10-K405 1 v68781e10-k405.txt FORM 10-K405 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ______________ COMMISSION FILE NUMBER 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE (TITLE OF CLASS) 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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K (SEC. 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] AS OF MARCH 12, 2001, THERE WERE 35,818,122 SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 INTERNATIONAL LEASE FINANCE CORPORATION 2000 FORM 10-K ANNUAL REPORT ------------------------ TABLE OF CONTENTS PART I
PAGE ---- Item 1. Business.................................................... 1 Item 2. Properties.................................................. 7 Item 3. Legal Proceedings........................................... 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 9 Item 6. Selected Financial Data..................................... 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 14 Item 8. Financial Statements and Supplementary Data................. 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 14 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 15
3 PART I ITEM 1. BUSINESS GENERAL International Lease Finance Corporation (the "Company") is primarily engaged in the acquisition of new and used commercial jet aircraft and the leasing of those aircraft to airlines throughout the world. In addition to its leasing activity, the Company regularly sells aircraft from its leased aircraft fleet and aircraft owned by others to third party lessors and airlines and in some cases provides fleet management services to these buyers. The Company, in terms of the number and value of transactions concluded, is a major owner- lessor of commercial jet aircraft. As of December 31, 2000, the Company's lease portfolio consisted of 401 aircraft under operating lease and three aircraft under finance lease. Additionally, the Company provided fleet management services for 89 aircraft. See "Item 2. Properties -- Flight Equipment." At December 31, 2000, the Company had committed to purchase 488 aircraft deliverable through 2009 at an estimated aggregate purchase price of $27.3 billion, of which the Company currently anticipates taking delivery of 67 aircraft in 2001 with an estimated aggregate purchase price of $3.5 billion. It also had options to purchase an additional 51 aircraft deliverable through 2007 at an estimated aggregate purchase price of $3.0 billion. See "Item 2. Properties -- Commitments." The Company maintains the mix of flight equipment to meet its customers' needs and to minimize the time that its aircraft are not leased to customers by purchasing those models of new and used aircraft which it believes will have the greatest airline demand and operational longevity. The Company purchases, and finances the purchase of, aircraft on terms intended to permit the Company to lease or sell such aircraft at a profit. The Company typically finances the purchase of aircraft with borrowed funds and internally generated cash flow. The Company accesses the capital markets for such funds at times and on terms and conditions it considers appropriate. The Company may, but does not necessarily, engage in financing transactions for specific aircraft. The Company relies significantly on short- and medium-term financing, and thereby attempts to manage interest rate exposure. To date, the Company has been able to purchase aircraft on terms which have permitted it to lease the aircraft at a profit and has not experienced any difficulty in obtaining financing. The Company's aircraft are usually leased on terms under which the Company does not fully recover the acquisition cost of such aircraft. Thus, at the termination of a lease, the Company bears the risk of selling or re-leasing the aircraft on terms which will cover its remaining cost. The airline industry is cyclical, economically sensitive and highly competitive. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's revenue and income may be affected by political or economic instability abroad, changes in national policy, competitive pressures on certain air carriers, fuel shortages, labor stoppages, recessions, and other political or economic events adversely affecting world or regional trading markets or impacting a particular customer. The Company's continued success is partly dependent on management's ability in the future to develop customer relationships for leasing, sales, remarketing and management services with those airlines and other customers best able to maintain their economic viability and survive in a deregulated environment. The Company is incorporated in the State of California and its principal executive offices are located at 1999 Avenue of the Stars, Los Angeles, California 90067. The Company's telephone and telecopier numbers are (310) 788-1999 and (310) 788-1990, respectively. The Company is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries is primarily engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. The Common Stock of AIG is listed on, among others, the New York Stock Exchange. 1 4 AIRCRAFT LEASING The initial term of the Company's current leases range in length from one year to 15 years. See "Item 2. Properties -- Flight Equipment" for information regarding scheduled lease terminations. Most of the Company's leases are operating leases under which the Company does not fully recover its aircraft cost and retains the benefit and assumes the risk of the residual value of the aircraft. The Company on occasion also enters into finance and sales-type leases where the full cost of the aircraft is substantially recovered over the term of the lease. At December 31, 2000, three of the Company's leases were accounted for as finance leases. The aircraft under operating leases are included as assets on the Company's balance sheet and depreciation is charged to income over the estimated useful lives of the aircraft. In accordance with generally accepted accounting principles, rentals are reported ratably as revenue over the lease term as they are earned. The Company attempts to maintain a mix of short- and medium-term leases to balance the benefits and risks associated with different lease terms and changing market conditions. Varying lease terms mitigate the effects of changes in prevailing market conditions at the time aircraft become eligible for re-lease or sale and the uncertainty associated with the estimated residual value of the aircraft at the end of the lease term. All leases are on a "net" basis with the lessee responsible for all operating expenses, which customarily include fuel, crews, airport and navigation charges, taxes, licenses, registration and insurance. Normal maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of flight equipment on lease are provided by and paid for by the lessee. Under the provisions of most leases, for certain airframe and engine overhauls, the lessee is reimbursed by the Company for costs incurred up to but not exceeding related hourly rentals paid to the Company by the lessee. Such rentals are included in the caption Rental of flight equipment. The Company provides a charge to operations for such reimbursements based on the estimated reimbursements during the life of the lease, which amount is included in overhaul reserves. The lessee is responsible for compliance with all applicable laws and regulations with respect to the aircraft. The Company requires its lessees to comply with the most restrictive standards of either the Federal Aviation Administration (the "FAA") or its foreign equivalent. The Company makes periodic inspections of the condition of its leased aircraft. Generally, the Company requires a deposit which is security for the condition of aircraft upon return to the Company, the rental payments by the lessee and the performance of other obligations by the lessee under the lease. In addition, the leases contain extensive provisions regarding the remedies and rights of the Company in the event of a default thereunder by the lessee and specific provisions regarding the condition of the aircraft upon redelivery to the Company. The lessee is required to continue to make lease payments under all circumstances, including periods during which the aircraft is not in operation due to maintenance or grounding. The Company obtains and reviews relevant business materials from all prospective lessees and purchasers before entering into a lease or extending credit. Under certain circumstances, the Company may require the lessee to obtain guarantees or other financial support from an acceptable financial institution or other third party. FLIGHT EQUIPMENT MARKETING The Company also regularly disposes of its leased aircraft at or before the expiration of their leases. The buyers include the aircraft's lessee, another aircraft operator or a third party lessor. Any gain or loss on disposition of leased aircraft is included in the caption Flight equipment marketing. From time to time, the Company also engages in transactions to buy aircraft for resale. In some cases, the Company assists its customers in acquiring or disposing of aircraft through consulting services and procurement of financing from third parties. In addition to its leasing and sales operations, the Company is engaged, from time to time, as an agent for airlines in the disposition of their surplus aircraft. The Company generally acts as an agent under an exclusive remarketing contract whereby it agrees to sell aircraft on a "best efforts" basis within a fixed time period. These activities generally augment the Company's primary activities and also serve to promote relationships with prospective sellers and buyers of aircraft. 2 5 The Company plans to continue its remarketing services on a selective basis involving specific situations where these activities will not conflict or compete with, but rather will be complementary to, its leasing and selling activities. FLEET MANAGEMENT SERVICES The Company provides fleet management services to third party operating lessors who are unable or unwilling to perform this service as part of their own operation. The Company typically provides the same services that it performs for its own fleet. Specifically, the Company provides leasing, re-leasing and sales services on behalf of the lessor for which the Company receives a fee. FINANCING/SOURCE OF FUNDS The Company purchases new aircraft directly from manufacturers and used aircraft from airlines and other owners. The Company finances the purchase price of flight equipment from internally generated funds, secured and unsecured commercial bank financings and the issuance of commercial paper, public and private debt and preferred stock. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." CUSTOMERS At December 31, 2000, the Company leased aircraft, and managed aircraft leased, to the following airlines: (domestic) Alaska Airlines, America West, Continental Airlines, Frontier Airlines, Jet Blue, National Airlines, North American Airlines, Southwest Airlines, Trans World Airlines (TWA), and World Airways; (foreign) Aer Lingus, Aeris, Aero Continente, Aeroflot, Aero Lloyd Flugreisen, Aeromexico, Air 2000, Air Afrique, Air Alfa, Air Anatolia, Air Atlanta Icelandic, Air Canada, Air Europa (Air Espana SPA), Air Europe SpA, Air France, Air Jamaica, Air Liberte, Air Macau, Air Madagascar, Air Malta, Air Mauritius, Air New Zealand, Air One, Air Pacific, Air Plus Comet, Air Seychelles, Air Transat, Air Vanuatu, Alitalia, Ansett Australia, Asiana Airlines, Austrian Airlines, Avianca, Balair, Brussels International Airline, Braathens S.A.F.E., Britannia Airways, British Airways, British Midland Airways, Blue Panorama, BWIA, Canada 3000, Canadian Airlines, Cathay Pacific, China Airlines, China Hainan Airlines, China Northwest, China Southern Airlines, China Southwest Airlines, China Xinjiang, Cyprus Airways, Easy Jet, El Al Israel Airlines, Emirates, Estonian Air, Far Eastern Air Transport, Finnair, Garuda Indonesia, GB Airways, Hapag-Lloyd Flug, Heliopolis, Hong Kong Dragon Airlines (Dragonair), Iberia, Icelandair, JMC Airlines, Kenya Airways, KLM Royal Dutch Airlines, KLM City Hoppers, L'Aeropostale, Lineas Aereas Privadas Argentinas, S.A. (LAPA), Lithuanian, Lloyd Aero Boliviano (LAB), Linea Aerea Nacional Chile, Lotus Air, LTU Luftransport-Unternehmen, Lufthansa, Malev, Mandarin Airlines, Martinair Holland, Mediterranean Airlines, Meridiana, Mexicana, Middle East Airlines Airliban, Monarch Airlines, Olympic Airways, Oman Aviation, Pegasus, Polynesian Airlines, QANTAS, Rio Sul, Royal Jordanian, Sabena, Sabre Airways, Sahara India Airlines, Shanghai, Shenzhen, Sichuan Airlines, Skymark, Skyservice Airlines, Spanair, Star, Sterling European, Swissair, TACV Cabo Verde, TAP Air Portugal, Turk Hava Yollari (THY), Transavia, Transbrasil, Varig, Vietnam Airlines, Virgin Atlantic Airways, Virgin Blue, Volare, Wuhan Airlines, Xiamen Airlines and Yemenia. No single customer accounted for more than 10% of total revenues in any of the last three years. Revenues include rentals of flight equipment to foreign airlines of $2,026,017,000 (2000), $1,842,126,000 (1999) and $1,623,891,000 (1998) comprising 88.0%, 88.5% and 87.6%, respectively, of total rentals of flight equipment. See Note J of Notes to Consolidated Financial Statements. 3 6 The following table sets forth the dollar amount and percentage of total rental revenues attributable to the indicated geographic areas based on each airline's principal place of business for the years indicated:
2000 1999 1998 ------------------ ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % ---------- ----- ---------- ----- ---------- ----- (DOLLARS IN THOUSANDS) Europe............................. $1,054,783 45.8% $ 946,335 45.5% $ 798,773 43.1% Asia/Pacific....................... 462,426 20.1 421,337 20.3 410,600 22.1 United States and Canada........... 437,745 19.0 389,593 18.7 333,472 18.0 Central and South America and Mexico........................... 229,438 10.0 201,405 9.7 190,572 10.3 Africa and the Middle East......... 117,048 5.1 121,885 5.8 120,566 6.5 ---------- ----- ---------- ----- ---------- ----- $2,301,440 100.0% $2,080,555 100.0% $1,853,983 100.0% ========== ===== ========== ===== ========== =====
The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue based on each airline's principal place of business for the years indicated:
2000 1999 1998 ---------------- ---------------- ---------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) United Kingdom....................... $276,340 12.0% $292,278 14.0% $257,906 13.9% United States........................ 275,423 12.0 238,429 11.5 241,379 13.0 China (including Macau and Hong Kong)*........................ 251,372 10.9 255,922 12.3 250,394 13.5 * Macau 33,504 36,128 36,122 Hong Kong 77,364 84,787 86,345
Many foreign countries have currency and exchange laws regulating the international transfer of currencies. The Company attempts to minimize its currency and exchange risks by negotiating most of its aircraft leases and all of its sales transactions in U.S. dollars, and all guarantees obtained to support various lease agreements are denominated for payment in the same currency as the lease. The Company requires, as a condition to any foreign transaction, that the lessee or purchaser in a foreign country first obtain, if required, written approval of the appropriate government agency, finance ministry or central bank for the remittance of all funds contractually owed to the Company in U.S. dollars. Some of the Company's leases are negotiated in Euros to meet the needs of a growing number of airlines. As the Euro to U.S. Dollar exchange rate improves, more airlines will have an interest in making Euro denominated rental payments. However, as the Euro to U.S. Dollar exchange rate worsens, fewer airlines will be interested in Euro payments. Once an airline and the Company agree to the rental payment currency, it remains for the term of the lease. Euro denominated leases are primarily used as a hedge against Euro denominated debt obligations of the Company. As a result, the Company has sufficient Euro inflows from leases and currency swaps to meet its Euro denominated debt obligations. Foreign currency risk has, to date, been immaterial to the Company. On January 10, 2001, one of the Company's customers, Transworld Airways ("TWA") filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. As of March 12, 2001, the bankruptcy court confirmed that American Airlines would acquire substantially all of the assets and leases of TWA, including the leases of 16 aircraft owned by the Company. The Company has restructured leases with both foreign and domestic lessees. Such restructurings have involved the voluntary termination of leases prior to lease expiration, the replacement of leased aircraft with smaller, less expensive leased aircraft, the arrangement of subleases from the primary lessee to another airline and the rescheduling of lease payments. In some situations where the Company repossesses an aircraft, it may decide to export the aircraft from the lessee's jurisdiction. In the majority of these situations, the Company obtains the lessee's cooperation and the return and export of the aircraft is immediate. In some situations, however, the lessees have not cooperated in returning aircraft, in which case the Company has had to take legal action in the appropriate jurisdictions which has delayed the ultimate return and export of the aircraft. In addition, in connection with the repossession of an aircraft, the Company may be required to pay outstanding 4 7 mechanic's, airport and other operating liens on the repossessed aircraft, which could include charges relating to other aircraft operated by the lessee. The Company's revenues and income may be affected by political or economic instability abroad, changes in national policy, competitive pressures on certain air carriers, fuel shortages, labor stoppages, recessions and other political or economic events adversely affecting world or regional trading markets or impacting a particular customer. Recently, the increase in the cost of jet fuel has resulted in serious financial implications for some airlines. Those airlines not able to hedge all or part of their fuel costs are at the greatest risk. COMPETITION The leasing and sale of jet aircraft is highly competitive. Aircraft manufacturers and the airlines sell new and used jet aircraft. Furthermore, the Company faces competition in leasing aircraft from aircraft manufacturers, banks, financial institutions and other leasing companies. There is also competition with respect to its remarketing activities from many sources, including, but not limited to, aircraft brokers. GOVERNMENT REGULATION The FAA and the U.S. Departments of Transportation and State exercise regulatory authority over air transportation in the United States. The U.S. Departments of Transportation and State, in general, have jurisdiction over the economic regulation of air transportation, including the negotiation with foreign governments of the rights of U.S. carriers to fly to other countries and the rights of foreign carriers to fly to and within the United States. The FAA has regulatory jurisdiction over the maintenance and operation of U.S. air carriers, the operation of aircraft in the United States by foreign carriers and the registration of aircraft in the United States. The FAA can suspend or revoke the authority of U.S. air carriers or their licensed personnel and can similarly revoke the authority of foreign air carriers to operate within the United States for failure to comply with FAA regulations. The FAA can also ground aircraft if their airworthiness is in question. In every foreign country, similar government agencies regulate the country's air carriers, the operations of foreign airlines in the country and the registration of aircraft. Like the FAA, the civil aviation authority in a foreign country can suspend or revoke the operating authority of an airline and ground aircraft for safety reasons. Since the Company does not itself operate its aircraft for public transportation of passengers and property, the Company is not directly subject to the regulatory jurisdiction of the U.S. Departments of Transportation and State or their counterpart organizations in foreign countries. The Company's relationship with the FAA consists of the registration with the FAA of those aircraft which are leased by the Company to U.S. carriers and to a number of foreign carriers where, by agreement, the aircraft are to be registered in the United States. In limited circumstances, the Company also obtains from the FAA or its designated representatives a U.S. Certificate of Airworthiness for a particular aircraft or a ferry flight permit. The Company's involvement with the civil aviation authorities of foreign jurisdictions consists largely of requests to register and deregister the Company's aircraft on lease to carriers in those countries. The Company also works with U.S. Customs with respect to the import and export of the Company's aircraft into and from the United States for maintenance or lease. EMPLOYEES The Company is in a capital intensive rather than a labor intensive business. As of December 31, 2000, the Company had 104 full-time employees, which it considered adequate for its business operations. The Company will expand its management and administrative personnel, as necessary, to meet future growth. None of the Company's employees is covered by a collective bargaining agreement and the Company believes 5 8 that it has maintained excellent employee relations. The Company provides certain employee benefits, including retirement plans and health, life, disability and accident insurance. INSURANCE The Company requires its lessees to carry those types of insurance which are customary in the air transportation industry, including comprehensive liability insurance and aircraft hull insurance. In general, the Company is an additional insured on liability policies carried by the lessees. All policies contain a breach of warranty endorsement so that the interests of the Company are not prejudiced by any act or omission of the operator-lessee. Insurance premiums are paid by the lessee, with coverage acknowledged by the broker or carrier. The territorial coverage is, in each case, suitable for the lessee's area of operations and the policies contain, among other provisions, a "no co-insurance" clause and a provision prohibiting cancellation or material change without at least 30 days advance written notice to the Company. Furthermore, the insurance is primary and not contributory and all insurance carriers are required to waive rights of subrogation against the Company. The stipulated loss value schedule under aircraft hull insurance policies is on an agreed value basis acceptable to the Company, which usually exceeds the book value of the aircraft. In cases where the Company believes that the agreed value stated in the lease is not sufficient, the Company purchases additional Total Loss Only coverage for the deficiency. Aircraft hull policies contain standard clauses covering aircraft engines. All deductibles are required to be paid by the lessee. Furthermore, the aircraft hull policies contain full war risk endorsements, including, but not limited to, confiscation, seizure, hijacking and similar forms of retention or terrorist acts. All losses under such policies are payable in U.S. dollars. The comprehensive liability insurance policies include provisions for bodily injury, property damage, passenger liability, cargo liability and such other provisions reasonably necessary in commercial passenger and cargo airline operations with minimal deductibles. Such policies generally have combined comprehensive single liability limits of not less than $250 million. Additionally, all aircraft in the Company's fleet are covered by contingent liability insurance and contingent hull insurance. The Company also maintains other insurance covering the specific needs of its business operations. Insurance policies are generally placed or reinsured through AIG subsidiaries, with costs allocated back to the Company. The Company believes that its insurance is adequate both as to coverage and amount. FORWARD-LOOKING STATEMENTS This annual report on Form 10-K contains or incorporates statements that constitute forward-looking statements. Those statements appear in a number of places in this Form 10-K and include statements regarding, among other matters, the Company's growth and acquisition opportunities, the Company's acquisition strategy, regulatory matters pertaining to compliance with governmental regulations and other factors affecting the Company's financial condition or results of operations. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and "should" and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or industry results to vary materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others, general industry economic and business conditions, which will, among other things, affect demand for aircraft, availability and creditworthiness of current and prospective lessees, lease rents, availability and cost of financing and operating expenses, governmental actions and initiatives and environmental and safety requirements. The Company will not update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information. 6 9 ITEM 2. PROPERTIES FLIGHT EQUIPMENT The Company's management frequently reviews opportunities to acquire suitable commercial jet aircraft based not only on market demand and customer airline requirements, but also on the Company's fleet portfolio mix criteria and planning strategies for leasing. Before committing to purchase specific aircraft, the Company takes into consideration factors such as estimates of future values, potential for remarketing, trends in supply and demand for the particular type, make and model of aircraft and engines and anticipated obsolescence. As a result, certain types and vintages of aircraft do not necessarily fit the profile for inclusion in the Company's portfolio of aircraft owned and used in its leasing operations. At December 31, 2000, all of the Company's fleet was Stage III compliant, meaning that the aircraft hold or are capable of holding a noise certificate issued under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago Convention or have been shown to comply with the Stage III noise levels set out in Section 36.5 of Appendix C of Part 36 of the Federal Aviation Regulations of the United States. At December 31, 2000, the average age of the Company's aircraft was 4.32 years. The following table shows the scheduled lease terminations (for the minimum noncancelable period) by aircraft type for the Company's operating lease portfolio at December 31, 2000:
