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 March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 1995 Commission File No. 0-15621
American Income 5 Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2917026
(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
Exchange Place, 14th Floor, Boston, MA 02109
(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______
[CAPTION]
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1995 and December 31, 1994 3
Statement of Operations
for the three months ended March 31, 1995 and 1994 4
Statement of Cash Flows
for the three months ended March 31, 1995 and 1994 5
Notes to the Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION:
Items 1 - 6 13
[CAPTION]
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
March 31, 1995 and December 31, 1994
(Unaudited)
March 31, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 267,906 $ 309,548
Accounts receivable - affiliate 102,255 94,241
Equipment at cost, net of accumulated
depreciation of $9,964,061 and
$9,749,836 at March 31, 1995 and
December 31, 1994, respectively 3,481,940 3,732,984
Total assets $ 3,852,101 $ 4,136,773
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 323,174 $ 356,174
Accrued interest 4,404 1,263
Accrued liabilities 10,000 15,500
Accrued liabilities - affiliate 7,593 4,328
Deferred rental income 97,819 168,438
Cash distributions payable to partners 270,058 270,058
Total liabilities 713,048 815,761
Partners' capital (deficit):
General Partner (125,031) (123,211)
Limited Partnership Interests
(71,295 Units; initial purchase
price of $250 each) 3,264,084 3,444,223
Total partners' capital 3,139,053 3,321,012
Total liabilities and partners' capital $ 3,852,101 $ 4,136,773
[CAPTION]
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1995 and 1994
(Unaudited)
1995 1994
Income:
Lease revenue $ 381,661 $ 427,213
Interest income 3,770 6,465
Gain on sale of equipment 2,800 52,989
Total income 388,231 486,667
Expenses:
Depreciation 251,044 251,045
Interest expense 6,048 16,711
Equipment management fees - affiliate 19,083 21,361
Operating expenses - affiliate 23,957 17,835
Total expenses 300,132 306,952
Net income $ 88,099 $ 179,715
Net income
per limited partnership unit $ 1.22 $ 2.50
Cash distribution declared
per limited partnership unit $ 3.75 $ 5.62
[CAPTION]
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1995 and 1994
(Unaudited)
1995 1994
Cash flows from (used in) operating activities:
Net income $ 88,099 $ 179,715
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 251,044 251,045
Gain on sale of equipment (2,800) (52,989)
Decrease in allowance for doubtful accounts -- (20,000)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable -- 48,262
accounts receivable - affiliate (8,014) (31,626)
Increase (decrease) in:
accrued interest 3,141 (22,876)
accrued liabilities (5,500) 1,245
accrued liabilities - affiliate 3,265 (6,529)
deferred rental income (70,619) 94,483
Net cash from operating activities 258,616 440,730
Cash flows from investing activities:
Proceeds from equipment sales 2,800 52,989
Net cash from investing activities 2,800 52,989
Cash flows used in financing activities:
Principal payments - notes payable (33,000) (233,219)
Distributions paid (270,058) (405,085)
Net cash used in financing activities (303,058) (638,304)
Net decrease in cash and cash equivalents (41,642) (144,585)
Cash and cash equivalents at beginning of period 309,548 1,026,409
Cash and cash equivalents at end of period $ 267,906 $ 881,824
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,907 $ 39,587
AMERICAN INCOME 5 LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not
include all information and footnote disclosures required under generally
accepted accounting principles for complete financial statements and,
accordingly, the accompanying financial statements should be read in conjunction
with the footnotes presented in the 1994 Annual Report. Except as disclosed
herein, there has been no material change to the information presented in the
footnotes to the 1994 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 1995 and December 31, 1994 and results of operations for
the three month periods ended March 31, 1995 and 1994 have been made and are
reflected.
NOTE 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.
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
$2,019,332 are due as follows:
For the year ending March 31, 1996 $ 1,429,023
1997 590,309
Total $ 2,019,332
[CAPTION]
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
March 31, 1995. In the opinion of American Finance Group ("AFG"), the carrying
value of the equipment does not exceed its fair market value.
Lease Term Equipment
Equipment Type (Months) at Cost
Aircraft 36-60 $ 7,958,361
Flight simulators 60 4,608,992
Medical 12-60 615,419
Materials handling 12-60 167,546
Tractors & heavy duty trucks 24-60 52,369
Trailers & intermodal containers 36-60 22,917
Construction & mining 12-60 17,580
Motor vehicles 12-72 2,817
Total equipment cost 13,446,001
Accumulated depreciation (9,964,061)
Equipment, net of accumulated depreciation $ 3,481,940
At March 31, 1995, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $12,567,353, representing approximately
93% of total equipment cost.
At March 31, 1995, the Partnership was not holding any equipment not subject
to a lease and no equipment was held for sale or re-lease.
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 three month
periods ended March 31, 1995 and 1994, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
1995 1994
Equipment management fees $ 19,083 $ 21,361
Administrative charges 3,000 3,000
Reimbursable operating expenses
due to third parties 20,957 14,835
Total $ 43,040 $ 39,196
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 March 31, 1995, the Partnership was owed $102,255 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in April
1995.
NOTE 6 - NOTES PAYABLE
Notes payable at March 31, 1995 consisted of installment notes of $323,174
payable to banks and institutional lenders. All of the installment notes are
non-recourse, with interest rates ranging between 6.35% and 8.05% 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 March 31, 1996 $ 299,425
1997 23,749
Total $ 323,174
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Three months ended March 31, 1995 compared to the three months ended
March 31, 1994:
Overview
As an equipment leasing partnership, the Partnership was organized to
acquire a diversified portfolio of capital equipment subject to lease agreements
with third parties. The Partnership was designed to progress through three
principal phases: acquisitions, operations, and liquidation. During the
operations phase, a period of approximately six years, all equipment in the
Partnership's portfolio will progress through various stages. Initially, all
equipment will generate rental revenues under primary term lease agreements.
