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 June 30, 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 June 30, 1995 Commission File No. 0-15320
American Income 4 Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2917030
(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
(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 4 LIMITED PARTNERSHIP
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position at
June 30, 1995 and December 31, 1994 3
Statement of Operations
for the three and six months ended June 30, 1995 and 1994 4
Statement of Cash Flows
for the six months ended June 30, 1995 and 1994 5
Notes to the Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II. OTHER INFORMATION:
Items 1 - 6 12
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
June 30, 1995 and December 31, 1994
(Unaudited)
June 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 346,136 $ 299,032
Rents receivable, net of allowance
for doubtful accounts of $32,500 3,585 3,259
Accounts receivable - affiliate 93,508 95,146
Equipment at cost, net of accumulated
depreciation of $7,758,947 and
$7,725,995 at June 30, 1995 and
December 31, 1994, respectively 3,758,753 4,175,378
Total assets $ 4,201,982 $ 4,572,815
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 142,230 $ 301,183
Accrued interest 528 1,086
Accrued liabilities 13,250 13,500
Accrued liabilities - affiliate 3,950 4,927
Deferred rental income 93,940 93,940
Cash distributions payable to partners 252,525 252,525
Total liabilities 506,423 667,161
Partners' capital (deficit):
General Partner (138,706) (136,606)
Limited Partnership Interests
(80,000 Units; initial purchase
price of $250 each) 3,834,265 4,042,260
Total partners' capital 3,695,559 3,905,654
Total liabilities and partners' capital $ 4,201,982 $ 4,572,815
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1995 and 1994
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
Income:
Lease revenue $ 346,489 $ 368,811 $ 716,436 $ 764,280
Interest income 4,286 7,013 8,186 14,169
Gain on sale of
equipment 80,600 5,057 81,634 24,657
Total income 431,375 380,881 806,256 803,106
Expenses:
Depreciation 208,313 210,709 416,625 422,615
Interest expense 3,490 10,709 8,750 22,303
Equipment management fees
- affiliate 17,325 18,441 35,822 38,214
Operating expenses
- affiliate 22,398 17,436 50,104 38,497
Total expenses 251,526 257,295 511,301 521,629
Net income $ 179,849 $ 123,586 $ 294,955 $ 281,477
Net income
per limited
partnership unit $ 2.23 $ 1.53 $ 3.65 $ 3.48
Cash distributions
declared per limited
partnership unit $ 3.12 $ 6.25 $ 6.25 $ 12.50
AMERICAN INCOME 4 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(Unaudited)
1995 1994
Cash flows from (used in) operating activities:
Net income $ 294,955 $ 281,477
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 416,625 422,615
Gain on sale of equipment (81,634) (24,657)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable (326) 22,424
accounts receivable - affiliate 1,638 13,525
Increase (decrease) in:
accrued interest (558) (19,152)
accrued liabilities (250) 14,809
accrued liabilities - affiliate (977) (6,762)
deferred rental income -- 20,168
Net cash from operating activities 629,473 724,447
Cash flows from investing activities:
Proceeds from equipment sales 81,634 175,603
Net cash from investing activities 81,634 175,603
Cash flows used in financing activities:
Principal payments - notes payable (158,953) (274,637)
Distributions paid (505,050) (1,010,101)
Net cash used in financing activities (664,003) (1,284,738)
Net increase (decrease) in cash and cash equivalents 47,104 (384,688)
Cash and cash equivalents at beginning of period 299,032 1,222,360
Cash and cash equivalents at end of period $ 346,136 $ 837,672
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 9,308 $ 41,455
AMERICAN INCOME 4 LIMITED PARTNERSHIP
Notes to the Financial Statements
June 30, 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.
In the opinion of management, all adjustments (consisting of
normal and recurring adjustments) considered necessary to present
fairly the financial position at June 30, 1995 and December 31,
1994 and results of operations for the three and six month periods
ended June 30, 1995 and 1994 have been made and are reflected.
