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, 1996
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. 33-21977
___________________
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
State of Organization: California
IRS Employer Identification No. 94-3068259
201 Mission Street, 27th Floor, San Francisco, California 94105
Telephone - (415) 284-7400
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 V,
A California Limited Partnership
FORM 10-Q - For the Quarterly Period Ended March 31, 1996
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 1996 and
December 31, 1995.............................................3
b) Statements of Operations - Three Months Ended
March 31, 1996 and 1995.......................................4
c) Statements of Changes in Partners' Capital
(Deficit) -Year Ended December 31, 1995
and Three Months Ended March 31, 1996.........................5
d) Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995.................................6
e) Notes to Financial Statements.................................7
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..........................13
Signature..........................................................14
2
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 22,622,663 $ 20,842,611
RENT AND OTHER RECEIVABLES 2,733,749 3,215,421
NOTES RECEIVABLE, net of allowance for credit
losses of $255,001 in 1996 and $376,905 in 1995 - 386,457
AIRCRAFT, net of accumulated depreciation of
$105,334,171 in 1996 and $102,154,767 in 1995 111,197,298 114,376,702
------------ ------------
$136,553,710 $138,821,191
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 235,198 $ 793,901
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 48,047 167,547
SECURITY DEPOSITS 269,000 269,000
MAINTENANCE RESERVES 3,784,750 3,139,136
------------ ------------
Total Liabilities 4,336,995 4,369,584
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (888,521) (866,147)
Limited Partners, 500,000 units
issued and outstanding 133,105,236 135,317,754
------------ ------------
Total Partners' Capital 132,216,715 134,451,607
------------ ------------
$136,553,710 $138,821,191
============ ============
The accompanying notes are an integral part of these statements.
3
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
REVENUES:
Rent from operating leases $3,546,529 $3,219,809
Interest 291,667 293,468
Gain on sale of aircraft 121,904 143,533
---------- ----------
Total Revenues 3,960,100 3,656,810
---------- ----------
EXPENSES:
Depreciation 3,179,404 3,527,195
Management fees to general partner 177,326 160,990
Operating 2,666 269,608
Administration and other 57,818 60,496
---------- ----------
Total Expenses 3,417,214 4,018,289
---------- ----------
NET INCOME (LOSS) $ 542,886 $ (361,479)
========== ==========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 255,404 $ 246,360
========== ==========
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ 287,482 $ (607,839)
========== ==========
NET INCOME (LOSS) PER
LIMITED PARTNERSHIP UNIT $ 0.57 $ (1.22)
========== ==========
The accompanying notes are an integral part of these statements.
4
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1995 and
Three Months Ended March 31, 1996
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1994 $ (624,991) $159,182,168 $158,557,177
Net income (loss) 869,955 (13,864,414) (12,994,459)
Cash distributions to partners (1,111,111) (10,000,000) (11,111,111)
---------- ------------ ------------
Balance, December 31, 1995 (866,147) 135,317,754 134,451,607
Net income 255,404 287,482 542,886
Cash distributions to partners (277,778) (2,500,000) (2,777,778)
---------- ------------ ------------
Balance, March 31, 1996 $ (888,521) $133,105,236 $132,216,715
========== ============ ============
The accompanying notes are an integral part of these statements.
5
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ 542,886 $ (361,479)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 3,179,404 3,527,195
Gain on sale of aircraft (121,904) (143,533)
Changes in operating assets and liabilities:
Decrease (increase) in rent and other
receivables 481,672 (486,070)
Increase (decrease) in payable to affiliates (558,703) 1,861,793
Decrease in accounts payable and
accrued liabilities (119,500) (815,719)
Increase (decrease) in maintenance reserves 645,614 (610,186)
----------- -----------
Net cash provided by operating activities 4,049,469 2,972,001
----------- -----------
INVESTING ACTIVITIES:
Principal payments on notes receivable 386,457 17,732
Principal payments on finance sale of aircraft 121,904 143,533
----------- -----------
Net cash provided by investing activities 508,361 161,265
----------- -----------
FINANCING ACTIVITIES:
Cash distributions to partners (2,777,778) (2,777,778)
----------- -----------
Net cash used in financing activities (2,777,778) (2,777,778)
----------- -----------
CHANGES IN CASH AND CASH
EQUIVALENTS 1,780,052 355,488
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 20,842,611 18,725,876
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $22,622,663 $19,081,364
=========== ===========
The accompanying notes are an integral part of these statements.
