-----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, Nn94stccrIdaBo5h2BbXcJ0+/jw09xx17v/GcdgNyDQR2msSkAYWcLrTVxj3jQ7x r0PrTif+li55uOeCEkdBqw== 0000948524-98-000081.txt : 19980814 0000948524-98-000081.hdr.sgml : 19980814 ACCESSION NUMBER: 0000948524-98-000081 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 III CENTRAL INDEX KEY: 0000806031 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943023671 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-10122 FILM NUMBER: 98685069 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. 33-10122 ---------------- POLARIS AIRCRAFT INCOME FUND III, A California Limited Partnership State of Organization: California IRS Employer Identification No. 94-3023671 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 13 pages. POLARIS AIRCRAFT INCOME FUND III, 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...............................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 I. Financial Information ----------------------------- Item 1. Financial Statements POLARIS AIRCRAFT INCOME FUND III, A California Limited Partnership BALANCE SHEETS (Unaudited)
June 30, December 31, 1998 1997 ---- ---- ASSETS: CASH AND CASH EQUIVALENTS $ 13,838,513 $ 28,632,488 RENT AND OTHER RECEIVABLES 851,008 850,760 AIRCRAFT, net of accumulated depreciation of $55,233,525 in 1998 and $53,612,863 in 1997 26,951,052 28,571,714 ------------ ------------ $ 41,640,573 $ 58,054,962 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT): PAYABLE TO AFFILIATES $ 166,329 $ 123,242 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 103,380 80,211 DEFERRED INCOME 1,231,894 626,578 NOTES PAYABLE 9,474,984 11,080,004 ------------ ------------ Total Liabilities 10,976,587 11,910,035 ------------ ------------ PARTNERS' CAPITAL (DEFICIT): General Partner (4,187,247) (2,854,104) Limited Partners, 499,960 and 500,000 units outstanding in 1998 and 1997, respectively 34,851,233 48,999,031 ------------ ------------ Total Partners' Capital 30,663,986 46,144,927 ------------ ------------ $ 41,640,573 $ 58,054,962 ============ ============ The accompanying notes are an integral part of these statements.
3 POLARIS AIRCRAFT INCOME FUND III, 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 $2,247,342 $3,564,009 $4,494,684 $7,470,933 Interest 183,246 286,058 480,992 534,744 Gain on sale of aircraft inventory 52,447 211,310 141,981 296,247 Other -- 763,995 -- 785,094 ---------- ---------- ---------- ---------- Total Revenues 2,483,035 4,825,372 5,117,657 9,087,018 ---------- ---------- ---------- ---------- EXPENSES: Depreciation 602,854 2,406,350 1,620,662 5,479,823 Management fees to general partner 86,786 112,367 173,573 307,713 Interest 237,138 312,125 493,286 634,681 Operating 18,724 8,911 55,444 13,785 Administration and other 100,268 116,651 197,602 196,658 ---------- ---------- ---------- ---------- Total Expenses 1,045,770 2,956,404 2,540,567 6,632,660 ---------- ---------- ---------- ---------- NET INCOME $1,437,265 $1,868,968 $2,577,090 $2,454,358 ========== ========== ========== ========== NET INCOME ALLOCATED TO THE GENERAL PARTNER $ 154,627 $ 331,158 $ 472,268 $ 649,481 ========== ========== ========== ========== NET INCOME ALLOCATED TO LIMITED PARTNERS $1,282,638 $1,537,810 $2,104,822 $1,804,877 ========== ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 2.57 $ 3.08 $ 4.21 $ 3.61 ========== ========== ========== ========== The accompanying notes are an integral part of these statements
4 POLARIS AIRCRAFT INCOME FUND III, 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 $(1,670,662) $ 55,159,826 $ 53,489,164 Net income 49,891 4,939,205 4,989,096 Cash distributions to partners (1,233,333) (11,100,000) (12,333,333) ----------- ------------ ------------ Balance, December 31, 1997 (2,854,104) 48,999,031 46,144,927 Net income 472,268 2,104,822 2,577,090 Capital redemptions (40 units) -- (3,920) (3,920) Cash distributions to partners (1,805,411) (16,248,700) (18,054,111) ----------- ------------ ------------ Balance, June 30, 1998 $(4,187,247) $ 34,851,233 $ 30,663,986 =========== ============ ============ The accompanying notes are an integral part of these statements
5 POLARIS AIRCRAFT INCOME FUND III, A California Limited Partnership STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ------------------------- 1998 1997 ---- ---- OPERATING ACTIVITIES: Net income $ 2,577,090 $ 2,454,358 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of aircraft inventory (141,981) (296,247) Depreciation 1,620,662 5,479,823 Changes in operating assets and liabilities: Increase in rent and other receivables (248) (498,866) Decrease in prepaid fees -- 104,275 Increase in payable to affiliates 43,087 78,265 Increase in accounts payable and accrued liabilities 23,169 102,439 Increase (decrease) in deferred income 605,316 (438,818) ------------ ------------ Net cash provided by operating activities 4,727,095 6,985,229 ------------ ------------ INVESTING ACTIVITIES: Net proceeds from sale of aircraft inventory 141,981 296,247 Proceeds from sale of aircraft -- 1,491,329 Payments to Purchaser related to sale of aircraft -- (1,341,968) Principal payments on notes receivable -- 185,013 ------------ ------------ Net cash provided by investing activities 141,981 630,621 ------------ ------------ FINANCING ACTIVITIES: Principal payments on notes payable (1,605,020) (296,446) Capital redemptions (3,920) -- Cash distributions to partners (18,054,111) (6,944,444) ------------ ------------ Net cash used in financing activities (19,663,051) (7,240,890) ------------ ------------ CHANGES IN CASH AND CASH EQUIVALENTS (14,793,975) 374,960 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,632,488 20,229,105 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,838,513 $ 20,604,065 ============ ============ SUPPLEMENTAL INFORMATION: Interest paid $ 494,980 $ 531,475 ============ ============ The accompanying notes are an integral part of these statements
