Exhibit 13
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Annual Report to the Partners, December 31, 1999
AMERICAN INCOME FUND I-D,
a Massachusetts 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 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1999 and 1998 9
Statement of Operations
for the years ended December 31, 1999, 1998 and 1997 10
Statement of Changes in Partners' Capital
for the years ended December 31, 1999, 1998 and 1997 11
Statement of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 12
Notes to the Financial Statements 13-25
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 26
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 27
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 9.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 28
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 $ 2,394,891 $ 2,695,965 $ 4,364,091 $ 4,939,781 $ 5,241,427
Net income (loss) $ 1,118,389 $ 439,380 $ 1,143,233 $ 820,414 $ (750,100)
Per Unit:
Net income (loss) $ 1.28 $ 0.50 $ 1.31 $ 0.94 $ (0.86)
Cash distributions $ 0.75 $ 0.75 $ 0.94 $ 1.00 $ 1.25
Financial Position
- ---------------------
Total assets $ 13,303,076 $ 13,946,980 $ 14,869,863 $ 17,364,360 $ 14,975,028
Total long-term
obligations $ 2,864,284 $ 4,192,148 $ 5,334,349 $ 7,780,603 $ 5,303,736
Partners' capital $ 9,729,894 $ 9,200,096 $ 9,191,217 $ 9,090,975 $ 9,143,742
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 Fund I-D, a
Massachusetts 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 1991 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, 2002.
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 $2,394,891 compared to $2,695,965 and $4,364,091 for the years ended
December 31, 1998 and 1997, respectively. The decrease in lease revenue from
1998 to 1999 reflects the effects of lease term expirations and equipment sales.
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 $1,045,105 related to this
vessel, including $782,917 representing a prepayment of the remaining contracted
rent due under the vessel's lease agreement. Other reductions in lease revenue
form 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.
Interest income for the year ended December 31, 1999 was $304,091 compared to
$264,986 and $134,242 for the years ended December 31, 1998 and 1997,
respectively. Interest income is generated principally from temporary investment
of rental receipts and equipment sale proceeds in short-term instruments.
Interest income
3
included $89,841 and in both 1999 and 1998 and $17,719 in 1997 earned on a note
receivable from Semele Group, Inc. ("Semele") (see Note 4 to the accompanying
financial statements). 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.
During the year ended December 31, 1999, the Partnership sold equipment
having a net book value of $1,927 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $426,450
compared to a net gain in 1998 of $151,019 on equipment having a net book value
of $69,387 and a net gain in 1997 of $512,239 on equipment having a net book
value of $306,741.
In 1997, the Partnership exchanged its interest in a vessel with an original
cost and net book value of $5,091,464 and $2,307,445, respectively (see below
and Note 4 to the accompanying financial statements). In connection with this
exchange, the Partnership realized proceeds of $1,568,119, which resulted in a
net loss, for financial statement purposes, of $739,326. In addition, as this
vessel was disposed of prior to the expiration of the related lease term, the
Partnership received 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 gains or losses reported
in the financial statements is not necessarily indicative of the total residual
value the Partnership achieved from leasing the equipment.
Depreciation expense was $1,119,242, $1,322,360, and $2,284,020 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 at the date of primary lease
expiration on a straight-line basis over such term. For purposes of this policy,
estimated residual values represent estimates of equipment values at the date of
the primary lease expiration. To the extent that equipment is held beyond its
primary lease term, the Partnership continues to depreciate the remaining net
book value of the asset on a straight-line basis over the asset's remaining
economic life.
Interest expense was $269,910 or 11.3% of lease revenue in 1999, compared to
$386,021 or 14.3% of lease revenue in 1998 and $466,915 or 10.7% of lease
revenue in 1997. Interest expense in future periods will decline as the
principal balance of notes payable is reduced through the application of rent
receipts to outstanding debt. See additional discussion below regarding the
refinancing of certain of the debt in 2000.
