<TABLE>
<S> <C>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30,
1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
For Quarter Ended September 30, 1995 Commission File No. 0-18368
AIRFUND International Limited
Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3037350
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617)
854-5800
(Former name, former address and former fiscal year, if
changed since last report.)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court 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 No
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AIRFUND International Limited Partnership
FORM 10-Q
INDEX
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Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at September 30, 1995 and December 31, 1994 3
Statement of Operations
for the three and nine months ended September 30, 1995 and 1994 4
Statement of Cash Flows
for the nine months ended September 30, 1995 and 1994 5
Notes to the Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION:
Items 1 - 6 11
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The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
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<CAPTION>
AIRFUND International Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 1995 and December 31, 1994
(Unaudited)
September 30, December 31,
1995 1994
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,352,396 $ 1,067,046
Contractual right for equipment 5,973,504 --
Rents receivable 352,269 344,077
Accounts receivable - affiliate 9,909 1,736
Equipment at cost, net of accumulated depreciation of
$20,379,106 and $27,446,669 at September 30, 1995
and December 31, 1994, respectively 6,538,836 16,548,252
--------------- ---------------
Total assets $ 14,226,914 $ 17,961,111
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities $ 45,282 $ 106,797
Accrued liabilities - affiliate -- 19,029
Deferred rental income 401,852 117,822
Cash distributions payable to partners 600,000 1,000,000
--------------- ----------------
Total liabilities 1,047,134 1,243,648
--------------- ----------------
Partners' capital (deficit):
General Partner (1,040,007) (863,123)
Limited Partnership Interests
(3,040,000 Units; initial purchase price of $25 each) 14,219,787 17,580,586
--------------- ----------------
Total partners' capital 13,179,780 16,717,463
--------------- ----------------
Total liabilities and partners' capital $ 14,226,914 $ 17,961,111
============= =============
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<CAPTION>
AIRFUND International Limited Partnership
STATEMENT OF OPERATIONS
for the three and nine months ended September 30, 1995 and 1994
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
------------------ ----------------- ----------------- -----------
Income:
<S> <C> <C> <C> <C>
Lease revenue $ 1,144,148 $ 1,101,263 $ 3,391,548 $ 3,974,891
Interest income 14,394 10,663 43,393 22,236
Loss on exchange of equipment (1,940,918) -- (1,940,918) --
---------------- --------------- ---------------- ---------------
Total income (loss) (782,376) 1,111,926 1,494,023 3,997,127
---------------- --------------- --------------- ---------------
Expenses:
Depreciation and amortization 648,192 901,457 2,094,994 2,843,618
Interest expense -- -- -- 8,133
Equipment management fees
- affiliate 57,207 55,064 169,577 198,745
Operating expenses - affiliate 25,018 30,238 167,135 120,697
--------------- --------------- --------------- ---------------
Total expenses 730,417 986,759 2,431,706 3,171,193
--------------- --------------- --------------- ---------------
Net income (loss) $ (1,512,793) $ 125,167 $ (937,683) $ 825,934
============== =============== =============== ===============
Net income (loss)
per limited partnership unit $ (0.47) $ 0.04 $ (0.29) $ 0.26
================== ================== ================== ==================
Cash distributions declared
per limited partnership unit $ 0.19 $ 0.31 $ 0.81 $ 0.94
================== ================== ================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AIRFUND International Limited Partnership
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
------------------ -----------
Cash flows from (used in) operating activities:
<S> <C> <C>
Net income (loss) $ (937,683) $ 825,934
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 2,094,994 2,843,618
Loss on exchange of equipment 1,940,918 --
Changes in assets and liabilities Increase in:
rents receivable (8,192) --
accounts receivable - affiliate (8,173) --
Increase (decrease) in:
accrued liabilities (61,515) (10,764)
accrued liabilities - affiliate (19,029) 19,364
deferred rental income 284,030 88,898
--------------- ---------------
Net cash from operating activities 3,285,350 3,767,050
--------------- ---------------
Cash flows from (used in) financing activities:
Proceeds from note payable -- 600,000
Principal payment - note payable -- (600,000)
Distributions paid (3,000,000) (3,600,000)
--------------- ---------------
Net cash used in financing activities (3,000,000) (3,600,000)
--------------- ---------------
Net increase in cash and cash equivalents 285,350 167,050
Cash and cash equivalents at beginning of period 1,067,046 1,116,638
--------------- ---------------
Cash and cash equivalents at end of period $ 1,352,396 $ 1,283,688
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,133
=================== =================
--
Supplemental disclosure of non-cash investing activities:
See Note 5 to the Financial Statements.
