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 June 30, 1998
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 High Ridge Road, Stamford, Connecticut 06927
Telephone - (203) 357-3776
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 June 30, 1998
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - June 30, 1998 and
December 31, 1997..........................................3
b) Statements of Operations - Three and Six Months
Ended June 30, 1998 and 1997...............................4
c) Statements of Changes in Partners' Capital
(Deficit) - Year Ended December 31, 1997
and Six Months Ended June 30, 1998.........................5
d) Statements of Cash Flows - Six Months
Ended June 30, 1998 and 1997...............................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 6. Exhibits and Reports on Form 8-K......................11
Signature ......................................................12
2
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1998 1997
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 5,646,058 $ 6,466,511
RENT AND OTHER RECEIVABLES, net of
allowance for credit losses of
$30,365 in 1998 and 1997 1,224 -
AIRCRAFT ENGINES, net of accumulated depreciation
of $67,500 in 1998 and $60,000 in 1997 892,500 900,000
----------- -----------
$ 6,539,782 $ 7,366,511
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL :
PAYABLE TO AFFILIATES $ 28,127 $ 42,286
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 456,547 446,822
LESSEE SECURITY DEPOSITS 45,000 95,000
DEFERRED INCOME 30,000 -
MAINTENANCE RESERVES 1,651,567 1,466,687
----------- -----------
Total Liabilities 2,211,241 2,050,795
----------- -----------
PARTNERS' CAPITAL :
General Partner 247,447 392,302
Limited Partners, 168,729 units
issued and outstanding 4,081,094 4,923,414
----------- -----------
Total Partners' Capital 4,328,541 5,315,716
----------- -----------
$ 6,539,782 $ 7,366,511
=========== ===========
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Rent from operating leases $ 90,000 $ 90,000 $ 180,000 $ 180,000
Gain on sale of aircraft inventory 14,856 49,802 64,309 136,220
Gain on sale of aircraft -- 1,051,169 -- 1,832,673
Interest and other 73,333 186,222 376,509 333,933
---------- ---------- ---------- ----------
Total Revenues 178,189 1,377,193 620,818 2,482,826
---------- ---------- ---------- ----------
EXPENSES:
Depreciation 3,750 3,750 7,500 7,500
Management fees to general partner 4,500 4,500 9,000 9,000
Operating 3,514 105,469 3,514 159,341
Administration and other 47,200 49,964 88,166 85,131
---------- ---------- ---------- ----------
Total Expenses 58,964 163,683 108,180 260,972
---------- ---------- ---------- ----------
NET INCOME $ 119,225 $1,213,510 $ 512,638 $2,221,854
========== ========== ========== ==========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 1,192 $ 12,135 $ 5,126 $ 157,188
========== ========== ========== ==========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $ 118,033 $1,201,375 $ 507,512 $2,064,666
========== ========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 0.70 $ 7.12 $ 3.01 $ 12.24
========== ========== ========== ==========
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1997 and
Six Months Ended June 30, 1998
------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1996 $ (624,341) $ 11,047,769 $ 10,423,428
Net income 1,846,228 1,341,903 3,188,131
Cash distributions to partners (829,585) (7,466,258) (8,295,843)
------------ ------------ ------------
Balance, December 31, 1997 392,302 4,923,414 5,315,716
Net income 5,126 507,512 512,638
Cash distributions to partners (149,981) (1,349,832) (1,499,813)
------------ ------------ ------------
Balance, June 30, 1998 $ 247,447 $ 4,081,094 $ 4,328,541
============ ============ ============
The accompanying notes are an integral part of these statements
5
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 512,638 $ 2,221,854
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 7,500 7,500
Gain on sale of aircraft inventory (64,309) (136,220)
Gain on sale of aircraft -- (1,832,673)
Changes in operating assets and liabilities:
Decrease (increase) in rent and other receivables (1,224) 18,816
Increase in other assets -- (4,877)
Decrease in payable to affiliates (14,159) (36,199)
Increase in deferred income 30,000 --
Increase in accounts payable and
accrued liabilities 9,725 108,134
Increase in maintenance reserves 184,880 176,814
Decrease in security deposits (50,000) --
----------- ------------
Net cash provided by operating activities 615,051 523,149
----------- ------------
INVESTING ACTIVITIES:
Principal payments on note receivable -- 418,145
Net proceeds from sale of aircraft inventory 64,309 136,220
Proceeds from sale of aircraft -- 2,620,000
----------- ------------
Net cash provided by investing activities 64,309 3,174,365
----------- ------------
FINANCING ACTIVITIES:
Cash distributions to partners (1,499,813) (1,499,813)
----------- ------------
Net cash used in financing activities (1,499,813) (1,499,813)
----------- ------------
CHANGES IN CASH AND CASH
EQUIVALENTS (820,453) 2,197,701
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,466,511 10,065,652
----------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,646,058 $ 12,263,353
=========== ============
The accompanying notes are an integral part of these statements
6
</TABLE>
<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 (GAAP). These statements should be read in conjunction with the
financial statements and notes thereto for the years ended December 31, 1997,
1996, and 1995 included in the Partnership's 1997 Annual Report to the SEC on
Form 10-K.
