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
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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 June 30, 1996 Commission File No. 0-17532
American Income Partners III-D Limited Partnership
- -------------------------------------------------------------------------------
(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
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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 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 III-D 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 $ 471,504 $ 450,165
Rents receivable, net of allowance for
doubtful accounts of $17,000 at
December 31, 1995 16,512 18,442
Accounts receivable - affiliate 47,406 37,479
Equipment at cost, net of accumulated
depreciation of $3,431,466 and $5,332,783
at June 30, 1996 and December 31, 1995,
respectively 1,044,527 1,439,393
---------- ----------
Total assets $1,579,949 $1,945,479
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ -- $ 51,649
Accrued interest -- 153
Accrued liabilities 11,750 20,000
Accrued liabilities - affiliate 4,002 24,668
Deferred rental income 10,429 6,944
Cash distributions payable to partners 98,470 98,470
---------- ----------
Total liabilities 124,651 201,884
---------- ----------
Partners' capital (deficit):
General Partners (99,241) (96,358)
Limited Partnership Interests
(519,926 Units; initial purchase
price of $25 each) 1,554,539 1,839,953
---------- ----------
Total partners' capital 1,455,298 1,743,595
---------- ----------
Total liabilities and partners' $1,579,949 $1,945,479
capital ========== ==========
The accompanying notes are an integral part
of these financial statements
3
AMERICAN INCOME PARTNERS III-D 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 $ 109,887 $159,253 $234,965 $310,159
Interest income 5,559 6,964 10,980 13,532
Gain on sale of equipment 92,479 -- 101,486 181,295
--------- -------- -------- --------
Total income 207,925 166,217 347,431 504,986
--------- -------- -------- --------
Expenses:
Depreciation 49,375 65,312 94,866 131,579
Write down of equipment 300,000 -- 300,000 --
Interest expense -- 2,587 577 5,820
Equipment management fees
- affiliate 5,494 7,963 11,748 15,508
Operating expenses - affiliate 15,677 21,492 31,597 43,375
--------- -------- -------- --------
Total expenses 370,546 97,354 438,788 196,282
--------- -------- -------- --------
Net income (loss) $(162,621) $ 68,863 $(91,357) $308,704
========= ======== ======== ========
Net income (loss) $ ( 0.31) $ 0.13 $ (0.17) $ 0.59
per limited partnership unit ========= ======== ======== ========
Cash distributions declared
per limited partnership unit $ 0.19 $ 0.31 $0.37 $ 0.62
========= ======== ======== ========
The accompanying notes are an integral part
of these financial statements
4
AMERICAN INCOME PARTNERS III-D 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: $ (91,357) $ 308,704
Net income (loss)
Adjustments to reconcile net income
to (loss) net cash from operating
activities:
Depreciation 94,866 131,579
Write-down of equipment 300,000 --
Gain on sale of equipment (101,486) (181,295)
Decrease in allowance for doubtful
accounts (17,000) --
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 18,930 75,163
accounts receivable - affiliate (9,927) 5,718
Increase (decrease) in:
accrued interest (153) (4,494)
accrued liabilities (8,250) (500)
accrued liabilities - affiliate (20,666) 274
deferred rental income 3,485 3,396
-------- ---------
Net cash from operating activities 168,442 338,545
-------- ---------
Cash flows from investing activities:
Proceeds from equipment sales 101,486 181,295
-------- ---------
Net cash from investing activities 101,486 181,295
-------- ---------
Cash flows used in financing activities:
Principal payments - notes payable (51,649) (144,930)
Distributions paid (196,940) (328,236)
-------- ---------
Net cash used in financing activities (248,589) (473,166)
-------- ---------
Net increase in cash and cash equivalents 21,339 46,674
Cash and cash equivalents at beginning
of period 450,165 477,199
-------- ---------
Cash and cash equivalents at end of
period $ 471,504 $ 523,873
======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 730 $ 10,314
======== =========
the accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME PARTNERS III-D 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 $465,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3 - REVENUE RECOGNITION
----------------------------
Rents are payable to the Partnership monthly or quarterly and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable.
Rents received prior to their due dates are deferred. Future minimum rents
of $549,062 are due as follows:
For the year ending June 30, 1997 $326,858
1998 141,655
1999 52,526
2000 24,020
2001 4,003
---------
Total $549,062
=========
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.
