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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 0-18365
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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 [_]
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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, 2000 and December 31, 1999................... 3
Statement of Operations
for the three and six months ended June 30, 2000 and
1999...................................................... 4
Statement of Changes in Partners' Capital
for the six months ended June 30, 2000.................. 5
Statement of Cash Flows
for the six months ended June 30, 2000 and 1999.......... 6
Notes to the Financial Statements......................... 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 12-16
PART II. OTHER INFORMATION:
Items 1-6.......................................................... 17
2
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
June 30, 2000 and December 31, 1999
(Unaudited)
June 30, December 31,
2000 1999
---------- ------------
ASSETS
Cash and cash equivalents............................. $2,513,440 $8,007,462
Rents receivable...................................... -- 4,251
Accounts receivable--affiliate........................ 5,389 10,747
Investment in real estate venture..................... 5,663,457 --
Note receivable--affiliate............................ 888,844 888,844
Investment securities--affiliate...................... 181,943 226,199
Marketable securities................................. -- 241,960
Equipment at cost, net of accumulated depreciation of
$297,900 and $330,707 at June 30, 2000 and December
31, 1999, respectively............................... 105,759 126,911
---------- ----------
Total assets...................................... $9,358,832 $9,506,374
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities................................... $ 217,802 $ 285,939
Accrued liabilities--affiliate........................ 6,043 6,315
Other liabilities..................................... -- 5,977
Cash distributions payable to partners................ -- 213,860
---------- ----------
Total liabilities................................. 223,845 512,091
---------- ----------
Partners' capital (deficit):
General Partner...................................... (1,259,786) (1,266,821)
Limited Partnership Interests (1,547,930 Units;
initial purchase price of $25 each)................. 10,394,773 10,261,104
---------- ----------
Total partners' capital........................... 9,134,987 8,994,283
---------- ----------
Total liabilities and partners' capital........... $9,358,832 $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 and six months ended June 30, 2000 and 1999 (Unaudited)
For the three months ended For the six months ended
June 30, June 30,
---------------------------- -------------------------
2000 1999 2000 1999
------------- -------------- -------------------------
Income:
Lease revenue ......... $ 18,861 $ 40,580 $ 37,409 $ 104,056
Interest income ....... 38,628 134,603 128,092 217,655
Interest income--
affiliate ............ 21,917 22,160 44,077 44,077
Gain on sale of
marketable
securities............ -- -- 143,465 --
Gain on sale of
equipment............. 6,825 4,104,132 6,825 4,208,832
------------ -------------- ----------- -------------
Total income........ 86,231 4,301,475 359,868 4,574,620
------------ -------------- ----------- -------------
Expenses:
Depreciation........... 10,576 10,576 21,152 21,152
Equipment management
fees--affiliate....... 590 1,676 1,164 4,497
Operating expenses--
affiliate............. 54,751 124,063 88,304 265,667
Partnership's share of
unconsolidated
real estate venture's
loss.................. 30,966 -- 36,543 --
------------ -------------- ----------- -------------
Total expenses...... 96,883 136,315 147,163 291,316
------------ -------------- ----------- -------------
Net (loss) income....... $ (10,652) $ 4,165,160 $ 212,705 $ 4,283,304
============ ============== =========== =============
Net (loss) income per
limited partnership
unit................... $ (.01) $ 2.56 $ .13 $ 2.63
============ ============== =========== =============
Cash distributions
declared per limited
partnership unit....... $ -- $ .13 $ -- $ .26
============ ============== =========== =============
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 six months ended June 30, 2000
(Unaudited)
General Recognized Owners
Partner ---------------------
Amount Units Amount Total
----------- --------- ----------- ----------
Balance at December 31, 1999... $(1,266,821) 1,547,930 $10,261,104 $8,994,283
Net income.................... 10,635 -- 202,070 212,705
Less: Reclassification
adjustment for sale of
marketable securities........ (1,387) -- (26,358) (27,745)
Unrealized loss on investment
securities--affiliate........ (2,213) -- (42,043) (44,256)
----------- --------- ----------- ----------
Comprehensive income .......... 7,035 -- 133,669 140,704
----------- --------- ----------- ----------
Balance at June 30, 2000....... $(1,259,786) 1,547,930 $10,394,773 $9,134,987
=========== ========= =========== ==========
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 six months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---------- ----------
Cash flows provided by (used in) operating activities:
Net income............................................ $ 212,705 $4,283,304
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation........................................ 21,152 21,152
Gain on sale of marketable securities............... (143,465) --
Gain on sale of equipment........................... (6,825) (4,208,832)
