10-Q/A 1 if1_2q02a.txt 2Q02 10-Q AMENDED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-Q/A ----------- X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR X 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 18 pages. As described in Part I, Item 1. a) of The Polaris Aircraft Income Fund I's (the "Partnership") Quarterly Report on Form 10-Q ("Form 10-Q") for the period ended June 30, 2002, such Quarterly Report was filed on an incomplete basis as the Partnership had been unable to obtain access to documents in the possession of Arthur Andersen, the previous Certifying Accountant, in order to provide such documents to Ernst & Young LLP, the Partnership's new Certifying Accountant. As a result, Ernst & Young LLP was unable to complete their timely quarterly review in accordance with Statements of Auditing Standards No. 71. The purpose of filing this Quarterly Report on Form 10-Q/A is to notify the Securities and Exchange Commission that Ernst & Young LLP has completed their quarterly review of the financial statements contained in the filed Form 10-Q for the period ended June 30, 2002. The Polaris Aircraft Income Fund I has not recorded any adjustments to the financial statements included in the Form 10-Q as a result of the completion of Ernst & Young LLP's review and are refiling such financial statements under this Form 10-Q/A. 3 POLARIS AIRCRAFT INCOME FUND I FORM 10-Q - For the Quarterly Period Ended June 30, 2002 INDEX Part I. Financial Information Page Item 1. Financial Statements (Unaudited) a) Balance Sheets - June 30, 2002 and December 31, 2001...........................................4 b) Statements of Operations - Three and Six Months Ended June 30, 2002 and 2001................................5 c) Statements of Changes in Partners' Capital - Year Ended December 31, 2001 and Six Months Ended June 30, 2002..........................6 d) Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001................................7 e) Notes to Financial Statements...............................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........11 Item 4. Controls and Procedures................................12 Part II. Other Information Item 1. Legal Proceedings......................................13 Item 6. Exhibits and Reports on Form 8-K.......................13 Signature .......................................................14 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002........................................................15 3 Part 1. Financial Information ----------------------------- Item 1. Financial Statements POLARIS AIRCRAFT INCOME FUND I BALANCE SHEETS (Unaudited) June 30, December 31, 2002 2001 ---- ---- ASSETS: CASH AND CASH EQUIVALENTS $1,172,193 $2,445,482 ---------- ---------- Total Assets $1,172,193 $2,445,482 ========== ========== LIABILITIES AND PARTNERS' CAPITAL: PAYABLE TO AFFILIATES $ 22,417 $ 38,214 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 355,540 368,821 ---------- ---------- Total Liabilities 377,957 407,035 ---------- ---------- PARTNERS' CAPITAL: General Partner 28,689 134,953 Limited Partners, 168,707 units (168,729 in 2001) issued and outstanding 765,547 1,903,494 ---------- ---------- Total Partners' Capital 794,236 2,038,447 ---------- ---------- Total Liabilities and Partners' Capital $1,172,193 $2,445,482 ========== ========== The accompanying notes are an integral part of these statements. 4 POLARIS AIRCRAFT INCOME FUND I STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2002 2001 2002 2001 ---- ---- ---- ---- REVENUES: Other income - Maintenance reserves $ -- $631,316 $ -- $631,316 Interest 5,380 17,568 11,752 40,619 Lessee settlements (Notes 5 & 6) -- 8,897 -- 85,667 -------- -------- -------- -------- Total Revenues 5,380 657,781 11,752 757,602 -------- -------- -------- -------- EXPENSES: Operating expenses -- 4,300 -- 4,300 Administration and other 50,869 35,246 84,234 66,122 -------- -------- -------- -------- Total Expenses 50,869 39,546 84,234 70,422 -------- -------- -------- -------- NET INCOME (LOSS) $(45,489) $618,235 $(72,482) $687,180 ======== ======== ======== ======== NET INCOME ALLOCATED TO THE GENERAL PARTNER $ 4,869 $ 6,183 $ 10,909 $ 91,229 ======== ======== ======== ======== NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS $(50,358) $612,052 $(83,391) $595,951 ======== ======== ======== ======== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ (0.30) $ 3.63 $ (0.49) $ 3.53 ======== ======== ======== ======== The accompanying notes are an integral part of these statements. 