UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] 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. 33-35148
American Income Fund I-A, Massachusetts Limited Partnership
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3097216
- -------------------------------------------- --------------------
(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 FUND I-A,
a Massachusetts 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. Managements Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION:
Items 1 - 6 13
2
AMERICAN INCOME FUND I-A,
a Massachusetts 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 $ 1,583,907 $ 1,595,008
Rents receivable 66,498 75,152
Accounts receivable - affiliate 87,077 35,962
Equipment at cost, net of accumulated depreciation
of $4,274,123 and $4,245,887 at March 31 1996
and December 31, 1995 780,820 877,302
------------ ------------
Total assets $ 2,518,302 $ 2,583,424
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ -- $ 5,186
Accrued interest -- 135
Accrued liabilities 97,315 25,830
Accrued liabilities - affiliate 14,406 7,685
Deferred rental income 19,298 9,384
Cash distributions payable to partners 104,003 113,003
------------ ------------
Total liabilities 235,022 161,223
------------ ------------
Partners' capital (deficit):
General Partner (202,721) (195,775)
Limited Partnership Interests
(286,274 Units; initial purchase price of $25 each) 2,486,001 2,617,976
------------ ------------
Total partners' capital 2,283,280 2,422,201
------------ ------------
Total liabilities and partners' capital $ 2,518,302 $ 2,583,424
============ ============
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
------------- -------------
Income:
Lease revenue $ 141,153 $ 219,964
Interest income 19,585 23,602
Gain (loss) on sale of equipment 12,555 (7,113)
------------- -------------
Total income 173,293 236,453
------------- -------------
Expenses:
Depreciation and amortization 88,138 154,735
Interest expense -- 3,580
Equipment management fees - affiliate 8,884 9,462
Operating expenses - affiliate 111,189 16,297
------------- -------------
Total expenses 208,211 184,074
------------- -------------
Net income (loss) $ (34,918) $ 52,379
============= =============
Net income (loss)
per limited partnership unit $ (0.12) $ 0.17
============= =============
Cash distribution declared
per limited partnership unit $ 0.35 $ 0.75
============= =============
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME FUND I-A,
a Massachusetts 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:
Net income (loss) $ (34,918) $ 52,379
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 88,138 154,735
(Gain) loss on sale of equipment (12,555) 7,113
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 8,654 22,037
accounts receivable - affiliate (51,115) (35,751)
Increase (decrease) in:
accrued interest (135) (667)
accrued liabilities 71,485 (5,235)
accrued liabilities - affiliate 6,721 8,840
deferred rental income 9,914 10,060
-------------- ---------------
Net cash from operating activities 86,189 213,511
-------------- ---------------
Cash flows from investing activities:
Proceeds from equipment sales 20,899 37,500
-------------- ---------------
Net cash from investing activities 20,899 37,500
-------------- ---------------
Cash flows used in financing activities:
Principal payments - notes payable (5,186) (69,602)
Distributions paid (113,003) (226,006)
-------------- ---------------
Net cash used in financing activities: (118,189) (295,608)
-------------- ---------------
Net decrease in cash and cash equivalents (11,101) (44,597)
Cash and cash equivalents at beginning of period 1,595,008 1,458,958
-------------- ---------------
Cash and cash equivalents at end of period $ 1,583,907 $ 1,414,361
============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 135 $ 4,247
============== ===============
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME FUND I-A,
a Massachusetts 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 $1,580,000 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
$474,519 are due as follows:
For the year ending March 31, 1997 $ 284,369
1998 115,664
1999 74,486
---------
Total $ 474,519
=========
6
AMERICAN INCOME FUND I-A,
a Massachusetts 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 10 - 36 $ 2,718,306
Materials handling 2 - 60 1,562,538
Communications 23 - 60 383,676
Computers & peripherals 1 - 51 265,637
Retail store fixtures 12 - 47 63,750
Tractors & heavy duty trucks 78 61,036
------------
Total equipment cost 5,054,943
Accumulated depreciation (4,274,123)
------------
Equipment, net of accumulated depreciation $780,820
============
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $2,909,500 representing approximately
58% of total equipment cost.
