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, 1995
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, 1995 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.)
98 North Washington Street, Boston, MA 02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court
during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes_____ No______
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION: Page
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1995 and December 31, 1994 3
Statement of Operations
for the three and six months ended June 30, 1995 and 1994 4
Statement of Cash Flows
for the six months ended June 30, 1995 and 1994 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
[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
June 30, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<S> <C> <C>
June 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents $822,447 $958,005
Rents receivable, net of allowance
for doubtful accounts of $60,000 33,785 225,496
Accounts receivable - affiliate 48,073 125,811
Equipment at cost, net of accumulated
depreciation of $9,777,287 and
$10,675,416 at June 30, 1995 and
December 31, 1994, respectively 4,800,602 5,155,573
Total assets $5,704,907 $6,464,885
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 11,474 $223,620
Accrued interest 75 8,572
Accrued liabilities 15,000 15,500
Accrued liabilities - affiliate 8,798 3,557
Deferred rental income 32,239 29,985
Cash distributions payable to partners 355,850 569,359
Total liabilities 423,436 850,593
Partners' capital (deficit):
General Partners (195,056) (191,728)
Limited Partnership Interests
(1,127,330 Units; initial purchase
price of $25 each) 5,476,527 5,806,020
Total partners' capital 5,281,471 5,614,292
Total liabilities and partners' capital $5,704,907 $6,464,885
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
Income:
Lease revenue $284,598 $633,048 $524,525 $ 1,100,237
Interest income 11,010 13,863 22,055 24,745
Gain on sale of equipment 20,090 61,494 281,012 61,852
Total income 315,698 708,405 827,592 1,186,834
Expenses:
Depreciation 177,099 295,009 354,971 600,456
Interest expense 222 7,547 710 16,277
Equipment management
fees - affiliate 14,230 31,653 26,226 55,012
Operating expenses
- affiliate 31,419 20,725 66,808 46,153
Total expenses 222,970 354,934 448,715 717,898
Net income $ 92,728 $353,471 $378,877 $468,936
Net income
per limited partnership
unit $ 0.08 $ 0.31 $ 0.33 $ 0.41
Cash distributions declared
per limited partnership
unit $ 0.31 $ 0.50 $ 0.62 $ 1.00
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<S> <C> <C>
1995 1994
Cash flows from (used in) operating
activities:
Net income $378,877 $468,936
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 354,971 600,456
Gain on sale of equipment (281,012) (61,852)
Decrease in allowance for doubtful accounts -- (53,000)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 191,711 142,780
accounts receivable - affiliate 77,738 (231,472)
Increase (decrease) in:
accrued interest (8,497) (8,790)
accrued liabilities (500) 1,000
accrued liabilities - affiliate 5,241 4,188
deferred rental income 2,254 17,645
Net cash from operating activities 720,783 879,891
Cash flows from investing activities:
Proceeds from equipment sales 281,012 62,835
Net cash from investing activities 281,012 62,835
Cash flows used in financing activities:
Principal payments - notes payable (212,146) (223,380)
Distributions paid (925,207) (1,138,717)
Net cash used in financing activities (1,137,353) (1,362,097)
Net decrease in cash and cash equivalents (135,558) (419,371)
Cash and cash equivalents at beginning of period 958,005 1,870,476
Cash and cash equivalents at end of period $822,447 $1,451,105
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 9,207 $ 25,067
</TABLE>
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
June 30, 1995
(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 1994
Annual Report. Except as disclosed herein, there has been no
material change to the information presented in the footnotes to
the 1994 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, 1995 and December 31,
1994 and results of operations for the three and six month periods
ended June 30, 1995 and 1994 have been made and are reflected.
NOTE 2 - CASH
At June 30, 1995, the Partnership had $810,000 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 $1,471,220
are due as follows:
For the year ending June 30, 1996 $ 807,029
1997 513,480
1998 150,711
Total $ 1,471,220
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the
Partnership at June 30, 1995. In the opinion of American Finance
Group ("AFG"), the carrying value of the equipment does not exceed
its fair market value.
Lease Term Equipment
Equipment Type (Months) at Cost
Aircraft 36-60 $ 8,412,409
Retail store fixtures 1-72 1,511,637
Communications 1-60 1,333,533
Motor vehicles 12-72 1,177,235
Trailers/intermodal containers 36-60 668,519
Manufacturing 36-72 663,153
Locomotives 57-60 438,017
Materials handling 1-84 231,156
Medical 24 116,689
Computers and peripherals 1-60 25,541
Total equipment cost 14,577,889
Accumulated depreciation (9,777,287)
Equipment, net of accumulated depreciation $ 4,800,602
At June 30, 1995, the Partnership's equipment portfolio
included equipment having a proportionate original cost of
$11,546,462, representing approximately 79% of total equipment
cost.
The summary above includes equipment held for sale or re-lease
with a cost of approximately $295,000 which had been fully
depreciated at June 30, 1995.
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, 1995 and 1994,
which were paid or accrued by the Partnership to AFG or its
Affiliates, are as follows:
1995 1994
Equipment management fees $ 26,226 $ 55,012
Administrative charges 10,500 6,000
Reimbursable operating expenses
due to third parties 56,308 40,153
Total $ 93,034 $ 101,165
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, 1995, the
Partnership was owed $48,073 by AFG for such funds and the
interest thereon. These funds were remitted to the Partnership in
July 1995.