During the life of the Partnership, these agreements will expire on an
intermittent basis and equipment held pursuant to the related leases will be
renewed, re-leased or sold, depending on prevailing market conditions and the
assessment of such conditions by AFG to obtain the most advantageous economic
benefit. Over time, a greater portion of the Partnership's original equipment
portfolio will become available for remarketing and cash generated from
operations and from sales or refinancings will begin to fluctuate. Ultimately,
all equipment will be sold and the Partnership will be dissolved. The
Partnership's operations commenced in 1986.
Results of Operations
For the three months ended March 31, 1995, the Partnership recognized lease
revenue of $381,661 compared to $427,213 for the same period in 1994. The
decrease in lease revenue between 1994 and 1995 was expected and resulted
principally from primary and renewal lease term expirations and the sale of
equipment.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by AFG or an affiliated equipment leasing program
sponsored by AFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
During the three months ended March 31, 1994, the General Partner reduced
the aggregate amount reserved against potentially uncollectible rents to
$20,000. This caused an increase in lease revenue of $20,000 during the three
months ended March 31, 1994. It cannot be determined whether the Partnership
will recover any past due rents in the future; however, the General Partner will
purse the collection of all such items.
Interest income for the three months ended March 31, 1995 was $3,770
compared to $6,465 for the same period in 1994. Interest income is generated
from temporary investment of rental receipts and equipment sale proceeds in
short-term instruments. The decrease in interest income from 1994 to 1995 is
principally attributable to less cash available for investment prior to
distribution to the Partners. The amount of future interest income is expected
to fluctuate in relation to prevailing interest rates, the collection of lease
revenue, and the proceeds from equipment sales.
For the three months ended March 31, 1995, the Partnership sold equipment
which had been fully depreciated to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $2,800
compared to a net gain of $52,989 on equipment which had been fully depreciated
for the same period in 1994.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership
classifies such residual rental payments as lease revenue. Consequently, the
amount of gain or loss reported in the financial statements is not necessarily
indicative of the total residual value achieved from leasing the equipment.
Depreciation expense was $251,044 for the three months ended March 31, 1995
compared to $251,045 for the same period in 1994. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the
Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset at the date of primary lease
expiration on a straight-line basis over such term. For purposes of this
policy, estimated residual values represent estimates of equipment values at the
date of primary lease expiration. To the extent that equipment is held beyond
its primary lease term, the Partnership continues to depreciate the remaining
net book value of the asset on a straight-line basis over the asset's remaining
economic life.
Interest expense was $6,048 or 1.6% of lease revenue for the three months
ended March 31, 1995 compared to $16,711 or 3.9% of lease revenue for the same
period in 1994. Interest expense in future periods will continue to decline in
amount and as a percentage of lease revenue as the principal balance of notes
payable is reduced through the application of rent receipts to outstanding debt.
Management fees were 5% of lease revenue during each of the three month
periods ended March 31, 1995 and 1994 and will not change as a percentage of
lease revenue in future periods.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented approximately 6.3%,
and 4.2% of lease revenue for the three months ended March 31, 1995 and 1994,
respectively. The increase in operating expenses from 1994 to 1995 was due to
higher premiums in connection with supplemental insurance policies carried by
the Partnership on certain aircraft and an increase in professional service
costs. The amount of future operating expenses cannot be predicted with
certainty; however, such expenses are usually higher during the acquisition and
liquidation phases of a partnership. Other fluctuations typically occur in
relation to the volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which was established
for specific purposes described in the preceding "Overview". As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These
cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $258,616 and $440,730 for the three
months ended March 31, 1995 and 1994, respectively. Future renewal, re-lease
and equipment sale activities will cause a gradual decline in the Partnership's
lease revenues and corresponding sources of operating cash. Overall, expenses
associated with rental activities, such as management fees, and net cash flow
from operating activities will decline as the Partnership experiences a higher
frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the three months
ended March 31, 1995, the Partnership realized $2,800 in equipment sale proceeds
compared to $52,989 for the same period in 1994. Future inflows of cash from
asset disposals will vary in timing and amount and will be influenced by many
factors including, but not limited to, the frequency and timing of lease
expirations, the type of equipment being sold, its condition and age, and future
market conditions.
Each note payable is recourse only to the specific equipment financed and to
the minimum rental payments contracted to be received during the debt
amortization period (which period generally coincides with the lease rental
term). As rental payments are collected, a portion or all of the rental payment
is used to repay the associated indebtedness. In future periods, the amount of
cash used to repay debt obligations will decline as the principal balance of
notes payable is reduced through the collection and application of rents.
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the three months ended March 31, 1995, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $270,058. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Limited Partners were allocated 99% of these distributions, or $267,357, and the
General Partner was allocated 1%, or $2,701. The first quarter 1995 cash
distribution was paid on April 14, 1995.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. To the extent that cash distributions consist of Cash
From Sales or Refinancings, substantially all of such cash distributions should
be viewed as a return of capital. Cash distributions do not represent and are
not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of AFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
Accordingly, fluctuations in the level of quarterly cash distributions will
occur during the life of the Partnership.
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME 5 LIMITED PARTNERSHIP
By: AFG Leasing Associates II, a Massachusetts
general partnership and the General Partner of
the Registrant.
By: AFG Leasing Incorporated, a Massachusetts
corporation and general partner in such general
partnership.
By: /s/Gary M. Romano
Gary M. Romano
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 18, 1995