AIRCRAFT TYPE 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 TOTAL ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- 737-300/400/500...... 6 20 24 7 13 4 3 1 78 737-700/800.......... 1 1 5 5 4 1 6 4 1 1 29 757-200.............. 4 6 6 3 10 7 9 4 2 3 1 55 767-200.............. 1 1 2 767-300.............. 4 16 8 7 6 2 1 2 1 1 48 777-200.............. 2 2 3 2 2 11 777-300.............. 1 1 747-300.............. 1 1 2 747-400.............. 7 2 2 11 MD-83................ 1 1 DC10-30.............. 2 2 MD-11................ 3 3 6 A300-600R............ 2 1 1 2 6 A310-300............. 3 1 1 2 7 A319................. 2 2 7 7 2 20 A320................. 2 18 9 6 5 2 2 1 3 48 A321................. 2 3 5 9 2 3 6 3 33 A330-200............. 3 3 2 8 2 18 A330-300............. 5 3 1 1 1 11 A340................. 9 2 1 12 -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- Total................ 25 73 73 45 62 42 34 13 8 10 6 9 0 1 401
--------------- This schedule includes 19 aircraft leased by the Company and subleased to others and excludes one aircraft which was not subject to lease at December 31, 2000, but was subsequently leased. 7 10 COMMITMENTS At December 31, 2000, the Company had committed to purchase the following aircraft at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $27.2 billion for delivery as shown:
AIRCRAFT TYPE 2001 2002 2003 2004 2005 2006 2007 2008 2009 TOTAL ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- 737-300........................ 2 2 737-600/700/800(a)............. 27 24 25 26 26 21 21 170 757-200........................ 3 2 1 6 767-300........................ 3 1 1 1 6 777-200........................ 6 4 2 5 5 6 4 3 3 38 777-300........................ 1 2 2 2 2 2 11 A318........................... 2 5 6 6 6 5 30 A319........................... 5 4 9 9 11 8 7 4 57 A320-200....................... 13 11 13 7 8 11 9 10 82 A321-200....................... 1 4 5 3 6 5 5 5 34 A330-200....................... 3 10 4 7 5 3 3 3 38 A330-300....................... 1 1 A340/300/500/600(a)............ 2 2 1 1 4 3 13 -- -- -- -- -- -- -- -- -- --- Total..................... 67 66 68 67 73 65 54 25 3 488
--------------- (a) The Company has the right to designate the size of the aircraft within the specific model type at specific dates prior to contractual delivery. At December 31, 2000, the Company had options to purchase the following aircraft at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $3.0 billion for delivery as shown:
AIRCRAFT TYPE 2001 2002 2003 2004 2005 2006 2007 2008 2009 TOTAL ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- 737-600/700/800................ 1 3 1 1 2 3 11 777-200/300.................... 2 1 1 2 6 A319........................... 1 2 2 2 1 8 A320-200....................... 2 1 1 1 2 1 8 A321-200....................... 3 2 1 1 1 1 9 A330-200....................... 3 1 1 1 1 7 A340-300/500/600............... 2 2 -- -- -- -- -- -- -- -- -- -- 0 2 15 9 7 5 10 3 0 51
Management anticipates that a significant portion of such aggregate purchase price will be funded by incurring additional debt. The exact amount of the indebtedness to be incurred will depend upon the actual purchase price of the aircraft, which can vary due to a number of factors, including inflation, and the percentage of the purchase price of the aircraft which must be financed. The aircraft listed above are being purchased pursuant to master agreements with each of The Boeing Company ("Boeing") and AVSA, S.A.R.L., the sales subsidiary of Airbus Industrie ("Airbus"). These agreements establish the pricing formulas (which include certain price adjustments based upon inflation and other factors) and various other terms with respect to the purchase of aircraft. Under certain circumstances, the Company has the right to alter the mix of aircraft type ultimately acquired. As of December 31, 2000, the Company had made non-refundable deposits (exclusive of capitalized interest) with respect to the aircraft which the Company has committed to purchase of approximately $583,370,000 and $372,360,000 with Boeing and Airbus, respectively. As of March 15, 2000, the Company had entered into contracts for the lease of all of the 67 aircraft to be delivered in 2001, 62 of the 66 aircraft to be delivered in 2002, 25 of the 68 aircraft to be delivered in 2003, 5 of 8 11 the 67 aircraft to be delivered in 2004 and 4 of the 220 aircraft to be delivered subsequent to 2004. The Company will need to find customers for aircraft presently on order and any new aircraft ordered and will need to arrange financing for portions of the purchase price of such equipment. Although the Company has been successful to date in placing its new aircraft on lease and has obtained adequate financing in the past, there can be no assurance as to the future continued availability of lessees or of sufficient amounts of financing on terms acceptable to the Company. FACILITIES The Company's principal offices are located at 1999 Avenue of the Stars, Los Angeles, California. The Company occupies space under leases which expire in 2005. As of December 31, 2000, the Company occupied approximately 44,000 square feet of office space with a signed agreement to obtain an additional 9,700 square feet during 2001. The leases provide for annual rentals of approximately $3,000,000, and the rental payments thereunder are subject to certain indexed escalation provisions. The Company signed a lease for approximately 127,000 square feet of office space at 10270 Constellation Avenue, Los Angeles, California starting in 2004. The lease provides for annual average rent of approximately $9,000,000. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any significant legal proceedings. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company is indirectly wholly owned by AIG and the Company's Common Stock is not listed on any national exchange or traded in any established market. During the years ended December 31, 2000, 1999 and 1998, the Company paid cash dividends to its parent company of $206,000,000, $69,500,000 and $25,200,000, respectively. It is the intent of the Company to pay its parent company an annual dividend of at least 7% of net income subject to the dividend preference of any preferred stock outstanding. Under the most restrictive provisions of the Company's borrowing arrangements, consolidated retained earnings at December 31, 2000 in the amount of $741,437,000 were unrestricted as to the payment of dividends. 9 12 ITEM 6. SELECTED FINANCIAL DATA The following table summarizes selected consolidated financial data and certain operating information of the Company. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) OPERATING DATA: Rentals of flight equipment..... $ 2,301,440 $ 2,080,555 $ 1,853,983 $ 1,732,667 $ 1,444,439 Flight equipment marketing...... 99,716 147,216 118,183 176,005 136,099 Interest and other income....... 77,589 72,317 73,500 49,335 51,976 Total revenues.................. 2,478,745 2,300,088 2,045,666 1,958,007 1,632,514 Expenses........................ 1,772,552 1,596,683 1,483,392 1,431,848 1,237,575 Income before income taxes...... 706,193 703,405 562,274 526,159 394,939 Net income...................... 468,901 453,447 369,352 338,684 251,774 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS(1): 1.68x 1.75x 1.60x 1.58x 1.47x BALANCE SHEET DATA: Flight equipment under operating leases (net of accumulated depreciation)................. $17,878,389 $16,096,053 $14,872,430 $12,792,531 $12,182,774 Net investment in finance and sales-type leases............. 114,062 56,555 89,904 98,026 103,629 Total assets.................... 19,705,529 17,507,124 16,379,632 14,551,954 13,725,596 Total debt...................... 13,421,526 11,861,796 11,184,010 9,954,362 9,794,260 Shareholders' equity............ 3,463,779 3,210,192 2,844,375 2,517,188 2,214,552 OTHER DATA: Aircraft owned at period end(2)........................ 383 338 329 299 296 Aircraft sold or remarketed during the period............. 20 51 31 57 37
--------------- (1) See Exhibit 12. (2) See "Item 2. Properties -- Flight Equipment." 10 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INDUSTRY CONDITION From time to time, certain of the Company's customers have experienced economic difficulties resulting in the Company's participation in customer restructurings. Such restructurings have involved the voluntary early termination of leases and the rescheduling of payments. In addition, in certain circumstances, the Company has been required to repossess aircraft. See "Item 1. Business -- Customers." FINANCIAL CONDITION The Company borrows funds to purchase flight equipment (see "Item 2. Properties -- Commitments"), including funds for progress payments during the construction phase, principally on an unsecured basis from various sources. At December 31, 2000, 1999 and 1998, the Company's debt financing and capital lease obligations were comprised of the following:
2000 1999 1998 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Public term debt with single maturities............................. $ 3,456,675 $ 3,721,330 $ 3,825,000 Public medium-term notes with varying maturities............................. 3,175,000 3,225,500 3,348,350 Capital lease obligations................ 463,362 669,576 810,768 Bank term debt........................... 2,072,562 1,295,038 -- ----------- ----------- ----------- Total term debt, bank debt and capital lease obligations..... 9,167,599 8,911,444 7,984,118 Commercial paper......................... 4,288,681 2,978,353 3,214,744 Less: Deferred debt discount............. (34,754) (28,001) (14,852) ----------- ----------- ----------- Debt financing and capital lease obligations................... $13,421,526 $11,861,796 $11,184,010 =========== =========== =========== Composite interest rate.................. 6.37% 6.14% 6.03% Percentage of total debt at fixed rate... 68.65% 69.28% 64.20% Composite interest rate on fixed debt.... 6.20% 6.06% 6.41% Bank prime rate.......................... 9.50% 8.50% 7.75%
Public Debt The interest on substantially all of the public debt (exclusive of the commercial paper) is fixed for the term of the note. As of December 31, 2000, the Company had an effective shelf registration statement with respect to $2.0 billion of debt securities, under which $925 million of notes were sold through December 31, 2000. Additionally, a $1,075 million Medium-Term Note program was implemented under the shelf registration statement, under which $1.0 billion was sold through December 31, 2000 and $1,075 million was sold through March 16, 2001. The Company's new shelf registration statement in the amount of $2.0 billion became effective on January 5, 2001, under which $800 million of notes have been sold as of March 16, 2001. In addition, a $750 million Medium-Term Note program was implemented on January 19, 2001 under which $200 million have been sold as of March 16, 2001. The Company has a Euro Medium Term Note Program for $2.0 billion, under which $771 million (E750 million) in notes were sold through December 31, 2000. The Company has hedged the foreign currency risk of the notes through operating lease payments or through swaps. Capital Lease Obligations The Company has Export Credit Lease financings which provide ten year, amortizing loans in the form of capital lease obligations. The interest rate on 62.5% of the original financing available is 6.55% and the interest rate on 22.5% of the original financing available is fixed at rates varying between 6.18% and 6.89%. These two tranches are guaranteed by various European Export Credit Agencies. The remaining 15% of the original financing available provides for LIBOR based pricing. This 15% tranche was prepaid in 2000. 