Partnership's share of unconsolidated real estate
venture's loss..................................... 36,543 --
Changes in assets and liabilities
Decrease in:
Rents receivable.................................... 4,251 2,978
Accounts receivable--affiliate...................... 5,358 1,485,401
Increase (decrease) in:
Accrued liabilities................................. (68,137) (55,723)
Accrued liabilities--affiliate...................... (272) 46,493
Deferred rental income.............................. -- (24,700)
Other liabilities................................... (5,977) (2,007,190)
---------- ----------
Net cash provided by (used in) operating
activities....................................... 55,333 (457,117)
---------- ----------
Cash flows provided by (used in) investing activities:
Purchase of marketable securities.................... -- (214,215)
Purchase of equipment held for re-sale............... -- (996,322)
Proceeds from equipment sales........................ 6,825 4,208,832
Investment in real estate venture.................... (5,700,000) --
Proceeds from sale of marketable securities.......... 357,680 --
---------- ----------
Net cash provided by (used in) investing
activities....................................... (5,335,495) 2,998,295
---------- ----------
Cash flows used in financing activities:
Distributions paid................................... (213,860) (427,720)
---------- ----------
Net cash used in financing activities............. (213,860) (427,720)
---------- ----------
Net (decrease) increase in cash and cash equivalents.. (5,494,022) 2,113,458
Cash and cash equivalents at beginning of period...... 8,007,462 4,762,386
---------- ----------
Cash and cash equivalents at end of period ........... $2,513,440 $6,875,844
========== ==========
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 six months ended June 30, 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
June 30, 2000
(Unaudited)
Note 1--Basis of Presentation
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles for interim financial information and
with 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 have been no material changes 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 June 30, 2000 and December 31, 1999 and results of operations for
the three and six month periods ended June 30, 2000 and 1999 have been made and
are reflected.
Note 2--Cash
At June 30, 2000, American Income Partners V-B Limited Partnership (the
"Partnership") had $2,391,855 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 $117,677 are due as
follows:
For the year ending June 30, 2001............................. $ 47,071
2002................................... 47,071
2003................................... 23,535
--------
Total.................................. $117,677
========
Note 4--Equipment
The following is a summary of equipment owned by the Partnership at June 30,
2000. Remaining Lease Term (Months), as used below, represents the number of
months remaining from June 30, 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 PARTNERS V-B LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Remaining
Lease Term Equipment,
Equipment Type (Months) at Cost
-------------- ---------- ----------
Trailers/intermodal containers.............. 30 $299,643
Materials handling.......................... 0 104,016
--------
Total equipment cost 403,659
Accumulated depreciation 297,900
--------
Equipment, net of
accumulated depreciation $105,759
========
At June 30, 2000, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $299,643, representing approximately
74% of total equipment cost.
At June 30, 2000, all of the Partnership's equipment was subject to
contracted leases or being leased on a month-to-month basis.
Note 5--Investment in Real Estate Venture
On March 8, 2000, the Partnership and 10 affiliated partnerships (the
"Exchange Partnerships") collectively loaned $32.0 million to Echelon
Residential Holdings LLC ("Echelon Residential Holdings"), a newly formed real
estate development company. Echelon Residential Holdings is owned by several
investors, including James A. Coyne, Executive Vice President of EFG. Mr.
Coyne, in his individual capacity, is the only equity investor in Echelon
Residential Holdings related to EFG.
The Partnership's participation in the loan is $5,700,000. Echelon
Residential Holdings, through a wholly-owned 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 8, 2002, and an annual interest rate
of 14% for the first 24 months and 18% for the final six months. Interest
accrues and compounds monthly and is payable at maturity. In connection with
the transaction, Echelon Residential Holdings 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.
Using the guidance set forth in the Third Notice to Practitioners by the
American Institute of Certified Public Accountants ("AICPA") in February 1986
entitled "ADC Arrangements" (the "Third Notice"), the Partnership has evaluated
this investment to determine whether loan, joint venture or real estate
accounting is appropriate. Such determination affects the Partnership's balance
sheet classification of the investment and the recognition of revenues derived
therefrom. The Third Notice was issued to address those real estate
acquisition, development and construction arrangements where a lender has
virtually the same risk and potential awards as those of owners or joint
ventures. Emerging Issues Task Force ("EITF") 86-21, "Application of the AICPA
Notice to Practitioners regarding Acquisition, Development and Construction
Arrangements to Acquisition of an Operating Property" expanded the
applicability of the Third Notice to entities other than financial
institutions.
