UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______________________ to_________________________
For Quarter Ended March 31, 2000 Commission File No. 0-18365
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3061971
- ------------------------------ ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 BROAD STREET, BOSTON, MA 02110
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
--------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes No
--- ---
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 2000 and December 31, 1999 3
Statement of Operations
for the three months ended March 31, 2000 and 1999 4
Statement of Changes in Partners' Capital
for the three months ended March 31, 2000 5
Statement of Cash Flows
for the three months ended March 31, 2000 and 1999 6
Notes to the Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION:
Items 1 - 6 16
2
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
March 31, 2000 and December 31, 1999
(Unaudited)
March 31, December 31,
2000 1999
--------- -------------
ASSETS
Cash and cash equivalents $ 2,114,439 $ 8,007,462
Rents receivable 6,101 4,251
Accounts receivable 416,164 --
Accounts receivable - affiliate 12,121 10,747
Note receivable 5,700,000 --
Note receivable - affiliate 888,844 888,844
Investment securities - affiliate 211,447 226,199
Marketable securities -- 241,960
Equipment at cost, net of accumulated depreciation
of $341,283 and $330,707 at March 31, 2000
and December 31, 1999, respectively 116,335 126,911
------------------- -------------------
Total assets $ 9,465,451 $ 9,506,374
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities $ 223,706 $ 285,939
Accrued liabilities - affiliate -- 6,315
Other liabilities 7,825 5,977
Cash distributions payable to partners -- 213,860
------------------- -------------------
Total liabilities 231,531 512,091
------------------- -------------------
Partners' capital (deficit):
General Partner (1,254,839) (1,266,821)
Limited Partnership Interests
(1,547,930 Units; initial purchase price of $25 each) 10,488,759 10,261,104
------------------- -------------------
Total partners' capital 9,233,920 8,994,283
------------------- -------------------
Total liabilities and partners' capital $ 9,465,451 $ 9,506,374
=================== ===================
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
--------------- ----------------
Income:
Lease revenue $ 18,548 $ 63,476
Interest income 142,664 83,052
Interest income - affiliate 22,160 21,917
Gain on sale of marketable securities 143,465 --
Gain on sale of equipment -- 104,700
--------------- ---------------
Total income 326,837 273,145
--------------- ---------------
Expenses:
Depreciation 10,576 10,576
Equipment management fees - affiliate 574 2,821
Operating expenses - affiliate 33,553 141,605
--------------- ---------------
Total expenses 44,703 155,002
--------------- ---------------
Net income $ 282,134 $ 118,143
================ ================
Net income
per limited partnership unit $ 0.17 $ 0.07
================ ================
Cash distribution declared
per limited partnership unit $ -- $ 0.13
================ ================
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS'
CAPITAL for the three months ended
March 31, 2000
(Unaudited)
RECOGNIZED OWNERS
-----------------
GENERAL
PARTNER
AMOUNT UNITS AMOUNT TOTAL
---------- ------- -------- -------
Balance at December 31, 1999 $(1,266,821) 1,547,930 $ 10,261,104 $ 8,994,283
Net income 14,107 -- 268,027 282,134
Less: Reclassification adjustment for
sale of marketable securities (1,387) -- (26,358) (27,745)
Unrealized loss on investment
securities - affiliate (738) -- (14,014) (14,752)
------------- ------------- --------------- ---------------
Comprehensive income 11,982 -- 227,655 239,637
------------- ------------- --------------- ---------------
Balance at March 31, 2000 $(1,254,839) 1,547,930 $ 10,488,759 $ 9,233,920
============= ============= =============== ===============
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the three months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
--------------- ---------------
Cash flows from (used in) operating activities:
Net income $ 282,134 $ 118,143
Adjustments to reconcile net income to net cash from (used in) operating
activities:
Depreciation 10,576 10,576
Gain on sale of marketable securities (143,465) --
Gain on sale of equipment -- (104,700)
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable (1,850) --
Accounts receivable (416,164) --
Accounts receivable - affiliate (1,374) 2,068,470
Increase (decrease) in:
Accrued liabilities (62,233) (33,300)
Accrued liabilities - affiliate (6,315) 4,862
Deferred rental income -- (24,700)
Other liabilities 1,848 869,413
