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, 1999
--------------------------------------------------
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
---------------------------------------------------------
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1099968
----------------------- -------------------
(State of organization) (IRS Employer
Identification No.)
Four Embarcadero Center 35th Floor
San Francisco, California 94111
------------------------- -----
(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 .
--- ---
This document consists of 18 pages.
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER AND SIX MONTHS ENDED JUNE 30, 1999
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 1999 and December 31, 1998 3
Statements of Income for the three months
ended June 30, 1999 and 1998 4
Statements of Income for the six months
ended June 30, 1999 and 1998 5
Statements of Partners' Equity for the six
months ended June 30, 1999 and 1998 6
Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
--------------------
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
BALANCE SHEETS -- JUNE 30, 1999 AND DECEMBER 31, 1998
-----------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands except unit data)
ASSETS
------
Cash and cash equivalents $ 3,232 $ 2,129
Rent and other receivables, net 476 476
Aircraft, net (Note 2) 26,045 25,161
Other assets 17 26
-------- --------
Total Assets $ 29,770 $ 27,792
======== ========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES:
Accounts payable and accrued expenses $ 73 $ 97
Accrued interest payable 89 --
Maintenance reserve payable 555 350
Payable to affiliates (Note 3) 608 431
Deferred rental income and deposits 1,218 1,038
Distributions payable to partners 1,616 1,616
Notes payable (Note 4) 14,000 10,000
-------- --------
Total Liabilities 18,159 13,532
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
PARTNERS' EQUITY:
General Partners (679) (653)
Limited Partners (4,000,005 units issued and
outstanding) 12,290 14,913
-------- --------
Total Partners' Equity 11,611 14,260
-------- --------
Total Liabilities and Partners' Equity $ 29,770 $ 27,792
======== ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
-------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands except unit
data and per unit amounts)
REVENUE:
Rentals from operating leases $ 2,055 $ 2,279
Interest and other 15 16
---------- ----------
2,070 2,295
---------- ----------
EXPENSES:
Depreciation and amortization 1,261 1,376
Management and re-lease fees (Note 3) 165 187
General and administrative 46 77
Interest expense 283 231
Direct lease 22 16
---------- ----------
1,777 1,887
---------- ----------
NET INCOME $ 293 $ 408
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 3 $ 4
To the Limited Partners 290 404
---------- ----------
$ 293 $ 408
========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .07 $ .10
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS ISSUED AND OUTSTANDING 4,000,005 4,000,005
========== ==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
-----------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands except unit
data and per unit amounts)
REVENUE:
Rentals from operating leases $ 4,061 $ 4,220
Interest and other 32 28
---------- ----------
4,093 4,248
---------- ----------
EXPENSES:
Depreciation and amortization 2,523 2,629
Management and re-lease fees (Note 3) 328 343
General and administrative 101 122
Interest expense 511 437
Direct lease 47 60
---------- ----------
3,510 3,591
---------- ----------
NET INCOME $ 583 $ 657
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 6 $ 7
To the Limited Partners 577 650
---------- ----------
$ 583 $ 657
========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .14 $ .16
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS ISSUED AND
OUTSTANDING 4,000,005 4,000,005
========== ==========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF PARTNERS' EQUITY
------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
-----------------------------------------------
(unaudited)
General Limited
Partners Partners Total
-------- -------- -----
(in thousands)
Balance, January 1, 1999 $ (653) $ 14,913 $ 14,260
Net income 6 577 583
Distributions declared to partners (32) (3,200) (3,232)
-------- -------- --------
Balance, June 30, 1999 $ (679) $ 12,290 $ 11,611
======== ======== ========
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
======== ======== ========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
-----------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 583 $ 657
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,523 2,629
Change in assets and liabilities:
Rent and other receivables -- (87)
Other assets 9 (15)
Accounts payable and accrued expenses (24) (129)
Payable to affiliates 177 (67)
Accrued interest payable 89 81
Deferred rental income and deposits 180 --
Maintenance reserves 205 53
------- -------
Net cash provided by operating activities 3,742 3,122
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized aircraft improvements (3,407) (1,791)
Repayment of advances by lessees -- 84
------- -------
Net cash used in investing activities (3,407) (1,707)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (3,232) (3,248)
Proceeds from notes payable 4,000 2,729
------- -------
Net cash provided by (used in) financing activities 768 (519)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,103 896
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,129 1,356
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,232 $ 2,252
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 415 $ 350
======= =======
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1999
-------------
(unaudited)
1. General
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the General Partners, all adjustments
necessary for a fair presentation have been included. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the year ended December 31, 1998.
