FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
(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, 1998
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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 0-17712
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Pegasus Aircraft Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 84-1099968
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(State of organization) (IRS Employer
Identification No.)
Four Embarcadero Center 35th Floor
San Francisco, California 94111
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (415) 434-3900
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 ___.
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This document consists of 21 pages.
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Pegasus Aircraft Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1998
Table of Contents
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Page
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 1998
and December 31, 1997 3
Statements of Income for the three months
ended June 30, 1998 and 1997 4
Statements of Income for the six months
ended June 30, 1998 and 1997 5
Statements of Partners' Equity for the six
months ended June 30, 1998 and 1997 6
Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 7
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12
Part II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
2
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Part I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
BALANCE SHEETS -- JUNE 30, 1998 AND DECEMBER 31, 1997
-----------------------------------------------------
(unaudited)
ASSETS
------
1998 1997
---- ----
(in thousands except unit data)
Cash and cash equivalents $ 2,252 $ 1,356
Rent and other receivables, net 425 422
Aircraft, net (Note 2) 27,870 28,708
Other assets 41 26
-------- --------
Total Assets $ 30,588 $ 30,512
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LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES:
Notes payable (Note 4) $ 10,000 $ 7,271
Accounts payable and accrued expenses 173 302
Payable to affiliates (Note 3) 391 458
Deferred rental income and deposits 982 982
Distributions payable to partners 1,616 1,632
Maintenance reserves collected 245 192
Accrued interest payable 81 --
-------- --------
Total Liabilities 13,488 10,837
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY:
General Partners (624) (599)
Limited Partners (4,000,005 units outstanding) 17,724 20,274
-------- --------
Total Partners' Equity 17,100 19,675
-------- --------
Total Liabilities and Partners' Equity $ 30,588 $ 30,512
======== ========
The accompanying notes are an integral part
of these financial statements.
3
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PEGASUS AIRCRAFT PARTNERS, L.P.
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STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
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(unaudited)
1998 1997
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(in thousands, except unit data and per unit amounts)
REVENUE:
Rentals from operating leases $ 2,279 $ 1,946
Interest and other 19 22
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2,298 1,968
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EXPENSES:
Depreciation and amortization 1,376 1,116
Management and re-lease fees (Note 3) 187 167
General and administrative (Note 3) 80 60
Interest expense 231 159
Direct lease 16 58
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1,890 1,560
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NET INCOME $ 408 $ 408
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 4 $ 4
To the Limited Partners 404 404
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$ 408 $ 408
========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT $ .10 $ .10
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 4,000,005 4,000,005
========== ==========
The accompanying notes are an integral part
of these financial statements.
4
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PEGASUS AIRCRAFT PARTNERS, L.P.
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STATEMENTS OF INCOME
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FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
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(unaudited)
1998 1997
---- ----
(in thousands, except unit data and per unit amounts)
REVENUE:
Rentals from operating leases $ 4,220 $ 3,626
Interest and other 34 52
Gain on sale of engine - 177
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4,254 3,855
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EXPENSES:
Depreciation and amortization 2,629 2,216
Management and re-lease fees (Note 3) 343 305
General and administrative (Note 3) 128 123
Interest expense 437 227
Direct lease 60 112
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3,597 2,983
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NET INCOME $ 657 $ 872
========= ========
NET INCOME ALLOCATED:
To the General Partners $ 7 $ 9
To the Limited Partners 650 863
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$ 657 $ 872
========= ========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .16 $ .21
========= ========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 4,000,005 4,000,005
========= =========
The accompanying notes are an integral part
of these financial statements.
5
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PEGASUS AIRCRAFT PARTNERS, L.P.
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STATEMENTS OF PARTNERS' EQUITY
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FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
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(unaudited)
General Limited
Partners Partners Total
-------- -------- -----
(in thousands)
Balance, January 1, 1998 $ (599) $ 20,274 $ 19,675
Net income 7 650 657
Distributions declared to partners (32) (3,200) (3,232)
-------- -------- --------
Balance, June 30, 1998 $ (624) $ 17,724 $ 17,100
======== ======== ========
Balance, January 1, 1997 $ (542) $ 25,965 $ 25,423
Net income 9 863 872
Distributions declared to partners (32) (3,200) (3,232)
-------- -------- --------
Balance, June 30, 1997 $ (565) $ 23,628 $ 23,063
======== ======== ========
The accompanying notes are an integral part
of these financial statements.
