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. 33-31810
___________________
POLARIS AIRCRAFT INCOME FUND VI,
A California Limited Partnership
State of Organization: California
IRS Employer Identification No. 94-3102632
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 13 pages.
POLARIS AIRCRAFT INCOME FUND VI,
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 Income - Three Months Ended
March 31, 1996 and 1995.......................................4
c) Statements of Changes in Partners' Capital -
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.........................................11
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 VI,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 3,369,987 $3,297,782
RENT AND INTEREST RECEIVABLE 436,668 467,025
AIRCRAFT, net of accumulated depreciation of
$13,828,787 in 1996 and $13,390,080 in 1995 15,610,413 16,049,120
----------- ----------
$19,417,068 $19,813,927
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
PAYABLE TO AFFILIATES $ 26,012 $ 26,362
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 12,775 34,797
SECURITY DEPOSITS 94,000 94,000
----------- ----------
Total Liabilities 132,787 155,159
----------- ----------
PARTNERS' CAPITAL:
General Partner 5,656 5,656
Limited Partners, 69,418 units
issued and outstanding 19,278,625 19,653,112
----------- ----------
Total Partners' Capital 19,284,281 19,658,768
----------- ----------
$19,417,068 $19,813,927
=========== ===========
The accompanying notes are an integral part of these statements.
3
POLARIS AIRCRAFT INCOME FUND VI,
A California Limited Partnership
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
REVENUES:
Rent from operating leases $ 434,643 $ 795,243
Interest 46,603 48,725
Gain on sale of aircraft 52,640 46,716
--------- ---------
Total Revenues 533,886 890,684
--------- ---------
EXPENSES:
Depreciation and amortization 438,707 474,319
Administration and other 12,969 18,989
--------- ---------
Total Expenses 451,676 493,308
--------- ---------
NET INCOME $ 82,210 $ 397,376
========= =========
NET INCOME ALLOCATED TO THE
GENERAL PARTNER $ 22,835 $ 27,402
========= =========
NET INCOME ALLOCATED TO
LIMITED PARTNERS $ 59,375 $ 369,974
========= =========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 0.86 $ 5.33
========= =========
The accompanying notes are an integral part of these statements.
4
POLARIS AIRCRAFT INCOME FUND VI,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
Year Ended December 31, 1995 and
Three Months Ended March 31, 1996
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1994 $ 5,656 $23,280,997 $23,286,653
Net income (loss) 105,040 (1,632,117) (1,527,077)
Cash distributions to partners (105,040) (1,995,768) (2,100,808)
-------- ----------- ----------
Balance, December 31, 1995 5,656 19,653,112 19,658,768
Net income 22,835 59,375 82,210
Cash distributions to partners (22,835) (433,862) (456,697)
-------- ----------- ----------
Balance, March 31, 1996 $ 5,656 $19,278,625 $19,284,281
======== =========== ===========
The accompanying notes are an integral part of these statements.
5
POLARIS AIRCRAFT INCOME FUND VI,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $ 82,210 $ 397,376
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 438,707 474,319
Gain on sale of aircraft (52,640) (46,716)
Changes in operating assets and liabilities:
Decrease in rent and interest receivable 30,357 30,263
Decrease in payable to affiliates (350) (25,594)
Increase (decrease) in accounts payable
and accrued liabilities (22,022) 3,240
---------- ----------
Net cash provided by operating activities 476,262 832,888
---------- ----------
INVESTING ACTIVITIES:
Principal payments on finance sale of aircraft 52,640 46,716
---------- ----------
Net cash provided by investing activities 52,640 46,716
---------- ----------
FINANCING ACTIVITIES:
Cash distributions to partners (456,697) (548,037)
---------- ----------
Net cash used in financing activities (456,697) (548,037)
---------- ----------
CHANGES IN CASH AND CASH
EQUIVALENTS 72,205 331,567
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,297,782 2,695,546
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $3,369,987 $3,027,113
========== ==========
The accompanying notes are an integral part of these statements.
6
POLARIS AIRCRAFT INCOME FUND VI,
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 VI'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. As discussed in Note 3, the carrying value of the
Partnership's 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 $65,000.
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
operation unless events or circumstances change that would cause the projected
net cash flows to be adjusted. No impairment loss was recognized by the
Partnership during the first quarter of 1996.
