The market for used aircraft equipment has been cyclical, and
generally reflects economic conditions and the strength of the travel and transportation industry. The demand for
and value of many types of used aircraft in the recent past has been depressed by such factors as airline financial
difficulties, increased fuel costs, the number of new aircraft on order and the number of aircraft coming off lease.
Values may also increase for certain aircraft types that become desirable based on market conditions and changing
airline capacity. If the Company were to purchase an aircraft during a period of increasing values, it would in turn
need to lease such aircraft at a corresponding higher lease rate to compensate for its higher purchase price.
In addition, a successful investment in an asset subject to a lease depends in part upon having the asset returned by
the lessee in the condition as required under the lease. Each lease typically obligates a customer to return an asset to
the Company in a specified condition, which generally requires it be returned in equal or better condition than at
delivery to the lessee. If the lessee becomes insolvent during the term of its lease and the Company has to repossess
the asset from the lessee, it is unlikely that the lessee will have the financial ability to meet these return obligations
and it is likely that the Company would be required to expend funds in excess of the maintenance reserves collected
to return the asset to a remarketable condition. If the lessee declares bankruptcy and rejects the aircraft lease,
although the lessee is required to return the aircraft, the lessee is relieved from all further obligations under the lease,
including the obligation to return the aircraft in the condition required under the lease. In that case, it is also likely
that the Company would be required to expend funds in excess of the maintenance reserves collected to return the
asset to a remarketable condition.
Several of the Company’s leases do not require payment of monthly maintenance reserves, which serve as the
lessee’s advance payment for its future repair and maintenance obligations. If repossession due to lessee default or
bankruptcy occurs under such a lease, the Company will be left with the expense for the costs of unperformed repair
and maintenance under the applicable lease and the Company may incur an unanticipated expense in order to re-
lease or sell the asset.
Furthermore, the occurrence of unexpected adverse changes that impact the Company’s estimates of expected cash
flows generated from an asset may result in an asset impairment charge against the Company’s earnings. The
Company periodically reviews long-term assets for impairment, in particular, when events or changes in
circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized
when the carrying amount of an asset is estimated to be not recoverable and exceeds its fair value. The Company
may be required to recognize asset impairment charges in the future as a result of a prolonged weak economic
environment, challenging market conditions in the airline industry or events related to particular lessees, assets or
asset types.
Lessee Credit Risk. The Company carefully evaluates the credit risk of each customer and attempts to obtain a third
party guaranty, letters of credit or other credit enhancements, if it deems them necessary in addition to customary
security deposits. There can be no assurance, however, that such enhancements will be available, or that, if
obtained, will fully protect the Company from losses resulting from a lessee default or bankruptcy.
17
If a lessee that is a certified U.S. airline were in default under a lease and sought protection under Chapter 11 of the
United States Bankruptcy Code, Section 1110 of the Bankruptcy Code would automatically prevent the Company
from exercising any remedies against such lessee for a period of 60 days. After the 60-day period had passed, the
lessee would have to agree to perform the lease obligations and cure any defaults, or the Company would have the
right to repossess the equipment. This procedure under the Bankruptcy Code has been subject to significant
litigation, however, and it is possible that the Company’s enforcement rights may be further adversely affected by a
declaration of bankruptcy by a defaulting lessee.
Since 2009, the majority of the Company’s customers have experienced a weakening in their financial condition and
operating results. Several of the Company’s customers have experienced significant financial difficulties, become
insolvent and/or filed for bankruptcy. Such an insolvency or bankruptcy filing usually discharges all unpaid
obligations of the customer to the Company existing at the time of the filing, resulting in a total loss of those
receivables. The Company closely monitors the performance of all of its lessees and the Company’s risk exposure
to any lessee that may be facing financial difficulties, in order to guide decisions with respect to such lessee that
would mitigate losses in the event the lessee becomes insolvent or files for bankruptcy and is unable to meet or
rejects its lease obligations. There can be no assurance that additional customers will not become insolvent or file
for bankruptcy or that the Company will be able to mitigate any of the resultant losses.
International Risks. The Company leases assets primarily in overseas markets. Leases with foreign lessees,
however, may present different risks than those with domestic lessees. Most of the Company’s current and expected
growth is expected outside of the United States, and non-U.S. lessees are not subject to U.S. bankruptcy laws,
although there may be debtor protection similar to U.S. bankruptcy laws available in some jurisdictions. Certain
countries do not have a central registration or recording system with which to locally establish the Company’s
interest in equipment and related leases. This could make it more difficult for the Company to recover an aircraft in
the event of a default by a foreign lessee. In any event, collection and enforcement may be more difficult and
complicated in foreign countries.
A lease with a foreign lessee is subject to risks related to the economy of the country or region in which such lessee
is located, which may be weaker than the U.S. economy. An economic downturn in a particular country or region
may impact a foreign lessee’s ability to make lease payments, even if the U.S. and other foreign economies remain
stable.
Foreign lessees are subject to risks related to currency conversion fluctuations. Although the Company’s current
leases are all payable in U.S. dollars, the Company may agree in the future to leases that permit payment in foreign
currency, which would subject such lease revenue to monetary risk due to currency fluctuations. In addition, if the
Company undertakes certain obligations under a lease to contribute to a repair or improvement and if the work is
performed in a foreign jurisdiction and paid for in foreign currency, currency fluctuations resulting in a weaker
dollar between the time such agreement is made and the time payment for the work is made may result in an
unanticipated increase in U.S. dollar-denominated cost for the Company.
Even with U.S. dollar-denominated lease payment provisions, the Company could still be affected by a devaluation
of the lessee’s local currency that would make it more difficult for a lessee to meet its U.S. dollar-denominated
payments, increasing the risk of default of that lessee, particularly if its revenue is primarily derived in the local
currency.
Foreign lessees that operate internationally may also face restrictions on repatriating foreign revenue to their home
country. This could create a cash flow crisis for an otherwise profitable carrier, affecting its ability to meet its lease
obligations.
Finally, ownership of a leased asset operating in a foreign country and/or by a foreign carrier may subject the
Company to additional tax liabilities that are not present with aircraft operated in the United States. Depending on
the jurisdiction, laws governing such tax liabilities may be complex, not well formed or not uniformly enforced. In
such jurisdictions, the Company may decide to take an uncertain tax position based on the best advice of the local
tax experts it engages, which position may be challenged by the taxing authority. If the taxing authority later
assesses a liability, the Company may be required to pay penalties and interest on the assessed amount, which
penalties and interest would not give rise to a corresponding foreign tax credit on the Company’s U.S. tax return.
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Concentration of Lessees and Aircraft Type. For the month ended February 28, 2013, based on monthly operating
lease revenue and interest income from finance leases, the Company’s four largest customers were located in
Mozambique, Antigua, Norway and the Netherlands Antilles and accounted for a total of approximately 62% of the
Company’s monthly lease revenue. A lease default by or collection problem with one or a combination of any of
these significant customers could have a disproportionate negative impact on the Company’s financial results and
borrowing base under the Credit Facility, and, therefore, the Company’s operating results are especially sensitive to
any negative developments with respect to these customers in terms of lease compliance or collection. Such
concentration of lessee credit risk decreases as the Company leases additional assets to new lessees.
As of February 28, 2013, the Company owned nine Bombardier Dash-8-300, seven Fokker 100, three Bombardier
Dash-8-Q400 and thirteen Fokker 50 aircraft, making these four aircraft types the dominant types in the portfolio
and representing 25%, 22%, 19% and 14%, respectively, of net book value. As a result, a change in the desirability
and availability of any of these types of aircraft, which would in turn affect valuations of such aircraft, would have a
disproportionately significant impact on the Company’s portfolio value. Such aircraft type concentration will
diminish if the Company acquires additional assets of other types. Conversely, acquisition of these types of aircraft
will increase the Company’s risks related to its concentration of those aircraft types.
Risks Related to Regional Air Carriers. The Company’s continued focus on its customer base of regional air
carriers subjects the Company to additional risks. Some of the lessees in the regional air carrier market are
companies that are start-up, low-capital, and/or low-margin operators. Often, the success of such carriers depends
on contractual arrangements with major trunk carriers or franchises from governmental agencies that provide
subsidies for operating essential air routes, both of which may be subject to termination or cancellation with short
notice periods. Regional carriers, even if financially strong, that are owned by, or are a sister corporation of, an
established major carrier can also be swept into bankruptcy if the major carrier files for bankruptcy or becomes
insolvent. Two of the Company's regional air carriers located in the United States and Sweden filed for bankruptcy
in 2012, and one located in Germany has filed for bankruptcy in 2013.
