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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
------------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
December 31, 1994
For the fiscal year ended......................................................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ...................... to ......................
0-11350
Commission file number.........................................................
INTERNATIONAL LEASE FINANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 22-3059110
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S.
ORGANIZATION) EMPLOYER
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 ((S) 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 FEBRUARY 28, 1995, THERE WERE 35,818,122 SHARES OF COMMON STOCK, NO
PAR VALUE, OUTSTANDING.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A) AND
(B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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INTERNATIONAL LEASE FINANCE CORPORATION
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 6
Item 3. Legal Proceedings....................................................... 8
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters........................................ 8
Item 6. Selected Financial Data................................................. 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 10
Item 8. Financial Statements and Supplementary Data............................. 12
Item 9. Changes in and Disagreements with Accountants on Accounting and Finan-
cial Disclosure........................................................ 12
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................................ 13
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 and
sale of such aircraft to domestic and foreign airlines. The Company, in terms
of the number and value of transactions concluded, is a major owner-lessor of
commercial jet aircraft. In addition, the Company is engaged in the
remarketing of commercial jets for its own account, for airlines and for
financial institutions.
Since 1973, the Company has engaged in over 700 transactions involving the
lease or sale of commercial aircraft to more than 140 airlines. As of December
31, 1994, the Company owned 270 aircraft including aircraft owned in joint
ventures. See "Item 2. Properties--Flight Equipment." At December 31, 1994,
the Company had committed to purchase 236 aircraft deliverable through 2000 at
an estimated aggregate purchase price of $13.4 billion. It also had options to
purchase an additional 51 aircraft deliverable through 2001 at an estimated
aggregate purchase price of $2.8 billion. See "Item 2. Properties--
Commitments."
The Company maintains the mix of flight equipment to meet its customers'
needs by purchasing those models of new and used aircraft which it believes
will have the greatest airline demand and operational longevity and minimize
the time that its aircraft are not leased to customers.
The Company purchases, and finances the purchase of, aircraft on terms
intended to permit the Company to lease or resell 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 releasing the
aircraft on terms which will cover its remaining cost.
The airlines are in a cyclical, economically sensitive and highly
competitive business. 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 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 and
remarketing with those airlines 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, telecopier and telex numbers are
(310) 788-1999, (310) 788-1990 and 69-1400, respectively. The Company is a
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
1
and insurance-related activities in the United States and abroad. The Common
Stock of AIG is listed on, among others, the New York Stock Exchange.
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-type and sales-type
leases where the full cost of the aircraft is substantially recovered over the
term of the lease. At December 31, 1994, 262 of the Company's leases,
excluding aircraft in joint ventures, were accounted for as operating 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 as revenue over the lease term as they become
due and 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 such as larger lease payments on shorter-term leases, changes in
prevailing market conditions at the time aircraft become eligible for re-lease
or sale and uncertainty associated with estimating residual value of the
aircraft at the termination of the lease.
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 contingent rentals paid to the Company by the lessee.
The Company provides a charge to operations for such reimbursements based
primarily upon the hours utilized during the period and the expected
reimbursement during the life of the lease. The leases contain specific
provisions regarding the condition of the aircraft upon redelivery to the
Company. 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 payment 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. The lessee is
required to continue lease payments under all circumstances, including periods
during which the aircraft is not in operation for maintenance, grounding or
any other reason whatsoever.
The Company obtains and reviews financial statements 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 engages in transactions to buy and sell aircraft.
Generally, the Company makes a contractual commitment to purchase specific
aircraft for its own account for resale only after or concurrently with
obtaining a firm order from a customer. In some cases, the Company assists its
customers through consulting services and procurement of financing from third
parties.
2
From time to time, the Company also disposes of its leased aircraft at or
before the expiration of their leases. Any gain or loss on disposition of
leased aircraft is reflected as revenues from flight equipment marketing.
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 period of one year. Compensation to the Company is based upon a
percentage of the sales price or lease proceeds and is customarily 2% to 5%.
In addition, certain air travel expenses of the Company in connection with its
remarketing activities may be provided by the contracting or selling airline.
These activities generally augment the Company's primary activities and also
serve to promote relationships with prospective sellers and buyers of
aircraft.
Since 1973, the Company has acted as an agent in over 60 aircraft
transactions. The Company plans to continue its remarketing services on a
selected basis involving specific situations where these activities will not
conflict or compete with, but rather will be complementary to, its leasing and
selling activities.
The Company also has guaranteed the loans of certain buyers of aircraft,
which guarantees aggregate approximately $66,933,000. See Note J of Notes to
Consolidated Financial Statements.
FINANCING/SOURCE OF FUNDS
The Company purchases new aircraft directly from manufacturers and used
aircraft from airlines for lease or sale to other airlines. The Company
finances the purchase price of flight equipment from internally generated
funds, secured and unsecured commercial bank loans, 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, 1994, lessees of the Company included: (domestic) Alaska
Airlines, American Trans Air, Carnival Air Lines, Continental Airlines,
Federal Express, Leisure Air, North American Airlines, Southwest Airlines,
Trans World Airlines (TWA), USAir and World Airways; (foreign) Aer Lingus,
Aeromexico, Air 2000, Air Espana, Air Inter, Air Liberte, Air Madagascar, Air
Mauritius, Air New Zealand, Air Pacific, Air Seychelles, Air Transat, Air UK,
Asiana, Aviateca, Baikal Airlines, Braathens S.A.F.E., Britannia Airways,
British Airways, British Midland Airways, BWIA International, Canada 3000,
Cathay Pacific, Cayman Airways, China Hainan Airlines, China Southern
Airlines, China Southwest Airlines, COPA, EVA Airways, Garuda Indonesia,
Guyana Airways, Hong Kong Dragon Airlines (Dragonair), Kenya Airways, Korean
Airlines, LACSA, LAPSA-Lineas Aereas Paraguayas, Lloyd Aero Boliviano (LAB),
Ladeco S.A., LAN Chile, LTU Luftransport-Unternehmen, Lufthansa Cargo,
Linjeflyg AB (a wholly-owned subsidiary of SAS), Malev Hungarian Airlines,
Monarch Airways, National Jet Systems, NICA, Nordic East, ONUR Air, Pegasus
Hava Tasimaciligi, A.S., Polynesian Airways, QANTAS Airways, SAETA, Sahara
India Airlines, Societe D'Exploitation Aeropostale, Swissair, TACA
International Airlines, TAP Air Portugal, TAT, TEA Basel, THY, Transbrasil,
Translift Airways, Varig, Virgin Atlantic Airways, VIVA Airways and Wuhan
Airlines. 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
$798,619,000 (1994), $655,773,000 (1993) and $546,452,000 (1992) comprising
80.4%, 82.4% and 86.9%, respectively, of total rentals of flight equipment.
See Note I of Notes to Consolidated Financial Statements.
3
The following table sets forth the dollar amount and percentage of total
rental revenues attributable to the indicated geographic areas for the years
indicated:
1994 1993 1992
-------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
Europe......................... $353,009 35.5% $261,523 32.9% $237,005 37.7%
Asia/Pacific................... 180,215 18.2 169,036 21.2 143,201 22.8
Central, South America and
Mexico........................ 199,041 20.0 171,577 21.6 117,891 18.8
United States and Canada....... 230,856 23.2 171,720 21.6 113,832 18.1
Africa......................... 30,475 3.1 21,581 2.7 16,671 2.6
-------- ----- -------- ----- -------- -----
$993,596 100.0% $795,437 100.0% $628,600 100.0%
======== ===== ======== ===== ======== =====
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 substantially all of its aircraft
leasing and sales transactions in U.S. dollars and all guarantees obtained to
support various lease agreements are denominated for payment in U.S. dollars.
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.
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 eight
instances from January 1989 through December 1993, the Company has been
required to repossess aircraft. In one instance, the aircraft were leased to a
domestic airline which had filed for protection under Chapter 11 of the U. S.
Bankruptcy Code. In the other seven instances, the aircraft were on lease to
foreign airlines. No aircraft were repossessed in 1994. In January 1995, the
Company repossessed one A320 from a lessee. As of February 8, 1995, the
aircraft had been re-leased.
In some situations where the Company repossesses an aircraft, it may decide
to export the aircraft from the lessee's jurisdiction. To date, the Company
has been able to export all repossessed aircraft which it desired to export.
In addition, in connection with the repossession of an aircraft, the Company
may be required to pay outstanding 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 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.