NOTE 6 - NOTES PAYABLE
Notes payable at June 30, 1995 consisted of installment notes
of $11,474 payable to banks and institutional lenders. All of the
installment notes are non-recourse, with an interest rate of 6.25%
and are collateralized by the equipment and assignment of the
related lease payments. The installment notes will be fully
amortized by noncancellable rents in the year ending June
30, 1996.
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, 1995 compared to the three and
six months ended June 30, 1994:
Overview
As an equipment leasing partnership, the Partnership was
organized to acquire a diversified portfolio of capital equipment
subject to lease agreements with third parties. The Partnership
was designed to progress through three principal phases:
acquisitions, 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.
Initially, all equipment will generate rental revenue under
primary term lease agreements. During the life of the
Partnership, these agreements will expire on an intermittent basis
and equipment held pursuant to the related leases will be renewed,
re-leased or sold, depending on prevailing market conditions and
the assessment of such conditions by AFG to obtain the most
advantageous economic benefit. Over time, a greater portion of
the Partnership's original equipment portfolio will become
available for remarketing and cash generated from operations and
from sales or refinancings will begin to fluctuate. Ultimately,
all equipment will be sold and the Partnership will be dissolved.
The Partnership's operations commenced in 1987.
Results of Operations
For the three and six months ended June 30, 1995, the
Partnership recognized lease revenue of $284,598 and $524,525,
respectively, compared to $633,048 and $1,100,237 for the same
periods in 1994. The decrease in lease revenue between 1994 and
1995 was expected and resulted principally from primary lease term
expirations and the sale of equipment.
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.
At June 30, 1994, the Managing General Partner reviewed the
aggregate amount reserved against potentially uncollectable rents
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. 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,
1995 was $11,010 and $22,055 compared to $13,863 and $24,745 for
the same periods in 1994. Interest income is generated from
temporary investment of rental receipts and equipment sale
proceeds in short-term instruments. The decrease in interest
income from 1994 to 1995 was attributable to a lower 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 and the collection of lease
revenue and equipment sale proceeds.
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 net
gains, for financial statement purposes, of $20,090 and $281,012,
respectively.
During the three and six months ended June 30, 1994, the
Partnership sold equipment having a net book value of $983 which
resulted in net gains, for financial statement purposes, of
$61,494 and $61,852, 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 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, 1995 was $177,099 and $354,971, respectively, compared to
$295,009 and $600,456 for the same periods in 1994. 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 $222 and $710 or less than 1% of lease
revenue for each of the three and six month periods ended June 30,
1995, respectively, compared to $7,547 and $16,277 or 1.2% and
1.5% of lease revenue for the same periods in 1994. 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, 1995 and 1994 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 approximately 11% and
12.7% of lease revenue for the three and six month periods ended
June 30, 1995, respectively, compared to 3.3% and 4.2% of lease
revenue for
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
the same periods in 1994. The increase in operating expenses from
1994 to 1995 was due primarily to higher premiums in connection
with supplemental insurance policies carried by the Partnership on
certain aircraft and an increase in professional service costs.
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 $720,783 and $879,891 in 1995 and
1994, 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, 1995, the Partnership
realized $281,012 in equipment sale proceeds compared to $62,835
for the same period in 1994. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by
many factors including, but not limited to, the frequency and
timing of lease expirations, the type of equipment being sold, its
condition and age, and future market conditions.
The Partnership obtained long-term financing in connection
with certain equipment leases. The repayments of principal
related to such indebtedness are reported as a component of
financing activities. Each note payable is recourse only to the
specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period
(which period generally coincides with the lease rental term). As
rental payments are collected, a portion or all of the rental
payment is used to repay the associated indebtedness. In future
periods, the amount of cash used to repay debt obligations will
decline as the principal balance of notes payable is reduced
through the collection and application of rents.
Cash distributions to the General Partners and Recognized
Owners are declared and generally paid within fifteen days
following the end of each calendar quarter. The payment of such
distributions is presented as a component of financing activities.
For the six month period ended June 30, 1995, the Partnership
declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of
$711,698. In accordance with the Amended and Restated Agreement
and Certificate of Limited Partnership, the Recognized Owners were
allocated 99% of these distributions, or
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
$704,581, and the General Partners were allocated 1%, or $7,117.
The second quarter 1995 cash distribution was paid on July
14, 1995.
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
future contracted rents, the generation of renewal and/or re-lease
rents, and the residual value realized for each asset at its
disposal date. Future 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.
The future liquidity of the Partnership will be influenced by
the foregoing and will be greatly dependent upon the collection of
contractual rents and the outcome of residual activities. The
Managing General Partner anticipates that cash proceeds resulting
from these sources will satisfy the Partnership's future expense
obligations. However, the amount of cash available for
distribution in future periods will fluctuate. Equipment lease
expirations and asset disposals will cause the Partnership's net
cash from operating activities to diminish over time; and
equipment sale proceeds will vary in amount and period of
realization. Accordingly, fluctuations in the level of quarterly
cash distributions will occur during the life of the Partnership.
AMERICAN INCOME PARTNERS III-B 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
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 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 822,447
<SECURITIES> 0
<RECEIVABLES> 141,858
<ALLOWANCES> 60,000
<INVENTORY> 0
<CURRENT-ASSETS> 904,305
<PP&E> 14,577,889
<DEPRECIATION> 9,777,287
<TOTAL-ASSETS> 5,704,907
<CURRENT-LIABILITIES> 411,962
<BONDS> 11,474
<COMMON> 0
0
0
<OTHER-SE> 5,281,471
<TOTAL-LIABILITY-AND-EQUITY> 5,704,907
<SALES> 0
<TOTAL-REVENUES> 524,525
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 448,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 710
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 378,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 378,877
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
