1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
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OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
--- the Securities Exchange Act of 1934
For the transition period from to
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Commission file number: 0-16836
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JETSTREAM, L.P.
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Exact name of registrant as specified in its charter
Delaware 84-1053359
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
Attn.: Andre Anderson,
- ----------------------
3 World Financial Center, 29th Floor, New York, New York 10285
- -------------------------------------------------------- -----
Address of principal executive offices Zip code
Registrant's telephone number, including area code: (212) 526-3183
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITORY UNITS (the "Units")
LIMITED PARTNERSHIP INTERESTS (underlying the Units)
----------------------------------------------------
Title of Class
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 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
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
---
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus of the registrant dated September 10, 1987, as filed pursuant to rule
424(c) of the Securities Act of 1933, as amended (Portions of Parts I, II, III
and IV).
Annual Report to Unitholders for the year ended December 31, 1998 (Portions of
Parts I, II, III & IV).
<PAGE>
2
PART I
Item 1. Business.
General Development of Business
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JetStream, L.P. (the "Partnership") is a limited partnership organized under the
laws of the State of Delaware on April 16, 1987. The general partners of the
Partnership (the "General Partners") are CIS Aircraft Partners, Inc. ("CAP"),
the Managing General Partner, a Delaware corporation that is an affiliate of
Continental Information Systems Corporation, and Jet Aircraft Leasing Inc., the
Administrative General Partner, a Delaware corporation that is an affiliate of
Lehman Brothers Inc. ("Lehman") (See Item 10).
Although the Partnership was organized on April 16, 1987, the Partnership
conducted no activities and recognized no revenues, profits or losses prior to
October 28, 1987, at which time the Partnership commenced operations. During the
period between October 29, 1987 and November 4, 1987, the Partnership acquired
for cash nine used commercial aircraft (together, the "Aircraft"). As of
December 31, 1998, the Partnership had six of the nine original Aircraft
remaining in its portfolio. For a description of the investments in the
Aircraft, please refer to the Message to Investors and Note 4 to the financial
statements of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1998, which is filed as an exhibit under Item 14 and incorporated
herein by reference.
On September 10, 1987, the Partnership commenced an offering (the "Offering") on
a "best efforts basis" of $97,900,000 of limited partnership depositary units
("Units"). The closing of the offering occurred on October 28, 1987, with a
total of 4,895,005 Units being sold at a price of $20.00 per Unit, for a total
of approximately $97,900,000. The net proceeds of the offering after payment of
offering and organization costs and acquisition fees aggregated $85,747,510.
Narrative Description of Business
- ---------------------------------
The Partnership is engaged in the business of managing a portfolio of used
commercial aircraft subject to triple net operating leases with commercial air
carriers. The Partnership is required to dissolve and distribute all of its
assets not later than December 31, 2027. The Partnership may reinvest the
proceeds of sales of Aircraft occurring prior to November 4, 1998; thereafter,
the net proceeds of sales of Aircraft will be distributed to the partners, after
deductions of amounts necessary for working capital and certain reserves.
The Partnership's investment objectives are to:
(1) generate quarterly cash distributions to holders of Units (the
"Unitholders"), substantially tax-sheltered during the initial years
of the Partnership's operations, initially at a rate of approximately
12%, subject to conditions stated in the prospectus pursuant to which
the Units were offered and sold (the "Prospectus"), dated September
10, 1987;
(2) preserve and protect the value of the Partnership's assets.
The following table describes the Partnership's portfolio of aircraft as of
December 31, 1998. This table provides certain operational statistics and
estimated market values for the aircraft in the portfolio. The estimated market
values of the Aircraft are affected by, and subject to future changes in a
variety of factors, including, but not limited to, the Aircraft's usage, age and
lease rate, the credit worthiness of the lessee, government noise and
maintenance regulations and the supply and demand of aircraft in the market
place with similar lift capacity. Reference is made to Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations of this
Form 10-K and the Message to Investors and Note 4 to the Financial Statements of
the Partnership's Annual Report to Unitholders for the year ended December 31,
1998, for additional information on the lease terms for each aircraft. Reference
is also made to the Message to Investors section of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1998, for an overview of
the aircraft leasing industry.
<PAGE>
3
<TABLE>
<CAPTION>
Estimated Cumulative Cumulative
Aircraft Model Acquisition Net Book Market Lease Noise Flight Flight
Year Delivered Lessee Cost(1) Value(2) Value(3) Expiration(4) Compliance Cycles(5) Hours(5)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MD-80 Series Continental $27,396,997 $ 4,392,835 $13,750,000 3/15/00 Stage 3 18,250 37,500
1986
B-737-200 ADV Delta $15,222,609 $ 1,148,960 $ 3,573,800 9/30/99 Stage 2 38,900 57,840
1979
B-737-200 Eastwind $ 7,601,999 $ 171,875 $ 500,000 11/30/99 Stage 3 73,340 64,470
1971
B-737-200 Eastwind $ 7,601,999 $ 171,875 $ 500,000 11/30/99 Stage 2 72,600 64,490
1971
B-727-200 (6) $ 5,448,499 $ 0 $ 349,450 (6) Stage 2 47,870 70,750
1969
B-727-200 (6) $ 5,448,499 $ 0 $ 349,450 (6) Stage 2 47,060 69,450
1969 ----------- ----------- -----------
TOTALS $68,720,602 $ 6,085,544 $19,022,700
=========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
NOTES:
<FN>
(1) Includes a 1.5% fee paid to the Managing General Partner at the acquisition
of the Aircraft. Totals do not include aircraft which have been sold.
(2) As of December 31, 1998.
(3) Estimated market values for the Aircraft are based upon annual independent
appraisals, which are subject to a variety of assumptions. Additionally,
there can be no assurance that the Partnership would receive an amount
equal to the market value shown above upon the sale of any of the Aircraft.
(4) Lease expiration dates do not include renewal options.
(5) Data as of February 5, 1999.
(6) The Partnership's two B-727-200 aircraft were leased to TWA on a
month-to-month basis until the third quarter of 1998. In September 1998,
the General Partners negotiated new lease agreements with Sun Pacific
International Inc., which leases are scheduled to commence pending
completion of required maintenance on the aircraft. See Item 7 below for a
discussion of the Sun Pacific lease agreements.
</FN>
</TABLE>
Aging Aircraft Maintenance - The Federal Aviation Administration (the "FAA"),
acting on recommendations from industry trade groups, adopted a series of
Airworthiness Directives ("AD's") for certain Boeing and McDonnell Douglas
aircraft models. AD's are mandates requiring the airline to perform a specific
maintenance task within a specified period of time. The FAA imposes strict
requirements governing aircraft inspection and certification, maintenance,
equipment requirements, corrosion control, noise levels and general operating
and flight rules. In addition to mandating more intensive inspections of certain
structural components, including the fuselage, wing and tail sections, certain
of these AD's mandate that structural modifications to certain aircraft be
completed within specified periods, generally not less than 48 months from the
effective date of the relevant AD. Aircraft are generally subject to these
structural modification requirements based on flight cycle, flight hour and
chronological age thresholds.
<PAGE>
4
Two of the Partnership's six Aircraft are subject to AD's mandating structural
modification, specifically the two B-737 aircraft leased to Eastwind. AD's
presently applicable to the Boeing aircraft owned by the Partnership require
extensive repetitive inspections of such aircraft. There can be no assurance
that such inspections will not lead to mandatory structural modifications
similar to those noted above.
