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 March 31, 2000
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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 0-18387
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PEGASUS AIRCRAFT PARTNERS II, L.P.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1111757
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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 17 pages.
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PEGASUS AIRCRAFT PARTNERS II, L.P.
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 2000 and December 31, 1999 3
Statements of Income for the three months
ended March 31, 2000 and 1999 4
Statements of Partners' Capital for the three
months ended March 31, 2000 and 1999 5
Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
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PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
PEGASUS AIRCRAFT PARTNERS II, L.P.
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BALANCE SHEETS -- MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
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ASSETS
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2000 1999
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(in thousands, except unit data)
Cash and cash equivalents $ 651 $ 2,300
Restricted cash 375 371
Rent receivable 381 196
Aircraft, net 43,466 44,491
Other assets 790 805
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Total Assets $ 45,663 $ 48,163
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LIABILITIES AND PARTNERS' CAPITAL
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LIABILITIES:
Accounts payable and accrued expenses $ 154 $ 494
Payable to affiliates 1,176 969
Maintenance reserves payable 2,060 2,311
Notes payable 16,530 16,530
Deferred rental income and deposits 1,398 1,475
Distributions payable to partners 2,199 2,199
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Total Liabilities 23,517 23,978
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COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 6)
PARTNERS' CAPITAL:
General Partners $ (817) $ (796)
Limited Partners (7,255,000 units issued and
outstanding in 2000 and 1999) 22,963 24,981
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Total Partners' Capital 22,146 24,185
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Total Liabilities and Partners' Capital $ 45,663 $ 48,163
======== ========
The accompanying notes are an integral part of these financial statements.
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PEGASUS AIRCRAFT PARTNERS II, L.P.
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STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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(unaudited)
2000 1999
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(in thousands, except unit
data and per unit amounts)
REVENUES:
Rentals from operating leases $ 2,652 $ 3,108
Interest 14 28
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2,666 3,136
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EXPENSES:
Depreciation and amortization 1,686 2,206
Management and re-lease fees 206 251
Interest 420 248
General and administrative 92 70
Direct lease 102 56
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2,506 2,831
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NET INCOME $ 160 $ 305
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NET INCOME ALLOCATED:
To the General Partners $ 1 $ 3
To the Limited Partners 159 302
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$ 160 $ 305
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NET INCOME PER LIMITED PARTNERSHIP UNIT $ .02 $ .04
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS ISSUED AND OUTSTANDING 7,255,000 7,255,000
========== ==========
The accompanying notes are an integral part of these financial statements.
4
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PEGASUS AIRCRAFT PARTNERS II, L.P.
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STATEMENTS OF PARTNERS' CAPITAL
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FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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(unaudited)
General Limited
Partners Partners Total
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(dollar amounts in thousands)
Balance, January 1, 2000 $ (796) $ 24,981 $ 24,185
Net income 1 159 160
Distributions declared to partners (22) (2,177) (2,199)
-------- -------- --------
Balance, March 31, 2000 $ (817) $ 22,963 $ 22,146
======== ======== ========
Balance, January 1, 1999 $ (868) $ 35,068 $ 34,200
Net income 3 302 305
Distributions declared to partners (29) (2,902) (2,931)
-------- -------- --------
Balance, March 31, 1999 $ (894) $ 32,468 $ 31,574
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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PEGASUS AIRCRAFT PARTNERS II, L.P.
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STATEMENTS OF CASH FLOWS
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FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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(unaudited)
2000 1999
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(dollar amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 160 $ 305
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,686 2,206
Change in assets and liabilities:
Rent and other receivables (185) 22
Other assets 15 13
Accounts payable and accrued expenses (340) (19)
Payable to affiliates 207 (30)
Deferred rental income and deposits (77) (32)
Maintenance reserves payable (251) 212
Restricted cash (4) --
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Net cash provided by operating activities 1,211 2,677
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized aircraft improvements (661) (746)
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Net cash used in investing activities (661) (746)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- 2,500
Cash distributions paid to partners (2,199) (2,931)
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Net cash used in financing activities (2,199) (431)
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NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,649) 1,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,300 2,863
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 651 $ 4,363
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 420 $ 246
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The accompanying notes are an integral part of these financial statements.
