Annual Statements Open main menu

AIR LEASE CORP - Quarter Report: 2013 June (Form 10-Q)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013

 

OR

 

o         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 001-35121

 

AIR LEASE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-1840403

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

2000 Avenue of the Stars, Suite 1000N
Los Angeles, California

 

90067

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (310) 553-0555

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

At August 8, 2013, there were 99,924,388 shares of Air Lease Corporation’s Class A Common Stock outstanding and 1,829,339 shares of Air Lease Corporation’s Class B Non-Voting Common Stock outstanding.

 

 

 



Table of Contents

 

Air Lease Corporation and Subsidiaries

 

Form 10-Q

For the Quarterly Period Ended June 30, 2013

 

TABLE OF CONTENTS

 

 

 

Page

Note About Forward-Looking Statements

3

 

PART I—FINANCIAL INFORMATION

 

Item 1

Financial Statements

 

 

Consolidated Balance Sheets—June 30, 2013 and December 31, 2012 (unaudited)

4

 

Consolidated Statements of Income—Three and Six Months Ended June 30, 2013 and 2012 (unaudited)

5

 

Consolidated Statement of Shareholders’ Equity—Six Months Ended June 30, 2013 (unaudited)

6

 

Consolidated Statements of Cash Flows—Six Months Ended June 30, 2013 and 2012 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4

Controls and Procedures

26

 

PART II—OTHER INFORMATION

 

Item 1

Legal Proceedings

27

Item 1A

Risk Factors

27

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3

Defaults Upon Senior Securities

27

Item 4

Mine Safety Disclosures

27

Item 5

Other Information

27

Item 6

Exhibits

28

 

Signatures

29

 

Index of Exhibits

30

 

2



Table of Contents

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

Statements in this quarterly report on Form 10-Q that are not historical facts may constitute “forward-looking statements,” including any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such statements, including as a result of the following factors, among others:

 

·                                          our inability to make acquisitions of, or lease, aircraft on favorable terms;

 

·                                          our inability to obtain additional financing on favorable terms, if required, to complete the acquisition of sufficient aircraft as currently contemplated or to fund the operations and growth of our business;

 

·                                          our inability to obtain refinancing prior to the time our debt matures;

 

·                                          impaired financial condition and liquidity of our lessees;

 

·                                          deterioration of economic conditions in the commercial aviation industry generally;

 

·                                          increased maintenance, operating or other expenses or changes in the timing thereof;

 

·                                          changes in the regulatory environment;

 

·                                          our inability to effectively deploy the net proceeds from our capital raising activities;

 

·                                          potential natural disasters and terrorist attacks and the amount of our insurance coverage, if any, relating thereto; and

 

·                                          the factors discussed under “Part I — Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2012 and other SEC filings.

 

All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations. You are therefore cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

3



Table of Contents

 

PART I—FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

Air Lease Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

 

 

 

June 30,
2013

 

December 31,
2012

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and cash equivalents

 

$

234,299

 

$

230,089

 

Restricted cash

 

77,975

 

106,307

 

 

 

 

 

 

 

Flight equipment subject to operating leases

 

7,462,993

 

6,598,898

 

Less accumulated depreciation

 

(479,681

)

(347,035

)

 

 

6,983,312

 

6,251,863

 

 

 

 

 

 

 

Deposits on flight equipment purchases

 

861,403

 

564,718

 

Deferred debt issue costs—less accumulated amortization of $41,357 and $32,288 as of June 30, 2013 and December 31, 2012, respectively

 

90,720

 

74,219

 

Other assets

 

191,962

 

126,428

 

Total assets

 

$

8,439,671

 

$

7,353,624

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Accrued interest and other payables

 

$

112,675

 

$

90,169

 

Debt financing

 

5,226,342

 

4,384,732

 

Security deposits and maintenance reserves on flight equipment leases

 

502,164

 

412,223

 

Rentals received in advance

 

49,724

 

41,137

 

Deferred tax liability

 

137,739

 

92,742

 

Total liabilities

 

$

6,028,644

 

$

5,021,003

 

Shareholders’ Equity

 

 

 

 

 

Preferred Stock, $0.01 par value; 50,000,000 shares authorized; no shares issued or outstanding

 

$

 

$

 

Class A Common Stock, $0.01 par value; authorized 500,000,000 shares; issued and outstanding 99,924,388 and 99,417,998 shares at June 30, 2013 and December 31, 2012, respectively

 

991

 

991

 

Class B Non-Voting Common Stock, $0.01 par value; authorized 10,000,000 shares; issued and outstanding 1,829,339 shares at June 30, 2013 and December 31, 2012

 

18

 

18

 

Paid-in capital

 

2,198,986

 

2,198,501

 

Retained earnings

 

211,032

 

133,111

 

Total shareholders’ equity

 

$

2,411,027

 

$

2,332,621

 

Total liabilities and shareholders’ equity

 

$

8,439,671

 

$

7,353,624

 

 

See accompanying notes

 

4



Table of Contents

 

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share amounts)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

Rental of flight equipment

 

$

206,299

 

$

155,050

 

$

396,402

 

$

286,787

 

Interest and other

 

1,573

 

3,123

 

3,467

 

3,939

 

Total revenues

 

207,872

 

158,173

 

399,869

 

290,726

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Interest

 

43,468

 

34,146

 

83,698

 

56,060

 

Amortization of discounts and deferred debt issue costs

 

5,349

 

4,091

 

10,559

 

6,958

 

Interest expense

 

48,817

 

38,237

 

94,257

 

63,018

 

 

 

 

 

 

 

 

 

 

 

Depreciation of flight equipment

 

68,783

 

52,537

 

132,646

 

96,873

 

Selling, general and administrative

 

16,648

 

14,308

 

30,895

 

27,917

 

Stock-based compensation

 

7,313

 

9,207

 

14,088

 

17,424

 

Total expenses

 

141,561

 

114,289

 

271,886

 

205,232

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

66,311

 

43,884

 

127,983

 

85,494

 

Income tax expense

 

(23,321

)

(15,712

)

(44,997

)

(30,395

)

Net income

 

$

42,990

 

$

28,172

 

$

82,986

 

$

55,099

 

 

 

 

 

 

 

 

 

 

 

Net income per share of Class A and Class B Common Stock:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.42

 

$

0.28

 

$

0.82

 

$

0.55

 

Diluted

 

$

0.41

 

$

0.28

 

$

0.79

 

$

0.54

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

101,301,263

 

100,749,892

 

101,270,323

 

100,733,597

 

Diluted

 

108,815,938

 

107,410,967

 

108,665,884

 

107,420,100

 

 

See accompanying notes

 

5



Table of Contents

 

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

 

 

 

Preferred Stock

 

Class A Common Stock

 

Class B Non-Voting
Common Stock

 

Paid-in

 

Retained

 

 

 

(unaudited)

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Total

 

Balance at December 31, 2012

 

 

$

 

99,417,998

 

$

991

 

1,829,339

 

$

18

 

$

2,198,501

 

$

133,111

 

$

2,332,621

 

Issuance of restricted stock units

 

 

 

954,405

 

 

 

 

 

 

 

Exercise of stock options

 

 

 

500

 

 

 

 

 

 

 

Common stock issued

 

 

 

954,905

 

 

 

 

 

 

 

Stock based compensation expense

 

 

 

 

 

 

 

14,088

 

 

14,088

 

Cash dividends

 

 

 

 

 

 

 

 

(5,065

)

(5,065

)

Tax withholding related to exercise of stock options and vesting of restricted stock units

 

 

 

(448,515

)

 

 

 

(13,603

)

 

(13,603

)

Net income

 

 

 

 

 

 

 

 

82,986

 

82,986

 

Balance at June 30, 2013

 

 

$

 

99,924,388

 

$

991

 

1,829,339

 

$

18

 

$

2,198,986

 

$

211,032

 

$

2,411,027

 

 

See accompanying notes

 

6



Table of Contents

 

Air Lease Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

 

 

(unaudited)

 

Operating Activities

 

 

 

 

 

Net income

 

$

82,986

 

$

55,099

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation of flight equipment

 

132,646

 

96,873

 

Stock-based compensation

 

14,088

 

17,424

 

Deferred taxes

 

44,997

 

30,391

 

Amortization of discounts and deferred debt issue costs

 

10,559

 

6,958

 

Changes in operating assets and liabilities:

 

 

 

 

 

Other assets

 

8,555

 

(8,387

)

Accrued interest and other payables

 

5,462

 

31,161

 

Rentals received in advance

 

8,587

 

10,701

 

Net cash provided by operating activities

 

307,880

 

240,220

 

Investing Activities

 

 

 

 

 

Acquisition of flight equipment under operating lease

 

(705,774

)

(1,256,809

)

Payments for deposits on flight equipment purchases

 

(464,636

)

(250,836

)

Acquisition of furnishings, equipment and other assets

 

(47,327

)

(55,243

)

Net cash used in investing activities

 

