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, 2002
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 March 31, 2002
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 2002 and
December 31, 2001...........................................3
b) Statements of Operations - Three Months
Ended March 31, 2002 and 2001...............................4
c) Statements of Changes in Partners' Capital
- Year Ended December 31, 2001
and Three Months Ended March 31, 2002.......................5
d) Statements of Cash Flows - Three Months
Ended March 31, 2002 and 2001...............................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 I
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2002 2001
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $1,241,937 $2,445,482
---------- ----------
Total Assets $1,241,937 $2,445,482
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
PAYABLE TO AFFILIATES $ 37,917 $ 38,214
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 364,295 368,821
---------- ----------
Total Liabilities 402,212 407,035
---------- ----------
PARTNERS' CAPITAL:
General Partner 23,820 134,953
Limited Partners, 168,729 units
issued and outstanding 815,905 1,903,494
---------- ----------
Total Partners' Capital 839,725 2,038,447
---------- ----------
Total Liabilities and Partners' Capital $1,241,937 $2,445,482
========== ==========
The accompanying notes are an integral part of these statements.
3
POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
REVENUES:
Interest $ 6,372 $ 23,051
Lessee settlement (Note 5) -- 76,770
-------- --------
Total Revenues 6,372 99,821
-------- --------
EXPENSES:
Administration and other 33,365 30,876
-------- --------
Total Expenses 33,365 30,876
-------- --------
NET INCOME (LOSS) $(26,993) $ 68,945
======== ========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 6,040 $ 85,046
======== ========
NET LOSS ALLOCATED TO
LIMITED PARTNERS $(33,033) $(16,101)
======== ========
NET LOSS PER LIMITED
PARTNERSHIP UNIT $ (0.20) $ (0.10)
======== ========
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, 2001 and
Three Months Ended March 31, 2002
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 2000 $ 137,474 $ 2,152,316 $ 2,289,790
Net income 91,217 594,824 686,041
Cash distributions to partners (93,738) (843,646) (937,384)
----------- ----------- -----------
Balance, December 31, 2001 134,953 1,903,494 2,038,447
Net income 6,040 (33,033) (26,993)
Cash distributions to partners (117,173) (1,054,556) (1,171,729)
----------- ----------- -----------
Balance, March 31, 2002 $ 23,820 $ 815,905 $ 839,725
=========== =========== ===========
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,
----------------------------
2002 2001
---- ----
OPERATING ACTIVITIES:
Net income (Loss) $ (26,993) $ 68,945
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Decrease in other assets -- 6,297
Decrease in payable to affiliates (297) (38,988)
Decrease in accounts payable and
accrued liabilities (4,526) (8,263)
----------- -----------
Net cash provided (used) by operating
activities (31,816) 27,991
----------- -----------
FINANCING ACTIVITIES:
Cash distributions to partners (1,171,729) (937,383)
----------- -----------
Net cash used in financing activities (1,171,729) (937,383)
----------- -----------
CHANGES IN CASH AND CASH
EQUIVALENTS (1,203,545) (909,392)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,445,482 2,469,034
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,241,937 $ 1,559,642
=========== ===========
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 accounting principles generally
accepted in the United States ("GAAP"). These statements should be read in
conjunction with the financial statements and notes thereto for the years ended
December 31, 2001, 2000 and 1999 included in the Partnership's 2001 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, 2002 March 31, 2002
-------------- --------------
Out-of-Pocket Operating Expense
Reimbursement $ 2,272 $ 2,200
Out-of-Pocket Administrative Expense
Reimbursement 35,942 35,717
------- -------
$38,214 $37,917
======= =======
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. 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. An additional amount to be
determined will be paid to the Partnership before the end of the second quarter
2002 or shortly thereafter, and will be recognized as income when received.
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 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 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. The Partnership subsequently sold the engines to
Aeroturbine, Inc. on an as-is-where-is basis in July 2001, as discussed below.
7. New Accounting Pronouncements
In June 2001, the FASB approved for issuance Statement of Financial Accounting
Standard ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS
No. 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred and that the
associated asset retirement costs be capitalized as part of the carrying value
of the related long-lived asset. SFAS No. 143 will be effective January 1, 2003
for the Partnership. Management does not expect this standard to have a material
impact on the Partnership's balance sheet or statement of operations.
In August 2001, the FASB approved for issuance SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 broadens the
presentation of discontinued operations to include more transactions and
eliminates the need to accrue for future operating losses. Additionally, SFAS
No. 144 prohibits the retroactive classification of assets as held for sale and
requires revisions to the depreciable lives of long-lived assets to be
abandoned. SFAS No. 144 became effective January 1, 2002 for the Partnership and
8
has not had a material impact on the Partnership's balance sheet or statement 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.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Business Overview
At March 31, 2002, 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 remaining inventory of spare parts,
including one engine, has been made available for sale such that the Partnership
plans to liquidate all its assets in an orderly manner and make a final
distribution thereafter.
