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 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. 0-16511
American Income Partners III-A Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2962676
(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-A 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 PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
June 30, 1995 and December 31, 1994
<TABLE>
<S> <C> <C>
June 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents $516,300 $819,430
Rents receivable, net of allowance
for doubtful accounts of $97,000
and $140,000 at June 30, 1995 and
December 31, 1994, respectively 445 147,870
Accounts receivable - affiliate 41,588 145,904
Equipment at cost, net of accumulated
depreciation of $8,421,416 and
$9,246,109 at June 30, 1995 and
December 31, 1994, respectively 4,298,605 4,590,099
Total assets $4,856,938 $5,703,303
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 30,459 $245,685
Accrued interest 121 5,627
Accrued liabilities 15,000 15,500
Accrued liabilities - affiliate 11,255 2,776
Deferred rental income 39,016 37,165
Cash distributions payable to partners 318,501 509,603
Total liabilities 414,352 816,356
Partners' capital (deficit):
General Partners (177,319) (172,875)
Limited Partnership Interests
(1,009,014 Units; initial
purchase price of $25 each) 4,619,905 5,059,822
Total partners' capital 4,442,586 4,886,947
Total liabilities and partners' capital $4,856,938 $5,703,303
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
June 30, 1995 and December 31, 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 $241,642 $544,896 $491,827 $989,670
Interest income 7,001 12,528 15,138 21,758
Gain on sale of equipment 56,747 62,092 65,447 123,554
Total income 305,390 619,516 572,412 1,134,982
Expenses:
Depreciation 145,747 272,836 291,494 594,081
Interest expense 612 2,027 1,528 7,644
Equipment management
fees - affiliate 12,082 27,245 24,591 49,484
Operating expenses -
affiliate 30,041 21,182 62,158 45,654
Total expenses 188,482 323,290 379,771 696,863
Net income $116,908 $296,226 $192,641 $438,119
Net income
per limited partnership
unit $ 0.11 $ 0.29 $ 0.19 $ 0.43
Cash distributions declared
per limited partnership
unit $ 0.31 $ 0.50 $ 0.62 $ 1.00
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
<TABLE>
<S> <C> <C>
1995 1994
Cash flows from (used in) operating
activities:
Net income $192,641 $438,119
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 291,494 594,081
Gain on sale of equipment (65,447) (123,554)
Decreasein allowance for doubtful accounts (43,000) (45,000)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 190,425 163,046
accounts receivable - affiliate 104,316 (188,599)
Increase (decrease) in:
accrued interest (5,506) (12,404)
accrued liabilities (500) 1,000
accrued liabilities - affiliate 8,479 6,367
deferred rental income 1,851 17,049
Net cash from operating activities 674,753 850,105
Cash flows from investing activities:
Proceeds from equipment sales 65,447 205,240
Net cash from investing activities 65,447 205,240
Cash flows used in financing activities:
Principal payments - notes payable (215,226) (281,326)
Distributions paid (828,104) (1,019,206)
Net cash used in financing activities (1,043,330) (1,300,532)
Net decrease in cash and cash equivalents (303,130) (245,187)
Cash and cash equivalents at beginning of
period 819,430 1,486,204
Cash and cash equivalents at end of period $516,300 $1,241,017
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $7,034 $20,048
</TABLE>
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 $510,000 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 $1,411,275
are due as follows:
For the year ending June 30, 1996 $ 746,169
1997 522,968
1998 137,788
1999 2,900
2000 1,450
Total $ 1,411,275
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 $ 7,649,166
Retail store fixtures 1-72 1,431,673
Motor vehicles 12-72 1,086,176
Communications 1-60 771,754
Trailers/intermodal containers 36-84 760,402
Locomotives 57-60 378,818
Tractors and heavy duty trucks 1-72 274,972
Research and test 17-84 262,000
Materials handling 1-84 84,993
Computers and peripherals 1-60 20,067
Total equipment cost 12,720,021
Accumulated depreciation (8,421,416)
Equipment, net of accumulated depreciation $ 4,298,605
At June 30, 1995, the Partnership's equipment portfolio
included equipment having a proportionate original cost of
$10,213,958, representing approximately 80% of total equipment
cost.