(1,217,737

)

(1,562,888

)

Financing Activities

 

 

 

 

 

Issuance of common stock

 

 

70

 

Cash dividends paid

 

(2,532

)

 

Tax witholdings related to vesting of restricted stock units

 

(1,742

)

 

Net change in unsecured revolving facilities

 

530,000

 

122,000

 

Proceeds from debt financings

 

653,849

 

1,586,188

 

Payments in reduction of debt financings

 

(343,518

)

(287,369

)

Restricted cash

 

28,332

 

(16,852

)

Debt issue costs

 

(26,261

)

(32,661

)

Security deposits and maintenance reserve receipts

 

90,092

 

78,247

 

Security deposits and maintenance reserve disbursements

 

(14,153

)

(20,173

)

Net cash provided by financing activities

 

914,067

 

1,429,450

 

Net increase in cash

 

4,210

 

106,782

 

Cash and cash equivalents at beginning of period

 

230,089

 

281,805

 

Cash and cash equivalents at end of period

 

$

234,299

 

$

388,587

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

Cash paid during the period for interest, including capitalized interest of $14,887 and $8,631 at June 30, 2013 and 2012

 

$

87,511

 

$

43,010

 

Supplemental Disclosure of Noncash Activities

 

 

 

 

 

Buyer furnished equipment, capitalized interest, deposits on flight equipment purchases and seller financing applied to acquisition of flight equipment

 

$

163,464

 

$

255,900

 

Cash dividends declared, not yet paid

 

$

2,533

 

$

 

 

See accompanying notes

 

7



Table of Contents

 

Air Lease Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.         Company Background and Overview

 

Air Lease Corporation (the “Company”, “ALC”, “we”, “our” or “us”) is incorporated in the State of Delaware and licensed to operate in the State of California. The Company is principally engaged in the leasing of commercial aircraft to airlines throughout the world. We supplement our leasing revenues by providing fleet management and remarketing services to third parties. We typically provide many of the same services that we perform for our fleet, including leasing, releasing, lease management and sales services for which we charge a fee, with the objective of assisting our clients to maximize lease or sale revenues. In addition to our leasing activities and management services, and depending on market conditions, we sell aircraft from our fleet to other leasing companies, financial services companies and airlines.

 

Note 2.         Basis of Preparation

 

The Company consolidates financial statements of all entities in which we have a controlling financial interest, including the accounts of any Variable Interest Entity in which we have a controlling financial interest and for which we are determined to be the primary beneficiary. All material intercompany balances are eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

The accompanying unaudited consolidated financial statements include all adjustments, including only normal, recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows at June 30, 2013, and for all periods presented. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results expected for the year ending December 31, 2013. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Note 3.         Debt Financing

 

The Company’s consolidated debt as of June 30, 2013 and December 31, 2012 are summarized below (in thousands):

 

 

 

June 30,
2013

 

December 31,
2012

 

Unsecured

 

 

 

 

 

Senior notes

 

$

 2,170,620

 

$

 1,775,000

 

Revolving credit facilities

 

950,000

 

420,000

 

Term financings

 

285,429

 

248,916

 

Convertible senior notes

 

200,000

 

200,000

 

 

 

3,606,049

 

2,643,916

 

Secured

 

 

 

 

 

Warehouse facilities

 

842,133

 

1,061,838

 

Term financings

 

715,973

 

688,601

 

Export credit financing

 

74,866

 

 

 

 

1,632,972

 

1,750,439

 

 

 

 

 

 

 

Total secured and unsecured debt financing

 

5,239,021

 

4,394,355

 

Less: Debt discount

 

(12,679

)

(9,623

)

Total debt

 

$

 5,226,342

 

$

 4,384,732

 

 

At June 30, 2013, we were in compliance in all material respects with the covenants in our debt agreements, including our financial covenants concerning debt-to-equity, tangible net equity, unencumbered assets and interest coverage ratios.

 

8



Table of Contents

 

The Company’s secured obligations as of June 30, 2013 and December 31, 2012 are summarized below (in thousands, except number of aircraft which are reflected in units):

 

 

 

June 30,
2013

 

December 31,
2012

 

Nonrecourse

 

$

 863,842

 

$

 1,085,941

 

Recourse

 

769,130

 

664,498

 

Total

 

$

 1,632,972

 

$

 1,750,439

 

Number of aircraft pledged as collateral

 

52

 

55

 

Net book value of aircraft pledged as collateral

 

$

 2,504,910

 

$

 2,728,636

 

 

Senior Unsecured Notes

 

On June 26, 2013, the Company concluded its offer to exchange up to $151.6 million aggregate principal amount of new notes for any and all of its outstanding 7.375% Senior Unsecured Notes due January 30, 2019, pursuant to a Senior Notes Indenture, dated as of March 16, 2012, as supplemented by a Supplemental Indenture, dated as of June 26, 2013.  The Company issued $132.0 million aggregate principal amount of its 5.625% Senior Notes due 2017 in exchange for $125.4 million aggregate principal amount of the old notes.  Our 5.625% Senior Notes due 2017 will bear additional interest of 0.50% per annum during any period from and after March 16, 2013 during which a publicly available rating on the notes is not maintained by at least one rating agency as described in the related indenture.

 

On February 5, 2013, the Company issued $400.0 million in aggregate principal amount of senior unsecured notes due 2020 pursuant to the Company’s effective shelf registration statement previously filed with the SEC. The notes are senior unsecured obligations of the Company and bear interest at a rate of 4.75% per annum. The notes will bear additional interest of 0.50% per annum during any period from and after February 5, 2014 during which a publicly available rating on the notes is not maintained by at least one rating agency as described in the related indenture.

 

Unsecured Revolving Credit Facilities

 

On May 7, 2013, the Company entered into an amendment and restatement of its Syndicated Unsecured Revolving Credit Facility. We have increased the aggregate principal amount by $607.0 million to $1.7 billion, extended the availability period from 3 years to 4 years to May 2017, and reduced the pricing from LIBOR plus a margin of 1.75% with no LIBOR floor and an undrawn fee of 0.375% to LIBOR plus 1.45% with no LIBOR floor and a 0.30% facility fee.

 

The total amount outstanding under our unsecured revolving credit facilities was $950.0 million and $420.0 million as of June 30, 2013 and December 31, 2012, respectively.

 

Unsecured Term Financings

 

During the second quarter of 2013, the Company entered into four additional unsecured term facilities aggregating $120.5 million with terms ranging from two to five years and with three of them bearing interest at fixed rates of 3.00% to 3.10% per annum and the fourth bearing interest at a floating rate of LIBOR plus a margin of 1.45%.  The outstanding balance on our unsecured term facilities as of June 30, 2013 and December 31, 2012 was $285.4 million and $248.9 million, respectively.

 

Warehouse Facilities

 

On June 21, 2013, a wholly-owned subsidiary of the Company, entered into an amendment and restatement of its “2010 Warehouse Facility”. The 2010 Warehouse Facility, as amended, provides the Company with financing of up to $1.0 billion, modified from the previous facility size of $1.25 billion. The Company is able to draw on the 2010 Warehouse Facility, as amended, during an availability period that was extended from June 2013 to June 2015 with a subsequent four year term out option. The interest rate on the 2010 Warehouse Facility, as amended, was reduced from LIBOR plus 2.50% to LIBOR plus 2.25% on drawn balances and from 0.75% to 0.50% per annum on undrawn balances.

 

As of June 30, 2013, the Company had borrowed $842.1 million under our Warehouse Facilities and pledged 32 aircraft as collateral with a net book value of $1.3 billion. As of December 31, 2012, the Company had borrowed $1.1 billion under the Warehouse Facilities and pledged 38 aircraft as collateral with a net book value of $1.6 billion. The Company had pledged cash collateral and lessee deposits of $70.5 million and $104.3 million at June 30, 2013 and December 31, 2012, respectively.

 

9



Table of Contents

 

Maturities

 

Maturities of debt outstanding as of June 30, 2013 are as follows (in thousands):

 

Years ending December 31,

 

 

 

2013

 

$

98,350

 

2014

 

229,848

 

2015

 

250,298

 

2016

 

897,974

 

2017

 

2,384,228

 

Thereafter

 

1,378,323

 

Total(1)(2)

 

$

5,239,021

 

 


(1)         As of June 30, 2013, the Company had $664.3 million of debt outstanding under the 2010 Warehouse Facility, as amended, for which the availability period expires in June 2015. The outstanding drawn balance at the end of the availability period may be converted at the Company’s option to an amortizing, four-year term loan and has been presented as such in the maturity schedule above.

(2)         As of June 30, 2013, the Company had $950.0 million of debt outstanding under our unsecured revolving credit facilities. The outstanding drawn balances may be rolled until the maturity date of each respective facility and have been presented as such in the maturity schedule above.

