UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
-------------
_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__
----------------------
Commission File No. 33-10122
----------------------
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
State of Organization: California
IRS Employer Identification No. 94-3023671
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 III,
A California Limited Partnership
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 I. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS:
CASH AND CASH EQUIVALENTS $ 13,924,259 $ 28,632,488
RENT AND OTHER RECEIVABLES 851,130 850,760
AIRCRAFT, net of accumulated depreciation
of $54,630,671 in 1998 and $53,612,863 in 1997 27,553,906 28,571,714
------------ ------------
$ 42,329,295 $ 58,054,962
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 147,821 $ 123,242
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 127,546 80,211
DEFERRED INCOME 929,236 626,578
NOTES PAYABLE 10,286,989 11,080,004
------------ ------------
Total Liabilities 11,491,592 11,910,035
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (4,180,776) (2,854,104)
Limited Partners, 499,960 and 500,000 units
outstanding in 1998 and 1997, respectively 35,018,479 48,999,031
------------ ------------
Total Partners' Capital 30,837,703 46,144,927
------------ ------------
$ 42,329,295 $ 58,054,962
============ ============
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Rent from operating leases $2,247,342 $3,906,924
Interest 297,746 248,686
Gain on sale of aircraft inventory 89,534 84,937
Other -- 21,099
---------- ----------
Total Revenues 2,634,622 4,261,646
---------- ----------
EXPENSES:
Depreciation 1,017,808 3,073,473
Management fees to general partner 86,787 195,346
Interest 256,148 322,556
Operating 36,720 4,874
Administration and other 97,334 80,007
---------- ----------
Total Expenses 1,494,797 3,676,256
---------- ----------
NET INCOME $1,139,825 $ 585,390
========== ==========
NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 317,641 $ 318,323
========== ==========
NET INCOME ALLOCATED TO
LIMITED PARTNERS $ 822,184 $ 267,067
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 1.64 $ 0.53
========== ==========
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
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 $(1,670,662) $ 55,159,826 $ 53,489,164
Net income 49,891 4,939,205 4,989,096
Cash distributions to partners (1,233,333) (11,100,000) (12,333,333)
----------- ------------ ------------
Balance, December 31, 1997 (2,854,104) 48,999,031 46,144,927
Net income 317,641 822,184 1,139,825
Capital redemptions (40 units) -- (3,920) (3,920)
Cash distributions to partners (1,644,313) (14,798,816) (16,443,129)
----------- ------------ ------------
Balance, March 31, 1998 $(4,180,776) $ 35,018,479 $ 30,837,703
=========== ============ ============
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,139,825 $ 585,390
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of aircraft inventory (89,534) (84,937)
Depreciation 1,017,808 3,073,473
Changes in operating assets and liabilities:
Increase in rent and other receivables (370) (618,731)
Decrease in other assets -- 70,427
Increase in payable to affiliates 24,579 110,370
Increase (decrease) in accounts payable
and accrued liabilities 47,335 (30,433)
Increase (decrease) in deferred income 302,658 (388,902)
------------ ------------
Net cash provided by operating activities 2,442,301 2,716,657
------------ ------------
INVESTING ACTIVITIES:
Net proceeds from sale of aircraft inventory 89,534 84,937
------------ ------------
Net cash provided by investing activities 89,534 84,937
------------ ------------
FINANCING ACTIVITIES:
Principal payments on notes payable (793,015) (23,939)
Capital redemptions (3,920) --
Cash distributions to partners (16,443,129) (3,472,222)
------------ ------------
Net cash used in financing activities (17,240,064) (3,496,161)
------------ ------------
CHANGES IN CASH AND CASH
EQUIVALENTS (14,708,229) (694,567)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 28,632,488 20,229,105
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 13,924,259 $ 19,534,538
============ ============
The accompanying notes are an integral part of these statements
</TABLE>
6
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
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 III'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 $ 75,000 $ 69,316
Out-of-Pocket Administrative Expense
Reimbursement 67,216 68,859
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 14,535 9,646
------------ -----------
$ 156,751 $ 147,821
============ ===========
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.