2. 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
June 30, 1998 June 30, 1998
------------- -------------
Aircraft Management Fees $ 4,500 $ 1,518
Out-of-Pocket Administrative Expense
Reimbursement 56,333 25,964
Out-of-Pocket Operating and
Remarketing Expense Reimbursement - 645
------------ -------------
$ 60,833 $ 28,127
============ =============
3. Claims Related to Lessee Defaults
Jet Fleet Bankruptcy - As previously reported, in September 1992, Jet Fleet,
former lessee of one of the Partnership's aircraft, defaulted on its obligations
under the lease for the Partnership's aircraft by failing to pay reserve
payments and to maintain required insurance. The Partnership repossessed its
Aircraft on September 28, 1992. Thereafter, Jet Fleet filed for bankruptcy
protection in the United States Bankruptcy Court for the Northern District of
Texas, Dallas Division. On April 13, 1993, the Partnership filed a proof of
claim in the Jet Fleet bankruptcy to recover its damages. The bankrupt estate
was subsequently determined to be insolvent. The bankruptcy proceeding of Jet
Fleet Corporation was closed on August 6, 1997, and the bankruptcy proceeding of
Jet Fleet International Airlines, Inc. was closed on February 10, 1998.
Distributions from the bankrupt estate have not been made to the unsecured
creditors, and the Partnership is not likely to receive any distributions on its
Proof of Claim.
7
<PAGE>
The Partnership had been holding deposits and maintenance reserves pending the
outcome of the Jet Fleet bankruptcy proceedings. Consequently, the Partnership
recognized, during the quarter ended March 31, 1998, revenue of $92,610 that had
been held as deposits and maintenance reserves, which is included in interest
and other income.
Braniff, Inc. (Braniff) Bankruptcy - As previously reported, in September 1989,
Braniff filed a petition under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Middle District of Florida, Orlando
Division. On September 26, 1990 the Partnership filed a proof of claim to
recover unpaid rent and other damages, and on November 27, 1990, the Partnership
filed a proof of administrative claim to recover damages for detention of
aircraft, non-compliance with court orders and post-petition use of engines as
well as liquidated damages. On July 27, 1992, the Bankruptcy Court approved a
stipulation embodying a settlement among the Partnership, the Braniff creditor
committees and Braniff in which it was agreed that the Partnership would be
allowed an administrative claim in the bankruptcy proceeding of approximately
$2,076,923. As the final disposition of the Partnership's claim in the
Bankruptcy proceedings, the Partnership was permitted by the Bankruptcy Court to
exchange a portion of its unsecured claim for Braniff's right (commonly referred
to as a "Stage 2 Base Level right") under the FAA noise regulations to operate
nine Stage 2 aircraft and has been allowed a net remaining unsecured claim of
$6,923,077 in the proceedings.