 

Note 4.         Commitments and Contingencies

 

Aircraft Acquisition

 

As of June 30, 2013 we had commitments to acquire a total of 346 new aircraft for delivery as follows:

 

Aircraft Type

 

2013

 

2014

 

2015

 

2016

 

2017

 

Thereafter

 

Total

 

Airbus A320/321-200

 

5

 

13

 

6

 

 

 

 

24

 

Airbus A320/321 NEO

 

 

 

 

3

 

12

 

35

 

50

 

Airbus A330-200/300

 

1

 

 

 

 

 

 

1

 

Airbus A350-900/1000(1)

 

 

 

 

 

 

30

 

30

 

Boeing 737-800

 

9

 

13

 

17

 

18

 

11

 

 

68

 

Boeing 737-8/9 MAX(2)

 

 

 

 

 

 

104

 

104

 

Boeing 777-300ER

 

 

6

 

8

 

1

 

 

 

15

 

Boeing 787-9/10(3)

 

 

 

 

 

1

 

44

 

45

 

ATR 72-600

 

4

 

4

 

1

 

 

 

 

9

 

Total

 

19

 

36

 

32

 

22

 

24

 

213

 

346

 

 


(1)         As of June 30, 2013, five of the Airbus A350-1000 aircraft were subject to reconfirmation.

(2)         As of June 30, 2013, 20 of the Boeing 737-8 MAX aircraft were subject to reconfirmation.

(3)         As of June 30, 2013, 33 of the Boeing 787-9/10 aircraft were subject to a non-binding memorandum of understanding.

 

Commitments for the acquisition of these aircraft and other equipment at an estimated aggregate purchase price (including adjustments for inflation) of approximately $28.4 billion at June 30, 2013 are as follows (in thousands):

 

Years ending December 31,

 

 

 

2013

 

$

979,293

 

2014

 

2,357,826

 

2015

 

2,056,573

 

2016

 

1,340,385

 

2017

 

1,625,100

 

Thereafter

 

20,060,848

 

Total

 

$

28,420,025

 

 

10



Table of Contents

 

We have made non-refundable deposits on the aircraft for which we have commitments to purchase of $861.4 million and $564.7 million as of June 30, 2013 and December 31, 2012, respectively, which are subject to manufacturer performance commitments. If we are unable to satisfy our purchase commitments, we may forfeit our deposits. Further, we would be subject to breach of contract claims by our lessees and manufacturers.

 

Note 5.        Net Earnings Per Share

 

Basic net earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock; however, potential common equivalent shares are excluded if the effect of including these shares would be anti-dilutive. The Company’s two classes of common stock, Class A and Class B Non-Voting, have equal rights to dividends and income, and therefore, basic and diluted earnings per share are the same for each class of common stock.

 

Diluted net earnings per share takes into account the potential conversion of stock options, restricted stock units, and warrants using the treasury stock method and convertible notes using the if-converted method.  For the three and six months ended June 30, 2013 and 2012, the Company excluded 3,357,658 and 3,358,574 shares related to stock options which were potentially dilutive securities from the computation of diluted earnings per share because including these shares would be anti-dilutive.  In addition, the Company excluded 1,574,271 and 2,116,157 shares related to restricted stock units for which the performance metric had yet to be achieved as of June 30, 2013 and 2012, respectively.

 

The following table sets forth the reconciliation of basic and diluted net income per share (in thousands, except share amounts):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Basic net income per share:

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Net income

 

$

42,990

 

$

28,172

 

$

82,986

 

$

55,099

 

Denominator

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

101,301,263

 

100,749,892

 

101,270,323

 

100,733,597

 

Basic net income per share

 

$

0.42

 

$

0.28

 

$

0.82

 

$

0.55

 

Diluted net income per share:

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Net income

 

$

42,990

 

$

28,172

 

$

82,986

 

$

55,099

 

Assumed conversion of convertible senior notes

 

1,422

 

1,495

 

2,831

 

2,968

 

Net income plus assumed conversions

 

$

44,412

 

$

29,667

 

$

85,817

 

$

58,067

 

Denominator

 

 

 

 

 

 

 

 

 

Number of shares used in basic computation

 

101,301,263

 

100,749,892

 

101,270,323

 

100,733,597

 

Weighted-average effect of dilutive securities

 

7,514,675

 

6,661,075

 

7,395,561

 

6,686,503

 

Number of shares used in per share computation

 

108,815,938

 

107,410,967

 

108,665,884

 

107,420,100

 

Diluted net income per share

 

$

0.41

 

$

0.28

 

$

0.79

 

$

0.54

 

 

Note 6.         Fair Value Measurements

 

Assets and Liabilities Measured at Fair Value on a Recurring and Non-recurring Basis

 

The Company had no assets or liabilities which are measured at fair value on a recurring or non-recurring basis as of June 30, 2013 or December 31, 2012.

 

Financial Instruments Not Measured at Fair Value

 

The fair value of debt financing is estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, which would be categorized as a Level 2 measurement in the fair value hierarchy. The estimated fair value of debt financing as of June 30, 2013 was $5,305.5 million compared to a book value of $5,226.3 million. The estimated fair value of debt financing as of December 31, 2012 was $4,517.6 million compared to a book value of $4,384.7 million.

 

11



Table of Contents

 

The following financial instruments are not measured at fair value on the Company’s consolidated balance sheet at June 30, 2013, but require disclosure of their fair values: cash and cash equivalents and restricted cash. The estimated fair value of such instruments at June 30, 2013 approximates their carrying value as reported on the consolidated balance sheet.  The fair value of all these instruments would be categorized as Level 1 of the fair value hierarchy.

 

Note 7.         Stock-based Compensation

 

In accordance with the Amended and Restated Air Lease Corporation 2010 Equity Incentive Plan (“Plan”), the number of stock options (“Stock Options”) and restricted stock units (“RSUs”) authorized under the Plan is approximately 8,193,088 as of June 30, 2013. Options are generally granted for a term of 10 years and generally vest over a three year period. There are two kinds of RSUs: those that vest based on the attainment of book-value goals and those that vest based on the attainment of Total Shareholder Return (“TSR”) goals. The book-value RSUs generally vest ratably over three to four years, if the performance condition has been met. Book-value RSUs for which the performance metric has not been met are forfeited.  The TSR RSUs vest at the end of a three year period.  The number of TSR RSUs that will ultimately vest is based upon the percentile ranking of the Company’s TSR among a peer group. The number of shares that will ultimately vest will range from 0% to 200% of the RSUs initially granted depending on the extent to which the TSR metric is achieved.

 

The Company recorded $7.3 million and $9.2 million of stock-based compensation expense for the three months ended June 30, 2013 and 2012, respectively. Stock-based compensation expense for the six months ended June 30, 2013 and 2012 totaled $14.1 million and $17.4 million, respectively.

 

Stock Options

 

A summary of stock option activity in accordance with the Company’s stock option plan as of June 30, 2013, and changes for the six month period then ended, follows:

 

 

 

Shares

 

Exercise
price

 

Remaining
contractual term
(in years)

 

Aggregate
intrinsic value
(in thousands)(1)

 

Balance at December 31, 2012

 

3,358,408

 

$

20.39

 

7.49

 

$

4,813

 

Granted

 

 

$

 

 

$

 

Exercised

 

(500

)

$

20.00

 

7.04

 

$

5

 

Forfeited/canceled

 

(250

)

$

20.00

 

 

$

2

 

Balance at June 30, 2013

 

3,357,658

 

$

20.39

 

7.00

 

$

24,346

 

Vested and exercisable as of June 30, 2013

 

3,357,658

 

$

20.39

 

7.00

 

$

24,346

 

 


(1)         The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of our Class A Common Stock as of the respective date.

 

Stock-based compensation expense related to employee stock options for the three months ended June 30, 2013 and 2012 totaled $2.4 million and $3.0 million, respectively.  Stock-based compensation expense related to employee stock options for the six months ended June 30, 2013 and 2012 totaled $5.4 million and $5.8 million, respectively.

 

12



Table of Contents

 

The following table summarizes additional information regarding exercisable and vested options at June 30, 2013:

 

 

 

Options exercisable
and vested

 

Range of exercise prices

 

Number of
shares

 

Weighted-
average
remaining life
(in years)

 

$20.00

 

3,207,658

 

7.0

 

$28.80

 

150,000

 

7.8

 

$20.00 - $28.80

 

3,357,658

 

7.0

 

 

Restricted Stock Units

 

Compensation cost for stock awards is measured at the grant date based on fair value and recognized over the vesting period.  The fair value of book-value RSUs is determined based on the closing market price of the Company’s Class A Common Stock on the date of grant, while the fair value of TSR RSUs is determined at the grant date using a Monte Carlo simulation model. Included in the Monte Carlo simulation model were certain assumptions regarding a number of highly complex and subjective variables, such as expected volatility, risk-free interest rate and expected dividends. To appropriately value the award, the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities were estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period. Due to our limited stock history since the completion of our initial public offering on April 25, 2011, historical volatility was estimated based on all available information.

