##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q/A
  QUARTERLY REPORT
 
 x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
  INTERNATIONAL LEASE FINANCE CORPORATION
  California
    
    22-3059110(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)10250 Constellation Blvd., Los Angeles, California
(Address of principal executive offices)
    
    90067
(Zip Code)
 (310) 788-1999
 x o
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EXPLANATORY NOTE
   RESTATEMENT
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q/A QUARTERLY REPORT
 
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial Statements (Unaudited and Restated)Condensed Consolidated Balance Sheets September 30, 2004 and December 31, 2003
    
    
    4Condensed Consolidated Statements of Income Three months Ended September 30, 2004 and 2003
    
    
    5Condensed Consolidated Statements of Income Nine months Ended September 30, 2004 and 2003
    
    
    5Condensed Consolidated Statements of Comprehensive Income Three Months Ended September 30, 2004 and 2003
    
    
    6Condensed Consolidated Statements of Comprehensive Income Nine Months Ended September 30, 2004 and 2003
    
    
    6Condensed Consolidated Statements of Cash Flows Nine months Ended September 30, 2004 and 2003
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    9Cautionary Statement Regarding Forward Looking Information
    
    
    13Item 2. Managements Discussion and Analysis of the Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27Part II. Other InformationItem 6. Exhibits
    
    
    30Signatures
    
    
    31EX-12EX-31.1EX-31.2EX-32.1
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
 Restated
    
    
    RestatedSeptember 30,
    
    
    December 31,2004
    
    
    2003(Unaudited)ASSETSCash, including interest bearing accounts
of $87,822 (2004) and $98,249 (2003)
    
    $
    88,300
    
    
    $
    102,241Notes receivable and net investment in finance leases
    
    
    488,937
    
    
    
    450,080Flight equipment under operating leases
    
    
    35,780,004
    
    
    
    33,379,645Less accumulated depreciation
    
    
    5,802,490
    
    
    
    5,188,95629,977,514
    
    
    
    28,190,689Deposits on flight equipment purchases
    
    
    1,285,907
    
    
    
    1,255,074Accrued interest, other receivables and other assets
    
    
    292,092
    
    
    
    281,483Derivative assets
    
    
    669,460
    
    
    
    746,013Investments
    
    
    48,100
    
    
    
    49,636Variable interest entities assets
    
    
    154,347
    
    
    
    164,481Deferred debt issue costs  less accumulated amortization of
$78,278 (2004) and $63,847 (2003)
    
    
    58,561
    
    
    
    51,865$
    33,063,218
    
    
    $
    31,291,562LIABILITIES AND SHAREHOLDERS EQUITYAccrued interest and other payables
    
    $
    383,598
    
    
    $
    243,989Current income taxes
    
    
    20,443
    
    
    
    17,967Debt financing, net of deferred debt discount of $28,207
(2004) and $24,321 (2003)
    
    
    22,978,812
    
    
    
    21,245,267Foreign currency translation adjustment related to foreign
currency denominated debt denominated debt
    
    
    696,127
    
    
    
    839,718Derivative liabilities
    
    
    23,840
    
    
    
    57,187Capital lease obligations
    
    
    63,684
    
    
    
    143,254Synthetic lease obligations
    
    
    
    
    
    
    464,222Security and other deposits on flight equipment
    
    
    899,770
    
    
    
    843,914Rentals received in advance
    
    
    158,509
    
    
    
    146,871Deferred income taxes
    
    
    2,537,081
    
    
    
    2,353,458Variable interest entities liabilities
    
    
    74,670
    
    
    
    79,211SHAREHOLDERS EQUITYMarket Auction Preferred Stock, $100,000 per share
liquidation value; Series A and B each having 500
shares issued and outstanding
    
    
    100,000
    
    
    
    100,000Common stockno par value; 100,000,000 authorized shares,
42,198,119 issued and outstanding
    
    
    653,582
    
    
    
    653,582Paid-in capital
    
    
    579,955
    
    
    
    579,955Accumulated other comprehensive loss
    
    
    (5,619
    )
    
    
    (27,928
    )Retained earnings
    
    
    3,898,766
    
    
    
    3,550,895Total shareholders equity
    
    
    5,226,684
    
    
    
    4,856,504$
    33,063,218
    
    
    $
    31,291,562
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Dollars in thousands)
 Restated
    
    
    Restated2004
    
    
    2003(Unaudited)REVENUESRental of flight equipment
    
    $
    761,621
    
    
    $
    719,690Flight equipment marketing
    
    
    7,016
    
    
    
    5,450Flight equipment marketing  securitization (Note D)
    
    
    
    
    
    
    23,898Interest and other
    
    
    37,790
    
    
    
    7,341806,427
    
    
    
    756,379EXPENSESInterest
    
    
    232,802
    
    
    
    221,496Depreciation of flight equipment
    
    
    311,188
    
    
    
    285,091Flight equipment rent
    
    
    
    
    
    
    10,324Provision for overhauls
    
    
    43,317
    
    
    
    31,671Selling, general and administrative
    
    
    31,124
    
    
    
    20,669618,431
    
    
    
    569,251INCOME BEFORE INCOME TAXES
    
    
    187,996
    
    
    
