UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1 to Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-19135
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American Income Partners V-D Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3090151
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad St., Sixth Floor, Boston, MA 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
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Securities registered pursuant to Section 12(b) of the Act NONE
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Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
480,227 Units Representing Limited Partnership Interest
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained herein, to
the best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
FORM 10-K/A
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder Matters 7
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Item 7A. Quantitative and Qualitative Disclosures about Market Risks 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 34
PART III
Item 10. Directors and Executive Officers of the Partnership 35
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40
2
PART I
Item 1. Business.
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(a) General Development of Business
American Income Partners V-D Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on May 21, 1990 for the purpose of acquiring
and leasing to third parties a diversified portfolio of capital equipment.
Partners' capital initially consisted of contributions of $1,000 from the
General Partner (AFG Leasing IV Incorporated) and $100 from the Initial Limited
Partner (AFG Assignor Corporation). On September 27, 1990, the Partnership
issued 480,227 units, representing assignments of limited partnership interests
(the "Units"), to 806 investors. Unitholders and Limited Partners (other than
the Initial Limited Partner) are collectively referred to as Recognized Owners.
The Partnership has one General Partner, AFG Leasing IV Incorporated, a
Massachusetts corporation and an affiliate of Equis Financial Group Limited
Partnership (formerly known as American Finance Group), a Massachusetts limited
partnership ("EFG"). The General Partner is not required to make any other
capital contributions except as may be required under the Uniform Act and
Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited
Partnership (the "Restated Agreement, as amended", or the "Partnership
Agreement").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one operating industry segment: financial
services. Historically, the Partnership has acquired capital equipment and
leased the equipment to creditworthy lessees on a full payout or operating lease
basis. Full payout leases are those in which aggregate undiscounted
noncancellable rents equal or exceed the acquisition cost of the leased
equipment. Operating leases are those in which the aggregate undiscounted
noncancellable rental payments are less than the acquisition cost of the leased
equipment. Industry segment data is not applicable.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in Item 7 herein.
In connection with a preliminary settlement agreement for a Class Action
Lawsuit described in Note 7 to the financial statements, included in Item 8
herein, the court permitted the Partnership to invest in any new investment,
including but not limited to new equipment or other business activities, subject
to certain limitations. On March 8, 2000, the Partnership loaned $2,730,000 to a
newly formed real estate company, Echelon Residential Holdings LLC ("Echelon
Residential Holdings") to finance the acquisition of real estate assets by that
company. Echelon Residential Holdings, through a wholly owned subsidiary
("Echelon Residential LLC"), used the loan proceeds, along with the loan
proceeds from similar loans by ten affiliated partnerships representing $32
million in the aggregate, to acquire various real estate assets from Echelon
International Corporation, an independent Florida-based real estate company.
Echelon Residential Holding's interest in Echelon Residential LLC is pledged
pursuant to a pledge agreement to the partnerships as collateral for the loans.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Partnership's primary investment objectives were to acquire and lease
equipment that would:
1. Generate quarterly cash distributions;
2. Preserve and protect invested capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the Offering of Units of the Partnership was September 27,
1990. The initial purchase of equipment and the associated lease commitments
occurred on September 28, 1990. The acquisition of the equipment and its
associated leases is described in Note 3 to the financial statements included in
Item 8, herein. The Restated Agreement, as amended, provides that the
Partnership would terminate no later than December 31, 2000. However, 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. The General
3
Partner does not expect that the Partnership will be dissolved until such time
that the Class Action Lawsuit is settled or adjudicated.
The Partnership has no employees; however, it is managed pursuant to a
Management Agreement with EFG or one of its affiliates (the "Manager"). The
Manager's role, among other things, is to (i) evaluate, select, negotiate, and
consummate the acquisition of equipment, (ii) manage the leasing, re-leasing,
financing, and refinancing of equipment, and (iii) arrange the resale of
equipment. The Manager is compensated for such services as provided for in the
Restated Agreement, as amended, described in Item 13 herein, and in Note 5 to
the financial statements included in Item 8, herein.
The Partnership's investment in equipment is, and will continue to be, subject
to various risks, including physical deterioration, technological obsolescence,
credit quality and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
Another risk is that the credit quality of the lease may deteriorate after a
lease is made. In addition, the leasing industry is very competitive. The
Partnership is subject to considerable competition when re-leasing or selling
equipment at the expiration of its lease terms. The Partnership must compete
with lease programs offered directly by manufacturers and other equipment
leasing companies, many of which have greater resources, including limited
partnerships and trusts organized and managed similarly to the Partnership and
including other EFG sponsored partnerships and trusts, which may seek to re-
lease or sell equipment within their own portfolios to the same customers as the
Partnership. In addition, default by a lessee under a lease may cause equipment
to be returned to the Partnership at a time when the General Partner or the
Manager is unable to arrange for the re-lease or sale of such equipment. This
could result in the loss of anticipated revenue.
The loan made by the Partnership to Echelon Residential Holdings is, and will
continue to be, subject to various risks, including the risk of default by
Echelon Residential Holdings, which could require the Partnership to foreclose
under the pledge agreement on its interests in Echelon Residential LLC. The
ability of Echelon Residential Holdings to make loan payments and the amount the
Partnership may realize after a default would be dependent upon the risks
generally associated with the real estate lending business including, without
limitation, the existence of senior financing or other liens on the properties,
general or local economic conditions, property values, the sale of properties,
interest rates, real estate taxes, other operating expenses, the supply and
demand for properties involved, zoning and environmental laws and regulations,
rent control laws and other governmental rules. A default by Echelon
Residential Holdings could have a material adverse effect on the future cash
flow and operating results of the Partnership.
The Restated Agreement, as amended, prohibits the Partnership from making
loans to the General Partner or its affiliates. Since the acquisition of the
several parcels of real estate from the owner had to occur prior to the
admission of certain independent third parties as equity owners, Echelon
Residential Holdings and its wholly owned subsidiary, Echelon Residential LLC,
were formed in anticipation of their admission. The General Partner agreed to
an officer of the Manager serving as the initial equity holder of Echelon
Residential Holdings and as an unpaid manager of Echelon Residential Holdings.
The officer made a $185,465 equity investment in Echelon Residential Holdings.
His return on his equity investment is restricted to the same rate of return as
the partnerships realize on their loans. There is a risk that the court may
object to the General Partner's action in structuring the loan in this way since
the officer may be deemed an affiliate and the loans in violation of the
prohibition against loans to affiliates and the court's statement in its order
permitting New Investments that all other provisions of the Partnership
Agreements governing the investment objectives and policies of the Partnership
shall remain in full force and effect. The court may require the partnerships
to restructure or divest the loan.
The Investment Company Act of 1940 (the "1940 Act") places restrictions on the
capital structure and business activities of companies registered thereunder.
The Partnership has active business operations in the financial services
industry, including equipment leasing and the loan to Echelon Residential
Holdings. The Partnership does not intend to engage in investment activities in
a manner or to an extent that would require the Partnership to register as an
investment company under the 1940 Act. However, it is possible that the
Partnership may unintentionally engage in an activity or activities that may be
construed to fall within the scope of the 1940 Act. The General Partner is
engaged in discussions with the staff of the Securities and Exchange Commission
("SEC") regarding whether or not the Partnership may be an inadvertent
investment company as a consequence of the above-referenced loan. The General
Partner has consulted counsel and believes that the Partnership is not an
investment company. If the Partnership were determined to be an unregistered
investment company, its business would be adversely affected. The 1940 Act,
among other things, prohibits an unregistered investment company from offering
securities for sale or engaging in any business in interstate commerce and,
consequently, leases and contracts entered into by partnerships that are
unregistered investment companies may be voidable. If necessary,
4
the Partnership intends to avoid being deemed an investment company by means
that may include disposing or acquiring certain assets that it might not
otherwise dispose or acquire.
On May 11, 2001, the general partners of the Partnerships that are nominal
defendants in the Class Action Lawsuit received a letter dated May 10, 2001 from
the Associate Director and Chief Counsel of the Division of Investment
Management of the SEC informing the general partners that the staff of the
Division believes that American Income Partners V-A Limited Partnership,
American Income Partners V-B Limited Partnership, American Income Partners V-C
Limited Partnership, American Income Partners V-D Limited Partnership, American
Income Fund I-A, American Income Fund I-B, American Income Fund I-E and AIRFUND
II International Limited Partnership (the "Designated Partnerships") are
investment companies as defined in Section 3(a)(1)(C) of the 1940 Act. The SEC
staff noted that Section 7 of the 1940 Act makes it unlawful for an unregistered
investment company, among other things, to offer, sell, purchase or acquire any
security or engage in any business in interstate commerce. Accordingly, Section
7 would prohibit any partnership that is an unregistered investment company from
engaging in any business in interstate commerce, except transactions that are
merely incidental to its dissolution. The SEC staff asked that the general
partners advise them within the next 30 days as to what steps the Designated
Partnerships will take to address their status under the 1940 Act. The SEC
staff asserts that the notes evidencing the loans to Echelon Residential
Holdings are investment securities and the ownership of the notes by said
partnerships cause them to be investment companies and that, in the case of
American Income Partners V-A Limited Partnership and V-B Limited Partnership,
they may have become investment companies when they received the Semele Group
Inc. ("Semele") securities as part of the compensation for the sale of a vessel
to Semele in 1997. The general partners have consulted with counsel who
specializes in the 1940 Act and, based on counsel's advice, do not believe that
the Designated Partnerships are investment companies.
The letter also stated that the Division is considering whether to commence an
enforcement action with respect to this matter. Noting that the parties to the
Class Action Lawsuit were scheduled to appear before the court in the near
future to consider a proposed settlement, and that the SEC staff believed that
its views, as expressed in the letter, would be relevant to the specific matters
that will be considered by the court at the hearing, the SEC staff submitted the
letter to the court for its consideration.
On May 15, 2001, Defendants' Counsel filed with the court Defendants' Status
Report pursuant to the court's March 12, 2001 Order. Defendants reported that,
notwithstanding the parties' best efforts, the staff of the SEC has not
completed its review of the solicitation statement in connection with the
proposed settlement of the Class Action Lawsuit. Nonetheless, the Defendants
stated their belief that the parties should continue to pursue the court's final
approval of the proposed settlement. In this regard, the Defendants also have
maintained, on the advice of special 1940 Act counsel that, even if the 1940 Act
applies to the Designated Partnerships, the 1940 Act does not prohibit going
forward with the proposed settlement, as that transaction is merely incidental
to a dissolution of the Partnerships and therefore is not subject to the
prohibitions of Section 7 of the 1940 Act.
The Defendants also referred to the SEC staff's letter of May 10, 2001
asserting that certain of the partnerships are investment companies and to
special 1940 Act counsel's submissions to the SEC staff setting forth the
reasons why the 1940 Act does not apply to the Designated Partnerships, noting
that counsel had informed the staff of the Division of Investment Management
that, based upon counsel's understanding of the surrounding circumstances and
after an in-depth analysis of the applicable law, if asked, counsel would be
willing to issue an opinion of the firm that none of the partnerships is an
investment company under the 1940 Act. The Defendants stated their belief that
the proposed settlement is still viable and in the best interests of the parties
and that final approval should be pursued. The Defendants advised the court
that they believe that if the court were to address the issue of whether or not
the 1940 Act applies to the partnerships and the proposed consolidation, it
could remove the major obstacle to the settlement being finally consummated.
The Defendants also requested that the court schedule a hearing to address on a
preliminary basis the objection to the proposed settlement raised in the SEC
staff's May 10, 2001 letter.
Plaintiffs' Counsel also submitted a Plaintiffs' Status Report to the court on
May 15, 2001 in which they reported that the SEC review has not been concluded
and that they notified the Defendants that they would not agree to continue to
stay the further prosecution of the litigation in favor of the settlement and
that they intend to seek court approval to immediately resume active prosecution
of the claims of the Plaintiffs. Plaintiffs' Counsel stated in the Report that
the "[p]laintiffs continue to believe that the settlement is in the best
interests of the Operating Partnership Sub-class. However, since the SEC has
yet to complete its review of the proxy, the Plaintiffs do not believe that the
litigation should continue to be stayed so that the SEC may continue its
regulatory review for an indefinite period of time." Plaintiffs requested a
pre-trial conference to schedule filing of Plaintiffs' motion for class
certification on or before May 29, 2001 and resumption of merits discovery and
discovery related to the class certification motion.
5
Apart from the language of the order, the Court has not stated what action it
might order if the SEC's review were not completed by May 15, 2001. If the
Court were to decline to continue the date for the Final Approval Settlement
Hearing and there is no settlement alternative offered by the parties that meets
the Court's approval, the Court may direct that the parties resume the
litigation and abandon the proposed settlement and consolidation.
Revenue from individual lessees which accounted for 10% or more of lease
revenue during the years ended December 31, 2000, 1999 and 1998 is incorporated
herein by reference to Note 2 to the financial statements included in Item 8,
herein. Refer to Item 14(a)(3) for lease agreements filed with the Securities
and Exchange Commission.
EFG is a Massachusetts limited partnership formerly known as American Finance
Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
direct-participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Mr. Engle
established Equis Corporation and GDE LP in December 1994 for the sole purpose
of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily to
the business of originating new leases, and the name "American Finance Group,"
and its acronym, to a third party. AFG changed its name to Equis Financial
Group Limited Partnership after the sale was concluded. Pursuant to terms of
the sale agreements, EFG specifically reserved the rights to continue using the
name American Finance Group and its acronym in connection with the Partnership
and the Other Investment Programs and to continue managing all assets owned by
the Partnership and the Other Investment Programs.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
Item 2. Properties.
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Incorporated herein by reference to Note 3 to the financial statements in
Item 8.
Item 3. Legal Proceedings.
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Incorporated herein by reference to Note 7 to the financial statements in
Item 8.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
6
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder
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Matters.
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(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 2000, there were 758 record holders of Units in the
Partnership.
(c) Dividend History and Restrictions
Historically, the amount of cash distributions to be paid to the Partners has
been determined on a quarterly basis. Each quarter's distribution may have
varied in amount and was made 95% to the Limited Partners and 5% to the General
Partner. Generally, cash distributions have been paid within 15 days after the
completion of each calendar quarter.
