UNITED STATES 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, 1994
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: 0-16838
JETSTREAM II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 84-1068932
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) identification No.)
3 World Financial Center, New York, NY 10285
(Address of principal executive offices) (Zip code)
(212) 526-3237
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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
Balance Sheets
June 30, December 31,
Assets 1994 1993
Aircraft, at adjusted cost $ 28,843,000 $ 28,843,000
Less-accumulated depreciation (2,725,872) ---
26,117,128 28,843,000
Cash and cash equivalents 1,597,954 1,104,004
Restricted cash 2,587,174 3,639,699
Interest receivable 971 9,769
Loan receivable 295,433 ---
Prepaid expenses --- 22,074
Total Assets $ 30,598,660 $ 33,618,546
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 248,298 $ 198,094
Maintenance payable --- 750,000
Distribution payable 1,397,954 904,004
Deferred revenue 400,833 315,500
Total Liabilities 2,047,085 2,167,598
Partners' Capital (Deficit):
General Partners (680,994) (652,000)
Limited Partners 29,232,569 32,102,948
Total Partners' Capital 28,551,575 31,450,948
Total Liabilities and
Partners' Capital $ 30,598,660 $ 33,618,546
Statements of Operations
Three months ended Six months ended
June 30, June 30,
Income 1994 1993 1994 1993
Rental $ 1,500,000 $ 1,326,721 $ 2,554,667 $ 2,990,882
Other --- --- 2,419 ---
Interest 23,667 39,637 55,802 65,535
Total Income 1,523,667 1,366,358 2,612,888 3,056,417
Expenses
Depreciation 1,362,936 1,495,095 2,725,872 2,990,190
Management fees 125,641 87,306 225,258 207,568
General and administrative 40,503 47,558 108,567 103,242
Operating 8,857 17,112 42,978 18,830
Total Expenses 1,537,937 1,647,071 3,102,675 3,319,830
Net Income (Loss) $ (14,270) $ (280,713) $ (489,787) $ (263,413)
Net Income (Loss) Allocated:
To the General Partners $ (143) $ (2,807) $ (4,898) $ (2,634)
To the Limited Partners (14,127) (277,906) (484,889) (260,779)
$ (14,270) $ (280,713) $ (489,787) $ (263,413)
Per limited partnership unit
(4,837,505 outstanding) $ 0.00 $ (0.06) $ (0.10) $ (0.05)
Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1994
Limited General Total
Partners' Partners' Partners'
Capital (Deficit) Capital
Balance at December 31, 1993 $32,102,948 $ (652,000) $31,450,948
Net Loss (484,889) (4,898) (489,787)
Cash distributions (2,385,490) (24,096) (2,409,586)
Balance at June 30, 1994 $29,232,569 $ (680,994) $28,551,575
Statements of Cash Flows
For the six months ended June 30, 1994 and 1993
Cash Flows from Operating Activities: 1994 1993
Net loss $ (489,787) $ (263,413)
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation 2,725,872 2,990,190
Restricted cash 1,052,525 1,375,000
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Interest receivable 8,798 (4,792)
Prepaid expenses 22,074 (40,830)
Accounts payable and accrued expenses 50,204 (63,977)
Maintenance payable (750,000) ---
Deferred revenue 85,333 (168,720)
Net cash provided by operating activities 2,705,019 3,823,458
Cash Flows from Investing Activities:
Loan receivable (295,433) ---
Net cash used by investing activities (295,433) ---
Cash Flows from Financing Activities:
Cash distributions (1,915,636) (3,542,617)
Net cash used for financing activities (1,915,636) (3,542,617)
Net increase in cash and cash equivalents 493,950 280,841
Cash and cash equivalents at
beginning of period 1,104,004 2,451,617
Cash and cash equivalents at end of period $ 1,597,954 $ 2,732,458
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1993 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary to
present a fair statement of financial position as of June 30, 1994 and the
results of operations, changes in partners' capital (deficit), and cash flows
for the six months then ended. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
The following significant events have occurred subsequent to fiscal year 1993,
and material contingencies exist that require disclosure in this interim report
per Regulation S-X, Rule 10-01, Paragraph (a)(5).
(1) On February 9, 1994, Continental entered into a new lease agreement.
