Exhibit 13
AMERICAN INCOME PARTNERS V
American Income Partners V-B Limited Partnership
Annual Report to the Partners, December 31, 1999
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
Page
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SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-8
FINANCIAL STATEMENTS:
Report of Independent Auditors 9
Statement of Financial Position
at December 31, 1999 and 1998 10
Statement of Operations
for the years ended December 31, 1999, 1998 and 1997 11
Statement of Changes in Partners' Capital
for the years ended December 31, 1999, 1998 and 1997 12
Statement of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 13
Notes to the Financial Statements 14-27
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 28
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 29
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 10.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 30
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1999:
Summary of
Operations 1999 1998 1997 1996 1995
- ----------------------------- -------------- -------------- -------------- -------------- --------------
Lease revenue $ 165,831 $ 1,323,344 $ 3,033,098 $ 2,823,191 $ 3,901,359
Net income $ 4,431,377 $ 580,743 $ 717,643 $ 710,319 $ 458,868
Per Unit:
Net income $ 2.72 $ 0.36 $ 0.44 $ 0.44 $ 0.28
Cash distributions $ 0.53 $ 0.53 $ 0.66 $ 2.42 $ 2.50
Financial Position
- -----------------------------
Total assets $ 9,506,374 $ 8,089,683 $ 5,715,354 $ 7,289,920 $ 11,486,422
Total long-term obligations $ -- $ -- $ 24,608 $ 707,842 $ 1,157,906
Partners' capital $ 8,994,283 $ 5,326,675 $ 5,385,006 $ 5,953,024 $ 9,177,708
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1999 compared to the year
ended December 31, 1998 and the year ended December 31, 1998
compared to the year ended December 31, 1997
Certain statements in this annual report of American Income Partners V-B
Limited Partnership (the "Partnership") that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are subject to a variety of risks and
uncertainties. There are a number of factors that could cause actual results to
differ materially from those expressed in any forward-looking statements made
herein. These factors include, but are not limited to, the outcome of the Class
Action Lawsuit described in Note 8 to the accompanying financial statements and
the remarketing of the Partnership's equipment.
Overview
The Partnership was organized in 1989 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. Presently, the Partnership is a Nominal
Defendant in a Class Action Lawsuit, the outcome of which could significantly
alter the nature of the Partnership's organization and its future business
operations. See Note 8 to the accompanying financial statements. Pursuant to the
Amended and Restated Agreement and Certificate of Limited Partnership (the
"Restated Agreement, as amended"), the Partnership is scheduled to be dissolved
by December 31, 2000. However, the General Partner does not expect that the
Partnership will be dissolved until such time that the Class Action Lawsuit
is adjudicated and settled. In the absence of a final settlement being
effected before December 31, 2000, dissolution of the Partnership would most
likely be deferred until a later date.
Year 2000 Issue
The Partnership uses information systems provided by Equis Financial Group
Limited Partnership ("EFG") and has no information systems of its own. EFG
completed all Year 2000 readiness work prior to December 31, 1999 and did not
experience any significant problems. Additionally, EFG is not aware of any
outside customer or vendor that experienced a Year 2000 issue that would have a
material effect on the Partnership's results of operations, liquidity, or
financial position. However, EFG has no means of ensuring that all customers,
vendors and third-party servicers have conformed to Year 2000 standards. The
effect of this risk to the Partnership is not determinable.
Results of Operations
For the year ended December 31, 1999, the Partnership recognized lease
revenue of $165,831 compared to $1,323,344 and $3,033,098 for the years ended
December 31, 1998 and 1997, respectively. The decrease in lease revenue from
1998 to 1999 resulted principally from the sale of the Partnership's interests
in two aircraft which provided a total of $24,700 and $970,600 of lease revenue
for the years ended December 31, 1999 and 1998, respectively (see further
discussion below). The decrease in lease revenue from 1997 to 1998 resulted
principally from the exchange of the Partnership's interest in a vessel during
1997 (see below). In 1997, the Partnership recognized lease revenue of
$1,279,436 related to this vessel including $1,142,614 representing a prepayment
of the remaining contracted rent due under the vessel's lease agreement. Other
reductions in lease revenue from 1997 to 1998 resulted from lease term
expirations and the sale of equipment. In the future, lease revenue will
continue to decline due to lease term expirations and equipment sales.
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 an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enabled the Partnership to
further diversify its equipment portfolio at inception by participating in the
ownership of selected assets, thereby reducing the general levels of risk which
could have resulted 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.
3
Interest income for the year ended December 31, 1999 was $523,770 compared
to $267,765 and $138,683 for the years ended December 31, 1998 and 1997,
respectively. Interest income is typically generated from temporary investment
of rental receipts and equipment sale proceeds in short-term instruments.
Interest income included $88,884 in both 1999 and 1998 and $17,530 in 1997,
earned on a note receivable from Semele Group, Inc. ("Semele") (see below and
Note 4 to the financial statements herein). The note receivable from Semele is
scheduled to mature in April 2001. The amount of future interest income is
expected to fluctuate as a result of changing interest rates and the amount of
cash available for investment, among other factors. See discussion below
regarding on investment made by the Partnership in 2000.
In 1999, the Partnership sold fully depreciated equipment to existing
lessees and third parties. These sales resulted in a net gain, for financial
statement purposes, of $4,260,478, compared to a net gain in 1998 of $775,111 on
equipment having a net book value of $873,626 and a net gain in 1997 of $138,167
on equipment having a net book value of $21,691. The net gain in 1999 includes
$4,080,000 related to the sale of the Partnership's interests in two aircraft
(see further discussion below). The results of future sales of equipment will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale.
In 1997, the Partnership also exchanged its interest in a vessel with an
original cost and net book value of $4,205,030 and $1,597,566, respectively. In
connection with this transaction, the Partnership realized proceeds of
$1,183,401, which resulted in a net loss for financial statement purposes of
$414,165. In addition, as this vessel was disposed of prior to the expiration of
the related lease term, the Partnership received a prepayment of the remaining
contracted rent due under the vessel's lease agreement (see above).
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 EFG'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. EFG 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 for 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 the Partnership achieved from leasing the equipment.
In June 1999, the Partnership acquired equipment for the purpose of re-sale
in the amount of $996,322. This equipment was sold in July 1999 for proceeds of
$999,615. These proceeds included interest income of $3,293 earned by the
Partnership for the period the equipment was held.
Depreciation expense was $42,304, $512,339, and $1,461,252 for the years
ended December 31, 1999, 1998 and 1997, respectively. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the
Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset on a straight-line basis over
such term. For purposes of this policy, estimated residual values represent
estimates of equipment values at the date of primary lease expiration. To the
extent that an asset is held beyond its primary lease term, the Partnership
continues to depreciate the remaining net book value of the asset on a
straight-line basis over the asset's remaining economic life.
Interest expense was $24,825 or less than 1% of lease revenue in 1997. The
Partnership's notes payable were fully amortized by non-cancelable rents at
January 1, 1998.
4
Management fees were approximately 4.1%, 4.9%, and 5.0% of lease revenue
during the years ended December 31, 1999, 1998 and 1997, respectively.
Management fees are based on 5% of gross lease revenue generated by operating
leases and 2% of gross lease revenue generated by full payout leases.
Write-down of investment securities-affiliate was $349,139 for the year
ended December 31, 1998. The General Partner determined that the decline in
market value of its Semele common stock was other-than-temporary at December 31,
1998. As a result, the Partnership wrote down the cost of the Semele common
stock from $15 per share to $4.125 per share (the quoted price of Semele stock
on NASDAQ at December 31, 1998). See further discussion below.
