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 September 30, 1996
------------------------------------------------
OR
[___] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended September 30, 1996 Commission File No. 0-20030
American Income Fund I-D, a Massachusetts Limited Partnership
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3122696
- ------------------------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
- -------------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
-----------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes No
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AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
Page
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at September 30, 1996 and December 31, 1995 3
Statement of Operations
for the three and nine months ended September 30, 1996 and 1995 4
Statement of Cash Flows
for the nine months ended September 30, 1996 and 1995 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II. OTHER INFORMATION:
Items 1 - 6 15
2
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 1996 and December 31, 1995
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
- ------
Cash and cash equivalents $ 838,936 $ 407,253
Contractual right for equipment -- 1,882,960
Rents receivable 722,506 792,169
Accounts receivable - affiliate 189,399 226,659
Note receivable - affiliate 209,910 209,910
Equipment at cost, net of accumulated
depreciation of $14,061,613 and
$13,131,217 at September 30, 1996
and December 31, 1995, respectively 15,824,605 11,455,410
Organization costs, net of accumulated
amortization of $5,000 and $4,333 at
September 30, 1996 and December 31,
1995, respectively -- 667
----------- -----------
Total assets $17,785,356 $14,975,028
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 8,411,749 $ 5,303,736
Accrued interest 51,042 57,938
Accrued liabilities 21,250 108,385
Accrued liabilities - affiliate 17,833 21,994
Deferred rental income 111,528 66,364
Cash distributions payable to partners 218,295 272,869
----------- -----------
Total liabilities 8,831,697 5,831,286
----------- -----------
Partners' capital (deficit):
General Partner (470,122) (460,618)
Limited Partnership Interests
(829,521.3 Units; initial purchase
price of $25 each) 9,423,781 9,604,360
----------- -----------
Total partners' capital 8,953,659 9,143,742
----------- -----------
Total liabilities and partners'
capital $17,785,356 $14,975,028
=========== ===========
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three and nine months ended September 30, 1996 and 1995
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
Income:
Lease revenue $1,341,736 $ 1,291,854 $3,758,379 $ 3,984,797
Interest income 8,955 7,873 79,754 21,004
Interest income - affiliate 4,650 4,114 13,860 21,137
Gain (loss) on sale of equipment 148,743 (2,970) 255,150 (107,904)
Loss on exchange of equipment -- (1,142,996) -- (1,142,996)
---------- ----------- ---------- -----------
Total income 1,504,084 157,875 4,107,143 2,776,038
---------- ----------- ---------- -----------
Expenses:
Depreciation and amortization 902,043 1,023,465 2,919,724 3,154,657
Interest expense 146,713 115,944 452,276 323,301
Equipment management fees
- affiliate 42,483 36,885 111,339 116,857
Operating expenses - affiliate 54,641 27,459 159,002 101,759
---------- ----------- ---------- -----------
Total expenses 1,145,880 1,203,753 3,642,341 3,696,574
---------- ----------- ---------- -----------
Net income (loss) $ 358,204 $(1,045,878) $ 464,802 $ (920,536)
========== =========== ========== ===========
Net income (loss)
per limited partnership unit $ 0.41 $ (1.20) $ 0.53 $ (1.05)
========== =========== ========== ===========
Cash distributions declared
per limited partnership unit $ 0.25 $ 0.31 $ 0.75 $ 0.94
========== =========== ========== ===========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Cash flows from (used in) operating
activities:
Net income (loss) $ 464,802 $ (920,536)
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization 2,919,724 3,154,657
(Gain) loss on sale of equipment (255,150) 107,904
Loss on exchange of equipment -- 1,142,996
Changes in assets and liabilities
Decrease in:
rents receivable 69,663 8,729
accounts receivable - affiliate 37,260 66,177
note receivable - affiliate -- 118,787
Increase (decrease) in:
accrued interest (6,896) (33,055)
accrued liabilities (87,135) 83,884
ccrued liabilities - affiliate (4,161) 10,963
deferred rental income 45,164 10,126
----------- -----------
Net cash from operating
activities 3,183,271 3,750,632
----------- -----------
Cash flows from (used in) investing
activities:
Purchase of equipment (63,243) (43,831)
Proceeds from equipment sales 502,428 115,225
----------- -----------
Net cash from investing
activities 439,185 71,394
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (2,481,314) (2,890,427)
Distributions paid (709,459) (818,607)
----------- -----------
Net cash used in financing
activities (3,190,773) (3,709,034)
----------- -----------
Net increase in cash and cash
equivalents 431,683 112,992
Cash and cash equivalents at beginning
of period 407,253 288,658
----------- -----------
Cash and cash equivalents at end of
period $ 838,936 $ 401,650
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 459,172 $ 356,356
=========== ===========
Supplemental disclosure of non-cash investing and financing activities:
See Notes 4 and 5 to the financial statements.
