UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 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 15 pages.
<PAGE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
FORM 10-Q - For the Quarterly Period Ended September 30, 1998
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - September 30, 1998 and
December 31, 1997...........................................3
b) Statements of Operations - Three and Nine Months
Ended September 30, 1998 and 1997...........................4
c) Statements of Changes in Partners' Capital
(Deficit) -Year Ended December 31, 1997
and Nine Months Ended September 30, 1998....................5
d) Statements of Cash Flows - Nine Months
Ended September 30, 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......................................12
Item 6. Exhibits and Reports on Form 8-K.......................13
Signature .......................................................14
2
<PAGE>
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 1,733,685 $ 53,802,187
RECEIVABLES 1,363 2,012
------------ ------------
$ 1,735,048 $ 53,804,199
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 244,678 $ 103,569
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 41,021 53,436
------------ ------------
Total Liabilities 285,699 157,005
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (6,888,908) (1,674,489)
Limited Partners, 500,000 units
issued and outstanding 8,338,257 55,321,683
------------ ------------
Total Partners' Capital 1,449,349 53,647,194
------------ ------------
$ 1,735,048 $ 53,804,199
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Rent from operating leases $ -- $ -- $ -- $3,911,355
Interest 24,536 1,384,951 396,553 2,833,059
---------- ---------- ----------- ----------
Total Revenues 24,536 1,384,951 396,553 6,744,414
---------- ---------- ----------- ----------
EXPENSES:
Depreciation and amortization -- -- -- 2,297,427
Management fees to general partner -- -- -- 120,495
Operating 96,319 5,632 230,203 139,508
Administration and other 50,592 83,086 219,751 268,447
---------- ---------- ----------- ----------
Total Expenses 146,911 88,718 449,954 2,825,877
---------- ---------- ----------- ----------
NET INCOME (LOSS) $ (122,375) $1,296,233 $ (53,401) $3,918,537
========== ========== =========== ==========
NET INCOME (LOSS) ALLOCATED
TO THE GENERAL PARTNER $ (1,223) $1,161,347 $ 25 $1,812,508
========== ========== =========== ==========
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ (121,152) $ 134,886 $ (53,426) $2,106,029
========== ========== =========== ==========
NET INCOME (LOSS) PER
LIMITED PARTNERSHIP UNIT $ (0.25) $ 0.27 $ (0.11) $ 4.21
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1997 and
Nine Months Ended September 30, 1998
------------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1996 $ (1,505,679) $ 72,014,095 $ 70,508,416
Net income 2,022,302 3,027,587 5,049,889
Cash distributions to partners (2,191,112) (19,719,999) (21,911,111)
------------ ------------ ------------
Balance, December 31, 1997 (1,674,489) 55,321,683 53,647,194
Net income (loss) 25 (53,426) (53,401)
Cash distributions to partners (5,214,444) (46,930,000) (52,144,444)
------------ ------------ ------------
Balance, September 30, 1998 $ (6,888,908) $ 8,338,257 $ 1,449,349
============ ============ ============
The accompanying notes are an integral part of these statements.
5
<PAGE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ (53,401) $ 3,918,537
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation -- 2,297,427
Changes in operating assets and liabilities:
Decrease in rent and other receivables 649 144,891
Increase in payable to affiliates 141,109 44,162
Decrease in accounts payable and
accrued liabilities (12,415) (173,849)
Decrease in security deposits -- (225,000)
Decrease in maintenance reserves -- (909,642)
------------ ------------
Net cash provided by operating
activities 75,942 5,096,526
------------ ------------
INVESTING ACTIVITIES:
Increase in notes receivable -- (30,155)
Proceeds from sale of aircraft -- 5,722,173
Payments to Purchaser related to sale of
aircraft -- (2,290,443)
Principal payments on notes receivable -- 1,192,236
Principal payments on finance sale of aircraft -- 533,770
------------ ------------
Net cash provided by investing
activities -- 5,127,581
------------ ------------
FINANCING ACTIVITIES:
Cash distributions to partners (52,144,444) (19,705,555)
------------ ------------
Net cash used in financing activities (52,144,444) (19,705,555)
------------ ------------
CHANGES IN CASH AND CASH
EQUIVALENTS (52,068,502) (9,481,448)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 53,802,187 23,252,136
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,733,685 $ 13,770,688
============ ============
The accompanying notes are an integral part of these statements.