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PEGASUS AIRCRAFT PARTNERS II, L.P.
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NOTES TO FINANCIAL STATEMENTS
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MARCH 31, 2000
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(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. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. The most significant
assumptions and estimates relate to useful life and recoverability of the
aircraft values. Actual results could differ from such estimates. 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,
1999. (Operating results for the three month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.)
2. Aircraft
The Partnership's net investment in aircraft as of March 31, 2000 and
December 31, 1999 consisted of the following (in thousands):
2000 1999
---- ----
Aircraft on operating leases, at cost $ 97,163 $ 96,525
Less: Accumulated depreciation (56,273) (54,586)
Write-downs (7,710) (7,710)
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$ 33,180 $ 34,229
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Aircraft held for lease or sale, at cost $ 65,945 $ 65,921
Less: Accumulated depreciation (34,877) (34,877)
Write-downs (10,667) (10,667)
Lease settlement accounted
for under the cost recovery method (10,115) (10,115)
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10,286 10,262
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Aircraft, net $ 43,466 $ 44,491
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Airbus A-300 Aircraft. In December 1997, the Partnership leased, on a
short-term (six month minimum) basis, one of the CF6-50C2 engines from the
Airbus A-300 aircraft to Viacao Aerea Sao Paulo S.A. ("VASP"), a Brazilian
carrier, for rents of $2,200 per day, plus hourly rental of $225 per engine
hour, with a minimum of 4 hours per cycle. The Partnership and VASP extended the
lease to December 1998 and then to June, 1999. In December 1998, the Partnership
and VASP entered into an agreement for the lease of the second engine from the
A-300 aircraft, the terms of which were the same as the first engine lease. Both
engine leases were scheduled to expire in June 1999. The Partnership continues
to re-market this aircraft for lease or sale, although given the fact that the
airframe requires a heavy maintenance check, it is more likely to be sold.
At December 31, 1999, VASP was in arrears with respect to scheduled
rent payments, for a total of $838,000, and $1,265,000 in arrears with respect
to maintenance reserve payments. VASP failed to pay rent on the engines and
after being unable to come to agreement with VASP, the Partnership filed suit in
Brazil and Florida. (See Note 5 to the unaudited Financial Statements,
"Litigation").
During the first quarter of 1999, one of the engines on lease to VASP
failed. As part of the Florida legal action, this engine was repossessed in
Florida in June, 1999. It was sent to a General Electric repair facility in
California and based on legal advice, the Partnership is awaiting the conclusion
of the Florida lawsuit prior to a disassembly of the engine for a detailed
analysis of its condition. (See Note 5 to the unaudited Financial Statements,
"Litigation" ).
Falcon Air Express, Inc. In December 1996, the Partnership entered into
a lease agreement with Falcon Air Express, Inc. ("Falcon"), a charter airline,
with respect to a Boeing 727-200 non-advanced aircraft. The lease is for a term
of 60 months and provides for a monthly rental of $95,000. Falcon provided a
security deposit of $95,000. The lease also requires Falcon to fund, on a
monthly basis, maintenance reserves of $317 per flight hour.
Due to its failure to pay rents in the fourth quarter of 1998, Falcon
was placed on non-accrual status beginning October 1, 1998. For the period
January 1, 2000 through March 31, 2000, Falcon has paid all but $127,000 in rent
(approximately 45% of scheduled rentals) and $13,000 in maintenance reserve
payments. Of the total amount of arrearages, only $95,000 has been accrued and
is included in rent receivable on the balance sheet. Falcon has provided a
security deposit of $95,000 with respect to this lease.