6
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PEGASUS AIRCRAFT PARTNERS, L.P.
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STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
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(unaudited)
1998 1997
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(in thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 657 $ 872
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of engine -- (177)
Depreciation and amortization 2,629 2,216
Change in assets and liabilities:
Rent and other receivables (87) (160)
Other assets (15) 17
Accounts payable and accrued expenses (129) 30
Payable to affiliates (67) 66
Accrued interest payable 81 49
Deferred rental income and deposits -- 16
Maintenance reserves collected 53 277
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Net cash provided by operating activities 3,122 3,206
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of engine -- 275
Capitalized aircraft improvements (1,791) (6,171)
Accounts payable-aircraft -- 236
Repayment of advances by lessees 84 117
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Net cash used in investing activities (1,707) (5,543)
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The accompanying notes are an integral part
of these financial statements.
7
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PEGASUS AIRCRAFT PARTNERS, L.P.
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STATEMENTS OF CASH FLOWS (CONTINUED)
------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
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(unaudited)
1998 1997
---- ----
(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Security deposits -- 190
Restricted maintenance reserves -- 27
Transfers from restricted cash -- 1,627
Application of maintenance reserves to restore aircraft -- (1,654)
Cash distributions paid to partners (3,248) (3,216)
Proceeds from notes payable 2,729 7,271
Repayments of notes payable -- (1,218)
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Net cash provided by (used in) financing activities (519) 3,027
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 896 690
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,356 2,521
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,252 $ 3,211
======= =======
SUPPLEMENTAL INFORMATION:
Interest paid $ 350 $ 178
======= =======
The accompanying notes are an integral part
of these financial statements.
8
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PEGASUS AIRCRAFT PARTNERS, L.P.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1998
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(unaudited)
1. GENERAL
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The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of the General Partners, necessary to fairly present the financial
position of the Partnership as of June 30, 1998 and the results of its
operations, changes in partners' equity, and cash flows for the six months then
ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the Partnership's annual audited financial statements for the year ended
December 31, 1997.
New Accounting Pronouncement: In March 1998, the Partnership adopted
SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances arising from nonowner sources. The adoption
of this pronouncement did not impact the reporting of the Partnership's results
of operations.
2. AIRCRAFT
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The Partnership's net investment in aircraft as of June 30, 1998 and
December 31, 1997 consisted of the following (in thousands):
1998 1997
---- ----
Aircraft on operating leases, at cost $ 84,464 $ 71,120
Less: Accumulated depreciation (47,075) (40,609)
Write-downs (5,668) (3,368)
Net Lease Settlement proceeds accounted for
as cost recovery (3,673) (3,673)
Provision for maintenance cost (178) (178)
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$ 27,870 $ 23,292
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Aircraft held for lease, at cost -- $ 11,555
Less: Accumulated depreciation -- (3,839)
Write-downs -- (2,300)
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-- 5,416
-------- --------
Aircraft, net $ 27,870 $ 28,708
======== ========
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Continental Airline Lease: The Partnership owns a Boeing 727-200
advanced aircraft which was subject to a lease with Continental providing for
rentals of $75,000 per month through June 30, 1998, the scheduled expiration
date. The Partnership and Continental have agreed to a short extension of the
lease to August 18, 1998 at the same rate of $75,000 per month. The Partnership
is currently remarketing this aircraft.
TNT Transport International B.V.: The Partnership entered into a lease
for the aircraft formerly leased to Nations Air Express, Inc., with a European
freight carrier, TNT Transport International B.V. ("TNT") for a term of four
years. The lease provides for monthly rentals of $123,500 (subject to a
reduction of approximately 10% after two years if TNT exercises an option to
extend the lease for an additional two years beyond the original expiration
date) and airframe and landing gear reserves aggregating $85 per flight hour.
TNT has contracted with a third party service provider for maintenance of the
engines. TNT has provided a $150,000 security deposit. TNT also has the right to
extend the lease for an additional two years after the fourth year (if the above
option is not exercised) at $95,000 per month. The Partnership invested
approximately $3.1 million for a "C" check and cargo conversion of the aircraft.
