<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended............June 30, 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 ....... 0-11350
INTERNATIONAL LEASE FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 22-3059110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1999 AVENUE OF THE STARS
LOS ANGELES, CALIFORNIA 90067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(310) 788-1999
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 [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 July 31, 2000
----- ----------------------------
COMMON STOCK, NO PAR VALUE 35,818,122
<PAGE> 2
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information: Page No.
--------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999...................................3
Condensed Consolidated Statements of Income
Three Months Ended June 30, 2000 and 1999.............................4
Condensed Consolidated Statements of Income
Six Months Ended June 30, 2000 and 1999...............................5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999...............................6
Note to Condensed Consolidated Financial Statements............................8
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations...............................9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ...............................................................13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...........................................14
Signatures....................................................................15
Index to Exhibits.............................................................16
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash, including interest bearing accounts
of $58,430(2000) and $112,372(1999) $ 59,567 $ 123,109
Current income taxes receivable 36,972 --
Notes receivable and net investment in
finance and sales-type leases 309,625 326,991
Flight equipment under operating leases 20,395,430 18,246,253
Less accumulated depreciation 2,469,686 2,150,200
----------- -----------
17,925,744 16,096,053
Deposits on flight equipment purchases 768,689 848,730
Accrued interest, other receivables
and other assets 93,323 77,825
Investments 18,495 6,067
Deferred debt issue costs-less
accumulated amortization of $75,807
(2000) and $70,375(1999) 25,507 28,349
----------- -----------
$19,237,922 $17,507,124
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued interest and other payables $ 283,060 $ 280,933
Current income taxes payable -- 14,370
Debt financing, net of deferred debt
discount of $37,308(2000) and $28,001
(1999) 12,721,112 11,192,220
Capital lease obligations 626,340 669,576
Security & other deposits on flight
equipment 808,066 801,313
Rentals received in advance 123,508 110,435
Deferred income taxes payable 1,383,145 1,228,085
SHAREHOLDERS' EQUITY
Preferred stock--no par value; 20,000,000
authorized shares Market Auction Preferred Stock,
$100,000 per share liquidation value; Series A,B,C,D,E F,G
and H (2000 and 1999) each having 500 shares issued
and outstanding 400,000 400,000
Common stock--no par value; 100,000,000
authorized shares, 35,818,122 (2000
and 1999) issued and outstanding 3,582 3,582
Additional paid-in capital 579,955 579,955
Retained earnings 2,309,154 2,226,655
----------- -----------
3,292,691 3,210,192
----------- -----------
$19,237,922 $17,507,124
=========== ===========
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE> 4
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
REVENUES:
Rental of flight equipment $581,047 $534,912
Flight equipment marketing 14,412 16,742
Interest and other 14,398 26,963
-------- --------
609,857 578,617
-------- --------
EXPENSES:
Interest 185,150 177,781
Depreciation of flight equipment 177,180 163,398
Flight equipment rent 35,006 31,543
Provision for overhaul 26,957 23,812
Selling, general & administrative 10,836 11,363
-------- --------
435,129 407,897
-------- --------
INCOME BEFORE INCOME TAXES 174,728 170,720
Provision for income taxes 61,788 60,293
-------- --------
NET INCOME $112,940 $110,427
======== ========
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE> 5
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
REVENUES:
Rental of flight equipment $1,112,837 $1,023,673
Flight equipment marketing 21,576 27,223
Interest and other 25,147 35,908
---------- ----------
1,159,560 1,086,804
---------- ----------
EXPENSES:
Interest 359,323 335,471
Depreciation of flight equipment 341,089 313,679
Flight equipment rent 69,333 63,310
Provision for overhaul 47,743 44,227
Selling, general & administrative 23,794 24,220
---------- ----------
841,282 780,907
---------- ----------
INCOME BEFORE INCOME TAXES 318,278 305,897
Provision for income taxes 112,256 108,822
---------- ----------
NET INCOME $ 206,022 $ 197,075
========== ==========
</TABLE>
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-5-
<PAGE> 6
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 206,022 $ 197,075
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation of flight equipment 341,089 313,679
Amortization of deferred debt issue costs 5,432 5,706
Gain on sale of flight equipment included
in amount financed -- (9,580)
Equity in net (income) loss of affiliates (873) 716
Change in unamortized debt discount (9,308) (8,323)
Changes in operating assets and liabilities:
Increase in notes receivable and sales-type
leases (21,027) --