Operating expenses were $469,519, $859,244, and $541,774 for the years
ended December 31, 1999, 1998 and 1997, respectively. Operating expenses in 1999
include approximately $68,000 related to the refurbishment of an aircraft engine
(see discussion below) and approximately $50,000 accrued for certain legal and
Consolidation expenses related to the Class Action Lawsuit described in Note 8
to the financial statements. During the year ended December 31, 1998, the
Partnership incurred or accrued approximately $319,000 for such expenses related
to the Class Action Lawsuit. In addition, the Partnership expensed $224,400 in
1998 related to the refurbishment of an aircraft engine and engine leasing costs
(see Note 8 to the financial statements). Significant operating expenses were
incurred during the year ending December 31, 1997 due to heavy maintenance costs
incurred in connection with the Partnership's interests in two Boeing 727
aircraft. Other operating expenses consist principally of professional service
costs, such as audit and legal fees, as well as printing, distribution and other
remarketing expenses. In certain cases, equipment storage or repairs and
maintenance costs may be incurred in connection with equipment being remarketed.
Liquidity and Capital Resources and Discussion of Cash Flows
In connection with a preliminary settlement agreement for the Class Action
Lawsuit described in Note 8 to the accompanying financial statements, the
Partnership is permitted to invest in new equipment or other business
activities, subject to certain limitations. On March 8, 2000, the Partnership
invested $5,700,000 in a debt instrument that matures in September 2002. (See
Notes 8 and 9 to the accompanying financial statements for additional
information concerning this transaction.)
The Partnership by its nature is a limited life entity. As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Historically, the Partnership's principal source of
cash from operations was provided by the collection of periodic rents, however,
in 1999 the principal source of such cash resulted from the receipt of interest
income. Cash inflows are used to pay management fees and operating costs. In
addition, prior to 1999, cash inflows were used to satisfy debt service
obligations associated with leveraged leases. Operating activities generated net
cash inflows of $54,253, $1,187,218, and $2,430,133 in 1999, 1998 and 1997,
respectively. Net cash from operating activities in 1997 included lease
termination rents as described above. Future renewal, re-lease and equipment
sale activities will cause a decline in the Partnership's lease revenues and
corresponding sources of operating cash. The amount of future interest income is
expected to fluctuate as a result of changing interest rates and the level of
cash available for investment, among other factors. Overall, expenses associated
with rental activities, such as management fees, and net cash flow from
operating activities also will decline as the Partnership experiences a higher
frequency of remarketing events.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the year ended
December 31, 1999, the Partnership realized net cash proceeds of $4,260,478
compared to $1,648,737 and $159,858 in 1998 and 1997, respectively. Sale
proceeds in 1999 include $4,080,000 related to the Partnership's interests in
two Boeing 727-251 ADV jet aircraft. 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.
In January 1999, upon expiration of the lease term, the Partnership and
certain affiliated investment programs (collectively, the "Programs") entered
into an agreement to sell a Boeing 727-251 ADV jet aircraft to the lessee for
$2,450,000. In aggregate, the Partnership received $1,470,000 for its interest
in this aircraft. The Partnership's
5
interest in the aircraft had a cost of $5,827,110 and was fully depreciated,
resulting in a net gain, for financial statement purposes, of $1,470,000.
In November 1998, the Programs entered into a separate agreement to sell
their ownership interests in a different Boeing 727-251 ADV jet aircraft and
three engines (collectively the "Aircraft") to a third party (the "Purchaser")
for $4,350,000. In December 1998, the Purchaser remitted $3,350,000 for the
Aircraft, excluding one of three engines which had been damaged while the
Aircraft was leased to Transmeridian Airlines ("Transmeridian"). (See Note 8 to
the accompanying financial statements regarding legal action undertaken by the
Programs related to Transmeridian and the damaged engine). The Purchaser also
deposited $1,000,000 into a third-party escrow account (the "Escrow") pending
repair of the damaged engine and re-installation of the refurbished engine on
the Aircraft. Upon installation, the escrow agent was obligated to transfer the
Escrow amount plus interest thereon to the Programs. The engine was refurbished
at the expense of the Programs. The associated cost was approximately $374,000,
of which the Partnership's share was approximately $224,000. The Partnership
accrued $156,000 of these costs in 1998 and the balance was incurred in the year
ended December 31, 1999.
The Programs also were required to reimburse the Purchaser for its cost to
lease a substitute engine during the period that the damaged engine was being
repaired. This cost was approximately $114,000, of which the Partnership's share
was approximately $68,000, all of which was accrued in 1998 in connection with
the litigation referenced above.
In addition, the purchase and sale agreement permitted the Purchaser to
return the Aircraft to the Programs, subject to a number of conditions, for
$4,350,000, reduced by an amount equivalent to $450 multiplied by the number of
flight hours since the Aircraft's most recent C Check. Among the conditions
precedent to the Purchaser's returning the Aircraft, the Purchaser must have
completed its intended installation of hush-kitting on the Aircraft to conform
to Stage 3 noise regulations. This work was completed in January 1999. The
Purchaser's return option was to expire on May 15, 1999.
Due to the contingent nature of the sale, the Partnership deferred
recognition of the sale and a resulting gain until expiration of the Purchaser's
return option on May 15, 1999. The Partnership's share of the December proceeds
was $2,010,000, which amount was deposited into EFG's customary escrow account
and transferred to the Partnership, together with the Partnership's other
December rental receipts, in January 1999. At December 31, 1998, the entire
amount was classified as other liabilities, with an equal amount included in
accounts receivable - affiliate, on the accompanying Statement of Financial
Position. Upon the installation of the refurbished engine on the Aircraft, the
remainder of the sale consideration, or $1,000,000 and the interest thereon, was
released from the escrow account to the Programs. The Partnership's share of
this payment was $609,504, including interest of $9,504. In aggregate, the
Partnership received sales proceeds of $2,610,000 for its interest in the
Aircraft. The Partnership's interest in the Aircraft had a cost of $6,484,110
and was fully depreciated, resulting in a net gain, for financial statement
purposes, of $2,610,000.
At December 31, 1999, the Partnership was due aggregate future minimum
lease payments of $141,213 from contractual lease agreements (see Note 2 to the
financial statements). At the expiration of the individual lease terms
underlying the Partnership's future minimum lease payments, the Partnership will
sell the equipment or enter re-lease or renewal agreements when considered
advantageous by the General Partner and EFG. Such future remarketing activities
will result in the realization of additional cash inflows in the form of
equipment sale proceeds or rents from renewals and re-leases, the timing and
extent of which cannot be predicted with certainty. This is because the timing
and extent of remarketing events often is dependent upon the needs and interests
of the existing lessees. Some lessees may choose to renew their lease contracts,
while others may elect to return the equipment. In the latter instances, the
equipment could be re-leased to another lessee or sold to a third party.
As a result of a vessel exchange in 1997, the Partnership became the
beneficial owner of 393,394 shares of Semele common stock (valued at $590,091
($1.50 per share) at the time of the exchange transaction). This investment was
reduced by a dividend of $78,679 received in 1997 representing a return of
equity to the Partnership. The Partnership also received a beneficial interest
in the Semele Note of $888,844 in connection with the exchange. The Semele Note
bears an annual interest rate of 10% and is scheduled to mature in April 2001.
