-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QCHr2bzgjbdBbbN8bUpL8zSM0Vw1IrVLVfcSAqwOyO5tWVdgICueshJWptQriJUx T/WU1wdwF2g/j2+0c3oqMA== /in/edgar/work/20000814/0000912057-00-037153/0000912057-00-037153.txt : 20000921 0000912057-00-037153.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILLIS LEASE FINANCE CORP CENTRAL INDEX KEY: 0001018164 STANDARD INDUSTRIAL CLASSIFICATION: [7359 ] IRS NUMBER: 680070656 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15369 FILM NUMBER: 697871 BUSINESS ADDRESS: STREET 1: 2320 MARINSHIP WAY STREET 2: STE 300 CITY: SAUSALITO STATE: CA ZIP: 94965 BUSINESS PHONE: 4153315281 MAIL ADDRESS: STREET 1: 2320 MARINSHIP WAY STREET 2: SUITE 300 CITY: SAUSALITO STATE: CA ZIP: 94965 10-Q 1 a10-q.txt FORM 10-Q 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 COMMISSION FILE NUMBER: 0-28774 ----------------- WILLIS LEASE FINANCE CORPORATION (Exact name of registrant as specified in its charter) Delaware 68-0070656 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2320 Marinship Way, Suite 300, Sausalito, CA 94965 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 331-5281 ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Title of Each Class Outstanding At August 8, 2000 ------------------- ----------------------------- Common Stock, $0.01 Par Value 7,401,866 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES
INDEX PART I FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements Consolidated Balance Sheets As of June 30, 2000 and December 31, 1999 3 Consolidated Statements of Income Three and six months ended June 30, 2000 and 1999 4 Consolidated Statements of Shareholders' Equity Year ended December 31, 1999 and six months ended June 30, 2000 5 Consolidated Statements of Cash Flows Six months ended June 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 22 Item 6. Exhibits and Reports on Form 8-K 23
2 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data) (Unaudited)
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ ASSETS Cash and cash equivalents including restricted cash of $19,779 and $15,992 at June 30, 2000 and December 31, 1999 respectively $ 26,112 $ 25,468 Equipment held for operating lease, less accumulated depreciation of $24,260 at June 30, 2000 and $21,592 at December 31, 1999 351,838 338,788 Net investment in direct finance lease 8,309 8,666 Spare parts inventory 24,902 22,237 Operating lease related receivable 2,561 3,236 Trade receivables, net 5,081 1,904 Investment in unconsolidated affiliates 6,049 5,082 Other assets 6,024 6,934 --------- --------- Total assets $430,876 $412,315 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 7,623 $ 6,138 Deferred income taxes 15,075 12,815 Notes payable 302,823 289,678 Capital lease obligation - 2,489 Residual share payable 2,332 3,465 Maintenance reserves 20,360 18,555 Security deposits 5,590 5,522 Unearned lease revenue 3,976 4,115 --------- --------- Total liabilities 357,779 342,777 --------- --------- Shareholders' equity: Preferred stock ($0.01 par value, 5,000,000 shares authorized; none outstanding) - - Common stock, ($0.01 par value, 20,000,000 shares authorized; 7,401,866 and 7,397,877 shares issued and outstanding as of June 30, 2000 and December 31,1999, respectively) 74 74 Paid-in capital in excess of par 42,469 42,446 Retained earnings 30,554 27,018 --------- --------- Total shareholders' equity 73,097 69,538 --------- --------- Total liabilities and shareholders' equity $430,876 $412,315 ========= =========
See accompanying notes to the consolidated financial statements 3 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except share data) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- --------------------- 2000 1999 2000 1999 --------- --------- -------- -------- REVENUE Lease revenue $ 13,054 $ 11,078 $ 25,680 $ 21,647 Gain on sale of lease equipment 2,899 3,849 4,904 7,260 Spare part sales 8,222 6,217 15,309 15,189 Sale of equipment acquired for resale 2,500 4,000 2,500 9,775 --------- --------- -------- -------- Total Revenue 26,675 25,144 48,393 53,871 --------- --------- -------- -------- EXPENSES Depreciation expense 3,546 2,868 6,995 5,983 Cost of spare part sales 6,628 4,629 11,987 11,259 Cost of equipment acquired for resale 2,150 3,570 2,150 8,354 General and administrative 4,292 4,421 7,828 9,089 --------- --------- -------- -------- Total expenses 16,616 15,488 28,960 34,685 --------- --------- -------- -------- Earnings from operations 10,059 9,656 19,433 19,186 Interest expense 6,734 5,113 12,967 10,006 Interest and other income 228 357 462 577 Residual share 153 212 340 423 --------- --------- -------- -------- Net Interest and Finance Cost 6,659 4,968 12,845 9,852 --------- --------- -------- -------- Loss from unconsolidated affiliate (361) (40) (791) (40) --------- --------- -------- -------- Earnings before income taxes 3,039 4,648 5,797 9,294 Income taxes (1,185) (1,861) (2,261) (3,721) --------- --------- -------- -------- Net earnings $ 1,854 $ 2,787 $ 3,536 $ 5,573 ========= ========= ======== ======== Basic earnings per common share: --------- --------- -------- -------- Net earnings $ 0.25 $ 0.38 $ 0.48 $ 0.76 ========= ========= ======== ======== Diluted earnings per common share: --------- --------- -------- -------- Net earnings $ 0.25 $ 0.37 $ 0.47 $ 0.75 ========= ========= ======== ======== Average common shares outstanding 7,402 7,374 7,402 7,368 Diluted average common shares outstanding 7,495 7,453 7,489 7,455
See accompanying notes to the consolidated financial statements 4 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Year Ended December 31, 1999 and Six Months Ended June 30, 2000 (In thousands)
ISSUED AND OUTSTANDING PAID-IN TOTAL SHARES OF COMMON CAPITAL IN RETAINED SHAREHOLDERS' COMMON STOCK STOCK EXCESS OF PAR EARNINGS EQUITY ------------ --------- ------------- -------- ------------- Balance at December 31, 1998 7,361 $ 74 $42,033 $23,735 $65,842 Shares issued 37 - 339 - 339 Tax benefit from disqualified dispositions of qualified shares - - 74 - 74 Net earnings - - - 3,283 3,283 ----- ------ ------ ------ ------ Balances at December 31, 1999 7,398 74 42,446 27,018 69,538 Shares issued 4 - 23 - 23 Tax benefit from disqualified dispositions of qualified shares - - - - - Net earnings - - - 3,536 3,536 ----- ------ ------ ------ ------ Balances at June 30, 2000 (unaudited) 7,402 $ 74 $42,469 $30,554 $73,097 ===== ======= ======= ======= =======
