-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CDTx8QxnmAzMhQPIhu8XD9A0kKfqrRlIOpmJPSt3/1y2gpNPpCVl2WLNoVbBrR+N SJEdAXSaVxTqPBvxLaiR3Q== 0000948524-98-000056.txt : 19980515 0000948524-98-000056.hdr.sgml : 19980515 ACCESSION NUMBER: 0000948524-98-000056 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLARIS AIRCRAFT INCOME FUND II CENTRAL INDEX KEY: 0000789895 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 942985086 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-02794 FILM NUMBER: 98620205 BUSINESS ADDRESS: STREET 1: 201 HIGH RIDGE ROAD STREET 2: 27TH FL CITY: STAMFORD STATE: CT ZIP: 06927 BUSINESS PHONE: (203) 357- MAIL ADDRESS: STREET 1: 201 HIGH RIDGE ROAD STREET 2: 27TH FL CITY: STAMFORD STATE: CT ZIP: 06927 10-Q 1 MARCH 31, 1998 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 March 31, 1998 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. 33-2794 -------------- POLARIS AIRCRAFT INCOME FUND II, A California Limited Partnership State of Organization: California IRS Employer Identification No. 94-2985086 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 II, A California Limited Partnership FORM 10-Q - For the Quarterly Period Ended March 31, 1998 INDEX Part I. Financial Information Page Item 1. Financial Statements a) Balance Sheets - March 31, 1998 and December 31, 1997.........................................3 b) Statements of Operations - Three Months Ended March 31, 1998 and 1997...................................4 c) Statements of Changes in Partners' Capital (Deficit) - Year Ended December 31, 1997 and Three Months Ended March 31, 1998.....................5 d) Statements of Cash Flows - Three Months Ended March 31, 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....................................11 Item 6. Exhibits and Reports on Form 8-K.....................11 Signature .....................................................12 2 Part 1. Financial Information Item 1. Financial Statements POLARIS AIRCRAFT INCOME FUND II, A California Limited Partnership BALANCE SHEETS (Unaudited) March 31, December 31, 1998 1997 ---- ---- ASSETS: CASH AND CASH EQUIVALENTS $ 19,393,120 $ 31,587,494 RENT AND OTHER RECEIVABLES 950,858 935,629 AIRCRAFT, net of accumulated depreciation of $72,333,676 in 1998 and $70,346,578 in 1997 43,029,633 45,016,731 OTHER ASSETS 6,142 6,571 ------------ ------------ $ 63,379,753 $ 77,546,425 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT): PAYABLE TO AFFILIATES $ 172,953 $ 142,761 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 447,116 317,799 SECURITY DEPOSITS - 50,000 DEFERRED INCOME 1,051,984 627,660 NOTES PAYABLE 14,561,012 15,667,509 ------------ ------------ Total Liabilities 16,233,065 16,805,729 ------------ ------------ PARTNERS' CAPITAL (DEFICIT): General Partner (3,622,540) (3,030,600) Limited Partners, 499,973 and 499,997 units outstanding in 1998 and 1997, respectively 50,769,228 63,771,296 ------------ ------------ Total Partners' Capital 47,146,688 60,740,696 ------------ ------------ $ 63,379,753 $ 77,546,425 ============ ============ The accompanying notes are an integral part of these statements. 3 POLARIS AIRCRAFT INCOME FUND II, A California Limited Partnership STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, ---------------------------- 1998 1997 ---- ---- REVENUES: Rent from operating leases $ 3,145,676 $ 4,368,378 Interest 350,684 302,077 Loss on sale of aircraft - (26,079) Gain on sale of aircraft inventory 33,067 - Other 65,385 714,029 ----------- ----------- Total Revenues 3,594,812 5,358,405 ----------- ----------- EXPENSES: Depreciation 1,987,098 3,098,116 Management fees to general partner 121,617 209,419 Operating 120,305 44,892 Interest 363,011 411,866 Administration and other 94,501 79,644 ----------- ----------- Total Expenses 2,686,532 3,843,937 ----------- ----------- NET INCOME $ 908,280 $ 1,514,468 =========== =========== NET INCOME ALLOCATED TO THE GENERAL PARTNER $ 857,982 $ 327,611 =========== =========== NET INCOME ALLOCATED TO LIMITED PARTNERS $ 50,298 $ 1,186,857 =========== =========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 0.10 $ 2.37 =========== =========== The accompanying notes are an integral part of these statements. 4 POLARIS AIRCRAFT INCOME FUND II, A California Limited Partnership STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited)
Year Ended December 31, 1997 and Three Months Ended March 31, 1998 --------------------------------- General Limited Partner Partners Total ------- -------- ----- Balance, December 31, 1996 $(1,480,858) $ 73,696,567 $ 72,215,709 Net income 44,693 4,424,643 4,469,336 Cash distributions to partners (1,594,435) (14,349,914) (15,944,349) ----------- ------------ ------------ Balance, December 31, 1997 (3,030,600) 63,771,296 60,740,696 Net income 857,982 50,298 908,280 Capital redemptions (24 units) -- (3,072) (3,072) Cash distributions to partners (1,449,922) (13,049,294) (14,499,216) ----------- ------------ ------------ Balance, March 31, 1998 $(3,622,540) $ 50,769,228 $ 47,146,688 =========== ============ ============ The accompanying notes are an integral part of these statements. 5
