AIRFUND International Limited Partnership
Annual Report to the Partners, December 31, 1996
AIRFUND International Limited Partnership
INDEX TO ANNUAL REPORT TO THE PARTNERS
Page
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SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1996 and 1995 9
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994 10
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994 11
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 12
Notes to the Financial Statements 13-20
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 21
Statement of Cash and Distributable
Cash From Operations, Sales and Refinancings 22
Schedule of Costs Reimbursed to the
General Partner and its Affiliates as
Required by Section 10.4 of the Amended and
Restated Agreement and Certificate of
Limited Partnership 23
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SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1996:
Summary of
Operations 1996 1995 1994 1993 1992
- ----------------------------- ------------ ------------- ------------- ------------- ------------
Lease revenue $ 4,346,218 $ 4,588,609 $ 5,166,392 $ 5,822,874 $ 6,227,077
Net income (loss) $ 4,360,899 $(2,283,720) $(1,463,495) $(5,435,348) $ 1,099,052
Per Unit:
Net income (loss) $ 1.36 $ (0.71) $ (0.46) $ (1.70) $ 0.34
Cash distributions $ 1.56 $ 1.00 $ 1.25 $ 2.00 $ 2.25
declared
Financial Position
- -----------------------------
Total assets $23,700,585 $16,888,606 $17,961,111 $24,263,282 $36,143,240
Total long-term obligations $11,321,769 $ 4,742,968 -- -- --
Partners' capital $10,594,642 $11,233,743 $16,717,463 $22,180,958 $34,016,306
-2-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to the year
ended December 31, 1995 and the year ended December 31, 1995
compared to the year ended December 31, 1994
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. In 1995, the Partnership
transferred its ownership interest in the fourth aircraft to the existing
lessee, United Air Lines, Inc.("United"), in exchange for proportionate
interests in three aircraft leased to Southwest Airlines, Inc., pursuant to
lease agreements which expire in 1999. During the first quarter of 1996, the
Partnership completed the replacement of the United Aircraft with proportionate
interests in two aircraft leased to Finnair OY, pursuant to lease agreements
which also expire in 1999. The Partnership continues to own a proportionate
interest in an aircraft which was returned by the lessee on June 30, 1996 and is
currently undergoing heavy maintenance. The Partnership entered into a new 12-
month lease agreement with Aer Lease Limited with respect to its interest in
this aircraft, effective upon completion of the heavy maintenance (see below).
In 1996, the Partnership sold two of its original aircraft to the lessee,
Northwest Airlines, Inc. ("Northwest") (see below). Upon expiration of the
lease agreements, each aircraft will be released or sold depending on
prevailing market conditions and the assessment of such conditions by Equis
Financial Group Limited Partnership (formerly American Finance Group), a
Massachusetts limited partnership ("EFG") 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.
Results of Operations
- ---------------------
For year ended December 31, 1996, the Partnership recognized lease revenue of
$4,346,218 compared to $4,588,609 and $5,166,392 for the years ended December
31, 1995 and 1994, respectively. The decrease in lease revenue from 1994 to
1996 resulted from the effect of the expiration of the leases related to the
Partnership's interest in a Lockheed L-1011-50 aircraft and the sale of two 727-
251 Advanced aircraft (discussed below). These decreases were largely offset by
the Partnership's aircraft exchange (discussed below), which was concluded in
the first quarter of 1996. As a result of the aircraft exchange, the
Partnership replaced its ownership interest in a Boeing 747-SP, having aggregate
quarterly lease revenues of $495,360, with interests in five other aircraft
(three Boeing 737 aircraft leased by Southwest Airlines, Inc. and two McDonnell
Douglas MD-82 aircraft leased by Finnair OY) having aggregate quarterly lease
revenues of $842,160. Due to the conclusion of this transaction late in the
first quarter of 1996, revenue for the year ended December 31, 1996 does not
fully reflect the annual rents ultimately anticipated from the like-kind
exchange.
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 and a further six months through October 31, 1996. Rents due under the
initial twelve month renewals generated aggregate monthly revenue of $124,000
per month compared to $120,000 per month for each of the second and third
renewals. During 1996, the Partnership sold both of the aircraft to Northwest
and, in addition to the sales proceeds, received lease termination rents with
respect to one of the aircraft (see below).
The Partnership's original lease agreement with Cathay Pacific Airways, Ltd
("Cathay") provided for semi-annual rent adjustments based on the six month
London Inter-bank Offered Rate ("LIBOR"). Accordingly, rents
-3-
generated from this lease fluctuated in relation to the prevailing LIBOR rate on
a semi-annual basis. The Partnership's renewal lease agreement with Cathay
(having an adjusted semi-annual rent of $535,802) expired on February 14, 1996
and was extended until April 11, 1996. Subsequent to this extension, Cathay
leased the aircraft at a fixed rate until June 30, 1996 at which date the
aircraft was returned to the Partnership. The fixed extension agreement
generated approximately $127,000 in renewal revenue for the Partnership.