11 14 Bank Term Debt In January 1999, the Company entered into an Export Credit Facility, 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% on the first 75 aircraft depending on the delivery date of the aircraft. Through March 9, 2001, the Company borrowed $2.2 billion under this facility. Commercial Paper 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 6.63%, 5.87% and 5.30% at December 31, 2000, 1999 and 1998 respectively. Bank Commitments As of December 31, 2000, the Company had 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 Company's Commercial Paper program. In November 2000, the Company replaced $1.5 billion of the committed revolving loans with a new 364 day facility for $1.8 billion at reduced pricing. Other In 1995, 1996 and 1997, the Company, through subsidiaries, entered into sale-leaseback transactions providing proceeds to the Company in the amounts of $413.0 million, $507.6 million and $601.9 million, respectively, each relating to seven aircraft. The transactions resulted in the sale and leaseback of these aircraft under one year operating leases, each with six one year extension options for a total of seven years for each aircraft. The Company has the option to either buy back the aircraft or redeliver the aircraft for a fee to the lessor at the end of any lease period. The lease rates equate to fixed principal amortization and floating interest payments based on LIBOR or commercial paper pricing. As of December 31, 2000, the Company had repurchased two aircraft which were sold to third parties. 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. In the normal course of business, the Company employs a variety of off-balance sheet financial instruments and other derivative products to manage its exposure to interest rates and the resulting impact of changes in interest rates on earnings, with the objective to lower its overall borrowing cost and to maintain its optimal mix of variable and fixed rate interest obligations. The Company only enters into derivative transactions to hedge interest rate risk and currency risk and not to speculate on interest rates or currency fluctuations. These derivative products include interest rate swap agreements, currency swap agreements, and interest rate floors. The counterparty to the Company's derivative instruments is American International Group Financial Products ("AIGFP"), a related party with a "AAA" rating, on an arm's length basis. The derivatives are subject to a bilateral security agreement which, in certain circumstances, may allow one party to the agreement to require the second party to the agreement to establish a cash collateral account. It is management's belief that any failure of the instruments or counterparty to perform under the derivative contracts would have an immaterial impact on the Company's financial condition and results of operations. 12 15 RESULTS OF OPERATIONS The increase in revenues from rentals of flight equipment from $1,854.0 million in 1998 to $2,080.6 million in 1999 to $2,301.4 million in 2000 is due to the increase in the number of aircraft available for operating lease from 349 in 1998, to 357 in 1999 to 402 in 2000. The increase is also attributable to the increase in the cost of the leased fleet, which includes aircraft subject to sale-leaseback transactions from which rental income is earned, from $18.3 billion in 1998 and $19.7 billion in 1999 to $22.0 billion in 2000. Additionally, the percentage of the number of widebodies, for which higher lease payments are typically received, has increased from 30% to 33% to 35% of the fleet in 1998, 1999 and 2000, respectively. 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 such flight equipment marketing increased from $118.2 million in 1998 to $147.2 million in 1999 and decreased to $99.7 million in 2000 as a result of the type and the number of the flight equipment marketed in each period which fluctuated from 31 aircraft in 1998 to 51 aircraft in 1999 and to 20 in 2000. In addition, the Company sold 15 engines (1998), 13 engines (1999) and 7 engines (2000). Interest expense fluctuated from $640.0 million in 1998, to $686.8 million in 1999 to $773.5 in 2000, as a result of an increase in debt outstanding, excluding the effect of debt discount, from $11.2 billion in 1998 to $11.9 billion in 1999 to $13.5 billion in 2000, to finance aircraft acquisitions, offset in part by lower composite borrowing rates during 1999 and increased by higher composite borrowing rates in 2000. The Company's composite borrowing rate fluctuated as follows: December 31, 1997........................................... 6.44% March 31, 1998.............................................. 6.29 June 30, 1998............................................... 6.22 September 30, 1998.......................................... 6.18 December 31, 1998........................................... 6.03 March 31, 1999.............................................. 5.90 June 30, 1999............................................... 5.85 September 30, 1999.......................................... 6.03 December 31, 1999........................................... 6.14 March 31, 2000.............................................. 6.12 June 30, 2000............................................... 6.33 September 30, 2000.......................................... 6.38 December 31, 2000........................................... 6.37
Depreciation of flight equipment increased from $556.1 million in 1998 to $637.3 million in 1999 to $705.7 million in 2000 due to the increased cost of the fleet. The cost of flight equipment during the same periods increased from $16.9 billion at December 31, 1998 to $18.2 billion at December 31, 1999 to $20.5 billion in 2000. Provisions for overhauls decreased from $102.5 million in 1998 to $94.5 million in 1999 and increased to $104.5 million in 2000 due to changes in the number of aircraft on which the Company collects overhaul revenue. A decrease or increase in the number of aircraft may result in a corresponding decrease or increase in the aggregate number of hours flown, for which overhaul reserves are provided. Rent expense decreased from $138.4 million in 1998 to $130.0 million in 1999, due to a decrease in the number of sale-leaseback transactions, and increased to $141.0 million in 2000 due to an increase in the lease rates resulting from an increase in interest rates affecting the floating rate component of the lease rates, partially offset by amortization. The Company, through subsidiaries, has entered into sale-leaseback transactions relating to 21 aircraft. As of December, 2000, the Company had repurchased two of the aircraft, previously subject to Sale-lease back transactions, which were sold to third parties. The effective tax rate increased from 34.3% in 1998 to 35.5% in 1999 and decreased to 33.6% in 2000. NEW ACCOUNTING PRONOUNCEMENTS, ISSUED BUT NOT YET EFFECTIVE On September 25, 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 138, Accounting for Derivative Instruments and Hedging Activities -- An 13 16 Amendment of FASB Statement No. 133. (SFAS 138). SFAS 138 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In connection with the adoption of SFAS No. 133 on January 1, 2001, the Company recorded in its transition adjustment an increase in Net Income of approximately $15 million (net of taxes of approximately $8 million) and decreased Accumulated Other Comprehensive Income by approximately $20 million (net of taxes of approximately $11 million). ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 to estimate 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. As of December 31, 2000 and 1999, 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 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, 1999 and 2000 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 December 31, 1999 and December 31, 2000, the VaR for the Company with respect to its fair value was $50 million and $11 million, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item is submitted as a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 14 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) and (2): Financial Statements and Financial Statement Schedule: The response to this portion of Item 14 is submitted as a separate section of this report beginning on page 15. (a)(3) and (c): Exhibits: The response to this portion of Item 14 is submitted as a separate section of this report beginning on page 15. (b) Reports on Form 8-K: Current Report on Form 8-K: Form 8-K, event date November 1, 2000 (Item 7) Form 8-K, event date January 10, 2001 (Item 7) Form 8-K, event date January 19, 2001 (Item 7) Form 8-K, event date January 19, 2001 (Item 7) 15 18 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES FORM 10-K ITEMS 8, 14(a), AND 14(c) INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE The following consolidated financial statements of the Company and its subsidiaries required to be included in Item 8 are listed below:
PAGE ---- Report of Independent Accountants........................... 18 Consolidated Financial Statements: Balance Sheets at December 31, 2000 and 1999.............. 19 Statements of Income for the years ended December 31, 2000, 1999 and 1998.................................... 20 Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998....................... 21 Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.................................... 22 Notes to Consolidated Financial Statements................ 24
The following financial statement schedule of the Company and its subsidiaries is included in Item 14(a)(2):
SCHEDULE NUMBER DESCRIPTION PAGE --------------- ----------- ---- II Valuation and Qualifying Accounts........................... 38
All other financial statements and schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required. The following exhibits of the Company and its subsidiaries are included in Item 14(c):
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Restated Articles of Incorporation of the Company, as amended through December 9, 1992, filed November 3, 1993 (filed as an exhibit to Registration Statement No. 33-50913 and incorporated herein by reference). 3.2 Certificate of Determination of Preferences of Series C Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.3 Certificate of Determination of Preferences of Series D Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.4 Certificate of Determination of Preferences of Series E Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.5 Certificate of Determination of Preferences of Series F Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.6 Certificate of Determination of Preferences of Series G Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 3.7 Certificate of Determination of Preferences of Series H Market Auction Preferred Stock (filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 3.8 By-Laws of the Company, including amendment thereto dated August 31, 1990 (filed as an exhibit to Registration Statement No. 33-37600 and incorporated herein by reference).
16 19
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 Indenture dated as of November 1, 1991, between the Company and U.S. Bank Trust National Association (successor to Continental Bank, National Association), as Trustee (filed as an exhibit to Registration Statement No. 33-43698 and incorporated herein by reference). 4.2 First supplemental indenture, dated as of November 1, 2000, to the Indenture between the Company and U.S. Bank Trust National Association. 4.3 Indenture dated as of November 1, 2000, between the Company and the Bank of New York, as Trustee (filed as an exhibit to Registration No. 33-49566 and incorporated herein by reference). 4.4 The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries. 10.1 Revolving Credit Agreement, dated as of January 17, 1997, among the Company, Citicorp USA, Inc as successor to Union Bank of Switzerland, New York Branch, and the other banks listed therein providing up to $1,250,000,000 (five year facility) (filed as an exhibit to Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.2 Revolving Credit Agreement, dated as of November 17, 1999 among the Company, Citicorp USA, Inc. and other banks listed therein (364 day facility) (filed as an exhibit to Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). 10.3 Amendment to Revolving Credit Agreement, dated as of November 15, 2000, among the Company, Citicorp USA, Inc., and the other banks listed therein providing up to $1,800,000,000 (364 day facility). 10.4 Aircraft Facility Agreement, dated as of January 19, 1999, among the Company, Halifax PLC and the other banks listed therein providing up to $4,327,260,000 for the financing of approximately seventy-five Airbus aircraft (filed as an exhibit to Form 10-K for the year ended December 31, 1998 and incorporated herein by reference). 10.5 Boeing Purchase Agreement No. 2241 and related letter agreements, all dated July 30, 1999, between the Company and the Boeing Company (filed as an exhibit to Form 10-Q for the quarter ended September 30, 1999) (confidential treatment granted). 10.6 Supplemental Agreement #5, dated December 29, 2000, to the Boeing Purchase Agreement No. 2241 between the Company and the Boeing Company (confidential treatment requested). 12 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. 23 Consent of PricewaterhouseCoopers LLP, dated March 15, 2001.
