-----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, UWDhWkXhOmDan+VGwfOijVQDdgeJZL2u9izVbfv0s8MISRNBz+98SdkGQ6nNC0Ze bUR6IZCL+YrNSdSuLCxB9A== 0000950150-00-000381.txt : 20000505 0000950150-00-000381.hdr.sgml : 20000505 ACCESSION NUMBER: 0000950150-00-000381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL AIRCRAFT INVESTORS CENTRAL INDEX KEY: 0001029688 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 954176107 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13451 FILM NUMBER: 619384 BUSINESS ADDRESS: STREET 1: 3655 TORRANCE BLVD STREET 2: SUITE 410 CITY: TORRANCE STATE: CA ZIP: 90503 BUSINESS PHONE: 3103163080 MAIL ADDRESS: STREET 1: 3655 TORRANCE BLVD STREET 2: SUITE 410 CITY: TORRANCE STATE: CA ZIP: 90503 10-Q 1 FORM 10-Q 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 MARCH 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ---------------- Commission file number 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 May 1, 2000 ----- -------------------------- COMMON STOCK, $.01 PAR VALUE 4,064,484
-1- 2 INTERNATIONAL AIRCRAFT INVESTORS INDEX
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets As of March 31, 2000 and December 31, 1999.......................... 3 Condensed Consolidated Statements of Income Three months ended March 31, 2000 and 1999.......................... 4 Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2000 and 1999.......................... 5 Notes to Condensed Consolidated Financial Statements................ 6 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations........................................... 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................... 11 Signatures.......................................................... 12
-2- 3 INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2000 1999 ------------- ------------- (UNAUDITED) ASSETS Cash and cash equivalents ....................................... $ 14,149,967 $ 13,045,392 Flight equipment, at cost less accumulated depreciation of $55,718,351 at March 31, 2000 and $51,128,351 at December 31, 1999 ......................................... 310,893,293 314,083,293 Cash, restricted ................................................ 12,616,376 13,908,097 Other assets .................................................... 1,418,137 1,460,218 ------------- ------------- $ 339,077,773 $ 342,497,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Accrued interest and other accrued expenses ..................... $ 1,787,648 $ 1,727,635 Notes payable ................................................... 267,632,574 271,970,620 Lease and other deposits on flight equipment .................... 22,015,418 23,282,834 Deferred rent ................................................... 4,179,881 2,624,534 Deferred taxes, net ............................................. 4,901,745 4,594,927 ------------- ------------- 300,517,266 304,200,550 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 4,118,784 shares at March 31, 2000 and 4,173,784 shares at December 31, 1999 ......................... 41,188 41,738 Additional paid-in capital ...................................... 30,677,826 31,009,749 Deferred compensation ........................................... (187,500) (250,000) Retained earnings ............................................... 8,028,993 7,494,963 ------------- ------------- Net shareholders' equity .............................. 38,560,507 38,296,450 ------------- ------------- $ 339,077,773 $ 342,497,000 ============= =============
See accompanying notes to condensed consolidated financial statements -3- 4 INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ----------- ----------- (UNAUDITED) REVENUES: Rental of flight equipment ..................... $10,600,898 $ 8,873,657 Interest income ................................ 452,586 370,968 ----------- ----------- Total revenues .......................... 11,053,484 9,244,625 EXPENSES: Interest ....................................... 4,902,610 3,807,714 Depreciation ................................... 4,590,000 3,360,000 Repossession expense ........................... 206,419 -- General and administrative ..................... 437,507 481,795 Stock compensation ............................. 62,500 62,500 ----------- ----------- Total expenses ........................... 10,199,036 7,712,009 ----------- ----------- Income before income taxes ....................... 854,448 1,532,616 Income tax expense ............................... 320,418 582,389 ----------- ----------- Net income ............................... $ 534,030 $ 950,227 =========== =========== Basic earnings per share ......................... $ .13 $ .23 =========== =========== Diluted earnings per share ....................... $ .12 $ .22 =========== =========== Weighted average common shares outstanding: Basic ....................................... 4,164,792 4,212,462 =========== =========== Assuming dilution ........................... 4,293,965 4,326,277 =========== ===========
