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 September 30, 2000
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.
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POLARIS AIRCRAFT INCOME FUND I
FORM 10-Q - For the Quarterly Period Ended September 30, 2000
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - September 30, 2000 and
December 31, 1999...........................................3
b) Statements of Operations - Three and Nine Months
Ended September 30, 2000 and 1999...........................4
c) Statements of Changes in Partners' Capital
- Year Ended December 31, 1999
and Nine Months Ended September 30, 2000....................5
d) Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999...........................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
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Part 1. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $2,560,885 $4,190,421
RENT AND OTHER RECEIVABLES, net of allowance
for credit losses of $30,365 in 1999 -- 30,000
OTHER ASSETS 6,297 --
AIRCRAFT ENGINES, net of accumulated depreciation
of $101,250 in 2000 and $90,000 in 1999 858,750 870,000
---------- ----------
Total Assets $3,425,932 $5,090,421
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
PAYABLE TO AFFILIATES $ 6,943 $ 11,216
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 409,578 374,689
SECURITY DEPOSITS 45,000 45,000
MAINTENANCE RESERVES 631,316 1,704,715
---------- ----------
Total Liabilities 1,092,837 2,135,620
---------- ----------
PARTNERS' CAPITAL:
General Partner 137,906 222,894
Limited Partners, 168,729 units
issued and outstanding 2,195,189 2,731,907
---------- ----------
Total Partners' Capital 2,333,095 2,954,801
---------- ----------
Total Liabilities and Partners' Capital $3,425,932 $5,090,421
========== ==========
The accompanying notes are an integral part of these statements.
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES:
Rent from operating leases $ 60,000 $ 90,000 $240,000 $270,000
Gain on sale of aircraft inventory -- -- -- 196,858
Interest 41,002 47,935 133,747 144,145
Lessee settlement (Note 4) -- -- 61,513 --
-------- -------- -------- --------
Total Revenues 101,002 137,935 435,260 611,003
-------- -------- -------- --------
EXPENSES:
Depreciation 3,750 3,750 11,250 11,250
Management fees to general partner 3,000 4,500 12,000 13,500
Administration and other 26,623 26,989 96,333 87,374
-------- -------- -------- --------
Total Expenses 33,373 35,239 119,583 112,124
-------- -------- -------- --------
NET INCOME $ 67,629 $102,696 $315,677 $498,879
======== ======== ======== ========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 676 $ 1,027 $ 8,750 $ 4,989
======== ======== ======== ========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $ 66,953 $101,669 $306,927 $493,890
======== ======== ======== ========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 0.40 $ 0.60 $ 1.82 $ 2.93
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
Year Ended December 31, 1999 and
Nine Months Ended September 30, 2000
------------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1998 $ 493,422 $ 4,626,641 $ 5,120,063
Net income 6,000 594,019 600,019
Cash distributions to partners (276,528) (2,488,753) (2,765,281)
----------- ----------- -----------
Balance, December 31, 1999 222,894 2,731,907 2,954,801
Net income 8,750 306,927 315,677
Cash distributions to partners (93,738) (843,645) (937,383)
----------- ----------- -----------
Balance, September 30, 2000 $ 137,906 $ 2,195,189 $ 2,333,095
=========== =========== ===========
The accompanying notes are an integral part of these statements.
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income $ 315,677 $ 498,879
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 11,250 11,250
Gain on sale of aircraft inventory -- (196,858)
Changes in operating assets and liabilities:
Decrease in rent and other receivable 30,000 58,154
Increase in other assets (6,297) --
Decrease in payable to affiliates (4,273) (417)
Increase in deferred income -- 60,000
Increase (decrease) in accounts payable
and accrued liabilities 34,889 (16,581)
Decrease in maintenance reserves (1,073,399) (157,557)
----------- -----------
Net cash provided by (used in)
operating activities (692,153) 256,870
----------- -----------
FINANCING ACTIVITIES:
Cash distributions to partners (937,383) (2,765,281)
----------- -----------
Net cash used in financing activities (937,383) (2,765,281)
----------- -----------
CHANGES IN CASH AND CASH
EQUIVALENTS (1,629,536) (2,508,411)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,190,421 6,418,582
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,560,885 $ 3,910,171
=========== ===========
The accompanying notes are an integral part of these statements.
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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, 1999,
1998 and 1997 included in the Partnership's 1999 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
September 30, 2000 September 30, 2000
------------------ ------------------
Aircraft Management Fees $ 3,000 $ -
Out-of-Pocket Administrative Expense
Reimbursement 52,348 6,943
------- -------
$55,348 $ 6,943
======= =======
3. 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.
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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.
