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, 1998
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
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(State of Incorporation) (I.R.S. Employer Identification No.)
555 California Street, 4th floor, San Francisco, CA 94104
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(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, 1998 and December 31, 1997.............3
Statements of Income --
Three and six months ended June 30,
1998 and 1997................................4
Condensed Statements of Cash Flows
Six months ended June 30, 1998 and 1997.........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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PART I - FINANCIAL INFORMATION
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(In thousands except unit data) (Unaudited) 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 17 $ 1
Finance leases - net 79,109 82,590
Operating leases - net 0 0
Prepaid expenses and other assets 332 268
------ --------
Total assets $79,458 $82,859
======= =======
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ 1,915 $ 2,102
Accounts payable and accrued liabilities 372 553
Taxes Payable 350 0
Long-term notes payable 17,077 19,115
------- ------
Total liabilities 19,714 21,770
====== ======
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 59,147 60,478
General partner 597 611
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Total partners' equity 59,744 61,089
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Total liabilities and partners' equity $79,458 $82,859
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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) 1998 1997 1998 1997
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<S> <C> <C>
REVENUES
Finance lease income $2,122 $2,296 $4,292 $4,559
Operating lease rentals 0 56 0 141
Other income 0 2 0 12
------ ------ ------ ------
Total revenues 2,122 2,354 4,292 4,712
------ ------ ------ ------
EXPENSES
Interest 451 534 911 1,006
Depreciation - operating leases 0 111 0 182
Allowance for doubtful accounts 0 0 0 228
Management fee - general partner 163 159 328 335
Investor reporting 72 200 124 401
General and administrative 56 9 93 52
------ ------ ------ ------
Total expenses 742 1,013 1,456 2,204
------ ------ ------ ------
Income before Taxes 1,380 1,341 2,836 2,508
Provision for Taxes 190 0 350 0
------ ------ ------ ------
Net Income $1,190 $1,341 $2,486 $2,508
====== ====== ====== ======
Net Income Allocated To:
General Partner $ 12 $ 13 $ 25 $ 25
====== ====== ====== ======
Limited Partners $1,178 $1,328 $2,461 $2,483
====== ====== ====== ======
Net Income Per Limited
Partnership Unit $ 0.25 $ 0.29 $ 0.53 $ 0.54
====== ====== ====== ======
</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) 1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,486 $ 2,508
-------- --------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Operating lease depreciation 0 182
Increase/(Decrease) in accounts payable (196) (33)
Increase/(Decrease) in taxes payable 350 0
Decrease/(Increase) in prepaid expenses (50) (76)
and other assets
Provision for doubtful accounts 0 228
-------- --------
Net cash provided by operating activities 2,590 2,809
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Aircraft equipment purchase 0 (5,753)
Proceeds from sale of equipment 0 0
(Increase) decrease in notes receivable 0 8
Rental receipts in excess of earned finance
lease income 3,481 2,914
-------- --------
Net cash provided (used) by investing
activities 3,481 (2,831)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing/(repayment) under lines of credit, net 1,077 312
Proceeds from issuance of long-term notes payable 0 9,000
Repayment of long-term notes payable (3,115) (2,723)
Distributions paid to partners (4,017) (7,147)
-------- --------
Net cash used by financing activities (6,055) (558)
-------- --------
Increase (decrease) in cash 16 (580)
Cash at beginning of period 1 580
-------- --------
Cash at end of period $ 17 $ 0
======== ========
ADDITIONAL INFORMATION
Interest paid $ 911 $ 905
======== ========
</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, 1997, 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, 1997, 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,
1997.
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).
3. INCOME TAXES
------------
In January 1998, the Partnership made an election to pay an annual combined
federal and state tax at the Partnership level of 4.5% tax on its gross
income beginning January 1, 1998. The election was made in order to avoid a
limitation on the public trading of the Partnership's units. For the
first six months ended June 30, 1998, the Partnership recorded a provision
for income taxes of $350,000.
