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 [FEE REQUIRED]
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
For Quarter Ended June 30, 1994 Commission File No. 0-16512
American Income Partners III-B Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2968859
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Exchange Place, 14th Floor, Boston, MA 02109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 542-1200
________________________________________________________________________________
(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 III-B LIMITED PARTNERSHIP
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION: Page
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1994 and December 31, 1993 3
Statement of Operations
for the three and six months ended June 30, 1994 and 1993 4
Statement of Cash Flows
for the six months ended June 30, 1994 and 1993 5
Notes to the Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II. OTHER INFORMATION:
Items 1 - 6 14
<TABLE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
<CAPTION>
STATEMENT OF FINANCIAL POSITION
June 30, 1994 and December 31, 1993
(Unaudited)
June 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,451,105 $ 1,870,476
Rents receivable, net of allowance for
doubtful accounts of $60,000 and
$113,000 at June 30, 1994 and
December 31, 1993, respectively 146,983 236,763
Accounts receivable - affiliate 360,245 128,773
Equipment at cost, net of accumulated
depreciation of $11,412,982 and
$11,753,129 at June 30, 1994 and
December 31, 1993, respectively 5,666,428 6,267,867
Total assets $ 7,624,761 $ 8,503,879
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 368,574 $ 591,954
Accrued interest 17,842 26,632
Accrued liabilities 65,500 64,500
Accrued liabilities - affiliate 15,721 11,533
Deferred rental income 65,091 47,446
Cash distributions payable to partners 569,359 569,359
Total liabilities 1,102,087 1,311,424
Partners' capital (deficit):
General Partners (182,645) (175,947)
Limited Partnership Interests
(1,127,330 Units; initial purchase
price of $25 each) 6,705,319 7,368,402
Total partners' capital 6,522,674 7,192,455
Total liabilities and partners' capital $ 7,624,761 $ 8,503,879
</TABLE>
<TABLE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
<CAPTION>
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1994 and 1993
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income:
Lease revenue $ 633,048 $ 470,660 $1,100,237 $1,068,892
Interest income 13,863 8,184 24,745 17,008
Gain on sale
of equipment 61,494 174,251 61,852 164,282
Total income 708,405 653,095 1,186,834 1,250,182
Expenses:
Depreciation 295,009 530,215 600,456 1,107,739
Interest expense 7,547 16,517 16,277 32,176
Equipment management
fees - affiliate 31,653 23,533 55,012 53,445
Operating expenses
- affiliate 20,725 26,027 46,153 58,588
Total expenses 354,934 596,292 717,898 1,251,948
Net income (loss) $ 353,471 $ 56,803 $ 468,936 $ (1,766)
Net income (loss) per
limited partnership
unit $ 0.31 $ 0.05 $ 0.41 $ 0.00
Cash distributions
declared per limited
partnership unit $ 0.50 $ 0.50 $ 1.00 $ 1.00
</TABLE>
<TABLE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
<CAPTION>
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1994 and 1993
(Unaudited)
1994 1993
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $ 468,936 $ (1,766)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 600,456 1,107,739
Gain on sale of equipment (61,852) (164,282)
Decrease in allowance for doubtful accounts (53,000) --
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 142,780 303,322
accounts receivable - affiliate (231,472) 392,761
Increase (decrease) in:
accrued interest (8,790) (16,741)
accrued liabilities 1,000 (4,649)
accrued liabilities - affiliate 4,188 (19,766)
deferred rental income 17,645 (25,047)
Net cash from operating activities 879,891 1,571,571
Cash flows from investing activities:
Proceeds from equipment sales 62,835 578,462
Net cash from investing activities 62,835 578,462
Cash flows used in financing activities:
Principal payments - notes payable (223,380) (496,773)
Distributions paid (1,138,717) (996,377)
Net cash used in financing activities (1,362,097) (1,493,150)
Net increase (decrease) in cash and cash equivalents (419,371) 656,883
Cash and cash equivalents at beginning of period 1,870,476 1,075,294
Cash and cash equivalents at end of period $ 1,451,105 $ 1,732,177
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 25,067 $ 48,917
</TABLE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
June 30, 1994
(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 1993 Annual Report. Except as
disclosed herein, there has been no material change to the information presented
in the footnotes to the 1993 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, 1994 and December 31, 1993 and results of operations for
the three and six month periods ended June 30, 1994 and 1993 have been made and
are reflected.