Increase in accrued interest, other
receivables and other assets (19,205) (24,085)
Increase in current income taxes receivable (51,342) (18,893)
Increase in deferred income taxes payable 155,060 122,403
Increase (Decrease) in accrued interest and
other payables 2,127 (14,951)
Increase in rentals received in advance 13,073 4,878
----------- -----------
Net cash provided by operating activities 621,048 568,625
----------- -----------
INVESTING ACTIVITIES:
Acquisition of flight equipment for
operating leases (2,188,056) (2,473,359)
Decrease in deposits and progress payments 80,041 146,121
Proceeds from disposal of flight equipment-net
of gain 58,705 186,832
Increase in notes receivable and sale-type leases (20,703) (34,454)
Collections on notes receivable and sales-type
leases 21,374 191,028
Increase in investment in unconsolidated
subsidiaries (11,555) --
Dividends from unconsolidated subsidiary -- 5,000
----------- -----------
Net cash used in investing activities (2,060,194) (1,978,832)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from debt financing 4,993,826 4,759,250
Payments in reduction of debt financing (3,498,862) (3,264,805)
Debt issue costs (2,590) (8,187)
Increase (Decrease) in customer deposits 6,753 (12,095)
Payment of common and preferred dividends (123,523) (60,826)
----------- -----------
Net cash provided by financing activities 1,375,604 1,413,337
----------- -----------
(Decrease) Increase in cash (63,542) 3,130
Cash at beginning of period 123,109 52,723
----------- -----------
Cash at end of period $ 59,567 $ 55,853
=========== ===========
</TABLE>
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<PAGE> 7
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Cash paid during the period for:
Interest (net of amount capitalized
$22,976(2000) and $23,159(1999)) $348,469 $317,379
Income taxes 8,539 5,313
</TABLE>
2000:
Two aircraft were received in exchange for notes receivable and other
assets in the amount of $41,429.
1999:
Notes in the amount of $34,400 were received as partial payment in
exchange for flight equipment sold with a book value of $24,820.
SEE NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-7-
<PAGE> 8
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
A. 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 and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
reclassifications have been made to the 1999 unaudited condensed
consolidated financial statements to conform to the 2000 presentation.
Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2000. These statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended December 31,
1999.
-8-
<PAGE> 9
ITEM 2 INTERNATIONAL LEASE FINANCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain of the statements in this discussion, as well as other
forward-looking statements within this document, contain estimates and
projections of cash flows and debt financing to support future capital
requirements. While these forward-looking statements are made in good faith,
future operating, market competitive, economic and other conditions and events
could cause actual results to differ materially from those in the
forward-looking statements.
FINANCIAL CONDITION
The Company borrows funds for the purchase of flight equipment, including
funds for progress payments during the construction phase from various sources,
principally on an unsecured basis. The Company's debt financing and capital
lease obligations was comprised of the following at the following dates:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Public term debt with single
maturities $ 3,271,330 $ 3,721,330
Public medium-term notes with
varying maturities 2,924,000 3,225,500
Capital lease obligations 626,340 669,576
Bank and other term debt 2,247,715 1,295,038
------------ ------------
Total term debt and capital lease
obligations 9,069,385 8,911,444
Commercial paper 4,315,375 2,978,353
Less: Deferred debt discount (37,308) (28,001)
------------ ------------
Total debt financing and capital lease
obligations $ 13,347,452 $ 11,861,796
============ ============
Composite interest rate 6.33% 6.14%
Percentage of total debt at fixed rates 60.00% 69.28%
Composite interest rate on fixed rate 6.13% 6.06%
debt
Bank prime rate 9.50% 8.50%
</TABLE>
The interest on substantially all of the public debt (exclusive of the
Commercial Paper) is fixed for the terms of the notes. The Company has committed
revolving loans and lines of credit with 53 banks aggregating $2.9 billion and
an uncommitted line of credit with one bank for $30.0 million. These revolving
loans and lines of credit principally provide for interest rates that vary
according to the pricing option in effect at the time of borrowing. Pricing
options include prime, a range from .22% over LIBOR to .32% over LIBOR based
upon utilization, or a rate determined by a competitive bid process with the
banks. The revolving loans and lines of credit are subject to facility fees of
up to .08% of amounts available. Such financing is used primarily as backup for
the Company's Commercial Paper Program.
-9-
<PAGE> 10
The Company has an effective shelf registration with respect to $2.0
billion of debt securities, under which $525.0 million of notes were sold
through June 30, 2000. Additionally, a $750.0 million Medium-Term Note Program
has been designated under the shelf registration, under which $380.0 million of
notes have been sold through June 30, 2000.
