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 September 30, 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
(State or other jurisdiction of incorporation or organization)
22-3059110
(I.R.S. Employer Identification No.)
1999 Avenue of the Stars
(Address of principal executive offices)
Los Angeles, California 90067
(Zip Code)
Registrants 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 issuers classes of
common stock, as of the latest practicable date.
Class
Outstanding at October 31, 2001
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX
Page No. | ||||||
|
||||||
Part I. Financial Information:
|
||||||
Item 1. Financial Statements (Unaudited)
|
||||||
Condensed Consolidated Balance Sheets
September 30, 2001 and December 31, 2000
|
3 | |||||
Condensed Consolidated Statements of Income and
Comprehensive Income Three Months Ended
September 30, 2001 and 2000 |
4 | |||||
Condensed Consolidated Statements of
Income and Comprehensive Income
Nine Months Ended September 30, 2001 and 2000
|
5 | |||||
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000
|
6 | |||||
Notes to Condensed Consolidated Financial Statements
|
8 | |||||
Item 2. Managements Discussion and Analysis of the Financial Condition
and Results of Operations
|
12 | |||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
17 | |||||
Part II. Other Information
|
||||||
Item 6. Exhibits and Reports on Form 8-K
|
18 | |||||
Signatures
|
19 |
-2-
PART I FINANCIAL INFORMATION
September 30, | December 31, | ||||||||
2001 | 2000 | ||||||||
|
|
||||||||
(Unaudited) | |||||||||
ASSETS
|
|||||||||
Cash, including interest bearing accounts
of $141,563 (2001) and $130,576 (2000)
|
$ | 141,810 | $ | 134,653 | |||||
Current income taxes receivable
|
155,399 | 58,990 | |||||||
Notes receivable and net investment in
finance leases
|
419,733 | 410,125 | |||||||
Flight equipment under operating leases
|
23,558,509 | 20,534,304 | |||||||
Less accumulated depreciation
|
3,204,779 | 2,655,915 | |||||||
|
|
|
|||||||
|
20,353,730 | 17,878,389 | |||||||
Deposits on flight equipment purchases
|
1,263,069 | 1,058,182 | |||||||
Accrued interest, other receivables
and other assets
|
148,288 | 93,719 | |||||||
Investments
|
58,554 | 45,086 | |||||||
Deferred debt issue costs-less accumulated amortization of $70,471
(2001) and $60,613 (2000)
|
23,733 | 22,334 | |||||||
|
|
|
|||||||
|
$ | 22,564,316 | $ | 19,701,478 | |||||
|
|
|
|||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
|||||||||
Accrued interest and other payables
|
$ | 307,892 | $ | 249,179 | |||||
Debt financing, net of deferred debt
discount of $11,295 (2001) and
$34,754 (2000)
|
15,228,373 | 12,958,164 | |||||||
Capital lease obligations
|
398,329 | 463,362 | |||||||
Security & other deposits on flight
equipment
|
1,045,652 | 905,414 | |||||||
Rentals received in advance
|
136,677 | 129,152 | |||||||
Deferred income taxes payable
|
1,777,759 | 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
|
(66,975 | ) | 9,256 | ||||||
Retained earnings
|
2,753,072 | 2,470,986 | |||||||
|
|
|
|||||||
|
3,669,634 | 3,463,779 | |||||||
|
|
|
|||||||
|
$ | 22,564,316 | $ | 19,701,478 | |||||
|
|
|
See notes to condensed consolidated financial statements.
-3-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
2001
2000
(Unaudited)
$
633,712
$
603,136
14,267
21,744
12,826
12,761
660,805
637,641
188,929
206,557
207,891
181,377
25,585
36,009
32,144
32,492
15,623
11,404
470,172
467,839
190,633
169,802
63,069
58,803
127,564
110,999
(28,590
)
(22,236
)
(50,826
)
$
76,738
$
110,999
See notes to condensed consolidated financial statements.
