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 __________________
For Quarter Ended September 30, 1996 Commission File No. 0-16512
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2968859
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 NORTH WASHINGTON STREET, BOSTON, MA 02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
(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-B 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-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
1996 1995
ASSETS:
Cash and cash equivalents $ 698,393 $ 802,718
Rents receivable, net of allowance for
doubtful accounts of $60,000 at
December 31, 1995 - 3,044
Due from Buyer 993,316 -
Accounts receivable--affiliate 2,151,663 5,490
Equipment at cost, net of accumulated
depreciation of $7,839,693 at December 31, 1995 - 3,684,320
------------ ------------
Total assets $ 3,843,372 $ 4,495,572
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable $ 90,728 $ -
Accrued liabilities 67,994 20,000
Accrued liabilities--affiliate 20,493 15,216
Deferred rental income - 52,247
Cash distributions payable to partners 3,293,739 213,508
------------ ------------
Total liabilities 3,472,954 300,971
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partners (244,167) (205,925)
Limited Partnership Interests (1,127,330 Units;
initial purchase price of $25 each) 614,585 4,400,526
------------ ------------
Total partners' capital 370,418 4,194,601
------------ ------------
Total liabilities and partners' capital $ 3,843,372 $ 4,495,572
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-3-
AMERICAN INCOME PARTNERS III-B 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 $ 497,341 $ 275,818 $ 904,997 $ 800,343
Interest income 17,079 10,716 36,623 32,771
Gain on sale of equipment 121,271 189,695 127,880 470,707
---------- ---------- ----------- ----------
Total income 635,691 476,229 1,069,500 1,303,821
---------- ---------- ----------- ----------
EXPENSES:
Depreciation 92,929 177,100 368,060 532,071
Write-down of equipment - - 600,000 -
Interest expense - 16 - 726
Equipment management fees--affiliate 24,867 13,791 45,250 40,017
Operating expenses--affiliate 115,705 20,019 159,618 86,827
---------- ---------- ----------- ----------
Total expenses 233,501 210,926 1,172,928 659,641
---------- ---------- ----------- ----------
NET INCOME (LOSS) $ 402,190 $ 265,303 $ (103,428) $ 644,180
========== ========== =========== ==========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ .35 $ 0.23 $ (0.09) $ 0.57
========== ========== =========== ==========
CASH DISTRIBUTIONS DECLARED PER LIMITED
PARTNERSHIP UNIT $ 2.89 $ 0.31 $ 3.27 $ 0.94
========== ========== =========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-4-
AMERICAN INCOME PARTNERS III-B 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 (loss) $ (103,428) $ 644,180
Adjustments to reconcile net income (loss) to
cash from operating activities-
Depreciation 368,060 532,071
Write-down of equipment 600,000 -
Gain on sale of equipment (127,880) (470,707)
Decrease in allowance for doubtful accounts (60,000) -
Changes in assets and liabilities-
Decrease (increase) in-
Rents receivable 63,044 146,661
Accounts receivable--affiliate (322,554) (1,644)
Increase (decrease) in-
Accounts payable 90,728 -
Accrued interest - (8,572)
Accrued liabilities 47,994 (1,750)
Accrued liabilities--affiliate 5,277 (1,414)
Deferred rental income (52,247) 34,744
---------- ----------
Cash from operating activities 508,994 873,569
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from equipment sales 27,205 470,707
---------- ----------
Cash from investing activities 27,205 470,707
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments--notes payable - (223,620)
Distributions paid (640,524) (1,281,057)
---------- ----------
Cash used in financing activities (640,524) (1,504,677)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (104,325) (160,401)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 802,718 958,005
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 698,393 $ 797,604
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ - $ 9,298
========== ==========
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 $993,316 that 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 $1,823,619 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-B 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 remaining equipment
assets, excluding its interest in an aircraft, for $993,316 (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 $2,083,223, including $1,823,619 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 $3,293,739 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
$375,000 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).
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AMERICAN INCOME PARTNERS III-B 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 $ 698,393
Due from Buyer 993,316
Accounts receivable--affiliate 2,151,663
------------
Total assets $ 3,843,372
============
Liabilities:
Accounts payable $ 90,728
Accrued liabilities 67,994
Accrued liabilities--affiliate 20,493
Cash distributions payable to partners,
including contingency reserve 3,664,157
------------
Total liabilities $ 3,843,372
============
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
$695,000 invested in reverse repurchase agreements.