</TABLE>
<PAGE>
AIRFUND International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
6
<PAGE>
AIRFUND International Limited Partnership
Notes to the Financial Statements
September 30, 1995
(Unaudited)
6
<PAGE>
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1994 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1994 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1995 and December 31, 1994 and results of operations
for the three and nine month periods ended September 30, 1995 and 1994 have been
made and are reflected.
NOTE 2 - CASH
At September 30, 1995, the Partnership had $1,350,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Partnership monthly except for rents from Cathay
Pacific Airways Limited ("Cathay") which are payable semi-annually in advance
and adjusted semi-annually in arrears for changes of the six month London
Inter-Bank Offered Rate ("LIBOR"). All leases are accounted for as operating
leases and are noncancellable. Rents received prior to their due dates are
deferred. Future minimum rents of $801,716 are due for the year ending September
30, 1996.
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NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by American
Finance Group ("AFG") on behalf of the Partnership and AFG is reimbursed at its
actual cost for such expenditures. Fees and other costs incurred during each of
the nine month periods ended September 30, 1995 and 1994, which were paid or
accrued by the Partnership to AFG or its Affiliates, are as follows:
1995 1994
------------ --------
<S> <C> <C>
Equipment management fees $ 169,577 $ 198,745
Administrative charges 15,750 9,000
Reimbursable operating expenses
due to third parties 151,385 111,697
---------- ----------
Total $ 336,712 $ 319,442
========= =========
</TABLE>
Substantially all rents are paid directly to AFG. AFG temporarily deposits
collected funds in a separate interest-bearing escrow account prior to
remittance to the Partnership. At September 30, 1995, the Partnership was owed
$9,909 by AFG for interest on such funds, which amount was received in October
1995.
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NOTE 5 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
September 30, 1995. In the opinion of AFG, the carrying value of the equipment
does not exceed its fair market value.
Lease
Term Equipment
Equipment Type (Months) at Cost
<S> <C> <C> <C> <C>
One Boeing 727-200 (Northwest) 24 $ 9,520,359
One Boeing 727-200 (Northwest) 24 9,520,359
One Lockheed L-1011-100 (Cathay) 18 7,877,224
-------------
Total equipment cost 26,917,942
Accumulated depreciation (20,379,106)
Equipment, net of accumulated depreciation $ 6,538,836
============
</TABLE>
The cost of the Lockheed L-1011-1 aircraft represents a proportionate
ownership interest of approximately 60.45%. The remaining interest is owned by
AIRFUND II International Limited Partnership ("AIRFUND II"), an Affiliate of AFG
and the Partnership. The Partnership and AIRFUND II individually report, in
proportion to their respective ownership interests, their respective shares of
assets, liabilities, revenues, and expenses associated with the aircraft.
On September 29, 1995, the Partnership recorded a net loss of $1,940,918
resulting from the transfer of its proportionate ownership interest in a Boeing
747-SP, having a net book value of $7,914,422, to the lessee, United Air Lines,
Inc. ("United"). The partnership received aggregate cash consideration of
$6,325,760, a portion of which was used to satisfy accrued and unpaid rent of
$352,256. The Partnership currently intends to replace this Boeing 747-SP with a
comparable commercial jet aircraft on or before March 29, 1996 pursuant to the
rules for completing a like-kind exchange for income tax reporting purposes.
Accordingly, the net cash consideration of $5,973,504 was deposited in a
special-purpose escrow account through a third-party Exchange Agent pending
completion of the aircraft exchange. For financial statement purposes, the cash
consideration has been reported as Contractual Right for Equipment on the
Statement of Financial Position at September 30, 1995. The net loss has been
reported as Loss on Exchange of Equipment on the Statement of Operations for the
three and nine month periods ended September 30, 1995.
<PAGE>
AIRFUND International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Three and nine months ended September 30, 1995 compared to the three and nine
months ended September 30, 1994:
Results of Operations
As an equipment leasing partnership, the Partnership was organized to
acquire and lease a portfolio of commercial jet aircraft subject to lease
agreements with third parties. Upon its inception in 1989, the Partnership
purchased three commercial jet aircraft and a proportionate interest in a fourth
aircraft which were leased by major carriers engaged in passenger
transportation. Initially, each aircraft generated rental revenues pursuant to
primary-term lease agreements. In 1991, one of the Partnership's original
aircraft was sold to a third party and a portion of the sale proceeds was
reinvested in a proportionate interest in another aircraft. During the third
quarter of 1995, the Partnership transferred its ownership interests in the
fourth aircraft to the existing lessee, United Air Lines, Inc. Today, the
Partnership continues to own a proportionate interest in one aircraft in
addition to two other aircraft held in its original portfolio, all of which are
leased pursuant to renewal lease agreements which will expire in 1996. Upon
expiration of the renewal lease agreements, each aircraft will be re-leased or
sold depending on prevailing market conditions and the assessment of such
conditions by AFG to obtain the most advantageous economic benefit. Ultimately,
all aircraft will be sold and the net proceeds will be distributed to the
Partners, after all liabilities and obligations of the Partnership have been
satisfied.
