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
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----------------------
For Quarter Ended June 30, 1996 Commission File No. 0-15622
American Income 6 Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2928487
- ---------------------------------------- --------------------
(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 6 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 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION:
Items 1 - 6 11
2
AMERICAN INCOME 6 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 $ 254,421 $ 211,897
Rents receivable, net of allowance for
doubtful accounts of $21,000 at
December 31, 1995 -- 15,724
Accounts receivable - affiliate 165,284 198,811
Equipment at cost, net of accumulated
depreciation of $10,322,944 and $9,855,443 at
June 30, 1996 and December 31, 1995, respectively 1,854,098 2,321,599
---------- ----------
Total assets $2,273,803 $2,748,031
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ -- $ 66,261
Accrued interest -- 770
Accrued liabilities 11,750 20,000
Accrued liabilities - affiliate 5,912 3,115
Deferred rental income 114,598 248,585
Cash distributions payable to partners 38,206 152,827
---------- ---------
Total liabilities 170,466 491,558
---------- ----------
Partners' capital (deficit):
General Partner (111,602) (110,071)
Limited Partnership Interests
(60,519 Units; initial purchase price of $250 each) 2,214,939 2,366,544
---------- ----------
Total partners' capital 2,103,337 2,256,473
---------- ----------
Total liabilities and partners' capital $2,273,803 $2,748,031
========== ==========
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME 6 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 $211,628 $344,054 $442,111 $694,784
Interest income 2,384 4,832 6,554 10,289
Gain on sale of equipment -- 29,196 -- 29,196
-------- -------- -------- --------
Total income 214,012 378,082 448,665 734,269
-------- -------- -------- --------
Expenses:
Depreciation 233,750 244,428 467,501 488,858
Interest expense 85 8,954 590 18,817
Equipment management fees
- affiliate 10,582 17,203 22,106 34,739
Operating expenses - affiliate 19,057 17,120 35,192 39,517
-------- -------- -------- --------
Total expenses 263,474 287,705 525,389 581,931
-------- -------- -------- --------
Net income (loss) $(49,462) $ 90,377 $(76,724) $152,338
======== ======== ======== ========
Net income (loss)
per limited partnership unit $ (0.81) $ 1.48 $ (1.26) $ 2.49
======== ======== ======== ========
Cash distributions declared
per limited partnership unit $ 0.62 $ 4.37 $ 1.25 $ 8.75
======== ======== ======== ========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME 6 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 (loss) $ (76,724) $ 152,338
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation 467,501 488,858
Gain on sale of equipment -- (29,196)
Decrease in allowance for doubtful accounts (21,000) --
Changes in assets and liabilities
Decrease in:
rents receivable 36,724 79
accounts receivable - affiliate 33,527 2,576
Increase (decrease) in:
accrued interest (770) (760)
accrued liabilities (8,250) (500)
accrued liabilities - affiliate 2,797 (4,835)
deferred rental income (133,987) --
--------- --------
Net cash from operating activities 299,818 608,560
--------- --------
Cash flows from investing activities:
Proceeds from equipment sales -- 29,196
--------- --------
Net cash from investing activities -- 29,196
--------- --------
Cash flows used in financing activities:
Principal payments - notes payable (66,261) (226,918)
Distributions paid (191,033) (534,890)
--------- --------
Net cash used in financing activities (257,294) (761,808)
--------- --------
Net increase (decrease) in cash and cash equivalents 42,524 (124,052)
Cash and cash equivalents at beginning of period 211,897 476,848
--------- ---------
Cash and cash equivalents at end of period $ 254,421 $ 352,796
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 1,360 $ 19,577
========= =========
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME 6 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 $250,000 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 $3,112,620 are due as follows:
For the year ending June 30, 1997 $ 756,655
1998 756,655
1999 756,655
2000 756,655
2001 86,000
----------
Total $3,112,620
==========
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 6 LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Lease Term Equipment
Equipment Type (Months) at Cost
----------------- ---------- ----------
Aircraft 36-60 $ 7,147,830
Flight simulators 108 4,923,250
Materials handling 12-60 61,629
Tractors & heavy duty trucks 24-60 44,333
------------
Total equipment cost 12,177,042
Accumulated depreciation (10,322,944)
------------
Equipment, net of accumulated depreciation $ 1,854,098
============
At June 30, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $12,071,080 representing approximately
99% of total equipment cost.
At June 30, 1996, the Partnership was not holding any equipment not
subject to a lease.
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 $22,106 $34,739
Administrative charges 6,690 6,690
Reimbursable operating expenses
due to third parties 28,502 32,827
------- -------
Total $57,298 $74,256
======= =======
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 $165,284 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 6 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 1986 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 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 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 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 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 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 $211,628 and $442,111, respectively, compared to
$344,054 and $694,784 for the same periods in 1995. The decrease in lease
revenue between 1995 and 1996 was expected and resulted principally from
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 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 and six months ended June 30, 1995, 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 $29,196. There were no equipment sales during the same periods
in 1996.
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,
8
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
$233,750 and $467,501, respectively, compared to $244,428 and $488,858 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.
Interest expense was $85 and $590 or less than 1% of lease revenue for
both the three and six months ended June 30, 1996, respectively, compared to
$8,954 and $18,817 or 2.6% and 2.7% of lease revenue for the same periods in
1995. Interest expense is not expected to be incurred in future periods.
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 9%
and 8% of lease revenue for the three and six months ended June 30, 1996,
respectively, compared to 5% and 5.7% 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
$299,818 and $608,560 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.
9
The Partnership's lease agreement in connection with its 21.7% ownership
interest in a SAAB SF340A aircraft expired in June 1996. The Partnership's
proportionate interest in the aircraft had a cost and net book value of
$1,703,602 and $257,304, respectively, at June 30, 1996. The lessee has
agreed to release the aircraft on a month to month basis at a base rent to
the Partnership of $8,147. This agreement may be terminated by either party
with sixty days notice. The General Partner is actively pursuing the
remarketing of this aircraft.
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, 1995, the Partnership realized $29,196 in equipment
sale proceeds. There were no equipment sales during the same period in 1996.
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. All of the Partnership's outstanding debt
obligations were retired in 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 six months ended June 30, 1996, the
Partnership declared total cash distributions of Distributable Cash From
Operations of $76,412. In accordance with the Amended and Restated Agreement
and Certificate of Limited Partnership, the Limited Partners were allocated
99% of these distributions, or $75,648, and the General Partner was allocated
1%, or $764. The second quarter 1996 cash distribution was paid on July 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 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.
10
AMERICAN INCOME 6 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
11
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 6 LIMITED PARTNERSHIP
By: AFG Leasing Associates II, a Massachusetts
general partnership and the General Partner of
the Registrant.
By: AFG Leasing Incorporated, a Massachusetts
corporation and General Partner in such general
partnership.
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
-------------------------------------------------
12