The summary above includes equipment held for sale or re-
lease with a cost of approximately $362,000 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 $ 24,591 $ 49,484
Administrative charges 10,500 6,000
Reimbursable operating expenses
due to third parties 51,658 39,654
Total $ 86,749 $ 95,138
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
Notes to 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 $41,588 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 $30,459 payable to banks and institutional lenders. All of the
installment notes are non-recourse, with interest rates ranging
between 6.25% and 7.13% 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.
NOTE 7 - LEGAL PROCEEDINGS
In 1993, Healthcare Enterprises of North Texas Ltd. (d.b.a.
"Wylie Hospital"), a lessee of the Partnership, filed for
protection under Chapter 11 of the Bankruptcy Code in the Eastern
District of Texas. The Chapter 11 proceeding remains pending.
AFG, on behalf of the Partnership and certain other AFG-sponsored
programs, filed a proof of claim in this matter. Equipment leased
to this lessee had a cost of approximately $36,500 at the time of
the bankruptcy filing. The Partnership sold the equipment in May
1995 and recognized a net gain of $455. Pursuant to the order of
the U.S. District Bankruptcy Court, Wylie Hospital was required to
pay $11,000 to the Partnership for settlement of this matter,
which amount was paid in full as of April 1995. This bankruptcy
did not have a material adverse effect on the financial position
of the Partnership.
AMERICAN INCOME PARTNERS III-A 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 1987.
Results of Operations
For the three and six months ended June 30, 1995, the
Partnership recognized lease revenue of $241,642 and $491,827,
respectively, compared to $544,896 and $989,670 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 March 31, 1995 and 1994, the Managing General Partner
lowered the amount reserved against potentially uncollectable
rents to $97,000 and $140,000, respectively, resulting in an
increase in lease revenue of $43,000 in 1995 and $45,000 in 1994.
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 $7,001 and $15,138, respectively, compared to $12,528 and
$21,758 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 is principally 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-A 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 $56,747 and $65,447,
respectively.
During the three and six months ended June 30, 1994, the
Partnership sold equipment having net book values of $694 and
$81,686, respectively. These sales resulted in net gains of
$62,092 and $123,554 during the corresponding periods.
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, 1995 was $145,747 and $291,494, respectively, compared to
$272,836 and $594,081 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 $612 and $1,528 or less than 1% of lease
revenue for each of the three and six month periods ended June 30,
1995 compared to $2,027 and $7,644 or less than 1% 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 12.4%
and 12.6% of lease revenue during the three and six months ended
June 30, 1995, respectively, compared to 3.9% and 4.6% of lease
revenue for the same periods in 1994. The increase in operating
expenses from 1994 to 1995 was due primarily to higher premiums
incurred 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 $674,753 and $850,105 during 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 revenues 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 $65,447 in equipment sale proceeds compared to $205,240
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
continue to decline as the principal balance of notes payable is
reduced through the collection and application of rents.
Cash distributions to the Recognized Owners and General
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 six months ended June 30, 1995, the
Partnership declared total cash distributions of Distributable
Cash From Operations and Distributable Cash From Sales and
Refinancings of $637,002. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the
Recognized Owners were allocated 99% of these distributions, or
$630,632, and the General Partners were allocated 1%, or $6,370.
The second quarter 1995 cash distribution was paid on July
14, 1995.
Cash distributions paid 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. 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.
Item 1. Legal Proceedings
Response:
Refer to Note 7 herein and to Note 7
in the 1994 Annual Report.
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 PARTNERS III-A 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> 516,300
<SECURITIES> 0
<RECEIVABLES> 139,033
<ALLOWANCES> 97,000
<INVENTORY> 0
<CURRENT-ASSETS> 558,333
<PP&E> 12,720,021
<DEPRECIATION> 8,421,416
<TOTAL-ASSETS> 4,856,938
<CURRENT-LIABILITIES> 383,893
<BONDS> 30,459
<COMMON> 0
0
0
<OTHER-SE> 4,442,586
<TOTAL-LIABILITY-AND-EQUITY> 4,856,938
<SALES> 0
<TOTAL-REVENUES> 491,827
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 378,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,528
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 192,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,641
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