-4-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Dollars in thousands)
2001 | 2000 | ||||||||
|
|
||||||||
(Unaudited) | |||||||||
REVENUES:
|
|||||||||
Rental of flight equipment
|
$ | 1,836,915 | $ | 1,715,973 | |||||
Flight equipment marketing
|
53,183 | 43,319 | |||||||
Interest and other
|
50,685 | 37,909 | |||||||
|
|
|
|||||||
|
1,940,783 | 1,797,201 | |||||||
|
|
|
|||||||
EXPENSES:
|
|||||||||
Interest
|
594,567 | 565,880 | |||||||
Depreciation of flight equipment
|
590,610 | 522,466 | |||||||
Flight equipment rent
|
86,513 | 105,341 | |||||||
Provision for overhauls
|
78,233 | 80,235 | |||||||
Selling, general & administrative
|
50,419 | 35,198 | |||||||
|
|
|
|||||||
|
1,400,342 | 1,309,120 | |||||||
|
|
|
|||||||
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE
|
540,441 | 488,081 | |||||||
Provision for income taxes
|
187,409 | 171,060 | |||||||
|
|
|
|||||||
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE NET OF TAXES
|
353,032 | 317,021 | |||||||
Cumulative effect of accounting change (net of tax)
|
15,191 | | |||||||
|
|
|
|||||||
NET INCOME
|
368,223 | 317,021 | |||||||
|
|
|
|||||||
COMPREHENSIVE INCOME:
|
|||||||||
Net changes in cash flow hedges
|
(48,590 | ) | | ||||||
Foreign currency translation adjustment
|
(7,169 | ) | | ||||||
Cumulative effect of accounting change
|
(20,473 | ) | | ||||||
|
|
|
|||||||
OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX
|
(76,232 | ) | | ||||||
|
|
|
|||||||
COMPREHENSIVE INCOME
|
$ | 291,991 | $ | 317,201 | |||||
|
|
|
|||||||
SUPPLEMENTAL COMPREHENSIVE INCOME INFORMATION
|
|||||||||
Cumulative foreign currency translation gain
adjustment, net of tax
|
$ | 3,458 | |||||||
|
|
||||||||
Cumulative cash flow hedge loss adjustment
net of tax
|
$ | (70,432 | ) | ||||||
|
|
See notes to condensed consolidated financial statements.
-5-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
2001
2000
(Unaudited)
$
368,223
$
317,021
590,610
522,466
286,793
218,218
(75,739
)
68,659
9,858
8,873
(5,405
)
(1,634
)
(1,329
)
23,459
(30,240
)
(22,768
)
(47,737
)
1,700
(10,145
)
(96,409
)
(55,679
)
58,713
15,690
7,525
15,446
1,213,585
952,584
(3,268,104
)
(2,551,133
)
(39,207
)
(44,051
)
(204,887
)
(25,563
)
181,022
118,199
(20,703
)
34,231
39,889
(1,000
)
(41,231
)
538
(3,297,407
)
(2,524,593
)
7,981,760
7,110,535
(5,933,625
)
(5,414,640
)
(11,257
)
(3,909
)
140,238
64,120
(86,137
)
(211,096
)
2,090,979
1,545,010
7,157
(26,999
)
134,653
123,109
$
141,810
$
96,110
-6-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Dollars in thousands)
2001
2000
(Unaudited)
$
499,725
$
494,736
5,204
8,521
2001:
One aircraft was received in exchange for notes receivable in the amount of $18,136 and one aircraft with a net book value of $11,372 was contributed to a joint venture.
2000:
Two aircraft were received in exchange for notes receivable and other assets in the amount of $41,429.
See notes to condensed consolidated financial statements.