Management fees were approximately 4.7%, 4.6% and 3.8% 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 $362,072 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. As a result, the
Partnership wrote down the cost of the Semele common stock from $15 per share to
4
$4.125 per share (the quoted price of Semele stock on NASDAQ at December 31,
1998). See further discussion below.
Operating expenses were $504,547, $477,313 and $211,592 for the years ended
December 31, 1999, 1998 and 1997, respectively. During 1999, the Partnership
accrued approximately $194,000 for the completion of a D-Check incurred to
facilitate the remarketing of the Finnair Aircraft having a lease agreement
which expired in January 2000 (see Note 9 to the accompanying financial
statements). Operating expenses in 1999 also include 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 1998, the
Partnership incurred or accrued approximately $316,000 for such expenses related
to the Class Action Lawsuit. Other operating expenses consist principally of
professional service costs, such as audit and other legal fees, as well as
printing, distribution and remarketing expenses. In certain cases, equipment
storage or repairs and maintenance costs may be incurred in connection with
equipment being remarketed.
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 $3,050,000 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. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These cash
inflows are used to satisfy debt service obligations associated with leveraged
leases, and to pay management fees and operating costs. Operating activities
generated net cash inflows of $2,093,710, $2,375,827 and $3,771,967 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. Overall, expenses
associated with rental activities, such as management fees, and net cash flow
from operating activities will also continue to 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. For the year ended
December 31, 1999, the Partnership realized net cash proceeds of $428,377,
compared to $220,406 in 1998 and $876,740 in 1997. 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.
At December 31, 1999, the Partnership was due aggregate future minimum lease
payments of $3,206,127 from contractual lease agreements (see Note 2 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $2,864,284 (see Note 6 to the financial statements).
At the expiration of the individual primary and renewal 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.
In December 1998, the Partnership and certain affiliated investment programs
owning interests in two McDonnell Douglas MD-82 aircraft (collectively, the
"Programs") entered into lease extension agreements with Finnair OY. The lease
extensions, effective upon the expiration of the existing primary lease terms on
April 28, 1999, extended the leases for nine months and two years, respectively.
In aggregate, these lease extensions will provide additional lease revenue of
approximately $848,000 to the Partnership over the terms of the leases.
5
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. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future years, the amount of cash used to repay debt
obligations is scheduled to decline as the principal balance of notes payable is
reduced through the collection and application of rents. However, the
Partnership has balloon payment obligations at the expiration of the lease terms
related to aircraft leased by Reno Air, Inc. of $823,037 and Finnair OY (see
below). On April 29, 1999, the Programs entered into agreements with a
third-party lender to extend the maturity dates of the Programs' indebtedness
related to the Finnair Aircraft. Consistent with the extension terms of the
lease agreements related to the Finnair Aircraft discussed above, the maturity
dates of the indebtedness were extended to January 2000 and April 2001,
respectively. The Partnership has balloon payment obligations of $484,268 and
$129,116 related to this indebtedness that is due on the respective maturity
dates. In February 2000, the Programs refinanced the indebtedness maturing in
January 2000 (see Note 9 to the accompanying financial statements). The Reno Air
indebtedness matures in January 2003.
As a result of the vessel exchange in 1997 (see Results of Operations), the
Partnership became the beneficial owner of 407,790 shares of Semele common stock
(valued at $611,955 ($1.50 per share) at the time of the exchange transaction).
This investment was reduced by a dividend of $81,594 received in 1997
representing a return of equity to the Partnership. The Partnership also
received a beneficial interest in the Semele Note of $898,405 in connection with
the exchange. 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 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 40,797 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 $137,687. In 1997, the Partnership recorded an unrealized loss of
$224,385 related to its Semele common stock. These losses were reported as
components 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 common stock to $4.125 per share for a total
realized loss of $362,072 in 1998. During the year ended December 31, 1999, the
Partnership increase the carrying value of its investment in Semele common stock
to $5.75 per share (the quoted price of the Semele stock on NASDAQ SmallCap
market at December 31, 1999), resulting in an unrealized gain of $66,295. This
gain was reported as a component of comprehensive income, included in partners'
capital.