6
The note also requires mandatory principal reductions, if and to the extent that
net proceeds are received by Semele from the sale or refinancing of its Rancho
Malibu property (see Note 4 to the financial statements).
On June 30, 1998, Semele effected a 1-for-300 reverse stock split followed
by a 30-for-1 forward stock split resulting in a reduction of the number of
shares of Semele common stock owned by the Partnership to 39,339 shares. During
the year ended December 31, 1998, the Partnership decreased the carrying value
of its investment in Semele common stock to $4.125 per share (the quoted price
of the Semele stock on NASDAQ at December 31, 1998) resulting in an unrealized
loss in 1998 of $132,773. In 1997, the Partnership recorded an unrealized loss
of $216,366 relate to its investment in the Semele common stock. Each of these
losses was reported as a component of comprehensive income, included in
partners' capital. At December 31, 1998, the General Partner determined that the
decline in market value of the Semele common stock was other-than-temporary. As
a result, the Partnership wrote down the cost of the Semele stock to $4.125 per
share for a total realized loss of $349,139 in 1998. During the year ended
December 31, 1999, the Partnership increased the carrying value of its
investment in Semele common stock to $5.75 per share (the quoted price on the
NASDAQ SmallCap market at December 31, 1999), resulting in an unrealized gain in
1999 of $63,926.
In April 1999, the Partnership purchased marketable securities in the
amount of $214,215. The Partnership increased the carrying value of its
investment in these securities based on the quoted price of the securities on
the New York Stock Exchange at December 31, 1999, resulting in an unrealized
gain for the year ended December 31, 1999 of $27,745. This gain and the
unrealized gain related to the Semele common stock were reported as a component
of comprehensive income included in partners' capital. In addition, the
Partnership acquired equipment for the purpose of resale in the amount of
$996,322. This equipment was sold in July 1999 (see Results of Operations).
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. The Partnership's notes payable
were fully amortized at January 1, 1998.
There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets.
Cash distributions to the General Partner and Recognized Owners have been
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is reported under financing
activities on the accompanying Statement of Cash Flows. For the year ended
December 31, 1999, the Partnership declared total cash distributions of
Distributable Cash From Operations and Distributable Cash From Sales and
Refinancing of $855,440. In accordance with the Restated Agreement, as amended,
the Recognized Owners were allocated 95% of these distributions, or $812,668,
and the General Partner was allocated 5% or $42,772. The fourth quarter 1999
cash distribution was paid on January 14, 2000.
Cash distributions paid to the Recognized Owners consist of both a return
of and a return on 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.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes (generally referred to as permanent or timing differences;
see Note 7 to the accompanying financial statements). For instance, selling
commissions and organization and offering costs pertaining to syndication of the
Partnership's limited partnership units are not deductible for federal income
tax
7
purposes, but are recorded as a reduction of partners' capital for financial
reporting purposes. Therefore, such differences are permanent differences
between capital accounts for financial reporting and federal income tax
purposes. Other differences between the bases of capital accounts for federal
income tax and financial reporting purposes occur due to timing differences.
Such items consist of the cumulative difference between income or loss for tax
purposes and financial statement income or loss, the difference between
distributions (declared vs. paid) for income tax and financial reporting
purposes, and the treatment of unrealized gains or losses on investment
securities for book and tax purposes. The principal component of the cumulative
difference between financial statement income or loss and tax income or loss
results from different depreciation policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at December 31, 1999. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Restated Agreement,
as amended, requires that upon the dissolution of the Partnership, the General
Partner will be required to contribute to the Partnership an amount equal to any
negative balance which may exist in the General Partner's tax capital account.
At December 31, 1999, the General Partner had a positive tax capital account
balance.
The outcome of the Class Action Lawsuit described in Note 8 to the
accompanying financial statements will be the principal factor in determining
the future of the Partnership's operations. The proposed settlement to that
lawsuit, if effected, will materially change the future organizational structure
and business interests of the Partnership, as well as its cash distribution
policies. In addition, commencing with the first quarter of 2000, the General
Partner believes that it will be in the Partnership's best interests to suspend
the payment of quarterly cash distributions pending final resolution of the
Class Action Lawsuit. Accordingly, future cash distributions are not expected to
be paid until the Class Action Lawsuit is adjudicated.
8
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Partners V-B Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners V-B Limited Partnership, as of December 31, 1999 and
1998, and the related statements of operations, changes in partners' capital,
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Income Partners V-B
Limited Partnership at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Partners is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
9
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1999 and 1998
1999 1998
------------------- -------------------
ASSETS
Cash and cash equivalents $ 8,007,462 $ 4,762,386
Rents receivable 4,251 2,978
Accounts receivable - affiliate 10,747 2,103,987
Note receivable - affiliate 888,844 888,844
Investment securities - affiliate 226,199 162,273
Marketable securities 241,960 --
Equipment at cost, net of accumulated
depreciation of $330,707 and $13,395,899
at December 31, 1999 and 1998, respectively 126,911 169,215
------------------- -------------------
Total assets $ 9,506,374 $ 8,089,683
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities $ 285,939 $ 504,900
Accrued liabilities - affiliate 6,315 9,548
Deferred rental income -- 24,700
Other liabilities 5,977 2,010,000
Cash distributions payable to partners 213,860 213,860
------------------- -------------------
Total liabilities 512,091 2,763,008
------------------- -------------------
Partners' capital (deficit):
General Partner (1,266,821) (1,450,202)
Limited Partnership Interests
(1,547,930 Units; initial purchase price of $25 each) 10,261,104 6,776,877
------------------- -------------------
Total partners' capital 8,994,283 5,326,675
------------------- -------------------
Total liabilities and partners' capital $ 9,506,374 $ 8,089,683
=================== ===================
The accompanying notes are an integral part of
these financial statements.
10
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------------ ------------------ ------------------
Income:
Lease revenue $ 165,831 $ 1,323,344 $ 3,033,098
Interest income 434,886 178,881 121,153
Interest income - affiliate 88,884 88,884 17,530
Gain on sale of equipment 4,260,478 775,111 138,167
Loss on exchange of equipment -- -- (414,165)
------------------ ------------------ ------------------
Total income 4,950,079 2,366,220 2,895,783
------------------ ------------------ ------------------
Expenses:
Depreciation 42,304 512,339 1,461,252
Interest expense -- -- 24,825
Equipment management fees - affiliate 6,879 64,755 150,289
Write-down of investment securities
- affiliate -- 349,139 --
Operating expenses - affiliate 469,519 859,244 541,774
------------------ ------------------ ------------------
Total expenses 518,702 1,785,477 2,178,140
------------------ ------------------ ------------------
Net income $ 4,431,377 $ 580,743 $ 717,643
================== ================== ==================
Net income per limited partnership unit $ 2.72 $ 0.36 $ 0.44
================== ================== ==================
Cash distributions declared
per limited partnership unit $ 0.53 $ 0.53 $ 0.66
================== ================== ==================
The accompanying notes are an integral part of
these financial statements.