-7-
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 nine months ended September 30, 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 Companys 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) a 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 reflect 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 the 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 are 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. |
-8-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
The Company formally documents all relationships between hedging instruments and hedged items, as well as risk management objectives and 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 hedges 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 will discontinue 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 Companys 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. |
-9-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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. The Company recorded $1.4 million of hedge ineffectiveness in interest expense related to cross currency fair value hedges, for the nine months ended September 30, 2001. Hedge ineffectiveness related to cash flow hedges for the period was immaterial to the Company. 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: |
-10-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(DOLLARS IN THOUSANDS)
(UNAUDITED)
During the nine months ended September 30, 2001, $17,142 (net) was reclassified from accumulated other comprehensive income to interest expense under cash flow hedge accounting in connection with the Companys program to convert debt from floating to fixed rates. The Company expects that within the next twelve months it will reclassify as earnings $57,720 of the balance recorded in accumulated other comprehensive income.
-11-
ITEM 2 | INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES |
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.
RECENT DEVELOPMENTS
As a result of the September 11, 2001 terrorist attacks on the United
States and the general slowdown of the United States economy both before and
after the attacks, many United States and international commercial air carriers
are experiencing a reduction in passenger traffic and an actual or potential
increase in costs, including insurance premiums and security costs. In
addition, many United States and international commercial air carriers have
announced reductions in their long-term schedules. We can give no assurance
that these and other factors affecting the airline industry will not adversely
affect our business.
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 Companys debt financing and
capital lease obligations were comprised of the following at the following
dates:
September 30,
December 31,
2001
2000
(Dollars in thousands)
$
3,965,270
$
3,456,675
4,291,000
3,175,000
398,329
463,362
2,452,588
2,072,562
11,107,187
9,167,599
199,986
4,330,824
4,288,681
(11,295
)
(34,754
)
$
15,626,702
$
13,421,526
5.21
%
6.37
%
72.84
%
68.65
%
5.88
%
6.20
%
6.00
%
9.50
%
-12-
ITEM 2 | INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES |
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. Such financing is used primarily as backup for the Companys Commercial Paper Program.
The Company has an effective shelf registration with respect to $4.0 billion of debt securities, under which $300.0 million of notes were sold through September 30, 2001. Additionally, a $2.0 billion Medium-Term Note Program has been designated under the shelf registration, under which $1.2 billion of notes were sold through September 30, 2001.
The Company has a Euro Medium-Term Note Program for $2.0 billion, under which $771.0 million ( 750.0 million) in notes were sold as of September 30, 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 aircrafts 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 September 30, 2001, the Company had borrowed $2.8 billion under this facility to finance 62 aircraft.
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 Companys Commercial Paper Program was 3.26% and 6.63% at September 30, 2001 and 2000, respectively.
The Company believes that the combination of internally generated funds and debt financing available to the Company will allow the Company to meet its capital requirements for at least the next 12 months.
-13-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended September 30, 2001 versus 2000.
The 5.1% increase in revenues from the rentals of flight equipment from $603.1 million in 2000 to $633.7 million in 2001, is due to an increase in the number of aircraft available for operating lease. At September 30, 2001 the Companys leased fleet consisted of 455 aircraft compared to a fleet of 408 aircraft at September 30, 2000. The cost of the leased fleet, which includes aircraft subject to sale-lease back transactions from which rental income is earned, increased 12.7% from $22.1 billion in 2000 to $24.9 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. Revenues from flight equipment marketing decreased from $21.7 million in 2000 to $14.3 million in 2001 as a result of the type and the number of flight equipment marketed in each period. The Company sold five aircraft in the third quarter of 2001 compared to three aircraft and two engines in the third quarter of 2000.
Interest expense decreased from $206.6 million in 2000 to $188.9 million
in 2001 as a result of a decrease in the average composite borrowing rate from
6.36% in 2000 to 5.35% in 2001. The Companys composite borrowing rate
fluctuated as follows:
2001
2000
Decrease
5.49
%
6.33
%
(0.84
)%
5.21
%
6.38
%
(1.17
)%
5.35
%
6.36
%
(1.01
)%
The Company adopted SFAS 133 on January 1, 2001 (see notes to the unaudited condensed consolidated financial statements). Interest expense for the three months ended September 30, 2001 includes a $7.5 million credit related to the application of SFAS 133.
