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.................March 31, 2001........
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)
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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 April 30, 2001
----- -----------------------------
COMMON STOCK, NO PAR VALUE 35,818,122
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 31, 2001 and December 31, 2000................. 3
Condensed Consolidated Statements of Income and
Comprehensive Income
Three Months Ended March 31, 2001 and 2000........... 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000........... 5
Notes to Condensed Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations...... 10
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
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ITEM 1 PART I FINANCIAL INFORMATION
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
March 31, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Cash, including interest bearing accounts
of $109,270(2001) and $130,576(2000) $ 115,146 $ 134,653
Current income taxes receivable 93,199 58,990
Notes receivable and net investment in
finance and sales-type leases 390,519 410,125
Flight equipment under operating leases 21,816,199 20,534,304
Less accumulated depreciation 2,835,663 2,655,915
------------ ------------
18,980,536 17,878,389
Deposits on flight equipment purchases 1,032,646 1,058,182
Accrued interest, other receivables
and other assets 100,586 93,719
Investments 57,275 45,086
Deferred debt issue costs-less
accumulated amortization of $63,487
(2001) and $60,613 (2000) 21,159 22,334
------------ ------------
$ 20,791,066 $ 19,701,478
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued interest and other payables $ 282,884 $ 249,179
Debt financing, net of deferred debt
discount of $18,042(2001)and $34,754 (2000) 13,807,626 12,958,164
Capital lease obligations 447,202 463,362
Security & other deposits on flight
equipment 1,032,663 905,414
Rentals received in advance 129,750 129,152
Deferred income taxes payable 1,608,564 1,532,428
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 (2001 and 2000) each having 500
shares issued and outstanding 400,000 400,000
Common stock--no par value; 100,000,000
authorized shares, 35,818,122 (2001
and 2000) issued and outstanding 3,582 3,582
Additional paid-in capital 579,955 579,955
Accumulated other comprehensive (loss) income (28,965) 9,256
Retained earnings 2,527,805 2,470,986
------------ ------------
3,482,377 3,463,779
------------ ------------
$ 20,791,066 $ 19,701,478
============ ============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
2001 2000
--------- ---------
(Unaudited)
REVENUES:
Rental of flight equipment $ 579,584 $ 531,790
Flight equipment marketing 19,022 7,164
Interest and other 23,057 10,749
--------- ---------
621,663 549,703
--------- ---------
EXPENSES:
Interest 202,024 174,174
Depreciation of flight equipment 181,153 163,909
Flight equipment rent 32,532 34,327
Provision for overhaul 24,478 20,786
Selling, general & administrative 19,941 12,957
--------- ---------
460,128 406,153
--------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 161,535 143,550
Provision for income taxes 57,592 50,468
--------- ---------
NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE NET OF TAXES 103,943 93,082
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 15,191 -
NET INCOME 119,134 93,082
COMPREHENSIVE INCOME:
Cumulative effect of accounting change (20,473) -
Net changes in cash flow hedges (30,260) -
Foreign currency translation adjustment 12,513 -
--------- ---------
OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX (38,220) -
--------- ---------
COMPREHENSIVE INCOME $ 80,914 $ 93,082
========= =========
SUPPLEMENTAL COMPREHENSIVE INCOME INFORMATION:
Cumulative foreign currency translation gain
adjustment, net of tax $ 47,223
Cumulative cash flow hedge loss adjustment,
net of tax $ (76,188)
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
2001 2000
----------- -----------
(Unaudited)
OPERATING ACTIVITIES:
Net Income $ 119,134 $ 93,082
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of flight equipment 181,153 163,909
Deferred income taxes 96,716 75,772
Foreign exchange adjustment of Euro denominated
debt (29,853) -
Change in derivative instruments 39,613 -
Amortization of deferred debt issue costs 2,874 2,748
Equity in net income of affiliates (843) (8)
Change in unamortized debt discount 16,712 4,055
Changes in operating assets and liabilities:
Increase in notes receivable (10,004) -
Increase in accrued interest, other
receivables and other assets (6,867) (7,544)
Change in current income taxes (34,209) (29,005)
Increase in accrued interest and
other payables 33,705 44,013
Increase in rentals received in
advance 598 8,362
----------- -----------
Net cash provided by operating activities 408,729 355,384