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AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------- ------------ ------------
Aircraft 36-60 $ 3,212,715
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
Retail store fixtures 1-36 76,571
Construction and mining 48-60 31,866
Photocopying 6-36 19,732
-----------
Total equipment cost 4,475,993
Accumulated depreciation (3,431,466)
-----------
Equipment, net of accumulated depreciation $ 1,044,527
===========
At June 30, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $3,703,268, representing
approximately 83% of total equipment cost.
At June 30, 1996, the Partnership was not holding any equipment not
subject to a lease.
During the quarter ended June 30, 1996, the Partnership recorded a write-
down, representing an impairment in value, pertaining to its interest in a
Lockheed L-1011 aircraft. This adjustment was precipitated by continuing
deterioration in the secondary market for wide-body aircraft of this type.
Several air carriers have reduced their commitment to the L-1011 and,
currently, a major domestic air carrier is expected to retire eleven L-1011
aircraft from its fleet. Further, it appears that future demand for this
type of aircraft will be weak, consisting principally of air cargo carriers
or operators of passenger charters. In consideration of such circumstances
and in accordance with Financial Accounting Standards Board Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, the Partnership reduced the carrying value of its
L-1011 aircraft interest to its estimated current fair market value. This
resulted in a write-down of $300,000, representing $0.57 per limited
partnership unit.
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:
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AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
1996 1995
-------- --------
Equipment management fees $11,748 $15,508
Administrative charges 8,952 8,952
Reimbursable operating expenses
due to third parties 22,645 34,423
------- -------
Total $43,345 $58,883
======= =======
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 $47,406 by AFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in July 1996.
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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 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 1988 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 $109,887 and $234,965, respectively, compared to
$159,253 and $310,159 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.
During the three months ended June 30, 1996, the Partnership sold
equipment which had been fully depreciated to existing lessees and third
parties. These sales resulted in a net gain, for financial statement
purposes, of $92,479. There were no equipment sales during the three months
ended June 30, 1995.
During the six months ended June 30, 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 $101,486 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
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AMERICAN INCOME PARTNERS III-D 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 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 and six months ended June 30, 1996 was
$49,375 and $94,866, respectively, compared to $65,312 and $131,579 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 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.
During the quarter ended June 30, 1996, the Partnership recorded a write-
down, representing an impairment in value, pertaining to its interest in a
Lockheed L-1011 aircraft. This adjustment was precipitated by continuing
deterioration in the secondary market for wide-body aircraft of this type.
Several air carriers have reduced their commitment to the L-1011 and,
currently, a major domestic air carrier is expected to retire eleven L-1011
aircraft from its fleet. Further, it appears that future demand for this
type of aircraft will be weak, consisting principally of air cargo carriers
or operators of passenger charters. In consideration of such circumstances
and in accordance with Financial Accounting Standards Board Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, the Partnership reduced the carrying value of its
L-1011 aircraft interest to its estimated current fair market value. This
resulted in a write-down of $300,000, representing $0.57 per limited
partnership unit.
Interest expense was $2,587 or 1.6% of lease revenue for the three months
ended June 30, 1995. No interest expense was incurred during the same period
in 1996. Interest expense was $577 or less than 1% of lease revenue for the
six months ended June 30, 1996 compared to $5,820, or 1.9% of lease revenue
for the same period in 1995. Interest expense is not expected to be incurred
in future periods due to the retirement of all outstanding debt obligations
during 1996.
Management fees were 5% of lease revenue in 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
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AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
storage or repairs and maintenance costs may be incurred in connection with
equipment being remarketed. Collectively, operating expenses represented
approximately 14.3% and 13.4% of lease revenue for the three and six month
periods ended June 30, 1996, respectively, compared to 13.5% and 14% 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 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
$168,442 and $338,545 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.
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 $101,486 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. At June 30, 1996, the Partnership had no
outstanding indebtedness.
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 month period ended June 30,
1996, the Partnership declared total cash distributions of Distributable Cash
From Operations and Distributable Cash From Sales and Refinancings of
$196,940. In accordance with the Amended and Restated Agreement and
Certificate of Limited Partnership, the Recognized Owners were allocated 99%
of these distributions, or $194,971, and the General Partners were allocated
11
AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
1%, or $1,969. 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.
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: August 13, 1996
-------------------------------------
By: /s/ Gary M. Romano
-------------------------------------
Gary M. Romano
Clerk of AFG Leasing Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 13, 1996
-------------------------------------
14