The Partnership's existing leases require the lessees to maintain the
Partnership's aircraft in accordance with FAA approved maintenance programs
during the lease term. At the end of the leases, each lessee is required to
return the aircraft in airworthy condition, including compliance with all AD's
for which action is mandated by the FAA during the lease term. Thus, certain of
the modifications required by the new AD's may not be implemented by the
Partnership's lessees prior to the expiration of the current leases since, in
many cases, the relevant AD will not require action before the expiration of the
lease term.
In negotiating future leases or in selling aircraft now owned by the
Partnership, the Partnership may be required to bear some or all of the costs of
compliance with future AD's or AD's that have been issued but which did not
mandate action during the previous lessee's lease term or in respect of which
the previous lessee failed to comply. The aggregate effect on the Partnership of
compliance with these standards is not determinable at this time and will depend
upon a variety of factors, including, but not limited to, the state of the
commercial aircraft market, the extent of the AD, the availability of capable
repair facilities and the effect, if any, that such compliance may have on the
service lives of the affected aircraft. As described above, the cost to the
Partnership of such compliance may be reduced to the extent that current or
future lessees of the Partnership's aircraft effect such modifications under the
terms of the current or future operating leases.
Aircraft Noise - Beginning in 1985, the FAA and various airport industry task
forces released reports suggesting various alternatives for reducing the number
of Stage 2 aircraft operating in the United States, including a proposed
requirement to bring all aircraft operating in the United States into compliance
with Stage 3 requirements in the 1990s or shortly thereafter. The FAA has
categorized aircraft types according to engine noise decibel levels. Stage 1
aircraft, which have the highest noise level, are no longer allowed to operate
from civil airports in the United States. Stage 2 aircraft meet current FAA
requirements. Stage 3 aircraft are the most quiet and will be the future
standard of all aircraft.
Effective November 6, 1990, Congress passed the Airport Noise and Capacity Act
of 1990 (the "Act") which required the development of a National Noise Policy.
On September 25, 1991, final regulations (the "Regulations") were announced and
became effective immediately. The Regulations provide, among other things,
phase-out and non-addition rules under which the number of Stage 2 aircraft
operated by domestic carriers were limited to 75% of 1990 base levels by the end
of 1994, 50% of 1990 base levels by the end of 1996, with further reductions to
25% of 1990 base levels by the end of 1998, and ultimately to 0% by December 31,
1999.
Several modification programs to hushkit or re-engine an aircraft to meet Stage
3 requirements have been announced, including programs for the B-727 and the
B-737 series. Hushkitting is a procedure for retrofitting existing engines to
comply with Stage 3 requirements. Re-engining is the replacement of existing
engines with technologically-advanced engines complying with Stage 3
requirements. The decision whether to hushkit or re-engine an aircraft will
depend upon a variety of factors, including, without limitation, the
differential effects of the two approaches on the operating costs of the
aircraft, the relative costs and feasibility of the two approaches and the
General Partners' assessment of the remaining useful life and fair market value
of the aircraft. Where available, hushkits currently cost up to $3.0 million per
aircraft while the costs of re-engining programs are significantly higher. No
assurances are possible in respect to the actual cost which the Partnership
would be required to pay in order to effect a hushkit or re-engining
modification as now available or as may be developed in the future.
Only two of the aircraft owned by the Partnership are Stage 3, the remainder are
Stage 2 aircraft. The General Partners are currently negotiating an extension of
the lease with Delta, which requires the hushkitting of the aircraft. Sun
Pacific, under terms of the leases, is required to hushkit its two aircraft
prior to December 31, 1999. One of the aircraft leased to Eastwind will not be
hushkitted prior to the expiration of the lease. The General Partners will
attempt to release this aircraft to an operator who will hushkit it, or they
will sell the aircraft.
<PAGE>
5
In addition to FAA activity in noise abatement, other countries have adopted or
are considering adopting noise compliance standards which would have a similar
effect of reducing the ability of an airline to operate Stage 2 aircraft in such
jurisdictions. In 1989, the European Economic Community ("EEC") adopted a
non-addition rule which directed each member country to pass the necessary
legislation to prohibit airlines from adding Stage 2 aircraft to their fleets
after November 1, 1990. The rule has specific exceptions for leased aircraft and
does allow the continued use of Stage 2 aircraft which were in operation in EEC
before November 1, 1990. The Partnership does not currently have any aircraft on
lease to airlines outside the United States. EEC regulations currently proposed
would require aircraft hushkitted to comply with Stage 3 requirements to
register prior to April 1999.
Competition
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The aircraft leasing industry is competitive and the success of any lessor is
largely dependent upon the nature of the aircraft within its portfolio. The
Partnership competes with aircraft manufacturers, distributors, airlines,
leasing companies, financial institutions and other parties engaged in leasing,
managing, and marketing aircraft. Such competitors may lease or sell aircraft at
lower rates or prices than the Partnership and provide benefits, such as direct
maintenance crews, and support services which the Partnership cannot provide.
Competition may include certain affiliates of the General Partners.
Since the Partnership's aircraft are subject to operating leases, the
Partnership will be required to re-lease or sell such aircraft after the
expiration of the current lease terms. The General Partners' ability to renew
leases or to sell the aircraft owned by the Partnership is dependent upon, among
other factors: (a) general economic conditions and economic conditions affecting
the airline industry in particular; (b) the current operating profile of the
aircraft, encompassing the age of the aircraft and the number of hours and
cycles flown and compliance with all issued AD's as well as the general
maintenance conditions of the aircraft; (c) the current fleet plans of the major
end-users of the aircraft type; (d) any costs required to refurbish aircraft and
to reconfigure aircraft to comply with all issued AD's and to conform with
similar aircraft within a potential lessee's fleet; (e) any cost required to
conform the aircraft to future Stage 3 noise restrictions; (f) the availability
to the lessee or potential lessee of other similar aircraft from the
Partnership's competition; and (g) the ability of the Managing General Partner
to effectively market the aircraft. It is possible that any future lease
renewals might be at lower lease rates than the Partnership currently receives,
adversely impacting revenue.
Employees
- ---------
The Partnership has no employees. The officers, directors and employees of the
General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and reimbursement
of certain out-of-pocket expenses incurred in connection with the performance of
these management services. Reference is made to Note 7 to the Financial
Statements of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1998, for a discussion of the fees and reimbursable expenses paid
to the General Partners and their affiliates.
Item 2. Properties
Incorporated by reference to the Message to Investors section and Note 4 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1998.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the General Partners or
the Partnership is a party or to which its assets are subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of 1998.
<PAGE>
6
PART II
Item 5. Market for the Partnership's Limited Partnership
Interests and Related Security Holders Matters
The Units represent the economic rights attributable to limited partnership
interests in the Partnership.
There is no established public trading market for the purchase and sale of
Units. As of December 31, 1998, the number of Unitholders was 6,847.
Per Unit cash distributions paid to the Limited Partners for the two years ended
December 31, 1998 are presented in the table below.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1997 $ .244 $ .169 $ .275 $ .290 $ .978
1998 $ .212 $ .222 $ .144 $ .151 $ .729
</TABLE>
Future cash distributions will be determined on a quarterly basis after an
evaluation of the Partnership's current and expected financial position.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Revenues $ 4,813,390 $ 5,037,980 $ 5,248,593 $ 4,837,439 $ 5,067,500
Total Expenses 4,473,009 4,117,718 4,884,852 5,669,154 5,977,244
Net Income (Loss) 444,902 1,149,074 687,834 (170,290) (783,993)
Net Income (Loss) per
Limited Partnership Unit(1) .09 .23 .14 (0.03) (0.16)
Total Assets 7,989,525 11,507,572 15,107,551 18,936,402 23,457,496
Partners' Capital 6,466,304 9,625,851 13,316,748 17,492,977 21,939,577
Net Cash Provided by
Operating Activities 4,012,891 5,212,862 4,150,326 4,282,201 6,301,101
Cash Distributions per Unit(1)(2) .73 .98 .98 .87 1.00
- ------------------------------------------------------------------------------------------------------
<FN>
(1) 4,895,005 units outstanding
(2) Distribution amounts are reflected in the year for which they are declared.
