UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X 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
-------------------------------------------------
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, 1996 Commission File No. 0-16512
American Income Partners III-B Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2968859
- ---------------------------------------- --------------------------
(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 PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1996 and December 31, 1995 3
Statement of Operations
for the three months ended March 31, 1996 and 1995 4
Statement of Cash Flows
for the three months ended March 31, 1996 and 1995 5
Notes to the Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION:
Items 1 - 6 12
2
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
March 31, 1996 and December 31, 1995
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
ASSETS
- ------
Cash and cash equivalents $ 736,172 $ 802,718
Rents receivable, net of allowance for
doubtful accounts of $60,000 1,369 3,044
Accounts receivable - affiliate 59,316 5,490
Equipment at cost, net of accumulated
depreciation of $7,975,414 and
$7,839,693 at March 31, 1996 and
December 31, 1995, respectively 3,545,979 3,684,320
---------- ----------
Total assets $4,342,836 $4,495,572
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accrued liabilities $ 19,750 $ 20,000
Accrued liabilities - affiliate 13,787 15,216
Deferred rental income 65,403 52,247
Cash distributions payable to partners 213,508 213,508
---------- ----------
Total liabilities 312,448 300,971
---------- ----------
Partners' capital (deficit):
General Partners (207,567) (205,925)
Limited Partnership Interests
(1,127,330 Units; initial
purchase price of $25 each) 4,237,955 4,400,526
---------- ----------
Total partners' capital 4,030,388 4,194,601
---------- ----------
Total liabilities and partners'
capital $4,342,836 $4,495,572
========== ==========
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
--------- ---------
Income:
Lease revenue $207,744 $239,927
Interest income 9,344 11,045
Gain on sale of equipment 90 260,922
-------- --------
Total income 217,178 511,894
-------- --------
Expenses:
Depreciation 138,341 177,872
Interest expense -- 488
Equipment management fees - affiliate 10,387 11,996
Operating expenses - affiliate 19,155 35,389
-------- --------
Total expenses 167,883 225,745
-------- --------
Net income $ 49,295 $286,149
======== ========
Net income
per limited partnership unit $ 0.04 $ 0.25
======== ========
Cash distribution declared
per limited partnership unit $ 0.19 $ 0.31
======== ========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
---------- ----------
Cash flows from (used in) operating
activities: $ 49,295 $ 286,149
Net income
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 138,341 177,872
Gain on sale of equipment (90) (260,922)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 1,675 198,254
accounts receivable - affiliate (53,826) 3,201
Increase (decrease) in:
accrued interest -- (8,511)
accrued liabilities (250) (5,500)
accrued liabilities - affiliate (1,429) 11,910
deferred rental income 13,156 39,541
--------- ---------
Net cash from operating
activities 146,872 441,994
--------- ---------
Cash flows from investing activities:
Proceeds from equipment sales 90 260,922
--------- ---------
Net cash from investing
activities 90 260,922
--------- ---------
Cash flows used in financing activities:
Principal payments - notes payable -- (200,790)
Distributions paid (213,508) (569,359)
--------- ---------
Net cash used in financing
activities (213,508) (770,149)
--------- ---------
Net decrease in cash and cash
equivalents (66,546) (67,233)
--------- ---------
Cash and cash equivalents at beginning
of period 802,718 958,005
--------- ---------
Cash and cash equivalents at end of
period $ 736,172 $ 890,772
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ -- $ 8,999
========= =========
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 1996
(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 1995 Annual Report. Except as disclosed
herein, there has been no material change to the information presented in the
footnotes to the 1995 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 1996 and December 31, 1995 and results of operations for
the three month periods ended March 31, 1996 and 1995 have been made and are
reflected.
NOTE 2 - CASH
- -------------
At March 31, 1996, the Partnership had $735,000 invested in reverse repurchase
agreements 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
$1,165,482 are due as follows:
For the year ending March 31, 1997 $ 634,292
1998 382,463
1999 61,542
2000 61,542
2001 25,643
----------
Total $1,165,482
==========
6
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 4 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at March 31,
1996. In the opinion of American Finance Group ("AFG"), the acquisition cost of
the equipment did not exceed its fair market value.
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------------- ------------------------------------------- ------------
Aircraft 36-108 $ 8,412,409
Motor vehicles 12-72 1,177,235
Manufacturing 24-72 663,153
Communications 1-60 618,182
Locomotives 57-60 438,017
Materials handling 1-84 212,397
-----------
Total equipment cost 11,521,393
Accumulated depreciation (7,975,414)
-----------
Equipment, net of accumulated depreciation $ 3,545,979
===========
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $10,030,246, representing approximately
87% of total equipment cost.
At March 31, 1996, the Partnership was not holding any equipment not subject
to a lease and no equipment was held for sale or re-lease.
Effective January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of, which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Adoption of this statement did not have a material impact of the financial
statements of the Partnership.
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 three month
periods ended March 31, 1996 and 1995, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
1996 1995
-------- --------
Equipment management fees $10,387 $11,996
Administrative charges 5,250 3,000
Reimbursable operating expenses
due to third parties 13,905 32,389
------- -------
Total $29,542 $47,385
======= =======
7
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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
March 31, 1996, the Partnership was owed $59,316 by AFG for such funds and the
interest thereon. These funds were remitted to the Partnership in April 1996.
