UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________
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Commission File No. 2-91762
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POLARIS AIRCRAFT INCOME FUND I
State of Organization: California
IRS Employer Identification No. 94-2938977
201 Mission Street, 27th Floor, San Francisco, California 94105
Telephone - (415) 284-7400
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
This document consists of 13 pages.
<PAGE>
POLARIS AIRCRAFT INCOME FUND I
FORM 10-Q - For the Quarterly Period Ended March 31, 1995
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 1995 and
December 31, 1994...................................3
b) Statements of Operations - Three Months Ended
March 31, 1995 and 1994.............................4
c) Statements of Changes in Partners' Capital
(Deficit) - Year Ended December 31, 1994
and Three Months Ended March 31, 1995...............5
d) Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1994.......................6
e) Notes to Financial Statements.......................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........9
Part II. Other Information
Item 1. Legal Proceedings.......................................11
Item 5. Other Information.......................................12
Item 6. Exhibits and Reports on Form 8-K........................12
Signature..........................................................13
2
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
March 31, December 31,
1995 1994
---- ----
(Unaudited)
ASSETS:
CASH AND CASH EQUIVALENTS $ 7,212,565 $ 7,486,952
RENTS AND INTEREST RECEIVABLE 799,225 1,105,843
NOTE RECEIVABLE 457,757 486,000
AIRCRAFT at cost, net of accumulated depreciation of
$24,208,351 in 1995 and $24,013,057 in 1994 6,293,998 6,489,292
AIRCRAFT INVENTORY 694,000 919,004
------------ ------------
$ 15,457,545 $ 16,487,091
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 69,129 $ 102,288
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 35,256 45,957
SECURITY DEPOSITS 195,925 125,000
MAINTENANCE RESERVES 1,423,724 1,239,595
------------ ------------
Total Liabilities 1,724,034 1,512,840
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (591,215) (578,793)
Limited Partners, 168,729 units
issued and outstanding 14,324,726 15,553,044
------------ ------------
Total Partners' Capital 13,733,511 14,974,251
------------ ------------
$ 15,457,545 $ 16,487,091
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1995 1994
---- ----
REVENUES:
Rent from operating leases $ 509,250 $ 425,180
Interest 119,298 84,800
Claims related to lessee defaults 9,698 --
Other 102,297 --
--------- ---------
Total Revenues 740,543 509,980
--------- ---------
EXPENSES:
Depreciation 310,294 521,225
Management and advisory fees 25,462 17,028
Operating 13,695 21,826
Administration and other 38,281 47,554
--------- ---------
Total Expenses 387,732 607,633
--------- ---------
NET INCOME (LOSS) $ 352,811 $ (97,653)
========= =========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 146,933 $ 133,993
========= =========
NET INCOME (LOSS) ALLOCATED TO
LIMITED PARTNERS $ 205,878 $(231,646)
========= =========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 1.22 $ (1.37)
========= =========
The accompanying notes are an integral part of these statements.
4
<PAGE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
Year Ended December 31, 1994 and
Three Months Ended March 31, 1995
General Limited
Partner Partners Total
------------ ------------ ------------
Balance, December 31, 1993 $ (572,081) $ 16,216,185 $ 15,644,104
Net income 143,269 686,691 829,960
Cash distributions to partners (149,981) (1,349,832) (1,499,813)
------------ ------------ ------------
Balance, December 31, 1994 (578,793) 15,553,044 14,974,251
Net income 146,933 205,878 352,811
Cash distribution to partners (159,355) (1,434,196) (1,593,551)
------------ ------------ ------------
Balance, March 31, 1995 (Unaudited) $ (591,215) $ 14,324,726 $ 13,733,511
============ ============ ============
The accompanying notes are an integral part of these statements.
