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, 1997
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. 33-15551
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POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
State of Organization: California
IRS Employer Identification No. 94-3039169
201 Mission Street, 27th Floor, San Francisco, California 94105
Telephone - (415) 284-7400
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 16 pages.
<PAGE>
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
FORM 10-Q - For the Quarterly Period Ended March 31, 1997
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 1997 and
December 31, 1996.......................................3
b) Statements of Income - Three Months Ended
March 31, 1997 and 1996.................................4
c) Statements of Changes in Partners' Capital
(Deficit) - Year Ended December 31, 1996
and Three Months Ended March 31, 1997...................5
d) Statements of Cash Flows - Three Months
Ended March 31, 1997 and 1996...........................6
e) Notes to Financial Statements...........................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......10
Part II. Other Information
Item 1. Legal Proceedings..................................14
Item 5. Other Information..................................14
Item 6. Exhibits and Reports on Form 8-K...................15
Signature ...................................................16
2
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Part I. Financial Information
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 23,197,768 $ 23,989,285
RENT AND OTHER RECEIVABLES 989,410 943,708
AIRCRAFT, net of accumulated depreciation of
$89,838,001 in 1997 and $88,490,049 in 1996 28,839,443 30,187,395
OTHER ASSETS, net of accumulated amortization
of $2,191,165 in 1997 and $2,188,151 in 1996 52,354 22,099
------------ ------------
$ 53,078,975 $ 55,142,487
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 216,361 $ 216,319
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 277,031 322,513
LESSEE SECURITY DEPOSITS 1,137,356 1,124,529
MAINTENANCE RESERVES 5,258,503 5,409,620
------------ ------------
Total Liabilities 6,889,251 7,072,981
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (3,994,189) (3,975,366)
Limited Partners, 499,964 units
issued and outstanding 50,183,913 52,044,872
------------ ------------
Total Partners' Capital 46,189,724 48,069,506
------------ ------------
$ 53,078,975 $ 55,142,487
============ ============
The accompanying notes are an integral part of these statements.
3
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POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
REVENUES:
Rent from operating leases $2,132,642 $3,141,763
Interest 291,123 411,039
Other 16,333 --
---------- ----------
Total Revenues 2,440,098 3,552,802
---------- ----------
EXPENSES:
Depreciation and amortization 1,350,966 2,022,332
Management fees to general partner 106,632 142,088
Provision for credit losses -- 307,127
Operating 5,318 97,675
Administration and other 79,386 62,961
---------- ----------
Total Expenses 1,542,302 2,632,183
---------- ----------
NET INCOME $ 897,796 $ 920,619
========== ==========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 258,935 $ 321,652
========== ==========
NET INCOME ALLOCATED TO
LIMITED PARTNERS $ 638,861 $ 598,967
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 1.28 $ 1.20
========== ==========
The accompanying notes are an integral part of these statements.
4
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POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1996 and
Three Months Ended March 31, 1997
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1995 $ (3,651,904) $ 84,055,091 $ 80,403,187
Net income (loss) 1,065,327 (19,511,119) (18,445,792)
Cash distributions to partners (1,388,789) (12,499,100) (13,887,889)
------------ ------------ ------------
Balance, December 31, 1996 (3,975,366) 52,044,872 48,069,506
Net income 258,935 638,861 897,796
Cash distributions to partners (277,758) (2,499,820) (2,777,578)
------------ ------------ ------------
Balance, March 31, 1997 $ (3,994,189) $ 50,183,913 $ 46,189,724
============ ============ ============
The accompanying notes are an integral part of these statements.
5
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POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
OPERATING ACTIVITIES:
Net income $ 897,796 $ 920,619
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,350,966 2,022,332
Provision for credit losses -- 307,127
Changes in operating assets and liabilities:
Increase in rent and other receivables (45,702) (309,131)
Increase in other assets (33,269) --
Increase in payable to affiliates 42 6,055
Increase (decrease) in accounts payable
and accrued liabilities (45,482) 60,904
Increase in lessee security deposits 12,827 12,435
Decrease in maintenance reserves (151,117) (625,052)
Decrease in deferred income -- (382,500)
------------ ------------
Net cash provided by operating activities 1,986,061 2,012,789
------------ ------------
INVESTING ACTIVITIES:
Principal payments on notes receivable -- 1,477,205
------------ ------------
Net cash provided by investing activities -- 1,477,205
------------ ------------
FINANCING ACTIVITIES:
Cash distributions to partners (2,777,578) (3,471,972)
------------ ------------
Net cash used in financing activities (2,777,578) (3,471,972)
------------ ------------
CHANGES IN CASH AND CASH
EQUIVALENTS (791,517) 18,022
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 23,989,285 23,456,031
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 23,197,768 $ 23,474,053
============ ============
The accompanying notes are an integral part of these statements.