    187,128Provision for income taxes
    
    
    60,610
    
    
    
    58,628NET INCOME
    
    $
    127,386
    
    
    $
    128,500
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Dollars in thousands)
 Restated
    
    
    Restated2004
    
    
    2003(Unaudited)REVENUESRental of flight equipment
    
    $
    2,192,976
    
    
    $
    2,111,273Flight equipment marketing
    
    
    43,460
    
    
    
    9,095Flight equipment marketing  securitization (Note D)
    
    
    32,866
    
    
    
    23,898Interest and other
    
    
    79,544
    
    
    
    17,3842,348,846
    
    
    
    2,161,650EXPENSESInterest
    
    
    697,228
    
    
    
    671,131Depreciation of flight equipment
    
    
    898,084
    
    
    
    811,522Flight equipment rent
    
    
    
    
    
    
    37,108Provision for overhauls
    
    
    115,792
    
    
    
    86,284Selling, general and administrative
    
    
    86,385
    
    
    
    59,7081,797,489
    
    
    
    1,665,753INCOME BEFORE INCOME TAXES
    
    
    551,357
    
    
    
    495,897Provision for income taxes
    
    
    176,125
    
    
    
    160,316NET INCOME
    
    $
    375,232
    
    
    $
    335,581
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Dollars in thousands)
 Restated
    
    
    Restated2004
    
    
    2003(Unaudited)NET INCOME
    
    $
    127,386
    
    
    $
    128,500OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXNet changes in cash flow hedges
    
    
    (1,853
    )
    
    
    7,584COMPREHENSIVE INCOME
    
    $
    125,533
    
    
    $
    136,084
 INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Dollars in thousands)
 Restated
    
    
    Restated2004
    
    
    2003(Unaudited)NET INCOME
    
    $
    375,232
    
    
    $
    335,581OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXNet changes in cash flow hedges
    
    
    4,203
    
    
    
    47,886COMPREHENSIVE INCOME
    
    $
    379,435
    
    
    $
    383,467
 s
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Dollars in thousands)
 Restated
    
    
    Restated2004
    
    
    2003(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    375,232
    
    
    $
    335,581Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation of flight equipment
    
    
    898,084
    
    
    
    811,522Deferred income taxes
    
    
    171,610
    
    
    
    222,004Change in derivative instruments
    
    
    (61,043
    )
    
    
    (59,639
    )Foreign currency adjustment of non-US$ denominated debt
    
    
    (5,024
    )
    
    
    43,173Amortization of deferred debt issue costs
    
    
    19,974
    
    
    
    23,033Other
    
    
    (8,265
    )
    
    
    (1,521
    )Changes in operating assets and liabilities:Increase in notes receivable
    
    
    (17,146
    )
    
    
    (11,519
    )Change in unamortized debt discount
    
    
    (3,886
    )
    
    
    6,153Decrease in receivables and other assets
    
    
    162,334
    
    
    
    75,121Increase in current income taxes payable
    
    
    2,476
    
    
    
    128,470Increase in accrued interest and other payables
    
    
    135,069
    
    
    
    121,373Increase in rentals received in advance
    
    
    11,638
    
    
    
    12,426Net cash provided by operating activities
    
    
    1,681,053
    
    
    
    1,706,177INVESTING ACTIVITIESAcquisition of flight equipment for operating leases
    
    
    (3,941,495
    )
    
    
    (4,223,607
    )Acquisition of flight equipment for finance leases
    
    
    (43,247
    )
    
    
    (165,202
    )Increase in deposits and progress payments
    
    
    (30,833
    )
    
    
    (29,788
    )Proceeds from disposal of flight equipment  net of gain
    
    
    1,127,629
    
    
    
    773,431Advances on notes receivable
    
    
    (52,000
    )
    
    
    (30,198
    )Collections on notes receivable and finance leases
    
    
    47,286
    
    
    
    38,852Other
    
    
    891
    
    
    
    1,139Net cash used in investing activities
    
    
    (2,891,769
    )
    
    
    (3,635,373
    )FINANCING ACTIVITIESNet change in commercial paper
    
    
    894,085
    
    
    
    (2,718,408
    )Proceeds from debt financing
    
    
    3,915,986
    
    
    
    7,544,107Payments in reduction of debt financing, capital lease obligations and
synthetic lease obligations
    
    
    (3,616,431
    )
    
    
    (2,693,223
    )Debt issue costs
    
    
    (26,670
    )
    
    
    (37,314
    )Increase (decrease) in customer deposits
    
    
    55,856
    
    
    
    (28,925
    )Payment of common and preferred dividends
    
    
    (27,361
    )
    
    
    (42,925
    )Net cash provided by financing activities
    
    
    1,195,465
    
    
    
    2,023,312Effect of exchange rate changes on cash
    
    
    1,310
    
    
    
    1,348(Decrease) increase in cash
    
    
    (13,941
    )
    
    
    95,464Cash at beginning of period
    
    
    102,241
    
    
    
    71,695Cash at end of period
    
    $
    88,300
    
    
    $
    167,159
 (Table continued on following page)
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Dollars in thousands)
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 Restated
    
    
    Restated2004
    
    
    2003(Unaudited)Cash paid (received) during the period for:Interest (net of amount capitalized of
$35,282 (2004) and $36,159 (2003))
    
    $
    605,333
    
    
    $
    570,686Income taxes, net
    
    
    2,039
    
    
    
    (190,159
    )
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
 A.
    