2. Lease to American Trans Air, Inc. (ATA)
As discussed in the Form 10-K, the Partnership negotiated a seven-year lease
with ATA for one Boeing 727-200 Advanced aircraft. The lease began in March 1993
and is renewable for up to three one-year periods. ATA was not required to begin
making cash rental payments until February 1994, although rental revenue is to
be recognized over the entire lease term. ATA transferred to the Partnership one
unencumbered Boeing 727-100 aircraft as part of the lease transaction. The
Partnership sold this aircraft as discussed in Note 3. Under the ATA lease, the
Partnership may be required to finance an aircraft hushkit at an estimated cost
of approximately $2.6 million, which would be partially recovered with interest
through payments from ATA over an extended lease term.
3. Sale to Aeroperu
In August 1993, the Partnership negotiated a sale to Aeroperu for the
Boeing 727-100 aircraft that was transferred to the Partnership under the ATA
lease (Note 2). The Partnership agreed to accept payment of the sales price of
approximately $578,000 in 36 monthly installments of $19,000, 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 price. Gain on sale of
aircraft will be recognized as payments are received. The remaining balance of
the security deposit posted by Aeroperu will be applied to the last installment
due in 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 $57,000, of which $52,640
was recorded as gain on sale in the statement of operations for the three months
ended March 31, 1996. The note receivable and corresponding allowance 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 note receivable and
corresponding allowance for credit losses were $110,115 and $162,755 as of March
31, 1996 and December 31, 1995, respectively.
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
-------------- --------------
Out-of-Pocket Administrative and
Operating Expense Reimbursement $ 35,341 $ 26,012
8
Management fees payable to the general partner are subordinated each year to
receipt by unit holders of distributions equaling a 10% per annum,
non-compounded return on adjusted capital contributions, as defined in the
Partnership Agreement. Based on the subordination provisions, no management fee
expense was recognized or paid during the quarter ended March 31, 1996.
5. Subsequent Event
Payment from Aeroperu - As discussed in Note 3, at March 31, 1996 Aeroperu had
not paid to the Partnership two of the monthly installments due in the first
quarter of 1996. Aeroperu has since paid one of the installments past due as of
March 31, 1996.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Polaris Aircraft Income Fund VI (the Partnership) owns one Boeing 737-200
Advanced aircraft leased to British Airways Plc (British Airways) and one Boeing
727-200 Advanced aircraft leased to American Trans Air, Inc. (ATA). In addition,
the Partnership retains title to one Boeing 727-100 aircraft that ATA
transferred to the Partnership as part of the ATA lease transaction in April
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.
Partnership Operations
The Partnership recorded net income of $82,210, or $0.86 per limited partnership
unit, for the three months ended March 31, 1996, compared to net income of
$397,376, or $5.33 per unit, for the same period in 1995. Current year operating
results reflect substantially lower rental revenues as compared to the same
period in 1995.
As discussed in the Partnership's 1995 Annual Report to the Securities and
Exchange Commission on Form 10-K (Form 10-K), the Partnership negotiated a lease
extension with British Airways for three years from April 1995 until March 1998
at the current fair market rental rate, which is approximately 40% of the prior
rate. The Partnership recognized a reduction in rental revenue beginning in the
second quarter of 1995 which negatively impacted the Partnership's operating
results, as well as its liquidity, as discussed below.
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's cash reserves have been negatively
impacted by the reduction in rental payments received from British Airways upon
extension of the lease in April 1995 as discussed above.
The ATA lease specifies that the Partnership may be required to finance an
aircraft hushkit at an estimated cost of approximately $2.6 million, which would
be partially recovered with interest through payments from ATA over an extended
lease term. The Partnership's cash reserves are being retained to finance a
portion of the cost that may be incurred under the lease with ATA and to cover
other potential cash requirements.
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 1996 and 1995 were $433,862, or $6.25 per limited
partnership unit and $520,635 or $7.50 per unit, respectively. The timing and
amount of future cash distributions will depend upon the Partnership's future
cash requirements, the receipt of rental payments from British Airways and ATA,
and the receipt of aircraft sale proceeds from Aeroperu.
10
Part II. Other Information
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund VI'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.
11
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
None
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 VI,
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)
13