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. 0-17523
American Income Partners IV-B Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3024966
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
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(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 IV-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 9-12
PART II. OTHER INFORMATION:
Items 1 - 6 13
2
AMERICAN INCOME PARTNERS IV-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 $ 661,095 $ 644,253
Rents receivable, net of allowance for
doubtful 96,140 95,053
accounts of $100,000
Accounts receivable - affiliate 39,892 119,651
Equipment at cost, net of accumulated
depreciation of $5,377,844 and
$5,827,635 at March 31, 1996
and December 31, 1995 3,076,787 3,150,051
---------- ----------
Total assets $3,873,914 $4,009,008
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 108,281 $ 120,313
Accrued interest 1,258 1,523
Accrued liabilities 19,750 20,000
Accrued liabilities - affiliate 16,554 11,761
Cash distributions payable to partners 275,863 275,863
---------- ----------
Total liabilities 421,706 429,460
---------- ----------
Partners' capital (deficit):
General Partners (157,352) (156,078)
Limited Partnership Interests
(873,935 Units; initial
purchase price of $25 each) 3,609,560 3,735,626
---------- ----------
Total partners' capital 3,452,208 3,579,548
---------- ----------
Total liabilities and partners'
capital $3,873,914 $4,009,008
========== ==========
The accompanying notes are an integral part
of these financial statements
3
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
--------- ---------
Income:
- -------
Lease revenue $234,136 $284,785
Interest income 7,722 11,592
Gain on sale of equipment 9,623 127,963
-------- --------
Total income 251,481 424,340
-------- --------
Expenses:
Depreciation 73,264 98,373
Interest expense 2,021 2,884
Equipment management fees -
affiliate 11,707 14,239
Operating expenses - affiliate 15,966 20,185
-------- --------
Total expenses 102,958 135,681
-------- --------
Net income $148,523 $288,659
======== ========
Net income
per limited partnership unit $ 0.17 $ 0.33
======== ========
Cash distribution declared
per limited partnership unit $ 0.31 $ 0.50
======== ========
The accompanying notes are an integral part
of these financial statements
4
AMERICAN INCOME PARTNERS IV-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: $ 148,523 $ 288,659
Net income
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation 73,264 98,373
Gain on sale of equipment (9,623) (127,963)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable (1,087) (67,552)
accounts receivable - affiliate 79,759 (26,349)
Increase (decrease) in:
accrued interest (265) (494)
accrued liabilities (250) (5,500)
accrued liabilities - affiliate 4,793 (722)
deferred rental income -- (662)
--------- ----------
Net cash from operating
activities 295,114 157,790
--------- ----------
Cash flows from investing activities:
Proceeds from equipment sales 9,623 170,951
--------- ----------
Net cash from investing
activities 9,623 170,951
--------- ----------
Cash flows used in financing activities:
Principal payments - notes payable (12,032) (42,214)
Distributions paid (275,863) (441,381)
--------- ----------
Net cash used in financing
activities (287,895) (483,595)
--------- ----------
Net increase (decrease) in cash and
cash equivalents 16,842 (154,854)
Cash and cash equivalents at beginning
of period 644,253 1,021,406
--------- ----------
Cash and cash equivalents at end of
period $ 661,095 $ 866,552
========= ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 2,286 $ 3,378
========= ==========
The accompanying notes are an integral part
of these financial statements
5
AMERICAN INCOME PARTNERS IV-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 $660,000 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 or quarterly 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 $2,208,951 are
due as follows:
For the year ending March 31, 1997 $ 868,875
1998 667,895
1999 530,886
2000 141,295
----------
Total $2,208,951
==========
6
AMERICAN INCOME PARTNERS IV-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
- -------------- ---------- -----------
Vessels 63-72 $ 3,296,257
Aircraft 38 3,110,533
Manufacturing 60 1,348,044
Materials handling 5-60 437,479
Retail store fixtures 12-72 113,211
Medical 24-60 73,506
Locomotives 60 53,445
Tractors and heavy duty trucks 12-60 22,156
-----------
Total equipment cost 8,454,631
Accumulated depreciation (5,377,844)
-----------
Equipment, net of accumulated depreciation $ 3,076,787
===========
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $7,883,357 representing approximately
93% of total equipment cost.
The summary above includes equipment held for re-lease or sale with a cost and
net book value of approximately $53,000 and $15,000, respectively, 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.
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:
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AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
1996 1995
-------- --------
Equipment management fees $11,707 $14,239
Administrative charges 4,398 3,000
Reimbursable operating expenses
due to third parties 11,568 17,185
------- -------
Total $27,673 $34,424
======= =======
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 $39,892 by AFG for such funds and the
interest thereon. These funds were remitted to the Partnership in April 1996.
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at March 31, 1996 consisted of an installment note of $108,281
payable to an institutional lender. This note is non-recourse, with a
fluctuating interest rate based on the London Inter-Bank Offered Rate ("LIBOR")
plus 1.5%. At March 31, 1996, the applicable LIBOR rate was approximately
6.98%. The note is collateralized by the equipment and assignment of the
related lease payments and will be fully amortized by noncancellable rents. The
carrying amount of notes payable approximates fair value at March 31, 1996.
The annual maturities of the installment note are as follows:
For the year ending March 31, 1996 $ 48,125
1997 48,125
1998 12,031
--------
Total $108,281
========
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
Pursuant to its agreements with PLM International, Inc., referred to in Note 8
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 IV-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 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 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 1988.
Results of Operations
- ---------------------
For the three months ended March 31, 1996, the Partnership recognized lease
revenue of $234,136 compared to $284,785 for the same period in 1995. The
decrease in lease revenue from 1996 to 1995 was expected and resulted
principally from primary lease term expirations and the sale of equipment. The
Partnership also earns interest income from the temporary investments of rental
receipts and equipment sales proceeds in short-term investments.
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.
For the three months ended March 31, 1996, the Partnership sold fully
depreciated equipment to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes, of $9,623 compared to
a net gain in 1995 of $127,963 on equipment having a net book value of $42,988.
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 IV-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 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 $73,264,
compared to $98,373 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 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 $2,021 or less than 1% of lease revenue for the three
months ended March 31, 1996, compared to $2,884 or 1% of lease revenue for the
same period in 1995. 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
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 6.8% of lease revenue for the three
months ended
March 31, 1996, compared to 7.1% 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 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 $295,114 and $157,790 in 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 PARTNERS IV-B 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 $9,623 in equipment sale proceeds
compared to $170,951 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. In future years, 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 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 months ended March 31, 1996, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $275,863. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 99% of these distributions, or
$273,104, and the General Partners were allocated 1%, or $2,759. 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 Partnership's future cash distributions will be adversely affected by the
1991 bankruptcy of Midway Airlines, Inc. ("Midway"). Although this bankruptcy
had no immediate adverse effect on the Partnership's cash flow, as the
Partnership had almost fully leveraged its ownership interest in the underlying
aircraft leased to Midway, this event resulted in the Partnership's loss of any
future interest in the residual value of the aircraft. This bankruptcy will
have a material adverse effect on the ability of the Partnership to achieve all
of its originally intended economic benefits. However, the final yield on
capital will be dependent upon the collective performance results of all the
Partnership's equipment leases.
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
11
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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.
12
AMERICAN INCOME PARTNERS IV-B 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
13