Kitty Hawk Aircargo, Inc. ("Kitty Hawk"). The Boeing 727-200, described
as Continental 727 No. 2 was converted to a freighter, hushkitted and delivered
to Kitty Hawk in November, 1999. The lease with Kitty Hawk is for 84 months, the
lease rate is $112,700 per month and maintenance reserves are paid at the rate
of $375 per flight hour, with engine reserves to be increased if the flight
hour/cycle ratio falls below 1.5 to 1. Kitty Hawk has provided a security
deposit of $225,400. The Partnership has incurred costs of approximately $4.7
million related to the cargo conversion and hushkitting. (See also Note 6 to the
unaudited Financial Statements, "Subsequent Events").
Continental Airlines, Inc. The extended lease on the McDonnell Douglas
DC10-10 with Continental expired on September 15, 1999. Work necessary for the
aircraft to meet the lease return conditions was done at Continental's expense
at a maintenance facility. Continental continued to pay rent until the aircraft
achieved the lease requirements for its return, which took place on December 16,
1999. The aircraft is being stored until June, 2000 at which time it will enter
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a modification facility to be converted to a freighter for Emery Worldwide
Airlines Inc. ("Emery"). The conversion work is estimated to cost $12.6 million.
The Partnership provided a deposit of $790,000 to the third party modification
center which will perform the conversion. The Partnership and Emery have signed
a lease which provides for 84 months with rent of $218,000 per month. The lease
also provides a two-year renewal at $200,000 per month, followed by three
additional two-year renewal options at the then fair market rental. Emery
provided a security deposit of $218,000.
Aerovias de Mexico, S.A. de C.V. ("Aeromexico"). The leases for the two
McDonnell-Douglas DC-9's leased to Aeromexico expired in February, 2000. The
Partnership is in negotiations with Aeromexico on the extension of both leases
and Aeromexico has been paying on a month-to-month basis while lease extensions
are under discussion.
3. Transactions With Affiliates
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. 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 $39,000 of base management fees during the three months
ended March 31, 2000.
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 which
2.5% is payable to the Managing General Partner and 2.0% is payable to the
Administrative General Partner. The General Partners earned $87,000 of incentive
management fees during the three months ended March 31, 2000.
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 $80,000 of re-lease fees during the three months ended
March 31, 2000.
All of the above fees are subordinated to the limited partners
receiving an 8% annual non-cumulative return based upon original contributed
capital (as adjusted per the Partnership agreement).
Beginning July 1, 1995, as part of the 1996 and 1997 class action
settlement, the Administrative General Partner remits to an affiliate, all
management fees as well as all 1997 and future fees and distributions received
by the Administrative General Partner, for deposit into an escrow account for
the benefit of the class action members.
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 months ended March 31, 2000 payable to the Administrative General Partner.
During the quarter ended March 31, 2000 the Partnership paid $547,000
to a maintenance facility affiliated with the Managing General Partner for work
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performed on certain aircraft. The Partnership also paid $94,000 for aircraft
parts to a company which is partially owned by an affiliate of the Managing
General Partner.
4. Notes Payable
The lender increased the Partnership's line of credit to $19.0 million
in September, 1999. The outstanding balance under this facility at March 31,
2000 was $16.53 million. The Limited Partnership Agreement permits the
Partnership to borrow up to 35% (or $50,785,000) of the original offering
proceeds. The Partnership has negotiated a loan with a new lender that will
permit the borrowing of up to $30 million. (See Note 6 to the unaudited
Financial Statements, "Subsequent Events").
5. Litigation
After not being able to arrive at a negotiated settlement of
outstanding issues with VASP, the Partnership filed suit in May, 1999 in Brazil
and June, 1999 in Florida to repossess the two CF6-50C2 engines. It also sued in
Florida for unpaid rent, reserves and the repair of the engine in Florida, which
was damaged in January of 1999. In conjunction with the Brazilian suit, the
Partnership was required to post a letter of credit and the bank issuing the
letter of credit required the segregation by the Partnership of $371,000 in a
restricted cash account.
The Brazilian Court ruled in May, 1999 that the Partnership could
repossess the engine in Brazil, although that ruling was stayed until September
3, 1999, after the completion of all of VASP's appeals. The Partnership has the
right to export the Brazilian engine and is working with local counsel to obtain
the necessary approval to do so.