The agreement between Continental and the Partnership provides for Continental
to lease the plane for a term of four years. Effective March 15, 1994,
Continental shall pay $180,000 per month in advance. In addition, the
Partnership made a one-time payment of $750,000 in March 1994 to perform
various maintenance work on the plane. Also, the Partnership has agreed to
provide up to $600,000 of financing to Continental to perform modification work
on the aircraft including advanced avionics, interior furnishings and exterior
paint. The modification financing is repayable over the life of the lease at
an interest rate of 8% per annum for advances made before February 1, 1996, and
with respect to advances made after February 1, 1996, a rate per annum equal to
the yield to maturity of United States Treasury Notes having a maturity closest
to the remaining term of the lease, plus 4.25 percent. On June 7, 1994, the
Partnership made its first advance to Continental in the amount of $302,525.
(2) The current lease agreement with Delta for the Partnership's 737-200
advanced aircraft was scheduled to expire in December 1994. However, in early
May 1994, Delta exercised its option to extend the lease for a term of two
years from the previous expiration date, with the remaining terms of the lease
unchanged.
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
As of June 30, 1994, the Partnership had all of its eight aircraft on lease.
There were three aircraft on lease to Northwest Airlines, Inc. ("Northwest"),
three aircraft on lease to Trans World Airlines Inc. ("TWA"), one aircraft on
lease to Delta Air Lines, Inc. ("Delta") and one aircraft on lease to
Continental Airlines ("Continental"). In early May 1994, Delta exercised its
option to extend the lease for the Partnership's 737-200 advanced aircraft for
a term of two years from the previous expiration date in December 1994, with
the remaining terms of the lease unchanged. At June 30, 1994, all airlines
were current on their lease obligations.
Pursuant to the terms of the lease agreement executed with Continental in
February 1994, the Partnership agreed to provide up to $600,000 of financing to
the airline to perform modification work on the Partnership's MD-80 Series
aircraft, including advanced avionics, interior furnishings and exterior paint.
On June 7, 1994, the Partnership made its first advance to Continental in the
amount of $302,525. The modification financing is repayable over the life of
the lease at an interest rate of 8% per annum for advances made before February
1, 1996, and, with respect to advances made after February 1, 1996, a rate per
annum equal to the yield to maturity of United States Treasury Notes having a
maturity closest to the remaining terms of the lease, plus 4.25 percent.
The Partnership is faced with an increasingly competitive environment in the
aircraft leasing industry which has had an immediate and material impact on the
business of the Partnership. In particular, the large oversupply of aircraft
available for lease has resulted in significant reductions in market lease
rates thereby impacting the lease rates obtained by the Partnership as leases
for the aircraft have been either renewed or extended. The General Partners are
currently attempting to negotiate lease extensions or renewals for the
Partnership's three 727-200 aircraft on lease to TWA, the leases for which
expire on September 30, 1994 (two aircraft) and October 31, 1994 (one
aircraft). The General Partners anticipate that, even if the leases for these
three aircraft are renewed or extended, it will result in a decline in the
Partnership's cash flow. If efforts to negotiate a lease renewal or extension
with TWA are unsuccessful, the General Partners believe it will be very
difficult to re-lease the aircraft to another airline. In the event that
efforts to re-lease the aircraft are ultimately unsuccessful, the General
Partners will evaluate the potential sale of the aircraft. In addition, the
leases for the Partnership's three DC-9-30 aircraft currently on lease to
Northwest are scheduled to expire on January 31, 1995 (two aircraft) and April
21, 1995 (one aircraft). While the General Partners plan to commence
discussions with Northwest to negotiate lease extensions or renewals, there can
be no assurances that any of the expiring leases will be renewed or extended.
At June 30, 1994, the Partnership had cash and cash equivalents of $1,597,954
as compared to $1,104,004 at December 31, 1993. The $493,950 increase in cash
and cash equivalents is attributable to cash generated from operations being in
excess of the payment of cash distributions. The Partnership's restricted cash
totalled $2,587,174 at June 30, 1994, compared to $3,639,699 at December 31,
1993. The $1,052,525 decrease is due to: (i) $750,000 paid to Continental in
March 1994 in accordance with their new lease agreement; and (ii) $302,525
loaned to Continental on June 7, 1994 pursuant to the terms of the lease
agreement discussed above. The Partnership's restricted cash is comprised of:
(i) $750,000 which is to be used in connection with performing various
airworthiness directives mandated by the Federal Aviation Administration, and
(ii) $1,837,174 and $2,889,699 of aircraft maintenance reserves, at June 30,
1994 and December 31, 1993, respectively. At December 31, 1993, $750,000 of
the aircraft maintenance reserves were also reflected as a liability under
"maintenance payable."
