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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 0-14460
INTEGRATED RESOURCES AMERICAN LEASING INVESTORS VII-B,
A California Limited Partnership
(Exact name of registrant as specified in its charter)
CALIFORNIA 13-3244533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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 [ ]
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INTEGRATED RESOURCES
AMERICAN LEASING INVESTORS VII-B,
A CALIFORNIA LIMITED PARTNERSHIP
FORM 10-Q - MARCH 31, 1996
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1996 and December 31, 1995
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 1996 and 1995
STATEMENT OF PARTNERS' EQUITY - For the three months ended
March 31, 1996
STATEMENTS OF CASH FLOWS - For the three months ended
March 31, 1996 and 1995
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTEGRATED RESOURCES
AMERICAN LEASING INVESTORS VII-B,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
March 31, December 31,
1996 1995
----------- -----------
ASSETS
Leased equipment - net of accumulated depreciation
of $10,348,927 and $10,600,903 and allowance
for equipment impairment of $1,242,343
and $1,311,299 ................................ $ 4,477,692 $ 4,840,261
Cash and cash equivalents ........................ 278,204 148,205
Accounts receivable .............................. 77,153 333,172
Other receivables and prepaid expenses ........... 2,346 7,199
----------- -----------
$ 4,835,395 $ 5,328,837
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Deferred income .................................. $ 757,470 $ 1,009,960
Distribution payable ............................. 128,291 --
Accounts payable and accrued expenses ............ 33,767 42,284
Due to affiliates ................................ 3,556 7,842
Notes payable .................................... -- 290,216
Accrued interest payable ......................... -- 9,682
----------- -----------
Total liabilities ............................. 923,084 1,359,984
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (19,099 units issued
and outstanding) .............................. 3,967,693 4,023,669
General partners' deficit ........................ (55,382) (54,816)
----------- -----------
Total partners' equity ........................ 3,912,311 3,968,853
----------- -----------
$ 4,835,395 $ 5,328,837
=========== ===========
See notes to financial statements.
INTEGRATED RESOURCES
AMERICAN LEASING INVESTORS VII-B,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three months ended
March 31,
--------------------------
1996 1995
-------- --------
Revenues
Rental ........................................... $330,674 $445,559
Other, principally interest ...................... 3,386 2,390
-------- --------
334,060 447,949
-------- --------
Costs and expenses
Depreciation ..................................... 242,452 282,479
General and administrative ....................... 21,092 23,313
Fees to affiliates ............................... 6,614 8,911
Operating ........................................ 786 614
Interest ......................................... -- 59,979
-------- --------
270,944 375,296
-------- --------
63,116 72,653
Gain on disposition of equipment ................... 8,633 --
-------- --------
Net income ......................................... $ 71,749 $ 72,653
======== ========
Net income attributable to
Limited partners ................................. $ 71,032 $ 71,926
General partners ................................. 717 727
-------- --------
$ 71,749 $ 72,653
======== ========
Net income per unit of limited partnership
interest (19,099 units outstanding) .............. $ 3.72 $ 3.77
======== ========
See notes to financial statements.
INTEGRATED RESOURCES
AMERICAN LEASING INVESTORS VII-B,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
Limited General Total
Partners' Partners' Partners'
Equity Deficit Equity
----------- ----------- -----------
Balance, January 1, 1996 ................ $ 4,023,669 $ (54,816) $ 3,968,853
Net income for the three months
ended March 31, 1996 ............... 71,032 717 71,749
Distributions to partners for the three
months ended March 31, 1996
($6.65 per limited partnership unit) (127,008) (1,283) (128,291)
----------- ----------- -----------
Balance, March 31, 1996 ................. $ 3,967,693 $ (55,382) $ 3,912,311
=========== =========== ===========
See notes to financial statements.