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.
In particular, the Partnership must contemplate the potential liquidity risks
associated with its investment in commercial jet aircraft. The management and
remarketing of aircraft can involve, among other things, significant costs and
lengthy remarketing initiatives. Although the Partnership's lessees are required
to maintain the aircraft during the period of lease contract, repair,
maintenance, and/or refurbishment costs at lease expiration can be substantial.
For example, an aircraft that is returned to the Partnership meeting minimum
airworthiness standards, such as flight hours or engine cycles, nonetheless may
require heavy maintenance in order to bring its engines, airframe and other
hardware up to standards that will permit its prospective use in commercial air
transportation. At December 31, 1999, the Partnership had ownership interests in
six commercial jet aircraft. Three of the aircraft are Boeing 737 aircraft
formerly leased to Southwest Airlines, Inc. The lease agreements for each of
these aircraft
6
expired on December 31, 1999 and Southwest elected to return the aircraft. The
aircraft are Stage 2 aircraft, meaning that they are prohibited from operating
in the United States after December 31, 1999 unless they are retro-fitted with
hush-kits to meet Stage 3 noise regulations promulgated by the Federal Aviation
Administration. The cost to hush-kit an aircraft, such as the Partnership's
Boeing 737s, can approach $2 million. At this time, the General Partner is
attempting to remarket these assets without further capital investment by either
re-leasing the aircraft to a user outside of the United States or selling the
aircraft as they are without retro-fitting the aircraft to conform to Stage 3
standards. The remaining three aircraft in the Partnership's portfolio already
are Stage 3 compliant. One of these aircraft had a lease term that expired in
January 2000 and is being held in storage pending the outcome of ongoing
remarketing efforts. The final two aircraft in the Partnership's portfolio have
lease terms expiring in April 2001 and January 2003.
Cash distributions to the General and Limited Partners have been declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the year ended December 31, 1999, the Partnership declared total
cash distributions of Distributable Cash From Operations and Distributable Cash
From Sales and Refinancings of $654,886. In accordance with the Restated
Agreement, as amended, the Limited Partners were allocated 95% of these
distributions, or $622,142, and the General Partner was allocated 5%, or
$32,744. The fourth quarter 1999 cash distribution was paid on January 14, 2000.
Cash distributions paid to the Limited Partners 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 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 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 Partnership is a Nominal Defendant in a Class Action Lawsuit described in
Note 8 to the accompanying financial statements. 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.
7
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Fund I-D,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of American
Income Fund I-D, a Massachusetts 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 Fund I-D, a
Massachusetts 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
8
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1999 and 1998
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents $ 4,377,118 $ 3,837,781
Rents receivable 82,106 259,427
Accounts receivable - affiliate 112,020 63,066
Note receivable - affiliate 898,405 898,405
Investment securities - affiliate 234,583 168,288
Equipment at cost, net of accumulated
depreciation of $7,819,264 and $8,780,173
at December 31, 1999 and 1998, respectively 7,598,844 8,720,013
------------ ------------
Total assets $ 13,303,076 $ 13,946,980
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 2,864,284 $ 4,192,148
Accrued interest 19,888 32,264
Accrued liabilities 438,581 277,500
Accrued liabilities - affiliate 18,390 16,565
Deferred rental income 68,317 64,685
Cash distributions payable to partners 163,722 163,722
------------ ------------
Total liabilities 3,573,182 4,746,884
------------ ------------
Partners' capital (deficit):
General Partner (431,308) (457,798)
Limited Partnership Interests
(829,521.30 Units; initial purchase price of $25 each) 10,161,202 9,657,894
------------ ------------
Total partners' capital 9,729,894 9,200,096
------------ ------------
Total liabilities and partners' capital $ 13,303,076 $ 13,946,980
============ ============
The accompanying notes are an integral part of
these financial statements
9
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Income:
Lease revenue $ 2,394,891 $ 2,695,965 $ 4,364,091
