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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 0-17785
AIRCRAFT INCOME PARTNERS L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3430508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Suite 270, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7444
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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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AIRCRAFT INCOME PARTNERS L. P.
FORM 10-Q - JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1999 and December 31, 1998.............. 1
STATEMENTS OF OPERATIONS - For the three months ended
June 30, 1999 and 1998 and for the six months ended
June 30, 1999 and 1998...................................... 2
STATEMENT OF PARTNERS' EQUITY - For the six months ended
June 30, 1999............................................... 3
STATEMENTS OF CASH FLOWS - For the six months ended
June 30, 1999 and 1998...................................... 4
NOTES TO FINANCIAL STATEMENTS..................................... 5-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 9-11
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS............................................. 12
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ............................. 12
SIGNATURES............................................................... 13
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AIRCRAFT INCOME PARTNERS L.P.
BALANCE SHEETS
June 30, December 31,
1999 1998
---------- ------------
ASSETS
Cash and cash equivalents $ 5,306,548 $ 4,199,804
Equipment held for sale, net 1,162,810 5,058,237
Accounts receivable 471,250 471,250
Deferred costs 14,568 19,700
Prepaid expenses 14,703 -
Other receivables 8,991 38,886
----------- -----------
$ 6,978,870 $ 9,787,877
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 182,658 $ 540,437
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (385,805
units issued and outstanding) 6,107,636 8,313,741
General partner's equity 688,576 933,699
---------- -----------
Total partners' equity 6,796,212 9,247,440
---------- -----------
$ 6,978,870 $ 9,787,877
=========== ===========
See notes to financial statements.
1
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AIRCRAFT INCOME PARTNERS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- ------------------------------
1999 1998 1999 1998
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues
Interest $ 42,201 $ 269,406 $ 84,824 $ 365,200
Other income 32,661 - 98,672 -
Rental - 1,426,556 - 2,896,644
Interest - installment note - 59,281 - 122,035
---------- ----------- ------------ -----------
74,862 1,755,243 183,496 3,383,879
---------- ----------- ------------ -----------
Costs and expenses
Provision for equipment impairment 180,000 - 2,071,000 -
General and administrative 187,439 57,566 334,637 132,302
Operating 67,367 332,254 191,087 497,469
Other expenses - 22,274 38,000 42,575
Depreciation - 791,735 - 1,684,059
Management fee - 180,200 - 180,200
---------- ----------- ------------ -----------
434,806 1,384,029 2,634,724 2,536,605
---------- ----------- ------------ -----------
(359,944) 371,214 (2,451,228) 847,274
Gain on sale of aircraft - net - 1,360,469 - 3,612,796
---------- ----------- ------------ -----------
Net (loss) income $ (359,944) $ 1,731,683 $ (2,451,228) $ 4,460,070
========== =========== ============ ===========
Net (loss) income attributable
Limited partners $ (323,950) $ 1,558,515 $ (2,206,105) $ 4,014,063
General partner (35,994) 173,168 (245,123) 446,007
---------- ----------- ------------ -----------
$ (359,944) $ 1,731,683 $ (2,451,228) $ 4,460,070
=========== =========== ============ ===========
Net (loss) income per unit of limited
partnership interest (385,805 units
outstanding) $ (.84) $ 4.04 $ (5.72) $ 10.40
=========== =========== ============ ===========
</TABLE>
See notes to financial statements.
2
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AIRCRAFT INCOME PARTNERS L.P.
STATEMENT OF PARTNERS' EQUITY
Limited General Total
Partners' Partner's Partners'
Equity Equity Equity
----------- ---------- -----------
Balance, January 1, 1999 $ 8,313,741 $ 933,699 $ 9,247,440
Net loss for the six months
ended June 30, 1999 (2,206,105) (245,123) (2,451,228)
----------- ---------- -----------
Balance, June 30, 1999 $ 6,107,636 $ 688,576 $ 6,796,212
=========== ========== ===========
See notes to financial statements.
