10-Q 1 0001.txt JUNE 30, 2000 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q ------------------ X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ ----------------- Commission File No. 2-91762 ----------------- POLARIS AIRCRAFT INCOME FUND I State of Organization: California IRS Employer Identification No. 94-2938977 201 High Ridge Road, Stamford, Connecticut 06927 Telephone - (203) 357-3776 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- This document consists of 12 pages. POLARIS AIRCRAFT INCOME FUND I FORM 10-Q - For the Quarterly Period Ended June 30, 2000 INDEX Part I. Financial Information Page Item 1. Financial Statements a) Balance Sheets - June 30, 2000 and December 31, 1999...........................................3 b) Statements of Operations - Three and Six Months Ended June 30, 2000 and 1999................................4 c) Statements of Changes in Partners' Capital - Year Ended December 31, 1999 and Six Months Ended June 30, 2000..........................5 d) Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999................................6 e) Notes to Financial Statements...............................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........9 Part II. Other Information Item 1. Legal Proceedings.....................................10 Item 6. Exhibits and Reports on Form 8-K......................10 Signature ......................................................11 2 Part 1. Financial Information ----------------------------- Item 1. Financial Statements POLARIS AIRCRAFT INCOME FUND I BALANCE SHEETS (Unaudited) June 30, December 31, 2000 1999 ---- ---- ASSETS: CASH AND CASH EQUIVALENTS $2,375,983 $4,190,421 RENT AND OTHER RECEIVABLES, net of allowance for credit losses of $30,365 in 1999 -- 30,000 AIRCRAFT ENGINES, net of accumulated depreciation of $97,500 in 2000 and $90,000 in 1999 862,500 870,000 ---------- ---------- Total Assets $3,238,483 $5,090,421 ========== ========== LIABILITIES AND PARTNERS' CAPITAL: PAYABLE TO AFFILIATES $ 479 $ 11,216 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 378,898 374,689 SECURITY DEPOSITS 45,000 45,000 MAINTENANCE RESERVES 548,640 1,704,715 ---------- ---------- Total Liabilities 973,017 2,135,620 ---------- ---------- PARTNERS' CAPITAL: General Partner 137,230 222,894 Limited Partners, 168,729 units issued and outstanding 2,128,236 2,731,907 ---------- ---------- Total Partners' Capital 2,265,466 2,954,801 ---------- ---------- Total Liabilities and Partners' Capital $3,238,483 $5,090,421 ========== ========== The accompanying notes are an integral part of these statements. 3 POLARIS AIRCRAFT INCOME FUND I STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES: Rent from operating leases $ 90,000 $ 90,000 $180,000 $180,000 Gain on sale of aircraft inventory -- -- -- 196,858 Interest 42,111 45,649 92,745 96,210 Lessee settlement (Note 4) -- -- 61,513 -- -------- -------- -------- -------- Total Revenues 132,111 135,649 334,258 473,068 -------- -------- -------- -------- EXPENSES: Depreciation 3,750 3,750 7,500 7,500 Management fees to general partner 4,500 4,500 9,000 9,000 Administration and other 41,505 34,601 69,710 60,385 -------- -------- -------- -------- Total Expenses 49,755 42,851 86,210 76,885 -------- -------- -------- -------- NET INCOME $ 82,356 $ 92,798 $248,048 $396,183 ======== ======== ======== ======== NET INCOME ALLOCATED TO THE GENERAL PARTNER $ 823 $ 928 $ 8,074 $ 3,962 ======== ======== ======== ======== NET INCOME ALLOCATED TO LIMITED PARTNERS $ 81,533 $ 91,870 $239,974 $392,221 ======== ======== ======== ======== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 0.48 $ 0.54 $ 1.42 $ 2.32 ======== ======== ======== ======== The accompanying notes are an integral part of these statements. 4 POLARIS AIRCRAFT INCOME FUND I STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (Unaudited) Year Ended December 31, 1999 and Six Months Ended June 30, 2000 ------------------------------ General Limited Partner Partners Total ------- -------- ----- Balance, December 31, 1998 $ 493,422 $ 4,626,641 $ 5,120,063 Net income 6,000 594,019 600,019 Cash distributions to partners (276,528) (2,488,753) (2,765,281) ----------- ----------- ----------- Balance, December 31, 1999 222,894 2,731,907 2,954,801 Net income 8,074 239,974 248,048 Cash distributions to partners (93,738) (843,645) (937,383) ----------- ----------- ----------- Balance, June 30, 2000 $ 137,230 $ 2,128,236 $ 2,265,466 =========== =========== =========== The accompanying notes are an integral part of these statements. 5 POLARIS AIRCRAFT INCOME FUND I STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------------- 2000 1999 ---- ---- OPERATING ACTIVITIES: Net income $ 248,048 $ 396,183 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,500 7,500 Gain on sale of aircraft inventory -- (196,858) Changes in operating assets and liabilities: Decrease in rent and other receivable 30,000 58,154 Increase (decrease) in payable to affiliates (10,737) 1,726 Increase in deferred income -- 30,000 Increase (decrease) in accounts payable and accrued liabilities 4,209 (11,447) Decrease in maintenance reserves (1,156,075) (242,437) ----------- ----------- Net cash provided by (used in) operating activities (877,055) 42,821 ----------- ----------- FINANCING ACTIVITIES: Cash distributions to partners (937,383) (2,765,281) ----------- ----------- Net cash used in financing activities (937,383) (2,765,281) ----------- ----------- CHANGES IN CASH AND CASH EQUIVALENTS (1,814,438) (2,722,460) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,190,421 6,418,582 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,375,983 $ 3,696,122 =========== =========== The accompanying notes are an integral part of these statements. 