Leasing Risks. The Company’s successful negotiation of lease extensions, re-leases and sales is critical to achieving
its financial objectives and involves a number of risks. Demand for lease or purchase of the assets depends on the
economic condition of the airline industry, which is, in turn, sensitive to general economic conditions. The ability to
re-lease equipment at acceptable rates may depend on the demand and market values at the time of remarketing.
Investment in New Aircraft Types and Engines. The Company intends to continue to focus solely on regional
aircraft and engines. Although the Company has traditionally invested in a limited number of types of turboprop
aircraft and engines, the Company has also acquired several Fokker 100 regional jet aircraft and regional jet aircraft
engines, and may continue to seek acquisition opportunities for new types and models of regional jet and turboprop
aircraft and engines used in the Company’s targeted customer base of regional air carriers. Acquisition of aircraft
types and engines not previously acquired by the Company entails greater ownership risk due to the Company's lack
of experience managing those aircraft and engine types. The Company believes, however, that the overall industry
experience of JMC’s personnel and its technical resources should permit the Company to effectively manage such
new aircraft types and engines. Further, the broadening of the asset types in the aircraft portfolio may have a benefit
of diversifying the Company’s portfolio (see “Factors That May Affect Future Results – Concentration of Lessees
and Aircraft Type,” above).
Engine Leasing Risk. The Company currently has six engines in its portfolio, making up 8% of the Company’s total
net book value of aircraft and aircraft engines held for lease. The Company may from time to time lease one or more
of these engines under industry standard short-term engine leases, which place the risk of an engine failure not
caused by lessee negligence or foreign object damage upon the lessor. It is not economically practicable for an
engine lessor to insure against that risk. If an engine failure occurs and is not covered by a manufacturer’s warranty
or is not otherwise caused by circumstances that the lessee is required to cover, the Company’s investment in the
engine could be a significant loss or the Company might incur a significant maintenance expense.
Interest Rate Risk. The Credit Facility carries a floating interest rate based upon short-term interest rate indices.
Lease rates typically, but not always, move over time with interest rates, but market demand and numerous other
asset-specific factors also affect lease rates. Because the Company’s typical lease rates are fixed at the origination of
19
leases, interest rate changes during the term of a lease have no effect on existing lease rental payments. Therefore, if
interest rates rise significantly and there is relatively little lease origination by the Company following such rate
increases, the Company could experience decreased net income as additional interest expense outpaces revenue
growth. Further, even if significant lease origination occurs following such rate increases, other contemporaneous
aircraft market forces may result in lower or flat rental rates, thereby decreasing net income.
Reliance on JMC. All management of the Company is performed by JMC under a twenty-year Management
Agreement between the Company and JMC that expires in April of 2018 and provides for an asset-based
management fee. JMC is not a fiduciary to the Company or its stockholders. The Company’s Board of Directors
(the “Board”) has ultimate control and supervisory responsibility over all aspects of the Company and owes
fiduciary duties to the Company and its stockholders. The Board has no control over the internal operations of JMC,
but the Board does have the ability and responsibility to manage the Company’s relationship with JMC and the
performance of JMC's obligations to the Company under the Management Agreement, as it would have for any third
party service provider to the Company. While JMC may not owe any fiduciary duties to the Company by virtue of
the Management Agreement, all of the officers of JMC are also officers of the Company, and in that capacity owe
fiduciary duties to the Company and its stockholders. In addition, certain officers of the Company hold significant
ownership positions in the Company and JHC, the parent company of JMC.
The Management Agreement may be terminated if JMC defaults on its obligations to the Company. However, the
agreement provides for liquidated damages in the event of its wrongful termination by the Company. Certain
directors of the Company are also directors of JMC and, as discussed above, the officers of the Company are also
officers of JMC and certain officers hold significant ownership positions in both the Company and JHC, the holding
company for JMC. Consequently, the directors and officers of JMC may have a conflict of interest in the event of a
dispute between the Company and JMC. Although the Company has taken steps to prevent conflicts of interest
arising from such dual roles, such conflicts may still occur.
JMC has acted as the management company for two other aircraft portfolio owners, JetFleet III, which raised
approximately $13 million in bond issuance proceeds, and AeroCentury IV, Inc. (“AeroCentury IV”), which raised
approximately $5 million in bond issuance proceeds. In the first quarter of 2002, AeroCentury IV defaulted on
certain bond obligations. In June 2002, the indenture trustee for AeroCentury IV’s bondholders repossessed
AeroCentury IV’s assets and took over management of AeroCentury IV’s remaining assets. JetFleet III defaulted on
its bond obligation of $11.1 million in May 2004. The indenture trustee for JetFleet III bondholders repossessed
JetFleet III’s unsold assets in late May 2004.
Management Fee Structure. All decisions regarding acquisitions and disposal of aircraft from the Company’s
portfolio are made by JMC. JMC is paid a management fee based on the net asset value of the Company’s
portfolio. It may also receive a one-time asset acquisition fee upon purchase of an asset by the Company, and a one-
time remarketing fee in connection with the sale or re-lease of an asset. Optimization of the results of the Company
depends on timing of the acquisition, lease yield on the acquired assets, and re-lease or sale of its portfolio
assets. Under the current management fee structure, a larger volume of acquisitions generates acquisition fees and
also increases the periodic management fee by increasing the size of the aircraft portfolio. Since the Company’s
current business strategy involves continued growth of its portfolio and a “buy and hold” strategy, a compensation
structure that results in greater compensation with an increased portfolio size is not inherently inconsistent with that
strategy. The compensation structure does, nonetheless, create a situation where a decision by JMC for the
Company to forego an asset transaction deemed to be an unacceptable business risk due to the lessee or the aircraft
type is in conflict with JMC’s own pecuniary interest. As a result, the compensation structure could act to incent
greater risk-taking by JMC in asset acquisition decision-making. The Company has established objective target
guidelines for yields on acquired assets. Further, the Company’s Board, including a majority of the outside
independent directors, must approve any acquisition that involves a new asset type. While the Company currently
believes the foregoing are effective mitigating factors against undue compensation-incented risk-taking by JMC,
there is no assurance that such mechanisms can entirely and effectively eliminate such risk.
Government Regulation. There are a number of areas in which government regulation may result in costs to the
Company. These include aircraft registration safety requirements, required equipment modifications and aircraft
noise requirements. Although it is contemplated that the burden and cost of complying with such requirements will
fall primarily upon lessees of equipment, there can be no assurance that the cost will not fall on the Company.
20
Furthermore, future government regulations could cause the value of any non-complying equipment owned by the
Company to decline substantially.
Competition. The aircraft leasing industry is highly competitive. The Company competes with aircraft
manufacturers, distributors, airlines and other operators, equipment managers, leasing companies, equipment leasing
programs, financial institutions and other parties engaged in leasing, managing or remarketing aircraft, many of
which have significantly greater financial resources. Nevertheless, the Company believes that it is competitive
because of JMC’s experience and operational efficiency in identifying and obtaining financing for the transaction
types desired by regional air carriers. This market segment, which is characterized by transaction sizes of less than
$10 million and in many cases customers that are private companies without well-established third party credit
ratings, is not well served by the Company’s larger competitors. JMC has developed a reputation as a global
participant in this segment of the market, and the Company believes that JMC’s reputation benefits the Company.
There is, however, no assurance that competition from larger aircraft leasing companies will not increase
significantly or that JMC’s reputation will continue to be strong in this market segment.
Casualties, Insurance Coverage. The Company, as owner of transportation equipment, may be named in a suit
claiming damages for injuries or damage to property caused by its assets. As a triple-net lessor, the Company is
generally protected against such claims, since the lessee would be responsible for, insure against and indemnify the
Company for such claims. A “triple net lease” is a lease under which, in addition to monthly rental payments, the
lessee is generally responsible for the taxes, insurance and maintenance and repair of the aircraft arising from the use
and operation of the aircraft during the term of the lease. Although the United States Aviation Act may provide
some protection with respect to the Company’s aircraft assets, it is unclear to what extent such statutory protection
would be available to the Company with respect to most of the Company’s assets, which are operated in foreign
countries where such provisions of the United States Aviation Act may not apply.
The Company’s leases generally require a lessee to insure against likely risks of loss or damage to the leased asset,
and liability to passengers and third parties pursuant to industry standard insurance policies and require lessees to
provide insurance certificates documenting the policy periods and coverage amounts. The Company tracks receipt
of the certificates and calendars their expiration dates. Prior to the expiration of an insurance certificate, if a
replacement certificate has not been received, the Company reminds the lessee of its obligation to provide current
insurance certificates to avoid a default under the lease.