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, other financial institutions and 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, the Department of Transportation and the Department of State
exercise regulatory authority over the air transportation industry. The FAA
has regulatory jurisdiction over registration and flight operations of
aircraft operating in the United States, including equipment use, ground
facilities, maintenance, communications and other matters.
4
The FAA can suspend or revoke the authority of air carriers or their
licensed personnel for failure to comply with its regulations and ground
aircraft if their airworthiness is in question. The Company believes it holds
all airworthiness and FAA registration certificates which are required for the
aircraft owned by the Company, although the certificates may be suspended or
revoked for cause.
The Department of State and the Department of Transportation, in general,
have jurisdiction over economic regulation of air transportation, but since
the Company does not itself operate its aircraft for public transportation of
passengers and property, it is not directly subject to their regulatory
jurisdiction.
To export aircraft from the U.S. to a foreign destination, the Company is
required to obtain an export license from the United States Department of
Commerce. To date, the Company has not experienced any difficulty in obtaining
required certificates either from the FAA, Department of Commerce or any other
regulatory agency or their foreign counterparts.
EMPLOYEES
The Company is in a capital intensive rather than a labor intensive
business. As of December 31, 1994, the Company had 61 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 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 prepaid by the lessee, with payment acknowledged by
the insurance carrier. The territorial coverage is, in each case, suitable for
its 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 under 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 with deductibles 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. currency.
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 and all
losses are payable in U.S. dollars, U.K. pounds or German marks.
5
The Company also maintains other insurance covering the specific needs of
its business operations. Insurance policies are generally placed or reinsured
through AIG, with costs allocated back to the Company. The Company believes
that its insurance is adequate both as to coverage and amount.
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, 1994, 93% of the aircraft, which represent 99% of the net
book value of the aircraft, were Stage III, which are aircraft that 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,
1994, the average age of the Company's flight equipment was 4.99 years and the
average age of the Stage III fleet was 4.03 years.
The following table shows the scheduled lease terminations (for the minimum
noncancelable period) by aircraft type for the Company's lease portfolio at
December 31, 1994:
AIRCRAFT TYPE 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 TOTAL
- ------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
737-200 (a)....... 4 9 3 1 1 18
737-300........... 1 4 11 10 7 5 4 3 2 4 2 53
737-400 (a)....... 2 7 8 7 6 9 4 7 6 56
737-500........... 5 1 1 7
757-200........... 5 5 5 4 3 4 5 2 33
767-200........... 1 1 2 2 6
767-300........... 3 1 2 1 3 1 11
747-200........... 1 1 2
747-300........... 3 3
747-400........... 1 2 1 1 1 6
MD-82............. 2 2
MD-83............. 3 5 3 11
DC 10-10.......... 2 2
MD-11............. 1 2 1 4
F-100............. 2 5 7
A300-600R......... 1 1 2 4
A310-200.......... 5 5
A310-300.......... 1 1 1 1 1 1 6
A320.............. 1 5 10 3 3 22
A330.............. 2 1 3
A340.............. 1 1
L-1011............ 1 2 2 5
--- --- --- --- --- --- --- --- --- --- --- ---
Total............. 16 51 57 35 32 22 11 12 17 10 4 267
- ------------
(a) As of March 1, 1995, of the 18 737-200 aircraft, six are committed for
sale in 1995. In addition, two of the 737-400 aircraft are committed for
sale, one in 1995 and one in 1996.
6
In addition, at December 31, 1994, one BAC1-11, one A320 and one 757-200
were not on lease. Subsequent to December 31, 1994, and prior to March 1,
1995, all aircraft were committed for lease or sale.
COMMITMENTS
At December 31, 1994 the Company had committed to purchase the following
aircraft at an estimated aggregate purchase price (including adjustment for
anticipated inflation) of approximately $13.4 billion for delivery as shown:
AIRCRAFT TYPE 1995 1996 1997 1998 1999 2000 TOTAL
- ------------- ---- ---- ---- ---- ---- ---- -----
737-300/400/500*............................ 20 8 10 2 1 41
757-200..................................... 7 7 7 7 2 30
767-300..................................... 8 9 6 2 25
777-200..................................... 2 3 1 6
747-400..................................... 1 1 1 1 4
MD-11....................................... 2 2
A300-600R................................... 4 1 5
A310-200.................................... 4 6 10
A310-300.................................... 1 1
A319........................................ 2 3 3 4 2 14
A320-200.................................... 9 6 9 8 5 5 42
A321-100.................................... 3 6 7 6 6 5 33
A330........................................ 5 2 1 1 9
A340........................................ 3 2 2 2 2 11
F-70........................................ 1 2 3
--- --- --- --- --- --- ---
Total...................................... 68 52 47 35 22 12 236
- --------
* The Company has the right to designate which model of 737 (737-300, 737-
400 or 737-500) will be delivered at specified dates prior to contractual
delivery. For 1995, the Company has designated for delivery eleven 737-
300, four 737-400 and five 737-500.
At December 31, 1994, the Company had options to purchase the following
aircraft at an estimated aggregate purchase price (including adjustment for
anticipated inflation) of approximately $2.8 billion for delivery as shown:
AIRCRAFT TYPE 1996 1997 1998 1999 2000 2001 TOTAL
- ------------- ---- ---- ---- ---- ---- ---- -----
737-300/400/500*............................ 1 1 9 10 21
757-200..................................... 2 6 8
767-300..................................... 4 5 9
777-200..................................... 2 2
A319........................................ 3 3
A320-200.................................... 4 4
A321-100.................................... 1 3 4
--- --- --- --- --- --- ---
Total...................................... 1 1 15 24 0 10 51
- --------
* The Company has the right to designate which model of 737 (737-300, 737-
400 or 737-500) will be delivered at specified dates prior to contractual
delivery.
If all 287 aircraft were to be acquired, the estimated aggregate purchase
price (including adjustment for anticipated inflation) would be approximately
$16.2 billion. 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.
7
Most of the purchase commitments and options set forth above are based upon
master arrangements with each of The Boeing Company ("Boeing"), AVSA, S.A.R.L.,
the sales subsidiary of Airbus Industrie ("Airbus"), Fokker Aircraft USA Inc.
("Fokker") and McDonnell Douglas Corporation ("McDonnell Douglas").
The Boeing aircraft (models 737, 747, 757, 767 and 777), the Airbus aircraft
(models A300, A310, A319, A320, A321, A330 and A340), the Fokker aircraft
(model F-70) and the McDonnell Douglas aircraft (model MD-11) listed above are
either being purchased, or the options to purchase have been granted, pursuant
to purchase agreements executed by the Company and Boeing, Airbus, Fokker or
McDonnell Douglas, respectively. 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, 1994, 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 $430,080,000, $330,595,000, $2,000,000 and $39,181,000 with
Boeing, Airbus, Fokker and McDonnell Douglas, respectively.
As of March 15, 1995, the Company had entered into contracts for 63 of the 68
aircraft to be delivered in 1995, 37 of the 52 aircraft to be delivered in
1996, 12 of the 47 aircraft to be delivered in 1997, 2 of the 35 aircraft to be
delivered in 1998 and 3 of the 34 aircraft to be delivered subsequent to 1998.
The Company will need to find customers for aircraft presently on order and any
new aircraft ordered and 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 or sales contracts, and has obtained adequate
financing in the past, there can be no assurance as to the future continued
availability of lessees or purchasers, 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
2000. The leases cover approximately 30,000 square feet of office space,
provide for annual rentals of approximately $1,513,000, and the rental payments
thereunder are subject to certain indexed escalation provisions.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is 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, 1992, 1993 and 1994, the Company paid cash dividends
to AIG of $10,330,000, $11,359,000 and $13,462,000, respectively. It is the
intent of the Company to pay AIG an annual dividend of 7% of net income. Under
the most restrictive provisions of the Company's borrowing arrangements,
consolidated retained earnings at December 31, 1994 in the amount of
$82,000,000 were unrestricted as to the payment of dividends.
8
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data and
operating information of the Company. The selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Form 10-K.