A trial was held in Florida in December and January 2000 and an order
of the court favorable to the Partnership with respect to the rent and
maintenance reserve claims was entered on May 5, 2000, but VASP has 10 days to
ask for a rehearing. The damaged engine has been sent to a repair facility in
California and will be disassembled for inspection when the Florida court case
is finalized. The General Partners will need to make a determination as to
whether it is worthwhile to pursue an additional trial for engine damages.
6. Subsequent Events
The Partnership closed on a new, $30 million, lending facility with a
different lender, on April 14, 2000 and an initial draw down was made of $19.5
million. The proceeds were used to retire existing debt of $16.53 million and to
replenish working capital. The term of the loan is six years, with interest only
payments the first twelve months. The principal is required to be repaid in
equal quarterly installments over the next 60 months. Proceeds from the sale of
aircraft must be applied to principal reduction and the subsequent required
principal payments will be reset over the remaining term. The Partnership paid a
1.0% commitment fee and the interest rate is 225 basis points over a major money
center bank's prime rate. The lender has a mortgaged interest in all aircraft,
except the 50% interest in the USAirways MD-81 aircraft. The facility will also
be used to fund the DC-10-10 conversion.
Kitty Hawk, Inc. (the parent company of Kitty Hawk Aircargo, Inc.)
issued a press release on April 11, 2000 disclosing the resignation of its Chief
Financial Officer, a potential major write-down in the value of its fleet of
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L-1011's, lack of compliance with certain debt covenants which may require the
expenditure of $35 million to cure, an inability to meet a May 15th interest
payment on senior secured notes and the fact that their auditor's opinion will
include a going-concern modification. On April 11, 2000, Standard and Poor's
lowered Kitty Hawk, Inc.'s corporate credit, bank loan and senior secured debt
rating from "B+" to "CCC." Kitty Hawk failed to make its May 1, 2000 lease
payment and filed for protection under Chapter 11 of the U.S. Bankruptcy Code on
the same day. Kitty Hawk also has 60 days to affirm or reject the Partnership's
lease under Chapter 11 of the U.S. Bankruptcy code.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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This report may contain, in addition to historical information,
Forward-Looking statements that involve 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 leased
commercial passenger and freighter aircraft and makes quarterly distributions to
the partners of net cash flow generated by operations. 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 a fund that invests in short-term,
highly liquid investments. At March 31, 2000, the Partnership's unrestricted
cash and cash equivalents of $651,000 was primarily invested in such a fund.
This amount was $1,649,000 less than the Partnership's unrestricted cash and
equivalents at December 31, 1999 of $2,300,000. This decrease in unrestricted
cash was equal to the amount by which the combined total of the quarterly cash
distributions paid to the partners and capitalized expenditures for aircraft
exceeded cash provided by operating activities during the three months ended
March 31, 2000.
At March 31, 2000 the Partnership was holding $375,000 in restricted
cash, which was required as collateral, to obtain a letter of credit in
connection with legal action against VASP. (See Note 5 to the unaudited
financial statements "Litigation").
Maintenance reserves payable decreased by $251,000 from $2,311,000 at
December 31, 1999 to $2,060,000 at March 31, 2000, respectively, due to the
application of Falcon reserves for maintenance work, partially offset by
maintenance reserve payments received from Capital Cargo, Kitty Hawk and TNT.
Accounts payable and accrued expenses decreased by $340,000 from
$494,000 at December 31, 1999 to $154,000 at March 31, 2000, respectively, due
to obligations for capital expenditures being accrued at December 31, 1999.
Rent receivable increased by $185,000 from $196,000 at December 31,
1999 to $381,000 at March 31, 2000. This increase resulted from receivables for
monthly lease payments from three lessees at March 31, 2000 compared to
receivables from two lessees at December 31, 1999.