4. CanAir Bankruptcy Settlement
On February 15, 2000, the Partnership received an initial settlement of $61,513
in connection with the CanAir Bankruptcy Settlement, which is comprised of
amounts received for rents, maintenance reserve obligations and accrued
interest. This settlement may prove to be the final settlement if certain
additional claims are made before the statutory period expires. A portion of the
proceeds was treated as a recovery of previously reserved rents receivable. The
allowance for credit losses of $30,365 was reversed and is included in "Lessee
Settlement" in the statement of operations.
5. Engine Lease Expiration
The lease for the three JT8D-9A engines to Royal Aviation, Inc. and Royal Cargo,
Inc. (Royal Aviation) expired on August 31, 2000. The engines were redelivered
on September 7, 2000. The Partnership has made these engines available for sale
along with the remaining inventory of spare parts such that all the assets of
the Partnership will be liquidated and a final distribution made thereafter. The
Partnership is currently reporting these assets at the lower of carrying amount
or fair value less cost to sell. The net maintenance reserve balance was
$631,316 as of September 30, 2000. The Partnership is currently assessing the
return conditions of the engines to determine how much, if any, of the
maintenance reserve balance may be recognized as revenue.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
At September 30, 2000, Polaris Aircraft Income Fund I (the Partnership) owned
three JT8D-9A engines and certain inventoried aircraft parts, which includes one
engine, out of its original portfolio of eleven aircraft. The three JT8D-9A
engines, which were leased to Royal Aviation Inc. and Royal Cargo, Inc. (Royal
Aviation), were redelivered to the Partnership on September 7, 2000. The
Partnership has made these engines available for sale along with the remaining
inventory of spare parts such that all the assets of the Partnership will be
liquidated and a final distribution made thereafter.
Partnership Operations
The Partnership recorded net income of $67,629, or $0.40 per limited partnership
unit, for the three months ended September 30, 2000, compared to net income of
$102,696, or $0.60 per unit for the same period in 1999. The Partnership
recorded net income of $315,677, or $1.82 per limited partnership unit for the
nine months ended September 30, 2000, compared to net income of $498,879, or
$2.93 per limited partnership unit, for the nine months ended September 30,
1999. The decline in operating results was primarily due to lower rents
received, an increase in administration expenses, as well as a gain on the sale
of aircraft inventory recognized in 1999, partially offset by a lessee
settlement.
Rent from operating leases decreased during the three and nine months ended
September 20, 2000, as compared to the same periods in 1999 due to the
expiration of the engine leases to Royal Aviation in August 2000.
Gain on sale of aircraft inventory decreased during the nine months ended
September 30, 2000, as compared to the same period in 1999 as a result of a
$196,858 gain on the sale of aircraft inventory in 1999. There were no such
sales in 2000.
Lessee settlements increased during the nine months ended September 30, 2000, as
compared to the same period in 1999 due to a settlement in the CanAir bankruptcy
proceedings in February 2000, of which the Partnership received $61,513.
Administration expenses increased during the nine months ended September 30,
2000, as compared to the same period in 1999, primarily due to an increase in
printing and postage costs.
Liquidity and Cash Distributions
Liquidity - The Partnership received 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. On
May 5, 2000, the Partnership reimbursed $1,341,703 to Polaris Investment
Management Corporation, the General Partner, for maintenance claims paid on
behalf of the Partnership related to two engines. The net maintenance reserve
balance was $631,316 as of September 30, 2000. The Partnership is currently
assessing the return conditions of the engines to determine how much, if any, of
the maintenance reserve balance may be recognized as revenue.
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 order to remarket the engines for sale
9
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that were redelivered from Royal Aviation and for other contingencies, including
expenses of the Partnership. The Partnership's cash reserves will be monitored
and may be revised until a final distribution is made.
Cash Distributions - Cash distributions to limited partners during the nine
months ended September 30, 2000 and 1999 were $843,645, or $5 per limited
partnership unit and $2,488,753, or $14.75 per unit, respectively. The timing
and amount of a final cash distribution to partners is not yet known and will
depend upon circumstances such as the Partnership's future cash requirements,
and the timing and proceeds related to the ultimate liquidation of the
Partnership's assets.
As stated above, the three engines on lease to Royal Aviation were redelivered
on September 7, 2000. The Partnership has made these engines available for sale
along with the remaining inventory of spare parts such that all the assets of
the Partnership will be liquidated and a final distribution made thereafter.
10
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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) 1999 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K) and in Item I of Part II of the Partnership's Quarterly
Report to the SEC on Form 10-Q (Form 10-Q) for the period ended June 30, 2000,
there are several 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 of Part III of the Partnership's 1999 Form 10-K and
Item 1 of Part II of the Partnership's Form 10-Q for the period ended June 30,
2000 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.
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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
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
November 13, 2000 By: /S/Stephen E. Yost
-------------------- --------------------------------
Stephen E. Yost
Chief Financial Officer
(principal financial officer and
principal accounting officer of
Polaris Investment Management
Corporation, General Partner of
the Registrant)
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