Operating results for the three and six month periods ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
New Accounting Pronouncement: In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000 (January 1, 2001 for the Partnership). FAS 133 relates to the
reporting of all derivative instruments, and as the Partnership has not and does
not anticipate dealing in derivatives or in hedging activities, this
pronouncement is not expected to impact the Partnership's earnings or financial
position.
2. Aircraft
The Partnership's net investment in aircraft as of June 30, 1999 and
December 31, 1998 consisted of the following (in thousands):
1999 1998
---- ----
Aircraft on operating leases, at cost $ 75,952 $ 75,902
Less: Accumulated depreciation (46,502) (43,979)
Write-downs (4,799) (4,799)
Net Lease Settlement proceeds accounted for as
cost recovery (3,673) (3,673)
Provision for maintenance cost (178) (178)
-------- --------
$ 20,800 $ 23,273
-------- --------
Aircraft held for lease, at cost * 11,608 $ 8,251
Less: Accumulated depreciation (5,529) (5,529)
Write-downs (834) (834)
-------- --------
5,245 1,888
-------- --------
Aircraft, net $ 26,045 $ 25,161
======== ========
* This aircraft is scheduled to be delivered to Kitty Hawk Air Cargo, Inc.
("Kitty Hawk") during the 3rd quarter of 1999.
8
<PAGE>
Kitty Hawk Aircargo, Inc. The Partnership has a lease agreement with
Kitty Hawk for the lease of the Boeing 727-200 Advanced aircraft formerly leased
to Continental that was returned in October 1998. Kitty Hawk is a Dallas, Texas
based operator of more than 100 freighter aircraft. The lease requires the
Partnership to hushkit and convert the aircraft to a freighter at an estimated
cost of $4.3 million. During the six months ended June 30, 1999, the Partnership
invested approximately $3.4 million with respect to the hushkit and cargo
conversion. The lease agreement provides for 84 months rent at $117,800 per
month. Kitty Hawk provided an initial security deposit of $56,000 during 1998,
and increased the deposit to $236,000 in February 1999. The aircraft is
scheduled to be delivered to Kitty Hawk during the third quarter of 1999 at
which time lease payments will commence. Two of the aircraft's JT8D-9A engines
require repairs and have been sent to a repair shop. The Partnership will rent
two engines in the interim period, from an affiliate of the Managing General
Partner, at a rate of $21,000 per month, per engine.
Sky Trek International Airlines, Inc. Due to arrearages in rent and
maintenance reserve payments, Sky Trek was placed on non-accrual status
beginning October 1, 1998. For the period January 1 through June 30, 1999, Sky
Trek has paid all but $47,500 in rent and $123,000 in maintenance reserve
payments. Total arrearages of $475,000 with respect to rent and $353,000 with
respect to maintenance reserves remain outstanding, but only $190,000 has been
accrued and is included in rent and other receivables on the balance sheet.
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 $31,000
and $61,000 of base management fees during the quarter and six months ended June
30, 1999, 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
$73,000 and $146,000 of incentive management fees during the quarter and six
months ended June 30, 1999, 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 $61,000 and $121,000 of re-lease fees during
the quarter and six months ended June 30, 1999, respectively.
All of the above fees are subordinated to the limited partners
receiving an 8% annual non-cumulative return based upon original contributed
capital.