The Partnership's fourth quarter cash distribution is usually paid in late
January or early February of the following year.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Liquidity and Capital Resources
As of December 31, 1998, four of the Partnership's six aircraft were on-lease.
Two aircraft were on-lease to Eastwind Airlines ("Eastwind"), one aircraft was
on-lease to Delta Air Lines, Inc. ("Delta") and one aircraft was on-lease to
Continental Airlines ("Continental"). The remaining two aircraft were leased to
TWA on a month-to-month basis until the third quarter of 1998. The General
Partners have negotiated new lease agreements with Sun Pacific International,
Inc. ("Sun Pacific"), which leases are currently pending completion of required
maintenance on the aircraft, as discussed below.
<PAGE>
7
The Partnership's two 737-200 non-advanced aircraft are currently on-lease to
Eastwind. Under the terms of the lease agreements, which expire on November 30,
1999, Eastwind is required to pay the Partnership a monthly lease rate of
$35,000 per aircraft. In addition, the airline is required to pay the
Partnership an airframe maintenance charge based on usage. Eastwind is
delinquent on rental payments and maintenance reserves totaling $583,453 and has
contacted the General Partners to renegotiate the terms of its lease. In light
of this development, the Partnership established an allowance of $533,453 at
December 31, 1998 against this receivable. The Partnership has security deposits
in the amount of $50,000 from Eastwind. The General Partners will aggressively
pursue all remedies available to the Partnership with respect to the collection
of these receivables.
The lease with Delta for the Partnership's 737-200 advanced aircraft expires in
September 1999. In accordance with the terms of the lease agreement, Delta pays
the Partnership a monthly lease rate of $80,000.
Continental makes monthly lease payments to the Partnership of $180,000. The
lease with Continental was originally scheduled to expire in March 1998.
Continental extended its lease through March 1999, and in October 1998, it
exercised its second option to renew this lease through March 2000, with the
remaining terms of the lease unchanged.
The Partnership's two remaining 727-200 non-advanced aircraft were leased on a
month-to-month basis by TWA at a monthly lease rate of $32,500. TWA terminated
its leases on these aircraft and returned one plane in July 1998 and another in
September 1998. In accordance with the lease agreement, TWA was to have
performed certain required maintenance prior to returning the aircraft. In lieu
of having TWA perform this maintenance, the Partnership agreed to receive
payments of $360,656 and $360,792 for each respective aircraft from TWA, plus a
commitment from TWA for up to an additional $200,000 per aircraft, if supported
by legitimate maintenance costs.
In September 1998, the Partnership entered into two lease agreements with Sun
Pacific for the two 727-200 non-advanced aircraft which were previously leased
to TWA. Pursuant to the terms of the lease agreements, Sun Pacific is required
to pay the Partnership a monthly lease rate of $64,042 per aircraft commencing
upon the completion of certain required maintenance on the aircraft. In
addition, the airline is required to pay the Partnership a maintenance charge
based on usage. The aircraft were delivered to Sun Pacific with an assignment of
the above described maintenance payments of $360,656 and $360,792 received from
TWA. The Partnership agreed to assign these funds in order for Sun Pacific to
perform required maintenance on the aircraft. As of December 31, 1998, the
maintenance on the aircraft had not been completed, and no funds had been
collected pursuant to the terms of the leases.
At December 31, 1998, the Partnership had unrestricted cash and cash equivalents
of $1,853,981, compared to $2,131,335 at December 31, 1997. The decrease is
primarily attributed to Eastwind being delinquent on rental payments and
maintenance reserves.
At December 31, 1998, the Partnership had a rent receivable balance (net of
allowance for doubtful accounts) totaling $50,000, compared to $79,053 at
December 31, 1997. The 1998 balance represents amounts owed by Eastwind in
excess of the $533,453 allowance established by the Partnership, as discussed
above.
Accounts payable and accrued expenses totaled $635,127 at December 31, 1998 as
compared to $307,831 at December 31, 1997. The increase is primarily
attributable to deferred management fees.
During the year ended December 31, 1998, the Partnership paid distributions to
the Unitholders for the period from October 1, 1997 to December 31, 1998 and for
the first three quarters of 1998, in the amounts of $1,419,551 and $2,827,791,
respectively, which represent approximately $.29 and approximately $.58 per
Unit, respectively. At December 31, 1998, the Partnership had a distribution
payable to Unitholders of $740,613 or approximately $.15 per Unit. This amount
reflects the 1998 fourth quarter cash distribution paid on March 4, 1999, which
was primarily funded from cash flow from operations.
Future cash distributions will be determined on a quarterly basis after an
evaluation of the Partnership's current and expected financial position.
<PAGE>
8
Market Risk
Interest rate risk comprises the Partnership's principal market risk exposure.
The Partnership has no long-term debt and its aircraft are unencumbered by debt.
Accordingly, the Partnership's interest risk exposure is primarily limited to
interest earned on the Partnership's cash and cash equivalents, which are
invested at short-term rates. Such risk is not considered material to the
Partnership's operations.
Year 2000 Initiatives
The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruptions of
operations. The Year 2000 issue affects almost all companies and organizations.
As the owner and lessor of commercial aircraft, the Partnership's most
significant Year 2000 issues relate to systems concerns with respect to the
airworthiness of the aircraft. It is the responsibility of the lessees to comply
with any Airworthiness Directives or other manufacturer recommended maintenance
necessary to meet Year 2000 requirements, and the costs of such maintenance, if
any, are to be borne by the lessee. Non-compliance by the lessee could impact
its ability to operate the aircraft, and could affect its ability to meet the
terms of its lease. The Partnership's lessees also face the potential risk of
non-compliance by the air traffic control systems in the areas in which the
aircraft operate. A disruption in any of the air traffic control systems could
cause disruption to the lessee's operations, which may adversely affect their
ability to generate revenue and meet the terms of their leases. The Partnership
is unable to assess the likelihood or the potential cost to the Partnership of
such disruption.
Other potential Year 2000 issues relate primarily to outside vendors which
provide the Partnership's administrative services including accounting, tax
preparation and transfer agent services. Such services are reliant on computer
systems, software products and equipment which may or may not be Year 2000
compliant. It is anticipated that the cost of vendor compliance with Year 2000
problems will be borne primarily by vendors. Although it is not possible at
present to give an estimate of the cost of this work to the Partnership, the
General Partner does not expect such costs to have a material adverse impact on
the Partnership's long term results of operations.
Results of Operations
Substantially all of the Partnership's revenue was generated from the leasing of
the Partnership's Aircraft to commercial airlines under triple net operating
leases. The balance of the Partnership's revenue during 1998 consisted of
interest and other income.
1998 compared to 1997
- ---------------------
For the year ended December 31, 1998, the Partnership generated net income in
the amount of $444,902, compared to net income of $1,149,074 in fiscal 1997. The
decrease in net income is primarily attributable to the establishment of an
allowance for doubtful accounts on Eastwind's receivable balance, and a decrease
in rental income as a result of the Partnership's two 727-200 aircraft being off
lease for several months during 1998. Such amounts were partially offset by a
decrease in operating expenses during 1998.