INTEGRATED RESOURCES
AMERICAN LEASING INVESTORS VII-B,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
--------------------------
1996 1995
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income ........................................ $ 71,749 $ 72,653
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation ............................... 242,452 282,479
Amortization of deferred income ............ (252,490) --
Gain on disposition of equipment ........... (8,633) --
Changes in assets and liabilities
Accounts receivable ............................ 256,019 436,774
Other receivables and prepaid expenses ......... 4,853 88
Accounts payable and accrued expenses .......... (8,517) 5,329
Accrued interest payable ....................... (9,682) (84,997)
Due to affiliates .............................. (4,286) --
--------- ---------
Net cash provided by operating activities 291,465 712,326
--------- ---------
Cash flows from investing activities
Proceeds from disposition of equipment ............ 128,750 23,212
Other non-operating payments ...................... -- (1,685)
--------- ---------
Net cash provided by investing activities 128,750 21,527
--------- ---------
Cash flows from financing activities
Principal payments on notes payable ............... (290,216) (699,198)
--------- ---------
Net increase in cash and cash equivalents .............. 129,999 34,655
Cash and cash equivalents, beginning of period ......... 148,205 148,460
--------- ---------
Cash and cash equivalents, end of period ............... $ 278,204 $ 183,115
========= =========
Supplemental disclosure of cash flow information
Interest paid ..................................... $ 9,682 $ 144,976
========= =========
See notes to financial statements.
INTEGRATED RESOURCES
AMERICAN LEASING INVESTORS VII-B,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussion should be read in conjunction with
the financial statements, related footnotes and discussions contained
in the Integrated Resources American Leasing Investors VII-B, a
California Limited Partnership (the "Partnership") annual report on
Form 10-K for the year ended December 31, 1995. The results of
operations for the three months ended March 31, 1996, are not
necessarily indicative of the results to be expected for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Leased equipment
The cost of leased equipment represents the initial cost of the
equipment to the Partnership plus miscellaneous acquisition and closing
costs, and is carried at the lower of depreciated cost or net
realizable value.
Depreciation is computed using the straight-line method, over the
estimated useful lives of such assets (13 to 15 years for
transportation equipment).
When equipment is sold or otherwise disposed of, the cost and
accumulated depreciation (and any related allowance for equipment
impairment) are removed from the accounts and any gain or loss on such
sale or disposal is reflected in operations. Normal maintenance and
repairs are charged to operations as incurred. The Partnership provides
allowances for equipment impairment based upon a quarterly review of
all equipment in its portfolio, when management believes that, based
upon market analysis, appraisal reports and leases currently in place
with respect to specific equipment, the investment in such equipment
may not be recoverable.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The corporate general partner of the Partnership, ALI Capital Corp.
(the "Corporate General Partner"), the managing general partner of the
Partnership, ALI Equipment Management Corp. ("Equipment Management")
and Integrated Resources Equipment Group, Inc. ("IREG") are wholly
owned subsidiaries of Presidio Capital Corp. ("Presidio"). Z Square G
Partners II was the associate general partner of the Partnership
through February 27, 1995. On February 28, 1995, Presidio Boram Corp.,
a subsidiary of Presidio, became the associate general partner. Other
limited partnerships and similar investment programs have been formed
by Equipment Management or its affiliates to acquire equipment and,
accordingly, conflicts of interest may arise between the Partnership
and such other limited partnerships. Affiliates of Equipment Management
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
have also engaged in businesses related to the management of equipment
and the sale of various types of equipment and may transact business
with the Partnership.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio will control the Partnership through
its direct or indirect ownership of all of the shares of Equipment
Management, the Corporate General Partner and, as of February 28, 1995,
the associate general partner. Presidio is managed by Presidio
Management Company, LLC ("Presidio Management"), a company controlled
by a director of Presidio. Presidio Management is responsible for the
day-to-day management of Presidio and, among other things, has
authority to designate directors of Equipment Management, the Corporate
General Partner and the associate general partner. In March 1996,
Presidio Management assigned its agreement for the day-to-day
management of Presidio to Wexford Management LLC ("Wexford").
Presidio is a liquidating company. Although Presidio has no immediate
plans to do so, it will ultimately seek to dispose of the interests it
acquired from Integrated Resources, Inc. through liquidation; however,
there can be no assurance of the timing of such transaction or the
effect it may have on the Partnership.
In March 1995, Presidio elected new directors for Equipment Management.
