UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
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Commission File No. 2-91762
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POLARIS AIRCRAFT INCOME FUND I
State of Organization: California
IRS Employer Identification No. 94-2938977
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 12 pages.
POLARIS AIRCRAFT INCOME FUND I
FORM 10-Q - For the Quarterly Period Ended March 31, 2001
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 2001 and
December 31, 2000...........................................3
b) Statements of Operations - Three Months
Ended March 31, 2001 and 2000...............................4
c) Statements of Changes in Partners' Capital
- Year Ended December 31, 2000
and Three Months Ended March 31, 2001.......................5
d) Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000...............................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
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Part 1. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $1,559,642 $2,469,034
OTHER ASSETS -- 6,297
AIRCRAFT ENGINES, held for sale 858,750 858,750
---------- ----------
Total Assets $2,418,392 $3,334,081
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
PAYABLE TO AFFILIATES $ 9,916 $ 48,904
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 355,808 364,071
MAINTENANCE RESERVES 631,316 631,316
---------- ----------
Total Liabilities 997,040 1,044,291
---------- ----------
PARTNERS' CAPITAL:
General Partner 128,782 137,474
Limited Partners, 168,729 units
issued and outstanding 1,292,570 2,152,316
---------- ----------
Total Partners' Capital 1,421,352 2,289,790
---------- ----------
Total Liabilities and Partners' Capital $2,418,392 $3,334,081
========== ==========
The accompanying notes are an integral part of these statements.
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
---- ----
REVENUES:
Rent from operating leases $ -- $ 90,000
Interest 23,051 50,634
Lessee settlement (Note 4) 76,770 61,513
-------- --------
Total Revenues 99,821 202,147
-------- --------
EXPENSES:
Depreciation -- 3,750
Management fees to general partner -- 4,500
Administration and other 30,876 28,205
-------- --------
Total Expenses 30,876 36,455
-------- --------
NET INCOME $ 68,945 $165,692
======== ========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 85,046 $ 7,251
======== ========
NET INCOME (LOSS) ALLOCATED TO
LIMITED PARTNERS $(16,101) $158,441
======== ========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (0.10) $ 0.94
======== ========
The accompanying notes are an integral part of these statements.
4
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
Year Ended December 31, 2000 and
Three Months Ended March 31, 2001
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1999 $ 222,894 $ 2,731,907 $ 2,954,801
Net income 8,318 264,054 272,372
Cash distributions to partners (93,738) (843,645) (937,383)
----------- ----------- -----------
Balance, December 31, 2000 137,474 2,152,316 2,289,790
Net income 85,046 (16,101) 68,945
Cash distributions to partners (93,738) (843,645) (937,383)
----------- ----------- -----------
Balance, March 31, 2001 $ 128,782 $ 1,292,570 $ 1,421,352
=========== =========== ===========
The accompanying notes are an integral part of these statements.
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net income $ 68,945 $ 165,692
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation -- 3,750
Changes in operating assets and liabilities:
Decrease in rent and other receivable -- 30,000
Decrease in other assets 6,297 --
Decrease in payable to affiliates (38,988) (1,264)
Decrease in accounts payable and
accrued liabilities (8,263) (12,309)
Decrease in maintenance reserves -- 69,453
----------- -----------
Net cash provided by operating activities 27,991 255,322
----------- -----------
FINANCING ACTIVITIES:
Cash distributions to partners (937,383) (937,383)
----------- -----------
Net cash used in financing activities (937,383) (937,383)
----------- -----------
CHANGES IN CASH AND CASH
EQUIVALENTS (909,392) (682,061)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,469,034 4,190,421
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,559,642 $ 3,508,360
=========== ===========
The accompanying notes are an integral part of these statements.
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POLARIS AIRCRAFT INCOME FUND I
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 I'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, 2000,
1999 and 1998 included in the Partnership's 2000 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
March 31, 2001 March 31, 2001
-------------- --------------
Out-of-Pocket Operating Expense
Reimbursement 36,238 --
Out-of-Pocket Administrative Expense
Reimbursement 37,886 9,916
------- -------
$74,124 $ 9,916
======= =======
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.
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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.
4. Braniff Bankruptcy Settlement
On January 16, 2001, Braniff's bankrupt estate made a $110,890 payment in
respect of the unsecured claims of the Partnership and other affiliates of
Polaris Management Corporation, of which $76,770 was allocated to the
Partnership based on its pro rata share of the total claims.
5. Engine Lease Expiration
The lease for the three JT8D-9A engines to Royal Aviation, Inc. and Royal Cargo,
Inc. (Royal Aviation) expired on August 31, 2000. The engines were redelivered
on September 7, 2000 and security deposit of $45,000 was refunded to Royal
Aviation on November 21, 2000. The Partnership has made these engines available
for sale along with the remaining inventory of spare parts such that all the
assets of the Partnership will be liquidated and a final distribution made
thereafter. The Partnership has ceased depreciating these assets and is
currently reporting these assets at the lower of carrying amount or fair value
less cost to sell. The net maintenance reserve balance was $631,316 as of March
31, 2001. The Partnership is currently assessing the return conditions of the
engines to determine how much, if any, of the maintenance reserve balance may be
recognized as revenue.
