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 September 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 12 pages.
POLARIS AIRCRAFT INCOME FUND I
FORM 10-Q - For the Quarterly Period Ended September 30, 2001
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - September 30, 2001 and
December 31, 2000...........................................3
b) Statements of Operations - Three and Nine Months
Ended September 30, 2001 and 2000...........................4
c) Statements of Changes in Partners' Capital
- Year Ended December 31, 2000
and Nine Months Ended September 30, 2001....................5
d) Statements of Cash Flows - Nine Months
Ended September 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 .......................................................12
2
Part 1. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
(Unaudited)
September 30, December 31,
2001 2000
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $2,435,384 $2,469,034
OTHER ASSETS -- 6,297
AIRCRAFT ENGINES, held for sale -- 858,750
---------- ----------
Total Assets $2,435,384 $3,334,081
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
PAYABLE TO AFFILIATES $ 4,729 $ 48,904
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 368,044 364,071
MAINTENANCE RESERVES -- 631,316
---------- ----------
Total Liabilities 372,773 1,044,291
---------- ----------
PARTNERS' CAPITAL:
General Partner 135,195 137,474
Limited Partners, 168,729 units
issued and outstanding 1,927,416 2,152,316
---------- ----------
Total Partners' Capital 2,062,611 2,289,790
---------- ----------
Total Liabilities and Partners' Capital $2,435,384 $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 Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Rent from operating leases $ -- $ 60,000 $ -- $240,000
Gain on Sale of Aircraft Engines 41,250 -- 41,250 --
Other income - Maintenance reserves -- -- 631,316 --
Interest 19,389 41,002 60,008 133,747
Lessee settlement (Notes 4, 5) -- -- 85,667 61,513
-------- -------- -------- --------
Total Revenues 60,639 101,002 818,241 435,260
-------- -------- -------- --------
EXPENSES:
Depreciation -- 3,750 -- 11,250
Management fees to general partner -- 3,000 -- 12,000
Operating expenses 1,600 -- 5,900 --
Administration and other 36,015 26,623 102,137 96,333
-------- -------- -------- --------
Total Expenses 37,615 33,373 108,037 119,583
-------- -------- -------- --------
NET INCOME $ 23,024 $ 67,629 $710,204 $315,677
======== ======== ======== ========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 230 $ 676 $ 91,459 $ 8,750
======== ======== ======== ========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $ 22,794 $ 66,953 $618,745 $306,927
======== ======== ======== ========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .14 $ 0.40 $ 3.67 $ 1.82
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
Year Ended December 31, 2000 and
Nine Months Ended September 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 91,459 618,745 710,204
Cash distributions to partners (93,738) (843,645) (937,383)
----------- ----------- -----------
Balance, September 30, 2001 $ 135,195 $ 1,927,416 $ 2,062,611
=========== =========== ===========
The accompanying notes are an integral part of these statements.
5
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net income $ 710,204 $ 315,677
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation -- 11,250
Gain on Sale of Aircraft Engines (41,250) --
Changes in operating assets and
liabilities:
Decrease in rent and other receivable -- 30,000
Decrease (Increase) in other assets 6,297 (4,273)
Decrease in payable to affiliates (44,175) (6,297)
Increase in accounts payable and
accrued liabilities 3,973 34,889
Decrease in maintenance reserves (631,316) (1,073,399)
----------- -----------
Net cash provided by (used in)
operating activities 3,733 (692,153)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from Sale of Aircraft Engines 900,000 --
----------- -----------
Net cash provided by investing
activities 900,000 --
----------- -----------
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 (33,650) (1,629,536)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,469,034 4,190,421
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,435,384 $ 2,560,885
=========== ===========
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
September 30, 2001 September 30, 2001
------------------ ------------------
Aircraft Management Fees $ -- $ --
Out-of-Pocket Administrative Expense
Reimbursement 52,319 4,729
------- -------
$52,319 $ 4,729
======= =======
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
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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. 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 ceased depreciating
these assets and reported these assets at the lower of carrying amount or fair
value less cost to sell as of December 31, 2000. Due to the fact that the
Partnership decided to sell the engines in an as-is-where-is condition in June
2001, 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. 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
received the proceeds for these engines in the third quarter of 2001. This sale
resulted in a gain of $41,250 which is reflected in the Statement of Operations.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
At September 30, 2001, Polaris Aircraft Income Fund I (the Partnership) owned
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 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 a net income of $23,024, or $0.14 per limited
partnership unit, for the three months ended September 30, 2001, compared to net
income of $67,629, or $0.40 per unit for the same period in 2000. The
Partnership recorded net income of $710,204 or $3.67 per limited partnership
unit for the nine months ended September 30, 2001, compared to net income of
$315,677, or $1.82 per limited partnership unit, for the nine months ended
September 30, 2000. For the nine months ended September 30, 2001 the increase in
net income was primarily due to the reduction in maintenance reserves and the
gain resulting from the sale of the three remaining JT8D-9A engines. This was
supplemented by lower depreciation and management fees and partially offset by
the Partnership receiving no income from operating leases during 2001. For the
three months ended September 30, 2001, the decrease in income was due partially
to the Partnership receiving no rent from operating leases during 2001 due to
the expiration of the engine leases to Royal Aviation in August 2000, and
partially due to a decrease in interest income. These factors were partially
offset by the gain on sale of the three remaining JT8D-9A engines.
Due to the marketing and sale of the engines on an as-is-where-is basis, there
was no further need to hold the maintenance reserves to pay future repair and
maintenance costs. Maintenance reserves were therefore recognized as income
during the three months ended June 30, 2001. In addition, a gain on sale of
engines of $41,250 was recognized during the three months ended September 30,
2001.
Interest income decreased during the nine months ended September 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 nine months ended September 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 nine months ended September
30, 2001, as compared to the same periods in 2000, as a result of the engines
being off lease and subsequently sold.
9
Management fees decreased during the three and nine months ended September 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 - When the Partnership had aircraft and engines on lease, the
Partnership received maintenance reserve payments from the lessee. During the
terms of the lease, such maintenance reserves could be applied to reimburse the
lessee or pay directly 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. Due to the fact that the Partnership decided to sell its
three JT8D-9A engines in an as-is-where-is condition, the net maintenance
reserve balance of $631,316 from the lease to Royal Aviation was recognized as
income during the quarter ended June 30, 2001. These engines were subsequently
sold by the Partnership on July 19, 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 nine
months ended September 30, 2001 and 2000 were $843,645 or $5 per limited
partnership unit. 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. The timing and amount of the final distributions
to partners are not yet known and will depend upon circumstances such as the
costs incurred in the liquidation of the Partnership and the proceeds received
from the sale of the remaining inventory of spare parts.
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 June 30, 2001,
there are several 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 2000 Form 10-K and
Item 1 of Part II of the Partnership's Form 10-Q for the period ended June 30,
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)
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.
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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
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
November 7, 2001 By: /S/Keith Helming
- ----------------------------------- -------------------------
Keith Helming
Chief Financial Officer
12