6
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POLARIS AIRCRAFT INCOME FUND IV,
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 IV'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. These statements should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1996, 1995, and
1994 included in the Partnership's 1996 Annual Report to the SEC on Form 10-K
(Form 10-K).
2. Proposed Sale of Aircraft
During the first quarter of 1997, the Partnership received, and the General
Partner (upon recommendation of its servicer) has determined that it would be in
the best interests of the Partnership to accept an offer to purchase all of the
Partnership's aircraft (the "Aircraft") and certain of its notes receivable by a
special purpose company (the "Purchaser"). The Purchaser is managed by Triton
Aviation Services Limited, a privately held aircraft leasing company (the
"Purchaser's Manager") which was formed in 1996. Each Aircraft is to be sold
subject to the existing leases, and as part of the transaction the Purchaser
assumes all obligations relating to maintenance reserves and security deposits,
if any, relating to such leases. At the same time cash balances related to
maintenance reserves and security deposits, if any, will be transferred to the
Purchaser.
The total proposed purchase price (the "Purchase Price") to be paid by the
Purchaser in the contemplated transaction would be $29,748,000 which would be
allocable to the Aircraft and to certain notes receivable by the Partnership.
The Purchaser proposes to pay $3,351,410 of the Purchase Price in cash at the
closing and the balance of $26,396,590 would be paid by delivery of a promissory
note (the "Promissory Note") by the Purchaser. The Promissory Note would be
repaid in equal quarterly installments over a period of seven years bearing
interest at a rate of 12% per annum with a balloon principal payment at the end
of year seven. The Purchaser would have the right to voluntarily prepay the
Promissory Note in whole or in part at any time without penalty. In addition,
the Promissory Note would be subject to mandatory partial prepayment in certain
specified instances.
Under the terms of the contemplated transaction, the Aircraft, including any
income or proceeds therefrom and any maintenance reserves or deposits with
respect thereto, constitute the sole source of payments under the Promissory
Note. No security interest over the Aircraft or the leases would be granted in
favor of the Partnership, but the equity interests in the Purchaser would be
pledged to the Partnership. The Purchaser would have the right to sell the
Aircraft, or any of them, without the consent of the Partnership, except that
the Partnership's consent would be required in the event that the proposed sale
price is less than the portion of the outstanding balance of the Promissory Note
which is allocable to the Aircraft in question and the Purchaser does not have
sufficient funds to make up the difference. The Purchaser would undertake to
keep the Aircraft and leases free of any lien, security interest or other
encumbrance other than (i) inchoate materialmen's liens and the like, and (ii)
in the event that the Purchaser elects to install hushkits on any Aircraft,
secured debt to the extent of the full cost of such hushkit. The Purchaser will
7
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be prohibited from incurring indebtedness other than (i) the Promissory Note;
(ii) deferred taxes not yet due and payable; (iii) indebtedness incurred to
hushkit Aircraft owned by the Purchaser and, (iv) demand loans from another SPC
(defined below) at a market rate of interest.
It is also contemplated that each of Polaris Aircraft Income Fund II, Polaris
Aircraft Income Fund III, Polaris Aircraft Income Fund V and Polaris Aircraft
Income Fund VI would sell certain aircraft assets to separate special purpose
companies under common management with the Purchaser (collectively, together
with the Purchaser, the "SPC's") on terms similar to those set forth above.