5
<PAGE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1995 1994
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ 352,811 $ (97,653)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 310,294 521,225
Changes in operating assets and liabilities:
Decrease (increase) in rent and
interest receivable 306,618 (74,472)
Decrease in payable to affiliates (33,159) (11,683)
Decrease in accounts payable and
accrued liabilities (10,701) (1,577)
Increase in security deposits 70,925 --
Increase in maintenance reserves 184,129 141,940
------------ ------------
Net cash provided by operating activities 1,180,917 477,780
------------ ------------
INVESTING ACTIVITIES:
Principal payments on note receivable 28,243 68,423
Net proceeds from sale of aircraft inventory 110,004 204,386
Inventory disassembly costs -- (15,700)
------------ ------------
Net cash provided by investing activities 138,247 257,109
------------ ------------
FINANCING ACTIVITIES:
Cash distribution to partners (1,593,551) (1,499,813)
------------ ------------
Net cash used in financing activities (1,593,551) (1,499,813)
------------ ------------
CHANGES IN CASH AND CASH
EQUIVALENTS AND SHORT-TERM
INVESTMENTS (274,387) (764,924)
CASH AND CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 7,486,952 4,860,051
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,212,565 $ 4,095,127
============ ============
The accompanying notes are an integral part of these statements.
6
<PAGE>
POLARIS AIRCRAFT INCOME FUND I
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Principles and Policies
In the opinion of management, the financial statements presented herein include
all adjustments, consisting only of normal recurring items, necessary to
summarize fairly Polaris Aircraft Income Fund I's (the Partnership's) financial
position and results of operations. The financial statements have been prepared
in accordance with the instructions of the Quarterly Report to the Securities
and Exchange Commission (SEC) Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1994, 1993, and
1992 included in the Partnership's 1994 Annual Report to the SEC on Form 10-K
(Form 10-K).
Financial Accounting Pronouncements - The Partnership adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," and the related SFAS No. 118
as of January 1, 1995. SFAS No. 114 and SFAS No. 118 require that certain
impaired loans be measured based on the present value of expected cash flows
discounted at the loan's effective interest rate; or, alternatively, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. The Partnership had previously measured the allowance
for credit losses using methods similar to that prescribed in SFAS No. 114.
Currently, no loans are classified as impaired. As a result, no additional
provision was required by the adoption of this pronouncement.
2. Viscount Air Services, Inc. (Viscount) Restructuring
As discussed in the Form 10-K, the Partnership has entered into an agreement
with Viscount to defer certain rents due the Partnership which aggregate
$753,200; to extend a line of credit to Viscount for a total of $486,000 to be
used primarily for maintenance expenses relating to the Partnership's aircraft;
and which gives the Partnership the option to acquire approximately 2.3% of the
issued and outstanding shares of Viscount stock as of July 26, 1994 for an
option price of approximately $349,000.
The deferred rents are being repaid by Viscount with interest at a rate of 6%
per annum over the remaining terms of the leases. The unpaid balances of the
deferred rents, which are reflected as rents receivable in the March 31, 1995
and December 31, 1994 balance sheets, were $667,727 and $632,355, respectively.
The line of credit, which was advanced to Viscount in full during 1994, is being
repaid by Viscount over a 30-month period, beginning in January 1995, with
interest at a rate of 11.53% per annum. The line of credit balances, which are
reflected in note receivable in the March 31, 1995 and December 31, 1994 balance
sheets, were $457,757 and $486,000, respectively.
Viscount has entered into a sub-lease agreement with Nations Air Express, Inc.
(Nations Air) for one of the Boeing 737-200 aircraft that Viscount currently
leases from the Partnership. The sub-lease agreement is for a term of one year
commencing in March 1995. Rent and maintenance reserve payments due to Viscount
from Nations Air are paid directly to the Partnership and are applied against
payments due from Viscount. Note 4 contains a further discussion of the Viscount
events subsequent to March 31, 1995.
