UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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--------------------
For Quarter Ended September 30, 1997 Commission File No. 0-20030
American Income Fund I-D, a Massachusetts Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3122696
- ----------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Boston, MA 02110
- ----------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
-------------------
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes No
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AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
PAGE
---- ---------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at September 30, 1997 and December 31, 1996....................... 3
Statement of Operations
for the three and nine months ended September 30, 1997 and 1996... 4
Statement of Cash Flows
for the nine months ended September 30, 1997 and 1996............. 5
Notes to the Financial Statements...................................... 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 11-16
PART II. OTHER INFORMATION:
Items 1--6.................................................................. 17
2
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 1997 and December 31, 1996
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
ASSETS
Cash and cash equivalents.......................................................... $ 2,602,161 $ 1,627,768
Rents receivable................................................................... 179,879 580,171
Accounts receivable--affiliate..................................................... 418,417 146,455
Note receivable--Banyan............................................................ 898,405 --
Investment in Banyan............................................................... 611,955 --
Equipment at cost, net of accumulated depreciation of $8,992,425 and $13,935,898 at
September 30, 1997 and December 31, 1996, respectively........................... 10,644,165 15,009,966
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Total assets.................................................................. $ 15,354,982 $ 17,364,360
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------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable...................................................................... $ 5,655,772 $ 7,780,603
Accrued interest................................................................... 45,858 100,187
Accrued liabilities................................................................ 22,500 22,750
Accrued liabilities--affiliate..................................................... 18,632 34,144
Deferred rental income............................................................. 72,656 117,405
Cash distributions payable to partners............................................. 218,296 218,296
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Total liabilities............................................................. 6,033,714 8,273,385
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Partners' capital (deficit):
General Partner.................................................................. (451,741) (463,256)
Limited Partnership Interests (829,521.3 Units; initial purchase price of $25
each).......................................................................... 9,773,009 9,554,231
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Total partners' capital....................................................... 9,321,268 9,090,975
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Total liabilities and partners' capital....................................... $ 15,354,982 $ 17,364,360
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The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three and nine months ended September 30, 1997 and 1996
(Unaudited)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ --------------------------
1997 1996 1997 1996
---------- ------------ ------------ ------------
Income:
Lease revenue......................................... $ 790,039 $ 1,341,736 $ 3,516,832 $ 3,758,379
Interest income....................................... 33,495 8,955 75,948 79,754
Interest income--affiliate............................ -- 4,650 -- 13,860
Gain (loss) on sale/exchange of equipment............. 175,155 148,743 (192,425) 255,150
---------- ------------ ------------ ------------
Total income..................................... 999,489 1,504,084 3,400,355 4,107,143
---------- ------------ ------------ ------------
Expenses:
Depreciation and amortization......................... 497,137 902,043 1,842,777 2,919,724
Interest expense...................................... 118,601 146,713 354,321 452,276
Equipment management fees--affiliate.................. 35,077 42,483 127,158 111,339
Operating expenses--affiliate......................... 91,988 54,641 190,921 159,002
---------- ------------ ------------ ------------
Total expenses................................... 742,803 1,145,880 2,515,177 3,642,341
---------- ------------ ------------ ------------
Net income................................................. $ 256,686 $ 358,204 $ 885,178 $ 464,802
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Net income per limited partnership unit.................... $ 0.29 $ 0.41 $ 1.01 $ 0.53
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Cash distributions declared per limited partnership unit... $ 0.25 $ 0.25 $ 0.75 $ 0.75
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
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Cash flows from (used in) operating activities:
Net income............................................................................. $ 885,178 $ 464,802
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization...................................................... 1,842,777 2,919,724
(Gain) loss on sale/exchange of equipment.......................................... 192,425 (255,150)
Changes in assets and liabilities
Decrease in:
rents receivable.............................................................. 400,292 69,663
accounts receivable--affiliate................................................ (271,962) 37,260
Increase (decrease) in:
accrued interest.............................................................. (54,329) (6,896)
accrued liabilities........................................................... (250) (87,135)
accrued liabilities--affiliate................................................ (15,512) (4,161)
deferred rental income........................................................ (44,749) 45,164
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Net cash from operating activities....................................... 2,933,870 3,183,271
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Cash flows from (used in) investing activities:
Investment in Banyan stock......................................................... (611,955) --
Note receivable--Banyan............................................................ (898,405) --
Purchase of equipment.............................................................. -- (63,243)
Proceeds from equipment sales...................................................... 2,330,599 502,428
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Net cash from investing activities....................................... 820,239 439,185
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Cash flows used in financing activities:
Principal payments--notes payable.................................................. (2,124,831) (2,481,314)
Distributions paid................................................................. (654,885) (709,459)
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Net cash used in financing activities.................................... (2,779,716) (3,190,773)
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Net increase in cash and cash equivalents.............................................. 974,393 431,683
Cash and cash equivalents at beginning of period....................................... 1,627,768 407,253
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Cash and cash equivalents at end of period............................................. $ 2,602,161 $ 838,936
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest........................................... $ 408,650 $ 459,172
----------- -----------
----------- -----------
Supplemental disclosure of investing and financing activities:
At December 31, 1995, the Partnership held $1,882,960 in a special-purpose
escrow account pending the completion of an aircraft exchange (see Results
of Operations). The Partnership completed the exchange in March 1996
obtaining interests in aircraft at an aggregate cost of $7,535,530,
utilizing cash of $1,946,203 (including the escrowed funds) and third party
financing of $5,589,327.