Interest income 214,250 175,145 116,523
Interest income - affiliate 89,841 89,841 17,719
Gain on sale of equipment 426,450 151,019 512,239
Loss on exchange of equipment -- -- (739,326)
----------- ----------- -----------
Total income 3,125,432 3,111,970 4,271,246
----------- ----------- -----------
Expenses:
Depreciation 1,119,242 1,322,360 2,284,020
Interest expense 269,910 386,021 466,915
Equipment management fees
- affiliate 113,344 124,824 165,486
Write-down of investment securities
- affiliate -- 362,072 --
Operating expenses - affiliate 504,547 477,313 211,592
----------- ----------- -----------
Total expenses 2,007,043 2,672,590 3,128,013
----------- ----------- -----------
Net income $ 1,118,389 $ 439,380 $ 1,143,233
=========== =========== ===========
Net income
per limited partnership unit $ 1.28 $ 0.50 $ 1.31
=========== =========== ===========
Cash distributions declared
per limited partnership unit $ 0.75 $ 0.75 $ 0.94
=========== =========== ===========
The accompanying notes are an integral part of
these financial statements
10
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1999, 1998 and 1997
General Limited Partners
Partner ---------------------------
Amount Units Amount Total
------------ ------------ ------------ ------------
Balance at December 31, 1996 $ (463,256) 829,521.30 $ 9,554,231 $ 9,090,975
Net income - 1997 57,162 -- 1,086,071 1,143,233
Unrealized loss on investment securities (11,219) -- (213,166) (224,385)
------------ ------------ ------------ ------------
Comprehensive income 45,943 -- 872,905 918,848
------------ ------------ ------------ ------------
Cash distributions declared (40,930) -- (777,676) (818,606)
------------ ------------ ------------ ------------
Balance at December 31, 1997 (458,243) 829,521.30 9,649,460 9,191,217
Net Income - 1998 21,970 -- 417,410 439,380
Unrealized loss on investment securities (6,884) -- (130,803) (137,687)
Less: Reclassification adjustment for
write-down of investment securities 18,103 -- 343,969 362,072
------------ ------------ ------------ ------------
Comprehensive income 33,189 -- 630,576 663,765
------------ ------------ ------------ ------------
Cash distributions declared (32,744) -- (622,142) (654,886)
------------ ------------ ------------ ------------
Balance at December 31, 1998 (457,798) 829,521.30 9,657,894 9,200,096
Net Income - 1999 55,919 -- 1,062,470 1,118,389
Unrealized gain on investment securities 3,315 -- 62,980 66,295
------------ ------------ ------------ ------------
Comprehensive income 59,234 -- 1,125,450 1,184,684
------------ ------------ ------------ ------------
Cash distributions declared (32,744) -- (622,142) (654,886)
------------ ------------ ------------ ------------
Balance at December 31, 1999 $ (431,308) 829,521.30 $ 10,161,202 $ 9,729,894
============ ============ ============ ============
The accompanying notes are an integral part of
these financial statements
11
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 1,118,389 $ 439,380 $ 1,143,233
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 1,119,242 1,322,360 2,284,020
Gain on sale of equipment (426,450) (151,019) (512,239)
Write-down of investment securities
- affiliate -- 362,072 --
Loss on exchange of equipment -- -- 739,326
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 177,321 (111,715) 432,459
Accounts receivable - affiliate (48,954) 304,310 (220,921)
Increase (decrease) in:
Accrued interest (12,376) (4,659) (63,264)
Accrued liabilities 161,081 268,300 (13,550)
Accrued liabilities - affiliate 1,825 (11,374) (6,205)
Deferred rental income 3,632 (41,828) (10,892)
----------- ----------- -----------
Net cash from operating activities 2,093,710 2,375,827 3,771,967
----------- ----------- -----------
Cash flows from investing activities:
Dividend received -- -- 81,594
Proceeds from equipment sales/exchanges 428,377 220,406 876,740
----------- ----------- -----------
Net cash from investing activities 428,377 220,406 958,334
----------- ----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (1,327,864) (1,142,201) (2,446,254)
Distributions paid (654,886) (654,886) (873,180)
----------- ----------- -----------
Net cash used in financing activities (1,982,750) (1,797,087) (3,319,434)
----------- ----------- -----------
Net increase in cash and cash equivalents 539,337 799,146 1,410,867
Cash and cash equivalents at beginning of year 3,837,781 3,038,635 1,627,768
----------- ----------- -----------
Cash and cash equivalents at end of year $ 4,377,118 $ 3,837,781 $ 3,038,635
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 282,286 $ 390,680 $ 530,179
=========== =========== ===========
Supplemental disclosure of non-cash investing and financing activities:
See Note 4 to the financial statements regarding the carrying value of the
Partnership's investment securities - affiliate.