-7-
AMERICAN INCOME PARTNERS III-B 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 $259,604 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 sales transactions described in Note 1.
LEASE TERM EQUIPMENT,
EQUIPMENT TYPE (MONTHS) AT COST
Aircraft 36-108 $ 8,412,409
Motor vehicles 12-72 1,097,411
Manufacturing 24-72 663,153
Research & Test 17-84 311,002
Locomotives 57-60 406,969
Materials handling 1-84 164,724
------------
Total equipment cost 11,055,668
Accumulated depreciation (8,345,359)
------------
Equipment, net of accumulated depreciation $ 2,710,309
============
As discussed in Note 1, on September 30, 1996, the Partnership sold all of
the foregoing equipment for $2,816,935, including $1,823,619 of sales
proceeds related to the NWA Aircraft.
-8-
AMERICAN INCOME PARTNERS III-B 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 $ 45,250 $ 40,017
Administrative charges 21,000 15,750
Reimbursable operating expenses due
to third parties 138,618 71,077
--------- ---------
Total $ 204,868 $ 126,844
========= =========
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 sales
transactions 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 $2,151,663 by AFG for such
funds and the interest thereon. These funds were remitted to the
Partnership in October 1996. The sales proceeds due form 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, sold 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 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 $993,316. 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 $2,083,223, including early
-9-
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(5) RELATED PARTY TRANSACTIONS (Continued)
termination rents of $259,604. 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 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 the 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 other 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
$375,000 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-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. 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 offered for sale all or a
portion of their equipment assets (Sale Assets). Thirteen of the programs,
including the Partnership, sold 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 $993,316. 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 $2,083,223,
including early termination rents of $259,604. 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 cash distribution of
$3,293,739 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 $375,000 was deposited in
a separate account to
-11-
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
(Continued)
OVERVIEW (Continued)
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 $497,341 and $904,997, respectively, compared to
$275,818 and $800,343 for the same periods in 1995. The increase in lease
revenue from 1995 to 1996 resulted from the recognition of $259,604 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-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
(Continued)
RESULTS OF OPERATIONS (Continued)
During the three months ended September 30, 1996 and 1995, the Partnership sold
fully depreciated equipment in the normal course of business to existing lessees
and third parties. These sales resulted in net gains, for financial statement
purposes, of $14,645 and $189,695, respectively.
During the nine months ended September 30, 1996, the Partnership sold equipment
in the normal course of business with a net book value of $5,951 to existing
lessees and third parties. These sales resulted in a net gain, for financial
statement purposes, of $21,254 compared to a net gain of $470,707 on equipment
which had been fully depreciated for the same period in 1995. In connection
with the September 30, 1996 sales transactions discussed above, the Partnership
realized a net gain of $106,626.
Depreciation expense for the three and nine months ended September 30, 1996 was
$92,929 and $368,060, respectively, compared to $177,100 and $532,071 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 $600,000,
representing $0.53 per limited partnership unit.
Interest expense was $16 and $726 or less than 1% of lease revenue for each of
the three and nine month periods ended September 30, 1995. Management fees
were 5% of lease revenue during each of the periods ended September 30, 1996 and
1995.
-13-
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. 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 23.3% and 17.6% of lease revenue
for the three and nine month periods ended September 30, 1996, respectively,
compared to 7.3% and 10.9% 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 $508,994
and $873,569 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 $27,205 and $470,707,
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 1995.
On September 30, 1996, the Partnership recorded a receivable in the amount of
$2,083,223 in connection with the disposal of the NWA Aircraft. The Partnership
also recorded a receivable of $993,316 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 sales transactions
and liquidation will be used to fund existing obligations, including estimated
costs of the wind-up effort and sales 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-B LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None.
Item 2. Changes in Securities
Response: None.
Item 3. Defaults upon Senior Securities
Response: None.
Item 4. Submission of Matters to a Vote of Security Holders
Response: None.
Item 5. Other Information
Response: None.
Item 6(a). Exhibits
Response: None.
Item 6(b). Reports on Form 8-K
Response: None.
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on behalf of the registrant and in the capacity and on the
date indicated.
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
By: AFG Leasing 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
-------------------
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