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 quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
For Quarter Ended June 30, 1994 Commission File No. 0-16511
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.)
Exchange Place, 14th Floor, Boston, MA 02109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 542-1200
_______________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes_____ No______
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION: Page
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1994 and December 31, 1993 3
Statement of Operations
for the three and six months ended June 30, 1994 and 1993 4
Statement of Cash Flows
for the six months ended June 30, 1994 and 1993 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
PART II. OTHER INFORMATION:
Items 1 - 6 15
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
June 30, 1994 and December 31, 1993
(Unaudited)
June 30, December 31,
1994 1993
ASSETS
Cash and cash equivalents $ 1,241,017 $ 1,486,204
Rents receivable, net of allowance for
doubtful accounts of $140,000 and
$185,000 at June 30, 1994 and
December 31, 1993, respectively 120,600 238,646
Accounts receivable - affiliate 293,682 105,083
Equipment at cost, net of accumulated
depreciation of $9,706,258 and
$11,062,913 at June 30, 1994 and
December 31, 1993, respectively 4,962,687 5,638,454
Total assets $ 6,617,986 $ 7,468,387
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 278,872 $ 560,198
Accrued interest 11,137 23,541
Accrued liabilities 65,000 64,000
Accrued liabilities - affiliate 19,029 12,662
Deferred rental income 72,613 55,564
Cash distributions payable to partners 509,603 509,603
Total liabilities 956,254 1,225,568
Partners' capital (deficit):
General Partners (165,127) (159,316)
Limited Partnership Interests
(1,009,014 Units; initial
purchase price of $25 each) 5,826,859 6,402,135
Total partners' capital 5,661,732 6,242,819
Total liabilities and partners' capital $ 6,617,986 $ 7,468,387
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1994 and 1993
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
Income:
Lease revenue $ 544,896 $ 589,644 $ 989,670 $ 1,143,734
Interest income 12,528 7,016 21,758 14,067
Gain on sale
of equipment 62,092 151,060 123,554 387,489
Total income 619,516 747,720 1,134,982 1,545,290
Expenses:
Depreciation 272,836 634,904 594,081 1,237,987
Interest expense 2,027 14,390 7,644 32,626
Equipment management
fees - affiliate 27,245 29,482 49,484 57,187
Operating expenses
- affiliate 21,182 23,575 45,654 50,078
Total expenses 323,290 702,351 696,863 1,377,878
Net income $ 296,226 $ 45,369 $ 438,119 $ 167,412
Net income per limited
partnership unit $ 0.29 $ 0.04 $ 0.43 $ 0.16
Cash distributions
declared per limited
partnership unit $ 0.50 $ 0.50 $ 1.00 $ 1.00
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1994 and 1993
(Unaudited)
1994 1993
Cash flows from (used in) operating activities:
Net income $ 438,119 $ 167,412
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 594,081 1,237,987
Gain on sale of equipment (123,554) (387,489)
Decrease in allowance for doubtful accounts (45,000) --
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 163,046 223,323
accounts receivable - affiliate (188,599) 887,821
Increase (decrease) in:
accrued interest (12,404) (16,774)
accrued liabilities 1,000 (7,838)
accrued liabilities - affiliate 6,367 1,083
deferred rental income 17,049 (29,306)
Net cash from operating activities 850,105 2,076,219
Cash flows from investing activities:
Proceeds from equipment sales 205,240 412,428
Net cash from investing activities 205,240 412,428
Cash flows used in financing activities:
Principal payments - notes payable (281,326) (606,529)
Distributions paid (1,019,206) (891,805)
Net cash used in financing activities (1,300,532) (1,498,334)
Net increase (decrease) in cash and cash equivalents (245,187) 990,313
Cash and cash equivalents at beginning of period 1,486,204 560,432
Cash and cash equivalents at end of period $ 1,241,017 $ 1,550,745
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 20,048 $ 49,400
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
Notes to the Financial Statements
June 30, 1994
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing
Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not
include all information and footnote disclosures required under generally
accepted accounting principals for complete financial statements and,
Accordingly, the accompanying financial statements should be read in
conjunction with the footnotes presented in the 1993 Annual Report. Except as
disclosed herein, there has been no material change to the information
presented in the footnotes to the 1993 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at June 30, 1994 and December 31, 1993 and results of operations for
the three and six month periods ended June 30, 1994 and 1993 have been made and
are reflected.
NOTE 2 - CASH
The Partnership invests excess cash with large institutional banks in
reverse repurchase agreements with overnight securities. The reverse
repurchase agreements are secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Partnership monthly, quarterly or semi-annually
and no significant amounts are calculated on factors other than the passage of
time. The leases are accounted for as operating leases and are noncancellable.
