UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
Commission file number 1-9259
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
-----------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3008908
--------------------------------- ------------------------------------
(State of Organization) (I.R.S. Employer Identification No.)
555 CALIFORNIA STREET, 4TH FLOOR, SAN FRANCISCO, CA. 94104
---------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
(415) 765-1814
---------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
===============================================
I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements (Unaudited)
Balance Sheets --
September 30, 2001 and December 31, 2000......................3
Statements of Income --
Three and nine months ended September 30, 2001 and 2000.......4
Statements of Cash Flows
Nine months ended September 30, 2001 and 2000.................5
Notes to Financial Statements...................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk......9
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K...............................10
Signatures.....................................................11
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
===============================================
BALANCE SHEETS
SEPTEMBER 30,
2001 DECEMBER 31,
(IN THOUSANDS EXCEPT UNIT DATA) (UNAUDITED) 2000
----------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 9 $ 17
Finance leases - net 46,885 61,657
Operating leases - net 8,224 0
Prepaid expenses and other assets 76 162
-------- ---------
Total assets $ 55,194 $ 61,836
======== =========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ 1,402 $ 2,102
Accounts payable and accrued liabilities 636 468
Taxes payable 17 139
Long-term notes payable 4,553 7,992
-------- ---------
Total liabilities 6,608 10,701
-------- ---------
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 48,100 50,624
General partner 486 511
-------- ---------
Total partners' equity 48,586 51,135
-------- ---------
Total liabilities and partners' equity $ 55,194 $ 61,836
======== =========
-----------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
===============================================
STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
(UNAUDITED; IN THOUSANDS SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------
EXCEPT PER UNIT AMOUNTS) 2001 2000 2001 2000
REVENUES
Finance lease income $1,149 $1,657 $3,920 $5,140
Operating lease rentals 270 0 516 0
Other income 9 0 32 0
- - -- -
Total revenues 1,428 1,657 4,468 5,140
------ ------ ------ ------
EXPENSES
Interest 132 217 455 718
Depreciation - operating lease 160 0 305 0
Management fee - general partner 139 150 427 455
Investor reporting 87 79 280 237
General and administrative 36 40 89 123
Tax on gross income 139 137 508 411
------ ------ ------ ------
Total expenses 693 623 2,064 1,944
------ ------ ------ ------
Net Income $ 735 $1,035 $2,404 $3,196
====== ====== ====== ======
Net Income Allocated To:
General Partner $ 7 $ 10 $ 24 $ 32
====== ====== ====== ======
Limited Partners $ 728 $1,025 $2,380 $3,164
====== ====== ====== ======
Net Income Per Limited Partnership Unit $ 0.16 $ 0.22 $ 0.51 $ 0.68
====== ====== ====== ======
-----------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
===============================================
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED; IN THOUSANDS) 2001 2000
---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,404 $ 3,196
Adjustments to reconcile net income to net cash provided
by operating activities:
Operating lease depreciation 305 0
(Increase) in accounts receivable (90) 0
Increase in accounts payable and accrued liabilities 168 108
Increase/(decrease) in taxes payable (122) 134
Decrease in prepaid expenses and other assets 86 86
-------- --------
Net cash provided by operating activities 2,751 3,524
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Rental receipts in excess of earned finance lease income 6,333 3,233
-------- --------
Net cash provided by investing activities 6,333 3,233
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/(repayments) under lines of credit, net (1,765) 762
Repayment of long-term notes payable (1,675) (1,401)
Distributions paid to partners (5,652) (6,119)
-------- --------
Net cash used by financing activities (9,092) (6,758)
-------- --------
Decrease in cash (8) (1)
Cash at beginning of period 17 2
-------- --------
Cash at end of period $ 9 $ 1
======== ========
ADDITIONAL INFORMATION
Interest paid $ 353 $ 597
======== ========
-----------------------------------------------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
===============================================
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2001
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
BASIS OF PRESENTATION - The accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of the Partnership's management, necessary for a
fair presentation of the financial position and results of operations for
the presented periods. The results of operations for such interim periods
are not necessarily indicative of results of operations for a full year.