See accompanying notes to the consolidated financial statements 5 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------- 2000 1999 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,536 $ 5,573 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 6,995 5,983 Gain on sale of leased equipment (4,904) (7,260) (Decrease) increase in residual share payable (1,132) 423 Loss from unconsolidated affiliate 791 40 Changes in assets and liabilities: Spare parts inventory 4,687 (335) Receivables (2,502) (493) Other assets 1,062 (2,929) Accounts payable and accrued expenses 1,485 (2,088) Deferred income taxes 2,261 3,336 Unearned lease revenue (141) 1,678 Maintenance reserves 1,805 5,538 Security deposits 68 748 --------- ---------- Net cash provided by operating activities 14,011 10,214 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of equipment held for operating lease (net of selling expenses) 23,425 33,908 Purchase of equipment held for operating lease (45,858) (77,303) Purchase of property, equipment and furnishings (212) (1,454) Investment in unconsolidated affiliates (1,758) (70) Principal payments received on direct finance lease 357 272 --------- ---------- Net cash used in investing activities (24,046) (44,647) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable 61,927 81,513 Proceeds from issuance of common stock 23 278 Principal payments on notes payable (48,782) (39,437) Principal payments on capital lease obligation (2,489) (80) --------- ---------- Net cash provided by financing activities 10,679 42,274 Increase in cash and cash equivalents 644 7,841 Cash and cash equivalents at beginning of period including restricted cash of $15,992 and $13,738 at December 31, 1999 and 1998, respectively 25,468 24,043 --------- ---------- Cash and cash equivalents at end of period including restricted cash of $15,992 and $16,327 at June 30, 2000 and 1999, respectively $ 26,112 $ 31,884 ========== ========== Supplemental information: Net cash paid for: Interest $ 12,131 $ 10,185 --------- ---------- Income Taxes $ 0 $ 654 --------- ----------
See accompanying notes to the consolidated financial statements 6 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements of Willis Lease Finance Corporation and its subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying unaudited interim financial statements should be read in conjunction with the audited 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 for the fiscal year ended December 31, 1999. In addition, certain amounts in the prior period's financial statements have been reclassified to conform to the current period's presentation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal and recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2000 (unaudited), and December 31, 1999, and the unaudited results of its operations for the three and six month periods ended June 30, 2000 and 1999 and its cash flows for the six month periods ended June 30, 2000 and 1999. The results of operations and cash flows for the periods ended June 30, 2000 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2000. Effective January 1, 2000, the company revised its inventory cost allocation methodology for whole engine and aircraft purchases. Under the revised method, the Company estimates a period of time over which the Company expects to liquidate its investment in such purchases. Periodically, the Company compares its remaining investment in such purchases to its expected remaining investment in such purchases and, to the extent necessary, recognizes an additional amount of cost of spare parts sales to bring the remaining investment in such purchases in line with the expected level of investment. 2. MANAGEMENT ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 7 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. COMMITMENTS The Company has four leases for its office and warehouse space. The annual or remaining lease rental commitments, as applicable, are $364,000, $309,000, $38,000 and $14,000 and the leases expire on June 30, 2005, May 31, 2003, August 31, 2000 and August 31, 2000, respectively. The Company has committed to purchase, during the remainder of 2000, one additional used engine for its operations. The Company's current remaining commitment to such purchase is not more than $4.5 million. Under the terms of the Sichuan Snecma joint venture (see note 4 below), the Company is committed to fund up to an additional $2.2 million to the joint venture over the next three years. During the six month period ended June 30, 2000 $0.8 million has been contributed. Under the terms of the Pacific Gas Turbine Center, LLC ("PGTC LLC") joint venture (see note 4 below), to the extent that PGTC LLC requires additional working capital and the Company and its partner in PGTC LLC agree to provide such capital, each partner is required to contribute to such capital requirement, equally. During the six month period ended June 30, 2000, the Company contributed $1.0 million of additional capital to PGTC LLC and an additional $0.5 million is expected to be contributed during the remainder of 2000. In January 2000, a suit was filed against the Company in connection with the sale by the Company of an aircraft engine for cash consideration. The buyer of the engine alleges that the sale was not validly consummated and amongst other things requests that the purchase price of the engine, $3.2 million, be returned to the buyer. The Company is vigorously contesting the suit and has filed a cross complaint in connection with the suit. The Company believes that the loss, if any, resulting from the suit will not have a material impact on the Company's financial position. 8 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INVESTMENT IN UNCONSOLIDATED AFFILIATES In May 1999, the Company entered into an agreement with Chromalloy Gas Turbine Corporation, a subsidiary of Sequa Corporation, to operate a joint venture to perform maintenance, repair and overhaul of commercial jet engines. Under the terms of the joint venture agreement, the Company and Chromalloy formed a new company, PGTC LLC. The Company contributed the operations and assets of its wholly owned subsidiary Pacific Gas Turbine Center, Incorporated ("PGTC Inc.") (with a book value of $5.7 million) and Chromalloy contributed working capital to the joint venture. Both the Company and Chromalloy have a 50% interest in the joint venture. The equity method of accounting is used for the Company's 50% ownership in PGTC LLC. Under the equity method, the original contribution was recorded at cost and is adjusted periodically to recognize the Company's share of the earnings or losses of PGTC LLC after the date of formation. The contribution is shown in the Company's Consolidated Balance Sheet as a single amount and earnings or losses are shown in the Consolidated Statement of Income as a single amount. All intercompany profits or losses are eliminated. In July 1999, the Company entered into an agreement to participate in a joint venture - Sichuan Snecma Aero-engine Maintenance Co. Ltd. Sichuan Snecma will focus on providing maintenance services for CFM56 series engines. Other participants in the joint venture are China Southwest Airlines, Snecma Services and Beijing Kailan Aviation Technology Development and Services Corporation. The Company's investment in Sichuan Snecma at June 30, 2000 is $0.8 million. This investment represents approximately a 7% interest in the joint venture. This joint venture is in its start-up phase of activity. 