5 POLARIS AIRCRAFT INCOME FUND I STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (Unaudited) Year Ended December 31, 2001 and Six Months Ended June 30, 2002 ------------------------------ General Limited Partner Partners Total ------- -------- ----- Balance, December 31, 2000 $ 137,474 $ 2,152,316 $ 2,289,790 Net income 91,217 594,824 686,041 Cash distributions to partners (93,738) (843,646) (937,384) ----------- ----------- ----------- Balance, December 31, 2001 134,953 1,903,494 2,038,447 Net income (loss) 10,909 (83,391) (72,482) Cash distribution to partners (117,173) (1,054,556) (1,171,729) ----------- ----------- ----------- Balance, June 30, 2002 $ 28,689 $ 765,547 $ 794,236 =========== =========== =========== The accompanying notes are an integral part of these statements. 6 POLARIS AIRCRAFT INCOME FUND I STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------------- 2002 2001 ---- ---- OPERATING ACTIVITIES: Net income (Loss) $ (72,482) $ 687,180 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Changes in operating assets and liabilities: Decrease in other assets -- 6,297 Decrease in payable to affiliates (15,797) (31,856) Increase (decrease) in accounts payable and accrued liabilities (13,281) 6,359 Decrease in maintenance reserves -- (631,316) ----------- ----------- Net cash provided by (used in) operating activities (101,560) 36,664 ----------- ----------- FINANCING ACTIVITIES: Cash distributions to partners (1,171,729) (937,383) ----------- ----------- Net cash used in financing activities (1,171,729) (937,383) ----------- ----------- CHANGES IN CASH AND CASH EQUIVALENTS (1,273,289) (900,719) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,445,482 2,469,034 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,172,193 $ 1,568,315 =========== =========== The accompanying notes are an integral part of these statements. 7 POLARIS AIRCRAFT INCOME FUND I NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Organization and the Partnership Polaris Aircraft Income Fund I (the "Partnership") was formed on June 27, 1984 for the purpose of acquiring and leasing aircraft. It will terminate no later than December 2010. Upon organization, both the General Partner and the initial Limited Partner contributed $500. The offering of Limited Partnership units terminated on December 31, 1985, at which time the Partnership had sold 168,729 units of $500, representing $84,364,500. All unit holders were admitted to the Partnership on or before January 1, 1986. Polaris Investment Management Corporation ("PIMC"), the sole General Partner of the Partnership (the "General Partner"), supervises the day-to-day operations of the Partnership. PIMC is a wholly-owned subsidiary of Polaris Aircraft Leasing Corporation ("PALC"). Polaris Holding Company ("PHC") is the parent company of PALC. General Electric Capital Corporation ("GE Capital"), an affiliate of General Electric Company, owns 100% of PHC's outstanding common stock. PIMC has entered into a services agreement dated as of July 1, 1994 with GE Capital Aviation Services, Inc. ("GECAS"). Amounts paid and allocations to related parties are described in Notes 3 & 4. At June 30, 2002, the Partnership owned certain inventoried aircraft parts, which includes one engine, out of its original portfolio of eleven aircraft. The remaining inventory of spare parts, including one engine, has been made available for sale such that the Partnership plans to liquidate all its assets in an orderly manner and make a final distribution thereafter. These spare parts are carried at a value of zero as of June 30, 2002. 2. 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 the Partnership's financial position, results of operations, and cash flows. 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 accounting principles generally accepted in the United States ("GAAP"). These statements should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 2001, 2000, and 1999 included in the Partnership's 2001 Annual Report to the SEC on Form 10-K. 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, PIMC, in connection with services rendered or payments made on behalf of the Partnership: 8 Payments made during the Three Months Ended Payable at June 30, 2002 June 30, 2002 ------------- ------------- Out-of-Pocket Operating Expense Reimbursement $ 6,981 $ -- Out-of-Pocket Administrative Expense Reimbursement 69,063 22,417 ------- ------- $76,044 $22,417 ======= ======= 4. 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. 5. CanAir Bankruptcy Settlement On June 27, 2001, the Partnership received $8,897 in connection with the CanAir Bankruptcy Settlement, which is comprised of amounts received for rents, maintenance reserve obligations and accrued interest. Two additional settlements have been made to GECAS that will amount to approximately $175 and $279 for the Partnership, and will be recognized as income when received by the Partnership. These payments are expected in the quarter ending September 30, 2002 and will be the final payments on this matter. 