The accompanying notes are an integral part of these financial statements.
12
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
American Income Fund I-D, a Massachusetts Limited Partnership (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on May 30, 1991, 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 VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On August 30, 1991, the
Partnership issued 829,521.30 units of limited partnership interest (the
"Units") to 1,234 investors. Included in the 829,521.30 units were 1,572.30
bonus units. The Partnership's General Partner, AFG Leasing VI Incorporated, is
a Massachusetts corporation formed in 1990 and an affiliate of Equis Financial
Group Limited Partnership (formerly known as American Finance Group), a
Massachusetts limited partnership ("EFG"). 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 on August 30, 1991 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 Limited Partners and 5% to the General
Partner.
Under the terms of a Management Agreement between the Partnership and EFG,
management services are provided by EFG to the Partnership at fees which the
General Partner believes to be competitive for similar services (see Note 5).
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 Equipment 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"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle 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.
13
AMERICAN INCOME FUND I-D,
a Massachusetts 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 repurchase agreements with overnight maturities. 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 $4,261,574 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, quarterly or semi-annually and
no significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. 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 $3,206,127 are due as follows:
For the year ending December 31, 2000 $ 1,187,842
2001 929,795
2002 844,163
2003 244,327
-----------
Total $ 3,206,127
===========
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1999, 1998 and 1997 is as
follows:
1999 1998 1997
------------ ------------ ------------
Finnair OY $ 615,207 $ 620,019 $ 620,026
Southwest Airlines, Inc. $ 504,986 $ 500,832 $ 500,832
Reno Air, Inc. $ 448,665 $ 454,489 $ 444,213
General Motors Corporation $ 362,823 $ 386,198 $ 496,120
Trans Ocean Container Corporation $ -- $ 279,105 $ --
Gearbulk Shipowning Ltd. $ -- $ -- $ 1,045,105
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.
14
AMERICAN INCOME FUND I-D,
a Massachusetts 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
The Partnership's investment in Semele Group, Inc. is considered to be
available-for-sale and as such is carried at fair value with unrealized gains
and losses reported as a separate component of partners' 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 $1,184,684.
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 5).
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
15
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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.
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 $366,000
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 and expensed
approximately $316,000 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 Limited
Partners and 5% to the General Partner). See Note 7 for 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 829,521.30 Units
outstanding during each of the three years in the period ended December 31, 1999
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 and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. 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.