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
September 30, 1996
(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 1995 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1995 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1996 and December 31, 1995 and results of operations
for the three and nine month periods ended September 30, 1996 and 1995 have been
made and are reflected.
NOTE 2 - CASH
- -------------
The Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. The reverse repurchase
agreements are secured by U.S. Treasury Bills or interests in U.S. Government
securities.
NOTE 3 - REVENUE RECOGNITION
- ----------------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually and
no significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$11,242,819 are due as follows:
For the year ending September 30, 1997 $ 3,767,834
1998 2,626,337
1999 1,688,873
2000 1,011,807
2001 844,863
Thereafter 1,303,105
-----------
Total $11,242,819
===========
In September 1995, the Partnership transferred its ownership interest in a
Boeing 747-SP-21 commercial jet aircraft (the "United Aircraft") to the existing
lessee, United Air Lines, Inc., pursuant to the rules for a like-kind exchange
transaction for income tax reporting purposes (See Note 4 herein). In November
1995, the Partnership partially replaced the United Aircraft with a 17.39%
interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines, Inc.
(the "Southwest Aircraft"). The Partnership will receive approximately $501,000
of rental revenue in each of the years in the period ending September 30, 1999,
and $167,000 in the year ending September 30, 2000, pursuant to the Southwest
Aircraft lease agreement.
6
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Additionally, in March 1996, the Partnership completed the replacement
of the United Aircraft with the acquisitions of a 14.39% interest in two
McDonnell-Douglas MD-82 Aircraft leased by Finnair OY (the "Finnair Aircraft")
and a 25.82% ownership interest in a McDonnell-Douglas MD-87 aircraft leased by
Reno Air, Inc. (the "Reno Aircraft"). The Partnership will receive
approximately $620,000 of rental revenue in each of the years in the period
ending September 30, 1998 and approximately $303,000 in the year ending
September 30, 1999, pursuant to the Finnair Aircraft lease agreement. With
respect to the Reno Aircraft lease agreement, the Partnership will receive
approximately $462,000 of rental revenue in each of the years in the period
ending September 30, 2002 and approximately $115,000 in the year ending
September 30, 2003. Pursuant to the Reno Aircraft lease agreement, rents are
adjusted monthly for changes of the London Inter-Bank Offered Rate ("LIBOR").
Future rents reported above reflect the most recent LIBOR-effected rental
payment.
NOTE 4 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at September
30, 1996. In the opinion of American Finance Group ("AFG"), the acquisition
cost of the equipment did not exceed its fair market value.
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------------------------- ---------------- -------------
Aircraft 39-81 $ 10,081,685
Materials handling 1-60 5,187,347
Vessels 72 5,091,464
Construction & mining 11-72 4,893,321
Trailers/intermodal containers 36-99 2,155,360
Furniture & fixtures 60-90 1,507,620
Computers & peripherals 18-60 366,040
Retail store fixtures 48 316,563
Photocopying 24-48 119,685
Communications 13-63 95,022
Tractors & heavy duty trucks 60-78 62,319
Research & test 24 9,792
------------
Total equipment cost 29,886,218
------------
Accumulated depreciation (14,061,613)
------------
Equipment, net of accumulated depreciation $ 15,824,605
============
In September 1995, the Partnership transferred its 39.9% ownership interest in
the United Aircraft, pursuant to the rules for a like-kind exchange for income
tax reporting purposes (See Note 3 herein). In November 1995, the Partnership
partially replaced the United Aircraft with a 17.39% interest in the Southwest
Aircraft, at an aggregate cost of $2,546,156. To acquire the interests in the
Southwest Aircraft, the Partnership obtained financing of $1,900,028 from a
third-party lender and utilized $646,128 of the cash consideration received from
the transfer of the United Aircraft. The remaining ownership interest of 82.61%
in the Southwest Aircraft is held by affiliated equipment leasing programs
sponsored by AFG.
7
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of a 14.39% ownership interest in the
Finnair Aircraft and a 25.82% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $4,027,969 and $3,507,561, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $1,346,709
in cash and obtained financing of $2,681,260 from a third-party lender. To
acquire the ownership interest in the Reno Aircraft, the Partnership paid
$599,494 in cash and obtained financing of $2,908,067 from a third-party lender.