The Partnership is a Nominal Defendant in a Class Action Lawsuit described in
Note 7 to the accompanying Annual Report. 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 settled or
adjudicated.
In any given year, it is possible that Recognized Owners will be allocated
taxable income in excess of distributed cash. This discrepancy between tax
obligations and cash distributions may or may not continue in the future, and
cash may or may not be available for distribution to the Recognized Owners
adequate to cover any tax obligation.
Distributions declared in 2000 and 1999 were as follows:
General Recognized
Total Partner Owners
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Total 2000 distributions declared............ $ -- $ -- $ --
Total 1999 distributions declared............ 227,476 11,374 216,102
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Total....................... $ 227,476 $ 11,374 $ 216,102
========= ========= =========
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. In addition to
the need for funds in connection with the Class Action Lawsuit, liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets.
Cash distributions consist of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
7
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
governing a joint venture which the General Partner determines will be invested
in additional equipment or interests in equipment and which ultimately are so
reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after
Payout, any accrued and unpaid Subordinated Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership from
sale or refinancing transactions, as reduced by (i)(a) all debts and liabilities
of the Partnership required to be paid as a result of sale or refinancing
transactions, whether or not then due and payable (including any liabilities on
an item of equipment sold which are not assumed by the buyer and any remarketing
fees required to be paid to persons not affiliated with the General Partner, but
not including any Subordinated Remarketing Fees whether or not then due and
payable) and (b) any reserves for working capital and contingent liabilities
funded from such cash to the extent deemed reasonable by the General Partner and
(ii) increased by any portion of such reserves deemed by the General Partner not
to be required for Partnership operations. In the event the Partnership accepts
a note in connection with any sale or refinancing transaction, all payments
subsequently received in cash by the Partnership with respect to such note shall
be included in Cash From Sales or Refinancings, regardless of the treatment of
such payments by the Partnership for tax or accounting purposes. If the
Partnership receives purchase money obligations in payment for equipment sold,
which are secured by liens on such equipment, the amount of such obligations
shall not be included in Cash From Sales or Refinancings until the obligations
are fully satisfied.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Recognized Owners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Recognized Owners' original capital contributions plus a cumulative annual
return of 11% (compounded quarterly and calculated beginning with the last day
of the month of the Partnership's Closing Date) on their aggregate unreturned
capital contributions. For purposes of this definition, capital contributions
shall be deemed to have been returned only to the extent that distributions of
cash to the Recognized Owners exceed the amount required to satisfy the
cumulative annual return of 11% (compounded quarterly) on the Recognized Owners'
aggregate unreturned capital contributions, such calculation to be based on the
aggregate unreturned capital contributions outstanding on the first day of each
fiscal quarter.
8
Item 6. Selected Financial Data.
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The following data should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements included in Item 8 herein.
For each of the five years in the period ended December 31, 2000:
Summary of Operations 2000 1999 1998 1997 1996
--------------------- ---- ---- ---- ---- ----
Lease revenue........................ $ 199,293 $ 247,818 $ 321,107 $ 653,111 $1,816,273
Interest Income...................... $ 102,260 $ 191,695 $ 161,990 $ 131,193 $ 97,019
Net (loss) income.................... $ (168,041) $ 296,465 $ 575,168 $ 720,339 $1,656,646
Per Unit:
Net (loss) income.................. $ (0.33) $ 0.59 $ 1.14 $ 1.42 $ 3.28
Cash distributions declared........ $ -- $ 0.45 $ 0.45 $ 0.56 $ 4.52
Financial Position
------------------
Total assets......................... $3,843,691 $4,069,905 $4,032,879 $3,443,037 $3,551,413
Total long-term obligations.......... $ -- $ -- $ -- $ -- $ 307,479
Partners' capital.................... $3,612,346 $3,780,387 $3,711,398 $3,363,706 $2,927,711
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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Year ended December 31, 2000 compared to the year
ended December 31, 1999 and the year ended December 31, 1999
compared to the year ended December 31, 1998
Certain statements in this Form 10-K of 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 7 to the financial
statements included in Item 8 herein, the remarketing of the Partnership's
equipment and the performance of the partnership's non-equipment assets.
Overview
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The Partnership was organized in 1990 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 7 to the financial statements included in Item 8 herein.
Pursuant to the Restated Agreement, as amended, the Partnership is scheduled to
be dissolved by December 31, 2001. However, the General Partner does not expect
that the Partnership will be dissolved until such time that the Class Action
Lawsuit is settled or adjudicated.
The 1940 Act places restrictions on the capital structure and business
activities of companies registered thereunder. The Partnership has active
business operations in the financial services industry, including equipment
leasing and the loan to Echelon Residential Holdings. The Partnership does not
intend to engage in investment activities in a manner or to an extent that would
require the Partnership to register as an investment company
9
under the 1940 Act. However, it is possible that the Partnership may
unintentionally engage in an activity or activities that may be construed to
fall within the scope of the 1940 Act. The General Partner is engaged in
discussions with the staff of the Securities and Exchange Commission ("SEC")
regarding whether or not the Partnership may be an inadvertent investment
company as a consequence of the above-referenced loan. The General Partner has
consulted counsel and believes that the Partnership is not an investment
company. If the Partnership were determined to be an unregistered investment
company, its business would be adversely affected. The 1940 Act, among other
things, prohibits an unregistered investment company from offering securities
for sale or engaging in any business in interstate commerce and, consequently,
leases and contracts entered into by partnerships that are unregistered
investment companies may be voidable. If necessary, the Partnership intends to
avoid being deemed an investment company by means that may include disposing or
acquiring certain assets that it might not otherwise dispose or acquire.
On May 11, 2001, the general partners of the Partnerships that are nominal
defendants in the Class Action Lawsuit received a letter dated May 10, 2001 from
the Associate Director and Chief Counsel of the Division of Investment
Management of the SEC informing the general partners that the staff of the
Division believes that American Income Partners V-A Limited Partnership,
American Income Partners V-B Limited Partnership, American Income Partners V-C
Limited Partnership, American Income Partners V-D Limited Partnership, American
Income Fund I-A, American Income Fund I-B, American Income Fund I-E and AIRFUND
II International Limited Partnership (the "Designated Partnerships") are
investment companies as defined in Section 3(a)(1)(C) of the 1940 Act. The SEC
staff noted that Section 7 of the 1940 Act makes it unlawful for an unregistered
investment company, among other things, to offer, sell, purchase or acquire any
security or engage in any business in interstate commerce. Accordingly, Section
7 would prohibit any partnership that is an unregistered investment company from
engaging in any business in interstate commerce, except transactions that are
merely incidental to its dissolution. The SEC staff asked that the general
partners advise them within the next 30 days as to what steps the Designated
Partnerships will take to address their status under the 1940 Act. The SEC
staff asserts that the notes evidencing the loans to Echelon Residential
Holdings are investment securities and the ownership of the notes by said
partnerships cause them to be investment companies and that, in the case of
American Income Partners V-A Limited Partnership and V-B Limited Partnership,
they may have become investment companies when they received the Semele Group
Inc. ("Semele") securities as part of the compensation for the sale of a vessel
to Semele in 1997. The general partners have consulted with counsel who
specializes in the 1940 Act and, based on counsel's advice, do not believe that
the Designated Partnerships are investment companies.
The letter also stated that the Division is considering whether to commence an
enforcement action with respect to this matter. Noting that the parties to the
Class Action Lawsuit were scheduled to appear before the court in the near
future to consider a proposed settlement, and that the SEC staff believed that
its views, as expressed in the letter, would be relevant to the specific matters
that will be considered by the court at the hearing, the SEC staff submitted the
letter to the court for its consideration.
On May 15, 2001, Defendants' Counsel filed with the court Defendants' Status
Report pursuant to the court's March 12, 2001 Order. Defendants reported that,
notwithstanding the parties' best efforts, the staff of the SEC has not
completed its review of the solicitation statement in connection with the
proposed settlement of the Class Action Lawsuit. Nonetheless, the Defendants
stated their belief that the parties should continue to pursue the court's final
approval of the proposed settlement. In this regard, the Defendants also have
maintained, on the advice of special 1940 Act counsel that, even if the 1940 Act
applies to Designated Partnerships, the 1940 Act does not prohibit going forward
with the proposed settlement, as that transaction is merely incidental to a
dissolution of the Partnerships and therefore is not subject to the prohibitions
of Section 7 of the 1940 Act.
The Defendants also referred to the SEC staff's letter of May 10, 2001
asserting that certain of the partnerships are investment companies and to
special 1940 Act counsel's submissions to the SEC staff setting forth the
reasons why the 1940 Act does not apply to the Designated Partnerships, noting
that counsel had informed the staff of the Division of Investment Management
that, based upon counsel's understanding of the surrounding circumstances and
after an in-depth analysis of the applicable law, if asked, counsel would be
willing to issue an opinion of the firm that none of the partnerships is an
investment company under the 1940 Act. The Defendants stated their belief that
the proposed settlement is still viable and in the best interests of the parties
and that final approval should be pursued. The Defendants advised the court
that they believe that if the court were to address the issue of whether or not
the 1940 Act applies to the partnerships and the proposed consolidation, it
could remove the major obstacle to the settlement being finally consummated.
The Defendants also requested that the court schedule a hearing to address on a
preliminary basis the objection to the proposed settlement raised in the SEC
staff's May 10, 2001 letter.
Plaintiffs' Counsel also submitted a Plaintiffs' Status Report to the court on
May 15, 2001 in which they reported that the SEC review has not been concluded
and that they notified the Defendants that they would not
10
agree to continue to stay the further prosecution of the litigation in favor of
the settlement and that they intend to seek court approval to immediately resume
active prosecution of the claims of the Plaintiffs. Plaintiffs' Counsel stated
in the Report that the "[p]laintiffs continue to believe that the settlement is
in the best interests of the Operating Partnership Sub-class. However, since the
SEC has yet to complete its review of the proxy, the Plaintiffs do not believe
that the litigation should continue to be stayed so that the SEC may continue
its regulatory review for an indefinite period of time." Plaintiffs requested a
pre-trial conference to schedule filing of Plaintiffs' motion for class
certification on or before May 29, 2001 and resumption of merits discovery and
discovery related to the class certification motion.
Apart from the language of the order, the Court has not stated what action it
might order if the SEC's review were not completed by May 15, 2001. If the
Court were to decline to continue the date for the Final Approval Settlement
Hearing and there is no settlement alternative offered by the parties that meets
the Court's approval, the Court may direct that the parties resume the
litigation and abandon the proposed settlement and consolidation.
Results of Operations
- ---------------------
For the year ended December 31, 2000, the Partnership recognized lease revenue
of $199,293, compared to $247,818 and $321,107 for the years ended December 31,
1999 and 1998, respectively. The decrease in lease revenue from 1998 to 2000
resulted principally from lease term expirations and the sale of equipment. In
the future, lease revenue will continue to decline due to lease term expirations
and equipment sales.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by 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 year ended December 31, 2000 was $102,260 compared to
$191,695 and $161,990 for the years ended December 31, 1999 and 1998,
respectively. Interest income is generated principally from temporary
investment of rental receipts and equipment sale proceeds in short-term
investments. 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. On March 8, 2000, the Partnership utilized
$2,730,000 of available cash for a loan to Echelon Residential Holdings. The
loan is presented in the accompanying financial statements in accordance with
the guidance set forth in the Third Notice to Practitioners by the American
Institute of Certified Public Accountants in February 1986 entitled ``ADC
Arrangements'', and therefore the Partnership does not recognize interest income
related to this loan. (See further discussion included in Note 4 to the
financial statements included in Item 8 herein).
During the year ended December 31, 2000, the Partnership sold equipment with a
net book value of $9,199 to existing lessees and third parties. The sales
resulted in a net gain, for financial reporting purposes, of $10,534, $191,523,
and $672,899.
In 1999, the Partnership sold fully depreciated equipment to existing lessees
and third parties. These sales resulted in a net gain, for financials statement
purposes, of $191,523 compared to a net gain in 1998 of $775,111 on equipment
having a net book value of $272,578.
It cannot be determined whether future sales of equipment will result in a net
gain or a net loss to the Partnership, as such transactions will be dependent
upon the condition and type of equipment being sold and its marketability at the
time of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized for each asset is comprised of all primary
lease term revenue generated from that asset, together with its residual value.
The latter consists of cash proceeds realized upon the asset's
11
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 $62,467, $64,562, and $115,523 for the years ended
December 31, 2000, 1999 and 1998, respectively. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the
Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset 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 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.
Management fees were $7,482, $9,848, and $13,512 for the years ended December
31, 2000, 1999 and 1998, respectively. Management fees are based on 5% of gross
lease revenue generated by operating leases and 2% of gross lease revenue
generated by full payout leases.
Operating expenses were $202,962, $260,161, and $451,793 for the years ended
December 31, 2000, 1999 and 1998, respectively. For the years ended December
31, 2000, 1999 and 1998 operating expenses includes approximately $41,000,
$50,000 and $297,000, respectively, related to the Class Action Lawsuit
described in Note 7 to the financial statements included in Item 8. Other
operating expenses consist principally of professional service costs, such as
audit and other legal fees, as well as printing, distribution and remarketing
expenses. In certain cases, equipment storage or repairs and maintenance costs
may be incurred in connection with equipment being remarketed.
For the year ended December 31, 2000, the Partnership's share of losses in
Echelon Residential Holdings was $207,217. The loss 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. The Partnership's
principal operating activities derive from asset rental transactions.
Accordingly, the Partnership's principal source of cash from operations is
generally provided by the collection of periodic rents. These cash inflows are
used to pay management fees and operating costs. Operating activities generated
net cash inflows of $114,671, $153,455, and $270,559, in 2000, 1999 and 1998,
respectively. Future renewal, re-lease and equipment sale activities will cause
a decline in the Partnership's lease revenues and corresponding sources of
operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will also decline
as the Partnership remarkets its equipment. The amount of future interest income
is expected to fluctuate as a result of changing interest rates and the level of
cash available for investment, among other factors.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the year ended
December 31, 2000, the Partnership realized $19,733 in equipment sale proceeds
compared to $191,523 and $945,477 in 1999 and 1998, 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.