5. OPERATING SEGMENTS The Company operates in two business segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft spare engines and other aircraft equipment and the selective purchase and resale of commercial aircraft engines and other aircraft equipment and (ii) Spare Parts Sales which involves the purchase and resale of after-market engine and airframe parts, whole engines, engine modules and rotable aircraft components and leasing of engines destined for disassembly and sale of parts. In July 1998, the Company formed PGTC Inc. to engage in engine disassembly and maintenance, repair and overhaul services. At the end of May 1999, the Company's investment in and the operations of PGTC Inc. were contributed to a joint venture, PGTC LLC (see note 4 above). During the five months ended May 31, 1999, while PGTC Inc. was a wholly owned subsidiary of the Company, the majority of PGTC Inc.'s revenue was derived from services provided to WASI. Revenue from third parties during this period was not material. Accordingly, for the five months ended May 31, 1999 the operations of PGTC Inc. are included in the Spare Parts Sales segment. Subsequent to the formation of PGTC LLC, because PGTC LLC is an unconsolidated affiliate accounted for using the equity method of accounting, PGTC LLC is not included in the operating segment analysis for the three and six months ended June 30, 2000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses and inter-company allocation of interest expense. While the Company believes there are synergies between the two business segments, the segments are managed separately 9 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES because each requires different business strategies. The following table presents a summary of the operating segments (in thousands):
FOR THE THREE MONTHS ENDED JUNE 30, 2000 FOR THE THREE MONTHS ENDED JUNE 30, 1999 ---------------------------------------- ---------------------------------------- SPARE SPARE PARTS PARTS LEASING SALES TOTAL LEASING SALES TOTAL ---------------------------------------- ---------------------------------------- Revenue Lease revenue $ 11,907 $ 1,147 $13,054 $10,560 $ 518 $ 11,078 Gain on sale of lease equipment 2,899 - 2,899 3,849 - 3,849 Spare parts sales - 8,222 8,222 - 6,217 6,217 Sale of equipment acquired for resale - 2,500 2,500 4,000 - 4,000 ----------------------------------- ---------------------------------- Total revenue 14,806 11,869 26,675 18,409 6,735 25,144 ----------------------------------- ---------------------------------- Expenses Depreciation Expense 2,765 781 3,546 2,585 283 2,868 Cost of spare parts - 6,628 6,628 - 4,629 4,629 Cost of equipment acquired for resale - 2,150 2,150 3,570 - 3,570 General and administrative 3,315 977 4,292 2,880 1,541 4,421 ----------------------------------- ---------------------------------- Total expenses 6,080 10,536 16,616 9,035 6,453 15,488 ----------------------------------- ---------------------------------- Earnings from operations 8,726 1,333 10,059 9,374 282 9,656 Interest expense 5,783 951 6,734 4,341 772 5,113 Interest and other income 266 (38) 228 243 114 357 Residual share 153 - 153 212 - 212 ----------------------------------- ---------------------------------- Net Interest and Finance Cost 5,670 989 6,659 4,310 658 4,968 ----------------------------------- ---------------------------------- Income (loss) before taxes * $ 3,056 $ 344 $ 3,400 $ 5,064 ($376) (1) $ 4,688 =================================== ================================== Total assets as of June 30, 2000 and 1999* $381,214 $43,613 $ 424,827 $356,995 $53,997 $410,992 =================================== ==================================
* Income (loss) before taxes and total assets for the periods ended June 30. 2000 and 1999 do not include results from or investment in unconsolidated affiliates. (1) The Company estimates that income from operations would have been $0.1 million if the effect of PGTC Inc.'s operations, after intercompany eliminations, were eliminated from the results of the Spare Parts Sales segment. 10 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 FOR THE SIX MONTHS ENDED JUNE 30, 1999 SPARE SPARE PARTS PARTS LEASING SALES TOTAL LEASING SALES TOTAL ---------------------------------------- ---------------------------------------- Revenue Lease revenue $ 23,438 $ 2,242 $25,680 $20,625 $ 1,022 $ 21,647 Gain on sale of leased equipment 4,904 - 4,904 7,260 - 7,260 Spare parts sales - 15,309 15,309 - 15,189 15,189 Sale of equipment acquired for resale - 2,500 2,500 9,775 - 9,775 ---------------------------------------- ---------------------------------- Total revenue 28,342 20,051 48,393 37,660 16,211 53,871 ---------------------------------------- ---------------------------------- Expenses Depreciation Expense 5,485 1,510 6,995 5,421 562 5,983 Cost of spare parts - 11,987 11,987 - 11,259 11,259 Cost of equipment acquired for resale - 2,150 2,150 8,354 - 8,354 General and administrative 5,841 1,987 7,828 5,437 3,652 9,089 ---------------------------------------- ---------------------------------- Total expenses 11,326 17,634 28,960 19,212 15,473 34,685 ---------------------------------------- ---------------------------------- Earnings from operations 17,016 2,417 19,433 18,448 738 19,186 Interest expense 11,038 1,929 12,967 8,557 1,449 10,006 Interest and other income 485 (23) 462 462 115 577 Residual share 340 - 340 423 - 423 ---------------------------------------- ---------------------------------- Net Interest and Finance Cost 10,893 1,952 12,845 8,518 1,334 9,852 ---------------------------------------- ---------------------------------- Income (loss) before taxes* $ 6,123 $ 465 $ 6,588 $ 9,930 ($ 596)(2) $ 9,334 ======================================= ================================== Total assets as of June 30, 2000 and 1999* $381,214 $43,613 $424,827 $356,995 $53,997 $410,992 ======================================= ==================================