6
<PAGE>
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 (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 the
Three Months Ended Payable at
September 30, 1998 September 30, 1998
------------------ ------------------
Out-of-Pocket Administrative and Selling
Expense Reimbursement $102,494 $ 25,908
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 12,615 218,770
-------- --------
$115,109 $244,678
======== ========
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
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.
7
<PAGE>
4. Subsequent Event
On November 9, 1998, defendants, acting through their counsel, entered into a
settlement agreement with plaintiffs in two related actions entitled Ron Wallace
v. Polaris Investment Management Corporation, et al. and Accelerated High Yield
Income Fund v. Polaris Investment Management Corporation, et al. The settlement
is subject to final approval by the Court. The settlement agreement provides,
among other things, that the Partnership will receive a payment totaling $2.9
million in settlement of both actions, from which an as yet undetermined (and
potentially significant) amount of fees and expenses of plaintiff's counsel will
be deducted. A settlement notice setting forth the terms of the settlement will
be mailed to the last known address of each unitholder of the Partnership by
November 20, 1998. On November 10, 1998, the Court preliminarily approved the
settlement. A hearing to determine whether the settlement should be finally
approved by the Court is scheduled for December 22, 1998.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As discussed below under "Liquidity and Cash Distributions," Polaris Investment
Management Corporation (PIMC or the General Partner), is in the process of
winding up the business of Polaris Aircraft Income Fund V (the Partnership).
During 1997, the Partnership sold its remaining portfolio of 13 used aircraft
out of its original portfolio of 14 aircraft.
Partnership Operations
The Partnership recorded a net loss of $122,375, or $0.25 per limited
partnership unit, for the three months ended September 30, 1998, compared to net
income of $1,296,233, or $0.27 per limited partnership unit, for the same period
in 1997. The Partnership recorded a net loss of $53,401, or $0.11 per limited
partnership unit, for the nine months ended September 30, 1998, compared to net
income of $3,918,537, or $4.21 per limited partnership unit, for the same period
in 1997.
The significant decline in operating results for the three and nine months ended
September 30, 1998, compared to the same periods in 1997, is due primarily to
the sale of the Partnership's remaining aircraft in 1997 as discussed above. The
variance in net income per limited partnership unit will differ from the
variance of total net income from period to period due to the methods by which
income or loss from operations and gain or loss on the sale of aircraft are
allocated in accordance with the partnership agreement.
Interest income decreased during the three and nine months ended September 30,
1998 compared to the same periods in 1997, primarily due to the repayment of
notes receivable from AIA and Triton in November and December 1997,
respectively.
Operating expenses increased during the three and nine months ended September
30, 1998 as compared to the same periods in 1997, due to an increase in legal
expenses related to the sale the remaining aircraft in 1997, partially offset by
the elimination of expenses related to insuring and maintaining those aircraft.
Administrative expenses decreased during the three and nine months ended
September 30, 1998 as compared to the same periods in 1997, primarily due to
decreases in consulting fees, trustee fees and printing and postage costs.
Liquidity and Cash Distributions
Liquidity - As previously discussed, the Partnership sold its remaining aircraft
during 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 sufficient funds to satisfy
anticipated contingencies and expenses in connection with winding up its
business. 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 September 30, 1997 were $11,485,000, or $22.97 per limited
partnership unit. Cash distributions to limited partners during the nine months
ended September 30, 1998 were $46,930,000, or $93.86 per limited partnership
unit, compared to $17,735,000, or $35.47 per limited partnership unit for the
same period in 1997. The increase in distributions during the nine months ended
9
<PAGE>
September 30, 1998, as compared to the same period in 1997, is due to the
distribution of the proceeds received from the prepayment of a note due from
Triton Aviation Services V LLC on December 30, 1997. The Partnership is now in
the process of winding up its business. With the exception of reserves
maintained for anticipated expenses and costs of winding up, the Partnership
distributed all of its available cash during 1997 and the first quarter of 1998.