16
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Remaining
Lease Term Equipment
Equipment Type (Months) At Cost Location
- -------------------------- ---------- ------------ ----------------------
Aircraft 0-36 $ 10,081,685 NV/TX/Foreign
Materials handling 0-24 2,382,359 CA/GA/IA/IL/IN/MI/MO/
NC/NV/NY/OH/PA/SC
Trailers/intermodal
containers 36-42 2,039,749 CA/OK
Construction and mining 0 500,670 WV
Retail store fixtures 7 316,563 FL
Furniture and fixtures 0 97,082 NY
------------
Total equipment cost 15,418,108
Accumulated depreciation (7,819,264)
------------
Equipment, net of accumulated
depreciation $ 7,598,844
============
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 approximately $12,438,000, representing approximately 81% of
total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately $7,536,000
and a net book value of approximately $5,830,000 at December 31, 1999 (see Note
6).
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 primary lease terms. The summary above includes equipment held
for re-lease or sale with an original cost of approximately $3,068,500 and a net
book value of approximately $904,000 at December 31, 1999. This equipment
includes the Partnership's interests in three Boeing 737 aircraft formerly
leased to Southwest Airlines, Inc. having a cost of $2,546,156 and a net book
value of $903,462 at December 31, 1999. The General Partner is actively seeking
the sale or re-lease of all equipment not on lease.
17
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 66.15% beneficial
ownership interest in Dove Arrow, one of the three Vessels, the Partnership
received $840,676 in cash, became the beneficial owner of 407,970 shares of
Semele common stock (valued at $611,955 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$898,405. The Semele Note bears an annual interest rate of 10% and is scheduled
to mature in April 2001.The note 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
$89,841 in both 1999 and 1998 and $17,719 in 1997 related to the Semele Note.
The Partnership's interest in the vessel had an original cost and net book value
of $5,091,464 and $2,307,445, respectively. The proceeds realized by the
Partnership of $1,568,119 resulted in a net loss, for financial statement
purposes, of $739,326. 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
$782,917.
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 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 $81,594 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
18
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 40,797 shares. In accordance
with the Financial Accounting Standard Board's Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities, marketable equity securities
classified as available-for-sale are required to be carried at fair value.
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 $137,687. In 1997, the Partnership recorded an
unrealized loss of $224,385 related to its Semele common stock. These losses
were reported as components 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 common stock to $4.125
per share for a total realized loss of $362,072 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 of the
Semele stock on NASDAQ SmallCap market at December 31, 1999), resulting in an
unrealized gain of $66,295. This gain was reported as a component of
comprehensive income, included in partners' capital.
NOTE 5 - 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 $ 113,344 $ 124,824 $ 165,486
Administrative charges 118,693 66,480 62,544
Reimbursable operating expenses
due to third parties 385,854 410,833 149,048
------------ ------------ ------------
Total $ 617,891 $ 602,137 $ 377,078
============ ============ ============
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
9.4(c) 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.
19
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 either
EFG or to a lender. 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 $112,020 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:
----------------------------------------------------------------
Percent of
Total
Number of Outstanding
Affiliate Units Owned Units
----------------------------------------------------------------
Atlantic Acquisition Limited
Partnership 35,049 4.23%
----------------------------------------------------------------
Old North Capital Limited
Partnership 1,511 0.18%
----------------------------------------------------------------
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 6 - NOTES PAYABLE
Notes payable at December 31, 1999 consisted of installment notes of $2,864,284
payable to banks and institutional lenders. The installment notes bear interest
rates ranging between 8.09% and 8.65%, except for one note which bears a
fluctuating interest rate based on LIBOR plus a margin (6.4625% at December 31,
1999). All of the installment notes are non-recourse and are collateralized by
the equipment and assignment of the related lease payments. Generally, the
installment notes will be fully amortized by noncancellable rents. However, the
Partnership has balloon payment obligations at the expiration of the lease terms
related to aircraft leased by Reno Air, Inc. ($823,037) and Finnair OY ($484,268
and $129,116). The Finnair OY indebtedness matures in January 2000 and April
2001, respectively. (See Note 9 regarding refinancing of the indebtedness that
matured in January 2000). The Reno Air indebtedness matures in January 2003. The
carrying amount of notes payable approximates fair value at December 31, 1999.