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 five long-term debt facilities. At June 30, 1998,
the following amounts were outstanding: $1.2 million on an 8.75% non-recourse
note collateralized by three aircraft leased to USAirways (formerly USAir);
$5.3 million on a 7.4% non-recourse note collateralized by one aircraft leased
to FedEx; $7.7 million on a 9.85% non-recourse note collateralized by one
aircraft on lease to Trans World Airlines; $2.8 million on a long-term variable
rate revolving loan facility collateralized by a fourth aircraft on lease to
USAirways and is guaranteed by the Partnership; and no funds were drawn on a
non-recourse long-term revolving declining variable interest loan facility
collateralized by a fifth aircraft leased to USAirways. At June 30, 1998
approximately $7.0 million remains available under the two revolving loan
facilities.
Long-term borrowing at June 30, 1998 represented 14% 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 six months of 1998 were $0.86 per limited
partnership unit representing the regular fourth quarter 1997 cash
distribution of $0.45 per unit and the regular first quarter 1998 cash
distribution of $0.41 per unit.
In June the Partnership declared a second quarter 1998 cash distribution of
$0.41 per unit totaling $1,915,000 payable on August 14, 1998 to unitholders of
record on June 30, 1998. Since this distribution was in excess of earnings,
Partnership equity declined to $59.7 million at June 30, 1998, and limited
partner equity per unit declined to $12.79. The portion of the distribution in
excess of net income constitutes a return of capital. The 1997 second quarter
cash distribution was $0.45 per unit.
Results of Operations
- ---------------------
Net income for the second quarter ended June 30, 1998 was $1,190,000, a
decrease of $151,000 or 11% from 1997 second quarter earnings of $1,341,000.
Second-quarter revenues were $2,122,000, compared with last year's second
quarter revenues of $2,354,000.
Net Income for the first six-months of 1998 was $2,486,000, compared with the
six-month period ended June 30, 1997 earnings of $2,508,000. Revenues for the
first half of 1998 were $4,292,000, compared with revenues of $4,712,000 for
the first half of 1997.
The revenue reduction for the second quarter and the first half of 1998 is
primarily due to the scheduled decline in finance lease income as the balances
due from the lessees decline. In addition, no operating lease rental income was
earned in 1998, whereas $141,000 was earned in the first half of 1997. In
September 1997, the partnership sold the aircraft that was subject to an
operating lease.
7
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Expenses for the second quarter and the first six months of 1998 were lower than
expenses in the comparable periods of 1997. In the second quarter and first
half of 1997, the partnership incurred investor reporting expenses in connection
with the solicitation of unitholder consents and depreciation expense related
to an aircraft that was sold later in 1997. Expenses for the first half of 1997
also included a provision for doubtful accounts. No similar expenses were
incurred in 1998.
A provision for taxes of $350,000 relating to the newly imposed federal
and state tax on gross income at the partnership level was recorded in the first
six months of 1998. No such tax was applicable in 1997.
Portfolio Matters
- -----------------
As of June 30, 1998 the partnership's portfolio consisted entirely of Stage III
aircraft; six are MD 82s and one is a 727-200 FH. The aircraft are leased to
USAirways, TWA and FedEx.
8
<PAGE>
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.
A Report on Form 8-K was filed on July 7, 1998, and reported
information required by form 4, Changes in the Registrant's
Certifying Accountants.
9
<PAGE>
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
July 28, 1998 By: /s/ DAVID B. GEBLER
- ------------- -------------------------------------
Date David B. Gebler
Chairman, Chief Executive Officer and
President
July 28, 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 33,609
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 79,458
<CURRENT-LIABILITIES> 0
<BONDS> 17,077
0
0
<COMMON> 0
<OTHER-SE> 59,744
<TOTAL-LIABILITY-AND-EQUITY> 79,458
<SALES> 4,292
<TOTAL-REVENUES> 4,292
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 911
<INCOME-PRETAX> 2,836
<INCOME-TAX> 350
<INCOME-CONTINUING> 2,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,486
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