The work was performed and certain of the aircraft parts were provided by
companies affiliated with the Managing General Partner or its President and
Director. The Partnership increased its borrowing facility from $7,500,000 to
$10,000,000 to finance this work. The aircraft was delivered to TNT in March
1998.
3. TRANSACTIONS WITH AFFILIATES
----------------------------
Base Management Fees. The General Partners are entitled to receive a
quarterly subordinated base management fee in an amount generally equal to 1.5%
of gross aircraft rentals, net of re-lease fees paid. Of this amount, 1.0% is
payable to the Managing General Partner and 0.5% is payable to the
Administrative General Partner. The General Partners earned a total of $34,000
and $62,000 of base management fees during the quarter and six months ended June
30, 1998, respectively.
Incentive Management Fees. The General Partners also are entitled to
receive a quarterly subordinated incentive management fee in an amount equal to
4.5% of quarterly cash flow and sales proceeds (net of resale fees). Of this
amount, 2.5% is payable to the Managing General Partner and 2.0% is payable to
the Administrative General Partner. The General Partners earned a total of
$84,000 and $154,000 of incentive management fees during the quarter and six
months ended June 30, 1998, respectively.
Re-lease Fees. The General Partners are entitled to receive a quarterly
subordinated fee for re-leasing aircraft or renewing a lease in an amount equal
to 3.5% of the gross rentals from such re-lease or renewal for each quarter for
which such payment is made. Of this amount, 2.5% is payable to the Managing
General Partner and 1.0% is payable to the Administrative General Partner. The
General Partners earned a total of $69,000 and $126,000 of re-lease fees during
the quarter and six months ended June 30, 1998, respectively.
All of the above fees are subordinated to the limited partners
receiving an 8% annual non-cumulative return based upon original contributed
capital.
10
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Accountable General and Administrative Expenses. The General Partners
are entitled to reimbursement of certain expenses paid on behalf of the
Partnership which are incurred in connection with the administration and
management of the Partnership. Such reimbursable expenses amounted to $ -0- and
$13,000 during the quarter and six months ended June 30, 1998, respectively, all
of which were payable to the Administrative General Partner.
During the six months ended June 30, 1998 the Partnership paid $635,000
to a maintenance facility that is affiliated with the Managing General Partner.
Additionally, the Partnership paid $1,043,000 to an aircraft parts company,
which is owned by the President and Director of the Managing General Partner and
two former officers and directors of the Managing General Partner.
4. NOTES PAYABLE
-------------
In January 1998, the Lender increased the borrowing commitment from
$7.5 million to $10 million and increased the interest rate from 1% to 1.25%
over prime. The proceeds have been utilized to fund the "C" check and cargo
conversion of the aircraft delivered to TNT.
5. LITIGATION
----------
The Partnership, along with the Managing General Partner,
Administrative General Partner and PaineWebber Incorporated, has been named as a
defendant in a lawsuit entitled Paul Mallia, et al. v. PaineWebber, Inc., et
al., pending before the United States District Court for the Southern District
of New York, and relating to the sale and sponsorship of various limited
partnership investments, including the Partnership and an affiliated Partnership
("the Pegasus Partnerships"). Although the lawsuit was originally filed in 1995,
the Pegasus Partnerships were served with process after a consolidated amended
complaint was filed in May 1998. The complaint asserts claims under the
Racketeer Influenced and Corrupt Organizations Act, as well as state law claims
for common law fraud, conspiracy, violations of section 27.01 of the Texas
Business and Commerce Code, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty, violations of the Texas
Securities Act, and violations of the Texas Deceptive Trade Practices Act, on
behalf of those investors who bought interests in the Pegasus Partnerships and
in other limited partnerships and investments. The plaintiffs seek unspecified
damages, including attorneys' fees, reimbursement for all sums invested by them
in the partnerships, exemplary damages, and treble damages. The Partnerships
have not yet filed an answer to the complaint. Discovery has begun, and is
scheduled to be completed in early 1999. The General Partners cannot determine
at this time the impact, if any, of the litigation on the Partnership.
The Partnership has filed a claim in the Bankruptcy Court for unpaid rents and
other damages related to the rejection, by Kiwi, of the leases. Given the sale
of Kiwi's assets as approved by the Court, it is unlikely that the Partnership
will obtain any recovery.
