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 September 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
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
555 California Street, 4th floor, San Francisco, CA 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 --
September 30, 1998 and December 31, 1997..................3
Statements of Income --
Three and nine months ended September 30, 1998
and 1997...............................................4
Statements of Cash Flows
Nine months ended September 30, 1998 and 1997.............5
Notes to 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>
September 30,
1998 December 31,
(In thousands except unit data) (Unaudited) 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 12 $ 1
Finance leases - net 77,628 82,590
Operating leases - net 0 0
Prepaid expenses and other assets 307 268
------- -------
Total assets $77,947 $82,859
======= =======
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ 1,915 $ 2,102
Accounts payable and accrued liabilities 522 553
Taxes Payable 510 0
Long-term notes payable 15,967 19,115
------- -------
Total liabilities 18,914 21,770
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COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 58,443 60,478
General partner 590 611
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Total partners' equity 59,033 61,089
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Total liabilities and partners' equity $77,947 $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 Nine Months Ended
(Unaudited; in thousands September 30, September 30,
except per unit amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Finance lease income $2,079 $2,257 $6,371 $6,816
Operating lease rentals 0 29 0 170
Gain on sale of equipment 0 393 0 393
Other income 0 0 0 12
------ ------ ------ ------
Total revenues 2,079 2,679 6,371 7,391
------ ------ ------ ------
EXPENSES
Interest 424 553 1,335 1,559
Depreciation - operating leases 0 91 0 273
Allowance for doubtful accounts 0 0 0 228
Management fee - general partner 162 179 490 514
Investor reporting 72 201 196 602
General and administrative 56 25 149 77
------ ------ ------ ------
Total expenses 714 1,049 2,170 3,253
------ ------ ------ ------
Income before Taxes 1,365 1,630 4,201 4,138
Provision for Taxes 160 0 510 0
------ ------ ------ ------
Net Income $1,205 $1,630 $3,691 $4,138
====== ====== ====== ======
Net Income Allocated To:
General Partner $ 12 $ 16 $ 37 $ 41
====== ====== ====== ======
Limited Partners $1,193 $1,614 $3,654 $4,097
====== ====== ====== ======
Net Income Per Limited
Partnership Unit $ 0.26 $ 0.35 $ 0.79 $ 0.89
====== ====== ====== ======
</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>
Nine Months Ended
September 30,
(Unaudited; in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,691 $ 4,138
Adjustments to reconcile net income to net cash
provided by operating activities:
Operating lease depreciation 0 273
Increase/(Decrease) in accounts payable and accrued
liabilities (31) (442)
Increase/(Decrease) in taxes payable 510 0
Decrease/(Increase) in prepaid expenses and other
assets (39) (602)
Gain on sale of equipment 0 (393)
Provision for doubtful accounts 0 228
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Net cash provided by operating activities 4,131 3,202
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CASH FLOWS FROM INVESTING ACTIVITIES
Aircraft equipment purchase 0 (5,753)
Proceeds from sale of equipment 0 1,182
(Increase) decrease in notes receivable 0 8
Rental receipts in excess of earned finance lease income 4,962 4,217
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Net cash provided (used) by investing activities 4,962 (346)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit, net 1,452 896
Proceeds from issuance of long-term notes payable 0 9,000
Repayment of long-term notes payable (4,601) (4,083)
Distributions paid to partners (5,933) (9,249)
------- -------
Net cash used by financing activities (9,082) (3,436)
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Increase (decrease) in cash 11 (580)
Cash at beginning of period 1 580
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Cash at end of period $ 12 $ 0
======= =======
ADDITIONAL INFORMATION
Interest paid $ 1,227 $ 1,282
======= =======
</TABLE>
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See NOTES TO CONDENSED FINANCIAL STATEMENTS
5
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
===============================================
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
BASIS OF PRESENTATION - The accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of the Partnership's management, necessary for a
fair presentation of the financial position and results of operations for
the presented 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 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. 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 three
and nine months ended September 30, 1998, the Partnership recorded
provisions for income taxes of $160,000 and $510,000 respectively.