The summary above includes equipment held for sale or re-lease with a cost
and net book value of approximately $1,228,000 and $205,000, respectively, at
March 31, 1996. The equipment includes the Partnerships proportionate interest
in a Boeing 727-251 Advanced aircraft (the Aircraft), formerly leased to
Northwest Airlines, Inc., having a cost and net book value of $1,080,617 and
$200,058, respectively, at March 31, 1996. This aircraft was returned upon
expiration of its lease term on November 30, 1995 and is currently undergoing
heavy maintenance expected to cost the Partnership approximately $70,000, all of
which was accrued during the three months ended March 31, 1996. The Partnership
entered into a new 28-month lease agreement with Transmeridian Airlines, to
release the Aircraft at a base rent to the Partnership of $8,294 per month,
effective upon completion of the heavy maintenance.
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:
7
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
1996 1995
----------- ----------
Equipment management fees $ 8,884 $ 9,462
Administrative charges 3,138 3,000
Reimbursable operating expenses
due to third parties 108,051 13,297
----------- ----------
Total $ 120,073 $ 25,759
=========== ==========
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 $87,077 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in April
1996.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
Pursuant to its agreements with PLM International, Inc., referred to in
Note 8 of the Partnerships 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 FUND I-A,
a Massachusetts 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 will progress through various stages. Initially, all
equipment will generate rental revenue under primary term lease agreements.
During the life of the Partnership, these agreements will expire on an
intermittent basis and equipment held pursuant to the related leases will be
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 will become available for remarketing and cash generated from
operations and from sales or refinancings will begin to fluctuate. Ultimately,
all equipment will be sold and the Partnership will be dissolved. The
Partnership's operations commenced in 1990.
Results of Operations
- ---------------------
For the three months ended March 31, 1996, the Partnership recognized lease
revenue of $141,153 compared to $219,964 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 $8,344 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $12,555
compared to a net loss of $7,113 on equipment having a net book value of $44,613
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 FUND I-A,
a Massachusetts 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 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 and amortization expense for the three months ended March 31,
1996 was $88,138 compared to $154,735 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 $3,580 or 1.6% of lease revenue for the three months
ended March 31, 1995. Management fees were 6.3% of lease revenue for the three
months ended March 31, 1996 compared to 4.3% of lease revenue for the same
period in 1995. Management fees during the three months ended March 31, 1996
include $2,088 resulting from an underaccrual in 1995. Management fees are
based on 5% of gross lease revenue generated by operating leases and 2% of gross
lease revenue generated by full payout leases.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. The increase in operating expenses in the
three months ended March 31, 1996 compared to the same period in 1995 is due
primarily to heavy maintenance costs incurred or accrued in connection with
certain of the Partnerships Boeing 727 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. For the three
months ended March 31, 1996, operating activities generated net cash inflows of
$86,189 compared to $213,511 for the same period in 1995. Future renewal,
release and equipment sale activities will continue to cause a 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 continue to decline as the
Partnership experiences a higher frequency of remarketing events.
10
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
On November 30, 1995, upon the expiration of its lease term, Northwest
Airlines, Inc. (Northwest), returned a Boeing 727-251 Advanced aircraft (the
Aircraft) in which the Partnership has an 11.6% ownership interest. The
Partnerships interest in the Aircraft had a cost and net book value of
$1,080,617 and $200,058, respectively, at March 31, 1996. The Aircraft is
currently undergoing heavy maintenance expected to cost the Partnership
approximately $70,000. The Partnership entered into a new 28-month lease
agreement with Transmeridian Airlines to release the Aircraft at a base rent to
the Partnership of $8,294 per month, effective upon completion of the heavy
maintenance. A second aircraft, in which the Partnership has a 2.5% ownership
interest, will be returned by Northwest upon the expiration of its lease on
December 31, 1996. The Partnerships interest in the aircraft had a cost and net
book value of $269,947 and $52,953, respectively, at March 31, 1996.
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 $20,899 in equipment sale
proceeds compared to $37,500 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. The Partnerships notes payable were fully amortized
during the three months ended March 31, 1996.
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 $104,003. In accordance with the Amended
and Restated Agreement and Certificate of Limited Partnership, the Limited
Partners were allocated 95% of these distributions, or $98,803, and the General
Partner was allocated 5%, or $5,200. 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
11
AMERICAN INCOME FUND I-A,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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.
12
AMERICAN INCOME FUND I-A,
a Massachusetts 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
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 FUND I-A, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of
the Registrant.
By: /s/ Michael J. Butterfield
----------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 15, 1996
----------------------------------------------
By: /s/ Gary Romano
----------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1996
----------------------------------------------
14