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 SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended September 30, 1996 Commission File No. 0-16511
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2962676
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(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
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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 September 30, 1996
and December 31, 1995 3
Statement of Operations for the Three and Nine Months Ended
September 30, 1996 and 1995 4
Statement of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 5
Notes to the Financial Statements 6-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-14
PART II.OTHER INFORMATION
ITEMS 1-6 15
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
1996 1995
ASSETS:
Cash and cash equivalents $ 442,777 $ 530,418
Rents receivable, net of allowance for doubtful
accounts of $97,000 at December 31, 1995 - 13,711
Due from Buyer 880,062 -
Accounts receivable--affiliate 1,956,344 3,717
Equipment at cost, net of accumulated
depreciation of $7,354,059 at December 31, 1995 - 3,256,127
------------ ------------
Total assets $ 3,279,183 $ 3,803,973
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Notes payable $ - $ 8,904
Accounts payable 79,387 -
Accrued interest - 27
Accrued liabilities 59,772 42,500
Accrued liabilities--affiliate 20,686 19,181
Deferred rental income - 50,808
Cash distributions payable to partners 2,800,268 191,099
------------ ------------
Total liabilities 2,960,113 312,519
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partners (218,554) (186,830)
Limited Partnership Interests (1,009,014 Units;
initial purchase price of $25 each)
537,624 3,678,284
------------ ------------
Total partners' capital 319,070 3,491,454
------------ ------------
Total liabilities and partners' capital $ 3,279,183 $ 3,803,973
------------ ------------
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
INCOME:
Lease revenue $ 470,202 $ 242,651 $ 861,875 $ 734,478
Interest income 13,318 6,244 26,644 21,382
Gain on sale of equipment 145,877 93,910 167,406 159,357
---------- ---------- ----------- ----------
Total income 629,397 342,805 1,055,925 915,217
---------- ---------- ----------- ----------
EXPENSES:
Depreciation 92,172 169,401 358,136 460,895
Write-down of equipment - - 500,000 -
Interest expense - 348 105 1,876
Equipment management fees--affiliate 23,510 12,133 43,094 36,724
Operating expenses--affiliate 101,917 15,491 144,508 77,649
---------- ---------- ----------- ----------
Total expenses 217,599 197,373 1,045,843 577,144
---------- ---------- ----------- ----------
NET INCOME $ 411,798 $ 145,432 $ 10,082 $ 338,073
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 0.40 $ 0.14 $ 0.01 $ 0.33
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
CASH DISTRIBUTIONS DECLARED PER LIMITED
PARTNERSHIP UNIT $ 2.75 $ 0.19 $ 3.12 $ 0.81
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,082 $ 338,073
Adjustments to reconcile net income to cash
from operating activities-
Depreciation 358,136 460,895
Write-down of equipment 500,000 -
Gain on sale of equipment (167,406) (159,357)
Decrease in allowance for doubtful accounts (97,000) (43,000)
Changes in assets and liabilities-
Decrease (increase) in-
Rents receivable 110,711 143,112
Accounts receivable--affiliate (320,489) 62,970
Increase (decrease) in-
Accounts payable 79,387 -
Accrued interest (27) (5,474)
Accrued liabilities 17,272 (1,750)
Accrued liabilities--affiliate 1,505 4,616
Deferred rental income (50,808) 46,122
---------- ----------
Cash from operating activities 441,363 846,207
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from equipment sales 53,197 159,357
---------- ----------
Cash from investing activities 53,197 159,357
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments--notes payable (8,904) (227,869)
Distributions paid (573,297) (1,146,607)
---------- ----------
Cash used in financing activities (582,201) (1,374,476)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (87,641) (368,912)
---------- ----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 530,418 819,430
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 442,777 $ 450,518
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 132 $ 7,350
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
As discussed in Note 1, the Partnership entered into
a sale transaction to dispose of its equipment
portfolio. This transaction was closed on September
30, 1996. The Partnership received net sales
proceeds of $880,062, which were deposited into an
escrow account and transferred to the Partnership on
October 3, 1996. This amount has been reflected as
Due from Buyer on the Statement of Financial
Position at September 30, 1996.
As discussed in Notes 1 and 4, the Partnership
entered into an additional sale transaction to
dispose of its interest in an aircraft leased to
Northwest Airlines, Inc. This transaction was
settled on September 30, 1996. The net sales
proceeds of $1,632,138 were deposited into an escrow
account and transferred to the Partnership on
October 3, 1996. This amount has been included in
Accounts Receivable--Affiliate on the Statement of
Financial Position at September 30, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
(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 1995 Annual Report. Except as disclosed herein, there has been no
material change to the information presented in the footnotes to the
1995 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the
financial position at September 30, 1996 and December 31, 1995 and
results of operations for the three and nine month periods ended
September 30, 1996 and 1995 have been made and are reflected.
