UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 June 30, 1997 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
98 North Washington Street, Boston, MA 02114
- --------------------------------------------------------------------------------
(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 June 30, 1997 and December 31, 1996 3
Statement of Operations
for the three and six months ended June 30, 1997 and 1996 4
Statement of Cash Flows
for the six months ended June 30, 1997 and 1996 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 PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
June 30, 1997 and December 31, 1996
(Unaudited)
June 30, December 31,
1997 1996
----------- -----------
ASSETS
Cash and cash equivalents $ 2,550,324 $ 1,961,623
Rents receivable, net of allowance
for doubtful accounts of $10,000 447 233,569
Accounts receivable - affiliate 160,769 459,038
Note receivable - Banyan 888,844 --
Investment in Banyan 590,091 --
Equipment at cost, net of accumulated depreciation
of $18,016,364 and $21,000,199 at June 30, 1997
and December 31, 1996, respectively 2,261,030 4,635,690
----------- -----------
Total assets $ 6,451,505 $ 7,289,920
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 191,201 $ 707,842
Accrued interest 3,225 7,428
Accrued liabilities 15,000 64,750
Accrued liabilities - affiliate 27,019 226,297
Deferred rental income 31,434 45,434
Cash distributions payable to partners 285,145 285,145
----------- -----------
Total liabilities 553,024 1,336,896
----------- -----------
Partners' capital (deficit):
General Partner (1,421,612) (1,418,884)
Limited Partnership Interests
(1,547,930 Units; initial purchase price of $25 each) 7,320,093 7,371,908
----------- -----------
Total partners' capital 5,898,481 5,953,024
----------- -----------
Total liabilities and partners' capital $ 6,451,505 $ 7,289,920
=========== ===========
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 and six months ended June 30, 1997 and 1996
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
----------- -------- ----------- -----------
Income:
Lease revenue $ 1,524,964 $710,504 $ 2,077,604 $ 1,431,097
Interest income 21,860 42,193 48,871 92,212
Gain (loss) on sale/exchange
of equipment (383,440) 56,151 (343,953) 197,994
----------- -------- ----------- -----------
Total income 1,163,384 808,848 1,782,522 1,721,303
----------- -------- ----------- -----------
Expenses:
Depreciation 366,531 453,698 761,707 1,130,663
Interest expense 6,907 23,934 20,723 42,534
Equipment management fees
- affiliate 75,895 34,144 103,229 76,215
Operating expenses - affiliate 131,046 159,456 381,116 688,606
----------- -------- ----------- -----------
Total expenses 580,379 671,232 1,266,775 1,938,018
----------- -------- ----------- -----------
Net income (loss) $ 583,005 $137,616 $ 515,747 $ (216,715)
=========== ======== =========== ===========
Net income (loss)
per limited partnership unit $ 0.36 $ 0.08 $ 0.32 $ (0.13)
=========== ======== =========== ===========
Cash distributions declared
per limited partnership unit $ 0.18 $ 0.38 $ 0.35 $ 0.75
=========== ======== =========== ===========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Cash flows from (used in) operating activities:
Net income (loss) $ 515,747 $ (216,715)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 761,707 1,130,663
(Gain) loss on sale/exchange of equipment 343,953 (197,994)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 233,122 (148,337)
accounts receivable - affiliate 298,269 8,350
Increase (decrease) in:
accrued interest (4,203) 2,420
accrued liabilities (49,750) 191,650
accrued liabilities - affiliate (199,278) (15,678)
deferred rental income (14,000) 1,365
----------- -----------
Net cash from operating activities 1,885,567 755,724
----------- -----------
Cash flows from (used in) investing activities:
Investment in Banyan stock (590,091) --
Note receivable - Banyan (888,844) --
Purchase of equipment -- (657,000)
Proceeds from equipment sales/exchange 1,269,000 288,144
----------- -----------
Net cash used in investing activities (209,935) (368,856)
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (516,641) (219,031)
Distributions paid (570,290) (1,629,401)
----------- -----------
Net cash used in financing activities (1,086,931) (1,848,432)
----------- -----------
Net increase (decrease) in cash and cash equivalents 588,701 (1,461,564)
Cash and cash equivalents at beginning of period 1,961,623 4,352,348
----------- -----------
Cash and cash equivalents at end of period $ 2,550,324 $ 2,890,784
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 24,926 $ 40,114
=========== ===========
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
June 30, 1997
(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 1996 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at June 30, 1997 and December 31, 1996 and results of operations for
the three and six month periods ended June 30, 1997 and 1996 have been made and
are reflected.
