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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-17785
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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.)
5 Cambridge Center, 9th Floor
Cambridge, Massachusetts 02142
(Address of principal executive offices)
(617) 234-3000
(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 - MARCH 31, 2000
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BALANCE SHEETS - March 31, 2000 and December 31, 1999 ......................................... 1
STATEMENTS OF OPERATIONS - For the three months ended March 31, 2000
and 1999 ................................................................................ 2
STATEMENT OF PARTNERS' EQUITY - For the three months ended
March 31, 2000 .......................................................................... 3
STATEMENTS OF CASH FLOWS - For the three months ended March 31, 2000
and 1999 ................................................................................ 4
NOTES TO FINANCIAL STATEMENTS ................................................................. 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................................................... 8
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................... 9
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K ........................................................ 10
SIGNATURES ..............................................................................................11
</TABLE>
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----- ----
<S> <C> <C>
ASSETS
Equipment held for sale, net $ - $ 573,982
Cash and cash equivalents 3,983,834 7,411,200
Other receivables 26,250 34,560
---------- ----------
$4,010,084 $8,019,742
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 91,273 $ 115,253
---------- ---------
Commitments and contingencies
Partners' equity
Limited partners' equity (385,805 units
issued and outstanding) 3,517,975 7,105,085
General partner's equity 400,836 799,404
---------- ----------
Total partners' equity 3,918,811 7,904,489
---------- ----------
$4,010,084 $8,019,742
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Revenues
Interest $84,263 $ 42,623
Other income 66,012
------- -----------
84,286 108,635
------- -----------
Costs and expenses
Provision for equipment impairment - 1,891,000
General and administrative 61,474 147,198
Operating 8,490 123,720
Other expenses - 38,000
------- ------------
69,964 2,199,918
------- ------------
Net income (loss) $14,322 $(2,091,283)
======= ============
Net income (loss) attributable
Limited partners $12,890 $(1,882,155)
General partners 1,432 (209,128)
------- ------------
$14,322 $(2,091,283)
======= ============
Net income (loss) per unit of limited
partnership interest (385,805 units
outstanding) $ .03 $ (4.88)
======= ============
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
Limited General Total
Partners' Partner's Partners'
Equity Equity Equity
------ ------ ------
<S> <C> <C> <C>
Balance, January 1, 2000 $ 7,105,085 $ 799,404 $ 7,904,489
Net income for the three months
ended March 31, 2000 12,890 1,432 14,322
Distribution to partners ($9.33 per limited
partnership unit) (3,600,000) (400,000) (4,000,000)
------------ ---------- -----------
Balance, March 31, 2000 $ 3,517,975 $ 400,836 $ 3,918,811
============ ========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
March 31
--------
2000 1999
----- ----
DECREASE IN CASH AND
CASH EQUIVALENTS
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 14,322 $(2,091,283)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Provision for equipment impairment - 1,891,000
Changes in operating assets and liabilities
Prepaid expenses - (24,944)
Other receivables 8,310 16,453
Accounts payable and accrued expenses (23,980) (330,160)
----------- -----------
Net cash used in operating activities (1,348) (538,934)
----------- -----------
Cash flows from investing activities
Proceeds from sale of aircraft, net 573,982 -
----------- -----------
Cash flows from financing activities
Distribution to partners (4,000,000) -
----------- -----------
Net decrease in cash and cash equivalents (3,427,366) (538,934)
Cash and cash equivalents, beginning of period 7,411,200 4,199,804
----------- -----------
Cash and cash equivalents, end of period $ 3,983,834 $ 3,660,870
============ ===========
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summarized financial information of Aircraft Income Partners L.P.
(the "Partnership") 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, footnotes and discussions contained in the
Partnership's annual report on Form 10-K for the year ended December
31, 1999. The accounting policies used in preparing these financial
statements are consistent with those described in the December 31, 1999
financial statements. The results of operations for the three months
ended March 31, 2000, are not necessarily indicative of the results to
be expected for the year ending December 31, 2000.
2 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").
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.
In August 1997, 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 provided until October 21, 1999 the day-to-day
management of Presidio and its direct and indirect subsidiaries and
affiliates. For the three months ended March 31, 2000 and 1999,
reimbursable expense paid to NorthStar Presidio amounted to $0 and
$2,250.
On October 21, 1999, Presidio entered into a new Services Agreement
with AP-PCC III, L.P. (the "Agent") pursuant to which the Agent was
retained to provide asset management and investor relation services to
the Partnership and other entities affiliated with the Partnership.
As a result of this agreement, the Agent has the duty to direct the day
to day affairs of the Partnership, including, without limitation,
reviewing and analyzing potential sale, financing or restructuring
proposals regarding the Partnership's assets, preparation of all
Partnership reports, maintaining Partnership records and maintaining
bank accounts of the Partnership. The Agent is not permitted, however,
without the consent of Presidio, or as otherwise required under the
terms of the Partnership's Agreement of Limited Partnership (the
"Partnership Agreement") to, among other things, cause the Partnership
to sell or acquire an asset or file for bankruptcy.