    Basis of Preparation
 S-X.
 B.
    
    Restatement
  Derivative Instruments
 Accounting for Derivative Instruments and Hedging Activities
 
    
    Documentation deficiencies related to portions of Euro denominated debt that ILFC had
designated as a hedge against future operating lease payments receivable denominated in
Euros. The review revealed that the documentation related to these hedges was
insufficient to meet the documentation criteria under SFAS 133 and it was concluded that
ILFC could not apply hedge accounting to the transactions. The economics of the
transactions are not affected.
    
    Certain Euro denominated cash accounts associated with the aforementioned operating
lease payments and certain foreign currency denominated debt required mark-to-spot
treatment under Statement of Financial Accounting Standards No. 52, Foreign Currency
Translation, which were not properly accounted for at the end of each quarter during the
years 2004, 2003, 2002 and 2001.
    
    Documentation deficiencies related to four commercial paper swaps where portions of
ILFCs commercial paper program were swapped from floating into fixed interest rates.
The review revealed that the documentation related to these hedges was insufficient to
meet the documentation criteria under SFAS 133 and it was concluded that ILFC could not
apply hedge accounting to the transactions. The economics of the transactions are not
affected.
    
    Minor errors under SFAS 133 with respect to derivative instruments related to the
reclassification to income from Accumulated other comprehensive income. The corrections
will also affect derivative assets and liabilities and accrued interest.
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2004
(Unaudited)
 Though the economics of the hedge transactions are not affected, the corrections will
significantly increase inter-period volatility due to the non-qualification of hedge accounting
treatment under SFAS 133. Thus, the effect on Net income, Retained earnings and Shareholders
equity will differ from period to period.Certain Payments from Aircraft and Engine ManufacturersIn the course of ILFCs review of its application of SFAS 133, ILFC identified an error in
its accounting for certain payments received from aircraft and engine manufacturers. Under
arrangements with these manufacturers, in certain circumstances the manufacturers established
notional accounts for the benefit of ILFC, to which amounts were credited by the manufacturers
in connection with the purchase by and delivery to ILFC and the lease of aircraft. Amounts
credited to the notional accounts were used at ILFCs direction to protect ILFC from certain
events including loss when airline customers of ILFC defaulted on lease payment obligations, to
provide lease subsidies and other incentives to ILFC airline customers in connection with
leases of certain aircraft and to reduce ILFCs cost of aircraft purchased.Historically, ILFC recorded as revenues gross lease receipts from customers who had
received lease subsidies from the notional accounts and amounts paid directly to ILFC from the
notional accounts in connection with lessee defaults. Amounts recorded as revenue at the time
they were disbursed to ILFC or its lessees should have been recorded as a reduction of the
purchase price of the aircraft at the time of delivery.The following table presents the consolidated balance sheet accounts as reported, compared
to the restated accounts:
 September 30, 2004
    
    December 31, 2003As
    
    As
    
    As
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedConsolidated balance sheets:Cash
    
    $
    85,534
    
    
    $
    88,300
    
    
    $
    90,780
    
    
    $
    102,241Flight equipment under operating leases
    
    
    36,529,818
    
    
    
    35,780,004
    
    
    
    34,034,724
    
    
    
    33,379,645Accumulated depreciation
    
    
    (6,016,356
    )
    
    
    (5,802,490
    )
    
    
    (5,370,706
    )
    
    
    (5,188,956
    )Accrued interest and other assets
    
    
    231,803
    
    
    
    292,092
    
    
    
    233,125
    
    
    
    281,483Derivative assets
    
    
    669,779
    
    
    
    669,460Total assets
    
    
    33,536,430
    
    
    
    33,063,218
    
    
    
    31,705,072
    
    
    
    31,291,562Current income taxes payable
    
    
    7,442
    
    
    
    20,443
    
    
    
    5,038
    
    
    
    17,967Foreign currency adjustment
    
    
    696,127
    
    
    
    696,127
    
    
    
    697,435
    
    
    
    839,718Deferred income taxes
    
    
    2,717,120
    
    
    
    2,537,081
    
    
    
    2,562,568
    
    
    
    2,353,458Accumulated other comprehensive income
(loss)
    
    
    (45,702
    )
    
    
    (5,619
    )
    
    
    5,442
    
    
    
    (27,928
    )Retained earnings
    
    
    4,245,023
    
    
    
    3,898,766
    
    
    
    3,877,137
    
    
    
    3,550,895Total shareholders equity
    
    
    5,532,858
    
    
    
    5,226,684
    
    
    
    5,216,116
    
    
    
    4,856,504
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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2004
(Unaudited)
  Three Months Ended
    
    Three Months EndedSeptember 30, 2004
    
    September 30, 2003As
    
    As
    
    As
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedConsolidated statements of income:Rental of flight equipment
    