At December 31, 2000, the Partnership had aggregate future minimum lease
payments of $85,896 from contractual lease agreements (see Note 2 to the
financial statements included in Item 8). 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 a Class Action
Lawsuit described in Note 7 to the financial statements included in Item 8, the
court permitted the Partnership to invest in any new investment, including but
not limited to new equipment or other business activities, subject to certain
limitations. On March 8,
12
2000, the Partnership loaned $2,730,000 to a newly formed real estate company,
Echelon Residential Holdings to finance the acquisition of real estate assets by
that company. Echelon Residential Holdings, through a wholly owned subsidiary
("Echelon Residential LLC"), used the loan proceeds, along with the loan
proceeds from similar loans by ten affiliated partnerships representing $32
million in the aggregate, to acquire various real estate assets from Echelon
International Corporation, an independent Florida-based real estate company.
Echelon Residential Holding's interest in Echelon Residential LLC is pledged
pursuant to a pledge agreement to the partnerships as collateral for the loans.
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.
As discussed in Note 4 to the Partnership's financial statements included in
Item 8, 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.
The loan made by the Partnership to Echelon Residential Holdings is, and will
continue to be, subject to various risks, including the risk of default by
Echelon Residential Holdings, which could require the Partnership to foreclose
under the pledge agreement on its interests in Echelon Residential LLC. The
ability of Echelon Residential Holdings to make loan payments and the amount the
Partnership may realize after a default would be dependent upon the risks
generally associated with the real estate lending business including, without
limitation, the existence of senior financing or other liens on the properties,
general or local economic conditions, property values, the sale of properties,
interest rates, real estate taxes, other operating expenses, the supply and
demand for properties involved, zoning and environmental laws and regulations,
rent control laws and other governmental rules. A default by Echelon
Residential Holdings could have a material adverse effect on the future cash
flow and operating results of the Partnership.
The Restated Agreement, as amended, prohibits the Partnership from making
loans to the General Partner or its affiliates. Since the acquisition of the
several parcels of real estate from the owner had to occur prior to the
admission of certain independent third parties as equity owners, Echelon
Residential Holdings and its wholly owned subsidiary, Echelon Residential LLC,
were formed in anticipation of their admission. The General Partner agreed to
an officer of the Manager serving as the initial equity holder of Echelon
Residential Holdings and as an unpaid manager of Echelon Residential Holdings.
The officer made a $185,465 equity investment in Echelon Residential Holdings.
His return on his equity investment is restricted to the same rate of return as
the partnerships realize on their loans. There is a risk that the court may
object to the General Partner's action in structuring the loan in this way since
the officer may be deemed an affiliate and the loans in violation of the
prohibition against loans to affiliates and the court's statement in its order
permitting New Investments that all other provisions of the Partnership
Agreements governing the investment objectives and policies of the Partnership
shall remain in full force and effect. The court may require the partnerships
to restructure or divest the loan.
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. In addition to
the need for funds in connection with the Class Action Lawsuit, liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets.
Cash distributions to the General Partner and Recognized Owners had been
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is reported under financing
activities on the accompanying Statement of Cash Flows. No distributions were
declared for the year ended December 31, 2000, however, the 1999 fourth quarter
cash distribution of $56,869 was paid in January 2000. In any given year, it is
possible that Recognized Owners will be allocated taxable income in excess of
distributed cash. This discrepancy between tax obligations and cash
distributions may or may not continue in the future, and cash may or may not be
available for distribution to the Recognized Owners adequate to cover any tax
obligation.
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
13
future contracted rents, the generation of renewal and/or re-lease rents, the
residual value realized for each asset at its disposal date and the performance
of the Partnership's non-equipment assets.
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 6 to the accompanying financial statements included in Item 8). 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 include the cumulative difference between income
or loss for tax purposes and financial statement income or loss. The principal
components of the cumulative difference between financial statement income or
loss and tax income or loss result from different depreciation policies for book
and tax purposes and different treatment for book and tax purposes related to
the real estate venture.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at December 31, 2000. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Restated Agreement,
as amended, requires that upon the dissolution of the Partnership, the General
Partner will be required to contribute to the Partnership an amount equal to any
negative balance which may exist in the General Partner's tax capital account.
At December 31, 2000, the General Partner had a positive tax capital account
balance.
The outcome of the Class Action Lawsuit described in Note 7 to the financial
statements included in Item 8 included in Item 8 herein 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 settled or adjudicated.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
- ----------------------------------------------------------------------
The Partnership's financial statements include financial instruments that are
exposed to interest rate risks.
The Partnership's acquisition, development and construction loan to Echelon
Residential Holdings matures on September 8, 2002 and earns interest at a fixed
annual rate of 14% for the first 24 months and a fixed annual rate of 18% for
the last 6 months of the loan. Investments earning a fixed rate of interest may
have their fair market value adversely impacted due to a rise in interest rates.
The effect of interest rate fluctuations on the Partnership in 2000 was not
material.
14
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
Financial Statements:
Report of Independent Auditors........................................16
Statement of Financial Position
at December 31, 2000 and 1999.........................................17
Statement of Operations
for the years ended December 31, 2000, 1999 and 1998..................18
Statement of Changes in Partners' Capital
for the years ended December 31, 2000, 1999 and 1998..................19
Statement of Cash Flows
for the years ended December 31, 2000, 1999 and 1998..................20
Notes to the Financial Statements.....................................21
15
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of American Income Partners V-D Limited Partnership:
We have audited the accompanying statements of financial position of American
Income Partners V-D Limited Partnership, as of December 31, 2000 and 1999, and
the related statements of operations, changes in partners' capital, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The consolidated financial statements of Echelon Residential
Holdings LLC, (a limited liability company to which the Partnership has loaned
$2,730,000), have been audited by other auditors whose report has been furnished
to us; insofar as our opinion on the financial statements relates to data
included for Echelon Residential Holdings LLC, it is based solely on their
report.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of American Income Partners V-D Limited Partnership at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
Tampa, Florida
March 30, 2001,
except for Note 9, as to which the date is
May 15, 2001
16
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 2000 and 1999
2000 1999
---------- ----------
ASSETS
Cash and cash equivalent nts $1,226,359 $3,878,824
Rents receivable............................................. 10,731 6,821
Accounts receivable - affiliate.............................. 12,809 41,585
Investment in real estate venture............................ 2,522,783 --
Equipment at cost, net of accumulated
depreciation of $1,003,736 and $1,026,150
at December 31, 2000 and 1999, respectively............... 71,009 142,675
---------- ----------
Total assets.......................................... $3,843,691 $4,069,905
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities.......................................... $ 216,360 $ 224,936
Accrued liabilities - affiliate.............................. 14,985 7,713
Cash distributions payable to partners....................... -- 56,869
---------- ----------
Total liabilities..................................... 231,345 289,518
---------- ----------
Partners' capital (deficit):
General Partner........................................... (351,436) (343,034)
Limited Partnership Interests
(480,227 Units; initial purchase price of $25 each)....... 3,963,782 4,123,421
---------- ----------
Total partners' capital............................... 3,612,346 3,780,387
---------- ----------
Total liabilities and partners' capital............... $3,843,691 $4,069,905
========== ==========
The accompanying notes are an integral part of these financial statements.
17
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
--------- -------- ----------
Income:
Lease revenue $ 199,293 $247,818 $ 321,107
Interest income........................... 102,260 191,695 161,990
Gain on sale of equipment................. 10,534 191,523 672,899
--------- -------- ----------
Total income.............................. 312,087 631,036 1,155,996
--------- -------- ----------
Expenses:
Depreciation.............................. 62,467 64,562 115,523
Equipment management fees -
Affiliate............................... 7,482 9,848 13,512
Operating expenses - affiliate............ 202,962 260,161 451,793
Partnership's share of unconsolidated
real estate venture's loss............... 207,217 -- --
--------- -------- ----------
Total expenses.......................... 480,128 334,571 580,828
--------- -------- ----------
Net (loss) income............................ $(168,041) $296,465 $ 575,168
========= ======== ==========
Net (loss) income
per limited partnership unit............... $ (0.33) $ 0.59 $ 1.14
========= ======== ==========
Cash distributions declared
per limited partnership unit............... $ -- $ 0.45 $ 0.45
========= ======== ==========
The accompanying notes are an integral part of these financial statements.
18
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the years ended December 31, 2000, 1999 and 1998
General Recognized Owners
Partner --------------------------------------
Amount Units Amount Total
--------- --------------- ---------- ----------
Balance at December 31, 1997.......... $(363,867) 480,227 $3,727,573 $3,363,706
Net income - 1998............... 28,758 -- 546,410 575,168
Cash distributions declared..... (11,374) -- (216,102) (227,476)
--------- --------------- ---------- ----------
Balance at December 31, 1998.......... (346,483) 480,227 4,057,881 3,711,398
Net income - 1999............... 14,823 -- 281,642 296,465
Cash distributions declared..... (11,374) -- (216,102) (227,476)
--------- --------------- ---------- ----------
Balance at December 31, 1999.......... (343,034) 480,227 4,123,421 3,780,387
Net loss - 2000................. (8,402) -- (159,639) (168,041)
--------- --------------- ---------- ----------
Balance at December 31, 2000.......... $(351,436) 480,227 $3,963,782 $3,612,346
========= =============== ========== ==========
The accompanying notes are an integral part of these financial statements.
19
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------- ---------- ----------
Cash flows provided by (used in) operating
activities:
Net (loss) income.................................... $ (168,041) $ 296,465 $ 575,168
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation......................................... 62,467 64,562 115,523
Gain on sale of equipment............................ (10,534) (191,523) (672,899)
Partnership's share of unconsolidated
real estate venture's loss................... 207,217 -- --
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable................................... (3,910) 31,659 225
Accounts receivable - affiliate.................... 28,776 (15,745) 10,392
Increase (decrease) in:
Accrued liabilities................................ (8,576) (33,564) 249,300
Accrued liabilities - affiliate.................... 7,272 1,601 (6,710)
Deferred rental income............................. -- -- (440)
----------- ---------- ----------
Net cash provided by operating activities......... 114,671 153,455 270,559
----------- ---------- ----------
Cash flows (used in) provided by investing
activities:
Proceeds from equipment sales......................... 19,733 191,523 945,477
Investment in real estate venture..................... (2,730,000) -- --
----------- ---------- ----------
Net cash (used in) provided by
investing activities.......................... (2,710,267) 191,523 945,477
----------- ---------- ----------
Cash flows used in financing activities:
Distributions paid.................................... (56,869) (227,476) (227,476)
----------- ---------- ----------
Net cash used in financing activities............. (56,869) (227,476) (227,476)
----------- ---------- ----------
Net (decrease) increase in cash and
cash equivalents.................................... (2,652,465) 117,502 988,560
Cash and cash equivalents at beginning of year.......... 3,878,824 3,761,322 2,772,762
----------- ---------- ----------
Cash and cash equivalents at end of year................ $ 1,226,359 $3,878,824 $3,761,322
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
20
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 2000
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
- ---------------------------------------------
American Income Partners V-D Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on May 21, 1990 for the purpose of acquiring
and leasing to third parties a diversified portfolio of capital equipment.
Partners' capital initially consisted of contributions of $1,000 from the
General Partner (AFG Leasing IV Incorporated) and $100 from the Initial Limited
Partner (AFG Assignor Corporation). On September 27, 1990, the Partnership
issued 480,227 units, representing assignments of limited partnership interests
(the "Units"), to 806 investors. Unitholders and Limited Partners (other than
the Initial Limited Partner) are collectively referred to as Recognized Owners.
The Partnership has one General Partner, AFG Leasing IV Incorporated, a
Massachusetts corporation and an affiliate of Equis Financial Group Limited
Partnership (formerly known as American Finance Group), a Massachusetts limited
partnership ("EFG"). The common stock of the General Partner is owned by AF/AIP
Programs Limited Partnership, of which EFG and a wholly-owned subsidiary are the
99% limited partners and AFG Programs, Inc., which is wholly-owned by Geoffrey
A. MacDonald, is the 1% General Partner. The General Partner is not required to
make any other capital contributions except as may be required under the Uniform
Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of
Limited Partnership (the "Restated Agreement, as amended").
Significant operations commenced September 28, 1990 when the Partnership made
its initial equipment purchase. Pursuant to the Restated Agreement, as amended,
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 95% to the Recognized Owners and 5% to the
General Partner.
Under the terms of a management agreement between the Partnership and AF/AIP
Programs Limited Partnership and the terms of an identical management agreement
between AF/AIP Programs Limited Partnership and EFG (collectively, the
"Management Agreement"), management services are provided by EFG to the
Partnership at fees which the General Partner believes to be competitive for
similar services (see Note 5).
EFG is a Massachusetts limited partnership formerly known as American Finance
Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
direct-participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for the
sole purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily to
the business of originating new leases, and the name "American Finance Group",
and its acronym, to a third party. AFG changed its name to Equis Financial
Group Limited Partnership after the sale was concluded. Pursuant to terms of
the sale agreements, EFG specifically reserved the rights to continue using the
name American Finance Group and its acronym in connection with the Partnership
and the Other Investment Programs and to continue managing all assets owned by
the Partnership and the Other Investment Programs.
21
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Cash
- ----
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in federal agency
discount notes and repurchase agreements with overnight maturities. Under the
terms of the agreements, title to the underlying securities passes to the
Partnership. The securities underlying the agreements are book entry
securities. At December 31, 2000, the Partnership had $1,107,252 invested in
federal agency discount notes, repurchase agreements secured by U.S. Treasury
Bills or interests in U.S. Government securities, or other highly liquid
overnight investments.
Revenue Recognition
- -------------------
Effective January 1, 2000, the Partnership adopted the provisions of
Securities Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101 provides
guidance for the recognition, presentation and disclosure of revenue in
financial statements. The adoption of SAB No. 101 had no impact on the
Partnership's financial statements.