6. Braniff Bankruptcy Settlement On January 16, 2001, Braniff's bankrupt estate made a $110,890 payment in respect of the unsecured claims of the Partnership and other affiliates of PIMC, of which $76,770 was allocated to the Partnership based on its pro rata share of the total claims. 7. Engine Lease Expiration The lease for the three JT8D-9A engines to Royal Aviation, Inc. and Royal Cargo, Inc. (Royal Aviation) expired on August 31, 2000. The engines were redelivered on September 7, 2000 and a security deposit of $45,000 was refunded to Royal 9 Aviation on November 21, 2000. The Partnership ceased depreciating these assets and reported these assets at the lower of carrying amount or fair value less cost to sell as of December 31, 2000. Due to the fact that the Partnership decided to sell the engines in an as-is-where-is condition in June 2001, the net maintenance reserve balance of $631,316 was taken into income during the quarter ended June 30, 2001. The Partnership subsequently sold the engines to Aeroturbine, Inc. on an as-is-where-is basis in July 2001, as discussed below. 8. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (the "FASB") approved for issuance Statement of Financial Accounting Standard ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and that the associated asset retirement costs be capitalized as part of the carrying value of the related long-lived asset. SFAS No. 143 will be effective January 1, 2003 for the Partnership. Management does not expect this standard to have a material impact on the Partnership's balance sheet or statement of operations. 9. Sale of Engines On July 19, 2001 the Partnership sold the three remaining JT8D-9A engines to Aeroturbine, Inc., on an as-is-where-is basis for $900,000. The Partnership received the proceeds for these engines in the third quarter of 2001. This sale resulted in a gain of $41,250. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Business Overview At June 30, 2002, Polaris Aircraft Income Fund I (the "Partnership") owned certain inventoried aircraft parts, which includes one engine, out of its original portfolio of eleven aircraft. The remaining inventory of spare parts, including one engine, has been made available for sale such that the Partnership plans to liquidate all its assets in an orderly manner and make a final distribution thereafter. These spare parts are carried at a value of zero as of June 30, 2002. Partnership Operations The Partnership recorded net loss of $45,489, or $0.30 per limited partnership unit, for the three months ended June 30, 2002, compared to net income of $618,235, or $3.63 per unit, for the same period in 2001. The Partnership recorded net loss of $72,482, or $0.49 per limited partnership unit, for the six months ended June 30, 2002, compared to net income of $687,180, or $3.53 per limited partnership unit, for the six months ended June 30, 2001. The decline in operating results was primarily due to a reduction in maintenance reserves recognized as income, decreases in lessee settlement income, interest income, and increased administrative and other expenses partially offset by a decrease in operating expenses. Other income decreased for both the three and six months ended June 30, 2002 as compared to the same periods in 2001 primarily due to maintenance reserves that were recognized as income during the three months ended June 30, 2001. There was no similar income in 2002. The Partnership held engines that were marketed for sale on an as-is-where-is basis and there was no further need to hold the maintenance reserves. As a result, the maintenance reserves were recognized as income during the three months ended June 30, 2001. Interest income decreased during the three and six months ended June 30, 2002, as compared to the same periods in 2001 primarily due to lower interest rates and a decrease in the cash balance primarily due to distributions. Lessee settlement decreased during the three and six months ended June 30, 2002, as compared to the same periods in 2001, primarily due to the receipt of $76,770 on January 16, 2001 related to the Braniff bankruptcy and $8,897 on June 27, 2001 related to the CanAir bankruptcy for which there were no corresponding receipts in 2002. Operating expenses decreased during the three and six months ended June 30, 2002 as compared to the same periods in 2001, primarily due to expenses incurred in the second quarter of 2001 in connection with marketing the engines for sale. Administrative and other expenses increased during the three and six months ended June 30, 2002, as compared to the same periods in 2001, primarily due to an increase in legal fees during 2002 primarily incurred to comply with an SEC prompted court order related to transfers of units to entities owned by George Hoffman. 