11
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1999, 1998 and 1997
General Recognized Owners
Partner ----------------------------
Amount Units Amount Total
----------- --------- ------------ -----------
Balance at December 31, 1996 $(1,418,884) 1,547,930 $ 7,371,908 $ 5,953,024
Net income - 1997 35,882 -- 681,761 717,643
Unrealized loss on investment securities (10,818) -- (205,548) (216,366)
----------- --------- ------------ -----------
Comprehensive income 25,064 -- 476,213 501,277
----------- --------- ------------ -----------
Cash distributions declared (53,465) -- (1,015,830) (1,069,295)
----------- --------- ------------ -----------
Balance at December 31, 1997 (1,447,285) 1,547,930 6,832,291 5,385,006
Net income - 1998 29,037 -- 551,706 580,743
Unrealized loss on investment securities (6,639) -- (126,134) (132,773)
Less: Reclassification adjustment for write-
down of investment 17,457 -- 331,682 349,139
----------- --------- ------------ -----------
Comprehensive income 39,855 -- 757,254 797,109
----------- --------- ------------ -----------
Cash distributions declared (42,772) -- (812,668) (855,440)
----------- --------- ------------ -----------
Balance at December 31, 1998 (1,450,202) 1,547,930 6,776,877 5,326,675
Net income - 1999 221,569 -- 4,209,808 4,431,377
Unrealized gains on investment and
marketable securities 4,584 -- 87,087 91,671
----------- --------- ------------ -----------
Comprehensive income 226,153 -- 4,296,895 4,523,048
----------- --------- ------------ -----------
Cash distributions declared (42,772) -- (812,668) (855,440)
----------- --------- ------------ -----------
Balance at December 31, 1999 $(1,266,821) 1,547,930 $ 10,261,104 $ 8,994,283
=========== ========= ============ ===========
The accompanying notes are an integral part of
these financial statements.
12
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---------------- ---------------- ----------------
Cash flows from (used in) operating activities:
Net income $ 4,431,377 $ 580,743 $ 717,643
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 42,304 512,339 1,461,252
Gain on sale of equipment (4,260,478) (775,111) (138,167)
Write-down of investment securities - affiliate -- 349,139 --
Loss on exchange of equipment -- -- 414,165
Decrease in allowance for doubtful accounts -- -- (10,000)
Non-cash proceeds on termination rents -- -- (295,533)
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable (1,273) 1,585 239,006
Accounts receivable - affiliate 2,093,240 (1,938,745) 293,796
Increase (decrease) in:
Accrued interest -- (209) (7,219)
Accrued liabilities (218,961) 495,700 (55,550)
Accrued liabilities - affiliate (3,233) (17,205) (199,544)
Deferred rental income (24,700) (31,018) 10,284
Other liabilities (2,004,023) 2,010,000 --
---------------- ---------------- ----------------
Net cash from operating activities 54,253 1,187,218 2,430,133
---------------- ---------------- ----------------
Cash flows from (used in) investing activities:
Dividend received -- -- 78,679
Purchase of marketable securities (214,215) -- --
Purchase of equipment held for re-sale (996,322) -- --
Proceeds from equipment held for re-sale 999,322 -- --
Proceeds from equipment sales 4,260,478 1,648,737 159,858
---------------- ---------------- ----------------
Net cash from investing activities 4,046,263 1,648,737 238,537
---------------- ---------------- ----------------
Cash flows used in financing activities:
Principal payments - notes payable -- (24,608) (683,234)
Distributions paid (855,440) (855,440) (1,140,580)
---------------- ---------------- ----------------
Net cash used in financing activities (855,440) (880,048) (1,823,814)
---------------- ---------------- ----------------
Net increase in cash and cash equivalents 3,245,076 1,955,907 844,856
Cash and cash equivalents at beginning of year 4,762,386 2,806,479 1,961,623
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 8,007,462 $ 4,762,386 $ 2,806,479
================ ================ ================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ -- $ 209 $ 32,044
================ ================ ================
Supplemental schedule of non-cash investing and financing activities:
See Notes 4 and 5 to the financial statements.
The accompanying notes are an integral part of
these financial statements.
13
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
American Income Partners V-B Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on September 29, 1989 for the purpose of
acquiring and leasing to third parties a diversified portfolio of capital
equipment. Partners' capital initially consisted of contributions of $1,000 from
the General Partner (AFG Leasing IV Incorporated) and $100 from the Initial
Limited Partner (AFG Assignor Corporation). On December 27, 1989, the
Partnership issued 1,547,930 units, representing assignments of limited
partnership interests (the "Units"), to 2,402 investors. Unitholders and Limited
Partners (other than the Initial Limited Partner) are collectively referred to
as Recognized Owners. The Partnership has one General Partner, AFG Leasing IV
Incorporated, a Massachusetts corporation and an affiliate of Equis Financial
Group Limited Partnership (formerly known as American Finance Group), a
Massachusetts limited partnership ("EFG"). The common stock of the General
Partner is owned by AF/AIP Programs Limited Partnership, of which EFG and a
wholly-owned subsidiary are the 99% limited partners and AFG Programs, Inc.,
which is wholly-owned by EFG, is the 1% general partner. The General Partner is
not required to make any other capital contributions except as may be required
under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement
and Certificate of Limited Partnership (the "Restated Agreement, as amended").
Significant operations commenced December 28, 1989 when the Partnership
made its initial equipment purchase. Pursuant to the Restated Agreement, as
amended, Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 95% to the Recognized Owners and 5% to the
General Partner.
Under the terms of a management agreement between the Partnership and
AF/AIP Programs Limited Partnership and the terms of an identical management
agreement between AF/AIP Programs Limited Partnership and EFG (collectively, the
"Management Agreement"), management services are provided by EFG to the
Partnership at fees which the General Partner believes to be competitive for
similar services (see Note 6).
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
direct-participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Mr. Engle
established Equis Corporation and GDE LP in December 1994 for the sole purpose
of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
14
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in federal agency
discount notes and in repurchase agreements with overnight securities. Under the
terms of the agreements, title to the underlying securities passes to the
Partnership. The securities underlying the agreements are book entry securities.
At December 31, 1999, the Partnership had $7,892,379 invested in federal agency
discount notes, repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities, or other highly liquid overnight
investments.
Revenue Recognition
Rents are payable to the Partnership monthly or quarterly 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. In certain instances, the
Partnership may enter renewal or re-lease agreements which expire beyond the
Partnership's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Partnership's business activities as the
General Partner and EFG would seek to sell the then-remaining equipment assets
either to the lessee or to a third party, taking into consideration the amount
of future noncancellable rental payments associated with the attendant lease
agreements. See also Note 8 regarding the Class Action Lawsuit. Future minimum
rents of $141,213 are due as follows:
For the year ending December 31, 2000 $ 47,071
2001 47,071
2002 47,071
-------------
Total $ 141,213
=============
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1999, 1998, and 1997 are as
follows:
1999 1998 1997
------------------ ------------------ ------------------
Conwell Corporation $ 47,071 $ -- $ --
Ford Motor Company $ 32,208 $ -- $ --
Sunworld International Airlines, Inc. $ 24,700 $ 468,000 $ 468,000
American National Can Company $ 20,435 $ -- $ --
Transmeridian Airlines $ -- $ 502,600 $ 385,400
Gearbulk Shipowning Ltd. $ -- $ -- $ 1,279,436
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
15
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Equipment on Lease
All equipment was acquired from EFG, one of its Affiliates or from
third-party sellers. Equipment Cost means the actual cost paid by the
Partnership to acquire the equipment, including acquisition fees. Where
equipment was acquired from EFG or an Affiliate, Equipment Cost reflects the
actual price paid for the equipment by EFG or the Affiliate plus all actual
costs incurred by EFG or the Affiliate while carrying the equipment, including
all liens and encumbrances, less the amount of all primary term rents earned by
EFG or the Affiliate prior to selling the equipment. Where the seller of the
equipment was a third party, Equipment Cost reflects the seller's invoice price.
Depreciation
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG'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.
