UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission file number 1-9259
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 94-3008908
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
555 California Street, 4th floor 94104
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(415) 765-1814
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(Registrant's telephone number, including area code)
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
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Balance Sheets --
June 30, 1997 and December 31, 1996.......... 3
Statements of Income --
Three and six months ended June 30, 1997
and 1996................................... 4
Condensed Statements of Cash Flows
Six months ended June 30, 1997 and 1996...... 5
Notes to Condensed Financial Statements........ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 7
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K............... 9
Signatures..................................... 10
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1997 December 31,
(In thousands except unit data) (Unaudited) 1996
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<S>
<C> <C>
ASSETS
Cash $ 0 $ 580
Finance leases - net 85,895 83,056
Operating leases - net 908 1,090
Notes receivable (net of provision for
doubtful account of $228 in 1997) 0 236
Prepaid expenses and other assets 244 168
------- -------
Total assets $87,047 $85,130
======= =======
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ 2,102 $ 5,045
Accounts payable and accrued liabilities 939 972
Long-term notes payable 20,660 14,071
------- -------
Total liabilities 23,701 20,088
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COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 62,713 64,391
General partner 633 651
------ ------
Total partners' equity 63,346 65,042
------ ------
Total liabilities and partners' equity $87,047 $85,130
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</TABLE>
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See NOTES TO CONDENSED FINANCIAL STATEMENTS
3
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Unaudited; in thousands June 30, June 30,
except per unit amounts) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES
Finance lease income $2,296 $2,215 $4,559 $4,468
Operating lease rentals 85 400 141 999
Gain on sale of equipment 0 0 0 556
Other income 12 102 12 125
------ ------ ------ ------
Total revenues 2,393 2,717 4,712 6,148
------ ------ ------ ------
EXPENSES
Interest 472 491 1,006 1,014
Depreciation - operating leases 111 352 182 795
Allowance for doubtful account 0 0 228 0
Management fee - general partner 159 187 335 379
Investor reporting 200 61 401 124
General and administrative 9 38 52 77
------ ------ ------ ------
Total expenses 951 1,129 2,204 2,389
------ ------ ------ ------
Net Income $1,442 $1,588 $2,508 $3,759
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Net Income Allocated To:
General Partner $ 14 $ 16 $ 25 $ 38
====== ====== ====== ======
Limited Partners $1,428 $1,572 $2,483 $3,721
====== ====== ====== ======
Net Income Per Limited Partnership Unit $ 0.31 $ 0.34 $ 0.54 $ 0.80
====== ====== ====== ======
</TABLE>
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See NOTES TO CONDENSED FINANCIAL STATEMENTS
4
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Unaudited; in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 2,809 $ 4,177
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CASH FLOWS FROM INVESTING ACTIVITIES
Aircraft equipment purchase (5,753) 0
Proceeds from sale of equipment 0 6,559
(Increase)/decrease in notes receivable 8 339
Rental receipts in excess of earned finance lease income 2,914 2,706
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Net cash provided (used) by investing activities (2,831) 9,604
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/(repayment) under lines of credit, net 312 (2,641)
Proceeds from issuance of long-term debt 9,000 0
Repayment of long-term debt (2,723) (2,730)
Distributions paid to partners (7,147) (8,409)
-------- --------
Net cash used by financing activities (558) (13,780)
-------- --------
Increase (decrease) in cash (580) 1
Cash at beginning of period 580 0
-------- --------
Cash at end of period $ 0 $ 1
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ADDITIONAL INFORMATION
Interest paid $ 905 $ 1,049
======== ========
</TABLE>
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See NOTES TO CONDENSED FINANCIAL STATEMENTS
5
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
BASIS OF PRESENTATION - The accompanying unaudited condensed financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of the Partnership, necessary to a
fair statement of the results for the interim periods. The results of
operations for such interim periods are not necessarily indicative of
results of operations for a full year. The December 31, 1996 balance sheet
included herein is derived from the audited financial statements included
in the Partnership's Annual Report and incorporated by reference in the
Form 10-K for the year ended December 31, 1996, but does not include all
disclosures required by generally accepted accounting principles. The
statements should be read in conjunction with the Organization and
Significant Accounting Policies and other notes to financial statements
included in the Partnership's Annual Report for the year ended December 31,
1996.
DERIVATIVES - The Partnership holds one derivative financial instrument
which is an interest rate swap agreement used to manage the Partnership's
interest rate risk. The Partnership accounts for this derivative financial
instrument on an accrual basis when the cash flows generated from the
hedging instrument fulfill the objectives of the hedge strategy and when
there is high correlation between the derivative and the hedged asset or
liability. Under accrual accounting interest differentials paid or received
under interest rate swap agreements are recognized as an adjustment to
interest expense over the life of the agreements. Termination gains or
losses of such derivatives are amortized to interest expense over the
remaining life of the hedged transaction.
When a derivative no longer fulfills the high correlation objective, it is
accounted for on a mark-to-market basis and termination of such derivatives
is recognized immediately in the Statement of Income as a component of
interest expense.
2. NET INCOME PER LIMITED PARTNERSHIP UNIT
---------------------------------------
Net Income Per Limited Partnership Unit is computed by dividing the net
income allocated to the Limited Partners by the weighted average units
outstanding (4,625,000).