    $
    795,123
    
    
    $
    761,621
    
    
    $
    753,551
    
    
    $
    791,690Flight equipment marketing
    
    
    7,481
    
    
    
    7,016
    
    
    
    33,437
    
    
    
    29,348Interest and other
    
    
    39,062
    
    
    
    37,790
    
    
    
    9,167
    
    
    
    7,341Total revenues
    
    
    841,666
    
    
    
    806,427
    
    
    
    796,155
    
    
    
    756,379Interest expense
    
    
    242,444
    
    
    
    232,802
    
    
    
    233,041
    
    
    
    221,496Depreciation
    
    
    322,504
    
    
    
    311,188
    
    
    
    295,591
    
    
    
    285,091Selling, general and
administrative
    
    
    26,412
    
    
    
    31,124
    
    
    
    21,032
    
    
    
    20,669Total expenses
    
    
    634,677
    
    
    
    618,431
    
    
    
    591,659
    
    
    
    569,251Income before income taxes
    
    
    206,989
    
    
    
    187,996
    
    
    
    204,496
    
    
    
    187,128Provision for income taxes
    
    
    67,321
    
    
    
    60,610
    
    
    
    64,765
    
    
    
    58,628Net income (a)
    
    
    139,668
    
    
    
    127,386
    
    
    
    139,731
    
    
    
    128,500
 Nine Months Ended
    
    Nine Months EndedSeptember 30, 2004
    
    September 30, 2003As
    
    As
    
    As
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedConsolidated statements of income:Rental of flight equipment
    
    $
    2,284,581
    
    
    $
    2,192,976
    
    
    $
    2,196,991
    
    
    $
    2,111,273Flight equipment marketing
    
    
    43,739
    
    
    
    43,460
    
    
    
    29,825
    
    
    
    9,095Flight equipment marketing 
securitization
    
    
    25,307
    
    
    
    32,866
    
    
    
    18,519
    
    
    
    23,898Interest and other
    
    
    78,357
    
    
    
    79,544
    
    
    
    37,573
    
    
    
    17,384Total revenues
    
    
    2,431,984
    
    
    
    2,348,846
    
    
    
    2,282,908
    
    
    
    2,161,650Interest expense
    
    
    719,846
    
    
    
    697,228
    
    
    
    689,141
    
    
    
    671,131Depreciation
    
    
    931,513
    
    
    
    898,084
    
    
    
    841,831
    
    
    
    811,522Selling, general and
administrative
    
    
    82,525
    
    
    
    86,385
    
    
    
    60,893
    
    
    
    59,708Total expenses
    
    
    1,849,676
    
    
    
    1,797,489
    
    
    
    1,715,257
    
    
    
    1,665,753Income before income taxes
    
    
    582,308
    
    
    
    551,357
    
    
    
    567,651
    
    
    
    495,897Provision for income taxes
    
    
    187,062
    
    
    
    176,125
    
    
    
    185,671
    
    
    
    160,316Net income (a)
    
    
    395,246
    
    
    
    375,232
    
    
    
    381,980
    
    
    
    335,581
 
 (a)
    
    The increase (decrease) in net income for the quarters ended September 30, 2004
and 2003 as a result of the restatement for the derivative instruments was $2,316 and
$6,400, respectively, and for the manufacturers payments was $(14,598) and $(17,631),
respectively. The increase (decrease) in net income for the nine months ended September
30, 2004 and 2003 as a result of the restatement for the derivative instruments was
$12,765 and $(938), respectively, and for the manufacturers payments was $(32,779) and
$(45,462), respectively. -11-




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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2004
(Unaudited)
 C.
    
    Hedging Activities (Restated)
  (Dollars in thousands)(Income) loss related to derivative instruments:Changes in fair value of non-hedging instruments
    
    $
    (6,651
    )Ineffectiveness related to cash flow hedges
    
    
    50$
    (6,601
    )
   D.
    
    Flight Equipment Marketing  Securitization (Restated)
 Flight Equipment Marketing  Securitization
 E.
    
    Subsequent Event
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 Forward-Looking Statements
  -13-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
  Restatement
 Managements Discussion and Analysis  Non-GAAP
Financial Measures
 Risk Factors Affecting International Lease Finance Corporation
 Quantitative and Qualitative Disclosures about Market Risk.
  -14-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  
    
    Overall Airline Industry Risk
 Ø
    
    Demand for air travelØ
    
    Competition between carriersØ
    
    Fuel prices and availabilityØ
    
    Labor costs and stoppagesØ
    
    Maintenance costsØ
    
    Employee labor contractsØ
    
    Air traffic control infrastructure constraints
 Ø
    
    Insurance costsØ
    
    Security, terrorism and warØ
    
    Health concernsØ
    
    Equity and borrowing capacityØ
    
    Environmental concernsØ
    
    Government regulationØ
    
    Interest rates
   
    
    Manufacturer Risk
    
    Borrowing Risks
 Ø
    
    LiquidityØ
    
    Interest Rate
 
    
    Other Risks
 Ø
    
    Residual ValueØ
    
    ObsolescenceØ
    
    Key Personnel
 Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations
 Critical Accounting Policies and Estimates
   