The remaining ownership interests of 85.61% and 74.18% in the Finnair Aircraft
and Reno Aircraft, respectively, are held by affiliated equipment leasing
programs sponsored by AFG.
During the three months ended March 31, 1996, the Partnership transferred its
ownership interest in trailers, previously leased to The Atchison Topeka and
Santa Fe Railroad, to a third party for cash consideration of $35,000. The
trailers had a net book value of $29,442 at the date of transfer resulting in a
net gain, for financial statement purposes, of $5,558. The gain was deferred
in anticipation of completing a like-kind exchange during the three months ended
June 30, 1996. The Partnership intended to replace these trailers with
comparable trailers and lease such equipment to a new lessee. The Partnership
had accounted for this transaction as a like-kind exchange for income tax
reporting purposes. Accordingly, the net cash consideration of $35,000 was
deposited in a special-purpose escrow account through a third-party Exchange
Agent pending completion of the equipment exchange. The Partnership
subsequently elected not to replace the trailers and, accordingly, the deferred
gain of $5,558 was recognized as Gain on Sale of Equipment on the Statement of
Operations during the second quarter of 1996. In addition, the cash
consideration of $35,000, which was reported as Contractual Right for Equipment
on the Statement of Financial Position at March 31, 1996, was recognized as
proceeds from equipment sales.
At September 30, 1996, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $17,831,788, representing
approximately 60% of total equipment cost.
The summary above includes equipment held for sale or re-lease with a cost and
net book value of approximately $2,524,000 and $353,000, respectively, at
September 30, 1996. The General Partner is actively seeking the sale or re-
lease of all equipment not on lease.
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Partnership are paid by AFG on behalf
of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the nine month periods ended
September 30, 1996 and 1995 which were paid or accrued by the Partnership to AFG
or its Affiliates, are as follows:
1996 1995
-------- --------
Equipment management fees $111,339 $116,857
Administrative charges 15,750 15,750
Reimbursable operating expenses
due to third parties 143,252 86,009
-------- --------
Total $270,341 $218,616
======== ========
8
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
In 1991, the Partnership acquired 900 intermodal cargo containers, at a cost
of $1,840,140, and leased such containers to ICCU Containers, S.p.A. ("ICCU"),
an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which formerly owned a
minority interest in AFG Holdings Illinois Limited Partnership. The ability of
ICCU to fulfill all of its obligations under the lease contract deteriorated, in
AFG's view, in 1994. As a result, AFG, on the Partnership's behalf, began
negotiations with other parties to either assume the lease obligations of ICCU
or acquire the containers. As a result of these negotiations, the Partnership
transferred 897 containers, having a net book value of $970,944, to a third
party on November 30, 1994. The Partnership received, as settlement from ICCU
and the third party, consideration as follows: (i) a contractual right to
receive comparable containers with an estimated fair market value of $1,033,013
and (ii) beneficial assignment of an existing AFG note payable to CLOU which had
a principal balance of $369,852 at the date of the transaction. The note has an
effective interest rate of 8% and matures on December 31, 1996. AFG will pay
all of the note balance plus interest to the Partnership according to the
original amortization schedule. A portion of the consideration received was
used to satisfy the Partnership's accounts receivable balance of $184,178
outstanding from ICCU at November 30, 1994. The remaining three containers of
the original equipment group were disposed of in 1992 for stipulated payments as
a result of casualty events.
In April 1995, the Partnership replaced the original containers with
comparable containers and leased such containers to a new lessee pursuant to the
rules for completing a like-kind exchange for income tax reporting purposes.
The carrying value of the new containers, $1,958,034, was reduced by $247,743,
representing the amount of gain deferred on the original containers. The
Partnership obtained approximately $925,000 of long-term financing in connection
with the replacement containers.
All rents and proceeds from the sale of equipment are paid directly to either
AFG or to a lender. AFG temporarily deposits collected funds in a separate
interest-bearing escrow account prior to remittance to the Partnership. At
September 30, 1996, the Partnership was owed $189,399 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in October
1996.
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at September 30, 1996 consisted of installment notes of
$8,411,749 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 5.88% and 10.65%, except for one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.4% at
September 30, 1996). 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 respective primary lease terms related to the Finnair Aircraft
and the Reno Aircraft. The carrying amount of notes payable approximates fair
value at September 30, 1996.
The annual maturities of the installment notes payable are as follows:
For the year ending September 30, 1997 $1,774,715
1998 1,348,897
1999 2,495,035
2000 607,934
2001 528,193
Thereafter 1,656,975
----------
Total $8,411,749
==========
9
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations.
