1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 000-22249
INTERNATIONAL AIRCRAFT INVESTORS
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4176107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3655 TORRANCE BOULEVARD, SUITE 410 TORRANCE, CALIFORNIA 90503
(Address of principal executive offices) (Zip Code)
(310) 316-3080
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 4, 2000
----- -----------------------------
COMMON STOCK, $.01 PAR VALUE 3,882,384
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INTERNATIONAL AIRCRAFT INVESTORS
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
As of June 30, 2000 and December 31, 1999............................................. 3
Condensed Consolidated Statements of Income
Three months ended June 30, 2000 and 1999............................................. 4
Condensed Consolidated Statements of Income
Six months ended June 30, 2000 and 1999............................................... 5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999............................................... 6
Notes to Condensed Consolidated Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations............................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................... 14
Item 6. Exhibits and Reports on Form 8-K...................................................... 14
Signatures............................................................................ 16
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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
ASSETS
Cash and cash equivalents ................................ $ 13,057,507 $ 13,045,392
Flight equipment, at cost less accumulated depreciation of
$60,308,351 at June 30, 2000 and $51,128,351
at December 31, 1999 .................................. 306,472,436 314,083,293
Cash, restricted ......................................... 11,645,652 13,908,097
Other assets ............................................. 1,309,985 1,460,218
------------- -------------
$ 332,485,580 $ 342,497,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued interest and other accrued expenses .............. $ 1,981,905 $ 1,727,635
Notes payable ............................................ 262,952,904 271,970,620
Lease and other deposits on flight equipment ............. 21,200,365 23,282,834
Deferred rent ............................................ 4,079,316 2,624,534
Deferred taxes, net ...................................... 4,939,840 4,594,927
------------- -------------
295,154,330 304,200,550
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value. Authorized 15,000,000
shares; none issued and outstanding .................... -- --
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding
3,889,484 shares at June 30, 2000 and
4,173,784 shares at December 31, 1999 .................. 38,895 41,738
Additional paid-in capital ............................... 29,324,870 31,009,749
Deferred compensation .................................... (125,000) (250,000)
Retained earnings ........................................ 8,092,485 7,494,963
------------- -------------
Net shareholders' equity ....................... 37,331,250 38,296,450
------------- -------------
$ 332,485,580 $ 342,497,000
============= =============
See accompanying notes to condensed consolidated financial statements
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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30,
---------------------------
2000 1999
----------- -----------
(UNAUDITED)
REVENUES:
Rental of flight equipment ........................... $10,402,373 $ 8,373,229
Consulting fees ...................................... -- 200,000
Interest income ...................................... 382,168 368,453
----------- -----------
Total revenues ................................ 10,784,541 8,941,682
EXPENSES:
Interest ............................................. 4,733,801 3,688,032
Depreciation ......................................... 4,590,000 3,360,000
Repossession and maintenance ......................... 631,257 --
General and administrative ........................... 559,396 365,316
Stock compensation ................................... 62,500 62,500
----------- -----------
Total expenses ................................. 10,576,954 7,475,848
----------- -----------
Income before income taxes and extraordinary loss ...... 207,587 1,465,834
Income tax expense ..................................... 77,845 557,015
----------- -----------
Income before extraordinary loss ....................... 129,742 908,819
Extraordinary loss on debt extinguishment, net of income
tax benefit of $131,322 .............................. -- 214,263
----------- -----------
Net income ..................................... $ 129,742 $ 694,556
=========== ===========
Basic earnings share:
Income before extraordinary loss ............... $ .03 $ .21
Extraordinary loss ............................. -- (.05)
----------- -----------
Net income ..................................... $ .03 $ .16
=========== ===========
Diluted earnings per share:
Income before extraordinary loss ............... $ .03 $ .21
Extraordinary loss ............................. -- (.05)
----------- -----------
Net income ..................................... $ .03 $ .16
=========== ===========
Weighted average common shares outstanding:
Basic .......................................... 3,987,757 4,212,284
=========== ===========
Assuming dilution .............................. 4,066,541 4,329,024
=========== ===========
See accompanying notes to condensed consolidated financial statements
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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999
----------- ------------
(UNAUDITED)
REVENUES:
Rental of flight equipment ........................... $21,003,271 $ 17,246,886
Consulting fees ...................................... -- 200,000
Interest income ...................................... 834,754 739,421
----------- ------------
Total revenues ................................ 21,838,025 18,186,307
EXPENSES:
Interest ............................................. 9,636,411 7,495,746
Depreciation ......................................... 9,180,000 6,720,000