----------- -----------
INVESTING ACTIVITIES:
Acquisition of flight equipment for
operating leases (1,276,536) (963,769)
Decrease in deposits and progress
payments 25,536 9,898
Advance of notes receivable - (20,702)
Collections on notes receivable and sales-type
leases 11,474 11,365
Dividends from unconsolidated subsidiary 26 -
----------- -----------
Net cash used in investing activities (1,239,500) (963,208)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from debt financing 2,452,382 1,611,211
Payments in reduction of debt financing (1,704,354) (1,141,180)
Debt issue costs (1,699) (1,001)
Increase in customer deposits 127,249 106,707
Payment of common and preferred dividends (62,314) (16,935)
----------- -----------
Net cash provided by financing activities 811,264 558,802
----------- -----------
Decrease in cash (19,507) (49,022)
Cash at beginning of period 134,653 123,109
----------- -----------
Cash at end of period $ 115,146 $ 74,087
=========== ===========
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
2001 2000
-------- --------
(Dollars in thousands)
(Unaudited)
Cash paid during the period for:
Interest(net of amount capitalized
$14,869(2001) and $11,399(2000) $138,969 $119,600
Income taxes (net of refunds) 3,264 3,701
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2001:
One aircraft was received in exchange for notes receivable in the amount of $18,136 and one aircraft with net book value of $11,372 was contributed to a joint venture.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(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 2000 unaudited condensed consolidated financial statements to conform to the 2001 presentation. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000.
B. Accounting for Derivatives and Hedging Activities
All derivatives are recognized on the balance sheet at their fair value. On
the date that the Company enters into a derivative contract, it designates
the derivative as (1) the hedge of (a) the fair value of a recognized asset
or liability or (b) an unrecognized firm commitment (a "fair value" hedge);
(2) a hedge of (a) a forecasted transaction or (b) the variability of cash
flows that are to be received or paid in connection with a recognized asset
or liability (a "cash flow" hedge); or (3) a foreign-currency fair value or
cash flow hedge (a "foreign currency" hedge). Changes in the fair value of a
derivative that is highly effective as and that is designated and qualifies
as a fair-value hedge, along with changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk (including
changes that reflects losses or gains on firm commitments), are recorded in
current-period earnings. Changes in the fair value of a derivative that is
highly effective as and that is designated and qualifies as a cash flow
hedge, to the extent that the hedge is effective, are recorded in accumulated
other comprehensive income, until earnings are affected by the variability of
cash flows of the hedged transaction (e.g. until periodic settlements of a
variable-rate asset or liability are recorded in earnings). Any hedge
ineffectiveness (which represents the amount by which the changes in the fair
value of the derivative exceed the variability in the cash flows of the
forecasted transaction) is recorded in current-period earnings. Changes in
the fair value of a derivative that is highly effective as and that is
designated and qualifies as a foreign currency hedge is recorded in either
current-period earnings or other accumulated comprehensive income, depending
on whether the hedging relationship satisfies the criteria for a fair value
or cash flow hedge. Changes in the fair value of derivative trading and
non-hedging instruments are reported in current-period earnings.
The Company formally documents all relationships between hedging instruments and hedged items, as well as risk management objectives and
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
strategies for undertaking various hedge transactions. This includes linking all derivatives that are designated as fair value, cash flow, or foreign currency hedges to (1) specific assets or liabilities on the balance sheet, or (2) specific firm commitments or forecasted transactions. The Company also formally assesses (both at the hedge's inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company will discontinue hedge accounting prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued due to the Company's determination that the derivative no longer qualifies as an effective fair value hedge, the Company will continue to carry the derivative on the balance sheet at its fair value, but cease to adjust the hedged asset or liability for changes in fair value. When the Company discontinues hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in accumulated other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current period earnings.