Currently the aircraft is undergoing heavy maintenance expected to cost the
Partnership approximately $505,000, all of which was accrued or incurred during
the year ended December 31, 1996. The Partnership entered into a new 12-month
lease agreement with Aer Lease Limited at a base rent to the Partnership of
$60,450 per month, effective upon completion of the heavy maintenance.
Currently, the demand for L-1011 aircraft is weak, limited principally to air
cargo carriers and operators of passenger charters. Several major airlines have
reduced their commitment to the L-1011 and, currently, a large domestic air
carrier is expected to retire eleven L-1011 aircraft from its fleet. Such
circumstances inhibited the remarketing of the Partnership's L-1011 aircraft and
required the Partnership to refurbish the aircraft to meet the needs of Aer
Lease Limited.
The Partnership holds a proportionate ownership interest in the Cathay,
Southwest and Finnair Aircraft, discussed above. 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. (See Note 3 to the financial statements.)
Interest income for the year ended December 31, 1996 was $261,557 compared to
$58,206 and $34,315 for the years ended December 31, 1995 and 1994,
respectively. Interest income is typically generated from temporary investments
of rental receipts and equipment sale proceeds in short-term instruments. The
increase in interest income in 1996 compared to 1995 and 1994 is a result of
interest of $130,268 earned on cash held in a special-purpose escrow account in
connection with the like-kind exchange transactions discussed below and interest
earned on sale proceeds associated with the Northwest transactions prior to the
time such proceeds were distributed to the Recognized Owners.
During July 1996, the Partnership sold a Boeing 727-Advanced jet aircraft with
an original cost and net book value of $9,520,359 and $426,560, respectively, to
the existing lessee. In connection with this sale, the Partnership realized
sale proceeds of $3,210,000, which resulted in a net gain, for financial
statement purposes, of $2,783,440. The Partnership also realized lease
termination rents of $180,000 relating to this sale as the aircraft was sold
prior to the expiration of the related lease term. During November 1996, the
Partnership sold a second Boeing 727-Advanced jet aircraft with an original cost
and net book value of $9,520,359 and $261,697, respectively, to the existing
lessee. In connection with this sale, the Partnership realized sale proceeds of
$3,454,313, which resulted in a net gain, for financial statement purposes, of
$3,192,616.
In September 1995, the Partnership transferred its entire ownership interest
(76.8%) in a Boeing 747-SP aircraft (the "United Aircraft") to its lessee,
United. The transaction was structured as a like-kind exchange for income tax
reporting purposes. The Partnership received aggregate cash consideration of
$6,325,760, including $352,256 for rent accrued through the transfer date. The
net cash consideration of $5,973,504 was deposited into a special-purpose escrow
account through a third-party exchange agent pending the completion of the
aircraft exchange. The Partnership's interest in the United Aircraft had a net
book value of $7,914,422 at the date of transfer and resulted in a net loss for
financial reporting purposes of $1,940,918.
In November 1995, the Partnership partially replaced the United Aircraft
with a 43.41% ownership interest in the Southwest Aircraft, at an aggregate cost
of $6,355,873. To acquire the interest in the Southwest Aircraft, the
Partnership obtained financing of $4,742,968 from a third-party lender and
utilized $1,612,905 of the cash consideration received from the transfer of the
United Aircraft. The remaining ownership interest of 56.59% in the Southwest
Aircraft is held by affiliated equipment leasing programs sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with a 49.17% ownership interest in the Finnair Aircraft at
a total cost to the Partnership of $13,762,438. To acquire the ownership
interest in the Finnair Aircraft, the Partnership paid $4,601,325, including the
balance of the cash consideration, and obtained financing of $9,161,113 from a
third-party lender. The remaining ownership interest of 50.83% in the Finnair
Aircraft is held by affiliated equipment leasing programs sponsored by EFG. The
like-kind
-4-
exchange, involving the United, Southwest and Finnair Aircraft, was undertaken,
in part, to mitigate the Partnership's economic risk resulting from the United
Aircraft being returned to the Partnership upon its lease expiration in April
1996 and remaining off-lease for an extended period. The exchange enabled the
Partnership to replace a specialized aircraft with other aircraft which are used
more widely in the industry and also to significantly extend its rental stream
with two creditworthy lessees.
The Partnership recorded a write-down of aircraft carrying values,
representing impairments, during the years ended December 31, 1996, 1995 and
1994. The resulting charges, $967,200 ($0.30 per limited partnership unit) in
1996, $1,740,960 ($0.54 per limited partnership unit) in 1995 and $2,534,000
($0.79 per limited partnership unit) in 1994, were based on a comparison of
estimated net realizable values and corresponding carrying values for each of
the Partnership's aircraft.