11
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Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
This report may contain, in addition to historical information,
forward-looking statements that include risks and other uncertainties. The
Partnership's actual results may differ materially from those anticipated in
these forward-looking statements. Factors that might cause such a difference
include those discussed below, as well as general economic and business
conditions, competition and other factors discussed elsewhere in this report.
The Partnership undertakes no obligation to release publicly any revisions to
these Forward-Looking Statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership owns and manages a diversified portfolio of commercial
aircraft and makes quarterly distributions to the partners of net cash flow
generated by operations in the current and/or prior quarters. In certain
situations, the Partnership may retain cash flow from operations to finance
authorized capital expenditures.
The Partnership invests working capital and cash flow from operations
prior to its distribution to the partners in short-term, highly liquid
investments or a fund that invests in such instruments. At June 30, 1998, the
Partnership's unrestricted cash and cash equivalents of $2,252,000 was primarily
invested in such a fund. This amount was $896,000 more than the Partnership's
unrestricted cash and cash equivalents at December 31, 1997 of $1,356,000. This
increase in unrestricted cash was attributable to the amount by which cash
generated by operating activities, collection of advances to lessees, proceeds
from notes payable, and the unapplied maintenance reserves, exceeded cash
distribution to partners and capitalized aircraft improvements, during the six
months ended June 30, 1998.
Rent and other receivables increased by $3,000 from $422,000 at
December 31, 1997 to $425,000 at June 30, 1998. This increase was due to amounts
due from Sky Trek at June 30, 1998 (which was paid in early July, 1998) offset
by the continued repayment of the advance by TWA.
Other assets increased by $15,000 from $26,000 at December 31, 1997 to
$41,000 at June 30, 1998.
Payable to affiliates decreased by $67,000, from $458,000 at December
31, 1997 to $391,000 at June 30, 1998.
During the six months ended June 30, 1998 the Partnership paid cash
distributions pertaining to the first quarter of 1998 and the last quarter of
1997. The quarterly distribution represented an annualized rate equal to 8% of
contributed capital ($.40 per Unit).
The amount of each distribution is determined on a quarterly basis
after an evaluation of the Partnership's operating results and its current and
12
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expected financial position. The distribution for the second quarter of 1998 was
paid in July, 1998 at an annualized rate of 8% of contributed capital ($.40 per
Unit).
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital, or both. The portion of
each cash distribution by a partnership which exceeds its net income for the
fiscal period may be deemed a return of capital. Based on the amount of net
income reported by the Partnership for accounting purposes, approximately 75% of
the cash distributions declared for the quarter ended June 30, 1998, constituted
a return of capital. Also, based on the amount of net income reported by the
Partnership for accounting purposes, approximately 72% of the cash distributions
paid to the partners from inception of the Partnership through June 30, 1998
constituted a return of capital. However, the total actual return on capital
over the Partnership's life can only be determined at the termination of the
Partnership after all cash flows, including proceeds from the sale of the
aircraft, have been realized.
In February 1997, the Partnership purchased five aircraft engines from
an unaffiliated third party for $2,150,000 plus six engine cores from the former
Kiwi aircraft which required overhaul, utilizing its then existing borrowing
facility. The lender charged the Partnership 1.50% over prime with respect to
this borrowing and increased the rate on the other borrowings to 1.50% over
prime. In April 1997, the Partnership obtained a new borrowing facility with a
different Lender. Under the terms of the new agreement, the Partnership will be
able to borrow up to $7,500,000 at an interest rate of 1% over the Lender's
prime rate of interest. The Lender's commitment is for a term of 36 months, at
which time all principal will be due. During 1997, the Partnership used an
aggregate $7.2 million to retire borrowings from the prior lender and purchase
hushkits for the Sky Trek and TNT aircraft.
In January 1998, the Lender increased the borrowing commitment from
$7.5 million to $10 million and the interest rate was increased to 1.25% over
prime. Proceeds from the increased borrowing commitment have been utilized to
fund the "C" check and cargo conversion of the aircraft delivered to TNT.