    
    Lease Revenue
    
    Flight Equipment Marketing
    
    Flight Equipment
    
    Capitalized Interest
    
    Provision for Overhauls
 Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Financial Condition
  September 30,
    
    
    December 31,2004
    
    
    2003(Dollars in thousands)Public term debt with single maturities
    
    $
    11,794,574
    
    
    $
    10,663,275Public medium-term notes with varying maturities
    
    
    5,746,530
    
    
    
    5,960,236Capital lease obligations
    
    
    63,684
    
    
    
    143,254Synthetic lease obligations
    
    
    
    
    
    
    464,222Bank and other term debt
    
    
    2,995,873
    
    
    
    3,070,120Total term debt, bank debt, and capital lease obligations
    
    
    20,600,661
    
    
    
    20,301,107Commercial paper
    
    
    2,470,042
    
    
    
    1,575,957Deferred debt discount
    
    
    (28,207
    )
    
    
    (24,321
    )Total debt financing and capital lease obligations
    
    $
    23,042,496
    
    
    $
    21,852,743Selected interest rates and ratio:Composite interest rate
    
    
    4.20
    %
    
    
    4.53
    %Percentage of total debt at fixed rates
    
    
    67.50
    %
    
    
    77.07
    %Composite interest rate on fixed rate debt
    
    
    5.08
    %
    
    
    5.29
    %Bank prime rate
    
    
    4.75
    %
    
    
    4.00
    %
  -16-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Public Debt ( Exclusive of the Commercial Paper Program )
  Maximum
    
    Sold as of
    
    Sold as of
    
    Sold as ofOffering
    
    December 31, 2003
    
    September 30, 2004
    
    October 22, 2004(Dollars in millions)Registration
statement
dated
December 20,
2002
(including
$2.88
billion
Medium-Term
Note Program
and $1.0
billion
Retail
Medium-Term
Note
Program)
    
    $
    6,080
    (a)
    
    $
    5,437
    
    
    $
    5,567
    
    
    $
    5,575Registration
statement
dated July
1, 2003
(including
$1.5 billion
Medium Term
Note Program
(b))
    
    
    5,000
    
    
    
    650
    
    
    
    2,655
    
    
    
    2,955Euro
Medium-Term
Note
Programme
dated
May 2004
(c)(d)
    
    
    7,000
    
    
    
    3,393
    
    
    
    4,475
    
    
    
    4,475
 
 (a)
    
    Includes $1.08 billion, which was incorporated into the registration statement from
a prior registration statement, increasing the maximum offering from $5.0 billion to
$6.08 billion.(b)
    
    As of October 18, 2004, the Medium-Term Note Program was increased to $2.0 billion.(c)
    
    The foreign currency risk of the notes is hedged through swaps or operating lease
payments denominated in Euros.(d)
    
    This is a perpetual program. As a bond issue matures, the amount becomes available
again under the program. Capital Lease Obligations
  Synthetic Lease Obligations
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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Bank Term Debt
     Commercial Paper
 Bank Commitments
 Bank Commitments
   -18-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Other Variable Interest Entities
    Derivatives
  Restatement
  Note B  Restatement
  -19-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Market Liquidity Risk
    Existing Commitments (Exclusive of Interest)
 Commitments Due by Fiscal YearTotal
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter(Dollars in thousands)Public and Bank
Term Debt
    
    $
    20,536,978
    
    
    $
    642,217
    
    
    $
    3,562,144
    
    
    $
    3,671,935
    
    
    $
    3,553,738
    
    
    $
    3,750,998
    
    
    $
    5,355,946Capital Lease
Obligations
    
    
    63,684
    
    
    
    24,104
    
    
    
    39,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial Paper
    
    
    2,470,042
    
    
    
    2,470,042
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    108,803
    
    
    
    2,052
    
    
    
    8,225
    
    
    
    8,553
    
    
    
    8,895
    
    
    
    9,251
    
    
    
    71,827Purchase
Commitments (b)
    
    
    22,491,600
    
    
    
    1,169,400
    
    
    
    5,713,200
    
    
    
    5,026,800
    
    
    
    4,379,100
    
    
    
    3,789,400
    
    
    
    2,413,700Total
    
    $
    45,671,107
    
    
    $
    4,307,815
    
    
    $
    9,323,149
    
    
    $
    8,707,288
    
    
    $
    7,941,733
    
    
    $
    7,549,649
    
    
    $
    7,841,473
 -20-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Contingent Commitments
 Contingency Expiration by Fiscal YearTotal
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter(Dollars in thousands)Purchase Options on New Aircraft (b)
    
    $
    650,100
    
    
    $
    
    
    
    $
    
    
    
    $
    228,000
    
    
    $
    275,500
    
    
    $
    146,600
    
    
    $
    Put Options (a)
    
    
    741,251
    
    
    
    
    
    
    
    302,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    438,495Asset Value Guarantees (a)
    
    
    88,040
    
    
    
    500
    
    
    
    5,226
    
    
    
    11,247
    
    
    
    17,831
    
    
    
    10,492
    
    
    
    42,744Loan Guarantees (a)
    
    
    146,429
    
    
    
    
    
    
    