17 20 REPORT OF INDEPENDENT ACCOUNTANTS To The Shareholder and Board of Directors International Lease Finance Corporation Los Angeles, California In our opinion, the consolidated financial statements listed in the accompanying index appearing under Items 14(a)(1) and (2) on page 15 present fairly, in all material respects, the financial position of International Lease Finance Corporation and its subsidiaries (the "Company") at December 31, 2000 and December 31, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Los Angeles, California February 16, 2001 18 21 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
DECEMBER 31, -------------------------- 2000 1999 ----------- ----------- Cash, including interest bearing accounts of $130,576 (2000) and $112,372 (1999)....................... $ 134,653 $ 123,109 Current income taxes........................................ 58,990 -- Notes receivable............................................ 296,063 270,436 Net investment in finance leases............................ 114,062 56,555 Flight equipment under operating leases..................... 20,534,304 18,246,253 Less accumulated depreciation............................. 2,655,915 2,150,200 ----------- ----------- 17,878,389 16,096,053 Deposits on flight equipment purchases...................... 1,058,182 848,730 Accrued interest, other receivables and other assets........ 93,719 77,825 Investments................................................. 45,086 6,067 Deferred debt issue costs -- less accumulated amortization of $60,613 (2000) and $70,375 (1999)...................... 22,334 28,349 ----------- ----------- $19,701,478 $17,507,124 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Accrued interest and other payables......................... $ 249,179 $ 280,933 Current income taxes........................................ -- 14,370 Debt financing, net of deferred debt discount of $34,754 (2000) and $28,001 (1999)......................... 12,958,164 11,192,220 Capital lease obligations................................... 463,362 669,576 Security and other deposits on flight equipment............. 905,414 801,313 Rentals received in advance................................. 129,152 110,435 Deferred income taxes....................................... 1,532,428 1,228,085 Commitments and contingencies -- Note K 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 shares (2000 and 1999) issued and outstanding............................................ 3,582 3,582 Paid-in capital........................................... 579,955 579,955 Accumulated other comprehensive income.................... 9,256 -- Retained earnings......................................... 2,470,986 2,226,655 ----------- ----------- 3,463,779 3,210,192 ----------- ----------- $19,701,478 $17,507,124 =========== ===========
See accompanying notes. 19 22 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- Revenues: Rental of flight equipment............................... $2,301,440 $2,080,555 $1,853,983 Flight equipment marketing............................... 99,716 147,216 118,183 Interest and other....................................... 77,589 72,317 73,500 ---------- ---------- ---------- 2,478,745 2,300,088 2,045,666 Expenses: Interest................................................. 773,539 686,767 639,964 Depreciation of flight equipment......................... 705,715 637,256 556,082 Provision for overhaul................................... 104,486 94,535 102,508 Flight equipment rent.................................... 140,956 130,026 138,392 Selling, general and administrative...................... 47,856 48,099 46,446 ---------- ---------- ---------- 1,772,552 1,596,683 1,483,392 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES............................ 706,193 703,405 562,274 Provision for income taxes................................. 237,292 249,958 192,922 ---------- ---------- ---------- NET INCOME............................................ $ 468,901 $ 453,447 $ 369,352 ========== ========== ==========
See accompanying notes. 20 23 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ACCUMULATED OTHER COMPREHENSIVE MARKET AUCTION INCOME PREFERRED STOCK COMMON STOCK ------------- -------------------- ------------------ FOREIGN NUMBER OF NUMBER OF PAID-IN CURRENCY RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL TRANSLATION EARNINGS TOTAL --------- -------- ---------- ------ -------- ------------- ---------- ---------- Balance at December 31, 1997...... 4,000 $400,000 35,818,122 $3,582 $579,955 $1,533,651 $2,517,188 Dividends to AIG................ (25,200) (25,200) Preferred stock dividends....... (16,965) (16,965) Net income...................... 369,352 369,352 ----- -------- ---------- ------ -------- ------ ---------- ---------- Balance at December 31, 1998...... 4,000 $400,000 35,818,122 $3,582 $579,955 $1,860,838 $2,844,375 Dividends to AIG................ (69,500) (69,500) Preferred stock dividends....... (18,130) (18,130) Net income...................... 453,447 453,447 ----- -------- ---------- ------ -------- ------ ---------- ---------- Balance at December 31, 1999...... 4,000 $400,000 35,818,122 $3,582 $579,955 $2,226,655 $3,210,192 Dividends to AIG................ (206,000) (206,000) Preferred stock dividends....... (18,570) (18,570) Comprehensive Income: Net income...................... 468,901 468,901 Other comprehensive income: Foreign Currency Translation Adjustment (net of tax of $5,399)..................... $9,256 9,256 ---------- Comprehensive Income.............. $ 478,157 ----- -------- ---------- ------ -------- ------ ---------- ---------- Balance at December 31, 2000...... 4,000 $400,000 35,818,122 $3,582 $579,955 $9,256 $2,470,986 $3,463,779 ===== ======== ========== ====== ======== ====== ========== ==========
See accompanying notes. 21 24 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- OPERATING ACTIVITIES: Net income................................................ $ 468,901 $ 453,447 $ 369,352 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of flight equipment........................ 705,715 637,256 556,082 Deferred income taxes................................... 298,944 95,398 205,666 Amortization of deferred debt issue costs............... 9,762 8,260 10,242 Gain on sale of flight equipment included in amount financed.............................................. -- (7,631) (10,747) Increase in notes receivable............................ (76,237) (67,867) (18,591) Equity in net (income) loss of affiliates............... 2,827 705 (1,165) Change in unamortized debt discount..................... (6,753) (13,148) (6,428) Changes in operating assets and liabilities: Increase in accrued interest, other receivables and other assets.......................................... (15,894) (21,521) (338) (Decrease) increase in accrued interest and other payables.............................................. (36,025) 45,887 20,940 (Increase) decrease in current income taxes receivable............................................ (73,360) 30,377 (80,898) Increase (decrease) in rentals received in advance...... 18,717 (9,247) (9,904) ----------- ----------- ----------- Net cash provided by operating activities................... 1,296,597 1,151,916 1,034,211 ----------- ----------- ----------- INVESTING ACTIVITIES: Acquisition of flight equipment for operating leases...... (2,990,287) (3,446,630) (3,274,247) Acquisition of flight equipment for finance leases........ (81,770) -- -- (Increase) decrease in deposits and progress payments..... (209,452) 57,466 111,431 Proceeds from disposal of flight equipment -- net of gain.................................................... 543,665 1,486,893 587,882 Advances on notes receivable.............................. (20,702) -- (7,000) Collections on notes receivable........................... 52,884 248,713 214,067 Collections on finance and sales-type leases (net of income amortized)....................................... 5,533 33,350 8,122 Increase in investments................................... (42,286) -- -- Dividend from unconsolidated subsidiary................... 440 5,000 8,125 ----------- ----------- ----------- Net cash used in investing activities....................... (2,741,975) (1,615,208) (2,351,620) ----------- ----------- ----------- FINANCING ACTIVITIES: Proceeds from debt financing.............................. 8,979,201 6,855,019 5,772,791 Payments in reduction of debt financing and capital lease obligations............................................. (7,398,063) (6,164,085) (4,536,715) Debt issue costs.......................................... (3,747) (7,107) (6,565) Payment of common and preferred dividends................. (224,570) (87,630) (42,165) Increase (decrease) in customer deposits.................. 104,101 (62,519) 119,032 ----------- ----------- ----------- Net cash provided by financing activities................... 1,456,922 533,678 1,306,378 ----------- ----------- ----------- Net increase (decrease) in cash............................. 11,544 70,386 (11,031) Cash at beginning of year................................... 123,109 52,723 63,754 ----------- ----------- ----------- Cash at end of year..................................... $ 134,653 $ 123,109 $ 52,723 =========== =========== =========== (Table continued on next page)
22 25 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amount capitalized $50,019 (2000), $45,235 (1999), and $54,297 (1998).................... $ 720,966 $ 649,975 $ 628,819 Income taxes (net)...................................... 11,709 124,183 68,154 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: 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 $110,940 were received as partial payment in exchange for flight equipment sold with a book value of $103,308. 1998 Notes and finance and sales-type leases in the amount of $107,155 were received as partial payment in exchange for flight equipment sold with a book value of $96,407. Flight equipment was received in exchange for notes receivable in the amount of $46,023.