With the exception of the 727-200 advanced aircraft leased to
Continental which is scheduled to expire on August 18, 1998, all of the
Partnership's assets are subject to leases with remaining terms of at least 24
months. The Partnership is currently investigating remarketing opportunities for
the 727-200 advanced aircraft. Amongst other factors, if the Partnership is
unable to remarket this aircraft on a timely basis the Partnership may not be
able to sustain its current distribution rate.
During 1997 the Partnership invested $9.4 million in capitalized
aircraft improvements and maintenance checks, of which $1.7 million was funded
by the application of maintenance reserves collected from Kiwi and Nations Air.
During the six months ended June 30, 1998, the Partnership invested
approximately $1.8 million with respect to the "C" check and cargo conversion of
the Boeing 727 aircraft leased to TNT. In January 1998, the availability under
the borrowing facility was increased from $7.5 million to $10 million, in part
to fund this work. Upon the completion of the cargo conversion and delivery of
the aircraft to TNT in March 1998, all of the Partnership's aircraft were
deployed. (See Item 1, Financial Statements, Footnote 2, "Aircraft".)
13
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The Limited Partnership Agreement permits the Partnership to borrow up
to 35% of the original offering proceeds ($28,000,000) for improvements,
enhancement or maintenance of aircraft. The Partnership has drawn all available
funds under its $10 million borrowing facility and the principle balance at June
30, 1998 is $10 million. Any such borrowings will only be made if the General
Partners believe such borrowings will be in the best interests of the
Partnership and may enhance or protect portfolio value. However, there can be no
assurance that the Partnership would be able to obtain any additional
borrowings, if required.
Litigation
- ----------
See "Note 5 Litigation" for an update on certain legal proceedings.
RESULTS OF OPERATIONS
- ---------------------
The Partnership's net income was $657,000 for the six months ended June
30, 1998 (the "1998 Period") and $408,000 for the quarter ended June 30, 1998
(the "1998 Quarter") as compared to $872,000 for the six months ended June 30,
1997 (the "1997 Period") and $408,000 for the quarter ended June 30, 1997 (the
"1997 Quarter").
The decrease in the Partnership's net income for the 1998 Period
resulted primarily from an increase in interest expense relating to increased
borrowings to finance capitalized aircraft improvements made in 1997 and 1998.
Rental revenue increased $594,000 and $333,000, or 16% and 17%,
respectively, for the 1998 Period and 1998 Quarter, due primarily to the rents
recognized with respect to the Sky Trek aircraft which was off-lease in the 1997
Period and 1997 Quarter. Additionally, rents for the TNT aircraft (formerly the
Nations Air aircraft) exceeded the amount collected from Nations Air in the 1997
Period and 1997 Quarter due to higher monthly rent, partially offset by the
aircraft being off-lease substantially all of the first quarter of 1998.
Interest and other income for the 1998 Period and the 1998 Quarter
decreased by $18,000 and $3,000 or 35% and 14%, respectively, in comparison to
the 1997 Period and 1997 Quarter. The decrease was primarily attributable to the
continued repayment of advances by TWA, as well as the reduction in cash which
was utilized for capitalized aircraft improvements, both of which reduced
balances on which interest is earned.
Depreciation and amortization increased $413,000 and $260,000, or 19%
and 23%, respectively, for the 1998 Period and 1998 Quarter in comparison to the
1997 Period and 1997 Quarter. The increase was attributable to the depreciation
relating to capitalized aircraft improvements made during 1997 and 1998,
principally those related to the Sky Trek aircraft. The Sky Trek aircraft was
off-lease for substantially all of the 1997 Quarter and 1997 Period. The
Partnership does not recognize depreciation expense with respect to off-lease
aircraft.
Management and re-lease fees payable to the General Partners for the
1998 Period and 1998 Quarter increased $38,000 and $20,000, or 12% and 12%,
respectively, in comparison to the 1997 Period and 1997 Quarter, which was
attributable to higher rental revenue in the 1998 Period and Quarter, which
serves as the basis for certain fees.
14
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General and administrative expense increased by $5,000 and $20,000 or
4% and 33%, respectively, in the 1998 Period and the 1998 Quarter, as compared
to the 1997 Period and 1997 Quarter, which was primarily due to additional
accrued expenses related to audit and tax services.
Interest expense increased by $210,000 and $72,000, or 93% and 45%,
respectively, in the 1998 Period and 1998 Quarter, as compared to the 1997
Period and 1997 Quarter, due to an increase in borrowings to fund capitalized
aircraft improvements.