On September 30, 1996, the Partnership sold all of its equipment assets,
excluding its interest in an aircraft, for $880,062 (see Notes 4 and 5).
In October 1996, the Partnership filed Form 8-K, which provided a
description of the remarketing process and the terms of sale. The
entire remarketing effort was undertaken jointly by 15 individual
equipment leasing programs, consisting of the Partnership and 14
affiliated partnerships, each of which individually executed separate
purchase and sale agreements with RSL Finance Limited Partnership II
(the Buyer) and certain of which entered into a collective purchase and
sale agreement with Northwest Airlines, Inc. (NWA), to sell all or a
portion of their equipment assets (the Sale Assets). Certain of these
partnerships, including the Partnership sold their collective interest
in a McDonnell Douglas MD-82 aircraft (NWA Aircraft) to NWA. The net
consideration for this aircraft was allocated first to remaining lease
rental obligations and second to sale proceeds. The Partnership's
proportionate share of this consideration was $1,864,484, including
$1,632,138 representing net sale proceeds (see Notes 3 and 4).
The Managing General Partner anticipates that the Partnership will be
dissolved on or before December 31, 1996 in accordance with the
Partnership's Amended and Restated Agreement and Certificate of Limited
Partnership. Prior to December 31, 1996, the Managing General Partner
will wind-up the operations of the Partnership and make a liquidating
distribution of $2,800,268 to the Partners. The distribution
approximates all of the Partnership's available cash, net of estimated
wind-up costs, and a contingency reserve. In November 1996, the
contingency reserve of $325,000 was deposited into a separate account to
cover any unforeseen liabilities that may arise in future periods. At
such time as the Managing General Partner considers appropriate, any
balance in the reserve account will be distributed to the Partners
according to their respective ownership interests in the Partnership at
the date of its dissolution (see Note 6).
6
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(1) BASIS OF PRESENTATION (CONTINUED)
The financial statements presented have been prepared on a going-concern
basis through September 30, 1996. Due to the imminent dissolution of the
Partnership requiring liquidation and distribution of its net assets, a
statement of net assets in liquidation as of September 30, 1996 is
presented below. This statement is prepared based on anticipated
liquidating values of assets and liabilities. Management has determined
the liquidating values of amounts receivable based on collectibility of
balances prior to any final distribution and termination of the
Partnership. Accrued liabilities have been estimated based on the
existing obligations and anticipated fees and costs associated with the
sales transactions and the wind-up effort. Cash distributions to
partners, including contingency reserves, may vary depending upon the
realization of the amounts estimated by management. Values estimated by
management may be different from actual amounts.
Assets:
Cash and cash equivalents $ 442,777
Due from Buyer 880,062
Accounts receivable--affiliate 1,956,344
----------
Total assets $3,279,183
----------
----------
Liabilities:
Accounts payable $ 79,387
Accrued liabilities 59,772
Accrued liabilities--affiliate 20,686
Cash distributions payable to partners,
including contingency reserve 3,119,338
----------
Total liabilities $3,279,183
----------
----------
Net assets $ -
----------
----------
(2) CASH
The Partnership invests excess cash with large institutional banks in
reverse repurchase agreements with overnight maturities. The reverse
repurchase agreements are secured by U.S. Treasury Bills or interests in
U.S. Government securities. At September 30, 1996, the Partnership had
$440,000 invested in reverse repurchase agreements.
7
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(3) REVENUE RECOGNITION
Rents were payable to the Partnership monthly, quarterly or
semiannually, and no significant amounts were calculated on factors
other than the passage of time. The leases were accounted for as
operating leases and were noncancelable. Rents received prior to their
due dates were deferred. Lease rentals, representing early termination
rents, were recognized as revenue in the period in which they were
received.
As discussed in Note 1, the Partnership realized $232,346 of early
termination rents in connection with the sale of the NWA Aircraft.
(4) EQUIPMENT
The following is a summary of equipment owned by the Partnership
immediately prior to the sale transactions described in Note 1.
LEASE TERM EQUIPMENT,
EQUIPMENT TYPE (MONTHS) AT COST
Aircraft 36-108 $ 7,649,166
Motor vehicles 12-72 1,012,577
Trailers/intermodal containers 36-84 760,402
Locomotives 57-60 351,854
Research and test 17-84 111,349
Materials handling 1-84 78,910
Tractors and heavy duty trucks 1-72 47,152
-----------
Total equipment cost 10,011,410
Accumulated depreciation (7,618,587)
-----------
Equipment, net of accumulated depreciation $ 2,392,823
-----------
-----------
As discussed in Note 1, on September 30, 1996, the Partnership sold all
of the foregoing equipment for $2,512,200, including $1,632,138 of net
sales proceeds related to the NWA Aircraft.
