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 March 31, 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 March 31, At December 31,
1996 1995
Assets
Aircraft, at cost $ 26,877,000 $ 26,877,000
Less accumulated depreciation (9,927,812) (8,937,504)
16,949,188 17,939,496
Cash and cash equivalents 4,404,048 4,282,580
Restricted cash 1,047,475 1,047,475
Loan receivable 168,442 187,729
Interest receivable 591 658
Total Assets $ 22,569,744 $ 23,457,938
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 258,731 $ 256,152
Distribution payable 1,133,350 1,011,882
Deferred revenue 153,333 153,333
Total liabilities 1,545,414 1,421,367
Partners' Capital (Deficit):
General Partners (756,265) (746,143)
Limited Partners(4,837,505 units outstanding) 21,780,595 22,782,714
Total Partners' Capital 21,024,330 22,036,571
Total Liabilities and Partners' Capital $ 22,569,744 $ 23,457,938
Statement of Partners' Capital (Deficit)
For the three months ended March 31, 1996
General Limited
Partners Partners Total
Balance at December 31, 1995 $ (746,143) $ 22,782,714 $ 22,036,571
Net income 1,211 119,898 121,109
Cash distributions (11,333) (1,122,017) (1,133,350)
Balance at March 31, 1996 $ (756,265) $ 21,780,595 $ 21,024,330
Statements of Operations
For the three months ended March 31, 1996 1995
Income
Rental $ 1,192,500 $ 1,237,500
Interest 75,497 58,811
Other 1,030 875
Total income 1,269,027 1,297,186
Expenses
Depreciation 990,308 1,362,936
Management fees 111,368 114,013
General and administrative 46,242 47,276
Operating --- 38,396
Total expenses 1,147,918 1,562,621
Net income (loss) $ 121,109 $ (265,435)
Net Income (Loss) Allocated:
To the General Partners $ 1,211 $ (2,654)
To the Limited Partners 119,898 (262,781)
$ 121,109 $ (265,435)
Per limited partnership unit
(4,837,505 outstanding) $.02 $(.05)
Statements of Cash Flows
For the three months ended March 31, 1996 1995
Cash Flows From Operating Activities
Net income (loss) $ 121,109 $ (265,435)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 990,308 1,362,936
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Accounts receivable --- 9,941
Interest receivable 67 63
Accounts payable and accrued expenses 2,579 (10,496)
Net cash provided by operating activities 1,114,063 1,097,009
Cash Flows From Investing Activities
Loan receivable 19,287 17,832
Net cash provided by investing activities 19,287 17,832
Cash Flows From Financing Activities
Cash distributions (1,011,882) (1,288,932)
Net cash used for financing activities (1,011,882) (1,288,932)
Net increase (decrease) in cash and
cash equivalents 121,468 (174,091)
Cash and cash equivalents, beginning of period 4,282,580 2,978,631
Cash and cash equivalents, end of period $ 4,404,048 $ 2,804,540
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 March 31, 1996 and the results of operations and cash flows for
the three months ended March 31, 1996 and 1995 and the statement of changes in
partners' capital (deficit) for the three months ended March 31, 1996. Results
of operations for the period are not necessarily indicative of the results to
be expected for the full year.
No significant events have occurred subsequent to fiscal year 1995, which
requires disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
As of March 31, 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 March 31, 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, thereby impacting the lease rates obtained by the
Partnership as leases for the aircraft have been extended and as new leases
have been executed.
During the first quarter of 1996, the Partnership reached an agreement in
principle 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 (one aircraft) and April 1997 (two
aircraft). Northwest will continue to pay the Partnership a monthly lease rate
of $35,000 per aircraft. In accordance with the anticipated 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 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 proposed lease extensions and huskitting 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.
An agreement was reached with Delta in November 1995 to amend and extend the
current lease for the Partnership's 737-200 advanced aircraft until September
30, 1999 at a monthly lease rate of $80,000. While this rate represents a
decline from the previous rate of $95,000 per month, it was representative of
prevailing market rates at the time. Under the terms of the amended lease,
Delta does not have the option of returning the aircraft prior to the
expiration date as it did under the previous lease agreement.
At March 31, 1996, the Partnership had unrestricted cash and cash equivalents
of $4,404,048, compared to $4,282,580 at December 31, 1995. The $121,468
increase is primarily due to cash flow from operations during the first quarter
of 1996 exceeding the 1995 fourth quarter distribution paid to the partners on
February 2, 1996. The Partnership's restricted cash balance of $1,047,475
remained unchanged from December 31, 1995. 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) $297,475 which represents the balance of modification
work financing committed to Continental in accordance with the 1994 lease
agreement.
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
March 31, 1996, Continental had made principal payments on the loan totalling
$134,083. Payments made on this loan are the reason for the decrease in the
Partnership's loan receivable balance, which totalled $168,442 at March 31,
1996 as compared to $187,729 at December 31, 1995. Continental makes monthly
lease payments to the Partnership of $180,000.
On February 2, 1996, the Partnership paid a distribution to the Unitholders for
the period from October 1, 1995 to December 31, 1995 in the amount of
$1,001,763, or approximately $.21 per Unit. At March 31, 1996, the Partnership
had a distribution payable to Unitholders of $1,122,017, or approximately $.23
per Unit. Such amount reflects the 1996 first quarter distribution which was
funded from cash flow from operations. This distribution was subsequently paid
on May 10, 1996.
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
it 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 three months ended March
31, 1996 was generated from the leasing of the Partnership's aircraft to
commercial air carriers under triple net operating leases. The balance of the
Partnership's revenue during the first quarter of 1996 consisted primarily of
interest income.
For the three months ended March 31, 1996, the Partnership generated net income
of $121,109, compared to a net loss of $265,435 for the corresponding period in
1995. The change from net loss to net income is primarily attributable to a
decrease in depreciation expense recorded by the Partnership as a result of the
sales of the two 727-200 non-advanced aircraft in June 1995 and September 1995,
which had previously been on-lease to TWA.
Rental income for the three months ended March 31, 1996 was $1,192,500,
compared to $1,237,500 for the corresponding period in 1995. The slight
decrease 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 months ended March 31, 1996 was $75,497, compared
to $58,811 for the corresponding period in 1995. The increase is primarily
attributable to an increase in the Partnership's invested cash balance.
Depreciation expense for the three months ended March 31, 1996 totalled
$990,308, compared to $1,362,936 for the corresponding period in 1995. The
decrease is primarily attributable to the sales of the two 727-200 non-advanced
aircraft in June 1995 and September 1995 as discussed above and one of the
Partnership's aircraft being fully depreciated in 1995.
Operating expenses for the three months ended March 31, 1996 totalled $0,
compared to $38,396 for the corresponding period in 1995. The balance in the
1995 period is 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 -
On March 18, 1996, based upon, among other things, the advice of
Partnership counsel, Skadden, Arps, Slate, Meagher & Flom, the
General Partners adopted a resolution that states, among other
things, if a Change of Control (as defined below) occurs, the
General Partners may distribute the Partnership's cash balances
not required for its ordinary course day-to-day operations.
"Change of Control" means any purchase or offer to purchase more
than 10% of the Units that is not approved in advance by the
General Partners. In determining the amount of the
distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be
obligated to make any distribution to any partner, and no
partner will be entitled to receive any distribution, until the
General Partners have declared the distribution and established
a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March
21, 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: May 13, 1996 BY: /s/ Moshe Braver
Name: Moshe Braver
Title: Director and President
Date: May 13, 1996 BY: /s/ John Stanley
Name: John Stanley
Title: Vice President and
Chief Financial Officer
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<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Mar-31-1996
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