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to Financial Statements
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
- -----------------------------
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing
Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not
include all information and footnote disclosures required under generally
accepted accounting principles for complete financial statements and,
accordingly, the accompanying financial statements should be read in
conjunction with the footnotes presented in the 1996 Annual Report. Except as
disclosed herein, there has been no material change to the information
presented in the footnotes to the 1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1997 and December 31, 1996 and results of
operations for the three and nine month periods ended September 30, 1997 and
1996 have been made and are reflected.
NOTE 2--CASH
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The Partnership invests excess cash with large institutional banks in
reverse repurchase agreements with overnight maturities. The reverse
repurchase agreements are secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3--REVENUE RECOGNITION
- ----------------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually
and no significant amounts are calculated on factors other than the passage
of time. Rents from Reno Air, Inc. ("Reno Air"), as provided for in the lease
agreement, are adjusted monthly for changes in the London Inter-Bank Offered
Rate ("LIBOR"). Future rents from Reno Air, included below, reflect the most
recent LIBOR effected rental payment. The leases are accounted for as
operating leases and are noncancellable. Rents received prior to their due
dates are deferred. Future minimum rents of $7,115,556 are due as follows:
For the year ending September 30, 1998 $2,209,024
1999 1,742,895
2000 1,013,316
2001 846,372
2002 846,372
Thereafter 457,577
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Total $7,115,556
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6
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to Financial Statements
(Continued)
NOTE 4--EQUIPMENT
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The following is a summary of equipment owned by the Partnership at
September 30, 1997. In the opinion of Equis Financial Group Limited
Partnership ("EFG"), the acquisition cost of the equipment did not exceed its
fair market value.
REMAINING
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST
- ---------------- ------------- -------------
Aircraft.......................................... 22-63 $ 10,081,685
Materials handling................................ 0-23 4,049,915
Construction & mining............................. 0-22 2,820,022
Trailers/intermodal containers.................... 0-69 2,106,595
Retail store fixtures............................. 0 316,563
Furniture & fixtures.............................. 0 97,092
Communications.................................... 0 67,899
Tractors & heavy duty trucks...................... 3 62,319
Photocopying...................................... 0 34,500
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Total equipment cost.... 19,636,590
Accumulated depreciation.... (8,992,425)
-------------
Equipment, net of accumulated depreciation.... $ 10,644,165
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-------------
At September 30, 1997, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $12,472,136, representing
approximately 64% of total equipment cost.
The summary above includes equipment held for sale or re-lease with a
cost and net book value of approximately $409,000 and $74,000, respectively,
at September 30, 1997. The General Partner is actively seeking the sale or
re-lease of all equipment not on lease. In addition, the summary above also
includes equipment being leased on a month-to-month basis.
NOTE 5--INVESTMENT IN BANYAN
- ----------------------------
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic
interests in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk
Holdings Limited (the "Lessee"), exchanged their ownership interests in the
Vessels for aggregate consideration of $11,565,375, including 1,987,000
shares (at $1.50 per share) of common stock in Banyan Strategic Land Fund II
("Banyan") and a purchase money note of $8,219,500 (the "Note"). Banyan is a
Delaware corporation organized on April 14, 1987 and has its common stock
listed on NASDAQ. Banyan, at the time of the exchange transaction, held
certain real estate investments, the only one of which remained unsold at
September 30, 1997 being a 274 acre site near Malibu, California ("Rancho
Malibu").