8
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(5) RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by American
Finance Group (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 nine month periods ended September 30, 1996 and 1995,
which were paid or accrued by the Partnership to AFG or its Affiliates,
are as follows:
1996 1995
Equipment management fees $ 43,094 $ 36,724
Administrative charges 21,000 15,750
Reimbursable operating expenses due to third parties 123,508 61,899
-------- --------
Total $187,602 $114,373
-------- --------
-------- --------
Administrative charges and reimbursable operating expenses due to third
parties in 1996 include all costs anticipated in connection with the
Partnership's wind-up and dissolution.
All rents and proceeds from the sale of equipment, including the sale
transaction described in Note 1, 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 September 30, 1996, the Partnership was owed $1,956,344 by AFG for
such funds and the interest thereon. The funds were remitted to the
Partnership in October 1996. The sales proceeds due from the Buyer were
deposited into the escrow account subsequent to September 30, 1996.
The remarketing effort described in Note 1 was undertaken jointly by 15
individual equipment leasing programs, consisting of the Partnership and
14 affiliated partnerships (Other Affected Partnerships). Collectively,
the Partnership and the Other Affected Partnerships offered for sale all
or a portion of their equipment assets. Thirteen of the programs,
including the Partnership, offered to sell all of their equipment assets
and are expected to wind up business operations by December 31, 1996;
the remaining two programs, which will continue their business
operations beyond December 31, 1996, offered to sell only their interest
in assets owned jointly with one or more of the 13 programs anticipating
wind-up by December 31, 1996. Substantially all of the Partnership's
equipment assets of material value represented partial ownership
interests whereby the Partnership owned less than a 100% interest in the
equipment it offered for sale. The remaining interests in such assets
were owned by one or more of the Other Affected Partnerships.
Ultimately, the Sale Assets were sold for an aggregate adjusted sale
price of approximately $32,997,000, of which the Partnership's
proportionate share, net
9
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
of associated costs, was determined to be $880,062. In a separate
transaction, the Partnership and certain of the Other Affected
Partnerships sold their entire interest in the NWA Aircraft to the
lessee and agreed to terminate the lease agreement for total proceeds of
$13,200,000, of which the Partnership's proportionate share, net of
associated costs, was determined to be $1,864,484, including early
termination rents of $232,346. The Partnership's proportionate share in
both transactions is net of certain third-party advisory fees incurred
in connection with the equipment sales.
The Buyer is a limited partnership established to acquire the Sale
Assets, excluding the NWA Aircraft, and has no direct affiliation with
the Partnership, the Other Affected Partnerships, the General Partners
or AFG. The sole general partner of the Buyer is RSL Holdings, Inc.
(RSL). An affiliate of RSL purchased a significant limited partnership
interest in a direct-participation equipment leasing program
co-sponsored by AFG in 1992. AFG acquired this interest in 1993 for
cash and assumption of indebtedness. There have been no other business
dealings between the Buyer and AFG and their affiliates.
(6) SUBSEQUENT EVENTS
On October 10, 1996, the Managing General Partner entered into a Cross
Partnership Agreement with the general partners of certain other
affiliated partnerships. Under this agreement, each of the general
partners has agreed to set aside a contingency reserve amount for future
liabilities and deposit that amount into an account that may be accessed
by any of the general partners to fund any and all obligations
contemplated under the Cross Partnership Agreement. Any obligation of
the Partnership that is not associated with the sales transactions (see
Note 1) will directly reduce the Partnership's reserve amount. All
costs arising as a result of the sales transactions will be allocated
against the reserve amount of the Partnership and other affiliated
partnerships. If the reserve amount contributed by the Partnership is
reduced below zero, the reserve amounts contributed by the general
partners of certain other affiliated partnerships shall be debited on a
pro rata basis to cover the deficit. If the reserve amount contributed
by one of the affiliated partnerships is reduced below zero, the reserve
amounts of the Partnership and the remaining affiliated partnerships
shall be debited on a pro rata basis to cover the deficit. Upon
termination of the contingency reserve account, any monies remaining
will be distributed to those partnerships with positive balances. The
Partnership's reserve amount under this agreement was determined to be
$325,000 and was deposited in the reserve account in November 1996.