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 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 7 regarding the Class Action Lawsuit. Future minimum rents of
$85,896 are due as follows:
For the year ending December 31, 2001.............. $ 63,286
2002.............. 14,280
2003.............. 8,330
--------
Total............. $ 85,896
========
Revenue from major individual lessees which accounted for 10% or more of lease
revenue during the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
------- ------- -------
Awin Leasing Company, Inc...................... $82,744 $84,778 $84,778
Mobil Oil Corporation.......................... $28,270 $30,690 $34,425
Continental Food Packaging, Inc................ $27,667 $26,831 $ --
Ford Motor Company............................. $23,245 $32,915 $37,600
Tenneco Packaging Company...................... $ -- $32,153 $39,359
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
22
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
All equipment was acquired from EFG, one of its Affiliates or from third-party
sellers. Equipment Cost means the actual cost paid by the Partnership to
acquire the equipment, including acquisition fees. Where equipment was acquired
from EFG or an Affiliate, Equipment Cost reflects the actual price paid for the
equipment by EFG or the Affiliate plus all actual costs incurred by EFG or the
Affiliate while carrying the equipment, including all liens and encumbrances,
less the amount of all primary term rents earned by EFG or the Affiliate prior
to selling the equipment. Where the seller of the equipment was a third party,
Equipment Cost reflects the seller's invoice price.
Depreciation
- ------------
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time.
Remarketing and Maintenance Expenses
- ------------------------------------
The Partnership expenses storage and remarketing costs associated with
equipment under lease as incurred.
Generally, the costs of scheduled inspections and repairs and routine
maintenance for equipment under lease are the responsibility of the lessee. In
certain situations, the Partnership may be responsible for reimbursing the
lessee for a portion of such costs paid by the lessee prior to the redelivery
date (i.e., the expiration of the lease term) or may be entitled to receive
additional payments from the lessee based on the terms and conditions set forth
in the lease arrangement which considers, among other things, the amount of time
remaining until the next scheduled maintenance event. The Partnership records
the amount payable or receivable, with a corresponding charge or credit to
operations.
Real Estate Loan
- ----------------
The Partnership accounts for the loan to a real estate company 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
loan and has determined that real estate accounting is appropriate. This
determination affects the Partnership's balance sheet classification of the loan
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 rewards 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 the real estate company under the equity method
of accounting.
23
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The Partnership took into consideration the following characteristics of the
loan in determining that the loan should be accounted for as an investment in a
real estate venture: (i) the Partnership and the 10 affiliated partnerships who
made the loans collectively have provided substantially all of the necessary
funds to acquire the underlying properties without taking title to such
properties, (ii) by virtue of a pledged security interest in the wholly owned
subsidiary of the borrower that holds title to the properties, the Partnership's
loan is secured only by the underlying properties, (iii) the borrower will only
repay the Partnership at maturity, including all interest accrued on the loan
through maturity, (iv) it is expected that the borrower can only repay the loan
through sales of undeveloped and developed property; and (v) the structure of
the loan (i.e. no payments due until maturity) makes it unlikely that the
property will be taken in foreclosure as a result of delinquency. See Note 4
for additional discussion.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid operating expenses paid by EFG on behalf of the Partnership and accrued
but unpaid administrative charges and management fees are reported as Accrued
Liabilities - Affiliate (see Note 5).
Impairment of Long-Lived Assets
- -------------------------------
The carrying value of long-lived assets, including equipment and the real
estate loan, will be reviewed for impairment whenever events or changes in
circumstances indicate that the recorded value cannot be recovered from
undiscounted future cash flows.
Contingencies
- -------------
It is the Partnership's policy to recognize a liability for goods and services
during the period when the goods or services are received. To the extent that
the Partnership has a contingent liability, meaning generally a liability the
payment of which is subject to the outcome of a future event, the Partnership
recognizes a liability in accordance with Statement of Financial Accounting
Standards No. 5 "Accounting for Contingencies" ("SFAS No. 5"). SFAS No. 5
requires the recognition of contingent liabilities when the amount of liability
can be reasonably estimated and the liability is probable.
The Partnership is a Nominal Defendant in a Class Action Lawsuit. In 1998, a
settlement proposal to resolve that litigation was negotiated and remains
pending (See Note 7). The Partnership's estimated exposure for costs
anticipated to be incurred in pursuing the settlement proposal is approximately
$388,000 consisting principally of legal fees and other professional service
costs. These costs are expected to be incurred regardless of whether the
proposed settlement ultimately is effected and, therefore, the Partnership
expensed approximately $297,000 for these costs in 1998 following the Court's
approval of the settlement plan. The cost estimate is subject to change and is
monitored by the General Partner based upon the progress of the settlement
proposal and other pertinent information. As a result, the Partnership expensed
additional amounts of approximately $41,000 and $50,000 for such costs in 2000
and 1999, respectively. See notes 7 and 9 for additional discussions.
The Investment Company Act of 1940 (the "Act") places restrictions on the
capital structure and business activities of companies registered thereunder.
The Partnership has active business operations in the financial services
industry, including equipment leasing and the loan to Echelon Residential
Holdings LLC ("Echelon Residential Holdings"). The Partnership does not intend
to engage in investment activities in a manner or to an extent that would
require the Partnership to register as an investment company under the 1940 Act.
However, it is possible that the Partnership may unintentionally engage in an
activity or activities that may be construed to fall within the scope of the
1940 Act. The General Partner is engaged in discussions with the staff of the
Securities and Exchange Commission ("SEC") regarding whether or not the
Partnership may be an inadvertent investment company as a consequence of the
above-referenced loan. The General Partner has consulted counsel and believes
that the Partnership is not an investment company. If the Partnership were
determined to be an unregistered investment company, its business would be
adversely affected. The 1940 Act, among other things, prohibits an unregistered
investment company from offering securities for sale or engaging in any business
in interstate commerce and, consequently, leases and contracts entered into by
partnerships that are unregistered investment companies may be voidable. If
necessary, the Partnership intends to avoid being deemed an
24
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
investment company by means that may include disposing of or acquiring certain
assets that it might not otherwise dispose or acquire.
Allocation of Profits and Losses
- --------------------------------
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the
Recognized Owners and 5% to the General Partner). See Note 6 concerning
allocation of income or loss for income tax purposes.
Net Income (Loss) and Cash Distributions Per Unit
- -------------------------------------------------
Net income (loss) and cash distributions per Unit are based on 480,227 Units
outstanding during each of the three years in the period ended December 31, 2000
and computed after allocation of the General Partner's 5% share of net income
(loss) and cash distributions.
Provision for Income Taxes
- --------------------------
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their separate tax returns.
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at December
31, 2000. Remaining Lease Term (Months), as used below, represents the number
of months remaining from December 31, 2000 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- ------------------------------------------------------ ------------------ ----------------------- ----------------------------
Materials handling.................................... 0-12 $ 326,159 MI/MN/NE/NY/OH/WA
Trailers/intermodal containers........................ 6-7 323,542 GA
Research and test..................................... 0 105,805 CA
Manufacturing......................................... 31 95,460 NJ
Communications........................................ 0 80,063 CA
Motor vehicles........................................ 31 64,367 NJ
Tractors and heavy duty trucks........................ 31 46,921 NJ
Construction and mining............................... 4 31,282 AL
Computer and peripherals.............................. 0 1,146 TX
----------
Total equipment cost............................... 1,074,745
Accumulated depreciation........................... 1,003,736
----------
Equipment, net of accumulated depreciation......... $ 71,009
==========
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or
an affiliated equipment leasing program sponsored by EFG. The Partnership and
each affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enabled the Partnership to further diversify its equipment portfolio at
inception by participating in the ownership of selected assets, thereby reducing
the general levels of risk which could have resulted from a concentration in any
single equipment type, industry or lessee. At December 31, 2000, the
Partnership's equipment portfolio included equipment having a proportionate
original cost of approximately $106,000, representing approximately 10% of total
equipment cost.
25
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Generally, the costs associated with maintaining, insuring and operating the
Partnership's equipment are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, EFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the lease terms. The summary above includes fully depreciated
equipment held for re-lease or sale with an original cost of approximately
$158,000 at December 31, 2000. The General Partner is actively seeking the sale
or re-lease of all equipment not on lease.
NOTE 4 - INVESTMENT IN REAL ESTATE VENTURE
- ------------------------------------------
On March 8, 2000, the Partnership and 10 affiliated partnerships (the
"Exchange Partnerships") collectively loaned $32 million to Echelon
Residential Holdings LLC ("Echelon Residential Holdings"), a newly formed real
estate 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. In addition, certain affiliates of the General Partner made
loans to Echelon Residential Holdings in their individual capacities.
In the Class Action Lawsuit, there is a risk that the court may object to the
General Partner's action in structuring the loan in this way since the officer
may be deemed an affiliate and the loans in violation of the prohibition against
loans to affiliates and the court's statement in its order permitting New
Investments that all other provisions of the Partnership Agreements governing
the investment objectives and policies of the Partnership shall remain in full
force and effect. The court may require the partnerships to restructure or
divest the loan.
The Partnership's loan is $2,730,000. 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.
The loan is presented in accordance with the guidance for ADC Arrangements as
described in Note 2, Real Estate Loans, in the Partnership's financial
statements as of and for the year December 31, 2000. The loan is accounted for
as an investment in real estate venture and is presented net of the
Partnership's share of losses in Echelon Residential Holdings. The Partnership
is allocated its proportionate share of the unconsolidated real estate venture's
net loss, adjusted for interest on ADC arrangements based on the balance of its
ADC arrangements in relation to the real estate venture's total equity and notes
payable, including the ADC arrangements. For the period ended December 31,
2000, the Partnership's share of losses in Echelon Residential Holdings was
$207,217 and is reflected on the Statement of Operations as ``Partnership's
share of unconsolidated real estate venture's loss."
The Partnership took into consideration the following characteristics of the
loan in determining that the loan should be accounted for as an investment in a
real estate venture: (i) the Partnership and the 10 affiliated partnerships who
made the loans collectively have provided substantially all of the necessary
funds to acquire the underlying properties without taking title to such
properties, (ii) by virtue of a pledged security interest in the wholly owned
subsidiary of the borrower that holds title to the properties, the Partnership's
loan is secured only by the underlying properties, (iii) the borrower will only
repay the Partnership at maturity, including all interest accrued on the loan
through maturity, (iv) it is expected that the borrower can only repay the loan
through sales of undeveloped and developed property; and (v) the structure of
the loan (i.e. no payments due until maturity) makes it unlikely that the
property will be taken in foreclosure as a result of delinquency.
26
The summarized financial information for Echelon Residential Holdings as of
December 31, 2000 and for the period March 8, 2000 (commencement of operations)
through December 31, 2000 is as follows:
Total assets..................................$68,580,891
Total liabilities.............................$70,183,162
Minority interest.............................$ 2,257,367
Total deficit.................................$(3,859,638)
Total revenues................................$ 5,230,212
Total expenses, minority interest
and equity in loss of unconsolidated
joint venture...............................$11,936,238
Net loss......................................$(6,706,026)
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
2000, 1999 and 1998, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
2000 1999 1998
-------- -------- --------
Equipment management fees.................... $ 7,482 $ 9,848 $ 13,512
Administrative charges....................... 92,781 101,381 61,764
Reimbursable operating expenses
due to third parties...................... 110,181 158,780 390,029
-------- -------- --------
Total..................................... $210,444 $270,009 $465,305
======== ======== ========
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management of equipment. For acquisition services, EFG was compensated by an
amount equal to 2.23% of Equipment Base Price paid by the Partnership. For
management services, EFG is compensated by an amount equal to 5% of gross
operating lease rental revenue and 2% of gross full payout lease rental revenue
received by the Partnership. Both acquisition and management fees are subject
to certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section 10.4
of the Restated Agreement, as amended, for persons employed by EFG who are
engaged in providing administrative services to the Partnership. Reimbursable
operating expenses due to third parties represent costs paid by EFG on behalf of
the Partnership which are reimbursed to EFG at actual cost.
All equipment was acquired from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers. The
Partnership's Purchase Price was determined by the method described in Note 2,
Equipment on Lease.
All rents and proceeds from the sale of equipment are paid directly to EFG.
EFG temporarily deposits collected funds in a separate interest-bearing escrow
account prior to remittance to the Partnership. At December 31, 2000, the
Partnership was owed $12,809 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in January 2001.
Certain affiliates of the General Partner own Units in the Partnership as
follows:
- --------------------------------------------------------------------------------
Number of Percent of Total
Affiliate Units Owned Outstanding Units
- --------------------------------------------------------------------------------
27
- --------------------------------------------------------------------------------
Atlantic Acquisition Limited Partnership 20,888 4.35%
- --------------------------------------------------------------------------------
Old North Capital Limited Partnership 1,000 0.21%
- --------------------------------------------------------------------------------
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995. The general partners of AALP and ONC are controlled by Gary D. Engle.
EFG owns limited partnership interests, representing substantially all of the
economic benefit, of AALP and the limited partnership interests of ONC are owned
by Semele. Gary D. Engle is Chairman and CEO of Semele and President and Chief
Executive Officer of EFG and sole shareholder and Director of EFG's general
partner.
NOTE 6 - INCOME TAXES
- ---------------------
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income or loss
to each class of partner according to their respective ownership percentages
(95% to the Recognized Owners and 5% to the General Partner). This convention
differs from the income or loss allocation requirements for income tax and
Dissolution Event purposes as delineated in the Restated Agreement, as amended.
For income tax purposes, the Partnership allocates net income or net loss in
accordance with the provisions of such agreement. The Restated Agreement, as
amended, requires that upon dissolution of the Partnership, the General Partner
will be required to contribute to the Partnership an amount equal to any
negative balance which may exist in the General Partner's tax capital account.
At December 31, 2000, the General Partner had a positive tax capital account
balance.
28
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The following is a reconciliation between net (loss) income reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 2000, 1999 and 1998:
2000 1999 1998
--------- -------- --------
Net (loss) income................................ $(168,041) $296,465 $575,168
Financial statement depreciation in
excess of tax depreciation............ 25,666 25,906 42,853
Interest income - real estate venture......... 333,384 -- --
Partnership's share of unconsolidated
real estate venture's loss.................... 207,217 -- --
Deferred rental income........................ -- -- (440)
Other......................................... 5,490 46,380 201,840
--------- -------- --------
Net income for federal income tax
reporting purposes............................ $ 403,716 $368,751 $819,421
========= ======== ========
The principal component of "Other" consists of the differences between the
tax and financial statement gain or loss on equipment disposals.