3
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AIRCRAFT INCOME PARTNERS L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
June 30,
------------------------------
1999 1998
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net (loss) income $ (2,451,228) $ 4,460,070
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities
Provision for equipment impairment 2,071,000 -
Depreciation - 1,684,059
Gain on disposition of aircraft, net - (3,612,796)
Changes in assets and liabilities
Accounts receivable - 48,471
Deferred costs 5,132 22,968
Prepaid expenses (14,703) 1,822
Other receivables 29,895 16,801
Accounts payable and accrued expenses (357,779) 46,742
Deferred income - 2,437
Maintenance reserves - (900,431)
Management fee payable - 180,200
------------ -----------
Net cash (used in) provided by operating activities (717,683) 1,950,343
------------ -----------
Cash flows from investing activities
Proceeds from sale of aircraft, net 1,824,427 7,370,121
Proceeds from installment sale note receivable - 309,965
------------ -----------
Net cash provided by investing activities 1,824,427 7,680,086
------------ -----------
Net increase in cash and cash equivalents 1,106,744 9,630,429
Cash and cash equivalents, beginning of period 4,199,804 6,432,713
------------ -----------
Cash and cash equivalents, end of period $ 5,306,548 $16,063,142
============ ===========
</TABLE>
See notes to financial statements.
4
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AIRCRAFT INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summary financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussions should be read in conjunction
with the financial statements, related footnotes and discussions
contained in the Aircraft Income Partners L.P. (the "Partnership")
annual report on Form 10-K for the year ended December 31, 1998. The
results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year.
When used in this quarterly report on Form 10-Q, the words "believes,"
"anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Statements looking forward in time
are included in this quarterly report on Form 10-Q pursuant to the
"safe harbor" provision on the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially, including, but
not limited to, those set forth in "management's discussion and
analysis of financial condition and results of operations." Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Partnership
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Leased aircraft and aircraft held for sale
The cost of leased aircraft and aircraft held for sale represents the
initial cost of the aircraft to the Partnership plus miscellaneous
acquisition and closing costs and is carried at the lower of
depreciated cost or fair value.
Depreciation is computed using the straight-line method, over the
estimated useful lives of such aircraft (15 years for McDonnell Douglas
DC9-32 aircraft). The Partnership capitalizes major additions to its
aircraft and depreciates such capital improvements over the remaining
estimated useful life of the aircraft. No depreciation is taken on
equipment held for sale.
When aircraft are sold or otherwise disposed of, the cost and
accumulated depreciation (and any related allowance for equipment
impairment) are removed from the accounts and any gain or loss on such
sale or disposal is reflected in operations. Normal maintenance and
repairs are charged to operations as incurred. The Partnership provides
allowances for equipment impairment based upon a periodic review of all
aircraft in its portfolio, when management believes that, based upon
market analysis, appraisal reports and leases currently in place with
respect to specific aircraft, the investment in such aircraft may not
be recoverable. The Partnership may provide for additional losses in
subsequent periods and such provisions could be material.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The general partner of the Partnership, Integrated Aircraft Fund
Management Corp. ("IAFM"), is a wholly owned subsidiary of Presidio
Capital Corp. ("Presidio"). Other limited partnerships and similar
investment programs have been formed by affiliates of IAFM to acquire
equipment and, accordingly, conflicts of interest may arise between the
Partnership and such other limited partnerships. Affiliates of IAFM
have also engaged in businesses related to the management of equipment
and the sale of various types of equipment and may transact business
with the Partnership.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio controls the Partnership through its
indirect ownership of all of the shares of IAFM. On August 28, 1997, an
affiliate of NorthStar Capital Partners acquired all of the Class B
shares of Presidio, the corporate parent of IAFM. This acquisition,
when aggregated with previous acquisitions, caused NorthStar Capital
Partners to acquire indirect control of IAFM. Effective July 31, 1998,
Presidio is indirectly owned by NorthStar Capital Investment Corp.
("NorthStar"), a Maryland corporation.
5
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AIRCRAFT INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Presidio entered into a management agreement with NorthStar Presidio
Management Company, LLC ("NorthStar Presidio"), an affiliate of
NorthStar. Under the terms of the management agreement, NorthStar
Presidio provides the day-to-day management of Presidio and its direct
and indirect subsidiaries and affiliates. For the six months ended June
30, 1999 and 1998, reimbursable expense paid to NorthStar Presidio
amounted to $23,522 and $11,250.
IAFM is entitled to a 10 percent interest in the net income, loss and
distributions from operations and cash from sales. No distributions
were paid with respect to the six months ended June 30, 1999. For the
six months ended June 30, 1998, IAFM received distributions totaling
$1,187,422.