Despite these requirements and procedures, there may be certain cases where the loss is not entirely covered by the
lessee or its insurance. The possibility of such an event is remote, but any such uninsured loss with respect to the
equipment or insured loss for which insurance proceeds are inadequate might result in a loss of invested capital in
and any profits anticipated from, such equipment, as well as a potential claim directly against the Company.
Compliance With Future Environmental Regulations. Compliance with future environmental regulations may harm
the Company’s business. Many aspects of aircraft operations are subject to increasingly stringent environmental
regulations, and growing concerns about climate change may result in the imposition by the U.S and foreign
governments of additional regulation of carbon emissions, aimed at either requiring adoption of technology to
reduce the amount of carbon emissions or putting in place a fee or tax system on carbon emitters. It is likely that any
such regulation will be directed at the Company’s customers, as operators of aircraft, or at the Company, as owners
of aircraft. Under the Company’s triple-net arrangements, the Company would likely shift responsibility for
compliance to its lessees, but there might be some costs of regulation that the Company could not shift and would
itself have to bear. Although it is not expected that the costs of complying with current environmental regulations
will have a material adverse effect on the Company’s financial position, results of operations, or cash flows, no
assurance can be given that the costs of complying with environmental regulations adopted in the future will not
have such an effect.
Cyber-Security Risks. The Company believes that it has sufficient cyber-security measures in place commensurate
with the risks to the Company of a successful cyber-attack or breach of security. The Company’s main vulnerability
to a cyber-attack would be interruption of the Company’s email communications internally and with third parties,
and loss of document sharing between the Company’s offices and remote workers. Such an attack could temporarily
impede the efficiency of the Company’s operations; however, the Company believes that sufficient replacement
21
mechanisms exist in the event of such an interruption that there would not be a material adverse financial impact on
the Company’s business.
Warrant Issuance. As part of the Subordinated Notes financing, warrants were issued to the holders of Subordinated
Notes to purchase up to 81,224 shares of the Company’s common stock that are currently exercisable (and expire on
December 31, 2015) and represent approximately 5% of the post-exercise fully diluted capitalization of the
Company. The exercise price under the warrants is $8.75 per share. If the warrants to purchase shares are exercised
at a time when the exercise price is less than the fair market value of the Company’s common stock, there will be
dilution to the existing holders of common stock. This dilution of the Company’s common stock could depress its
trading price.
Possible Volatility of Stock Price. The market price of the Company’s common stock may be subject to fluctuations
following developments relating to the Company’s operating results, changes in general conditions in the economy,
the financial markets, the airline industry, changes in accounting principles or tax laws applicable to the Company or
its lessees, or other developments affecting the Company, its customers or its competitors, or arising from other
investor sentiment unknown to the Company. Because the Company has a relatively small capitalization of
approximately 1.5 million shares outstanding, there is a correspondingly limited amount of trading and float of the
Company’s shares. Consequently, the Company’s stock price is more sensitive to a single large trade or a small
number of simultaneous trades along the same trend than a company with larger capitalization and higher trading
volume and float.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
This report does not include information described under Item 305 of Regulation S-K pursuant to the rules of the
Securities and Exchange Commission that permit “smaller reporting companies” to omit such information.
Item 8.
Financial Statements and Supplementary Data.
(a)
Financial Statements and Schedules
(1)
Financial statements for the Company:
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2012 and 2011
Statements of Operations for the Years Ended December 31, 2012 and 2011
Statements of Stockholders’ Equity for the Years Ended December 31, 2012 and 2011
Statements of Cash Flows for the Years Ended December 31, 2012 and 2011
Notes to Financial Statements
(2)
Schedules:
All schedules have been omitted since the required information is presented in the financial
statements or is not applicable.
22
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
AeroCentury Corp.
Burlingame, California
We have audited the accompanying balance sheets of AeroCentury Corp. (the “Company”) as of December 31, 2012
and 2011 and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in
the period ended December 31, 2012. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of AeroCentury Corp. at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in
the United States of America.
San Francisco, California
March 14, 2013
/s/ BDO USA, LLP
23
AeroCentury Corp.
Balance Sheets
ASSETS
Assets:
Cash and cash equivalents
Accounts receivable, including deferred rent of $985,300 and $1,923,300,
net of allowance for doubtful accounts of $2,419,400 and $1,924,400 at
December 31, 2012 and December 31, 2011, respectively
Finance leases receivable
Aircraft and aircraft engines held for lease, net of accumulated
depreciation of $52,244,500 and $48,935,200 at
December 31, 2012 and December 31, 2011, respectively
Assets held for sale
Prepaid expenses and other
December 31, December 31,
2012
2011
$ 1,596,800
$ 995,500
3,196,200
1,557,200
2,936,100
1,271,400
143,667,700
745,400
1,663,200
124,245,000
-
1,378,000
$152,426,500
$130,826,000
Total assets
Liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses
Notes payable and accrued interest
Maintenance reserves and accrued maintenance costs
Security deposits
Unearned revenues
Deferred income taxes
Income taxes payable
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding
Common stock, $0.001 par value, 10,000,000 shares
authorized, 1,606,557 shares issued and outstanding
Paid-in capital
Retained earnings
Treasury stock at cost, 63,300 shares
Total stockholders’ equity
$ 1,133,600
67,865,700
15,356,100
7,001,200
752,400
14,419,200
19,100
$ 368,100
65,672,700
5,814,700
5,607,300
558,200
12,094,400
20,400
106,547,300
90,135,800
-
-
1,600
14,780,100
31,601,600
46,383,300
(504,100)
1,600
14,780,100
26,412,600
41,194,300
(504,100)
45,879,200
40,690,200
Total liabilities and stockholders’ equity
$152,426,500
$130,826,000
The accompanying notes are an integral part of these statements.
24
AeroCentury Corp.
Statements of Operations
Revenues and other income:
Operating lease revenue, net
Maintenance reserves revenue, net
Gain on disposal of assets
Other income
Expenses:
Depreciation
Interest
Management fees
Maintenance
Professional fees, general and administrative and other
Insurance
Other taxes
For the Years Ended December 31,
2012
2011
$23,662,300
4,099,100
1,486,000
110,700
$19,403,900
3,340,100
1,371,000
437,700
29,358,100
24,552,700
6,126,900
4,627,000
4,166,200
4,082,100
1,513,000
866,000
90,200
5,598,900
3,934,800
3,715,400
10,933,700
1,333,400
878,900
90,200
21,471,400
26,485,300
Income/(loss) before income tax provision/(benefit)
7,886,700
(1,932,600)
Income tax provision/(benefit)
2,697,700
(482,200)
Net income/(loss)
Earnings/(loss) per share:
Basic
Diluted
Weighted average shares used in earnings/(loss) per share computations:
Basic
Diluted
The accompanying notes are an integral part of these statements.
$ 5,189,000
$(1,450,400)
$ 3.36
$ (0.94)
$ 3.32
$ (0.94)
1,543,257
1,563,054
1,543,257
1,543,257
25
AeroCentury Corp.
Statements of Stockholders’ Equity
For the Years Ended December 31, 2012 and 2011
Common
Stock
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Balance, December 31, 2010
$1,600
$14,780,100
$27,863,000
$(504,100)
$42,140,600
Net loss
-
-
(1,450,400)
-
(1,450,400)
Balance, December 31, 2011
1,600
14,780,100
26,412,600
(504,100)
40,690,200
Net income
-
-
5,189,000
-
5,189,000
Balance, December 31, 2012
$1,600
$14,780,100
$31,601,600
$(504,100)
$45,879,200
The accompanying notes are an integral part of these statements.
26
AeroCentury Corp.