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(DOLLARS IN THOUSANDS)
(UNAUDITED)
C. Adoption of SFAS 133
The Company adopted Statement of Financial Accounting Standards No. 133 Accounting for Certain Derivative Instruments and Certain Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138 and related implementation guidance ("SFAS 133")on January 1, 2001. The Company uses derivatives to manage exposures to interest rate and foreign currency risks. Hedge ineffectiveness and hedge de-recognition, as determined in accordance with SFAS 133, had an immaterial impact on earnings for the three months ending March 31, 2001. Hedge ineffectiveness is included in interest on the Company's Condensed Consolidated Statements of Income and Comprehensive Income. In accordance with the transition provision of SFAS 133, the Company recorded the following cumulative effect adjustments in earnings as of January 1, 2001, net of taxes:
Related to non-hedging instruments:
Fair value of hedging instruments $ 2,805
Related to previous designated fair value hedging relationships
Fair value of hedging instruments (13,954)
Offsetting changes in fair value of hedged items 13,954
Previously deferred hedging gains and losses, net 12,386
--------
Total cumulative effect of adoption on earnings, net of tax $ 15,191
========
In addition, the Company recorded the following net-of-tax cumulative effect
adjustments in other comprehensive income as of January 1, 2001:
Related to previously designated cash flow hedging relationships:
Fair value of hedging instruments (45,927)
Previously deferred hedging gains and losses 25,454
--------
Total cumulative effect of adoption on other comprehensive (loss) income,
net of tax $(20,473)
========
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During the three months ended March 31, 2001, $2,833 was reclassified from accumulated other comprehensive income to interest expense under cashflow hedge accounting in connection with the Company's program to convert debt from floating to fixed rates.
The Company expects that within the next twelve months it will reclassify as earnings $12,334 of the transition adjustment that was recorded in accumulated other comprehensive income.
ITEM 2 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
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. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events.
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 were comprised of the following at the following dates:
March 31, December 31,
2001 2000
------------ ------------
(Dollars in thousands)
Public term debt with single
maturities $ 3,868,412 $ 3,456,675
Public medium-term notes with
varying maturities 3,259,000 3,175,000
Capital lease obligations 447,202 463,362
Bank and other term debt 2,230,542 2,072,562
------------ ------------
Total term debt and capital lease
obligations 9,805,156 9,167,599
Derivatives 156,825
Commercial paper 4,310,889 4,288,681
Deferred debt discount (18,042) (34,754)
------------ ------------
Total debt financing and capital lease
obligations $ 14,254,828 $ 13,421,526
============ ============
Composite interest rate 5.92% 6.37%
Percentage of total debt at fixed rates 70.22% 68.65%
Composite interest rate on fixed rate 6.13% 6.20%
debt
Bank prime rate 8.00% 9.50%
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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 48 commercial banks aggregating $3.2 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 .20% over LIBOR to .35% 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.
ITEM 2 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Such financing is used primarily as backup for the Company's Commercial Paper Program.
The Company has an effective shelf registration with respect to $2.0 billion of debt securities, under which $800.0 million of notes were sold through March 31, 2001. Additionally, a $750.0 million Medium-Term Note Program has been designated under the shelf registration, under which $250.0 million of notes have been sold through March 31, 2001. The Company filed a Registration statement on Form S-3 on May 4, 2001 for an additional $4.0 billion of debt securities.
The Company has a Euro Medium-Term Note Program for $2.0 billion, under which $771.0 million ([E]750.0 million) in notes were sold as of March 31, 2001. The Company has hedged the foreign currency risk of the notes through operating lease payments or through currency swaps.
The Company has an Export Credit Facility, for up to a maximum of $4.3 billion, for approximately 75 aircraft to be delivered 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 March 31, 2001, the Company had borrowed $2.2 billion under this facility.
The Company currently has a $4.8 billion Commercial Paper Program. Under this program, the Company may borrow in minimum increments of $100,000 for a period from one day to 270 days. The weighted average interest rate of the Company's Commercial Paper Program was 5.20% and 6.00% at March 31, 2001 and 2000 respectively.
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.
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS-Three months ended March 31, 2001 versus 2000.
The 9.0% increase in revenues from the rentals of flight equipment from $531.8 million in 2000 to $579.6 million in 2001, is due to an increase in the number of aircraft available for operating lease. At March 31, 2001 the Company's leased fleet consisted of 423 aircraft compared to a fleet of 380 aircraft at March 31, 2000. Additionally, the cost of the leased fleet, which includes aircraft subject to sale-lease back transactions from which rental income is earned, increased 12.6% from $20.6 billion in 2000 to $23.2 billion in 2001.
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 increased from $7.2 million in 2000 to $19.0 million in 2001 as a result of an increase in third party flight equipment marketing commissions partially offset by the sale of one company owned engine in the first quarter of 2001 compared to three engines in the first quarter of 2000.
