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. 0-17532
American Income Partners III-D Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-6579994
- ----------------------------------------- -----------------------
(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____
2
AMERICAN INCOME PARTNERS III-D 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
3
AMERICAN INCOME PARTNERS III-D 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 $ 409,072 $ 450,165
Rents receivable, net of allowance for doubtful
accounts of $17,000 17,958 18,442
Accounts receivable - affiliate 39,874 37,479
Equipment at cost, net of accumulated depreciation of
$4,952,877 and $5,332,783 at March 31, 1996
and December 31, 1995, respectively 1,393,902 1,439,393
------------ ------------
Total assets $ 1,860,806 $ 1,945,479
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 13,027 $ 51,649
Accrued interest 38 153
Accrued liabilities 19,750 20,000
Accrued liabilities - affiliate 12,932 24,668
Deferred rental income 200 6,944
Cash distributions payable to partners 98,470 98,470
------------ ------------
Total liabilities 144,417 201,884
------------ ------------
Partners' capital (deficit):
General Partners (96,630) (96,358)
Limited Partnership Interests
(519,926 Units; initial purchase price of $25 each) 1,813,019 1,839,953
------------ ------------
Total partners' capital 1,716,389 1,743,595
------------ ------------
Total liabilities and partners' capital $ 1,860,806 $ 1,945,479
============ ============
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
---------- ----------
Income:
Lease revenue $ 125,078 $ 150,906
Interest income 5,421 6,568
Gain on sale of equipment 9,007 181,295
---------- ----------
Total income 139,506 338,769
---------- ----------
Expenses:
Depreciation 45,491 66,267
Interest expense 577 3,233
Equipment management fees - affiliate 6,254 7,545
Operating expenses - affiliate 15,920 21,883
---------- ----------
Total expenses 68,242 98,928
---------- ----------
Net income $ 71,264 $ 239,841
========== ==========
Net income
per limited partnership unit $ 0.14 $ 0.46
========== ==========
Cash distribution declared
per limited partnership unit $ 0.19 $ 0.31
========== ==========
5
AMERICAN INCOME PARTNERS III-D 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 $ 71,264 $ 239,841
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 45,491 66,267
Gain on sale of equipment (9,007) (181,295)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 484 59,394
accounts receivable - affiliate (2,395) 5,678
Increase (decrease) in:
accrued interest (115) (3,342)
accrued liabilities (250) (5,500)
accrued liabilities - affiliate (11,736) 1,511
deferred rental income (6,744) (1,414)
--------- ----------
Net cash from operating activities 86,992 181,140
--------- ----------
Cash flows from investing activities:
Proceeds from equipment sales 9,007 181,295
--------- ----------
Net cash from investing activities 9,007 181,295
--------- ----------
Cash flows used in financing activities:
Principal payments - notes payable (38,622) (96,250)
Distributions paid (98,470) (164,118)
--------- ----------
Net cash used in financing activities (137,092) (260,368)
--------- ---------
Net increase (decrease) in cash and cash equivalents (41,093) 102,067
Cash and cash equivalents at beginning of period 450,165 477,199
--------- ---------
Cash and cash equivalents at end of period $ 409,072 $ 579,266
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 692 $ 6,575
========= =========
The accompanying notes are an integral part
of these financial statements.
6
AMERICAN INCOME PARTNERS III-D 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 $405,000 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
$595,475 are due as follows:
For the year ending March 31, 1997 $ 300,070
1998 194,598
1999 66,779
2000 24,020
2001 10,008
----------
Total $ 595,475
==========
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AMERICAN INCOME PARTNERS III-D 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 $ 3,212,715
Retail store fixtures 1-36 1,947,213
Manufacturing 60 414,060
Materials handling 4-60 395,697
Computers and peripherals 1-53 209,566
Tractors and heavy duty trucks 24-60 115,786
Construction and mining 48-60 32,010
Photocopying 6-36 19,732
-----------
Total equipment cost 6,346,779
Accumulated depreciation (4,952,877)
-----------
Equipment, net of accumulated depreciation $ 1,393,902
===========
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $4,065,790 representing approximately
64% of total equipment cost.