Under the terms of the contemplated transaction, Purchaser's Manager would
undertake to make available a working capital line to the Purchaser of up to
approximately $2,598,000 to fund operating obligations of the Purchaser. This
working capital line is to be guaranteed by Triton Investments Limited, the
parent of the Purchaser's Manager and such guarantor will provide the
Partnership with a copy of its most recent balance sheet showing a consolidated
net worth (net of minority interests) of at least $150-million. Furthermore,
pursuant to the respective operating agreements of each SPC, including the
Purchaser, the Purchaser's Manager would provide to each SPC all normal and
customary management services including remarketing, sales and repossession, if
necessary. Provided that the Purchaser is not in default in making payments due
under the Promissory Note to the Partnership, the Purchaser would be permitted
to dividend to its equity owners an amount not to exceed approximately $70,000
per month. The Purchaser may distribute additional dividends to the equity
owners to the extent of the working capital advances made by the Purchaser's
Manager provided that the working capital line available to the Purchaser will
be deemed increased to the extent of such dividends.
The Purchaser would be deemed to have purchased the Aircraft effective as of
April 1, 1997 notwithstanding the actual closing date. The Purchaser would have
the right to receive all income and proceeds, including rents and notes
receivables, from the Aircraft accruing from and after April 1, 1997, and the
Promissory Note would commence bearing interest as of April 1, 1997.
The Partnership has agreed to consult with Purchaser's Manager before taking any
significant action pertaining to the Aircraft after the effective date of the
purchase offer. The Purchaser also has the right to make all significant
decisions regarding the Aircraft from and after the date of completion of
definitive documentation legally binding the Purchaser and the Partnership to
the transaction, even if a delay occurs between the completion of such
documentation and the closing of the title transfer to the Purchaser.
In the event the Partnership receives and elects to accept an offer for all (but
not less than all) of the assets to be sold by it to the Purchaser on terms
which it deems more favorable, the Purchaser has the right to (i) match the
offer, or (ii) decline to match the offer and be entitled to compensation in an
amount equal to 1 1/2% of the Purchaser's proposed Purchase Price.
The Partnership adopted, effective January 1, 1996, SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." That statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The purchase offer constitutes a change in
circumstances which, pursuant to SFAS No. 121, requires the Partnership to
review the Aircraft for impairment. As previously discussed in Note 3 of the
Partnership's financial statements for the year ended December 31, 1996 included
in Form 10-K, the Partnership has determined that an impairment loss must be
recognized. In determining the amount of the impairment loss, the Partnership
estimated the "fair value" of the Aircraft based on the proposed Purchase Price
reflected in the contemplated transaction, less the estimated costs and expenses
of the proposed sale. The Partnership is deemed to have an impairment loss to
the extent that the carrying value exceeded the fair value. Management believes
the assumptions related to the fair value of impaired assets represent the best
estimates based on reasonable and supportable assumptions and projections.
It should be noted that there can be no assurance that the contemplated sale
transaction will be consummated. The contemplated transaction remains subject to
execution of definitive documentation and various other contingencies.
8
<PAGE>
3. 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, 1997 March 31, 1997
-------------- --------------
Aircraft Management Fees $104,334 $ 56,971
Out-of-Pocket Administrative Expense
Reimbursement 119,670 127,977
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 100,100 31,413
-------- --------
$324,104 $216,361
======== ========
9
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
At March 31, 1997, Polaris Aircraft Income Fund IV (the Partnership) owned a
portfolio of 13 used commercial jet aircraft out of its original portfolio of 33
aircraft. The portfolio includes five DC-9-30 aircraft leased to Continental
Airlines, Inc. (Continental); two Boeing 727-200 Advanced aircraft leased to
American Trans Air, Inc. (ATA); two Boeing 737-200 Advanced aircraft leased to
Independent Aviation Group Limited (IAG); two Boeing 737-200 Advanced aircraft
leased to TBG Airways Limited (TBG Airways); and two Boeing 737-200 aircraft
formerly leased to Viscount Air Services, Inc. (Viscount) which were returned to
the Partnership in September and October 1996. One Boeing 727-100 was declared a
casualty loss due to an accident in 1991, fourteen Boeing 727-100 Freighters
were sold in 1993, and five Boeing 727-200 aircraft were sold in May 1994. Two
Boeing 727-100 aircraft, that were transferred to the Partnership by ATA, were
sold in 1994.