Wexford Management Corp., formerly Concurrency Management Corp.,
provides management and administrative services to Presidio, its direct
and indirect subsidiaries, as well as to the Partnership. Effective
January 1, 1996, Wexford Management Corp. assigned its agreement to
provide management and administrative services to Presidio and its
subsidiaries to Wexford. During the three months ended March 31, 1996,
reimbursable expenses to Wexford by the Partnership amounted to $9,741.
The Partnership entered into a management agreement with IREG, pursuant
to which IREG would receive 5% of annual gross rental revenues on
operating leases; 2% of annual gross rental revenues on full payout
leases which contain net lease provisions; and 1% of annual gross
rental revenues if services are performed by third parties under the
active supervision of IREG, as defined in the Limited Partnership
Agreement. For the three months ending March 31, 1996 and 1995, the
Partnership incurred expenses of $6,614 and $8,911 respectively, for
such management services.
During the operating and sale stage of the Partnership, IREG is
entitled to a partnership management fee equal to 4% of distributable
cash from operations, as defined in the Limited Partnership Agreement,
subject to increase after the limited partners have received certain
specified minimum returns on their investment. No such amount was
incurred during the three months ended March 31, 1996 and 1995.
The general partners are entitled to 1% of distributable cash from
operations and cash from sales and an allocation of 1% of taxable net
income or loss of the Partnership.
During the operating and sale stage of the Partnership, IREG may be
entitled to receive certain other fees which are subordinated to the
receipt by the limited partners of their original invested capital and
certain specified minimum returns on their investment.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Upon the ultimate liquidation of the Partnership, the general partners
may be required to remit to the Partnership certain payments
representing capital account deficit restoration based upon a formula
provided within the Limited Partnership Agreement. Such restoration
amount may be less than the recorded general partners' deficit, which
could result in distributions to the limited partners of less than
their recorded equity.
In April 1995, Equipment Management and certain affiliates entered into
an agreement with Fieldstone Private Capital Group, L.P. ("Fieldstone")
pursuant to which Fieldstone performs certain management and
administrative services relating to the Partnership as well as certain
other partnerships in which Equipment Management serves as general
partner. Substantially all costs associated with the retention of
Fieldstone will be paid by Equipment Management.
4 DISTRIBUTIONS TO PARTNERS
Distributions payable to the Limited Partners and General Partners of
$127,008 and $1,283, respectively, at March 31, 1996, were paid in May
1996.
5 EQUIPMENT SALES - 1996
On February 8, 1996 the Partnership entered into an agreement (the
"Agreement") with an unaffiliated third party (the "Purchaser") which
provides for the sale of 407 dry van piggyback trailers (the
"Trailers") upon their return from the lessee. Pursuant to the terms of
the Agreement, redelivery of the Trailers commenced on or about January
2, 1996 and will continue through the earlier of the date at which all
Trailers have been delivered and December 31, 1996. The Purchase Price
for any Trailer redelivered on or before March 31, 1996, is $2,575 (the
"Purchase Price"). The Purchase Price of any Trailer redelivered
subsequent to March 31, 1996 will be adjusted based on such redelivery
date. The adjusted Purchase Price is calculated by reducing the
Purchase Price by $15 for every week (seven day period) that elapses
from April 1, 1996 through December 31, 1996. As of March 31, 1996, 50
Trailers were transferred to and accepted by Purchaser.
The 50 Trailers were sold for sales proceeds aggregating $128,750. At
the time of the sale, the net carrying value of the 50 Trailers was
$120,117. The 50 Trailers had originally been acquired in January 1986
for an aggregate purchase cost of $683,502, inclusive of associated
acquisition costs.
In addition, the basic term of the lease expired effective December 31,
1995, but each Trailer remains subject to the terms of its lease until
the date it is redelivered by lessee in compliance with the return
conditions as defined in the lease agreement. At present, the return
dates of the Trailers which remain on lease have not been finalized.
6 EQUIPMENT LEASE PREPAYMENT
In December 1985, the Partnership, through an equipment trust of which
it is the sole beneficiary, acquired a Boeing 727-200 Aircraft (the
"Aircraft") and immediately leased the Aircraft back to Piedmont
Aviation, Inc. (the "Aircraft Lease"). The Partnership provided a
portion of the purchase price by utilizing approximately 40% of the net
proceeds from the Partnership's offering of units of limited
partnership interest. The balance was provided by the Partnership
assuming a loan from an unaffiliated third party lender (the "Lender").