----------------------
Three and nine months ended September 30, 1996 compared to the three and nine
- -----------------------------------------------------------------------------
months ended September 30, 1995:
- -------------------------------
Overview
- --------
As an equipment leasing partnership, the Partnership was organized to acquire
a diversified portfolio of capital equipment subject to lease agreements with
third parties. The Partnership was designed to progress through three principal
phases: acquisitions, operations, and liquidation. During the operations
phase, a period of approximately six years, all equipment in the Partnership's
portfolio will progress through various stages. Initially, all equipment will
generate rental revenue under primary term lease agreements. During the life of
the Partnership, these agreements will expire on an intermittent basis and
equipment held pursuant to the related leases will be renewed, re-leased or
sold, depending on prevailing market conditions and the assessment of such
conditions by AFG to obtain the most advantageous economic benefit. Over time,
a greater portion of the Partnership's original equipment portfolio will become
available for remarketing and cash generated from operations and from sales or
refinancings will begin to fluctuate. Ultimately, all equipment will be sold
and the Partnership will be dissolved. The Partnership's operations commenced
in 1991.
Results of Operations
- ---------------------
For the three and nine months ended September 30, 1996, the Partnership
recognized lease revenue of $1,341,736 and $3,758,379, respectively, compared to
$1,291,854 and $3,984,797 for the same periods in 1995. The overall decrease in
lease revenue from 1995 to 1996 reflects the effects of primary lease term
expirations and the sale of equipment. The Partnership concluded an aircraft
exchange late in the first quarter of 1996 (see discussion below). As a result
of this exchange, the Partnership replaced its ownership interest in a Boeing
747-SP, having aggregate quarterly lease revenues of $257,420, with interests in
six other aircraft (three Boeing 737 aircraft leased by Southwest Airlines,
Inc., two McDonnell Douglas MD-82 aircraft leased by Finnair OY and one
McDonnell Douglas MD-87 aircraft leased by Reno Air, Inc.), having aggregate
quarterly lease revenues of $395,689. The Finnair Aircraft and the Reno
Aircraft were exchanged into the Partnership on March 25 and March 26, 1996,
respectively. Accordingly, revenue for the nine month period ended September
30, 1996 does not fully reflect the rents ultimately anticipated from the like-
kind exchange.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by AFG or an affiliated equipment leasing program
sponsored by AFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
For the three and nine months ended September 30, 1996, the Partnership earned
interest income of $8,955 and $79,754, respectively, compared to $7,873 and
$21,004 for the same periods in 1995. Interest income is typically generated
from temporary investment of rental receipts and equipment sales proceeds in
short-term
10
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
instruments. The increase in interest income in 1996 compared to 1995 is a
result of interest of $54,300 earned on cash held in a special-purpose escrow in
connection with the like-kind exchange transactions, discussed below.
During the three and nine months ended September 30, 1996, the Partnership also
earned interest income of $4,650 and $13,860, respectively, on a note receivable
from AFG resulting from the settlement with ICCU Containers S.p.A. (See Note 5
to the financial statements) compared to $4,114 and $21,137 for the same periods
in 1995. The amount of future interest income is expected to fluctuate in
relation to prevailing interest rates, the collection of lease revenue, and the
proceeds from equipment sales.
During the three and nine months ended September 30, 1996, the Partnership
sold equipment having a net book value of $116,885 and $217,836, respectively,
to existing lessees and third parties. These sales resulted in net gains, for
financial statement purposes, of $148,743 and $249,592, respectively, compared
to net losses of $2,970 and $107,904 on equipment having a net book value of
$4,070 and $223,129, respectively, for the same periods in 1995.
In September 1995, the Partnership transferred its 39.9% ownership interest in
the United Aircraft, pursuant to the rules of a like-kind exchange for income
tax reporting purposes. The Partnership received aggregate cash consideration
of $3,287,253 including $257,419 for rent accrued through the transfer date. A
portion of the consideration was used to satisfy the balance of outstanding debt
and interest of $500,746. The net cash consideration of $2,529,088 was
deposited into a special-purpose escrow account through a third-party exchange
agent pending the completion of the aircraft exchange. The Partnership's
interest in the Aircraft had a net book value of $4,172,830 at the date of
transfer and resulted in a net loss for financial reporting purposes of
$1,142,996.
In November 1995, the Partnership partially replaced the United Aircraft with
a 17.39% interest in the Southwest Aircraft, at an aggregate cost of $2,546,156.
To acquire the interests in the Southwest Aircraft, the Partnership obtained
financing of $1,900,028 from a third-party lender and utilized $646,128 of the
cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 82.61% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by AFG.