 

During the six months ended June 30, 2013, the Company granted 418,473 RSUs of which 201,058 are TSR RSUs. The following table summarizes the activities for our unvested RSUs for the six months ended June 30, 2013:

 

 

 

Unvested Restricted Stock Units

 

 

 

Number of
shares

 

Weighted-average
grant-date
fair value

 

Unvested at December 31, 2012

 

2,117,510

 

$

21.40

 

Granted

 

418,473

 

31.97

 

Vested

 

(954,405

)

20.86

 

Forfeited/canceled

 

(7,321

)

27.81

 

Unvested at June 30, 2013

 

1,574,257

 

24.51

 

Expected to vest after June 30, 2013(1)

 

1,562,281

 

24.50

 

 


(1)  RSUs expected to vest reflect an estimated forfeiture rate.

 

The Company recorded $4.9 million and $6.2 million of stock-based compensation expense related to RSUs for the three months ended June 30, 2013 and 2012, respectively. The Company recorded $8.7 million and $11.6 million of stock-based compensation expense related to RSUs for the six months ended June 30, 2013 and 2012, respectively.

 

As of June 30, 2013, there was $20.0 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs granted to employees. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted-average remaining period of 1.6 years.

 

Note 8. Litigation

 

On April 24, 2012, the Company was named as a defendant in a complaint filed in Superior Court of the State of California for the County of Los Angeles by American International Group, Inc. and ILFC. The complaint also names as defendants certain executive officers and employees of the Company. The complaint was amended on November 30, 2012, January 18, 2013 and July 16, 2013. In connection with these amendments, American International Group withdrew as a plaintiff, leaving ILFC as the sole remaining plaintiff. Among other things, the suit alleges breach of fiduciary duty, misappropriation of trade secrets, the wrongful recruitment of ILFC employees, and the wrongful diversion of potential ILFC leasing opportunities. The complaint seeks an unspecified amount of damages and injunctive relief. The Company believes that it has meritorious defenses to these claims and intends to defend this matter vigorously. The amount or range of loss, if any, is not estimable at this time.

 

13



Table of Contents

 

Note 9. Related Party Transactions

 

During the three months ended June 30, 2013, the Company completed a marketed secondary public offering of up to 8,000,000 shares of its Class A Common Stock held by affiliates of Ares Management LLC, Leonard Green & Partners, L.P. and WL Ross & Co. LLC. The shares of Class A Common Stock were offered to the public at $26.75 per share. The Company did not issue any additional shares of Class A Common Stock and did not receive any proceeds in this transaction. The total number of shares of the Company’s Class A Common Stock outstanding did not change as a result of this offering.

 

As of June 30, 2013, Commonwealth Bank of Australia, a lender under the Syndicated Unsecured Revolving Credit Facility and the 2010 Warehouse Facility, held more than 5% of our Class A Common Stock, and one of our directors, Ian M. Saines, is Group Executive of the Institutional Banking and Markets division of Commonwealth Bank.

 

Note 10.  Subsequent Events

 

On August 8, 2013, our board of directors approved our third consecutive quarterly cash dividend of $0.025 per share on our outstanding common stock. The dividend will be paid on October 7, 2013 to holders of record of our common stock as of September 17, 2013.

 

14



Table of Contents

 

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Overview

 

During the quarter ended June 30, 2013, the Company continued to execute on our primary business plan to acquire new, fuel-efficient commercial aircraft from aircraft manufacturers and to lease those aircraft to airlines around the world. We grew our fleet primarily through the acquisition of 10 aircraft from our order book supplemented by two purchases of used aircraft acquired in the secondary market. We continued to supplement our leasing revenues by providing management services to investors and/or owners of aircraft portfolios, for which we receive fee-based revenue. These services include leasing, re-leasing, and lease management and sales services, with the goal of helping our clients maximize lease and sale revenues. As of June 30, 2013, we managed four aircraft compared to three aircraft as of June 30, 2012. In addition to our leasing activities and management services, and depending on market conditions, we sell aircraft from our fleet to other leasing companies, financial services companies and airlines.

 

We ended the second quarter of 2013 with 174 aircraft comprised of 132 single-aisle narrowbody jet aircraft, 30 twin-aisle widebody jet aircraft and 12 turboprop aircraft, with a weighted average age of 3.5 years. We ended 2012 with 155 aircraft, comprised of 118 single-aisle narrowbody jet aircraft, 27 twin-aisle widebody jet aircraft and 10 turboprop aircraft, with a weighted average age of 3.5 years. Our fleet grew by 11.7% based on net book value to $7.0 billion as of June 30, 2013 compared to $6.3 billion as of December 31, 2012.

 

The acquisition and lease of additional aircraft resulted in a 33.1% increase in our rental revenue to $206.3 million for the quarter ended June 30, 2013 compared to $155.1 million for the quarter ended June 30, 2012. Rental revenue for the six months ended June 30, 2013 and 2012 increased 38.2%, totaling $396.4 million and $286.8 million, respectively. Due to the timing of aircraft deliveries the full impact on rental revenue for aircraft acquired during a given period will be reflected in subsequent periods.

 

We recorded earnings before income taxes of $66.3 million for the quarter ended June 30, 2013 compared to $43.9 million for the quarter ended June 30, 2012, an increase of $22.4 million or 51.1%. We recorded earnings before income taxes of $128.0 million for the six months ended June 30, 2013 compared to $85.5 million for the six months ended June 30, 2012, an increase of $42.5 million, or 49.7%.  Our profitability increased year over year as our pretax profit margin increased to 31.9% for the quarter ended June 30, 2013 compared to 27.7% for the quarter ended June 30, 2012. Diluted earnings per share increased to $0.41 for the quarter ended June 30, 2013 compared to $0.28 for the quarter ended June 30, 2012, an increase of 46.4%. Our pretax profit margin increased to 32.0% for the six months ended June 30, 2013 compared to 29.4% for the six months ended June 30, 2012. Diluted earnings per share increased to $0.79 for the six months ended June 30, 2013 compared to $0.54 for the six months ended June 30, 2012, an increase of 46.3%

 

Our financing plans remained focused on raising unsecured debt in the global bank and capital markets, reinvesting cash flow from operations and, to a limited extent, credit financing. During the quarter ended June 30, 2013 and through August 8, 2013, we entered into additional debt facilities aggregating $747.7 million, which included a $607.0 million addition to our Syndicated Unsecured Revolving Credit Facility and additional facilities aggregating $140.7 million.  The Company’s unsecured debt as as percentage of total debt increased to 68.8% as of June 30, 2013 from 60.2% as of December 31, 2012, while maintaining a composite cost of funds of 3.74%.

 

During the quarter ended June 30, 2013, the Company became a launch customer for Boeing’s 787-10 Dreamliner at the Le Bourget airshow in June, signing a non-binding memorandum of understanding for 30 787-10 aircraft and three additional 787-9 aircraft. Deliveries of these aircraft are scheduled to commence in 2019 and continue through 2023.

 

Our fleet

 

Portfolio metrics of our fleet as of June 30, 2013 and December 31, 2012 are as follows (dollars in thousands):

 

 

 

June 30, 2013

 

December 31, 2012

 

Fleet size

 

174

 

155

 

Weighted-average fleet age(1)

 

3.5 years

 

3.5 years

 

Weighted-average remaining lease term(1)

 

7.1 years

 

6.8 years

 

Aggregate fleet net book value

 

6,983,312

 

$

6,251,863

 

 


(1)               Weighted-average fleet age and remaining lease term calculated based on net book value.

 

15



Table of Contents

 

The following table sets forth the net book value and percentage of the net book value of our aircraft portfolio operating in the indicated regions as of June 30, 2013 and December 31, 2012 (dollars in thousands):

 

 

 

June 30, 2013

 

December 31, 2012

 

Region

 

Net book
value

 

% of total

 

Net book
value

 

% of total

 

Asia/Pacific

 

$

2,741,869

 

39.3

%

$

2,245,002

 

35.9

%

Europe

 

2,599,651

 

37.2

 

2,398,531

 

38.4

 

Central America, South America and Mexico

 

818,241

 

11.7

 

788,189

 

12.6

 

U.S. and Canada

 

447,099

 

6.4

 

457,546

 

7.3

 

The Middle East and Africa

 

376,452

 

5.4

 

362,595

 

5.8

 

Total

 

$

6,983,312

 

100.0

%

$

6,251,863

 

100.0

%

 

The following table sets forth the number of aircraft we leased by aircraft type as of June 30, 2013 and December 31, 2012:

 

 

 

June 30, 2013

 

December 31, 2012

 

Aircraft type

 

Number of
aircraft

 

% of total

 

Number of
aircraft

 

% of total

 

Airbus A319-100

 

7

 

4.0

%

7

 

4.5

%

Airbus A320-200

 

38

 

21.8

 

29

 

18.7

 

Airbus A321-200

 

6

 

3.5

 

5

 

3.2

 

Airbus A330-200

 