Interest expense increased from $174.2 million in 2000 to $202.0 million in 2001 as a result of an increase in the average composite borrowing rate from 6.13% in 2000 to 6.15% in 2001 and an increase in debt outstanding, excluding the effect of debt discount and excluding market values of derivatives, from $12.4 billion in 2000 to $14.1 billion in 2001. The Company's composite borrowing rate fluctuated as follows:
2001 2000 Increase
---- ---- --------
Beginning of Quarter 6.37% 6.14% 0.23%
End of Quarter 5.92% 6.12% (0.20)%
Average 6.15% 6.13% 0.02%
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The Company adopted SFAS 133 on January 1, 2001 (see notes to the financial statements). The transition adjustment in the amount of $15,191 is accounted for as a cumulative effect of accounting change. $1.7 million related to the period accounting for SFAS 133 is included in the 2001 interest expense.
Depreciation of flight equipment increased from $163.9 million in 2000 to $181.2 million in 2001 due to the increased cost of the fleet.
Rent expense decreased from $34.3 million in 2000 to $32.5 million in 2001 due to a decrease in the lease rates resulting from an decrease in interest rates affecting the floating rate component of the lease rates and principal amortization. The Company, through subsidiaries, has entered into sale-leaseback transactions relating to 19 aircraft.
Provision for overhauls increased from $20.8 million in 2000 to $24.5 million in 2001 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 revenue may result in a corresponding change in the aggregate number of hours flown, for which overhaul reserves are provided.
ITEM 3 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
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 which 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.
The Company 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.
The Company is exposed to market risk and the risk of loss of fair value resulting from adverse fluctuations in interest rates and exchange prices. As of December 31, 2000 and March 31, 2001, the Company statistically measured the loss of fair value through the application of a VaR model. In this analysis the net fair value of the Company was determined using the financial instrument assets. This included tax adjusted future flight equipment lease revenues, aircraft residual values at maturity of the lease contracts and financial instrument liabilities, which included future servicing of current debt. The impact of current derivative positions was also taken into account.
The Company calculated the VaR with respect to the net fair value by using historical scenarios. This methodology entails re-pricing all assets and liabilities under explicit changes in market rates within a specific historical time period. In this case, the most recent two and three years of historical information for interest rates and foreign exchange rates were used to construct the historical scenarios at December 31, 2000 and March 31, 2001 respectively. For each scenario, each financial instrument is re-priced. Scenario values for the Company are then calculated by netting the values of all the underlying assets and liabilities. The final VaR number represents the maximum adverse deviation in fair market value incurred by these scenarios with 95% confidence (i.e. only 5% of historical scenarios show losses greater than the VaR figure). A one month holding period is assumed in computing the VaR figure. As of December 31, 2000 and March 31, 2001, the VaR for the Company with respect to its fair value was $11 million and $13 million, respectively.
PART II. OTHER INFORMATION
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
4.1 Second Supplemental Indenture, dated as of February 28, 2001, to the Indenture between the Company and U.S. Bank Trust National Association.
12.1 Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends
b) Reports on Form 8-K:
Form 8-K, event date January 10, 2001 (Item 5)
Form 8-K, event date January 19, 2001 (Item 7)
Form 8-K, event date January 19, 2001 (Item 7)
Form 8-K, event date February 12, 2001 (Item 7)
Form 8-K, event date March 14, 2001 (Item 7)
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
May 11, 2001 /s/ Leslie L. Gonda
LESLIE L. GONDA
Chairman of the Board
May 11, 2001 /s/ Alan H. Lund
ALAN H. LUND
Executive Vice President
Co-Chief Operating Officer
and Chief Financial Officer
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No.
4.1 Second Supplemental Indenture, dated as of February 28, 2001, to
the Indenture between the Company and U.S. Bank Trust National
Association.
12.1 Computation of Ratios of Earnings to Fixed Charges and Preferred
Stock Dividends
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EXHIBIT 4.1
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated as of February 28, 2001 (this "Supplement"), between International Lease Finance Corporation, a corporation duly organized and existing under the laws of the State of California (hereinafter called the "Company"), and U.S. Bank Trust, National Association, as Trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has heretofore executed and delivered an Indenture, dated as of November 1, 1991, as amended (hereinafter called the "Indenture") with the Trustee, as successor to Continental Bank, National Association providing, among other things, for the issuance from time to time of the Company's unsecured debentures, notes or other evidences of indebtedness in one or more series.