* Income (loss) from operations and total assets for the periods ended June 30. 2000 and 1999 do not include results from or investment in unconsolidated affiliates. (2) The Company estimates that income from operations would have been $0.5 million if the effect of PGTC Inc.'s operations, after intercompany eliminations, were eliminated from the results of the Spare Parts Sales segment. 11 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. NOTES PAYABLE At June 30, 2000 notes payable consists of bank loans totalling $302.8 million payable over periods of 2 to 8 years with current interest rates varying between approximately 6.95% and 11.74%. Included in notes payable is a $150.0 million revolving credit facility. As of June 30, 2000 $15.5 million was available under this facility subject to the Company providing sufficient collateral. The facility has a two-year revolving period ending September 2000 followed by a four-year term-out period. It is renewable annually with an interest rate currently of LIBOR plus 2.0%. At June 30, 2000 the Company also had a $125.0 million debt warehouse facility available to a wholly owned special purpose finance subsidiary, WLFC Funding Corporation. The facility is renewable annually and has an eight-year term with a revolving period to February 2001 followed by a seven-year amortization period. Currently the interest rate is commercial paper plus 1.55%. As of June, 30 2000 $23.0 million was available under this facility. At June 30, 2000, the Company had a $31.9 million term loan facility available to a wholly owned special purpose subsidiary of the Company, WLFC AC1 Corporation, for the financing of jet aircraft engines transferred by the Company to such subsidiary. The facility is a five year term loan with a final maturity of June 30, 2005. The interest rate on this facility is currently LIBOR plus 2.05%. This facility is fully drawn. The following is a summary of the aggregate maturities of notes payable at June, 30 2000 (dollars in thousands): Year ending December 31, 2000 $9,561 2001 38,255 2002 38,603 2003 35,455 2004 73,409 2005 and thereafter 107,540 ------- $302,823 ======== 12 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's core business is acquiring and leasing, primarily pursuant to operating leases, commercial aircraft spare engines and related aircraft equipment. In addition, the Company engages in the selective purchase, sale, and resale of commercial aircraft engines. The Company, through Willis Aeronautical Services, Inc. ("WASI"), also specializes in the purchase and resale of aftermarket airframe and engine parts, engines, modules and rotable components. The Company, through its joint venture PGTC LLC (see footnote 4) provides engine disassembly and maintenance, repair and overhaul services to the Company and third parties from its San Diego location. Revenue consists primarily of lease revenue, income from the sale of spare parts and components and income from the sale of engines and equipment. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999: LEASING RELATED ACTIVITIES. Lease related revenue for the quarter ended June 30, 2000, increased 18% to $13.0 million from $11.1 million for the comparable period in 1999. This increase reflects lease related revenues from additional engines. The aggregate of net book value of leased equipment and net investment in direct finance lease at June 30, 2000 and 1999 was $360.1 million and $325.4 million, respectively, an increase of 11%. During the quarter ended June 30, 2000, ten engines were added to the Company's lease portfolio at a total cost of $33.9 million. Four engines from the lease portfolio were sold or transferred to inventory for sale. The engines sold from the lease portfolio had a total net book value of $12.9 million and were sold for a gain of $2.9 million. During the quarter ended June 30, 1999, the Company sold six engines from the lease portfolio. The engines had a net book value of $16.2 million and were sold for a gain of $3.8 million. SPARE PARTS SALES. During the quarter ended June 30, 2000, revenue from spare parts sales totaled $8.2 million of which $1.9 million was associated with the sale of whole engines. The level of revenue during the second quarter was 32% higher than the $6.2 million in the comparable period in 1999. Gross margin decreased to 19% from 26% in the corresponding period in 1999. The decrease in gross margin was due to lower parts sales margins and additional cost of spare parts sales under the revised inventory cost allocation method (see note 1 above). 13 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES DEPRECIATION EXPENSE. Depreciation expense increased 24% to $3.5 million for the quarter ended June 30, 2000, from the comparable period in 1999, due primarily to the increase in lease portfolio assets. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased 3% to $4.3 million for the quarter ended June 30, 2000, from the comparable period in 1999. This change was primarily due to the two months of expenses related to PGTC Inc. included in the period ended June 30, 1999 whereas, under the equity method of accounting, no expenses from PGTC LLC's operations are included in the period ended June 30, 2000. Additionally, the decrease reflects reductions in general and administrative expenses associated with the leasing and spare parts business segments. INTEREST EXPENSE AND FINANCE COSTS. Interest expense related to all activities increased 32% to $6.7 million for the quarter ended June 30, 2000, from the comparable period in 1999, due to an increase in interest rates and average debt outstanding. This increase in debt was primarily related to debt associated with the increase in lease portfolio assets. Residual sharing expense related to debt decreased 28% to $153,000 for the quarter ended June 30, 2000 from $212,000 for the comparable period in 1999. Residual sharing arrangements apply to two of the Company's engines as of June 30, 2000 and are a function of the difference between the debt associated with the residual sharing arrangement and estimated residual proceeds. In the future a greater portion of the principal of such debt will be amortized and as debt ages, residual sharing expense for each engine may increase. The Company accrues for its residual sharing obligations using net book value as an estimate for residual proceeds. Interest and other income for each of the quarters ended June 30, 2000 and 1999, were $0.2 million and $0.4 million, respectively. Interest is earned on cash, deposits held and notes receivable. INCOME TAXES. Income tax expense for the quarter ended June 30, 2000, was $1.2 million compared to income tax expense of $1.9 million for the comparable period in 1999. This decrease reflects a decrease in the Company's pre-tax earnings. The effective tax rate for the quarters ended June 30, 2000 and 1999 were 39% and 40%, respectively. LOSS FROM UNCONSOLIDATED AFFILIATE. In May 1999, the Company entered into a joint venture to perform maintenance, repair and overhaul of commercial jet aircraft engines. The Company accounts for its 50% interest in the joint venture using the equity method. During the three months ended June 30, 2000 and 1999, the Company's share of net losses from the joint venture, after inter-company eliminations, was $361,000 and $40,000, respectively. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999: LEASING RELATED ACTIVITIES. Lease related revenue for the six months ended June 30, 2000, increased 19% to $25.7 million from $21.6 million for the comparable period in 1999. This increase reflects lease related revenues from additional engines. The aggregate of net book value of leased equipment and net investment in direct finance lease at June 30, 2000 and 1999 was $360.1 million and $325.4 million, respectively, an increase of 11%. During the six months ended June 30, 2000, thirteen engines were added to the Company's lease portfolio at a total cost of $45.9 million. Twelve engines from the lease portfolio were sold or transferred to inventory for sale. The engines sold from the lease portfolio had a total net book value of $18.5 million and were sold for a gain of $4.9 million. During the six months ended June 30, 1999, the Company sold eleven engines from the lease portfolio. The engines had a net book value of $27.4 million and were sold for a gain of $7.3 million. 