During the three and nine months ended September 30, 1995, the
Partnership recorded a net loss of $1,940,918 resulting from the transfer of its
proportionate ownership interest in a Boeing 747-SP, having a net book value of
$7,914,422, to the lessee, United Air Lines, Inc. ("United"). The Partnership
received aggregate cash consideration of $6,325,760, a portion of which was used
to satisfy accrued and unpaid rent of $352,256. The Partnership currently
intends to replace this Boeing 747-SP with a comparable commercial jet aircraft
on or before March 29, 1996 pursuant to the rules for completing a like-kind
exchange for income tax reporting purposes. The net loss has been reported as
Loss on Exchange of Equipment on the Statement of Operations for the three and
nine month periods ended September 30, 1995.
For the three and nine months ended September 30, 1995, the Partnership
recognized lease revenue of $1,144,148 and $3,391,548, respectively, compared to
$1,101,263 and $3,974,891 for the same periods in 1994. The increase in lease
revenue for the three months ended September 30, 1995 as compared to September
30, 1994 is due principally to the fluctuation in rents generated from a lease
agreement with Cathay Pacific Airways Limited ("Cathay") discussed below. The
overall decrease in lease revenue from 1994 to 1995 is due principally to a
decline in the monthly rental rate of two Boeing 727 aircraft leased by
Northwest Airlines, Inc. ("Northwest"). Future lease revenue will continue to
decline due to the expiration of renewal lease terms.
The Partnership's two lease agreements with Northwest were renewed for a
period of twelve months commencing May 1, 1994. Subsequently, Northwest extended
the renewal period for an additional twelve months through April 30, 1996. Rents
due under the leases which expired in 1994 generated aggregate monthly revenue
of $250,000 compared to $124,000 per month for the renewal lease period which
expired in 1995 and $120,000 per month for the renewal period which expires
April 30, 1996. Northwest intends to return these aircraft to the Partnership
upon the expiration of the underlying leases.
The Partnership owns a proportionate interest in an L-1011 aircraft leased
to Cathay Pacific Airways Limited ("Cathay"). The remaining interest is owned by
AIRFUND II International Limited Partnership ("AIRFUND II"), an Affiliate of AFG
and the Partnership. The Partnership and AIRFUND II individually report, in
proportion to their respective ownership interests, their respective shares of
assets, liabilities, revenues, and expenses associated with the aircraft. The
Partnership's lease agreement with Cathay provides for semi-annual rent
adjustments based on the six month LIBOR rate. Accordingly, rents generated from
this lease fluctuates on a semi-annual basis. The Partnership's lease agreement
with Cathay (having an adjusted semi-annual rent of $535,802) expires on
February 14, 1996. This aircraft is expected to be returned to the Partnership
at the date of lease expiration. The General Partner is pursuing re-marketing
alternatives for this aircraft.
Interest income for the three and nine months ended September 30, 1995 was
$14,394 and $43,393, respectively, compared to $10,663 and $22,236 for the same
periods in 1994. Interest income is generated from temporary investment of
rental receipts in short-term instruments. The increase in interest income from
1994 to 1995 is due principally to an increase in interest rates and a greater
level of cash available for investment before distribution to the Partners. The
amount of future interest income is expected to fluctuate in relation to
prevailing interest rates and the collection of lease revenue.
During the three months ended March 31, 1994 the Partnership incurred
interest expense of $8,133 on a $600,000 short-term unsecured note agreement
with an institutional lender. Interest was charged at a floating rate equal to
the lender's prime rate of interest plus 2% during the period of borrowing. The
sole purpose of this note was to fund a cash requirement caused by timing
differences between rent receipts and cash distributions to the Partners. The
note matured and was repaid fully on March 11, 1994.
Management fees were 5% of lease revenue during each of the periods
ended September 30, 1995 and 1994 and will not change as a percentage of lease
revenue in future periods.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as insurance,
printing, and distribution expenses. Collectively, operating expenses
represented 2.2% and 4.9% of lease revenue during the three and nine months
ended September 30, 1995, compared to 2.7% and 3% for the same periods in 1994.
