-----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, AEd1IJzjn5MZK81hR1p4ElyfSzCty001wz9+EjXO/4bOrwjeEmVufZZSm2nFmNpN +N2iPXy6x/hbo2+gJekoxg== 0000948524-98-000115.txt : 19981118 0000948524-98-000115.hdr.sgml : 19981118 ACCESSION NUMBER: 0000948524-98-000115 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98751757 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 SEPTEMBER 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 September 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 14 pages. POLARIS AIRCRAFT INCOME FUND III, A California Limited Partnership FORM 10-Q - For the Quarterly Period Ended September 30, 1998 INDEX Part I. Financial Information Page Item 1. Financial Statements a) Balance Sheets - September 30, 1998 and December 31, 1997..........................................3 b) Statements of Income - Three and Nine Months Ended September 30, 1998 and 1997..........................4 c) Statements of Changes in Partners' Capital (Deficit) - Year Ended December 31, 1997 and Nine Months Ended September 30, 1998...................5 d) Statements of Cash Flows - Nine Months Ended September 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.....................................12 Item 6. Exhibits and Reports on Form 8-K......................12 Signature ......................................................13 2 Part I. Financial Information ----------------------------- Item 1. Financial Statements POLARIS AIRCRAFT INCOME FUND III, A California Limited Partnership BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 ---- ---- ASSETS: CASH AND CASH EQUIVALENTS $ 13,800,315 $ 28,632,488 RENT AND OTHER RECEIVABLES 850,961 850,760 AIRCRAFT, net of accumulated depreciation of $55,836,379 in 1998 and $53,612,863 in 1997 26,348,198 28,571,714 ------------ ------------ $ 40,999,474 $ 58,054,962 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT): PAYABLE TO AFFILIATES $ 185,857 $ 123,242 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 71,938 80,211 DEFERRED INCOME 1,534,552 626,578 NOTES PAYABLE 8,643,535 11,080,004 ------------ ------------ Total Liabilities 10,435,882 11,910,035 ------------ ------------ PARTNERS' CAPITAL (DEFICIT): General Partner (4,196,238) (2,854,104) Limited Partners, 499,960 and 500,000 units outstanding in 1998 and 1997, respectively 34,759,830 48,999,031 ------------ ------------ Total Partners' Capital 30,563,592 46,144,927 ------------ ------------ $ 40,999,474 $ 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 INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1998 1997 1998 1997 ---- ---- ---- ---- REVENUES: Rent from operating leases $ 2,247,342 $ 2,247,341 $ 6,742,026 $ 9,718,274 Interest 182,918 542,030 663,910 1,076,774 Gain on sale of aircraft inventory 88,596 185,355 230,577 481,602 Other -- -- -- 785,094 ----------- ----------- ----------- ----------- Total Revenues 2,518,856 2,974,726 7,636,513 12,061,744 ----------- ----------- ----------- ----------- EXPENSES: Depreciation 602,854 1,225,284 2,223,516 6,705,107 Management fees to general partner 86,787 25,982 260,360 333,695 Interest 217,673 293,043 710,959 927,724 Operating 31,961 3,865 87,405 17,650 Administration and other 68,993 94,547 266,595 291,205 ----------- ----------- ----------- ----------- Total Expenses 1,008,268 1,642,721 3,548,835 8,275,381 ----------- ----------- ----------- ----------- NET INCOME $ 1,510,588 $ 1,332,005 $ 4,087,678 $ 3,786,363 =========== =========== =========== =========== NET INCOME ALLOCATED TO THE GENERAL PARTNER $ 152,107 $ 310,790 $ 624,375 $ 960,271 =========== =========== =========== =========== NET INCOME ALLOCATED TO LIMITED PARTNERS $ 1,358,481 $ 1,021,215 $ 3,463,303 $ 2,826,092 =========== =========== =========== =========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 2.72 $ 2.04 $ 6.93 $ 5.65 =========== =========== =========== ===========
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 Nine Months Ended September 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 624,375 3,463,303 4,087,678 Capital redemptions (40 units) -- (3,920) (3,920) Cash distributions to partners (1,966,509) (17,698,584) (19,665,093) ------------ ------------ ------------ Balance, September 30, 1998 $ (4,196,238) $ 34,759,830 $ 30,563,592 ============ ============ ============ 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) Nine Months Ended September 30, ------------------------------- 1998 1997 ---- ---- OPERATING ACTIVITIES: Net income $ 4,087,678 $ 3,786,363 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of aircraft inventory (230,577) (481,602) Depreciation 2,223,516 6,705,107 Changes in operating assets and liabilities: Increase in rent and other receivables (201) (498,866) Decrease in prepaid fees -- 104,275 Increase in payable to affiliates 62,615 66,247 Decrease in accounts payable and accrued liabilities (8,273) (22,049) Increase (decrease) in deferred income 907,974 (136,160) ------------ ------------ Net cash provided by operating activities 7,042,732 9,523,315 ------------ ------------ INVESTING ACTIVITIES: Net proceeds from sale of aircraft inventory 230,577 481,602 Proceeds from sale of aircraft -- 1,506,762 Payments to Purchaser related to sale of aircraft -- (1,341,968) Principal payments on notes receivable -- 375,577 ------------ ------------ Net cash provided by investing activities 230,577 1,021,973 ------------ ------------ FINANCING ACTIVITIES: Principal payments on notes payable (2,436,469) (1,052,804) Capital redemptions (3,920) -- Cash distributions to partners (19,665,093) (10,250,000) ------------ ------------ Net cash used in financing activities (22,105,482) (11,302,804) ------------ ------------ CHANGES IN CASH AND CASH EQUIVALENTS (14,832,173) (757,516) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,632,488 20,229,105 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,800,315 $ 19,471,589 ============ ============ SUPPLEMENTAL INFORMATION: Interest paid $ 713,531 $ 825,117 ============ ============ 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 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 the Three Months Ended Payable at September 30, 1998 September 30, 1998 ------------------ ------------------ Aircraft Management Fees $ 75,000 $ 92,890 Out-of-Pocket Operating and Remarketing Expense Reimbursement 3,474 62,613 Out-of-Pocket Administrative and Selling Expense Reimbursement 120,359 30,354 -------- -------- $198,833 $185,857 ======== ======== 3. Sale of Aircraft Inventory to Soundair, Inc. The Partnership sold its remaining inventory of aircraft parts from the nine disassembled aircraft, to Soundair, Inc. The remaining inventory, with a net carrying value of $-0-, was sold effective February 1, 1998 for $100,000, less amounts previously received for sales as of that date. The net purchase price of $88,596 was paid in September 1998. 