-----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, QsHen+dTs39FIV8W1MH3AWUmpLg6hU5MBA+CLWCm9NzYm+LJBLU/VWiAzG84c25G Q7IJwKX/fSiuSdnFULvb6g== 0000948524-98-000080.txt : 19980814 0000948524-98-000080.hdr.sgml : 19980814 ACCESSION NUMBER: 0000948524-98-000080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: 98685050 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 JUNE 30, 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 June 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__ --------------- 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 June 30, 1998 INDEX Part I. Financial Information Page Item 1. Financial Statements a) Balance Sheets - June 30, 1998 and December 31, 1997..........................................3 b) Statements of Operations - Three and Six Months Ended June 30, 1998 and 1997...............................4 c) Statements of Changes in Partners' Capital (Deficit) - Year Ended December 31, 1997 and Six Months Ended June 30, 1998.........................5 d) Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997...............................6 e) Notes to Financial Statements..............................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........10 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)
June 30, December 31, 1998 1997 ---- ---- ASSETS: CASH AND CASH EQUIVALENTS $ 19,463,980 $ 31,587,494 RENT AND OTHER RECEIVABLES 935,101 935,629 AIRCRAFT, net of accumulated depreciation of $74,320,776 in 1998 and $70,346,578 in 1997 41,042,533 45,016,731 OTHER ASSETS 5,702 6,571 ------------ ------------ $ 61,447,316 $ 77,546,425 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT): PAYABLE TO AFFILIATES $ 210,493 $ 142,761 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 475,080 317,799 SECURITY DEPOSITS -- 50,000 DEFERRED INCOME 1,476,309 627,660 NOTES PAYABLE 13,428,019 15,667,509 ------------ ------------ Total Liabilities 15,589,901 16,805,729 ------------ ------------ PARTNERS' CAPITAL (DEFICIT): General Partner (3,636,813) (3,030,600) Limited Partners, 499,973 and 499,997 units outstanding in 1998 and 1997, respectively 49,494,228 63,771,296 ------------ ------------ Total Partners' Capital 45,857,415 60,740,696 ------------ ------------ $ 61,447,316 $ 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 Six Months Ended June 30, June 30, -------- -------- 1998 1997 1998 1997 ---- ---- ---- ---- REVENUES: Rent from operating leases $3,145,675 $4,132,342 $6,291,351 $8,500,720 Interest 256,610 388,262 607,294 690,339 Loss on sale of aircraft -- -- -- (26,079) Other 15,138 88,414 113,590 802,443 ---------- ---------- ---------- ---------- Total Revenues 3,417,423 4,609,018 7,012,235 9,967,423 ---------- ---------- ---------- ---------- EXPENSES: Depreciation 1,987,100 2,971,322 3,974,198 6,069,438 Management fees to general partner 121,617 157,284 243,234 366,703 Operating 79,120 37,035 199,425 81,927 Interest 336,503 440,119 699,514 851,985 Administration and other 99,134 113,267 193,635 192,911 ---------- ---------- ---------- ---------- Total Expenses 2,623,474 3,719,027 5,310,006 7,562,964 ---------- ---------- ---------- ---------- NET INCOME $ 793,949 $ 889,991 $1,702,229 $2,404,459 ========== ========== ========== ========== NET INCOME ALLOCATED TO THE GENERAL PARTNER $ 194,049 $ 508,848 $1,052,031 $ 836,459 ========== ========== ========== ========== NET INCOME ALLOCATED TO LIMITED PARTNERS $ 599,900 $ 381,143 $ 650,198 $1,568,000 ========== ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 1.20 $ 0.76 $ 1.30 $ 3.13 ========== ========== ========== ========== 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 Six Months Ended June 30, 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 1,052,031 650,198 1,702,229 Capital redemptions (24 units) -- (3,072) (3,072) Cash distributions to partners (1,658,244) (14,924,194) (16,582,438) ------------ ------------ ------------ Balance, June 30, 1998 $ (3,636,813) $ 49,494,228 $ 45,857,415 ============ ============ ============ 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)
Six Months Ended June 30, 1998 1997 ---- ---- OPERATING ACTIVITIES: Net income $ 1,702,229 $ 2,404,459 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,974,198 6,069,438 Loss on sale of aircraft -- 26,079 Gain on sale of aircraft inventory (48,205) -- Changes in operating assets and liabilities: Decrease (increase) in rent and other receivables 528 (1,082,360) Decrease in other assets 869 108,983 Increase in payable to affiliates 67,732 229,910 Increase in accounts payable and accrued liabilities 157,281 290,584 Decrease in security deposits (50,000) (66,000) Decrease in maintenance reserves -- (6,453) Increase (decrease) in deferred income 848,649 (597,915) ------------ ------------ Net cash provided by operating activities 6,653,281 7,376,725 ------------ ------------ INVESTING ACTIVITIES: Increase in aircraft capitalized costs -- (4,784,633) Principal payments on notes receivable -- 622,403 Net proceeds from sale of aircraft -- 2,500,238 Payments to Purchaser related to sale of aircraft -- (1,001,067) Net proceeds from sale of aircraft inventory 48,205 95,269 ------------ ------------ Net cash provided by (used in) investing activities 48,205 (2,567,790) ------------ ------------ FINANCING ACTIVITIES: Increase in notes payable -- 3,884,633 Principal payments on notes payable (2,239,490) (343,613) Capital redemptions (3,072) -- Cash distributions to partners (16,582,438) (9,027,724) ------------ ------------ Net cash used in financing activities (18,825,000) (5,486,704) ------------ ------------ CHANGES IN CASH AND CASH EQUIVALENTS (12,123,514) (677,769) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,587,494 22,224,813 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,463,980 $ 21,547,044 ============ ============ The accompanying notes are an integral part of these statements.