Depreciation of flight equipment increased from $181.4 million in 2000 to $207.9 million in 2001 due to the increased cost of the fleet.
The Company, in prior periods, has entered into sale-leaseback transactions relating to 18 aircraft. Rent expense decreased from $36.0 million in 2000 to $25.6 million in 2001 due to a decrease in the lease rates resulting from decrease in interest rates affecting the floating rate component of the lease rates and principal amortization.
Provision for overhauls remained relatively constant compared to the prior year.
Selling, general and administrative expenses increased from $11.4 million in 2000 to $15.6 million in 2001 primarily due to an increase in costs related to the reconfiguration and re-delivery of aircraft from one lessee to another.
-14-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Nine months ended September 30, 2001 versus 2000.
The 7.0% increase in revenues from the rentals of flight equipment from $1,716.0 million in 2000 to $1,836.9 million in 2001, is due to an increase in the number of aircraft available for operating lease. At September 30, 2001 the Companys leased fleet consisted of 455 aircraft compared to a fleet of 408 aircraft at September 30, 2000. The cost of the leased fleet, which includes aircraft subject to sale-lease back transactions from which rental income is earned, increased 12.7% from $22.1 billion in 2000 to $24.9 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. Revenues from flight equipment marketing increased from $43.3 million in 2000 to $53.2 million in 2001 primarily due to an increase in third party flight equipment marketing commissions. The Company sold seven aircraft and three engines in the nine months ended September 30, 2001 and five aircraft and six engines in the nine months ended September 30, 2000.
Interest expense increased from $565.9 million in 2000 to $594.6 million
in 2001 as a result of an increase in debt outstanding, excluding the effect of
debt discount and excluding market values of derivatives, from $13.6 billion in
2000 to $15.4 billion in 2001, partially offset by a decrease in the average
composite borrowing rate from 6.26% in 2000 to 5.79% in 2001. The Companys
composite borrowing rate fluctuated as follows:
Increase
2001
2000
(Decrease)
6.37
%
6.14
%
0.23
%
5.21
%
6.38
%
(1.17
)%
Average
5.79
%
6.26
%
(0.47
)%
The Company adopted SFAS 133 on January 1, 2001 (see notes to the financial statements). The transition adjustment in the amount of $15.2 million is accounted for as the cumulative effect of an accounting change. Interest expense for the nine months ended September 30, 2001 includes a $2.7 million credit related to the application of SFAS 133.
Depreciation of flight equipment increased from $522.5 million in 2000 to $590.6 million in 2001 due to the increased cost of the fleet.
The Company, in prior periods, has entered into sale-leaseback transactions relating to 18 aircraft. Rent expense decreased from $105.3 million in 2000 to $86.5 million in 2001 due to a decrease in the lease rates resulting from a decrease in interest rates affecting the floating rate component of the lease rates and principal amortization.
Provision for overhauls decreased from $80.2 million in 2000 to $78.2 million in 2001 due to the effect of favorable payout factors realized in the second quarter. The number of aircraft and aggregate number of hours flown on which the Company collects overhaul reserves remained relatively constant compared to the prior year. 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.
-15-
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, general and administrative expenses increased from $35.2 million in 2000 to $50.4 million in 2001 primarily due to an increase in costs related to the reconfiguration and re-delivery of aircraft from one lessee to another.
-16-
ITEM 3 | INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES |
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 judgment 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 foreign exchange prices. The Company statistically measures the loss of fair value through the application of a VaR model on a quarterly basis. In this analysis the net fair value of the Company is determined using the financial instrument assets. This includes tax adjusted future flight equipment lease revenues, aircraft residual values at maturity of the lease contracts and financial instrument liabilities, which includes future servicing of current debt. The impact of current derivative positions is also taken into account.
