<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
--------------------------------------------------
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 June 30, 1998 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.)
88 Broad Street, Boston, MA 02110
- ---------------------------------------- -----------
(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
----- ------
<PAGE>
AIRFUND International Limited Partnership
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1998 and December 31, 1997 .............. 3
Statement of Operations
for the three and six months ended June 30, 1998
and 1997 ............................................ 4
Statement of Cash Flows
for the six months ended June 30, 1998 and 1997 ... 5
Notes to the Financial Statements ................... 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 9-11
PART II. OTHER INFORMATION:
Items 1 - 6 ............................................. 12
2
<PAGE>
AIRFUND International Limited Partnership
STATEMENT OF FINANCIAL POSITION
June 30, 1998 and December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 3,617,298 $ 2,671,041
Rents receivable......................................................... 204,338 121,626
Equipment at cost, net of accumulated depreciation
of $4,835,438 and $10,923,789 at June 30, 1998
and December 31, 1997, respectively.................................... 15,282,873 17,071,746
------------ -------------
Total assets........................................................... $19,104,509 $ 19,864,413
------------ -------------
------------ -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable............................................................ $ 7,735,573 $ 8,864,307
Accrued interest......................................................... 112,521 98,052
Accrued liabilities...................................................... 320,528 8,250
Accrued liabilities - affiliate.......................................... -- 36,219
Deferred rental income................................................... 164,767 213,287
------------ -------------
Total liabilities...................................................... 8,333,389 9,220,115
------------ -------------
Partners' capital (deficit):
General Partner........................................................ (1,160,440) (1,166,781)
Limited Partnership Interests
(3,040,000 Units; initial purchase price of $25 each)................. 11,931,560 11,811,079
------------ -------------
Total partners' capital................................................ 10,771,120 10,644,298
------------ -------------
Total liabilities and partners' capital................................ $ 19,104,509 $ 19,864,413
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
3
<PAGE>
AIRFUND International Limited Partnership
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Income:
Lease revenue................................ $ 907,393 $ 969,104 $ 1,920,988 $ 1,805,402
Interest income.............................. 40,020 30,261 74,976 64,184
Gain on sale of equipment.................... 188,018 -- 188,018 --
---------- ---------- ------------ ------------
Total income............................. 1,135,431 999,365 2,183,982 1,869,586
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Expenses:
Depreciation................................. 511,104 625,497 1,130,591 1,250,994
Interest expense............................. 173,634 229,473 361,687 472,161
Equipment management fees
- affiliate.................................. 45,369 48,455 96,049 90,270
Operating expenses - affiliate............... 427,661 108,920 468,833 175,134
---------- ---------- ------------ ------------
Total expenses........................... 1,157,768 1,012,345 2,057,160 1,988,559
---------- ---------- ------------ ------------
Net income (loss).............................. $ (22,337) $ (12,980) $ 126,822 $ (118,973)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Net income (loss)
per limited partnership unit$ ............... (0.01) $ -- $ 0.04 $ (0.04)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
4
<PAGE>
AIRFUND International Limited Partnership
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1996 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) .................................. $ 126,822 $ (118,973)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation ................................. 1,130,591 1,250,994
Gain on sale of equipment .................... (188,018) --
Changes in assets and liabilities
Increase in:
rents receivable ............................. (82,712) (134,433)
accounts receivable - affiliate .............. -- (91,410)
Increase (decrease) in:
accrued interest ............................. 14,469 10,279
accrued liabilities .......................... 312,278 (427,400)
accrued liabilities - affiliate .............. (36,219) (35,968)
deferred rental income ....................... (48,520) 60,268
----------- -----------
Net cash from operating activities ......... 1,228,691 513,357
----------- -----------
Cash flows from investing activities:
Proceeds from equipment sale ..................... 846,300 --
----------- -----------
Net cash from investing activities ........... 846,300 --
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable ............... (1,128,734) (2,118,254)
----------- -----------
Net cash used in financing activities ...... (1,128,734) (2,118,254)
----------- -----------
Net increase (decrease) in cash and cash equivalents 946,257 (1,604,897)
Cash and cash equivalents at beginning of period ... 2,671,041 4,126,851
----------- -----------
Cash and cash equivalents at end of period ......... $ 3,617,298 $ 2,521,954
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ......... $ 347,218 $ 461,882
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AIRFUND International Limited Partnership
Notes to the Financial Statements
June 30, 1998
(Unaudited)
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 1997 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1997 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at June 30, 1998 and December 31, 1997 and results of operations for
the three and six months ended June 30, 1998 and 1997 have been made and are
reflected.