16

 

9.2

 

14

 

9.0

 

Airbus A330-300

 

4

 

2.3

 

3

 

1.9

 

Boeing 737-700

 

8

 

4.6

 

8

 

5.2

 

Boeing 737-800

 

41

 

23.6

 

38

 

24.5

 

Boeing 767-300ER

 

3

 

1.7

 

3

 

1.9

 

Boeing 777-200ER

 

1

 

0.6

 

1

 

0.7

 

Boeing 777-300ER

 

6

 

3.4

 

6

 

3.9

 

Embraer E175

 

8

 

4.6

 

8

 

5.2

 

Embraer E190

 

24

 

13.8

 

23

 

14.8

 

ATR 72-600

 

12

 

6.9

 

10

 

6.5

 

Total

 

174

 

100.0

%

155

 

100.0

%

 

As of June 30, 2013 we had commitments to acquire a total of 346 new aircraft for delivery as follows:

 

Aircraft Type

 

2013

 

2014

 

2015

 

2016

 

2017

 

Thereafter

 

Total

 

Airbus A320/321-200

 

5

 

13

 

6

 

 

 

 

24

 

Airbus A320/321 NEO

 

 

 

 

3

 

12

 

35

 

50

 

Airbus A330-200/300

 

1

 

 

 

 

 

 

1

 

Airbus A350-900/1000(1)

 

 

 

 

 

 

30

 

30

 

Boeing 737-800

 

9

 

13

 

17

 

18

 

11

 

 

68

 

Boeing 737-8/9 MAX(2)

 

 

 

 

 

 

104

 

104

 

Boeing 777-300ER

 

 

6

 

8

 

1

 

 

 

15

 

Boeing 787-9/10(3)

 

 

 

 

 

1

 

44

 

45

 

ATR 72-600

 

4

 

4

 

1

 

 

 

 

9

 

Total

 

19

 

36

 

32

 

22

 

24

 

213

 

346

 

 


(1)         As of June 30, 2013, five of the Airbus A350-1000 aircraft were subject to reconfirmation.

(2)         As of June 30, 2013, 20 of the Boeing 737-8 MAX aircraft were subject to reconfirmation.

(3)         As of June 30, 2013, 33 of the Boeing 787-9/10 aircraft were subject to a non-binding memorandum of understanding.

 

16



Table of Contents

 

Our current lease placements are in line with expectations and are progressing well. As of June 30, 2013 we have entered into contracts for the lease of new aircraft scheduled to be delivered as follows:

 

Delivery year

 

Number of
Aircraft

 

Number
Leased

 

% Leased

 

2013

 

19

 

19

 

100.0

%

2014

 

36

 

36

 

100.0

%

2015

 

32

 

21

 

65.6

%

2016

 

22

 

4

 

18.2

%

2017

 

24

 

1

 

4.2

%

Thereafter

 

213

 

7

 

3.3

%

Total

 

346

 

88

 

 

 

 

Aircraft industry and sources of revenues

 

Our revenues are principally derived from operating leases with scheduled and charter airlines and we derive more than 90% of our revenues from airlines domiciled outside of the United States. As of June 30, 2013, we had 174 aircraft leased under operating leases to 78 airlines based in 44 countries and we anticipate that most of our revenues in the future will be generated from foreign lessees.

 

The airline industry is cyclical, economically sensitive, and highly competitive. Airlines and related companies are affected by fuel price volatility and fuel shortages, political and economic instability, natural disasters, terrorist activities, changes in national policy, competitive pressures, labor actions, pilot shortages, insurance costs, recessions, health concerns and other political or economic events adversely affecting world or regional trading markets. Our airline customers’ ability to react to and cope with the volatile competitive environment in which they operate, as well as our own competitive environment, will affect our revenues and income.

 

Despite industry cyclicality and current stresses, we remain optimistic about the long-term future of commercial aviation and the growing role that ALC will have in the fleet transactions which will facilitate its continued growth.

 

Liquidity and Capital Resources

 

Overview

 

As we grow our business, our financing strategy remains focused on raising unsecured debt in the global bank and capital markets, reinvesting cash flow from operations and limited utilization of export credit financing. In May 2013, the Company received a corporate credit rating of A- from Kroll Bond Ratings which further broadens our access to attractively priced capital.

 

Our substantial cash requirements will continue as we expand our fleet through the purchase commitments in our order book. However, we believe that we will have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.

 

Our liquidity plans are subject to a number of risks and uncertainties, including those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  In addition, macro-economic conditions could hinder our business plans, which could, in turn, adversely affect our financing strategy.

 

17



Table of Contents

 

Debt

 

Our debt financing was comprised of the following at June 30, 2013 and December 31, 2012 (in thousands):

 

 

 

June 30,
2013

 

December 31,
2012

 

Unsecured

 

 

 

 

 

Senior notes

 

$

2,170,620

 

$

1,775,000

 

Revolving credit facilities

 

950,000

 

420,000

 

Term financings

 

285,429

 

248,916

 

Convertible senior notes

 

200,000

 

200,000

 

 

 

3,606,049

 

2,643,916

 

Secured

 

 

 

 

 

Warehouse facilities

 

842,133

 

1,061,838

 

Term financings

 

715,973

 

688,601

 

Export credit financing

 

74,866

 

 

 

 

1,632,972

 

1,750,439

 

 

 

 

 

 

 

Total secured and unsecured debt financing

 

5,239,021

 

4,394,355

 

Less: Debt discount

 

(12,679

)

(9,623

)

Total debt

 

$

5,226,342

 

$

4,384,732

 

Selected interest rates and ratios:

 

 

 

 

 

Composite interest rate(1)

 

3.74

%

3.94

%

Composite interest rate on fixed debt(1)

 

5.06

%

5.06

%

Percentage of total debt at fixed rate

 

53.57

%

53.88

%

 


(1)                                 This rate does not include the effect of upfront fees, undrawn fees or issuance cost amortization

 

Senior unsecured notes

 

On June 26, 2013, the Company concluded its offer to exchange up to $151.6 million aggregate principal amount of new notes for any and all of its outstanding 7.375% Senior Unsecured Notes due January 30, 2019, pursuant to a Senior Notes Indenture, dated as of March 16, 2012, as supplemented by a Supplemental Indenture, dated as of June 26, 2013.  The Company issued $132.0 million aggregate principal amount of its 5.625% Senior Notes due 2017 in exchange for $125.4 million aggregate principal amount of the old notes.  The 5.625% Senior Notes due 2017 will bear additional interest of 0.50% per annum during any period from and after March 16, 2013 during which a publicly available rating on the notes is not maintained by at least one rating agency as described in the related indenture.

 

On February 5, 2013, the Company issued $400.0 million in aggregate principal amount of senior unsecured notes due 2020 pursuant to the Company’s effective shelf registration statement previously filed with the SEC. The notes are senior unsecured obligations of the Company and bear interest at a rate of 4.75% per annum. The notes will bear additional interest of 0.50% per annum during any period from and after February 5, 2014 during which a publicly available rating on the notes is not maintained by at least one rating agency as described in the related indenture.

 

Unsecured revolving credit facilities

 

On May 7, 2013, the Company entered into an amendment and restatement of its Syndicated Unsecured Revolving Credit Facility. We have increased the aggregate principal amount by $607.0 million to $1.7 billion, extended the availability period from 3 years to 4 years to May 2017, and reduced the pricing from LIBOR plus a margin of 1.75% with no LIBOR floor and an undrawn fee of 0.375% to LIBOR plus 1.45% with no LIBOR floor and a 0.30% facility fee.

 

The total amount outstanding under our unsecured revolving credit facilities was $950.0 million and $420.0 million as of June 30, 2013 and December 31, 2012, respectively.

 

18



Table of Contents

 

Unsecured term financings

 

During the second quarter of 2013, the Company entered into four additional unsecured term facilities aggregating $120.5 million with terms ranging from two to five years and with three of them bearing interest at fixed rates of 3.00% to 3.10% per annum and the fourth bearing interest at a floating rate of LIBOR plus a margin of 1.45%.  The outstanding balance on our unsecured term facilities as of June 30, 2013 and December 31, 2012 was $285.4 million and $248.9 million, respectively.

 

Warehouse facilities

 

On June 21, 2013, a wholly-owned subsidiary of the Company, entered into an amendment and restatement to the “2010 Warehouse Facility”. The 2010 Warehouse Facility, as amended, provides the Company with financing of up to $1.0 billion, modified from the previous facility size of $1.25 billion. The Company is able to draw on the 2010 Warehouse Facility, as amended, during an availability period that was extended from June 2013 to June 2015 with a subsequent four year term out option. The interest rate on the 2010 Warehouse Facility, as amended, was reduced from LIBOR plus 2.50% to LIBOR plus 2.25% on drawn balances and from 0.75% to 0.50% per annum on undrawn balances.