On April 29, 1994, the Partnership paid a cash distribution to the Unitholders
for the period from January 1, 1994 to March 31, 1994, in the amount of
$1,011,321, which represents approximately $.21 per Unit. At June 30, 1994,
the Partnership had a distribution payable of $1,397,954 or approximately $.29
per Unit. This amount reflects the 1994 second quarter cash distribution which
was funded from cash flow from operations. This distribution was subsequently
paid on July 29, 1994. Future cash distributions will be determined on a
quarterly basis after an evaluation of the Partnership's current and expected
financial position.
At June 30, 1994, deferred revenue totalled $400,833 as compared to $315,500 at
December 31, 1993. The increase is attributable to the new lease agreement
with Continental.
Results of Operations
Substantially all of the Partnership's revenue was generated from the leasing
of the Partnership's aircraft to commercial air carriers under triple net
operating leases. The majority of the balance of the Partnership's revenue
consisted of interest income from short-term investments.
For the three months ended June 30, 1994, the Partnership reported a net loss of
$14,270 as compared to a net loss of $280,713 for the corresponding period in
1993. The decrease in net loss is primarily attributable to the re-leasing
of the Partnership's MD-80 Series aircraft to Continental and to a decrease in
depreciation. For the six months ended June 30, 1994, the Partnership reported
a net loss of $489,787 as compared to a net loss of $263,413 for the
corresponding period in 1993. The increase in net loss is primarily
attributable to lower rental income from the Partnership's operating leases.
Rental income for the three and six months ended June 30, 1994, was $1,500,000
and $2,554,667, respectively, as compared to $1,326,721 and $2,990,882,
respectively, for the corresponding periods in 1993. The increase for the
three month period is the result of Continental re-leasing the MD-80 Series
aircraft. The decrease in the six month period is primarily the result of TWA
and Northwest paying lower rental rates pursuant to the airlines' amended lease
agreements.
Interest income for the three and six months ended June 30, 1994, was $23,667
and $55,802, respectively, as compared to $39,637 and $65,535 respectively, for
the corresponding periods in 1993. The decrease is due to lower cash balances
maintained by the Partnership during the six months ended June 30, 1994 as
compared to the same period in 1993.
Depreciation for the three and six months ended June 30, 1994 was $1,362,936
and $2,725,872, respectively, as compared to $1,495,095 and $2,990,190,
respectively, for the corresponding periods in 1993. The decrease is due to
the write-down of the value of the Partnership's aircraft in December 1993.
Management fees for the three and six months ended June 30, 1994, were $125,641
and $225,258, respectively, as compared to $87,306 and $207,568, respectively,
for the corresponding periods in 1993. Management fees are based on rental
income and operating cash flow. The increases for the three and six month
periods are the result of the re-leasing of the three 727-200 aircraft to TWA
in August 1993 and the MD-80 Series aircraft to Continental in March 1994.
General and administrative expenses for the three and six months ended June 30,
1994, were $40,503 and $108,567, respectively, as compared to $47,558 and
$103,242, respectively, for the corresponding periods in 1993. The decrease
for the three month period is mainly due to a reduction in legal costs. The
increase for the six month period is primarily due to higher legal and postage
fees.
Operating expenses for the three and six months ended June 30, 1994, were
$8,857 and $42,978, respectively, as compared to $17,112 and $18,830,
respectively, for the corresponding periods in 1993. The differences are due
to the timing of billing of costs associated with the MD-80 Series aircraft as
it was put in storage in May 1993 and later re-leased to Continental as of
March 15, 1994. The 1993 costs were mainly for insurance, storage and
maintenance, while the 1994 costs also include consulting and documentation to
prepare the aircraft for re-leasing.
PART II OTHER INFORMATION
Items 1-4 Not applicable
Item 5 Other information.
Effective May 20, 1994, American Express Company ("American Express")
distributed to holders of record of American Express, shares of
Lehman Brothers Holdings Inc. ("Lehman Brothers") common stock.
As a result of this transaction, the Jet Aircraft Leasing Inc.
General Partner, is no longer an affiliate of American Express.
This change is not expected to have any impact on the Partnership.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended June 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JETSTREAM II, L.P.
BY: JET AIRCRAFT LEASING INC.
Administrative General Partner
Date: August 12, 1994
BY: /s/ Moshe Braver
Title: Director and President
Date: August 12, 1994
BY: /s/ Daniel M. Palmier
Title: Vice President and
Chief Financial Officer