Remarketing Update
Proposed Sale of Aircraft - During the first quarter of 1997, the Partnership
received, and the General Partner (upon recommendation of its servicer) has
determined that it would be in the best interests of the Partnership to accept
an offer to purchase all of the Partnership's aircraft (the "Aircraft") and
certain of its notes receivable by a special purpose company (the "Purchaser").
The Purchaser is managed by Triton Aviation Services Limited, a privately held
aircraft leasing company (the "Purchaser's Manager") which was formed in 1996.
Each Aircraft is to be sold subject to the existing leases, and as part of the
transaction the Purchaser assumes all obligations relating to maintenance
reserves and security deposits, if any, relating to such leases. At the same
time cash balances related to maintenance reserves and security deposits, if
any, will be transferred to the Purchaser.
The total proposed purchase price (the "Purchase Price") to be paid by the
Purchaser in the contemplated transaction would be $29,748,000 which would be
allocable to the Aircraft and to certain notes receivable by the Partnership.
The Purchaser proposes to pay $3,351,410 of the Purchase Price in cash at the
closing and the balance of $26,396,590 would be paid by delivery of a promissory
note (the "Promissory Note") by the Purchaser. The Promissory Note would be
repaid in equal quarterly installments over a period of seven years bearing
interest at a rate of 12% per annum with a balloon principal payment at the end
of year seven. The Purchaser would have the right to voluntarily prepay the
Promissory Note in whole or in part at any time without penalty. In addition,
the Promissory Note would be subject to mandatory partial prepayment in certain
specified instances.
Under the terms of the contemplated transaction, the Aircraft, including any
income or proceeds therefrom and any maintenance reserves or deposits with
respect thereto, constitute the sole source of payments under the Promissory
Note. No security interest over the Aircraft or the leases would be granted in
favor of the Partnership, but the equity interests in the Purchaser would be
pledged to the Partnership. The Purchaser would have the right to sell the
Aircraft, or any of them, without the consent of the Partnership, except that
the Partnership's consent would be required in the event that the proposed sale
price is less than the portion of the outstanding balance of the Promissory Note
which is allocable to the Aircraft in question and the Purchaser does not have
sufficient funds to make up the difference. The Purchaser would undertake to
keep the Aircraft and leases free of any lien, security interest or other
encumbrance other than (i) inchoate materialmen's liens and the like, and (ii)
in the event that the Purchaser elects to install hushkits on any Aircraft,
secured debt to the extent of the full cost of such hushkit. The Purchaser will
be prohibited from incurring indebtedness other than (i) the Promissory Note;
(ii) deferred taxes not yet due and payable; (iii) indebtedness incurred to
hushkit Aircraft owned by the Purchaser and, (iv) demand loans from another SPC
(defined below) at a market rate of interest.
It is also contemplated that each of Polaris Aircraft Income Fund II, Polaris
Aircraft Income Fund III, Polaris Aircraft Income Fund V and Polaris Aircraft
10
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Income Fund VI would sell certain aircraft assets to separate special purpose
companies under common management with the Purchaser (collectively, together
with the Purchaser, the "SPC's") on terms similar to those set forth above.
Under the terms of the contemplated transaction, Purchaser's Manager would
undertake to make available a working capital line to the Purchaser of up to
approximately $2,598,000 to fund operating obligations of the Purchaser. This
working capital line is to be guaranteed by Triton Investments Limited, the
parent of the Purchaser's Manager and such guarantor will provide the
Partnership with a copy of its most recent balance sheet showing a consolidated
net worth (net of minority interests) of at least $150-million. Furthermore,
pursuant to the respective operating agreements of each SPC, including the
Purchaser, the Purchaser's Manager would provide to each SPC all normal and
customary management services including remarketing, sales and repossession, if
necessary. Provided that the Purchaser is not in default in making payments due
under the Promissory Note to the Partnership, the Purchaser would be permitted
to dividend to its equity owners an amount not to exceed approximately $70,000
per month. The Purchaser may distribute additional dividends to the equity
owners to the extent of the working capital advances made by the Purchaser's
Manager provided that the working capital line available to the Purchaser will
be deemed increased to the extent of such dividends.