--------------- ---------------
Net cash from (used in) operating activities (336,843) 2,908,764
--------------- ---------------
Cash flows from (used in) investing activities:
Purchase of equipment held for re-sale -- (919,500)
Proceeds from equipment sales -- 104,700
Note receivable (5,700,000) --
Proceeds from sale of marketable securities 357,680 --
--------------- ---------------
Net cash used in investing activities (5,342,320) (814,800)
--------------- ---------------
Cash flows used in financing activities:
Distributions paid (213,860) (213,860)
--------------- ---------------
Net cash used in financing activities (213,860) (213,860)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (5,893,023) 1,880,104
Cash and cash equivalents at beginning of period 8,007,462 4,762,386
--------------- ---------------
Cash and cash equivalents at end of period $ 2,114,439 $ 6,642,490
=============== ===============
Supplemental disclosure of non-cash activity:
See Note 6 to the financial statements regarding the reduction of the
Partnership's carrying value of its investment securities - affiliate
during the three months ended March 31, 2000.
The accompanying notes are an integral part
of these financial statements.
6
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1999 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1999 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 2000 and December 31, 1999 and results of operations for
the three month periods ended March 31, 2000 and 1999 have been made and are
reflected.
NOTE 2 - CASH
At March 31, 2000, American Income Partners V-B Limited Partnership (the
"Partnership") had $1,999,093 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.
NOTE 3 - 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 Equis Financial Group Limited Partnership ("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 to the
financial statements presented in the Partnership's 1999 Annual Report regarding
the Class Action Lawsuit. Future minimum rents of $129,445 are due as follows:
For the year ending March 31, 2001 $ 47,071
2002 47,071
2003 35,303
--------------
Total $ 129,445
==============
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at March
31, 2000. Remaining Lease Term (Months), as used below, represents the number of
months remaining from March 31, 2000 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.
7
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
REMAINING
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST
-------------- ---------- ----------
Trailers/intermodal containers 33 $ 299,643
Materials handling 0 127,653
Retail store fixtures 0 30,322
--------------
Total equipment cost 457,618
Accumulated depreciation (341,283)
--------------
Equipment, net of accumulated depreciation $ 116,335
==============
At March 31, 2000, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $299,643, representing approximately 65%
of total equipment cost.
At March 31, 2000, all of the Partnership's equipment was subject to
contracted leases or being leased on a month-to-month basis.
NOTE 5 - NOTE RECEIVABLE
On March 8, 2000, the Partnership and 10 affiliated partnerships (the
"Exchange Partnerships") (see Note 8 to the financial statements presented in
the Partnership's 1999 Annual Report) 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.
The Partnership accrued interest income of $53,200 related to this loan during
the three months ended March 31, 2000. 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.
NOTE 6 - INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE
As a result of an exchange transaction in 1997, the Partnership owns 39,339
shares of Semele Group, Inc. ("Semele") common stock and holds a beneficial
interest in a note from Semele (the "Semele Note") of $888,844. The Semele Note
matures in April 2001 and bears an annual interest rate of 10% with mandatory
principal reductions prior to maturity, if and to the extent that net proceeds
are received by Semele from the sale or refinancing of its principal real estate
asset consisting of an undeveloped 274-acre parcel of land near Malibu,
California. The Partnership recognized interest income of $22,160 and $21,917
related to the Semele Note during the three months ended March 31, 2000 and
1999, respectively.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are carried at fair value.
8
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
During the three months ended March 31, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5.375 per share (the
quoted price of the Semele stock on NASDAQ SmallCap Market at March 31, 2000)
resulting in an unrealized loss of $14,752. This loss was reported as a
component of comprehensive income, included in partners' capital.