Investment Securities - Affiliate and Marketable Securities
The Partnership's investments in Semele Group, Inc. and marketable
securities are considered to be available-for-sale and as such are carried at
fair value with unrealized gains and losses reported as a separate component of
Partner's Capital. Other-than-temporary declines in market value are recorded as
write-down of investment in the Statement of Operations (see Note 4). Unrealized
gains or losses on the Partnership's available-for-sale securities, are required
to be included in comprehensive income. During the year ended December 31, 1999,
total comprehensive income amounted to $4,523,048.
Accrued Liabilities - Affiliate
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities - Affiliate (see Note 6).
Contingencies
It is the Partnership's policy to recognize a liability for goods and
services during the period when the goods or services are received. To the
extent that the Partnership has a contingent liability, meaning generally a
liability the payment of which is subject to the outcome of a future event, the
Partnership recognizes a liability in accordance with Statement of Financial
Accounting Standards No. 5 "Accounting for Contingencies" ("SFAS No. 5"). SFAS
No. 5 requires the recognition of contingent liabilities when the amount of
liability can be reasonably estimated and the liability is likely to be
incurred.
16
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The Partnership is a Nominal Defendant in a Class Action Lawsuit. In 1998,
a settlement proposal to resolve that litigation was negotiated and remains
pending (See Note 8). The Partnership's estimated exposure for costs anticipated
to be incurred in pursuing the settlement proposal is approximately $369,000
consisting principally of legal fees and other professional service costs. These
costs are expected to be incurred regardless of whether the proposed settlement
ultimately is effected and, therefore, the Partnership accrued approximately
$319,000 of these costs in 1998 following the Court's approval of the settlement
plan. The cost estimate is subject to change and is monitored by the General
Partner based upon the progress of the settlement proposal and other pertinent
information. As a result, the Partnership accrued and expensed an additional
$50,000 for such costs during 1999.
Allocation of Profits and Losses
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the
Recognized Owners and 5% to the General Partner). See Note 7 concerning
allocation of income or loss for income tax purposes.
Net Income and Cash Distributions Per Unit
Net income and cash distributions per Unit are based on 1,547,930 units
outstanding during the years ended December 31, 1999, 1998 and 1997 and computed
after allocation of the General Partner's 5% share of net income and cash
distributions.
Provision for Income Taxes
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
December 31, 1999. Remaining Lease Term (Months), as used below, represents the
number of months remaining from December 31, 1999 under contracted lease terms.
A Remaining Lease Term equal to zero reflects equipment either held for sale or
re-lease or being leased on a month-to-month basis. In the opinion of EFG, the
acquisition cost of the equipment did not exceed its fair market value.
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- -------------------------------------- ---------- ----------------- -----------------------------------
Trailers/intermodal containers 36 $ 299,643 OK
Materials handling equipment 0 127,655 CA/DE/LA/MI/NC/OK/TX
Retail store fixtures 0 30,320 NC/VA
-----------------
Total equipment cost 457,618
Accumulated depreciation (330,707)
-----------------
Equipment, net of accumulated depreciation $ 126,911
=================
17
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or an
affiliated equipment leasing program sponsored by EFG. 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. Proportionate equipment ownership
enabled the Partnership to further diversify its equipment portfolio at
inception by participating in the ownership of selected assets, thereby reducing
the general levels of risk which could have resulted from a concentration in any
single equipment type, industry or lessee. At December 31, 1999, the
Partnership's equipment portfolio included equipment having a proportionate
original cost of $299,650, representing approximately 65% of total equipment
cost.
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, EFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the lease terms. At December 31, 1999, the Partnership was not
holding any equipment not subject to a lease and no equipment was held for sale
or re-lease.
In November 1998, the Partnership and certain affiliated investment
programs (collectively, the "Programs") entered into a separate agreement to
sell their ownership interests in a Boeing 727-251 ADV jet aircraft and three
engines (collectively, the "Aircraft") to a third party (the "Purchaser") for
$4,350,000. In December 1998, the Purchaser remitted $3,350,000 for the
Aircraft, excluding one of three engines which had been damaged while the
Aircraft was leased to Transmeridian Airlines ("Transmeridian"). (See Note 8
regarding legal action undertaken by the Programs related to Transmeridian and
the damaged engine). The Purchaser also deposited $1,000,000 into a third-party
escrow account (the "Escrow") pending repair of the damaged engine and
re-installation of the refurbished engine on the Aircraft. Upon installation,
the escrow agent was obligated to transfer the Escrow amount plus interest
thereon to the Programs. The engine was refurbished at the expense of the
Programs. The associated cost was approximately $374,000, of which the
Partnership's share was approximately $224,000. The Partnership accrued $156,000
of these costs in 1998 and the balance was incurred in the year ended December
31, 1999.
The Programs also were required to reimburse the Purchaser for its cost to
lease a substitute engine during the period that the damaged engine was being
repaired. This cost was approximately $114,000, of which the Partnership's share
was approximately $68,000, all of which was accrued in 1998 in connection with
the litigation referenced above.
In addition, the purchase and sale agreement permitted the Purchaser to
return the Aircraft to the Programs, subject to a number of conditions, for
$4,350,000, reduced by an amount equivalent to $450 multiplied by the number of
flight hours since the Aircraft's most recent C-Check. Among the conditions
precedent to the Purchaser's returning the Aircraft, the Purchaser must have
completed its intended installation of hush-kitting on the Aircraft to conform
to Stage 3 noise regulations. This work was completed in January 1999. The
Purchaser's return option was to expire on May 15, 1999.
Due to the contingent nature of the sale, the Partnership deferred
recognition of the sale and a resulting gain until expiration of the Purchaser's
return option on May 15, 1999. The Partnership's share of the December proceeds
was $2,010,000, which amount was deposited into EFG's customary escrow account
and transferred to the Partnership, together with the Partnership's other
December rental receipts, in January 1999. At December
18
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
31, 1998, the entire amount was classified as other liabilities, with an equal
amount included in accounts receivable - affiliate, on the Statement of
Financial Position. Upon the installation of the refurbished engine on the
Aircraft, the remainder of the sale consideration, or $1,000,000 and the
interest thereon, was released from the escrow account to the Programs. The
Partnership's share of this payment was $609,504, including interest of $9,504.
In aggregate, the Partnership received sales proceeds of $2,610,000 for its
interest in the Aircraft. The Partnership's interest in the Aircraft had a cost
of $6,484,110 and was fully depreciated, resulting in a net gain, for financial
statement purposes, of $2,610,000.
NOTE 4 - INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land
Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375.
Semele is a Delaware corporation organized on April 14, 1987 and has its common
stock listed on NASDAQ Small Cap Market effective January 5, 1999 (previously
NASDAQ). At the date of the exchange transaction, the common stock of Semele had
a net book value of approximately $1.50 per share and closing market value of
$1.00 per share. Semele has one principal real estate asset consisting of an
undeveloped 274-acre parcel of land near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the exchange transaction and its original 53.54% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $847,080 in cash, became the beneficial owner of 393,394 shares of
Semele common stock (valued at $590,091 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$888,844. The Semele Note bears an annual interest rate of 10% and is scheduled
to mature in April 2001. The note also requires mandatory principal reductions,
if and to the extent that net proceeds are received by Semele from the sale or
refinancing of Rancho Malibu. The Partnership recognized interest income of
$88,884 in both 1999 and 1998 and $17,530 in 1997 related to the Semele Note.