Statements of Cash Flows
Operating activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Gain on disposal of assets
Depreciation
Non-cash interest
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Finance lease receivable
Income taxes receivable
Prepaid expenses and other
Accounts payable and accrued expenses
Accrued interest on notes payable
Maintenance reserves and accrued costs
Security deposits
Prepaid rent
Income taxes payable
Net cash provided by operating activities
Investing activities:
Proceeds from sale of aircraft and aircraft engine, net of re-sale fees
Proceeds from insurance
Purchases of aircraft and aircraft engines
Net cash used in investing activities
Financing activities:
Borrowings under Credit Facility
Repayments of Credit Facility
Debt issuance costs
Repayments of Subordinated Notes
Net cash provided by/(used in) financing activities
For the Years Ended December 31,
2012
2011
$ 5,189,000
$ (1,450,400)
(1,486,100)
6,126,900
1,667,000
2,324,800
(260,100)
60,900
(300)
(221,200)
741,000
(407,000)
9,541,400
1,447,100
194,200
(1,300)
24,916,300
5,322,200
-
(30,632,200)
(25,310,000)
19,900,000
(17,300,000)
(1,605,000)
-
995,000
(1,371,000)
5,598,900
1,338,900
(672,100)
(928,900)
225,200
6,000
(152,200)
(194,400)
349,900
(889,800)
1,048,100
(19,000)
20,400
2,909,600
2,101,500
1,699,900
(7,521,400)
(3,720,000)
6,500,000
(4,300,000)
-
(2,343,500)
(143,500)
Net increase/(decrease) in cash and cash equivalents
601,300
(953,900)
Cash and cash equivalents, beginning of year
995,500
1,949,400
Cash and cash equivalents, end of year
$ 1,596,800
$ 995,500
During the years ended December 31, 2012 and 2011, the Company paid interest totaling $3,572,600 and
$3,048,600, respectively. During the years ended December 31, 2012 and 2011, the Company paid income taxes
totaling $2,100 and $0, respectively.
The accompanying notes are an integral part of these statements.
27
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
1.
Organization and Summary of Significant Accounting Policies
(a)
The Company and Basis of Presentation
AeroCentury Corp. (the “Company”), a Delaware corporation incorporated in 1997, acquires used regional aircraft
and engines for lease to foreign and domestic regional carriers.
(b)
Use of Estimates
The Company’s financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company bases its estimates on historical experience and on various other assumptions that are believed to be
reasonable for making judgments that are not readily apparent from other sources.
The most significant estimates with regard to these financial statements are the residual values and useful lives of
the assets, the amount and timing of cash flow associated with each asset that are used to evaluate whether assets are
impaired, accrued maintenance costs, accounting for income taxes, and the amounts recorded as allowances for
doubtful accounts.
(c)
Cash and Cash Equivalents
The Company considers highly liquid investments readily convertible into known amounts of cash, with original
maturities of 90 days or less from the date of acquisition, as cash equivalents.
(d)
Aircraft Capitalization and Depreciation
The Company’s interests in aircraft and aircraft engines are recorded at cost, which includes acquisition costs. Since
inception, the Company has purchased only used aircraft and aircraft engines. It is the Company’s policy to hold
aircraft for approximately twelve years unless market conditions dictate otherwise. Therefore, depreciation of
aircraft is initially computed using the straight-line method over the twelve-year period to an estimated residual
value based on appraisal. For an aircraft engine held for lease as a spare, the Company estimates the length of time
that it will hold the aircraft engine based upon estimated usage, repair costs and other factors, and depreciates it to
the appraised residual value over such period using the straight-line method.
The Company periodically reviews plans for lease or sale of its aircraft and aircraft engines and changes, as
appropriate, the remaining expected holding period for such assets. Estimated residual values are reviewed and
adjusted periodically, based upon updated estimates obtained from an independent appraiser. Decreases in the fair
value of aircraft could affect not only the current value, discussed below, but also the estimated residual value.
Assets that are held for sale are not subject to depreciation and are separately classified on the balance sheet. At
December 31, 2012, the airframe from one of the Company’s Saab 340B aircraft has been reclassified to assets held
for sale. The airframe is expected to be sold pursuant to a consignment agreement executed with a maintenance
vendor in October 2012. There were no assets held for sale at December 31, 2011.
28
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
1.
(e)
Organization and Summary of Significant Accounting Policies (continued)
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of
observable inputs and minimize the use of unobservable inputs, to the extent possible. The fair value hierarchy under
GAAP is based on three levels of inputs.
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The following table shows by level, within the fair value hierarchy, the fair value of the Company’s assets that are
measured and recorded at fair value on a recurring basis:
December 31, 2012
December 31, 2011
Total
Level
1
Level
2
Level
3
Total
Level
1
Level
2
Level
3
Money
market funds
included in
cash and cash
equivalents
$1,239,500
$1,239,500
$ -
$ -
$736,000
$736,000
$ -
$ -
Total
$1,239,500
$1,239,500
$ -
$ -
$736,000
$736,000
$ -
$ -
As of December 31, 2012 and 2011, there were no liabilities required to be measured and recorded at fair value on a
recurring basis.
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company determines fair value of long-lived assets held and used, such as aircraft and aircraft engines held for
lease and held for sale, by reference to independent appraisals, quoted market prices (e.g., offers to purchase) and
other factors. An impairment charge is recorded when the Company believes that the carrying value of an asset will
not be recovered through future net cash flows and that the carrying value exceeds its fair value. During the years
ended December 31, 2012 and 2011, there was no recorded impairment of long-lived assets.
29
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
1.
(e)
Organization and Summary of Significant Accounting Policies (continued)
Fair Value Measurements (continued)
Fair Value of Other Financial Instruments
The Company’s financial instruments, other than cash and cash equivalents, consist principally of accounts
receivable, finance leases receivable, accounts payable and amounts borrowed under its credit facility (the “Credit
Facility,” as defined in Note 6). The fair value of accounts receivable, finance leases receivable, and accounts
payable approximates the carrying value of these financial instruments.
Borrowings under the Company’s Credit Facility bear floating rates of interest that reset periodically to a market
benchmark rate plus a credit margin. The Company believes the effective interest rate of this debt agreement
approximates current market rates for such indebtedness at the balance sheet date, and therefore that the carrying
amount of its floating rate debt at the balance sheet dates approximates its fair value. The fair value of the
Company’s outstanding balance of its Credit Facility would be categorized as Level 3 under the fair value hierarchy.
(f)
Impairment of Long-lived Assets
The Company reviews assets for impairment when there has been an event or a change in circumstances indicating
that the carrying amount of a long-lived asset may not be recoverable. In addition, the Company routinely reviews
all long-lived assets for impairment annually. Recoverability of an asset is measured by comparison of its carrying
amount to the future estimated undiscounted cash flows (without interest charges) that the asset is expected to
generate. Estimates are based on currently available market data and independent appraisals and are subject to
fluctuation from time to time. If these estimated future cash flows are less than the carrying value of an asset at the
time of evaluation, any impairment to be recognized is measured by the amount by which the carrying amount of the
asset exceeds its fair value. Fair value is determined by reference to independent appraisals and other factors
considered relevant by management. Significant management judgment is required in the forecasting of future
operating results that are used in the preparation of estimated future undiscounted cash flows and, if different
conditions prevail in the future, material write-downs may occur.
(g)
Deferred Financing Costs and Commitment Fees
Costs incurred in connection with debt financing are deferred and amortized over the term of the debt using the
effective interest method or, in certain instances where the differences are not material, using the straight-line
method. Costs incurred in connection with the Company’s Credit Facility are deferred and amortized using the
straight-line method.
Commitment fees for unused funds are expensed as incurred.
(h)
Security deposits
The Company’s leases are typically structured so that if any event of default occurs under a lease, the Company may
apply all or a portion of the lessee’s security deposit to cure such default. If such application of the security deposit
is made, the lessee typically is required to replenish and maintain the full amount of the deposit during the remaining
term of the lease. All of the security deposits received by the Company are refundable to the lessee at the end of the
lease, upon satisfaction of all lease terms.
30
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
1.
(i)
Organization and Summary of Significant Accounting Policies (continued)
Taxes
As part of the process of preparing the Company’s financial statements, management estimates income taxes in each
of the jurisdictions in which the Company operates. This process involves estimating the Company’s current tax
exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of
items for tax and GAAP purposes. These differences result in deferred tax assets and liabilities, which are included
in the balance sheet. Management also assesses the likelihood that the Company’s deferred tax assets will be
recovered from future taxable income, and, to the extent management believes it is more likely than not that some
portion or all of the deferred tax assets will not be realized, the Company establishes a valuation allowance. To the
extent the Company establishes a valuation allowance or changes the allowance in a period, the Company reflects
the corresponding increase or decrease within the tax provision in the statement of operations. Significant
management judgment is required in determining the Company’s future taxable income for purposes of assessing the
Company’s ability to realize any benefit from its deferred taxes.
The Company accrues non-income based sales, use, value added and franchise taxes as other tax expense in the
statements of operations.