6
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The partnership presently has four long-term debt facilities. At June 30, 1997,
the following amounts were outstanding: $5.9 million on an 8.75% non-recourse
note collateralized by three aircraft leased to US Airways (formerly USAir);
$5.8 million on a 7.4% non-recourse note collateralized by one aircraft leased
to FedEx; $312,000 under a non-recourse long-term revolving declining variable
interest loan facility collateralized by a fourth aircraft leased to US Airways
and $8.6 million on a 9.85% non-recourse long-term note agreement collateralized
by one aircraft leased to Trans World Airlines. Approximately $4.5 million
remains available under the revolving loan facility.
Long-term borrowing at June 30, 1997 represented 16 % of the original cost of
the aircraft presently owned by the partnership, including capital expenditures
for upgrades. The terms of the Partnership Agreement permit debt to be at a
level not exceeding 50% of such cost.
Cash distributions paid in the first half of 1997 amounted to $1.53 per unit,
consisting of two regular quarterly distributions of $0.45 each and a special
cash distribution of $0.63 per unit paid in January 1997. Cash distributions
paid during the first six months of 1996 amounted to $1.80 per unit, consisting
of two regular quarterly distributions of $0.50 each and a special distribution
of $0.80 per unit paid in May 1996. The special distributions were paid from the
proceeds of aircraft sales in December 1996 and March 1996, respectively.
In June 1997, the partnership declared a second quarter cash distribution of
$0.45 per unit amounting to $2,102,000 payable on August 15, 1997 to unitholders
of record on June 30, 1997. This distribution exceeded second quarter net income
of $1,442,000, resulting in a return of capital of $660,000 or 14 cents per
unit. The 1996 second quarter distribution was also $0.45.
Results of Operations
- ---------------------
Net income for the second quarter ended June 30, 1997 was $1,442,000, a decrease
of $146,000 or 9.2% over the comparable 1996 three-month period. Second-quarter
1997 revenues were $2,393,000 compared with last year's revenues of $2,717,000.
Net income for the first six months of 1997 was $2,508,000, a decrease of
$1,251,000 or 33% compared with the six-month period ended June 30, 1996.
Revenues for the 1997 period were $4,712,000 compared with last year's revenues
of $6,148,000.
The declines in the results for the first half of 1997 reflect the sale of an
aircraft in the first quarter of 1996 and recognition of a gain of $556,000,
while no aircraft were sold in the first quarter of 1997. In addition, the sale
of a total of seven aircraft during 1996 reduced the size of the portfolio and
operating lease revenue. At June 30, 1997, the partnership owned an interest in
one aircraft subject to an operating lease compared to interests in seven such
aircraft one year earlier.
Depreciation expense declined as a result of the aircraft sales in 1996.
Offsetting this reduction were higher investor reporting expenses incurred in
connection with the solicitation of unitholder consents described below.
7
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Portfolio Developments
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The partnership owns a 50% interest in a DC-9-51 aircraft leased to Sun Jet
International, Inc. On June 18, 1997, Sun Jet declared bankruptcy. Sun Jet did
not make its June or July payment and has not maintained the aircraft in
compliance with the lease. The aircraft represents about one percent of the
partnership's total assets and contributed about three percent of revenues for
the first half of 1997. The partnership is monitoring the Sun Jet bankruptcy
proceedings and will take such action as it believes to be in the partnership's
best interest.
Consent Solicitation Statement
- ------------------------------
As previously announced, primarily because of changes in tax law which will
become effective on December 31, 1997, the partnership currently is seeking
unitholder approval to authorize the general partner to delist the units from
trading on the New York Stock Exchange, to stop making new aircraft investments
and to sell aircraft as attractive opportunities arise. In addition, if
favorable changes in tax law are proposed or enacted the general partner would
be authorized to take other actions which are beneficial to unitholders.
On August 5, 1997, Federal legislation was enacted which provides that publicly
traded partnerships, like Airlease, could elect to continue to be publicly
traded, but that these partnerships would be subject to an entity level tax of
3.5 percent on their annual gross income. This tax would reduce the present
value of future cash distributions per unit from the projected distributions for
the proposal described in the Consent Solicitation Statement by $0.50 - $0.75.
In addition, unless California adopts similar legislation, Airlease would be
taxed as a corporation for California tax purposes beginning January 1, 1998 if
the units continue to be publicly traded. Any California tax imposed on the
partnership would also reduce cash distributions. The general partner is
reviewing the options regarding California legislation. If the proposal is
approved and when the California tax law position is clarified, the general
partner will determine whether imposing transfer restrictions by delisting
units from the New York Stock Exchange in December 1997 is in the best
interests of the unitholders.
8
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
9
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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.
AIRLEASE LTD., A CALIFORNIA LIMITED
PARTNERSHIP
By: Airlease Management Services, Inc.
General Partner
August 13, 1997 By: /s/ DAVID B. GEBLER
- --------------- ---------------------------------
Date David B. Gebler
Chairman, Chief Executive Officer
and President
August 13, 1997 By: /s/ RICHARD C. WALTER
- --------------- -----------------------
Date Richard C. Walter
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 40,622
<ALLOWANCES> 228
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,501
<DEPRECIATION> 3,593
<TOTAL-ASSETS> 87,047
<CURRENT-LIABILITIES> 0
<BONDS> 20,660
0
0
<COMMON> 0
<OTHER-SE> 63,346
<TOTAL-LIABILITY-AND-EQUITY> 87,047
<SALES> 4,700
<TOTAL-REVENUES> 4,712
<CGS> 0
<TOTAL-COSTS> 182
<OTHER-EXPENSES> 788
<LOSS-PROVISION> 228
<INTEREST-EXPENSE> 1,006
<INCOME-PRETAX> 2,508
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,508
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