Rental income for the year ended December 31, 1998 was $4,813,390, compared to
$5,037,980 in fiscal 1997. The decrease in rental income is primarily a result
of the Partnership's two 727-200 aircraft being off lease following the
expiration of the leases with TWA in July and September. This decrease was
partially offset by an increase in rental income from the two aircraft leased by
Eastwind which were not operated on a daily basis for the first two months of
1997 because of maintenance-related issues, including the installation of a
hushkit on one aircraft.
Interest income for the year ended December 31, 1998 totaled $104,393, compared
to $129,090 for the corresponding period in 1997. The decrease is primarily due
to a decrease in the Partnership's invested cash balance during the 1998 period.
Other income totaled $128 for the year ended December 31, 1998, compared to
$99,722 for the year ended December 31, 1997. The decrease primarily represents
payment received from USAirways, Inc. ("USAir") during 1997 for the settlement
and release of claims relating to the lease and maintenance of the Boeing
737-200 aircraft, previously on lease with USAir.
Management fees totaled $387,675 for the year ended December 31, 1998 compared
with $447,868 for the year ended December 31, 1997. The decrease primarily
reflects lower management fees related to the aircraft currently on-lease to
Eastwind.
<PAGE>
9
General and Administrative expenses totaled $334,335 for the year ended December
31, 1998 compared with $230,295 in fiscal 1997. The increase is primarily due to
consulting and other professional fees related to the re-leasing of the aircraft
formerly leased to TWA, and to a lesser extent, higher partnership
administrative servicing costs.
Operating expenses for the year ended December 31, 1998 totaled $5,906, compared
to $227,905 for the 1997 period. The 1997 balance is primarily attributable to
non-recurring operating expenses associated with repair and maintenance work
completed on the two aircraft on-lease to Eastwind.
Bad debt expense for the year ended December 31, 1998 totaled $533,453, which
amount was used to establish an allowance for delinquent rental payments and
maintenance reserves due under Eastwind's leases.
1997 compared to 1996
- ---------------------
For the twelve months ended December 31, 1997, the Partnership generated net
income in the amount of $1,149,074, compared to income of $687,834 for the
corresponding period in 1996. The increase in net income is primarily
attributable to a decrease in depreciation expense, which was partially offset
by a decrease in rental income and increases in all other expenses.
Additionally, net income for the 1996 period includes a $130,000 gain on the
August 1996 sale of the 737-200 aircraft formerly on lease to Eastwind.
Rental income for the twelve months ended December 31, 1997 was $5,037,980,
compared to $5,248,593 for the corresponding period in 1996. The decrease in
rental income is primarily due to the fact that the two aircraft leased by
Eastwind were not being operated on a daily basis for the first two months of
1997 because of maintenance-related issues, including the installation of a
hushkit on one aircraft.
Other income totaled $99,722 for the twelve months ended December 31, 1997,
compared to $43,353 for the corresponding period in 1996. The increase primarily
represents payment received from USAirways, Inc. ("USAir") for the settlement
and release of claims relating to the lease and maintenance of the Boeing
737-200 aircraft, previously on lease with USAir. The balance of $43,353 at
December 31, 1996 reflects a payment received by the Partnership as settlement
of an administrative claim by the Partnership against Pan American World
Airways, Inc. ("Pan Am") which was filed in Bankruptcy Court in 1992. The
Partnership was seeking to recover certain rent and maintenance costs associated
with Pan Am's failure to comply with the return provisions of its lease.
Interest income for the twelve months ended December 31, 1997 totaled $129,090,
compared to $150,740 for the corresponding period in 1996. The decrease is
primarily due to a decrease in the Partnership's invested cash balance during
the 1997 period.
Depreciation expense for the twelve months ended December 31, 1997 totaled
$3,211,650, compared to $4,076,214 for the corresponding period in 1996. The
decrease is primarily attributable to the full depreciation of Eastwind's
aircraft N220US and N221US as of December 31, 1996.
General and Administrative expenses at December 31, 1997 totaled $230,295 as
compared with $192,656 at December 31, 1996. During the 1997 period, certain
expenses incurred by an unaffiliated third party service provider in servicing
the Partnership, which were voluntarily absorbed by affiliates of Jet Aircraft
Leasing Inc. in prior periods, were reimbursable to Jet Aircraft Leasing Inc.
and its affiliates.
Operating expenses for the twelve months ended December 31, 1997 totaled
$227,905, compared to $194,231 for the corresponding period in 1996. The
increase is primarily attributable to maintenance and repairs on the aircraft
leased by Eastwind.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1998.
<PAGE>
10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no officers or directors. The General Partners jointly
manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners are as
follows:
Jet Aircraft Leasing Inc.
-------------------------
Name Office
---- ------
Rocco F. Andriola Director
Michael T. Marron Director, President and Chief Financial Officer
William T. McDermott Vice President
Certain officers and directors of Jet Aircraft Leasing, Inc. are now serving (or
in the past have served) as officers or directors of entities which act as
general partners of a number of limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. Those
partnerships sought the protection of the bankruptcy laws to protect the
partnerships' assets from loss through foreclosure.
Rocco F. Andriola, 40, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of
First Vice President in Lehman's Capital Preservation and Restructuring Group.
From 1986 to 1989, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LL.M
in Corporate Law from New York University's Graduate School of Law.
Michael T. Marron, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick Mitchell
& Co. serving in both its audit and tax divisions from 1985 to 1989. Mr. Marron
received his B.S. degree from the State University of New York at Albany and an
MBA from Columbia University.
William T. McDermott, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1998. Mr. McDermott joined Lehman
Brothers in 1993 and held various positions within the firm before joining the
Diversified Asset Group. Prior to joining Lehman Brothers, Mr. McDermott was a
financial analyst with Cantor Fitzgerald Inc. from 1991 - 1993 and was
associated with Arthur Andersen & Co. serving in both its audit and bankruptcy
consulting divisions from 1985 to 1991. Mr. McDermott received his B.B.A. degree
from the University of Notre Dame and is a Certified Public Accountant.
CIS Aircraft Partners, Inc.
---------------------------
Name Office
---- ------
Thomas J. Prinzing Director and President
Robin A. Konicek Vice President
<PAGE>
11
As reported on the Partnership's Report on Form 8-K, dated February 28, 1989, on
Friday, January 13, 1989, Continental Information Systems Corporation, and
certain of its subsidiaries, including CIS Corporation, filed voluntary
petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code. As
described below, various directors and executive officers of CAP hold similar
positions for Continental Information Systems Corporation, CIS Corporation and
such subsidiaries.
On November 29, 1994, the Bankruptcy Court for the Southern District of New York
confirmed the Trustee's Proposed Joint Plan of Reorganization. The approved Plan
became effective on December 21, 1994. As a result of the reorganization, the
Directors and Officers of CAP resigned from and took on various directorships
for Continental Information Systems Corporation, CIS Corporation, and their
subsidiaries.
Thomas J. Prinzing, 53, is President of CIS Aircraft Partners, Inc. since 1991.
Mr. Prinzing, a Certified Public Accountant, received a Bachelor of Commerce
degree from the University of Windsor.
Robin A. Konicek, 42, is a Vice President of CIS Aircraft Partners, Inc. and is
responsible for domestic and international aircraft marketing. She has been
active in the financing, trading and management of aircraft since 1982. Prior to
joining CIS in 1986, Ms. Konicek was a Vice President of Crocker Bank Airlines
and Aerospace Group, with major responsibility for developing the U.S. market.
She holds an A.B. from Stanford University and an M.B.A. from the University of
California, Los Angeles.