At March 31, 1996, the Partnership was not holding any equipment not
subject to a lease and no equipment was held for sale or re-lease.
Effective January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of, which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Adoption of this statement did not have a material impact 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:
8
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
1996 1995
-------- --------
Equipment management fees $ 6,254 $ 7,545
Administrative charges 4,476 3,000
Reimbursable operating expenses
due to third parties 11,444 18,883
-------- --------
Total $ 22,174 $ 29,428
======== ========
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at March 31, 1996 consisted of installment notes of $13,027
payable to a bank. All of the installment notes are non-recourse, with an
interest rate of 7.13% and are collateralized by the equipment and assignment of
the related lease payments. The installment notes will be fully amortized by
noncancellable rents in the year ending March 31, 1997. The carrying amount of
notes payable approximates fair value at March 31, 1996.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
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.
9
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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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 $125,078 compared to $150,906 for the same period in 1995. The decrease
in lease revenue from 1995 to 1996 was expected and resulted principally from
primary lease term expirations and the sale of equipment. The Partnership also
earns interest income from temporary investments of rental receipts and
equipment sales proceeds in short-term instruments
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by AFG or an affiliated equipment leasing program
sponsored by AFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
During the three months ended March 31, 1996 and 1995, the Partnership sold
equipment which had been fully depreciated to existing lessees and third
parties. These sales resulted in net gains, for financial statement purposes,
of $9,007 and $181,295, respectively.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG 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.
10
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership
classifies such residual rental payments as lease revenue. Consequently, the
amount of gain or loss reported in the financial statements is not necessarily
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation expense for the three months ended March 31, 1996 was $45,491
compared to $66,267 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 $577, or less than 1% of lease revenue for the three
months ended March 31, 1996 compared to $3,233, or 2.1% of lease revenue for the
same period in 1995. In the future, interest expense will be minimal due to the
scheduled maturity of the Partnership's debt obligations during the year ending
March 31, 1997.
Management fees were 5% of lease revenue in each of the periods ended March
31, 1996 and 1995 and will not change as a percentage of lease revenue in future
periods.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented 12.7% of lease revenue
for the three month period ended March 31, 1996 compared to 14.5% 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 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 $86,992 and $181,140 in 1996 and 1995,
respectively. Future renewal, re-lease and equipment sale activities will cause
a gradual decline in the Partnership's lease revenue and corresponding sources
of operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will decline as the
Partnership experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
11
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 $9,007 in equipment sale proceeds
compared to $181,295 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 Partnership's notes payable will be fully
amortized by noncancellable rents during the year ending March 31, 1997.
Cash distributions to the General Partners and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the three month period ended March 31, 1996, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $98,470. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 99% of these distributions, or
$97,485, and the General Partners were allocated 1%, or $985. The first quarter
1996 cash distribution was paid on April 15, 1996.
Cash distributions paid to the Recognized Owners consist of both a return
of and a return on capital. To the extent that cash distributions consist of
Cash From Sales or Refinancings, substantially all of such cash distributions
should be viewed as a return of capital. Cash distributions do not represent and
are not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of AFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The Managing General Partner anticipates that
cash proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities. Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
12
AMERICAN INCOME PARTNERS III-D 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 PARTNERS III-D LIMITED PARTNERSHIP
By: AFG Leasing Incorporated, a Massachusetts
corporation and the Managing General Partner of
the Registrant.
By: /s/ Michael J. Butterfield
-----------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 15, 1996
-----------------------------------------------
By: /s/ Gary Romano
-----------------------------------------------
Gary M. Romano
Clerk of AFG Leasing Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1996
-----------------------------------------------
14