NOTE 7 - 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. The securities were sold
in March 2000 for proceeds of $357,680 (classified as accounts receivable on the
accompanying statement of financial position at March 31, 2000), resulting in a
realized gain, for financial statement purposes, of $143,465. The unrealized
gain, recorded during 1999, was reversed when the securities were sold. The
unrealized gain was previously reported as a component of comprehensive income,
included in partners' capital.
NOTE 8 - EQUIPMENT HELD FOR RE-SALE
On March 31, 1999, the Partnership acquired equipment for the purpose of
re-sale in the amount of $919,500. This equipment was subsequently sold in 1999.
NOTE 9 - 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 each of the three month
periods ended March 31, 2000 and 1999, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
2000 1999
-------------- -------------
Equipment management fees $ 574 $ 2,821
Administrative charges 3,902 14,934
Reimbursable operating expenses
due to third parties 29,651 126,671
--------------- -------------
Total $ 34,127 $ 144,426
=============== =============
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 March 31, 2000, the
Partnership was owed $5,630 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in April 2000.
NOTE 10 - LEGAL PROCEEDINGS
As described more fully in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999, 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. In
addition, the Partnership's 1999 Annual Report describes certain other pending
litigation that has arisen out of the conduct of the Partnership's business,
principally involving disputes or disagreements with lessees over lease terms
and conditions.
9
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements in this quarterly 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 financial statements presented in the
Partnership's 1999 Annual Report, the remarketing of the Partnership's
equipment, and the performance of the Partnership's non-equipment assets.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1999:
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 financial statements presented in the
Partnership's 1999 Annual Report. 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.
RESULTS OF OPERATIONS
For the three months ended March 31, 2000, the Partnership recognized lease
revenue of $18,548 compared to $63,476 for the same period in 1999. The decrease
in lease revenue from 1999 to 2000 resulted principally from lease term
expirations and the sale of equipment. In the future, lease revenue will
continue to decline due to lease term expirations and the sale of equipment.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by Equis Financial Group Limited Partnership ("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 three months ended March 31, 2000 was $164,824
compared to $104,969 for the same period in 1999. Interest income is typically
generated from temporary investment of rental receipts and equipment sale
proceeds in short-term instruments. Interest income during the three months
ended March 31, 2000 and 1999 included $22,160 and $21,917, respectively, earned
on a note receivable from Semele Group, Inc. ("Semele") (see Note 6 to the
financial statements herein). In addition, interest income for the three months
ending March 31, 2000 included interest earned on a note receivable from Echelon
Residential Holdings LLC in the amount of $53,200 (see discussion below). 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.
During the three months ended March 31, 2000, the Partnership sold
marketable securities for proceeds of $357,580, which resulted in a net gain,
for financial statement purposes, of $143,465 (see below).
10
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
During the three months ended March 31, 1999, the Partnership sold
equipment that had been fully depreciated to existing lessees and third parties.
These sales resulted in a net gain, for financial statement purposes, of
$104,700. There were no equipment sales during the three months ending March 31,
2000.
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 upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation expense was $10,576 for each of the three months ended March
31, 2000 and 1999. 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.
Management fees were approximately 3.1% and 4.4% of lease revenue during
each of the three month periods ended March 31, 2000 and 1999, 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.
Operating expenses were $33,553 for the three months ended March 31, 2000
compared to $141,605 for the same period in 1999. In 1999, operating expenses
included approximately $45,000 related to the refurbishment of an aircraft
engine. Other operating expenses consist principally of administrative charges,
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
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,
beginning in 1999 the principal source of such cash has resulted from the
receipt of interest income. These cash inflows are used to pay management fees
and operating costs. Operating activities generated a net cash outflow of
$336,843 and a net cash inflow of $29,351 (excluding the receipt of proceeds of
$2,879,413 related to the deferred aircraft sales, discussed below) for the
three months ended March 31, 2000 and 1999, respectively. The amount of future
interest income is expected to fluctuate as a result of changing interest rates
and the amount of cash available for
11
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
investment, among other factors. (See additional discussion below regarding the
loan made by the Partnership in March 2000). Future renewal, re-lease and
equipment sale activities will cause a decline in the Partnership's lease
revenue 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 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 three months
ended March 31, 1999, the Partnership realized equipment sale proceeds of
$104,700. 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.
