United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1996
or
For the Transition period from ______ to ______
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 01-13532
EQUIPMENT ASSET RECOVERY FUND L.P.
Exact Name of Registrant as Specified in its Charter
TEXAS 11-2661586
State or Other Jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3237
Registrant's Telephone Number, Including Area Code
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 ____
Consolidated Balance Sheets At September 30, At December 31,
1996 1995
Assets
Equipment, at cost:
Construction cranes $ 12,613,785 $ 16,307,334
Vehicles and equipment 128,761 128,761
12,742,546 16,436,095
Less: accumulated depreciation (8,587,362) (9,781,264)
4,155,184 6,654,831
Cash and cash equivalents 3,262,137 1,118,831
Accounts receivable, net of
allowance for doubtful accounts
of $10,000 in 1996 and 1995 268,970 272,837
Other receivable - sales of cranes 716,625 --
Organization and loan closing costs,
net of accumulated amortization
of $563,753 in 1996 and $242,372
in 1995 507 321,888
Other assets 151,514 53,124
Total Assets $ 8,554,937 $ 8,421,511
Liabilities and Partners'
Capital (Deficit)
Liabilities:
Accounts payable and
accrued expenses $ 253,234 $ 434,799
Deferred management fee 2,023,485 1,889,818
Loans payable 98,993 4,452,545
Due to affiliates 219,621 175,331
Deferred income taxes 786,407 619,320
Total liabilities 3,381,740 7,571,813
Minority interest 964,566 1,265,001
Partners' Capital (Deficit):
General Partners 168,345 (415,303)
Limited Partners 3,998,199 --
Special Limited Partner 42,087 --
Total Partners' Capital
(Deficit) 4,208,631 (415,303)
Total Liabilities and
Partners' Capital
(Deficit) $ 8,554,937 $ 8,421,511
Consolidated Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1996
Special
General Limited Limited
Partners Partners Partner Total
Balance at December 31, 1995 $ (415,303) $ -- $ -- $ (415,303)
Net Income 583,648 3,998,199 42,087 4,623,934
Balance at September 30, 1996 $ 168,345 $ 3,998,199 $ 42,087 $ 4,208,631
Consolidated Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
Income
Rental revenues $ 1,088,745 $ 1,094,520 $ 3,545,509 $ 3,345,526
Interest income 36,148 14,872 65,920 44,750
Other income 5,000 6,360 15,120 20,494
Total income 1,129,893 1,115,752 3,626,549 3,410,770
Expenses
Rental expenses 265,009 470,339 880,019 1,060,690
General, selling, and
administrative 656,952 432,128 1,500,724 1,395,241
Depreciation and
amortization 509,482 304,790 1,074,056 931,893
Interest expense 15,444 160,750 175,996 428,388
Management fee 85,691 56,869 376,965 172,584
Total expenses 1,532,578 1,424,876 4,007,760 3,988,796
Loss from operations (402,685) (309,124) (381,211) (578,026)
Other Income
Gain on sales of cranes 1,033,970 -- 4,741,653 761,044
Gain on extinguishment
of debt 130,144 -- 130,144 --
Total other income 1,164,114 -- 4,871,797 761,044
Net Income (Loss)
before Minority Interest
and Provision for
Income Taxes 761,429 (309,124) 4,490,586 183,018
Minority Interest 319,746 50,895 300,435 102,027
Income (Loss) before
Provision for
Income Taxes 1,081,175 (258,229) 4,791,021 285,045
Provision for Income
Taxes, Deferred (181,330) 11,100 167,087 102,200
Net Income (Loss) $ 1,262,505 $ (269,329) $ 4,623,934 $ 182,845
Net Income (Loss)
Allocated:
To the General
Partners $ 50,501 $ (269,329) $ 583,648 $ (52,669)
To the Limited
Partners 1,199,379 -- 3,998,199 233,060
To the Special
Limited Partner 12,625 -- 42,087 2,454
$ 1,262,505 $ (269,329) $ 4,623,934 $ 182,845
Per limited
partnership unit
(32,722 outstanding) $ 36.66 $ 0.00 $ 122.19 $ 7.12
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1996 1995
Cash Flows From Operating Activities
Net income $ 4,623,934 $ 182,845
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sales of cranes (4,741,653) (761,044)
Gain on extinguishment of debt (130,144) --
Minority interest (300,435) (102,027)
Depreciation and amortization 1,074,056 931,893
Increase (decrease) in cash arising
from changes in operating
assets and liabilities:
Accounts receivable, net 3,867 (125,916)
Other assets (98,390) 94,834
Accounts payable and accrued expenses (181,565) 103,587
Deferred management fee 133,667 127,584
Accrued interest -- (16,216)
Due to affiliates 44,290 (9,000)
Deferred income taxes 167,087 102,200
Net cash provided by operating activities 594,714 528,740
Cash Flows From Investing Activities
Proceeds from sales of cranes 5,772,000 1,312,677
Net cash provided by investing activities 5,772,000 1,312,677
Cash Flows From Financing Activities
Proceeds from long-term debt 249,247 100,000
Principal payments on long-term debt (4,472,655) (2,046,550)
Net cash used for financing activities (4,223,408) (1,946,550)
Net increase (decrease) in cash and
cash equivalents 2,143,306 (105,133)
Cash and cash equivalents, beginning of period 1,118,831 1,215,735
Cash and cash equivalents, end of period $ 3,262,137 $ 1,110,602
Supplemental Disclosure of Cash
Flow Information
Cash paid during the period for interest $ 175,996 $ 444,604
Notes to the Consolidated Financial Statements
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's 1995 annual audited financial statements
within Form 10-K.