The Purchaser would be deemed to have purchased the Aircraft effective as of
April 1, 1997 notwithstanding the actual closing date. The Purchaser would have
the right to receive all income and proceeds, including rents and notes
receivables, from the Aircraft accruing from and after April 1, 1997, and the
Promissory Note would commence bearing interest as of April 1, 1997.
The Partnership has agreed to consult with Purchaser's Manager before taking any
significant action pertaining to the Aircraft after the effective date of the
purchase offer. The Purchaser also has the right to make all significant
decisions regarding the Aircraft from and after the date of completion of
definitive documentation legally binding the Purchaser and the Partnership to
the transaction, even if a delay occurs between the completion of such
documentation and the closing of the title transfer to the Purchaser.
In the event the Partnership receives and elects to accept an offer for all (but
not less than all) of the assets to be sold by it to the Purchaser on terms
which it deems more favorable, the Purchaser has the right to (i) match the
offer, or (ii) decline to match the offer and be entitled to compensation in an
amount equal to 1 1/2% of the Purchaser's proposed Purchase Price.
It should be noted that there can be no assurance that the contemplated sale
transaction will be consummated. The contemplated transaction remains subject to
execution of definitive documentation and various other contingencies.
Partnership Operations
The Partnership recorded net income of $897,796, or $1.28 per limited
partnership unit, for the three months ended March 31, 1997, compared to net
income of $920,619, or $1.20 per unit, for the same period in 1996.
Rental revenues, net of related management fees, decreased during the three
months ended March 31, 1997 as compared to the same period in 1996. This
decrease was the result of the absence of rental revenues from the two aircraft
formerly leased to Viscount, which were returned to the Partnership in September
and October 1996. In addition, rental revenues decreased from the Continental
leases that were renewed in June 1996 for a one-year term through June 1997 at
the current market lease rate which is approximately 51% of the prior lease
rate. Rental revenues from Continental further decreased during the three months
ended March 31, 1997 as compared to the same period in 1996, due to Continental
having completed its payment of the deferred rental amounts in the first quarter
of 1997, which have been recognized as income when received.
11
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Operating results during the first three months of 1996 reflect a provision for
credit losses recorded in 1996 for certain rent and interest receivables from
Viscount combined with legal expenses incurred during the first quarter of 1996
related to the Viscount default and Chapter 11 bankruptcy filing.
The Partnership has recorded an allowance for credit losses during the first
quarter of 1996 for certain unpaid rent and accrued interest receivables from
Viscount during the first quarter of 1996 as a result of Viscount's default on
certain obligations due the Partnership and Viscount's subsequent bankruptcy
filing. The aggregate allowance for credit losses of $307,127 for these
obligations is reflected in the provision for credit losses in the Partnership's
statement of operations for the three months ended March 31, 1996. In addition,
the Partnership recognized legal costs of approximately $97,000 related to the
Viscount default and its Chapter 11 bankruptcy filing. These legal costs are
reflected as operating expense in the Partnership's statement of operations for
the three months ended March 31, 1996.
The Partnership recorded depreciation adjustments to certain of the
Partnership's aircraft in 1996. The increased depreciation expense reduces the
aircraft's carrying value and reduces the amount of future depreciation expense
that the Partnership will recognize over the projected remaining economic life
of the aircraft.
Interest income decreased during the three months ended March 31, 1997 as
compared to the same period in 1996 due to the payoff of the ATA note in March
1996 and the Continental note in September 1996, and a decrease in interest
income on the deferred rent payments due from Continental that ended in the
first quarter of 1997.
Administration and other expenses increased during the three months ended March
31, 1997 as compared to the same period in 1996, due to increases in printing
and postage costs combined with an increase in outside services.
Liquidity and Cash Distributions
Liquidity - As previously discussed in the Form 10-K, the Continental leases
provide for payment by the Partnership of the costs of certain maintenance work,
Airworthiness Directive (AD) compliance, aircraft modification and refurbishment
costs, which are not to exceed approximately $4.9 million, a portion of which
will be recovered with interest through payments from Continental over the lease
terms. The Partnership is currently obligated to pay or finance up to
approximately $2.3 million in remaining qualifying costs under the agreement.
The ATA leases specify that the Partnership may finance up to two aircraft
hushkits at an aggregate cost of approximately $5.2 million, a portion of which
would be partially recovered with interest through payments from ATA over an
extended lease term.