The following is a reconciliation between Partners' Capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 2000 and 1999:
2000 1999
---------- ----------
Partners' capital.................................................. $3,612,346 $3,780,387
Add back selling commissions and organization
and offering costs..................................... 1,345,638 1,345,638
Cumulative difference between federal income tax
and financial statement (loss) income.................. 485,041 (86,716)
---------- ----------
Partners' capital for federal income tax reporting purposes........ $5,443,025 $5,039,309
========== ==========
Cumulative difference between federal income tax and financial statement
(loss) income represent timing differences.
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
In January 1998, certain plaintiffs (the "Plaintiffs") filed a class and
derivative action, captioned Leonard Rosenblum, et al. v. Equis Financial Group
--------------------------------------------------
Limited Partnership, et al., in the United States District Court for the
- --------------------------
Southern District of Florida (the "Court") on behalf of a proposed class of
investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a number
of its affiliates, including the General Partner, as defendants (collectively,
the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had
filed an earlier derivative action, captioned Leonard Rosenblum, et al. v. Equis
----------------------------------
Financial Group Limited Partnership, et al., in the Superior Court of the
- ------------------------------------------
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit".
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
29
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth terms pursuant to which a settlement of
the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was preliminarily approved by the
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order").
On March 12, 1999, counsel for the Plaintiffs and the Defendants entered into
an amended stipulation of settlement (the "Amended Stipulation") which was filed
with the Court on March 12, 1999. The Amended Stipulation was preliminarily
approved by the Court by its "Modified Order Preliminarily Approving Settlement,
Conditionally Certifying Settlement Class and Providing For Notice of, and
Hearing On, the Proposed Settlement" dated March 22, 1999 (the "March 22
Order"). The Amended Stipulation, among other things, divided the Class Action
Lawsuit into two separate sub-classes that could be settled individually. On
May 26, 1999, the Court issued an Order and Final Judgment approving settlement
of one of the sub-classes. Settlement of the second sub-class, involving the
Partnership and 10 affiliated partnerships (collectively referred to as the
"Exchange Partnerships"), remains pending due, in part, to the complexity of the
proposed settlement pertaining to this class.
In February 2000, counsel for the Plaintiffs and the Defendants entered into a
second amended stipulation of settlement (the "Second Amended Stipulation")
which modified certain of the settlement terms contained in the Amended
Stipulation. The Second Amended Stipulation was preliminarily approved by the
Court by its "Second Modified Order Preliminarily Approving Settlement,
Conditionally Certifying Settlement Class and Providing For Notice of, and
Hearing On, the Proposed Settlement" dated March 6, 2000 (the "March 2000
Order"). Prior to issuing a final order approving the settlement of the second
sub-class involving the Partnership, the Court will hold a fairness hearing that
will be open to all interested parties and permit any party to object to the
settlement. The investors of the Partnership and all other plaintiff sub-class
members will receive a Notice of Settlement and other information pertinent to
the settlement of their claims that will be mailed to them in advance of the
fairness hearing.
The settlement of the second sub-class is premised on the consolidation of the
Exchange Partnerships' net assets (the "Consolidation"), subject to certain
conditions, into a single successor company ("Newco"). Under the proposed
Consolidation, the partners of the Exchange Partnerships would receive both
common stock in Newco and a cash distribution; and thereupon the Exchange
Partnerships would be dissolved. In addition, EFG would contribute certain
management contracts, operations personnel, and business opportunities to Newco
and cancel its current management contracts with all of the Exchange
Partnerships. Newco would operate principally as a finance company and would
use its best efforts to list its shares on the NASDAQ National Market or another
national exchange or market as soon after the Consolidation as Newco deems that
market conditions and its business operations are suitable for listing its
shares and Newco has satisfied all necessary regulatory and listing
requirements. The potential benefits and risks of the Consolidation will be
presented in a Solicitation Statement that will be mailed to all of the partners
of the Exchange Partnerships as soon as the associated regulatory review process
is completed and at least 60 days prior to the fairness hearing. A preliminary
Solicitation Statement was filed with the Securities and Exchange Commission on
August 24, 1998 and remains pending. Class members will be notified of the
actual fairness hearing date when it is confirmed.
One of the principal objectives of the Consolidation is to create a company
that would have the potential to generate more value for the benefit of existing
limited partners than other alternatives, including continuing the Partnership's
customary business operations until all of its assets are disposed in the
ordinary course of business. To facilitate the realization of this objective,
the Amended Stipulation provided, among other things, that commencing March 22,
1999, the Exchange Partnerships could collectively invest up to 40% of the total
aggregate net asset values of all of the Exchange Partnerships in any
investment, including additional equipment and other business activities that
the general partners of the Exchange Partnerships and EFG reasonably believed to
be consistent with the anticipated business interests and objectives of Newco,
subject to certain limitations. The Second Amended Stipulation, among other
things, quantified the 40% limitation using a whole dollar amount of $32 million
in the aggregate.
30
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
On March 8, 2000, the Exchange Partnerships collectively made a $32 million
loan as permitted by the Second Amended Stipulation approved by the Court. The
Partnership's portion of the aggregate loan is $2,730,000. The loan consists of
a term loan to Echelon Residential Holdings, a newly-formed real estate company
that is owned by several independent investors and, in his individual capacity,
James A. Coyne, Executive Vice President of EFG. In addition, certain affiliates
of the General Partner made loans to Echelon Residential Holdings in their
individual capacities. Echelon Residential Holdings, through a wholly-owned
subsidiary, ("Echelon Residential LLC"), used the loan proceeds, along with the
loan proceeds from similar loans by ten affiliated partnerships representing $32
million in the aggregate, to acquire various real estate assets from Echelon
International Corporation, an independent 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 of the term. Interest accrues and compounds monthly but is not
payable until maturity. Echelon Residential Holdings has pledged its membership
interests in Echelon Residential LLC to the Exchange Partnerships as collateral
for the loan.
In the absence of the Court's authorization to enter into new investment
activities, the Partnership's Restated Agreement, as amended, would not permit
such activities without the approval of limited partners owning a majority of
the Partnership's outstanding Units. Consistent with the Amended Stipulation,
the Second Amended Stipulation provides terms for unwinding any new investment
transactions in the event that the Consolidation is not effected or the
Partnership objects to its participation in the Consolidation.
The Second Amended Stipulation, as well as the Amended Stipulation and the
original Stipulation of Settlement, prescribe certain conditions necessary to
effect a final settlement, including providing the partners of the Exchange
Partnerships with the opportunity to object to the participation of their
partnership in the Consolidation. Assuming the proposed settlement is effected
according to present terms, the Partnership's share of legal fees and expenses
related to the Class Action Lawsuit and the Consolidation is estimated to be
approximately $388,000, of which approximately $41,000, $50,000 and $297,000 was
expensed by the Partnership in 2000, 1999 and 1998, respectively.
While the Court's August 20 Order enjoined certain class members, including
all of the partners of the Partnership, from transferring, selling, assigning,
giving, pledging, hypothecating, or otherwise disposing of any Units pending the
Court's final determination of whether the settlement should be approved, the
March 22 Order permitted the partners to transfer Units to family members or as
a result of the divorce, disability or death of the partner. No other transfers
are permitted pending the Court's final determination of whether the settlement
should be approved. The provision of the August 20 Order which enjoined the
General Partners of the Exchange Partnerships from, among other things,
recording any transfers not in accordance with the Court's order remains
effective.
On March 12, 2001, after a status conference and hearing, the Court issued an
order that required the parties, no later than May 15, 2001, to advise the Court
on (a) whether the SEC has completed its review of the solicitation statement
and related materials submitted to the SEC in connection with the proposed
settlement, and (b) whether parties request the Court to schedule a hearing for
final approval of the proposed settlement or are withdrawing the proposed
settlement from judicial consideration and resuming the litigation of the
Plaintiffs' claims. The Court also directed the parties to use their best
efforts to assist the SEC so that its regulatory review may be completed on or
before May 15, 2001. The Court continued the Final Approval Settlement Hearing
until a date to be scheduled in July 2001 after receipt from the parties of a
request to schedule a hearing. There are a number of issues to be resolved with
the staff of the SEC before the staff's review of the solicitation materials is
completed. See note 9 for update of status of proceedings.
NOTE 8 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
- ----------------------------------------------------
The following is a summary of the quarterly results of operations for the
years ended December 31, 2000 and 1999:
Three Months Ended
------------------------------------------------------------------------
31
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
March 31, June 30, September 30, December 31, Total
------------- --------------- ------------------- ------------------ --------------
2000
----
Total lease revenue............ $51,065 $ 51,772 $ 45,424 $ 51,032 $ 199,293
Net income (loss).............. 38,809 3,350 (80,993) (129,207) (168,041)
Net income (loss) per
limited partnership unit..... 0.07 0.01 (0.16) (0.25) (0.33)
1999
----
Total lease revenue............ $63,859 $ 67,308 $ 53,406 $ 63,245 $ 247,818
Net income..................... 57,698 145,738 74,961 18,068 296,465
Net income per
limited partnership unit..... 0.11 0.29 0.15 0.04 0.59
NOTE 9 - SUBSEQUENT EVENT
- -------------------------
On May 11, 2001, the general partners of the Partnerships that are nominal
defendants in the Class Action Lawsuit received a letter dated May 10, 2001 from
the Associate Director and Chief Counsel of the Division of Investment
Management of the SEC informing the general partners that the staff of the
Division believes that American Income Partners V-A Limited Partnership,
American Income Partners V-B Limited Partnership, American Income Partners V-C
Limited Partnership, American Income Partners V-D Limited Partnership, American
Income Fund I-A, American Income Fund I-B, American Income Fund I-E and AIRFUND
II International Limited Partnership (the "Designated Partnerships") are
investment companies as defined in Section 3(a)(1)(C) of the 1940 Act. The SEC
staff noted that Section 7 of the 1940 Act makes it unlawful for an unregistered
investment company, among other things, to offer, sell, purchase, or acquire any
security or engage in any business in interstate commerce. Accordingly, Section
7 would prohibit any partnership that is an unregistered investment company from
engaging in any business in interstate commerce, except transactions that are
merely incidental to its dissolution. The SEC staff asked that the general
partners advise them within the next 30 days as to what steps the Designated
Partnerships will take to address their status under the 1940 Act. The SEC
staff asserts that the notes evidencing the loans to Echelon Residential
Holdings are investment securities and the ownership of the notes by said
partnerships cause them to be investment companies and that, in the case of
American Income Partners V-A Limited Partnership and V-B Limited Partnership,
they may have become investment companies when they received the Semele
securities as part of the compensation for the sale of a vessel to Semele in
1997. The general partners have consulted with counsel who specializes in the
1940 Act and, based on counsel's advise, do not believe that the Designated
Partnerships are investment companies.
The letter also stated that the Division is considering whether to commence
enforcement action with respect to this matter. Noting that the parties to the
Class Action Lawsuit were scheduled to appear before the court in the near
future to consider a proposed settlement, and that the SEC staff believed that
its views, as expressed in the letter, would be relevant to the specific matters
that will be considered by the court at the hearing, the SEC staff submitted the
letter to the court for its consideration.
On May 15, 2001, Defendants' Counsel filed with the court Defendants' Status
Report pursuant to the court's March 12, 2001 Order. Defendants reported that,
notwithstanding the parties' best efforts, the staff of the SEC has not
completed its review of the solicitation statement in connection with the
proposed settlement of the Class Action Lawsuit. Nonetheless, the Defendants
stated their belief that the parties should continue to pursue the court's final
approval of the proposed settlement. In this regard, the Defendants also have
maintained, on the advice of special 1940 Act counsel that, even if the 1940 Act
applies to the Designated Partnerships, the 1940 Act does not prohibit going
forward with the proposed settlement, as that transaction is merely incidental
to a dissolution of the Partnerships and therefore is not subject to the
prohibitions of Section 7 of the 1940 Act.
32
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The Defendants also referred to the SEC staff's letter of May 10, 2001
asserting that certain of the partnerships are investment companies and to
special 1940 Act counsel's submissions to the SEC staff setting forth the e
signated Partnerships, noting that counsel had informed the staff of the
Division of Investment Management that, based upon counsel's understanding of
the surrounding circumstances and after an in-depth analysis of the applicable
law, if asked, counsel would be willing to issue an opinion of the firm that
none of the partnerships is an investment company under the 1940 Act. The
Defendants stated their belief that the proposed settlement is still viable and
in the best interests of the parties and that final approval should be pursued.
The Defendants advised the court that they believe that if the court were to
address the issue of whether or not the 1940 Act applies to the partnerships and
the proposed consolidation, it could remove the major obstacle to the settlement
being finally consummated. The Defendants also requested that the court schedule
a hearing to address on a preliminary basis the objection to the proposed
settlement raised in the staff's May 10, 2001 letter.
Plaintiffs' Counsel also submitted a Plaintiffs' Status Report to the court on
May 15, 2001 in which they reported that the SEC review has not been concluded
and that they notified the Defendants that they would not agree to continue to
stay the further prosecution of the litigation in favor of the settlement and
that they intend to seek court approval to immediately resume active prosecution
of the claims of the Plaintiffs. Plaintiffs' Counsel stated in the Report that
the "[p]laintiffs continue to believe that the settlement is in the best
interests of the Operating Partnership Sub-class. However, since the SEC has
yet to complete its review of the proxy, the Plaintiffs do not believe that the
litigation should continue to be stayed so that the SEC may continue its
regulatory review for an indefinite period of time." Plaintiffs requested a
pre-trial conference to schedule filing of Plaintiffs' motion for class
certification on or before May 29, 2001 and resumption of merits discovery and
discovery related to the class certification motion.