6 POLARIS AIRCRAFT INCOME FUND I 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 I's (the Partnership's) financial position and results of operations. The financial statements have been prepared in accordance with the instructions of the Quarterly Report to the Securities and Exchange Commission (SEC) Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles (GAAP). These statements should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 1999, 1998 and 1997 included in the Partnership's 1999 Annual Report to the SEC on Form 10-K. 2. Related Parties Under the Limited Partnership Agreement, the Partnership paid or agreed to pay the following amounts for the current quarter to the general partner, Polaris Investment Management Corporation, in connection with services rendered or payments made on behalf of the Partnership: Payments for Three Months Ended Payable at June 30, 2000 June 30, 2000 ------------- ------------- Aircraft Management Fees $ 7,518 $ -- Out-of-Pocket Administrative Expense Reimbursement 30,242 479 Out-of-Pocket Operating Expense Reimbursement 1,341,703 -- ---------- ---------- $1,379,463 $ 479 ========== ========== 3. Partners' Capital The Partnership Agreement (the Agreement) stipulates different methods by which revenue, income and loss from operations and gain or loss on the sale of aircraft are to be allocated to the general partner and the limited partners. Such allocations are made using income or loss calculated under GAAP for book purposes, which varies from income or loss calculated for tax purposes. Cash available for distributions, including the proceeds from the sale of aircraft, is distributed 10% to the general partner and 90% to the limited partners. 7 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. 4. CanAir Bankruptcy Settlement On February 15, 2000, the Partnership received an initial settlement of $61,513 in connection with the CanAir Bankruptcy Settlement, which is comprised of amounts received for rents, maintenance reserve obligations and accrued interest. This settlement may prove to be the final settlement if certain additional claims are made before the statutory period expires. A portion of the proceeds was treated as a recovery of previously reserved rents receivable. The allowance for credit losses of $30,365 was reversed and is included in "Lessee Settlement" in the statement of operations. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations At June 30, 2000, Polaris Aircraft Income Fund I (the Partnership) owned three JT8D-9A engines and certain inventoried aircraft parts, which includes one engine, out of its original portfolio of eleven aircraft. The three JT8D-9A engines, which are leased to Royal Aviation Inc. and Royal Cargo, Inc. (Royal Aviation), are due to be redelivered to the Partnership in August, 2000. Upon redelivery, the engines will be made available for sale. Partnership Operations The Partnership recorded net income of $82,356, or $0.48 per limited partnership unit, for the three months ended June 30, 2000, compared to net income of $92,798, or $0.54 per unit for the same period in 1999. The Partnership recorded net income of $248,048, or $1.42 per limited partnership unit for the six months ended June 30, 2000, compared to net income of $396,183, or $2.32 per limited partnership unit, for the six months ended June 30, 1999. The decline in operating results was primarily the result of gains on the sale of aircraft inventory in 1999 of $196,858 and increase in administration expenses during 2000, partially offset by a settlement in the CanAir bankruptcy proceedings in February 2000, of which the Partnership received $61,513. Administration expenses increased during the three and six months ended June 30, 2000, as compared to the same periods in 1999, primarily due an increase in printing and postage costs. Liquidity and Cash Distributions Liquidity - The Partnership receives maintenance reserve payments from Royal Aviation 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 or engines, as specified in the leases. Maintenance reserve balances remaining at the termination of the lease, if any, may be used by the Partnership to offset future maintenance expenses or recognized as revenue. On May 5, 2000, the Partnership reimbursed $1,341,703 to Polaris Investment Management Corporation, the General Partner, for maintenance claims paid on behalf of the Partnership related to two engines. The net maintenance reserve balance was $548,640 as of June 30, 2000. Polaris Investment Management Corporation, the general partner, has determined that the Partnership maintain cash reserves as a prudent measure to insure that the Partnership has available funds in the event that the engines presently on lease to Royal Aviation require remarketing and for other contingencies, including expenses of the Partnership. The Partnership's cash reserves will be monitored and may be revised from time to time as further information becomes available in the future. Cash Distributions - Cash distributions to limited partners during the six months ended June 30, 2000 and 1999 were $843,645, or $5 per limited partnership unit and $2,488,753, or $14.75 per unit, respectively. The timing and amount of future cash distributions to partners are not yet known and will depend upon circumstances such as the Partnership's future cash requirements, the receipt of rental payments from Royal Aviation, and the timing and proceeds related to the ultimate liquidation of the Partnership's assets. As stated above, the three engines on lease to Royal Aviation will be redelivered in August. The Partnership will make these engines available for sale along with the remaining inventory of spare parts such that all the assets of the Partnership are liquidated and a final distribution made thereafter. 9 Part II. Other Information -------------------------- Item 1. Legal Proceedings As discussed in Item 3 of Part I of Polaris Aircraft Income Fund I's (the Partnership) 1999 Annual Report to the Securities and Exchange Commission (SEC) on Form 10-K (Form 10-K) and in Item I of Part II of the Partnership's Quarterly Report to the SEC on Form 10-Q (Form 10-Q) for the period ended March 31, 2000, there are several pending legal actions or proceedings involving the Partnership. There have been no material developments with respect to any such actions or proceedings during the period covered by this report. Other Proceedings - Item 10 of Part III of the Partnership's 1999 Form 10-K and Item 1 of Part II of the Partnership's Form 10-Q for the period ended March 31, 2000 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. 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. 10 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 I A California Limited Partnership (Registrant) By: Polaris Investment Management Corporation, General Partner August 10, 2000 By: /S/Stephen E. Yost -------------------- -------------------------------- Stephen E. Yost Chief Financial Officer (principal financial officer and principal accounting officer of Polaris Investment Management Corporation, General Partner of the Registrant) 11