14 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES SPARE PARTS SALES. During the six months ended June 30, 2000, revenue from spare parts sales totaled $15.3 million of which $3.5 million was associated with the sale of whole engines. Gross margin decreased to 22% from 26% in the corresponding period in 1999. The decrease in gross margin was due to lower parts sales margins and additional cost of spare parts sales under the revised inventory cost allocation method (see note 1 above). DEPRECIATION EXPENSE. Depreciation expense increased 17% to $7.0 million for the six months ended June 30, 2000, from the comparable period in 1999, due primarily to the increase in lease portfolio assets. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased 14% to $7.8 million for the six months ended June 30, 2000, from the comparable period in 1999. This change was primarily due to the five months of expenses related to PGTC Inc. included in the period ended June 30, 1999 whereas, under the equity method of accounting, no expenses from PGTC LLC's operations are included in the period ended June 30, 2000. Additionally, the decrease reflects reductions in general and administrative expenses associated with the leasing and spare parts business segments. INTEREST EXPENSE AND FINANCE COSTS. Interest expense related to all activities increased 30% to $13.0 million for the six months ended June 30, 2000, from the comparable period in 1999, due to an increase in interest rates and average debt outstanding. This increase in debt was primarily related to debt associated with the increase in lease portfolio assets. Residual sharing expense related to debt decreased 20% to $340,000 for the six months ended June 30, 2000 from $423,000 for the comparable period in 1999. Residual sharing arrangements apply to two of the Company's engines as of June 30, 2000 and are a function of the difference between the debt associated with the residual sharing arrangement and estimated residual proceeds. In the future a greater portion of the principal of such debt will be amortized and as debt ages, residual sharing expense for each engine may increase. The Company accrues for its residual sharing obligations using net book value as an estimate for residual proceeds. Interest and other income for each of the six months ended June 30, 2000 and 1999, were $0.5 million and $0.6 million, respectively. Interest is earned on cash, deposits held and notes receivable. INCOME TAXES. Income tax expense for the six months ended June 30, 2000, was $2.3 million compared to income tax expense of $3.7 million for the comparable period in 1999. This decrease reflects a decrease in the Company's pre-tax earnings. The effective tax rate for the six months ended June 30, 2000 and 1999 were 39% and 40%, respectively. LOSS FROM UNCONSOLIDATED AFFILIATE. In May 1999, the Company entered into a joint venture to perform maintenance, repair and overhaul of commercial jet aircraft engines. The Company accounts for its 50% interest in the joint venture using the equity method. During the six months ended June 30, 2000 and 1999, the Company's share of net losses from the joint venture, after inter-company eliminations, was $791,000 and $40,000, respectively. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an 15 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. SFAS No. 137, "Accounting for Derivatives, Instruments, and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133," issued in June 1999, defers the effective date of SFAS No. 133. SFAS No. 133, as amended, is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. As of June 30, 2000, the Company is reviewing the effect SFAS No. 133 will have on the Company's consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its growth through borrowings secured by its equipment lease portfolio, operating cash flow, and unrestricted cash balances. Cash of approximately $61.9 million and $81.5 million, in the six month periods ended June 30, 2000 and 1999, respectively, was derived from borrowings. Cash flow from operating activities provided $14.0 million and $10.2 million in the six month periods ended June 30, 2000 and 1999, respectively. In these same time periods, $48.8 million and $39.4 million, respectively, of cash was used to repay debt. The Company's primary use of funds is for the purchase of equipment for lease. Approximately $45.9 million and $77.3 million of funds were used for this purpose in the six month periods ended June 30, 2000 and 1999, respectively. At June 30,2000, the Company had a $150.0 million revolving credit facility to finance the acquisition of aircraft engines, aircraft and spare parts for sale or lease as well as for general working capital purposes. As of June 30, 2000, $15.5 million was available under this facility, subject to the Company providing sufficient collateral. At June 30, 2000, the Company had a $125.0 million debt warehouse facility. The facility is available to a wholly owned special purpose finance subsidiary of the Company, WLFC Funding Corporation, for the financing of jet aircraft engines transferred by the Company to such finance subsidiary or acquired by it. The subsidiary is consolidated for financial statement presentation purposes. The Company has guaranteed the obligations under the facility on a limited basis, up to an amount equal to the greater of: (i) the lesser of $5 million and 20% of the outstanding obligations or (ii) 10% of the outstanding obligations. As of June 30, 2000, $23.0 million was available under this facility assuming compliance with the facility's terms, including sufficiency of collateral . Approximately $9.6 million of the Company's debt is repayable during the remainder of 2000. Such repayments consist of scheduled installments due under term loans. The Company believes that its current equity base, internally generated funds and existing debt facilities are sufficient to maintain the Company's current level of operations. A decline in the level of internally generated funds or the availability under the Company's existing debt facilities would impair the Company's ability to sustain its current level of operations. The Company is currently discussing additions to its debt and equity capital bases with its commercial and investment banks. If the Company is not able to access additional debt and equity capital, its ability to continue to grow its asset base consistent with historical trends will be impaired and its future growth limited to that which can be funded from internally generated capital. Certain of the Company's engines have been financed under floating rate facilities. Accordingly, the Company is subject to interest rate risk, since the underlying lease revenue is fixed. See "Management of Interest Rate Exposure" below. 