NOTE 2 - CASH
The Partnership invests excess cash with large institutional
banks in reverse repurchase agreements with overnight maturities.
The reverse repurchase agreements are secured by U.S. Treasury
Bills or interests in U.S. Government securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Partnership monthly, quarterly or
semi-annually and no significant amounts are calculated on factors
other than the passage of time. The leases are accounted for as
operating leases and are noncancellable. Rents received prior to
their due dates are deferred. Future minimum rents of $1,515,065
are due as follows:
For the year ending June 30, 1996 $ 1,345,225
1997 169,840
Total $ 1,515,065
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the
Partnership at June 30, 1995. In the opinion of American Finance
Group ("AFG"), the carrying value of the equipment does not exceed
its fair market value.
AMERICAN INCOME 4 LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Lease Term Equipment
Equipment Type (Months) at Cost
Aircraft 36-60 $ 8,630,452
Flight simulators 60 2,409,250
Materials handling 12-60 294,716
Trailers and intermodal containers 48-60 119,952
Photocopying 12-36 63,330
Total equipment cost 11,517,700
Accumulated depreciation (7,758,947)
Equipment, net of accumulated depreciation $ 3,758,753
At June 30, 1995, the Partnership's equipment portfolio
included equipment having a proportionate original cost of
$11,039,702, representing approximately 96% of total equipment
cost.
The summary above includes equipment held for sale or re-lease
which was fully depreciated and had an original cost of approximately
$63,000 at June 30, 1995.
NOTE 5 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by
AFG on behalf of the Partnership and AFG is reimbursed at its
actual cost for such expenditures. Fees and other costs incurred
during each of the six month periods ended June 30, 1995 and 1994,
which were paid or accrued by the Partnership to AFG or its
Affiliates, are as follows:
1995 1994
Equipment management fees $ 35,822 $ 38,214
Administrative charges 10,500 6,000
Reimbursable operating expenses
due to third parties 39,604 32,497
Total $ 85,926 $ 76,711
All rents and proceeds from the sale of equipment are paid
directly to either AFG or to a lender. AFG temporarily deposits
collected funds in a separate interest-bearing escrow account
prior to remittance to the Partnership. At June 30, 1995, the
Partnership was owed $93,508 by AFG for such funds and the
interest thereon. These funds were remitted to the Partnership in
July 1995.
NOTE 6 - NOTES PAYABLE
Notes payable at June 30, 1995 consisted of one installment
note of $142,230 payable to a bank. The installment note is non-
recourse, with an interest rate of 6.35%, collateralized by the
equipment and assignment of the related lease payments. The
installment note will be fully amortized by noncancellable rents
during the year ending June 30, 1996.
AMERICAN INCOME 4 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Three and six months ended June 30, 1995 compared to the three and
six months ended June 30, 1994:
Overview
As an equipment leasing partnership, the Partnership was
organized to acquire a diversified portfolio of capital equipment
subject to lease agreements with third parties. The Partnership
was designed to progress through three principal phases:
acquisitions, operations, and liquidation. During the operations
phase, a period of approximately six years, all equipment in the
Partnership's portfolio will progress through various stages.
Initially, all equipment will generate rental revenues under
primary term lease agreements. During the life of the
Partnership, these agreements will expire on an intermittent basis
and equipment held pursuant to the related leases will be renewed,
re-leased or sold, depending on prevailing market conditions and
the assessment of such conditions by AFG to obtain the most
advantageous economic benefit. Over time, a greater portion of
the Partnership's original equipment portfolio will become
available for remarketing and cash generated from operations and
from sales or refinancings will begin to fluctuate. Ultimately,
all equipment will be sold and the Partnership will be dissolved.
The Partnership's operations commenced in 1986.
Results of Operations
For the three and six months ended June 30, 1995, the
Partnership recognized lease revenue of $346,489 and $716,436,
respectively, compared to $368,811 and $764,280 for the same
periods in 1994. The decrease in lease revenue from 1994 to 1995
was expected and resulted from primary and renewal lease term
expirations and the sale of equipment.