Based on the applicability of the Third Notice, EITF 86-21 and consideration
of the economic substance of the transaction, the loan is considered to be an
investment in a real estate venture for accounting purposes. In accordance with
the provisions of Statement of Position No. 78-9, "Accounting for Investments
in Real Estate Ventures", the Partnership reports its share of income or loss
of Echelon Residential Holdings under the equity method of accounting.
8
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The Partnership's March 31, 2000 Form 10-Q previously reported the
investment in real estate venture as a loan receivable and recorded interest
income and receivable on the Partnership's March 31, 2000 financial statements.
The financial statements below have been adjusted to account for the loan as an
investment in real estate venture as of and for the three months ended March
31, 2000. The adjustments to the financial statements previously filed in the
Partnership's March 31, 2000 Form 10-Q represent less than 1% of the
Partnership's capital and include the reversal of $53,200 of interest income
recorded on this loan and a recognition of $5,577 for the Partnership's share
of losses in Echelon Residential Holdings.
STATEMENT OF FINANCIAL POSITION
March 31, 2000
(Unaudited)
ASSETS
Cash and cash equivalents.......................................... $2,114,439
Rents receivable................................................... 6,101
Accounts receivable................................................ 362,964
Accounts receivable--affiliate..................................... 12,121
Investment in real estate venture.................................. 5,694,423
Note receivable--affiliate......................................... 888,844
Investment securities--affiliate................................... 211,447
Equipment at cost, net of accumulated depreciation of $341,283 .... 116,335
----------
Total assets................................................... $9,406,674
==========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities................................................ $ 223,706
Other liabilities.................................................. 7,825
----------
Total liabilities.............................................. 231,531
----------
Partners' capital (deficit):
General Partner................................................... (1,257,778)
Limited Partnership Interests (1,547,930 Units; initial purchase
price of $25 each)............................................... 10,432,921
----------
Total partners' capital........................................ 9,175,143
----------
Total liabilities and partners' capital........................ $9,406,674
==========
9
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
STATEMENT OF OPERATIONS
For the three months ended March 31, 2000
(Unaudited)
Income:
Lease revenue......................................................... $ 18,548
Interest income....................................................... 89,464
Interest income--affiliate............................................ 22,160
Gain on sale of marketable securities................................. 143,465
--------
Total income....................................................... 273,637
--------
Expenses:
Depreciation.......................................................... 10,576
Equipment management fees--affiliate.................................. 574
Operating expenses--affiliate......................................... 33,553
Partnership's share of unconsolidated real estate venture's loss...... 5,577
--------
Total expenses..................................................... 50,280
--------
Net income............................................................. $223,357
========
Net income per limited partnership unit................................ $ 0.14
========
Cash distribution declared per limited partnership unit................ $ --
========
The Partnership's accompanying financial statements as of and for the six
months ended June 30, 2000 are presented in accordance with the guidance above.
The investment is net of the Partnership's share of losses in this real estate
venture. For the six months ended June 30, 2000, the Partnership's share of
losses is $36,543 and is reflected on the Statement of Operations as
"Partnership's share of unconsolidated real estate venture's loss".
The summarized financial information for Echelon Residential Holdings as of
and for the six months ended June 30, 2000 is as follows:
(Unaudited)
Total assets................................................. $54,704,360
Total liabilities............................................ $50,914,020
Total equity................................................. $ 3,790,340
Total revenues............................................... $ 905,751
Total expenses............................................... $ 2,593,700
Net loss..................................................... $(1,687,949)
Note 6--Investment Securities--Affiliate and 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 $44,077 related to
the Semele Note for each of the six month periods ended June 30, 2000 and 1999.
10
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
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 six months ended June 30, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $4.625 per share
(the quoted price of the Semele stock on NASDAQ SmallCap Market at the date the
stock traded closest to June 30, 2000) resulting in an unrealized loss of
$44,256. This loss is reported as a component of comprehensive income, included
in the Statement of Changes 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, 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 the Statement of Changes in
Partners' Capital.
Note 8--Equipment Held For Re-Sale
During the six months ended June 30, 1999, the Partnership acquired
equipment for the purpose of re-sale in the amount of $996,322. 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 the six month periods ended
June 30, 2000 and 1999, which were paid or accrued by the Partnership to EFG or
its Affiliates, are as follows:
For the six months ended
June 30,
------------------------
2000 1999
------------------------
Equipment management fees............................ $ 1,164 $ 4,497
Administrative charges............................... 19,967 58,730
Reimbursable operating expenses due to
third parties....................................... 68,337 206,937
----------- ------------
Total.............................................. $ 89,468 $ 270,164
=========== ============
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 June 30, 2000, the
Partnership was owed $5,389 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in July 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.