NOTE 2 - CASH
At June 30, 1997, the Partnership had $2,445,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
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. Future minimum rents of
$2,040,385 are due as follows:
For the year ending June 30, 1998 $ 1,371,663
1999 503,974
2000 47,071
2001 47,071
2002 47,071
Thereafter 23,535
------------
Total $ 2,040,385
============
The Partnership entered into a new 18-month lease agreement with
Transmeridian Airlines for its proportionate interest in a Boeing 727 aircraft
at a base rent to the Partnership of $48,000 for 8 months and $42,000 for 10
months, effective April 30, 1997.
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at June
30, 1997. In the opinion of Equis Financial Group ("EFG"), the acquisition cost
of the equipment did not exceed its fair market value.
6
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Lease Term Equipment
Equipment Type (Months) at Cost
- ------------------------------ ---------- -------------
Aircraft 1-38 $ 16,192,484
Manufacturing 24-60 1,551,460
Materials handling 3-60 1,110,721
Construction and mining 11-60 526,525
Communications 50-60 469,389
Trailers/intermodal containers 39-84 341,134
Retail store fixtures 12-60 30,320
Energy systems 12-60 29,996
Tractors and heavy duty trucks 1-84 18,426
Computers and peripherals 6-51 6,939
------------
Total equipmentcost 20,277,394
Accumulated depreciation (18,016,364)
------------
Equipment, net of accumulated depreciation $ 2,261,030
============
At June 30, 1997, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $16,499,034, representing approximately
81% of total equipment cost.
The summary above includes equipment held for re-lease or sale with a cost
and net book value of approximately $135,000 and $500, respectively, at June 30,
1997. The General Partner is actively seeking the sale or re-lease of all
equipment not on lease.
NOTE 5 - INVESTMENT IN BANYAN
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 KGJS/Gearbulk Holdings Limited
(the "Lessee"), exchanged their ownership interests in the Vessels for aggregate
consideration of $11,565,375, including 1,987,000 shares (at $1.50 per share) of
common stock in Banyan Strategic Land Fund II ("Banyan") and a purchase money
note of $8,219,500 (the "Note"). Banyan is a Delaware corporation organized on
April 14, 1987 and has its common stock listed on NASDAQ. Banyan holds certain
real estate investments, the most significant being a 274 acre site near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan 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 Banyan 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 Banyan (the "Banyan Note").
As a result of the exchange transaction and its original 53.54% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $847,080 in cash and is the beneficial owner of 393,394 shares
7
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
of Banyan common stock valued at $590,091 ($1.50 per share) and holds a
beneficial interest in the Banyan Note of $888,844.
Cash equal to the amount of the Banyan Note is being held in escrow for
the benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan 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 Banyan's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Banyan,
which services EFG will provide at cost. If the Consent is not obtained,
repayment of the Banyan Note will be accelerated and repaid from the cash held
in the segregated account. If the Consent is obtained, the Banyan Note will be
amortized over three years and bear an annual interest rate of 10%.
In connection with the Banyan transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, joined the Board of Directors of Banyan and
James A. Coyne, Senior Vice President of EFG became Banyan's Chief Operating
Officer. The agreement also provides that a majority of the Board of Directors
remain independent of Banyan and EFG. Provided Consent is received by December
31, 1997, Banyan has agreed to declare a $0.20 per share dividend to be paid on
all shares, including those beneficially owned by the Partnership.
