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 JUNE 30, 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 June 30, 1996 Commission File No. 0-18394 American Income Partners IV-C Limited Partnership - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3036127 - ---------------------------------------- ------------------------------- (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 June 30, 1996 and December 31, 1995 3 Statement of Operations for the three and six months ended June 30, 1996 and 1995 4 Statement of Cash Flows for the six months ended June 30, 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 June 30, 1996 and December 31, 1995 (Unaudited) June 30, December 31, 1996 1995 ----------- ------------ ASSETS - ------ Cash and cash equivalents $1,855,663 $2,063,872 Rents receivable, net of allowance for doubtful accounts of $10,000 and $35,000 at June 30, 1996 and December 31, 1995, respectively 315,082 272,111 Accounts receivable - affiliate 58,964 377,124 Equipment at cost, net of accumulated depreciation o $13,202,563 and $14,056,730 at June 30,1996 and December 31, 1995 respectively 6,092,941 6,409,784 ---------- ---------- Total assets $8,322,650 $9,122,891 ========== ========== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- Notes payable $ 332,250 $ 387,188 Accrued interest 5,588 2,204 Accrued liabilities 12,500 20,000 Accrued liabilities - affiliate 10,396 18,360 Deferred rental income 4,833 11,471 Cash distributions payable to partners 802,160 802,160 ---------- ---------- Total liabilities 1,167,727 1,241,383 ---------- ---------- Partners' capital (deficit): General Partners (207,745) (200,479) Limited Partnership Interests (1,270,622 Units; initial purchase price of $25 each) 7,362,668 8,081,987 ---------- ---------- Total partners' capital 7,154,923 7,881,508 ---------- ---------- Total liabilities and partners' capital $8,322,650 $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 and six months ended June 30, 1996 and 1995 (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 -------------- -------------- ----------- ----------- Income: Lease revenue $517,109 $795,555 $1,083,950 $1,539,753 Interest income 26,956 34,332 53,197 63,293 Gain on sale of equipment 105,370 148,834 149,330 371,326 -------- -------- ---------- ---------- Total income 649,435 978,721 1,286,477 1,974,372 -------- -------- ---------- ---------- Expenses: Depreciation 138,311 227,022 304,062 486,626 Interest expense 5,157 12,122 12,000 25,233 Equipment management fees - affiliate 25,856 39,778 54,198 76,988 Operating expenses - affiliate 19,837 28,721 38,482 63,678 -------- -------- ---------- ---------- Total expenses 189,161 307,643 408,742 652,525 -------- -------- ---------- ---------- Net income $460,274 $671,078 $ 877,735 $1,321,847 ======== ======== ========== ========== Net income per limited partnership unit $ 0.36 $ 0.52 $ 0.68 $ 1.03 ======== ======== ========== ========== Cash distributions declared per limited partnership unit $ 0.62 $ 0.62 $ 1.25 $ 1.25 ======== ======== ========== ========== 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 six months ended June 30, 1996 and 1995 (Unaudited) 1996 1995 ------------ ------------ Cash flows from (used in) operating activities: Net income $ 877,735 $ 1,321,847 Adjustments to reconcile net income to net cash from operating activities: Depreciation 304,062 486,626 Gain on sale of equipment (149,330) (371,326) Decrease in allowance for doubtful accounts (25,000) -- Changes in assets and liabilities Decrease (increase) in: rents receivable (17,971) 129,985 accounts receivable - affiliate 318,160 21,378 Increase (decrease) in: accrued interest 3,384 (8,072) accrued liabilities (7,500) 4,325 accrued liabilities - affiliate (7,964) (5,030) deferred rental income (6,638) (3,150) ----------- ----------- Net cash from operating activities 1,288,938 1,576,583 Cash flows from investing activities: Proceeds from equipment sales 162,111 477,875 ----------- ----------- Net cash from investing activities 162,111 477,875 ---------- ----------- Cash flows used in financing activities: Principal payments - notes payable (54,938) (294,981) Distributions paid (1,604,320) (1,604,320) ---------- ---------- Net cash used in financing activities (1,659,258) (1,899,301) ---------- ---------- Net increase (decrease) in cash and cash equivalents (208,209) 155,157 Cash and cash equivalents at beginning of period 2,063,872 2,231,880 --------- --------- Cash and cash equivalents at end of period $ 1,855,663 $ 2,387,037 =========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 8,616 $ 33,305 ========== ========== The accompanying notes are an integral part of these financial statements. 5 AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP Notes to the Financial Statements June 30, 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 June 30, 1996 and December 31, 1995 and results of operations for the three and six month periods ended June 30, 1996 and 1995 have been made and are reflected. NOTE 2 - CASH ------------- At June 30, 1996, the Partnership had $1,845,000 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 $4,810,145 are due as follows: For the year ending June 30, 1997 $1,972,174 1998 1,483,913 1999 1,308,770 2000 45,288 ---------- Total $4,810,145 ========== NOTE 4 - EQUIPMENT ------------------ The following is a summary of equipment owned by the Partnership at June 30, 1996. In the opinion of American Finance Group ("AFG"), the acquisition cost of the equipment did not exceed its fair market value. 6 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 17-96 2,125,632 Manufacturing 36-60 1,494,518 Retail store fixtures 12-60 912,789 Materials handling 3-60 589,192 Tractors and heavy duty trucks 1-72 530,957 Research and test 1-24 414,282 Communications 31-60 97,130 Photocopying 12-60 64,361 Computers and peripherals 36-60 7,156 Medical 54-60 544 ----------- Total equipment cost 19,295,504 Accumulated depreciation (13,202,563) ----------- Equipment, net of accumulated depreciation $ 6,092,941 =========== At June 30, 1996, the Partnership's equipment portfolio included equipment having a proportionate original cost of $13,166,764, representing approximately 68% of total equipment cost. The summary above includes equipment with a cost and net book value of approximately $1,073,000 and $1,000, respectively, which was not subject to an active lease agreement. 