6
POLARIS AIRCRAFT INCOME FUND V,
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 V'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. These statements should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1995, 1994, and
1993 included in the Partnership's 1995 Annual Report to the SEC on Form 10-K
(Form 10-K).
Aircraft and Depreciation - The aircraft are recorded at cost, which includes
acquisition costs. Depreciation to an estimated residual value is computed using
the straight-line method over the estimated economic life of the aircraft which
was originally estimated to be 30 years from the date of manufacture.
Depreciation in the year of acquisition was calculated based upon the number of
days that the aircraft were in service.
The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's economic life based on estimated
residual values obtained from independent parties which provide current and
future estimated aircraft values by aircraft type. For any downward adjustment
in estimated residual value or decrease in the projected remaining economic
life, the depreciation expense over the projected remaining economic life of the
aircraft is increased.
If the projected net cash flow for each aircraft (projected rental revenue, net
of management fees, less projected maintenance costs, if any, plus the estimated
residual value) is less than the carrying value of the aircraft, an impairment
loss is recognized. Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 121, as discussed below, measurement of an impairment loss will be
based on the "fair value" of the asset as defined in the statement.
Capitalized Costs - Aircraft modification and maintenance costs which are
determined to increase the value or extend the useful life of the aircraft are
capitalized and amortized using the straight-line method over the estimated
useful life of the improvement. These costs are also subject to periodic
evaluation as discussed above.
Financial Accounting Pronouncements - SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Partnership to disclose the fair
value of financial instruments. Cash and cash equivalents is stated at cost,
which approximates fair value. The fair value of the Partnership's notes
receivable is estimated by discounting future estimated cash flows using current
interest rates at which similar loans would be made to borrowers with similar
credit ratings and remaining maturities. As discussed in Note 3, the carrying
value of the note receivable from Empresa de Transporte Aereo del Peru S.A.
(Aeroperu) is zero due to a recorded allowance for credit losses equal to the
balance of the note. As of March 31, 1996, the aggregate fair value of the
Aeroperu notes receivable was estimated to be approximately $150,000.
7
The Partnership adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of January 1,
1996. This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Partnership estimates that this pronouncement will
not have a material impact on the Partnership's financial position or results of
operations unless events or circumstances change that would cause projected net
cash flows to be adjusted. No impairment loss was recognized by the Partnership
during the first quarter of 1996.
2. Lease to ATA
As discussed in the Form 10-K, the Partnership negotiated a seven-year lease
with ATA for three Boeing 727-200 Advanced aircraft. The leases began in
February and March 1993. ATA was not required to begin making cash rental
payments until January and February 1994, although rental revenue is to be
recognized over the entire lease term. The leases are renewable for up to three
one-year periods. ATA transferred to the Partnership three unencumbered Boeing
727-100 aircraft as part of the lease transaction. The Partnership sold these
aircraft as discussed in Note 3 and in the Form 10-K.
Under the ATA lease, the Partnership may be required to finance up to three
aircraft hushkits for use on the aircraft at an estimated aggregate cost of
approximately $7.8 million, which would be partially recovered with interest
through payments from ATA over an extended lease term. The Partnership loaned
$556,000 to ATA in 1993 to finance the purchase by ATA of one spare engine. The
Partnership has received all scheduled payments due under the note. The balance
of the note at December 31, 1995 was $386,457. ATA paid the Partnership the
remaining note balance in full in March 1996.
3. Sale to Aeroperu
In August 1993, the Partnership negotiated a sale to Aeroperu of two of the
Boeing 727-100 aircraft that were transferred to the Partnership under the ATA
lease (Note 2). The Partnership agreed to accept payment of the sale prices of
approximately $699,000 and $639,000 in 36 monthly installments of $23,000 and
$21,000, respectively, with interest at a rate of 12% per annum. The Partnership
recorded a note receivable and an allowance for credit losses equal to the
discounted sale prices. Gain on sale of the aircraft and interest revenue is
recognized as payments are received. The remaining balance of the security
deposit posted by Aeroperu will be applied to the last installment due August
1996, at which time title to the aircraft will transfer to Aeroperu. During the
three months ended March 31, 1996, the Partnership received principal and
interest payments from Aeroperu totaling $132,000, of which $121,904 was
recorded as gain on sale in the statement of operations for the three months
ended March 31, 1996. The notes receivable and corresponding allowances for
credit losses are reduced by the principal portion of payments received. As of
March 31, 1996, Aeroperu had not paid to the Partnership the monthly payments
due for February and March 1996 (Note 5). The balances of the notes receivable
and corresponding allowances for credit losses were $255,001 and $376,905 as of
March 31, 1996 and December 31, 1995, respectively.