The General Partner believes that the underlying tangible assets of
Banyan, particularly the Rancho Malibu property, can be sold or developed on a
tax free basis due to Banyan's net operating loss carryforwards and can provide
an attractive economic return to the Partnership.
NOTE 6 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the six month periods
ended June 30, 1997 and 1996, which were paid or accrued by the Partnership to
EFG or its Affiliates, are as follows:
1997 1996
-------- --------
Equipment management fees $103,229 $ 76,215
Administrative charges 27,060 10,500
Reimbursable operating expenses
due to third parties 354,056 678,106
-------- --------
Total $484,345 $764,821
======== ========
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 June 30, 1997, the Partnership was owed $160,769 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in July 1997.
8
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 7 - NOTES PAYABLE
Notes payable at June 30, 1997 consisted of two installment notes of
$191,201 payable to an institutional lender. The installment notes are
non-recourse, both with interest rates of 10.12%. The installment notes are
collateralized by the equipment and assignment of the related lease payments and
will be fully amortized by noncancellable rents in the year ending June 30,
1998. The carrying value of notes payable approximates fair value at June 30,
1997.
NOTE 8 - LEGAL PROCEEDINGS
On July 27, 1995, EFG, on behalf of the Partnership and other
EFG-sponsored investment programs, filed an action in the Commonwealth of
Massachusetts Superior Court Department of the Trial Court in and for the County
of Suffolk, for damages and declaratory relief against a lessee of the
Partnership, National Steel Corporation ("National Steel"), under a certain
Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is
seeking the reimbursement by National Steel of certain sales and/or use taxes
paid to the State of Illinois and other remedies provided by the MLA. On August
30, 1995, National Steel filed a Notice of Removal which removed the case to the
United States District Court, District of Massachusetts. On September 7, 1995,
National Steel filed its Answer to EFG's Complaint along with Affirmative
Defenses and Counterclaims, seeking declaratory relief and alleging breach of
contract, implied covenant of good faith and fair dealing and specific
performance. EFG filed its Answer to these counterclaims on September 29, 1995.
Though the parties have been discussing settlement with respect to this matter
for some time, to date, the negotiations have been unsuccessful. Notwithstanding
these discussions, EFG recently filed an Amended and Supplemental Complaint
alleging a further default by National Steel under the MLA and EFG recently
filed a Summary Judgment on all claims and counterclaims. The matter remains
pending before the Court. The Partnership has not experienced any material
losses as a result of this action.
On June 24, 1997, four plaintiffs (the "Plaintiffs") owning limited
partner units or beneficiary interests in eight investment programs sponsored by
EFG filed a lawsuit, as a derivative action, on behalf of the Partnership and 27
other investment programs (collectively, the "Nominal Defendants") in the
Superior Court of the Commonwealth of Massachusetts for the County of Suffolk
against EFG and certain of EFG's affiliates, including the General Partner of
the Partnership and four other wholly-owned subsidiaries of EFG which are the
general partner or managing trustee of one or more of the investment programs,
(collectively, the "Managing Defendants"), and certain other entities and
individuals that have control of the Managing Defendants and the Nominal
Defendants (the "Controlling Defendants"). The Plaintiffs assert claims of
breach of fiduciary duty, breach of contract, unjust enrichment, and equitable
relief and seek various remedies, including compensatory and punitive damages to
be determined at trial.
The General Partner and EFG are in the early stages of evaluating the
nature and extent of the claims asserted in this lawsuit and cannot predict its
outcome with any degree of certainty. However, based upon all of the facts
presently being considered by management, the General Partner and EFG do not
believe that any likely outcome will have a material adverse effect on the
Partnership. The General Partner, EFG and their affiliates intend to vigorously
defend against the lawsuit.
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 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 important 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
ability of EFG to collect all rents due under the attendant lease agreements and
successfully remarket the Partnership's equipment upon the expiration of such
leases.