13 MONTHS
ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------
1990 1991 1992 1993 1994
------------ ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
OPERATING DATA:
Rentals of flight equipment....... $ 367,649 $ 433,505 $ 628,600 $ 795,437 $ 993,596
Flight equipment marketing........ 45,408 38,238 46,845 53,680 76,193
Interest and other income......... 53,023 54,968 55,072 62,515 40,267
Total revenues.................... 466,080 526,711 730,517 911,632 1,110,056
Expenses.......................... 343,080 387,011 484,277 633,992 798,049
Income before income taxes........ 123,000 139,700 246,240 277,640 312,007
Net income(1)..................... 69,901 89,530 157,749 168,565 201,943
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS(2): 1.33x 1.44x 1.75x 1.68x 1.59x
BALANCE SHEET DATA:
Flight equipment under operating
leases (net of accumulated
depreciation).................... $2,633,627 $3,453,149 $4,759,899 $6,515,837 $8,851,079
Net investment in finance and
sales-type leases................ 260,396 247,936 242,445 290,269 92,233
Total assets...................... 3,523,626 4,563,622 6,079,765 8,139,821 10,353,132
Total debt........................ 2,497,074 3,242,010 4,242,288 5,819,481 7,583,006
Shareholders' equity.............. 632,323 815,208 1,156,195 1,409,181 1,640,772
OTHER DATA:
Aircraft owned at period end(3)... 106 132 176 230 270
Aircraft sold or remarketed during
the period....................... 13 8 7 9 24
- ------------
(1) Includes an extraordinary loss of $7,035,000 in 1990.
(2) See Exhibit 12.
(3) See "Item 2. Properties--Flight Equipment".
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
INDUSTRY CONDITION
In recent years, many airlines have experienced economic difficulties and
some have filed for bankruptcy or similar proceedings or have requested that
their leases be restructured. 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 eight instances between January 1989 and December 31, 1993,
the Company has been required to repossess aircraft. Recently, however, the
Company has seen some stabilization and a small reversal in this trend which
resulted in only four lessees requesting lease restructurings and no
repossessions in 1994. In January 1995, the Company repossessed one A320
aircraft from an airline. As of February 8, 1995, the aircraft had been re-
leased.
FINANCIAL CONDITION
The Company borrows funds for the purchases of flight equipment, including
the making of progress payments during the construction phase, principally on
an unsecured basis from various sources. At December 31, 1994, 1993 and 1992,
the Company's debt financing was comprised of the following:
1994 1993 1992
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Public term debt with single
maturities........................... $2,950,000 $2,550,000 $1,800,000
Public medium-term notes with varying
maturities........................... 2,011,770 1,765,920 1,428,000
Capital lease obligations............. 305,400 -- --
Bank and other term debt.............. 43,503 68,778 76,879
---------- ---------- ----------
Total term debt.................... 5,310,673 4,384,698 3,304,879
Commercial paper...................... 1,972,361 1,444,977 944,451
Bank lines of credit and revolvers.... 319,000 -- --
Less: Deferred debt discount.......... (19,028) (10,194) (7,042)
---------- ---------- ----------
Debt financing....................... $7,583,006 $5,819,481 $4,242,288
========== ========== ==========
Composite interest rate............... 6.41% 5.89% 6.55%
Percentage of total debt at fixed
rate................................. 66.98% 74.77% 77.01%
Composite interest rate on fixed debt. 6.65% 6.70% 7.49%
Bank prime rate....................... 8.50% 6.00% 6.00%
The interest on substantially all the public debt (exclusive of the
commercial paper) is fixed for the term of the note. As of December 31, 1994,
the Company had committed revolving loans and lines of credit with 29 banks
aggregating $1.226 billion and uncommitted lines of credit with two banks
aggregating $125 million. Bank debt principally provides for interest rates
that vary according to the pricing option then in effect and range from prime,
.25% to 3/8% over LIBOR or .375% to .425% over CD rates, at the Company's
option. Bank financings are subject to facility fees of up to .1875% of
amounts available.
On February 2, 1995, the Company replaced $1.121 billion of the committed
revolving loans and lines of credit with a new, expanded facility for $1.8
billion. The new facility is subject to a facility fee of up to .10% which is
lower than that for the original facility.
10
The Company has an effective shelf registration with respect to $2.449
billion of debt securities, under which $300 million of notes were sold
through 1994. Additionally, a $1 billion Medium-Term Note program has been
implemented under the shelf registration, under which $535.6 million has been
sold through December 31, 1994.
As of December 31, 1994, the Company had entered into an Export Credit Lease
facility in the amount of $555 million for the acquisition of up to 10 Airbus
aircraft originally scheduled to be delivered in 1994. As of December 31,
1994, the Company had cancelled the options to finance four of the aircraft
aggregating $131 million. An additional $315 million was used to finance four
of the aircraft in 1994. The remaining $109 million will be used for aircraft
to be delivered in 1995. In addition, as of December 31, 1994, the Company
entered into a second Export Credit Lease facility in the amount of $1,375
million which is available for the acquisition of up to 21 Airbus aircraft to
be delivered in 1995. Both Export Credit Lease facilities provide ten year,
amortizing loans. The interest rate on 62.5% of the total financing available
is 6.55%, the interest rate on 22.5% of the financing available varies between
6.18% and 6.89%. The remaining 15% of the financing available provides for
LIBOR based pricing.
Since AIG's acquisition of the Company in 1990, through December 31, 1994,
AIG has contributed $250 million of additional capital to the Company.
In each of 1992, 1993 and February 1995, the Company sold $100 million of
Market Auction Preferred Stock.
The Company believes that it has sufficient financing sources available to
meet its capital requirements through fiscal 1995.
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.
These derivative products include interest rate swap agreements, interest rate
spreadlocks and interest rate swap options ("swaptions").
The counterparties to the Company's derivative instruments are all
recognized U.S. derivative dealers. The counterparties to the majority of the
notional amounts of the Company's derivative instruments are AAA rated and all
have at least an A credit rating. The Company currently does not, although it
can in certain circumstances, require its counterparties to provide security
for its positions with the Company. Any failure of the instruments or
counterparties to perform under the derivative contracts would have an
immaterial impact on the Company's earnings.
RESULTS OF OPERATIONS
The increase in revenues from rentals of flight equipment from $628.6
million in 1992 to $795.4 million in 1993 to $993.6 million in 1994 is due to
the increase in both the size and relative cost of the fleet of leased flight
equipment subject to operating lease from 167 in 1992 to 223 in 1993 to 262 in
1994.
In addition to its leasing operations, the Company engages in the marketing
of flight equipment on a principal and commission basis as well as the
disposition of flight equipment at the end of the lease term. Revenue from
such flight equipment marketing increased from $46.8 million in 1992 to $53.7
million in 1993 to $76.2 million in 1994 as a result of the following number
of aircraft transactions in each period:
1994 1993 1992
---- ---- ----
Sales of flight equipment.................................. 3 2 0
Commissions................................................ 10 8 6
Disposition of leased aircraft............................. 21 7 7
11
In addition, in 1994 the Company sold eight engines.
Interest and other income increased from $55.1 million in 1992 to $62.5
million in 1993 and decreased to $40.3 million in 1994. The increase in 1993
was due to an increase in notes receivable from $171.3 million (1992) to
$337.9 million (1993). Additionally, the Company had dividend income of $6.4
million (1992) and $2.4 million (1993) from its investment in Alaska Air Group
and realized $8.6 million (1992) and $16.3 million (1993) in deposit
forfeitures and fees principally on repossessed aircraft and early lease
terminations. The decrease in 1994 was due to the decline in dividend income
due to the disposition of the Alaska Air Group Stock in 1993. In addition, due
to the stabilization in the airline industry, the Company only realized $1.4
million (1994) in deposit forfeitures and fees on early lease terminations.
Expenses as a percentage of total revenues were 66.3% for 1992 compared to
70.0% for 1993 and 71.9% for 1994. Interest expense increased from $243.5
million in 1992 to $301.2 million in 1993 to $376.6 million in 1994, primarily
as a result of an increase in debt outstanding, excluding the effect of debt
discount, from $4,249.3 million in 1992 to $5,829.7 million in 1993 to
$7,602.0 million in 1994 to finance aircraft acquisitions, as affected by
changes in interest rates during the periods. These interest rate changes
caused the Company's composite borrowing rate to fluctuate as follows:
December 31, 1991........................... 7.66%
March 31, 1992.............................. 7.04
June 30, 1992............................... 6.70
September 30, 1992.......................... 6.60
December 31, 1992........................... 6.55
March 31, 1993.............................. 6.29
June 30, 1993............................... 6.11
September 30, 1993.......................... 6.05
December 31, 1993........................... 5.89
March 31, 1994.............................. 5.79
June 30, 1994............................... 5.87
September 30, 1994.......................... 6.09
December 31, 1994........................... 6.41
The balance of the increase in expenses is primarily attributable to
increases in depreciation of flight equipment from $192.2 million in 1992 to
$268.2 million in 1993 to $334.6 million in 1994 due to the addition of
aircraft.