7
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to Financial Statements
(Continued)
The exchange was organized through an intermediary company (Equis
Exchange LLC, 99% owned by Banyan and 1% owned by EFG), which was established
for the sole purpose of facilitating the exchange. There were no fees paid to
EFG by Equis Exchange LLC or Banyan or by any other party that otherwise
would not have been paid to EFG had the Partnership sold its beneficial
interest in the Vessels directly to the Lessee. The Lessee prepaid all of its
remaining contracted rental obligations and purchased the Vessels in two
closings occurring on May 6, 1997 and May 12, 1997. The Note was repaid with
$3,800,000 of cash and delivery of a $4,419,500 note from Banyan (the "Banyan
Note").
As a result of the exchange transaction and its original 66.15%
beneficial ownership interest in Dove Arrow, one of the three Vessels, the
Partnership received $840,676 in cash and is the beneficial owner of 407,970
shares of Banyan common stock valued at $611,955 ($1.50 per share) and holds
a beneficial interest in the Banyan Note of $898,405. The Banyan Note will be
amortized over three years and bear an annual interest rate of 10%.
Cash equal to the amount of the Banyan Note was placed in escrow for the
benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan agreed
to seek consent ("Consent") from its shareholders to: (1) amend its
certificate of incorporation and by-laws; (2) make additional amendments to
restrict the acquisition of its common stock in a way to protect Banyan's net
operating loss carry-forwards, and (3) engage EFG to provide administrative
services to Banyan, which services EFG will provide at cost. On October 21,
1997, such Consent was obtained from Banyan's shareholders. The Consent also
allowed for (i) the election of a new Board of Directors nominated by EFG for
terms of up to three years and an increase in size of the Board to as many as
nine members, provided a majority of the Board shall consist of members
independent of Banyan, EFG or any affiliate; and (ii) an amendment extending
Banyan's life to perpetual and changing its name. Contemporaneously with the
Consent being obtained, Banyan declared a $0.20 per share dividend to be paid
on all shares, including those beneficially owned by the Partnership. A
dividend of $81,594 is scheduled to be paid to the Partnership on or before
November 15, 1997.
In connection with the Banyan transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, joined the Board of Directors of Banyan and
James A. Coyne, Senior Vice President of EFG became Banyan's Chief Operating
Officer. The General Partner believes that the underlying tangible assets of
Banyan, particularly the Rancho Malibu property, can be sold or developed on
a tax free basis due to Banyan's net operating loss carryforwards and can
provide an attractive economic return to the Partnership.
NOTE 6--RELATED PARTY TRANSACTIONS
- ----------------------------------
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the nine month periods
ended September 30, 1997 and 1996 which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
1997 1996
---------- ----------
Equipment management fees................................... $ 127,158 $ 111,339
Administrative charges...................................... 45,924 15,750
Reimbursable operating expenses due to third parties........ 144,997 143,252
---------- ----------
Total.................................................. $ 318,079 $ 270,341
---------- ----------
---------- ----------
8
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to Financial Statements
(Continued)
During the nine months ended September 30, 1996, the Partnership earned
interest income of $13,860 on a note receivable from EFG resulting from a
settlement with ICCU Containers S.p.A., a former lessee of the Partnership
whose affiliate was a former partner in American Finance Group.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the
Partnership. At September 30, 1997, the Partnership was owed $418,417 by EFG
for such funds and the interest thereon. These funds were remitted to the
Partnership in October 1997.
NOTE 7--NOTES PAYABLE
- ---------------------
Notes payable at September 30, 1997 consisted of installment notes of
$5,655,772 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 8.65% and 8.95%, except for one note
which bears a fluctuating interest rate based on LIBOR (5.66% at September
30, 1997) plus a margin. All of the installment notes are non-recourse and
are collateralized by the equipment and assignment of the related lease
payments. Generally, the installment notes will be fully amortized by
noncancellable rents. However, the Partnership has balloon payment
obligations at the expiration of the respective primary lease terms related
to the Finnair Aircraft and the Reno Aircraft of $1,367,145 and $823,037,
respectively. The carrying amount of notes payable approximates fair value at
September 30, 1997.