The Partnership's equipment portfolio includes certain assets
in which the Partnership holds a proportionate ownership interest.
In such cases, the remaining interests are owned by AFG or an
affiliated equipment leasing program sponsored by AFG.
Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the
ownership of selected assets, thereby reducing the general levels
of risk which could result from a concentration in any single
equipment type, industry or lessee. The Partnership and each
affiliate individually report, in proportion to their respective
ownership interests, their respective shares of assets,
liabilities, revenues, and expenses associated with the equipment.
Interest income for the three and six months ended June 30,
1995 was $4,286 and $8,186, respectively, compared to $7,013 and
$14,169 for the same periods in 1994. Interest income is
generated from temporary investment of rental receipts and
equipment sale proceeds in short-term instruments. The decrease
in interest income from 1994 to 1995 is principally attributable
to a lower availability of cash used for investment prior to
distribution to the Partners. The amount of future interest
income is expected to fluctuate in relation to prevailing interest
rates and the collection of lease revenue and equipment sales
proceeds.
During the three months ended June 30, 1995, the Partnership
sold equipment which had been fully depreciated to existing
lessees and third parties. These sales resulted in a net gain,
for financial statement purposes, of $80,600 compared to a net
gain of $5,057 on equipment which had a net book value of $150,946
for the same period in 1994.
AMERICAN INCOME 4 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
During the six months ended June 30, 1995, the Partnership
sold equipment which had been fully depreciated to existing
lessees and third parties. These sales resulted in a net gain,
for financial statement purposes, of $81,634 compared to a net
gain of $24,657 on equipment which had a net book value of
$150,946 for the same period in 1994.
It cannot be determined whether future sales of equipment will
result in a net gain or a net loss to the Partnership, as such
transactions will be dependent upon the condition and type of
equipment being sold and its marketability at the time of sale.
In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of
equipment is dependent upon many factors, including AFG's ability
to sell and re-lease equipment. Changing market conditions,
industry trends, technological advances, and many other events can
converge to enhance or detract from asset values at any given
time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and
which will maximize total cash returns for each asset.
The total economic value realized upon final disposition of
each asset is comprised of all primary lease term revenues
generated from that asset, together with its residual value. The
latter consists of cash proceeds realized upon the asset's sale in
addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The
Partnership classifies such residual rental payments as lease
revenue. Consequently, the amount of gain or loss reported in the
financial statements is not necessarily indicative of the total
residual value the Partnership achieved from leasing the
equipment.
Depreciation expense for the three and six months ended June
30, 1995 was $208,313 and $416,625, respectively, compared to
$210,709 and $422,615 for the same periods in 1994. For financial
reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i)
the cost of the asset and (ii) the estimated residual value of the
asset at the date of primary lease expiration on a straight-line
basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the
date of primary lease expiration. To the extent that equipment is
held beyond its primary lease term, the Partnership continues to
depreciate the remaining net book value of the asset on a straight-
line basis over the asset's remaining economic life.
Interest expense was $3,490 and $8,750 or 1% and 1.2% of lease
revenue for the three and six months ended June 30, 1995,
respectively, compared to $10,709 and $22,303 or 2.9% of lease
revenue for the same periods in 1994. Interest expense in future
periods will continue to decline in amount and as a percentage of
lease revenue as the principal balance of notes payable is reduced
through the application of rent receipts to outstanding debt.
Management fees were 5% of lease revenue during each of the
periods ended June 30, 1995 and 1994 and will not change as a
percentage of lease revenue in future periods.
Operating expenses consist principally of administrative
charges, professional service costs, such as audit and legal fees,
as well as printing, distribution and remarketing expenses. In
certain cases, equipment storage or repairs and maintenance costs
may be incurred in connection with equipment being remarketed.