POLARIS AIRCRAFT INCOME FUND II, A California Limited Partnership STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ---------------------------- 1998 1997 ---- ---- OPERATING ACTIVITIES: Net income $ 908,280 $ 1,514,468 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,987,098 3,098,116 Gain on sale of aircraft inventory (33,067) -- Loss on sale of aircraft -- 26,079 Changes in operating assets and liabilities: Increase in rent and other receivables (15,229) (678,308) Decrease in other assets 429 77,477 Increase in payable to affiliates 30,192 138,673 Increase in accounts payable and accrued liabilities 129,317 12,845 Decrease in security deposits (50,000) (66,000) Decrease in maintenance reserves -- (223,528) Increase (decrease) in deferred income 424,324 (570,920) ------------ ------------ Net cash provided by operating activities 3,381,344 3,328,902 ------------ ------------ INVESTING ACTIVITIES: Increase in aircraft capitalized costs -- (4,784,633) Principal payments on notes receivable -- 385,994 Net proceeds from sale of aircraft -- 877,075 Net proceeds from sale of aircraft inventory 33,067 26,716 ------------ ------------ Net cash provided by (used in) investing activities 33,067 (3,494,848) ------------ ------------ FINANCING ACTIVITIES: Increase in notes payable -- 3,884,633 Principal payments on notes payable (1,106,497) (32,768) Capital redemptions (3,072) -- Cash distributions to partners (14,499,216) (3,472,201) ------------ ------------ Net cash provided by (used in) financing activities (15,608,785) 379,664 CHANGES IN CASH AND CASH EQUIVALENTS (12,194,374) 213,718 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,587,494 22,224,813 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,393,120 $ 22,438,531 ============ ============ The accompanying notes are an integral part of these statements. 6
POLARIS AIRCRAFT INCOME FUND II, 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 II'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 Three Months Ended Payable at March 31, 1998 March 31, 1998 -------------- -------------- Aircraft Management Fees $ 105,000 $ 92,947 Out-of-Pocket Administrative Expense Reimbursement 61,817 64,075 Out-of-Pocket Operating and Remarketing Expense Reimbursement 18,573 15,931 ------------- ------------ $ 185,390 $ 172,953 ============= ============ 3. Claims Related to Lessee Defaults Braniff, Inc.(Braniff) Bankruptcy - As previously reported, the Bankruptcy Court disposed of the Partnership's claim in this Bankruptcy proceeding by permitting the Partnership to exchange a portion of its unsecured claim for Braniff's right (commonly referred to as a "Stage 2 Base Level right") under the Federal Aviation Administration noise regulations to operate one Stage 2 aircraft and by allowing the Partnership a net remaining unsecured claim of $769,231 in the proceedings. Braniff's bankrupt estate has made a payment in the amount of $200,000 in respect of the unsecured claims of the Partnership and other affiliates of Polaris Investment Management Corporation. Of this 7 amount, $15,385 was allocated to the Partnership, based on its pro rata share of the total claims, and recognized as revenue during the three months ended March 31, 1998. 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. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations At March 31, 1998, Polaris Aircraft Income Fund II (the Partnership) owned a portfolio of 14 used commercial jet aircraft and certain inventoried aircraft parts out of its original portfolio of 30 aircraft. The portfolio consists of 14 McDonnell Douglas DC-9-30 aircraft leased to Trans World Airlines, Inc.(TWA). The Partnership transferred six Boeing 727-200 aircraft, previously leased to Pan American World Airways, Inc., to aircraft inventory in 1992. These aircraft have been disassembled for sale of their component parts. Partnership Operations The Partnership recorded net income of $908,280 or $0.10 per limited partnership unit, for the three months ended March 31, 1998, compared to net income of $1,514,468, or $2.37 per limited partnership unit, for the three months ended March 31, 1997. The decrease in net income is primarily due to a decrease in other income. The Partnership recorded other income of $714,029 during the three months ended March 31, 1997, as a result of the receipt of amounts due under a TWA maintenance credit and rent deferral agreement. Further impacting the decrease in net income was a decline in rental revenues, net of related management fees, during the first three months of 1998, as compared to the same period in 1997. This decline was the result of an absence of rental revenues from the aircraft sold to Triton in 1997. The decrease in depreciation expense related to the sold aircraft partially offset the decline in rental revenues. The increase in the deferred income balance at March 31, 1998 is attributable to differences between the payments due and the rental income earned on the TWA leases for the 14 aircraft currently on lease to TWA. For income recognition purposes, the Partnership recognizes rental income over the life of the lease in equal monthly amounts. As a result, the difference between rental income earned and the rental payments due is recognized as deferred income. The rental payments due from TWA during the three months ended March 31, 1998 exceeded the rental income earned, causing an increase in the deferred income balance. On January 30, 1997, one Boeing 737-200, formerly on lease to Viscount Air Services, Inc. (Viscount), was sold to American Aircarriers