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. 33-21977
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POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
State of Organization: California
IRS Employer Identification No. 94-3068259
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 15 pages.
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POLARIS AIRCRAFT INCOME FUND V,
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 Operations - 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 6. Exhibits and Reports on Form 8-K......................14
Signature ......................................................15
2
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Part I. Financial Information
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 24,276,373 $ 23,252,136
RENT AND OTHER RECEIVABLES 1,815,020 1,371,941
NOTES RECEIVABLE 11,763,788 12,118,157
AIRCRAFT, net of accumulated depreciation of
$138,898,100 in 1997 and $146,813,332 in 1996 33,317,533 35,852,034
OTHER ASSETS 31,877 --
------------ ------------
$ 71,204,591 $ 72,594,268
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 349,197 $ 231,741
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 17,619 73,093
SECURITY DEPOSITS 225,000 475,000
MAINTENANCE RESERVES 1,177,407 1,306,018
------------ ------------
Total Liabilities 1,769,223 2,085,852
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (1,516,435) (1,505,679)
Limited Partners, 500,000 units
issued and outstanding 70,951,803 72,014,095
------------ ------------
Total Partners' Capital 69,435,368 70,508,416
------------ ------------
$ 71,204,591 $ 72,594,268
============ ============
The accompanying notes are an integral part of these statements.
3
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POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
REVENUES:
Rent from operating leases $2,409,899 $3,546,529
Interest 581,742 291,667
Gain on sale of aircraft -- 121,904
---------- ----------
Total Revenues 2,991,641 3,960,100
---------- ----------
EXPENSES:
Depreciation 978,807 3,179,404
Management fees to general partner 120,495 177,326
Operating 114,627 2,666
Administration and other 72,982 57,818
---------- ----------
Total Expenses 1,286,911 3,417,214
---------- ----------
NET INCOME $1,704,730 $ 542,886
========== ==========
NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 267,022 $ 255,404
========== ==========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $1,437,708 $ 287,482
========== ==========
NET INCOME PER
LIMITED PARTNERSHIP UNIT $ 2.88 $ 0.57
========== ==========
The accompanying notes are an integral part of these statements.
4
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POLARIS AIRCRAFT INCOME FUND V,
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 $ (866,147) $ 135,317,754 $ 134,451,607
Net income (loss) 471,579 (53,303,659) (52,832,080)
Cash distributions to partners (1,111,111) (10,000,000) (11,111,111)
------------- ------------- -------------
Balance, December 31, 1996 (1,505,679) 72,014,095 70,508,416
Net income 267,022 1,437,708 1,704,730
Cash distributions to partners (277,778) (2,500,000) (2,777,778)
------------- ------------- -------------
Balance, March 31, 1997 $ (1,516,435) $ 70,951,803 $ 69,435,368
============= ============= =============
The accompanying notes are an integral part of these statements.
5
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POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
OPERATING ACTIVITIES:
Net income $ 1,704,730 $ 542,886
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 978,807 3,179,404
Gain on sale of aircraft -- (121,904)
Changes in operating assets and liabilities:
Decrease (increase) in rent and other
receivables (443,079) 481,672
Increase in other assets (31,877) --
Increase (decrease) in payable to affiliates 117,456 (558,703)
Decrease in accounts payable and
accrued liabilities (55,474) (119,500)
Decrease in security deposits (250,000) --
Increase (decrease) in maintenance reserves (128,611) 645,614
------------ ------------
Net cash provided by operating activities 1,891,952 4,049,469
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of aircraft 1,555,694 --
Principal payments on notes receivable -- 386,457
Principal payments on finance sale of aircraft 354,369 121,904
------------ ------------
Net cash provided by investing activities 1,910,063 508,361
------------ ------------
FINANCING ACTIVITIES:
Cash distributions to partners (2,777,778) (2,777,778)
------------ ------------
Net cash used in financing activities (2,777,778) (2,777,778)
------------ ------------
CHANGES IN CASH AND CASH
EQUIVALENTS 1,024,237 1,780,052
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 23,252,136 20,842,611
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 24,276,373 $ 22,622,663
============ ============
The accompanying notes are an integral part of these statements.