Consequently, the timing and amount of future cash distributions, if any, are
not yet known and will depend upon whether the Partnership's reserves exceed its
actual expenses and contingencies in winding up and on the time required to
complete the winding up process.
General Partner Settlement Agreement
On November 9, 1998, defendants, acting through their counsel, entered into a
settlement agreement with plaintiffs in two related actions entitled Ron Wallace
v. Polaris Investment Management Corporation, et al. and Accelerated High Yield
Income Fund v. Polaris Investment Management Corporation, et al. The settlement
is subject to final approval by the Court. The settlement agreement provides,
among other things, that the Partnership will receive a payment totaling $2.9
million in settlement of both actions, from which an as yet undetermined (and
potentially significant) amount of fees and expenses of plaintiff's counsel will
be deducted. A settlement notice setting forth the terms of the settlement will
be mailed to the last known address of each unitholder of the Partnership by
November 20, 1998. On November 10, 1998, the Court preliminarily approved the
settlement. A hearing to determine whether the settlement should be finally
approved by the Court is scheduled for December 22, 1998.
Impact of the Year 2000 Issue
The inability of business processes to continue to function correctly after the
beginning of the Year 2000 could have serious adverse effects on companies and
entities throughout the world. As previously discussed, the Partnership is
currently in the process of winding up its business and has no assets other than
cash and cash equivalent securities held as reserves against the anticipated
expenses of winding up and dissolution. Accordingly, the Partnership's exposure
to the Year 2000 problem arises not in the context of its own operations, but
rather in the context of the compliance or non-compliance by third-party vendors
to the Partnership with their respective Year 2000 assessment and remediation
obligations.
As discussed in prior filings with the Securities and Exchange Commission, the
General Partner has engaged GE Capital Aviation Services, Inc. ("GECAS") to
provide certain management services to the Partnership. Both the General Partner
and GECAS are wholly-owned subsidiaries (either direct or indirect) of General
Electric Capital Corporation ("GECC"). All of the Partnership's operational
functions are handled either by the General Partner and GECAS or by third
parties (as discussed in the following paragraphs), and the Partnership has no
information systems of its own.
GECC and GECAS have undertaken a global effort to identify and mitigate Year
2000 issues in their information systems, products and services, facilities and
suppliers as well as to assess the extent to which Year 2000 issues will impact
their customers. Each business has a Year 2000 leader who oversees a
multi-functional remediation project team responsible for applying a Six Sigma
quality approach in four phases: (1) define/measure -- identify and inventory
possible sources of Year 2000 issues; (2) analyze -- determine the nature and
extent of Year 2000 issues and develop project plans to address those issues;
(3) improve -- execute project plans and perform a majority of the testing; and
(4) control -- complete testing, continue monitoring readiness and complete
10
<PAGE>
necessary contingency plans. The progress of this program is monitored at each
business, and company-wide reviews with senior management are conducted monthly.
GECC and GECAS management plan to have completed the first three phases of the
program for a substantial majority of mission-critical systems by the end of
1998 and to have nearly all significant information systems, products and
services, facilities and suppliers in the control phase of the program by
mid-1999.
Due to the limited nature of the Partnership's operations, the only third-party
vendors to the Partnership are those providing the Partnership with services
such as accounting, auditing, banking and investor services. GECAS intends to
apply the same standards in determining the Year 2000 capabilities of the
Partnership's third-party vendors as GECAS will apply with respect to its
outside vendors pursuant to its internal Year 2000 program.