As compensation for its services, IAFM receives the management fee
provided for in the Limited Partnership Agreement which is equal to 4%
of Distributions of Cash from Operations from Operating Leases and 2%
of Distributions of Cash from Operations from Full Payout Leases, as
such terms are defined in the Limited Partnership Agreement. In
conjunction with such services, IAFM did not earn any management fees
for the six months ended June 30, 1999 and for the six months ended
June 30, 1998, management fees amounted to $180,200.
Upon the ultimate liquidation of the Partnership, IAFM may be required
to remit to the Partnership certain payments representing capital
account deficit restoration based upon a formula provided within the
Limited Partnership Agreement. Such restoration amount may be less than
the recorded IAFM deficit, which could result in distributions to the
limited partners of less than their recorded equity.
4 EQUIPMENT HELD FOR SALE
Equipment held for sale consists of one McDonnell Douglas DC9-32
aircraft with an aggregate net carrying value of $1,162,810 (net of
accumulated depreciation of $4,683,731 and an allowance for equipment
impairment of $1,695,334) at June 30, 1999. Based upon current
information with respect to a potential sale of the one remaining
DC-9-32 aircraft, management believes that the equipment had been
impaired and has recorded an impairment of $960,000 for the six months
ended June 30, 1999. See note 6a, Commitments and Contingencies,
Continental Airlines, Inc.
5 AIRCRAFT SALES
(i) On March 31, 1998, a Boeing 737-2H4 aircraft owned by the
Partnership was sold to an unaffiliated third party for
proceeds of $3,500,000 exclusive of selling expenses of
approximately $106,000. The aircraft, which was formerly
leased to Southwest Airlines Co., had been off-lease since
January 1998. At the time of sale, the aircraft had a net
carrying value of approximately $1,141,000.
(ii) On May 19, 1998, a Boeing 737-297 Advanced aircraft owned by
the Partnership was sold to an unaffiliated third party for
proceeds of $4,100,000, exclusive of selling expenses of
approximately $124,000. The aircraft, which was formerly
leased to Aloha had a net carrying value of approximately
$2,617,000 at the time of sale.
6
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AIRCRAFT INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
5 AIRCRAFT SALES (continued)
(iii) Between August 17, 1998 and September 23, 1998, the
Partnership sold its interest in two Boeing 737-200 aircraft,
four Boeing 727-200 aircraft (inclusive of an undivided
47.92231% joint venture interest in one aircraft) and one
McDonnell Douglas DC9-51 aircraft. Aside from the DC9-51
aircraft, the six aircraft had an original cost of
approximately $71,235,500, represented 45.03% of the net
carrying value of Partnership's aircraft as of the end of June
30, 1998 and, at the time of sale, had a net carrying value of
approximately $7,744,000. The Partnership's interest in the
DC9-51 aircraft consisted of the right to receive deferred
payments of $2,529,900 related to a September 1, 1996
installment sale. The sales, inclusive of the DC9-51 aircraft,
were made to an unaffiliated third party for gross sales
proceeds, exclusive of closing costs, of $18,000,000.
(iv) On June 1, 1999, the Partnership sold two McDonnell Douglas
DC9-32 aircraft to an unaffiliated third party for gross sale
proceeds of $1,910,000, exclusive of selling expenses of
approximately $86,000. At the time of sale, the aircraft had a
net carrying value of approximately $1,824,000.
6 COMMITMENTS AND CONTINGENCIES
a. Continental Airlines, Inc.
In November 1991, in connection with its reorganization under the
United States Bankruptcy Code, Continental Airlines, Inc.
("Continental") rejected the leases of the three Boeing 727-100
aircraft owned by the Partnership, which had been out of service since
1991. Due to the condition and the related market for such aircraft,
the Partnership provided aggregate allowances for equipment impairment
of approximately $6,483,000. During 1993, the Partnership sold all
three Boeing 727-100 aircraft. The Partnership had retained its rights
pursuant to a proof of claim and an administrative claim filed in the
Continental Bankruptcy case with respect to such aircraft.
In June 1999, the Partnership and Continental agreed to settle the
foregoing claims. Pursuant to the settlement, the Partnership
received $780,000 on August 24, 1999 and expects to receive shortly
approximately 8,240 shares of Continental's Class A stock and 22,975
shares of Continental's Class B stock. Subject to the resolution of
third party claims against additional stock reserved under
Continental's Plan of Reorganization, the Partnership may receive
additional shares of Class A and Class B stock.