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 six month periods ended June 30, 1996 and 1995, which were paid or accrued by the Partnership to AFG or its Affiliates, are as follows: 1996 1995 -------- --------- Equipment management fees $54,198 $ 76,988 Administrative charges 10,500 10,500 Reimbursable operating expenses due to third parties 27,982 53,178 ------- -------- Total $92,680 $140,666 ======= ======== 7 AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) 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 June 30, 1996, the Partnership was owed $58,964 by AFG for such funds and the interest thereon. These funds were remitted to the Partnership in July 1996. NOTE 6 - NOTES PAYABLE ---------------------- Notes payable at June 30, 1996 consisted of two installment notes totaling $332,250 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 June 30, 1996 the applicable LIBOR rates were approximately 7.02%. 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 June 30, 1996. The annual maturities of the installment notes payable are as follows: For the year ending June 30, 1997 $194,250 1998 138,000 --------- Total $332,250 ========= 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 and six months ended June 30, 1996 compared to the three and six months - ----------------------------------------------------------------------------- ended June 30, 1995: - -------------------- Overview - -------- The Partnership was organized in 1989 as a direct-participation equipment leasing program to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. The Partnership's stated investment objectives and policies contemplated that the Partnership would wind-up its operations within approximately seven years of its inception. Accordingly, the Managing General Partner is pursuing the remarketing of all of the Partnership's remaining equipment and has engaged an investment adviser to solicit interested third-party buyers. This effort is being undertaken in conjunction with certain other affiliated partnerships and, if successful, would result in the sale of each affected partnership's assets to a selected buyer. The Managing General Partner believes this approach will (i) maximize the disposition prices of each partnership's assets and (ii) prevent the incidence of future expenses to operate a publicly-registered limited partnership with a declining asset base. The Managing General Partner is evaluating expressions of interest submitted by the investment adviser from a number of potential buyers, but is under no obligation to accept any proposal. If successful, the Managing General Partner anticipates that it would wind-up the operations of the Partnership and make a liquidating distribution to the Partners, net of any cash reserves which the Managing General Partner may consider appropriate, on or before December 31, 1996. Results of Operations - --------------------- For the three and six months ended June 30, 1996, the Partnership recognized lease revenue of $517,109 and $1,083,950, respectively, compared to $795,555 and $1,539,753 for the same periods 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 June 30, 1996, the Partnership sold equipment having a net book value of $10,228 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $105,370 compared to a net gain in 1995 of $148,834 on equipment having a net book value of $95,730. For the six months ended June 30, 1996, the Partnership sold equipment having a net book value of $12,781 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $149,330 compared to a net gain in 1995 of $371,326 on equipment having a net book value of $106,549. 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 9 AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION 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. 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 and six months ended June 30, 1996 was $138,311 and $304,062, respectively, compared to $227,022 and $486,626 for the same periods 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 $5,157 and $12,000 or 1% and 1.1% of lease revenue for the three and six months ended June 30, 1996, respectively, compared to $12,122 and $25,233 or 1.5% and 1.6% of lease revenue for the same periods 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 June 30, 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 3.8% and 3.6% of lease revenue for the three and six months ended June 30, 1996, respectively, compared to 3.6% and 4.1% of lease revenue for the same periods 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 10 AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION 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 $1,288,938 and $1,576,583 for the six months ended June 30, 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. 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 six months ended June 30, 1996, the Partnership realized $162,111 in equipment sale proceeds compared to $477,875 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 six months ended June 30, 1996, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $1,604,320. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Recognized Owners were allocated 99% of these distributions, or $1,588,277, and the General Partners were allocated 1%, or $16,043. The second quarter 1996 cash distribution was paid on July 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 contracted rents, the generation of renewal and/or re-lease rents, and the residual value realized for each asset at its disposal date. 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. 11 AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION 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. 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 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 IV-C LIMITED PARTNERSHIP By: AFG Leasing IV Incorporated, a Massachusetts corporation and the Managing General Partner of the Registrant. By: /s/ Michael J. Butterfield --------------------------- Michael J. Butterfield Treasurer of AFG Leasing IV Incorporated (Duly Authorized Officer and Principal Accounting Officer) Date: August 13, 1996 --------------- By: /s/ Gary M. Romano ------------------- Gary M. Romano Clerk of AFG Leasing IV Incorporated (Duly Authorized Officer and Principal Financial Officer) Date: August 13, 1996 --------------- 14