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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 March 31, 1995
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 March 31, 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
Exchange Place, 14th Floor, Boston, MA 02109
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed by a
court during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes_____ No______
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AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
INDEX
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PART I. FINANCIAL INFORMATION: Page
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1995 and December 31, 1994 3
Statement of Operations
for the three months ended March 31, 1995 and 1994 4
Statement of Cash Flows
for the three months ended March 31, 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
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AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
March 31, 1995 and December 31, 1994
(Unaudited)
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March 31, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 890,772 $ 958,005
Rents receivable, net of allowance
for doubtful accounts of $60,000 27,242 225,496
Accounts receivable - affiliate 122,610 125,811
Equipment at cost, net of accumulated
depreciation of $9,656,789 and
$10,675,416 at March 31, 1995 and
December 31, 1994, respectively 4,977,701 5,155,573
Total assets $ 6,018,325 $ 6,464,885
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 22,830 $ 223,620
Accrued interest 61 8,572
Accrued liabilities 10,000 15,500
Accrued liabilities - affiliate 15,467 3,557
Deferred rental income 69,526 29,985
Cash distributions payable to partners 355,848 569,359
Total liabilities 473,732 850,593
Partners' capital (deficit):
General Partners (192,425) (191,728)
Limited Partnership Interests
(1,127,330 Units; initial purchase
price of $25 each) 5,737,018 5,806,020
Total partners' capital 5,544,593 5,614,292
Total liabilities and partners' capital $ 6,018,325 $ 6,464,885
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[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1995 and 1994
(Unaudited)
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1995 1994
Income:
Lease revenue $ 239,927 $ 467,189
Interest income 11,045 10,882
Gain on sale of equipment 260,922 358
Total income 511,894 478,429
Expenses:
Depreciation 177,872 305,447
Interest expense 488 8,730
Equipment management fees - affiliate 11,996 23,359
Operating expenses - affiliate 35,389 25,428
Total expenses 225,745 362,964
Net income $ 286,149 $ 115,465
Net income
per limited partnership unit $ 0.25 $ 0.10
Cash distribution declared
per limited partnership unit $ 0.31 $ 0.50
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AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1995 and 1994
(Unaudited)
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1995 1994
Cash flows from (used in) operating activities:
Net income $ 286,149 $ 115,465
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 177,872 305,447
Gain on sale of equipment (260,922) (358)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 198,254 119,097
accounts receivable - affiliate 3,201 (48,899)
Increase (decrease) in:
accrued interest (8,511) (13,014)
accrued liabilities (5,500) 1,750
accrued liabilities - affiliate 11,910 2,139
deferred rental income 39,541 35,697
Net cash from operating activities 441,994 517,324
Cash flows from investing activities:
Proceeds from equipment sales 260,922 358
Net cash from investing activities 260,922 358
Cash flows used in financing activities:
Principal payments - notes payable (200,790) (157,103)
Distributions paid (569,359) (569,359)
Net cash used in financing activities (770,149) (726,462)
Net decrease in cash and cash equivalents (67,233) (208,780)
Cash and cash equivalents at beginning of period 958,005 1,870,476
Cash and cash equivalents at end of period $ 890,772 $ 1,661,696
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,999 $ 21,744
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AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 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 March 31, 1995 and December 31, 1994 and results of operations for
the three month periods ended March 31, 1995 and 1994 have been made and are
reflected.
NOTE 2 - CASH
At March 31, 1995, the Partnership had $890,000 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
$1,710,620 are due as follows:
For the year ending March 31, 1996 $ 878,029
1997 541,622
1998 290,969
Total $ 1,710,620
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NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
March 31, 1995. In the opinion of American Finance Group ("AFG"), the carrying
value of the equipment does not exceed its fair market value.
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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 1,387,548
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 28,127
Total equipment cost 14,634,490
Accumulated depreciation (9,656,789)
Equipment, net of accumulated depreciation $ 4,977,701
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At March 31, 1995, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $11,549,045, 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 March 31, 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 three month
periods ended March 31, 1995 and 1994, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
1995 1994
Equipment management fees $ 11,996 $ 23,359
Administrative charges 3,000 3,000
Reimbursable operating expenses
due to third parties 32,389 22,428
Total $ 47,385 $ 48,787
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 March 31, 1995, the Partnership was owed $122,610 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in
April 1995.
NOTE 6 - NOTES PAYABLE
Notes payable at March 31, 1995 consisted of installment notes of $22,830
payable to banks and institutional lenders. All of the installment notes are
non-recourse, with interest rates 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
March 31, 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 months ended March 31, 1995 compared to the three months ended
March 31, 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 months ended March 31, 1995, the Partnership recognized lease
revenue of $239,927 compared to $467,189 for the same period 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.
Interest income for the three months ended March 31, 1995 was $11,045
compared to $10,882 for the same period in 1994. Interest income is generated
from temporary investment of rental receipts and equipment sale proceeds in
short-term instruments. The increase in interest income from 1994 to 1995
resulted principally from an increase in interest rates. The amount of future
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
interest income is expected to fluctuate in relation to prevailing interest
rates, the level of lease revenue and the proceeds from equipment sales.
In 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 $260,922 compared to a net gain of $358 on
equipment which had been fully depreciated for the same period in 1994.
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 months ended March 31, 1995 was $177,872
compared to $305,447 for the same period 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 $488 or less than 1% of lease revenue for the three
months ended March 31, 1995 compared to $8,730 or 1.9% of lease revenue for the
same period 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.
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Management fees were 5% of lease revenue in each of the periods ended
March 31, 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 14.7%
and 5.4% of lease revenue for the three month periods ended March 31, 1995 and
1994, respectively. 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. 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 $441,994 and $517,324 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 three months
ended March 31, 1995, the Partnership realized $260,922 in equipment sale
proceeds compared to $358 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 three month period ended March 31, 1995, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $355,848. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 99% of these distributions, or
$352,290, and the General Partners were allocated 1%, or $3,558. The first
quarter 1995 cash distribution was paid on April 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: May 18, 1995
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 890,772
<SECURITIES> 0
<RECEIVABLES> 209,852
<ALLOWANCES> 60,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,040,624
<PP&E> 14,634,490
<DEPRECIATION> 9,656,789
<TOTAL-ASSETS> 6,018,325
<CURRENT-LIABILITIES> 450,902
<BONDS> 22,830
<COMMON> 0
0
0
<OTHER-SE> 5,544,593
<TOTAL-LIABILITY-AND-EQUITY> 6,018,325
<SALES> 0
<TOTAL-REVENUES> 511,894
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 225,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 488
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 286,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286,149
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