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of a 14.39% ownership interest in the
Finnair Aircraft and a 25.82% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $4,027,969 and $3,507,561, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $1,346,709
in cash and obtained financing of $2,681,260 from a third-party lender. To
acquire the ownership interest in the Reno Aircraft, the Partnership paid
$599,494 in cash and obtained financing of $2,908,067 from a third-party lender.
The remaining ownership interests of 85.61% and 74.18% of the Finnair Aircraft
and Reno Aircraft, respectively, are held by affiliated equipment leasing
programs sponsored by AFG.
During the three months ended March 31, 1996, the Partnership transferred its
ownership interest in trailers previously leased to The Atchison Topeka and
Santa Fe Railroad. The Partnership intended to replace the trailers with
comparable trailers and account for the transaction as a like-kind exchange for
income tax reporting purposes. A gain of $5,558, was deferred in anticipation
of completing the exchange during the three months ended June 30, 1996. The
Partnership subsequently elected not to replace the trailers and, accordingly,
the deferred gain of $5,558 was recognized as Gain on Sale of Equipment on the
Statement of Operations during the second quarter of 1996. See Note 4 to the
financial statements for additional discussion of this transaction.
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
11
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership
classifies such residual rental payments as lease revenue. Consequently, the
amount of future gains or losses reported in the financial statements may not be
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation and amortization expense for the three and nine months ended
September 30, 1996 was $902,043 and $2,919,724, respectively, compared to
$1,023,465 and $3,154,657 for the same periods in 1995. 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 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 $146,713 and $452,276 or 10.9% and 12% of lease revenue
for the three and nine months ended September 30, 1996 compared to $115,944 and
$323,301 or 9% and 8.1% of lease revenue for the same periods in 1995. The
increase in interest expense in 1996 compared to 1995 was due primarily to
interest incurred in connection with the leveraging obtained to finance the
like-kind exchange transactions, discussed above. In the future, interest
expense is expected to decline in amount and as a percentage of lease revenue as
the principal balance of notes payable is reduced through the application of
rent receipts to outstanding debt.
Management fees were 3.2% and 3% of lease revenue during the three and nine
months ended September 30, 1996, respectively, compared to 2.9% of lease revenue
during each of the same periods in 1995. 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 consist principally of administrative charges, professional
service costs, such as audit and legal fees, as well as printing, distribution
and remarketing expenses. In certain cases, equipment storage or repairs and
maintenance costs may be incurred in connection with equipment being remarketed.
Collectively, operating expenses represented 4.1% and 4.2% of lease revenue
during the three and nine months ended September 30, 1996, respectively,
compared to 2.1% and 2.6% of lease revenue for the same periods in 1995. The
increase in operating expenses from 1995 to 1996 is due principally to costs
incurred in connection with the like-kind exchange transactions, discussed
above. The amount of future operating expenses cannot be predicted with
certainty; however, such expenses are usually higher during the acquisition and
liquidation phases of a partnership. Other fluctuations typically occur in
relation to the volume and timing of remarketing activities.
12
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was established
for specific purposes described in the preceding "Overview". As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These
cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $3,183,271 and $3,750,632 for the nine
months ended September 30, 1996 and 1995, respectively. 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 continue to decline as the Partnership
experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This will
occur principally through sale transactions whereby each asset will be sold to
the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During the nine months ended September 30, 1996, the
Partnership expended $63,243 in connection with the like-kind exchange
transactions referred to above. During the same period in 1995, the Partnership
expended $43,831 to upgrade certain equipment. For the nine months ended
September 30, 1996, the Partnership realized $502,428 in equipment sale proceeds
compared to $115,225 for the same period in 1995. 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.
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 periods, the amount of cash used to repay
debt obligations will decline as the principal balance of notes payable is
reduced through the collection and application of rents. However, the
Partnership has balloon payment obligations at the expiration of the respective
primary lease terms related to the Finnair Aircraft and the Reno Aircraft.
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the nine months ended September 30, 1996, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $654,885. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Limited Partners were allocated 95% of these distributions, or $622,141, and the
General Partner was allocated 5%, or $32,744. The third quarter 1996 cash
distribution was paid on October 15, 1996.
13
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. To the extent that cash distributions consist of Cash
From Sales or Refinancings, substantially all of such cash distributions should
be viewed as a return of capital. Cash distributions do not represent and are
not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of AFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
14
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
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 FUND I-D, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of
the Registrant.
By: /s/ Michael J. Butterfield
----------------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 13, 1996
--------------------------------------------------
By: /s/ Gary M. Romano
----------------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 13, 1996
--------------------------------------------------
16