The Partnership's interest in the vessel had an original cost and net book value
of $4,205,030 and $1,597,566, respectively. The proceeds realized by the
Partnership of $1,183,401 resulted in a net loss, for financial statement
purposes, of $414,165. In addition, as this vessel was disposed of prior to the
expiration of the related lease term, the Partnership received a prepayment of
the remaining contracted rent due under the vessel's lease agreement of
$1,142,614.
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The
19
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Consent also allowed for (i) the election of a new Board of Directors nominated
by EFG for terms of up to three years and an increase in the size of the Board
to as many as nine members, provided a majority of the Board shall consist of
members independent of Semele, EFG or any affiliate; and (ii) an amendment
extending Semele's life to perpetual and changing its name from Banyan Strategic
Land Fund II. Contemporaneously with the Consent being obtained, Semele declared
a $0.20 per share dividend to be paid on all shares, including those
beneficially owned by the Partnership. A dividend of $78,679 was paid to the
Partnership on November 17, 1997. This dividend represented a return of equity
to the Partnership, which proportionately reduced the Partnership's investment
in Semele. Subsequent to the exchange transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, was elected to the Board of Directors and
appointed Chief Executive Officer of Semele and James A. Coyne, Executive Vice
President of EFG was appointed Semele's President and Chief Operating Officer,
and was elected to the Board of Directors.
On June 30, 1998, Semele effected a 1-for-300 reverse stock split followed
by a 30-for-1 forward stock split resulting in a reduction of the number of
shares of Semele common stock owned by the Partnership to 39,339 shares. During
the year ended December 31, 1998, the Partnership decreased the carrying value
of its investment in Semele common stock to $4.125 per share resulting in an
unrealized loss in 1998 of $132,773. In 1997, the Partnership recorded an
unrealized loss of $216,366 relate to its investment in the Semele common stock.
Each of these losses was reported as a component of comprehensive income,
included in partners' capital. At December 31, 1998, the General Partner
determined that the decline in market value of the Semele common stock was
other-than-temporary. As a result, the Partnership wrote down the cost of the
Semele stock to $4.125 per share (the quoted price of the Semele stock on NASDAQ
a December 31, 1998) for a total realized loss of $349,139 in 1998. During the
year ended December 31, 1999, the Partnership increased the carrying value of
its investment in Semele common stock to $5.75 per share (the quoted price on
the NASDAQ SmallCap market at December 31, 1999), resulting in an unrealized
gain in 1999 of $63,926. This gain was reported as a component of comprehensive
income included in partners' capital.
NOTE 5 - MARKETABLE SECURITIES
In April 1999, the Partnership purchased marketable securities in the
amount of $214,215. The Partnership increased the carrying value of its
investment in these securities based on the quoted price of the securities on
the New York Stock Exchange at December 31, 1999, resulting in an unrealized
gain for the year ended December 31, 1999 of $27,745. This gain was reported as
a component of comprehensive income included in partners' capital.
NOTE 6 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1999, 1998 and 1997, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
1999 1998 1997
------------------ ------------------ ------------------
Equipment management fees $ 6,879 $ 64,755 $ 150,289
Administrative charges 95,666 59,736 56,929
Reimbursable operating expenses
due to third parties 373,853 799,508 484,845
------------------ ------------------ ------------------
Total $ 476,398 $ 923,999 $ 692,063
================== ================== ==================
20
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management of equipment. For acquisition services, EFG was compensated by an
amount equal to 2.23% of Equipment Base Price paid by the Partnership. For
management services, EFG is compensated by an amount equal to 5% of gross
operating lease rental revenues and 2% of gross full payout lease rental
revenues received by the Partnership. Both acquisition and management fees are
subject to certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4 of the Restated Agreement, as amended, for persons employed by EFG who are
engaged in providing administrative services to the Partnership. Reimbursable
operating expenses due to third parties represent costs paid by EFG on behalf of
the Partnership which are reimbursed to EFG at actual cost.
All equipment was acquired from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers. The
Partnership's Purchase Price was determined by the method described in Note 2,
Equipment on Lease.
All rents and proceeds from the sale of equipment are paid directly to EFG.
EFG temporarily deposits collected funds in a separate interest-bearing escrow
account prior to remittance to the Partnership. At December 31, 1999, the
Partnership was owed $5,747 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in January 2000.
Certain affiliates of the General Partner own Units in the Partnership as
follows:
------------------------------------------------ ---------------------- -----------------------
Number of Percent of Total
Affiliate Units Owned Outstanding Units
------------------------------------------------ ---------------------- -----------------------
Atlantic Acquisition Limited Partnership 94,570 6.11%
------------------------------------------------ ---------------------- -----------------------
Old North Capital Limited Partnership 17,594 1.14%
------------------------------------------------ ---------------------- -----------------------
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995 and affiliates of EFG. The general partners of AALP and ONC are
controlled by Gary D. Engle. In addition, the limited partnership interests of
ONC are owned by Semele. Gary D. Engle is Chairman and CEO of Semele.
NOTE 7 - INCOME TAXES
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income or
loss to each class of partner according to their respective ownership
percentages (95% to the Recognized Owners and 5% to the General Partner). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partner will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partner's tax
capital account balance. At December 31, 1999, the General Partner had a
positive tax capital balance.
21
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The following is a reconciliation between net income reported for financial
statement and federal income tax reporting purposes for the years ended December
31, 1999, 1998 and 1997:
1999 1998 1997
------------------ ------------------ ------------------
Net income $ 4,431,377 $ 580,743 $ 717,643
Financial statement depreciation in
excess of (less than) tax depreciation (300,195) (678,927) 71,967
Deferred rental income (24,700) (31,018) 10,284
Other (1,012,501) 1,418,759 (414,936)
------------------ ------------------ ------------------
Net income for federal income tax
reporting purposes $ 3,093,981 $ 1,289,557 $ 384,958
================== ================== ==================
The principal component of "Other" consists of the difference between the
tax and financial statement gain or loss on equipment disposals.
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1999 and 1998:
1999 1998
------------------ ------------------
Partners' capital $ 8,994,283 $ 5,326,675
Unrealized gains on marketable and investment securities (91,671) --
Add back selling commissions and organization
and offering costs 4,348,553 4,348,553
Financial statement distributions in excess of
tax distributions -- 10,693
Cumulative difference between federal income tax
and financial statement income (loss) 222,226 1,559,622
------------------ ------------------
Partners' capital for federal income tax reporting purposes $ 13,473,391 $ 11,245,543
================== ==================
Unrealized gain on investment securities, financial statement distributions
in excess of tax distributions and cumulative difference between federal income
tax and financial statement income (loss) represent timing differences.
NOTE 8 - LEGAL PROCEEDINGS
In January 1998, certain plaintiffs (the "Plaintiffs") filed a class and
derivative action, captioned Leonard Rosenblum, et al. v. Equis Financial Group
Limited Partnership, et al., in the United States District Court for the
Southern District of Florida (the "Court") on behalf of a proposed class of
investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a number
of its affiliates, including the General Partner, as defendants (collectively,
the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had
filed an earlier derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit".
22
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth terms pursuant to which a settlement of
the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was preliminarily approved by the
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order").
On March 12, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended stipulation of settlement (the "Amended Stipulation") which was
filed with the Court on March 12, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999
(the "March 22 Order"). The Amended Stipulation, among other things, divided the
Class Action Lawsuit into two separate sub-classes that could be settled
individually. On May 26, 1999, the Court issued an Order and Final Judgment
approving settlement of one of the sub-classes. Settlement of the second
sub-class, involving the Partnership and 10 affiliated partnerships
(collectively referred to as the "Exchange Partnerships"), remains pending due,
in part, to the complexity of the proposed settlement pertaining to this class.