7
<PAGE>
3. Related Parties
Under the Limited Partnership Agreement, the Partnership paid or agreed to pay
the following amounts for the current quarter to the general partner, Polaris
Investment Management Corporation, in connection with services rendered or
payments made on behalf of the Partnership:
Payments for
Three Months Ended Payable at
March 31, 1995 March 31, 1995
-------------- --------------
Aircraft Management Fees $ 23,349 $ 39,741
Out-of-Pocket Administrative Expense
Reimbursement 37,704 28,994
Out-of-Pocket Maintenance and
Remarketing Expense Reimbursement 40,245 394
--------- ---------
$ 101,298 $ 69,129
========= =========
4. Subsequent Events
Sale of Boeing 737-200 Aircraft - In April 1995, the Partnership sold the
airframe of the offlease Boeing 737-200 aircraft, formerly leased to Cambodia
International Airlines Company, Ltd., to Pinnacle Aircraft Leasing, Inc.
(Pinnacle) for $300,000. As discussed in the Form 10-K, the two engines from
this aircraft are currently on lease through May 1997. The Partnership received
a $50,000 security deposit from Pinnacle in March 1995. Pinnacle paid the
balance of the sales price upon delivery of the airframe in April 1995.
Viscount Payment Delinquency - Viscount is presently past due on certain rent,
deferred rent, maintenance reserve and financing payments due the Partnership in
April and May 1995. The past due payments aggregate approximately $311,000. The
Partnership is currently negotiating an agreement with Viscount whereby certain
of these past due payments, in addition to certain future payments due from
Viscount, may be deferred. Any agreement for a further deferral as well as any
failure by Viscount to perform its financial obligations with the Partnership
will have an adverse affect on the Partnership's financial position.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Polaris Aircraft Income Fund I (the Partnership) owns a portfolio of three used
Boeing 737-200 commercial jet aircraft, five spare engines and certain
inventoried aircraft parts out of its original portfolio of eleven aircraft. The
three aircraft are leased to Viscount Air Services, Inc. (Viscount). Viscount
has sub-leased one of these aircraft as discussed below. The lease of one
aircraft to Cambodia International Airlines Company, Ltd. (Cambodia
International) was terminated early by the lessee in September 1993 and the
aircraft was returned to the Partnership. The airframe from this aircraft was
sold in April 1995 as discussed below. The Partnership leased the two engines
from this aircraft and one additional engine to Canair Cargo Ltd. (Canair). In
addition, the Partnership transferred four aircraft to aircraft inventory during
1992 and 1993. These aircraft have been disassembled for sale of their component
parts. Two engines from these aircraft are leased to Viscount, one of which is
through a joint venture with Polaris Aircraft Income Fund II. The Partnership
has sold four aircraft from its original aircraft portfolio: a Boeing 737-200
aircraft in April 1995 as discussed below, a Boeing 737-200 Convertible
Freighter in 1990, a McDonnell Douglas DC-9-10 in 1992, and a Boeing 737-200 in
1993.
Remarketing Update
Sale of Boeing 737-200 Aircraft - In April 1995, the Partnership sold the
airframe of the offlease Boeing 737-200 aircraft, formerly leased to Cambodia
International to Pinnacle Aircraft Leasing, Inc. (Pinnacle) for $300,000. As
discussed above and in the Partnership's 1994 Annual Report to the Securities
and Exchange Commission on Form 10-K (Form 10-K), the two engines from this
aircraft are currently on lease through May 1997. The Partnership received a
$50,000 security deposit from Pinnacle in March 1995. Pinnacle paid the balance
of the sales price upon delivery of the airframe in April 1995.
Partnership Operations
The Partnership recorded net income of $352,811, or $1.22 per limited
partnership unit, for the three months ended March 31, 1995, compared to a net
loss of $97,653 or $1.37 per unit for the same period in 1994. The significant
improvement in the Partnership's operating results for the first quarter of
1995, as compared to the same period in 1994, is due primarily to increased
revenues combined with significantly lower depreciation expenses in the first
quarter of 1995.