The annual maturities of the installment notes payable are as follows:
For the year ending December 31, 2000 $ 1,101,268
2001 573,834
2002 366,145
2003 823,037
-----------
Total $ 2,864,284
===========
20
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 Limited Partners 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. At December 31, 1999, the General Partner had a positive tax
capital account balance.
The following is a reconciliation between net income or loss 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 $ 1,118,389 $ 439,380 $ 1,143,233
Financial statement depreciation in
less than tax depreciation (482,989) (824,769) (2,025,107)
Deferred rental income 3,632 (41,828) (10,892)
Other 9,472 404,621 (891,689)
----------- ----------- -----------
Net income (loss) for federal income tax
reporting purposes $ 648,504 $ (22,596) $(1,784,455)
=========== =========== ===========
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 $ 9,729,894 $ 9,200,096
Add back selling commissions and organization
and offering costs 2,323,619 2,323,619
Unrealized gain on investment securities (66,295) --
Financial statement distributions in excess of
tax distributions -- 9,376
Cumulative difference between federal income tax
and financial statement income (loss) (3,988,984) (3,519,099)
----------- -----------
Partners' capital for federal income tax reporting purposes $ 7,998,234 $ 8,013,992
=========== ===========
21
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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".
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.
22
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 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 $3,050,000. 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
23
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 $366,000,
of which approximately $316,000 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. 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 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 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
24
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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.
NOTE 9 - SUBSEQUENT EVENTS
Refinancing of Indebtedness
In February 2000, the Partnership and certain affiliated investment programs
(collectively, the "Programs") refinanced the indebtedness maturing in January
2000 associated with the McDonnell-Douglas MD-82 aircraft formerly leased to
Finnair OY. The Programs received debt proceeds of $4,720,000 in aggregate,
consisting of $3,370,000 to refinance the existing indebtedness and an
additional $1,350,000 required to perform a D-Check on the aircraft. The note
bears a fluctuating interest rate based on LIBOR plus a margin with interest
payments due monthly. The Partnership's share of the indebtedness is $679,255
which is due at maturity on August 9, 2000. The aircraft was returned in January
2000 upon its lease term expiration and is currently being stored in a
warehouse.
Other
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 $3,050,000. 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.
25
ADDITIONAL FINANCIAL INFORMATION
AMERICAN INCOME FUND I-D,
a Massachusetts 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 revenue, 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 $2,730,799 $1,546,749 $4,706,156
Sale proceeds realized upon disposition
of equipment 428,377 220,406 876,740
---------- ---------- ----------
Total cash generated from rents
and equipment sale proceeds 3,159,176 1,767,155 5,582,896
Original acquisition cost of equipment
disposed 2,082,078 1,412,066 4,942,148
---------- ---------- ----------
Excess of total cash generated to cost
of equipment disposed $1,077,098 $ 355,089 $ 640,748
========== ========== ==========
26
AMERICAN INCOME FUND I-D,
a Massachusetts 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 $ 691,939 $ 426,450 $ 1,118,389
Add:
Depreciation 1,119,242 -- 1,119,242
Management fees 113,344 -- 113,344
Book value of disposed equipment -- 1,927 1,927
Less:
Principal reduction of notes payable (1,327,864) -- (1,327,864)
----------- ----------- -----------
Cash from operations, sales and
refinancing 596,661 428,377 1,025,038
Less:
Management fees (113,344) -- (113,344)
----------- ----------- -----------
Distributable cash from operations,
sales and refinancing 483,317 428,377 911,694
Other sources and uses of cash:
Cash at beginning of year 3,837,781 -- 3,837,781
Net change in receivables and
accruals 282,529 -- 282,529
Less:
Cash distributions paid (226,509) (428,377) (654,886)
----------- ----------- -----------
Cash at end of year $ 4,377,118 $ -- $ 4,377,118
=========== =========== ===========
27
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
For the year ended December 31, 1999, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
Operating expenses $ 341,807
28