Apart from the language of the order, the Court has not stated what action it
might order if the SEC's review were not completed by May 15, 2001. If the
Court were to decline to continue the date for the Final Approval Settlement
Hearing and there is no settlement alternative offered by the parties that meets
the Court's approval, the Court may direct that the parties resume the
litigation and abandon the proposed settlement and consolidation.
Accordingly, there can be no assurance that settlement of the sub-class
involving the Exchange Partnerships will receive final Court approval and be
effected. There also can be no assurance that all or any of the Exchange
Partnerships will participate in the Consolidation because if limited partners
owning more than one-third of the outstanding Units of a partnership object to
the Consolidation, then that partnership will be excluded from the
Consolidation. Notwithstanding the extent of delays experienced thus far in
achieving a final settlement of the Class Action Lawsuit with respect to the
Exchange Partnerships, the General Partner and its affiliates, in consultation
with counsel, continue to feel that there is a reasonable basis to believe that
a final settlement of the sub-class involving the Exchange Partnerships
ultimately will be achieved. However, in the absence of a final settlement
approved by the Court, the Defendants intend to defend vigorously against the
claims asserted in the Class Action Lawsuit. Neither the General Partner nor
its affiliates can predict with any degree of certainty the cost of continuing
litigation to the Partnership or the ultimate outcome.
33
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
- ---------------------
None.
34
PART III
Item 10. Directors and Executive Officers of the Partnership.
- --------------------------------------------------------------
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of this
report, AFG Leasing IV Incorporated is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties. The
Recognized Owners have no right to participate in the control of the
Partnership's operations, but they do have certain voting rights, as described
in Item 12 herein. The names, titles and ages of the Directors and Executive
Officers of the General Partner as of March 15, 2001 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER (See Item 13)
- ----------------------------------------------------------------------
Name Title Age Term
- ------------------------ -------------------------------------- --- ---------
Geoffrey A. MacDonald Chairman of EFG Until a
and President and a Director successor
of the General Partner 52 is duly
elected
Gary D. Engle President and Chief Executive and
Officer of EFG and a qualified
Director of the General Partner 52
Michael J. Butterfield Executive Vice President and Chief
Operating Officer of EFG and Treasurer
of the General Partner 41
Gail D. Ofgant Senior Vice President, Lease
Operations of EFG and Senior Vice
President of the General Partner 35
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners, Directors
or Executive Officers.
(e) Business Experience
Mr. MacDonald, age 52, is Chairman of EFG and has been President of the
General Partner since 1988 and a Director of the General Partner since 1987.
Mr. McDonald was a co-founder of EFG's predecessor, American Finance Group,
which was established in 1980. Mr. MacDonald is a member of the Board of
Managers of Echelon Development Holdings LLC and President of American Finance
Group Securities Corporation. Prior to co-founding American Finance Group, Mr.
MacDonald held various positions in the equipment leasing industry and the
ethical pharmaceutical industry with Eli Lilly & Company. Mr. MacDonald holds
an M.B.A. from Boston College and a B.A. degree from the University of
Massachusetts (Amherst).
Mr. Engle, age 52, is President and Chief Executive Officer of EFG, sole
shareholder and Director of its general partner, Equis Corporation, and a Vice
President and Director of several of EFG's subsidiaries and affiliates. Mr.
Engle has been a Director of the General Partner since 1990 and is President of
AFG Realty Corporation. Mr. Engle is also Chairman and Chief Executive Officer
of Semele Group Inc. ("Semele") and a member of the Board of Managers of Echelon
Development Holdings LLC. Mr. Engle controls the general partners of Atlantic
Acquisition Limited Partnership ("AALP") and Old North Capital Limited
Partnership ("ONC"). Mr. Engle joined EFG in 1990 as an Executive Vice President
and acquired control of EFG and its subsidiaries in December 1994. Mr. Engle
co-founded Cobb Partners Development, Inc., a real estate and mortgage banking
company, where he was a principal from 1987 to 1989. From 1980 to 1987, Mr.
Engle was Senior Vice President and Chief
35
Financial Officer of Arvida Disney Company, a large-scale community development
organization owned by Walt Disney Company. Prior to 1980, Mr. Engle served in
various management consulting and institutional brokerage capacities. Mr. Engle
has an M.B.A. degree from Harvard University and a B.S. degree from the
University of Massachusetts (Amherst).
Mr. Butterfield, age 41, is Executive Vice President and Chief Operating
Officer of EFG and has served as Vice President and Treasurer of the General
Partner since 1996. Mr. Butterfield also serves as Vice President and Treasurer
of subsidiaries and affiliates of EFG. Mr. Butterfield is also Chief Financial
Officer of Semele and Vice President, Finance and Clerk of Equis/Echelon
Management Corporation, the manager of Echelon Residential LLC. Mr. Butterfield
joined EFG in June 1992 and became a Vice President in 1996 and Executive Vice
President and Chief Operating Officer in 2000. Prior to joining EFG, Mr.
Butterfield was an audit manager with Ernst & Young LLP, which he joined in
1987. Mr. Butterfield was also employed in public accounting and industry
positions in New Zealand and London (UK) prior to coming to the United States in
1987. Mr. Butterfield attained his Associate Chartered Accountant (A.C.A.)
professional qualification in New Zealand and has completed his C.P.A.
requirements in the United States. Mr. Butterfield holds a Bachelor of Commerce
degree from the University of Otago, Dunedin, New Zealand.
Ms. Ofgant, age 35, is Senior Vice President, Lease Operations of EFG and has
served as Senior Vice President of the General Partner since 1997. Ms. Ofgant is
Senior Vice President and Assistant Clerk of Equis/Echelon Management
Corporation, the manager of Echelon Residential LLC. Ms. Ofgant joined EFG in
July 1989 and held various positions with the company before becoming Senior
Vice President in 1998. From 1987 to 1989, Ms. Ofgant was employed by Security
Pacific National Trust Company. Ms. Ofgant holds a B.S. degree from Providence
College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
Not applicable.
Item 11. Executive Compensation.
- ---------------------------------
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of the
Restated Agreement, as amended, the Partnership is obligated to pay all costs of
personnel employed full or part-time by the Partnership, including officers or
employees of the General Partner or its Affiliates. There is no plan at the
present time to make any officers or employees of the General Partner or its
Affiliates employees of the Partnership. The Partnership has not paid and does
not propose to pay any options, warrants or rights to the officers or employees
of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to section 10.4 of the Restated Agreement, as amended, the Partnership
incurs a monthly charge for personnel costs of the Manager for persons engaged
in providing administrative services to the Partnership. A description of the
remuneration paid by the Partnership to the Manager for such services is
included in Item 13 herein and in Note 5 to the financial statements included in
Item 8, herein.
(d) Stock Options and Stock Appreciation Rights.
Not applicable.
(e) Long-Term Incentive Plan Awards Table.
36
Not applicable.
(f) Defined Benefit or Actuarial Plan Disclosure.
Not applicable.
(g) Compensation of Directors
None.
(h) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner or
its Affiliates which results or may result from their resignation, retirement or
any other termination.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
By virtue of its organization as a limited partnership, the Partnership has no
outstanding securities possessing traditional voting rights. However, as
provided in Section 11.2(a) of the Restated Agreement, as amended (subject to
Sections 11.2(b) and 11.3), a majority interest of the Recognized Owners has
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all, or substantially all, of the
assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
No person or group is known by the General Partner to own beneficially more
than 5% of the Partnership's 480,227 outstanding Units as of March 15, 2001.
The ownership and organization of EFG is described in Item 1 of this report.
Item 13. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The General Partner of the Partnership is AFG Leasing IV Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
2000, 1999 and 1998, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
37
2000 1999 1998
-------- -------- --------
Equipment management fees............................. $ 7,482 $ 9,848 $ 13,512
Administrative charges................................ 92,781 101,381 61,764
Reimbursable operating expenses
due to third parties................................. 110,181 158,780 390,029
-------- -------- --------
Total............................ $210,444 $270,009 $465,305
======== ======== ========
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management of equipment. For acquisition services, EFG is compensated by an
amount equal to 2.23% of Equipment Base Price paid by the Partnership. For
management services, EFG is compensated by an amount equal to 5% of gross
operating lease rental revenue and 2% of gross full payout lease rental revenue
received by the Partnership. Both acquisition and management fees are subject
to certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section 10.4
the Restated Agreement, as amended, for persons employed by EFG who are engaged
in providing administrative services to the Partnership. Reimbursable operating
expenses due to third parties represent costs paid by EFG on behalf of the
Partnership, which are reimbursed to EFG at actual cost.
All equipment was acquired from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, or from third-party sellers. The
Partnership's acquisition cost was determined by the method described in Note 2
to the financial statements, included in Item 8, herein.
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 December 31, 2000, the
Partnership was owed $12,809 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in January 2001.
Certain affiliates of the General Partner own Units in the Partnership as
follows:
--------------------------------------------------------------------------------
Number of Percent of Total
Affiliate Units Owned Outstanding Units
--------------------------------------------------------------------------------
Atlantic Acquisition Limited Partnership 20,888 4.35%
--------------------------------------------------------------------------------
Old North Capital Limited Partnership 1,000 0.21%
--------------------------------------------------------------------------------
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995. The general partners of AALP and ONC are controlled by Gary D. Engle.
EFG owns limited partnership interests, representing substantially all of the
economic benefit, of AALP and the limited partnership interests in ONC are owned
by Semele. Gary D. Engle is Chairman and CEO of Semele and President and Chief
Executive Officer of EFG and sole shareholder and Director of EFG's general
partner.
The discussions of the loan to Echelon Residential Holdings in Items 1(b) and
1(c) above are incorporated herein by reference.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
Not applicable.
38
39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) Documents filed as part of this report:
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K/A, as set forth in
Item 601 of Regulation S-K, are not applicable.
A list of exhibits filed or incorporated by reference is as follows:
Exhibit
Number
- ------
2.1 Plaintiffs' and Defendants' Joint Motion to Modify Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and
Providing for Notice of, and Hearing on, the Proposed Settlement was
filed in the Registrant's Annual Report on Form 10-K/A for the year
ended December 31, 1998 as Exhibit 2.1 and is incorporated herein by
reference.
2.2 Plaintiffs' and Defendants' Joint Memorandum in Support of Joint Motion
to Modify Order Preliminarily Approving Settlement, Conditionally
Certifying Settlement Class and Providing for Notice of, and Hearing on,
the Proposed Settlement was filed in the Registrant's Annual Report on
Form 10-K/A for the year ended December 31, 1998 as Exhibit 2.2 and is
incorporated herein by reference.
2.3 Order Preliminarily Approving Settlement, Conditionally Certifying
Settlement Class and Providing for Notice of, and Hearing on, the
Proposed Settlement (August 20, 1998) was filed in the Registrant's
Annual Report on Form 10-K/A for the year ended December 31, 1998 as
Exhibit 2.3 and is incorporated herein by reference.
2.4 Modified Order Preliminarily Approving Settlement, Conditionally
Certifying Settlement Class and Providing for Notice of, and Hearing on,
the Proposed Settlement (March 22, 1999) was filed in the Registrant's
Annual Report on Form 10-K/A for the year ended December 31, 1998 as
Exhibit 2.4 and is incorporated herein by reference.
2.5 Plaintiffs' and Defendants' Joint Memorandum in Support of Joint Motion
to Further Modify Order Preliminarily Approving Settlement,
Conditionally Certifying Settlement Class and Providing for Notice of,
and Hearing on, the Proposed Settlement was filed in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999 as
Exhibit 2.5 and is incorporated herein by reference.
2.6 Second Modified Order Preliminarily Approving Settlement, Conditionally
Certifying Settlement Class and Providing for Notice of, and Hearing on,
the Proposed Settlement (March 5, 2000) was filed in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999 as
Exhibit 2.6 and is incorporated herein by reference.
2.7 Proposed Order Granting Joint Motion to Continue Final Approval
Settlement Hearing (March 13, 2001) was filed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000 and is
incorporated herein by reference.
4 Amended and Restated Agreement and Certificate of Limited Partnership
included as Exhibit A to the Prospectus, which was included in
Registration Statement on Form S-1 (No. 33-35148) and is incorporated
herein by reference.
Exhibit
Number
- ------
40
10.1 Promissory Note in the principal amount of $2,730,000 dated March 8,
2000 between the Registrant, as lender, and Echelon Residential Holdings
LLC, as borrower, was filed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999 as Exhibit 10.1 and is
incorporated herein by reference.
10.2 Pledge Agreement dated March 8, 2000 between Echelon Residential
Holdings LLC (Pledgor) and American Income Partners V-A Limited
Partnership, as Agent for itself and the Registrant, was filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1999 as Exhibit 10.2 and is incorporated herein by reference.
99(a) Lease agreement with Awin Leasing Company, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 as Exhibit 99 (c) and is incorporated herein by reference.
99(b) Lease agreement with Ford Motor Company was filed in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997 as
Exhibit 99 (d) and is incorporated herein by reference.
99(c) Lease agreement with Tenneco Packaging Company was filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998 as Exhibit 99 (f) and is incorporated herein by reference.
99(d) Lease agreement with Mobil Oil Corporation was filed in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998 as
Exhibit 99 (g) and is incorporated herein by reference.
99(e) Lease agreement with Continental Food Packaging, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1999 as Exhibit 99 (f) and is incorporated herein by reference.
(b) Reports on Form 8-K
None.
(c) Other Exhibits.
Not applicable.
(d) Financial Statement Schedules:
Consolidated Financial Statements for Echelon Residential Holdings LLC as
of December 31, 2000 and for the Period March 8, 2000 (Date of Inception)
through December 31, 2000 and Independent Auditors' Report
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, by the following persons, on behalf of the
registrant and in the capacities and on the dates indicated.