During 1997, the lease of three McDonnell Douglas Model DC9-32 aircraft
owned by the Partnership were extended to September 1998 (2 aircraft)
and December 1998 (one aircraft) at a rental of $52,500 per month, per
aircraft. Two of the aircraft were returned in September 1998 and the
third aircraft was returned in December 1998.
Upon return, the Partnership conducted inspections of the aircraft to
ascertain whether the return conditions of the lease were satisfied. On
May 5, 1999, First Security Bank, N.A., acting not in its individual
capacity, but solely as trustee under a trust agreement in which the
Partnership is beneficiary, filed a complaint in the United States
District Court, Southern District of New York. The complaint seeks
damages in an amount to be determined at trial, but believed to be in
excess of $3,000,000, arising out of Continental's i) failure to return
the three DC9-32 aircraft in the return condition required by the lease
and ii) failure to make a rent payment provided for in the lease.
Continental has filed an answer denying the complaint.
7
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AIRCRAFT INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
6 COMMITMENTS AND CONTINGENCIES (continued)
b. Tax assessment
In September 1996, the Partnership received proposed notices of
assessment from the State of Hawaii with respect to general excise tax
("GET") aggregating approximately $1,338,000 (including interest and
penalties) for the years 1991, 1992, 1993 and 1994. In July 1998, the
Partnership received additional proposed notices of assessment for GET
aggregating approximately $585,000 for the years 1995, 1996 and 1997.
The state is alleging that GET is owed by the Partnership with respect
to rents received from Aloha and Hawaiian under the leases between the
Partnership and each of the airlines.
The leases with both Aloha and Hawaiian provided for full
indemnification of the Partnership for such taxes, but the bankruptcy
of Hawaiian may relieve Hawaiian of its indemnification obligation for
any periods prior to September 21, 1993, when Hawaiian and its
affiliates sought bankruptcy protection. In any event, it is the
Partnership, as taxpayer, which is ultimately liable for the GET, if it
is applicable.
The State of Hawaii has never previously applied the GET to rentals
received by a lessor of aircraft where the lessor's only contact with
the State of Hawaii is that it has leased its aircraft to airlines
which are based in the state. Aloha and Hawaiian, as well as the
Partnership, have separately engaged tax counsel and both airlines are
cooperating with the Partnership in vigorously contesting the proposed
assessments.
Final notices of assessment have not yet been issued. Although there
can be no assurance that the contest of the assessments will be
successful, the Partnership believes that the state's position on the
applicability of GET in this instance is without merit. The Partnership
has not recorded any provision or liability as a result of the proposed
notices of assessment.
8
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of June 30, 1999, the Partnership had cash available of
approximately $5,159,000, inclusive of the original general working
capital reserves of approximately $1,929,000.
The Partnership's remaining aircraft consists of one McDonnell Douglas
DC9-30 aircraft, which had been leased to Continental Airlines, Inc.
and returned in September 1998.
The Partnership is attempting to sell the one remaining aircraft as
promptly as possible with a view towards liquidating the Partnership's
entire portfolio and winding up the business of the Partnership prior
to the end of 1999.
On June 1, 1999, the Partnership sold two aircraft to an unaffiliated
third party for sale proceeds of $1,910,000, exclusive of selling
expenses of approximately $86,000. At the time of sale, the aircraft
had a net carrying value of approximately $1,824,000, after provisions
for equipment impairment.
The Partnership may use a portion of its operating reserves, which
would otherwise be available for distribution, to upgrade or enhance
its remaining aircraft if the Partnership determines that such
expenditures are in its best interests in order to maximize
re-marketing value of such aircraft.
Of the 18 aircraft originally purchased by the Partnership, at June 30,
1999, the Partnership had an interest in one aircraft, which had an
original cost of approximately $7,542,000 (net book value of
approximately $1,163,000).
In November 1991, in connection with its reorganization under the
United States Bankruptcy Code, Continental Airlines, Inc.
("Continental") rejected the leases of the three Boeing 727-100
aircraft owned by the Partnership, which had been out of service since
1991. Due to the condition and the related market for such aircraft,
the Partnership provided aggregate allowances for equipment impairment
of approximately $6,483,000. During 1993, the Partnership sold all
three Boeing 727-100 aircraft. The Partnership had retained its rights
pursuant to a proof of claim and an administrative claim filed in the
Continental Bankruptcy case with respect to such aircraft.