    18,914
    
    
    
    79,274
    
    
    
    
    
    
    
    
    
    
    
    48,241Lines of Credit
    
    
    65,000
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Total
    
    $
    1,690,820
    
    
    $
    500
    
    
    $
    341,896
    
    
    $
    318,521
    
    
    $
    293,331
    
    
    $
    157,092
    
    
    $
    579,480
 
 (a)
    
    From time to time, we participate with airlines, banks and other financial
institutions to assist in financing aircraft by providing asset guarantees, put options,
or loan guarantees collateralized by aircraft. As a result, should we be called upon to
fulfill our obligations, we would have recourse to the value of the underlying aircraft.(b)
    
    The recorded basis of aircraft may be adjusted to reflect notional credits given by
the manufacturers in connection with the leasing of aircraft. Industry Condition
    -21-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
   Non-GAAP Financial Measures
 Lease Margin
 Other Variable Interest Entities
  Nine Months Ended
    
    
    Three Months EndedSeptember 30
    
    
    September 30Restated
    
    
    Restated
    
    
    Restated
    
    
    Restated2004
    
    
    2003
    
    
    2004
    
    
    2003(Dollars in millions)Total revenues(A)
    
    $
    2,348.8
    
    
    $
    2,161.7
    
    
    $
    806.4
    
    
    $
    756.4Flight equipment
marketing,
including
securitization
    
    
    (76.3
    )
    
    
    (33.0
    )
    
    
    (7.0
    )
    
    
    (29.4
    )Interest and
other
    
    
    (79.5
    )
    
    
    (17.4
    )
    
    
    (37.8
    )
    
    
    (7.3
    )Rental of flight
equipment (B)
    
    
    2,193.0
    
    
    
    2,111.3
    
    
    
    761.6
    
    
    
    719.7Total expenses (C)
    
    
    1,797.5
    
    
    
    1,665.8
    
    
    
    618.4
    
    
    
    569.3VIE expenses
    
    
    (15.7
    )
    
    
    
    
    
    
    (5.0
    )
    
    
    Adjusted total
expenses (D)
    
    
    1,781.8
    
    
    
    1,665.8
    
    
    
    613.4
    
    
    
    569.3Profit margin (A) 
(C) = (E)
    
    $
    551.3
    
    
    $
    495.9
    
    
    $
    188.0
    
    
    $
    187.1Lease margin (B) 
(D) = (F)
    
    $
    411.2
    
    
    $
    445.5
    
    
    $
    148.2
    
    
    $
    150.4Profit margin % (E)
divided by (A)
    
    
    23.5
    %
    
    
    22.9
    %
    
    
    23.3
    %
    
    
    24.7
    %Lease margin % (F)
divided by (B)
    
    
    18.8
    %
    
    
    21.1
    %
    
    
    19.5
    %
    
    
    20.9
    %
 -22-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Results of Operations
  Industry Conditions
    2004
    
    2003
    
    DecreaseBeginning of Quarter
    
    
    4.15
    %
    
    
    4.50
    %
    
    
    0.35
    %End of Quarter
    
    
    4.20
    %
    
    
    4.63
    %
    
    
    0.43
    %Average
    
    
    4.18
    %
    
    
    4.57
    %
    
    
    0.39
    %
   Financial Condition: Synthetic Lease Obligations
    -23-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 Results of Operations
  Industry Conditions
  Notes
to Condensed Consolidated Financial Statements Flight Equipment Marketing  Securitization
   2004
    
    2003
    
    DecreaseBeginning of Nine Months
    
    
    4.53
    %
    
    
    4.73
    %
    
    
    0.20
    %End of Nine Months
    
    
    4.20
    %
    
    
    4.63
    %
    
    
    0.43
    %Average
    
    
    4.37
    %
    
    
    4.68
    %
    
    
    0.31
    %
   Financial Condition: Synthetic Lease Obligations
  -24-




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
   -25-




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Value at Risk
     ILFC Market Risk
 Nine Months Ended
    
    Year EndedSeptember 30, 2004
    
    December 31, 2003(Dollars in millions)Average
    
    High
    
    Low
    
    Average
    
    High
    
    LowCombined
    
    $
    52.4
    
    
    $
    86.3
    
    
    $
    7.8
    
    
    $
    37.7
    
    
    $
    78.1
    
    
    $
    7.8Interest Rate
    
    
    52.5
    
    
    
    86.4
    
    
    
    7.9
    
    
    
    37.8
    
    
    
    78.1
    
    
    
    7.8Currency
    
    
    0.5
    
    
    
    1.3
    
    
    
    0.2
    
    
    
    0.8
    
    
    
    1.3
    
    
    
    0.2
 -26-




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
 (A)
    
    RestatementDerivative InstrumentsILFC enters into derivative instruments to hedge interest rates and foreign currency
risks. As part of the previously announced restatement of the financial statements of
AIG, ILFCs indirect parent corporation, AIG began an intensive review of the books and
records relating to a wide variety of transactions entered into by AIG and its
subsidiaries. During the review of all hedge transactions, after ILFC had filed its
2004 Form 10-K and first quarter 2005 Form 10-Q, deficiencies were identified related to
ILFCs documentation of hedge transactions and errors were identified in the application
of the proper accounting for derivative related transactions under Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended (SFAS 133) and No. 52, Foreign Currency Translation
(SFAS 52). The review identified:
 
    
    Documentation deficiencies related to portions of Euro denominated debt that
ILFC had designated as a hedge against future operating lease payments
receivable denominated in Euros. The review revealed that the documentation
related to these hedges was insufficient to meet the documentation criteria
under SFAS 133 and it was concluded that ILFC could not apply hedge accounting
to the transactions. The economics of the transactions are not affected.
    