During the three months ended March 31, 1999, the Partnership received
$869,413, representing a portion of the sale proceeds from its interest in an
aircraft that was sold by the Partnership and certain affiliated investment
programs (collectively, the "Programs"). The remainder of the Partnership's sale
proceeds was received in the second quarter of 1999. The sale was treated as a
deferred sale due to certain contingencies that were not satisfied until the
second quarter of 1999. The proceeds received during the three months ended
March 31, 1999 were recorded as other liabilities prior to the recognition of
the sale. See the Partnership's 1999 Annual Report for further discussion.
In December 1998, the Partnership sold its interest in a second aircraft
for proceeds of $2,610,000, of which $2,010,000 was deposited into EFG's
customary escrow account and transferred to the Partnership in January 1999. Due
to certain associated contingencies, the Partnership deferred recognition of the
sale until the second quarter of 1999. In connection with this sale, the
Partnership accrued costs of approximately $45,000 to refurbish an engine
damaged while the aircraft was leased to Transmeridian Airlines
("Transmeridian"). See Note 8 to the financial statements presented in the
Partnership's 1999 Annual Report regarding legal action undertaken by the
Programs related to Transmeridian and the damaged engine. See the Partnership's
1999 Annual Report for further discussion of this deferred sale.
At March 31, 2000, the Partnership was due aggregate future minimum lease
payments of $129,445 from contractual lease agreements (see Note 3 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.
In connection with a preliminary settlement agreement for the Class Action
Lawsuit described in Note 8 to the financial statements presented in the 1999
Annual Report, the Partnership is permitted to invest in new equipment or other
business activities, subject to certain limitations. On March 8, 2000, the
Partnership and 10 affiliated partnerships (the "Exchange Partnerships") (see
Note 8 to the financial statements presented in the Partnership's 1999 Annual
Report) 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
12
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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.
On March 31, 1999, the Partnership acquired equipment for the purpose of
re-sale in the amount of $919,500. This equipment was subsequently sold in 1999,
as discussed in the 1999 Annual Report.
As a result of an exchange transaction in 1997, the Partnership owns 39,339
shares of Semele common stock and holds a beneficial interest in a note from
Semele (the "Semele Note") of $888,844. The Semele Note matures in April 2001
and bears an annual interest rate of 10% with mandatory principal reductions
prior to maturity, if and to the extent that net proceeds are received by Semele
from the sale or refinancing of its principal real estate asset consisting of an
undeveloped 274-acre parcel of land near Malibu, California.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are carried at fair value.
During the three months ended March 31, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5.375 per share (the
quoted price of the Semele stock on NASDAQ SmallCap Market at March 31, 2000)
resulting in an unrealized loss of $14,752. This loss was reported as a
component of comprehensive income, included in partners' capital.
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. The securities were sold
in March 2000 for proceeds of $357,680 (classified as accounts receivable on the
accompanying statement of financial position at March 31, 2000), resulting in a
realized gain, for financial statement purposes, of $143,465. The unrealized
gain, recorded during 1999, was reversed when the securities were sold. The
unrealized gain was previously 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.
Cash distributions to the General Partner and Recognized Owners had 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. No cash distributions
were declared for the quarter ended March 31, 2000 (see discussion below).
Cash distributions paid to the Recognized Owners consisted 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.
13
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 presented in the Partnership's 1999
Annual Report. 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 March 31, 2000. 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 the Note 8 to the
financial statements presented in the Partnership's 1999 Annual Report, 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 suspended 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.
14
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 10 to the financial
statements herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
15
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated, a Massachusetts
corporation and the General Partner of the
Registrant.
By: /s/ Michael J. Butterfield
-------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 15, 2000
-------------------------------------------
By: /s/ Gary M. Romano
-------------------------------------------
Gary M. Romano
Clerk of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 2000
-------------------------------------------
16