NOTE 2 - CASH
The Partnership invests excess cash with large institutional banks in
reverse repurchase agreements with overnight securities. The reverse
repurchase agreements are 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
$2,145,826 are due as follows:
For the year ending June 30, 1995 $ 1,212,717
1996 604,878
1997 302,271
1998 25,960
Total $ 2,145,826
During 1994, the Partnership and other affiliated partnerships, executed a
renewal lease agreement in connection with an MD-82 aircraft leased by
Northwest Airlines, Inc. ("Northwest"). Pursuant to the agreement, Northwest
will continue to lease the aircraft until May 31, 1997. The Partnership, which
owns a 16% interest in this aircraft, will receive an aggregate of $962,529 in
lease revenue during the four year renewal period. Such rents are included in
the future minimum rents above.
NOTE 4 - EQUIPMENT
At June 30, 1994, the Partnership owned equipment with an original cost of
$17,079,410 as summarized below. In the opinion of American Finance Group
("AFG"), the carrying value of the equipment does not exceed its fair market
value. The equipment is summarized as follows:
<TABLE>
Lease Term Equipment
Equipment Type (Months) at Cost
<S> <C> <C>
Aircraft 12-60 $ 8,394,062
Communications 13-84 1,547,195
Retail store fixtures 1-72 1,511,637
Furniture and fixtures 17-84 1,251,725
Motor vehicles 12-72 1,182,898
Trailers/intermodal containers 36-60 668,519
Manufacturing 36-72 663,153
Locomotives 57-60 438,017
Research and test 17 384,258
Materials handling 1-84 367,086
Construction and mining 36-84 303,974
Fitness 17-60 204,667
Medical 24 116,689
Computers and peripherals 1-60 34,773
Photocopying 1-36 10,757
</TABLE>
Total equipment cost 17,079,410
Accumulated depreciation (11,412,982)
Equipment, net of accumulated depreciation $ 5,666,428
The summary above includes equipment held for sale or re-lease which was
fully depreciated and had an original cost of approximately $276,000 at
June 30, 1994.
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, 1994 and 1993, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
1994 1993
<S> <C> <C>
Equipment management fees $ 55,012 $ 53,445
Administrative charges 6,000 8,955
Reimbursable operating expenses
due to third parties 40,153 49,633
Total $ 101,165 $ 112,033
</TABLE>
All rents and proceeds from the sale of equipment are paid by the lessees
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, 1994, the Partnership was owed $360,245 by AFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in July 1994.
NOTE 6 - NOTES PAYABLE
Notes payable at June 30, 1994 consisted of installment notes of $368,574
payable to banks and institutional lenders. All of the installment notes are
non-recourse, with interest rates ranging between 6.25% and 10.3% and are
collateralized by the equipment and assignment of the related lease payments.
The installment notes will be fully amortized by noncancellable rents.
The annual maturities of the installment notes payable are as follows:
For the year ending June 30, 1995 $ 362,822
1996 5,752
Total $ 368,574
NOTE 7 - LEGAL PROCEEDINGS
In 1991, a lessee of the Partnership, Healthcare Financial Services, Inc.
and Healthcare International, Inc., the guarantor of certain lease obligations
of Healthcare Financial Services, Inc., (collectively the "Debtors") filed for
bankruptcy protection under Chapter 11 of the Bankruptcy Code. The Partnership
and other AFG-sponsored programs filed a proof of claim in this case. The
affected equipment, having a cost of $116,689 and representing less than 1% of
the Partnership's aggregate equipment portfolio at June 30, 1994, was assumed
by a successor sub-lessee which has communicated interest in purchasing the
equipment. The Chapter 11 proceeding of the Debtors was dismissed on July 21,
1994. This bankruptcy is not expected to have a material adverse effect on the
financial position of the Partnership.
In July 1993, Fred Meyer, Inc. (the "plaintiff"), in anticipation of a
declaration of lease default by AFG, filed a complaint against AFG (the
"defendant") in the Circuit Court of the State of Oregon as a result of a
dispute which arose between the plaintiff and the defendant concerning holdover
rents due to the Partnership with respect to certain equipment and the fair
market value of such equipment leased by the Partnership to the plaintiff. AFG
filed an answer to the plaintiff's complaint and asserted a counterclaim
seeking monetary damages. A Settlement Agreement, including dismissal of this
case, was executed on June 22, 1994 and resulted in the plaintiff's payment of
$194,988 to the Partnership for rent and residual proceeds. The equipment
dispositions resulted in a net gain of $45,402, for financial statement
purposes, which the Partnership recorded in June 1994. This settlement did not
have a material adverse effect on the financial position of the Partnership.