Repossession and maintenance ......................... 837,676 --
General and administrative ........................... 1,102,903 847,111
Stock compensation ................................... 125,000 125,000
----------- ------------
Total expenses ................................. 20,881,990 15,187,857
----------- ------------
Income before income taxes and extraordinary loss ...... 956,035 2,998,450
Income tax expense ..................................... 358,513 1,139,404
----------- ------------
Income before extraordinary loss ....................... 597,522 1,859,046
Extraordinary loss on debt extinguishment, net of income
tax benefit of $131,322 .............................. -- 214,263
----------- ------------
Net income ..................................... $ 597,522 $ 1,644,783
=========== ============
Basic earnings share:
Income before extraordinary loss ............... $ .15 $ .44
Extraordinary loss ............................. -- (.05)
----------- ------------
Net income ..................................... $ .15 $ .39
=========== ============
Diluted earnings per share:
Income before extraordinary loss ............... $ .14 $ .43
Extraordinary loss ............................. -- (.05)
----------- ------------
Net income ..................................... $ .14 $ .38
=========== ============
Weighted average common shares outstanding:
Basic .......................................... 4,076,274 4,212,462
=========== ============
Assuming dilution .............................. 4,170,709 4,325,181
=========== ============
See accompanying notes to condensed consolidated financial statements
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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
----------------------------
2000 1999
------------ ------------
(UNAUDITED)
Cash flows from operating activities:
Net income ............................................. $ 597,522 $ 1,644,783
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation of flight equipment ................... 9,180,000 6,720,000
Amortization of deferred transaction fees .......... 200,020 210,327
Deferred taxes, net ................................ 344,913 996,882
Stock compensation ................................. 125,000 125,000
Increase (decrease) in assets:
Cash, restricted ................................... 2,262,445 107,679
Other assets ....................................... 99,940 (698,513)
(Increase) decrease in liabilities:
Accrued interest and other accrued liabilities ..... 104,543 220,648
Lease and other deposits on flight equipment ....... (2,082,469) 1,503,481
Deferred rent ...................................... 54,782 (1,442,797)
------------ ------------
Net cash provided by operating activities .......... 10,886,696 9,387,490
Cash flows from investing activities:
Purchase of flight equipment ....................... (169,143) (22,728,512)
------------ ------------
Net cash used in investing activities .............. (169,143) (22,728,512)
Cash flows from financing activities:
Repayment of notes payable ......................... (4,565,503) (20,684,159)
Repayment of notes payable to ILFC ................. (4,372,713) (1,896,356)
Repayment of notes payable to GLH .................. (79,500) --
Proceeds from notes payable to ILFC ................ -- 35,345,473
Repurchase of common stock ......................... (1,687,722) (23,378)
------------ ------------
Net cash provided by (used in) financing
activities .................................... (10,705,438) 12,741,580
------------ ------------
Net increase (decrease) in cash and cash
equivalents ................................... 12,115 (599,442)
Cash and cash equivalents at beginning of period ....... 13,045,392 15,923,982
------------ ------------
Cash and cash equivalents at end of period ............. $ 13,057,507 $ 15,324,540
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest ............................. $ 9,546,865 $ 7,089,771
Cash paid for income taxes ......................... $ 13,600 $ --
See accompanying notes to condensed consolidated financial statements
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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying unaudited interim condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Annual Report on
Form 10-K.
Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of normal and recurring accruals)
necessary for a fair presentation of the financial position of the Company as of
June 30, 2000 and December 31, 1999 and the results of its operations for the
three month and six month periods ended June 30, 2000 and 1999 and its cash
flows for the six months ended June 30, 2000 and 1999. Operating results for the
six month period ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
2. MANAGEMENT ESTIMATES
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions. These affect the reported amounts of assets,
liabilities, revenues and expenses and the amount of any contingent assets or
liabilities disclosed in the condensed consolidated financial statements. Actual
results could differ from estimates made.
The Company leases flight equipment to various commercial airline fleets on
short-term to medium-term operating leases, generally three to five years. The
related flight equipment is generally financed by borrowings that become due at
or near the end of the lease term through a balloon payment. As a result, the
Company's operating results depend on management's ability to roll over debt
facilities, renegotiate favorable leases and realize estimated residual values.
3. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Transactions" and SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133". SFAS No. 133 requires that all derivative financial instruments, such as
interest rate swap contracts and foreign exchange contracts, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or shareholders' equity
(as a component of comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. SFAS No. 137 defers the
implementation date of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company has not completed the process of determining the effect of
SFAS No. 133 and SFAS No. 137 on its financial statements.