16 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES The Company has committed to purchase, during the remainder of 2000, one additional used engine for its operations. As of June 30, 2000, the Company's current commitment to such purchase is not more than $4.5 million. MANAGEMENT OF INTEREST RATE EXPOSURE At June 30, 2000, $269.1 million of the Company's borrowings were on a variable rate basis at various interest rates tied to LIBOR, the commercial paper rate, or the prime rate. The Company's equipment leases are generally structured at fixed rental rates for specified terms. Increases in interest rates could narrow or eliminate the spread, or result in a negative spread, between the rental revenue the Company realizes under its leases and the interest rate that the Company pays under its borrowings. In September 1996, the Company purchased an amortizing interest rate cap in order to limit its exposure to increases in interest rates on a portion of its variable rate borrowings. Pursuant to this cap, the counter party will make payments to the Company, based on the notional amount of the cap, if the three-month LIBOR rate is in excess of 7.66%. As of June 30, 2000, the notional principal amount of the cap was $27.1 million, which will decline to $26.0 million at the end of its term. The cost of the cap is being amortized as an expense over its remaining term. To further mitigate exposure to interest rate changes, the Company has entered into interest rate swap agreements which have notional outstanding amounts of $60.0 million, a weighted average remaining term of 18 months and a weighted average fixed rate of 5.90%. Under its borrowing agreement, WLFC Funding Corporation is required to hedge a certain portion of its $125 million warehouse facility against changes in interest rates. WLFC Funding Corporation has entered into interest rate swap agreements in order to meet such hedging requirements and to manage the variable interest rate risk related to its debt. As of June 30, 2000, such swap agreements had notional outstanding amounts totaling $65 million, a weighted average remaining term of 32 months and a weighted average fixed rate of 6.02%. Interest expense for the three and six month period ended June 30, 2000 was not significantly affected by the Company's interest rate hedges. The Company will be exposed to risk in the event of non-performance of the interest rate hedge counter parties. The Company anticipates that it will hedge additional amounts of its floating rate debt during the next several months. FACTORS THAT MAY AFFECT FUTURE RESULTS Except for historical information contained herein, the discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The Company's 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 herein and in the Company's report on Form 10-K for the year ended December 31, 1999. The cautionary statements made in this report should be read as being applicable to all related forward-looking statements wherever they appear in this report or in other written or oral statements by the Company. The businesses in which the Company is engaged are capital intensive businesses. Accordingly, the Company's ability to successfully execute its business strategy and to sustain its operations is dependent, in large part, on the availability of debt and equity capital. There can be no assurance that the necessary amount of such capital will continue to be available to the Company on favorable terms or at all. If the Company is not successful in obtaining sufficient capital, the Company's ability to: (i) add new aircraft engines, aircraft and spare parts packages to its portfolio, (ii) add inventory to support its spare parts sales, (iii) fund its working capital needs, (iv) develop the business of PGTC LLC, and (v) finance possible future acquisitions, would be impaired. The Company's inability to 17 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES obtain sufficient capital would have a material adverse effect on the Company's business, financial condition and/or results of operations. The Company retains title to the aircraft engines, aircraft and parts packages that it leases to third parties. Upon termination of a lease, the Company will seek to re-lease or sell the aircraft equipment or will dismantle the equipment and will sell the parts. The Company also engages in the selective purchase and resale of commercial aircraft engines and engine components. On occasion, the Company purchases engines or components without having a firm commitment for their sale. Numerous factors, many of which are beyond the Company's control, may have an impact on the Company's ability to re-lease or sell aircraft equipment on a timely basis, including the following: (i) general market conditions, (ii) the condition of the aircraft equipment upon termination of the lease, (iii) the maintenance services performed during the lease term and, as applicable, the number of hours remaining until the next major maintenance is required, (iv) regulatory changes (particularly those imposing environmental, maintenance and other requirements on the operation of aircraft engines), (v) changes in the supply or cost of aircraft engines, and (vi) technological developments. There is no assurance that the Company will be able to re-lease or sell aircraft equipment on a timely basis or on favorable terms. The failure to re-lease or sell aircraft equipment on a timely basis or on favorable terms could have a material adverse effect on the Company's business, financial condition and/or results of operations. The Company experiences fluctuations in its operating results. Such fluctuations may be due to a number of factors, including: (i) general economic conditions, (ii) the timing of sales of engines and spare parts, (iii) financial difficulties experienced by airlines, (iv) interest rates, (v) fuel costs, (vi) downturns in the air transportation industry, (vii) increased fare competition, (viii) decreases in growth of air traffic, (ix) unanticipated early lease termination or a default by a lessee, (x) the timing of engine acquisitions, (xi) engine marketing activities, (xii) fluctuations in market prices for the Company's assets. The Company anticipates that fluctuations from period to period will continue in the future. As a result, the Company believes that comparisons to results of operations for preceding periods are not necessarily meaningful and that results of prior periods should not be relied upon as an indication of future performance. A lessee may default in performance of its lease obligations and the Company may be unable to enforce its remedies under a lease. The Company's inability to collect receivables due under a lease or to repossess