Provision for overhauls increased from $28.1 million in 1992 to $39.9
million in 1993 to$57.6 million in 1994 due to an increase in the number of
aircraft on which the Company collects overhaul reserves and therefore an
increase in the number of hours flown for which an overhaul reserve is
provided, partially offset by the reversal of reserves on aircraft which
either changed lessees or were sold during the year.
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
During the two fiscal periods prior to the date of the Company's most recent
financial statements, the Company has not reported a change in accountants nor
have there been any disagreements reported on any matter of accounting
principles or practices or financial statement disclosure.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2): Financial Statements and Financial Schedule: The response to
this portion of Item 14 is submitted as a separate section of this report
beginning on page 18.
(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 14.
(b) Reports on Form 8-K: Current Reports on Form 8-K, event dates October
12, 1994 andDecember 6, 1994.
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 Auditors............................................ 17
Consolidated Financial Statements:
Balance Sheets at December 31, 1993 and 1994............................. 18
Statements of Income for the years ended December 31, 1992, 1993 and
1994.................................................................... 19
Statements of Shareholders' Equity for the years ended December 31, 1992,
1993 and 1994........................................................... 20
Statements of Cash Flows for the years ended December 31, 1992, 1993 and
1994.................................................................... 21
Notes to Consolidated Financial Statements............................... 23
The following financial statement schedule of the Company and its
subsidiaries is included in Item 14(a)(2):
CHEDULE NUMBERS DESCRIPTION PAGE
- --------------- ----------- ----
II Valuation and Qualifying Accounts.................................... 35
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.
13
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 ex-
hibit to Registration Statement No. 33-50913 and incorporated
herein by reference).
3.2 Certificate of Determination of Preferences of Series C Market Auc-
tion Preferred Stock.
3.3 Certificate of Determination of Preferences of Series D Market Auc-
tion Preferred Stock.
3.4 Certificate of Determination of Preferences of Series E Market Auc-
tion Preferred Stock.
3.5 Certificate of Determination of Preferences of Series F Market Auc-
tion Preferred Stock.
3.6 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).
4.1 Indenture dated as of November 1, 1991, between the Company and
Bank of America Illinois (formerly Continental Bank, National
Association), as Trustee (filed as an exhibit to Registration
Statement No. 33-43698 and incorporated herein by reference).
4.2 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* Employment Agreement with Leslie L. Gonda (filed as an exhibit to
Form 10-Q for the fiscal quarter ended May 31, 1990 and incorpo-
rated herein by reference).
10.2* Employment Agreement with Steven F. Udvar-Hazy (filed as an exhibit
to Form 10-Q for the fiscal quarter ended May 31, 1990 and incorpo-
rated herein by reference).
10.3 General Terms Agreement, dated November 10, 1988 between AVSA,
S.A.R.L. and the Company, including Letter Agreements Nos. 1
through 4 relating thereto (filed as exhibits to Form 8-K, dated
January 25, 1989 and incorporated herein by reference).
10.4 Purchase Agreement A321 dated February 14, 1990, between AVSA,
S.A.R.L. and the Company, including Letter Agreements relating
thereto (filed as an exhibit to Form 10-K, for the thirteen months
ended December 31, 1990 and incorporated herein by reference).
10.5 Amendments Nos. 1 and 2 dated as of June 18, 1991 and as of
December 10, 1992, respectively, to Purchase Agreement No. A321
dated as of February 14, 1990 between AVSA, S.A.R.L. and the Com-
pany (filed as an exhibit to Form 10-K for the year ended December
31, 1992 and incorporated herein by reference).
- ------------
*Denotes management contract.
14
10.6 Purchase Agreements, Nos. 1770 and 1771, dated as of December 15,
1992 between The Boeing Company and the Company, including Letter
Agreements related to each Purchase Agreement (filed as an exhibit
to Form 10-K for the year ended December 31, 1992 and incorporated
herein by reference).
10.7 Supplemental Agreement No. 1, dated as of June 4, 1993, to Purchase
Agreement No. 1771 between The Boeing Company and the Company
(filed as an exhibit to Form 8-K dated July 14, 1993 and incorpo-
rated herein by reference).
10.8 Supplemental Agreement No. 2, dated July 15, 1993, to Purchase
Agreement No. 1771 between The Boeing Company and the Company
(filed as an exhibit to Form 10-Q dated June 30, 1993 and
incorporated herein by reference).
10.9 Amendments Nos. 3 and 4 dated January 3, 1994 and February 28,
1994, respectively, to the Airbus A321 Purchase Agreement dated as
of February 14, 1990 between AVSA, A.S.R.L. and the Company (filed
as an exhibit to Form 10-K dated December 31, 1993 and incorporated
herein by reference).
10.10 Supplemental Agreement No. 2 dated December 7, 1993 to Purchase
Agreement No. 1770 dated as of December 15, 1992 between The Boeing
Company and the Company (filed as an exhibit to Form 10-K dated De-
cember 31, 1993 and incorporated herein by reference).
10.11 Supplemental Agreement No. 3 dated October 26, 1993 to Purchase
Agreement No. 1771 dated as of December 15, 1992 between The Boeing
Company and the Company (filed as an exhibit to Form 10-K dated De-
cember 31, 1993 and incorporated herein by reference).
10.12 Option Waiver Notice pursuant to Amendment No. 1, dated June 18,
1991, to Purchase Agreement No. A321 dated as of February 14, 1990
between AVSA, S.A.R.L. and the Company (filed as an exhibit to Form
10-Q dated June 30, 1994 and incorporated herein by reference).
10.13 Supplemental Agreement No. 3, dated as of August 5, 1994, to Pur-
chase Agreement No. 1770 between The Boeing Company and the Company
(filed as an exhibit to Form 10-Q dated September 30, 1994 and in-
corporated herein by reference).
10.14 Supplemental Agreement No. 4, dated as of October 14, 1994, to Pur-
chase Agreement No. 1770 between The Boeing Company and the Company
(filed as an exhibit to Form 10-Q dated September 30, 1994 and in-
corporated herein by reference).
10.15 Supplemental Agreement No. 5, dated as of November 16, 1994, to
Purchase Agreement No. 1770 between The Boeing Company and the Com-
pany (Confidential treatment requested).
10.16 Amendment No. 5 dated as of September 23, 1994 to the A321 Purchase
Agreement dated as of February 14, 1990 between AVSA, S.A.R.L. and
the Company.
15
10.17 Amendment No. 6 dated as of December 27, 1994 to the A321 Purchase
Agreement dated as of February 14, 1990 between AVSA, S.A.R.L. and
the Company (Confidential treatment requested).
10.18 Letter Agreements Nos. 1, 2, 3, 4, 5, 6 and 7, each dated as of De-
cember 27, 1994 between AVSA, S.A.R.L. and the Company (Confiden-
tial treatment requested).
10.19 Aircraft Facility Agreement, dated as of December 14, 1994, by and
among the banks and financial institutions named therein, National
Westminster Bank PLC, Encore Leasing Limited, ILFC (Bermuda) 7,
Ltd., ILFC Ireland 2 Limited, ILFC (Bermuda) 5, Ltd., ILFC Ireland
3 Limited, ILFC (Bermuda) 6 Ltd. and the Company (Confidential
treatment requested).
10.20 Guarantee and Indemnity (Lessor), dated as of December 14, 1994, by
and between the Company and Encore Leasing Limited.
10.21 Revolving Credit Agreement, dated as of February 2, 1995, among the
Company, Union Bank of Switzerland, Los Angeles Branch, and the
other banks listed therein providing up to $450,000,000.
10.22 Revolving Credit Agreement, dated as of February 2, 1995, among the
Company, Union Bank of Switzerland, Los Angeles Branch, and the
other banks listed therein providing up to $1,350,000,000.
12. Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends.