7 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 September 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) out of its original portfolio of 38 aircraft. 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 as of that date. The net purchase price of $88,596 was paid in September 1998. Partnership Operations The Partnership recorded net income of $1,510,588, or $2.72 per limited partnership unit, for the three months ended September 30, 1998 compared to net income of $1,332,005, or $2.04 per unit for the same period in 1997. The Partnership recorded net income of $4,087,678, or $6.93 per limited partnership unit, for the nine months ended September 30, 1998 compared to net income of $3,786,363, or $5.65 per unit for the same period in 1997. The variance in net income per limited partnership unit will differ from the variance of total net income from period to period due to the methods by which income or loss from operations and gain or loss on the sale of aircraft are allocated in accordance with the partnership agreement. Rental revenues, management fees and depreciation decreased during the nine months ended September 30, 1998, as compared to the same period 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 nine months ended September 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 nine months ended September 30, 1998, as compared to the same periods in 1997, primarily due to the payoff of notes receivable from Continental Airlines, Inc. and Triton during 1997. Interest expense decreased during the three and nine months ended September 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 nine months ended September 30, 1998 as compared to the same periods in 1997, due to an increase in legal expenses related to the sale of aircraft to Triton in 1997. Administrative expenses decreased during the three and nine months ended September 30, 1998 as compared to the same periods in 1997, primarily due to decreases in consulting and trustee fees. The increase in the deferred income balance at September 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 9 rental income earned and the rental payments due is recognized as deferred income. The rental payments due from TWA during the three and nine months ended September 30, 1998 exceeded the rental income earned on the TWA leases, causing an increase in the deferred income balance. Liquidity and Cash Distributions Liquidity - The Partnership received all lease payments from its sole lessee, TWA, although the September 1998 lease payment was not received until October 1, 1998. This rent was included in rent and other receivables on the balance sheet at September 30, 1998. In addition, payments totaling $230,577 have been received during the first nine months of 1998 from the sale of parts from the nine disassembled aircraft, as compared to payments of $481,602 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 September 30, 1998 and 1997 were $1,449,884, or $2.90 per limited partnership unit and $2,975,000, or $5.95 per unit, respectively. Cash distributions to limited partners during the nine months ended September 30, 1998 and 1997 were $17,698,584, or $35.40 per limited partnership unit and $9,225,000, or $18.45 per unit, respectively. The increase in distributions during the nine months ended September 30, 1998, as compared to the same period in 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), the 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 10 (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. GECC and GECAS management plan to have completed the first three phases of the program for a substantial majority of mission-critical systems by the end of 1998 and to have nearly all significant information systems, products and services, facilities and suppliers in the control phase of the program by mid-1999. As noted elsewhere, the Partnership has ten aircraft 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 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 periods ended March 31, 1998 and June 30, 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 November 9, 1998, defendants, acting through their counsel, entered into a settlement agreement with plaintiffs and with the plaintiff in a related action, Accelerated High Yield Income Fund v. Polaris Investment Management Corporation, et al. The settlement is subject to final approval by the Court. The settlement agreement does not provide for any payments to be made to the Partnership. Plaintiff's counsel is seeking reimbursement from the Partnership of an as yet to be determined amount of fees and expenses. A settlement notice setting forth the terms of the settlement will be mailed to the last known address of each unitholder of the Partnership by November 20, 1998. On November 10, 1998, the Court preliminarily approved the settlement. A hearing to determine whether the settlement should be finally approved by the Court is scheduled for December 22, 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 periods ended March 31, 1998 and June 30, 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 III, A California Limited Partnership (Registrant) By: Polaris Investment Management Corporation, General Partner November 16, 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) 13 EX-27 2
5 9-MOS DEC-31-1998 SEP-30-1998 13800315 0 850961 0 0 0 82184577 55836379 40999474 0 0 0 0 0 30563592 40999474 0 7636513 0 0 3548835 0 0 4087678 0 4087678 0 0 0 4087678 6.93 0
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