In June 1999, the Partnership and Continental agreed to settle the
foregoing claims. Pursuant to the settlement, the Partnership received
$780,000 on August 24, 1999 and expects to receive shortly
approximately 8,240 shares of Continental's Class A stock and 22,975
shares of Continental's Class B stock. Subject to the resolution of
third party claims against additional stock reserved under
Continental's Plan of Reorganization, the Partnership
may receive additional shares of Class A and Class B stock.
During 1997, the leases of three McDonnell Douglas Model DC9-32
aircraft owned by the Partnership were extended to September 1998 (2
aircraft) and December 1998 (one aircraft) at a rental of $52,500 per
month, per aircraft. Two of the aircraft were returned in September
1998 and the third aircraft was returned in December 1998.
Upon return, the Partnership conducted inspections of the aircraft to
ascertain whether the return conditions of the leases were satisfied.
On May 5, 1999, First Security Bank, N.A., acting not in its individual
capacity, but solely as trustee under a trust agreement in which the
Partnership is beneficiary, filed a complaint in the United States
District Court, Southern District of New York. The complaint seeks
damages in an amount to be determined at trial, but believed to be in
excess of $3,000,000 arising out of Continental's i) failure to return
the three DC9-32 aircraft in the return condition required by the lease
and ii) failure to make a rent payment provided for in the lease.
Continental has filed an answer denying the complaint.
9
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Liquidity and Capital Resources (continued)
In September 1996 and July 1998, the Partnership received proposed
notices of assessment from the State of Hawaii with respect to general
excise tax of approximately $1,923,000 (including interest and
penalties) for the years 1991 through 1997. The state is alleging that
the Partnership owes GET with respect to rents received from Aloha
Airlines, Inc. ("Aloha") and Hawaiian Airlines, Inc. ("Hawaiian") under
the leases between the Partnership and each of the airlines.
The leases with both Aloha and Hawaiian provide for full
indemnification of the Partnership for such taxes, but the bankruptcy
of Hawaiian may relieve Hawaiian of its indemnification obligation for
any periods prior to September 21, 1993, when Hawaiian and its
affiliates sought bankruptcy protection. In any event, it is the
Partnership, as taxpayer, which is ultimately liable for the GET, if it
is applicable.
The State of Hawaii has never previously applied the GET to rentals
received by a lessor of aircraft where the lessor's only contact with
the State of Hawaii is the fact that it has leased its aircraft to
airlines which are based in the state. Aloha and Hawaiian, as well as
the Partnership, have separately engaged tax counsel and both airlines
are cooperating with the Partnership to vigorously contest the proposed
assessments.
Final notices of assessment have not yet been issued. Although there
can be no assurance that the contest of the assessments will be
successful, the Partnership believes that the state's position on the
applicability of GET in this instance is without merit. The Partnership
has not recorded any liability as a result of the proposed notices of
assessment.
Inflation has not had any material effect on the Partnership's revenues
since its inception nor does the Partnership anticipate any material
effect on its business from this factor. The softness in the aircraft
industry and resulting decline in the value of the aircraft owned by
the Partnership have resulted in the Partnership providing allowances
for equipment impairment.
Year 2000 compliance
The Year 2000 compliance issue concerns the inability of computerized
information systems and equipment to accurately calculate, store or use
a date after December 31, 1999, as a result of the year being stored as
a two digit number. This could result in a system failure or
miscalculations causing disruptions of operations. The Partnership and
NorthStar Presidio recognize the importance of ensuring that its
business operations are not disrupted as a result of Year 2000 related
computer system and software issues.
NorthStar Presidio is in the process of assessing its internal computer
information systems and is taking the steps necessary to remediate
these systems so that they will be Year 2000 compliant. In connection
therewith, NorthStar Presidio has installed a new fully compliant
accounting and reporting system. NorthStar Presidio is also reviewing
its other internal systems and programs, along with those of its
unaffiliated third party service providers, in order to ensure
compliance.