4. REPOSSESSION OF AIRCRAFT
In the first quarter of 2000, the Company repossessed one of its Boeing Model
737-300 aircraft from a Mexican airline. The Company is currently preparing the
aircraft for delivery to a lessee. The new lease is dependent on the completion
of certain maintenance and testing of the aircraft and technical acceptance by
the lessee. The Company incurred
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repossession, maintenance and legal expenses of $631,257 and $837,676 for the
three and six month periods ended June 30, 2000.
The Company has two notes payable to ILFC related to the aircraft of $14,267,134
bearing interest at 7.96% due October 2000 and $301,757 bearing interest at 6%
due February 2002. The Company intends to refinance the note payable due October
2000 when it matures.
5. EARNINGS PER SHARE
The following table sets forth the computation of the weighted average number of
shares used to calculate basic and diluted earnings per share:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Basic weighted average shares outstanding .... 3,987,757 4,212,284 4,076,274 4,212,462
Effect of dilutive securities:
Employee stock options .................... 78,107 115,795 94,313 112,147
Non-employee stock options ................ 677 945 122 572
--------- --------- --------- ---------
Dilutive potential common shares ............. 78,784 116,740 94,435 112,719
--------- --------- --------- ---------
Diluted weighted average shares and assumed
conversions ............................. 4,066,541 4,329,024 4,170,709 4,325,181
========= ========= ========= =========
The Company issued its underwriters warrants to purchase 260,000 shares of its
common stock at $12 per share in connection with its initial public offering.
These warrants were excluded from the computation of diluted net income per
common share because they were anti-dilutive. The warrants are exercisable
through November 10, 2001.
The Company issued options to purchase 75,000 shares of common stock at prices
ranging from $6.38 to $10.25 per share under its Eligible Directors Option Plan.
These options were excluded from the computation of diluted net income per
common share because they were anti-dilutive. The options are exercisable
through May 10, 2003 and June 3, 2004.
6. NOTES PAYABLE
The Company extended a note due July 2000 with a balance totaling $14,267,134 to
October 2000, notes due June 2000 with balances totaling $1,937,500 to September
2000, a note due June 2000 with a balance totaling $16,210,471 to September
2000, a note due July 2000 with a balance totaling $28,471,188 to October 2000
and a note due August 2000 with a balance totaling $22,797,812 to December 2000.
At June 30, 2000, the Company's weighted average composite interest rate was
7.1%.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)
OVERVIEW
We are primarily engaged in the acquisition of used, single-aisle jet aircraft
for lease and sale to domestic and foreign airlines and other customers. We
lease aircraft under short-term to medium-term operating leases where the lessee
is responsible for all operating costs, including major overhauls and we retain
the potential benefit or risk of the residual value of the aircraft, as distinct
from finance leases where the full cost of the aircraft is generally recovered
over the term of the lease.
Rental amounts are accrued evenly over the lease term and are recognized as
revenue from the rental of flight equipment. Our flight equipment is recorded on
the balance sheet at cost and is depreciated on a straight-line basis over the
estimated useful life to our estimated salvage value. Revenue, depreciation
expense and resultant profit for operating leases are recorded evenly over the
life of the lease. Initial direct costs related to the origination of leases are
capitalized and amortized evenly over the lease terms.
This Report on Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are intended to be covered by
the safe harbors created thereby. Reference is made to the cautionary statements
made in our Report on Form 10-K for the year ended December 31, 1999 ("Form
10-K") which should be read as being applicable to all related forward-looking
statements wherever they appear in this Report on Form 10-Q. Our actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in the Form 10-K.
REPOSSESSION
In the first quarter of 2000, we repossessed one of our Boeing Model 737-300
aircraft from a Mexican airline. We are currently preparing the aircraft for
delivery to a lessee. The new lease is dependent on the completion of certain
maintenance and testing of the aircraft and technical acceptance by the lessee.
We incurred repossession, maintenance and legal expenses of $631 and $838 for
the three and six month periods ended June 30, 2000. Maintenance expenses were
substantially higher than anticipated principally for work not completed by the
Mexican airline and to comply with European Civil Aviation requirements.
