<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] 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 000-22249
INTERNATIONAL AIRCRAFT INVESTORS
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4176107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3655 TORRANCE BOULEVARD, SUITE 410 TORRANCE, CALIFORNIA 90503
(Address of principal executive offices) (Zip Code)
(310) 316-3080
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 1, 2000
---------------------------- --------------------------
COMMON STOCK, $.01 PAR VALUE 4,064,484
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<PAGE> 2
INTERNATIONAL AIRCRAFT INVESTORS
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999............................ 3
Condensed Consolidated Statements of Income
Three months ended March 31, 2000 and 1999............................ 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999............................ 5
Notes to Condensed Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations............................................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................... 11
Signatures............................................................ 12
</TABLE>
The Company is filing this Amendment to its Quarterly Report on Form 10-Q for
the three months ended March 31, 2000 filed with the Securities and Exchange
Commission on May 4, 2000 in order to revise the financial statements and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations sections in that Report. These restated condensed consolidated
financial statements reflect compensation expense recorded in the three months
ended June 30, 2000 which properly belonged in the three months ended March 31,
2000. This change resulted in a reduction of previously reported net income in
the first quarter of 2000. Pursuant to Rule 12b-5 under the Securities Exchange
Act of 1934, the Company is including the complete text of the Quarterly Report
as revised.
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<PAGE> 3
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
2000 DECEMBER 31,
(RESTATED) 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................... $ 14,149,967 $ 13,045,392
Flight equipment, at cost less accumulated depreciation of
$55,718,351 at March 31, 2000 and $51,128,351
at December 31, 1999 ...................................... 310,893,293 314,083,293
Cash, restricted ............................................. 12,616,376 13,908,097
Other assets ................................................. 1,418,137 1,460,218
------------- -------------
$ 339,077,773 $ 342,497,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued interest and other accrued expenses .................. $ 1,893,648 $ 1,727,635
Notes payable ................................................ 267,632,574 271,970,620
Lease and other deposits on flight equipment ................. 22,015,418 23,282,834
Deferred rent ................................................ 4,179,881 2,624,534
Deferred taxes, net .......................................... 4,861,995 4,594,927
------------- -------------
300,583,516 304,200,550
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value. Authorized 15,000,000
shares; none issued and outstanding ........................ -- --
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding
4,118,784 shares at March 31, 2000 and
4,173,784 shares at December 31, 1999 ...................... 41,188 41,738
Additional paid-in capital ................................... 30,677,826 31,009,749
Deferred compensation ........................................ (187,500) (250,000)
Retained earnings ............................................ 7,962,743 7,494,963
------------- -------------
Net shareholders' equity ........................... 38,494,257 38,296,450
------------- -------------
$ 339,077,773 $ 342,497,000
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 4
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000
(RESTATED) 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Rental of flight equipment ................... $10,600,898 $ 8,873,657
Interest income .............................. 452,586 370,968
----------- -----------
Total revenues ........................ 11,053,484 9,244,625
EXPENSES:
Interest ..................................... 4,902,610 3,807,714
Depreciation ................................. 4,590,000 3,360,000
Repossession expense ......................... 206,419 --
General and administrative ................... 543,507 481,795
Stock compensation ........................... 62,500 62,500
----------- -----------
Total expenses ......................... 10,305,036 7,712,009
----------- -----------
Income before income taxes ..................... 748,448 1,532,616
Income tax expense ............................. 280,668 582,389
----------- -----------
Net income ............................. $ 467,780 $ 950,227
=========== ===========
Basic earnings per share ....................... $ .11 $ .23
=========== ===========
Diluted earnings per share ..................... $ .11 $ .22
=========== ===========
Weighted average common shares outstanding:
Basic ..................................... 4,164,792 4,212,462
=========== ===========
Assuming dilution ......................... 4,293,965 4,326,277
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 5
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000
(RESTATED) 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................... $ 467,780 $ 950,227
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation of flight equipment ...................... 4,590,000 3,360,000
Amortization of deferred transaction fees ............. 99,610 106,418
Deferred taxes, net ................................... 267,068 582,389
Stock compensation .................................... 62,500 62,500
Increase (decrease) in assets:
Cash, restricted ...................................... 1,291,721 (636,919)
Other assets .......................................... (57,529) 21,887
(Increase) decrease in liabilities:
Accrued interest and other accrued liabilities ........ 166,013 370,387
Lease and other deposits on flight equipment .......... (1,267,416) (367,767)
Deferred rent ......................................... 155,347 (1,304,978)
------------ ------------
Net cash provided by operating activities ............. 5,775,094 3,144,144
Cash flows from financing activities:
Repayment of notes payable ............................ (2,259,190) (1,874,869)
Repayment of notes payable to ILFC .................... (2,078,856) (1,477,531)
Repurchase of common stock ............................ (332,473) (23,378)
------------ ------------
Net cash used in financing activities ................. (4,670,519) (3,375,778)
------------ ------------
Net increase (decrease) in cash and cash equivalents .. 1,104,575 (231,634)
Cash and cash equivalents at beginning of period ......... 13,045,392 15,923,982
------------ ------------
Cash and cash equivalents at end of period ............... $ 14,149,967 $ 15,692,348
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest ................................ $ 4,866,540 $ 3,462,327
Cash paid for income taxes ............................ $ 13,600 $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 6
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying unaudited interim condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K.
Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of normal and recurring accruals)
necessary for a fair presentation of the financial position of the Company as of
March 31, 2000 and the results of its operations for the three months ended
March 31, 2000 and 1999 and its cash flows for the three months ended March 31,
2000 and 1999. Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
2. RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
These restated condensed consolidated financial statements reflect compensation
expense of $106,000 recorded in the three months ended June 30, 2000 which
properly belonged in the three months ended March 31, 2000. This change resulted
in a reduction of previously reported net income of $66,250 or $.01 per share in
the first quarter of 2000.
3. MANAGEMENT ESTIMATES
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions. These affect the reported amounts of assets,
liabilities, revenues and expenses and the amount of any contingent assets or
liabilities disclosed in the condensed consolidated financial statements. Actual
results could differ from estimates made.
The Company leases flight equipment to various commercial airline fleets on
short-term to medium-term operating leases, generally three to five years. The
related flight equipment is generally financed by borrowings that become due at
or near the end of the lease term through a balloon payment. As a result, the
Company's operating results depend on management's ability to roll over debt
facilities, renegotiate favorable leases and realize estimated residual values.
4. REPOSSESSION OF AIRCRAFT
The Company terminated a lease with a Mexican airline. The airline recently had
an accident on one of its DC-9 aircraft and the Mexican government subsequently
grounded its entire fleet. As a result, the airline defaulted on its lease, and
the Company repossessed the aircraft. The lease was due to terminate June 2002.
The Company is aggressively marketing the aircraft to several airlines. Because
of the current softness in the leasing market, any new lease will likely be at a
lower rental rate.
Although no rent was received during the three months ended March 31, 2000, the
Company recognized $174,443 of ancillary rental revenues as a result of the
termination of the lease. In addition, the Company incurred repossession expense
of $206,419 related to legal, insurance and other costs associated with
repossessing the aircraft.
The Company has two notes payable to ILFC related to the aircraft of $14,635,117
bearing interest at 7.96% due July
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<PAGE> 7
INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2000 and $351,757 bearing interest at 6.0% due May 2000. The Company intends to
refinance the notes payable as they come due.
5. EARNINGS PER SHARE
The following table sets forth the computation of the weighted average number of
shares used to calculate basic and diluted earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Basic earnings per share-weighted average
shares outstanding ............................... 4,164,792 4,212,462
Effect of dilutive securities:
Employee stock options ............................. 129,173 113,815
--------- ---------
Diluted earnings per share-adjusted
weighted average shares and assumed conversions .. 4,293,965 4,326,277
========= =========
</TABLE>
The Company issued its underwriters warrants to purchase 260,000 shares of its
common stock at $12 per share in connection with its initial public offering.
These warrants were excluded from the computation of diluted net income per
common share because they were anti-dilutive. The warrants are exercisable
through November 10, 2001.
The Company issued options to purchase 75,000 shares of common stock at prices
ranging from $6.38 to $10.25 per share under its Eligible Directors Option Plan.
These options were excluded from the computation of diluted net income per
common share because they were anti-dilutive. The options are exercisable
through May 10, 2003 and June 3, 2004.
6. NOTES PAYABLE
The Company extended a note due January 2000 with a balance totaling $29,463,901
to July 2000, notes due March 2000 with balances totaling $2,017,000 to June
2000, a note due March 2000 with a balance totaling $15,370,978 to September
2000 and a note due February 2000 with a balance totaling $23,082,523 to August
2000.
At March 31, 2000, the Company's weighted average composite interest rate was
7.06%.
7. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Transactions" and SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133". SFAS No. 133 requires that all derivative financial instruments, such as
interest rate swap contracts and foreign exchange contracts, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or shareholders' equity
(as a component of comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. SFAS No. 137 defers the
implementation date of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company has not completed the process of determining the effect of
SFAS No. 133 and SFAS No. 137 on its financial statements.
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<PAGE> 8
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
OVERVIEW
We are primarily engaged in the acquisition of used, single-aisle jet aircraft
for lease and sale to domestic and foreign airlines and other customers. We
lease aircraft under short-term to medium-term operating leases where the lessee
is responsible for all operating costs, including major overhauls and we retain
the potential benefit or risk of the residual value of the aircraft, as distinct
from finance leases where the full cost of the aircraft is generally recovered
over the term of the lease.
Rental amounts are accrued evenly over the lease term and are recognized as
revenue from the rental of flight equipment. Our flight equipment is recorded on
the balance sheet at cost and is depreciated on a straight-line basis over the
estimated useful life to our estimated salvage value. Revenue, depreciation
expense and resultant profit for operating leases are recorded evenly over the
life of the lease. Initial direct costs related to the origination of leases are
capitalized and amortized over the lease terms.
This Report on Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are intended to be covered by
the safe harbors created thereby. Reference is made to the cautionary statements
made in our Report on Form 10-K for the year ended December 31, 1999 ("Form
10-K") which should be read as being applicable to all related forward-looking
statements wherever they appear in this Report on Form 10-Q. Our actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in the Form 10-K.
RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
These restated condensed consolidated financial statements reflect compensation
expense of $106 recorded in the three months ended June 30, 2000 which properly
belonged in the three months ended March 31, 2000. This change resulted in a
reduction of previously reported net income of $66 or $.01 per share in the
first quarter of 2000.
REPOSSESSION
We terminated a lease with a Mexican airline. The airline recently had an
accident on one of its DC-9 aircraft and the Mexican government subsequently
grounded its entire fleet. As a result, the airline defaulted on its lease, and
we repossessed the aircraft. The lease was due to terminate June 2002. We are
aggressively marketing the aircraft to several airlines. Because of the current
softness in the leasing market, any new lease will likely be at a lower rental
rate.
Although no rent was received during the three months ended March 31, 2000, we
recognized $174 of ancillary rental revenues as a result of the termination of
the lease. In addition, we incurred repossession expense of $206 related to
legal, insurance and other costs associated with repossessing the aircraft.
We have two notes payable to ILFC related to the aircraft of $14,635 bearing
interest at 7.96% due July 2000 and $352 bearing interest at 6.0% due May 2000.
We intend to refinance the notes payable as they come due.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
Revenues from rental of flight equipment increased by 19%, or $1,727, to $10,601
in the three months ended March 31, 2000 compared to the same period in 1999 as
a result of the acquisition of three aircraft on lease, partially offset by the
impact of no rent on an aircraft that was being repossessed from Mexico as
discussed above. Our lease portfolio
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<PAGE> 9
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
consisted of sixteen aircraft with a book value of $310,893 at March 31, 2000
and thirteen aircraft on lease with a book value of $233,549 at March 31, 1999.
Interest income increased to $453 for the three months ended March 31, 2000 from
$371 for the same period in 1999 principally as a result of an increase in
average interest rates from 1999 to 2000.
Expenses as a percent of total revenues were 93% and 83% during the three months
ended March 31, 2000 and 1999, respectively. The increase in the percentage is
due to the effect of the 20% increase in total revenue while expenses increased
32%. Interest expense increased to $4,903 for the three months ended March 31,
2000 from $3,808 for the same period in 1999 principally as a result of interest
on financing related to the acquisition of three additional aircraft, offset by
the effect of loan paydowns. Our composite interest rate was 7.06% and 7.1% at
March 31, 2000 and 1999, respectively. Depreciation expense increased to $4,590
in the first quarter of 2000 from $3,360 in the first quarter of 1999 primarily
as a result of the acquisition of three additional aircraft. We incurred $206 of
repossession of expense as discussed above. General and administrative expenses
increased to $544 in the three months ended March 31, 2000 from $482 in the same
period of 1999 primarily as a result of compensation expense. During the three
months ended March 31, 2000 and 1999, we incurred $63 of non-cash stock
compensation related to the vesting of options granted to executive officers.
Income tax expense decreased to $320 from $582 as a result of reduction in
income before taxes of $678. Income tax expense represents a non-cash provision
for deferred income taxes at an effective rate of 37.5%. We continue to generate
substantial federal net operating loss carryforwards primarily resulting from
accelerated tax depreciation. At December 31, 1999, we had $21.6 million of
federal net operating tax loss carryforwards.