AMERICAN INCOME PARTNERS III-B 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, 1994 compared to the three and six months
ended June 30, 1993:
Overview
As an equipment leasing partnership, the Partnership was designed to
progress through four major phases: development, acquisition, operations, and
liquidation. During the operations phase, a period of approximately six years,
all equipment in the Partnership's portfolio will progress through various
stages. At first, all equipment will generate rental revenues under lease
agreements identified as primary term. As the Partnership ages, these primary
term lease agreements will expire on an intermittent basis. Equipment held
under expired leases may be renewed, re-leased or sold, depending on prevailing
market conditions and AFG's assessment of such conditions, to obtain the most
advantageous economic benefit. Over time, the frequency of primary lease term
expirations will increase and a greater portion of the Partnership's original
equipment portfolio will become available for remarketing. Cash generated from
operations and from sales or refinancings will begin to fluctuate as a result,
until all equipment is sold and the Partnership is liquidated. The
Partnership's operations commenced in 1987. Currently, the Partnership is in
the latter stages of its operations phase.
Results of Operations
For the three and six months ended June 30, 1994, the Partnership
recognized lease revenue of $633,048 and $1,100,237, respectively, compared to
$470,660 and $1,068,892 for the same periods in 1993. The increase in lease
revenue from 1993 to 1994 resulted from rental payments received in 1994 for
certain equipment leased on a month-to-month basis and to a decrease in the
reserve for doubtful accounts discussed below. In addition, during the three
months ended June 30, 1994, the Partnership re-leased an L1011-100 aircraft, in
which it owns a 26.21% interest, to a third party. This re-lease will generate
approximately $157,000 in additional lease revenue through November 1994.
At June 30, 1994, the Managing General Partner reviewed the aggregate
amount reserved against potentially uncollectable rents receivable and
determined a reserve of $60,000 would be appropriate. Accordingly, the
Partnership reduced its reserve and increased lease revenue in the amount of
$53,000 or $0.05 per limited partnership unit. It cannot be determined whether
the Partnership will recover any past due rents in the future; however, the
Managing General Partner will pursue the collection of all such items.
Interest income for the three and six months ended June 30, 1994 was
$13,863 and $24,745, respectively, compared to $8,184 and $17,008 for the same
periods in 1993. Interest income is generated from temporary investment of
<PAGE>
rental receipts and equipment sale proceeds in short-term instruments. The
increase in interest income from 1993 to 1994 is attributable to a greater
availability of cash used for investment prior to distribution to the
Partners. The amount of future interest income is expected to fluctuate in
relation to prevailing interest rates, collection of lease revenue and the
proceeds from equipment sales.
For the three months ended June 30, 1994, the Partnership sold equipment
having a net book value of $983 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $61,494
compared to a net gain of $174,251 on equipment which had been fully depreciated
for the same period in 1993.
For the six months ended June 30, 1994, the Partnership sold equipment
having a net book value of $983 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $61,852
compared to a net gain of $164,282 on equipment having a net book value of
$414,180 for the same period in 1993.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological
advances, and many other events can converge to enhance or detract from asset
values at any given time. AFG attempts to monitor these changes in order to
identify opportunities which may be advantageous to the Partnership and which
will maximize total cash returns for each asset.
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, 1994 was
$295,009 and $600,456, respectively, compared to $530,215 and $1,107,739,
respectively for the same periods in 1993. The Partnership depreciates its
equipment, on a straight-line basis, to an amount equal to its estimated
residual value at the end of its useful life. Typically, useful life
corresponds to the primary lease term period associated with each asset. To
the extent that equipment is held longer than its expected useful life (beyond
the primary lease term period), the Partnership continues to depreciate the
equipment on a straight-line basis over its remaining economic life.
Interest expense was $7,547 and $16,277 or 1.2% and 1.5% of lease revenue
for the three and six months ended June 30, 1994 respectively, compared to
$16,517 and $32,176 or 3.5% and 3% of lease revenue for the same periods in
1993. 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 in each of the periods ended June
30, 1994 and 1993 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 3.3% and 4.2% of
lease revenue for the three and six month periods ended June 30, 1994 and 1993,
respectively, compared to 5.5% of lease revenue for each of the same periods in
1993. 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.