See accompanying notes to condensed consolidated financial statements -4- 5 INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, ------------------------------- 2000 1999 ------------ ------------ (UNAUDITED) Cash flows from operating activities: Net income ................................................... $ 534,030 $ 950,227 Adjustments to reconcile net income to cash provided by operating activities: Depreciation of flight equipment .......................... 4,590,000 3,360,000 Amortization of deferred transaction fees ................. 99,610 106,418 Deferred taxes, net ....................................... 306,818 582,389 Stock compensation ........................................ 62,500 62,500 (Increase) decrease in assets: Cash, restricted .......................................... 1,291,721 (636,919) Other assets .............................................. (57,529) 21,887 Increase (decrease) in liabilities: Accrued interest and other accrued liabilities ............ 60,013 370,387 Lease and other deposits on flight equipment .............. (1,267,416) (367,767) Deferred rent ............................................. 155,347 (1,304,978) ------------ ------------ Net cash provided by operating activities ................. 5,775,094 3,144,144 Cash flows from financing activities: Repayment of notes payable ................................ (2,259,190) (1,874,869) Repayment of notes payable to ILFC ........................ (2,078,856) (1,477,531) Repurchase of common stock ................................ (332,473) (23,378) ------------ ------------ Net cash used in financing activities ..................... (4,670,519) (3,375,778) ------------ ------------ Net increase (decrease) in cash and cash equivalents ...... 1,104,575 (231,634) Cash and cash equivalents at beginning of period ............. 13,045,392 15,923,982 ------------ ------------ Cash and cash equivalents at end of period ................... $ 14,149,967 $ 15,692,348 ============ ============ Supplemental disclosure of cash flow information Cash paid for interest .................................... $ 4,866,540 $ 3,462,327 Cash paid for income taxes ................................ $ 13,600 $ --
See accompanying notes to condensed consolidated financial statements -5- 6 INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 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 March 31, 2000 and the results of its operations for the three months ended March 31, 2000 and 1999 and its cash flows for the three months ended March 31, 2000 and 1999. Operating results for the three month period ended March 31, 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. REPOSSESSION OF AIRCRAFT The Company terminated a lease with a Mexican airline. The airline recently had an accident on one of its DC-9 aircraft and the Mexican government subsequently grounded its entire fleet. As a result, the airline defaulted on its lease, and we repossessed our aircraft. The lease was due to terminate June 2002. The Company is aggressively marketing the aircraft to several airlines. Because of the current softness in the leasing market, any new lease will likely be at a lower rental rate. Although no rent was received during the three months ended March 31, 2000, the Company recognized $174,443 of ancillary rental revenues as a result of the termination of the lease. In addition, the Company incurred repossession expense of $206,419 related to legal, insurance and other costs associated with repossessing the aircraft. The Company has two notes payable to ILFC related to the aircraft of $14,635,117 bearing interest at 7.96% due April 2000 and $351,757 bearing interest at 6.0% due May 2000. The Company intends to refinance the notes payable as they come due. -6- 7 INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. 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 ENDED MARCH 31, ------------------------ 2000 1999 --------- --------- Basic earnings per share-weighted average shares outstanding ..................................... 4,164,792 4,212,462 Effect of dilutive securities: Employee stock options ................................... 129,173 113,815 --------- --------- Diluted earnings per share-adjusted weighted average shares and assumed conversions ........ 4,293,965 4,326,277 ========= =========
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. 5. NOTES PAYABLE The Company extended a note due January 2000 with a balance totaling $29,463,901 to July 2000, notes due March 2000 with balances totaling $2,017,000 to June 2000, a note due March 2000 with a balance totaling $15,370,978 to September 2000 and a note due February 2000 with a balance totaling $23,082,523 to August 2000. At March 31, 2000, the Company's weighted average composite interest rate was 7.06%. 6. 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. -7- 8 MANAGEMENTS 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 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 We terminated a lease with, a Mexican airline. The airline recently had an accident on one of its DC-9 aircraft and the Mexican government subsequently grounded its entire fleet. As a result, the airline defaulted on its lease, and we repossessed our aircraft. The lease was due to terminate June 2002. We are aggressively marketing the aircraft to several airlines. Because of the current softness in the leasing market, any new lease will likely be at a lower rental rate. Although no rent was received during the three months ended March 31, 2000, we recognized $174 of ancillary rental revenues as a result of the termination of