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 September 30, 1996
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 I.R.S. Employer
of Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 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 At September 30, At December 31,
1996 1995
Assets
Aircraft, at cost: $ 26,877,000 $ 26,877,000
Less accumulated depreciation (11,908,428) (8,937,504)
14,968,572 17,939,496
Cash and cash equivalents 5,144,866 4,282,580
Restricted cash 297,475 1,047,475
Loan receivable 128,837 187,729
Interest receivable 423 658
Total Assets $ 20,540,173 $ 23,457,938
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 247,468 $ 256,152
Distribution payable 4,544,866 1,011,882
Deferred revenue 153,333 153,333
Total Liabilities 4,945,667 1,421,367
Partners' Capital (Deficit):
General Partners (795,228) (746,143)
Limited Partners (4,837,505 units outstanding) 16,389,734 22,782,714
Total Partners' Capital 15,594,506 22,036,571
Total Liabilities and Partners' Capital $ 20,540,173 $ 23,457,938
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1996
General Limited
Partners Partners Total
Balance at December 31, 1995 $(746,143) $22,782,714 $22,036,571
Net income 4,102 406,066 410,168
Cash distributions (53,187) (6,799,046) (6,852,233)
Balance at September 30, 1996 $(795,228) $16,389,734 $15,594,506
Statements of Operations Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
Income
Rental $1,192,500 $1,237,500 $3,577,500 $3,712,500
Interest 74,179 77,545 223,957 200,946
Other 880 1,260 44,235 2,850
Total Income 1,267,559 1,316,305 3,845,692 3,916,296
Expenses
Depreciation 990,308 1,199,104 2,970,924 3,884,018
Management fees 111,130 119,054 335,802 347,859
General and administrative 50,295 41,435 128,798 128,125
Operating --- 12,721 --- 67,078
Total Expenses 1,151,733 1,372,314 3,435,524 4,427,080
Income (loss) from operations 115,826 (56,009) 410,168 (510,784)
Other Income
Gains on sale of aircraft --- 593,730 --- 1,083,016
Net Income $ 115,826 $ 537,721 $ 410,168 $ 572,232
Net Income Allocated:
To the General Partners $ 1,159 $ 5,377 $ 4,102 $ 5,722
To the Limited Partners 114,667 532,344 406,066 566,510
$ 115,826 $ 537,721 $ 410,168 $ 572,232
Per limited partnership unit
(4,837,505 outstanding) $.02 $.11 $.08 $.12
Statements of Cash Flows
For the nine months ended September 30, 1996 1995
Cash Flows From Operating Activities
Net income $410,168 $572,232
Adjustments to reconcile net income to
net cash provided by operating activities:
Restricted cash 750,000 ---
Gains on sale of aircraft --- (1,083,016)
Depreciation 2,970,924 3,884,018
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Accounts receivable --- 9,941
Interest receivable 235 235
Accounts payable and accrued expenses (8,684) 183,706
Net cash provided by operating activities 4,122,643 3,567,116
Cash Flows From Investing Activities
Loan receivable 58,892 54,374
Proceeds from sale of aircraft - net --- 1,533,570
Net cash provided by investing activities 58,892 1,587,944
Cash Flows From Financing Activities
Cash distributions (3,319,249) (3,547,894)
Net cash used for financing activities (3,319,249) (3,547,894)
Net increase in cash and cash equivalents 862,286 1,607,166
Cash and cash equivalents, beginning of period 4,282,580 2,978,631
Cash and cash equivalents, end of period $5,144,866 $4,585,797
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1995 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of September 30, 1996 and the results of operations for the three
and nine months ended September 30, 1996 and 1995 and cash flows for the nine
months ended September 30, 1996 and 1995 and the statement of partners' capital
(deficit) for the nine months ended September 30, 1996. 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 1995,
or the following material contingencies exist, and require disclosure in this
interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
(A) During the third quarter of 1996 the Partnership signed lease agreements
with Northwest Airlines, Inc. ("Northwest") extending the current lease terms
for the Partnership's three DC-9-30 non-advanced aircraft for a term of ten
years from the previous scheduled expiration dates in January 1997 (two
aircraft) and April 1997 (one aircraft). Northwest will continue to pay the
Partnership a monthly lease rate of $35,000 per aircraft. In accordance with
the lease extensions, each of the aircraft will be hushkitted, which entails
upgrading the current engines to comply with Stage 3 noise requirements. This
will enable the aircraft to continue to fly in the United States beyond
December 31, 1999, the phase- out date for all Stage 2 commercial aircraft.
Northwest has agreed to fund the cost of the hushkitting and, in turn, will be
entitled to fifty percent (50%) of the proceeds from the eventual sale of the
aircraft.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
As of September 30, 1996, the Partnership had all six of its aircraft on-lease.