aircraft equipment in the event of a default by a lessee could have a material adverse effect on the Company's business, financial condition and/or results of operations. Various airlines have experienced financial difficulties in the past, certain airlines have filed for bankruptcy and a number of such airlines have ceased operations. In most cases where a debtor seeks protection under Chapter 11 of Title 11 of the United States Code, creditors are automatically stayed from enforcing their rights. In the case of United States certified airlines, Section 1110 of the Bankruptcy Code provides certain relief to lessors of aircraft equipment. The scope of Section 1110 has been the subject of significant litigation and there is no assurance that the provisions of Section 1110 will protect the Company's investment in an aircraft, aircraft engines or parts in the event of a lessee's bankruptcy. In addition, Section 1110 does not apply to lessees located outside of the United States and applicable foreign laws may not provide comparable protection. Leases of spare parts may involve additional risks. For example, it is likely to be more difficult to recover parts in the event of a lessee default and the residual value of parts may be less ascertainable than an engine. The Company's leases are generally structured at fixed rental rates for specified terms while many of the Company's borrowings are at a floating rate. Increases in interest rates could narrow or eliminate the spread, or result in a negative spread, between the rental revenue the Company realizes under its leases and the interest rate the Company pays under its borrowings, and have a material adverse effect on the Company's business, financial condition and/or results of operations. During the six month period ended June 30, 2000, 74% of the Company's lease revenue was generated by leases to foreign customers. Such international leases may present greater risks to the Company because certain foreign laws, regulations and judicial procedures may not be as protective of lessor rights as those which apply in the United States. The Company is subject to the timing and access to courts and the remedies local laws impose in order to collect its lease payments and recover its assets. In addition, political instability abroad and changes in international policy also present risk of expropriation of the Company's leased engines. Furthermore, many foreign countries have currency and exchange laws regulating the international transfer of currencies. 18 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES The Company has recently experienced significant growth in lease revenues. The Company's growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. There is no assurance that the Company will be able to effectively manage the expansion of its operations, or that the Company's systems, procedures or controls will be adequate to support the Company's operations, in which event the Company's business, financial condition and/or results of operations could be adversely affected. The Company may also acquire businesses that would complement or expand the Company's existing businesses. Any acquisition or expansion made by the Company may result in one or more of the following events: (i) the incurrence of additional debt, (ii) future charges to earnings related to the amortization of goodwill and other intangible assets, (iii) difficulties in the assimilation of operations, services, products and personnel, (iv) an inability to sustain or improve historical revenue levels, (v) diversion of management's attention from ongoing business operations, and (vi) potential loss of key employees. Any of the foregoing factors could have a material adverse effect on the Company's business, financial condition and/or results of operations. The markets for the Company's products and services are extremely competitive, and the Company faces competition from a number of sources. These include aircraft and aircraft part manufacturers, aircraft and aircraft engine lessors, airline and aircraft service companies and aircraft spare parts redistributors. Certain of the Company's competitors have substantially greater resources than the Company, including greater name recognition, larger inventories, a broader range of material, complementary lines of business and greater financial, marketing and other resources. In addition, equipment manufacturers, aircraft maintenance providers, FAA certified repair facilities and other aviation aftermarket suppliers may vertically integrate into the markets that the Company serves, thereby significantly increasing industry competition. There can be no assurance that competitive pressures will not materially and adversely affect the Company's business, financial condition and/or results of operations. The Company's leasing activities generate significant depreciation allowances that provide the Company with substantial tax benefits on an ongoing basis. In addition, the Company's lessees currently enjoy favorable accounting and tax treatment by entering into operating leases. Any change to current tax laws or accounting principles that make operating lease financing less attractive or affect the Company's recognition of revenue or expense would have a material impact on the Company's business, financial condition and/or results of operations. Before parts may be installed in an aircraft, they must meet certain standards of condition established by the FAA and/or the equivalent regulatory agencies in other countries. Specific regulations vary from country to country, although regulatory requirements in other countries are generally satisfied by compliance with FAA requirements. Parts must also be traceable to sources deemed acceptable by the FAA or such equivalent regulatory agencies. Such standards may change in the future, requiring engine components already contained in the Company's inventory to be scrapped or modified. In all such cases, to the extent the Company has such engine components in its inventory, their value may be reduced and the Company's business, financial condition and/or results of operations could be adversely affected. The Company obtains a substantial portion of its inventories of aircraft, engines and engine parts from airlines, overhaul facilities and other suppliers. There is no organized market for aircraft, engines and engine parts, and the Company must rely on field representatives and personnel, advertisements and its reputation as a buyer of surplus inventory in order to generate opportunities to purchase such equipment. The market for bulk sales of surplus aircraft, engines and engine parts is highly competitive, in some instances involving a bidding process. While the Company has been able to purchase surplus inventory in this manner successfully in the past, there is no assurance that surplus aircraft, engines and engine parts of the type required by the Company's customers will be available on acceptable terms when needed in the future or that the Company will continue to compete effectively in the purchase of such surplus equipment. A change in the market for aircraft and engine parts could result in the Company's inventory being overvalued and could require the Company to write-down its inventory valuations in order to bring them into line with the revised fair market value. Airline manufacturers may also develop new parts to be used in lieu of parts already contained in the Company's inventory. There is no assurance that a write-down would not adversely affect the Company's business, operating results or financial condition. 