NOTE 2 - CASH
At June 30, 1998, the Partnership had $3,511,554 invested in federal agency
discount notes and 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 and quarterly and no
significant amounts are calculated on factors other than the passage of time.
All leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$3,568,318 are due as follows:
<TABLE>
<S> <C> <C>
For the year ending June 30, 1999 $ 2,839,030
2000 729,288
--------------
Total $ 3,568,318
--------------
--------------
</TABLE>
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at June
30, 1998. Remaining Lease Term (Months), as used below, represents the number of
months remaining from June 30, 1998 under contracted lease terms. In the opinion
of Equis Financial Group Limited Partnership ("EFG") the acquisition cost of the
equipment did not exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost
- ------------------------------------ ------------- ------------
<S> <C> <C>
Two McDonnell-Douglas MD-82 (Finnair) ........................... 10 $ 13,762,438
Three Boeing 737-2H4 (Southwest) ................................ 18 6,355,873
------------
Total equipment cost ............ 20,118,311
Accumulated depreciation ............ (4,835,438)
------------
Equipment, net of accumulated depreciation ........... $ 15,282,873
------------
------------
</TABLE>
6
<PAGE>
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
The cost of each of the Partnership's aircraft represent proportionate
ownership interests. The remaining interests are owned by other affiliated
partnerships sponsored by EFG. All Partnerships individually report, in
proportion to their respective ownership interests, their respective shares of
assets, liabilities, revenues, and expenses associated with the aircraft.
On April 29, 1998, at the expiration of the aircraft's lease term, the
Partnership sold its proportional interest in a Lockheed L-1011-50 aircraft,
previously leased to Aer Lease Limited, to the lessee for net proceeds of
$846,300. The Partnership's interest in the aircraft had a net book of $658,282
at the time of sale, resulting in the recognition of a gain on sale, for
financial statement purposes, of $188,018.
NOTE 5 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three month
periods ended June 30, 1998 and 1997, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Equipment management fees ........ $ 96,049 $ 90,270
Administrative charges ........... 26,502 23,286
Reimbursable operating expenses
due to third parties ........... 442,331 151,848
-------- --------
Total .......................... $564,882 $265,404
-------- --------
-------- --------
</TABLE>
NOTE 6 - NOTES PAYABLE
Notes payable at June 30, 1998 consisted of installment notes payable to
banks of $7,735,573. All of the installment notes are non-recourse, with
interest rates ranging between 8.65% and 8.89% and are collateralized by the
equipment and assignment of the related lease payments. The installment notes
related to the aircraft on lease to Southwest Airlines, Inc. will be fully
amortized by noncancellable rents. The Partnership has a balloon payment
obligation at the expiration of the primary lease term related to the aircraft
on lease to Finnair OY of $4,671,150. The carrying amount of notes payable
approximates fair value at June 30, 1998.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending June 30, 1999 $ 7,125,944
2000 609,629
----------------
Total $ 7,735,573
----------------
----------------
</TABLE>
NOTE 7 - LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a
class and derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and
7
<PAGE>
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
a number of its affiliates, including the General Partner, as defendants
(collectively, the "Defendants"). Certain of the Plaintiffs, on or about June
24, 1997, had filed an earlier derivative action, captioned Leonard Rosenblum,
et al. v. Equis Financial Group Limited Partnership, et al., in the Superior
Court of the Commonwealth of Massachusetts on behalf of the Nominal Defendants
against the Defendants. Both actions are referred to herein collectively as the
"Class Action Lawsuit."
