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, 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 12 pages.
<PAGE>
POLARIS AIRCRAFT INCOME FUND I
FORM 10-Q - For the Quarterly Period Ended March 31, 1998
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 1998 and
December 31, 1997.........................................3
b) Statements of Operations - Three Months Ended
March 31, 1998 and 1997...................................4
c) Statements of Changes in Partners' Capital
(Deficit) - Year Ended December 31, 1997
and Three Months Ended March 31, 1998.....................5
d) Statements of Cash Flows - Three Months
Ended March 31, 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>
<TABLE>
Part 1. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS:
CASH AND CASH EQUIVALENTS $5,246,845 $6,466,511
RENT AND OTHER RECEIVABLES, net of
allowance for credit losses of $30,365 in 1998
and 1997 141,223 --
AIRCRAFT ENGINES, net of accumulated depreciation
of $63,750 in 1998 and $60,000 in 1997 896,250 900,000
---------- ----------
$6,284,318 $7,366,511
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
PAYABLE TO AFFILIATES $ 38,796 $ 42,286
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 452,897 446,822
LESSEE SECURITY DEPOSITS 45,000 95,000
MAINTENANCE RESERVES 1,538,309 1,466,687
---------- ----------
Total Liabilities 2,075,002 2,050,795
---------- ----------
PARTNERS' CAPITAL:
General Partner 246,255 392,302
Limited Partners, 168,729 units
issued and outstanding 3,963,061 4,923,414
---------- ----------
Total Partners' Capital 4,209,316 5,315,716
---------- ----------
$6,284,318 $7,366,511
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Rent from operating leases $ 90,000 $ 90,000
Gain on sale of aircraft inventory 49,453 86,418
Gain on sale of aircraft -- 781,504
Claims related to lessee defaults 231,072 --
Interest and other 72,104 147,711
---------- ----------
Total Revenues 442,629 1,105,633
---------- ----------
EXPENSES:
Depreciation 3,750 3,750
Management fees to general partner 4,500 4,500
Operating -- 53,872
Administration and other 40,966 35,167
---------- ----------
Total Expenses 49,216 97,289
---------- ----------
NET INCOME $ 393,413 $1,008,344
========== ==========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 3,934 $ 145,053
========== ==========
NET INCOME ALLOCATED TO
LIMITED PARTNERS $ 389,479 $ 863,291
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 2.31 $ 5.12
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<CAPTION>
Year Ended December 31, 1997 and
Three Months Ended March 31, 1998
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
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 3,934 389,479 393,413
Cash distributions to partners (149,981) (1,349,832) (1,499,813)
----------- ------------ ------------
Balance, March 31, 1998 $ 246,255 $ 3,963,061 $ 4,209,316
=========== ============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 393,413 $ 1,008,344
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,750 3,750
Gain on sale of aircraft inventory (49,453) (86,418)
Gain on sale of aircraft -- (781,504)
Changes in operating assets and liabilities:
Decrease (increase) in rent and other receivable (141,223) 2,963
Increase in other assets -- (20,115)
Increase (decrease) in payable to affiliates (3,490) 12,376
Increase in accounts payable and
accrued liabilities 6,075 24,013
Increase (decrease) in maintenance reserves 71,622 (876,536)
Decrease in security deposits (50,000) --
----------- ------------
Net cash provided by (used in) operating activities 230,694 (713,127)
----------- ------------
INVESTING ACTIVITIES:
Principal payments on note receivable -- 25,819
Net proceeds from sale of aircraft inventory 49,453 86,418
Net proceeds from sale of aircraft -- 2,587,891
----------- ------------
Net cash provided by investing activities 49,453 2,700,128
----------- ------------
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 (1,219,666) 487,188
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,466,511 10,065,652
----------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,246,845 $ 10,552,840
=========== ============
The accompanying notes are an integral part of these statements.
</TABLE>
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 (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
March 31, 1998 March 31, 1998
-------------- --------------
Aircraft Management Fees $ 4,936 $ 1,518
Out-of-Pocket Administrative Expense
Reimbursement 35,869 37,278
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 2,698 -
------------ -----------
$ 43,503 $ 38,796
============ ============
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 three months ended March 31, 1998, revenue of $92,610
that had been held as deposits and maintenance reserves.
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 three months ended March 31, 1998.
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 March 31, 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.
Partnership Operations
The Partnership recorded net income of $393,413, or $2.31 per limited
partnership unit, for the three months ended March 31, 1998, compared to net
income of $1,008,344, or $5.12 per unit for the same period in 1997. The decline
in operating results during the first quarter of 1998, as compared to the same
period in 1997, is primarily the result of the Partnership's gain on the sale of
two aircraft during the first quarter of 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.
Interest income decreased during the first quarter of 1998, as compared to the
same period in 1997, primarily due to a decrease in the cash reserves as
discussed in the liquidity section.
Operating expenses decreased during the three months ended March 31, 1998, as
compared to the same period in 1997, due to the absence of legal expenses during
the three months ended March 31, 1998. During the three months ended March 31,
1997, the Partnership recognized legal expenses of approximately $52,000 related
to the Nations Air Express, Inc. default and the Viscount default and Chapter 11
bankruptcy filing.
Administration and other expenses increased during the three months ended March
31, 1998 as compared to the same period in 1997, due to a slight increase in
printing and postage costs.
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 three months ended March 31, 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.
9
<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 three months ended March 31, 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 $1,538,309 as of March 31, 1998.
The Partnership received payments of approximately $49,000 and $86,000 during
the first three months of 1998 and 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 first quarters of 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 on
Form 10-K (Form 10-K), there are a number of pending legal actions or
proceedings involving the Partnership. 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.
Braniff, Inc. (Braniff) Bankruptcy - 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.
Jet Fleet Bankruptcy - 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.
Other Proceedings - Item 10 in Part III of the Partnership's 1997 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. 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
May 13, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5246845
<SECURITIES> 0
<RECEIVABLES> 171588
<ALLOWANCES> 30365
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 960000
<DEPRECIATION> 63750
<TOTAL-ASSETS> 6284318
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4209316
<TOTAL-LIABILITY-AND-EQUITY> 6284318
<SALES> 0
<TOTAL-REVENUES> 442629
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 49216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 393413
<INCOME-TAX> 0
<INCOME-CONTINUING> 393413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 393413
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 0
</TABLE>