The overall increase in operating expenses from 1994 to 1995 is due primarily to
remarketing expenses incurred in connection with the renewal of two aircraft on
lease to Northwest. The amount of future operating expenses cannot be predicted
with certainty; however, such expenses are usually higher during the acquisition
and liquidation phases of a partnership. Depreciation and amortization expense
was $648,192 and $2,094,994 for the three and nine months ended September 30,
1995, respectively, compared to $901,457 and $2,843,618 for the same periods in
1994.
The ultimate realization of residual value for any aircraft will be
dependent upon many factors, including AFG's ability to sell and re-lease the
aircraft. Changes in market conditions, industry trends, technological advances,
and other events could converge to enhance or detract from asset values at any
given time. Accordingly, AFG will attempt to monitor changes in the airline
industry in order to identify opportunities which may be advantageous to the
Partnership and which will maximize total cash returns for each aircraft.
The total economic value realized upon final disposition of each aircraft
is comprised of all primary lease term revenues generated from that aircraft,
together with its residual value. The latter consists of cash proceeds realized
upon the aircraft's sale in addition to all other cash receipts obtained from
renting the aircraft under re-lease or renewal lease agreements. Consequently,
the amount of any gain or loss reported in the financial statements is not
necessarily indicative of the total residual value the Partnership achieved from
leasing the aircraft.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from aircraft rental transactions. Accordingly, the Partnership's
principal source of cash from operations is provided by the collection of
periodic rents. These cash inflows are used to pay management fees and operating
costs. Operating activities generated net cash inflows of $3,285,350 and
$3,767,050 for the nine months ended September 30, 1995 and 1994, respectively.
The expiration of the Partnership's current lease agreements will cause a
decline in the Partnership's lease revenue and corresponding sources of
operating cash in future periods. Overall, expenses associated with rental
activities, such as management fees, and net cash flow from operating activities
will decline as the Partnership remarkets its aircraft. Ultimately, the
Partnership will dispose of all aircraft under lease.
Financing activities in 1994 reflect proceeds of $600,000 from a short-term
unsecured note as discussed in Results of Operations. The note was originated
and repaid during the three month period ended March 31, 1994.
Cash distributions to the General Partner and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the nine months ended September 30, 1995, the
Partnership declared total cash distributions of Distributable Cash From
Operations of $2,600,000. In accordance with the Amended and Restated Agreement
and Certificate of Limited Partnership, the Recognized Owners were allocated 95%
of these distributions, or $2,470,000 and the General Partner was allocated 5%,
or $130,000. The third quarter 1995 cash distribution was paid on October 13,
1995.
Cash distributions paid to the Recognized Owners consist of both a return
of and a return on capital. To the extent that cash distributions consist of
Cash From Sales or Refinancings, substantially all of such cash distributions
should be viewed as a return of capital. Cash distributions do not represent and
are not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each aircraft
at its disposal date. Future market conditions, technological changes, the
ability of AFG to manage and remarket the aircraft, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's aircraft portfolio.
The future liquidity of the Partnership will be greatly dependent upon the
collection of contractual rents and the outcome of residual activities. The
General Partner anticipates that cash proceeds resulting from these sources will
satisfy the Partnership's future expense obligations. However, the amount of
cash available for distribution in future periods will fluctuate. Aircraft lease
expirations and disposals will cause the Partnership's net cash from operating
activities to diminish over time; and aircraft sale proceeds will vary in amount
and period of realization. Accordingly, fluctuations in the level of quarterly
cash distributions will occur during the life of the Partnership.
<PAGE>
12
<PAGE>
AIRFUND International Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 6 herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of
Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AIRFUND International Limited Partnership
By: AFG Aircraft Management Corporation, a
Massachusetts corporation and the General
Partner of the Registrant.
By:
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date:
<PAGE>
12
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AIRFUND International Limited Partnership
By: AFG Aircraft Management Corporation, a
Massachusetts corporation and the General
Partner of the Registrant.
By: /s/ Gary M. Romano
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,352,396
<SECURITIES> 0
<RECEIVABLES> 362,178
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,714,574
<PP&E> 26,917,942
<DEPRECIATION> 20,379,106
<TOTAL-ASSETS> 14,226,914
<CURRENT-LIABILITIES> 1,047,134
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 13,179,780
<TOTAL-LIABILITY-AND-EQUITY> 14,226,914
<SALES> 0
<TOTAL-REVENUES> 3,391,548
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,431,706
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (937,683)
<INCOME-TAX> 0
<INCOME-CONTINUING> (937,683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (937,683)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