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth the terms pursuant to which a settlement
of the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was based upon and supersedes a
Memorandum of Understanding between the parties dated March 9, 1998 which
outlined the terms of a possible settlement.
The Stipulation of Settlement was filed with the Court on July 23, 1998 and
remains pending. Ultimately, the Court must review and approve the Stipulation
of Settlement prior to its becoming effective. The Stipulation of Settlement
contemplates various changes that, if effected, would alter the future
operations of the Nominal Defendants. With respect to the Partnership and 10
affiliated partnerships (hereafter referred to as the "Exchange Partnerships"),
the Stipulation of Settlement provides for the restructuring of their respective
business operations into a single successor company whose securities would be
listed and traded on a national securities exchange. The partners of the
Exchange Partnerships would receive both common stock in the new company and a
cash distribution in exchange for their existing partnership interests. Such a
transaction would, among other things, allow for the consolidation of the
Partnership's operating expenses with other similarly organized equipment
leasing programs. The Stipulation of Settlement prescribes certain conditions
necessary to effecting the settlement, including providing the partners of the
Exchange Partnerships with the opportunity to vote on the participation of their
partnership in the restructuring. To the extent that the Stipulation of
Settlement is approved by the Court, the complete terms thereof will be
communicated to all of the partners of the Exchange Partnerships to enable them
to vote on the restructuring.
There can be no assurance that the Stipulation of Settlement will be
approved by the Court, or that the outcome of the voting by the partners of the
Exchange Partnerships, including the Partnership, will result in a settlement
finally being effected or in the Partnership being included in the
restructuring. The General Partner and its affiliates, in consultation with
counsel, concur that there is a reasonable basis to believe that the Stipulation
of Settlement will be approved by the Court. In the absence of a Stipulation of
Settlement approved by the Court, the Defendants intend to defend vigorously
against the claims asserted in the Class Action Lawsuit. The General Partner and
its affiliates cannot predict with any degree of certainty the ultimate outcome
of such litigation.
8
<PAGE>
AIRFUND International Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements in this quarterly report of AIRFUND International
Limited Partnership (the "Partnership") that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are subject to a variety of risks and
uncertainties. There are a number of important factors that could cause actual
results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
outcome of the Class Action Lawsuit described in Note 7 to the accompanying
financial statements, and the ability of Equis Financial Group Limited
Partnership, (formerly American Finance Group) ("EFG"), to collect all rents due
under the attendant lease agreements and successfully remarket the Partnership's
equipment upon the expiration of such leases.
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. The computer
programs of EFG were designed and written using four digits to define the
applicable year. As a result, EFG does not anticipate system failure or
miscalculations causing disruptions of operations. Based on recent assessments,
EFG determined that minimal modification of software is required so that its
network operating system will function properly with respect to dates in the
year 2000 and thereafter. EFG believes that with these modifications to the
existing operating system, the Year 2000 Issue will not pose significant
operational problems for its computer systems. EFG will utilize internal
resources to upgrade software for Year 2000 modifications and anticipates
completing the Year 2000 project by December 31, 1998, which is prior to any
anticipated impact on its operating system. The total cost of the Year 2000
project is expected to be insignificant and have no effect on the results of
operations of the Partnership.
Three and six months ended June 30, 1998 compared to the three and six months
ended June 30, 1997:
Overview
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 used 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. Subsequently, all of
the aircraft in the Partnership's original portfolio have been re-leased,
renewed, exchanged for other aircraft or sold. At June 30, 1998, the Partnership
owned a proportionate interest in five aircraft, all of which were on lease.
