-----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, PsZCOCgbxk7ZOhDwXbzVekqiSfwk11VSywa7xB75h5TdMcwUO5gEvVvcdSKuUEIh BCM1OWopj8u1H5SAeFKHfw== 0000948524-99-000048.txt : 19990517 0000948524-99-000048.hdr.sgml : 19990517 ACCESSION NUMBER: 0000948524-99-000048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99621267 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, 1999 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, 1999 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 14 pages. POLARIS AIRCRAFT INCOME FUND II, A California Limited Partnership FORM 10-Q - For the Quarterly Period Ended March 31, 1999 INDEX Part I. Financial Information Page Item 1. Financial Statements a) Balance Sheets - March 31, 1999 and December 31, 1998...........................................3 b) Statements of Operations - Three Months Ended March 31, 1999 and 1998.....................................4 c) Statements of Changes in Partners' Capital (Deficit) - Year Ended December 31, 1998 and Three Months Ended March 31, 1999.......................5 d) Statements of Cash Flows - Three Months Ended March 31, 1999 and 1998...............................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.......................12 Signature .......................................................13 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, 1999 1998 ---- ---- ASSETS: CASH AND CASH EQUIVALENTS $ 18,500,678 $ 19,228,093 RENT AND OTHER RECEIVABLES 1,000,720 941,563 AIRCRAFT, net of accumulated depreciation of $79,405,662 in 1999 and $78,075,872 in 1998 35,957,647 37,287,437 OTHER ASSETS 4,320 4,792 ------------ ------------ $ 55,463,365 $ 57,461,885 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT): PAYABLE TO AFFILIATES $ 192,672 $ 155,123 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 424,044 456,414 DEFERRED INCOME 2,749,282 2,324,958 NOTES PAYABLE 9,863,639 11,079,990 ------------ ------------ Total Liabilities 13,229,637 14,016,485 ------------ ------------ PARTNERS' CAPITAL (DEFICIT): General Partner (3,268,373) (3,256,230) Limited Partners, 499,973 units outstanding in 1999 and 1998 45,502,101 46,701,630 ------------ ------------ Total Partners' Capital 42,233,728 43,445,400 ------------ ------------ $ 55,463,365 $ 57,461,885 ============ ============ 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, ---------------------------- 1999 1998 ---- ---- REVENUES: Rent from operating leases $3,145,676 $3,145,676 Interest 216,343 350,684 Gain on sale of aircraft inventory 65,619 33,067 Other -- 65,385 ---------- ---------- Total Revenues 3,427,638 3,594,812 ---------- ---------- EXPENSES: Depreciation 1,329,790 1,987,098 Management fees to general partner 121,617 121,617 Operating 12,189 120,305 Interest 253,109 363,011 Administration and other 61,649 94,501 ---------- ---------- Total Expenses 1,778,354 2,686,532 ---------- ---------- NET INCOME $1,649,284 $ 908,280 ========== ========== NET INCOME ALLOCATED TO THE GENERAL PARTNER $ 273,953 $ 857,982 ========== ========== NET INCOME ALLOCATED TO LIMITED PARTNERS $1,375,331 $ 50,298 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 2.75 $ 0.10 ========== ========== 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, 1998 and Three Months Ended March 31, 1999 --------------------------------- General Limited Partner Partners Total ------- -------- ----- Balance, December 31, 1997 $ (3,030,600) $ 63,771,296 $ 60,740,696 Net income 1,849,258 1,607,397 3,456,655 Capital redemptions -- (3,072) (3,072) Cash distributions to partners (2,074,888) (18,673,991) (20,748,879) ------------ ------------ ------------ Balance, December 31, 1998 (3,256,230) 46,701,630 43,445,400 Net income 273,953 1,375,331 1,649,284 Cash distributions to partners (286,096) (2,574,860) (2,860,956) ------------ ------------ ------------ Balance, March 31, 1999 $ (3,268,373) $ 45,502,101 $ 42,233,728 ============ ============ ============ 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, ---------------------------- 1999 1998 ---- ---- OPERATING ACTIVITIES: Net income $ 1,649,284 $ 908,280 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,329,790 1,987,098 Gain on sale of aircraft inventory (65,619) (33,067) Changes in operating assets and liabilities: Decrease (increase) in rent and other receivables 6,462 (15,229) Decrease in other assets 472 429 Increase in payable to affiliates 37,549 30,192 (Decrease) increase in accounts payable and accrued liabilities (32,370) 129,317 Decrease in security deposits -- (50,000) Increase in deferred income 424,324 424,324 ------------ ------------ Net cash provided by operating activities 3,349,892 3,381,344 ------------ ------------ INVESTING ACTIVITIES: Net proceeds from sale of aircraft inventory -- 33,067 ------------ ------------ Net cash provided by investing activities -- 33,067 ------------ ------------ FINANCING ACTIVITIES: Principal payments on notes payable (1,216,351) (1,106,497) Capital redemptions -- (3,072) Cash distributions to partners (2,860,956) (14,499,216) ------------ ------------ Net cash used in financing activities (4,077,307) (15,608,785) ------------ ------------ CHANGES IN CASH AND CASH EQUIVALENTS (727,415) (12,194,374) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,228,093 31,587,494 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,500,678 $ 19,393,120 ============ ============ 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, 1998, 1997, and 1996 included in the Partnership's 1998 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, 1999 March 31, 1999 -------------- -------------- Aircraft Management Fees $105,000 $159,415 Out-of-Pocket Administrative Expense Reimbursement 82,437 33,257 Out-of-Pocket Operating and Remarketing Expense Reimbursement 1,719 -- -------- -------- $189,156 $192,672 ======== ======== 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. Sale of Aircraft Inventory to Soundair, Inc. The Partnership recognized income of $65,619 during the first quarter of 1999 from the sale of aircraft inventory to Soundair, Inc. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations At March 31, 1999, Polaris Aircraft Income Fund II (the Partnership) owned a portfolio of 14 used commercial jet aircraft and spare parts inventory 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). Partnership Operations The Partnership recorded net income of $1,649,284, or $2.75 per limited partnership unit, for the three months ended March 31, 1999, compared to net income of $908,280, or $0.10 per limited partnership unit, for the three months ended March 31, 1998. The increase in net income is primarily due to decreases in depreciation, interest and operating expense, partially offset by decreases in interest and other income, as discussed below. The increase in the deferred income balance at March 31, 1999 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, 1999 exceeded the rental income earned, causing an increase in the deferred income balance. The decrease in depreciation expense is the result of several aircraft having been fully depreciated down to their estimated salvage values during 1998. Interest expense decreased during the three months ended March 31, 1999, as compared to the same period in 1998, due to the continuing payments being made on the TWA hushkit notes payable. Operating expenses decreased during the three months ended March 31, 1999, as compared to the same period in 1998, due to a decrease 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 approximately $6,000 during the same period in 1999. 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 decreased during the three months ended March 31, 1999, as compared to the same period in 1998, primarily due to a decrease in printing and postage costs resulting from several additional investor mailings required in the first quarter of 1998. Interest income decreased during the first quarter of 1999, as compared to the same period in 1998, primarily due to a decrease in the cash reserves over the same period. 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, other income of $50,000 that had been held as a deposit. 9 The Partnership recognized income of $65,619 during the first quarter of 1999 from the sale of aircraft inventory to Soundair, Inc. Liquidity and Cash Distributions Liquidity - The Partnership received all payments due from its sole lessee, TWA, during 1999, except for the March 1999 lease payment. On April 2, 1999, the Partnership received its $935,000 rental payment from TWA that was due on March 27, 1999. This amount was included in rent and other receivables on the balance sheet at March 31, 1999. 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, 1999 and 1998 were $2,574,860, or $5.15 per limited partnership unit, and $13,049,294, or $26.10 per unit, respectively. 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; and the receipt of rental payments from TWA. 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 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 necessary contingency plans. The progress of this program is monitored at each business, and company-wide reviews with senior management are conducted monthly. The first three phases of the program have been completed for a substantial majority of mission-critical activities. Management plans to have nearly all significant information systems, products and services and facilities through the control phase of the program by mid-1999. 10 As noted elsewhere, the Partnership has fourteen aircraft and spare parts inventory remaining in its portfolio at this time. All of these remaining aircraft are on lease with Trans World Airlines, Inc. ("TWA"). TWA has advised GECAS that it has adopted procedures to identify and address Year 2000 issues and that it has developed a plan to implement required changes in its equipment, operations and systems. To the extent, however, that TWA suffers any material disruption of its business and operations due to Year 2000 failure of equipment or information systems, such disruption would likely have a material adverse effect on the Partnership's operations and financial condition. Aside from maintenance and other matters relating to the Partnership's aircraft-related assets discussed above, the principal 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 disruptions in business processes or that could affect customers' ability to repay amounts owed to the Partnership or 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 or the possibility of a disruption of TWA's business caused by Year 2000 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 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) 1998 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. 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. Viscount Air Services, Inc. (Viscount) Bankruptcy - In connection with the lawsuit against BAE Aviation, Inc., STS Services, Inc. and Piping Design Services, Inc., First Security Bank, National Association, as owner trustee, obtained judgment against the claimants for $159,375 for partial reimbursement of its attorneys' fees and costs. The claimants are appealing the Court's rulings. Other Proceedings - Item 10 in Part III of the Partnership's 1998 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 No reports on Form 8-K were filed by the Registrant during the quarter for which this report is filed. 12 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 11, 1999 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) 13 EX-27 2
5 3-MOS DEC-31-1999 MAR-31-1999 18500678 0 1000720 0 0 0 115363309 79405662 55463365 0 0 0 0 0 42233728 55463365 0 3427638 0 0 1778354 0 0 1649284 0 1649284 0 0 0 1649284 2.75 0
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