We have two notes payable to ILFC related to the aircraft of $14,267 bearing
interest at 7.96% due October 2000 and $302 bearing interest at 6% due February
2002. We intend to refinance the note payable due October 2000 when it matures.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 and 1999
Revenues from rental of flight equipment increased by 24%, or $2,029, to $10,402
in the three months ended June 30, 2000 compared to the same period in 1999 as a
result of the acquisition of three aircraft on lease, partially offset by the
impact of no rent on the repossessed aircraft discussed above. Our lease
portfolio consisted of sixteen aircraft with a book value of $306,472 at June
30, 2000 and fourteen aircraft on lease with a book value of $252,917 at June
30, 1999. The fourteenth aircraft was purchased at the end of June 1999 and had
no effect on income statement in the second quarter of 1999.
Quarter to quarter comparisons are impacted by the timing and amount of
consulting fees which are earned from time to time. While consulting fees were
not earned in the three months ended June 30, 2000, $200 was earned in the same
period of 1999.
Interest income increased to $382 for the three months ended June 30, 2000 from
$368 for the same period in 1999 as a result of higher average interest rates
partially offset by lower average cash and restricted cash balances.
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Total expenses were up 41% in the three months ended June 30, 2000, of which 8%
was due to expenses for the repossessed aircraft. Interest expense increased to
$4,734 for the three months ended June 30, 2000 from $3,688 for the same period
in 1999 principally as a result of interest on financing related to the
acquisition of three additional aircraft, offset by the effect of loan paydowns.
Our composite interest rate was 7.1% and 7% at June 30, 2000 and 1999,
respectively.
Depreciation expense increased to $4,590 in the second quarter of 2000 from
$3,360 in the second quarter of 1999 primarily as a result of the acquisition of
three additional aircraft. We incurred $631 of repossession and maintenance
expense in the second quarter of 2000. General and administrative expenses
increased to $559 in the three months ended June 30, 2000 from $365 in the same
period of 1999 primarily as a result of increased compensation expense and legal
costs. During the three months ended June 30, 2000 and 1999, we incurred $63 of
non-cash stock compensation related to the vesting of options granted to
executive officers.
Income tax expense decreased to $78 from $557 as a result of a $1,258 reduction
in income before income taxes and an extraordinary item. Income tax expense
represents a non-cash provision for deferred income taxes at an effective rate
of 37.5%. We continue to generate substantial federal net operating loss
carryforwards primarily resulting from accelerated tax depreciation. At December
31, 1999, we had $21.6 million of federal net operating tax loss carryforwards.
In the second quarter of 1999, we repaid a note prior to maturity, resulting in
an extraordinary loss on debt extinguishment of $214, net of $131 income tax
benefit. Net income decreased to $130 for the three months ended June 30, 2000
from $695 for the same period in 1999 due to the factors described above.
Six Months Ended June 30, 2000 and 1999
Revenues from rental of flight equipment increased by 22%, or $3,756, to $21,003
in the six months ended June 30, 2000 compared to the same period in 1999 as a
result of the acquisition of three aircraft on lease, partially offset by the
impact of no rent on the repossessed aircraft discussed above. Our lease
portfolio consisted of sixteen aircraft with a book value of $306,472 at June
30, 2000 and fourteen aircraft on lease with a book value of $252,917 at June
30, 1999. The fourteenth aircraft was purchased at the end of June 1999 and had
no effect on income statement in the second quarter of 1999.
Period to period comparisons are impacted by the timing and amount of consulting
fees which are earned from time to time. While consulting fees were not earned
in the six months ended June 30, 2000, $200 was earned in the same period of
1999.
Interest income increased to $835 for the six months ended June 30, 2000 from
$739 for the same period in 1999 as a result of higher average interest rates
partially offset by lower average cash and restricted cash balances.
Total expenses were up 37% in the six months ended June 30, 2000, of which 6%
was due to expenses for the repossessed aircraft. Interest expense increased to
$9,636 for the six months ended June 30, 2000 from $7,496 for the same period in
1999 principally as a result of interest on financing related to the acquisition
of three additional aircraft, offset by the effect of loan paydowns. Our
composite interest rate was 7.1% and 7% at June 30, 2000 and 1999, respectively.
Depreciation expense increased to $9,180 in the six months ended June 30, 2000
from $6,720 in the same period of 1999 primarily as a result of the acquisition
of three additional aircraft. We incurred $838 of repossession and maintenance
expense in the first six months of 2000. General and administrative expenses
increased to $1,103 in the six months ended June 30, 2000 from $847 in the same
period of 1999 primarily as a result of increased compensation expense and legal
costs. During the six months ended June 30, 2000 and 1999, we incurred $125 of
non-cash stock compensation related to the vesting of options granted to
executive officers.