Total revenues for the first quarter of 1995 were higher than in the comparable
period of 1994 as a result of an increase in rental revenues combined with an
increase in interest and other revenue. The Partnership leased three engines to
Canair beginning in May 1994 and one engine to Viscount beginning in December
1994. Rental revenue was earned on only one of these four engines during the
same period in 1994. Interest revenue increased in the first quarter of 1995 as
compared to the first quarter of 1994 primarily as a result of increased
interest earned on the Partnership's cash reserves during 1995 resulting from
higher cash reserve balances combined with higher interest rates. During the
first quarter of 1995, the Partnership recognized as revenue in claims related
to lessee defaults a payment of $9,698 on the Markair debentures as discussed in
the Form 10-K. During the first quarter of 1995, the Partnership also recognized
as other revenue certain maintenance reserves totaling $102,297 that it
previously held under the leases with Viscount.
Depreciation expense for the three months ended March 31, 1995 declined as
compared to the same period in 1994 as a result of two Boeing 737-200s which
were fully depreciated to their estimated residual values in June 1994 and
November 1994, respectively. Partially offsetting the decrease in depreciation
expense in 1995 as compared to 1994 was an adjustment to increase depreciation
expense by $115,000 in 1995 to reflect the current estimated realizable value of
aircraft inventory.
9
<PAGE>
Liquidity and Cash Distributions
Liquidity - As discussed in the Form 10-K, the Partnership entered into an
agreement with Viscount under which it agreed to defer certain rents due the
Partnership on three aircraft and one spare engine. These deferred rents, which
aggregate $753,200, are being repaid by Viscount with interest over the
remaining lease terms. The agreement with Viscount also stipulates that the
Partnership advance Viscount up to $486,000, primarily for maintenance expenses
incurred by Viscount relating to the Partnership's aircraft. In accordance with
the agreement, the Partnership advanced Viscount $486,000 during 1994 which is
being repaid by Viscount with interest over a 30-month period beginning in
January 1995.
Viscount is presently past due on certain rent, deferred rent, maintenance
reserve and financing payments due the Partnership in April and May 1995. The
past due payments aggregate approximately $311,000. The Partnership is currently
negotiating an agreement with Viscount whereby certain of these payments, in
addition to certain future payments due from Viscount, may be deferred. Any
agreement for a further deferral as well as any failure by Viscount to perform
its financial obligations with the Partnership will have an adverse affect on
the Partnership's financial position. Viscount has entered into a sub-lease
agreement with Nations Air Express, Inc. (Nations Air) for one of the Boeing
737-200 aircraft that Viscount currently leases from the Partnership. The
sub-lease agreement is for a term of one year commencing in March 1995. Rent and
maintenance reserve payments due to Viscount from Nations Air are paid directly
to the Partnership and are applied against payments due from Viscount.
During the first quarter of 1995, the Partnership received $50,000 as a security
deposit for the sale of the Boeing 737-200 airframe to Pinnacle as previously
discussed. In April 1995, the Partnership received $250,000 from Pinnacle for
the balance of the sales price.
The Partnership receives maintenance reserve payments from its lessees that may
be reimbursed to the lessee or applied against certain costs incurred by the
Partnership for maintenance work performed on the Partnership's aircraft, as
specified in the leases. Maintenance reserve balances remaining at the
termination of the lease may be used by the Partnership to offset future
maintenance expenses or recognized as revenue. The net maintenance reserve
balances aggregate $1,423,724 as of March 31, 1995.
Payments of $110,004 have been received during the three months ended March 31,
1995 from the sale of parts from the four disassembled aircraft and have been
applied against aircraft inventory. The Partnership's cash reserves, combined
with rental revenue generated by the Partnership's aircraft and engine leases
and payments generated from the sale of parts from the disassembled aircraft, is
expected to be sufficient to cover the Partnership's normal operating and
administrative expenses for the remainder of 1995.
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 1995 and 1994 were $1,434,196, or $8.50 per limited
partnership unit and $1,349,832, or $8.00 per unit, respectively. The timing and
amount of future cash distributions to partners are not yet known and will
depend upon the Partnership's future cash requirements, the receipt of the
rental payments from Canair and Viscount, the receipt of the deferred rental
payments and financing payments from Viscount, and the receipt of payments
generated from the aircraft disassembly process.
