0000780398-95-000009.txt : 19950815 0000780398-95-000009.hdr.sgml : 19950815 ACCESSION NUMBER: 0000780398-95-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME 7 LTD PARTNERSHIP CENTRAL INDEX KEY: 0000780398 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 042932747 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15623 FILM NUMBER: 95562209 BUSINESS ADDRESS: STREET 1: EXCHANGE PL STREET 2: 14TH FLR CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6175421200 MAIL ADDRESS: STREET 1: C/O AMERICAN FINANCE GROUP STREET 2: 53 STATE STREET, 14TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INCOME 7 LTD PARTNERSHIP AI-7 DATE OF NAME CHANGE: 19870423 10-Q 1 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. 0-15623 American Income 7 Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-2932747 (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 fiscalyear, 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 7 LIMITED PARTNERSHIP FORM 10-Q INDEX Page PART I. FINANCIAL INFORMATION: 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 7 LIMITED PARTNERSHIP STATEMENT OF FINANCIAL POSITION June 30, 1995 and December 31, 1994 (Unaudited) June 30, December 31, 1995 1994 ASSETS Cash and cash equivalents $ 760,273 $ 992,497 Rents receivable, net of allowance doubtful accounts of $10,000 15,244 16,128 Accounts receivable - affiliate 90,678 92,548 Equipment at cost, net of accumulated depreciation of $10,258,271 and $10,404,626 at June 30, 1995 and December 31, 1994, respectively 4,171,548 4,636,004 Total assets $ 5,037,743 $ 5,737,177 LIABILITIES AND PARTNERS' CAPITAL Notes payable $ 626,468 $ 850,256 Accrued interest 1,280 2,107 Accrued liabilities 15,000 15,500 Accrued liabilities - affiliate 998 4,526 Deferred rental income 159,097 158,564 Cash distributions payable to partners 360,637 360,637 Total liabilities 1,163,480 1,391,590 Partners' capital (deficit): General Partner (117,940) (113,227) Limited Partnership Interests (71,406 Units; initial purchase price of $250 each) 3,992,203 4,458,814 Total partners' capital 3,874,263 4,345,587 Total liabilities and partners' capital $ 5,037,743 $ 5,737,177
[CAPTION] AMERICAN INCOME 7 LIMITED PARTNERSHIP STATEMENT OF OPERATIONS for the three and six months ended June 30, 1995 and 1994 (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Income: Lease revenue $ 401,539 $ 652,858 $ 800,083 $1,127,812 Interest income 10,423 11,316 22,015 19,085 Gain on sale of equipment 4,720 42,763 11,020 42,763 Total income 416,682 706,937 833,118 1,189,660 Expenses: Depreciation 232,228 240,707 464,456 483,491 Interest expense 17,480 33,487 35,728 68,099 Equipment management fees - affiliate 20,077 32,643 40,004 56,391 Operating expenses - affiliate 18,533 15,253 42,980 32,651 Total expenses 288,318 322,090 583,168 640,632 Net income $ 128,364 $ 384,847 $ 249,950 $ 549,028 Net income per limited partnership unit $ 1.78 $ 5.34 $ 3.47 $ 7.61 Cash distributions declared per limited partnership unit $ 5.00 $ 3.12 $ 10.00 $ 6.25
[CAPTION] AMERICAN INCOME 7 LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS for the six months ended June 30, 1995 and 1994 (Unaudited) 1995 1994 Cash flows from (used in) operating activities: Net income $ 249,950 $ 549,028 Adjustments to reconcile net income to net cash from operating activities: Depreciation 464,456 483,491 Gain on sale of equipment (11,020) (42,763) Decrease in allowance for doubtful accounts -- (16,000) Changes in assets and liabilities Decrease (increase) in: rents receivable 884 63,895 accounts receivable - affiliate 1,870 (424,429) Increase (decrease) in: accrued interest (827) (32,861) accrued liabilities (500) 20,327 accrued liabilities - affiliate (3,528) 5,167 deferred rental income 533 103,850 Net cash from operating activities 701,818 709,705 Cash flows from investing activities: Proceeds from equipment sales 11,020 304,390 Net cash from investing activities 11,020 304,390 Cash flows used in financing activities: Principal payments - notes payable (223,788) (429,041) Distributions paid (721,274) (450,795) Net cash used in financing activities (945,062) (879,836) Net increase (decrease) in cash and cash equivalents (232,224) 134,259 Cash and cash equivalents at beginning of period 992,497 1,027,756 Cash and cash equivalents at end of period $ 760,273 $1,162,015 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 36,555 $ 100,960
AMERICAN INCOME 7 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 $750,000 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 $1,709,010 are due as follows: For the year ending June 30, 1996 $ 1,504,807 1997 191,839 1998 12,364 Total $ 1,709,010 AMERICAN INCOME 7 LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) [CAPTION] 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 $ 8,179,070 Flight simulators 60 4,290,414 Retail store fixtures 1-60 809,857 Manufacturing 36-60 598,850 Motor vehicles 12-72 312,696 Communications 36 83,873 Tractors and heavy duty trucks 2-60 63,401 Computer and peripherals 12-60 54,612 Materials handling 2-60 27,443 Medical 10-60 9,603 Total equipment cost 14,429,819 Accumulated depreciation (10,258,271) Equipment, net of accumulated depreciation $ 4,171,548
