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. 0-18394
American Income Partners IV-C Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3036127
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(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 IV-C 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-C 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 $2,150,817 $2,063,872
Rents receivable, net of allowance
for doubtful accounts of $35,000 76,846 272,111
Accounts receivable - affiliate 233,147 377,124
Equipment at cost, net of accumulated
depreciation of $13,542,675 and
$14,056,730 at March 31, 1996
and December 31, 1995, respectively 6,241,480 6,409,784
---------- ----------
Total assets $8,702,290 $9,122,891
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 345,657 $ 387,188
Accrued interest 1,821 2,204
Accrued liabilities 19,750 20,000
Accrued liabilities - affiliate 24,010 18,360
Deferred rental income 12,083 11,471
Cash distributions payable to partners 802,160 802,160
---------- ----------
Total liabilities 1,205,481 1,241,383
---------- ----------
Partners' capital (deficit):
General Partners (204,326) (200,479)
Limited Partnership Interests
(1,270,622 Units; initial
purchase price of $25 each) 7,701,135 8,081,987
---------- ----------
Total partners' capital 7,496,809 7,881,508
---------- ----------
Total liabilities and partners'
capital $8,702,290 $9,122,891
========== ==========
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
--------- ---------
Income:
- -------
Lease revenue $566,841 $744,198
Interest income 26,241 28,961
Gain on sale of equipment 43,960 222,492
-------- --------
Total income 637,042 995,651
-------- --------
Expenses:
Depreciation 165,751 259,604
Interest expense 6,843 13,111
Equipment management fees -
affiliate 28,342 37,210
Operating expenses - affiliate 18,645 34,957
-------- --------
Total expenses 219,581 344,882
-------- --------
Net income $417,461 $650,769
======== ========
Net income $ 0.33 $ 0.51
per limited partnership unit ======== ========
Cash distribution declared
per limited partnership unit $ 0.62 $ 0.62
======== ========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME PARTNERS IV-C 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: $ 417,461 $ 650,769
Net income
Adjustments to reconcile net income to
net cash from operating activities: 165,751 259,604
Depreciation
Gain on sale of equipment (43,960) (222,492)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 195,265 207,909
accounts receivable - affiliate 143,977 (85,977)
Increase (decrease) in:
accrued interest (383) (10,557)
accrued liabilities (250) (5,500)
accrued liabilities - affiliate 5,650 (8,835)
deferred rental income 612 3,781
---------- -----------
Net cash from operating
activities 884,123 788,702
---------- -----------
Cash flows from investing activities:
Proceeds from equipment sales 46,513 233,311
---------- -----------
Net cash from investing
activities 46,513 233,311
---------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (41,531) (253,450)
Distributions paid (802,160) (802,160)
---------- -----------
Net cash used in financing
activities (843,691) (1,055,610)
---------- -----------
Net increase (decrease) in cash and
cash equivalents 86,945 (33,597)
Cash and cash equivalents at beginning
of period 2,063,872 2,231,880
---------- -----------
Cash and cash equivalents at end of
period $2,150,817 $ 2,198,283
========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 7,226 $ 23,668
========== ===========
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME PARTNERS IV-C 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 $2,150,000 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 $5,312,096 are due as follows:
For the year ending March 31, 1997 $2,002,658
1998 1,596,706
1999 1,373,989
2000 338,743
----------
Total $5,312,096
==========
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.
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AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------- ---------- ---------
Vessels 63-72 $ 8,479,038
Aircraft 38-72 4,579,905
Furniture and fixtures 12-96 2,125,632
Manufacturing 36-60 1,494,518
Materials handling 3-60 958,615
Retail store fixtures 12-60 912,789
Tractors and heavy duty trucks 1-72 641,421
Research and test 1-24 414,282
Communications 31-60 97,130
Photocopying 12-60 68,398
Computers and peripherals 36-60 7,156
General purpose plant/warehouse 12-60 4,728
Medical 54-60 543
------------
Total equipment cost 19,784,155
Accumulated depreciation (13,542,675)
------------
Equipment, net of accumulated depreciation $ 6,241,480
============
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $13,166,764, representing approximately
67% of total equipment cost.
The summary above includes equipment held for re-lease or sale with a cost and
net book value of approximately $1,087,000 and $1,000, respectively, at March
31, 1996. The Managing General Partner is actively seeking the sale or re-lease
of all equipment not on lease.
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-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
1996 1995
-------- --------
Equipment management fees $28,342 $37,210
Administrative charges 5,250 3,000
Reimbursable operating expenses
due to third parties 13,395 31,957
------- -------
Total $46,987 $72,167
======= =======
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 $233,147 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 two installment notes totaling
$345,657 payable to an institutional lender. The installment notes are non-
recourse and bear fluctuating rates based on the London Inter-Bank Offered Rate
("LIBOR") plus 1.5%. At March 31, 1996, the applicable LIBOR rates were
approximately 6.96%. These notes are 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 notes payable are as follows:
For the year ending March 31, 1996 $166,125
1997 166,125
1998 13,407
--------
Total $345,657
========
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-C 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 1989.
Results of Operations
- ---------------------
For the three months ended March 31, 1996, the Partnership recognized lease
revenue of $566,841 compared to $744,198 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.
For the three months ended March 31, 1996, the Partnership sold
equipment having a net book value of $2,553 to existing lessees and third
parties. These sales resulted in a net gain, for financial statement purposes,
of $43,960 compared to a net gain in 1995 of $222,492 on equipment having a net
book value of $10,819.
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
9
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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
$165,751, compared to $259,604, 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 $6,843 or 1.2% of lease revenue for the three
months ended March 31, 1996, compared to $13,111 or 1.8% 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 3.3% of lease revenue
for the three months ended March 31, 1996, compared to 4.7% 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 $884,123 and $788,702 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 PARTNERS IV-C 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 $46,513 in equipment
sale proceeds compared to $233,311 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 periods, the amount of cash used to
repay debt obligations will 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 $802,160. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 99% of these distributions, or
$794,138, and the General Partners were allocated 1%, or $8,022. 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.
11
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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.
12
AMERICAN INCOME PARTNERS IV-C 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