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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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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 ___________
Commission file number 0-17785
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AIRCRAFT INCOME PARTNERS L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3430508
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Cambridge Center, Cambridge, MA 02142-1493
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
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Indicate by check mark whether 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, 2000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
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ASSETS
Equipment held for sale, net .................... $ -- $ 573,982
Cash and cash equivalents ....................... 3,866,848 7,411,200
Other receivables ............................... -- 34,560
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Total Assets .............................. $3,866,848 $8,019,742
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LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses ........... $ 64,898 $ 115,253
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Total Liabilities ...................... 64,898 115,253
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Commitments and Contingencies
Partners' Equity:
Limited partners' equity (385,805 units
issued and outstanding) ...................... 3,412,800 7,105,085
General partner's equity ........................ 389,150 799,404
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Total Partners' Equity ................. 3,801,950 7,904,489
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Total Liabilities and Partners' Equity . $3,866,848 $8,019,742
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See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
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FORM 10-Q JUNE 30, 2000
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STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
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Revenues:
Interest .............................. $ 140,544 $ 84,824
Other income .......................... -- 98,672
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Total revenues ..................... 140,544 183,496
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Costs and Expenses:
Provision for equipment impairment .... -- 2,071,000
General and administrative ............ 234,593 334,637
Operating ............................. 8,490 191,087
Other expenses ........................ -- 38,000
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Total costs and expenses ........... 243,083 2,634,724
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Net loss .............................. $ (102,539) $(2,451,228)
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Net loss attributable to:
Limited partners ...................... $ (92,285) $(2,206,105)
General partner ....................... (10,254) (245,123)
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$ (102,539) $(2,451,228)
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Net loss per unit of limited partnership
interest (385,805 units outstanding) .. $ (0.24) $ (5.72)
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See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 2000
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
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Revenues:
Interest ................................ $ 56,281 $ 42,201
Other income ............................ -- 32,661
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Total revenues ....................... 56,281 74,862
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Costs and Expenses:
Provision for equipment impairment ...... -- 180,000
General and administrative .............. 173,119 187,439
Operating ............................... -- 67,367
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Total costs and expenses ............. 173,119 434,806
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Net loss ................................ $(116,838) $(359,944)
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Net loss attributable to:
Limited partners ........................ $(105,154) $(323,950)
General partner ......................... (11,684) (35,994)
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$(116,838) $(359,944)
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Net loss per unit of limited partnership
interest (385,805 units outstanding) .... $ (0.27) $ (0.84)
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See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 2000
STATEMENT OF PARTNERS' EQUITY (UNAUDITED)
<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 loss ............................. (92,285) (10,254) (102,539)
Distribution to partners ($9.33 per
limited partnership unit) ........... (3,600,000) (400,000) (4,000,000)
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Balance - June 30, 2000 ............... $ 3,412,800 $ 389,150 $ 3,801,950
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</TABLE>
See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 2000
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ..................................................... $ (102,539) $(2,451,228)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for equipment impairment ..................... -- 2,071,000
Changes in assets and liabilities:
Deferred costs ...................................... -- 5,132
Prepaid expenses .................................... -- (14,703)
Other receivables ................................... 34,560 29,895
Accounts payable and accrued expenses ............... (50,355) (357,779)
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Net cash used in operating activities ........................ (118,334) (717,683)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of aircraft, net .................... 573,982 1,824,427
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Cash provided by investing activities ........................ 573,982 1,824,427
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to Partners ............................... (4,000,000) --
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Cash used in financing activities ............................ (4,000,000) --
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Net (decrease) increase in cash and cash equivalents ......... (3,544,352) 1,106,744
Cash and cash equivalents, beginning of period ............... 7,411,200 4,199,804
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Cash and cash equivalents, end of period ..................... $ 3,866,848 $ 5,306,548
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</TABLE>
See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 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
six months ended June 30, 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 Partnership's agreement of the Limited
Partner's ("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 six months
ended June 30, 2000 and 1999, reimbursable expense paid to NorthStar
Presidio amounted to $0 and $23,522, respectively.
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
Agreement to, among other things, cause the Partnership to acquire an asset
or file for bankruptcy.
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AIRCRAFT INCOME PARTNERS L.P.
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FORM 10-Q JUNE 30, 2000
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NOTES TO FINANCIAL STATEMENTS
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2. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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.
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 six months ended June 30, 2000. No distributions
were paid with respect to the six months ended June 30,1999.
In addition, IAFM receives the management fee provided for in the
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, 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
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
Airlines, Inc. ("Aloha") and Hawaiian Airlines, Inc. ("Hawaiian") under the
leases between the Partnership and each of the airlines.
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AIRCRAFT INCOME PARTNERS L.P.
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FORM 10-Q JUNE 30, 2000
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NOTES TO FINANCIAL STATEMENTS
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5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
TAX ASSESSMENT (CONTINUED)
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.
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.
CONTINENTAL AIRLINES, INC.
During 1997, the leases of three McDonnell Douglas Model DC9-32 aircraft
owned by the Partnership and leased to Continental Airlines, Inc.
("Continental") were extended to September 1998 (2 aircraft) and December
1998 (1 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 allegations in the complaint.
Two of the Partnership's DC9-32 aircraft were sold during 1999 and the
remaining aircraft was sold on January 19, 2000.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION 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 and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosure 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 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 $3,544,352 during the six months ended June 30, 2000, as
compared to December 31, 1999. The decrease is due to $4,000,000 of cash
used for partner distributions (financing activities) and $118,334 of cash
used in operations, which was partially offset by $573,982 of cash from the
sale of the McDonnell Douglas DC-9-30 Aircraft (investing activities). At
June 30, 2000, the Partnership had $3,866,848 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 records 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.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During 1997, the leases of three McDonnell Douglas Model DC9-32 aircraft
owned by the Partnership and leased to Continental Airlines, Inc.
("Continental") were extended to September 1998 (2 aircraft) and December
1998 (1 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 allegations in the complaint.
Two of the Partnership's Dc9-32 aircraft were sold during 1999 and the
remaining aircraft was sold on January 19, 2000.
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 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 lessors 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.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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.
RESULTS OF OPERATIONS
Net loss decreased for the three and six month periods ended June 30, 2000
compared to the three and six month periods ended June 30, 1999,
principally due to no operating Aircraft expenses or impairment provision.
Revenues decreased for the three and six month periods ended June 30, 2000
compared to the corresponding periods of 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 and six month periods ended June
30, 2000 compared to the corresponding periods 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q JUNE 30, 2000
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits: 27 Financial Data Schedule.
B. Reports on Form 8-K: None.
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AIRCRAFT INCOME PARTNERS L.P.
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FORM 10-Q JUNE 30, 2000
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SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AIRCRAFT INCOME PARTNERS L.P.
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BY: Integrated Aircraft Fund Management Corp.
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General Partner
BY: /s/ MICHAEL L. ASHNER
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Michael L. Ashner
President and Director
(Principal Executive Officer)
BY: /s/ CAROLYN B. TIFFANY
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Carolyn B. Tiffany
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Dated: August 14, 2000
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