Net realizable values were estimated based on (i) third-party appraisals of
the Partnership's aircraft and (ii) EFG's assessment of prevailing market
conditions for similar aircraft. In recent years, market values for used
commercial jet aircraft have deteriorated. Consistent price competition and
other pressures within the airline industry have inhibited sustained
profitability for many carriers. Most major airlines have had to re-evaluate
their aircraft fleets and operating strategies. Such issues complicate the
determination of net realizable value for specific aircraft, and particularly
used aircraft, because cost-benefit and market considerations may differ
significantly between the major airlines. Aircraft condition, age, passenger
capacity, distance capability, fuel efficiency, and other factors also influence
market demand and market values for passenger jet aircraft. The write-downs in
1996 and 1995 resulted from the deterioration in the market value of the
Partnership's interest in the L-1011 aircraft.
Certain aircraft, such as the 747-SP aircraft exchanged by the Partnership,
suffered market declines due to their nature as Special Purpose (SP) aircraft.
These aircraft were designed to travel long distances on a non-stop basis.
Distance capability was achieved, in part, by reducing the number of passenger
seats contained on a traditional 747 aircraft. In recent years, new aircraft
became available which competed with the 747-SP in both passenger capacity and
fuel efficiency. This development depressed market values of used 747-SP
aircraft and was the basis for the write-down recognized by the Partnership in
1994.
Notwithstanding the foregoing, the ultimate realization of residual value for
any aircraft is dependent upon many factors, including EFG'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, EFG 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 will
be 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 on a re-lease, renewal or month-to-month basis.
Consequently, the amount of any future gain or loss reported in the financial
statements may not necessarily be indicative of the total residual value the
Partnership achieved from leasing the aircraft.
During 1996, 1995 and 1994, the Partnership incurred interest expense of
$874,683, $63,568 and $8,133, respectively. Interest expense in 1996 and 1995
resulted from financing obtained from third-party lenders in connection with the
Southwest Aircraft and the Finnair Aircraft, described above. Interest expense
in 1994 was incurred on a $600,000 short-term unsecured note agreement with an
institutional lender which matured and was repaid fully in March 1994. 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. Interest expense
in future periods is expected 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 1996, 1995 and 1994 and will
not change as a percentage of lease revenue in future periods.
-5-
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. The increase in operating expenses from
1995 to 1996 is due primarily to heavy maintenance costs incurred and accrued in
connection with the Partnership's interest in the L-1011 aircraft which was
subsequently remarketed and legal expenses and broker fees incurred in
connection with the like-kind exchange transactions, discussed above. The
increase in operating expenses from 1994 to 1995 was 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. Other fluctuations will occur in
relation to the volume and timing of aircraft remarketing activities.
Depreciation expense was $3,065,516, $2,716,474 and $3,720,315 for the years
ended December 31, 1996, 1995 and 1994, respectively. The increase in
depreciation expense in 1996 compared to 1995 reflects the transfer of the
United Aircraft during 1995 and the completion of the aircraft exchange during
1996.
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 generally
derive from aircraft rental transactions. Accordingly, the Partnership's
principal source of cash from operations is generally 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 $3,806,235,
$3,612,295 and $4,550,408 in 1996, 1995 and 1994, respectively. The expiration
of the Partnership's lease agreement related to its interest in the Lockheed L-
1011 and the sale of the two Boeing 727-251 Advanced aircraft will cause a
decline in the Partnership's future lease revenue and corresponding sources of
operating cash. This will be partially offset by rents generated in connection
with the Southwest Aircraft and the Finnair Aircraft. 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.
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 of renewal/re-lease term.
Cash expended for equipment acquisitions and cash realized form asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. For the year ended December 31, 1996, the Partnership
expended $240,726 in cash in connection with the like-kind exchange transactions
referred to above. There were no equipment acquisitions in 1995 and 1994.
During the year ended December 31, 1996, the Partnership realized $6,664,313 in
proceeds from the sale of two Boeing 727-251 Advanced aircraft. There were no
equipment sales in 1995 and 1994. Future inflows of cash from asset 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
equipments condition and age, and future market conditions.
As described in Results of Operations, the Partnership obtained long-term
financing in connection with the like-kind exchange transactions involving 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 has balloon payment
obligations at the expiration of the primary lease term related to the Finnair
Aircraft of $4,671,150.
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 year ended December 31, 1996, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $5,000,000. In accordance
with the Amended and Restated Agreement and Certificate of Limited Partnership,
the Recognized Owners were allocated 95% of these distributions, or $4,750,000,
and the General Partner was allocated 5%, or $250,000. The fourth quarter 1996
cash distribution was paid on January 13, 1997.