Three and six months ended June 30, 1997 compared to the three and six months
ended June 30, 1996:
Overview
The Partnership was organized in 1989 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The Partnership's stated investment
objectives and policies contemplated that the Partnership would wind-up its
operations within approximately seven years of its inception. Accordingly, the
General Partner is pursuing the remarketing of all of the Partnership's
remaining equipment and expects to engage an investment advisor to provide
assistance and evaluate alternative remarketing strategies. Currently, the
General Partner anticipates that it will wind-up the operations of the
Partnership and make a liquidating distribution to the Partners, net of any cash
reserves which the General Partner may consider appropriate, within the next
twelve months and possibly by December 31, 1997.
Results of Operations
For the three and six months ended June 30, 1997, the Partnership
recognized lease revenue of $1,524,964 and $2,077,604, respectively, compared to
$710,504 and $1,431,097 for the same periods in 1996. The increase in lease
revenue during both the three and six months ended June 30, 1997 reflects the
receipts of prepaid contractual rental obligations of $1,142,614 associated with
the exchange of its interest in the vessel (see disscussion below) offset by
lease term expirations and equipment sales. The Partnership also earns interest
income from temporary investments of rental receipts and equipment sales
proceeds in short-term instruments.
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 enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
During the three and six months ended June 30, 1997, the Partnership sold
or exchanged equipment having a net book value of $1,600,441 and $1,612,953,
respectively, to existing lessees and third parties. These transactions resulted
in a net loss, for financial statement purposes, of $383,440 and $343,953,
respectively. The equipment transactions included the Partnership's interest in
a vessel with an original cost and net book value of $4,205,030 and $1,597,566,
respectively. In connection with this transaction, the Partnership realized
proceeds of $1,183,401, which resulted in a net loss for financial statement
purposes, of $414,165. In addition, as this vessel was disposed of prior to the
expiration of the related lease term, the Partnership received a prepayment of
the
10
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
remaining contracted rent due under the vessel's lease agreement, as described
above. See below for further discussion related to the vessel.
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 KGJS/Gearbulk Holdings Limited
(the "Lessee"), exchanged their ownership interests in the Vessels for aggregate
consideration of $11,565,375, including 1,987,000 shares (at $1.50 per share) of
common stock in Banyan Strategic Land Fund II ("Banyan") and a purchase money
note of $8,219,500 (the "Note"). Banyan is a Delaware corporation organized on
April 14, 1987 and has its common stock listed on NASDAQ. Banyan holds certain
real estate investments, the most significant being a 274 acre site near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan 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 Banyan 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 Banyan (the "Banyan Note").
As a result of the exchange transaction and its original 53.54% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $847,080 in cash and is the beneficial owner of 393,394 shares of
Banyan common stock valued at $590,091 ($1.50 per share) and holds a beneficial
interest in the Banyan Note of $888,844.
Cash equal to the amount of the Banyan Note is being held in escrow for
the benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan 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 Banyan's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Banyan,
which services EFG will provide at cost. If the Consent is not obtained,
repayment of the Banyan Note will be accelerated and repaid from the cash held
in the segregated account. If the Consent is obtained, the Banyan Note will be
amortized over three years and bear an annual interest rate of 10%.
The General Partner believes that the underlying tangible assets of
Banyan, particularly the Rancho Malibu property, can be sold or developed on a
tax free basis due to Banyan's net operating loss carryforwards and can provide
an attractive economic return to the Partnership.
During the three and six months ended June 30, 1996, the Partnership sold
equipment having a net book value of $41,954 and $59,157, respectively, to
existing lessees and third parties. These sales resulted in net gains, for
financial statement purposes, of $56,151 and $166,448, respectively.
During 1995, the Partnership transferred its ownership interest in certain
trailers previously leased to The Atchison Topeka and Santa Fe Railroad. The
Partnership intended to replace all of the trailers with comparable trailers and
account for the transaction as a like-kind exchange for income tax reporting
purposes, a portion of which was completed in 1995. A gain of $31,546,
pertaining to the trailers which had not been exchanged in 1995, was deferred in
anticipation of completing the exchange in 1996. During 1996, the Partnership
elected not to replace the remaining trailers and, accordingly, the remaining
deferred gain of $31,546 was recognized as Gain on Sale of Equipment on the
Statement of Operations for the six months ended June 30, 1996.