The Partnership receives maintenance reserve payments from certain of its
lessees 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, as specified in the leases. Maintenance reserve balances, if any,
remaining at the termination of the lease may be used by the Partnership to
offset future maintenance expenses, recognized as revenue, or reimbursed to the
lessee. The net maintenance reserve balances aggregate $5,258,503 as of March
31, 1997.
The Partnership is retaining cash reserves to finance a portion of the costs
that may be incurred under the leases with Continental and ATA, and to cover
other cash requirements, including the potential costs of remarketing the
Partnership aircraft.
Cash Distributions - Cash distributions to limited partners were $2,499,820 or
$5.00 per limited partnership unit, and $3,124,775, or $6.25 per limited
12
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partnership unit during the three months ended March 31, 1997 and 1996,
respectively. The timing and amount of future cash distributions to partners are
not yet known and will depend on the Partnership's future cash requirements, the
receipt from Continental of modification financing payments; the receipt of
rental payments from Continental, ATA, IAG and TBG Airways; and consummation of
the Sale Transaction and timely performance by the Purchaser of its obligations
to the Partnership under the Promissory Note.
13
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund IV's (the
Partnership) 1996 Annual Report to the Securities and Exchange Commission (SEC)
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 except:
Equity Resources, Inc, et al v. Polaris Investment Management Corporation, et al
- - On or about April 18, 1997, an action entitled Equity Resources Group, Inc.,
et al v. Polaris Investment Management Corporation, et al was filed in the
Superior Court for the County of Middlesex, Commonwealth of Massachusetts. The
complaint names each of Polaris Investment Management Corporation, Polaris
Aircraft Income Fund II, Polaris Aircraft Income Fund III, the Partnership,
Polaris Aircraft Income Fund V and Polaris Aircraft Income Fund VI, as
defendants. The complaint alleges that Polaris Investment Management
Corporation, as general partner of each of the partnerships, committed a breach
of its fiduciary duties, violated applicable partnership law statutory
requirement, and breached provisions of the partnership agreements of each of
the foregoing partnerships by failing to solicit a vote of the limited partners
in each of such partnership in connection with the Sale Transaction described in
Note 2 and in failing to disclose material facts relating to such transaction.
Plaintiffs filed a motion seeking to enjoin the Sale Transaction, which motion
was denied by the court on May 6, 1997.
Other Proceedings - Item 10 in Part III of the Partnership's 1996 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. With the exception of
Novak, et al v. Polaris Holding Company, et al, (which has been dismissed, as
discussed in the 1996 Form 10-K) where the Partnership was named as a defendant
for procedural purposes, 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 except:
In Re Prudential Securities Inc. Limited Partnership Litigation - On April 22,
1997, the Polaris defendants entered into a settlement agreement with plaintiffs
pursuant to which, among other things, the Polaris defendants agreed to pay
$22.5 million to a class of unitholders previously certified by the Court. On
April 29, 1997, Judge Pollack signed an order preliminarily approving the
settlement. Under the terms of the order, (i) lead class counsel is required to
mail a notice to all class members on or before May 13, 1997 describing the
terms of the settlement; (ii) requests for exclusion from the class must be
mailed to the Claims Administrator no later than June 27, 1997; and (iii) a
hearing on the fairness of the settlement and other matters is scheduled to be
held before Judge Pollack on August 1, 1997.
Item 5. Other Information
The General Partner has determined that it would be in the best interests of the
Partnership to withhold its consent to any proposal to transfer interests in the
Partnership received after April 21, 1997 for the balance of 1997. Due to the
number of transfers which occurred prior to April 21, 1997, the General Partner
concluded that this action was necessary to prevent the Partnership from being
treated as a "publicly-traded partnership" as defined in the Internal Revenue
Code. A "publicly-traded partnership" is treated as a corporation for Federal
income tax purposes, with the result that such an entity pays Federal corporate
income tax on its taxable income and its partners must include in their taxable
income as dividends all distributions received to the extent that such
distributions are paid out of current and accumulated earnings. Thus, the
General Partner is taking this action in an attempt to protect the Partnership
against the risk of such an adverse tax consequence.
14
<PAGE>
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.
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.
15
<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 IV,
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 8, 1997 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)
16
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