6
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POLARIS AIRCRAFT INCOME FUND V,
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 V'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. Sale to Westjet
In February 1997, the Partnership sold one Boeing 737-200 Advanced aircraft
formerly on lease to Southwest Airlines Co. (Southwest), to Westjet Airlines,
Ltd. (Westjet). The Partnership received $1,150,000 in February 1997, and
applied the $250,000 security deposit held in 1996 for a total sales price to
Westjet of $1,400,000. In October 1996, Southwest had paid to the Partnership
$155,694, which was recorded as an increase in maintenance reserves, in lieu of
meeting certain return conditions specified in the lease. Upon the sale of the
aircraft in February 1997, this amount was reported as additional sales revenue.
The combined sales revenue of $1,555,694 approximated the net carrying value of
the aircraft.
3. 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 remaining aircraft (the "Aircraft") and certain of its notes
receivables 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 $46,188,000 which would be
allocable to the Aircraft and to certain notes receivable by the Partnership.
The Purchaser proposes to pay $5,203,540 of the Purchase Price in cash at the
closing and the balance of $40,984,460 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.
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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 IV 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 SPC of up to
approximately $4,034,000 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 $108,000
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 any 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 the
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
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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.
4. 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 $110,849 $ 97,108
Out-of-Pocket Administrative Expense
Reimbursement 109,873 111,348
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 181,802 140,741
-------- --------
$402,524 $349,197
======== ========
5. Subsequent Event
In May 1997, a third party expressed potential interest in submitting a bid for
the purchase of the Partnership aircraft (the Competing Offer). If a bid is
submitted by the third party by May 12, 1997, the Competing Offer will be
reviewed and evaluated by the Partnership in order to determine if the terms are
more favorable than the pending offer.
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 V (the Partnership) owned a
portfolio of 12 used commercial jet aircraft. The portfolio includes four Boeing
737-200 Advanced aircraft leased to Southwest Airlines Co. (Southwest); three
Boeing 727-200 Advanced aircraft leased to American Trans Air, Inc. (ATA), two
Boeing 727-200 Advanced aircraft leased to Sun Country Airlines, Inc. (Sun
Country), two Boeing 737-200 Advanced aircraft formerly leased and returned by
Southwest in 1996 upon expiration of these leases, and one Boeing 747-100
Special Freighter aircraft leased to Polar Air Cargo, Inc. (Polar Air Cargo).
Remarketing Update
Sale to Westjet - In February 1997, the Partnership sold one Boeing 737-200
Advanced aircraft formerly on lease to Southwest Airlines Co. (Southwest), to
Westjet Airlines, Ltd. (Westjet). The Partnership received $1,150,000 in
February 1997, and applied the $250,000 security deposit held in 1996 for a
total sales price to Westjet of $1,400,000. In October 1996, Southwest had paid
to the Partnership $155,694, which was recorded as an increase in maintenance
reserves, in lieu of meeting certain return conditions specified in the lease.
Upon the sale of the aircraft in February 1997, this amount was reported as
additional sales revenue. The combined sales revenue of $1,555,694 approximated
the net carrying value of the aircraft.
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 remaining aircraft (the
"Aircraft") and certain of its notes receivables 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 $46,188,000 which would be
allocable to the Aircraft and to certain notes receivable by the Partnership.
The Purchaser proposes to pay $5,203,540 of the Purchase Price in cash at the
closing and the balance of $40,984,460 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,
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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 IV 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 SPC of up to
approximately $4,034,000 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 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 $108,000 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 any 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 the
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.
Competing Offer to Purchase Aircraft - In May 1997, a third party expressed
potential interest in submitting a bid for the purchase of the Partnership
aircraft (the Competing Offer). If a bid is submitted by the third party by May
12, 1997, the Competing Offer will be reviewed and evaluated by the Partnership
in order to determine if the terms are more favorable than the pending offer.
Partnership Operations
The Partnership recorded net income of $1,704,730, or $2.88 per limited
partnership unit, for the three months ended March 31, 1997, compared to net
11
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income of $542,886, or $0.57 per unit, for the same period in 1996. The
significant improvement in operating results in the three months ended March 31,
1997 compared to the same period in 1996 is due primarily to lower depreciation
expense.