Item 11. Executive Compensation
No compensation was paid by the Partnership to the officers and directors of the
General Partners. See Item 13 below for a description of the compensation and
fees paid to the General Partners and their affiliates by the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners As of the date hereof, no
person is known by the Partnership to be the beneficial owner of more than
five percent of the Units of the Partnership.
(b) Security ownership of management The Partnership has no directors or
officers, and neither of the General Partners of the Partnership owns any
Units. The Assignor Limited Partners for the Partnership, CIS Assignor
L.P.A., Inc. (an affiliate of CIS), owns 5 Units.
None of the directors or officers of the General Partners owned any Units
as of December 31, 1998.
(c) Changes in control Other than as described herein, the Partnership knows
of no arrangements, the operation of the terms of which may at a subsequent
date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
The General Partners and their affiliates received or will receive certain types
of compensation, fees, or other distributions in connection with the operation
of the Partnership. The fees and compensation were not determined by, and may
not necessarily reflect, arm's length negotiations. None of the officers and
directors of the General Partners received any compensation from the
Partnership. During 1998 and 1997, certain expenses incurred by an unaffiliated
third party service provider in servicing the Partnership, which were
voluntarily absorbed by affiliates of Jet Aircraft Leasing, Inc. in prior
periods, were reimburseable to Jet Aircraft Leasing Inc. and its affiliates. For
additional information on fees paid to the General Partners and affiliates,
refer to Note 7 of the Notes to the Financial Statements of the Partnership's
Annual Report to Unitholders for the year ended December 31, 1998.
<PAGE>
12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Page
Number
------
Balance Sheets - December 31, 1998 and 1997........................(1)
Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1998, 1997 and 1996...............(1)
Statements of Operations -
For the years ended December 31, 1998, 1997and 1996................(1)
Statements of Cash Flows -
For the years ended December 31, 1998, 1997 and 1996...............(1)
Notes to the Financial Statements..................................(1)
Report of Independent Public Accountants...........................(1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1998.
2. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
3. Exhibits
(3) Articles of Incorporation and bylaws (Incorporated by reference
to the Partnership's Prospectus filed with the Commission on
April 17, 1987.)
(4) Depositary Agreement (Incorporated by reference to Exhibit 4.5 to
the Partnership's Registration Statement on Form S-1 filed with
the Commission on April 17, 1987.)
(10) Escrow Agreement (Incorporated by reference to Exhibit 10.12 to
the Partnership's Registration Statement on Form S-1 filed with
the Commission on April 17, 1987.)
(13) Annual Report to Unitholders for the year ended December 31, 1998.
(27) Financial Data Schedule
(b) The Partnership filed no current reports on Form 8-K during the last
quarter of the period covered by this Report.
<PAGE>
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JETSTREAM, L.P.
BY: Jet Aircraft Leasing Inc.
Administrative General Partner
Date: March 29, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
BY: CIS Aircraft Partners, Inc.
Managing General Partner
Date: March 29, 1999 BY: /s/Thomas J. Prinzing
---------------------
Name: Thomas J. Prinzing
Title: Director and President
<PAGE>
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
BY: CIS Aircraft Partners, Inc.
A General Partner
Date: March 29, 1999 BY: /s/Thomas J. Prinzing
---------------------
Name: Thomas J. Prinzing
Title: Director and President
Date: March 29, 1999 BY: /s/Robin A. Konicek
-------------------
Name: Robin A. Konicek
Title: Vice President
<PAGE>
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
JET AIRCRAFT LEASING INC.
A General Partner
Date: March 29, 1999 BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director
Date: March 29, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
Date: March 29, 1999 BY: /s/William T. McDermott
-----------------------
Name: William T. McDermott
Title: Vice President
EXHIBIT 13
JetStream, L.P.
1998 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
JETSTREAM, L.P.
- --------------------------------------------------------------------------------
JetStream, L.P. commenced operations in 1987 and was formed to
acquire used commercial aircraft subject to triple net operating
leases with commercial airlines. Since inception, limited
partners have received cash distributions totaling approximately
$17.05 per $20.00 Unit. The following table provides the
quarterly cash distributions per Unit paid by the Partnership for
the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Quarter Declared 1998 1997
--------------------------------------------
<S> <C> <C>
First Quarter $ .212 $ .244
Second Quarter .222 .169
Third Quarter .144 .275
Fourth Quarter .151 .290
------ ------
Total $ .729 $ .978
============================================
</TABLE>
Contents
1 Message to Investors
3 Financial Statements
6 Notes to the Financial Statements
11 Report of Independent Public Accountants
<PAGE>
1
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
Presented for your review is the 1998 Annual Report for JetStream, L.P. (the
"Partnership"). This message includes an overview of conditions in the airline
and aircraft leasing industries, an update on the Partnership's portfolio of
aircraft, and highlights of the Partnership's financial results. Also provided
are the Partnership's audited financial statements for the year ended December
31, 1998.
Industry Overview
The United States airline industry continued to perform well in 1998 as the
economy continued its strong growth this past year. The number of passengers
traveling within the United States increased by approximately 5%, which in turn
led to an increase in revenues. This increase was tempered somewhat by recent
fare reductions, but overall, net income for most airlines increased in 1998.
Forecasts are for continued growth in this industry.
However, future opportunities for leasing Stage 2 aircraft, such as the
Partnership's, are likely to be restricted due to the implementation of noise
compliance regulations developed in accordance with the Airport Noise and
Capacity Act of 1990, requiring airlines to reduce the number of older aircraft
in their fleets. These regulations specify, among other things, phase-out and
non-addition rules under which the number of Stage 2 aircraft operated by
domestic carriers are limited to 25% of 1990 base levels by the end of 1998 and
ultimately to 0% by December 31, 1999. The scheduled phase-out of Stage 2
aircraft combined with the prolonged difficulties in the airline industry during
the early 1990's has had a substantial impact on residual aircraft values of
Stage 2 aircraft. An update on the status of hushkitting the Partnership's Stage
2 planes is discussed below.
Portfolio Update
Information on the lease status of each aircraft follows:
MD-80 Series Aircraft - The lease agreement with Continental Airlines
("Continental") for the Partnership's MD-80 Series aircraft was scheduled to
expire in March 1999. In October 1998, Continental exercised its option to renew
this lease through March 2000 with the remaining lease terms unchanged. The
lease requires Continental to make monthly payments of $180,000. This is a Stage
3 aircraft which meets the noise compliance guidelines set by the Federal
Aviation Administration (the "FAA").
737-200 Advanced Aircraft - The lease with Delta Air Lines ("Delta") for the
Partnership's 737-200 advanced aircraft expires in September 1999. Pursuant to
the lease terms, Delta makes monthly payments of $80,000. We are currently
negotiating an extension of this lease with Delta which would also require Delta
to hushkit the plane.
737-200 Non-advanced Aircraft - The Partnership's two 737-200 non-advanced
aircraft are currently on-lease to Eastwind. Under the terms of the lease
agreements which expire on November 30, 1999, Eastwind is required to pay the
Partnership monthly $35,000 per aircraft. In addition, the airline is required
to pay the Partnership an airframe maintenance charge based on usage. As
discussed in previous reports, Eastwind is delinquent on rental payments and
maintenance reserves totaling $583,453 and has contacted the General Partners to
renegotiate the lease terms. In light of this development, the Partnership
established a reserve in 1998 for bad debts in the amount of $533,453. The
General Partners will aggressively pursue all appropriate remedies available to
the Partnership with respect to the collection of these rental payments. One of
the Eastwind aircraft has been hushkitted and now meets the FAA's noise
compliance guidelines. The other aircraft will not be hushkitted prior to the
expiration of its lease. We will attempt to either re-lease the aircraft to an
operator who will hushkit it or sell the aircraft.