In February 2000, counsel for the Plaintiffs and the Defendants entered
into a second amended stipulation of settlement (the "Second Amended
Stipulation") which modified certain of the settlement terms contained in the
Amended Stipulation. The Second Amended Stipulation was preliminarily approved
by the Court by its "Second Modified Order Preliminarily Approving Settlement,
Conditionally Certifying Settlement Class and Providing For Notice of, and
Hearing On, the Proposed Settlement" dated March 6, 2000 (the "March 2000
Order"). Prior to issuing a final order approving the settlement of the second
sub-class involving the Partnership, the Court will hold a fairness hearing that
will be open to all interested parties and permit any party to object to the
settlement. The investors of the Partnership and all other plaintiff sub-class
members will receive a Notice of Settlement and other information pertinent to
the settlement of their claims that will be mailed to them in advance of the
fairness hearing.
The settlement of the second sub-class is premised on the consolidation of
the Exchange Partnerships' net assets (the "Consolidation"), subject to certain
conditions, into a single successor company ("Newco"). Under the proposed
Consolidation, the partners of the Exchange Partnerships would receive both
common stock in Newco and a cash distribution; and thereupon the Exchange
Partnerships would be dissolved. In addition, EFG would contribute certain
management contracts, operations personnel, and business opportunities to Newco
and cancel its current management contracts with all of the Exchange
Partnerships. Newco would operate principally as a finance company and would use
its best efforts to list its shares on the NASDAQ National Market or another
national exchange or market as soon after the Consolidation as Newco deems that
market conditions and its business operations are suitable for listing its
shares and Newco has satisfied all necessary regulatory and listing
requirements. The potential benefits and risks of the Consolidation will be
presented in a Solicitation Statement that will be mailed to all of the partners
of the Exchange Partnerships as soon as the associated regulatory review process
is completed and at least 60 days prior to the fairness hearing. A preliminary
Solicitation Statement was filed with the Securities and Exchange Commission on
August 24, 1998 and remains pending. Class members will be notified of the
actual fairness hearing date when it is confirmed.
One of the principal objectives of the Consolidation is to create a company
that would have the potential to generate more value for the benefit of existing
limited partners than other alternatives, including continuing the
23
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Partnership's customary business operations until all of its assets are disposed
in the ordinary course of business. To facilitate the realization of this
objective, the Amended Stipulation provided, among other things, that commencing
March 22, 1999, the Exchange Partnerships could collectively invest up to 40% of
the total aggregate net asset values of all of the Exchange Partnerships in any
investment, including additional equipment and other business activities that
the general partners of the Exchange Partnerships and EFG reasonably believed to
be consistent with the anticipated business interests and objectives of Newco,
subject to certain limitations. The Second Amended Stipulation, among other
things, quantified the 40% limitation using a whole dollar amount of $32 million
in the aggregate.
On March 8, 2000, the Exchange Partnerships collectively invested $32
million as permitted by the Second Amended Stipulation approved by the Court.
The Partnership's portion of the aggregate investment is $5,700,000. The
investment consists of a term loan to Echelon Residential Holdings LLC, a
newly-formed real estate development company that will be owned by several
investors, including James A. Coyne, Executive Vice President of EFG. Mr.
Coyne, in his individual capacity, is the only investor in Echelon
Residential Holdings LLC who is related to EFG. The loan proceeds were used
by Echelon Residential Holdings LLC in the formation of a subsidiary, Echelon
Residential LLC, that in turn acquired various real estate assets from
Echelon International Corporation, a Florida based real estate company. The
loan has a term of 30 months maturing on September 7, 2002 and bears interest
at the annual rate of 14% for the first 24 months and 18% for the final six
months of the term. Interest accrues and compounds monthly but is not payable
until maturity. Echelon Residential Holdings LLC has pledged a security
interest in all of its right, title and interest in and to its membership
interests in Echelon Residential LLC to the Exchange Partnerships as
collateral.
In the absence of the Court's authorization to enter into new investment
activities, the Partnership's Restated Agreement, as amended, would not permit
such activities without the approval of limited partners owning a majority of
the Partnership's outstanding Units. Consistent with the Amended Stipulation,
the Second Amended Stipulation provides terms for unwinding any new investment
transactions in the event that the Consolidation is not effected or the
Partnership objects to its participation in the Consolidation.
The Second Amended Stipulation, as well as the Amended Stipulation and the
original Stipulation of Settlement, prescribe certain conditions necessary to
effect a final settlement, including providing the partners of the Exchange
Partnerships with the opportunity to object to the participation of their
partnership in the Consolidation. Assuming the proposed settlement is effected
according to present terms, the Partnership's share of legal fees and expenses
related to the Class Action Lawsuit and the Consolidation is estimated to be
approximately $369,000, of which approximately $319,000 was accrued and expensed
by the Partnership in 1998 and approximately $50,000 was accrued and expensed in
1999.
While the Court's August 20 Order enjoined certain class members, including
all of the partners of the Partnership, from transferring, selling, assigning,
giving, pledging, hypothecating, or otherwise disposing of any Units pending the
Court's final determination of whether the settlement should be approved, the
March 22 Order permitted the partners to transfer Units to family members or as
a result of the divorce, disability or death of the partner. No other transfers
are permitted pending the Court's final determination of whether the settlement
should be approved. The provision of the August 20 Order which enjoined the
General Partners of the Exchange Partnerships from, among other things,
recording any transfers not in accordance with the Court's order remains
effective.
There can be no assurance that settlement of the sub-class involving the
Exchange Partnerships will receive final Court approval and be effected. There
also can be no assurance that all or any of the Exchange Partnerships will
participate in the Consolidation because if limited partners owning more than
one-third of the outstanding Units of a partnership object to the Consolidation,
then that partnership will be excluded from the Consolidation.
24
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Notwithstanding the extent of delays experienced thus far in achieving a final
settlement of the Class Action Lawsuit with respect to the Exchange
Partnerships, the General Partner and its affiliates, in consultation with
counsel, continue to feel that there is a reasonable basis to believe that a
final settlement of the sub-class involving the Exchange Partnerships ultimately
will be achieved. However, in the absence of a final settlement approved by the
Court, the Defendants intend to defend vigorously against the claims asserted in
the Class Action Lawsuit. Neither the General Partner nor its affiliates can
predict with any degree of certainty the cost of continuing litigation to the
Partnership or the ultimate outcome.
In addition to the foregoing, the Partnership is a party to other lawsuits
that have arisen out of the conduct of its business, principally involving
disputes or disagreements with lessees over lease terms and conditions as
described below:
Action involving Transmeridian Airlines
On November 9, 1998, First Security Bank, N.A., as trustee of the
Partnership and certain affiliated investment programs (collectively, the
"Plaintiffs), filed an action in Superior Court of the Commonwealth of
Massachusetts in Suffolk County against Prime Air, Inc. d/b/a Transmeridian
Airlines ("Transmeridian"), Atkinson & Mullen Travel, Inc., and Apple Vacations,
West, Inc., both d/b/a Apple Vacations, asserting various causes of action for
declaratory judgment and breach of contract. The action subsequently was removed
to United States District Court for the District of Massachusetts. Transmeridian
filed counterclaims for breach of contract, quantum meruit, conversion, breach
of the implied covenant of good faith and fair dealing, and violation of M.G.L.
c. 93A. The Plaintiffs subsequently filed an Amended Complaint asserting claims
for breaches of contract and covenant of good faith and fair dealing against
Transmeridian and breach of guaranty against Apple Vacations.