Rents received prior to their due dates are deferred. Future minimum rents of
$1,639,846 are due as follows:
For the year ending June 30, 1995 $ 852,326
1996 496,351
1997 267,935
1998 23,234
Total $ 1,639,846
During 1994, the Partnership and other affiliated partnerships, executed a
renewal lease agreement in connection with an MD-82 aircraft leased by
Northwest Airlines, Inc. ("Northwest"). Pursuant to the agreement, Northwest
will continue to lease the aircraft until May 31, 1997. The Partnership,
which owns a 14% interest in this aircraft, will receive an aggregate of
$861,460 in lease revenue during the four year renewal period. Such rents
are included in the future minimum rents above.
NOTE 4 - EQUIPMENT
At June 30, 1994, the Partnership owned equipment with an original cost of
$14,668,945 as summarized below. In the opinion of American Finance Group
("AFG"), the carrying value of the equipment does not exceed its fair market
value. The equipment is summarized as follows:
Lease Term Equipment
Equipment Type (Months) at Cost
Aircraft 12-60 $ 7,632,746
Retail store fixtures 1-72 1,431,673
Trailers/intermodal containers 60-84 1,172,384
Motor vehicles 12-72 1,091,401
Research and test 17-84 829,541
Communications 37-84 816,309
Medical 10-60 733,242
Locomotives 57-60 378,818
Tractors and heavy duty trucks 1-72 330,693
Materials handling 1-84 167,419
Computers and peripherals 1-60 60,852
Manufacturing 60-72 12,291
Fitness 17-60 10,384
Photocopying 1-36 1,192
Total equipment cost 14,668,945
Accumulated depreciation (9,706,258)
Equipment, net of accumulated depreciation $ 4,962,687
The summary above includes equipment held for sale or re-lease which was
fully depreciated and had an original cost of approximately $6,000 at
June 30, 1994.
NOTE 5 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by AFG on
behalf of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the six month
periods ended June 30, 1994 and 1993, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
1994 1993
Equipment management fees $ 49,484 $ 57,187
Administrative charges 6,000 8,955
Reimbursable operating expenses
due to third parties 39,654 41,123
Total $ 95,138 $ 107,265
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, 1994, the Partnership was owed $293,682 by AFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in July 1994.
NOTE 6 - NOTES PAYABLE
Notes payable at June 30, 1994 consisted of installment notes of $278,872
payable to banks and institutional lenders. All of the installment notes are
non-recourse, with interest rates ranging between 6.25% and 10.75% and are
collateralized by the equipment and assignment of the related lease payments.
The installment notes will be fully amortized by noncancellable rents.
The annual maturities of the installment notes payable are as follows:
For the year ending June 30, 1995 $ 252,570
1996 26,302
Total $ 278,872
NOTE 7 - LEGAL PROCEEDINGS
In 1991 and 1992, respectively, Linda Vista Community Hospital and Florida
Hospital Corporation (collectively the "Debtors"), lessees of the Partnership,
filed for protection under Chapters 7 and 11, respectively, of the Bankruptcy
Code. The Partnership and other AFG-sponsored programs, filed proofs of claim
in each case. Pursuant to a Release Agreement, the Debtors settled all
outstanding claims on February 28, 1994 by acquiring all affected equipment
owned by the Partnership for $20,007. This resulted in a net gain of $20,007,
for financial statement purposes, which was recorded in March 1994. These
bankruptcies did not have a material adverse effect on the financial position
of the Partnership.
In July 1993, Fred Meyer, Inc. (the "plaintiff"), in anticipation of a
declaration of lease default by AFG, filed a complaint against AFG (the
"defendant") in the Circuit Court of the State of Oregon as a result of a
dispute which arose between the plaintiff and the defendant concerning holdover
rents due to the Partnership with respect to certain equipment and the fair
market value of such equipment leased by the Partnership to the plaintiff. AFG
filed an answer to the plaintiff's complaint and asserted a counterclaim
seeking monetary damages. A Settlement Agreement, including dismissal of this
case, was executed on June 22, 1994 and resulted in the plaintiff's payment of
$161,822 to the Partnership for rent and residual proceeds. The equipment
dispositions resulted in a net gain of $37,167, for financial statement
purposes, which the Partnership recorded in June 1994. This settlement did
not have a material adverse effect on the financial position of the Partnership.