Support, Inc. on an "as-is, where-is" basis for $660,000 cash. In addition, the Partnership retained maintenance reserves from the previous lessee of $217,075, that had been held by the Partnership, which were recognized as additional sale proceeds. A net loss of $26,079 was recorded on the sale of the aircraft during the first three months of 1997. Operating expenses increased during the three months ended March 31, 1998, as compared to the same period in 1997, due to an increase in legal expenses. During the three months ended March 31, 1998, the Partnership recognized legal expenses of $69,000 related to the Viscount default and Chapter 11 bankruptcy filing, compared to $37,000 during the same period in 1997. The Partnership also recognized legal expenses of approximately $41,000 during the three months ended March 31, 1998, related to the sale of aircraft to Triton in 1997. Administration and other expenses increased during the three months ended March 31, 1998 as compared to the same period in 1997, due to increases in printing and postage costs related to an additional distribution. 9 The Partnership had been holding a security deposit, received from Jet Fleet in 1992, pending the outcome of bankruptcy proceedings. The bankruptcy proceeding of Jet Fleet Corporation was closed on August 6, 1997, and the bankruptcy proceeding of Jet Fleet International Airlines, Inc. was closed on February 10, 1998. Consequently, the Partnership recognized, during the three months ended March 31, 1998, revenue of $50,000 that had been held as a deposit. Claims Related to Lessee Defaults Braniff, Inc.(Braniff) Bankruptcy - As discussed more fully in Note 3, Braniff's bankrupt estate has made a payment in the amount of $200,000 in respect of the unsecured claims of the Partnership and other affiliates of Polaris Investment Management Corporation. Of this amount, $15,385 was allocated to the Partnership, based on its pro rata share of the total claims, and recognized as revenue during the three months ended March 31, 1998. Liquidity and Cash Distributions Liquidity - The Partnership received all payments due from its sole lessee, TWA, during 1998, except for the March 1998 lease payment. On April 1, 1998, the Partnership received its $935,000 rental payment from TWA that was due on March 27, 1998. This amount was included in rent and other receivables on the balance sheet at March 31, 1998. Payments totaling $33,067 and $26,716 were received during the first quarter of 1998 and 1997, respectively, from the sale of inventoried parts from the six disassembled aircraft. 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 funds in the event that the aircraft presently on lease to TWA 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 three months ended March 31, 1998 and 1997 were $13,049,294, or $26.10 per limited partnership unit and $3,124,981, or $6.25 per unit, respectively. The increase, as compared to 1997, is due to the distribution of the proceeds received from the prepayment of a note due from Triton Aviation Services II LLC on December 30, 1997. The timing and amount of future cash distributions are not yet known and will depend on the Partnership's future cash requirements (including expenses of the Partnership) and need to retain cash reserves as previously discussed in the Liquidity section; the receipt of rental payments from TWA; and payments generated from the aircraft disassembly process. 10 Part II. Other Information Item 1. Legal Proceedings As discussed in Item 3 of Part I of Polaris Aircraft Income Fund II's (the Partnership) 1997 Annual Report to the Securities and Exchange Commission on Form 10-K (Form 10-K), 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. Braniff, Inc. (Braniff) Bankruptcy - Braniff's bankrupt estate has made a payment in the amount of $200,000 in respect of the unsecured claims of the Partnership and other affiliates of Polaris Investment Management Corporation. Of this amount, $15,385 was allocated to the Partnership based on its pro rata share of the total claims. Viscount Air Services, Inc. Bankruptcy - The trial date of the lawsuit against BAE Aviation, Inc., STS Services, Inc. and Piping Design Services, Inc. has been reset for July 14, 1998. The lawsuit against Thomas Cook and Hamilton Aviation, Inc. has been settled. Mr. Cook has agreed to release the Partnership's elevator in exchange for a settlement payment of $3,000 by the Partnership, and the parties have stipulated to dismissal of the lawsuit. Other Proceedings - Item 10 in Part III of the Partnership's 1997 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. 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 A Current Report on Form 8-K, dated December 30, 1997, reporting a prepayment in full of the Promissory Note from Triton Aviation Services II LLC, was filed on January 5, 1998. 11 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 II, A California Limited Partnership (Registrant) By: Polaris Investment Management Corporation, General Partner May 13, 1998 By: /S/Marc A. Meiches - ------------------------- ----------------------- Mark A. Meiches Chief Financial Officer (principal financial officer and principal accounting officer of Polaris Investment Management Corporation, General Partner of the Registrant) 12 EX-27 2
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