    Certain Euro denominated cash accounts associated with the aforementioned
operating lease payments and certain foreign currency denominated debt required
mark-to-spot treatment under SFAS 52, which were not properly accounted for at
the end of each quarter during the years 2004, 2003, 2002 and 2001.
    
    Documentation deficiencies related to four commercial paper swaps where
portions of ILFCs commercial paper program were swapped from floating into
fixed interest rates. The review revealed that the documentation related to
these hedges was insufficient to meet the documentation criteria under SFAS 133
and it was concluded that ILFC could not apply hedge accounting to the
transactions. The economics of the transactions are not affected.
    
    Minor errors under SFAS 133 with respect to derivative instruments related
to the reclassification to income from Accumulated other comprehensive income.
The corrections will also affect derivative assets and liabilities and accrued
interest.
 Certain Payments from Aircraft and Engine from ManufacturersIn the course of ILFCs review of its application of SFAS 133, ILFC identified an error
in its accounting for certain payments received from aircraft and engine manufacturers.
Under arrangements with these manufacturers, in certain circumstances the manufacturers
established notional accounts for the benefit of ILFC, to which amounts were credited by
the manufacturers in connection with the purchase by and delivery to ILFC and the lease
of aircraft. Amounts credited to the notional accounts were used at ILFCs direction to
protect ILFC from certain events including loss when airline customers of ILFC defaulted
on lease payment obligations, to provide lease subsidies and other incentives to ILFC
airline customers in connection with leases of certain aircraft and to reduce ILFCs
cost of aircraft purchased.Historically, ILFC recorded as revenues gross lease receipts from customers who had
received lease subsidies from the notional accounts and amounts paid directly to ILFC
from the notional accounts in connection with lessee defaults. Amounts recorded as
revenue at the time they were disbursed to ILFC or its lessees should have been recorded
as a reduction of the purchase price of the aircraft at the time of delivery.
 -27-




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
(CONTINUED)
 (B)
    
    Evaluation of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in its filings under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the periods specified
in the rules and forms of the Securities and Exchange Commission. Such information is
accumulated and communicated to management of the Company, including the Chairman of the
Board and Chief Executive Officer and the Vice Chairman, Chief Financial Officer and
Chief Accounting Officer (collectively the Certifying Officers), as appropriate, to
allow timely decisions regarding required disclosure. The management of the Company,
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.Under the direction of our Chief Executive Officer and Chief Financial Officer, we
evaluated our disclosure controls procedures and have concluded that our disclosure
controls and procedures were ineffective at the reasonable assurance level as of
September 30, 2004 and for the periods covered by the restatement due to the existence
of the material weaknesses described below. A material weakness is a control deficiency,
or combination of control deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be
prevented or detected. We identified the following material weaknesses in our internal
control over financial reporting:
 
    
    The Company did not maintain effective controls over the valuation and
presentation and disclosure of derivative transactions entered into prior to
the existence of SFAS 133. Specifically, we did not maintain adequate
documentation regarding the effectiveness of certain derivative transactions
used to hedge interest rate and foreign currency exchange rate risk. This
control deficiency resulted in the restatement of our consolidated financial
statements for the years 2004, 2003, 2002, 2001 and 2000 and the quarters of
2004 and 2003, as well as the quarter ended March 31, 2005. Additionally, this
control deficiency could result in a misstatement to the financial statement
line items (Derivative assets, Derivative liabilities, Accumulated other
comprehensive income and Interest expense) that would cause a material
misstatement to the annual or interim financial statements. Accordingly,
management concluded this control deficiency constitutes a material weakness.
 
    
    The Company did not maintain effective controls over the valuation and
presentation and disclosure of certain payments received from manufacturers.
This control deficiency resulted in the restatement of our consolidated
financial statements for the years 2004, 2003, 2002, 2001 and 2000 and the
quarters of 2004 and 2003, as well as the quarter ended March 31, 2005.
Additionally, this control deficiency could result in a misstatement to the
revenue accounts that would cause a material misstatement to the annual or
interim financial statements. Accordingly, management concluded this control
deficiency constitutes a material weakness.
 As a result of these material weaknesses, management, including the Certifying Officers,
concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level as of September 30, 2004.Variable Interest EntitiesThe Companys consolidated financial statements for the period ended September 30, 2004,
include assets in the amount of $154.3 million, liabilities in the amount of $74.7
million and a net loss of $3.7 million related to Variable Interest Entities (VIEs).
The Companys assessment of disclosure controls and procedures, as described above,
includes the VIEs. Each of the VIEs has a discrete number of assets and the Company, as
lender and guarantor to the VIEs, has been provided sufficient information to conclude
that the Companys procedures with respect to these VIEs are effective in providing
reasonable assurance that the information required to be disclosed by the Company
relating to these entities is reconciled, processed, summarized and reported within the
periods specified by the Securities and Exchange Commission. However, management has
been unable to assess the
 -28-