 

As of June 30, 2013, the Company had borrowed $842.1 million under our Warehouse Facilities and pledged 32 aircraft as collateral with a net book value of $1.3 billion. As of December 31, 2012, the Company had borrowed $1.1 billion under the Warehouse Facilities and pledged 38 aircraft as collateral with a net book value of $1.6 billion. The Company had pledged cash collateral and lessee deposits of $70.5 million and $104.3 million at June 30, 2013 and December 31, 2012, respectively.

 

Liquidity

 

During the quarter ended June 30, 2013 and through August 8, 2013 we entered into additional debt facilities aggregating $747.7 million, which included a $607.0 million addition to our Syndicated Unsecured Revolving Credit Facility and additional facilities aggregating $140.7 million. We ended the second quarter of 2013 with total debt outstanding of $5.2 billion compared to $4.4 billion as of December 31, 2012. We continued to focus on diversifying our banking group to broaden our access to capital and as of June 30, 2013 and through August 8, 2013 had developed a 41 member, globally diversified banking group, which has provided us in excess of $4.1 billion in financing. We ended the second quarter of 2013 with total unsecured debt outstanding of $3.6 billion compared to $2.6 billion as of December 31, 2012, increasing the Company’s unsecured debt as a percentage of total debt to 68.8% as of June 30, 2013 compared to 60.2% as of December 31, 2012, while maintaining a composite cost of funds of 3.74%.

 

We increased our cash flows from operations by 28.2%, or $67.7 million, to $307.9 million for the six months ended June 30, 2013 compared to $240.2 million for the six months ended June 30, 2012. Our cash flows from operations contributed significantly to our liquidity position. We ended the second quarter of 2013 with available liquidity of $1.3 billion which is comprised of unrestricted cash of $234.3 million and undrawn balances under our Warehouse Facilities and unsecured revolving credit facilities of $1.1 billion. We believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.

 

Our financing plan for the remainder of 2013 is focused on continuing to raise unsecured debt in the global bank market and through international and domestic capital markets transactions, reinvesting cash flow from operations and to a limited extent through export credit financing.

 

Our liquidity plans are subject to a number of risks and uncertainties, including those described in our Annual Report on Form 10-K for the year ended December 31, 2012, some of which are outside of our control.

 

19



Table of Contents

 

Results of Operations

 

The following table presents our historical operating results for the three and six month periods ended June 30, 2013 and 2012 (in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June, 30

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Revenues

 

 

 

 

 

 

 

 

 

Rental of flight equipment

 

$

206,299

 

$

155,050

 

$

396,402

 

$

286,787

 

Interest and other

 

1,573

 

3,123

 

3,467

 

3,939

 

Total revenues

 

207,872

 

158,173

 

399,869

 

290,726

 

Expenses

 

 

 

 

 

 

 

 

 

Interest

 

43,468

 

34,146

 

83,698

 

56,060

 

Amortization of discounts and deferred debt issue costs

 

5,349

 

4,091

 

10,559

 

6,958

 

Interest expense

 

48,817

 

38,237

 

94,257

 

63,018

 

Depreciation of flight equipment

 

68,783

 

52,537

 

132,646

 

96,873

 

Selling, general and administrative

 

16,648

 

14,308

 

30,895

 

27,917

 

Stock-based compensation

 

7,313

 

9,207

 

14,088

 

17,424

 

Total expenses

 

141,561

 

114,289

 

271,886

 

205,232

 

Income before taxes

 

66,311

 

43,884

 

127,983

 

85,494

 

Income tax expense

 

(23,321

)

(15,712

)

(44,997

)

(30,395

)

Net income

 

$

42,990

 

$

28,172

 

$

82,986

 

$

55,099

 

 

 

 

 

 

 

 

 

 

 

Net income per share of Class A and B Common Stock

 

 

 

 

 

 

 

 

 

Basic

 

$

0.42

 

$

0.28

 

$

0.82

 

$

0.55

 

Diluted

 

$

0.41

 

$

0.28

 

$

0.79

 

$

0.54

 

 

 

 

 

 

 

 

 

 

 

Other Financial Data

 

 

 

 

 

 

 

 

 

Adjusted net income(1)

 

$

51,199

 

$

36,713

 

$

98,967

 

$

70,813

 

Adjusted EBITDA(2)

 

$

190,748

 

$

142,899

 

$

368,006

 

$

261,216

 

 


(1)         Adjusted net income (defined as net income before stock-based compensation expense and non-cash interest expense, which includes the amortization of discounts and debt issuance costs and extinguishment of debt) is a measure of both operating performance and liquidity that is not defined by GAAP and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted net income is presented as a supplemental disclosure because management believes that it may be a useful performance measure that is used within our industry. We believe adjusted net income provides useful information on our earnings from ongoing operations, our ability to service our long-term debt and other fixed obligations, and our ability to fund our expected growth with internally generated funds. Set forth below is additional detail as to how we use adjusted net income as a measure of both operating performance and liquidity, as well as a discussion of the limitations of adjusted net income as an analytical tool and a reconciliation of adjusted net income to our GAAP net income and cash flow from operating activities.

 

Operating Performance:  Management and our board of directors use adjusted net income in a number of ways to assess our consolidated financial and operating performance, and we believe this measure is helpful in identifying trends in our performance. We use adjusted net income as a measure of our consolidated operating performance exclusive of income and expenses that relate to the financing, income taxes, and capitalization of the business. Also, adjusted net income assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure and stock-based compensation expense from our operating results. In addition, adjusted net income helps management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance. Accordingly, we believe this metric measures our financial performance based on operational factors that we can influence in the short term, namely the cost structure and expenses of the organization.

 

Liquidity:  In addition to the uses described above, management and our board of directors use adjusted net income as an indicator of the amount of cash flow we have available to service our debt obligations, and we believe this measure can serve the same purpose for our investors.

 

20



Table of Contents

 

Limitations:  Adjusted net income has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are as follows:

 

· adjusted net income does not reflect (i) our cash expenditures or future requirements for capital expenditures or contractual commitments, or (ii) changes in or cash requirements for our working capital needs; and

 

·  our calculation of adjusted net income may differ from the adjusted net income or analogous calculations of other companies in our industry, limiting its usefulness as a comparative measure.

 

The following tables show the reconciliation of net income and cash flows from operating activities, the most directly comparable GAAP measures of performance and liquidity, to adjusted net income (in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Reconciliation of cash flows from operating activities to adjusted net income:

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

146,739

 

$

138,698

 

$

307,880

 

$

240,220

 

Depreciation of flight equipment

 

(68,783

)

(52,537

)

(132,646

)

(96,873

)

Stock-based compensation

 

(7,313

)

(9,207

)

(14,088

)

(17,424

)

Deferred taxes

 

(23,321

)

(15,712

)

(44,997

)

(30,391

)

Amortization of discounts and deferred debt issue costs

 

(5,349

)

(4,091

)

(10,559

)

(6,958

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Other assets

 

(1,815

)

729

 

(8,555

)

8,387

 

Accrued interest and other payables

 

5,585

 

(23,632

)

(5,462

)

(31,161

)

Rentals received in advance

 

(2,753

)

(6,076

)

(8,587

)

(10,701

)

Net income

 

42,990

 

28,172

 

82,986

 

55,099

 

Amortization of discounts and deferred debt issue costs

 

5,349

 

4,091

 

10,559

 

6,958

 

Stock-based compensation

 

7,313

 

9,207

 

14,088

 

17,424

 

Tax effect

 

(4,453

)

(4,757

)

(8,666

)

(8,668

)

Adjusted net income

 

$

51,199

 

$

36,713

 

$

98,967

 

$

70,813

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Reconciliation of net income to adjusted net income:

 

 

 

 

 

 

 

 

 

Net income

 

$

42,990

 

$

28,172

 

$

82,986

 

$

55,099

 

Amortization of discounts and deferred debt issue costs

 

5,349

 

4,091

 

10,559

 

6,958

 

Stock-based compensation

 

7,313

 

9,207

 

14,088

 

17,424

 

Tax effect

 

(4,453

)

(4,757

)

(8,666

)

(8,668

)

Adjusted net income

 

$

51,199

 

$

36,713

 

$

98,967

 

$

70,813

 

 


(2)         Adjusted EBITDA (defined as net income before net interest expense, stock-based compensation expense, income tax expense, and depreciation and amortization expense) is a measure of both operating performance and liquidity that is not defined by GAAP and should not be considered as an alternative to net income, income from operations or any other performance measures derived in accordance with GAAP. Adjusted EBITDA is presented as a supplemental disclosure because management believes that it may be a useful performance measure that is used within our industry. We believe adjusted EBITDA provides useful information on our earnings from ongoing operations, our ability to service our long-term debt and other fixed obligations, and our ability to fund our expected growth with internally generated funds. Set forth below is additional detail as to how we use adjusted EBITDA as a measure of both operating performance and liquidity, as well as a discussion of the limitations of adjusted EBITDA as an analytical tool and a reconciliation of adjusted EBITDA to our GAAP net income and cash flow from operating activities.