At June 30, 1995, the Partnership's equipment portfolio included equipment having a proportionate original cost of $13,590,221, representing approximately 94% of total equipment cost. The summary above includes fully depreciated equipment held for re-lease or sale with a cost of approximately $32,000 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 $ 40,004 $ 56,391 Administrative charges 7,878 6,000 Reimbursable operating expenses due to third parties 35,102 26,651 Total $ 82,984 $ 89,042 AMERICAN INCOME 7 LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) 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 $90,678 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 $626,468 payable to banks and institutional lenders. All the installment notes are non-recourse, with interest rates ranging between 6.25% and 6.35%, except one note which bears a fluctuating interest rate equal to the prime rate of interest plus 1% (10% at June 30, 1995). The installment notes are collateralized by the equipment and assignment of the related lease payments and certain remarketing proceeds. Generally, the installment notes will be fully amortized by noncancellable rents. All notes mature during the year ending June 30, 1996. AMERICAN INCOME 7 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 revenues 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 1986. Results of Operations For the three and six months ended June 30, 1995 the Partnership recognized lease revenue of $401,539 and $800,083, respectively, compared to $652,858 and $1,127,812 for the same periods in 1994. The decrease in lease revenue between 1994 and 1995 was expected and resulted principally from renewal 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 General Partner reviewed the aggregate amount reserved against potentially uncollectable rents and determined a reserve of $10,000 would be appropriate. Accordingly, the Partnership reduced its reserve and increased lease revenue in the amount of $16,000. It cannot be determined whether the Partnership will recover any past due rents in the future; however, the General Partner will pursue the collection of all such items. Interest income for the three and six months ended June 30, 1995 was $10,423 and $22,015, respectively, compared to $11,316 and $19,085 for the same periods in 1994. Interest income is generated from the temporary investment of rental receipts and equipment sale proceeds in short-term instruments. The increase in interest income during the six months ended June 30, 1994 compared to the same period in 1995 was primarily attributable to an increase in interest rates. The amount of future interest income is expected to fluctuate in relation to prevailing interest rates and the collection of lease revenue and equipment sales proceeds. AMERICAN INCOME 7 LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION For the three and six months ended June 30, 1995, the Partnership sold fully depreciated equipment which resulted in net gains, for financial statement purposes, of $4,720 and $11,020, respectively. For the three and six months ended June 30, 1994, the Partnership sold equipment having a net book value of $261,627 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $42,763. 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 was $232,228 and $464,456 for the three and six months ended June 30, 1995, respectively, compared to $240,707 and $483,491 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 $17,480 and $35,728 or 4.4% and 4.5% of lease revenue for the three and six months ended June 30, 1995, respectively, compared to $33,487 and $68,099 or 5.1% and 6% 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 during 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 4.6% and 5.4% of lease revenue for the three and six months ended June 30, 1995, respectively, compared to 2.3% and 2.9% of lease revenue for the same periods in 1994. The increase in operating expenses from 1994 to 1995 was due principally to an AMERICAN INCOME 7 LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION 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 $701,818 and $709,705 for the six months ended June 30, 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 $11,020 in equipment sale proceeds compared to $304,390 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 the three months ended September 30, 1995, the amount of cash used to repay debt obligations will increase due to the final principal installment associated with the Partnership's indebtedness in connection with certain aircraft. Subsequent principal payments will decline as the balance of notes payable is reduced through the collection and application of rents. Cash distributions to the General and Limited Partners are declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is presented as a component of financing activities. For the period ended June 30, 1995, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $721,274. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Limited Partners were allocated 99% of these distributions, or $714,061, and the General Partner was allocated 1%, or $7,213. The second quarter 1995 cash distribution was paid on July 14, 1995. AMERICAN INCOME 7 LIMITED PARTNERSHIP FORM 10-Q PART I. FINANCIAL INFORMATION Cash distributions paid to the Limited Partners consist of both a return of and a return on capital. To the extent that cash distributions consist of Cash From Sales or Refinancings, substantially all of such cash distributions should be viewed as a return of capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all 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 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 7 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 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 7 LIMITED PARTNERSHIP By: AFG Leasing Associates II, a Massachusetts general partnership and the General Partner of the Registrant. By: AFG Leasing Incorporated, a Massachusetts corporation and general partner in such general partnership. By: /s/ Gary M. Romano Gary M. Romano Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) Date: August 11, 1995 EX-27 2
5 6-MOS DEC-31-1995 JUN-30-1995 760,273 0 115,922 10,000 0 866,195 14,429,819 10,258,271 5,037,743 537,012 626,468 0 0 0 3,874,263 5,037,743 0 800,083 0 0 547,440 0 35,728 0 0 249,950 0 0 0 249,950 0 0