Direct lease expenses (which include the legal fees associated with the
Kiwi bankruptcy) decreased by $52,000 or 46% during the 1998 Period, due
principally to the Kiwi related expenditures incurred in the 1997 Period.
15
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Part II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
The Partnership, along with the Managing General Partner, Administrative General
Partner and PaineWebber Incorporated, has been named as a defendant in a lawsuit
entitled Paul Mallia, et al. v. PaineWebber, Inc., et al., pending before the
United States District Court for the Southern District of New York, and relating
to the sale and sponsorship of various limited partnership investments,
including the Partnership and an affiliated Partnership ("the Pegasus
Partnerships"). Although the lawsuit was originally filed in 1995, the Pegasus
Partnerships were served with process after a consolidated amended complaint was
filed in May 1998. The complaint asserts claims under the Racketeer Influenced
and Corrupt Organizations Act, as well as state law claims for common law fraud,
conspiracy, violations of section 27.01 of the Texas Business and Commerce Code,
fraud in the inducement, negligent misrepresentation, negligence, breach of
fiduciary duty, violations of the Texas Securities Act, and violations of the
Texas Deceptive Trade Practices Act, on behalf of those investors who bought
interests in the Pegasus Partnerships and in other limited partnerships and
investments. The plaintiffs seek unspecified damages, including attorneys' fees,
reimbursement for all sums invested by them in the partnerships, exemplary
damages, and treble damages. The Partnerships have not yet filed an answer to
the complaint. Discovery has begun, and is scheduled to be completed in early
1999. The General Partners cannot determine at this time the impact, if any, of
the litigation on the Partnership.
The Partnership has filed a claim in the Bankruptcy Court, for unpaid rents and
other damages related to the rejection, by Kiwi, of the leases. Given the sale
of Kiwi's assets as approved by the Court, it is unlikely that the Partnership
will obtain any recovery.
Item 5. Other Information
-----------------
On May 15, 1998 Joseph P. Ciavarella, Vice President, Treasurer and Chief
Financial Officer of the Administrative General Partner resigned.
On May 15, 1998, Paul L. Novello was named Vice President, Chief Financial
Officer, Secretary and Treasurer of the Administrative General Partner.
Paul L. Novello, age 45, is a Vice President, Chief Financial Officer, Secretary
and Treasurer of the Administrative General Partner. He joined PaineWebber
Incorporated in March 1994 and currently holds the position of Corporate Vice
President. Prior to joining PaineWebber Incorporated, Mr. Novello was employed
as a consultant to Chase Manhattan Bank's Corporate International Real Estate
Department. Prior to that time, Mr. Novello was employed by Stratagem Group,
Inc. as a Vice President of Acquisitions and Investments. From 1981 to 1989, Mr.
Novello was employed by Shearson Lehman Hutton and its predecessor E.F. Hutton
and Co. in the Direct Investments Department. From 1976 to 1981, Mr. Novello was
employed by Revlon, Inc. He holds a Bachelor of Arts degree in economics from
Rutgers University and a Masters in Business Administration from Rutgers
University.
16
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits and reports to be filed
27. Financial Data Schedule (in electronic format only).
99.1 Partnership Policy Regarding Requests for Partner Lists.
(b) Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during the second
quarter of the fiscal year ending December 31, 1998.
17
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SIGNATURE
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.
Pegasus Aircraft Partners, L.P.
(Registrant)
By: Air Transport Leasing, Inc.
A General Partner
Date: August 14, 1998 By: /s/ Paul L. Novello
-------------------
Paul L. Novello
Vice President, Chief Financial Officer,
Secretary and Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1998 OF PEGASUS AIRCRAFT PARTNERS, LP, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,252,000
<SECURITIES> 0
<RECEIVABLES> 686,000
<ALLOWANCES> (261,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,718,000
<PP&E> 84,464,000
<DEPRECIATION> (56,594,000) <F3>
<TOTAL-ASSETS> 30,588,000
<CURRENT-LIABILITIES> 3,488,000
<BONDS> 10,000,000
0
0
<COMMON> 0
<OTHER-SE> 17,100,000 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 30,588,000
<SALES> 0
<TOTAL-REVENUES> 4,254,000
<CGS> 0
<TOTAL-COSTS> 3,032,000
<OTHER-EXPENSES> 128,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437,000
<INCOME-PRETAX> 657,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 657,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 657,000
<EPS-PRIMARY> .16 <F1>
<EPS-DILUTED> 0
<FN>
<F1>REPRESENTS NET INCOME PER LIMITED PARTNERSHIP UNIT OUTSTANDING.