The December 31, 2000 balance sheet included herein is taken from the
audited financial statements included in the Partnership's Annual Report
and incorporated by reference in the Form 10-K for the year ended December
31, 2000. The statements should be read in conjunction with the
Organization and Significant Accounting Policies and other notes to
financial statements included in the Partnership's Annual Report for the
year ended December 31, 2000.
2. NET INCOME PER LIMITED PARTNERSHIP UNIT
---------------------------------------
Net Income Per Limited Partnership Unit is computed by dividing the net
income allocated to the Limited Partners by the weighted average of the
units outstanding (4,625,000).
3. INCOME TAXES
------------
In January 1998, the Partnership made an election to pay an annual combined
federal and state tax at the Partnership level of 4.5% tax on its
applicable gross income beginning January 1, 1998. The election was made in
order to avoid a limitation on the public trading of the Partnership's
units.
6
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
===============================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Partnership presently has two long-term debt facilities. At September 30,
2001, the following amounts were outstanding: $3.7 million on a 7.4%
non-recourse note collateralized by one aircraft leased to FedEx and a $0.9
million on a 9.35% non-recourse note collateralized by one aircraft on lease to
American Airlines.
At September 30, 2001, long-term borrowings of $4.6 million represented 3.7% of
the original cost of the aircraft presently owned by the Partnership, including
capital expenditures for upgrades. The terms of the Limited Partnership
Agreement permit debt to be at a level not exceeding 50% of such cost.
Cash distributions paid in the first nine months of 2001 were $1.21 per limited
partnership unit, representing the regular 2000 fourth-quarter cash distribution
of $0.45 per unit and the regular 2001 first and second quarter cash
distributions of $0.38 per unit each.
In September 2001, the Partnership declared a third-quarter 2001 cash
distribution of $0.30 per unit totaling $1,401,515 payable on November 15, 2001,
to unitholders of record on September 28, 2001. Since this distribution and the
first and second quarter 2001 distributions were in excess of earnings,
Partnership equity declined to $48.6 million at September 30, 2001 from $51.1
million at December 31, 2000, and limited partner equity per unit declined to
$10.40. The portion of the distribution in excess of net income constitutes a
return of capital. The 2000 third-quarter cash distribution was $0.45 per unit.
RESULTS OF OPERATIONS
---------------------
The Partnership earned $735,000 in the third quarter ended September 30, 2001, a
decrease of $300,000 from last year's third quarter earnings of $1,035,000.
Revenues for the 2001 third quarter were $1,428,000, compared with last year's
third quarter revenues of $1,657,000.
Net income for the first nine months of 2001 was $2,404,000, a decrease of
$792,000 compared with $3,196,000 for the first nine months of 2000. Revenues
for the nine-month period were $4,468,000, compared with $5,140,000 for the
first nine months of 2000.
The decline in the year to date net income is primarily due to lower net lease
income resulting from the scheduled decline in finance lease income in 2001, as
the balances due from the lessees continued to decline, and from the lower rent
received under the lease that was assumed by American Airlines from TWA in April
2001.
Expenses for the first nine months of 2001 were $2,064,000, an increase of
$120,000 from $1,944,000 for the comparable 2000 period. The increase in
expenses is primarily due to an operating lease depreciation expense of $305,000
associated with the American Airlines lease, and an increase in tax payments,
partially offset by lower interest expense. In 2000, no operating lease
depreciation was recorded, as the lease assumed by American Airlines in April
2001 was previously classified as a finance lease.
7
PORTFOLIO MATTERS
-----------------
As of September 30, 2001 the Partnership's portfolio consisted of six MD 82s
aircraft (five to be returned by US Airways and one on lease to American
Airlines), and one 727-200 FH aircraft (on lease to FedEx).