23. Consent of Ernst & Young LLP.
27. Financial Data Schedule.
16
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
International Lease Finance Corporation
Los Angeles, California
We have audited the accompanying consolidated balance sheets of
International Lease Finance Corporation as of December 31, 1994 and 1993, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of International Lease Finance Corporation at December 31, 1994 and 1993, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Century City,
Los Angeles, California
February 21, 1995
17
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
DECEMBER 31,
-----------------------
1994 1993
----------- ----------
Cash, including interest bearing accounts of $45,831
(1994) and $51,657 (1993)............................ $ 52,891 $ 61,566
Notes receivable--Notes B and D....................... 355,151 337,855
Net investment in finance and sales-type leases--Note
C.................................................... 92,233 290,269
Flight equipment under operating leases--Note G....... 9,928,416 7,295,241
Less accumulated depreciation........................ 1,077,337 779,404
----------- ----------
8,851,079 6,515,837
Deposits on flight equipment purchases--Note J........ 890,711 820,048
Accrued interest, other receivables and other assets.. 71,238 81,244
Investments--Note D................................... 18,983 17,837
Deferred debt issue costs--less accumulated amortiza-
tion of $22,346 (1994) and $16,390 (1993) ........... 20,846 15,165
----------- ----------
$10,353,132 $8,139,821
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued interest and other payables................... $ 124,025 92,229
Debt financing, net of deferred debt discount of
$19,028 (1994) and $10,194 (1993)--Note E............ 7,583,006 5,819,481
Security and other deposits on flight equipment....... 478,486 437,004
Rentals received in advance........................... 72,557 41,951
Deferred income taxes--Note H......................... 487,410 339,753
Current income taxes.................................. (33,124) 222
Commitments and contingencies--Note J
SHAREHOLDERS' EQUITY--Notes E and F
Preferred stock--no par value; 20,000,000 authorized
shares; Market Auction Preferred Stock, $100,000 per
share liquidation value; Series A, B, C and D, each
having 500 shares issued and outstanding (1994 and
1993)............................................... 200,000 200,000
Common stock--no par value; 100,000,000 authorized
shares, 35,818,122 (1994 and 1993) issued and out-
standing............................................ 3,582 3,582
Paid-in capital...................................... 582,941 532,941
Retained earnings.................................... 854,249 672,658
----------- ----------
1,640,772 1,409,181
----------- ----------
$10,353,132 $8,139,821
=========== ==========
See accompanying notes.
18
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
YEARS ENDED
DECEMBER 31,
---------------------------
1994 1993 1992
--------- -------- --------
Revenues:
Rental of flight equipment--Note G................. $993,596 $795,437 $628,600
Flight equipment marketing......................... 76,193 53,680 46,845
Interest and other................................. 40,267 62,515 55,072
--------- -------- --------
1,110,056 911,632 730,517
Expenses:
Interest........................................... 376,560 301,205 243,536
Depreciation....................................... 334,587 268,170 192,165
Provision for overhaul............................. 57,619 39,893 28,055
Selling, general and administrative--Note I........ 29,283 24,724 20,521
--------- -------- --------
798,049 633,992 484,277
--------- -------- --------
INCOME BEFORE INCOME TAXES........................ 312,007 277,640 246,240
Provision for income taxes--Note H.................. 110,064 109,075 88,491
--------- -------- --------
NET INCOME........................................ $ 201,943 $168,565 $157,749
========= ======== ========
See accompanying notes.
19
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AUCTION PREFERRED STOCK COMMON STOCK
-------------------------- -----------------
NUMBER OF NUMBER OF PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------------------------- ---------- ------ -------- -------- ----------
(DOLLARS IN THOUSANDS)
Balance at December 31,
1991................... 35,818,122 $3,582 $440,901 $370,725 $ 815,208
Capital contribution... 95,000 95,000
Sales of MAPS
preferred............. 1,000 $100,000 (1,432) 98,568
Dividend to AIG........ (10,330) (10,330)
Net income............. 157,749 157,749
---------- ------------- ---------- ------ -------- -------- ----------
Balance at December 31,
1992................... 1,000 100,000 35,818,122 3,582 534,469 518,144 1,156,195
Sale of MAPS preferred. 1,000 100,000 (1,528) 98,472
Dividend to AIG........ (11,359) (11,359)
Preferred stock
dividends............. (2,692) (2,692)
Net income............. 168,565 168,565
---------- ------------- ---------- ------ -------- -------- ----------
Balance at December 31,
1993................... 2,000 $ 200,000 35,818,122 $3,582 $532,941 $672,658 $1,409,181
Capital contribution... 50,000 50,000
Dividend to AIG........ (13,462) (13,462)
Preferred stock
dividends............. (6,890) (6,890)
Net income............. 201,943 201,943
---------- ------------- ---------- ------ -------- -------- ----------
Balance at December 31,
1994................... 2,000 $ 200,000 35,818,122 $3,582 $582,941 $854,249 $1,640,772
========== ============= ========== ====== ======== ======== ==========
See accompanying notes.
20
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
---------- ----------- -----------
OPERATING ACTIVITIES:
Net income.............................. $ 201,943 $ 168,565 $ 157,749
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of flight equipment........ 334,587 268,170 192,165
Deferred income taxes................... 147,657 113,793 49,102
Amortization of deferred debt issue
costs.................................. 5,956 5,055 4,554
Gain on sale of flight equipment and
investments included in amount
financed............................... (53,627) (24,806) (12,973)
Increase in notes receivable............ (36,608) (8,694) (7,398)
Equity in net income of affiliates...... (2,022) (3,036) (3,354)
Changes in operating assets and
liabilities:
(Increase) decrease in accrued
interest, other receivables and other
assets............................... 10,006 (21,110) (30,762)
Increase in accrued interest and other
payables............................. 31,796 13,029 20,280
Increase (decrease) in current income
taxes payable........................ (33,346) (20,262) 20,485
Increase in rentals received in
advance.............................. 30,606 3,326 10,552
---------- ----------- -----------
Net cash provided by operating
activities.............................. 636,948 494,030 400,400
---------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition of flight equipment:
For operating leases.................. (2,621,669) (2,372,789) (1,665,978)
For finance leases.................... (4,790) (5,841)
Proceeds from disposal of flight
equipment--net of gain................. 119,799 126,005 119,482
Advances on notes receivable............ (16,227) (14,856) (27,614)
Collections on notes receivable......... 114,141 70,242 23,358
Collections on finance and sales-type
leases................................. 9,891 13,576 11,333
Purchase of investments................. (850) (2,333) (1,000)
Sale of investments--net of gain........ 1,727 32,822
---------- ----------- -----------
Net cash used in investing activities.... (2,397,978) (2,147,333) (1,546,260)
---------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from debt financing............ 4,746,500 4,265,761 2,462,790
Payments in reduction of debt financing. (2,974,141) (2,685,416) (1,455,470)
Proceeds from sale of MAPS preferred
stock (net of issue costs)............. 98,472 98,568
Cash contributions to capital by AIG.... 50,000 95,000
Debt issue costs........................ (11,637) (9,961) (7,677)
Change in unamortized debt discount..... (8,834) (3,154) 3,046
Payment of common and preferred
dividends.............................. (20,352) (14,051) (10,330)
Increase in customer deposits........... 41,482 119,992 74,458
Increase in deposits and progress
payments............................... (70,663) (111,955) (83,146)
---------- ----------- -----------
Net cash provided by financing
activities.............................. 1,752,355 1,659,688 1,177,239
---------- ----------- -----------
Net increase (decrease) in cash.......... (8,675) 6,385 31,379
Cash at beginning of year................ 61,566 55,181 23,802
---------- ----------- -----------
Cash at end of year..................... $ 52,891 $ 61,566 $ 55,181
========== =========== ===========
(Table continued on next page)
21
(Table continued from previous page)
YEARS ENDED DECEMBER 31
---------------------------
1994 1993 1992
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest (net of amount capitalized $44,610
(1994), $39,363 (1993) and $36,291 (1992))....... $352,805 $264,571 $223,036
Income taxes...................................... (4,247) 15,395 17,619
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
1994
Flight equipment with a net book value of $222,873 was transferred from
finance and sales-type leases to operating leases.
Flight equipment was received in exchange for notes receivable in the
amount of $69,317.
Notes and finance and sales-type leases in the amount of $177,857 were
received as partial payments in exchange for flight equipment sold with
a book value of $124,230.
1993
Flight equipment with a net book value of $60,478 was transferred from
operating leases to finance and sales-type leases.
Flight equipment was received in exchange for notes receivable in the
amount of $41,987.