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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.
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 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 suspend the
declaration of quarterly cash distributions between the periods corresponding to
major remarketing events.
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REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of AIRFUND International Limited Partnership:
We have audited the accompanying statements of financial position of AIRFUND
International Limited Partnership as of December 31, 1996 and 1995, and the
related statements of operations, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AIRFUND International
Limited Partnership at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Additional Financial Information
identified in the Index to Annual Report to the Partners is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
-8-
AIRFUND International Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1996 and 1995
1996 1995
------------- -------------
ASSETS
- ------
Cash and cash equivalents $ 4,126,851 $ 1,079,341
Contractual right for equipment -- 4,360,599
Rents receivable -- 562,594
Accounts receivable - affiliate -- 353,803
Equipment at cost, net of accumulated
depreciation of $8,421,801 and $22,741,547
at December 31, 1996 and 1995, respectively 19,573,734 10,532,269
----------- -----------
Total assets $23,700,585 $16,888,606
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $11,321,769 $ 4,742,968
Accrued interest 118,940 63,568
Accrued liabilities 442,400 40,527
Accrued liabilities - affiliate 63,930 71,661
Deferred rental income 158,904 136,139
Cash distributions payable to partners 1,000,000 600,000
----------- -----------
Total liabilities 13,105,943 5,654,863
----------- -----------
Partners' capital (deficit):
General Partner (1,169,264) (1,137,309)
Limited Partnership Interests
(3,040,000 Units; initial purchase
price of $25 each) 11,763,906 12,371,052
----------- -----------
Total partners' capital 10,594,642 11,233,743
----------- -----------
Total liabilities and partners' capital $23,700,585 $16,888,606
=========== ===========
The accompanying notes are an integral part of
these financial statements.
-9-
AIRFUND International Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
----------- ------------- -------------
Income:
Lease revenue $ 4,346,218 $ 4,588,609 $ 5,166,392
Interest income 261,557 58,206 34,315
Gain on sale of equipment 5,976,056 -- --
Loss on exchange of equipment -- (1,940,918) --
----------- ----------- -----------
Total income 10,583,831 2,705,897 5,200,707
----------- ----------- -----------
Expenses:
Depreciation and amortization 3,065,516 2,716,474 3,720,315
Write-down of equipment 967,200 1,740,960 2,534,000
Interest expense 874,683 63,568 8,133
Equipment management fees - affiliate 217,311 229,430 258,320
Operating expenses - affiliate 1,098,222 239,185 143,434
----------- ----------- -----------
Total expenses 6,222,932 4,989,617 6,664,202
----------- ----------- -----------
Net income (loss) $ 4,360,899 $(2,283,720) $(1,463,495)
=========== =========== ===========
Net income (loss)
per limited partnership unit $1.36 $(0.71) $ (0.46)
=========== =========== ===========
Cash distributions declared
per limited partnership unit $1.56 $1.00 $ 1.25
=========== =========== ===========
The accompanying notes are an integral part of
these financial statements.
-10-
AIRFUND International Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
General
Partner Recognized Owners
------------------------
Amount Units Amount Total
------------- --------- ------------- -------------
Balance at December 31, 1993 $ (589,948) 3,040,000 $22,770,906 $22,180,958
Net loss - 1994 (73,175) -- (1,390,320) (1,463,495)
Cash distributions declared (200,000) -- (3,800,000) (4,000,000)
----------- --------- ----------- -----------
Balance at December 31, 1994 (863,123) 3,040,000 17,580,586 16,717,463
Net loss - 1995 (114,186) -- (2,169,534) (2,283,720)
Cash distributions declared (160,000) -- (3,040,000) (3,200,000)
----------- --------- ----------- -----------
Balance at December 31, 1995 (1,137,309) 3,040,000 12,371,052 11,233,743
Net income - 1996 218,045 -- 4,142,854 4,360,899
Cash distributions declared (250,000) -- (4,750,000) (5,000,000)
----------- --------- ----------- -----------
Balance at December 31, 1996 $(1,169,264) 3,040,000 $11,763,906 $10,594,642
=========== ========== =========== ===========
The accompanying notes are an integral part of
these financial statements.
