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, 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. 33-10122
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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 13 pages.
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
FORM 10-Q - For the Quarterly Period Ended March 31, 2000
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 2000 and
December 31, 1999...........................................3
b) Statements of Operations - Three Months Ended
March 31, 2000 and 1999.....................................4
c) Statements of Changes in Partners' Capital
(Deficit) - Year Ended December 31, 1999
and Three Months Ended March 31, 2000.......................5
d) Statements of Cash Flows - Three Months
Ended March 31, 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
2
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Part I. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 12,334,963 $ 12,317,505
RENT AND OTHER RECEIVABLES 863,499 863,257
AIRCRAFT, net of accumulated depreciation
of $60,083,091 in 2000 and $59,165,441 in 1999 22,101,486 23,019,136
------------ ------------
Total Assets $ 35,299,948 $ 36,199,898
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 179,414 $ 170,274
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 111,747 127,948
DEFERRED INCOME 3,350,500 3,047,843
NOTES PAYABLE 3,219,642 4,177,934
------------ ------------
Total Liabilities 6,861,303 7,523,999
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (3,659,416) (3,657,030)
Limited Partners, 499,960 units
issued and outstanding 32,098,061 32,332,929
------------ ------------
Total Partners' Capital (Deficit) 28,438,645 28,675,899
------------ ------------
Total Liabilities and Partners' Capital
(Deficit) $ 35,299,948 $ 36,199,898
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
REVENUES:
Rent from operating leases $2,247,342 $2,247,342
Interest 171,702 145,382
---------- ----------
Total Revenues 2,419,044 2,392,724
---------- ----------
EXPENSES:
Depreciation 917,650 602,854
Management fees to general partner 86,787 86,787
Interest 90,696 177,334
Operating 3,722 3,931
Administration and other 85,338 61,833
---------- ----------
Total Expenses 1,184,193 932,739
---------- ----------
NET INCOME $1,234,851 $1,459,985
========== ==========
NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 144,825 $ 244,558
========== ==========
NET INCOME ALLOCATED TO
LIMITED PARTNERS $1,090,026 $1,215,427
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 2.18 $ 2.43
========== ==========
The accompanying notes are an integral part of these statements.
4
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1999 and
Three Months Ended March 31, 2000
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1998 $ (3,642,196) $ 33,795,081 $ 30,152,885
Net income 693,443 4,912,337 5,605,780
Cash distributions to partners (708,277) (6,374,489) (7,082,766)
------------ ------------ ------------
Balance, December 31, 1999 (3,657,030) 32,332,929 28,675,899
Net income 144,825 1,090,026 1,234,851
Cash distributions to partners (147,211) (1,324,894) (1,472,105)
------------ ------------ ------------
Balance, March 31, 2000 $ (3,659,416) $ 32,098,061 $ 28,438,645
============ ============ ============
The accompanying notes are an integral part of these statements.
5
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income $ 1,234,851 $ 1,459,985
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 917,650 602,854
Changes in operating assets and
liabilities:
Decrease (increase) in rent and other
receivables (242) 155
Increase in payable to affiliates 9,140 20,777
Decrease in accounts payable
and accrued liabilities (16,201) (50,649)
Increase in deferred income 302,657 302,658
------------ ------------
Net cash provided by operating
activities 2,447,855 2,335,780
------------ ------------
FINANCING ACTIVITIES:
Principal payments on notes payable (958,292) (871,746)
Cash distributions to partners (1,472,105) (2,555,351)
------------ ------------
Net cash used in financing
activities (2,430,397) (3,427,097)
------------ ------------
CHANGES IN CASH AND CASH
EQUIVALENTS 17,458 (1,091,317)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 12,317,505 13,423,701
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 12,334,963 $ 12,332,384
============ ============
The accompanying notes are an integral part of these statements.
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, 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
March 31, 2000 March 31, 2000
-------------- --------------
Aircraft Management Fees $ 75,000 $163,610
Out-of-Pocket Administrative Expense
Reimbursement 106,903 15,804
-------- --------
$181,903 $179,414
======== ========
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.
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
7
<PAGE>
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, 2000, 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) out of its original portfolio of 38 aircraft.
Partnership Operations
The Partnership reported net income of $1,234,851, or $2.18 per limited
partnership unit, for the three months ended March 31, 2000 compared to net
income of $1,459,985, or $2.43 per unit, for the same period in 1999.
The decrease in net income is due to increases in depreciation and
administrative expenses, partially offset by decreases in interest expense, and
an increase in interest income, as discussed below.
Depreciation expense increased during the three months ended March 31, 2000, as
compared to the same period in 1999, due to the Partnership's downward
adjustment to the estimated residual value of the aircraft portfolio at lease
end, beginning in the fourth quarter of 1999.
Interest expense decreased during the three months ended March 31, 2000, as
compared to the same period in 1999, due to the continuing payments being made
on the TWA hushkit notes payable.
Administration expenses increased during the three months ended March 31, 2000,
as compared to the same period in 1999, primarily due to bank and consulting
fees incurred for the research and reissue of a large number of investor
distribution checks during the three months ended March 31, 2000. There were no
such fees during the same period in 1999.
Interest income increased during the three months ended March 31, 2000, as
compared to the same period in 1999, primarily due to higher average cash
reserves and a higher rate of return on those cash reserves over the same
periods.
The increase in the deferred income balance at March 31, 2000 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, 2000 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 2000 lease payment. On April 3, 2000, the Partnership
received its $850,000 rental payment from TWA that was due on March 27, 2000.
This amount was included in rent and other receivables on the balance sheet at
March 31, 2000.
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
9
<PAGE>
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 during the three
months ended March 31, 2000 and 1999 were $1,324,894, or $2.65 per limited
partnership unit, and $2,299,816, or $4.60 per unit, respectively. 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; and the receipt of rental payments from TWA.
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) 1999 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K), 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 in Part III of the Partnership's 1999 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 III,
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 11, 2000 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
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 12334963
<SECURITIES> 0
<RECEIVABLES> 863499
<ALLOWANCES> 0
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<PP&E> 82184577
<DEPRECIATION> 60083091
<TOTAL-ASSETS> 35299948
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0
0
<COMMON> 0
<OTHER-SE> 28438645
<TOTAL-LIABILITY-AND-EQUITY> 35299948
<SALES> 0
<TOTAL-REVENUES> 2419044
<CGS> 0
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<OTHER-EXPENSES> 1184193
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 1234851
<INCOME-TAX> 0
<INCOME-CONTINUING> 1234851
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1234851
<EPS-BASIC> 2.18
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