19 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is that of interest rate risk. A change in the U.S. prime interest rate, LIBOR rate, or cost of funds based on commercial paper market rates, would affect the rate at which the Company could borrow funds under its various borrowing facilities. Increases in interest rates to the Company, which may cause the Company to raise the implicit rates charged to its customers, could result in a reduction in demand for the Company's leases. Certain of the Company's warehouse credit facilities are variable rate debt. The Company estimates a one percent increase or decrease in the Company's variable rate debt would result in an increase or decrease, respectively, in interest expense of $1.4 million per annum. The Company estimates a two percent increase or decrease in the Company's variable rate debt would result in an increase or decrease, respectively, in interest expense of $2.6 million per annum. The foregoing effect of interest rate changes, net of interest rate hedges, on per annum interest expense is estimated as constant due to the terms of the Company's variable rate borrowings, which generally provide for the maintenance of borrowing levels given adequacy of collateral and compliance with other loan conditions. The Company hedges a portion of its borrowings, effectively fixing the rate of these borrowings. The Company is currently required to hedge a portion of debt of the WLFC Funding Corporation Facility. Such hedging activities may limit the Company's ability to participate in the benefits of any decrease in interest rates, but may also protect the Company from increases in interest rates. A portion of the Company's leases provides that lease payments be adjusted based on changes in interest rates. Furthermore, since lease rates tend to vary with interest rate levels, it is likely that the Company can adjust lease rates for the effect of change in interest rates at the termination of leases. Other financial assets and liabilities are at fixed rates. The Company is also exposed to currency devaluation risk. During the six month period ended June 30, 2000, 74% of the Company's total lease revenues came from non-United States domiciled lessees. All of the leases require payment in United States (U.S.) currency. If these lessees' currency devalues against 20 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES the U.S. dollar, the lessees could potentially encounter difficulty in making the U.S. dollar denominated lease payments. 21 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES PART II. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the May 23, 2000 Annual Meeting of Shareholders of Willis Lease Finance Corporation, the following matters were voted upon:
DESCRIPTION VOTES ----------- ----- 1. Election of Class II Directors Donald E. Moffitt 6,671,864 For 438,479 Withheld Williard H. Smith 6,671,864 For 438,479 Withheld 2. Approval of ratification of two amendments to the Company's 5,115,074 For 1996 Stock Option/Stock 1,009,806 Against Issuance Plan (the "1996 Plan"). 3,392 Abstain 3. Approval of ratification of selection 7,105,064 For of KPMG LLP as 4,579 Against independent public accountants for the 700 Abstain Company for the fiscal year ended December 31, 2000
22 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION 3.1 Certificate of Incorporation, filed on March 12, 1998 together with Certificate of Amendment of Certificate of Incorporation filed on May 6, 1998. Incorporated by reference to Exhibits 4.01 and 4.02 of the Company's report on Form 8-K filed on June 23, 1998. 3.2 Bylaws. Incorporated by reference to Exhibit 4.03 of the Company's report on Form 8-K filed on June 23, 1998. 4.1 Specimen of Common Stock Certificate incorporated by reference to Exhibit 4.1 of the Company's report on form 10-Q for the quarter ended June 30, 1998. 4.2 Rights Agreement dated September 24, 1999, by and between the Company and American Stock Transfer and Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.1 of the Company's report on Form 8-K filed on October 4, 1999. 10.1 Second Amendment to Amended and Restated Series 1997-1 Supplement.* 10.2 Amended and Restated Credit Agreement as of February 10, 2000.* 11.1 Statement regarding computations of per share earnings. 27.1 Financial Data Schedule.
- ----------------------------------------- * Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the redacted material has been filed separately with the Commission. (b) Reports on Form 8-K None. 23 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES 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. Date: August 10, 2000 Willis Lease Finance Corporation By: /s/ NICHOLAS J. NOVASIC --------------------------- Nicholas J. Novasic Chief Financial Officer 26 EX-11.1 2 ex-11_1.txt EXHIBIT 11.1 EXHIBIT 11.1 WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Computation of Earnings Per Share
Three Months Ended June 30 Six Months Ended June 30 ------------------------------------- ------------------------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ---------- (in thousands, except per share data) (in thousands, except per share data) Net income Basic Earnings: Net income $1,854 $2,787 $3,536 $5,573 ------ ------ ------ ------ Shares: Average common shares outstanding 7,402 7,374 7,402 7,368 ------ ------ ------ ------ Basic earnings per common share $ 0.25 $ 0.38 $ 0.48 $ 0.76 ------ ------ ------ ------ Assuming Full Dilution Earnings: Net income $1,854 $2,787 $3,536 $5,573 ------ ------ ------ ------- Shares: Diluted average common shares outstanding 7,495 7,453 7,489 7,455 ------ ------ ------ ------- Earnings per common share assuming full dilution $ 0.25 $ 0.37 $ 0.47 $ 0.75 ------ ------ ------ -------
Supplemental information: Difference between average common shares outstanding to calculate basic and assuming full dilution is due to options outstanding under the 1996 Stock Options/Stock Issuance Plan and warrants issued in conjunction with the initial public offering. 24 EX-27.1 3 ex-27_1.txt EXHIBIT 27.1
5 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 26,112 0 7,642 0 24,902 0 352,739 24,946 430,876 0 0 0 0 74 73,023 430,876 8,222 26,675 6,628 23,275 4,292 0 6,734 3,039 (1,185) 0 0 0 0 1,854 0.25 0.25
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