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Income tax expense decreased to $359 from $1,139 as a result of a $2,042
reduction in income before income taxes and an extraordinary item. Income tax
expense represents a non-cash provision for deferred income taxes at an
effective rate of 37.5%. We continue to generate substantial federal net
operating loss carryforwards primarily resulting from accelerated tax
depreciation. At December 31, 1999, we had $21.6 million of federal net
operating tax loss carryforwards.
In the second quarter of 1999, we repaid a note prior to maturity, resulting in
an extraordinary loss on debt extinguishment of $214, net of $131 income tax
benefit. Net income decreased to $598 for the six months ended June 30, 2000
from $1,645 for the same period in 1999 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Our principal external sources of funds have been term loans from banks and
seller financing secured by flight equipment and the net proceeds from our
initial public offering. A substantial amount of our cash flow from rental of
flight equipment is applied to principal and interest payments on secured debt.
The terms of our loans generally require a substantial balloon payment at the
end of the noncancellable portion of the lease of the related flight equipment,
at which time we will be required to re-lease the flight equipment and
renegotiate the balloon amount of the loan or obtain other financing.
Refinancing of the balloon amount is dependent upon our re-leasing the related
flight equipment. Accordingly, we begin lease remarketing efforts well in
advance of the lease termination. The principal use of cash is for financing the
acquisition of our flight equipment portfolio, which is financed by loans
secured by the applicable flight equipment. We maintain a $5,000 line of credit
with a bank. The line of credit bears interest at LIBOR plus 2.5% and expires
June 30, 2001. No borrowings have been made against the line of credit.
For the six months ended June 30, 2000, net cash provided from operating
activities increased by $1,499 principally as a result of an increase in a
non-cash expense for depreciation of $2,460, a decrease in the change in
restricted cash of $2,155 and an increase in the change in deferred rent of
$1,498, partially offset by a decrease in net income of $1,047, and a decrease
in the change in lease and other deposits of $3,586.
Net cash used in investing activities was $169 in the six months ended June 30,
2000 as the result of equipment installed on the repossessed aircraft. Net cash
used in investing activities was $22,728 in the six months ended June 30, 1999
resulted primarily from the purchase of an aircraft.
Net cash used in financing activities was $10,705 in the six months ended June
30, 2000. Cash used was principally due to loan paydowns of $9,018 as well as
repurchasing $1,688 of our common stock. For the six months ended June 30, 1999,
net cash provided in financing activities was $12,742. Proceeds from financing
activities resulted primarily from $15,745 of bridge financing from ILFC and
$19,600 of financing from ILFC related to the purchase of an aircraft. Proceeds
from financing activities were partially offset in 1999 by loan paydowns and
stock repurchases of $22,604.
We extended the following the notes with ILFC during the three months ended June
30, 2000: a note due July 2000 with a balance totaling $14,267,134 to October
2000, a note due June 2000 with a balance totaling $16,210,471 to September
2000, a note due July 2000 with a balance totaling $28,471,188 to October 2000
and a note due August 2000 with a balance totaling $22,797,812 to December 2000.
These notes primarily represent seller financing which has been extended on a
short-term basis while we seek longer-term bank financing. We extended notes
with GLH due June 2000 with balances totaling $1,937,500 to September 2000. We
intend to continue refinancing the notes on a short-term basis with GLH.
Our composite interest rate was 7.1% and 7% at June 30, 2000 and 1999,
respectively.
Cash and cash equivalents vary from period to period principally as a result of
the timing of the purchase and sale of aircraft.
We use interest rate swap arrangements to reduce the potential impact of
increases in interest rates on floating rate
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long-term debt and do not use them for trading purposes. Premiums paid for
purchased interest rate swap agreements are amortized to interest expense over
the terms of the swap agreements.
Our ability to successfully execute our business strategy and to sustain our
operations is dependent, in part, on our ability to obtain financing and to
raise equity capital. There can be no assurance that the necessary amount of
such capital will continue to be available to us on favorable terms or at all.