The loan, which was nonrecourse, was anticipated to be self-liquidating
by the application of rentals due over the life of the Aircraft Lease.
Subsequent to 1985, the operations of Piedmont were merged into USAir
Group, Inc. ("USAir").
Since 1989, USAir has continued to experience significant financial
difficulty. In early 1995, USAir publicly announced that it anticipated
reducing its fleet size and during 1995, planned to retire or dispose
of 21 aircraft including its six remaining 727-200 aircraft. During the
quarter ended June 30, 1995, USAir indicated that the Aircraft would
require a heavy maintenance check under the USAir maintenance program.
Rather than perform such heavy maintenance, USAir grounded the
Aircraft.
During 1995, the Partnership and USAir entered into an agreement (the
"Agreement") that provided for a restructuring of the Aircraft Lease.
Pursuant to the terms of the Agreement, USAir agreed to make a payment
to the Lender equal to the outstanding principal balance plus interest
which accrued through October 30, 1995 in the amount of $1,553,452.
This payment fully retired the associated nonrecourse debt and relieved
USAir of all future Basic Rent obligations due under the Aircraft
Lease. Additionally, pursuant to the terms of the Agreement, USAir
commenced a world-wide remarketing effort directed toward the sale of
the Aircraft.
The Partnership's ability to realize a return on the Aircraft which
represented approximately 54% of the original equipment owned by the
Partnership, on an original cost basis, is not determinable at this
time.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership declared a cash distribution of $6.65 per unit of
limited partnership interest totalling $128,291 for the quarter ended
March 31, 1996, which represented cash from sales of $128,750 generated
during the current quarter.
As of March 31, 1996, the Partnership had operating reserves of
approximately $192,000 which was comprised of undistributed cash from
operations of approximately $97,000, as well as general working capital
reserves of $95,485.
In December 1985, the Partnership, through an equipment trust of which
it is the sole beneficiary, acquired a Boeing 727-200 Aircraft (the
"Aircraft") and immediately leased the Aircraft back to Piedmont
Aviation, Inc. (the "Aircraft Lease"). The Partnership provided a
portion of the purchase price by utilizing approximately 40% of the net
proceeds from the Partnership's offering of units of limited
partnership interest. The balance was provided by the Partnership
assuming a loan from an unaffiliated third party lender (the "Lender").
The loan, which was nonrecourse, was anticipated to be self-liquidating
by the application of rentals due over the life of the Aircraft Lease.
Subsequent to 1985, the operations of Piedmont were merged into USAir
Group, Inc. ("USAir").
Since 1989, USAir has continued to experience significant financial
difficulty. In early 1995, USAir publicly announced that it anticipated
reducing its fleet size and during 1995, planned to retire or dispose
of 21 aircraft including its six remaining 727-200 aircraft. During the
quarter ended June 30, 1995, USAir indicated that the Aircraft would
require a heavy maintenance check under the USAir maintenance program.
Rather than perform such heavy maintenance, USAir grounded the
Aircraft.
During 1995, the Partnership and USAir entered into an agreement (the
"Agreement") that provided for a restructuring of the Aircraft Lease.
Pursuant to the terms of the Agreement, USAir agreed to make a payment
to the Lender equal to the outstanding principal balance plus interest
which accrued through October 30, 1995 in the amount of $1,553,452.
This payment fully retired the associated nonrecourse debt and relieved
USAir of all future Basic Rent obligations due under the Aircraft
Lease. Additionally, pursuant to the terms of the Agreement, USAir
commenced a world-wide remarketing effort directed toward the sale of
the Aircraft.
The Partnership's ability to realize a return on the Aircraft which
represented approximately 54% of the original equipment owned by the
Partnership, on an original cost basis, is not determinable at this
time.
The aircraft industry is highly competitive. Realizable values from
sale or re-lease of aircraft vary considerably, depending upon the type
of aircraft, the condition of the aircraft, the number of such type of
aircraft available for sale or re-lease, and the nature of the
prospective user. Additionally, the necessity of complying with FAA
noise and maintenance requirements will have an adverse impact on the
Partnership's capability to release or sell the Aircraft.