10
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund I's (the
Partnership) 1994 Annual Report to the Securities and Exchange Commission on
Form 10-K (Form 10-K), there are a number of pending legal actions or
proceedings to which the Partnership is a party or to which any of its
properties are subject. Except as described below, there have been no material
developments with respect to any such actions or proceedings during the period
covered by this report.
Markair, Inc. (Markair) Bankruptcy - As discussed in the Partnership's Form
10-K, the Partnership was allowed an unsecured claim against Markair for
$445,000 under the plan of reorganization approved in August 1993. This claim
was converted to subordinated debentures during 1994. Markair has defaulted on
such debentures, and on April 14, 1995, Markair commenced new reorganization
proceedings under Chapter 11 of the federal Bankruptcy Code in the United States
Bankruptcy Court for the Third District of Alaska.
Reuben Riskind, et al. v. Prudential Securities, Inc., et al. - Kidder, Peabody
& Co. has been added as an additional defendant by virtue of an Intervenor's
Amended Plea in Intervention filed on or about April 7, 1995.
Adams, et al. v. Prudential Securities, Inc., et al. - On or about March 15,
1995, this action was removed to the United States District Court for the
Northern District of Ohio, Eastern Division. On March 17, 1995, certain
defendants, including Prudential Securities Corporation, filed a tagalong motion
to transfer this action to the consolidated Multi-District Litigation filed in
the United States District Court for the Southern District of New York, which is
described in Item 10 of Part III of the Partnership's 1994 Form 10-K.
Other Proceedings - Item 10 of Part III of the Partnership's 1994 Form 10-K
discusses certain actions which have been filed against Polaris Investment
Management Corporation and others in connection with the sale of interests in
the Partnership and the management of the Partnership. Except as described
below, there have been no material developments with respect to any of the other
actions described therein during the period covered by this report.
Cohen, et al. v. Kidder Peabody & Company, Inc., et al. - On or about March 31,
1995 this action was removed to the United States District Court for the
Southern District of Florida.
11
<PAGE>
Item 5. Other Information
Effective March 31, 1995, Howard L. Feinsand resigned as Director and President
of Polaris Investment Management Corporation (PIMC). James W. Linnan, 53, has
assumed the position of Director and President of PIMC effective March 31, 1995.
Mr. Linnan has served PIMC in various capacities since April 1979, most recently
as Vice President.
Effective March 31, 1995, Rodney Sirmons resigned as Director of PIMC. Eric
Dull, 34, has assumed the position of Director of PIMC effective March 31, 1995.
Mr. Dull presently holds the position of Senior Vice President, Restructuring of
GE Capital Aviation Services, Inc. (GECAS).
Effective May 1, 1995, William C. Bowers resigned as Secretary of PIMC. Richard
L. Blume, 46, has assumed the position of Secretary of PIMC effective May 1,
1995. Mr. Blume presently holds the position of Executive Vice President and
General Counsel of GECAS.
Norman Liu, 38, has assumed the position of Vice President of PIMC effective May
1, 1995. Mr. Liu presently holds the position of Executive Vice President,
Capital Funding and Portfolio Management of GECAS.
Edward Sun, 45, has assumed the position of Vice President of PIMC effective May
1, 1995. Mr. Sun presently holds the position of Senior Managing Director,
Structured Finance of GECAS.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
27. Financial Data Schedules (Filed electronically only)
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter for
which this report is filed.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of section 13 or 15(d) 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.
POLARIS AIRCRAFT INCOME FUND I
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 10, 1995 By: /S/James F. Walsh
- ------------------------------- ------------------
James F. Walsh
Chief Financial Officer
(principal financial officer and
principal accounting officer of
Polaris Investment Management
Corporation, General Partner of
the Registrant)
13
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 7212565
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<RECEIVABLES> 1256982
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 31196349
<DEPRECIATION> 24208351
<TOTAL-ASSETS> 15457545
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0
0
<OTHER-SE> 13733511
<TOTAL-LIABILITY-AND-EQUITY> 15457545
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<OTHER-EXPENSES> 387732
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