The finance lease with US Airways for five MD-82 aircraft was scheduled to
terminate on October 1, 2001. However, the lease remains in effect as an
operating lease while certain maintenance work on the aircraft is being
performed as required by the lease agreement. In addition, the Partnership is in
negotiation with US Airways concerning satisfaction of the aircraft return
conditions stipulated in the lease. Until the aircraft is returned in accordance
with the lease, US Airways is required to pay rent on a prorated basis. In the
meantime, the Partnership continues to market these aircraft for sale or new
leases, and it presently is in discussions to lease a number of these aircraft,
but no definitive agreements have been reached at this time. Since quarterly
distributions are made from cash available from operations, if the aircraft are
not sold or leased when the aircraft are returned, quarterly distributions and
net income will be adversely impacted.
The Partnership is in the process of selling one aircraft in the portfolio and
expects the sale to close in December of 2001.
The Partnership believes that the events of September 11 have had an adverse
effect on the general market for purchase and lease of used aircraft, thereby
adversely affecting the Partnership's ability to sell or re-lease aircraft as
they come off lease, including the aircraft to be returned by US Airways. The
events of September 11 may also affect the ability of existing lessees to meet
their obligations to the Partnership, and may have other adverse effects on the
Partnership.
As the leases for the aircraft in the Partnership's portfolio near their
maturity, distributions will depend more on the market value of the aircraft
than on the rental payment obligation from existing lessees. In the current
market, it is more likely that aircraft at lease end will be re-leased rather
than sold. Although Airlease in the past has sold aircraft at prices in excess
of book value or re-leased aircraft to others, aircraft values depend on supply
and demand, economic conditions, and other factors. Consequently, the
Partnership cannot precisely predict the values that will be ultimately
attained, especially given the uncertainties in today's weakened market.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
--------------------------------------------------------------------------------
The Partnership has included in this quarterly report certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning the Partnership's business, operations and financial
condition. The words or phrases "can be", "may affect", "may depend", "expect",
"believe", "anticipate", "intend", "will", "estimate", "project" and similar
words and phrases are intended to identify such forward-looking statements. Such
forward-looking statements are subject to various known and unknown risks and
uncertainties and the Partnership cautions you that any forward-looking
information provided by or on behalf of the Partnership is not a guarantee of
future performance. Actual results could differ materially from those
anticipated in such forward-looking statements due to a number of factors, some
of which are beyond the Partnership's control, in addition to those discussed in
the Partnership's other press releases and public filings, including (i) changes
in the aircraft or aircraft leasing market, (ii) economic downturn in the
airline industry, (iii) default by lessees under leases causing the Partnership
to incur uncontemplated expenses or not to receive rental income as and when
expected, (iv) the impact of the events of September 11, 2001 on the aircraft or
aircraft leasing market and on the airline industry, (v) changes in interest
rates and (vi) legislative or regulatory changes that adversely affect the value
of aircraft. All such forward-looking statements are current only as of the date
on which such statements were made. The Partnership does not undertake any
obligation to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.
8
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On September 11, 2001, four aircraft operated by United Airlines and American
Airlines were hijacked and destroyed in terrorist attacks against the United
States. Immediately after the attacks, the Federal Aviation Administration
closed U.S. airspace for several days. In the weeks that have the attacks, most
of the major U.S. based airlines have announced significant reductions in
worldwide capacity, and many have announced plans to accelerate the retirement
of certain types of aircraft or to defer the delivery of new aircraft.
9
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The Partnership did not file any reports on Form 8-K during the
quarter ended September 30, 2001.
10
SIGNATURES
----------
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.
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
By: Airlease Management Services, Inc.
General Partner
NOVEMBER 9, 2001 By: /S/ DAVID B. GEBLER
---------------------- --------------------------------------------
Date David B. Gebler
Chairman, Chief Executive Officer
and President
NOVEMBER 9, 2001 By: /S/ ROBERT A. KEYES
---------------------- --------------------------------------------
Date Robert A. Keyes
Chief Financial Officer
11