Braniff's bankrupt estate has made a payment in the amount of $200,000 in
respect of the unsecured claims of the Partnership and other affiliates of
Polaris Investment Management Corporation. Of this amount, $138,462 was
allocated to the Partnership, based on its pro rata share of the total claims,
and recognized as revenue during the quarter ended March 31, 1998, which is
included in interest and other income.
4. Partners' Capital
The Partnership Agreement (the Agreement) stipulates different methods by which
revenue, income and loss from operations and gain or loss on the sale of
aircraft are to be allocated to the general partner and the limited partners.
Such allocations are made using income or loss calculated under GAAP for book
purposes, which varies from income or loss calculated for tax purposes.
Cash available for distributions, including the proceeds from the sale of
aircraft, is distributed 10% to the general partner and 90% to the limited
partners.
The different methods of allocating items of income, loss and cash available for
distribution combined with the calculation of items of income and loss for book
and tax purposes result in book basis capital accounts that may vary
significantly from tax basis capital accounts. The ultimate liquidation and
distribution of remaining cash will be based on the tax basis capital accounts
following liquidation, in accordance with the Agreement.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
At June 30, 1998, Polaris Aircraft Income Fund I (the Partnership) owned three
engines and certain inventoried aircraft parts out of its original portfolio of
eleven aircraft. The three engines are leased to Royal Aviation Inc. and Royal
Cargo, Inc. (Royal Aviation). 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.
In August 1998, the Partnership entered into an agreement for the sale of its
remaining inventory of aircraft parts, with a net carrying value of $0, from the
four disassembled aircraft to Soundair, Inc. The remaining inventory was sold
effective February 1, 1998 for $100,000, less amounts previously received for
sales in the month of February of $1,855. The net purchase price will be paid in
four monthly installments commencing in August.
Partnership Operations
The Partnership recorded net income of $119,225, or $0.70 per limited
partnership unit for the three months ended June 30, 1998 compared to net income
of $1,213,510 or $7.12 per limited partnership unit, for the three months ended
June 30, 1997. The Partnership recorded net income of $512,638, or $3.01 per
limited partnership unit for the six months ended June 30, 1998, compared to net
income of $2,221,854, or $12.24 per limited partnership unit, for the six months
ended June 30, 1997. The decrease in operating results during the three and six
months ended June 30, 1998, as compared to the same periods in 1997, is
primarily the result of gains on the sale of aircraft in 1997 as discussed
below.
During the first quarter of 1997, the Partnership sold two Boeing 737-200s and
two spare engines formerly leased to Viscount to Solair, Inc. for cash proceeds
of $1,620,000. In addition, the Partnership retained certain maintenance
reserves and deposits received from the former lessee of these aircraft
aggregating approximately $968,000 that had been held by the Partnership to
offset potential future maintenance expenses for these aircraft. As a result,
the Partnership recognized a net gain of $781,504 on the sale of these aircraft
during the first quarter of 1997.
During the second quarter of 1997, the Partnership sold one Boeing 737-200
formerly leased to Viscount and subleased to Nations Air Express, Inc. for
$1,000,000. In addition, the Partnership retained certain maintenance reserves
and deposits received from the former lessee of this aircraft aggregating
approximately $1,081,000 that had been held by the Partnership to offset
potential future maintenance expenses for this aircraft. As a result, the
Partnership recognized a net gain of $1,051,169 on the sale of this aircraft
during the second quarter of 1997.
Interest income decreased during the three and six months ended June 30, 1998,
as compared to the same periods in 1997, primarily due to a decrease in the cash
reserves as discussed in the liquidity section.
Operating expenses decreased during the three and six months ended June 30,
1998, as compared to the same periods in 1997, due to a decrease in legal
expenses during the three months and six months ended June 30, 1998. During the
six months ended June 30, 1997, the Partnership recognized legal expenses of
approximately $130,000 related to the Nations Air Express, Inc. default and the
Viscount default and Chapter 11 bankruptcy filing. During the six months ended
June 30, 1998, the Partnership recognized legal expenses of only $3,514 related
to the Braniff bankruptcy.