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 other
AFG-sponsored programs, filed a proof of claim in this matter. At June 30,
1994, equipment leased to this lessee had an original cost of $36,517, which is
fully depreciated for financial reporting purposes. Pursuant to order of the
U.S. District Bankruptcy Court, Wylie Hospital must pay $11,000 to the
Partnership for settlement of this matter, which funds had not been received at
August 12, 1994. This bankruptcy is not expected to have a material adverse
effect to 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, 1994 compared to the three and six months
ended June 30, 1993:
Overview
As an equipment leasing partnership, the Partnership was designed to
progress through four major phases: development, acquisition, operations, and
liquidation. During the operations phase, a period of approximately six years,
all equipment in the Partnership's portfolio will progress through various
stages. At first, all equipment will generate rental revenues under lease
agreements identified as primary term. As the Partnership ages, these primary
term lease agreements will expire on an intermittent basis. Equipment held
under expired leases may be renewed, re-leased or sold, depending on prevailing
market conditions and AFG's assessment of such conditions, to obtain the most
advantageous economic benefit. Over time, the frequency of primary lease term
expirations will increase and a greater portion of the Partnership's original
equipment portfolio will become available for remarketing. Cash generated from
operations and from sales or refinancings will begin to fluctuate as a result,
until all equipment is sold and the Partnership is liquidated. The
Partnership's operations commenced in 1987. Currently, the Partnership is in
the latter stages of its operations phase.
Results of Operations
For the three and six months ended June 30, 1994, the Partnership
recognized lease revenue of $544,896 and $989,670, respectively, compared to
$589,644 and $1,143,734, respectively, for the same periods in 1993. The
decrease in lease revenue from 1993 to 1994 was expected and resulted
principally from primary lease term expirations and the sale of equipment. In
addition, during the three months ended June 30, 1994, the Partnership
re-leased an L1011-100 aircraft, in which it owns a 23.46% interest, to a third
party. This re-lease will generate approximately $141,000 in additional lease
revenue through November 1994.
At March 31, 1994, the Managing General Partner reviewed the aggregate
amount reserved against potentially uncollectable rents receivable and
determined a reserve of $140,000 would be appropriate. Accordingly, the
Partnership reduced its reserve and increased lease revenue in the amount of
$45,000 or $0.04 per limited partnership unit. It cannot be determined whether
the Partnership will recover any past due rents in the future; however, the
Managing General Partner will pursue the collection of all such items.
Interest income for the three and six months ended June 30, 1994 was
$12,528 and $21,758, respectively, compared to $7,016 and $14,067,
respectively, for the same periods in 1993. Interest income is generated
from temporary investment of rental receipts and equipment sale proceeds in
short-term instruments. The increase in interest income from 1993 to 1994 is
attributable to a greater availability of cash used for investment prior to
distribution to the Partners. The amount of future interest income is expected
to fluctuate in relation to prevailing interest rates, collection of lease
revenue, and the proceeds from equipment sales.
For the three months ended June 30, 1994, the Partnership sold equipment
with a net book value of $694 to existing lessees or to third parties. These
sales resulted in a net gain, for financial statement purposes, of $62,092
compared to a net gain of $151,060 on fully-depreciated equipment which was
sold during the same period in 1993.
For the six months ended June 30, 1994, the Partnership sold equipment
having a net book value of $81,686 to existing lessees or to third parties.
These sales resulted in a net gain, for financial statement purposes, of
$123,554 compared to a net gain of $387,489 on equipment having a net book
value of $24,939 for the same period in 1993.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological
advances, and many other events can converge to enhance or detract from asset
values at any given time. AFG attempts to monitor these changes in order to
identify opportunities which may be advantageous to the Partnership and which
will maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenues generated from that asset,
together with its residual value. The latter consists of cash proceeds
realized upon the asset's sale in addition to all other cash receipts
obtained from renting the asset on a re-lease, renewal or month-to-month
basis. The Partnership classifies such residual rental payments as lease
revenue. Consequently, the amount of gain or loss reported in the financial
statements is not necessarily indicative of the total residual value the
Partnership achieved from leasing the equipment.
Depreciation expense for the three and six months ended June 30, 1994 was
$272,836 and $594,081, respectively, compared to $634,904 and $1,237,987 for
the same periods in 1993. The Partnership depreciates its equipment, on a
straight-line basis, to an amount equal to its estimated residual value at the
end of its useful life. Typically, useful life corresponds to the primary
lease term period associated with each asset. To the extent that equipment
is held longer than its expected useful life (beyond the primary lease term
period), the Partnership continues to depreciate the equipment on a
straight-line basis over its remaining economic life.
Interest expense was $2,027 and $7,644, or less than 1% of lease revenue
for the three and six months ended June 30, 1994, respectively, compared to
$14,390 and $32,626 or 2.4% and 2.9%, respectively, of lease revenue for the
same periods in 1993. Interest expense in future periods will continue to
decline in amount and as a percentage of lease revenue as the principal balance
of notes payable is reduced through the application of rent receipts to
outstanding debt.
Management fees were 5% of lease revenue in each of the periods ended
June 30, 1994 and 1993 and will not change as a percentage of lease revenue in
future periods.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment
being remarketed. Collectively, operating expenses represented 3.9% and 4.6%
of lease revenue for the three and six months ended June 30, 1994,
respectively, compared to 4% and 4.4% of lease revenue, respectively, for the
same periods in 1993. The amount of future operating expenses cannot be
predicted with certainty; however, such expenses are usually higher during
the acquisition and liquidation phases of a partnership. Other fluctuations
typically occur in relation to the volume and timing of remarketing
activities.