See accompanying notes. 23 26 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: International Lease Finance Corporation (the "Company") is primarily engaged in the acquisition of new and used commercial jet aircraft and the leasing of those aircraft to airlines throughout the world. In addition to its leasing activities, the Company regularly sells aircraft from its leased aircraft fleet and aircraft owned by others to third party lessors and airlines and in some cases provides fleet management services to these buyers. The Company, in terms of the number and value of transactions concluded, is a major owner-lessor of commercial jet aircraft. Parent Company: International Lease Finance Corporation (the "Company") is an indirect wholly owned subsidiary of American International Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries is primarily engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Investments of less than 20% in other entities are carried at cost. Investments of between 20% and 50% in other entities are carried under the equity method. All significant intercompany balances and transactions have been eliminated in consolidation. Intercompany Allocations: The Company is party to cost sharing agreements with AIG. Generally, these agreements provide for the allocation of costs upon either a specific identification basis or a proportional cost allocation basis. The charges aggregated $1,213 (2000), $2,896 (1999) and $3,828 (1998). Rentals: The Company, as lessor, leases flight equipment principally under operating leases. Accordingly, income is reported over the life of the lease as rentals become receivable under the provisions of the lease or, in the case of leases with varying payments, under the straight-line method over the noncancelable term of the lease. In certain cases, leases provide for additional rentals based on usage. Flight Equipment Marketing: The Company is a marketer of flight equipment. Marketing revenues include all revenues from such operations consisting of net gains on sales of flight equipment and commissions. The Company recognizes marketing revenue when flight equipment is sold and the risk of ownership of the equipment is passed. Cash: Cash includes cash on hand, time deposits and cash held in trust for Internal Revenue Code Section 1031 exchanges. Flight Equipment: Flight equipment is stated at cost. Major additions and modifications are capitalized. Normal maintenance and repairs; airframe and engine overhauls; and compliance with return conditions of flight equipment on lease are provided by and paid for by the lessee. Under the provisions of many leases, for certain airframe and engine overhauls, the lessee is reimbursed for costs incurred up to, but not exceeding, related hourly rentals paid to the Company by the lessee. Such rentals are included in the caption Rental of Flight Equipment. The Company provides a charge to operations for such reimbursements based on the estimated reimbursements during the life of the lease, which amount is included in overhaul reserves. Generally, all aircraft, including aircraft acquired under capital leases, are depreciated using the straight-line method over a 25 year life from the date of manufacture to a 15% residual value. At the time assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the related accounts and the difference, net of proceeds, is recorded as a gain or loss. The Company regularly reviews its flight equipment to determine that its carrying value is not impaired. 24 27 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Capitalized Interest: The Company borrows certain funds to finance progress payments for the construction of flight equipment ordered. The interest incurred on such borrowings is capitalized and included in the cost of the equipment. Deferred Debt Issue Costs: Deferred debt issue costs incurred in connection with debt financing are amortized over the life of the debt using the interest rate method and are charged to interest expense. Financial Instruments: When swap agreements are effective in modifying the terms of actual debt agreements, such swaps are accounted for by the accrual method. Periodic payments as well as the amortization (by a level yield method) of the initial value are treated as adjustments to interest expense of the related debt. Other Comprehensive Income: The Company reports comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income." Liabilities denominated in a foreign currency and not hedged are translated into US dollars using the current exchange rate and reported in shareholders' equity as Accumulated Other Comprehensive Income. Income Taxes: The Company and its U.S. subsidiaries are included in the consolidated federal income tax return and the combined California unitary tax return of AIG. The provision for income taxes is calculated on a separate return basis. Income tax payments are made pursuant to a tax payment allocation agreement whereby AIG credits or charges the Company for the corresponding increase or decrease (not to exceed the separate return basis calculation) in AIG's current taxes resulting from the inclusion of the Company in AIG's consolidated tax return. Intercompany payments are made when such taxes are due or tax benefits are realized by AIG. The deferred tax liability is determined based on the difference between the financial statement and tax basis of assets and liabilities and is measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is determined by the change in the liability for deferred taxes ("Liability Method"). Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications: Certain amounts have been reclassified in the 1998 and 1999 financial statements to conform to the Company's 2000 presentation. 25 28 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE B -- NOTES RECEIVABLE Notes receivable are primarily from the sale of and collaterized by flight equipment and are summarized as follows:
2000 1999 -------- -------- Fixed rate notes receivable due in varying installments to 2011: 6% to 7.99%...................................... $199,028 $209,255 8% to 9.99%...................................... 50,387 32,135 10% to 12.99%.................................... 2,240 6,902 13% to 15%....................................... 5,763 4,221 LIBOR plus 1.1% to LIBOR plus 1.5% due in varying installments to 2002............................. 38,645 17,923 -------- -------- $296,063 $270,436 ======== ========
Included above, the Company had notes receivable of $57,615 (2000) and $12,585 (1999) representing restructured lease payments. At December 31, 2000, the minimum future notes receivable payments to be received are as follows: 2001................................................... $136,296 2002................................................... 33,155 2003................................................... 22,246 2004................................................... 31,009 2005................................................... 13,044 Thereafter............................................. 60,313 -------- $296,063 ========
In 1998 and prior years, the Company sold notes receivable with certain limited recourse provisions to a related party of the Company. The notes sold in 1998 aggregated $68,694 and were sold at face value including accrued interest. The Company continues to collect payments on the notes, transfers the payments to the related party and receives a servicing fee. The Company recorded no gain or loss on the sale. The Company recorded servicing fee income of $25 (2000) $50 (1999), and $1 (1998) related to the notes sold. The Company has no exposure under recourse provisions at December 31, 2000. During 2000 the Company repurchased one note and during 1999 the Company repurchased two notes sold in 1998. The notes were not repurchased under the recourse provisions. NOTE C -- NET INVESTMENT IN FINANCE LEASES The following lists the components of the net investment in finance leases:
2000 1999 -------- -------- Total minimum lease payments to be received............ $164,771 $ 69,675 Estimated residual values of leased flight equipment... 34,214 7,070 Less: Unearned income.................................. (84,923) (20,190) -------- -------- Net investment in finance and sales-type leases........ $114,062 $ 56,555 ======== ========
26 29 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE C -- NET INVESTMENT IN FINANCE LEASES (CONTINUED) Minimum future lease payments to be received on finance leases at December 31, 2000 are as follows: 2001................................................... $ 17,069 2002................................................... 17,088 2003................................................... 17,471 2004................................................... 16,019 2005................................................... 9,599 Thereafter............................................. 87,525 -------- Total minimum lease payments to be received............ $164,771 ========
NOTE D -- INVESTMENTS Investments consist of the following:
2000 1999 ------------------ ----------------- PERCENT PERCENT OWNED AMOUNT OWNED AMOUNT ------- ------- ------- ------ Cost method: Air Liberte(a)....................... $ 689 $4,792 Air New Zealand...................... .9% 7,286 American Trans Air................... 30,000 Others............................... 1,169 1,167 Equity method: Pacific Ocean Leasing Ltd............ 50.0% 109 50.0% 127 Pacific Asia Leasing Ltd............. 25.0% 7 25.0% (19) ILTU Ireland......................... 50.0% 5,826 ------- ------ $45,086 $6,067 ======= ======
--------------- (a) During 1997, Air Liberte was acquired by British Airways. As a result of the acquisition, ILFC's percentage ownership will be reduced. ILFC's percentage ownership is not yet determinable. The Company has reserved a portion of the investment balance awaiting final determination. In 2000, the Company invested $7,286 in common stock of Air New Zealand and $30,000 in American Trans Air ("ATA") non-voting preferred stock. The Company has a 50% interest in Pacific Ocean Leasing Ltd. ("POL"), a Bermuda corporation. POL owned one Boeing 767-200 aircraft and one spare engine, both of which were on lease to an airline. The aircraft and spare engine were sold in January 1999. POL owns an inventory of spare parts. The Company received a dividend of $5,000 in 1999. The Company has a 25% interest in Pacific Asia Leasing Ltd. ("PAL"), a Bermuda corporation. PAL owned one Boeing 767-300ER aircraft on lease to an airline and has been sold. As a result, as of December 31, 2000 PAL has entered into liquidation processings. The Company had received a partial liquidating dividend in the amount of $440 as of December 31, 2000. In 2000, the Company invested $5,000 for a 50% interest in ILTU Ireland ("ILTU"), an Irish corporation. ILTU presently owns one Boeing 767-300 on lease to an airline. The Company has guaranteed a bank loan to ILTU (see Note K). 27 30 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS Debt financing and capital lease obligations are comprised of the following:
2000 1999 ----------- ----------- Commercial Paper.................................. $ 4,288,681 $ 2,978,353 Public Term Debt with Single Maturities........... 3,456,675 3,721,330 Public Medium-Term Notes with Varying Maturities...................................... 3,175,000 3,225,500 Bank Term Debt.................................... 2,072,562 1,295,038 Capital Lease Obligations......................... 463,362 669,576 Less: Deferred debt discount...................... (34,754) (28,001) ----------- ----------- $13,421,526 $11,861,796 =========== ===========
The interest on substantially all of the public debt (exclusive of the commercial paper) is fixed for the term of the note. Commercial Paper The Company has a $4.8 billion Commercial Paper Program. Under this program, the Company may borrow in minimum increments of $100 for a period from one day to 270 days. The weighted average interest rate of the Company's Commercial Paper Program was 6.63% and 5.87% at December 31, 2000 and 1999 respectively. Bank Commitments As of December 31, 2000, the Company had 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 Company's Commercial Paper program. In November 2000, the Company replaced $1.5 billion of the committed revolving loans with a new 364 day facility for $1.8 billion at reduced pricing. The Company had not drawn any funds under its committed revolving loans and lines of credit at December 31, 2000 and 1999, respectively. Public Debt As of December 31, 2000 the Company had an effective shelf registration statement with respect to $2.0 billion in debt securities, under which $925 million of notes were sold through December 31, 2000. Additionally, a $1,075 million Medium-Term Note program was implemented under the shelf registration statement, under which $1.0 billion was sold through December 31, 2000. 28 31 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS (CONTINUED) Public Term Debt The Company has issued the following Notes which provide for a single principal payment at maturity and cannot be redeemed prior to maturity:
INITIAL TERM 2000 1999 -------- ---------- ---------- 8 1/4% Notes due January 15, 2000........................... 5 years -- $ 100,000 6 3/8% Notes due January 18, 2000........................... 3 years -- 200,000 6.65% Notes due April 1, 2000............................... 3 years -- 100,000 6.20% Notes due May 1, 2000................................. 7 years -- 100,000 7% Notes due May 15, 2000................................... 5 years -- 100,000 6 5/8% Notes due June 1, 2000............................... 3 years -- 100,000 6 5/8% Notes due August 15, 2000............................ 4 years -- 100,000 6 1/4% Notes due October 15, 2000........................... 5 years -- 100,000 Floating Rate Notes due February 1, 2001 (swapped to 6.53%).................................................... 4 years $ 100,000 100,000 8 7/8% Notes due April 15, 2001............................. 10 years 150,000 150,000 5 7/8% Notes due January 15, 2001........................... 3 years 200,000 200,000 6 7/8% Notes due May 1, 2001................................ 4 years 100,000 100,000 5.95% Notes due June 1, 2001................................ 3 years 100,000 100,000 6 1/2% Notes due July 1, 2001............................... 4 years 100,000 100,000 5 7/8% Notes due July 1, 2001............................... 3 years 125,000 125,000 6 3/8% Notes due August 1, 2001............................. 4 years 100,000 100,000 6 1/2% Notes due October 15, 2001........................... 5 years 100,000 100,000 6 3/8% Notes due February 15, 2002.......................... 5 years 100,000 100,000 5.90% Notes due April 15, 2002.............................. 4 years 100,000 100,000 5 5/8% Notes due April 15, 2002............................. 3 years 100,000 100,000 5 5/8% Notes due May 1, 2002................................ 3 years 175,000 175,000 6.00% Notes due May 15, 2002................................ 4 years 100,000 100,000 6 3/8% Notes due August 1, 2002............................. 5 years 100,000 100,000 5 3/4% Notes due January 15, 2003........................... 5 years 100,000 100,000 6.00% Notes due June 15, 2003............................... 5 years 100,000 100,000 8 3/8% Notes due December 15, 2004.......................... 10 years 100,000 100,000 Floating Rate Notes due June 3, 2002 (swapped to 7.195%).... 2 years 250,000 -- 6.75% Notes due October 1, 2002............................. 2 years 150,000 -- 6.75% Notes due November 3, 2003............................ 3 years 250,000 -- Euro Denominated Medium Term Notes 3.625% Notes due July 1, 2002 (swapped to US$ at 5.80%)..... 3 years 207,880 207,880 4.125% Notes due July 12, 2004 (partially swapped to 6.375%)................................................... 5 years 548,795 563,450 ---------- ---------- $3,456,675 $3,721,330 ========== ==========
The Company has a Euro Medium-Term Note Program for $2.0 billion, under which $771 million (E750 million) in Notes were sold through December 31, 2000. The Company has hedged the notes through operating lease payments or through swaps to transfer the currency exposure to third parties. Public Medium-Term Notes At December 31, 2000 the Company's Medium-Term Notes bear interest at rates varying between 5.20% and 8.55%, with maturities from 2001 through 2005. The Medium-Term Notes provide for a single principal payment at the maturity of the respective note and cannot be redeemed by the Company prior to maturity. Bank Term Debt In January 1999, the Company entered into 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, 29 32 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS (CONTINUED) 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 December 31, 2000 the Company had borrowed $2.1 billion under this facility. See Note L -- Financial Instruments. Capital Lease Obligations The Company's Capital Lease Obligations provide 10 year, fully amortizing debt in three interest rate tranches. The first 62.5% of the original debt is at a fixed rate of 6.55%. The second 22.5% of the original debt is at fixed rates varying between 6.18% and 6.89%. These two tranches are guaranteed by various European Export Credit Agencies. The remaining 15% of the original debt is at a floating LIBOR based rate. The LIBOR based tranche was prepaid in 2000. The remaining debt matures through 2005. The flight equipment associated with the obligations, and included in flight equipment under operating leases in the balance sheet, had a net book value of $1,006,271 (2000) and $1,049,447 (1999). The following is a schedule by years of future minimum lease payments under capitalized leases together with the present value of the net minimum lease payments as of December 31, 2000: 2001...................................................... $127,256 2002...................................................... 127,256 2003...................................................... 127,256 2004...................................................... 113,179 2005...................................................... 45,136 -------- Total minimum lease payments.............................. 540,083 Less amount representing interest......................... 76,721 -------- Present value of net minimum lease payments............... $463,362 ========
Maturities of debt financing and capital lease obligations (excluding commercial paper, deferred debt discount and foreign currency translation adjustment in the amount of $14,655) at December 31, 2000 are as follows: 2001..................................................... $2,619,093 2002..................................................... 2,945,067 2003..................................................... 1,275,266 2004..................................................... 1,117,665 2005..................................................... 297,704 Thereafter............................................... 927,459 ---------- $9,182,254 ==========
Under the most restrictive provisions of the related borrowings, consolidated retained earnings at December 31, 2000, in the amount of $741,437, are unrestricted as to payment of dividends based on consolidated tangible net worth requirements. The Company has entered into various debt and derivative transactions with AIGFP, a related party broker-dealer (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations."). The Company executed $1,418,200 and $775,480 notional amount of derivative instruments with the related party during 2000 and 1999, respectively. 30 33 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE F -- SHAREHOLDERS' EQUITY Preferred Stock The Market Auction Preferred Stock (MAPS) have a liquidation value of $100 per share and are not convertible. The dividend rate, other than the initial rate, for each dividend period for each series is reset approximately every 7 weeks (49 days) on the basis of orders placed in an auction. At December 31, 2000, the dividend rates for Series A through H ranged from 4.98% to 5.25%. Other Comprehensive Income The Other Comprehensive Income consists of foreign currency translation of liabilities denominated in a foreign currency and not hedged. The debt was translated into US dollars using the current exchange rate. Stock Appreciation Rights Stock Appreciation Rights ("SARs") were granted to certain employees of the Company during 1990. The SARs granted generally vest over a ten year period from the effective date and are exercisable immediately upon vesting. SARs initially have no value but can gain a cash value based upon the difference between a Benchmark Price and a Formula Price (based on adjusted pre-tax cash flow of the Company), but not in excess of an aggregate of $150,000, to be accrued and paid over the period of the plan. The SAR plan became effective on January 1, 1991. No value had been earned or accrued under the SAR plan as of January 1, 2001 when the plan expired. NOTE G -- RENTAL INCOME Minimum future rentals on noncancelable operating leases and subleases of flight equipment which have been delivered at December 31, 2000 are as follows:
YEAR ENDED ---------- 2001.................................................... $ 1,874,789 2002.................................................... 1,666,510 2003.................................................... 1,424,757 2004.................................................... 1,223,794 2005.................................................... 923,473 Thereafter.............................................. 3,019,389 ----------- $10,132,712 ===========
Additional rentals earned by the Company based on the lessees' usage aggregated $222,579 (2000), $202,976 (1999), and $202,425 (1998). Flight equipment is leased, under operating leases, with remaining terms ranging from one to 14 years. NOTE H -- RENTAL EXPENSE During 1995, 1996 and 1997, the Company entered into sale-leaseback transactions providing proceeds to the Company in the amounts of $412,626, $507,600 and $601,860, respectively, relating to seven aircraft for each transaction. The transactions resulted in the sale and leaseback of these aircraft under one year operating leases, each with six one year extension options. The existing one year leases mature on December 22, 2001, September 20, 2001 and September 12, 2001, respectively. One aircraft was repurchased in each of 1997 and 1999. The lease rates equate to fixed principal amortization and floating interest payments based on LIBOR or commercial paper pricing. 31 34 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE H -- RENTAL EXPENSE (CONTINUED) Minimum future rental expense for 2001 is $102,052 at December 31, 2000. NOTE I -- INCOME TAXES The provision (benefit) for income taxes is comprised of the following:
2000 1999 1998 -------- -------- -------- Current: Federal(a)........................................... $(49,989) $141,585 $(10,033) State................................................ (10,871) 12,013 (2,938) Foreign.............................................. (791) 961 227 -------- -------- -------- (61,651) 154,559 (12,744) Deferred: Federal.............................................. 278,614 87,865 191,633 State................................................ 20,329 7,534 14,033 -------- -------- -------- 298,943 95,399 205,666 -------- -------- -------- $237,292 $249,958 $192,922 ======== ======== ========
--------------- (a) Including U.S. tax on foreign income The provision for deferred income taxes is comprised of the following temporary differences:
2000 1999 1998 -------- -------- -------- Accelerated depreciation on flight equipment........... $294,334 $ 72,577 $194,352 Excess of state income taxes not currently deductible for Federal income tax purposes...................... (3,045) (6,213) (3,015) Tax versus book lease differences...................... 22,416 17,721 23,341 Provision for overhauls................................ (6,871) 6,394 (15,616) Rentals received in advance............................ (5,186) 4,027 3,464 Straight line rents.................................... (459) 3,542 829 Other.................................................. (2,246) (2,649) 2,311 -------- -------- -------- $298,943 $ 95,399 $205,666 ======== ======== ========
The deferred tax liability consists of the following:
2000 1999 ---------- ---------- Accelerated depreciation on flight equipment................ $1,504,124 $1,209,790 Excess of state income taxes not currently deductible for Federal income tax purposes........................... (34,688) (31,643) Tax versus book lease differences........................... 149,943 127,527 Provision for overhauls..................................... (57,739) (50,868) Rentals received in advance................................. (52,442) (47,256) Straight line rents......................................... 19,098 19,557 Other comprehensive income.................................. 5,399 -- Other(a).................................................... (1,267) 979 ---------- ---------- $1,532,428 $1,228,086 ========== ==========
--------------- (a) Includes Canadian tax credit of $6,650 and related valuation allowance of $6,650. 32 35 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE I -- INCOME TAXES (CONTINUED) A reconciliation of computed expected total provision for income taxes to the amount recorded is as follows:
2000 1999 1998 -------- -------- -------- Computed expected provision based upon a federal rate of 35%............................................... $247,168 $246,192 $196,796 State income taxes, net of Federal income taxes........ 6,148 12,706 7,211 Foreign sales corporation benefit...................... (13,499) (10,041) (8,719) Foreign taxes.......................................... (3,997) 586 (3,194) Other.................................................. 1,472 515 828 -------- -------- -------- $237,292 $249,958 $192,922 ======== ======== ========
The Company entered into flight equipment sales transactions designated to meet the requirement for a like kind exchange of assets under Section 1031 of the Internal Revenue Code. At December 31, 2000, $50,400 was held in trust, under control of the Company, for such exchanges. NOTE J -- OTHER INFORMATION Concentration of Credit Risk The Company leases and sells aircraft to airlines and others throughout the world. All of the lease receivables and the majority of notes receivable are from entities located throughout the world. The Company generally obtains deposits on leases and obtains collateral in flight equipment on notes receivable. The Company has no single customer which accounts for 10% or more of revenues. Segment Information The Company operates within one industry: the leasing, sales and management of flight equipment. Revenues include rentals of flight equipment to foreign airlines of $2,026,017 (2000), $1,842,126 (1999) and $1,623,891 (1998). The following table sets forth the dollar amount and percentage of total rental revenues attributable to the indicated geographic areas based on each airline's principal place of business for the years indicated:
2000 1999 1998 ------------------ ------------------ ------------------ AMOUNT % AMOUNT % AMOUNT % ---------- ----- ---------- ----- ---------- ----- (DOLLARS IN THOUSANDS) Europe............................. $1,054,783 45.8% $ 946,335 45.5% $ 798,773 43.1% Asia/Pacific....................... 462,426 20.1 421,337 20.3 410,600 22.1 United States and Canada........... 437,745 19.0 389,593 18.7 333,472 18.0 Central, South America and Mexico........................... 229,438 10.0 201,405 9.7 190,572 10.3 Africa and the Middle East......... 117,048 5.1 121,885 5.8 120,566 6.5 ---------- ----- ---------- ----- ---------- ----- $2,301,440 100.0% $2,080,555 100.0% $1,853,983 100.0% ========== ===== ========== ===== ========== =====