The unaudited consolidated financial statements include all adjustments which
are, in the opinion of management, necessary to present a fair statement of
financial position as of September 30, 1996 and the results of operations for
the three and nine months ended September 30, 1996 and 1995, statement of cash
flows for the nine months ended September 30, 1996 and 1995 and the statement
of partners' capital (deficit) for the nine months ended September 30, 1996.
Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
Certain amounts in the prior year's consolidated financial statements have been
reclassified to conform with the current year's presentation.
The following significant events have occurred subsequent to fiscal year 1995
which would require disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5).
Sales of Cranes
During the nine months ended September 30, 1996, the Partnership sold twelve
DSC Venture cranes, one DSC Venture Ringer and one SFN Corporation Ringer, the
proceeds of which were used to reduce the Partnership's debt.
Date Net1 Net Gain
of Selling Book on
Crane Sale Price Value Sale
Manitowoc 3900 January, 1996 $ 277,875 $ 101,912 $ 175,963
Manitowoc 3900 March, 1996 292,500 108,031 184,469
Manitowoc 4100W-S2 April, 1996 658,125 208,540 449,585
Manitowoc 4000W April, 1996 385,125 77,571 307,554
Manitowoc 4100W June, 1996 585,000 138,967 446,033
Manitowoc 4100W-S2 June, 1996 633,750 97,101 536,649
Manitowoc 4100W-S2 June, 1996 633,750 119,112 514,638
Manitowoc 4100W-S2 June, 1996 633,750 145,331 488,419
Manitowoc 4100W-S2 June, 1996 633,750 177,176 456,574
Manitowoc Ringer June, 1996 253,500 105,701 147,799
Manitowoc 4000W July, 1996 394,875 147,480 247,395
Manitowoc 4000W September, 1996 399,750 142,927 256,823
Manitowoc 4000W September, 1996 390,000 91,030 298,970
Manitowoc Ringer September, 1996 316,875 86,093 230,782
$ 6,488,625 $ 1,746,972 $ 4,741,653
1 The proceeds are net of 2.5% sales commission paid to Dayton- Scott
Equipment Company.
Part 1, Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At September 30, 1996, the Partnership and its consolidated venture and
subsidiary's cash and cash equivalents balance totaled $3,262,137 compared to
$1,118,831 at December 31, 1995. The increase is primarily due to cash provided
by operating activities and the receipt of proceeds from the sales of equipment
during 1996 exceeding principal payments on long-term debt. The General
Partners believe that the Partnership has adequate cash reserves at DSC, the
Partnership's 99% subsidiary, and at Partnership levels to support operations.
At September 30, 1996, construction cranes at cost totaled $12,613,785 as
compared to $16,307,334 at December 31, 1995. The decrease is due to the sales
of twelve DSC cranes and two Ringers during the first nine months of 1996. The
net selling price of the equipment sold during the first nine months of 1996
totaled $6,488,625, resulting in a gain of $4,741,653. A portion of the
proceeds from the sales were used to retire the Partnership's debt associated
with the construction cranes and related equipment. As a result, loans payable
decreased from $4,452,545 at December 31, 1995 to $98,993 at September 30,
1996. The remaining loans payable balance primarily represents financing
associated with insurance premiums.
Other receivable increased from $0 at December 31, 1995 to $716,625 at
September 30, 1996 due to the timing of the collection of proceeds from the
sale of two cranes.
Organization and loan closing costs decreased from $321,888 at December 31,
1995 to $507 at September 30, 1996 due to the write- off of loan closing costs
upon retirement of the construction equipment debt. Other assets increased
from $53,124 at December 31, 1995 to $151,514 at September 30, 1996 due to an
increase in prepaid insurance during the first quarter of 1996.
Accounts payable and accrued expenses decreased from $434,799 at December 31,
1995 to $253,234 at September 30, 1996, primarily due to timing differences in
the payment of operating expenses. Deferred income taxes increased from
$619,320 at December 31, 1995 to $786,407 at September 30, 1996 as a result of
deferred taxes provided on 1996 SFN income.
