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 March 31, 2000 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 Incorporation) (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 Balance Sheets -- March 31, 2000 and December 31, 1999..................3 Statements of Income -- Three months ended March 31, 2000 and 1999............4 Statements of Cash Flows Three months ended March 31, 2000 and 1999............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..............................................8 Part II - Other Information: Item 6. Exhibits and Reports on Form 8-K.........................9 Signatures..............................................10 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP BALANCE SHEETS March 31, 2000 December 31, (In thousands except unit data) (Unaudited) 1999 - ------------------------------------------------------------------------------------------- ASSETS Cash $ 3 $ 2 Finance leases - net 65,721 67,509 Prepaid expenses and other assets 247 276 -------- -------- Total assets $ 65,971 $ 67,787 ======== ======== LIABILITIES AND PARTNERS' EQUITY LIABILITIES Distribution payable to partners $ 2,102 $ 1,915 Accounts payable and accrued liabilities 443 429 Taxes Payable 141 4 Long-term notes payable 8,943 10,092 -------- -------- Total liabilities 11,629 12,440 -------- -------- COMMITMENTS AND CONTINGENCIES PARTNERS' EQUITY Limited partners (4,625,000 units outstanding) 53,799 54,794 General partner 543 553 -------- -------- Total partners' equity 54,342 55,347 -------- -------- Total liabilities and partners' equity $ 65,971 $ 67,787 ======== ======== - ----------------------------------------------------- See NOTES TO CONDENSED FINANCIAL STATEMENTS 3 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF INCOME Three Months Ended (Unaudited; in thousands March 31, except per unit amounts) 2000 1999 - ---------------------------------------------------------------------- REVENUES Finance lease income $1,771 $1,982 ------ ------ Total revenues 1,771 1,982 ------ ------ EXPENSES Interest 263 347 Management fee - general partner 153 159 Investor reporting 79 70 General and administrative 42 39 Tax on gross income 137 175 ------ ------ Total expenses 674 790 ------ ------ Net Income $1,097 $1,192 ====== ====== Net Income Allocated To: General Partner $ 11 $ 12 ====== ====== Limited Partners $1,086 $1,180 ====== ====== Net Income Per Limited Partnership Unit $ 0.23 $ 0.26 ====== ====== - ----------------------------------------------------- See NOTES TO CONDENSED FINANCIAL STATEMENTS 4 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS Three Months Ended March 31, (Unaudited; in thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,097 $ 1,192 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accounts payable and accrued liabilities 14 54 Increase/(decrease) in taxes payable 137 (524) Decrease in prepaid expenses and other assets 29 15 ------ ------- Net cash provided by operating activities 1,277 737 ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES Rental receipts in excess of earned finance lease income 1,788 1,578 ------ ------- Net cash provided by investing activities 1,788 1,578 ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings/(repayments) under lines of credit, net (783) (40) Repayment of long-term notes payable (365) (365) Distributions paid to partners (1,916) (1,916) ------ ------- Net cash used by financing activities (3,064) (2,321) ------ ------- Increase (decrease) in cash 1 (6) Cash at beginning of period 2 9 ------ ------- Cash at end of period $ 3 $ 3 ====== ======= ADDITIONAL INFORMATION Interest paid $ 163 $ 206 ====== ======= - ----------------------------------------------------- See NOTES TO CONDENSED FINANCIAL STATEMENTS 5 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 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, 1999 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, 1999. 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, 1999. 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 federal tax of 3.5% and a 1% California tax at the Partnership level on its 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 three long-term debt facilities. At March 31, 2000, the following amounts were outstanding: $4.6 million on a 7.4% non-recourse note collateralized by one aircraft leased to FedEx; $3.4 million on a 9.35% non-recourse note collateralized by one aircraft on lease to Trans World Airlines; and $1 million on a long-term variable rate revolving loan facility guaranteed by the Partnership and collateralized by two aircraft on lease to US Airways. At March 31, 2000 approximately $6 million remains available under the revolving loan facility. At March 31, 2000, long-term borrowings of $8.9 million represented 7.3 % 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 three months of 2000 were $0.41 per limited partnership unit, representing the regular 1999 fourth-quarter cash distribution. In March 2000, the Partnership declared a first-quarter 2000 cash distribution of $0.45 per unit totaling $2,102,275 and payable on May 15, 2000 to unitholders of record on March 31, 2000. The four-cent increase from the declared 1999 fourth-quarter distribution reflects higher cash flow resulting from consistent rental receipts from lessees and lower expenses. Since this distribution was in excess of earnings, Partnership equity declined to $54.3 million at March 31, 2000, and limited partner equity per unit declined to $11.33. The portion of the distribution in excess of net income constitutes a return of capital. Results of Operations - --------------------- The Partnership earned $1,097,000 in the first quarter ended March 31, 2000, a decrease of $95,000 or 8% from the 1999 first-quarter earnings of $1,192,000. First-quarter revenues were $1,771,000, compared with last year's first-quarter revenues of $1,982,000. The revenue reduction in the first three months of 2000 is primarily due to the scheduled decline in finance lease income as the net investment in finance leases declined. Expenses for the first three months of 2000 were $674,000, a decrease of $116,000 from $790,000 for the comparable 1999 period. The decline in expenses is primarily due to lower interest expense in 2000 as a result of the Partnership's reduced debt balances. 7 Portfolio - --------- As of March 31, 2000 the Partnership's portfolio consisted entirely of Stage III aircraft; six are MD 82s and one is a 727-200 FH. Stage III aircraft meet the FAA noise compliance regulations for aircraft operated in the continental United States after December 31, 1999. Forward-Looking Statements - -------------------------- The information set forth in this quarterly report contains certain forward-looking statements, which reflect the current view of the partnership with respect to future events and financial performance. The words, "expect", "intend", "believe", "anticipate", "likely" and "will" and similar expressions generally identify forward-looking statements. These statements are subject to certain risks and uncertainties, which could cause actual results, and events to differ materially from those anticipated in the forward-looking statements. Factors that could cause the partnership's actual results to differ from current expectations include, among others, changes in the aircraft or aircraft leasing market, economic downturn in the airline industry, default by lessees under leases causing the partnership to incur uncontemplated expenses or not to receive rental income as and when expected, changes in interest rates and legislative or regulatory changes that adversely affect the value of aircraft. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The General Partner believes there has been no material change in the Partnership's exposure to market risk from that discussed in the Partnership's Annual Report on Form 10-k for the year ended December 31, 1999. 8 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits 27. Financial Data Schedule. (b) The Partnership did not file any reports on Form 8-k during the quarter ended March 31, 2000. 9 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 April 24, 2000 By: /s/ DAVID B. GEBLER - -------------------- ------------------------------------------ Date David B. Gebler Chairman, Chief Executive Officer and President April 24, 2000 By: /s/ RICHARD C. WALTER - -------------------- ----------------------------------------- Date Richard C. Walter Chief Financial Officer 10