If we were unable to continue to obtain any portion of required financing on
favorable terms, our ability to add new aircraft to our lease portfolio, extend
leases, re-lease an aircraft, repair or recondition an aircraft if required, or
retain ownership of an aircraft on which financing has expired would be
impaired, which would have a material adverse effect on our business, financial
condition and results of operations. In addition, our financing arrangements to
date have been dependent in part upon International Lease Finance Corporation.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
(DOLLARS IN THOUSANDS)
Lease Portfolio
We lease our portfolio of aircraft under operating leases rather than finance
leases. Under an operating lease, we retain title to the aircraft and assume the
risk of not recovering our entire investment in the aircraft through the
re-leasing and remarketing process. Operating leases require us to re-lease or
sell aircraft in our portfolio in a timely manner upon termination of the lease
in order to minimize off-lease time and recover our original investment in the
aircraft. Numerous factors, many of which are beyond our control, may have an
impact on our ability to re-lease or sell an aircraft on a timely basis or to
re-lease at a satisfactory lease rate. Among the factors are:
o the demand for various types of aircraft
o general market and economic conditions
o regulatory changes, including those imposing environmental, maintenance or
operational requirements
o changes in supply or cost of aircraft
o technological developments
In addition, the success of an operating lease depends in significant part upon
having the aircraft returned by the lessee in marketable condition as required
by the lease. Consequently, we cannot assure you that our estimated residual
value for aircraft will be realized. If we are unable to re-lease or resell
aircraft on favorable terms, our business, financial condition and results of
operations could be adversely affected.
Financial Instruments
This analysis presents the hypothetical loss in earnings, cash flows or fair
value of the financial instruments which we held at June 30, 2000 and are
sensitive to changes in interest rates. In the normal course of business, we
also face risks that are either nonfinancial or non-quantifiable. These risks
principally include country risk, credit risk and legal risk and are not
included in the following analysis.
From time to time, we enter into interest rate swaps with financial institutions
under terms that provide payment of interest on the notional amount of the swap.
In accordance with these arrangements, we pay interest at a fixed rate and the
financial institution pays interest at variable rates pursuant to terms of the
loans. We had no swap agreements at June 30, 2000.
The carrying amounts of cash and cash equivalents approximate fair market value
because of the short-term nature of these items. Market risk was estimated as
the potential decrease in fair value resulting from a hypothetical 10% increase
in interest rates for our cash equivalents and was not materially different from
the year-end carrying value.
The fair values of the our debt instruments, including the related AVGs,
approximate the carrying values because (1) the rates currently offered to us
are similar to the rates for these items, or (2) the yields to maturity
approximate the rates for these items. Market risk associated with our debt
instruments primarily results from our ability to refinance
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balloon payments at comparable or lower interest rates. Market risk was
estimated as the potential increase in interest expense for a one year period
from June 30, 2000 resulting from a hypothetical 10% increase in our weighted
average borrowing rate at June 30, 2000 or $1,875.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders, at which the proposals described
below were submitted to stockholders, was held May 23, 2000.
Proposal No. 1 Election of Directors. The following individuals, who
received the votes indicated, were elected as directors:
Name FOR WITHHELD
------------------ --------- --------
William E. Lindsey 3,535,775 14,430
Michael P. Grella 3,535,775 14,430
Magnus Gunnarsson 3,535,775 14,430
Ralph O. Hellmold 3,535,775 14,430
Aaron Mendelsohn 3,535,775 14,430
Christer Salen 3,535,775 14,430
Kenneth Taylor 3,535,775 14,430
Stuart M. Warren 3,535,775 14,430
Proposal No. 2 The proposal to ratify the selection of KPMG LLP as
independent public accountants for the Company for the
fiscal year ending December 31, 2000. The results of the
voting were as follows:
FOR AGAINST ABSTAIN
--------- ------- -------
3,547,350 1,300 1,555
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Articles of Incorporation of the Company.
Filed as Exhibit 3.1 to Form 10-Q for the quarterly period ended
September 30, 1997, and incorporated herein by reference
3.2 Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2
to Form 10-Q for the quarterly period ended September 30, 1997,
and incorporated herein by reference
4.1 The Company hereby agrees to furnish to the Commission upon
request a copy of any instrument with respect to long-term debt
where the total amount of securities authorized thereunder does
not exceed 10% of the consolidated assets of the Company
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Number Description
------ -----------
27 Financial Data Schedule for the six months ended June 30, 2000
REPORTS ON FORM 8-K:
During the quarter ended June 30, 2000, the Company did not file any reports on
Form 8-K.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL AIRCRAFT INVESTORS
August 9, 2000 /s/ Michael P. Grella
--------------------------------------------
Michael P. Grella
President
And Chief Operating Officer
August 9, 2000 /s/ Alan G. Stanford, Jr.
--------------------------------------------
Alan G. Stanford, Jr.
Vice President--Controller
And Chief Accounting Officer
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