The Company has a Euro denominated Medium-Term Note Program for $2.0
billion, under which $771.0 million in notes were outstanding as of June 30,
2000. The Company has hedged the foreign currency risk of the notes through
operating lease payments or through swaps. The Company has an Export Credit
Facility, for up to a maximum of $4.3 billion, for approximately 75 aircraft to
be delivered from 1999 through 2001. The Company has the right, but is not
required, to use the facility to fund 85% of each aircraft's purchase price.
This facility is guaranteed by various European Export Credit Agencies. The
interest rate varies from 5.753% to 5.898% depending on the delivery date of the
aircraft. Through June 30, 2000, the Company had borrowed $1.8 billion under
this facility.
The Company believes that the combination of internally generated funds and
debt financing currently available to the Company will allow the Company to meet
its capital requirements for at least the next 12 months.
-10-
<PAGE> 11
INTERNATIONAL LEASE FINANCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS-Three months ended June 30, 2000 versus 1999.
The 8.6% increase in revenues from the rentals of flight equipment, from
$534.9 million in 1999 to $581.0 million in 2000, is due to a 4.1% increase in
the number of aircraft available for operating lease from 386 at June 30, 1999
to 402 at June 30, 2000 and an increase in the percentage of wide bodies, for
which higher lease payments are typically received, from 31.3% of the 1999 fleet
to 32.1% of the 2000 fleet. Additionally, the cost of the leased fleet, which
includes aircraft subject to sale-lease back transactions from which rental
income is earned, increased 6.3% from $20.5 billion in 1999 to $21.8 billion in
2000.
In addition to its leasing operations, the Company engages in the marketing
of flight equipment at the end of, or during, the lease term, as well as the
sales of flight equipment on a principal and commission basis. Revenue from
flight equipment marketing decreased from $16.7 million in 1999 to $14.4 million
in 2000 as a result of the type and the number of flight equipment marketed in
each period. Six aircraft were sold in the second quarter of 1999 compared to
two aircraft in the second quarter of 2000. In addition, the Company sold 12
engines in the second quarter of 1999 compared to two engines in the second
quarter of 2000.
Interest expense increased from $177.8 million in 1999 to $185.1 million in
2000 as a result of an increase in the average composite borrowing rate from
5.88% in 1999 to 6.23% in 2000 and an increase in debt outstanding, excluding
the effect of debt discount, from $12.7 billion in 1999 to $13.4 billion in
2000. The Company's composite borrowing rate fluctuated as follows:
<TABLE>
<CAPTION>
2000 1999 Increase
---- ---- --------
<S> <C> <C> <C>
Beginning of Quarter 6.12% 5.90% 0.22%
End of Quarter 6.33% 5.85% 0.48%
Average 6.23% 5.88% 0.35%
</TABLE>
Depreciation of flight equipment increased from $163.4 million in 1999 to
$177.2 million in 2000 due to the increased cost of the fleet.
Rent expense increased from $31.5 million in 1999 to $35.0 million in 2000
due to an increase in the lease rates for 19 aircraft subject to sale-lease back
transactions. Lease rates increased as a result of an increase in interest rates
affecting the floating rate component of the lease rates, partially offset by
principal amortization.
Provision for overhauls increased from $23.8 million in 1999 to $27.0
million in 2000 due to an increase in the number of aircraft and aggregate
number of hours flown, on which the Company collects overhaul reserves. A change
in the number of aircraft on which the Company collects overhaul payments may
result in a corresponding change in the aggregate number of hours flown, for
which overhaul reserves are provided.
-11-
<PAGE> 12
INTERNATIONAL LEASE FINANCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS-Six months ended June 30, 2000 versus 1999.
The 8.7% increase in revenues from the rentals of flight equipment, from
$1,023.7 million in 1999 to $1,112.8 million in 2000, is due to a 4.1% increase
in the number of aircraft available for operating lease from 386 at June 30,
1999 to 402 at June 30, 2000 and an increase in the percentage of wide bodies,
for which higher lease payments are typically received, from 31.3% of the 1999
fleet to 32.1% of the 2000 fleet. Additionally, the cost of the leased fleet,
which includes aircraft subject to sale-lease back transactions from which
rental income is earned, increased 6.3% from $20.5 billion in 1999 to $21.8
billion in 2000.
In addition to its leasing operations, the Company engages in the marketing
of flight equipment at the end of, or during, the lease term, as well as the
sales of flight equipment on a principal and commission basis. Revenue from
flight equipment marketing decreased from $27.2 million in 1999 to $21.6 million
in 2000 as a result of the type and the number of the flight equipment marketed
in each period. Eight aircraft were sold in the first six months of 1999
compared to two aircraft in the first six months of 2000. In addition, the
Company sold 12 engines in the first six months of 1999 compared to five engines
in the first six months of 2000.
