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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 September 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 SEPTEMBER 30, 2000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
Assets
Equipment held for sale, net $ -- $ 573,982
Cash and cash equivalents 3,904,377 7,411,200
Other receivables -- 34,560
---------- ----------
Total Assets $3,904,377 $8,019,742
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 99,718 $ 115,253
---------- ----------
Total Liabilities 99,718 115,253
---------- ----------
Commitments and Contingencies
Partners' Equity:
Limited partners' equity (385,805 units
issued and outstanding) 3,415,238 7,105,085
General partner's equity 389,421 799,404
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Total Partners' Equity 3,804,659 7,904,489
---------- ----------
Total Liabilities and Partners' Equity $3,904,377 $8,019,742
========== ==========
See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 30, 2000
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------ ------------
Revenues:
Settlement income $ -- $ 1,638,913
Interest 199,740 152,966
Other income -- 98,672
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Total revenues 199,740 1,890,551
----------- -----------
Costs and Expenses:
Provision for equipment impairment -- 2,071,000
General and administrative 291,080 470,832
Operating 8,490 201,397
Other expenses -- 38,000
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Total costs and expenses 299,570 2,781,229
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Loss before gain on sale of aircraft (99,830) (890,678)
Gain on sale of aircraft - net -- 111,550
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Net loss $ (99,830) $ (779,128)
=========== ===========
Net loss attributable to:
Limited partners $ (89,847) $ (701,215)
General partner (9,983) (77,913)
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$ (99,830) $ (779,128)
=========== ===========
Net loss per unit of limited partnership
interest (385,805 units outstanding) $ (0.23) $ (1.82)
=========== ===========
See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 30, 2000
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
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Revenues:
Settlement income $ -- $1,638,913
Interest 59,196 68,142
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Total revenues 59,196 1,707,055
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Costs and Expenses:
General and administrative 56,487 136,195
Operating -- 10,310
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Total costs and expenses 56,487 146,505
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Income before gain on sale of aircraft 2,709 1,560,550
Gain on sale of aircraft - net -- 111,550
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Net income $ 2,709 $1,672,100
========== ==========
Net income attributable to:
Limited partners $ 2,438 $1,504,890
General partner 271 167,210
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$ 2,709 $1,672,100
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Net income per unit of limited partnership
interest (385,805 units outstanding) $ 0.01 $ 3.90
========== ==========
See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 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 (89,847) (9,983) (99,830)
Distribution to partners ($9.33 per
limited partnership unit) (3,600,000) (400,000) (4,000,000)
----------- ----------- -----------
Balance - September 30, 2000 $ 3,415,238 $ 389,421 $ 3,804,659
=========== =========== ===========
</TABLE>
See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 30, 2000
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (99,830) $ (779,128)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for equipment impairment -- 2,071,000
Gain on sale of aircraft, net -- (111,550)
Value of marketable securities received in
settlement bankruptcy claims -- (1,213,052)
Changes in assets and liabilities:
Accounts receivable -- 445,000
Deferred costs -- 5,132
Prepaid expenses -- (9,978)
Other receivables 34,560 29,717
Accounts payable and accrued expenses (15,535) (400,735)
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Net cash (used in) provided by operating activities (80,805) 36,406
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Cash Flows from Investing Activities:
Proceeds from sale of aircraft, net 573,982 1,935,977
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Cash provided by investing activities 573,982 1,935,977
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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 (3,506,823) 1,972,383
Cash and cash equivalents, beginning of period 7,411,200 4,199,804
----------- -----------
Cash and cash equivalents, end of period $ 3,904,377 $ 6,172,187
=========== ===========
</TABLE>
See notes to financial statements.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
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,
1999. The financial information contained herein is unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of
such financial information have been included. All adjustments are of a
normal recurring nature. The balance sheet at December 31, 1999 was derived
from audited financial statements at such date.
The results of operations for the three and nine months ended September 30,
2000 and 1999 are not necessarily indicative of the results to be expected
for the full year.
2. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The general partner of the Partnership, Integrated Aircraft Fund Management
Corp. ("IAFM"), is indirectly a wholly owned subsidiary of Presidio Capital
Corp. ("Presidio").
Subject to the provisions of the 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 nine months
ended September 30, 1999, reimbursable expense paid to NorthStar Presidio
amounted $32,421.
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 and
is compensated by Presidio to provide asset management and investor
relation services to the Partnership and other entities affiliated with the
Partnership, which were previously provided by NorthStar Presidio.
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.
FORM 10-Q SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
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 relations 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 relationship 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 nine months ended September 30, 2000. No
distributions were paid with respect to the nine months ended September 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 nine months ended September 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.
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. In
the quarter ended September 30, 1999, the Partnership received an
additional $111,550 relating to the sale of the aircraft as a result of the
Partnership providing the records for the engines.
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.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 30, 2000
NOTES TO FINANCIAL STATEMENTS
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.
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. In addition, both the Partnership and Hawaiian have
independently filed an appeal with the taxing authority of the State of
Hawaii challenging such assessment. 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 aircrafts were returned in September 1998 and the third aircraft was
returned in December 1998.
At the end of the lease, 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 against Continental in
the United States District Court, Southern District of New York.
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 30, 2000
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Continental Airlines, Inc. (Continued)
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. Discovery in the matter including depositions is ongoing.
Two of the Partnership's DC9-32 aircrafts 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 SEPTEMBER 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 decreased by $3,506,823 during the nine months ended
September 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 $80,805 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 September 30, 2000, the
Partnership had $3,904,377 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 anticipated at this time that no 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 aircrafts. 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 SEPTEMBER 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
aircrafts owned by the Partnership and leased to Continental were
extended to September 1998 (2 aircrafts) and December 1998 (1 aircraft)
at a rental of $52,500 per month, per aircraft. Two of the aircrafts
were returned in September 1998 and the third aircraft was returned in
December 1998.
At the end of the lease, 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 against
Continental 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. Discovery in the matter
including depositions is ongoing.
Two of the Partnership's DC9-32 aircrafts 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 SEPTEMBER 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 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 nine month period ended September 30, 2000
compared to the nine month period ended September 30, 1999, principally
due to no settlement income, which was offset by no operating Aircraft
expenses or impairment provision in the period ended September 30,
2000. Net income decreased for the three months ended September 30,
2000, as compared to 1999, due to no settlement income in the 2000
period, slightly offset by a decline in general and administrative
expenses.
Revenues decreased for the three and nine month periods ended September
30, 2000 compared to the corresponding periods of the prior year
principally due to a decrease in settlement income. Interest income
increased for the nine month period ended September 30, 2000 compared
to the same period in 1999 due to higher invested cash balances.
Interest income decreased for the three month period ended September
30, 2000 compared to the same period in 1999 due to the distribution to
partners in 2000, which resulting in lower invested cash balances.
Costs and expenses decreased for the three and nine month periods ended
September 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 SEPTEMBER 30, 2000
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A. There were no material developments during the
quarter in Registrant's lawsuit against Continental
Airlines, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits: 27 Financial Data Schedule.
B. Reports on Form 8-K: On August 2, 2000, the
Registrant filed an 8-K to disclose the dismissal of
its prior independent auditors
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AIRCRAFT INCOME PARTNERS L.P.
FORM 10-Q SEPTEMBER 30, 2000
SIGNATURES
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.
BY: Integrated Aircraft Fund Management Corp.
---------------------------------------------
General Partner
BY: /s/ MICHAEL L. ASHNER
--------------------------------------
Michael L. Ashner
President and Director
(Principal Executive Officer)
BY: /s/ CAROLYN B. TIFFANY
--------------------------------------
Carolyn B. Tiffany
Vice President and Treasurer
(Principal Financial and Accounting
Officer)
Dated: November 14, 2000
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