The relatively low inflation rates in 1994 and 1993 and the economic
recession may have caused some re-lease and sale proceeds to be lower than that
which may have been achieved in a stronger economic environment. In other
cases, the economic recession may have had an adverse effect on the ability of
certain lessees to fulfill all of their financial obligations under the
leases. These factors will result in the investors achieving a rate-of-return
lower than that anticipated at the Partnership's commencement date.
Discussion of Cash Flows
The statement of cash flows summarizes the cash inflows and outflows from
the Partnership's operating, investing and financing activities. The
Partnership's largest source of cash is that provided by operating activities.
The Partnership's operating activities generated net cash of $879,891 and
$1,571,571 for the six months ended June 30, 1994 and 1993, respectively.
The Partnership reflects cash provided from equipment sale proceeds under
investing activities. During the six months ended June 30, 1994, the
Partnership realized $62,835 in equipment sale proceeds compared to $578,462
for the same period in 1993.
Financing activities reflect a net cash outflow of $1,362,097 and
$1,493,150 for the six months ended June 30, 1994 and 1993, respectively.
During both periods, a significant cash outflow for the Partnership resulted
<PAGE>
from the repayment of notes payable. All long-term financing was provided by
third-party lending institutions.
All of the Partnership's notes payable are secured by designated equipment
and the rental payments received in connection with that equipment. As rental
payments are collected, a portion or all of the rental payment is used to repay
the associated debt. All debt is structured such that it is fully amortized
over the lease term underlying the secured equipment. Principal payments on
long-term notes payable for the six months ended June 30, 1994 and 1993 were
$223,380 and $496,773, respectively.
A major outflow of cash is attributable to quarterly cash distributions
paid to the General Partners and Recognized Owners. Aggregate cash
distributions paid during the six month periods ended June 30, 1994 and 1993
were $1,138,717 and $996,377, respectively.
Cash distributions to the 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.
Overall, cash and cash equivalents decreased by $419,371 and increased by
$656,883 during the six month periods ended June 30, 1994 and 1993,
respectively.
Liquidity and Capital Resources
The Partnership's operations are expected to generate a positive cash flow
each year through the final disposition of equipment. However, the future
liquidity of the Partnership is greatly dependent upon the collection of
noncancellable rents and the residual values realized from remarketing the
Partnership's equipment. It is anticipated that cash proceeds resulting from
these sources will satisfy the Partnership's future expense obligations.
Lease revenues may drop significantly in the final stages of the
Partnership's operations phase due to equipment sales and lower rental revenues
generated from renewal and re-lease activities. Therefore, as the Partnership
approaches its liquidation phase and the final stages of its remarketing
activities, it is expected that the level of quarterly cash distributions will
fluctuate.
Further, the Partnership's future cash distributions will be negatively
affected by the bankruptcy of certain lessees referred to in Note 7 to the
financial statements in the 1993 Annual Report. The bankruptcy of Affiliated
Land Corporation ("Affiliated") will result in the Partnership's loss of any
future interest in the residual value of the equipment Affiliated leased from
the Partnership. Aggregate program performance will be dependent upon many
factors, including the outcome of all legal proceedings, the collection of all
future noncancellable rents, and the results of remarketing the Partnership's
remaining equipment.
During 1994, the Partnership and other affiliated partnerships, executed a
renewal lease agreement in connection with an MD-82 aircraft leased by
Northwest. Pursuant to the agreement, Northwest will continue to lease the
aircraft until May 31, 1997. The Partnership, which owns a 16% interest in
this aircraft, will receive an aggregate of $962,529 in lease revenue during
the four year renewal period.
For the six months ended June 30, 1994, the Partnership declared total
cash distributions of Distributable Cash From Operations and Distributable Cash
From Sales and Refinancings of $1,138,717. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the Recognized
Owners were allocated 99% of these distributions, or $1,127,330 and the General
Partners were allocated 1%, or $11,387. The second quarter 1994 cash
distribution occurred on July 15, 1994.
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 to the financial statements, herein.
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
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-B LIMITED PARTNERSHIP
By: AFG Leasing Incorporated,
a Massachusetts corporation and
the Managing General Partner of
the Registrant.
By: /s/ Gary M. Romano
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 12, 1994