Net income decreased to $534 for the three months ended March 31, 2000 from $950
for the same period in 1999 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Our principal external sources of funds have been term loans from banks and
seller financing secured by flight equipment and the net proceeds from our
initial public offering. A substantial amount of our cash flow from rental of
flight equipment is applied to principal and interest payments on secured debt.
The terms of our loans generally require a substantial balloon payment at the
end of the noncancellable portion of the lease of the related flight equipment,
at which time we will be required to re-lease the flight equipment and
renegotiate the balloon amount of the loan or obtain other financing.
Refinancing of the balloon amount is dependent upon our re-leasing the related
flight equipment. Accordingly, we begin lease remarketing efforts well in
advance of the lease termination. The principal use of cash is for financing the
acquisition of our flight equipment portfolio, which is financed by loans
secured by the applicable flight equipment. We maintain a $5,000 line of credit
with a bank. The line of credit bears interest at LIBOR plus 2.5% and expires
June 30, 2001. No borrowings have been made against the line of credit.
For the three months ended March 31, 2000, net cash provided from operating
activities increased by $2,631 principally as a result of an increase in a
non-cash expense for depreciation of $1,230 and a decrease in the change in
restricted cash of $1,929 and an increase in the change in deferred rent of
$1,612, partially offset by a decrease in net income of $416 and a decrease in
the change in lease and other deposits of $900.
Net cash used in financing activities increased to $4,671 in the three months
ended March 31, 2000 from $3,376 in the same period of 1999. In both periods net
cash used was principally due to loan paydowns as well as repurchasing the
Company's common stock.
Cash and cash equivalents vary from period to period principally as a result of
the timing of the purchase and sale of aircraft.
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<PAGE> 10
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
We use interest swap arrangements to reduce the potential impact of increases in
interest rates on floating rate long-term debt and do not use them for trading
purposes. Premiums paid for purchased interest rate swap agreements are
amortized to interest expense over the terms of the swap agreements.
Our ability to successfully execute our business strategy and to sustain our
operations is dependent, in part, on our ability to obtain financing and to
raise equity capital. There can be no assurance that the necessary amount of
such capital will continue to be available to us on favorable terms or at all.
If we were unable to continue to obtain any portion of required financing on
favorable terms, our ability to add new aircraft to our lease portfolio, extend
leases, re-lease an aircraft, repair or recondition an aircraft if required, or
retain ownership of an aircraft on which financing has expired would be
impaired, which would have a material adverse effect on our business, financial
condition and results of operations. In addition, our financing arrangements to
date have been dependent in part upon International Lease Finance Corporation.
IMPACT OF YEAR 2000
The Year 2000 issue results from computer programs written using two digits to
identify the year in the date field. These computer programs were designed and
developed without consideration of the impact of the change in the century. If
not corrected, these programs could create erroneous information.
The effects of the Year 2000 issue did not materially affect our financial
results or financial condition. We have incurred no additional costs associated
with the Year 2000 issue and estimate that no additional costs will be incurred.
Failure by our lessees, manufacturers of our aircraft and business partners to
properly comply with Year 2000 issues could result in lost revenues and
increased expenses. We have not experienced, nor do we expect to experience a
material effect on our financial results or our financial position.
We will continue assessing our internal and external risk as we acquire
additional information systems and enter into business relationships with
additional lessees, manufacturers of aircraft and other business partners.
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<PAGE> 11
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Articles of Incorporation of the Company.
Filed as Exhibit 3.1 to Form 10-Q for the quarterly period ended
September 30, 1997, and incorporated herein by reference
3.2 Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2
to Form 10-Q for the quarterly period ended September 30, 1997,
and incorporated herein by reference
4.1 The Company hereby agrees to furnish to the Commission upon
request a copy of any instrument with respect to long-term debt
where the total amount of securities authorized thereunder does
not exceed 10% of the consolidated assets of the Company
27 Financial Data Schedule for the three months ended March 31,
2000
REPORTS ON FORM 8-K:
During the quarter ended March 31, 2000, the Company did not file any reports on
Form 8-K.
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<PAGE> 12
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL AIRCRAFT INVESTORS
August 7, 2000 /s/ Michael P. Grella
-------------------------------------
Michael P. Grella
President
And Chief Operating Officer
August 7, 2000 /s/ Alan G. Stanford, Jr.
-------------------------------------
Alan G. Stanford, Jr.
Vice President--Controller
And Chief Accounting Officer
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