-11-
AIRFUND International Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------- -------------
Cash flows from (used in) operating activities:
Net income (loss) $ 4,360,899 $(2,283,720) $(1,463,495)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 3,065,516 2,716,474 3,720,315
Write-down of equipment 967,200 1,740,960 2,534,000
Gain on sale of equipment (5,976,056) -- --
Loss on exchange of equipment -- 1,940,918 --
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 562,594 (218,517) --
Accounts receivable - affiliate 353,803 (352,067) (1,736)
Increase (decrease) in:
Accrued interest 55,372 63,568 --
Accrued liabilities 401,873 (66,270) (19,015)
Accrued liabilities - affiliate (7,731) 52,632 (72,914)
Deferred rental income 22,765 18,317 (146,747)
----------- ----------- -----------
Net cash from operating activities 3,806,235 3,612,295 4,550,408
----------- ----------- -----------
Cash flows from (used in) investing activities:
Purchase of equipment (240,726) -- --
Proceeds from equipment sales 6,664,313 -- --
----------- ----------- -----------
Net cash from investing activities 6,423,587 -- --
----------- ----------- -----------
Cash flows from (used in) financing activities:
Proceeds from notes payable -- -- 600,000
Principal payments - notes payable (2,582,312) -- (600,000)
Distributions paid (4,600,000) (3,600,000) (4,600,000)
----------- ----------- -----------
Net cash used in financing activities (7,182,312) (3,600,000) (4,600,000)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 3,047,510 12,295 (49,592)
Cash and cash equivalents at beginning of year 1,079,341 1,067,046 1,116,638
----------- ----------- -----------
Cash and cash equivalents at end of year $ 4,126,851 $ 1,079,341 $ 1,067,046
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 819,311 -- $ 8,133
========== ========== ==========
Supplemental disclosure of non-cash investing and financing activities:
See Note 3 to the Financial Statements.
The accompanying notes are an integral part of
these financial statements.
-12-
AIRFUND International Limited Partnership
Notes to the Financial Statements
December 31, 1996
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
- ---------------------------------------------
The Partnership was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on January 31, 1989 for the
purpose of acquiring and leasing to third parties a specified portfolio of used
commercial aircraft. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Aircraft Management Corporation, a
Massachusetts corporation) and $100 from the Initial Limited Partner (AFG
Assignor Corporation, a Massachusetts corporation). On July 26, 1989, the
Partnership issued 3,040,000 units representing assignments of limited
partnership interests (the "Units") to 4,147 investors. Unitholders and Limited
Partners (other than the Initial Limited Partner) are collectively referred to
as Recognized Owners. The General Partner is an affiliate of Equis Financial
Group Limited Partnership (formerly American Finance Group), a Massachusetts
limited partnership ("EFG"). The common stock of the General Partner is owned
by AF/AIP Programs Limited Partnership, of which EFG and a wholly-owned
affiliate are the 99% limited partners and AFG Programs, Inc., a Massachusetts
corporation which is wholly-owned by Geoffrey A. MacDonald, is the 1% general
partner. The capital contribution of the General Partner, in consideration of
its general partner interests, was $1,000. The General Partner is not required
to make any other capital contributions except as may be required under the
Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and
Certificate of Limited Partnership (the "Restated Agreement, as amended").
EFG is a Massachusetts partnership formerly known as American Finance Group
("AFG"). AFG was established in 1988 as a Massachusetts general partnership and
succeeded American Finance Group, Inc., a Massachusetts corporation organized in
1980. EFG and its subsidiaries (collectively, the "Company") are engaged in
various aspects of the equipment leasing business, including EFG's role as
Equipment Manager or Advisor to the Partnership and several other Direct-
Participation equipment leasing programs sponsored or co-sponsored by EFG (the
"Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also
owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party (the "Buyer"). AFG changed its name
to Equis Financial Group Limited Partnership after the sale was concluded.
Pursuant to terms of the sale agreements, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG the rights to continue using the name American Finance Group and
its acronym in connection with the Partnership and the Other Investment Programs
and to continue managing all assets owned by the Partnership and the Other
Investment Programs, including the right to satisfy all required equipment
acquisitions utilizing either brokers or the Buyer. Geoffrey A. MacDonald,
Chairman of Equis Corporation and Gary D. Engle agreed not to compete with the
sold business on terms and conditions similar to those for the Company.
In 1990, EFG assigned its Equipment Management Agreement with the
Partnership to AF/AIP Programs Limited Partnership, and AF/AIP Programs Limited
Partnership entered into an identical management agreement with EFG. AF/AIP
Programs Limited Partnership also entered into a nonexclusive confirmatory
agreement with EFG's former majority-owned subsidiary, AIRFUND Corporation
("AFC"), for the provision of aircraft remarketing services.
-13-
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
Significant operations commenced July 27, 1989 when the Partnership made its
initial equipment purchase. Pursuant to the Restated Agreement, as amended,
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 95% to the Recognized Owners and 5% to the
General Partner for the life of the Partnership. Payout will occur when the
Recognized Owners have received distributions equal to their original investment
plus a cumulative annual return of 10% (compounded quarterly) on undistributed
invested capital.
Under the terms of a Management Agreement between the Partnership and EFG,
management services are provided by EFG to the Partnership at fees which the
General Partner believes to be competitive for similar services. (Also see Note
4.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement of Cash Flows
- -----------------------
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities. At December 31,
1996, the Partnership had $4,025,000 invested in reverse repurchase agreements
secured by U.S. Treasury Bills or interests in U.S. Government securities.