Upon expiration of the lease agreements, each aircraft will be re-leased or sold
depending on prevailing market conditions and the assessment of such conditions
by EFG to obtain the most advantageous economic benefit. Presently, the
Partnership is a Nominal Defendant in a Class Action Lawsuit. The outcome of the
Class Action Lawsuit could alter the nature of the Partnership's organization
and its future business operations. See Note 7 to the accompanying financial
statements.
Results of Operations
For the three and six months ended June 30, 1998, the Partnership
recognized lease revenue of $907,393 and $1,920,988 compared to $969,104 and
$1,805,402 for the same periods in 1997. The increase in lease revenue for the
six months endedJune 30, 1998 compared to the same period in 1997 resulted
primarily from a 1-year lease agreement which the Partnership entered into with
Aer Lease Limited ("Aer Lease") related to its interest in a Lockheed L-1011-50
aircraft. The lease agreement provided for a base rent to the Partnership of
$60,450 per month beginning April 27, 1997. In 1997, prior to the commencement
of this 1-year lease, this aircraft was undergoing heavy maintenance and was not
on lease. On April 29, 1998, at the expiration of the aircraft's lease term, the
Partnership sold its proportional interest in this aircraft to Aer Lease for net
proceeds of $846,300. The Partnership's interest in the aircraft had a net book
value of $658,282 at the time of sale, resulting
9
<PAGE>
in the recognition of a net gain on sale, for financial statement purposes, of
$188,018. There were no other equipment sales during either of the six month
periods ending June 30, 1998 and 1997.
The three Boeing 737-2H4 aircraft (the "Southwest Aircraft") in which the
Partnership holds a proportionate interest are currently on lease to Southwest
Airlines, Inc. These leases are scheduled to expire on December 31, 1999 and
provide lease revenue of $104,184 per month to the Partnership. Additionally,
the two McDonnell-Douglas MD-82 aircraft (the "Finnair Aircraft"), in which the
Partnership holds a proportionate interest, are currently on lease to Finnair
OY. These leases are scheduled to expire on April 28, 1999 and provide lease
revenue of $529,608 per quarter to the Partnership. In the future, lease revenue
is scheduled to decline due to the sale of the Aer Lease aircraft and the
expiration of the lease terms related to the Partnership's remaining aircraft.
At June 30, 1998, the Partnership held a proportionate ownership interest
in the Southwest and Finnair Aircraft (see Note 4 to the financial statements).
The remaining interests are owned by other affiliated partnerships sponsored by
EFG. All partnerships individually report, in proportion to their respective
ownership interests, their respective shares of assets, liabilities, revenues
and expenses associated with the aircraft.
The ultimate realization of residual value for aircraft is dependent upon
many factors, including EFG's ability to sell and re-lease the aircraft.
Changing market conditions, industry trends, technological advances, and many
other events can converge to enhance or detract from asset values at any given
time. EFG attempts to monitor these 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 revenue 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 on a re-lease, renewal or month-to-month basis.
Consequently, the amount of gain or loss reported in the financial statements is
not necessarily indicative of the total residual value the Partnership achieved
from leasing the aircraft.
Interest income for the three and six month periods ending June 30, 1998
was $40,020 and $74,976 compared to $30,261 and $64,184 for the same period in
1997. Interest income is typically generated from temporary investments of
rental receipts and equipment sale proceeds in short-term instruments.
For the three and six months ending June 30, 1998, the Partnership incurred
interest expense of $173,634 and $361,687, respectively, compared to $229,473
and $472,161 for the same periods in 1997. Interest expense in future periods is
expected to continue to decline as the principal balance of notes payable is
reduced through the application of rent receipts to outstanding debt.
Management fees were 5% of lease revenue during each of the three and six
month periods ended June 30, 1998 and 1997, 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, distribution and remarketing expenses. Operating expenses were
$427,661 and $468,333 for the three and six months ended June 30, 1998,
respectively, compared to $108,920 and $175,134 for the same periods in 1997.