The annual maturities of the installment notes payable are as follows:
For the year ending September 30, 1998 $1,177,221
1999 2,358,160
2000 502,501
2001 366,094
2002 395,911
Thereafter 855,885
----------
Total $5,655,772
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----------
NOTE 8--LEGAL PROCEEDINGS
- -------------------------
On July 27, 1995, EFG, on behalf of the Partnership and other
EFG-sponsored investment programs, filed an action in the Commonwealth of
Massachusetts Superior Court Department of the Trial Court in and for the
County of Suffolk, for damages and declaratory relief against a lessee of the
Partnership, National Steel Corporation ("National Steel"), under a certain
Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is
seeking the reimbursement by National Steel of certain sales and/or use taxes
paid to the State of Illinois and other remedies provided by the MLA. On
August 30, 1995, National Steel filed a Notice of Removal which removed the
case to the United States District Court, District of Massachusetts. On
September 7, 1995, National Steel filed its Answer to EFG's Complaint along
with Affirmative Defenses and Counterclaims, seeking declaratory relief and
specific performance and alleging, among other things, breach of contract and
breach of the implied covenant of good faith and fair dealing. EFG filed its
Answer to these counterclaims on September 29, 1995. Though the parties have
been discussing settlement with respect to this matter for some time, to
date, the negotiations have been unsuccessful. Notwithstanding these
discussions, EFG recently filed an Amended and Supplemental Complaint
alleging a further default by National Steel under the MLA and EFG recently
filed a Summary Judgment on all claims and counterclaims. The matter remains
pending before the Court and is
9
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
Notes to Financial Statements
(Continued)
scheduled for a hearing on EFG's motion in December 1997. The Partnership has
not experienced any material losses as a result of this action.
On June 24, 1997, four plaintiffs (the "Plaintiffs") owning limited
partner units or beneficiary interests in eight investment programs sponsored
by EFG filed a lawsuit, as a derivative action, on behalf of the Partnership
and 27 other investment programs (collectively, the "Nominal Defendants") in
the Superior Court of the Commonwealth of Massachusetts for the County of
Suffolk against EFG and certain of EFG's affiliates, including the General
Partner of the Partnership and four other wholly-owned subsidiaries of EFG
which are the general partner or managing trustee of one or more of the
investment programs, (collectively, the "Managing Defendants"), and certain
other entities and individuals that have control of the Managing Defendants
and the Nominal Defendants (the "Controlling Defendants"). The Plaintiffs
assert claims of breach of fiduciary duty, breach of contract, unjust
enrichment, and equitable relief and seek various remedies, including
compensatory and punitive damages to be determined at trial.
The General Partner and EFG are in the early stages of evaluating the
nature and extent of the claims asserted in this lawsuit and cannot predict
its outcome with any degree of certainty. However, based upon all of the
facts presently being considered by management, the General Partner and EFG
do not believe that any likely outcome will have a material adverse effect on
the Partnership. The General Partner, EFG and their affiliates intend to
vigorously defend against the lawsuit.
10
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
Certain statements in this quarterly report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of
risks and uncertainties. There are a number of important factors that could
cause actual results to differ materially from those expressed in any
forward-looking statements made herein. These factors include, but are not
limited to, the ability of EFG to collect all rents due under the attendant
lease agreements and successfully remarket the Partnership's equipment upon
the expiration of such leases.
Three and nine months ended September 30, 1997 compared to the three and
------------------------------------------------------------------------
nine months ended September 30, 1996:
- ------------------------------------
OVERVIEW
- --------
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment
subject to lease agreements with third parties. The Partnership's stated
investment objectives and policies contemplated that the Partnership would
wind-up its operations within approximately seven years of its inception. The
value of the Partnership's equipment portfolio decreases over time due to
depreciation resulting from age and usage of the equipment, as well as
technological changes and other market factors. In addition, the Partnership
does not replace equipment as it is sold; therefore, its aggregate investment
value in equipment declines from asset disposals occurring in the normal
course of business. As a result of the Partnership's age and a declining
equipment portfolio, the General Partner is evaluating a variety of
transactions that will reduce the Partnership's prospective costs to operate
as a publicly registered limited partnership and, therefore, enhance overall
cash distributions to the limited partners. Such a transaction may involve
the sale of the Partnership's remaining equipment or a transaction that would
allow for the consolidation of the Partnership's expenses with other
similarly-organized equipment leasing programs. In order to increase the
marketability of the Partnership's remaining equipment, the General Partner
expects to use the Partnership's available cash and future cash flow to
retire indebtedness. This will negatively effect short-term cash
distributions.