In connection with the wind-up effort, AFG Leasing Incorporated, the
Managing General Partner of the Partnership, was merged with and into
AFG Leasing IV Incorporated effective October 17, 1996. Accordingly, AFG
Leasing IV Incorporated became the Managing General Partner of the
Partnership commencing October 17, 1996. AFG Leasing IV Incorporated was
established in 1987 and is also the general partner or managing general
partner of certain other affiliated partnerships sponsored by AFG.
10
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Three and Nine Months Ended September 30, 1996 Compared To the Three and
Nine Months Ended September 30, 1995:
OVERVIEW
The Partnership was organized in 1987 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment
subject to lease agreements with third parties. The Partnership's stated
investment objectives and policies contemplated that the Partnership would
wind-up its operations within approximately seven years of its inception.
On September 30, 1996, the Partnership sold all of its remaining equipment
assets. The remarketing effort described in Note 1 was undertaken jointly by
15 individual equipment leasing programs, consisting of the Partnership and
14 affiliated partnerships (Other Affected Partnerships). Collectively, the
Partnership and the Other Affected Partnerships sold all or a portion of
their equipment assets (Sale Assets). Thirteen of the programs, including
the Partnership, offered to sell all of their equipment assets and are
expected to wind up business operations by December 31, 1996; the remaining
two programs, which will continue their business operations beyond December
31, 1996, sold only their interest in assets owned jointly with one or more
of the 13 programs anticipating wind-up by December 31, 1996. Substantially
all of the Partnership's equipment assets of material value represented
partial ownership interests whereby the Partnership owned less than a 100%
interest in the equipment it sold. The remaining interests in such assets
were owned by one or more of the Other Affected Partnerships. Ultimately,
the Sale Assets, excluding the NWA Aircraft, were sold for an aggregate
adjusted sale price of approximately $32,997,000, of which the Partnership's
proportionate share, net of associated costs, was determined to be $880,062.
In a separate transaction, the Partnership and certain of the Other Affected
Partnerships sold their entire interest in the NWA Aircraft, to the lessee
and agreed to terminate the lease agreement for total proceeds of
$13,200,000, of which the Partnership's proportionate share, net of
associated costs, was determined to be $1,864,484, including early
termination rents of $232,346. The Partnership's proportionate share in both
transactions is net of certain third-party advisory fees incurred in
connection with the equipment sales.
The Managing General Partner anticipates that the Partnership will be
dissolved on or before December 31, 1996 in accordance with the Partnership's
Amended and Restated Agreement and Certificate of Limited Partnership
(Partnership Agreement). Prior to December 31, 1996, the Managing General
Partner will wind up the operations of the Partnership and make a liquidating
distribution of $2,800,268 to the Partners. The distribution approximates
all of the Partnership's available cash, net of estimated wind-up costs and a
contingency reserve. In
11
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
(Continued)
OVERVIEW (Continued)
November 1996, the contingency reserve of $325,000, was deposited in a
separate account to cover any unforeseen liabilities that may arise in future
periods. At such time as the Managing General Partner considers appropriate,
any balance in the reserve account will be distributed to the Partners
according to their respective ownership interests in the Partnership at the
date of its dissolution (see Note 6 to the financial statements).
The financial statements presented have been prepared on a going-concern
basis through September 30, 1996. Due to the imminent dissolution of the
Partnership requiring liquidation and distribution of its net assets,
management has determined the liquidating values of amounts receivable based
on collectibility of balances prior to any final distribution and termination
of the Partnership. Accrued liabilities have been estimated based on the
existing obligations and anticipated fees and costs associated with the sales
transactions and the wind-up effort. Cash distributions to Partners,
including contingency reserves, may vary depending upon the realization of
the amounts estimated by management. Values estimated by management may be
different from actual amounts.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1996, the Partnership
recognized lease revenue of $470,202 and $861,875, respectively, compared to
$242,651 and $734,478 for the same periods in 1995. The increase in lease
revenue from 1995 to 1996 resulted from the recognition of $232,346 in lease
revenue related to early termination rents associated with the sale of the
NWA Aircraft. This was partially offset by renewal lease term expirations
and the sale of equipment. The Partnership also earned interest income from
temporary investments of rental receipts and equipment sales proceeds in
short-term instruments.
Prior to the sale of the Partnership's assets, the Partnership's equipment
portfolio included certain assets in which the Partnership held a
proportionate ownership interest. In such cases, the remaining interests
were owned by AFG or an affiliated equipment leasing program sponsored by
AFG. Proportionate equipment ownership enabled the Partnership to further
diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk that could
result from a concentration in any single equipment type, industry or lessee.