During the six months ended June 30, 1998, the Partnership incurred or accrued
approximately $334,000 for certain legal and administrative expenses related to
the Class Action Lawsuit described in Note 7 to the accompanying financial
statements. In 1997, operating expenses included refurbishment costs incurred in
connection with the Partnership's interest in the L-1011-50 aircraft to meet the
needs of Aer Lease. 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. Other fluctuations will occur in
relation to the volume and timing of aircraft remarketing activities.
Depreciation expense was $511,104 and $1,130,591 for the three and six months
ended June 30, 1998, compared to $625,497 and $1,250,994 for the same periods in
1997.
10
<PAGE>
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 satisfy debt service obligations
associated with leveraged leases, and to pay management fees and operating
costs. Operating activities generated net cash inflows of $1,228,691 and
$513,357 for the six months ended June 30, 1998 and 1997, respectively. Overall,
expenses associated with rental activities, such as management fees, and net
cash flow from operating activities decline as the Partnership remarkets its
aircraft. Conversely, the Partnership may incur increased costs to insure the
successful remarketing of these aircraft. Ultimately, the Partnership will
dispose of all aircraft under lease. This will occur principally through sale
transactions whereby each aircraft will be sold to the existing lessee or to a
third party. Generally, this will occur upon expiration of each aircraft's
primary or renewal/re-lease term.
Cash realized from aircraft disposal transactions is reported under
investing activities on the accompanying Statement of Cash Flows. For the six
months ended June 30,1998, the Partnership realized net cash proceeds of
$846,300. No aircraft sales occurred during the corresponding period in 1997.
Such proceeds related to the sale, to Aer Lease, of the Partnership's interest
in the L-1011-50 aircraft. Future inflows of cash from aircraft disposals will
vary in timing and amount and will be influenced by many factors including, but
not limited to, the frequency and timing of lease expirations, the type of
aircraft being sold, their condition and age, and future market conditions.
The Partnership obtained long-term financing in connection with like-kind
exchange transactions involving the acquisition of the Southwest Aircraft and
the Finnair Aircraft. The corresponding note agreements are recourse only to the
specific equipment financed and to the minimum rental payments contracted to be
received during the debt amortization period. As rental payments are collected,
a portion or all of the rental payment will be used to repay principal and
interest. The Partnership also has a balloon payment obligation at the
expiration of the primary lease term related to the Finnair Aircraft of
$4,671,150.
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 EFG 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.
Overall, the future liquidity of the Partnership will be greatly dependent
upon the collection of contractual rents and the outcome of residual activities,
as well as the outcome of the Class Action Lawsuit described in Note 7 to the
accompanying financial statements. The General Partner anticipates that cash
proceeds resulting from the collection of contractual rents and the outcome of
residual activities will satisfy the Partnership's future expense obligations.
However, the amount of cash available for distribution in future periods is
expected to fluctuate widely as the General Partner attempts to remarket the
Partnership's aircraft and possibly upgrade certain aircraft to meet the
standards of potential successor lessees. Accordingly, the General Partner
expects to continue to suspend the declaration of quarterly cash distributions
between the periods corresponding to major remarketing events.
11
<PAGE>
AIRFUND International Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 to the financial statements 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
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/ Michael J. Butterfield
------------------------------------------------
Michael J. Butterfield
Treasurer of AFG Aircraft Management Corporation
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 14, 1998
------------------------------------------------
By: /s/ Gary Romano
------------------------------------------------
Gary M. Romano
Clerk of AFG Aircraft Management Corporation
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 1998
------------------------------------------------
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,617,298
<SECURITIES> 0
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<TOTAL-ASSETS> 19,104,509
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0
0
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<OTHER-SE> 10,771,120
<TOTAL-LIABILITY-AND-EQUITY> 19,104,509
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</TABLE>