33 36 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE J -- OTHER INFORMATION (CONTINUED) The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue based on each airline's principal place of business for the years indicated:
2000 1999 1998 ---------------- ---------------- ---------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- United Kingdom....................... $276,340 12.0% $292,278 14.0% $257,906 13.9% United States........................ 275,423 12.0 238,429 11.5 241,379 13.0 China (including Macau and Hong Kong)*........................ 251,372 10.9 255,922 12.3 250,394 13.5 * Macau 33,504 36,128 36,122 Hong Kong 77,364 84,787 86,345
Currency Risk The Company attempts to minimize its currency and exchange risks by negotiating most of its aircraft leases in US dollars. Some of the Company's leases, however, are negotiated in Euros to meet the needs of a growing number of airlines. These Euro denominated leases are primarily used as a hedge against Euro denominated debt obligations of the Company. Employee Benefit Plans The Company's employees participate in various benefit plans sponsored by AIG, including a noncontributory qualified defined benefit retirement plan, various stock option and purchase plans and a voluntary savings plan (401(k) plan). AIG's U.S. plans do not separately identify projected benefit obligations and plan assets attributable to employees of participating affiliates. AIG's projected benefit obligations exceeded the plan assets at December 31, 2000 by $146,098. NOTE K -- COMMITMENTS AND CONTINGENCIES Aircraft orders At December 31, 2000, the Company had committed to purchase 488 aircraft deliverable from 2001 through 2009 at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $27.2 billion. The Company also had options to purchase an additional 51 aircraft deliverable through 2008 at an estimated aggregate purchase price of $3.0 billion. Most of these purchase commitments and options are based upon master agreements with each of The Boeing Company ("Boeing") and AVSA, S.A.R.L., the sales subsidiary of Airbus Industrie ("Airbus"). The Boeing aircraft (models 737, 757, 767 and 777), and the Airbus aircraft (models A318, A319, A320, A321, A330 and A340) are being purchased pursuant to agreements executed by the Company and Boeing or Airbus. These agreements establish the pricing formulas (which include certain price adjustments based upon inflation and other factors) and various other terms with respect to the purchase of aircraft. Under certain circumstances, the Company has the right to alter the mix of aircraft type ultimately acquired. As of December 31, 2000, the Company had made non-refundable deposits (exclusive of capitalized interest) on the aircraft which the Company has committed to purchase of approximately $583,370 and $372,360 with Boeing and Airbus, respectively. 34 37 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE K -- COMMITMENTS AND CONTINGENCIES (CONTINUED) Aircraft orders (continued) Management anticipates that a significant portion of the aggregate purchase price will be funded by incurring additional debt. The exact amount of the indebtedness to be incurred will depend upon the actual purchase price of the aircraft, which can vary due to a number of factors, including inflation, and the percentage of the purchase price of the aircraft which must be financed. Asset Value Guarantees The Company has guaranteed a portion of the residual value of 42 aircraft to financial institutions expiring at various dates through 2009. The guarantees generally provide for the Company to pay the difference between the fair market value of the aircraft and the guaranteed value up to certain specified amounts, or, at the option of the Company, purchase the aircraft for the guaranteed value. At December 31, 2000 and 1999, the maximum exposure if the Company were to pay under such guarantees was $706,200 (of which $684,139 represents the total purchase option price of 34 aircraft) and $136,669 (of which $63,000 represents the total purchase option price of 2 aircraft), respectively. Other Guarantees The Company has guaranteed certain obligations for entities in which it has an investment. At December 31, 2000 and 1999, the Company guaranteed ten loans collateralized by aircraft aggregating $87,913 and $30,824, respectively. Leases The Company has operating leases for office space extending through 2005. Commitments for minimum rentals under the noncancellable leases at the end of 2000 as follows: 2001....................................................... $ 2,989 2002....................................................... 3,150 2003....................................................... 3,276 2004....................................................... 3,407 2005....................................................... 3,240 ------- Total.................................................... $16,062 =======
NOTE L -- FINANCIAL INSTRUMENTS In the normal course of business, the Company employs a variety of off-balance sheet derivative transactions with the objective of lowering its overall borrowing cost and maintaining its optimal mix of variable and fixed rate interest obligations. These derivative products include interest rate swap agreements, currency swap agreements, swaptions and interest rate floors (off-balance sheet derivative transactions). The Company only enters into derivative transactions to hedge interest rate and currency risk and not to speculate on interest rates or currency fluctuation. The Company accounts for its off-balance sheet derivative transactions on an accrual basis. As such, accrued future payments or receipts are reflected in operating income in the period incurred or earned. Credit risk exposure arises from the potential that the counterparty may not perform under these off-balance sheet derivative transactions. The Company's counterparty for all of its off-balance sheet derivatives is AIGFP, a related party with a "AAA" counterparty rating (see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations"). The Company currently does not require, nor is it required 35 38 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE L -- FINANCIAL INSTRUMENTS (CONTINUED) by, its counterparty to provide collateral for its positions with the Company although it can in certain circumstances. The following table provides the notional amounts of the Company's off-balance sheet derivative transactions at December 31, 2000. The notional amounts used to express the extent of the Company's involvement in swap transactions represent a standard measurement of the volume of the Company's swap transactions. Notional amount is not a quantification of market risk or credit risk and is not recorded on the balance sheet. Notional amounts represent those amounts used to calculate contractual cash flows to be exchanged and are not paid or received. The timing and the amount of cash flows relating to swaption and other interest rate option contracts are determined by each of the respective contractual agreements. It is management's belief that any failure of a counterparty to perform under the agreement with respect to these off-balance sheet transactions would have an immaterial effect on the Company's results of operations, financial condition and liquidity. The following table presents the notional amounts of the Company's interest rate swap agreements, swaptions and interest rate floors by maturity at December 31, 2000 and 1999.
REMAINING LIFE ------------------------------------ TWO TO AFTER FIVE TOTAL TOTAL TYPE ONE YEAR FIVE YEARS YEARS 2000 1999 ---- -------- ---------- ---------- ---------- ---------- Interest Rate: Swaps (interest and currency)(a).................. $179,853 $1,851,493 $121,442 $2,152,788 $1,459,025 Interest rate floors............ 18,266 411,701 -- 429,967 800,245 Other interest rate contracts... 130,968 623,871 581,441 1,336,280 2,312,918 -------- ---------- -------- ---------- ---------- Total........................... $329,087 $2,887,065 $702,883 $3,919,035 $4,572,188 ======== ========== ======== ========== ==========
--------------- (a) Certain contracts were reclassified to comply with SFAS 133 definitions. The Company has adopted SFAS 133 as of January 1, 2001. The Company has entered into various derivative transactions with AIGFP, a related party broker-dealer. The Company has executed $1,418,200 and $775,480 notional amount of derivative instruments with the related party during 2000 and 1999, respectively. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying value reported in the balance sheet for cash and cash equivalents approximates its fair value. Notes receivable: The fair values for notes receivable are estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Investments: It was not practicable to determine the fair value of most of the Company's investments in the common and preferred stocks of other companies because of the lack of a quoted market price and the inability to determine fair value without incurring excessive costs due to their short maturities. The carrying amount of these investments at December 31, 2000 represents the original cost or original cost plus the Company's share of earnings of the investment. For investments held by the 36 39 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) NOTE L -- FINANCIAL INSTRUMENTS (CONTINUED) Company that had a quoted market price at December 31, 2000, the Company used such quoted market price in determining the fair value of such investments. Debt financing: The carrying value of the Company's commercial paper and term debt maturing within one year approximates its fair value. The fair value of the Company's long-term debt is estimated using discounted cash flow analyses, based on the Company's spread to U.S. Treasury bonds for similar debt at year-end. Off-balance-sheet instruments: Fair values for the Company's off-balance-sheet instruments are the amounts at which they could be settled and are estimated by obtaining quotes from the broker. Guarantees: It is not practical to determine the fair value of the Company's guarantees and the value is not significant to the Company. The carrying amounts and fair values of the Company's financial instruments at December 31, 2000 and 1999 are as follows:
2000 1999(A) ------------------------------------- ------------------------------------- CARRYING CARRYING AMOUNT OF FAIR VALUE OF AMOUNT OF FAIR VALUE OF ASSET (LIABILITY) ASSET (LIABILITY) ASSET (LIABILITY) ASSET (LIABILITY) ----------------- ----------------- ----------------- ----------------- Cash and cash equivalents............ $ 134,653 $ 134,653 $ 123,109 $ 123,109 Notes receivable..................... 296,063 238,839 270,436 247,475 Investments.......................... 45,624 45,624 6,067 6,067 Debt financing....................... (13,421,526) (13,363,957) (11,192,220) (11,045,875) Off-balance-sheet financial instruments: Swaps (interest and currency)... (1,490) (86,866) (3,620) (25,495) Swaptions....................... (1,631) -- (2,066) -- Interest rate floors............ (499) (945) (1,210) 3,205 Other interest rate contracts... (12,583) 168,775 (31,173) 15,570
--------------- (a) Certain contracts were reclassified to comply with SFAS No. 133 definitions. The Company has adopted SFAS No. 133 as of January 1, 2001. 37 40 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E ------ ------------ ----------------------------- ------------ ------------- ADDITIONS BALANCE AT CHARGED TO CHARGED TO BEGINNING OF COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- BALANCE AT DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE(A) END OF PERIOD ----------- ------------ ---------- ---------------- ------------ ------------- (DOLLARS IN THOUSANDS) Reserve for overhaul: Year ended December 31, 2000...... $136,451 $104,486 $ 86,072 $154,865 Year ended December 31, 1999...... $152,764 $ 94,535 $110,848 $136,451 Year ended December 31, 1998...... $110,822 $102,508 $ 60,566 $152,764
--------------- (a) Reimbursements to lessees for overhauls performed and amounts transferred to buyers for aircraft sold. 38 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 19, 2001 INTERNATIONAL LEASE FINANCE CORPORATION By /s/ LESLIE L. GONDA ------------------------------------ Leslie L. Gonda Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ LESLIE L. GONDA Director March 19, 2001 ------------------------------------------------ Leslie L. Gonda /s/ STEVEN F. UDVAR-HAZY Chief Executive Officer and March 19, 2001 ------------------------------------------------ Director Steven F. Udvar-Hazy /s/ LOUIS L. GONDA Director March 19, 2001 ------------------------------------------------ Louis L. Gonda /s/ M. R. GREENBERG Director March 19, 2001 ------------------------------------------------ M. R. Greenberg /s/ EDWARD E. MATTHEWS Director March 19, 2001 ------------------------------------------------ Edward E. Matthews /s/ WILLIAM N. DOOLEY Director March 19, 2001 ------------------------------------------------ William N. Dooley /s/ HOWARD I. SMITH Director March 19, 2001 ------------------------------------------------ Howard I. Smith /s/ ALAN H. LUND Chief Financial Officer and March 19, 2001 ------------------------------------------------ Chief Accounting Officer Alan H. Lund
39 42 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Since the Registrant is an indirect wholly owned subsidiary of AIG, no annual report to security holders or proxy statement, form of proxy or other proxy soliciting materials have been sent to security holders since January 1, 1990. 40