(j)
Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts
Revenue from leasing of aircraft assets is recognized as operating lease revenue on a straight-line basis over the
terms of the applicable lease agreements. Deferred payments are recorded as accrued rent when the cash rent
received is lower than the straight-line revenue recognized. Such receivables decrease over the term of the
applicable leases. Interest income is recognized on finance leases based on the interest rate implicit in the lease and
the outstanding balance of the lease receivable. Non-refundable maintenance reserves are based on usage and are
accrued as maintenance reserves revenue.
In instances where collectability is not reasonably assured, the Company recognizes revenue as cash payments are
received. The Company estimates and charges to income a provision for bad debts based on its experience with
each specific customer, the amount and length of payment arrearages, and its analysis of the lessee’s overall
financial condition. If the financial condition of any of the Company’s customers deteriorates, it could result in
actual losses exceeding any estimated allowances.
The Company’s allowance for doubtful accounts was $2,419,400 and $1,924,400 at December 31, 2012 and 2011,
respectively.
(k)
Comprehensive Income
The Company does not have any comprehensive income other than the revenue and expense items included in the
statements of operations. As a result, comprehensive income equals net income for the years ended December 31,
2012 and 2011.
31
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
1.
(l)
Organization and Summary of Significant Accounting Policies (continued)
Finance Leases
The leases for one of the Company’s aircraft and one General Electric CT7-9B engine contain lessee purchase
options at a price substantially below the asset’s estimated residual value at the exercise date for the option.
Consequently, the Company considers the purchase options to be “bargain purchase options” and has classified such
leases as finance leases for financial accounting purposes. The Company also had a second aircraft subject to a
finance lease that was terminated in June 2011 as a result of the disposal of the asset. The Company does not
include the value, purchase price or accumulated depreciation of finance lease assets on its balance sheet. Instead,
for any finance lease, the discounted present value of (i) future minimum lease payments (including the bargain
purchase option) and (ii) any residual value not subject to a bargain purchase option are reported as a finance lease
receivable. Rental revenue and depreciation expense are not recognized on finance leases. Rather, the Company
accrues interest on the balance of the finance lease receivable based on the interest rate inherent in the lease. The
Company recognized interest earned on finance leases as “other income” in the amount of $93,800 and $243,500 in
2012 and 2011, respectively.
2.
Aircraft and Aircraft Engines Held for Lease or Sale
(a)
Assets Held for Lease
At December 31, 2012 and December 31, 2011, the Company’s aircraft and aircraft engines, which were on lease or
held for lease consisted of the following:
Model
Bombardier Dash-8-300
Fokker 100
Bombardier Dash-8-Q400
Fokker 50
General Electric CF34-8E5 engine
Saab 340B
Saab 340B Plus
deHavilland DHC-8-100
deHavilland DHC-6
Saab 340A
General Electric CT7-9B engine
December 31, 2012
% of net
book value
Number
owned
December 31, 2011
% of net
book value
Number
owned
9
7
3
13
3
5
4
1
1
1
1
25%
22%
19%
14%
7%
5%
6%
1%
1%
-
-
8
7
1
14
3
6
2
2
1
1
-
23%
28%
8%
18%
8%
6%
4%
4%
1%
-
-
Net book value excludes the Company’s Saab 340A aircraft and General Electric CT7-9B engine, which are subject
to finance leases.
During 2012, the Company sold a Bombardier Dash-8-100, a Fokker 50 aircraft and a General Electric CT7-9B
engine and recorded gains totaling $1.4 million. The Company also leased an engine pursuant to a finance lease and
recorded an associated gain of $0.1 million. During 2012, the Company used cash of $30.4 million for the purchase
and capital improvement of aircraft and for acquisition costs related to two aircraft purchased in late 2011.
During 2011, the Company sold two of its deHavilland DHC-6 aircraft to the lessee and recorded a gain of $1.1
million. The Company also recorded a gain on insurance proceeds of approximately $0.3 million in connection with
the total loss of an asset that was subject to a finance lease.
32
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
2.
Aircraft and Aircraft Engines Held for Lease or Sale (continued)
During 2011, the Company used cash of $7.5 million for the purchase of two aircraft and for equipment that was
installed on several aircraft, as well as for an engine maintenance contract related to an aircraft that was purchased in
December 2010 and leased in August 2011.
During 2012, the Company extended the leases for two of its assets and leased one asset that had been off lease at
December 31, 2011.
At December 31, 2012, ten of the Company’s assets, comprised of five Fokker 50, three Saab 340B and two Fokker
100 aircraft, were off lease. The Company is seeking re-lease opportunities for the off-lease aircraft, which
represented 13% of the Company’s aircraft net book value at December 31, 2012.
(b)
Assets Held for Sale
The airframe and one engine from one of the Company’s Saab 340B aircraft were classified as assets held for sale
during the third quarter of 2012. The airframe is expected to be sold pursuant to a consignment agreement executed
with a maintenance vendor in October 2012. The engine was sold in December 2012 at a gain of $50,900. In
October 2012, the second engine from this aircraft was leased to a current customer for a term of five years.
3.
Maintenance Reserves and Accrued Maintenance Costs
Maintenance costs under the Company’s triple net leases are generally the responsibility of the lessees. Most of the
Company’s leases require payment of maintenance reserves, which are based upon lessee-reported usage and billed
monthly, and are intended to accumulate funds that are expected to cover most or all of the cost of the lessees’
performance of certain maintenance obligations under the leases. Some of these payments for maintenance reserves
are refundable, and some are non-refundable.
Refundable maintenance reserves received by the Company are accounted for as a liability, which is reduced when
maintenance work is performed during the lease and reimbursement to the lessee is paid. Such reserves are refunded
after all return conditions and, in some cases, any other payments due under the lease are satisfied. Any refundable
reserves retained by the Company to satisfy return conditions are recorded as revenue when the aircraft is returned.
Non-refundable maintenance reserves are recorded as maintenance reserves revenue (assuming cash is received or
collections are reasonably assured). The timing difference between recording maintenance reserves revenue as
usage occurs and recording maintenance expense as maintenance is performed can have material effects on the
volatility of reported earnings.
33
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
3.
Maintenance Reserves and Accrued Maintenance Costs (continued)
At December 31, 2012 and 2011, the liability for maintenance reserves and accrued maintenance costs consisted of
refundable maintenance payments billed to lessees based on usage and accrued maintenance costs for both off-lease
aircraft and lessee maintenance claims for non-refundable maintenance reserves. Refundable maintenance reserves
at December 31, 2012 also included a $6.5 million payment received from a lessee when its two aircraft leases were
assigned to a new lessee upon sale of the original lessee's assets. As discussed in Note 11, the subject aircraft were
returned to the Company in the first quarter of 2013.
Refundable maintenance reserves
Accrued maintenance costs
December 31,
2012
December 31,
2011
$14,477,400
878,700
$15,356,100
$4,801,300
1,013,400
$5,814,700
Additions to and deductions from the Company’s accrued maintenance costs during the years ended December 31,
2012 and 2011 for aircraft maintenance were as follows:
For Years Ended
December 31,
2012
2011
Balance, beginning of period
$1,013,400
$ 2,446,800
Additions:
Charged to expense
Reversals of previously accrued maintenance costs
Total maintenance expense
Capital equipment
Accrued claims related to refundable maintenance reserves
Prepaid maintenance and other
Total additions
Deductions:
Payments
Prepaid maintenance
Other
Total deductions
4,198,800
(116,700)
4,082,100
52,200
763,900
239,700
5,137,900
4,614,900
-
657,700
5,272,600
11,466,100
(532,400)
10,933,700
487,800
83,500
-
11,505,000
11,785,300
374,200
778,900
12,938,400
Net decrease in accrued maintenance costs
(134,700)
(1,433,400)
Balance, end of period
$ 878,700
$ 1,013,400
34
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
4.
Operating Segments
The Company operates in one business segment, the leasing of regional aircraft to foreign and domestic regional
airlines, and therefore does not present separate segment information for lines of business.
Approximately 4% and 9% of the Company’s operating lease revenue was derived from lessees domiciled in the
United States during 2012 and 2011, respectively. All revenues relating to aircraft leased and operated
internationally are denominated and payable in U.S. dollars.
The tables below set forth geographic information about the Company’s operating lease revenue for leased aircraft
and aircraft equipment, grouped by domicile of the lessee:
Operating Lease Revenue
Europe and United Kingdom
Caribbean
Africa
Asia
North America
South America
For the Years Ended December 31,
2012
2011
$ 6,366,500
5,402,400
4,401,600
4,143,100
2,707,100
641,600
$23,662,300
$ 8,335,400
4,725,800
1,998,100
1,336,600
2,726,200
281,800
$19,403,900
Net Book Value of Aircraft and Aircraft Engines Held for Lease
2012
2011
December 31,
Africa
Asia
Caribbean
Europe and United Kingdom
Off lease
North America
South America
5.