The Company calculates 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 September 30, 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 September 30, 2001, the VaR for the Company with respect to its fair value was $11 million and $7 million, respectively.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a) | Exhibits: |
4.1 | Third supplemental indenture, dated as of September 26, 2001, to the indenture between the Company and U. S. 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 July 17, 2001 (Item 7) |
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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
November 6, 2001 |
/S/ Leslie L. Gonda
LESLIE L. GONDA Chairman of the Board |
|
November 6, 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 | Third supplemental indenture, dated as of September 26, 2001, to the indenture between the Company and U. S. Trust National Association. | |||||
12.1 | Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends |
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Exhibit 4.1 | ||||||||
Exhibit 4.1 | ||||||||
Exhibit 12.1 |
Exhibit 4.1
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated as of September 26, 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 Companys unsecured debentures, notes or other evidences of indebtedness in one or more series.
Pursuant to the terms of the Indenture, an Officers Certificate dated March 10, 1998 (the Officers Certificate) and instructions from a Designated Person of the Company in connection with the Notes (as defined below), Medium-Term Notes, Series J, due October 16, 2006 in the aggregate principal amount of $100,000,000 (the Notes) were issued on September 11, 1998.
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 October 15, 2008. | |
(ii) 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.
7. The Company hereby represents that its decision to amend the terms of the Notes was made prior to September 10, 2001 and not motivated by considerations in respect of any material event related to its creditworthiness.
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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/ Alan H. Lund
|
||
Attest: | ||
/s/ Elizabeth Pasinski
|
||
U.S. BANK TRUST,
NATIONAL ASSOCIATION |
||
By: /s/ P.J. Crowley
P.J. Crowley Vice President |
||
Attest: | ||
/s/ David J. Kolibachuk
David J. Kolibachuk Vice President |
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ADDITIONAL TERMS
Interest Rates
During the period commencing with the Original Issue Date to but excluding October 15, 2003, the Notes will bear interest at a rate of 5.335% per annum and interest will be computed and paid on the basis of a 360-day year of twelve 30-day months.
If the Calculation Agent has not given the Put Notice (as defined below) or the Company has not repurchased the Notes (see Reset of Interest Rate for Second Fixed Rate Period below), then during the period from and including October 15, 2003 to the Maturity Date, the Notes will bear interest at a fixed rate calculated as described below (see Reset of Interest Rate for Second Fixed Rate Period below).
Put Option
The Calculation Agent has the right to require the Company to repurchase all (but not less than all) of the Notes on October 15, 2003 at a purchase price equal to 100% of the principal amount thereof, plus accrued but unpaid interest to but excluding October 15, 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 October 8, 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 October 15, 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 October 6, 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 October 8, 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 October 15, 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.
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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 (e) below by notifying the Calculation Agent of such election by no later than 9:15 a.m. (New York time) on October 8, 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 Companys 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 October 15, 2003 to the Maturity Date, discounted at the Discount Rate divided by two, where: | |
Treasury Rate Difference means the difference between 4.71% (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): |
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(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 $100,000,000, 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 October 15, 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 $100,000,000 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 $100,000,000 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
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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.
Business Day
If any action is required or permitted to be taken pursuant to these Additional Terms on a day that is not a Business Day, such action shall be required or permitted to be taken on the next succeeding day that is a Business Day.
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EXHIBIT 12.1
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS FOR THE NINE MONTHS ENDED SEPTEMBER, 2001 AND 2000
(Dollars in thousands)
2001
2000
(Unaudited)
$
368,223
$
317,201
195,589
171,060
685,362
663,891
44,220
35,583
$
1,204,954
$
1,116,569
$
11,678
$
13,596
153
%
154
%
$
17,751
$
20,938
594,567
565,880
44,220
35,583
46,575
62,428
685,362
663,891
$
703,113
$
684,829
1.76x
1.68x
1.71x
1.63x
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