Three aircraft were on-lease to Northwest Airlines, Inc. ("Northwest"), one
aircraft was on-lease to Delta Air Lines, Inc. ("Delta"), one aircraft was
on-lease to Continental Airlines, Inc. ("Continental") and one aircraft was
on-lease to Trans World Airlines ("TWA"). At September 30, 1996, all airlines
to which the Partnership had aircraft on-lease were current on their lease
obligations.
The Partnership is faced with an extremely competitive environment in the
aircraft leasing industry which has had a material negative 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 in recent years, thereby impacting the lease rates obtained by the
Partnership as leases for the aircraft have been extended and as new leases
have been executed.
In August 1996, the Partnership executed agreements with Northwest to extend
the current leases for the Partnership's three DC-9-30 non-advanced aircraft
for a term of 10 years from the scheduled lease expiration dates in January
1997 (two aircraft) and April 1997 (one aircraft). Northwest will continue to
pay the Partnership a monthly lease rate of $35,000 per aircraft. In
accordance with the lease extensions, each of the aircraft will be hushkitted,
which entails upgrading the current engines to comply with Stage 3 noise
requirements. These upgrades will enable the aircraft to continue to fly in
the United States beyond December 31, 1999 -- the phase-out date for all Stage
2 commercial aircraft. Northwest has agreed to fund the cost of hushkitting
and, in turn, will be entitled to 50% of the proceeds from the sale of the
aircraft at the end of the leases. The General Partners believe that the lease
extensions and hushkitting of the engines will in all likelihood increase the
value of the aircraft and will present the Partnership with more viable sales
opportunities for the aircraft in the future.
TWA continues to lease the Partnership's remaining 727-200 Stage 2 non-advanced
aircraft on a month-to-month basis and remains current on its monthly lease
payments of $32,500. To date, TWA has not given any indication to the
Partnership as to how long it will continue to lease the aircraft. Once the
aircraft is returned to the Partnership, the General Partners believe that it
will be very difficult to re-lease it to another airline.
The lease with Delta for the Partnership's 737-200 advanced aircraft expires in
September 1999. In accordance with the terms of the lease agreement, Delta
pays the Partnership a monthly lease rate of $80,000.
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 term of the lease, plus 4.25 percent. As of
September 30, 1996, Continental had made cumulative principal payments on the
loan totalling $173,688. Payments made on this loan are the reason for the
decrease in the Partnership's loan receivable balance, which totalled $128,837
at September 30, 1996 as compared to $187,729 at December 31, 1995. Continental
makes monthly lease payments to the Partnership of $180,000.
At September 30, 1996, the Partnership had unrestricted cash and cash
equivalents of $5,144,866, compared to $4,282,580 at December 31, 1995. The
increase is primarily attributable to a reclassification of $750,000 from
restricted cash to operating cash during the third quarter of 1996 in
connection with the lease extensions executed with Northwest, as discussed
above. To a lesser extent, the increase is also attributable to cash flow from
operations during the third quarter of 1996 exceeding the 1995 fourth quarter
distribution paid to the partners on February 2, 1996. The Partnership's
restricted cash balance decreased from $1,047,475 at December 31, 1995 to
$297,475 at September 30, 1996. The decrease is attributable to the
aforementioned reclassification of $750,000 from restricted cash to operating
cash in connection with the lease extensions executed with Northwest in August
1996. Such amount had previously been included in the Partnership's restricted
cash to cover the cost of performing various airworthiness directives on the
Partnership's three DC-9-30 aircraft on-lease to Northwest. Under the extended
leases, Northwest is obligated to pay for all airworthiness directives required
during the terms of the leases, therefore, the Partnership reclassified the
$750,000 as operating cash. The Partnership's remaining restricted cash
balance of $297,475 represents the balance of modification work financing
committed to Continental in accordance with the 1994 lease agreement.
On August 7, 1996, the Partnership paid a distribution to the Unitholders for
the period from April 1, 1996 to June 30, 1996 in the amount of $1,162,276, or
approximately $.24 per Unit. At September 30, 1996, the Partnership had a
distribution payable to Unitholders of $1,112,926, or approximately $.23 per
Unit. Such amount reflects the 1996 third quarter distribution which was
funded from cash flow from operations. This distribution was subsequently paid
on November 8, 1996. In addition to the regular quarterly distribution, the
Partnership had a special distribution payable to Unitholders of $3,401,826, or
approximately $.70 per Unit, as of September 30, 1996. The special
distribution was paid to Unitholders on October 22, 1996 and was funded from
cash that was previously held in reserve. The General Partners determined that
a portion of the Partnership's cash reserves could be distributed as a result
of Northwest's agreement to fund the costs associated with hushkitting the
Partnership's three DC-9-30 aircraft as part of the lease extensions executed
in August 1996 as discussed above.