The decrease in depreciation expense during the three months ended March 31,
1997 compared to the same period in 1996 is attributable to impairments on
aircraft recognized during the fourth quarter of 1996. The impairments
recognized during the fourth quarter of 1996 reduce the aircraft's net carrying
value and reduce the amount of future depreciation expense that the Partnership
will recognize over the projected economic life of the aircraft.
Rental revenues, net of related management fees, decreased during the three
months ended March 31, 1997 as compared to the same period in 1996 due to the
expiration of several leases during 1996. In May 1996, the aircraft lease for
the Boeing 747-100 Special Freighter expired and the aircraft was sold to
American International Airways Limited (AIA) in June 1996, resulting in a
decrease in rental revenues in 1997 compared to 1996. In October and December
1996, three aircraft leased to Southwest reached the end of their lease terms
and were returned to the Partnership, resulting in further reductions in rental
revenues during 1997 compared to 1996.
One of the three aircraft returned by Southwest in 1996 was sold in February
1997 to Westjet for $1,400,000. In October 1996, Southwest had paid to the
Partnership $155,694, which was recorded as an increase in maintenance reserves,
in lieu of meeting certain return conditions specified in the lease. Upon the
sale of the aircraft in February 1997, this amount was reported as additional
sales revenue. The combined sales revenue of $1,555,694 approximated the net
carrying value of the aircraft.
During the three months ended March 31, 1996, the Partnership received principal
and interest payments due from Aeroperu totaling $132,000, of which $121,904 was
recorded as gain on sale in the statement of operations for the three months
ended March 31, 1996. In July 1996, the Partnership received the final payments
due from Aeroperu.
Interest income increased during the three months ended March 31, 1997 compared
to the same period in 1996, due to the recognition of interest income on a note
receivable from AIA. In June 1996, the Partnership sold a Boeing 747-100 Special
Freighter to AIA. The Partnership agreed to accept payment of the sale price
with interest in 60 monthly installments beginning in July 1996. As a result,
the Partnership recognized interest income on this note of approximately
$295,000 during the three months ended March 31, 1997 as compared to $0 during
the same period in 1996.
Impacting operating results during the first quarter of 1997 compared to 1996,
was increased maintenance expenses incurred on the Partnership's aircraft.
Maintenance expense of approximately $109,000 is included in operating expense
for the three months ended March 31, 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 - The Partnership continues to receive lease payments on a current
basis from all leases except Polar Air Cargo which is currently past due. 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 remaining at the
termination of the lease may be used by the Partnership to offset future
maintenance expenses. The net maintenance reserve balance is $1,177,407 as of
March 31, 1997.
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The Partnership's cash reserves are being retained for potential maintenance
costs the Partnership has agreed to incur on certain of its aircraft, and to
finance a portion of the hushkit costs that may be incurred under the leases
with ATA. The ATA leases specify the Partnership may be required to finance
certain aircraft hushkits at an aggregate cost of approximately $7.8 million,
which would be partially recovered with interest through payments from ATA over
an extended lease term.
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 1997 and 1996 were $2,500,000, or $5.00 per limited
partnership unit, for each period. The amount of future cash distributions will
depend upon the Partnership's future cash requirements including the potential
costs of remarketing the Partnership's aircraft, the receipt of the rental
payments from Southwest, ATA, Sun Country and Polar Air Cargo; and consummation
of the Sale Transaction and timely performance by Purchaser of its obligations
to the Partnership under the Promissory Note.
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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 V'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, Polaris Aircraft
Income Fund IV, the Partnership 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 3 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 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.
14
<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 V,
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)
15
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<ARTICLE>5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 24276373
<SECURITIES> 0
<RECEIVABLES> 13578808
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 172215633
<DEPRECIATION> 138898100
<TOTAL-ASSETS> 71204591
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 69435368
<TOTAL-LIABILITY-AND-EQUITY> 71204591
<SALES> 0
<TOTAL-REVENUES> 2991641
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1286911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1704730
<INCOME-TAX> 0
<INCOME-CONTINUING> 1704730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1704730
<EPS-PRIMARY> 2.88
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</TABLE>