Pursuant to the terms of the Indenture, an Officers' Certificate dated May 21, 1997 (the "Officers' Certificate") and instructions from a Designated Person of the Company in connection with the Notes (as defined below), Medium-Term Notes, Series I, due March 1, 2006 in the aggregate principal amount of $50,000,000 (the "Notes') were issued on May 30, 1997.
Pursuant to Section 902 of the Indenture, the Holders of the Notes have consented and agreed to certain changes to the terms of the Notes.
It is deemed advisable and appropriate that the terms of the Notes be amended to reflect the changes consented and agreed to by the Holders of the Notes.
All things necessary to make this Supplement a valid agreement of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS SUPPLEMENT WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of the Holders of the Notes only, as follows:
1. The terms used in this Supplement and defined in the Indenture, Officers' Certificate or Instructions shall have the meanings assigned to them in the Indenture, Officers' Certificate or Instructions, as the case may be.
2. The terms of the Notes are hereby amended as follows:
(i) The Stated Maturity shall be March 1, 2008.
(ii) Interest on the Notes accruing from October 15, 2000 to March 1, 2001 will be paid on March 1, 2001 to the Holders of the Notes on February 15, 2001.
(iii) Interest on the Notes from and including March 1, 2001 to but excluding March 3, 2003, shall accrue at the fixed rate of 6.85% per annum, payable semi-annually on each April 15 and October 15, and on March 3, 2003, on the basis of a 360-day year of twelve 30-day months, without adjustment for Interest Payment Dates that are not Business Days. Interest on the Notes will be payable to the persons in whose names the Notes are registered on the April 1 or October 1 (whether or not a Business Day) immediately preceding the Applicable Interest Payment Date.
(iv) The Additional Terms of the Notes shall be amended in their entirety to read as set forth in Annex A hereto.
3. The Trustee assumes no duties, responsibilities or liabilities by reason of this Supplement other than as set forth in the Indenture, and this Supplement is executed and accepted by the Trustee subject to all terms and conditions of its acceptance of the Trust under the Indenture, as fully as if said conditions were hereby set forth at length. The Trustee assumes no responsibility or liability for the recitals of the Company set forth in this Supplement.
4. As amended and modified by this Supplement, the Indenture, Officers' Certificate and Instructions are in all respects ratified and confirmed.
5. This Supplement may be executed in any number of counterparts, each one of which shall be an original, and all of which together constitute but one and the same instrument.
6. Trustee hereby accepts the modification of the Indenture, Officers' Certificate and Instructions hereby effected and the trust in this Supplement declared and provided, upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
INTERNATIONAL LEASE
FINANCE CORPORATION
By: /s/ Pamela S. Hendry
-------------------------------
Attest:
/s/ Elizabeth Pasinski
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U.S. BANK TRUST,
NATIONAL ASSOCIATION
By: /s/ P.J. Crowley
------------------------------
P.J. Crowley
Vice President
Attest:
/s/ Cynthia W. Brown
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ADDITIONAL TERMS
PUT OPTION
The Calculation Agent has the right to require the Company to repurchase all (but not less than all) of the Notes on March 3, 2003 at a purchase price equal to 100% of the principal amount thereof, plus accrued but unpaid interest to but excluding March 3, 2003 (the "Redemption Price"), by delivering written notice thereof to the Company on behalf of all (but not fewer than all) holders of the Notes (the "Put Notice"). Such Put Notice shall be given no later than 9:00 a.m. (New York time) on February 24, 2003. The Calculation Agent shall give the Put Notice if the holders of a majority in principal amount of the Notes request the Calculation Agent to give the Put Notice, in which event the Put Notice shall be binding on all Noteholders; the Calculation Agent shall not give the Put Notice absent such request of the holders of a majority in principal amount of the Notes. In the event the Put Notice is timely given, the Company shall repurchase the Notes at the Redemption Price on March 3, 2003.
IF REQUIRED BY THE CALCULATION AGENT, EACH HOLDER SHALL INDICATE ITS ELECTION TO HAVE THE CALCULATION AGENT DELIVER THE PUT NOTICE TO THE COMPANY BY DELIVERING WRITTEN NOTICE OF SUCH ELECTION TO THE CALCULATION AGENT BY NO LATER THAN 12:00 NOON (NEW YORK TIME) ON FEBRUARY 20, 2003.