9
<PAGE>
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. There were no reimbursable expenses, during the
three and six months ended June 30, 1999, payable to the Administrative General
Partner.
During the six months ended June 30, 1999 the Partnership paid $26,000
to a maintenance facility that is affiliated with the Managing General Partner.
Additionally, the Partnership paid $564,000 for aircraft parts to a company
which is owned by the President and Director of the Managing General Partner and
two of its former officers and directors.
4. Notes Payable
During 1999, the Partnership reached an agreement with the lender to
increase the committed amount of the loan facility from $10 million to $14.5
million and increase the interest rate from 1.25% to 1.5% over prime. On April
20, 1999, the Partnership received $2.5 million of the increased commitment
amount and an additional $1.5 million was received on June 30, 1999 for a total
outstanding balance of $14.0 million. The Partnership has provided a mortgage to
the bank relative to certain aircraft and has guaranteed the repayment of the
indebtedness. The Partnership has utilized the additional borrowings to fund the
hushkit and cargo conversions of the Boeing 727-200 advanced aircraft to be
delivered to Kitty Hawk during the third quarter of 1999. At June 30, 1999, the
interest rate was 9.50%. This loan is due in April 2000. The Partnership is
searching for a replacement lender and believes it will be able to find one.
However, if the Partnership were unable to renegotiate or refinance the loan
before April 2000, it may need to reduce or suspend future distributions.
10
<PAGE>
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, 1999, the
Partnership's unrestricted cash and cash equivalents of $3,232,000 was primarily
invested in such a fund. This amount was $1,103,000 more than the Partnership's
unrestricted cash and cash equivalents at December 31, 1998 of $2,129,000. This
increase in unrestricted cash was attributable to the amount by which cash
generated by operating activities, proceeds from notes payable, and the
unapplied maintenance reserves, exceeded cash distributions to partners and
capitalized aircraft improvements, during the six months ended June 30, 1999.
TWA announced a wider than anticipated loss in the second quarter of
1999. While TWA has recently announced new labor agreements and has dramatically
improved its service and upgraded its fleet, TWA's ongoing financial losses are
of concern. A default or deferral of lease payments on the part of TWA, or by
Sky Trek or any other lessee, may affect quarterly distributions. TWA accounted
for 54% of the Partnership's lease revenue in the first six months of 1999.
Other assets decreased by $9,000 from $26,000 at December 31, 1998 to
$17,000 at June 30, 1999, due to a decrease in prepaid expenses.
Deferred rental income and deposits increased $180,000 from $1,038,000
at December 31, 1998 to $1,218,000 at June 30, 1999, due to the receipt in
February, of an additional deposit from Kitty Hawk Aircargo, Inc. ("Kitty
Hawk"), as discussed in Note 2.
Payable to affiliates increased by $177,000, from $431,000 at December
31, 1998 to $608,000 at June 30, 1999, due to additional management fees that
have been accrued but not yet paid.
11
<PAGE>
During the six months ended June 30, 1999 the Partnership paid cash
distributions pertaining to the first quarter of 1999 and the last quarter of
1998. The quarterly distributions represented an annualized rate equal to 8% of
contributed capital ($.40 per Unit). The amount of each distribution will be
determined on a quarterly basis after an evaluation of the Partnership's
operating results and its current and expected financial position. The
distribution for the second quarter of 1999 was paid in July, 1999 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 82% of
the cash distributions declared for the quarter ended June 30, 1999, constituted
a return of capital. Also, based on the amount of net income reported by the
Partnership for accounting purposes, approximately 73% of the cash distributions
paid to the partners from inception of the Partnership through June 30, 1999
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.