6. New Accounting Pronouncements
On January 1, 2001, the Partnership adopted Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), as amended by SFAS 138, which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
Partnership does not own any derivative instruments, and as such, the
implementation of this statement did not have a material impact on the
Partnership's financial position or result of operations.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
At March 31, 2001, Polaris Aircraft Income Fund I (the Partnership) owned three
JT8D-9A engines and certain inventoried aircraft parts, which includes one
engine, out of its original portfolio of eleven aircraft. The three JT8D-9A
engines, which were leased to Royal Aviation Inc. and Royal Cargo, Inc. (Royal
Aviation), were redelivered to the Partnership on September 7, 2000. The
Partnership has made these engines available for sale along with the remaining
inventory of spare parts such that all the assets of the Partnership will be
liquidated and a final distribution made thereafter.
Partnership Operations
The Partnership recorded net income of $68,945, or $(0.10) per limited
partnership unit, for the three months ended March 31, 2001, compared to net
income of $165,692, or $0.94 per unit for the same period in 2000. The decline
in operating results was primarily due to a decrease in rent and interest
revenue, partially offset by decreased management fees and depreciation expense
as well as an increase in Lessee settlement.
There was no rent recognized during the three months ended March 31, 2001, as
compared to the same period in 2000 due to the expiration of the engine leases
to Royal Aviation in August 2000.
Interest income decreased during the three months ended March 31, 2001, as
compared to the same period in 2000 as a result of a decrease in the cash
reserves due to distributions as well as a reduction in rental income in
connection with the expiration of the engine leases to Royal Aviation.
Other income increased during the three months ended March 31, 2001, as compared
to the same period in 2000, primarily to the receipt of $76,770 on January 16,
2001 related to the Braniff bankruptcy, as discussed in Note 4.
No management fees were paid during the three months ended March 31, 2001, as
compared to the same period in 2000 due to the expiration of the engine leases
to Royal Aviation in August 2000.
No depreciation expense was recognized during the three months ended March 31,
2001, as compared to the same period in 2000, since the engines were off lease
and held-for-sale.
Liquidity and Cash Distributions
Liquidity - The Partnership received maintenance reserve payments from its
lessee 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 or engines, as specified in the leases. Maintenance reserve balances
remaining at the termination of the lease, if any, may be used by the
Partnership to offset future maintenance expenses or recognized as revenue. The
net maintenance reserve balances aggregate $631,316 as of March 31, 2001. The
Partnership is currently assessing the return conditions of the engines to
determine how much, if any, of the maintenance reserve balance may be recognized
as revenue.
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Polaris Investment Management Corporation, the general partner, has determined
that the Partnership maintain cash reserves as a prudent measure to insure that
the Partnership has available funds for the remarketing of the engines returned
from Royal Aviation 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 until further information becomes available.
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 2001 and 2000 were $843,645, or $5 per limited
partnership unit. The timing and amount of a final cash distribution to partners
is not yet known and will depend upon circumstances such as the Partnership's
future cash requirements, and the timing and proceeds related to the ultimate
liquidation of the Partnership's assets.
As stated above, the three engines on lease to Royal Aviation were redelivered
on September 7, 2000. The Partnership has made these engines available for sale
along with the remaining inventory of spare parts such that all the assets of
the Partnership will be liquidated and a final distribution made thereafter.
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Part II. Other Information
--------------------------
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund I's (the
Partnership) 2000 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K), there are several 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.
CanAir Cargo Ltd. (CanAir) Order under the Companies' Creditors Arrangement Act
of Canada - On March 29, 2001, the receiver appointed by the Ontario Court of
Justice on behalf of CanAir's creditors issued a check for 620,116 Canadian
Dollars (approximately $397,122 U.S. Dollars converted as of 4/24/01) to GE
Capital Aviation Services, Inc. (GECAS) on behalf of the GECAS Parties (GECAS ,
as agent for Polaris Holding Company, General Electric Capital Leasing Canada,
Inc. and the Partnership). Including this latest amount, the receiver has
distributed to the GECAS Parties a total amount in this liquidation of
approximately $1,138,822 U.S. Dollars, of which the Partnership's pro rata share
is approximately $95,874 U.S. Dollars. The Partnership's pro rata share of the
latest distribution of $397,122 U.S. Dollars is approximately $34,361 U.S.
Dollars. After deducting the legal fees related to this matter, out of the
latest distribution, the Partnership will receive a net pro rata share of
approximately $9,020 U.S. Dollars.
Other Proceedings - Item 10 in Part III of the Partnership's 2000 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.
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund I's (the
Partnership) 2000 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K), there are several 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.
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.
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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 I
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 14, 2001 By: /S/Edwin Forti
- ------------------------------- ----------------------
Edwin Forti, President
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