NOTE 6 - LEGAL PROCEEDINGS
- --------------------------
On March 15, 1993, Herman's Sporting Goods, Inc., a lessee of the Partnership
(the "Debtor"), filed for protection under Chapter 11 of the Bankruptcy Code in
the United States District Court, Trenton, New Jersey (the "District Court").
Certain unpaid rents due to the Partnership were scheduled by the Debtor as
unsecured claims. Upon order of the District Court, renewal rental schedules
for all equipment leased to the Debtor by the Partnership were executed and are
currently in effect. On August 23, 1994, the District Court confirmed the
Debtor's First Modified Plan of Reorganization, as Amended and Modified, and the
Partnership has received two of the three scheduled payments from the Debtor
with respect to its unsecured claims. On April 26, 1996, the Debtor refiled for
protection under Chapter 11 of the Bankruptcy Code in the District Court. Rents
due to the Partnership pursuant to the renewal schedules due to expire on June
30, 1996, aggregating $630, were scheduled by the Debtor as unsecured claims.
In addition, the third scheduled payment under the 1993 schedule of unsecured
claims of $392 has not been received by the Partnership. The Partnership's
equipment portfolio includes equipment on lease to the Debtor with an original
cost of approximately $31,292, which is fully depreciated for financial
reporting purposes and represents less than 1% of the Partnership's aggregate
equipment portfolio at March 31, 1996. This equipment is expected to be
returned to the Partnership to be held for sale or release and the General
Partner will pursue collection of all outstanding amounts from the Debtor. The
Partnership does not expect to experience any material loss as a result of these
bankruptcies
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
Pursuant to its agreements with PLM International, Inc., referred to in Note 7
of the Partnership's 1995 financial statements, American Finance Group agreed to
change its name and logo, except where they are used in connection with the
Partnership and other affiliated investment programs. For all other purposes,
American Finance Group will operate as Equis Financial Group effective April 2,
1996.
8
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Three months ended March 31, 1996 compared to the three months ended March 31,
- ------------------------------------------------------------------------------
1995:
- -----
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 progresses through various stages. Initially, all equipment generates
rental revenue under primary term lease agreements. During the life of the
Partnership, these agreements expire on an intermittent basis and equipment held
pursuant to the related leases are 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 becomes available for remarketing
and cash generated from operations and from sales or refinancings begins to
fluctuate. Ultimately, all equipment will be sold and the Partnership will be
dissolved. In accordance with the Partnership's stated investment objectives
and policies, the Managing General Partner is considering the winding-up of the
Partnership's operations, including the liquidation of its entire portfolio.
The Partnership's operations commenced in 1987.
Results of Operations
- ---------------------
For the three months ended March 31, 1996, the Partnership recognized lease
revenue of $207,744 compared to $239,927 for the same period in 1995. The
decrease in lease revenue from 1995 to 1996 was expected and resulted
principally from primary lease term expirations and the sale of equipment. The
Partnership also earns interest income from temporary investments of rental
receipts and equipment sales proceeds in short-term instruments.
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.
During the three months ended March 31, 1996 and 1995, the Partnership sold
equipment which had been fully depreciated to existing lessees and third
parties. These sales resulted in net gains, for financial statement purposes,
of $90 and $260,922, respectively.
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
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AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 revenue 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 months ended March 31, 1996 was
$138,341 compared to $177,872 for the same period in 1995. 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 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 an asset 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 $488 or less than 1% of lease revenue for the
three months ended March 31, 1995. Management fees were 5% of lease revenue in
each of the periods ended March 31, 1996 and 1995 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 approximately 9.2% of
lease revenue for the three months ended March 31, 1996 compared to 14.7% of
lease revenue for the same period in 1995. Operating expenses were higher in
1995 than in 1996 due to higher premiums in connection with supplemental
insurance policies carried by the Partnership on certain aircraft. 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.
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 $146,872 and $441,994 for the three
months ended March 31, 1996 and 1995, respectively. Future renewal, re-lease
and equipment sale activities will cause a gradual decline in the Partnership's
lease revenue 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
10
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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
three months ended March 31, 1996, the Partnership realized $90 in equipment
sale proceeds compared to $260,922 for the same period in 1995. 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. At March 31, 1996, the Partnership had no
outstanding indebtedness.
Cash distributions to the General Partners and Recognized Owners 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 three month period ended March 31, 1996, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $213,508. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 99% of these distributions, or
$211,373, and the General Partners were allocated 1%, or $2,135. The first
quarter 1996 cash distribution was paid on April 15, 1996.
Cash distributions paid to the Recognized Owners 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 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 Managing 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. In addition, the Partnership may be required
to incur asset refurbishment or upgrade costs in connection with future
remarketing activities. Accordingly, fluctuations in the level of quarterly
cash distributions will occur during the life of the Partnership.
11
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 6 herein and to Note 6 in
the 1995 Annual Report
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
12
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 PARTNERS III-B LIMITED PARTNERSHIP
By: AFG Leasing Incorporated, a Massachusetts
corporation and the Managing General Partner of
the Registrant.
By: /s/ Michael J. Butterfield
-----------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 13, 1996
-----------------------------------------------
By: /s/ Gary Romano
-----------------------------------------------
Gary M. Romano
Clerk of AFG Leasing Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 13, 1996
-----------------------------------------------
13