During 1999, the Partnership reached an agreement with the lender to
increase the committed amount of the loan facility from $10 million to $14.5
million and increase the interest rate from 1.25% to 1.5% over prime. On April
20, 1999, the Partnership received $2.5 million of the increased commitment
amount and an additional $1.5 million was received on June 30, 1999 for a total
outstanding balance of $14.0 million. The Partnership has provided a mortgage to
the bank relative to certain aircraft and has guaranteed the repayment of the
indebtedness. The Partnership has utilized the additional borrowings to fund the
hushkit and cargo conversions of the Boeing 727-200 advanced aircraft delivered
to Kitty Hawk during the third quarter of 1999. At June 30, 1999, the interest
rate was 9.50%. This loan is due in April 2000. The Partnership is searching for
a replacement lender and believes it will be able to find one. However, if the
Partnership were unable to renegotiate or refinance the loan before April 2000,
it may need to reduce or suspend future distributions.
The Partnership's aircraft are subject to leases with remaining terms
of at least 12 months.
During the six months ended June 30, 1999, the Partnership invested
approximately $3,357,000 with respect to the hushkit and cargo conversion of the
Boeing 727-200 advanced aircraft to be leased to Kitty Hawk. The conversion was
ongoing at June 30, 1999 and will require additional investment. An additional
$50,000 was invested with respect to other aircraft.
The Limited Partnership Agreement permits the Partnership to borrow up
to 35% (or $28,000,000) of the original offering proceeds for improvements,
enhancement or maintenance of aircraft. The Partnership has drawn $14 million
under its borrowing facility and the principal balance at June 30, 1999 is $14
million. Any additional 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.
12
<PAGE>
Litigation
- ----------
None.
Results of Operations
- ---------------------
The Partnership's net income was $583,000 for the six months ended June
30, 1999 (the "1999 Period") and $293,000 for the quarter ended June 30, 1999
(the "1999 Quarter") as compared to $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").
The decrease in the Partnership's net income for the 1999 Period
resulted primarily from a decrease in rental revenue and an increase in interest
expense relating to increased borrowings to finance capitalized aircraft
improvements made in 1998 and 1999. This decrease was partially offset by
decreases in depreciation and general and administrative expenses, as discussed
below.
Rental revenue decreased $159,000 and $224,000, or 4% and 10%,
respectively, for the 1999 Period and 1999 Quarter, due primarily to the absence
of rental revenue from the Boeing 727-200 advanced aircraft formerly leased to
Continental, which was returned to the Partnership on October 18, 1998, and
underwent a hushkit and cargo conversion for ultimate delivery to Kitty Hawk, as
discussed in Note 2 to the financial statements. Contributing to the decrease
was a slight decrease in rental revenue with respect to the Sky Trek aircraft,
which was placed on non-accrual status beginning in the third quarter of 1998.
Partially offsetting the decrease was an increase in revenues with respect to
the TNT aircraft (off-lease for the majority of the first half of the 1998
period).
Interest and other income for the 1999 Period increased by $4,000 or
14%, in comparison to the 1998 Period. The increase was primarily attributable
to the higher cash balance maintained during the 1999 period on which interest
was earned.
Management and re-lease fees payable to the General Partners for the
1999 Period and 1999 Quarter decreased $15,000 and $22,000, or 4% and 12%,
respectively, in comparison to the 1998 Period and 1998 Quarter, which was
attributable to lower rental revenue in the 1999 Period and Quarter, which
serves as the basis for certain fees.
General and administrative expense decreased by $21,000 and $31,000 or
17% and 40%, respectively, in the 1999 Period and the 1999 Quarter, as compared
to the 1998 Period and 1998 Quarter, which was primarily due to decreases in
outside audit and transfer agent fees, partially offset by an increase in
consulting fees.
Interest expense increased by $74,000 and $52,000, or 17% and 23%,
respectively, in the 1999 Period and 1999 Quarter, as compared to the 1998
Period and 1998 Quarter, due to an increase in borrowings to fund capitalized
aircraft improvements.
Direct lease expenses decreased by $13,000 or 22% during the 1999
Period, due principally to a decrease in aircraft maintenance expense, partially
offset by an increase in insurance expense.