Notes in the amount of $228,645 were received as partial payments in
exchange for flight equipment sold with a book value of $204,185.
Notes in the amount of $26,600 were received in exchange for investments
in preferred stock with a book value of $26,153.
1992
Notes in the amount of $60,595 were received as partial payments in ex-
change for flight equipment sold with a book value of $47,622.
See accompanying notes.
22
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Parent Company: International Lease Finance Corporation (the "Company") is a
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 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 affiliates are carried at
cost. Investments of between 20% and 50% in other affiliates are carried under
the equity method. All significant intercompany balances and transactions have
been eliminated in consolidation.
Intercompany Allocations: AIG allocates certain costs to its subsidiaries.
The charges amounted to $2,506 (1994), $2,312 (1993) and $225 (1992).
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 amounts 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, commissions and net gains on disposition
of leased flight equipment.
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 most
leases, for certain airframe and engine overhauls, the lessee is reimbursed
for costs incurred up to but not exceeding contingent rentals paid the Company
by the lessee. The Company provides a charge to operations for such
reimbursements based primarily upon the hours utilized during the period and
the expected reimbursement during the life of the lease.
Generally, all aircraft are depreciated using the straight-line method over
a 25 year life from the date of manufacture to a 15% residual value. Boeing
737-200 aircraft are depreciated to a residual value of 15% at December 31,
1996.
At the time assets are retired or otherwise disposed of, the cost and
accumulated depreciation and amortization are removed from the related
accounts and the difference, net of proceeds, is recorded as a gain or loss.
Capitalized Interest: The Company borrows certain funds to finance progress
payments for flight equipment being constructed to order. 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 being amortized over the life of the debt using the
interest rate method.
23
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments: As a result of the Company having specific
aircraft purchase agreements, it has been able to obtain financing options for
fixed rate debt. The financing is available upon the purchase of specific
aircraft. However, the Company is not required to use the financing options to
purchase the specific aircraft and may choose to use other financing methods.
Acquired financing options that are expected to be designated as hedges of
anticipated financing arrangements are carried at cost based on their
allocated fair values. Such costs are amortized over the lives of the acquired
financing options.
The Company has granted certain parties the right but not the obligation to
effectively convert certain of the Company's fixed note obligations to
floating rate obligations based on an established notional amount. The
proceeds of such option agreements are initially recorded as a liability.
Subsequently, the value of such options agreements, as well as the cost
allocated to undesignated aircraft financing options, are adjusted to fair
value with changes in value recorded in income.
When swap agreements resulting from this activity are effective in modifying
the terms of actual debt agreements from a fixed rate basis to a floating rate
basis, such swaps are treated 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 from the related debt.
Income Taxes: The Company and its U.S. subsidiaries are included in the
consolidated federal income tax return of AIG. The Company and its
subsidiaries are included in 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").
Reclassifications: Certain amounts have been reclassified in the 1993 and
1992 financial statements to conform to the Company's 1994 presentation.
24
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 flight equipment and are
summarized as follows:
1994 1993
-------- --------
Fixed rate notes receivable due in varying installments to
2004:
Less than 8%............................................. $132,341 $ 94,951
8% to 9.99%.............................................. 104,585 49,923
10% to 12%............................................... 2,007 4,203
Prime to prime plus 5% and Libor plus 1.1% to Libor plus
1.5% notes receivable in varying installments to 2002.... 116,218 188,778
-------- --------
$355,151 $337,855
======== ========
The Company restructured approximately $36,558 (1994) and $16,428 (1993) of
lease payments, of which $18,010 was outstanding at December 31, 1994 and is
included above.
At December 31, 1994, the minimum future notes receivable payments to be
received are as follows:
1995................................................................ $118,908
1996................................................................ 73,565
1997................................................................ 18,995
1998................................................................ 39,353
1999................................................................ 29,401
Thereafter.......................................................... 74,929
--------
$355,151
========
NOTE C--NET INVESTMENT IN FINANCE AND SALES-TYPE LEASES
The following lists the components of the net investment in finance and
sales-type leases:
1994 1993
-------- --------
Total minimum lease payments to be received.............. $101,888 $358,106
Estimated residual values of leased flight equipment..... 29,127 76,328
Less: Unearned income.................................... (38,782) (144,165)
-------- --------
Net investment in finance and sales-type leases.......... $ 92,233 $290,269
======== ========
The decrease in 1994 primarily resulted from the conversion of three
aircraft from finance leases to operating leases.
Minimum future lease payments to be received for flight equipment on finance
and sales-type leases at December 31, 1994 are as follows:
1995..................................... $ 13,515
1996..................................... 13,515
1997..................................... 12,270
1998..................................... 11,415
1999..................................... 10,835
Thereafter............................... 40,338
--------
Total minimum lease payments to be
received................................ $101,888
========
25
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE D--INVESTMENTS
Investments consist of the following:
1994 1993
--------------- ---------------
PERCENT PERCENT
OWNED AMOUNT OWNED AMOUNT
------- ------- ------- -------
Cost method:
Air Liberte.................................... 10.8% $ 4,154 10.8% $ 4,154
Aeronautical Support Inc....................... 19.5% 1,000 19.5% 1,000
International Aircraft Investors............... 6.2% 300 6.2% 300
Southwest Airlines............................. <1 % 1,000 <1 % 1,000
Others......................................... 850
Equity method:
Pacific Ocean Leasing Ltd...................... 50.0% 7,223 50.0% 6,101
Pacific Asia Leasing Ltd....................... 25.0% 4,456 25.0% 3,681
Hoeri Corporation.............................. 50.0% 1,601
------- -------
$18,983 $17,837
======= =======
In addition, the Company has notes receivable of $10,538 (1994) and $31,984
(1993) from companies in which it has investments.
At December 31, 1994, the Company had seven aircraft on lease to Air Liberte
and nine on lease to Southwest Airlines. These leases are similar in terms to
those of unaffiliated customers.
The Company has sold used aircraft and engines to International Aircraft
Investors ("IAI") on terms similar to those of unaffiliated customers (see
Note J). In exchange for these sales the Company has received notes which are
included in Notes Receivable in the accompanying consolidated balance sheets
(see Note B).
The Company has a 50% interest in Pacific Ocean Leasing Ltd. ("POL"), a
Bermuda corporation. POL presently owns one Boeing 767-200 aircraft, one spare
engine and various spare parts on lease to an airline. Additionally, the
Company has guaranteed the bank loan to POL (see Note J) and has a
subordinated loan to POL, which is included in Notes Receivable on the
accompanying consolidated balance sheets (see Note B).
The Company has a 25% interest in Pacific Asia Leasing Ltd. ("PAL"), a
Bermuda corporation. PAL presently owns one Boeing 767-300ER aircraft on lease
to an airline. The Company guaranteed a bridge loan in connection with such
purchase (see Note J).
In 1993, the Company invested $1,601 for a 50% interest in Hoeri Corporation
("Hoeri"), a British Virgin Islands corporation. In 1994, the subordinated
loan was paid off and the investment in the company was sold (see Note B).
26
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE E--DEBT FINANCING
Debt financing is comprised of the following:
1994 1993
---------- ----------
Commercial Paper (weighted average interest rate at
December 31, 5.73% (1994) and 3.34% (1993))....... $1,972,361 $1,444,977
Term Notes......................................... 2,950,000 2,550,000
Medium-Term Notes.................................. 2,011,770 1,765,920
Capital Lease Obligations.......................... 305,400
Bank and other term debt........................... 43,503 68,778
Bank lines of credit and revolvers................. 319,000
Less: Deferred debt discount....................... (19,028) (10,194)
---------- ----------
$7,583,006 $5,819,481
========== ==========
Bank Financing:
As of December 31, 1994, the Company had committed credit agreements with 29
commercial banks aggregating $1,226,000 and uncommitted lines of credit with
two commercial banks in the amount of $125,000. Bank debt principally provides
for interest rates that vary according to the pricing option then in effect
and range from prime, .25% to 3/8% over LIBOR or .375% to .425% over CD rates,
at the option of the Company. The interest rates on the uncommitted bank lines
are fixed for a period of up to one year at rates determined by the banks.
Bank debt is subject to facility fees of up to .1875% of amounts available.
Bank financing is used primarily as backup for the Company's Commercial Paper
program.