8
4. 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, 1996 March 31, 1996
-------------- --------------
Aircraft Management Fees $ 208,126 $107,677
Out-of-Pocket Administrative Expense
Reimbursement 103,753 127,521
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 604,134 -
---------- --------
$ 916,013 $235,198
========== ========
5. Subsequent Event
American International Airways Limited (AIA) Lease - The lease of one Boeing
747-100 Special Freighter with AIA expired on March 31, 1996. The lease was
extended for two months through May 31, 1996. The Partnership is currently in
discussions with AIA to extend the lease beyond the two-month period.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Polaris Aircraft Income Fund V (the Partnership) owns a portfolio of 16 used
commercial jet aircraft, including two such aircraft that are subject to a
conditional sale agreement as discussed below. The portfolio includes seven
Boeing 737-200 Advanced aircraft leased to Southwest Airlines Co. (Southwest);
three Boeing 727-200 Advanced aircraft leased to American Trans Air, Inc. (ATA),
two Boeing 727-200 Advanced aircraft leased to Sun Country Airlines, Inc. (Sun
Country), one Boeing 747-100 Special Freighter aircraft leased to American
International Airways Limited (AIA), and one Boeing 747-100 Special Freighter
aircraft leased to Polar Air Cargo, Inc. (Polar Air Cargo). In addition, the
Partnership retains title to two Boeing 727-100 aircraft of the three such
Boeing 727-100 aircraft that ATA transferred to the Partnership as part of the
ATA lease transaction in 1993, subject to a conditional sale agreement to
Empresa de Transporte Aereo del Peru S.A. (Aeroperu). The sale was financed by
the Partnership and title will transfer to Aeroperu in August 1996 if Aeroperu
performs its payment obligations. The Partnership sold the remaining former ATA
Boeing 727-100 aircraft in August 1994.
Remarketing Update
AIA Lease - The lease of one Boeing 747-100 Special Freighter with AIA expired
on March 31, 1996. The lease was extended for two months through May 31, 1996.
The Partnership is currently in discussions with AIA to extend the lease beyond
the two-month period.
Partnership Operations
The Partnership recorded net income of $542,886, or $0.57 per limited
partnership unit, for the three months ended March 31, 1996, compared to a net
loss of $361,479, or $1.22 per unit, for the same period in 1995. The
significant improvement in operating results in the three months ended March 31,
1996 compared to the same period in 1995 is due primarily to slightly higher
revenues combined with lower depreciation expense (as discussed in the
Partnership's 1995 Annual Report to the Securities and Exchange Commission on
Form 10-K) and lower operating expense in 1996.
Rental revenues, net of related management fees, increased slightly during the
three months ended March 31, 1996 as compared to the same period in 1995. The
leases of three Boeing 737-200 Advanced aircraft to Southwest expired in
November 1995. The leases were extended for a period of approximately one year
at 136% of the prior lease rate. In addition, the Partnership recognized
decreased revenues during the first quarter of 1995 on the Boeing 747- 100
Special Freighter aircraft on lease to AIA. This aircraft, which is leased at a
variable rent based on usage, underwent certain maintenance and modification
work for approximately 35 days during the first quarter of 1995 and recorded no
flight hours, thus generating no rental revenue, during this maintenance period.
Further impacting the improved operating results in the first quarter of 1996 as
compared to the same period in 1995 was a decline in operating expenses during
the first quarter of 1996. Operating expenses during the three months ended
March 31, 1995 include heavy maintenance costs of approximately $267,000 that
the Partnership incurred on the two Boeing 727-200 Advanced aircraft leased to
Sun Country in accordance with the lease. Current year operating expenses were
minimal in comparison.