11
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 for the three and six months ended June 30, 1997 was
$366,531 and $761,707, respectively, compared to $453,698 and $1,130,663 for the
same periods in 1996. For financial reporting purposes, to the extent that an
asset is held on primary lease term, the Partnership depreciates the difference
between (i) the cost of the asset and (ii) the estimated residual value of the
asset on a straight-line basis over such term. For purposes of this policy,
estimated residual values represent estimates of equipment values at the date of
primary lease expiration. To the extent that an asset is held beyond its primary
lease term, the Partnership continues to depreciate the remaining net book value
of the asset on a straight-line basis over the asset's remaining economic life.
Interest expense was $6,907 and $20,723 or less than 1% of lease revenue
for the three and six months ended June 30, 1997, respectively, compared to
$23,934 and $42,534 or 3.4% and 3% of lease revenue for the same periods in
1996. Interest expense in future periods will continue to decline in amount and
as a percentage of lease revenue as the principal balance of notes payable is
reduced through the application of rent receipts to outstanding debt. In
addition, the General Partner expects to use a portion of the Partnership's
available cash to retire indebtedness.
Management fees were 5% of lease revenue for the three and six months
ended June 30, 1997, respectively, compared to 4.8% and 5.3% of lease revenue
for each of the same periods in 1996. Management fees during the six months
ended June 30, 1996 include $7,780, resulting from an underaccrual 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. Significant operating expenses were incurred during the six months
ended June 30, 1996 and 1997 due to heavy maintenance and airframe overhaul
costs incurred or accrued in connection with the Partnership's interests in two
Boeing 727 aircraft. Certain of the costs incurred in the first quarter of 1996
were subsequently reimbursed by the former lessee of the related aircraft. In
1996, the Partnership entered into a new 36-month lease agreement with Sunworld
International Airlines, Inc. to re-lease one of the aircraft. The second
aircraft was re-leased to
12
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Transmeridian Airlines beginning April 1997. The amount of future operating
expenses cannot be predicted with certainty; however, such expenses are usually
higher during the acquisition and liquidation phases of a partnership. Other
fluctuations typically occur in relation to the volume and timing of remarketing
activities.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from asset rental transactions. Accordingly, the Partnership's principal
source of cash from operations is provided by the collection of periodic rents.
These cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $1,885,567 and $755,724 for the six
months ended June 30, 1997 and 1996, 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 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 six months ended June 30, 1997,
the Partnership realized net cash proceeds of $1,269,000, including proceeds
from the exchange transaction, compared to $288,144 for the same period in 1996.
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 six months ended June 30,
1996, the Partnership expended $657,000 to replace certain aircraft engines to
facilitate the re-lease of an aircraft to Transmeridian Airlines, discussed
above. There were no equipment acquisitions during the same period in 1997.
As a result of the exchange transaction and its original 53.54% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $847,080 in cash and is the beneficial owner of 393,394 shares of
Banyan common stock valued at $590,091 ($1.50 per share) and holds a beneficial
interest in the Banyan Note of $888,844.
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. The Partnership's notes payable are scheduled to be
fully amortized by noncanellable rents during the year ending
13
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
June 30, 1998. In addition, the General Partner expects to use a portion of the
Partnership's available cash to retire indebtedness.
Cash distributions to the General Partner and Recognized Owners 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 six months ended June 30, 1997, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $570,290. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Recognized Owners were allocated 95% of these distributions, or $541,775, and
the General Partner was allocated 5%, or $28,515. The second quarter 1997 cash
distribution was paid on July 14, 1997.
Cash distributions paid to the Recognized Owners consist of both a return
of and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG 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 future quarterly cash distributions are
anticipated.
14
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 8 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: August 14, 1997
By: /s/ Gary M. Romano
--------------------------------------------
Gary M. Romano
Clerk of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 1997
16