10
<PAGE>
Year 2000 compliance (continued)
Because this assessment is ongoing, the total cost of bringing all
systems and equipment into Year 2000 compliance has not been fully
quantified. Based upon available information, NorthStar Presidio does
not believe that these costs will have a material adverse effect on the
Partnership's business, financial condition or results. While the
Partnership's present intention is to wind up its business prior to the
end of 1999, it is possible that there could be adverse consequences to
the Partnership as a result of Year 2000 issues that are outside the
Partnership's control.
Results of Operations
Net income decreased for the three and six month periods ended June 30,
1999 compared to the three and six month periods ended June 30, 1998,
principally due to a decrease in rental revenues and the recognition of
a gain on the sale of aircraft in the prior year periods.
Revenues decreased for the three and six month periods ended June 30,
1999 compared to the corresponding periods of the prior year. Rental
income decreased due to the fact that certain aircraft came off-lease
in 1998, as well as due to the sale of certain aircraft in 1998.
Interest decreased for the three and six month periods ended June 30,
1999 compared to the corresponding periods in the prior year due to
lower cash balances available for short-term investment.
Expenses decreased for the three months ended June 30, 1999 and
increased for the six months ended June 30, 1999 compared to the
corresponding periods of the prior year as follows: (i) the elimination
of depreciation expense; (ii) the decrease in operating expenses due
primarily to lower costs related to the Partnership's off lease
aircraft; (iii) the reduction in management fees offset by the (iv)
recording of provisions for equipment impairment in 1999 and (v) the
increase in general and administrative expenses, primarily due to legal
costs related to the Continental Bankruptcy and the complaint filed
against Continental.
As of December 31, 1998, the Partnership recorded a provision for
equipment impairment of $1,350,000 to recognize the decrease in value
of the three aircraft which the Partnership owned on that date. The
provision was based on third party offers which management believed
reflected the fair selling prices for the aircraft.
Subsequent to the filing of Form 10-K for the year ended December 31,
1998, a purchaser failed to complete a contract for the sale of two of
the aircraft and an offer for the third aircraft was reduced. The
Partnership recorded an additional provision for equipment impairment
of $1,891,000 during the three months ended March 31, 1999 to reduce
the value of its three remaining aircraft to their then current fair
value. The foregoing valuation was determined based on third party
offers, including offers for two aircraft which were sold on June
1, 1999 on the same terms as provided in the offers. The Partnership
recorded an additional impairment of $180,000 in the three months ended
June 30, 1999 to reflect the current fair value of its one remaining
aircraft.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During 1997, the leases of three McDonnell Douglas Model DC9-32
aircraft owned by the Partnership were extended to September 1998
(2 aircraft) and December 1998 (one aircraft) at a rental of
$52,500 per month, per aircraft. Two of the aircraft were
returned in September 1998 and the third aircraft was returned in
December 1998.
Upon return, the Partnership conducted inspections of the
aircraft to ascertain whether the return conditions of the leases
were satisfied. On May 5, 1999, First Security Bank, N.A., acting
not in its individual capacity, but solely as trustee under a
trust agreement in which the Partnership is beneficiary, filed a
complaint in the United States District Court, Southern District
of New York. The complaint seeks damages in an amount to be
determined at trial, but believed to be in excess of $3,000,000
arising out of Continental's i) failure to return the three
DC9-32 aircraft in the return condition required by the lease and
ii) failure to make a rent payment provided for in the lease.
Continental has filed an answer denying the complaint.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
12
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SIGNATURES
Pursuant to the requirements 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.
AIRCRAFT INCOME PARTNERS L.P.
BY: Integrated Aircraft Fund Management Corp.,
General Partner
/s/ Allan B. Rothschild
-------------------------------------------------
Allan B. Rothschild
President
/s/ Lawrence R. Schachter
-------------------------------------------------
Lawrence R. Schachter
Senior Vice President and Chief Financial Officer
Date: August 24, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the Financial
Statements of the June 30, 1999 Form 10-Q of Aircraft Income Partners and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,306,548
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,816,060
<PP&E> 1,698,144
<DEPRECIATION> 535,334
<TOTAL-ASSETS> 6,978,870
<CURRENT-LIABILITIES> 182,658
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,796,212
<TOTAL-LIABILITY-AND-EQUITY> 6,978,870
<SALES> 0
<TOTAL-REVENUES> 183,496
<CGS> 0
<TOTAL-COSTS> 563,724
<OTHER-EXPENSES> 2,071,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,451,228)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,451,228)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,451,228)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