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
$8,621,276 are due as follows:
For the year ending December 31, 1997 $3,368,638
1998 3,368,638
1999 1,779,816
2000 104,184
-----------
Total $8,621,276
===========
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 is as
follows:
1996 1995 1994
----------- ----------- -----------
Northwest Airlines, Inc. $1,200,000 $1,456,000 $2,203,638
(Two Boeing 727-251 ADV)
United Airlines, Inc. -- $1,471,286 $1,935,360
(One Boeing 747-SP-21)
Cathay Pacific Airways Limited $ 462,676 $1,098,729 $1,027,394
(One Lockheed L-1011-50)
Southwest Airlines, Inc. $1,250,208 $ 562,594 --
(Three Boeing 737-2H4)
Finnair OY $1,433,334 -- --
(Two MD-82)
-14-
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
In September 1995, the Partnership transferred its ownership interest in a
Boeing 747-SP-21 commercial jet aircraft (the "United Aircraft") to the existing
lessee, United Air Lines, Inc., pursuant to the rules for a like-kind exchange
transaction for income tax reporting purposes (See Note 3 herein). In November
1995, the Partnership partially replaced the United Aircraft with a 43.41%
interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines, Inc.
(the "Southwest Aircraft"). The Partnership will receive approximately
$1,250,000 of rental revenue in each of the years in the period ending December
31, 1999, and approximately $104,000 in the year ending December 31, 2000,
pursuant to the Southwest Aircraft lease agreement.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with a 49.17% interest in two McDonnell-Douglas MD-82
Aircraft leased by Finnair OY (the "Finnair Aircraft"). The Partnership will
receive approximately $2,118,000 of rental revenue in each of the years in the
period ending December 31, 1998 and approximately $530,000 in the year ending
December 31, 1999, pursuant to the Finnair Aircraft lease agreement.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
All aircraft were acquired from EFG or one of its Affiliates. Equipment
cost represents asset base price plus acquisition fees and was determined in
accordance with the Restated Agreement, as amended, and certain regulatory
guidelines. Asset base price was the lower of (i) the actual price paid for the
aircraft by EFG or the Affiliate plus all actual costs accrued by EFG or the
Affiliate while carrying the aircraft less, for the aircraft leased to Cathay,
the amount of all interim rents received by EFG or the Affiliate prior to
selling the aircraft or (ii) fair market value as determined by the General
Partner in its best judgment, including all liens and encumbrances on the
aircraft, carrying costs and acquisition costs. In no event did the equipment
cost exceed the appraised value of the aircraft.
Depreciation and Amortization
- -----------------------------
The Partnership's depreciation policy is intended to allocate the cost of
aircraft over the period during which they produce economic benefit. The
principal period of economic benefit is considered to correspond to each
aircraft's primary lease term, which term generally represents the period of
greatest revenue potential for each aircraft. Accordingly, to the extent that
an aircraft is held on primary lease term, the Partnership depreciates the
difference between (i) the cost of the aircraft and (ii) the estimated residual
value of the aircraft on a straight-line basis over such term. For purposes of
this policy, estimated residual values represent estimates of aircraft values at
the date of primary lease expiration. To the extent that an aircraft is held
beyond its primary lease term, the Partnership continues to depreciate the
remaining net book value of the aircraft on a straight-line basis over the
aircraft's remaining economic life. Periodically, the General Partner evaluates
the net carrying value of each aircraft to determine whether it exceeds
estimated net realizable value. Adjustments to reduce the net carrying value of
aircraft are recorded in those instances where estimated net realizable value is
considered to be less than net carrying value. Such adjustments are reflected
separately on the accompanying Statement of Operations as Write-Down of
Equipment.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. 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
-15-
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
attempts to monitor these changes in order to identify opportunities which may
be advantageous to the Partnership and which will maximize total cash returns
for each asset.
Organization costs were amortized using the straight-line method over a
period of five years.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges are reported as Accrued Liabilities -
Affiliate. (See Note 4.)
Allocation of Profits and Losses
- --------------------------------
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the
Recognized Owners and 5% to the General Partner). See Note 6 concerning
allocation of income or loss for income tax purposes.
Net Income (Loss) and Cash Distributions Per Unit
- -------------------------------------------------
Net income (loss) and cash distributions per Unit are based on 3,040,000
Units outstanding during each of the three years in the period ended December
31, 1996 and computed after allocation of the General Partner's 5% share of net
income (loss) and cash distributions.
Provision for Income Taxes
- --------------------------
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 did not have a material effect on the financial statements of the
Partnership.