11
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 and six months ended June 30, 2000 compared to the three and six months
ended June 30, 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 and six months ended June 30, 2000, the Partnership recognized
lease revenue of $18,861 and $37,409, respectively, compared to $40,580 and
$104,056, respectively, for the same periods in 1999. The decrease in lease
revenue from 1999 to 2000 resulted primarily 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 and six months ended June 30, 2000 was $60,545
and $172,169 compared to $156,763 and $261,732 for the same periods 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 and six month periods ended June 30, 2000 and 1999 included
$21,917 and $44,077, respectively, and $22,160 and $44,077, respectively,
earned on a note receivable from Semele Group, Inc. ("Semele") (See Note 6 to
the financial statements herein). On March 8, 2000, the Partnership utilized
$5,700,000 of available cash for a loan to Echelon Residential Holdings LLC
("Echelon Residential Holdings"). (See Note 5 to the financial statements
herein). 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.
12
During the three months ended March 31, 2000, the Partnership sold
marketable securities for proceeds of $357,680, which resulted in a net gain,
for financial statement purposes, of $143,465. There were no sales of
marketable securities during the three months ended June 30, 2000.
During the three and six months ended June 30, 2000 and 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 $6,825 and $4,104,132, respectively, for the three months ended
June 30, 2000 and 1999 and $6,825 and $4,208,832, respectively, for the six
months ended June 30, 2000 and 1999. The net gain in 1999 includes $4,080,000
related to the sale of the Partnership's interests in two aircraft.
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 and $21,152 for each of the three and six
months ended June 30, 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 $590 and $1,164 for the three and six month periods
ended June 30, 2000, respectively, compared to $1,676 and $4,497, respectively,
for the same periods in 1999. 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 $54,751 and $88,304, respectively, for the three and
six months ended June 30, 2000 compared to $124,063 and $265,667, respectively,
for the same periods in 1999. In 1999, operating expenses included
approximately $68,000 related to the refurbishment of an aircraft engine and a
$33,000 adjustment for 1998 actual administrative charges and third-party
costs. 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.
13
For the three and six months ended June 30, 2000, the Partnership's share of
losses in Echelon Residential Holdings is $30,966 and $36,543, respectively,
and is reflected on the Statement of Operations as "Partnership's share of
unconsolidated real estate venture's loss". See further discussion below.
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. For the six months ended June 30, 2000, operating
activities generated a net cash inflow of 55,333 compared to an outflow of
$457,117 for the six months ended June 30, 1999. 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. 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. See
additional discussion below regarding the loan made by the Partnership to
Echelon Residential Holdings in March 2000.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the six months
ended June 30, 2000 and 1999, the Partnership realized equipment sale proceeds
of $6,825 and $4,208,832, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
In December 1998, the Partnership sold its interest in an 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. See the Partnership's 1999 Annual Report
for further discussion of this deferred sale.
In 1999, the Partnership acquired equipment for the purpose of re-sale in
the amount of $996,322. This equipment was subsequently sold in 1999.
At June 30, 2000, the Partnership was due aggregate future minimum lease
payments of $117,677 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")
collectively loaned
14
$32.0 million to Echelon Residential Holdings, a newly-formed real estate
development company owned by several investors, including James A. Coyne,
Executive Vice President of EFG. Mr. Coyne, in his individual capacity, is the
only equity investor in Echelon Residential Holdings related to EFG.
The Partnership's participation in the loan is $5,700,000. Echelon
Residential Holdings, 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 8, 2002 and bears interest at the annual rate of
14% for the first 24 months and 18% for the final six months. Interest accrues
and compounds monthly and is payable at maturity. In connection with the
transaction, Echelon Residential Holdings 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.
As discussed in Note 5 in Partnership's financial statements, the loan is
considered to be an investment in a real estate venture for accounting
purposes. In accordance with the provisions of Statement of Position No. 78-9,
"Accounting for Investments in Real Estate Ventures", the Partnership reports
its share of income or loss of Echelon Residential Holdings under the equity
method of accounting.
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 six months ended June 30, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $4.625 per share
(the quoted price of the Semele stock on NASDAQ SmallCap Market at the date the
stock traded closest to June 30, 2000) resulting in an unrealized loss of
$44,256. This loss was reported as a component of comprehensive income,
included in the Statement of Changes 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 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 the Statement of Changes 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.
15
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 six months ended June 30, 2000.
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.
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 June 30, 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.
16
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
27 Financial Data Schedule
Item 6(b). Reports on Form 8-K
Response: None
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
27 Financial Data Schedule
17
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.
/s/ Michael J. Butterfield
By: ______________________________________________
Michael J. Butterfield
Treasurer of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 14, 2000
18