The relatively low inflation rates in 1994 and 1993 and the economic
recession may have caused some re-lease and sale proceeds to be lower than that
which may have been achieved in a stronger economic environment. In other
cases, the economic recession may have had an adverse effect on the ability of
certain lessees to fulfill all of their financial obligations under the
leases. These factors will result in the investors achieving a
rate-of-return lower than that anticipated at the Partnership's commencement
date.
Discussion of Cash Flows
The statement of cash flows summarizes the cash inflows and outflows from
the Partnership's operating, investing and financing activities. The
Partnership's largest source of cash is that provided by operating activities.
The Partnership's operating activities generated net cash of $850,105 and
$2,076,219 for the six months ended June 30, 1994 and 1993, respectively.
The Partnership reflects cash provided from equipment sale proceeds under
investing activities. During the six months ended June 30, 1994, the
Partnership realized $205,240 in equipment sale proceeds compared to $412,428
for the same period in 1993.
Financing activities reflect a net cash outflow of $1,300,532 and
$1,498,334 for the six months ended June 30, 1994 and 1993, respectively.
During both periods, a significant cash outflow for the Partnership resulted
from the repayment of notes payable. All long-term financing was provided by
third-party lending institutions.
All of the Partnership's notes payable are secured by designated equipment
and the rental payments received in connection with that equipment. As rental
payments are collected, a portion or all of the rental payment is used to repay
the associated debt. All debt is structured such that it is fully amortized
over the lease term underlying the secured equipment. Principal payments on
long-term notes payable for the six months ended June 30, 1994 and 1993 were
$281,326 and $606,529 respectively.
A major outflow of cash is attributable to quarterly cash distributions
paid to the General Partners and Recognized Owners. Aggregate cash
distributions paid during the six month periods ended June 30, 1994 and 1993
were $1,019,206 and $891,805, respectively.
Cash distributions to the Partners consist of both a return of and a
return on capital. To the extent that cash distributions consist of Cash
From Sales or Refinancings, substantially all of such cash distributions
should be viewed as a return of capital.
Overall, cash and cash equivalents decreased by $245,187 and increased by
$990,313 during the six month periods ended June 30, 1994 and 1993,
respectively.
Liquidity and Capital Resources
The Partnership's operations are expected to generate a positive cash flow
each year through the final disposition of equipment. However, the future
liquidity of the Partnership is greatly dependent upon the collection of
noncancellable rents and the residual values realized from remarketing the
Partnership's equipment. It is anticipated that cash proceeds resulting from
these sources will satisfy the Partnership's future expense obligations.
Lease revenues may drop significantly in the final stages of the
Partnership's operations phase due to equipment sales and lower rental revenues
generated from renewal and re-lease activities. Therefore, as the Partnership
begins its liquidation phase and the final stages of its remarketing
activities, it is expected that the level of quarterly cash distributions
will fluctuate.
During 1994, the Partnership and other affiliated partnerships, executed a
renewal lease agreement in connection with an MD-82 aircraft leased by
Northwest. Pursuant to the agreement, Northwest will continue to lease the
aircraft until May 31, 1997. The Partnership, which owns a 14% interest in
this aircraft, will receive an aggregate of $861,460 in lease revenue during
the four year renewal period.
The legal proceedings referred to in Note 7 to the financial statements in
the 1993 Annual Report and Note 7 to the financial statements, herein, are not
expected to have a material adverse effect on the financial position of the
Partnership. However, the Partnership's future cash distributions will be
adversely affected by the 1990 bankruptcy of Affiliated Land Corporation
("Affiliated"). The bankruptcy of Affiliated will result in the Partnership's
loss of any future interest in the residual value of the equipment Affiliated
leased from the Partnership. Aggregate program performance will be dependent
upon many factors, including the outcome of all legal proceedings, the
collection of all future noncancellable rents, and the results of remarketing
the Partnership's remaining equipment.
For the six months ended June 30, 1994, the Partnership declared total
cash distributions of Distributable Cash From Operations and Distributable
Cash From Sales and Refinancings of $1,019,206. In accordance with the
Amended and Restated Agreement and Certificate of Limited Partnership, the
Recognized Owners were allocated 99% of these distributions, or $1,009,014
and the General Partners were allocated 1%, or $10,192. The second quarter
1994 cash distribution occurred on July 15, 1994.
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 to the financial statements included
in Form 10-Q for the three months ended March 31,
1994 and Note 7, herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity
and on the date indicated.
AMERICAN INCOME PARTNERS III-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 12, 1994