<PAGE>
2
727-200 Non-advanced Aircraft - In September 1998, the Partnership entered into
two lease agreements with Sun Pacific for the two 727-200 non-advanced aircraft
which were previously leased to TWA. Pursuant to the lease terms, Sun Pacific is
required to pay the Partnership monthly $64,042 per aircraft and a maintenance
charge based on usage commencing upon the completion of certain required
maintenance on the aircraft to be funded by TWA. The aircraft were delivered to
Sun Pacific with an assignment of the maintenance payments of $360,656 and
$360,792, respectively, received from TWA. The Partnership agreed to assign
these funds in order for Sun Pacific to perform the required maintenance on the
aircraft. As of December 31, 1998, the maintenance on the aircraft had not been
completed, and no funds had been collected pursuant to the terms of the leases.
Sun Pacific is required to hushkit the aircraft prior to December 31, 1999.
Financial Highlights
Provided below is a review of Partnership operations for the year ended
December 31,
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Rental Income $4,813,390 $5,037,980
Total Expenses 4,473,009 4,117,718
Net Income 444,902 1,149,074
Net Cash provided by Operating Activities 4,012,891 5,212,862
- ------------------------------------------------------------------------
</TABLE>
o Rental income decreased primarily as a result of the Partnership's two
727-200 aircraft being off-lease following expiration of the leases with
TWA.
o The increase in total expenses is primarily due to the establishment of a
reserve in 1998 for the amounts due from Eastwind.
o The decreases in net income and net cash provided by operating activities
are attributable primarily to the establishment of a reserve for the amounts
due from Eastwind and the decrease in rental income.
General Information
As you are probably aware, several unaffiliated third parties have commenced
tender offers to purchase Units of the Partnership at prices that are below the
Partnership's estimate of the net asset value per Unit. In response, we have
recommended that Limited Partners reject these offers since we believe that they
do not reflect the underlying value of the Partnership's assets.
Summary
We will continue our efforts to effectively manage the Partnership's aircraft.
It should be noted, however, that since the total return from your investment in
the Partnership relies upon the aircrafts' ultimate selling prices, declines in
residual values in recent years have impacted your investment. We will update
you on the status of the Partnership's operations in future correspondence. In
the interim, questions regarding the Partnership should be directed to your
Financial Consultant or Partnership Investor Services. All requests for a change
of address should be submitted in writing to the Partnership's administrative
agent at P.O. Box 7090, Troy, MI 48007-7090. Partnership Investor Services can
be reached at 617-342-4225, and the Partnership's administrative agent can be
reached at 248-637-7900.
Very truly yours,
Jet Aircraft Leasing Inc. CIS Aircraft Partners, Inc.
A General Partner A General Partner
Michael T. Marron Thomas J. Prinzing
President President
March 29, 1999
<PAGE>
3
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
BALANCE SHEETS
At December 31, At December 31,
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Aircraft, at cost: $ 25,987,000 $ 25,987,000
Less accumulated depreciation (19,901,456) (16,689,816)
------------------------------
6,085,544 9,297,184
Cash and cash equivalents 1,853,981 2,131,335
Rent receivable (net of allowance for doubtful
accounts of $533,453 in 1998) 50,000 79,053
- -------------------------------------------------------------------------------------
Total Assets $ 7,989,525 $ 11,507,572
=====================================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 635,127 $ 307,831
Distribution payable 748,094 1,433,890
Deferred revenue 90,000 90,000
Security deposit 50,000 50,000
------------------------------
Total Liabilities 1,523,221 1,881,721
------------------------------
Partners' Capital (Deficit):
General Partners (912,047) (880,452)
Limited Partners (4,895,005 units outstanding) 7,378,351 10,506,303
------------------------------
Total Partners' Capital 6,466,304 9,625,851
- -------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 7,989,525 $ 11,507,572
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1998, 1997, and 1996
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $(803,082) $18,296,059 $17,492,977
Net income 6,878 680,956 687,834
Distributions (47,340) (4,816,723) (4,864,063)
- -------------------------------------------------------------------------------------
Balance at December 31, 1996 (843,544) 14,160,292 13,316,748
Net income 11,491 1,137,583 1,149,074
Distributions (48,399) (4,791,572) (4,839,971)
- -------------------------------------------------------------------------------------
Balance at December 31, 1997 (880,452) 10,506,303 9,625,851
Net income 4,449 440,453 444,902
Distributions (36,044) (3,568,405) (3,604,449)
- -------------------------------------------------------------------------------------
Balance at December 31, 1998 $(912,047) $ 7,378,351 $ 6,466,304
=====================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental $4,813,390 $5,037,980 $5,248,593
Interest 104,393 129,090 150,740
Other 128 99,722 43,353
------------------------------------------
Total Income 4,917,911 5,266,792 5,442,686
- -------------------------------------------------------------------------------------
Expenses
Depreciation 3,211,640 3,211,650 4,076,214
Management fees (Note 7) 387,675 447,868 421,751
General and administrative 334,335 230,295 192,656
Operating 5,906 227,905 194,231
Bad debts 533,453 -- --
------------------------------------------
Total Expenses 4,473,009 4,117,718 4,884,852
- -------------------------------------------------------------------------------------
Income from Operations 444,902 1,149,074 557,834
- -------------------------------------------------------------------------------------
Other Income
Gain on sale of aircraft and
engine (Note 5) -- -- 130,000
- -------------------------------------------------------------------------------------
Net Income $ 444,902 $1,149,074 $ 687,834
=====================================================================================
Net Income Allocated:
To the General Partners $ 4,449 $ 11,491 $ 6,878
To the Limited Partners 440,453 1,137,583 680,956
- -------------------------------------------------------------------------------------
$ 444,902 $1,149,074 $ 687,834
=====================================================================================
Per limited partnership unit
(4,895,005 outstanding) $ 0.09 $ 0.23 $ 0.14
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
5
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 444,902 $ 1,149,074 $ 687,834
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,211,640 3,211,650 4,076,214
Bad debts 533,453 -- --
Gain on sale of aircraft and engine -- -- (130,000)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash -- 321,797 --
Rent receivable (504,400) 524,258 (544,553)
Interest receivable -- 327 278
Prepaid expenses -- -- 3,125
Accounts payable and accrued
expenses 327,296 5,756 57,428
----------- ----------- -----------
Net cash provided by operating
activities 4,012,891 5,212,862 4,150,326
- -------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Additions to aircraft -- -- (1,700,000)
Loan receivable -- 99,688 72,948
Proceeds from sale of aircraft and
engine-net -- -- 130,000
----------- ----------- -----------
Net cash provided by (used for)
investing activities -- 99,688 (1,497,052)
- -------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Cash distributions (4,290,245) (4,754,809) (4,574,113)
----------- ----------- -----------
Net cash used for financing activities (4,290,245) (4,754,809) (4,574,113)
- -------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (277,354) 557,741 (1,920,839)
Cash and cash equivalents,
beginning of period 2,131,335 1,573,594 3,494,433
----------- ----------- -----------
Cash and cash equivalents,
end of period $ 1,853,981 $ 2,131,335 $ 1,573,594
=====================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
6
JETSTREAM, L.P.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. Organization
JetStream, L.P. (the "Partnership"), a Delaware limited partnership, was formed
on April 16, 1987 for the purpose of acquiring and leasing used commercial
aircraft. The Managing General Partner of the Partnership is CIS Aircraft
Partners, Inc. ("CAP"), a third-tier, wholly owned subsidiary of Continental
Information Systems Corporation. The Administrative General Partner is Jet
Aircraft Leasing Inc. ("JAL"), formerly Hutton Aircraft Leasing, Inc., an
affiliate of Lehman Brothers Inc.