7
<PAGE>
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 III (the Partnership) owned a
portfolio of 10 used McDonnell Douglas DC-9-30 aircraft leased to Trans World
Airlines, Inc. (TWA) and certain inventoried aircraft parts out of its original
portfolio of 38 aircraft. The Partnership transferred three McDonnell Douglas
DC-9-10 aircraft and six Boeing 727-100 aircraft to aircraft inventory in 1992.
The inventoried aircraft have been disassembled for sale of their component
parts.
Partnership Operations
The Partnership reported net income of $1,139,825, or $1.64 per limited
partnership unit, for the three months ended March 31, 1998 compared to net
income of $585,390, or $0.53 per unit, for the same period in 1997.
The increase in net income during the three months ended March 31, 1998, as
compared to the same period in 1997, was primarily the result of decreased
depreciation, partially offset by a decrease in rental revenues. The decrease in
rental revenues, management fees and depreciation was due to the sale of
aircraft to Triton in 1997.
Operating expenses increased during the three months ended March 31, 1998 as
compared to the same period in 1997, due to an increase in legal expenses
related to the sale of the remaining aircraft.
Administration and other expenses increased during the three months ended March
31, 1998 as compared to the same period in 1997, due to increases in printing
and postage costs related to an additional distribution.
The increase in the deferred income balance at March 31, 1998 is attributable to
differences between the payments due and the rental income earned on the TWA
leases for the 10 aircraft currently on lease to TWA. For income recognition
purposes, the Partnership recognizes rental income over the life of the lease in
equal monthly amounts. As a result, the difference between rental income earned
and the rental payments due is recognized as deferred income. The rental
payments due from TWA during the three months ended March 31, 1998 exceeded the
rental income earned on the TWA leases, causing an increase in the deferred
income balance.
Liquidity and Cash Distributions
Liquidity - The Partnership received all lease payments from its sole lessee,
TWA, except for the March 1998 lease payment. On April 1, 1998, the Partnership
received its $850,000 rental payment from TWA that was due on March 27, 1998.
This amount was included in rent and other receivables on the balance sheet at
March 31, 1998. In addition, payments totaling $89,534 have been received during
the first quarter of 1998 from the sale of parts from the nine disassembled
aircraft, as compared to payments of $84,937 during the same period in 1997.
Polaris Investment Management Corporation, the general partner, has determined
that the Partnership maintain cash reserves as a prudent measure to ensure that
the Partnership has available funds in the event that the aircraft presently on
lease to TWA 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.
9
<PAGE>
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 1998 and 1997 were $14,798,816, or $29.60 per limited
partnership unit, and $3,125,000, or $6.25 per unit, respectively. The increase,
as compared to 1997, is due to the distribution of the proceeds received from
the prepayment of a note due from Triton Aviation Services III LLC on December
30, 1997. The timing and amount of future cash distributions are not yet known
and will depend on the Partnership's future cash requirements (including
expenses of the Partnership) and need to retain cash reserves as previously
discussed in the Liquidity section; the receipt of rental payments from TWA; and
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 III'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. 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
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
A Current Report on Form 8-K, dated December 30, 1997, reporting a
prepayment in full of the Promissory Note from Triton Aviation Services III
LLC, was filed on January 5, 1998.
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 III,
A California Limited Partnership
(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> 13924259
<SECURITIES> 0
<RECEIVABLES> 851130
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 82184577
<DEPRECIATION> 54630671
<TOTAL-ASSETS> 42329295
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30837703
<TOTAL-LIABILITY-AND-EQUITY> 42329295
<SALES> 0
<TOTAL-REVENUES> 2634622
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1238649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256148
<INCOME-PRETAX> 1139825
<INCOME-TAX> 0
<INCOME-CONTINUING> 1139825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1139825
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 0
</TABLE>