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 September 30,
1998, the following amounts were outstanding: $5.3 million on a 7.4%
non-recourse note collateralized by one aircraft leased to FedEx; $7.4 million
on a 9.85% non-recourse note collateralized by one aircraft on lease to Trans
World Airlines; and a $3.2 million on a long-term variable rate revolving loan
facility guaranteed by the Partnership and collateralized by one aircraft on
lease to USAirways. As of September 30, 1998 no funds were drawn on a
non-recourse long-term revolving declining variable rate loan facility
collateralized by a second aircraft leased to USAirways. At September 30, 1998
approximately $5.6 million remains available under the two revolving loan
facilities.
Long-term borrowings at September 30, 1998 represented 13 % 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 nine months of 1998 were $1.27 per limited
partnership unit representing the regular fourth quarter 1997 cash distribution
of $0.45 per unit and the regular first and second quarters 1998 cash
distributions of $0.41 per unit each.
In September 1998, the Partnership declared a third quarter 1998 cash
distribution of $0.41 per unit totaling $1,915,000 payable on November 13, 1998
to unitholders of record on September 30, 1998. Since this distribution was in
excess of earnings, Partnership equity declined to $59.0 million at September
30, 1998, and limited partner equity per unit declined to $12.64. The portion of
the distribution in excess of net income constitutes a return of capital. The
1997 third quarter cash distribution was $0.45 per unit.
Results of Operations
- ---------------------
Net income for the third quarter ended September 30, 1998 was $1,205,000, a
decrease of $425,000 or 26% from 1997 third quarter earnings of $1,630,000.
Third-quarter revenues were $2,079,000, compared with last year's third quarter
revenues of $2,679,000.
Net Income for the first nine months of 1998 was $3,691,000, compared with the
nine-month period ended September 30, 1997 earnings of $4,138,000. The $447,000
decline in earnings coincides with the $510,000 tax provision recorded in 1998
pursuant to the newly imposed federal and state gross income tax. Revenues for
the first nine months of 1998 were $6,371,000, versus revenues of $7,391,000 for
the comparable period of 1997.
The revenue reduction in the first nine-months of 1998 is primarily due to the
scheduled decline in finance lease income as the balances due from the lessees
declined. In addition, no operating lease rental income was earned in 1998,
whereas $170,000 was earned in the first nine months of 1997. In September 1997,
the partnership sold the aircraft that was subject to an operating lease.
Expenses for the first nine months of 1998 were $2,170,000 or $1,083,000 lower
than expenses for the first nine months of 1997 of $3,253,000. In the first nine
months of 1997, the partnership incurred investor reporting expenses in
connection with the solicitation of unitholder consents and depreciation expense
related to the aircraft that was sold in September 1997. Expenses for the first
nine months of 1997 also included a provision for doubtful accounts. No similar
expenses were incurred in 1998.
7
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Portfolio Matters
- -----------------
As of September 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.
Year 2000 Readiness
- -------------------
The general partner has reviewed the impact of the Year 2000 issue on the
partnership. This issue results from computer programs using two, rather than
four, digits to define a year, thus the programs do not recognize a year that
begins with "20" rather than the familiar"19." If not corrected, many computer
applications could fail or create erroneous results. Because the partnership's
operations consist primarily of collecting periodic lease payments on a limited
number of leases and making periodic debt payments and distributions to its
partners, the general partner believes that the partnership's exposure to the
Year 2000 problem is limited to the software programs and services it obtains
from suppliers and vendors. The general partner has surveyed its vendors
and has been advised that the programs either are Year 2000 compliant or will
be so compliant prior to December 31, 1999.
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
November 2, 1998 By: /s/ DAVID B. GEBLER
- ---------------- ---------------------
Date David B. Gebler
Chairman, Chief Executive Officer
and President
November 2, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 32,128
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,947
<CURRENT-LIABILITIES> 0
<BONDS> 15,967
0
0
<COMMON> 0
<OTHER-SE> 59,033
<TOTAL-LIABILITY-AND-EQUITY> 77,947
<SALES> 6,371
<TOTAL-REVENUES> 6,371
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,335
<INCOME-PRETAX> 4,201
<INCOME-TAX> 510
<INCOME-CONTINUING> 3,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,691
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
