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 June 30, 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 13 pages.
POLARIS AIRCRAFT INCOME FUND I
FORM 10-Q - For the Quarterly Period Ended June 30, 2001
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - June 30, 2001 and
December 31, 2000............................................3
b) Statements of Operations - Three and Six Months
Ended June 30, 2001 and 2000.................................4
c) Statements of Changes in Partners' Capital
- Year Ended December 31, 2000
and Six Months Ended June 30, 2001...........................5
d) Statements of Cash Flows - Six Months
Ended June 30, 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 ........................................................13
2
Part 1. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
(Unaudited)
June 30, December 31,
2001 2000
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $1,568,315 $2,469,034
OTHER ASSETS -- 6,297
AIRCRAFT ENGINES, held for sale 858,750 858,750
---------- ----------
Total Assets $2,427,065 $3,334,081
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
PAYABLE TO AFFILIATES $ 17,048 $ 48,904
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 370,430 364,071
MAINTENANCE RESERVES -- 631,316
---------- ----------
Total Liabilities 387,478 1,044,291
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PARTNERS' CAPITAL:
General Partner 134,965 137,474
Limited Partners, 168,729 units
issued and outstanding 1,904,622 2,152,316
---------- ----------
Total Partners' Capital 2,039,587 2,289,790
---------- ----------
Total Liabilities and Partners' Capital $2,427,065 $3,334,081
========== ==========
The accompanying notes are an integral part of these statements.
3
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Rent from operating leases $ -- $ 90,000 $ -- $180,000
Other income - Maintenance reserves 631,316 -- 631,316 --
Interest 17,568 42,111 40,619 92,745
Lessee settlement (Notes 4, 5) 8,897 -- 85,667 61,513
-------- -------- -------- --------
Total Revenues 657,781 132,111 757,602 334,258
-------- -------- -------- --------
EXPENSES:
Depreciation -- 3,750 -- 7,500
Management fees to general partner -- 4,500 -- 9,000
Operating expenses 4,300 -- 4,300 --
Administration and other 35,246 41,505 66,122 69,710
-------- -------- -------- --------
Total Expenses 39,546 49,755 70,422 86,210
-------- -------- -------- --------
NET INCOME $618,235 $ 82,356 $687,180 $248,048
======== ======== ======== ========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 6,183 $ 823 $ 91,229 $ 8,074
======== ======== ======== ========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $612,052 $ 81,533 $595,951 $239,974
======== ======== ======== ========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 3.63 $ 0.48 $ 3.53 $ 1.42
======== ======== ======== ========
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
Six Months Ended June 30, 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 91,229 595,951 687,180
Cash distributions to partners (93,738) (843,645) (937,383)
----------- ----------- -----------
Balance, June 30, 2001 $ 134,965 $ 1,904,622 $ 2,039,587
=========== =========== ===========
The accompanying notes are an integral part of these statements.
5
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net income $ 687,180 $ 248,048
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation -- 7,500
Changes in operating assets and liabilities:
Decrease in rent and other receivable -- 30,000
Decrease in payable to affiliates (31,856) (10,737)
Decrease in other assets 6,297 --
Increase in accounts payable and
accrued liabilities 6,359 4,209
Decrease in maintenance reserves (631,316) (1,156,075)
----------- -----------
Net cash provided by (used in)
operating activities 36,664 (877,055)
----------- -----------
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 (900,719) (1,814,438)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,469,034 4,190,421
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,568,315 $ 2,375,983
=========== ===========
The accompanying notes are an integral part of these statements.
6
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
June 30, 2001 June 30, 2001
------------- -------------
Out-of-Pocket Administrative Expense
Reimbursement $14,735 $17,048
------- -------
$14,735 $17,048
======= =======
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.
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.
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4. CanAir Bankruptcy Settlement
On June 27, 2001, the Partnership received $8,897 in connection with the CanAir
Bankruptcy Settlement, which is comprised of amounts received for rents,
maintenance reserve obligations and accrued interest. This settlement may prove
to be the final settlement if certain additional claims are made before the
statutory period expires.
5. 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 Investment Management Corporation, of which $76,770 was allocated to the
Partnership based on its pro rata share of the total claims.
6. 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 subsequently sold the engines
to Aeroturbine, Inc. as discussed below. 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. Due to the fact that the Partnership
decided to sell the engines in an as-is-where-is condition, the net maintenance
reserve balance of $631,316 was taken into income during the quarter ended June
30, 2001.
7. 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.
8 Subsequent Event - Sale of Engines
On July 19, 2001 the Partnership sold the three remaining JT8D-9A engines to
Aeroturbine, Inc., on an as-is-where-is basis for $900,000. The Partnership has
received the proceeds for these engines in the third quarter of 2001.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
At June 30, 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. On July 19, 2001 the
Partnership sold the three remaining JT8D-9A engines to Aeroturbine, Inc., on an
as-is-where-is basis for $900,000.