Partnership Operations
The Partnership recorded a net loss of $(26,993), or $(0.20) per limited
partnership unit, for the three months ended March 31, 2001, compared to net
income of $68,945, or $(0.10) per unit for the same period in 2001. The decline
in operating results was primarily due to decreases in Lessee settlement income
and Interest income, and an increase in Administration and other expense.
Interest income decreased during the three months ended March 31, 2002, as
compared to the same period in 2001 primarily due to lower interest rates and a
decrease in the cash reserves primarily due to distributions.
Lessee settlement decreased during the three months ended March 31, 2002, as
compared to the same period in 2001, primarily due to the receipt of $76,770 on
January 16, 2001 related to the Braniff bankruptcy for which there was no
corresponding receipt in 2002.
Administration and other expenses increased primarily due to increases in
printing and postage costs.
Liquidity and Cash Distributions
Liquidity - 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 winding up the affairs of
the Partnership and for other contingencies. The Partnership's cash reserves
will be monitored and may be revised from time to time as further information
becomes available in the future.
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 2002 and 2001 were $1,054,556, and $843,645,
respectively. Cash distributions per Limited Partnership unit for the three
months ended March 31, 2002, and 2001 were $6.25, and $5.00 respectively. The
timing and amount of the final cash distribution to partners is not yet known
and will depend upon the Partnership's future cash requirements and the timing
of the sale and amount of proceeds from the sale of it's remaining inventory of
spare parts including one engine.
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Part II. Other Information
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Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund I's (the
Partnership) 2001 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 12, 2002, the receiver appointed by the Ontario Court of
Justice on behalf of CanAir's creditors issued a check for 3,250 Canadian
Dollars (approximately $2,066 U.S. Dollars) to be delivered to GE Capital
Aviation Services, Inc., as agent for Polaris Holding Company, General Electric
Capital Leasing Canada, Inc. and the Partnership ("the GECAS Parties"). The
Partnership will receive its pro-rata share of this amount before the end of the
second quarter or shortly thereafter. Prior to the end of the second quarter,
the receiver intends to deliver the remaining amount of 5,168 Canadian Dollars
(approximately $3,285 U.S. Dollars), less the costs and fees associated with its
services, to the GECAS Parties.
Other Proceedings - Item 10 in Part III of the Partnership's 2001 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. 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.
Sara J. Bishop, et al. v. Kidder, Peabody & Co., et al., Superior Court of
California, County of Sacramento; Wilson et al. v. Polaris Holding Company et
al., Superior Court of California, County of Sacramento, and ten other
California Actions(1) - In the California actions filed in 1996, approximately
4000 plaintiffs who purchased limited partnership units in Polaris Aircraft
Income Funds I through VI and other limited partnerships sold by Kidder, Peabody
named Kidder, Peabody, 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, and General Electric Credit
Corporation and Does 1-100 as defendants. The Partnership was not named as a
defendant in these actions. The complaints all allege 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
complaints seek to recover compensatory damages and punitive damages in an
unspecified amount, interest, and rescission with respect to Polaris Aircraft
Income Funds III-VI and all other limited partnerships alleged to have been sold
by Kidder Peabody to the plaintiffs. The California actions have been settled.
- --------
1 The ten other actions are Abrams, et al. v. Polaris Holding Company, et al.,
Elphick, et al. v. Kidder Peabody & Co., et al., Johnson, et al. v. Polaris
Holding Company, et al., Kuntz, et al. v. Polaris Holding Company, et al.,
McDevitt, et al. v. Polaris Holding Company, et al., Ouellette, et al. v. Kidder
Peabody & Co., et al., Rolph, et al. v. Polaris Holding Company, et al., Self,
et al. v. Polaris Holding Company, et al., Tarrer, et al. v. Kidder Peabody &
Co., et al., Zicos, et al. v. Polaris Holding Company, et al., all filed in
Superior Court of California, County of Sacramento.
11
An additional settlement was entered into with certain plaintiffs who had
refused to participate in the first settlement. Plaintiffs' counsel advised the
Court that they would withdraw from representing the remaining plaintiffs --
approximately 330 -- who refused to participate in either of the settlements. In
July, 2000, plaintiffs' counsel submitted to the Court motions to withdraw as
counsel of record for all of the actions. The Court indicated that it would
grant such motions and thereafter would consider dismissing each of the actions
if no plaintiff came forward to prosecute. On August 2, 2001, the Court
conducted a series of status conferences in connection with each of the twelve
California actions and at the conferences dismissed most of the remaining
plaintiffs in those actions. On November 9, 2001, defendants moved for summary
judgment against most of the remaining plaintiffs based upon a settlement and
bar order entered in a multi-district litigation in 1997. On March 1, 2002 the
judge granted the defendants' summary judgment motions. This action does not
have a material adverse effect on the Partnership.
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
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 13, 2002 By: /S/Stephen E. Yost
---------------- ----------------------------------------
Stephen E. Yost, Chief Financial Officer
13