the lease. In addition, we incurred repossession expense of $206 related to legal, insurance and other costs associated with repossessing the aircraft. We have two notes payable to ILFC related to the aircraft of $14,635 bearing interest at 7.96% due July 2000 and $352 bearing interest at 6.0% due May 2000. We intend to refinance the notes payable as they come due. RESULTS OF OPERATIONS Three Months Ended March 31, 2000 and 1999 Revenues from rental of flight equipment increased by 19%, or $1,727, to $10,601 in the three months ended March 31, 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 an aircraft that was being repossessed from Mexico as discussed above. Our lease portfolio consisted of sixteen aircraft with a book value of $310,893 at March 31, 2000 and thirteen aircraft on lease with a book value of $233,549 at March 31, 1999. Interest income increased to $453 for the three months ended March 31, 2000 from $371 for the same period in 1999 principally as a result of an increase in average interest rates from 1999 to 2000. -8- 9 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (DOLLARS IN THOUSANDS) Expenses as a percent of total revenues were 93% and 83% during the three months ended March 31, 2000 and 1999, respectively. The increase in the percentage is due to the effect of the 20% increase in total revenue while expenses increased 32%. Interest expense increased to $4,903 for the three months ended March 31, 2000 from $3,808 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 7.06% and 7.1% at March 31, 2000 and 1999, respectively. Depreciation expense increased to $4,590 in the first quarter of 2000 from $3,360 in the first quarter of 1999 primarily as a result of the acquisition of three additional aircraft. We incurred $206 of repossession of expense as discussed above. General and administrative expenses decreased to $438 in the three months ended March 31, 2000 from $482 in the same period of 1999 primarily as a result of decreased compensation expense. During the three months ended March 31, 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 $320 from $582 as a result of reduction in income before taxes of $678. 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. Net income decreased to $534 for the three months ended March 31, 2000 from $950 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 three months ended March 31, 2000, net cash provided from operating activities increased by $2,631 principally as a result of an increase in a non-cash expense for depreciation of $1,230 and a decrease in the change in restricted cash of $1,929 and an increase in the change in deferred rent of $1,612, partially offset by a decrease in net income of $416 and a decrease in the change in lease and other deposits of $900. Net cash used in financing activities increased to $4,671 in the three months ended March 31, 2000 from $3,376 in the same period of 1999. In both periods net cash used was principally due to loan paydowns as well as repurchasing the Company's common stock. 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 swap arrangements to reduce the potential impact of increases in interest rates on floating rate 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 -9- 10 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (DOLLARS IN THOUSANDS) 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. IMPACT OF YEAR 2000 The Year 2000 issue results from computer programs written using two digits to identify the year in the date field. These computer programs were designed and developed without consideration of the impact of the change in the century. If not corrected, these programs could create erroneous information. The effects of the Year 2000 issue did not materially affect our financial results or financial condition. We have incurred no additional costs associated with the Year 2000 issue and estimate that no additional costs will be incurred. Failure by our lessees, manufacturers of our aircraft and business partners to properly comply with Year 2000 issues could result in lost revenues and increased expenses. We have not experienced, nor do we expect to experience a material effect on our financial results or our financial position. We will continue assessing our internal and external risk as we acquire additional information systems and enter into business relationships with additional lessees, manufacturers of aircraft and other business partners. -10- 11 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 27 Financial Data Schedule for the three months ended March 31, 2000
REPORTS ON FORM 8-K: During the quarter ended March 31, 2000, the Company did not file any reports on Form 8-K. -11- 12 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 May 3, 2000 /s/ Michael P. Grella ----------------------------------- Michael P. Grella President And Chief Operating Officer May 3, 2000 /s/ Alan G. Stanford, Jr. ----------------------------------- Alan G. Stanford, Jr. Vice President--Controller And Chief Accounting Officer -12- EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 14,149,967 0 0 0 0 0 366,611,644 55,718,351 339,077,773 0 0 0 0 41,188 38,519,319 339,077,773 0 11,053,484 0 5,296,426 0 0 4,902,610 854,448 320,418 534,030 0 0 0 534,030 .13 .12
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