 

Operating Performance:  Management and our board of directors use adjusted EBITDA in a number of ways to assess our consolidated financial and operating performance, and we believe this measure is helpful in identifying trends in our performance.

 

21



Table of Contents

 

We use adjusted EBITDA as a measure of our consolidated operating performance exclusive of income and expenses that relate to the financing, income taxes, and capitalization of the business. Also, adjusted EBITDA assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure and stock-based compensation expense from our operating results. In addition, adjusted EBITDA helps management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance. Accordingly, we believe this metric measures our financial performance based on operational factors that we can influence in the short term, namely the cost structure and expenses of the organization.

 

Liquidity: In addition to the uses described above, management and our board of directors use adjusted EBITDA as an indicator of the amount of cash flow we have available to service our debt obligations, and we believe this measure can serve the same purpose for our investors.

 

Limitations:  Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are as follows:

 

· adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

· adjusted EBITDA does not reflect changes in or cash requirements for our working capital needs;

 

· adjusted EBITDA does not reflect interest expense or cash requirements necessary to service interest or principal payments on our debt; and

 

· other companies in our industry may calculate this measure differently from how we calculate this measure, limiting its usefulness as a comparative measure.

 

The following tables show the reconciliation of net income and cash flows from operating activities, the most directly comparable GAAP measures of performance and liquidity, to adjusted EBITDA (in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Reconciliation of cash flows from operating activities to adjusted EBITDA:

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

146,739

 

$

138,698

 

$

307,880

 

$

240,220

 

Depreciation of flight equipment

 

(68,783

)

(52,537

)

(132,646

)

(96,873

)

Stock-based compensation

 

(7,313

)

(9,207

)

(14,088

)

(17,424

)

Deferred taxes

 

(23,321

)

(15,712

)

(44,997

)

(30,391

)

Amortization of discounts and deferred debt issue costs

 

(5,349

)

(4,091

)

(10,559

)

(6,958

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Other assets

 

(1,815

)

729

 

(8,555

)

8,387

 

Accrued interest and other payables

 

5,585

 

(23,632

)

(5,462

)

(31,161

)

Rentals received in advance

 

(2,753

)

(6,076

)

(8,587

)

(10,701

)

Net income

 

42,990

 

28,172

 

82,986

 

55,099

 

Net interest expense

 

48,341

 

37,271

 

93,289

 

61,425

 

Income taxes

 

23,321

 

15,712

 

44,997

 

30,395

 

Depreciation

 

68,783

 

52,537

 

132,646

 

96,873

 

Stock-based compensation

 

7,313

 

9,207

 

14,088

 

17,424

 

Adjusted EBITDA

 

$

190,748

 

$

142,899

 

$

368,006

 

$

261,216

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(unaudited)

 

(unaudited)

 

Reconciliation of net income to adjusted EBITDA:

 

 

 

 

 

 

 

 

 

Net income

 

$

42,990

 

$

28,172

 

$

82,986

 

$

55,099

 

Net interest expense

 

48,341

 

37,271

 

93,289

 

61,425

 

Income taxes

 

23,321

 

15,712

 

44,997

 

30,395

 

Depreciation

 

68,783

 

52,537

 

132,646

 

96,873

 

Stock-based compensation

 

7,313

 

9,207

 

14,088

 

17,424

 

Adjusted EBITDA

 

$

190,748

 

$

142,899

 

$

368,006

 

$

261,216

 

 

22



Table of Contents

 

Three months ended June 30, 2013, compared to the three months ended June 30, 2012

 

Rental revenue

 

As of June 30, 2013, we had grown our fleet to 174 aircraft with a net book value of $7.0 billion and recorded $206.3 million in rental revenue for the three months then ended, which included overhaul revenue of $8.9 million. In the prior year, as of June 30, 2012, we acquired 137 aircraft with a net book value of $5.7 billion and recorded $155.1 million in rental revenue for the three months then ended, which included overhaul revenue of $6.8 million. The increase in rental revenue was attributable to the acquisition and lease of additional aircraft. The full impact on rental revenue for aircraft acquired during the period will be reflected in subsequent periods.

 

All of the aircraft in our fleet were leased as of June 30, 2013 and June 30, 2012.

 

Interest expense

 

Interest expense totaled $48.8 million for the three months ended June 30, 2013 compared to $38.2 million for the three months ended June 30, 2012. The change was primarily due to an increase in our average outstanding debt balances, partially offset by a decrease in our composite interest rate, resulting in a $9.3 million increase in interest and an increase of $1.3 million in amortization of discounts and deferred debt issue costs. We expect that our interest expense will increase as our average debt balance outstanding continues to increase.

 

Depreciation expense

 

We recorded $68.8 million in depreciation expense of flight equipment for the three months ended June 30, 2013 compared to $52.5 million for the three months ended June 30, 2012. The increase in depreciation expense for the three months ended June 30, 2013, compared to the three months ended June 30, 2012, is attributable to the acquisition of additional aircraft. The full impact on depreciation expense for aircraft added during the period will be reflected in subsequent periods.

 

Selling, general and administrative expenses

 

We recorded selling, general and administrative expenses of $16.6 million for the three months ended June 30, 2013 compared to $14.3 million for the three months ended June 30, 2012. Selling, general and administrative expense as a percentage of revenue decreased to 8.0% for the three months ended June 30, 2013 compared to 9.0% for the three months ended June 30, 2012. As we continue to add new aircraft to our portfolio, we expect over the long-term selling, general and administrative expense to decrease as a percentage of our revenue.

 

Stock-based compensation expense

 

Stock-based compensation expense totaled $7.3 million for the three months ended June 30, 2013 compared to $9.2 million for the three months ended June 30, 2012. This decrease is primarily a result of the effects of the expense recognition pattern related to our book-value RSUs, which is calculated based on a tranche by tranche vesting schedule. This decrease was partially offset by grants made in 2012 and 2013, as the full impact on stock-based compensation expense for the 2012 and 2013 grants will be reflected in subsequent periods. See Note 7 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information about stock-based compensation.

 

Taxes

 

The effective tax rate for the three months ended June 30, 2013 was 35.2% compared to 35.8% for the three months ended June 30, 2012. The change in effective tax rate for the respective periods is due to the effect of changes in permanent differences as well as the effect of discrete tax items related to stock-based compensation.

 

Net income

 

For the three months ended June 30, 2013, the Company reported consolidated net income of $43.0 million, or $0.41 per diluted share, compared to consolidated net income of $28.2 million, or $0.28 per diluted share, for the three months ended June 30, 2012. The increase in net income for 2013, compared to 2012, was primarily attributable to the acquisition and lease of additional aircraft.

 

23



Table of Contents

 

Six months ended June 30, 2013, compared to the six months ended June 30, 2012

 

Rental revenue

 

As of June 30, 2013, we had grown our fleet to 174 aircraft with a net book value of $7.0 billion and recorded $396.4 million in rental revenue for the six months then ended, which included overhaul revenue of $16.2 million. In the prior year, as of June 30, 2012, we acquired 137 aircraft with a net book value of $5.7 billion and recorded $286.8 million in rental revenue for the three months then ended, which included overhaul revenue of $10.3 million. The increase in rental revenue was attributable to the acquisition and lease of additional aircraft. The full impact on rental revenue for aircraft acquired during the period will be reflected in subsequent periods.

 

All of the aircraft in our fleet were leased as of June 30, 2013 and June 30, 2012.

 

Interest expense

 

Interest expense totaled $94.3 million for the six months ended June 30, 2013 compared to $63.0 million for the six months ended June 30, 2012. The change was primarily due to an increase in our average outstanding debt balances, partially offset by a decrease in our composite interest rate, resulting in a $27.7 million increase in interest and an increase of $3.6 million in amortization of discounts and deferred debt issue costs. We expect that our interest expense will increase as our average debt balance outstanding continues to increase.

 

Depreciation expense

 

We recorded $132.6 million in depreciation expense of flight equipment for the six months ended June 30, 2013 compared to $96.9 million for the six months ended June 30, 2012. The increase in depreciation expense for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, is attributable to the acquisition of additional aircraft. The full impact on depreciation expense for aircraft added during the period will be reflected in subsequent periods.

 

Selling, general and administrative expenses

 

We recorded selling, general and administrative expenses of $30.9 million for the six months ended June 30, 2013 compared to $27.9 million for the six months ended June 30, 2012. Selling, general and administrative expense as a percentage of revenue decreased to 7.7% for the six months ended June 30, 2013 compared to 9.6% for the six months ended June 30, 2012. As we continue to add new aircraft to our portfolio, we expect over the long-term selling, general and administrative expense to decrease as a percentage of our revenue.