The Plaintiffs are seeking damages for, among other things, breach of
contract arising out of Transmeridian's refusal to repair or replace burned
engine blades found in one engine during a pre-return inspection of an aircraft
leased by Transmeridian from the Plaintiffs, a Boeing 727-251 ADV aircraft (the
"Aircraft"). The estimated cost to repair the engine and lease a substitute
engine during the repair period was approximately $488,000. Repairs were
completed in June 1999. The Plaintiffs intend to enforce written guarantees
issued by Apple Vacations that absolutely and unconditionally guarantee
Transmeridian's performance under the lease agreement and are seeking recovery
of all costs, lost revenue and monetary damages in connection with this matter.
Notwithstanding the foregoing, the Plaintiffs were required to advance the cost
of repairing the engine and leasing a substitute engine and cannot be certain
whether the guarantees will be enforced. Therefore, the Partnership accrued and
expensed its share of these costs, or approximately $224,000 in 1998 and $68,000
in 1999. Discovery is ongoing and a trial date has been tentatively scheduled
for January 15, 2001. The General Partner plans to vigorously pursue this
action; however, it is too early to predict the Plaintiffs' likelihood of
success. This aircraft was sold in June 1999.
Action involving National Steel Corporation
EFG, on behalf of the Partnership and certain affiliated investment
programs (collectively, the "Plaintiffs"), filed an action in the Commonwealth
of Massachusetts Superior Court, Department of the Trial Court in and for the
County of Suffolk on July 27, 1995, for damages and declaratory relief against a
lessee of the Partnership, National Steel Corporation ("National Steel"). The
Complaint sought reimbursement from National Steel of certain sales and/or use
taxes paid to the State of Illinois in connection with equipment leased by
National Steel from the Plaintiffs and other remedies provided under the Master
Lease Agreement ("MLA"). On August 30, 1995, National Steel filed a Notice of
Removal, which removed the case to United States District Court, District of
Massachusetts. On September 7, 1995, National Steel filed its Answer to the
Plaintiff's Complaint along with Affirmative Defenses and Counterclaims and
sought declaratory relief, alleging breach of contract, implied covenant of good
faith and fair dealing, and specific performance. The Plaintiffs filed an Answer
to National Steel's Counterclaims on
25
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
September 29, 1995. The parties discussed settlement with respect to this matter
for some time; however, the negotiations were unsuccessful. The Plaintiffs filed
an Amended and Supplemental Complaint alleging further default under the MLA and
filed a motion for Summary Judgment on all claims and Counterclaims. The Court
held a hearing on the Plaintiff's motion in December 1997 and later entered a
decision dismissing certain of National Steel's Counterclaims, finding in favor
of the Plaintiffs on certain issues and in favor of National Steel on other
issues. On May 11, 1999, the parties executed a comprehensive settlement
agreement to resolve all outstanding issues, including reimbursement to the
Partnership for the disputed sales tax items referenced above. This matter did
not have a material effect on the Partnership's financial position or results of
operations.
Action involving Northwest Airlines, Inc.
On September 22, 1995, Investors Asset Holding Corp. and First Security
Bank, N.A., trustees of the Partnership and certain affiliated investment
programs (collectively, the "Plaintiffs"), filed an action in United States
District Court for the District of Massachusetts against a lessee of the
Partnership, Northwest Airlines, Inc. ("Northwest"). The Complaint alleges that
Northwest did not fulfill its maintenance obligations under its Lease Agreements
with the Plaintiffs and seeks declaratory judgment concerning Northwest's
obligations and monetary damages. Northwest filed an Answer to the Plaintiffs'
Complaint and a motion to transfer the venue of this proceeding to Minnesota.
The Court denied Northwest's motion. On June 29, 1998, a United States
Magistrate Judge recommended entry of partial summary judgment in favor of the
Plaintiffs. Northwest appealed this decision. On April 15, 1999, the United
States District Court Judge adopted the Magistrate Judge's recommendation and
entered partial summary judgment in favor of the Plaintiffs on their claims for
declaratory judgment. The Plaintiffs have made a demand upon Northwest for
settlement. If no settlement is reached, the Plaintiffs will proceed to trial
for an assessment of damages. No firm trial date has been established at this
time; however, if a trial should become necessary, it is not expected to occur
before November 2000. The General Partner believes that the Plaintiff's claims
ultimately will prevail and that the Partnership's financial position will not
be adversely affected by the outcome of this action.
NOTE 9 - SUBSEQUENT EVENT
On March 8, 2000, the Exchange Partnerships (see Note 8) collectively
loaned $32 million to Echelon Residential Holdings LLC, a newly-formed real
estate development company that will be owned by several investors, including
James A. Coyne, Executive Vice President of EFG. Mr. Coyne, in his individual
capacity, is the only investor in Echelon Residential Holdings LLC who is
related to EFG.
The Partnership's participation in the loan is $5,700,000. Echelon
Residential Holdings LLC, through a subsidiary (Echelon Residential LLC),
used the loan proceeds to acquire various real estate assets from Echelon
International Corporation, a Florida based real estate company. The loan has
a term of 30 months maturing on September 7, 2002 and bears interest at the
annual rate of 14% for the first 24 months and 18% for the final six months
of the term. Interest accrues and compounds monthly but is not payable until
maturity. In connection with the transaction, Echelon Residential Holdings
LLC has pledged a security interest in all of its right, title and interest
in and to its membership interests in Echelon Residential LLC to the Exchange
Partnerships as collateral.
26
ADDITIONAL FINANCIAL INFORMATION
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1999, 1998 and 1997
The Partnership classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month revenues, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition, may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1999, 1998 and 1997.
1999 1998 1997
------------------ ------------------ ------------------
Rents earned prior to disposal of
equipment, net of interest charges $ 12,719,680 $ 6,558,696 $ 2,422,146
Sale proceeds realized upon disposition
of equipment 4,260,478 1,648,737 159,858
------------------ ------------------ ------------------
Total cash generated from rents
and equipment sale proceeds 16,980,158 8,207,433 2,582,004
Original acquisition cost of equipment
Disposed 13,107,496 5,897,499 1,968,246
------------------ ------------------ ------------------
Excess of total cash generated to cost
of equipment disposed $ 3,872,662 $ 2,309,934 $ 613,758
================== ================== ==================
27
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1999
Sales and
Operations Refinancings Total
------------------ ------------------ ------------------
Net income $ 170,899 $ 4,260,478 $ 4,431,377
Add:
Depreciation 42,304 -- 42,304
Management fees 6,879 -- 6,879
------------------ ------------------ ------------------
Cash from operations, sales and
refinancings 220,082 4,260,478 4,480,560
Less:
Management fees (6,879) -- (6,879)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 213,203 4,260,478 4,473,681
Other sources and uses of cash:
Cash at beginning of year 3,969,089 793,297 4,762,386
Net change in receivables and accruals (158,950) -- (158,950)
Purchase of marketable securities -- (214,215) (214,215)
Less:
Cash distributions paid -- (855,440) (855,440)
------------------ ------------------ ------------------
Cash at end of year $ 4,023,342 $ 3,984,120 $ 8,007,462
================== ================== ==================
28
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1999
For the year ended December 31, 1999, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
Operating expenses $ 687,041
29