-16-
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at December
31, 1996. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
Lease Term Equipment
Equipment Type (Months) at Cost Location
- --------------------------------------- ----------- ------------- --------
Two McDonnell-Douglas MD-82 (Finnair) 36 $13,762,438 Foreign
One Lockheed L-1011-50 (Cathay) 18 7,877,224 Foreign
Three Boeing 737-2H4 (Southwest) 49 6,355,873 TX
-----------
Total equipment cost 27,995,535
Accumulated depreciation (8,421,801)
-----------
Equipment, net of accumulated depreciation $19,573,734
===========
The cost of the Lockheed L-1011-50 aircraft, the three Boeing 737-2H4
aircraft and the two McDonnell-Douglas MD-82 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.
In September 1995, the Partnership transferred its 76.8% interest in the
United Aircraft, pursuant to the rules for a like-kind exchange for income tax
reporting purposes. In November 1995, the Partnership partially replaced the
United Aircraft with a 43.41% interest in the Southwest Aircraft, at an
aggregate cost of $6,355,873. To acquire the interests in the Southwest
Aircraft, the Partnership obtained financing of $4,742,968 from a third-party
lender and utilized $1,612,905 of the cash consideration received from the
transfer of the United Aircraft. The remaining ownership interest of 56.59% in
the Southwest Aircraft is held by affiliated equipment leasing programs
sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with a 49.17% ownership interest in the Finnair Aircraft at
a total cost to the Partnership of $13,762,438. To acquire the ownership
interest in the Finnair Aircraft, the Partnership paid $4,601,325 in cash and
obtained financing of $9,161,113 from a third-party lender. The remaining
ownership interests of 50.83% in the Finnair Aircraft are held by affiliated
equipment leasing programs sponsored by EFG.
On June 30, 1996, the Lockheed L-1011-50 aircraft, in which the Partnership
has a proportionate ownership interest, was returned by the lessee. Currently
the aircraft is undergoing heavy maintenance expected to cost the Partnership
approximately $505,000, all of which was accrued or incurred during the year
ended December 31, 1996. The Partnership entered into a new 12-month lease
agreement with Aer Lease Limited at a base rent to the Partnership of $60,450
per month, effective upon completion of the heavy maintenance.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately
$20,118,000 and a net book value of approximately $18,350,000 at December 31,
1996. (See Note 5.)
-17-
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
Generally, the costs associated with maintaining, insuring and operating the
Partnership's aircraft are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Partnership. However,
the Partnership has purchased supplemental insurance coverage to reduce the
economic risk arising from certain losses. Specifically, the Partnership is
insured under supplemental policies for "Aircraft Hull Total Loss Only" and
"Aircraft Hull Total Loss Only War and Other Perils."
As aircraft are sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the aircraft at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the aircraft is dependent upon, among other things, EFG's
ability to maximize proceeds from selling or re-leasing the aircraft upon the
expiration of the primary lease terms.
The Partnership recorded a write-down of aircraft carrying values,
representing impairments, during each of the years ended December 31, 1996, 1995
and 1994. The resulting charges, $967,200 ($0.30 per limited partnership unit)
in 1996, $1,740,960 ($0.54 per limited partnership unit) in 1995 and $2,534,000
($0.79 per limited partnership unit) in 1994 were based on a comparison of
estimated net realizable values and corresponding carrying values for each of
the Partnership's aircraft.
NOTE 4 - 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 years in
the period ended December 31, 1996, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
1996 1995 1994
----------- --------- ---------
Equipment management fees $ 217,311 $229,430 $258,320
Administrative charges 28,376 21,000 12,000
Reimbursable operating
expenses due to third parties 1,069,846 218,185 131,434
---------- -------- --------
Total $1,315,533 $468,615 $401,754
========== ======== ========
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG
was compensated by an amount equal to 1.6% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenues and 2% of gross
full payout lease rental revenues received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to
-18-
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
the Partnership. Reimbursable operating expenses due to third parties represent
costs paid by EFG on behalf of the Partnership which are reimbursed to EFG.
All equipment was purchased from EFG or one of its Affiliates. The
Partnership's Purchase Price was determined by the method described in Note 2.
All rents and proceeds from the sale of aircraft are paid directly to EFG.
EFG temporarily deposits collected funds in a separate interest-bearing escrow
account prior to remittance to the Partnership.
NOTE 5 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 1996 consisted of installment notes payable to
banks of $11,321,769. 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. All of the notes were
originated in connection with the Southwest Aircraft and the Finnair Aircraft.
The installment notes related to the Southwest Aircraft 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 Finnair Aircraft of
$4,671,150. The carrying amount of notes payable approximates fair value at
December 31, 1996.