Future cash distributions will be determined on a quarterly basis after an
evaluation of the Partnership's current and expected financial position. The
level of cash available for future distribution will be reduced if TWA
terminates the lease for the Partnership's 727-200 non-advanced aircraft which
is currently being leased from the Partnership on a month-to-month basis.
Results of Operations
Substantially all of the Partnership's revenue for the nine months ended
September 30, 1996 was generated from the leasing of the Partnership's aircraft
to commercial air carriers under triple net operating leases.
For the three and nine months ended September 30, 1996, the Partnership
generated net income of $115,826 and $410,168, respectively, compared to net
income of $537,721 and $572,232 for the corresponding periods in 1995. The
decrease for the three month period is primarily attributable to a $593,730
gain recognized during the third quarter of 1995 as a result of the September
1995 sale of one of the 727-200 non-advanced aircraft formerly on-lease to TWA.
No such gain was recognized in the third quarter of 1996. Excluding the gain
on sale of aircraft, the Partnership recorded a loss from operations for the
three months ended September 30, 1995 totalling $56,009, compared to income
from operations of $115,826 for the corresponding period in 1996. The change
from loss to income (excluding the aforementioned gain on the September 1995
sale of the 727-200 aircraft formerly on-lease to TWA) for the three month
period is primarily attributable to a decrease in depreciation expense. The
gain resulting from the September 1995 sale in addition to a gain realized from
the June 1995 sale of another 727-200 non-advanced aircraft formerly on-lease
to TWA are the primary reasons for the higher net income balance for the nine
month period ended September 30, 1995. However, excluding these gains on sale
of aircraft, the Partnership recorded a loss from operations for the nine
months ended September 30, 1995 totalling $510,784, compared to income from
operations for the nine months ended September 30, 1996 totalling $410,168. The
increase in net income (excluding the aforementioned gains on the June 1995 and
September 1995 sales of aircraft) for the nine month period is primarily
attributable to a decrease in depreciation expense and, to a lesser extent, a
decrease in operating expenses.
Rental income for the three and nine months ended September 30, 1996 was
$1,192,500 and $3,577,500, respectively, compared to $1,237,500 and $3,712,500
for the corresponding periods in 1995. The decrease for both periods is
primarily due to the reduction in the monthly lease rate paid by Delta in
accordance with the lease extension for the Partnership's 737-200 advanced
aircraft executed in November 1995.
Interest income for the three and nine months ended September 30, 1996 was
$74,179 and $223,957, respectively, compared to $77,545 and $200,946 for the
corresponding periods in 1995. The increase for the nine month period is
primarily attributable to an increase in the Partnership's invested cash
balance during the 1996 period.
Other income for the three and nine months ended September 30, 1996 totalled
$880 and $44,235, respectively, compared to $1,260 and $2,850 for the
corresponding periods in 1995. The increase for the nine month period is
primarily attributable to a payment received by the Partnership in the amount
of $40,860 as settlement of an administrative claim by the Partnership against
Pan American World Airways, Inc. ("Pan Am") which was filed in Bankruptcy Court
in 1992. The Partnership was seeking to recover certain rent and maintenance
costs associated with Pan Am's failure to comply with the return provisions of
its lease. The case was settled during the second quarter of 1996.
Depreciation expense for the three and nine months ended September 30, 1996
totalled $990,308 and $2,970,924, respectively, compared to $1,199,104 and
$3,884,018 for the corresponding periods in 1995. The decreases for both
periods are primarily attributable to the sales of the two 727-200 non-
advanced aircraft in June 1995 and September 1995 formerly on lease to TWA and
one of the Partnership's aircraft being fully depreciated in 1995.
Operating expenses for the three and nine months ended September 30, 1996
totalled $0, compared to $12,721 and $67,078 for the corresponding periods in
1995. The balances in the 1995 periods are primarily attributable to storage
and maintenance costs which were incurred as a result of the idle status of the
two 727-200 non-advanced aircraft during 1995 which were returned to the
Partnership by TWA subsequent to their respective lease expirations in the
fourth quarter of 1994. The aircraft were subsequently sold in June 1995 and
September 1995.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended September 30, 1996.
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.
General Partner
Date: November 13, 1996 BY: /s/ Moshe Braver
Name: Moshe Braver
Director and President
Date: November 13, 1996 BY: /s/ John Stanley
Name: John Stanley
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 5,144,866
<SECURITIES> 0
<RECEIVABLES> 129,260
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,145,289
<PP&E> 26,877,000
<DEPRECIATION> 11,908,428
<TOTAL-ASSETS> 20,540,173
<CURRENT-LIABILITIES> 4,945,667
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,594,506
<TOTAL-LIABILITY-AND-EQUITY> 20,540,173
<SALES> 0
<TOTAL-REVENUES> 3,845,692
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,435,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 410,168
<INCOME-TAX> 0
<INCOME-CONTINUING> 410,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 410,168
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