Although TWA had a cash position of $165 million at March 31, 2000,
given TWA's historical financial difficulties, its ongoing financial losses are
of concern. A default or deferral of lease payments on the part of Falcon, or
Kitty Hawk, or any other lessee, may affect quarterly distributions. TWA, Falcon
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and Kitty Hawk accounted for 21%, 6% and 13%, respectively, of the Partnership's
lease revenue during the first quarter of 2000. Kitty Hawk was current on all
payments to the Partnership as of March 31, 2000, but filed for Chapter 11
bankruptcy protection on May 1, 2000. (See Note 6 to the unaudited Financial
Statements, "Subsequent Events").
The payable to affiliates increased by $207,000 from $969,000 at
December 31, 1999 to $1,176,000 at March 31, 2000, due to additional management
and release fees being incurred for the quarter ending March 31, 2000.
Deferred rental income and deposits were $1,398,000 at March 31, 2000
as compared to $1,475,000 at December 31, 1999. The decrease was primarily
attributable to the recognition of amounts previously received in connection
with the A-300 Lease Settlement.
During the three months ended March 31, 2000, the Partnership paid
distributions relating to the fourth quarter of 1999 at the rate of $0.30 per
Unit. The $0.30 per Unit is a decrease from the $0.40 per Unit distributions
paid for the third quarter of 1999. As has historically been the case, the
amount of future cash distributions will be determined on a quarterly basis
after an evaluation of the Partnership's operating results and its current and
expected financial position. A similar distribution at $0.30 per Unit for the
first quarter of 2000 was paid on April 25, 2000.
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 93% of
the cash distributions paid to the partners for the three months ended March 31,
2000 constituted a return of capital. Also, based on the amount of net income
reported by the Partnership for accounting purposes, approximately 84% of the
cash distributions paid to the partners from the inception of the Partnership
through March 31, 2000 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.
The lender increased the Partnership's line of credit to $19.0 million
in September, 1999. The outstanding balance under this facility at March 31,
2000 was $16.53 million. The Partnership has negotiated a loan with a new lender
that will permit the borrowing of up to $30 million. (See Note 6 to the
unaudited Financial Statements, "Subsequent Events").
During first quarter of 2000, the Partnership invested $661,000 in
capitalized aircraft improvements, mainly related to the overhaul and repair of
an engine for the Boeing 727-200 aircraft leased to Falcon.
The McDonnell Douglas DC10-10 formerly leased to Continental was
returned on December 16, 1999. The aircraft is being stored until June, 2000 at
which time it will enter a modification facility to be converted to a freighter
for Emery Worldwide Airlines Inc. ("Emery"). The conversion work is estimated to
cost $12.6 million. The Partnership and Emery have signed an agreement, which
provides for a lease of 84 months with rent of $218,000 per month. The lease
also provides a two-year renewal at $200,000 per month, followed by three
additional two-year renewal options at the then fair market rental. Emery
provided a security deposit of $218,000.
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Litigation
- ----------
See Note 5 to the unaudited Financial Statements, "Litigation" for an
update on certain legal proceedings.
Results of Operations
The Partnership's net income was $160,000 for the three months ended
March 31, 2000 ("2000 Quarter") as compared to $305,000 for the quarter ended
March 31, 1999 ("1999 Quarter").
The Partnership's net income for the 2000 Quarter decreased as compared
to the 1999 Quarter principally due to a decrease in rental and interest income,
as well as an increase in interest, general and administrative and direct lease
expense. This was partially offset by decreases in depreciation and amortization
expense and management and re-lease fees.
Rental income decreased by $456,000, or 15%, in the 2000 Quarter as
compared to the 1999 Quarter, principally due to the absence of rental income
related to the DC10-10 aircraft and a decrease in rental income related to the
Boeing 727-200 aircraft on lease to Falcon.
Interest income decreased $14,000, or 50%, for the 2000 Quarter in
comparison to the 1999 Quarter, primarily due to lower cash balances and lower
interest income on such cash balances.
Interest expense for the 2000 Quarter increased by $172,000, or 69%, in
comparison to the 1999 Quarter due to increases in the note balance and interest
rate.
General and administrative expenses increased by $22,000, or 31% in the
2000 Quarter as compared to the 1999 Quarter due primarily to an increase in
legal fees related to the VASP litigation.