11 Liquidity and Cash Distributions Liquidity - PIMC, the General Partner, has determined that the Partnership maintain cash reserves as a prudent measure to ensure that the Partnership has available funds for winding up the affairs of the Partnership and for other contingencies. 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, 2002 and 2001 were $1,054,556 and $843,646, respectively. Cash distributions per Limited Partnership unit for the six months ended June 30, 2002 and 2001 were $6.25, and $5.00 respectively. The timing and amount of the final cash distribution to partners is not yet known and will depend upon the Partnership's future cash requirements and the timing of the sale and amount of proceeds from the sale of its remaining inventory of spare parts including one engine. Item 4. Controls and Procedures PIMC management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. 12 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") 2001 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 period ended March 31, 2002, there are several 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. CanAir Cargo Ltd. (CanAir) Order under the Companies' Creditors Arrangement Act of Canada - On March 20, 2002, the receiver appointed by the Ontario Court of Justice on behalf of CanAir's creditors issued a check for 3,250 Canadian Dollars (approximately $2,053 U.S. Dollars) to the GECAS Parties (GE Capital Aviation Services, Inc., as agent for Polaris Holding Company, General Electric Capital Leasing Canada, Inc. and the Partnership), and of this amount, 277 Canadian Dollars (approximately $175 U.S. Dollars) will be paid to the Partnership prior to the end of the third quarter. Additionally, the GECAS Parties received a final payment from the receiver on May 7, 2002 in the amount of 5,188 Canadian Dollars (approximately $3,278 U.S. Dollars), and of this amount, 442 Canadian Dollars (approximately $279 U.S. Dollars) will be paid to the Partnership prior to the end of the quarter ending September 30, 2002. Other Proceedings - Item 10 of Part III of the Partnership's 2001 Form 10-K and Item 1 of Part II of the Partnership's Quarterly Reports to the SEC on Form 10-Q for the period ended March 31, 2002 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) 99.1 Certification of President. 99.2 Certification of Chief Financial Officer. 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. As described in greater detail in Item 4 of the Current Report on Form 8-K dated August 1, 2002 and first filed by the Partnership on or about August 2, 2002, the Partnership adopted a resolution dismissing Arthur Andersen LLP ("Andersen") as the Partnership's auditors and appointed Ernst & Young LLP to replace Andersen. 13 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 (Registrant) By: Polaris Investment Management Corporation, General Partner December 9, 2002 By: /S/Stephen E. Yost -------------------------- ----------------------------------- Stephen E. Yost, Chief Financial Officer 14 POLARIS AIRCRAFT INCOME FUND I CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION ------------- I, William R. Carpenter, certify that: 1. I have reviewed this amended quarterly report on Form 10-Q/A of Polaris Aircraft Income Fund I; 2. Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this amended quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this amended quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this amended quarterly report (the "Evaluation Date"); and c) presented in this amended quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 15 6. The registrant's other certifying officers and I have indicated in this amended quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 9, 2002 By: Polaris Investment Management Corporation, General Partner /s/ William R. Carpenter ------------------------ William R. Carpenter President 16 CERTIFICATION ------------- I, Stephen E. Yost, certify that: 1. I have reviewed this amended quarterly report on Form 10-Q/A of Polaris Aircraft Income Fund I; 2. Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this amended quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this amended quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this amended quarterly report (the "Evaluation Date"); and c) presented in this amended quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 17 6. The registrant's other certifying officers and I have indicated in this amended quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 9, 2002 By: Polaris Investment Management Corporation, General Partner /s/ Stephen E. Yost ------------------- Stephen E. Yost Chief Financial Officer 18