Upon formation of the Partnership, the General Partners each contributed $500
and the initial Limited Partner contributed $100 for five limited partner units.
An additional 4,895,000 limited partnership depositary units were then sold at a
price of $20.00 per unit. The Partnership had a closing for these additional
units on October 28, 1987 and received gross offering proceeds of $97,900,000.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2027. The Partnership may reinvest the proceeds from
sales of aircraft occurring prior to November 4, 1998. Thereafter, net proceeds
from any sales of aircraft will be distributed to the partners, after deductions
of amounts necessary for working capital and certain reserves.
Title to the aircraft owned by the Partnership is held by nonaffiliated trusts
of which the Partnership is the beneficiary. The purpose of this method of
holding title is to satisfy certain registration requirements of the Federal
Aviation Administration.
2. Significant Accounting Policies
Basis of Accounting The accompanying financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles. Revenues are recognized as earned and expenses are recorded as
obligations are incurred.
Aircraft and Depreciation The aircraft were recorded at cost, which includes
acquisition costs. Through December 31, 1993, depreciation to an estimated
salvage value of 10% was computed using the straight-line method over an
estimated average economic life of twelve years for all aircraft owned by the
Partnership. Beginning in 1994, depreciation was computed using the
straight-line method over an estimated remaining economic life of two to six
years for all aircraft owned by the Partnership.
Improvements to aircraft required to comply with regulatory requirements will be
capitalized when incurred and depreciated over the useful life of the
improvement.
Accounting for Impairment The Partnership accounts for impairment losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount.
Cash Equivalents Cash equivalents consist of highly liquid short-term
investments with original maturities of three months or less from the date of
issuance. The carrying amount approximates fair value because of the short
maturity of these instruments.
Concentration of Credit Risk Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash in
excess of the financial institutions' insurance limits. The Partnership invests
available cash with high credit quality financial institutions.
Operating Leases The aircraft leases are accounted for as operating leases.
Lease revenues, including payments for maintenance and power-by-the-hour
charges, are recognized over the terms of the related leases. Some of the
Partnership's operating leases require rental payments to be paid in advance.
Rental payments received in advance are deferred and then recognized as income
when earned.
<PAGE>
7
JETSTREAM, L.P.
Income Taxes No provision for income taxes has been made in the accompanying
financial statements since such taxes are the responsibility of individual
partners rather than the Partnership (Note 8).
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Partnership Allocations
The Amended and Restated Limited Partnership Agreement ("Agreement") executed on
September 10, 1987 substantially provides for the following:
Cash Distributions Cash flow from operations as defined in the Agreement, at
the discretion of the General Partners, will be distributed on a quarterly
basis, 99% to the Limited Partners and 1% to the General Partners. Distributable
proceeds from sales of aircraft in liquidation of the Partnership will be
distributed in accordance with the partners' capital accounts after all
allocations of income and losses.
Allocation of Income and Losses Generally, income and losses for any year are
allocated 99% to the Limited Partners and 1% to the General Partners. Gains on
sale of aircraft shall first be allocated to the General Partners until they
have been allocated an amount of gain equal to the lesser of their respective
deficit account balances or 1.01% of all capital contributions by Limited
Partners. Any additional gain recognized by the Partnership upon the sale of
aircraft shall be allocated 99% to the Limited Partners and 1% to the General
Partners.
Dissolution of Partnership If, upon dissolution of the Partnership, the General
Partners have a negative capital account, they shall contribute capital equal to
the lesser of their respective capital deficit account balances or 1.01% of all
capital contributed by the Limited Partners.
4. Aircraft under Operating Leases
The Partnerships' aircraft leases are triple net operating leases, requiring the
lessees to pay substantially all expenses associated with the aircraft during
the term of the leases, as described below:
Eastwind Airlines On October 30, 1987, the Partnership acquired three Boeing
737-200 non-advanced aircraft for a total purchase price of $22,805,997. One of
the aircraft was sold in February 1994. The remaining two aircraft are subject
to lease agreements ("Agreements") with Eastwind Airlines, Inc. ("Eastwind"),
which were entered into on July 12, 1995. The Agreements provide for Eastwind to
lease two Boeing 737-200 non-advanced aircraft for a term of four years.
Effective November 15, 1995, Eastwind is required to pay $35,000 per aircraft
per month in advance. In addition, Eastwind is also required to pay maintenance
charges effective August 1, 1995 based on flight hours or flight cycles.
Maintenance charges shall be $80 per airframe flight hour for scheduled "Q"
checks and $7.50 per flight hour for scheduled landing gear overhaul. Eastwind
paid to the Partnership a security deposit of $25,000 per aircraft. At December
31, 1998, Eastwind owed the Partnership base rent and maintenance reserve
payments totaling $583,453, and has contacted the General Partners to
renegotiate the terms of its leases. In light of this development, the
Partnership established an allowance of $533,453 at December 31, 1998 against
this receivable.
The Partnership paid $850,000 per aircraft for an FAA mandated heavy maintenance
check ("Q" Check) for each of the aircraft leased to Eastwind. The cost of the
"Q" Check has been capitalized and is being amortized over a four year period.
Maintenance charges have been increased to the greater of $81 per flight hour or
$20,240 per month.
<PAGE>
8
JETSTREAM, L.P.
Delta Air Lines, Inc. On November 2, 1987, the Partnership acquired a Boeing
737-200 advanced aircraft for a total purchase price of $15,222,609. This
aircraft is subject to an operating lease with Delta Air Lines, Inc. ("Delta").
In June 1992, the General Partners and Delta agreed to amend and extend the
original lease agreement. In November 1995, another agreement was reached to
amend and extend the lease until September 30, 1999 at a monthly lease rate of
$80,000. The remaining terms of the lease were unchanged.
Trans World Airlines, Inc. On November 2, 1987, the Partnership acquired three
Boeing 727-200 non-advanced aircraft for a total purchase price of $16,345,497.
These aircraft were subject to operating leases with Trans World Airlines, Inc.
("TWA"), which leases were amended and extended to the fourth quarter of 1994.
One of the aircraft was returned to the Partnership in December 1994 and sold in
June 1995. TWA extended the leases on the remaining two aircraft to April 30,
1995. Thereafter, TWA leased the two aircraft on a month-to-month basis at
$32,500 per month per aircraft paid in advance. TWA terminated its leases on
these aircraft and returned one plane in July 1998 and another in September
1998. In accordance with the lease agreement, TWA was to have performed certain
required maintenance prior to returning the aircraft. In lieu of having TWA
perform this maintenance, the Partnership agreed to receive payments of $360,656
and $360,792 for each respective aircraft from TWA, plus a commitment from TWA
for up to an additional $200,000 per aircraft, if supported by legitimate
maintenance costs.
Sun Pacific International, Inc. In September 1998, the Partnership entered into
two lease agreements with Sun Pacific International, Inc. ("Sun Pacific") for
the two 727-200 non-advanced aircraft which were previously leased to TWA.
Pursuant to the terms of the lease agreements, Sun Pacific is required to pay
the Partnership a monthly lease rate of $64,042 per aircraft commencing upon the
completion of certain required maintenance on the aircraft. In addition, the
airline is required to pay the Partnership a maintenance charge based on usage.
The aircraft were delivered to Sun Pacific with an assignment of the above
described maintenance payments of $360,656 and $360,792 received from TWA. The
Partnership agreed to assign these funds in order for Sun Pacific to perform
required maintenance on the aircraft. As of December 31, 1998, the maintenance
on the aircraft had not been completed, and no funds had been collected pursuant
to the terms of the leases.
