UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 1995 Commission File No. 0-14415
American Income 2 Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2809330
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
Exchange Place 14th Floor, Boston, MA 02109
(Former name, former address and former fiscal year, if changed since last report.)
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 (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed by a
court during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes_____ No______
AMERICAN INCOME 2 LIMITED PARTNERSHIP
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Net Assets in Liquidation
at March 31, 1995 and December 31, 1994 3
Statement of Changes in Net Assets in Liquidation
for the three months ended March 31, 1995 4
Statement of Operations
for the three months ended March 31, 1994 5
Statement of Cash Flows
for the three months ended March 31, 1994 6
Notes to the Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II. OTHER INFORMATION:
Items 1 - 6 12
[CAPTION]
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF NET ASSETS IN LIQUIDATION
March 31, 1995 and December 31, 1994
(Unaudited)
March 31, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 679,712 $ 768,694
Accounts receivable - affiliate -- 1,092
Total assets $ 679,712 $ 769,786
LIABILITIES
Accrued liabilities $ 65,090 $ 61,090
Accrued liabilities - affiliate 59,663 12,169
Cash distributions payable to partners 62,799 62,799
Total liabilities 187,552 136,058
NET ASSETS $ 492,160 $ 633,728
[CAPTION]
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
for the three months ended March 31, 1995
(Unaudited)
Interest income $ 9,050
Cash distribution (62,799)
Operating expenses - affiliate (87,819)
Net decrease in net assets in
liquidation during the period (141,568)
Net assets in liquidation at
the beginning of the period 633,728
Net assets in liquidation at
the end of the period $ 492,160
Cash distribution declared per
limited partnership unit $ 1.12
[CAPTION]
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1994
(Unaudited)
Income:
Lease revenue $ 86,492
Interest income 164
Total income 86,656
Expenses:
Depreciation 87,173
Equipment management fees - affiliate 4,325
Operating expenses - affiliate 25,265
Total expenses 116,763
Net loss $ (30,107)
Net loss
per limited partnership unit $ (0.54)
Cash distribution declared
per limited partnership unit $ 1.12
[CAPTION]
AMERICAN INCOME 2 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1994
(Unaudited)
Cash flows from (used in) operating activities:
Net loss $ (30,107)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation 87,173
Changes in assets and liabilities
Increase in:
accounts receivable - affiliate (5,754)
Increase in:
accrued liabilities 3,625
accrued liabilities - affiliate 19,633
Net cash from operating activities 74,570
Cash flows used in financing activities:
Distributions paid (62,799)
Net cash used in financing activities (62,799)
Net increase in cash and cash equivalents 11,771
Cash and cash equivalents at beginning of period 27,816
Cash and cash equivalents at end of period $ 39,587
AMERICAN INCOME 2 LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not
include all information and footnote disclosures required under generally
accepted accounting principles for complete financial statements and,
accordingly, the accompanying financial statements should be read in conjunction
with the footnotes presented in the 1994 Annual Report. Except as disclosed
herein, there has been no material change to the information presented in the
footnotes to the 1994 Annual Report.
Beginning July 1, 1994, the General Partner initiated the liquidation of
the Partnership in accordance with the Amended and Restated Agreement and
Certificate of Limited Partnership (the "Restated Agreement, as amended").
Accordingly, the financial statements herein for the three months ended
March 31, 1995 have been prepared on a liquidation basis of accounting.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the Partnership's
net assets in liquidation at March 31, 1995 and December 31, 1994, its changes
in net assets in liquidation for the three months ended March 31, 1995 and its
results of operations and cash flows for the three months ended March 31, 1994
have been made and are reflected.
NOTE 2 - CASH
At March 31, 1995, the Partnership had $675,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3 - REVENUE RECOGNITION
All of the Partnership's primary and renewal leases had expired and all of
the associated equipment was sold as of December 31, 1994. No future rents are
due.
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by American
Finance Group ("AFG") on behalf of the Partnership and AFG is reimbursed at its
actual cost for such expenditures. Fees and other costs incurred during the
three month periods ended March 31, 1995 and 1994, which were paid or accrued by
the Partnership to AFG or its Affiliates, are as follows:
1995 1994
Equipment management fees -- $ 4,325
Administrative charges $ 3,000 3,000
Reimbursable operating expenses
due to third parties 84,819 22,265
Total $ 87,819 $ 29,590
All rents and proceeds from the sale of equipment were paid directly to
either AFG or to a lender. AFG temporarily deposited collected funds in a
separate interest bearing escrow account prior to remittance to the Partnership.
The Partnership was owed no such funds at March 31, 1995.