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
------------------------------- -----------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman of EFG and President and Chief Executive
President and a Director of the Officer of EFG and a
General Partner Director of the General Partner
(Principal Executive Officer)
Date: May 30, 2001 Date: May 30, 2001
---------------------------- ---------------------------
By: /s/ Michael J. Butterfield
------------------------------
Michael J. Butterfield
Executive Vice President and Chief
Operating Officer of EFG and Treasurer
of the General Partner
(Principal Financial and Accounting Officer)
Date: May 30, 2001
----------------------------
42
SCHEDULE 14(d)
ECHELON RESIDENTIAL HOLDINGS LLC
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000
AND FOR THE PERIOD MARCH 8, 2000 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 2000
AND INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Members of
Echelon Residential Holdings LLC:
We have audited the accompanying consolidated balance sheet of Echelon
Residential Holdings LLC, a Delaware limited liability company ("the Company")
as of December 31, 2000 and the related consolidated statement of operations,
members' equity (deficiency) and cash flows for the period March 8, 2000 (date
of inception) through December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2000, and the results of its operations and its cash flows for the period March
8, 2000 (date of inception) through December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
March 23, 2001
ECHELON RESIDENTIAL HOLDINGS LLC
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
- -------------------------------------------------------------------------------
ASSETS
REAL ESTATE - Net (Notes 1 and 2) $ 61,092,202
CASH AND CASH EQUIVALENTS (Note 1) 3,789,198
RESTRICTED CASH (Note 1) 8,703
RESTRICTED INVESTMENTS (Note 1) 2,155,160
ACCOUNTS RECEIVABLE - Affiliates (Note 7) 115,521
PREPAID EXPENSES AND OTHER LONG-TERM ASSETS 69,417
CORPORATE EQUIPMENT - Net of accumulated depreciation of $57,733 286,784
INVESTMENT IN UNCONSOLIDATED JOINT VENTURE (Note 3) 1,063,906
------------
TOTAL ASSETS $ 68,580,891
============
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES:
Accounts payable $ 10,984
Contractor payable 1,752,830
Accounts payable - Affiliates (Note 7) 114,180
Accrued expenses 797,832
Retainage payable 1,125,865
Security deposits 8,625
Interest payable 4,385,805
Construction loans (Note 4) 26,837,740
Other long-term liabilities 109,411
Notes payable (Note 5) 35,039,890
------------
Total liabilities 70,183,162
COMMITMENTS & CONTINGENCIES (Notes 4 and 9)
MINORITY INTEREST (Note 6) 2,257,367
MEMBERS' EQUITY (DEFICIENCY) (Note 1) (3,859,638)
------------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 68,580,891
============
See notes to consolidated financial statements
- 2 -
ECHELON RESIDENTIAL HOLDINGS LLC
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000
- --------------------------------------------------------------------------------
SALES AND REVENUES:
Real estate operations:
Rental revenues $ 230,834
Management fees 695,162
Developer fees 985,141
Sale of development property 3,104,532
Investment income 191,543
Other income 23,000
------------
Total sales and revenues 5,230,212
------------
EXPENSES:
Rental and other operations 558,561
Cost of development property sold 3,317,880
Write-down of land held for development or sale 635,437
Depreciation expense 148,861
Interest expense on long-term debt - net of amounts
capitalized of $606,990 4,460,345
General and administrative expenses 2,937,514
------------
Total expenses 12,058,598
------------
EQUITY IN LOSS OF UNCONSOLIDATED JOINT VENTURE (148,023)
MINORITY INTEREST 270,383
------------
NET LOSS $ (6,706,026)
============
See notes to consolidated financial statements.
- 3 -
ECHELON RESIDENTIAL HOLDINGS LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000
- --------------------------------------------------------------------------------
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss $ (6,706,026)
Adjustment to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation 148,861
Loss on sale of development property 213,348
Minority interest (270,383)
Equity in loss of unconsolidated joint venture 148,023
Write-down of land held for development or sale 635,437
Changes in working capital:
Accounts payable, accrued expenses and other liabilities (4,343,190)
Interest payable 4,385,805
Other working capital changes 311,588
------------
Net cash used in operating activities (5,476,537)
------------
CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Increase in restricted cash and restricted investments (2,163,863)
Net proceeds from sale of development property 3,104,532
Payments related to construction in progress (29,601,108)
------------
Net cash used in investing activities (28,660,439)
------------
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Issuance of notes payable 6,244,000
Repayment of notes payable (5,474,000)
Proceeds from construction loans 26,585,765
Members' capital contributions 2,651,162
------------
Net cash provided by financing activities 30,006,927
------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,130,049)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,919,247
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,789,198
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 681,530
============
See notes to consolidated financial statements.
- 4 -
ECHELON RESIDENTIAL HOLDINGS LLC
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY (DEFICIENCY)
PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000
- --------------------------------------------------------------------------------
INITIAL PARTICIPATING
MEMBERS MEMBERS TOTAL
----------- ------------- -----------
BALANCE AT MARCH 8, 2000 $ 195,226 $ -- $ 195,226
Members' capital contributions -- 2,651,162 2,651,162
Net loss (5,600,020) (1,106,006) (6,706,026)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 2000 $(5,404,794) $ 1,545,156 $(3,859,638)
=========== =========== ===========
See notes to consolidated financial statements.
- 5 -
ECHELON RESIDENTIAL HOLDINGS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000
- --------------------------------------------------------------------------------
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND - On March 7, 2000, EIN Acquisition Corporation ("EIN
Acquisition") closed on a Tender Offer ("Tender Offer") for all of the
outstanding shares of Echelon International Corporation ("Echelon") for a
cash price of $34.00 per share. Immediately after the close of the Tender
Offer, EIN Acquisition merged into Echelon (the "Merger"), with Echelon
being the surviving entity.
In conjunction with the Tender Offer, Echelon had entered into various
contracts to sell or convey various real estate assets and investments in
two real estate joint ventures to third parties. Subsequent to the Merger
on March 8, 2000, Echelon closed on existing contracts to sell or convey
its real estate assets and investments in two real estate joint ventures.
Specific real estate assets and investments in two real estate joint
ventures were sold to Echelon Residential LLC ("Echelon Residential"), a
wholly owned limited liability subsidiary of Echelon Residential Holdings
LLC ("Echelon Residential Holdings" or the "Company"). Echelon Residential
will own, manage, and develop or sell these purchased multi-family
residential properties.
The acquisition of the assets by Echelon Residential was accounted for as
an asset purchase under Accounting Principles Board Opinion No. 16 ("APB
No. 16"). In accordance with APB No. 16, Echelon Residential allocated the
total purchase price to the assets acquired and liabilities assumed based
on the estimated fair market values at the date of acquisition. Since the
purchase price of the business was less than the fair market value of the
net assets acquired, the credit excess was allocated on a pro-rata basis
to the real estate, corporate equipment and the investment in an
unconsolidated joint venture. There are no contingencies or other matters
that could materially affect the allocation of the purchase cost. The
results of operations of the acquired real estate assets and investments
in two real estate joint ventures are included in the consolidated results
of Echelon Residential Holdings from the acquisition date.
The Company's summarized consolidated balance sheet, reflecting the above
acquisition of assets, as of March 8, 2000 is as follows:
ASSETS:
Real estate $34,164,672
Cash and cash equivalents 7,919,247
Investment in unconsolidated joint venture 1,211,929
Other assets 832,417
-----------
Total assets $44,128,265
===========
LIABILITIES AND MEMBERS' EQUITY:
Accounts payable and other liabilities $ 6,883,424
Construction loans 251,975
Notes payable 34,269,890
-----------
Total liabilities 41,405,289
Minority interest 2,527,750
Members' equity 195,226
-----------
Total liabilities and members' equity $44,128,265
===========
The Company's fiscal year end is December 31.
- 6 -
DESCRIPTION OF BUSINESS - Echelon Residential Holdings was formed on
February 29, 2000, under the laws of the state of Delaware and operates in
one industry segment: owning, leasing, developing, and managing real
estate. There were no activities of Echelon Residential Holdings from
February 29, 2000 through March 8, 2000. The Company is governed by its
Amended and Restated Limited Liability Company Agreement ("the Agreement")
dated June 23, 2000. At March 8, 2000, members' equity included capital
contributions from the initial members of the Company, James A. Coyne and
Charles E. Cobb, Jr. ("Initial Members"), who made collective capital
contributions of $195,226. On June 23, 2000, the participating members,
Darryl A. LeClair and Susan G. Johnson ("Participating Members") made
capital contributions totaling $2,651,162. The collective Participating
Members' capital contributions are comprised of Participating A Capital of
$2,591,093, Participating B Capital of $45,052 and additional capital
contributions of $15,017.
Subsequent to the initial capital contributions above, the Agreement was
executed and includes a provision whereby the members have no further
obligation to contribute additional amounts of capital to the Company. If
the Company requires additional funds, the Board of Managers is to notify
the members. Each member has the right to contribute a pro rata share of
such additional funds, based on the relative equity contributions made by
each member. In addition, the liability of the members of the Company is
limited to the members' total capital contributions.
In accordance with the Agreement, the Participating Members earn a
cumulative compounding annual return on their unreturned capital (as
defined), at a per annum rate equal to 14% for Participating A capital and
15% for Participating B capital, commencing on June 23, 2000. Preferred
returns will be paid to the Participating Members in accordance with the
terms of the Agreement. Payout of preferred returns (if any) is contingent
upon the cumulative performance of the Company. See Note 9 - COMMITMENTS
AND CONTINGENCIES.
Per the Agreement, the Company is to distribute its cash flow (if any)
periodically, but not less frequently than quarterly. The losses and
profits of the Company are generally allocated to the members as follows:
a) losses are generally allocable 77.9% to members other than
Participating Members and 22.1% to Participating Members, and
b) profits are generally allocated the same way except for a
priority income allocation to the Participating Members to
cover priority cash distributions made on their Participating
Capital.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Echelon Residential Holdings, its
wholly owned subsidiary and a 60% interest in a joint venture. All
intercompany balances have been eliminated. Investments for which the
Company has a 20% to 50% ownership interest are accounted for using the
equity method.
The Company has recorded a minority interest in the Company's consolidated
financial statements to reflect the ownership of its partner in the joint
venture.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates. Significant estimates include the
recoverability of real estate held for sale.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on
hand, demand deposits, and short-term investments with original maturities
of three months or less.
- 7 -
RESTRICTED CASH - Restricted cash represents security deposits at
multi-family residential communities held in separate noninterest-bearing
depository accounts.
RESTRICTED INVESTMENTS - Restricted investments represent certificates of
deposit with maturities greater than three months. These investments are
held by financial institutions that require such deposits in support of
standby letters of credit.
REAL ESTATE - Real estate additions are recorded at cost. Interest and
real estate taxes incurred during construction periods are capitalized and
depreciated on the same basis as the related assets. Costs directly
related to the acquisition, development or improvement of real estate, and
certain indirect development costs have also been capitalized.
Depreciation is calculated on a straight-line basis over the estimated
lives of the assets as follows:
ESTIMATED
USEFUL LIVES
Buildings 35 years
Furniture, fixtures, and equipment 3-10 years
IMPAIRMENT OF LONG-LIVED ASSETS - The carrying value of long-lived assets,
including property and equipment, will be reviewed for impairment whenever
events or changes in circumstances indicate that the recorded value cannot
be recovered from undiscounted future cash flows.
REVENUE RECOGNITION - The Company recognizes revenue on the sale of real
estate properties when title has passed to the buyer and all contingencies
have been removed. Rental revenues, management fees and developer fees are
recognized when earned.
INCOME TAXES - Under the provisions of the Internal Revenue Code and
applicable state laws, the Company is not directly subject to income
taxes; the results of its operations are included in the tax returns of
its members.
NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, is effective for all fiscal years
beginning after June 15, 2000. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments and hedging
activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The
Company adopted SFAS No. 133 effective January 1, 2001. There was no
impact on the Company's financial position, results of operations or
liquidity resulting from the adoption of SFAS No. 133.
Effective March 8, 2000 (date of inception), the Company adopted the
provisions of Securities Exchange Commission Staff Accounting Bulletin
101, "Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB
No. 101 provides guidance for the recognition, presentation and disclosure
of revenue in financial statements. The adoption of SAB No. 101 had no
impact on the Company's financial statements.
- 8 -
RECLASSIFICATIONS - Certain amounts previously reported in the March 8,
2000 consolidated balance sheet have been reclassified to conform to the
December 31, 2000 presentation.
2. REAL ESTATE - NET
As of December 31, 2000, real estate consists of the following:
Land and land improvements held for development or sale $ 15,676,581
------------
Real estate under development:
Land and land improvements 8,302,770
Construction in progress 14,694,874
------------
22,997,644
------------
Income producing real estate:
Land and land improvements 2,303,890
Buildings and improvements 19,720,463
Equipment and other 484,752
Accumulated depreciation (91,128)
------------
22,417,977
------------
$ 61,092,202
============
For the period March 8, 2000 (date of inception) through December 31,
2000, the Company recorded a write-down of land held for development or
sale of $635,437 in the consolidated statement of operations. Land held
for development or sale was determined to have been impaired because the
estimated cash flows are less than the carrying value of the two parcels
of land. The estimated fair value of these two parcels of land was based
on letters of intent from third-party purchasers, dated October 2000 and
December 2000, to purchase the two parcels of land.
As of December 31, 2000, the Company's land and land improvements held for
development or sale includes five parcels of improved and unimproved land
for the development of multi-family residential communities. The land is
located in urban areas in Memphis, Tennessee; Dallas, Texas; Denver,
Colorado and Colorado Springs, Colorado.
As of December 31, 2000, real estate under development includes the
following three multi-family residential communities:
CONSTRUCTION ACTUAL/ESTIMATED
RENTABLE LAND COMMENCEMENT DATE FIRST UNITS
PROJECT NAME LOCATION UNITS ACREAGE DATE AVAILABLE
------------ ----------- -------- ------- ------------ ----------------
ECHELON AT THE BALLPARK Memphis, TN 385 5 Q1 2000 Q1 2001
ECHELON AT LAKESIDE Plano, TX 181 12 Q3 1999 Q3 2000
ECHELON AT UPTOWN Orlando, FL 244 3 Q2 2001 Q2 2002
As discussed in Note 6, INVESTMENT IN CONSOLIDATED JOINT VENTURE
PARTNERSHIP, ECHELON AT LAKESIDE commenced operations during the period
March 8, 2000 (date of inception) through December 31, 2000 and portions
of the project remained under construction as of December 31, 2000.