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
(CONTINUED)
 effectiveness of internal control over financial reporting at those entities, due to the
Companys inability to dictate or modify the controls of those entities, or to assess
those controls.
 (C)
    
    Changes in Internal Control Over Financial ReportingThere were no changes during the fiscal quarter ended on September 30, 2004, that
materially effected, or are reasonably likely to materially effect, our internal control
over financial reporting.
 (D)
    
    Remediation of Material Weaknesses in Internal Control Over Financial ReportingAs of the date of this filing, we have begun to remediate the material weaknesses in our
internal control over financial reporting with respect to accounting for derivative
instruments and the accounting for certain payments from engines manufacturers discussed
above. The remediation actions include:
 
    
    Improving training, education, accounting reviews and adding additional
staff as necessary, all designed to ensure that all relevant personnel involved
in derivatives transactions understand and apply hedge accounting in compliance
with SFAS 133.
 
    
    Improving training, education, accounting reviews and adding additional
staff as necessary, all designed to ensure that all relevant personnel involved
in the purchase of aircraft from the manufacturers understand the appropriate
accounting treatment for the funds received from the manufacturers, for the
related purchase of aircraft and engines and the subsequent lease of the
manufacturers aircraft.
 We will describe additional remediation efforts in our future filings.The process and control improvements described above in this Item 4 are the only changes
in our internal control over financial reporting during the period covered by this
report that would have a material effect, our internal control over financial reporting.
We will continue to assess our controls and procedures and will take any further actions
that we deem necessary.We believe that our Consolidated Financial Statements fairly present, in all material
respects, our financial condition, results of operations and cash flows as of, and for,
the periods presented and that this Quarterly Report on Form 10-Q, as amended, contains
no material inaccuracies or omissions of material fact and contains the information
required to be included in accordance with the Exchange Act.
 -29-




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##### Table of Contents



PART II. OTHER INFORMATION
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 6.
    
    EXHIBITS AND REPORTS ON FORM 8-K
 a)
    
    Exhibits
 3.1
    
    
    Restated Articles of Incorporation of the Company, as
amended through December 9, 1992, filed November 3, 1993 (filed as an
exhibit to Registration Statement No. 33-50913 and incorporated herein by
reference).3.2
    
    
    Certificate of Determination of Preferences of
Series A Market Auction Preferred Stock (filed December 9, 1992 as an
exhibit to Registration Statement No. 33-54294 and incorporated herein by
reference).3.3
    
    
    Certificate of Determination of Preferences of
Series B Market Auction Preferred Stock (filed December 9, 1992 as an
exhibit to Registration Statement 33-54294 and incorporated herein by
reference).3.4
    
    
    Certificate of Determination of Preferences of
Series C Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.5
    
    
    Certificate of Determination of Preferences of
Series D Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.6
    
    
    Certificate of Determination of Preferences of
Series E Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.7
    
    
    Certificate of Determination of Preferences of
Series F Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference).3.8
    
    
    Certificate of Determination of Preferences of
Series G Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).3.9
    
    
    Certificate of Determination of Preferences of
Series H Market Auction Preferred Stock (filed as an exhibit to Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).3.10
    
    
    Certificate of Determination of Preferences of
Preferred Stock of the Company (filed as an exhibit to Form 10-K for the
year ended December 31, 2001 and incorporated herein by reference).3.11
    
    
    By-Laws of the Company, including amendment thereto
dated August 31, 1990 (filed as an exhibit to Form 10-K for the year
ended December 31, 2003 and incorporated herein by reference).3.12
    
    
    Unanimous Written Consent of Sole Stockholder of
the Company, dated January 2, 2002, amending the Bylaws of the Company
(filed as an exhibit to Form 10-Q for the quarter ended June 30, 2003 and
incorporated herein by reference).12.
    
    
    Computation of Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends31.1
    
    
    Certification of Chairman of the Board and Chief
Executive Officer31.2
    
    
    Certification of Vice Chairman, Chief Financial
Officer and Chief Accounting Officer32.1
    
    
    Certification under 18 U.S.C., Section 1350
 -30-




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##### Table of Contents



SIGNATURES
   August 18, 2005
    / S/ Steven F. Udvar-HazySTEVEN F. UDVAR-HAZYChairman of the Board and
Chief Executive OfficerAugust 18, 2005
    /S/ Alan H. LundALAN H. LUNDVice Chairman,
Chief Financial Officer
and Chief Accounting Officer -31-




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##### Table of Contents



INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
  Exhibit No.12.
    
    Computation of Ratios of Earnings to Fixed Charges
and Preferred Stock Dividends31.1
    
    Certification of Chairman of the Board and Chief
Executive Officer31.2
    
    Certification of Vice Chairman, Chief Financial
Officer and Chief Accounting Officer32.1
    
    Certification under 18 U.S.C., Section 1350
 -32-