Collectively, operating expenses represented 6.5% and 7% of lease
revenue during the three and six months ended June 30, 1995,
respectively, compared to 4.7% and 5% of lease revenue for the
same periods in 1994. The increase in operating expenses from
1994 to 1995 is primarily due to increases in professional service
costs and administrative charges. The amount of future operating
expenses cannot be predicted with certainty; however, such
expenses are usually higher during the acquisition and liquidation
phases of a partnership. Other fluctuations typically occur in
relation to the volume and timing of remarketing activities.
AMERICAN INCOME 4 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which
was established for specific purposes described in the preceding
"Overview". As an equipment leasing program, the Partnership's
principal operating activities derive from asset rental
transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic
rents. These cash inflows are used to satisfy debt service
obligations associated with leveraged leases, and to pay
management fees and operating costs. Operating activities
generated net cash inflows of $629,473 and $724,447 for the six
months ended June 30, 1995 and 1994, respectively. Future
renewal, re-lease and equipment sale activities will cause a
gradual decline in the Partnership's lease revenues and
corresponding sources of operating cash. Overall, expenses
associated with rental activities, such as management fees, and
net cash flow from operating activities will decline as the
Partnership experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under
lease. This will occur principally through sale transactions
whereby each asset will be sold to the existing lessee or to a
third party. Generally, this will occur upon expiration of each
asset's primary or renewal/re-lease term. In certain instances,
casualty or early termination events may result in the disposal of
an asset. Such circumstances are infrequent and usually result in
the collection of stipulated cash settlements pursuant to terms
and conditions contained in the underlying lease agreements.
Cash realized from asset disposal transactions is reported
under investing activities on the accompanying Statement of Cash
Flows. During the six months ended June 30, 1995, the Partnership
realized $81,634 in equipment sale proceeds compared to $175,603
for the same period in 1994. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by
many factors including, but not limited to, the frequency and
timing of lease expirations, the type of equipment being sold, its
condition and age, and future market conditions.
The Partnership obtained long-term financing in connection
with certain equipment leases. The repayments of principal
related to such indebtedness are reported as a component of
financing activities. Each note payable is recourse only to the
specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period
(which period generally coincides with the lease rental term). As
rental payments are collected, a portion or all of the rental
payment is used to repay the associated indebtedness. The amount
of cash used to repay debt obligations will continue to decline as
the principal balance of notes payable is reduced through the
collection and application of rents.
Cash distributions to the General and Limited Partners are
declared and generally paid within fifteen days following the end
of each calendar quarter. The payment of such distributions is
presented as a component of financing activities. For the six
months ended June 30, 1995, the Partnership declared total cash
distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $505,050. In
accordance with the Amended and Restated Agreement and Certificate
of Limited Partnership, the Limited Partners were allocated 99% of
these distributions, or $500,000, and the General Partner was
allocated 1%, or $5,050. The second quarter 1995 cash distribution
was paid on July 14, 1995.
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
cannot be determined with any certainty until
AMERICAN INCOME 4 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
conclusion of the Partnership and will be dependent upon the
collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for
each asset at its disposal date. Future market conditions,
technological changes, the ability of AFG to manage and remarket
the assets, and many other events and circumstances, could enhance
or detract from individual asset yields and the collective
performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by
the foregoing and will be greatly dependent upon the collection of
contractual rents and the outcome of residual activities. The
General Partner anticipates that cash proceeds resulting from
these sources will satisfy the Partnership's future expense
obligations. However, the amount of cash available for
distribution in future periods will fluctuate. Equipment lease
expirations and asset disposals will cause the Partnership's net
cash from operating activities to diminish over time; and
equipment sale proceeds will vary in amount and period of
realization. Accordingly, fluctuations in the level of quarterly
cash distributions will occur during the life of the Partnership.
AMERICAN INCOME 4 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 4 LIMITED PARTNERSHIP
By: AFG Leasing Associates II, 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: August 11, 1995