10
Liquidity and Cash Distributions
Liquidity -The Partnership continues to receive all lease payments on a current
basis, with the exception of payments due from Aeroperu, which have not been
made on a timely basis. The Partnership receives maintenance reserve payments
from certain of its lessees that may be reimbursed to the lessee or applied
against certain costs incurred by the Partnership for maintenance work performed
on the Partnership's aircraft, as specified in the leases. Maintenance reserve
balances remaining at the termination of the lease may be used by the
Partnership to offset future maintenance expenses. The net maintenance reserve
payments aggregate $3,784,750 as of March 31, 1996.
The Partnership's cash reserves are being retained to cover maintenance costs
the Partnership has agreed to incur on certain of its aircraft, to cover the
potential costs of remarketing the Boeing 747-100 Special Freighter aircraft
currently on lease to AIA, and to finance a portion of the hushkit costs that
may be incurred under the leases with ATA. The ATA leases specify the
Partnership may be required to finance certain aircraft hushkits at an aggregate
cost of approximately $7.8 million, which would be partially recovered with
interest through payments from ATA over an extended lease term.
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 1996 and 1995 were $2,500,000, or $5.00 per limited
partnership unit, for each period. The amount of future cash distributions will
depend upon the Partnership's future cash requirements including the potential
costs of remarketing the Partnership's aircraft, the receipt of the rental
payments from Southwest, ATA, Sun Country, Polar Air Cargo and AIA, the receipt
of sale proceeds from Aeroperu, and the Partnership's success in remarketing or
extending the lease for the Boeing 747-100 Special Freighter aircraft that is
currently on lease to AIA.
11
Part II. Other Information
--------------------------
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund V's (the
Partnership) 1995 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. There have been no material developments
with respect to any such actions or proceedings during the period covered by
this report.
Other Proceedings - Item 10 in Part III of the Partnership's 1995 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,
but the following new proceedings have been commenced.
In or around December 1994, a complaint entitled John J. Jones, Jr. v.
Prudential Securities Incorporated et al., was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities, Incorporated and Stephen Derby Gisclair. On or about
March 29, 1996, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company and General Electric
Capital Corporation. Plaintiff alleges claims of tort, breach of fiduciary duty,
in tort, contract and quasi-contract, violation of sections of the Louisiana
Blue Sky Law and violation of the Louisiana Civil Code concerning the inducement
and solicitation of purchases arising out of the public offering of Polaris
Aircraft Income Fund III. Plaintiff seeks compensatory damages, attorneys' fees,
interest, costs and general relief. The Partnership is not named as a defendant
in this action.
On or around February 16, 1996, a complaint entitled Henry Arwe, et al. v.
General Electric Company, et al., was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint named as defendants General
Electric Company and General Electric Capital Corporation. Plaintiffs allege
claims of tort, breach of fiduciary duty in tort, contract and quasi-contract,
violation of sections of the Louisiana Blue Sky Law and violation of the
Louisiana Civil Code concerning the inducement and solicitation of purchases
arising out of the public offering of Polaris Aircraft Income Funds III and IV.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief. The Partnership is not named as a defendant in this action.
On or about April 9, 1996, a summons and First Amended Complaint entitled
Sara J. Bishop, et al. v. Kidder Peabody & Co., et al. was filed in the Superior
Court of the State of California, County of Sacramento, by over one hundred
individual plaintiffs who purchased limited partnership units in Polaris
Aircraft Income Funds III, IV, V and VI and other limited partnerships sold by
Kidder Peabody. The complaint names Kidder, Peabody & Co. Incorporated, KP
Realty Advisors, Inc., Polaris Holding Company, Polaris Aircraft Leasing
Corporation, Polaris Investment Management Corporation, Polaris Securities
Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services, Inc.,
General Electric Company, General Electric Financial Services, Inc., General
Electric Capital Corporation, General Electric Credit Corporation and DOES 1-100
as defendants. The complaint alleges violations of state common law, including
fraud, negligent misrepresentation, breach of fiduciary duty, and violations of
the rules of the National Association of Securities Dealers. The complaint seeks
to recover compensatory damages and punitive damages in an unspecified amount,
interest, and rescission with respect to the Polaris Aircraft Income Funds
III-VI and all other limited partnerships alleged to have been sold by Kidder
Peabody to the plaintiffs. The Partnership is not named as a defendant in this
action.
12
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 (Filed electronically 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.
13
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 V,
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 8, 1996 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)
14