6 POLARIS AIRCRAFT INCOME FUND II, A California Limited Partnership STATEMENTS OF CASH FLOWS (CONTINUED) (Unaudited) Six Months Ended June 30, ------------------------- 1998 1997 ---- ---- SUPPLEMENTAL INFORMATION: Interest paid $ 700,509 $ 746,012 ============= ============= The accompanying notes are an integral part of these statements. 7 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 June 30, 1998 June 30, 1998 ------------- ------------- Aircraft Management Fees $ 97,500 $ 117,065 Out-of-Pocket Administrative and Selling Expense Reimbursement 117,085 91,411 Out-of-Pocket Operating Expense Reimbursement 18,929 2,017 ------------- ------------ $ 233,514 $ 210,493 ============= ============ 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 amount, $15,385 was allocated 8 to the Partnership, based on its pro rata share of the total claims, and recognized as revenue during the quarter ended March 31, 1998, which is included in other income. 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. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations At June 30, 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. In August 1998, the Partnership entered into an agreement for the sale of its remaining inventory of aircraft parts, with a net carrying value of $0, from the six disassembled aircraft to Soundair, Inc. The remaining inventory was sold effective February 1, 1998 for $90,000, less amounts previously received for sales in the month of February of $4,920. The net purchase price will be paid in four monthly installments commencing in August. Partnership Operations The Partnership recorded net income of $793,949, or $1.20 per limited partnership unit, for the three months ended June 30, 1998, compared to net income of $889,991, or $0.76 per limited partnership unit, for the three months ended June 30, 1997. The Partnership recorded net income of $1,702,229, or $1.30 per limited partnership unit, for the six months ended June 30, 1998, compared to net income of $2,404,459, or $3.13 per limited partnership unit, for the six months ended June 30, 1997. The decrease in year to date net income is primarily due to a decrease in other income. The Partnership recorded other income of $802,443 during the six months ended June 30, 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 and six months of 1998, as compared to the same periods in 1997. This decline was the result of an absence of rental revenues from the aircraft sold to Triton Aviation Services II LLC 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 June 30, 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 six months ended June 30, 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 six months of 1997. Operating expenses increased during the three and six months ended June 30, 1998, as compared to the same periods in 1997, due to an increase in legal expenses. During the six months ended June 30, 1998, the Partnership recognized legal expenses of $124,000 related to the Viscount default and Chapter 11 bankruptcy filing, compared to $60,000 during the same period in 1997. The 10 Partnership also recognized legal expenses of approximately $57,000 during the six months ended June 30, 1998, related to the sale of aircraft to Triton in 1997. 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 six months ended June 30, 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 quarter ended March 31, 1998, which is included in other income. Liquidity and Cash Distributions Liquidity - The Partnership received all payments due from its sole lessee, TWA, during 1998, except for the June 1998 lease payment. On July 2, 1998, the Partnership received its $935,000 rental payment from TWA that was due on June 27, 1998. This amount was included in rent and other receivables on the balance sheet at June 30, 1998. Payments totaling $48,205 and $95,270 were received during the first two quarters 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 June 30, 1998 and 1997 were $1,874,899, or $3.75 per limited partnership unit and $4,999,970, or $10.00 per unit, respectively. Cash distributions to limited partners during the six months ended June 30, 1998 and 1997 were $14,924,194, or $29.85 per limited partnership unit and $8,124,951, or $16.25 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; and the receipt of rental payments from TWA. 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) 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 period ended March 31, 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 April 23, 1998, the Court consolidated for discovery purposes this action with the action entitled "Accelerated" High Yield Income Fund II, Ltd., L.P. v. Polaris Investment Management Corporation, et. al. On July 9, 1998, the Court denied the defendants' demurrer to dismiss the plaintiffs' second amended complaint. On July 28, 1998, defendants filed an answer to the second amended complaint. Viscount Air Services, Inc. (Viscount) Bankruptcy - The trial date of the lawsuit against BAE Aviation, Inc., STS Services, Inc. and Piping Design Services, Inc. has been reset for October 27, 1998. First Security Bank, N.A., as owner trustee for the Partnership, has filed a motion for summary judgment on all claims. The motion is set for hearing on August 10, 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 period ended March 31, 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. 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 August 12, 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) 13 EX-27 2
5 6-MOS DEC-31-1998 JUN-30-1998 19463980 0 935101 0 0 0 115363309 74320776 61447316 0 0 0 0 0 45857415 61447316 0 7012235 0 0 5310006 0 0 1702229 0 1702229 0 0 0 1702229 1.30 0
-----END PRIVACY-ENHANCED MESSAGE-----