RESET OF INTEREST RATE FOR SECOND FIXED RATE PERIOD
If the Calculation Agent has not delivered the Put Notice to the Company in accordance with the terms set forth under "Put Option" above, the Company and the Calculation Agent, on February 24, 2003, shall undertake the following actions to calculate the fixed rate of interest to be paid on the Notes during the period from and including March 3, 2003 to the Maturity Date. All references to specific hours are references to prevailing New York time. Each notice, bid or offer (including those given by the Reference Dealers [as defined below]) shall be given telephonically and shall be confirmed as soon as possible by facsimile to each of the Calculation Agent and the Company. The times set forth below are guidelines for action by the Company and the Calculation Agent, and each shall use its best efforts to adhere to such times. The Company shall use its best efforts to cause the Reference Dealers to take all actions contemplated below in as timely a manner as possible.
A HOLDER SHALL INDICATE ITS ELECTION TO SELL ITS NOTE TO, AND PURCHASE DESIGNATED TREASURY BONDS FROM, THE FINAL DEALER OR FINAL DEALERS (AS DEFINED BELOW) IN ACCORDANCE WITH THE TERMS SET FORTH IN PARAGRAPH (F) BELOW BY NOTIFYING THE CALCULATION AGENT OF SUCH ELECTION BY NO LATER THAN 9:35 A.M. (NEW YORK TIME) ON FEBRUARY 24, 2003. IF THE CALCULATION AGENT HAS NOT RECEIVED WRITTEN ELECTION FOR THE SALE OF AT LEAST $25,000,000 AGGREGATE PRINCIPAL AMOUNT OF THE NOTES TO THE FINAL DEALER OR FINAL DEALERS, THE CALCULATION AGENT SHALL SELECT PRO RATA FROM ALL HOLDERS NOTES IN A PRINCIPAL AMOUNT THAT, WHEN AGGREGATED WITH THE PRINCIPAL AMOUNT OF NOTES FOR WHICH THE CALCULATION AGENT HAS RECEIVED A WRITTEN ELECTION TO SELL, WILL TOTAL $25,000,000, AND SHALL IMMEDIATELY NOTIFY SUCH HOLDERS OF SUCH SELECTION. THE HOLDERS OF SUCH RANDOMLY SELECTED NOTES SHALL SELL THEIR NOTES TO, AND PURCHASE DESIGNATED TREASURY BONDS FROM, THE FINAL DEALER OR FINAL DEALERS IN ACCORDANCE WITH THE TERMS SET FORTH IN PARAGRAPH (E) BELOW.
(a) At 9:00 a.m., the Company shall provide to the Calculation Agent the names of four financial institutions that deal in the Company's debt securities and have agreed to participate as reference dealers in accordance with the terms set forth below (the "Reference Dealers") and, for each Reference Dealer, the name of and telephone and facsimile numbers for one individual who will represent such Reference Dealer.
(b) At 9:15 a.m., the Calculation Agent shall:
(i) determine and provide to the Company the 5-year Treasury bond yield determined at or about such time (the "Designated Treasury Yield") based on an issue of 5-year Treasury bonds chosen by the Calculation Agent (the "Designated Treasury Bonds");
(ii) calculate and provide to the Company the "Premium", which shall equal the present value (expressed as a percentage rounded to four decimal places) of the Treasury Rate Difference applied over the 10 semi-annual periods from March 3, 2003 to the Maturity Date, discounted at the Discount Rate divided by two, where:
"Treasury Rate Difference" means the difference between 6.585% (the "Initial Treasury Yield") minus the Designated Treasury Yield; and
"Discount Rate" means the sum of the Designated Treasury Yield plus 0.50%; and
(iii) provide to the Company the aggregate principal amount of the Designated Treasury Bonds that the Holders will purchase (the "Hedge Amount") in the event that all of the Notes are sold to one or more of the Reference Dealers in accordance with paragraph (e) below.