Term Notes:
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 1994 1993
------- -------- --------
6.50% Notes due April 1, 1994..................... 2 years $ $100,000
Floating Rate Notes due September 1, 1994......... 2 years 100,000
7.20% Notes due October 1, 1994................... 3 years 150,000
6% Notes due January 15, 1995..................... 3 years 150,000 150,000
8.20% Notes due April 15, 1995.................... 4 years 150,000 150,000
4 7/8% Notes due September 15, 1995............... 3 years 100,000 100,000
6 7/8% Notes due December 15, 1995................ 4 years 100,000 100,000
5 3/4% Notes due January 15, 1996................. 3 years 150,000 150,000
6 5/8% Notes due June 1, 1996..................... 4 years 100,000 100,000
4 3/4% Notes due July 15, 1996.................... 3 years 100,000 100,000
7.90% Notes due October 1, 1996................... 5 years 100,000 100,000
6 3/8% Notes due November 1, 1996................. 4 years 150,000 150,000
4 3/4% Notes due January 15, 1997................. 3 years 100,000
5 7/8% Notes due February 1, 1997................. 4 years 100,000 100,000
5 1/2% Notes due April 1, 1997.................... 4 years 100,000 100,000
6 1/2% Notes due July 15, 1997.................... 5 years 150,000 150,000
6 3/4% Notes due August 1, 1997................... 3 years 100,000
27
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOTE E--DEBT FINANCING (CONTINUED)
Term Notes (continued):
INITIAL
TERM 1994 1993
----------- ---------- ----------
Floating Rate Notes due October 15, 1997. 4 1/2 years 100,000 100,000
5 5/8% Notes due March 1, 1998........... 4 years 100,000
5 3/4% Notes due March 15, 1998.......... 5 years 100,000 100,000
7% Notes due June 1, 1998................ 4 years 100,000
5 3/4% Notes due July 1, 1998............ 5 years 100,000 100,000
8.35% Notes due October 1, 1998.......... 7 years 100,000 100,000
5 3/4% Notes due January 15, 1999........ 5 years 150,000
6 5/8% Notes due April 1, 1999........... 5 years 100,000
6 1/2% Notes due August 15, 1999......... 7 years 100,000 100,000
6.20% Notes due May 1, 2000.............. 7 years 100,000 100,000
8 7/8% Notes due April 15, 2001.......... 10 years 150,000 150,000
8 3/8% Notes due December 15, 2004....... 10 years 100,000
---------- ----------
$2,950,000 $2,550,000
========== ==========
Medium-Term Notes:
The Company's Medium-Term Notes bear interest at rates varying between 3.75%
and 9.88%, inclusive, with maturities from 1995 through 2004. The Medium-Term
Notes provide for a single principal payment at the maturity of the respective
note. They cannot be redeemed by the Company prior to maturity.
Capital Lease Obligations:
At December 31, 1994, the Company had guaranteed funding facilities with
committed fixed rate funding for 1995 borrowings in the amount of $1,484,000.
The facilities provide for funding the purchase of up to 23 Airbus aircraft
during 1995. The Company has the right but not the obligation to utilize these
facilities and will make this decision based on the cost of the facilities
versus alternate funding opportunities existing on the exercise dates of the
facilities.
The Company's guaranteed funding facilities provide 10 year, fully
amortizing debt in three interest rate tranches. The first 62.5% of the debt
is at a fixed rate of 6.55%. The second 22.5% of the debt is at fixed rates
varying between 6.18% and 6.89%. The final 15% of the debt is at a floating
LIBOR based rate.
Maturities of debt financing (excluding commercial paper) at December 31,
1994 are as follows:
1995........................................................... $1,185,101
1996........................................................... 1,090,252
1997........................................................... 1,100,035
1998........................................................... 958,435
1999........................................................... 648,450
Thereafter..................................................... 647,400
----------
$5,629,673
==========
Under the most restrictive provisions of the related borrowings,
consolidated retained earnings at December 31, 1994, in the amount of $82,000
are unrestricted as to payment of dividends.
28
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE F--SHAREHOLDERS' EQUITY
Preferred Stock:
In November 1993 and December 1992, 500 shares each of Series C and D and
500 shares each of Series A and B, respectively, of Market Auction Preferred
Stock ("MAPS") were issued in connection with public offerings at $100,000 per
share. Proceeds, net of issuance costs, to the Company were $98,472 (1993) and
$98,568 (1992). The MAPS have a liquidation value of $100,000 per share and
are not convertible. The dividend rate, other than the initial rate, for each
dividend period for each series will be reset approximately every 7 weeks (49
days) on the basis of orders placed in an auction. At December 31, 1994, the
dividend rates for Series A, B, C and D were 4.88%, 5.125%, 4.53% and 4.60%,
respectively.
Stock Appreciation Rights:
Stock Appreciation Rights ("SARs") were granted to certain employees of the
Company during 1990. The SARs granted generally vest over a nine 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 has been earned or accrued under the SAR plan as of
December 31, 1994.
NOTE G--RENTAL INCOME
Minimum future rentals on noncancelable operating leases of flight equipment
which have been delivered at December 31, 1994 are as follows:
YEAR ENDED
----------
1995................................... $ 944,295
1996................................... 816,793
1997................................... 626,652
1998................................... 476,441
1999................................... 339,036
Thereafter............................. 657,035
----------
$3,860,252
==========
Additional rentals earned by the Company based on the lessees' usage
aggregated $122,321 (1994), $101,761 (1993) and $72,589 (1992). Flight
equipment is leased, under operating leases, with remaining terms ranging from
one to 11 years.
29
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE H--INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
1994 1993 1992
-------- -------- -------
Current:
Federal......................................... $(34,027) $ (8,522) $34,944
State........................................... (3,508) 3,826 4,445
-------- -------- -------
(37,535) (4,696) 39,389
Deferred:
Federal......................................... 149,364 103,220 46,513
State........................................... (1,765) 10,551 2,589
-------- -------- -------
147,599 113,771 49,102
-------- -------- -------
$110,064 $109,075 $88,491
======== ======== =======
The provision for deferred income taxes is comprised of the following
temporary differences:
1994 1993 1992
-------- --------- -------
Accelerated depreciation on flight equipment.... $180,137 $108,548 $47,906
Excess of state income taxes not currently de-
ductible for Federal income tax purposes....... 626 (3,698) (880)
Deferred sales-type leases...................... (806) (1,092) (3,644)
Provision for overhauls......................... (9,951) (3,613) (3,666)
Rentals received in advance..................... (14,511) (1,077) (4,149)
Straight line rents............................. (2,315) 7,269 13,168
Changes in tax rates............................ -- 6,056 --
Other........................................... (5,581) 2,659 (1,874)
Investment and other tax credits................ -- (1,281) 2,096
-------- --------- -------
Subtotal.................................... 147,599 113,771 48,957
Decrease (increase) in net operating loss for
tax purposes only.............................. -- -- 145
-------- --------- -------
$147,599 $ 113,771 $49,102
======== ========= =======
The deferred tax liability at December 31, 1994 consists of the following:
1994
--------
Accelerated depreciation on flight equipment........... $522,282
Excess of state income taxes not currently deductible
for Federal income tax purposes....................... (10,089)
Deferred sales-type leases............................. 15,996
Provision for overhauls................................ (26,677)
Rentals received in advance............................ (30,314)
Straight line rents.................................... 18,034
Other.................................................. (1,822)
--------
$487,410
========
30
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE H--INCOME TAXES (CONTINUED)
A reconciliation of computed expected total provision for income taxes to
the amount recorded is as follows:
1994 1993 1992
-------- -------- -------
Computed expected provision based upon a federal
rate of 35% (1994 and 1993) and 34% (1992) ...... $109,202 $97,174 $83,722
State income taxes, net of Federal income taxes... 5,772 9,345 4,642
Foreign sales corporation benefit................. (3,178) (3,324) --
Dividend received exclusion....................... -- (598) (1,526)
Other............................................. (1,732) 422 1,653
Adjustments of deferred tax liability for changes
in tax rates..................................... -- 6,056 --
-------- -------- -------
$110,064 $109,075 $88,491
======== ======== =======
NOTE I--OTHER INFORMATION
Concentration of Credit Risk
The Company leases and sells aircraft to airlines. All of the lease
receivables and the majority of notes receivable are from airlines 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 marketing of flight equipment
through leasing and sales.
Revenues include rentals of flight equipment to foreign airlines of $798,619
(1994), $655,773 (1993) and $546,452 (1992).
