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
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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. 0-16499
American Income 8 Limited Partnership
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2947857
- -------------------------------- --------------
(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 8 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 8 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 $ 327,832 $ 430,613
Rents receivable, net of allowance for
doubtful accounts of $18,000 at
December 31, 1995 618 799
Accounts receivable - affiliate 70,873 175,884
Equipment at cost, net of accumulated
depreciation of $7,752,304 and
$7,908,452 at March 31, 1996
and December 31, 1995, respectively 4,322,980 4,484,865
---------- ----------
Total assets $4,722,303 $5,092,161
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accrued liabilities $ 19,750 $ 20,000
Accrued liabilities - affiliate 10,197 9,080
Deferred rental income 13,531 179,561
Cash distributions payable to partners 141,765 283,530
---------- ----------
Total liabilities 185,243 492,171
---------- ----------
Partners' capital (deficit):
General Partner (118,995) (118,365)
Limited Partnership Interests
(74,852 Units; initial purchase
price of $250 each) 4,656,055 4,718,355
---------- ----------
Total partners' capital 4,537,060 4,599,990
---------- ----------
Total liabilities and
partners' capital $4,722,303 $5,092,161
========== ==========
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME 8 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
--------- ---------
Income:
Lease revenue $225,269 $362,024
Interest income 5,464 9,456
Gain on sale of equipment 40,828 30,000
-------- --------
Total income 271,561 401,480
-------- --------
Expenses:
Depreciation 161,885 172,439
Interest expense -- 12,917
Equipment management fees - affiliate 11,263 18,101
Operating expenses - affiliate 19,578 30,644
-------- --------
Total expenses 192,726 234,101
-------- --------
Net income $ 78,835 $167,379
======== ========
Net income
per limited partnership unit $ 1.04 $ 2.21
======== ========
Cash distribution declared
per limited partnership unit $ 1.87 $ 3.75
======== ========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME 8 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: $ 78,835 $ 167,379
Net income
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 161,885 172,439
Gain on sale of equipment (40,828) (30,000)
Decrease in allowance for doubtful
accounts (18,000) --
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 18,181 (179)
accounts receivable - affiliate 105,011 (24,787)
Increase (decrease) in:
accrued interest -- 448
accrued liabilities (250) (5,500)
accrued liabilities - affiliate 1,117 (409)
deferred rental income (166,030) (14,099)
--------- ---------
Net cash from operating
activities 139,921 265,292
--------- ---------
Cash flows from investing activities:
Proceeds from equipment sales 40,828 30,000
--------- ---------
Net cash from investing
activities 40,828 30,000
--------- ---------
Cash flows used in financing activities:
Principal payments - notes
payable -- (20,693)
--------- ---------
Distributions paid (283,530) (283,530)
--------- ---------
Net cash used in financing
activities (283,530) (304,223)
--------- ---------
Net decrease in cash and cash
equivalents (102,781) (8,931)
Cash and cash equivalents at beginning
of period 430,613 712,472
--------- ---------
Cash and cash equivalents at end of
period $ 327,832 $ 703,541
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ -- $ 12,469
========= =========
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME 8 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
- -------------
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 $3,181,315 are due as follows:
For the year ending March 31, 1997 $ 823,709
1998 791,165
1999 652,074
2000 644,274
2001 270,093
----------
Total $3,181,315
==========
6
AMERICAN INCOME 8 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 $ 9,414,460
Flight simulators 60 802,831
Motor vehicles 12-72 676,559
Communications 30-36 597,223
Materials handling 1-60 321,389
Trailers and intermodal containers 48-60 136,695
Photocopying 1-36 104,511
Computers and peripherals 1-60 21,616
-----------
Total equipment cost 12,075,284
Accumulated depreciation (7,752,304)
-----------
Equipment, net of accumulated depreciation $ 4,322,980
===========
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $10,077,358, representing approximately
83% of total equipment cost.
The summary above includes equipment held for re-lease or sale which was fully
depreciated and had an original cost of approximately $68,000 at March 31, 1996.
Effective January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for 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 on the financial
statements of the Partnership.
7
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 $11,263 $18,101
Administrative charges 5,193 3,000
Reimbursable operating expenses
due to third parties 14,385 27,644
------- -------
Total $30,841 $48,745
======= =======
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 $70,873 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 $12,075, were scheduled by the Debtor as unsecured
claims. In addition, the third scheduled payment under the 1993 schedule of
unsecured claims of $7,216 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 $597,222, which is fully depreciated for
financial reporting purposes and represents 5% 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 EVENT
- -------------------------
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 8 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 revenues 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 General Partner is considering the wind-
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 $225,269, compared to $362,024 for the same period in 1995.
The decrease in lease revenue from 1995 to 1996 was expected and resulted from
renewal 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, 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 $40,828 compared to a net gain of $30,000 on fully depreciated equipment for
the same period in 1995.
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.
9
AMERICAN INCOME 8 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 months ended March 31, 1996 was
$161,885, compared to $172,439 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 $12,917 or 3.6% of lease revenue during the three
months ended March 31, 1995. Interest expense is not expected to be incurred in
future periods due to the retirement of all outstanding debt obligations during
1995.
Management fees were 5% of lease revenue during each of the three
month 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 8.7% of lease revenue
for the three months ended March 31, 1996, compared to 8.5% of lease revenue for
the same period in 1995. 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 have been used to satisfy debt service obligations associated with
leveraged leases, and are currently used to pay management fees and operating
costs. Operating activities generated net cash inflows of $139,921 and $265,292
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 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.
10
AMERICAN INCOME 8 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 three months
ended March 31, 1996, the Partnership realized $40,828 in equipment sale
proceeds compared to $30,000 during 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. All of the Partnership's
outstanding debt obligations were retired in 1995.
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 three months ended March 31, 1996 the Partnership declared
total cash distributions of Distributable Cash From Operations and Distributable
Cash From Sales and Refinancings of $141,765. In accordance with the Amended
and Restated Agreement and Certificate of Limited Partnership, the Limited
Partners were allocated 99% of these distributions, or $140,347, and the General
Partner was allocated 1%, or $1,418. The first quarter 1996 cash distribution
was paid on April 15, 1996.
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 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.
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 8 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 8 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/ 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