 

Stock-based compensation expense

 

Stock-based compensation expense totaled $14.1 million for the six months ended June 30, 2013 compared to $17.4 million for the six months ended June 30, 2012. This decrease is primarily a result of the effects of the expense recognition pattern related to our book-value RSUs, which is calculated based on a tranche by tranche vesting schedule. This decrease was partially offset by grants made in 2012 and 2013, as the full impact on stock-based compensation expense for the 2012 and 2013 grants will be reflected in subsequent periods. See Note 7 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information about stock-based compensation.

 

Taxes

 

The effective tax rate for the six months ended June 30, 2013 was 35.2% compared to 35.6% for the six months ended June 30, 2012. The change in effective tax rate for the respective periods is due to the effect of changes in permanent differences as well as the effect of discrete tax items related to stock-based compensation.

 

Net income

 

For the six months ended June 30, 2013, the Company reported consolidated net income of $83.0 million, or $0.79 per diluted share, compared to consolidated net income of $55.1 million, or $0.54 per diluted share, for the six months ended June 30, 2012. The increase in net income for 2013, compared to 2012, was primarily attributable to the acquisition and lease of additional aircraft.

 

24



Table of Contents

 

Contractual Obligations

 

Our contractual obligations as of June 30, 2013 are as follows (in thousands):

 

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

Thereafter

 

Total

 

Long-term debt obligations (1)(2)

 

$

98,350

 

229,848

 

250,298

 

897,974

 

2,384,228

 

1,378,323

 

$

5,239,021

 

Interest payments on debt outstanding(3)

 

93,764

 

181,961

 

187,810

 

174,613

 

100,246

 

93,272

 

831,666

 

Purchase commitments

 

979,293

 

2,357,826

 

2,056,573

 

1,340,385

 

1,625,100

 

20,060,848

 

28,420,025

 

Operating leases

 

1,168

 

2,395

 

2,467

 

2,541

 

2,617

 

18,083

 

29,271

 

Total

 

$

1,172,575

 

2,772,030

 

2,497,148

 

2,415,513

 

4,112,191

 

21,550,526

 

$

34,519,983

 

 


(1)         As of June 30, 2013, the Company had $664.3 million of debt outstanding under the 2010 Warehouse Facility, as amended, for which the availability period expires in June 2015. The outstanding drawn balance at the end of the availability period may be converted at the Company’s option to an amortizing, four-year term loan and has been presented as such in the contractual obligations schedule above.

(2)         As of June 30, 2013, the Company had $950.0 million of debt outstanding under our unsecured revolving credit facilities. The outstanding drawn balances may be rolled until the maturity date of each respective facility and have been presented as such in the maturity schedule above.

(3)         Future interest payments on floating rate debt are estimated using floating rates in effect at June 30, 2013.

 

Off-Balance Sheet Arrangements

 

We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements.

 

Critical Accounting Policies

 

The Company’s critical accounting policies reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no changes to critical accounting policies in the three months ended June 30, 2013.

 

25



Table of Contents

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.

 

Interest Rate Risk

 

The nature of our business exposes us to market risk arising from changes in interest rates. Changes, both increases and decreases, in our cost of borrowing, as reflected in our composite interest rate, directly impact our net income. Our lease rental stream is generally fixed over the life of our leases, whereas we have used floating-rate debt to finance a significant portion of our aircraft acquisitions. As of June 30, 2013 and December 31, 2012, we had $2.4 billion and $2.0 billion in floating-rate debt, respectively. If interest rates increase, we would be obligated to make higher interest payments to our lenders. If we incur significant fixed-rate debt in the future, increased interest rates prevailing in the market at the time of the incurrence of such debt would also increase our interest expense. If the composite rate on our floating-rate debt were to increase by 1.0%, we would expect to incur additional interest expense on our existing indebtedness of approximately $24.0 million and $20.0 million as of June 30, 2013 and December 31, 2012, respectively, each on an annualized basis, which would put downward pressure on our operating margins. The increase in additional interest expense the Company would incur is primarily due to an increase in total floating-rate debt outstanding as of June 30, 2013 compared to December 31, 2012.

 

Foreign Exchange Rate Risk

 

The Company attempts to minimize currency and exchange risks by entering into aircraft purchase agreements and a majority of lease agreements and debt agreements with U.S. dollars as the designated payment currency. Thus, most of our revenue and expenses are denominated in U.S. dollars. As of June 30, 2013 and December 31, 2012, 1.5% and 2.5%, respectively, of our lease revenues were denominated in Euros. The decrease in lease revenues denominated in Euros is primarily due to the full impact on rental revenue of aircraft acquired in prior periods. As our principal currency is the U.S. dollar, weakness in the U.S. dollar as compared to other major currencies should not have a significant impact on our future operating results.

 

ITEM 4.   CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer (collectively, the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. Our management, including the Certifying Officers, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

We have evaluated, under the supervision and with the participation of management, including the Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of June 30, 2013. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at June 30, 2013.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

26



Table of Contents

 

PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.

 

On April 24, 2012, the Company was named as a defendant in a complaint filed in Superior Court of the State of California for the County of Los Angeles by American International Group, Inc. and ILFC. The complaint also names as defendants certain executive officers and employees of the Company. The complaint was amended on November 30, 2012, January 18, 2013 and July 16, 2013. In connection with these amendments, American International Group withdrew as a plaintiff, leaving ILFC as the sole remaining plaintiff. Among other things, the suit alleges breach of fiduciary duty, misappropriation of trade secrets, the wrongful recruitment of ILFC employees, and the wrongful diversion of potential ILFC leasing opportunities. The complaint seeks an unspecified amount of damages and injunctive relief. The Company believes that it has meritorious defenses to these claims and intends to defend this matter vigorously. The amount or range of loss, if any, is not estimable at this time.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those discussed under “Part I—Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ending December 31, 2012.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None

 

ITEM 5. OTHER INFORMATION

 

None

 

27



Table of Contents

 

Item 6.  Exhibits

 

4.2

 

Supplemental Indenture, dated June 26, 2013, by and between Air Lease Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 5.625% Senior Notes due 2017 (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2013)

 

 

 

4.3

 

Form of 5.625% Senior Note due 2017 (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2013)

 

 

 

10.1

 

Amended and Restated Credit Agreement, dated as of May 7, 2013, by and among Air Lease Corporation as borrower, JP Morgan Chase Bank, N.A. as administrative agent and several lenders from time to time parties thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2013)

 

 

 

10.2‡

 

Second Amendment to Employment Agreement, dated as of May 30, 2013, by and between Air Lease Corporation and Steven F. Udvar-Házy (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 31, 2013)

 

 

 

10.3‡

 

Second Amendment to Employment Agreement, dated as of May 30, 2013, by and between Air Lease Corporation and John L. Plueger (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 31, 2013)

 

 

 

10.4

 

Amended and Restated Warehouse Loan Agreement, dated as of June 21, 2013, among ALC Warehouse Borrower, LLC, as Borrower, the Lenders from time to time party hereto, and Credit Suisse AG, New York Branch, as Agent (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2013)

 

 

 

12.1

 

Computation of Ratio of Earnings to Fixed Charges

 

 

 

31.1

 

Certification of the Chairman and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Chairman and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of the Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase

 


*

Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.

Management contract or compensatory plan or arrangement.

 

28



Table of Contents

 

SIGNATURES

 

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.

 

 

 

AIR LEASE CORPORATION

 

 

 

August 8, 2013

 

/s/ Steven F. Udvar-Házy

 

 

Steven F. Udvar-Házy

 

 

Chairman and Chief Executive Officer

 

 

(Principle Executive Officer)

 

 

 

August 8, 2013

 

/s/ Gregory B. Willis

 

 

Gregory B. Willis

 

 

Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

 

29



Table of Contents

 

INDEX TO EXHIBITS

 

4.2

 

Supplemental Indenture, dated June 26, 2013, by and between Air Lease Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 5.625% Senior Notes due 2017 (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2013)

 

 

 

4.3

 

Form of 5.625% Senior Note due 2017 (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2013)

 

 

 

10.1

 

Amended and Restated Credit Agreement, dated as of May 7, 2013, by and among Air Lease Corporation as borrower, JP Morgan Chase Bank, N.A. as administrative agent and several lenders from time to time parties thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2013)

 

 

 

10.2‡

 

Second Amendment to Employment Agreement, dated as of May 30, 2013, by and between Air Lease Corporation and Steven F. Udvar-Házy (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 31, 2013)

 

 

 

10.3‡

 

Second Amendment to Employment Agreement, dated as of May 30, 2013, by and between Air Lease Corporation and John L. Plueger (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 31, 2013)

 

 

 

10.4

 

Amended and Restated Warehouse Loan Agreement, dated as of June 21, 2013, among ALC Warehouse Borrower, LLC, as Borrower, the Lenders from time to time party hereto, and Credit Suisse AG, New York Branch, as Agent (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2013)

 

 

 

12.1

 

Computation of Ratio of Earnings to Fixed Charges

 

 

 

31.1

 

Certification of the Chairman and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of the Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Chairman and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of the Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase

 


*

Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.

Management contract or compensatory plan or arrangement.

 

30