NOTE 5 - LEGAL PROCEEDINGS
On February 24, l992 Investors Asset Holding Corp. ("I.A.H.C."), as trustee
of a trust of which the Partnership is the sole beneficiary, commenced an action
in the United States District Court for the District of Puerto Rico (the
"District Court") against L.A.P.S.A., Inc. to recover possession of a Shorts
SD-330 aircraft pursuant to a defaulted conditional sales agreement and for
related monetary damages. I.A.H.C., on behalf of the Partnership, also
commenced action to recover the aircraft in the Dominican Republic, which action
resulted in the recovery of the aircraft and its removal to the U.S. in
February, l993. L.A.P.S.A. filed counterclaims and one of its principals, Louis
Perez Gonzales ("Perez"), filed a second action in the District Court against
I.A.H.C. and AFG seeking monetary damages in excess of $1,000,000. On
July 18, l994, the Partnership sold the aircraft to a third party for $150,000,
which event resulted in a net gain of equal amount, for financial statement
purposes. On December 23, l994, the District Court dismissed all of
L.A.P.S.A.'s claims as a result of L.A.P.S.A.'s failure to comply with several
discovery requests and a discovery order. On January 31, l995, the District
Court confirmed its position by denying L.A.P.S.A.'s motion for reconsideration.
In a jury trial held in District Court in San Juan, Puerto Rico between
April 24, 1995 and May l, l995 I.A.H.C., obtained a favorable verdict in its
case against L.A.P.S.A. and was awarded approximately $569,000 for lost profits,
costs to repossess the aircraft and legal fees. I.A.H.C. has commenced
post-verdict discovery to ascertain whether L.A.P.S.A. has any assets from which
to recover the judgment.
In the separate case of Perez vs. I.A.H.C. and AFG, the jury entered a
verdict for Perez and against I.A.H.C. in the amount of $125,000. I.A.H.C. is
seeking to overturn the verdict on the grounds that Perez's claims were based on
the breach of a second contract which, in fact, was never perfected; and so, as
a matter of law, the verdict was improper and should not stand. If the court
upholds this verdict I.A.H.C. has the right to appeal.
Additionally, Victoria Air, an unauthorized user of the aircraft, commenced
an action against I.A.H.C. in the Dominican Republic demanding monetary damages
in the amount of approximately $1,000,000 for loss of revenues from use of the
aircraft and related damages. Currently, Victoria Air is not pursuing its
claims and any further prosecution of this matter is considered unlikely. The
term for prescription of this case for inactivity runs through July l996.
Currently, it cannot be determined the extent to which these actions will
affect the Partnership. Future cash distributions to the Partners will be
reduced by the amount of any legal costs which may result from these actions.
The Partnership's accrued liabilities include $58,090 which was reserved for
potential legal costs following the Partnership's receipt of insurance proceeds
of equal amount in August 1993.
AMERICAN INCOME 2 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
On July 1, 1994, the General Partner initiated the liquidation of the
Partnership. The Partnership was organized in 1985 to acquire and lease a
diversified portfolio of capital equipment to third-party lessees and to
distribute the net proceeds from operating and remarketing activities, after
satisfaction of all expenses and debt service obligations, to the Partners. The
Partnership was capitalized with $13,815,750 of equity from the Limited Partners
and $50,000 of equity from the General Partner and acquired $24,676,869 of
equipment, subject to related indebtedness. All of the Partnership's equipment
has been sold. Dissolution of the Partnership will not occur until the
litigation described in Note 5 to the financial statements herein is concluded.
Results of Operations
The Statement of Changes in Net Assets in Liquidation is presented for the
three months ended March 31, 1995 and reflects the liquidation of assets during
the period. As a result, a comparison between current and prior year reporting
periods is not meaningful.
For the period ended March 31, 1995, the Partnership recognized $9,050 of
interest income generated from the temporary investment of cash. Operating
expenses consisted principally of administrative charges, professional service
costs, such as audit and legal fees, as well as printing and distribution
expenses. These charges amounted to $20,528 during the period ended March 31,
1995. In addition, the Partnership incurred $67,291 of legal costs related to
the aircraft described in Note 5 to the financial statements herein. The
Partnership will continue to to incur distribution, accounting and
administrative costs until the Partnership is dissolved.
Liquidity and Capital Resources
Aggregate cash distributions were adversely affected by the loss of
stipulated rent payments associated with the aircraft described in Note 5 to the
financial statements included herein and the cost of associated legal actions.
Presently, it cannot be determined to what extent these actions will affect the
Partnership's future liquidity. Future cash distributions to the Partners will
be reduced by the amount of any legal costs which may result from these actions.
At March 31, 1995, the Partnership had $679,712 of cash, substantially all of
which was invested in interest-bearing investments. See Note 2 to the financial
statements herein.
For the three months ended March 31, 1995, the Partnership declared total
distributions of $62,799. In accordance with the Restated Agreement, as
amended, the Limited Partners were allocated 99% of these distributions, or
$62,171 and the General Partner was allocated 1%, or $628. The first quarter
1995 cash distribution was paid on April 14, 1995. Since inception, the
Partnership has distributed $14,832,580 to the Limited Partners and $149,824 to
the General Partner.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. To the extent that cash distributions consist of Cash
From Sales or Refinancings, substantially all of such cash distributions should
be viewed as a return of capital. Cash distributions do not represent and are
not indicative of yield on investment. Actual yield on investment will be
determined coincident with the final cash distribution payment to the Partners.
AMERICAN INCOME 2 LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME 2 LIMITED PARTNERSHIP
By: AFG Leasing Associates, a Massachusetts
general partnership and the General Partner of
the Registrant.
By: AFG Leasing Incorporated, a Massachusetts
corporation and general partner in such general
partnership.
By: /s/ Gary M. Romano
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 18, 1995