Concentration of Credit Risk
$ 32,962,100
27,577,900
27,145,800
25,012,300
20,359,600
7,386,800
3,223,200
$143,667,700
$ 16,392,100
11,072,400
23,585,000
38,875,100
20,657,100
11,623,700
2,039,600
$124,245,000
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash
deposits and receivables. The Company places its deposits with financial institutions and other creditworthy issuers
and limits the amount of credit exposure to any one party.
For the year ended December 31, 2012 the Company had four significant customers, which accounted for 15%,
13%, 11% and 10%, respectively, of lease revenue. For the year ended December 31, 2011 the Company had three
significant customers, which accounted for 19%, 14% and 13%, respectively, of lease revenue.
35
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
5.
Concentration of Credit Risk (continued)
At December 31, 2012, the Company had a receivable from one lessee of $3,300,000, representing 71% of the
Company’s total receivables. Of that amount, $180,000 was paid in early 2013. At December 31, 2011, the
Company had a receivable from the same lessee of $2,246,800, representing 76% of the Company’s total
receivables. Of that amount, $130,400 was paid in early 2012. At December 31, 2012, the Company had an
allowance for doubtful accounts totaling $2,419,400 related to this customer for the amount owed in excess of the
security deposits held by the Company.
As of December 31, 2012, minimum future lease revenue payments receivable under noncancelable leases were as
follows:
Years ending
2013
2014
2015
2016
2017 and thereafter
Operating
leases
Finance
leases
$16,916,900
10,941,200
6,747,000
5,389,200
2,728,300
$42,722,600
$296,700
84,000
84,000
84,000
73,500
$622,200
Minimum lease payments due under the Company’s finance lease include interest income totaling $211,700.
6.
Notes Payable and Accrued Interest
At December 31, 2012 and December 31, 2011, the Company’s notes payable and accrued interest consisted of the
following:
Credit Facility principal
Credit Facility accrued interest
December 31,
2012
December 31,
2011
$67,800,000
65,700
$67,865,700
$65,200,000
472,700
$65,672,700
In March 2013, the Company’s $90 million Credit Facility provided by a syndicate of banks was increased to $130
million and extended to September 30, 2015 (the “Credit Facility”) on terms similar to the original agreement. The
Credit Facility is secured by all of the assets of the Company, including its aircraft and engine portfolio.
Although the unused amount of the Credit Facility was $22.2 million and $24.8 million as of December 31, 2012
and December 31, 2011, respectively, the amount available was limited to $1.1 million and $17.4 million,
respectively, because of exclusions of certain assets from the borrowing base.
The weighted average interest rate on the Credit Facility was 4.00% and 4.17% at December 31, 2012 and
December 31, 2011, respectively.
The Company’s subordinated notes (“Subordinated Notes”) were fully repaid in December 2011. The Subordinated
Notes purchasers hold warrants to purchase up to 81,224 shares of the Company's common stock at an exercise price
of $8.75 per share. The warrants are exercisable through December 31, 2015.
36
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
7.
Stockholder Rights Plan
In December 2009, the Company’s Board of Directors adopted a stockholder rights plan granting a dividend of one
stock purchase right for each share of the Company’s common stock outstanding as of December 18, 2009 and the
Company entered into a rights agreement dated December 1, 2009 in connection therewith. The rights become
exercisable only upon the occurrence of certain events specified in the rights agreement, including the acquisition of
15% of the Company’s outstanding common stock by a person or group in certain circumstances. Each right allows
the holder, other than an “acquiring person,” to purchase one one-hundredth of a share (a unit) of Series A Preferred
Stock at an initial purchase price of $97.00 under circumstances described in the rights agreement. The purchase
price, the number of units of preferred stock and the type of securities issuable upon exercise of the rights are subject
to adjustment. The rights expire at the close of business December 1, 2019 unless earlier redeemed or exchanged.
Until a right is exercised, the holder thereof, as such, has no rights as a stockholder of the Company, including the
right to vote or to receive dividends.
8.
Income Taxes
The items comprising the income tax provision/(benefit) are as follows:
Current tax provision:
Federal
State
Foreign
Current tax provision
Deferred tax provision:
Federal
State
Increase in valuation allowance
Deferred tax provision/(benefit)
For the Years Ended December 31,
2012
2011
$ 1,000
800
371,100
372,900
2,310,100
14,700
-
2,324,800
$ -
800
189,100
189,900
(837,400)
6,700
158,600
(672,100)
Total income tax provision/(benefit)
$2,697,700
$(482,200)
Total income tax expense differs from the amount that would be provided by applying the statutory federal income
tax rate to pretax earnings as illustrated below:
For the Years Ended December 31,
2012
2011
Income tax provision/(benefit) at statutory federal income tax rate
State tax provision/(benefit), net of federal benefit
Increase in valuation allowance
Other
Total income tax provision/(benefit)
$2,681,500
33,200
-
(17,000)
$2,697,700
$(657,100)
(7,700)
158,600
24,000
$(482,200)
37
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
8.
Income Taxes (continued)
Temporary differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities
as of December 31, 2012 and 2011 were as follows:
Deferred tax assets:
Net operating loss carryovers
Foreign tax credit carryover
Maintenance
Prior year minimum tax credit
Bad debt allowance and other
Deferred tax assets
Deferred tax liabilities:
Accumulated depreciation on aircraft and aircraft engines
Minimum lease payments receivable
Deferred income
Net deferred tax liabilities before valuation allowance
Valuation allowance
Net deferred tax liabilities
December 31,
2012
2011
$ 932,000
1,830,000
-
100,800
936,500
3,799,300
(17,471,100)
(533,200)
(55,600)
(14,260,600)
(158,600)
$(14,419,200)
$ 2,520,200
1,459,000
305,700
100,800
921,300
5,307,000
(16,403,900)
(437,300)
(401,600)
(11,935,800)
(158,600)
$(12,094,400)
The net operating loss carryovers will be available to offset federal taxable income in the two preceding years and in
future years through 2031. The Company expects to utilize the net operating loss carryovers remaining at December
31, 2012 in future years. The foreign tax credit carryover will be available to offset federal tax expense in the first
preceding tax year and in future years. The foreign tax credit carryover expires beginning in 2013 and extends
through 2022. The minimum tax credit will be available to offset federal tax expense in excess of the alternative
minimum tax in future years and does not expire.
A significant portion of the deferred tax assets recognized relates to net operating loss and foreign tax credit
carryovers. A valuation allowance was deemed necessary at December 31, 2012 and 2011, as the Company has
concluded that, based on an assessment of all available evidence, it is more likely than not that future taxable income
will not be sufficient to realize the tax benefits associated with certain foreign tax credit carryovers. Where a
valuation allowance was not recorded, the Company believes that it is more likely than not that future taxable
income will be sufficient to realize the tax benefits for the balance of deferred tax assets on the balance sheets at
December 31, 2012 and December 31, 2011.
At December 31, 2012 and December 31, 2011, the Company had no material unrecognized tax positions.
The Company accounts for interest related to uncertain tax positions as interest expense, and for income tax
penalties as tax expense.
All of the Company's tax years remain open to examination other than as barred in the various jurisdictions by
statutes of limitation.
38
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
9.
Computation of Earnings/(Loss) Per Share
Basic and diluted earnings/(loss) per share are calculated as follows:
Net income/(loss)
Weighted average shares outstanding for the period
Dilutive effect of warrants
Weighted average diluted shares used in calculation
of diluted earnings/(loss) per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
For the Years Ended December 31,
2012
2011
$ 5,189,000
$(1,450,400)
1,543,257
19,797
1,543,257
-
1,563,054
1,543,257
$ 3.36
$ 3.32
$ (0.94)
$ (0.94)
Basic earnings/(loss) per common share is computed using net income/(loss) and the weighted average number of
common shares outstanding during the period. Diluted earnings per common share are computed using net income
and the weighted average number of common shares outstanding, assuming dilution. Weighted average common
shares outstanding, assuming dilution, includes potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares include the assumed exercise of warrants using the treasury stock method. For
the year ended December 31, 2011, the potential dilutive effect of outstanding warrants was 22,921 shares.
However, the effect of these potentially outstanding shares was not included in the calculation of diluted loss per
share for that period because the effect would have been anti-dilutive.
10.