Interest expense increased from $335.5 million in 1999 to $359.3 million in
2000 as a result of an increase in the average composite borrowing rate from
5.94% in 1999 to 6.24% in 2000 and an increase in debt outstanding, excluding
the effect of debt discount, from $12.7 billion in 1999 to $13.4 billion in
2000. The Company's composite borrowing rate fluctuated as follows:
<TABLE>
<CAPTION>
2000 1999 Increase
---- ---- --------
<S> <C> <C> <C>
Beginning of six months 6.14% 6.03% .11%
End of six months 6.33% 5.85% .48%
Average 6.24% 5.94% .30%
</TABLE>
Depreciation of flight equipment increased from $313.7 million in 1999 to
$341.1 million in 2000 due to the increased cost of the fleet.
Rent expense increased from $63.3 million in 1999 to $69.3 million in 2000
due to an increase in the lease rates for 19 aircraft subject to sale-lease back
transactions. Lease rates increased as a result of an increase in interest rates
affecting the floating rate component of the lease rates, partially offset by
principal amortization.
Provision for overhauls increased from $44.2 million in 1999 to $47.7
million in 2000 due to an increase in the number of aircraft and aggregate
number of hours flown, on which the Company collects overhaul reserves. An
increase or decrease in the number of aircraft on which the Company collects
overhaul payments may result in a corresponding change in the aggregate number
of hours flown, for which overhaul reserves are provided.
-12-
<PAGE> 13
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
VALUE AT RISK
Measuring potential losses in fair values has recently become the focus of
risk management efforts by many companies. Such measurements are performed
through the application of various statistical techniques. One such technique is
Value at Risk (VaR), a summary statistical measure that uses historical interest
rates, foreign currency exchange rates and equity prices and estimates the
volatility and correlation of these rates and prices to calculate the maximum
loss that could occur over a defined period of time given a certain probability.
ILFC believes that statistical models alone do not provide a reliable
method of monitoring and controlling market risk. While VaR models are
relatively sophisticated, the quantitative market risk information generated is
limited by the assumptions and parameters established in creating the related
models. Therefore, such models are tools and do not substitute for the
experience or judgement of senior management.
ILFC is exposed to market risk and the risk of loss of fair value resulting
from adverse fluctuations in interest rates and exchange prices. ILFC
statistically measured the loss of fair value through the application of a VaR
model at December 31, 1999 and June 30, 2000. In this analysis the net fair
value of ILFC was determined using the financial instrument assets, which
included the tax adjusted future flight equipment lease revenue in the VaR
calculation at December 31, 1999 and the aircraft book value at the end of
maturity in the VaR calcuation at June 30, 2000 and the financial instrument
liabilities, which included the future servicing of the current debt. The
estimated impact of the current derivative positions was also taken into
account.
ILFC calculated the VaR with respect to the net fair value using the
variance-covariance (delta-normal) methodology. This calculation also used daily
historical interest rates for the two years ending December 31, 1999 and monthly
historical interest rates for the twenty years ending June 30, 2000. The VaR
model estimated the volatility of each of these interest rates and the
correlation among them. The yield curve was constructed using eleven key points
on the curve to model possible curve movements. Thus, the VaR measured the
sensitivity of the assets and liabilities to the calculated interest rate
exposures. These sensitivities were then applied to a grand covariance matrix,
which contained the historical movement of among all risk factors. The results
were aggregated to provide a single amount that depicts the maximum potential
loss in fair value of a confidence level of 95 percent for a time period of one
month. As of December 31, 1999 and June 30, 2000, the VaR of ILFC with respect
to its aforementioned net fair value was $50 million and $32 million
respectively.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
1. First Supplemental Programme Agreement dated
June 12, 2000
4. First Supplemental Agency Agreement dated June
12, 2000
12. Computation of Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends
27. Financial Data Schedule
b) Reports on Form 8-K:
Form 8-K, event date April 26, 2000 (Item 7)
-14-
<PAGE> 15
SIGNATURES
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 LEASE FINANCE CORPORATION
August 3, 2000 /s/ Leslie L. Gonda
------------------------------
LESLIE L. GONDA
Chairman of the Board
August 3, 2000 /s/ Alan H. Lund
------------------------------
ALAN H. LUND
Executive Vice President
Co-Chief Operating Officer
and Chief Financial Officer
-15-
<PAGE> 16
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No.
1. First Supplemental Programme Agreement dated June 12, 2000
4. First Supplemental Agency Agreement dated June 12, 2000
12. Computation of Ratios of Earnings to Fixed Charges and Preferred
Stock Dividends
27. Financial Data Schedule
-16-