Partnership Operations
The Partnership recorded net income of $618,236, or $3.63 per limited
partnership unit, for the three months ended June 30, 2001, compared to net
income of $82,356, or $0.48 per unit for the same period in 2000. The
Partnership recorded net income of $687,181, or $3.53 per limited partnership
unit for the six months ended June 30, 2001, compared to net income of $248,048,
or $1.42 per limited partnership unit, for the six months ended June 30, 2000.
The increase in operation results was primarily due to the reduction in
maintenance reserves. This was supplemented by lower depreciation and management
fees partially offset by the Partnership receiving no income from operating
leases during 2001 due to the expiration of the engine leases to Royal Aviation
in August 2000 as well as lower interest income in 2001.
Due to marketing the engines for sale on an as-is-where-is basis, there was no
further need to hold the maintenance reserves. Hence maintenance reserves were
booked to income during the three months ended June 30, 2001
Interest income decreased during the six months ended June 30, 2001 as compared
to the same period in 2000, primarily due to lower average cash reserves and
lower average interest rates over the same period.
Lessee settlement increased during the six months ended June 30, 2001, as
compared to the same period in 2000, primarily due to the receipt of $76,770 in
January 2001 related to the Braniff bankruptcy, as discussed in Note 5 and
$8,897 received from the CanAir bankruptcy as discussed in Note 4, compared to a
$61,513 settlement in the CanAir bankruptcy proceedings, received in 2000.
Depreciation expense decreased during the three and six months ended June 30,
2001, as compared to the same periods in 2000, as a result of the engines being
off lease and classified as held-for-sale.
Management fees decreased during the three and six months ended June 30, 2001,
as compared to the same periods in 2000 due to the expiration of the engine
leases to Royal Aviation in August 2000.
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
9
remaining at the termination of the lease, if any, may be used by the
Partnership to offset future maintenance expenses or recognized as revenue. Due
to the fact that the Partnership decided to sell the engines in an
as-is-where-is condition, the net maintenance reserve balance of $631,316 was
taken into income during the quarter ended June 30, 2001.
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 to cover expenses incurred by the
Partnership. Since the General Partner has sold the Partnership's three
remaining engines in July 2001, final distributions will be made after Polaris
Investment Management Corporation, the general partner, has sold the remaining
inventory of spare parts and determined what costs will be incurred in the
liquidation of the Partnership.
Cash Distributions - Cash distributions to limited partners during the six
months ended June 30, 2001 and 2000 were $843,645 or $5 per limited partnership
unit. The timing and amount of future cash distributions to partners are not yet
known and will depend upon circumstances such as the Partnership's future cash
requirements.
Since the General Partner has sold the Partnership's three remaining engines in
July 2001, final distributions will be made after Polaris Investment Management
Corporation, the general partner, has sold the remaining inventory of spare
parts and determined what costs will be incurred in the liquidation of the
Partnership.
10
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) 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, 2001,
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.
Kepford, et al. V. Prudential Securities, et al. - In connection with the action
filed in the District Court of Harris County, Texas against Polaris Investment
Management Corporation, Polaris Securities Corporation, Polaris Holding Company,
Polaris Aircraft Leasing Corporation, the Partnership, Polaris Aircraft Income
Fund I, Polaris Aircraft Income Fund III, Polaris Aircraft Income Fund IV,
Polaris Aircraft Income Fund V, Polaris Aircraft Income Fund VI, General
Electric Capital Corporation, Prudential Securities, Inc., Prudential Insurance
Company of America and James J. Darr, on June 5, 2001, the remaining plaintiffs
who did not ask the court to dismiss their claims, Gerald and Judy Beckman, made
a motion to retain the case on the docket of the District Court of Harris
County, Texas with respect to their purported claims against all defendants
except Prudential Insurance Company of America and James J. Darr. On June 27,
2001, the Court entered a docket control order providing for a schedule for
discovery and a trial date of December 3, 2001.
CanAir Cargo Ltd. (CanAir) Order under the Companies' Creditors Arrangement Act
of Canada - On June 27, 2001, the Partnership received $8,897 U.S. Dollars in
connection with this matter. This amount reflects the Partnership's net pro rata
share of the March 29, 2001 payment made 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) by
the receiver appointed by the Ontario court of Justice on behalf of CanAir's
creditors in the amount of 620,116 Canadian Dollars (approximately $397,122 U.S.
Dollars converted as of 4/24/01).
Other Proceedings - Item 10 in Part III of the Partnership's 2000 Form 10-K and
Item 1 of Part II of the Partnership's Form 10-Q for the period ended March 31,
2001 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
11
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 I
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
August 13, 2001 By: /S/Steve Yost
----------------------------- -------------
for Keith Helming
Chief Financial Officer
13