Miscellaneous
Interest and other revenue includes dividend income from its investment in
Alaska Air Group $2,431 (1993) and $6,400 (1992) and security deposit
forfeitures and early lease termination fees of $1,400 (1994), $16,329 (1993)
and $8,565 (1992).
Employee Benefit Plans
The Company's employees participate in various benefit plans sponsored by
AIG, including a noncontributory qualified defined benefit retirement plan 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, 1994 by
$21,375.
Gain on Disposition of Assets
During 1992, proceeds from the sale and leaseback of aircraft were $26,000.
The gain of $7,069 was deferred and is being credited to rent expense over the
term of the applicable lease agreement.
31
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE J--COMMITMENTS AND CONTINGENCIES
Aircraft orders and options
At December 31, 1994, the Company had committed to purchase 236 aircraft
deliverable from 1995 through 2000 at an estimated aggregate purchase price
(including adjustment for anticipated inflation) of approximately $13,379,200.
At December 31, 1994, the Company had options to purchase 51 aircraft
deliverable from 1996 through 2001 at an estimated aggregate purchase price
(including adjustment for anticipated inflation) of approximately $2,766,800.
Most of these purchase commitments and options are based upon master
arrangements with each of The Boeing Company ("Boeing"), AVSA, S.A.R.L., the
sales subsidiary of Airbus Industrie ("Airbus"), Fokker Aircraft USA Inc.
("Fokker") and McDonnell Douglas Corporation ("McDonnell Douglas").
The Boeing aircraft (models 737, 747, 757, 767 and 777), the Airbus aircraft
(models A300, A310, A319, A320, A321, A330 and A340), the Fokker aircraft
(model F-70) and the McDonnell Douglas aircraft (model MD-11) described above
are either being purchased, or the options to purchase have been granted,
pursuant to purchase agreements executed by the Company and Boeing, Airbus,
Fokker or McDonnell Douglas, respectively. 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, 1994, 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 $430,080, $330,595, $2,000 and $39,181 with Boeing, Airbus,
Fokker and McDonnell Douglas, respectively.
If all 287 aircraft were to be acquired, the estimated aggregate purchase
price (including adjustment for anticipated inflation) would be approximately
$16,146,000. 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.
Asset Value Guarantees
The Company guaranteed a portion of the residual value of one aircraft for a
fee paid in 1990, four aircraft for fees paid in 1991 and five aircraft for
fees paid in 1994. The aggregate guarantees at December 31, 1994, are $131,313
and, if called upon, are payable in the amounts of $2,000 (1995), $6,213
(1997), $3,100 (1999), $21,000 (2000), $63,000 (2003) and $36,000 (2006).
Other Guarantees
In connection with the acquisition of six aircraft by affiliates, the
Company guaranteed the loans, which at December 31, 1994 aggregated $65,493.
In connection with the acquisition of one aircraft by an unrelated company,
the Company guaranteed an aggregate of $1,440 of lease payments through 1996.
32
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE K--FINANCIAL INSTRUMENTS
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.
These derivative products include interest rate swap agreements, interest rate
spreadlocks and interest rate swap options ("swaptions").
The counterparties to the Company's derivative instruments are all
recognized U.S. derivative dealers. The counterparties to the majority of the
notional amounts of the Company's derivative instruments are AAA rated and all
have at least an A credit rating. One of the counterparties is a related party
of the Company. All derivative contracts between the Company and the related
party are at arms length. The Company currently does not, although it can in
certain circumstances, require its counterparties to provide security for its
positions with the Company. Any failure of the instruments or counterparties
to perform under the derivative contracts would have an immaterial impact on
the Company's earnings.
At December 31, 1994 and 1993, the Company had interest rate swap agreements
with aggregate notional amounts of $294,761 and $125,000, respectively, which
effectively converted certain fixed rate obligations with a weighted average
interest rate of 6.46% (1994) and 5.56% (1993) to variable rate obligations
equal to the six month LIBOR rate. In addition, at December 31, 1994 and 1993,
the Company had an interest rate swap agreement with a notional amount of
$100,000 which effectively converted a floating rate obligation equal to the
one month commercial paper rate to a fixed rate obligation with a weighted
average interest rate of 5.82%. Also, at December 31, 1994 the Company had an
interest rate swap agreement with a notional amount of $50,000 which converted
a floating rate obligation equal to two year U.S. Treasuries minus 0.25% to a
floating rate obligation equal to three month LIBOR plus 0.25%. The interest
rate swap agreements expire in 1996 ($25,000 notional value), 1997 ($100,000
notional value), 1998 ($100,000 notional value), 1999 ($50,000 notional value)
and 2004 ($169,761 notional value).
At December 31, 1994, the Company had committed swaption contracts with an
aggregate notional amount of $1,116,280 substantially expiring through 1996.
The swaptions grant to the option holder the right but not the obligation to
effectively convert certain of the Company's fixed rate financing options with
a weighted average interest rate of 6.78% to floating rates equal to the six
month LIBOR rate. The swaptions were entered into with the objective to lower
the Company's borrowing costs and to obtain its optimal mix of variable and
fixed rate obligations.
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.
33
INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE K--FINANCIAL INSTRUMENTS (CONTINUED)
Investments: It was not practicable to estimate 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
estimate fair value without incurring excessive costs. The carrying amount
of these investments at December 31, 1994 represents the original cost or
original cost plus the Company's share of earnings of the investment, which
management believes is not impaired. For investments held by the Company
that had a quoted market price at December 31, 1994, the Company used such
quoted market price in estimating 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 Treasuries for similar debt
at year-end.
Off-balance-sheet instruments: Fair values for the Company's off-balance-
sheet instruments are based on pricing models or formulas using current
assumptions (swaps, swaptions and the guaranteed loan facility) and the
amount of the guarantee which would not be covered by the fair value of the
underlying collateral (loan guarantees and asset value guarantees).
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1994 are as follows:
CARRYING
AMOUNT OF FAIR VALUE OF
ASSET (LIABILITY) ASSET (LIABILITY)
----------------- -----------------
Cash and cash equivalents... $ 52,891 $ 52,891
Notes receivable............ 355,151 347,828
Investments................. 18,983 21,223
Debt financing.............. (7,583,006) (7,447,708)
Off-balance-sheet financial
instruments:
Hedging Activities:
Swaps................... (544) (17,601)
Acquired financing
options................ -- 79,600
Other Risk Management
Activities:
Swaptions............... (72,905) (72,905)
Acquired financing
options................ 69,300 69,300
Loan guarantees......... -- --
Asset value guarantees.. -- --
34
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(1) END OF PERIOD
----------- ------------ ---------- ---------------- ------------ -------------
(DOLLARS IN THOUSANDS)
Reserve for overhaul:
Year ended December 31,
1994................... $44,843 $57,619 $1,802(2) $32,710 $71,554
Year ended December 31,
1993................... $34,965 $39,893 $ 0 $30,015 $44,843
Year ended December 31,
1992................... $25,171 $28,055 $ 675(2) $18,936 $34,965
- --------
(1)Reimbursements to lessees for overhauls performed.
(2)Payments received from lessees in lieu of compliance with return conditions.
35
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 20, 1995
INTERNATIONAL LEASE FINANCE CORPORATION
By LESLIE L. GONDA
----------------------------------------
Leslie L. Gonda
Chairman of the Board
Pursuant to 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
--------- ----- ----
LESLIE L. GONDA Director March 20, 1995
- ------------------------------------
Leslie L. Gonda
STEVEN F. UDVAR-HAZY Director March 20, 1995
- ------------------------------------
Steven F. Udvar-Hazy
LOUIS L. GONDA Director March 20, 1995
- ------------------------------------
Louis L. Gonda
M. R. GREENBERG Director March 20, 1995
- ------------------------------------
M. R. Greenberg
EDWARD E. MATTHEWS Director March 20, 1995
- ------------------------------------
Edward E. Matthews
PETROS K. SABATACAKIS Director March 20, 1995
- ------------------------------------
Petros K. Sabatacakis
HOWARD I. SMITH Director March 20, 1995
- ------------------------------------
Howard I. Smith
ALAN H. LUND Chief Financial Officer and March 20, 1995
- ------------------------------------ Chief Accounting Officer
Alan H. Lund
36
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 a wholly owned subsidiary of AIG, no annual report
to security holders for the year ended December 31, 1994 or proxy statement,
form of proxy or other proxy soliciting materials have been sent to securities
holders since January 1, 1990.
37