13
<PAGE>
IMPACT OF YEAR 2000 ISSUE
- -------------------------
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. This
could result in a failure of the information technology systems (IT systems) and
other equipment containing imbedded technology (non-IT systems) in the Year
2000, causing disruption of operation of the Partnership, its lessees or
vendors.
The Partnership does not own its own software, but is reliant upon
software owned by the General Partners or third party vendors. The General
Partners and third party vendors are either currently Year 2000 compliant or
have instituted plans to be so.
The plan for addressing third party critical dependencies includes:
identification of third party critical dependencies including lessees, vendors
and financial institutions; circulation to all applicable third parties of a
written request for their plans and progress in addressing the Year 2000 issue;
evaluation of responses; and development of contingency plans to address risks
of non-compliance by third parties. The Partnership has completed the
identification of critical dependencies and the circulation for requests for
Year 2000 compliance status.
The costs associated with addressing the Year 2000 issue, including
developing and implementing the above stated plan will be nominal and will be
expensed as incurred.
While the Partnership expects to have no interruption of its operations
as a result of internal IT and non-IT systems, uncertainties remain about the
affect of third party critical dependencies who are not Year 2000 compliant.
The Partnership is not aware of any significant Year 2000 systems
issues with respect to the airworthiness of aircraft, however, should such an
issue result in Airworthiness Directives or other manufacturer recommended
maintenance, the implementation and the majority of the cost of such
implementation would be the responsibility of the aircraft lessee. Any resulting
costs to the Partnership cannot be estimated at this time.
Non-compliance on the part of a lessee could result in lost revenue for
the lessee and an inability to make lease payments to the Partnership.
Non-compliance by the lessee's financial institution could also affect the
ability to process lease payments. The Partnership has attempted to mitigate
such risks by inquiring of each lessee about its Year 2000 plans, including
whether they have addressed the issue with their financial institution.
The Partnership's lessees face the potential risk of non-compliance by
the air traffic control systems throughout the world. A disruption in the
operations of some or all of the air traffic control systems may cause
disruption to the operations of the Partnership's lessees, which may adversely
affect their ability to generate revenue.
A possible scenario would be that a number of lessees are unable to
operate and generate revenues and as a result unable to make lease payments. The
Partnership is unable to estimate the likelihood or the magnitude of the
resulting lost revenue at this time. Should this occur, the Partnership would
attempt to repossess aircraft from non-compliant lessees and place the aircraft
with compliant lessees. No assurances can be given that the Partnership would be
14
<PAGE>
able to re-lease such aircraft at favorable terms or at all. If a significant
number of aircraft could not be re-leased at favorable terms or at all, or their
re-lease is delayed, the Partnership's business, financial condition and results
of operations would be adversely affected.
15
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 1. Legal Proceedings
-----------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits and reports to be filed: none
27. Financial Data Schedule (in electronic format only).
(b) The Partnership did not file any reports on Form 8-K during the
second quarter of the fiscal year ending December 31, 1999.
16
<PAGE>
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.
Administrative General Partner
Date: August 11, 1999 By: /s/ CARMINE FUSCO
-----------------
Carmine Fusco
Vice President, Secretary, Treasurer and
Chief Financial and Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1999 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,232,000
<SECURITIES> 0
<RECEIVABLES> 476,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,725,000
<PP&E> 87,560,000
<DEPRECIATION> 61,515,000<F3>
<TOTAL-ASSETS> 29,770,000
<CURRENT-LIABILITIES> 4,159,000
<BONDS> 14,000,000
0
0
<COMMON> 0
<OTHER-SE> 11,611,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 29,770,000
<SALES> 0
<TOTAL-REVENUES> 4,093,000
<CGS> 0
<TOTAL-COSTS> 2,898,000
<OTHER-EXPENSES> 101,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 511,000
<INCOME-PRETAX> 583,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 583,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 583,000
<EPS-BASIC> .14<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>