In order to facilitate the provision by the Agent of the asset
management services and the investor relation services, effective
October 25,1999, the officers and directors of the General Partner
resigned and nominees of the Agent were elected as the officers and
directors of the General Partner.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
NOTES TO FINANCIAL STATEMENTS
2 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
The Agent is an affiliate of Winthrop Financial Associates, a Boston
based company that provides asset management services, investor
relation services and property management services to over 150 limited
partnerships which own commercial property and other assets. The
General Partner does not believe that this transaction will have a
material effect on the operations of the Partnership.
IAFM is entitled to a 10 percent interest in the net income, loss and
distributions from operations and cash from sales. IAFM received
$400,000 in distributions for the three months ended March 31, 2000. No
distributions were paid with respect to the three months ended March
31,1999.
As compensation for the foregoing 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 three months ended March 31, 2000 and 1999.
3 AIRCRAFT SALES
On January 19, 2000, the Partnership sold to an unaffiliated third
party its sole remaining aircraft, a McDonnell Douglas DC9-30, for
gross proceeds of $650,000. Costs associated with the sale amounted to
approximately $77,000. At the time of the sale, the aircraft had a net
carrying value of approximately $574,000.
4 DISTRIBUTION TO PARTNERS
During February 2000, the Partnership declared and paid a $4,000,000
distribution to partners of record as of January 1, 2000. Of this
amount, the limited partners collectively received $3,600,000 or $9.33
per Unit.
5 COMMITMENTS AND CONTINGENCIES
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.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
NOTES TO FINANCIAL STATEMENTS
5 COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
The Partnership recently reached a settlement with Aloha pursuant to
which Aloha agreed to indemnify the Partnership for any costs it may
ultimately incur. The Partnership has further been advised that
Hawaiian is pursuing a legislative remedy. 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.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this form 10-Q contain certain forward-looking
statements and involve risks uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's liquidity, capital resources and results of
operations, including forward looking statements pertaining to such matters,
does not take into account the effects of any changes to the Partnership's
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in the report.
Liquidity and Capital Resources
The Partnership's level of liquidity based upon cash and cash equivalents
decrease by $3,427,366 during the three months ended March 31, 2000, as compared
to December 31, 1999. The decrease is due to $4,000,000 of cash used for partner
distributions (financing activities) and $1,348 of cash used in operations
partially offset by $573,982 of cash from the sale of the McDonnell Douglas
DC-9-30 Aircraft (financing activities). At March 31, 2000 the Partnership had
$3,983,834 in cash and cash equivalents which had been invested primarily in
money market mutual funds.
During February 2000, the Partnership declared and paid a $4,000,000
distribution to the Unitholders of record as of January 1, 2000. Of this amount,
the limited partners collectively received $3,600,000 or $9.33 per Unit. It is
not anticipated at this time that any further distributions will be made to
partners until the resolution of the Hawaiian GET matter (see below).
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 as well as 8,684 shares of Continental's Class A stock and 24,179
shares of Continental's Class B stock and an additional $90,861 on September 22,
1999. On October 6, 1999, the Partnership sold all shares of stock for net
proceeds aggregating approximately $1,213,000, which equaled the Partnership's
cost basis in the 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.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 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 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 in vigorously
contesting the proposed assessments.
The Partnership recently reached a settlement with Aloha pursuant to which Aloha
agreed to indemnify the Partnership for any costs it may ultimately incur. The
Partnership has further been advised that Hawaiian is pursuing a legislative
remedy. 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.
Upon resolution of the tax examination relating to the GET, the managing general
partner will then prepare a final accounting of the Partnership's assets and
liabilities, commence the dissolution and termination of the Partnership and
make a final distribution to partners.
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 types of aircraft owned by the Partnership have
resulted in the Partnership providing allowances for equipment impairment.
Results of Operations
Net income increased for the three-month period ended March 31, 2000 compared to
the three-month period ended March 31, 1999, principally due to no operating
Aircraft expenses or impairment provision.
Revenues decreased for the three months ended March 31, 2000 compared to the
corresponding periods in the prior year principally due to decrease on other
income (investor transfer fees) partially offset by increased interest income
due to higher invested cash balances.
Costs and expenses decreased for the three months ended March 31, 2000 compared
to the corresponding period of the prior year principally due to no Aircraft
operations as all equipment has been sold as of February 2000. The decrease in
general and administrative expenses is the result of lower professional fees.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not subject to market risk as its cash and cash equivalents
are invested in short term money market mutual funds. The Partnership has no
loans outstanding.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27. Financial Data Schedule.
(b) Reports on Form 8-K: None
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q - MARCH 31, 2000
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
Date: May 14, 2000 By: /S/ Michael L. Ashner
---------------------
Michael L. Ashner
President and Director
(Principal Executive Officer)
Date: May 14, 2000 By: /S/ Carolyn B. Tiffany
----------------------
Carolyn B. Tiffany
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements for the three month period ending March 31, 2000 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,983,834
<SECURITIES> 0
<RECEIVABLES> 26,250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,010,084
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,918,811
<TOTAL-LIABILITY-AND-EQUITY> 4,010,084
<SALES> 0
<TOTAL-REVENUES> 23
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,322
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,322
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