As of December 31, 2000, real estate includes $606,990 of interest
capitalized during the period March 8, 2000 (date of inception) through
December 31, 2000.
- 9 -
3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
In July 1999, Fannie Mae's American Communities Fund agreed to invest with
a wholly owned subsidiary of Echelon in the development of ECHELON AT
CHENEY PLACE, a 303-unit multi-family residential community currently
under construction in downtown Orlando, Florida. Echelon's 20% interest in
the joint venture was purchased by Echelon Residential, in conjunction
with the real estate assets purchased as discussed in Note 1, SUMMARY OF
BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES. The Company accounts for its
investment in the joint venture under the equity method. Concurrent with
the execution of the joint venture agreement with Fannie Mae's American
Communities Fund, the joint venture executed an agreement with Wachovia
Bank, N.A. for a $21,500,000 loan to fund the construction of ECHELON AT
CHENEY PLACE. The loan is guaranteed by Echelon Residential.
Construction of ECHELON AT CHENEY PLACE began in late July 1999 and
construction continued on portions of the project through December 31,
2000. For the period March 8, 2000 (date of inception) through December
31, 2000, the Company recorded its share of losses for ECHELON AT CHENEY
PLACE, from the initial operations of the project, as a reduction of the
investment in unconsolidated joint venture. As of December 31, 2000, total
capital expenditures and construction loan draws for the project were
$24,834,193 and $18,408,921, respectively. Through December 31, 2000, the
Company's capital contributions to the joint venture totaled $1,386,000.
The total of net losses and purchase price adjustment allocated to the
investment in unconsolidated joint venture is $322,094.
4. CONSTRUCTION LOANS
As of December 31, 2000, the Company's construction loans outstanding are
as follows:
Bank of America $ 17,614,845
First Union National Bank of Florida 9,222,895
------------
$ 26,837,740
============
The Company has a $20,000,000 construction loan with Bank of America to
fund the construction of ECHELON AT LAKESIDE. The loan is guaranteed by
Echelon Residential. The interest rate is LIBOR plus 1.85% (8.4875% as of
December 31, 2000), and the loan matures in September 2002. As of December
31, 2000, the Company has made $17,614,845 of construction draws on this
loan. See further discussion of the development of ECHELON AT LAKESIDE
included in Note 6, INVESTMENT IN CONSOLIDATED JOINT VENTURE PARTNERSHIP.
Accrued interest on the Bank of America construction loan is $125,685 as
of December 31, 2000.
The Company has a $26,075,000 construction loan with First Union National
Bank of Florida to fund the construction of ECHELON AT THE BALLPARK, a
385-unit multi-family residential community currently under construction
in downtown Memphis, Tennessee. The loan is guaranteed by Echelon
Residential. The interest rate is LIBOR plus 1.65% (8.2125% as of December
31, 2000) with monthly interest payments required through the term of the
loan, which expires on June 2002. As of December 31, 2000, the Company has
made construction draws of $9,222,895. Accrued interest on the First Union
National Bank construction loan is $8,258 as of December 31, 2000.
The Company's significant financial covenants include minimum net worth
and liquidity requirements. As of December 31, 2000, the Company was in
compliance with all financial covenants contained in its debt agreements.
In the opinion of management, the carrying value of the Company's
construction loans approximates their fair value based on management's
estimates for similar issues, giving consideration to quality,
- 10 -
interest rates, maturity and other significant characteristics. Although
management is not aware of any factors that would significantly affect the
estimated fair value of the construction loans, the amounts have not been
comprehensively revalued for purposes of these consolidated financial
statements since December 31, 2000 and current estimates of fair value may
differ significantly.
See Note 10, SUBSEQUENT EVENT, for discussion of a construction loan
executed for the construction of ECHELON AT UPTOWN, in February 2001.
5. NOTES PAYABLE
As of December 31, 2000, notes payable outstanding are as follows:
American Income Partners V-A Limited Partnership $ 2,160,000
American Income Partners V-B Limited Partnership 5,700,000
American Income Partners V-C Limited Partnership 2,390,000
American Income Partners V-D Limited Partnership 2,730,000
American Income Fund I-A, a Massachusetts Limited Partnership 1,650,000
American Income Fund I-B, a Massachusetts Limited Partnership 1,310,000
American Income Fund I-C, a Massachusetts Limited Partnership 2,780,000
American Income Fund I-D, a Massachusetts Limited Partnership 3,050,000
American Income Fund I-E, a Massachusetts Limited Partnership 4,790,000
AIRFUND International Limited Partnership 1,800,000
AIRFUND II International Limited Partnership 3,640,000
-----------
Subtotal 32,000,000
Series A Note 1,684,211
Series B Notes 585,679
Note payable - Echelon Development Holdings LLC 770,000
-----------
$35,039,890
===========
On March 8, 2000, the Company executed $32,000,000 in notes payable with
11 partnerships. The Company contributed the proceeds from the notes
payable to Echelon Residential to acquire various real estate assets from
Echelon, as discussed in Note 1, SUMMARY OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES. These partnerships are managed by their general
partners who have engaged Equis Financial Group ("EFG") as the
partnerships' manager. Mr. James A. Coyne is Executive Vice President of
EFG and is an equity investor in the Company. Mr. Coyne, in his individual
capacity, is the only equity investor in the Company related to EFG. These
notes payable have 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. No principal payments are required prior to the
scheduled maturity. Interest accrues and compounds monthly and is payable
at maturity. Accrued interest on these notes is $3,907,798 as of December
31, 2000. The Company has assigned and pledged a security interest in all
of its rights, title, and interest in its membership interests in Echelon
Residential to the 11 partnerships as collateral.
On March 8, 2000, the Company executed a Series A Note with Cobb Partners
Limited. The Series A Note 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. No principal payments are required prior to
the scheduled maturity. Accrued interest on the Series A Note is $205,674
as of December 31, 2000. Interest accrues and compounds monthly and is
payable at maturity. The Company also executed
- 11 -
Series B Notes with several individuals, who are employees or investors of
EFG. The Series B Notes have an annual interest rate of 15% and mature on
June 30, 2004. No principal payments are required prior to the scheduled
maturity. Interest accrues and compounds monthly and is payable at
maturity. The Series B Notes are subordinated to the $32,000,000 notes
payable and the Series A Note. Accrued interest on the Series B Notes is
$76,920 as of December 31, 2000.
On December 29, 2000, the Company executed a $770,000 note payable to
Echelon Development Holdings LLC ("Echelon Development Holdings"). The
note payable has a term of 24 months, maturing on December 29, 2002, and
an annual interest rate of 10%. Interest accrues and compounds daily and
is payable on December 31st of each year the note payable is outstanding.
The Company repaid the note, plus interest of $6,751, on January 30, 2001.
In the opinion of management, the carrying value of the Company's notes
payable approximates the fair value based on management's estimates for
similar issues, giving consideration to quality, interest rates, maturity
and other significant characteristics.
6. INVESTMENT IN CONSOLIDATED JOINT VENTURE PARTNERSHIP
In September 1999, a wholly owned subsidiary of Echelon entered into a
joint venture agreement with Turner Heritage Investments, Ltd. ("Turner")
for the development of ECHELON AT LAKESIDE, a 181-unit multi-family
residential community currently under construction in Plano, Texas, which
is near Dallas. Echelon's 60% interest in the joint venture was purchased
by Echelon Residential, in conjunction with the transaction discussed in
Note 1, SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES.
Construction of ECHELON AT LAKESIDE began in October 1999 and continued on
portions of the project through December 31, 2000. As of December 31,
2000, total capital expenditures for the project were $23,927,413.
Through December 31, 2000, the Company's capital contributions totaled
$2,592,000 and Turner contributed land valued at $2,592,000 to the joint
venture. The Company's interest represents a controlling interest, and
accordingly, for financial reporting purposes, the assets, liabilities,
retained deficit, and current period results of operations of the joint
venture for the period March 8, 2000 (date of inception) through December
31, 2000, are included in the Company's consolidated financial statements,
and Turner's partnership interest in the joint venture has been recorded
as a minority interest. See further discussion of debt financing for
ECHELON AT LAKESIDE included in Note 4, CONSTRUCTION LOANS.
7. RELATED PARTY TRANSACTIONS
In conjunction with the purchase of Echelon's interest in the joint
venture formed for the development of ECHELON AT LAKESIDE, Echelon
Residential also assumed the development agreement, an asset management
agreement and a property management and leasing agreement with Lakeside
Baywater Enterprises Limited Partnership, the joint venture partnership.
In accordance with the development agreement, Echelon Residential has been
engaged as the developer for ECHELON AT LAKESIDE and receives a
development fee, payable in arrears, in monthly installments of $44,371.
In accordance with the asset management agreement, Echelon Residential
receives a monthly asset management fee, computed in arrears, equal to 1%
of the ECHELON AT LAKESIDE monthly gross income. Under the terms of the
property management and leasing agreement, Echelon Residential also
receives a monthly management fee, computed in arrears, equal to 4% of the
ECHELON AT LAKESIDE monthly gross income.
- 12 -
For the period March 8, 2000 (date of inception) through December 31,
2000, Echelon Residential recognized $388,212 in development, asset
management, and property management revenues from ECHELON AT LAKESIDE.
In conjunction with the purchase of Echelon's interest in the joint
venture formed for the development of ECHELON AT CHENEY PLACE, Echelon
Residential also assumed agreements which include the payment of a
development fee, a property management and leasing agreement and an
incentive management fee with Cheney Place LLC, the joint venture
partnership. In accordance with these agreements, Echelon Residential has
been engaged as the developer for ECHELON AT CHENEY PLACE and receives a
monthly development fee equal to 5% of the hard construction costs
incurred during the month. Echelon Residential is also the property
manager and leasing agent for the property and will receive a monthly
management fee, computed in arrears, equal to $7,500 per month for two
months prior to the opening of the clubhouse. For the next nine months
thereafter, Echelon Residential will receive the greater of a) 3% of the
effective monthly gross income or b) 3% of the effective monthly gross
income that would be collected if 75% of ECHELON AT CHENEY PLACE were
occupied at rents equaling the average pro forma base rent. Thereafter,
the monthly management fee will be calculated as 3% of the effective
monthly gross income of ECHELON AT CHENEY PLACE. The incentive management
fee is equal to 2% of ECHELON AT CHENEY PLACE'S effective gross income, as
defined. For the period March 8, 2000 (date of inception) through December
31, 2000, Echelon Residential recognized $392,695 in development, property
management and incentive management fee revenues from ECHELON AT CHENEY
PLACE.
Echelon Property Management LLC, a wholly owned subsidiary of Echelon
Residential, has contracted to manage several operating multi-family
residential communities currently leased by Echelon Commercial LLC
("Echelon Commercial"), a wholly owned limited liability subsidiary of
Echelon Development LLC. Echelon Development LLC is a wholly owned limited
liability subsidiary of Echelon Development Holdings LLC. Several of the
equity investors in Echelon Residential Holdings are also equity investors
in Echelon Development Holdings LLC. For the period March 8, 2000 (date of
inception) through December 31, 2000, Echelon Residential recognized
$587,908 in property management revenues from the management of
multi-family properties leased by Echelon Commercial.
As of December 31, 2000, the Company had accounts receivable balances of
$51,880 due from Echelon Commercial LLC, $19,455 due from ECHELON AT
CHENEY PLACE and $44,186 from other related parties. These amounts were
repaid by the end of February 2001.
8. RETIREMENT PLAN
Echelon Residential is the sponsor of the Echelon 401(k) Savings Plan
("Savings Plan") under Section 401(k) of the Internal Revenue Service Code
(the "Code"), to which participants may contribute a percentage of their
pay up to limits established by the Code. The Company may make
discretionary contributions to the Savings Plan. The Company did not
contribute to the Savings Plan during the period March 8, 2000 (date of
inception) through December 31, 2000. As of January 1, 2001, the Company
initiated an option in the Savings Plan to include a mandatory matching
contribution from the Company.
9. COMMITMENTS AND CONTINGENCIES
As of December 31, 2000, two multi-family residential communities were
under construction and had remaining commitments of $12,985,656 with
construction contractors.
On December 29, 2000, the Company executed a $5,000,000 revolving
promissory note with Echelon Development Holdings. The revolving
promissory note has a term of 24 months, maturing on December 29, 2002,
and an annual interest rate of 10%. Interest accrues and compounds daily
and is
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payable on December 31st of each year the note is outstanding. As of
December 31, 2000, there were no amounts outstanding on the revolving
promissory note.
As discussed in Note 1, SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES, the Company maintains preferred return accounts for the
Participating Members. As of December 31, 2000, the preferred return
balances for Participating A and B Capital were $198,597 and $3,709,
respectively. These amounts have not been paid and therefore, have not
been reflected as a reduction of Participating A and B Capital in the
December 31, 2000 consolidated financial statements.
The joint venture formed for the development of ECHELON AT LAKESIDE
maintains preferred return accounts for the limited partners, Echelon LP,
a wholly owned limited liability subsidiary of Echelon Residential, and
Turner. The payment of any preferred returns to Echelon LP would be
eliminated upon consolidation. As of December 31, 2000, the preferred
return balance for Turner was $312,669. This amount has not been paid and
therefore, has not been reflected as a reduction of member's equity in the
December 31, 2000 consolidated financial statements.
10. SUBSEQUENT EVENT
In February 2001, the Company closed on a $18,600,000 loan from SouthTrust
Bank for the construction financing of ECHELON AT UPTOWN, a 244-unit
multi-family residential community to be developed in downtown Orlando,
Florida. The interest rate is LIBOR plus 1.75% with monthly interest
payments required over the 36-month initial term of the loan. The loan is
guaranteed by Echelon Residential and construction is expected to commence
in the second quarter of 2001.
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11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
period March 8, 2000 (date of inception) through December 31, 2000:
PERIOD THREE MONTHS ENDED
MARCH 8 - ----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
---------- ------------ ------------- ------------- ------------
Total revenues............ $ 147,078 $ 758,673 $ 659,867 $ 3,664,594 $ 5,230,212
Net loss.................. $(328,623) $(1,359,326) $(1,855,757) $(3,162,320) $(6,706,026)
******
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