Results of Operations
For the three and nine months ended September 30, 1996, the Partnership
generated net income of $1,262,505 and $4,623,934, respectively, compared to a
net loss of $269,329 and net income of $182,845 for the same periods during
1995. The change from net loss to net income for the three-month period and
the increase in net income for the nine-month period are primarily due to a
higher gain on the sale of equipment as well as a decreases in rental expenses
and interest expense. The Partnership sold twelve cranes and two Ringers
during the first nine months of 1996 compared to two cranes during the same
period in 1995.
Rental revenues for the three and nine months ended September 30, 1996 totaled
$1,088,745 and $3,545,509, respectively, compared to $1,094,520 and $3,345,526
for the corresponding periods in 1995. The increase for the nine-month period
reflects an increase in utilization and average rental rates. Dayton-Scott
Equipment Company, the fleet's operational manager, expects rental revenues
associated with the remaining equipment to remain relatively steady through the
remainder of 1996 as a result of stable utilization and rental rates. There
can be no assurance, however, that either utilization rates or rental rates
will remain steady.
Interest income for the three and nine months ended September 30, 1996 totaled
$36,148 and $65,920, respectively, compared to $14,872 and $44,750 for the same
periods in 1995. The increase reflects higher average cash balances maintained
by the Partnership.
Gain on extinguishment of debt increased to $130,144 for the three and nine
months ended September 30, 1996, from $0 for the same periods in 1995. SFN had
executed a participation note (the "Participation Note") with The CIT
Group/Equipment Financing, Inc. ("CIT"). Pursuant to this note, CIT was
entitled to receive the greater of the accreted value of the note or 25% of the
net proceeds from the sale of the cranes plus 25% of the fair market value of
the cranes owned by SFN on November 30, 2000. At April 30, 1992, the
Participation Loan was recorded at 25% of the fair market value of the cranes
or $700,000. The Participation Note was prepaid in the quarter ended September
30, 1996 resulting in a gain on the extinguishment of the debt in the amount of
$105,144. SFN also executed a subordinated promissory note to Security Pacific
Business Credit, Inc. ("SPBC") in the amount of $1,000,000. The Note due to
SPBC was also prepaid in the quarter ended September 30, 1996 resulting in a
gain on the extinguishment of the debt in the amount of $25,000.
Rental expenses for the three and nine months ended September 30, 1996 totaled
$265,009 and $880,019, respectively, compared to $470,339 and $1,060,690 during
the same periods in 1995. The decrease reflects a decrease in the size of the
crane fleet resulting from the sale of twelve cranes and two Ringers in 1996.
For the three and nine months ended September 30, 1996, general, selling and
administrative expenses totaled $656,952 and $1,500,724, respectively, compared
to $432,128 and $1,395,241 for the same periods in 1995. The increases are
mainly due to higher SFN consulting and administration fees during the third
quarter of 1996 compared to the same period in 1995.
Depreciation and amortization for the three and nine months ended September 30,
1996 totaled $509,482 and $1,074,056, respectively, compared to $304,790 and
$931,893 for the same periods in 1995. The increase is primarily due to the
write-off of costs associated with the Term Loan, the Revolving Loan, the
Participation Note and the subordinated promissory note to SPBC, all of which
were paid in full as of September 30, 1996. Please refer to the Note 7 of the
Notes to the Consolidated Financial Statements contained within the
Partnership's 1995 Form 10-K for a detailed discussion regarding Partnership
loans.
Interest expense for three and nine months ended September 30, 1996 totaled
$15,444 and $175,996, respectively, compared to $160,750 and $428,388 for the
same periods in 1995. The decreases are due to interest being calculated on a
lower outstanding principal balance on the Partnership's debt resulting from
principal repayments made during 1995 and the first nine months of 1996.
Management fee for the three and nine months ended September 30, 1996 totaled
$85,691 and $376,965 respectively, compared to $56,869 and $172,584 for the
corresponding periods in 1995. The increases are the result of an increase in
DSC Venture's gross revenues and an accrual for fees due to the General
Partners resulting from the sale of DSC's equipment.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended September 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EQUIPMENT ASSET RECOVERY FUND, L.P.
BY: EQUIPMENT MANAGEMENT INC.
General Partner
Date: November 14, 1996 BY: /s/ Moshe Braver
President, Director and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sept-30-1996
<CASH> 3,262,137
<SECURITIES> 0
<RECEIVABLES> 995,595
<ALLOWANCES> (10,000)
<INVENTORY> 0
<CURRENT-ASSETS> 4,399,753
<PP&E> 12,742,546
<DEPRECIATION> (8,587,362)
<TOTAL-ASSETS> 8,554,937
<CURRENT-LIABILITIES> 3,381,740
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,208,631
<TOTAL-LIABILITY-AND-EQUITY> 8,554,937
<SALES> 3,545,509
<TOTAL-REVENUES> 3,626,549
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,831,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175,996
<INCOME-PRETAX> 4,791,021
<INCOME-TAX> 167,087
<INCOME-CONTINUING> 4,623,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,623,934
<EPS-PRIMARY> 122.19
<EPS-DILUTED> 0
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