Related Party Transactions
The Company’s portfolio of leased aircraft assets is managed and administered under the terms of a management
agreement with JetFleet Management Corp. (“JMC”), which is an integrated aircraft management, marketing and
financing business and a subsidiary of JetFleet Holding Corp. ("JHC"). Certain officers of the Company are also
officers of JHC and JMC and hold significant ownership positions in both JHC and the Company. Under the
Management Agreement, JMC receives a monthly management fee based on the net asset value of the assets under
management. JMC also receives an acquisition fee for locating assets for the Company, provided that the aggregate
purchase price, including chargeable acquisition costs and any acquisition fee, does not exceed the fair market value
of the asset based on appraisal, and may receive a remarketing fee in connection with the sale or re-lease of the
Company’s assets. The Company recorded management fees of $4,166,200 and $3,715,400 during the years ended
December 31, 2012 and 2011, respectively. The Company paid acquisition fees totaling $1,066,000 and $184,000
during the years ended December 31, 2012 and 2011, which were included in the cost basis of the asset purchased.
The Company paid remarketing fees of $259,000 and $363,500 to JMC during the years ended December 31, 2012
and 2011, respectively. Such fees are amortized over the applicable lease term or included in the gain on sale
recognized upon sale of the applicable asset.
In August 2009, the Company entered into an agreement (the "Assignment Agreement") with Lee G. Beaumont in
which Mr. Beaumont assigned to the Company his rights to purchase certain aircraft engines from an unrelated third
party seller. In January 2012, Mr. Beaumont became a “related person” with respect to the Company due to his
acquisition on the open market of shares representing over 5% of the Company’s common stock. Mr. Beaumont
received the second and the third final installments of $66,700 due under the Assignment Agreement from the
Company in the years ended December 31, 2011 and 2012, in addition to certain fees paid by JMC to Mr. Beaumont
in connection with placement of the engines with new or renewing lessees.
39
AeroCentury Corp.
Notes to Financial Statements
December 31, 2012
10.
Related Party Transactions (continued)
In connection with its Subordinated Notes financing entered into 2007 and 2008, the Company issued warrants to
purchase up to 81,224 shares of the Company’s common stock. The warrants became exercisable on December 30,
2011, and the shares issuable upon exercise of the warrants constitute over 5% of the common stock of the
Company. As a result, the Subordinated Notes purchasers became “related persons” with respect to the
Company. During the years ended December 31, 2012 and 2011, the Company made interest payments totaling $0
and $228,200, respectively, to the Subordinated Notes purchasers.
11.
Subsequent Events
In January 2013, the lessee of two of the Company’s Fokker 100 aircraft declared bankruptcy and is in the process
of returning the aircraft prior to the scheduled lease expirations in March 2013. The Company holds $660,000 of
security deposits and $6,528,500 received from the prior lessee when its two aircraft leases were assigned to the new
lessee upon sale of the original lessee's assets in 2012. Such payment will be recognized as maintenance reserves
revenue in the first quarter of 2013, upon termination of the leases.
In January 2013, the Company purchased two spare TAY650 engines, which will be held and used in connection
with maintenance on the Company’s Fokker 100 aircraft.
In January 2013, the Company received notice that a vendor contracted by one of the Company's former customers,
which filed for bankruptcy in April 2012, had filed suit against the Company to enforce a lien placed on the aircraft
by the vendor for unpaid maintenance work. The Company intends to contest the basis for the Company's liability
for the amount claimed, as well as the validity of the amount of the lien. The Company believes that if the litigation
is not resolved in the Company’s favor, it will not have a material adverse effect on the Company’s financial
condition or results of operations.
During February 2013, the Company and the lessee for one of the Company's aircraft reached a settlement in
connection with litigation initiated by the lessee in 2012 regarding the return of the aircraft. Pursuant to the
settlement, the Company and the lessee have agreed to a sale of the aircraft to the lessee. The Company has
received a non-refundable deposit and expects the sale to occur in the second quarter of 2013.
In March 2013, the Company’s Credit Facility was increased to $130 million and extended to September 30, 2015,
on terms similar to the original agreement.
In March 2013, the Company received proceeds for the sale of one of its Fokker 50 aircraft, which is expected to
close by month-end.
40
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
CEO and CFO Certifications. Attached as exhibits to this Annual Report on Form 10-K (the “Report”) are
certifications of the Company’s Chief Executive Officer (the “CEO”) and the Company’s Chief Financial Officer
(the “CFO”), which are required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302
Certifications”). This section of the Report includes information concerning the evaluation of disclosure controls and
procedures referred to in the Section 302 Certifications and this should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.
Evaluation of the Company’s Disclosure Controls and Procedures. Disclosure controls and procedures
(“Disclosure Controls”) are controls and other procedures that are designed to ensure that information required to be
disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as
this Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission (“SEC”) and that such information is accumulated and communicated
to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding
required disclosure.
The Company’s management, with the participation of the CEO and CFO, evaluated the effectiveness of the design
and operation of the Company’s Disclosure Controls and concluded that the Company’s Disclosure Controls were
effective as of December 31, 2012.
Management’s Annual Report on the Company’s Internal Control Over Financial Reporting. Internal control
over financial reporting (“Internal Control”) is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes policies and procedures that (1) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
are being made only in accordance with authorizations of management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements. The Company’s management is responsible for
establishing and maintaining adequate Internal Control. Management evaluated the Company’s Internal Control
based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control – Integrated Framework and concluded that the Company’s Internal Control was effective as of
December 31, 2012. This report does not include an attestation report on Internal Control by the Company’s
independent registered public accounting firm since the Company is a smaller reporting company under the rules of
the SEC.
Changes in Internal Control Over Financial Reporting. No change in Internal Control occurred during the fiscal
quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the
Company’s Internal Control.
Item 9B.
Other Information.
None.
41
Item 10.
Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item is included under (i) “Proposal 1: Election of Directors” as it relates to
members of the Company’s Board of Directors, including the Company’s Audit Committee and the Company’s
Audit Committee financial experts, any changes to procedures by which security holders may recommend nominees
to the Company’s Board of Directors, (ii) “Information Regarding the Company’s Directors and Officers” as it
relates to the Company’s executive officers, and (iii) “Section 16(a) Beneficial Ownership Reporting Compliance”
as it relates to information concerning Section 16(a) beneficial ownership reporting compliance, in the Company’s
definitive proxy statement (“Proxy Statement”), to be filed in connection with the Company’s 2013 Annual Meeting
of Stockholders, and is incorporated herein by reference.
The Company has adopted a code of business conduct and ethics, or code of conduct. The code of conduct qualifies
as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder. A copy of the code of conduct is available on the Company’s website at
http://www.aerocentury.com or upon written request to the Investor Relations Department, 1440 Chapin Avenue,
Suite 310, Burlingame, California 94010. To the extent required by law, any amendments to, or waivers from, any
provision of the code will be promptly disclosed publicly. To the extent permitted by such requirements, the
Company intends to make such public disclosure on its website in accordance with SEC rules.
Item 11.
Executive Compensation.
Incorporated by reference to the section of the Proxy Statement entitled “Information Regarding the Company’s
Directors and Officers — Employee Compensation.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Incorporated by reference to the section of the Proxy Statement entitled “Security Ownership of Certain Beneficial
Owners and Management.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Incorporated by reference to the section of the Proxy Statement entitled “Related Party Transactions.”
Item 14.
Principal Accountant Fees and Services.
Incorporated by reference to the section of the Proxy Statement entitled “Information Regarding Auditors – Audit
Fees.”
Item 15.
Exhibits.
(b)
Exhibits
PART IV
3.1
3.2
Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.08 to the registration
statement on Form S-4/A filed with the Securities and Exchange Commission on July 24, 1997 SEC File
No. 333-24743, Film No. 97644740.
Form of Certificate of Amendment of Certificate of Incorporation of the Company, incorporated by
reference to Exhibit 3.07 to the registration statement on Form S-4/A filed with the Securities and
Exchange Commission on June 10, 1997 SEC File No. 333-24743, Film No. 97622056.