Direct lease expenses increased by $46,000, or 82% in the 2000 Quarter
as compared to the 1999 Quarter due primarily to increases in maintenance
expense related to several aircraft and insurance expense related to the
DC-10-10 aircraft.
Depreciation and amortization decreased $520,000, or 24%, for the 2000
Quarter, in comparison to the 1999 Quarter, due primarily to the A-300 and
DC10-10 aircraft not being depreciated in the 2000 Quarter and a decrease in
depreciation related to the Boeing 727-200 aircraft on lease to Kitty Hawk.
Management and re-lease fees payable to the General Partners for the
2000 Quarter decreased $45,000, or 18%, in comparison to the 1999 Quarter, which
was primarily attributable to lower rental revenue in the 2000 Quarter, which
serves as the basis for certain fees.
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PART II. OTHER INFORMATION
--------------------------
ITEM 1. Legal Proceedings
-----------------
After not being able to arrive at a negotiated settlement of
outstanding issues with VASP, the Partnership filed suit in May, 1999 in Brazil
and June, 1999 in Florida to repossess the two CF6-50C2 engines. It also sued in
Florida for unpaid rent, reserves and the repair of the engine in Florida, which
was damaged in January of 1999. In conjunction with the Brazilian suit, the
Partnership was required to post a letter of credit and the bank issuing the
letter of credit required the segregation by the Partnership of $371,000 in a
restricted cash account.
The Brazilian Court ruled in May, 1999 that the Partnership could
repossess the engine in Brazil, although that ruling was stayed until September
3, 1999, after the completion of all of VASP's appeals. The Partnership has the
right to export the Brazilian engine and is working with local counsel to obtain
the necessary approval to do so.
A trial was held in Florida in December and January 2000 and an order
of the court favorable to the Partnership with respect to the rent and
maintenance reserve claims was entered on May 5, 2000, but VASP has 10 days to
ask for a rehearing. The damaged engine has been sent to a repair facility in
California and will be disassembled for inspection when the Florida court case
is finalized. The General Partners will need to make a determination as to
whether it is worthwhile to pursue an additional trial for engine damages.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27. Financial Data Schedule (in electronic format only).
(b) Reports on Form 8-K
The Partnership filed a Form 8-K on January 21, 2000,
reporting a change in the distribution rate to limited
partners, under Item 5, Other Events.
The Partnership also filed a Form 8-K on April 27, 2000,
reporting another distribution at the lowered rate and a new
lending facility, under Item 5, Other Events.
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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 II, L.P.
(Registrant)
By: Air Transport Leasing, Inc.
Administrative General Partner
Date: May 12, 2000 By: /s/ CARMINE FUSCO
-----------------
Carmine Fusco
Vice President, Secretary, Treasurer and
Chief Financial and Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000 OF PEGASUS AIRCRAFT PARTNERS II, L.P., AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 651000
<SECURITIES> 0
<RECEIVABLES> 381000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2197000
<PP&E> 163108000
<DEPRECIATION> 119642000 <F3>
<TOTAL-ASSETS> 45663000
<CURRENT-LIABILITIES> 6987000
<BONDS> 16530000
0
0
<COMMON> 0
<OTHER-SE> 22146000 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 45663000
<SALES> 0
<TOTAL-REVENUES> 2666000
<CGS> 0
<TOTAL-COSTS> 1994000
<OTHER-EXPENSES> 92000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420000
<INCOME-PRETAX> 160000
<INCOME-TAX> 0
<INCOME-CONTINUING> 160000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160000
<EPS-BASIC> 0.02 <F1>
<EPS-DILUTED> 0
<FN>
<F1>REPRESENTS NET INCOME PER LIMITED PARTNERSHIP UNIT OUTSTANDING.
<F2>REPRESENTS AGGREGATE PARTNERSHIP CAPITAL.
<F3>INCLUDES PROVISIONS FOR WRITE-DOWNS AND CERTAIN OTHER RESERVES.
</FN>
</TABLE>