<F2>REPRESENTS AGGREGATE PARTNERSHIP CAPITAL.
<F3>INCLUDES PROVISIONS FOR WRITEDOWNS AND CERTAIN OTHER RESERVES.
</FN>
</TABLE>
Exhibit 99.1
Pegasus Aircraft Partners, L.P. (the "Partnership")
Policy Regarding Requests for Partner Lists
-------------------------------------------
This is to inform you that, in accordance with the provisions of the Delaware
Revised Uniform Limited Partnership Act (the "Act"), and without limiting its
rights under the Partnership Agreement or the Act, as each may be amended from
time to time, the Administrative General Partner of the Partnership has
established standards applicable to requests for lists of Limited Partners.
These standards were established in order to support the following objectives:
(1) that the lists not be used for an improper or inappropriate purpose or in a
way that might be detrimental to the Partnership or the Limited Partners; (2)
that the Limited Partners be given sufficient information and opportunity to
decide how they should react in response to any solicitation or other
communication addressed to them; and (3) that the Partnership and the Limited
Partners not face an increased risk of adverse tax consequences as a direct or
indirect result of any such solicitation or communication.
The Administrative General Partner requires any request to be made in writing by
a record holder of limited partner interests with standing to request the list,
to comply strictly with all applicable requirements of law and the Partnership
Agreement, to state the purpose for which the request is made with sufficient
specificity to enable the Administrative General Partner to make the
determinations specified above, and to include an undertaking under oath by the
person requesting the list and the persons or entities on whose behalf it is
requested (1) to hold the list in strict confidence, and not to give any
information derived from the list to any third party for any purpose whatsoever
(other than a mailing house with corresponding obligations of confidentiality),
(2) to reimburse the Partnership for costs reasonably incurred in connection
with the request and for the list, including confirming compliance with the
undertakings required hereby and (3) to submit to the jurisdiction of the courts
of the State of Delaware in any dispute arising in connection with such request
and to appoint and maintain RL&F Service Corp., One Rodney Square, Tenth Floor,
Wilmington, New Castle County, Delaware 19801 (whose reasonable fees and
expenses will be paid by the Partnership) as such person's or entity's agent in
the State of Delaware for acceptance of legal process in connection herewith. In
addition, in the case of requests made for the purpose of soliciting tenders of
the Limited Partners' interests or units in the Partnership or soliciting
proxies or consents from Limited Partners or facilitating, assisting or
supporting any such solicitation, the Administrative General Partner will, if
and to the extent required by applicable law and the Partnership Agreement, make
lists available or agree to disseminate such solicitations on behalf of
requesting Limited Partners only upon receipt of an undertaking under oath by
the person requesting the list and the persons or entities on whose behalf it is
requested (1) to conduct the solicitation in accordance with the requirements of
the Securities Exchange Act of 1934 and the rules of the Securities and Exchange
Commission thereunder, including full disclosure of all material facts and (2)
to provide a copy of any such solicitation materials to the Administrative
General Partner no later than the mailing of such materials to the Limited
Partners. It is the view of the Administrative General Partner that the federal
securities laws require that any tender offer for limited partner interests or
units in the Partnership include rights of proration and withdrawal rights,
irrespective of the number of interests or units sought. In accordance with the
Partnership Agreement, the Administrative General Partner reserves the right to
refrain from transferring limited partner interests or units for any reason,
including if the Administrative General Partner, based upon advice from counsel,
2
<PAGE>
concludes that such acquisition would increase the risk of adverse tax
consequences to the Partnership or the Limited Partners.
The Administrative General Partner shall endeavor to respond with reasonable
promptness to any such request and reserves its rights to request such further
assurances as may be necessary in order to enable it to make any of the
determinations specified above and to enforce this Policy on a case-by-case
basis as it deems in the best interests of the Partnership and its Limited
Partners.
3