Continental Airlines, Inc. On October 29, 1987, the Partnership acquired a
McDonnell Douglas MD-80 Series aircraft for a total purchase price of
$27,396,997. This aircraft was subject to an operating lease with Continental
Airlines, Inc., the term of which expired on April 28, 1993. Subsequent to the
expiration date of April 28, 1993, Continental returned the aircraft to the
Partnership. On February 9, 1994, the Partnership entered into a new lease
agreement with Continental. The agreement provided for Continental to lease the
plane for a term of four years, and pay $180,000 per month in advance effective
March 15, 1994. In addition, the Partnership made a one-time payment of $750,000
from the maintenance reserve funds in March 1994 to perform various maintenance
work on the plane. Also, the Partnership agreed to provide up to $600,000 of
financing to Continental to perform modification work on the aircraft, including
advanced avionics, interior furnishings and exterior paint.
The modification financing was repayable over the life of the lease at an
interest rate of 8% per annum for advances made before February 1, 1996. On June
7, 1994, the Partnership made its only advance to Continental in the amount of
$278,203. The notes were prepaid in full in September 1997. Having made all of
the modifications permitted under the Participation Agreement, Continental no
longer can borrow any funds and the Partnership has been released from its
obligation to lend.
The lease with Continental Airlines for the Partnership's MD-80 series aircraft
was previously scheduled to expire in March 1998. However, in September 1997,
the Partnership reached an agreement with Continental to extend the lease
through March 1999, and in October 1998, Continental exercised its second option
to renew this lease through March 2000, with the remaining terms of the lease
unchanged.
<PAGE>
9
JETSTREAM, L.P.
Revenues from each of the airlines as a percentage of the Partnership's total
rental revenues are as follows:
<TABLE>
<CAPTION>
Percent of Rental Revenues
---------------------------------------------------
Airline 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Eastwind 25.6% 15.5% 25.7%
Delta 19.9 20.8 18.3
TWA 9.6 16.9 14.9
Continental 44.9 46.8 41.1
---------------------------------------------------
</TABLE>
The following is a schedule, by year, of future minimum rental income under all
leases as of December 31, 1998.
<TABLE>
<CAPTION>
Year Amount
---------------------------------------------------
<S> <C>
1999 $5,187,008
2000 1,730,840
---------------------------------------------------
Total $6,917,848
===================================================
</TABLE>
The above schedule of future minimum rental income is based on the existing
terms of the leases and does not include the rental income that may result from
the renewal of existing leases or the re-leasing of the aircraft, if any.
5. Sale of Engine
In August 1996, the Partnership sold an engine that was previously on one of the
Partnership's 737-200 aircraft currently on-lease to Eastwind for a $130,000
gain.
6. Distributions
Distributions declared aggregated $3,604,449 (approximately $.73 per unit),
$4,839,971 (approximately $.98 per unit) and $4,864,063 (approximately $.98 per
unit) for the years ended December 31, 1998, 1997 and 1996, respectively, of
which $130,000 in 1996 represented proceeds from the sale of an engine, and was
a return of capital to the Limited Partners. As of December 31, 1998, the
Partnership had declared a distribution of $748,094, of which $740,613
(approximately $.15 per unit) was paid to the Limited Partners and $7,481 was
paid to the General Partners on March 4, 1999.
7. Transactions with Affiliates
Base Management Fee The General Partners receive a quarterly fee subordinated
to the Limited Partners receiving their Preferred Return as defined in the
Agreement in an amount equal to 1.5% of gross aircraft rentals. Of this amount,
1.0% is payable to CAP and .5% is payable to JAL.
Incentive Management Fee CAP receives a quarterly fee of 4.5% of quarterly cash
flow subordinated to the Limited Partners receiving their Preferred Return.
Re-lease Fee The General Partners receive a quarterly fee subordinated to the
Limited Partners receiving their Preferred Return, for re-leasing aircraft or
renewing a lease in an amount equal to 3.5% of the gross rentals from such
re-lease or renewal for each quarter for which such payment is made. Of this
amount, 2.5% is payable to CAP and 1.0% is payable to JAL.
Resale Fee CAP receives a subordinated fee with respect to each aircraft sold
by the Partnership in an amount equal to the lesser of (i) 3% of the contract
sales price of the aircraft or (ii) an amount that is competitive with fees
charged by nonaffiliates rendering comparable services. Such fees will be
reduced (but not below zero) for any resale fees or commissions payable to third
parties. The resale fee is subordinate to the Limited Partners receiving a
priority return equal to their original capital contribution plus their
preferred return. No resale fees were earned during 1998, 1997 and 1996.
<PAGE>
10
JETSTREAM, L.P.
During 1998 the Limited Partners did not receive their Preferred Returns.
Therefore these management fees have not been paid. The following is a summary
of amounts earned by the General Partners and their affiliates during the years
ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Unpaid at Earned
December 31, ------------------------------
1998 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Base Management Fee $ 59,725 $ 59,725 $ 62,872 $ 67,228
Incentive Management Fee 183,534 183,534 232,684 191,968
Re-lease Fee 144,416 144,416 152,312 162,555
----------------------------------------------------------------------
$387,675 $387,675 $447,868 $421,751
=========================================
</TABLE>
8. Reconciliation of Difference between Net Income in the Financial Statements
(Accrual Basis - Generally Accepted Accounting Principles) and Net Income in
the Partnership's Tax Return
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $ 444,902 $1,149,074 $ 687,834
Adjustments--
Prepaid insurance -- -- 3,125
Loss on sale of asset -- -- (130,000)
Allowance for doubtful accounts 533,453 (70,000) --
Depreciation differential between
the Modified Accelerated Cost
Recovery System and depreciation
for financial reporting purposes 2,635,913 1,856,804 139,871
Amortization -- (6,361) --
Legal fees, net of amortization -- -- (7,476)
------------------------------------------
Total adjustments 3,169,366 1,780,443 5,520
- -------------------------------------------------------------------------------------
Net income, per Partnership's tax return $3,614,268 $2,929,517 $693,354
------------------------------------------
The net income determined on the
income tax basis is allocated to
the partners as follows:
Limited partners (4,895,005 units) $3,578,125 $2,900,222 $686,421
General partners 36,143 29,295 6,933
------------------------------------------
$3,614,268 $2,929,517 $693,354
------------------------------------------
Taxable income per limited partner unit $ 0.73 $ 0.59 $ 0.14
- -------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the tax basis of total assets and total liabilities was
$13,650,447 and $1,399,716, respectively.
Schedule II Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Period
- -------------------------------------------------------------------------------------
Allowance for doubtful accounts:
<S> <C> <C> <C>
Year ended December 31, 1998: $ -0- $533,453 $533,453
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
11
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Partners of
JetStream, L.P.:
We have audited the accompanying balance sheets of JetStream, L.P. (a Delaware
limited partnership) as of December 31, 1998 and 1997, and the related
statements of operations, partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JetStream, L.P. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 1,853,981
<SECURITIES> 000
<RECEIVABLES> 50,000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 1,903,981
<PP&E> 25,987,000
<DEPRECIATION> 19,901,456
<TOTAL-ASSETS> 7,989,525
<CURRENT-LIABILITIES> 1,523,221
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 6,466,304
<TOTAL-LIABILITY-AND-EQUITY> 7,989,525
<SALES> 000
<TOTAL-REVENUES> 4,917,911
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 4,473,009
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 444,902
<INCOME-TAX> 000
<INCOME-CONTINUING> 444,902
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 444,902
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