The scope of the global Year 2000 effort encompasses many thousands of
applications and computer programs; products and services; facilities and
facilities-related equipment; suppliers; and, customers. The Partnership, like
all business operations, is also dependent on the Year 2000 readiness of
infrastructure suppliers in areas such as utility, communications,
transportation and other services. In this environment, there will likely be
instances of failure that could cause disruption in business processes or that
could affect vendors' ability to provide services without interruption. The
likelihood and effects of failures in infrastructure systems, over which the
Partnership has no control, cannot be estimated. However, aside from the impact
of any such possible failures, the General Partner does not believe that
occurrences of Year 2000 failures will have a material adverse effect on the
financial position, results of operations or liquidity of the Partnership.
To date, the Partnership has not incurred any Year 2000 expenditures nor does it
expect to incur any material costs in the future. However, the activities
involved in the Year 2000 effort necessarily involve estimates and projections
of activities and resources that will be required in the future. These estimates
and projections could change as work progresses.
11
<PAGE>
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) 1997 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K) and in Item 1 of Part II of the Partnership's Quarterly
Report to the SEC on Form 10-Q (Form 10-Q) for the periods ended March 31, 1998
and June 30, 1998, there are a number of pending legal actions or proceedings
involving the Partnership. Except as described below, there have been no
material developments with respect to any such actions or proceedings during the
period covered by this report.
Ron Wallace v. Polaris Investment Management Corporation, et al. - On November
9, 1998, defendants, acting through their counsel, entered into a settlement
agreement with plaintiffs and with the plaintiff in a related action,
Accelerated High Yield Income Fund v. Polaris Investment Management Corporation,
et al., which is discussed below. The settlement is subject to final approval by
the Court. The settlement agreement provides, among other things, that the
Partnership will receive a payment totaling $2.9 million in settlement of both
actions, from which an as yet undetermined (and potentially significant) amount
of fees and expenses of plaintiff's counsel will be deducted. A settlement
notice setting forth the terms of the settlement will be mailed to the last
known address of each unitholder of the Partnership by November 20, 1998. On
November 10, 1998, the Court preliminarily approved the settlement. A hearing to
determine whether the settlement should be finally approved by the Court is
scheduled for December 22, 1998.
Accelerated High Yield Income Fund v. Polaris Investment Management Corporation,
et. al. - On November 9, 1998, defendants, acting through their counsel, entered
into a settlement agreement with plaintiff and with the plaintiffs in a related
action entitled Ron Wallace v. Polaris Investment Management Corporation,
et al., which is discussed above. The settlement is subject to final approval
by the Court. The settlement agreement provides, among other things, that the
Partnership will receive a payment totaling $2.9 million in settlement of
both actions, from which an as yet undetermined (and potentially significant)
amount of fees and expenses of plaintiff's counsel will be deducted. A
settlement notice setting forth the terms of the settlement will be mailed
to the last known address of each unitholder of the Partnership by November
20, 1998. On November 10, 1998, the Court preliminarily approved the settlement.
A hearing to determine whether the settlement should be finally approved by the
Court is scheduled for December 22, 1998.
Other Proceedings - Item 10 in Part III of the Partnership's 1997 Form 10-K and
Item 1 in Part II of the Partnership's Form 10-Q for the periods ended March 31,
1998 and June 30, 1998 discuss certain actions which have been filed against
Polaris Investment Management Corporation and others in connection with the sale
of interests in the Partnership and the management of the Partnership. The
Partnership is not a party to these actions. There have been no material
developments with respect to any of the actions described therein during the
period covered by this report.
12
<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 (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.
13
<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
November 16, 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)
14
<TABLE> <S> <C>
<ARTICLE>5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1733685
<SECURITIES> 0
<RECEIVABLES> 1363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1735048
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1449349
<TOTAL-LIABILITY-AND-EQUITY> 1735048
<SALES> 0
<TOTAL-REVENUES> 396553
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 449954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (53401)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53401)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53401)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