The Partnership and each affiliate individually reported, in proportion to
their respective ownership interests, their respective shares of assets,
liabilities, revenues and expenses associated with the equipment.
12
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
(Continued)
RESULTS OF OPERATIONS (Continued)
During the three months ended September 30, 1996, the Partnership sold
equipment in the normal course of business having a net book value of $226 to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $26,500 compared to a net gain of $93,910 on
equipment which had been fully depreciated for the same period in 1995.
During the nine months ended September 30, 1996, the Partnership sold
equipment in the normal course of business having a net book value of $5,168
to existing lessees and third parties. The sales resulted in a net gain, for
financial statement purposes, of $48,029 compared to a net gain of $159,357
on equipment which had been fully depreciated for the same period in 1995.
In connection with the September 30, 1996 sale transactions discussed above,
the Partnership realized a net gain of $119,377.
Depreciation expense for the three and nine months ended September 30, 1996
was $92,172 and $358,136, respectively, compared to $169,401 and $460,895 for
the same periods in 1995. For financial reporting purposes, to the extent
that an asset was held on primary lease term, the Partnership depreciated 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. To the extent
that equipment was held beyond its primary lease term, the Partnership
continued to depreciate the remaining net book value of the asset on a
straight-line basis over the asset's remaining economic life.
During the nine months ended September 30, 1996, the Partnership recorded a
write-down, representing an impairment in value, pertaining to its interest
in a Lockheed L-1011 aircraft. This adjustment was precipitated by
continuing deterioration in the secondary market for wide-body aircraft of
this type. Several air carriers have reduced their commitment to the L-1011,
and a major domestic air carrier is expected to retire eleven L-1011 aircraft
from its fleet. Further, it appeared that future demand for this type of
aircraft would be weak, consisting principally of air cargo or operators of
passenger charters. In consideration of such circumstances and in accordance
with Financial Accounting Standards Board Statement No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, the Partnership reduced the carrying value of its L-1011 aircraft
interest to its estimated current fair market value. This resulted in a
write-down of $500,000, representing $0.49 per limited partnership unit.
Management fees were 5% of lease revenue during each of the periods ended
September 30, 1996 and 1995.
13
AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
(Continued)
RESULTS OF OPERATIONS (Continued)
Operating expenses consisted 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 were incurred in connection with
equipment being remarketed. Collectively, operating expenses represented
21.7% and 16.8% of lease revenue during the three and nine month periods
ended September 30, 1996, respectively, compared to 6.4% and 10.6% of lease
revenue for the same periods in 1995. Operating expenses for the three and
nine month periods ended September 30, 1996 included all costs anticipated in
connection with the Partnership's wind-up and dissolution.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership, by its nature, is a limited-life entity that was established
for specific purposes described in the preceding "Overview." As an equipment
leasing program, the Partnership's principal operating activities have been
derived from asset rental transactions. Accordingly, the Partnership's
principal source of cash from operations has been provided from the
collection of periodic rents. These cash inflows were 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
$441,363 and $846,207 during the nine months ended September 30, 1996 and
1995, respectively.
Cash realized from asset disposal transactions, excluding the sales
transactions on September 30, 1996, is reported under investing activities on
the accompanying Statement of Cash Flows. During the nine months ended
September 30, 1996 and 1995, the Partnership realized $53,197 and $159,357,
respectively, in equipment sale proceeds during the normal course of business.
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. All of the
Partnership's outstanding debt obligations were retired in 1996.
On September 30, 1996, the Partnership recorded a receivable in the amount of
$1,864,484 in connection with the disposal of the NWA Aircraft. The
Partnership also recorded a receivable of $880,062 in connection with the
sale of all of its remaining equipment assets. These proceeds were deposited
into an escrow account and transferred to the Partnership on October 3, 1996.
In conjunction with this transaction, the Managing General Partner has
commenced the dissolution and liquidation of the Partnership. The aggregate
funds from the sale transaction and liquidation will be used to fund existing
obligations, including costs of the wind-up effort and sale transactions and
to establish a contingency reserve to cover any unforeseen liabilities. The
remaining funds, including any unutilized contingency reserves, will be
distributed to the partners in accordance with the terms of the Partnership
Agreement and related agreements.
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AMERICAN INCOME PARTNERS III-A 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.
15
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 IV Incorporated, a Massachusetts
corporation and the Managing General Partner of the Registrant.
By: /S/ Michael J. Butterfield
--------------------------
Michael J. Butterfield
Treasurer of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 19, 1996
-----------------
By: /S/ Gary M. Romano
------------------
Gary M. Romano
Clerk of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 19, 1996
-----------------
16