(c) The Calculation Agent immediately thereafter shall contact each of the Reference Dealers and request that each Reference Dealer provide to the Calculation Agent the following firm bid and firm offer for the benefit of the Holders (which bid and offer shall remain firm for 15 minutes):
(i) a firm bid (on an all-in basis), expressed as a spread to the Designated Treasury Bonds (using, for such purposes, the Designated Treasury Yield), at which such Reference Dealer would purchase any Notes offered (up to Notes in a principal amount equal to $50,000,000, provided that such Reference Dealer shall not be obligated to purchase Notes in a principal amount less that $25,000,000) at a price equal to 100% plus the Premium for settlement on the Redemption Date (the lowest of such spreads, the "Spread"); and
(ii) a firm offer (on an all-in basis) to sell Designated Treasury Bonds in a principal amount equal to the Hedge Amount at a yield equal to the Designated Treasury Yield for settlement on the Redemption Date.
(d) At 9:30 a.m., the following shall occur following receipt of the bids and offers requested in paragraph (c) above:
(i) the Calculation Agent shall calculate and provide to the Company the "Adjusted Coupon", which shall be the fixed rate of interest on the Notes required to produce a yield on the Notes equal to the sum of the Designated Treasury Yield and the Spread given a purchase price of 100% plus the Premium;
(ii) the Interest Rate on the Notes shall be adjusted and shall equal, effective from and including March 3, 2003 to the Maturity Date, the Adjusted Coupon; and
(iii) the Reference Dealer providing the Spread shall be deemed the "Final Dealer"; provided that if two or more Reference Dealers shall have quoted such Spread, the Company shall determine which of such Reference Dealers shall be the Final Dealer or the Final Dealers (and, in the latter case, the allocation to be made between them).
(e) The Holders:
(i) shall sell Notes to the Final Dealer or Final Dealers in a principal amount which shall be not less than $25,000,000 nor more than $50,000,000 at a price equal to 100% plus the Premium; and
(ii) shall purchase Designated Treasury Bonds from the Final Dealer or
Final Dealers in a principal amount equal to the Hedge Amount
(adjusted pro rata based on the amount of Notes sold in the event that
less than $50,000,000 principal amount is sold), at a price based on
the Designated Treasury Yield, in each case for settlement on the
Redemption Date and, in the case of more than one Final Dealer,
according to the allocation designated by the Company under paragraph
(d)(iii) above.
If the Calculation Agent determines that (i) a Market Disruption Event
(as defined below) has occurred or (ii) two or more of the Reference Dealers
have failed to provide indicative or firm bids or offers in a timely manner
substantially as provided above, the steps contemplated above shall be delayed
until the next trading day on which there is no Market Disruption Event and no
such failure by two or more Reference Dealers. "Market Disruption Event" shall
mean any of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or the establishment of
minimum prices on such exchange: (ii) a general moratorium on commercial banking
activities declared by either federal or New York State authorities; (iii) any
material adverse change in the existing financial, political or economic
conditions in the United States or America or elsewhere; (iv) an outbreak or
escalation of major hostilities involving the United States of America or the
declaration of a national emergency or war by the United States of America; or
(v) any material disruption of the U.S. government securities market, U.S.
corporate bond market and/or U.S. federal wire system.
EXHIBIT 12.1
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS FOR THE THREE MONTHS ENDED MARCH 31, 2001
AND 2000 (DOLLARS IN THOUSANDS)
2001 2000
-------- --------
(Unaudited)
Earnings:
Net Income $119,134 $ 93,082
Add:
Provision for income taxes 65,772 50,468
Fixed charges 235,378 207,078
Less:
Capitalized interest 14,869 11,399
-------- --------
Earnings as adjusted (A) $405,415 $339,229
======== ========
Preferred dividend requirements $ 4,814 $ 3,362
Ratio of income before provision
for income taxes to net income 155% 154%
-------- --------
Preferred dividend factor on pretax
basis $ 7,125 $ 5,177
-------- --------
Fixed Charges:
Interest expense 202,024 174,174
Capitalized interest 14,869 11,399
Interest factor of rents 18,485 21,505
-------- --------
Fixed charges as adjusted (B) 235,378 207,078
-------- --------
Fixed charges and preferred stock
dividends (C) $242,503 $212,255
======== ========
Ratio of earnings to fixed charges
(A) divided by (B) 1.72x 1.64x
======== ========
Ratio of earnings to fixed charges
and preferred stock dividends
(A) divided by (C) 1.67x 1.60x
======== ========
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