9
<PAGE>
Claims Related to Lessee Defaults
Braniff, Inc. (Braniff) Bankruptcy - As more fully discussed in Note 3,
Braniff's bankrupt estate has made a payment in the amount of $200,000 in
respect of the unsecured claims of the Partnership and other affiliates of
Polaris Investment Management Corporation. Of this amount, $138,462 was
allocated to the Partnership, based on its pro rata share of the total claims,
and recognized as revenue during the six months ended June 30, 1998.
Jet Fleet Bankruptcy - As more fully discussed in Note 3, the bankruptcy
proceeding of Jet Fleet Corporation was closed on August 6, 1997, and the
bankruptcy proceeding of Jet Fleet International Airlines, Inc. was closed on
February 10, 1998. Distributions from the bankrupt estate have not been made to
the unsecured creditors, and the Partnership is not likely to receive any
distributions on its Proof of Claim.
The Partnership had been holding deposits and maintenance reserves pending the
outcome of the Jet Fleet bankruptcy proceedings. Consequently, the Partnership
recognized, during the six months ended June 30, 1998, revenue of $92,610 that
had been held as deposits and maintenance reserves.
Liquidity and Cash Distributions
Liquidity - The Partnership receives maintenance reserve payments from Royal
Aviation 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 or engines, as specified in the leases. Maintenance reserve balances
remaining at the termination of the lease, if any, may be used by the
Partnership to offset future maintenance expenses or recognized as revenue. The
net maintenance reserves balances aggregate $1,651,567 as of June 30, 1998.
The Partnership received payments of approximately $15,000 and $64,000 during
the three months and six months ended June 30, 1998, respectively, compared to
payments of approximately $50,000 and $136,000 during the three and six months
ended June 30, 1997, respectively, from the sale of parts from the four
disassembled aircraft.
Polaris Investment Management Corporation, the general partner, has determined
that the Partnership maintain cash reserves as a prudent measure to insure that
the Partnership has available funds in the event that the engines presently on
lease to Royal Aviation require remarketing and for other contingencies,
including expenses of the Partnership. The Partnership's cash reserves will be
monitored and may be revised from time to time as further information becomes
available in the future.
Cash Distributions - Cash distributions to limited partners were $1,349,832, or
$8.00 per limited partnership unit for the six months ended June 30, 1998 and
1997. The timing and amount of future cash distributions to partners are not yet
known and will depend upon the Partnership's future cash requirements, including
the receipt of rental payments from Royal Aviation.
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) 1997 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K) and in Item 1 of Part II of the Partnership's Quarterly
Report to the SEC on Form 10-Q (Form 10-Q) for the period ended March 31, 1998,
there are a number of pending legal actions or proceedings involving the
Partnership. There have been no material developments with respect to any such
actions or proceedings during the period covered by this report.
Other Proceedings - Item 10 in Part III of the Partnership's 1997 Form 10-K and
Item 1 in Part II of the Partnership's Form 10-Q for the period ended March 31,
1998 discuss 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. The Partnership is not a
party to these actions. There have been no material developments with respect to
any of the actions described therein during the period covered by this report.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
27. Financial Data Schedule (in electronic format 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.
11
<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
August 12, 1998 By: /S/Marc A. Meiches
- ---------------------------------- ------------------
Marc A. Meiches
Chief Financial Officer
(principal financial officer and
principal accounting officer of
Polaris Investment Management
Corporation, General Partner of
the Registrant)
12
<TABLE> <S> <C>
<ARTICLE>5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5646058
<SECURITIES> 0
<RECEIVABLES> 31589
<ALLOWANCES> 30365
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 960000
<DEPRECIATION> 67500
<TOTAL-ASSETS> 6539782
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4328541
<TOTAL-LIABILITY-AND-EQUITY> 6539782
<SALES> 0
<TOTAL-REVENUES> 620818
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 108180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 512638
<INCOME-TAX> 0
<INCOME-CONTINUING> 512638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 512638
<EPS-PRIMARY> 3.01
<EPS-DILUTED> 0
</TABLE>