42
3.3
3.4
3.5
3.6
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Amended and Restated Bylaws of the Company dated January 22, 1999, incorporated by reference to
Exhibit 3.1 to the Report on Form 10-KSB for the fiscal year ended December 31, 1998 filed with the
Securities and Exchange Commission on March 22, 1999, SEC File No. 001-13387 Film No. 98581428
Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated May 6, 2008,
incorporated by reference to Exhibit 99.1 to the Report on Form 8-K filed with the Securities and
Exchange Commission on May 7, 2008
Amendment to Bylaws, dated January 30, 2009, incorporated by reference to Exhibit 3.1 to the Report on
Form 8-K filed with the Securities and Exchange Commission on February 3, 2009
Amended and Restated Certificate of Designation of the Company dated December 1, 2009, incorporated
by reference to Exhibit 3.1 to the Report on Form 8-K filed with the Securities Exchange Commission on
December 7, 2009
Reference is made to Exhibit 3.6
Rights Agreement by and between the Company and Continental Stock Transfer & Trust Company dated
December 1, 2009, incorporated by reference to Exhibit 4.1 to the Report on Form 8-K filed with the
Securities Exchange Commission on December 7, 2009
Form of Indemnification Agreement between the Company and each of its directors and officers,
incorporated by reference to Exhibit 10.03 to the Report on Form 10-KSB for the fiscal year ended
December 31, 1997 filed with the Securities and Exchange Commission on March 31, 1998, SEC File No.
001-13387 Film No. 98581428
Amended and Restated Management Agreement, dated April 23, 1998, between the Company and JetFleet
Management Corp., incorporated by reference to Exhibit 10.5 to the Report on Form 10-KSB for the fiscal
year ended December 31, 1999 filed with the Securities and Exchange Commission on March 10, 2000
SEC File No. 001-13387 Film No. 566570
Aircraft Sale and Purchase Agreement with Denim Air Lease & Finance B.V. incorporated by reference to
Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on December
28, 2005, SEC File No. 001-13387 Film No. 051288291
Aircraft Sale and Purchase Agreement with VLM Airlines, N.V. incorporated by reference to Exhibit 10.2
to the Report on Form 8-K filed with the Securities and Exchange Commission on December 28, 2005,
SEC File No. 001-13387 Film No. 051288291
and Satellite Fund V, LLC
Securities Purchase Agreement between Satellite Fund II, LP, Satellite Fund IV, LP, The Apogee Group
LLC,
the
(collectively
Company, incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities
and Exchange Commission on April 18, 2007
"Subordinated Lenders")
and
the
Form of Warrant issued to the Subordinated Lenders incorporated by reference to Exhibit 10.2 to the
Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2007
Investors Rights Agreement between the Company and the Subordinated Lenders incorporated by
reference to Exhibit 10.3 to the Report on Form 8-K filed with the Securities and Exchange Commission
on April 18, 2007
to Securities Purchase Agreement between
Amendment
the
Company, incorporated by reference to Exhibit 99 to the Report on Form 8-K filed with the Securities and
Exchange Commission on June 19, 2008
the Subordinated Lenders and
43
10.9
10.10
10.11
Second Amendment to Securities Purchase Agreement between the Subordinated Lenders and the
Company, incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities
and Exchange Commission on July 23, 2008
Form of Amended and Restated Warrant issued to the Subordinated Lenders incorporated by reference to
Exhibit 10.4 to the Report on Form 8-K filed with the Securities and Exchange Commission on July 23,
2008
Loan and Security Agreement, between the Company, Union Bank, N.A. as agent, and the participating
lenders thereunder, dated April 28, 2010, incorporated by reference to Exhibit 10.13 to the Report on
Form 10-Q/A for the period ending June 30, 2010, filed with the Securities and Exchange Commission on
February 14, 2011
10.12
Subordination and Intercreditor Agreement, between the Company, Union Bank, N.A. as agent, and the
Subordinated Creditors thereunder, dated April 28, 2010, incorporated by reference to Exhibit 10.14 to the
Report on Form 10-Q/A for the period ending June 30, 2010, filed with the Securities and Exchange
Commission on February 14, 2011
10.13 Management Fee Subordination Agreement, between the Company, JetFleet Management Corp. and
Union Bank, N.A. as agent, dated April 28, 2010, incorporated by reference to Exhibit 10.15 to the Report
on Form 10-Q/A for the period ending June 30, 2010, filed with the Securities and Exchange Commission
on February 14, 2011
10. 14 Form of Revolving Note dated June 4, 2010, delivered to Umpqua Bank, issued under the Loan and
Security Agreement between the Company and Union Bank, as Agent, dated April 28, 2010, incorporated
by reference to Exhibit 10.15 to the Report on Form 10-Q/A for the period ending June 30, 2010, filed
with the Securities and Exchange Commission on February 14, 2011
10.15
Loan Modification Agreement, between the Company, Union Bank, N.A., California Bank & Trust,
Umpqua Bank and U.S. Bank National Association, dated May 13, 2011, incorporated by reference to
Exhibit 10.17 to the Report on Form 10-Q for the quarter ended June 30, 2011, filed with the Securities
and Exchange Commission on August 21, 2011
10.16 Second Loan Modification Agreement, between the Company, Union Bank, N.A., California Bank &
Trust, Umpqua Bank and U.S. Bank National Association, dated March 8, 2012, incorporated by reference
to Exhibit 10.18 to the Report on Form 10-K for the year ended December 31, 2011, filed with the
Securities and Exchange Commission on March 9, 2012
10.17 Amended and Restated Loan and Security Agreement between Union Bank, N.A., and the participating
lenders thereunder, dated March 13, 2013, incorporated by reference to Exhibit 99.1 to the Report on
Form 8-K filed with the Securities and Exchange Commission on March 14, 2013
31.1
31.2
32.1
32.2
Certification of Neal D. Crispin, Chief Executive Officer of AeroCentury Corp., dated March 14, 2013,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Toni M. Perazzo, Chief Financial Officer of AeroCentury Corp., dated March 14, 2013,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Neal D. Crispin, Chief Executive Officer of AeroCentury Corp., dated March 14, 2013,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Toni M. Perazzo, Chief Financial Officer of AeroCentury Corp., dated March 14, 2013,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
44
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
101.DEF XBRL Definition Linkbase Document
45
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
AEROCENTURY CORP.
By
/s/ Toni M. Perazzo
-------------------------------
Toni M. Perazzo
Senior Vice President-Finance and
Chief Financial Officer
Date March 14, 2013
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Neal D. Crispin and Toni M. Perazzo, and each of them, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file
the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated.
Signature
Title
Dated
/s/ Neal D. Crispin
----------------------
Neal D. Crispin
/s/ Toni M. Perazzo
----------------------
Toni M. Perazzo
/s/ Roy E. Hahn
----------------------
Roy E. Hahn
/s/ Thomas W. Orr
----------------------
Thomas W. Orr
/s/ Evan M. Wallach
----------------------
Evan M. Wallach
Director, President and Chairman of the Board of
Directors of the Registrant (Principal Executive Officer)
March 14, 2013
Director, Senior Vice President-Finance and Secretary of the
Registrant (Principal Financial and Accounting Officer)
March 14, 2013
Director
Director
Director
March 14, 2013
March 14, 2013
March 14, 2013
46
CORPORATE INFORMATION
Officers and Directors
Neal D. Crispin
President and Chairman of the Board
Transfer Agent and Registrar
Continental Stock Transfer and Trust Company
17 Battery Place, 8th Floor
New York, NY 10004
Toni M. Perazzo
Director, Chief Financial Officer, Secretary, and
Senior Vice President - Finance
Legal Counsel
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304
Christopher B. Tigno
General Counsel
Roy E. Hahn
Director and
Managing Director of Marbridge Group, LLC
Thomas W. Orr
Director, Audit Committee Chair and
Accounting Consultant
Evan M. Wallach
Director and
President and Chief Executive Officer of
Global Airfinance Corporation
Registered Independent Public Accountants
BDO USA, LLP
One Market - Spear Tower, Suite 1100
San Francisco, CA 94105
Corporate Headquarters
AeroCentury Corp.
1440 Chapin Ave., Suite 310
Burlingame, CA 94010
Annual Meeting
The Annual Meeting of Stockholders will be held at:
The Hiller Aviation Museum
601 Skyway Road
San Carlos, CA, on May 9, 2013 at 12:00 P.M.
Form 10-K
The Company’s Annual Report on Form 10-K
for 2012 may be obtained by writing:
AeroCentury Corp.
1440 Chapin Ave., Suite 310
Burlingame, CA 94010
Stock Price and Shareholder Data
The Company’s common stock is traded on
the NYSE MKT exchange under
the symbol ACY.
Annual Report Cover 3-10 3/3/10 11:55 AM Page 1
Worldwide • Regional Aircraft • Leasing
AeroCentury Corp.
1440 Chapin Ave., Suite 310
Burlingame, CA 94010
650-340-1888
Fax: 650-696-3929
www.aerocentury.com
2012 Annual Report