The annual maturities of the installment notes payable are as follows:
For the year ending December 31, 1997 $ 2,369,771
1998 2,672,892
1999 6,175,668
2000 103,438
-----------
Total $11,321,769
===========
NOTE 6 - INCOME TAXES
- ---------------------
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income or
loss to each class of partner according to their respective ownership
percentages (95% to the Recognized Owners and 5% to the General Partner). The
allocation of net income or loss for financial statement purposes differs from
the net income or loss allocation requirements for income tax and Dissolution
Event purposes, as delineated in the Restated Agreement, as amended. For income
tax purposes, the Partnership allocates net income or net loss in accordance
with the provisions of such agreement. The Restated Agreement, as amended,
requires that upon dissolution of the Partnership, the General Partner will be
required to contribute to the Partnership an amount equal to any negative
balance which may exist in the General Partner's tax capital account. At
December 31, 1996, the General Partner had a positive tax capital account
balance.
-19-
AIRFUND International Limited Partnership
Notes to the Financial Statements
(Continued)
The following is a reconciliation between net income (loss) reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996, 1995 and 1994:
1996 1995 1994
------------ ------------- -------------
Net income (loss) $ 4,360,899 $(2,283,720) $(1,463,495)
Tax depreciation in excess of
financial statement depreciation (1,654,141) (1,813,446) (997,570)
Write-down of equipment 967,200 1,740,960 2,534,000
Prepaid rental income 22,765 18,317 (146,747)
Other (1,333,616) 2,020,977 (28,953)
----------- ----------- -----------
Net income (loss) for federal income tax
reporting purposes $ 2,363,107 $ (316,912) $ (102,765)
=========== =========== ===========
The principal component of "Other" consists of the difference between the
tax gain (loss) on equipment disposals and the financial statement gain (loss)
on disposals.
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996 and 1995:
1996 1995
------------- -------------
Partners' capital $10,594,642 $11,233,743
Add back selling commissions and
organization and offering costs 7,975,000 7,975,000
Financial statement distributions in
excess of tax distributions 50,000 30,000
Cumulative difference between
federal income tax and financial
statement income (loss) (4,525,486) (2,527,694)
----------- -----------
Partners' capital for federal income
tax reporting purposes $14,094,156 $16,711,049
=========== ===========
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
-20-
$$NO/FOLIO
ADDITIONAL FINANCIAL INFORMATION
AIRFUND International Limited Partnership
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the year ended December 31, 1996
The Partnership classifies all rents from leasing aircraft as lease revenue.
Upon expiration of the primary lease terms, aircraft may be sold, rented on a
month-to-month basis or re-leased for a defined period under a new or extended
lease agreement. The proceeds generated from selling or re-leasing the
aircraft, in addition to any month-to-month revenue, represent the total
residual value realized for each aircraft. Therefore, the financial statement
gain or loss, which reflects the difference between the net book value of the
aircraft at the time of sale or disposition and the proceeds realized upon sale
or disposition may not reflect the aggregate residual proceeds realized by the
Partnership for such aircraft.
The following is a summary of cash excess associated with the aircraft
dispositions which occurred in the year ended December 31, 1996. No aircraft
were disposed of during the years ended December 31, 1995 or 1994.
1996
------------
Rents earned prior to disposal of
aircraft, net of interest charges $17,831,499
Sale proceeds realized upon disposition
of aircraft 6,664,313
-----------
Total cash generated from rents
and aircraft sale proceeds 24,495,812
Original acquisition cost of aircraft
disposed 19,040,719
-----------
Excess of total cash generated to cost
of aircraft disposed $ 5,455,093
===========
-21-
AIRFUND International Limited Partnership
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1996
Sales and
Operations Refinancings Total
------------- ------------- ------------
Net income (loss) $(1,615,157) $ 5,976,056 $ 4,360,899
Add:
Depreciation 3,065,516 -- 3,065,516
Write-down of equipment 967,200 -- 967,200
Management fees 217,311 -- 217,311
Book value of disposed equipment -- 688,257 688,257
Less:
Principal repayment of notes payable (2,582,312) -- (2,582,312)
----------- ------------ -----------
Cash from operations, sales
and refinancings 52,558 6,664,313 6,716,871
Less:
Management fees (217,311) -- (217,311)
----------- ------------ -----------
Distributable cash from operations,
sales and refinancings (164,753) 6,664,313 6,499,560
Other sources and uses of cash:
Cash at beginning of year 1,079,341 -- 1,079,341
Purchase of equipment (240,726) -- (240,726)
Net change in receivables and 1,388,676 -- 1,388,676
accruals
Less:
Cash distributions paid -- (4,600,000) (4,600,000)
----------- ------------ -----------
Cash at end of year $ 2,062,538 $ 2,064,313 $ 4,126,851
=========== ============ ===========
-22-
AIRFUND International Limited Partnership
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1996
For the year ended December 31, 1996, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
Operating expenses $688,529
-23-