6 POLARIS AIRCRAFT INCOME FUND III, 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 III'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 curren 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 $ 75,000 $ 81,103 Out-of-Pocket Administrative and Selling Expense Reimbursement 133,247 83,703 Out-of-Pocket Operating and Remarketing Expense Reimbursement 11,882 1,523 ----------- ----------- $ 220,129 $ 166,329 =========== =========== 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. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations At June 30, 1998, Polaris Aircraft Income Fund III (the Partnership) owned a portfolio of 10 used McDonnell Douglas DC-9-30 aircraft leased to Trans World Airlines, Inc. (TWA) and certain inventoried aircraft parts out of its original portfolio of 38 aircraft. The Partnership transferred three McDonnell Douglas DC-9-10 aircraft and six Boeing 727-100 aircraft to aircraft inventory in 1992. The inventoried 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 nine disassembled aircraft to Soundair, Inc. The remaining inventory was sold effective February 1, 1998 for $100,000, less amounts previously received for sales in the month of February of $11,404. The net purchase price will be paid in four monthly installments commencing in August. Partnership Operations The Partnership recorded net income of $1,437,265, or $2.57 per limited partnership unit, for the three months ended June 30, 1998, as compared to net income of $1,868,968, or $3.08 per limited partnership unit, for the three months ended June 30, 1997. The Partnership recorded net income of $2,577,090 or $4.21 per limited partnership unit, for the six months ended June 30, 1998 compared to net income of $2,454,358, or $3.61 per limited partnership unit, for the six months ended June 30, 1997. Rental revenues, management fees and depreciation decreased during the three and six months ended June 30, 1998, as compared to the same periods in 1997, primarily due to the sale of aircraft to Triton Aviation Services III LLC (Triton) in 1997. The Partnership recorded other income of $785,094 during the six months ended June 30, 1997. This other income was primarily the result of the receipt of $743,476 during the second quarter of 1997 related to amounts due under the TWA maintenance credit and rent deferral agreement. Interest income decreased during the three and six months ended June 30, 1998, as compared to the same periods in 1997, due to the payoff of notes receivable from Continental Airlines, Inc. and Triton during 1997. Interest expense decreased during the three and six months ended June 30, 1998, as compared to the same periods in 1997,due to the continuing principal payments on the TWA hushkit notes payable. 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 related to the sale of the remaining aircraft. 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 10 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 and six months ended June 30, 1998 exceeded the rental income earned on the TWA leases, causing an increase in the deferred income balance. 9 Liquidity and Cash Distributions Liquidity - The Partnership received all lease payments from its sole lessee, TWA, except for the June 1998 lease payment. On July 2, 1998, the Partnership received its $850,000 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. In addition, payments totaling $141,981 have been received during the first six months of 1998 from the sale of parts from the nine disassembled aircraft, as compared to payments of $296,247 during the same period in 1997. 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 $1,449,884, or $2.90 per limited partnership unit, and $3,125,000, or $6.25 per limited partnership unit, respectively. Cash distributions to limited partners during the six months ended June 30, 1998 and 1997 were $16,248,700, or $32.50 per limited partnership unit, and $6,250,000, or $12.50 per limited partnership 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 III 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. 10 Part II. Other Information -------------------------- Item 1. Legal Proceedings As discussed in Item 3 of Part I of Polaris Aircraft Income Fund III'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. 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. 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 III, A California Limited Partnership (Registrant) By: Polaris Investment Management Corporation, General Partner August 12, 1998 By: /S/Marc A. Meiches - ------------------------- ---------------------- Marc 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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