Liquidity and Capital Resources (continued)
On February 8, 1996 the Partnership entered into an agreement (the
"Agreement") with an unaffiliated third party (the "Purchaser") which
provides for the sale of 407 dry van piggyback trailers (the
"Trailers") upon their return from the lessee. Pursuant to the terms of
the Agreement, redelivery of the Trailers commenced on or about January
2, 1996 and will continue through the earlier of the date at which all
Trailers have been delivered and December 31, 1996. The Purchase Price
for any Trailer redelivered on or before March 31, 1996, is $2,575 (the
"Purchase Price"). The Purchase Price for any Trailer redelivered
subsequent to March 31, 1996 will be adjusted based on such redelivery
date. The adjusted Purchase Price is calculated by reducing the
Purchase Price by $15 for every week (seven day period) that elapses
from April 1, 1996 through December 31, 1996. As of March 31, 1996, 50
Trailers have been transferred to and accepted by the Purchaser.
In addition, the basic term of the lease expired effective December 31,
1995, but each Trailer remains subject to the terms of its lease until
the date it is redelivered by lessee in compliance with the return
conditions as defined in the lease agreement. At present, the return
dates of Trailers which remain on lease have not been finalized.
It is the Partnership's intention to maintain reserves (including the
general working capital reserve) sufficient to support the
Partnership's future obligations. In the future, liquidity and
distribution levels may fluctuate based upon (i) the results of the
Partnership's efforts to sell or re-lease the Aircraft when the lease
relating to such equipment expires or sooner terminates, (ii) closing
the sale of the Trailers as mentioned above and (iii) requirements for
operating reserves, if any.
At the present time, the level of fees payable to IREG for services
rendered to the Partnership and other affiliated equipment leasing
partnerships is declining. The effect of this situation cannot be
determined at this point. The management agreements between the
Partnership and IREG may be terminated by either party to such
agreements.
In April 1995, the Managing General Partner and certain affiliates
entered into an agreement with Fieldstone pursuant to which Fieldstone
performs certain management and administrative services relating to the
assets of the Partnership as well as certain other partnerships in
which the Managing General Partner serves as general partner.
Substantially all costs associated with the retention of Fieldstone
will be paid by the Managing General Partner.
On February 28, 1995, Presidio Boram Corp., a subsidiary of Presidio,
became the Associate General Partner, upon the withdrawal of Z Square G
Partners II, the former Associate General Partner.
Inflation and changing prices have not had any material effect on the
Partnership's revenues since its inception, nor does the Partnership
anticipate any material effect on its business from these factors.
The Partnership had no outstanding material commitments for capital
expenditures as of March 31, 1996.
Liquidity and Capital Resources (continued)
Results of Operations
Net income decreased slightly for the quarter ended March 31, 1996 as
compared with the prior year's period, primarily due to the reduction
in rental revenues, partially offset by a reduction in depreciation and
other expenses.
The Partnership's rental revenues decreased for the quarter ended March
31, 1996, as compared to the prior year's period, primarily due to the
restructuring of the USAir lease, effective July 1, 1995, as well as a
reduction in rental revenues with respect to the Trailers which are in
the process of being returned and sold, as previously discussed.
Expenses decreased in the quarter ended March 31, 1996 in comparison to
the prior year's period. No interest expense was incurred for the
quarter ended March 31, 1996 due to the retirement of the nonrecourse
loan associated with the Trailers on January 2, 1996. Fees to
affiliates decreased due to a decrease in equipment management fees
resulting from the decrease in rentals on which such fees are based.
Depreciation expense decreased, resulting from the restructuring of the
USAir lease, during the quarter ended September 30, 1995.
Administrative expenses decreased during the quarter ended March 31,
1996 when compared with the prior year's period.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Integrated Resources
American Leasing Investors VII-B,
a California Limited Partnership
By: ALI Equipment Management Corp.
Managing General Partner
/S/ Douglas J. Lambert
----------------------------------
Douglas J. Lambert
President (Principal Executive and
Financial Officer)
Date: May 15, 1996