RESULTS OF OPERATIONS
- ---------------------
For the three and nine months ended September 30, 1997, the Partnership
recognized lease revenue of $790,039 and $3,516,832, respectively, compared
to $1,341,736 and $3,758,379 for the same periods in 1996. The decrease in
lease revenue from 1996 to 1997 resulted from lease term expirations and the
sale of equipment partially offset by the receipt in 1997 of prepaid
contractual rental obligations of $782,917 associated with the exchange of
its interest in a vessel (see discussion below) and the impact of an aircraft
exchange which concluded in March 1996. As a result of the exchange, the
Partnership replaced its ownership interest in a Boeing 747-SP aircraft, with
interests in six other aircraft (three Boeing 737 aircraft leased by
Southwest Airlines, Inc., two McDonnell Douglas MD-82 aircraft leased by
Finnair OY and one McDonnell Douglas MD-87 aircraft leased by Reno Air,
Inc.). The Southwest Aircraft were exchanged into the Partnership in 1995,
while the Finnair Aircraft and the Reno Aircraft were exchanged into the
Partnership on March 25 and March 26, 1996, respectively. Accordingly,
revenue for the nine months ended September 30, 1996 reflected only a portion
of the rents ultimately earned from the like-kind exchange. In aggregate, the
replacement aircraft generated approximately $1,170,000 of lease revenue
during the nine months ended September 30, 1997 compared to approximately
$810,000 for the same period in 1996. In the future, lease revenue will
continue to decline due to primary and renewal lease term expirations and the
sale of equipment.
11
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 EFG or an affiliated equipment leasing
program sponsored by EFG. Proportionate equipment ownership enables the
Partnership to further diversify its equipment portfolio by participating in
the ownership of selected assets, thereby reducing the general levels of risk
which could result from a concentration in any single equipment type,
industry or lessee. The Partnership and each affiliate individually report,
in proportion to their respective ownership interests, their respective
shares of assets, liabilities, revenues, and expenses associated with the
equipment.
For the three and nine months ended September 30, 1997, the Partnership
earned interest income of $33,495 and $75,948, respectively, compared to
$8,955 and $79,754 for the same periods in 1996. Interest income is typically
generated from temporary investment of rental receipts and equipment sales
proceeds in short-term instruments. Interest income in 1996 included interest
of $54,300 earned on cash held in a special-purpose escrow in connection with
the like-kind exchange transaction, discussed above. During the three and
nine months ended September 30, 1996, the Partnership also earned interest
income of $4,650 and $13,860, respectively, on a note receivable from EFG
resulting from a settlement with ICCU Containers S.p.A., a former lessee of
the Partnership whose affiliate was a former partner in American Finance
Group. All amounts due from EFG pursuant to this note were received at
December 31, 1996. The amount of future interest income is expected to
fluctuate in relation to prevailing interest rates, the collection of lease
revenue, and the proceeds from equipment sales.
During the three and nine months ended September 30, 1997, the
Partnership sold or exchanged equipment having a net book value of $2,156 and
$2,523,024, respectively, to existing lessees and third parties. These
transactions resulted in a net gain and a net loss, for financial statement
purposes, of $175,155 and $192,425, respectively. The equipment transactions
included the Partnership's interest in a vessel with an original cost and net
book value of $5,091,464 and $2,307,445, respectively. In connection with
this transaction, the Partnership realized proceeds of $1,568,119, which
resulted in a net loss, for financial statement purposes, of $739,326. In
addition, as this vessel was disposed of prior to the expiration of the
related lease term, the Partnership received a prepayment of the remaining
contracted rent due under the vessel's lease agreement, as described above.
See below for further discussion related to the vessel.
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic
interests in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk
Holdings Limited (the "Lessee"), exchanged their ownership interests in the
Vessels for aggregate consideration of $11,565,375, including 1,987,000
shares (at $1.50 per share) of common stock in Banyan Strategic Land Fund II
("Banyan") and a purchase money note of $8,219,500 (the "Note"). Banyan is a
Delaware corporation organized on April 14, 1987 and has its common stock
listed on NASDAQ. Banyan, at the time of the exchange transaction, held
certain real estate investments, the only one of which remained unsold at
September 30, 1997 being a 274 acre site near Malibu, California ("Rancho
Malibu").
The exchange was organized through an intermediary company (Equis
Exchange LLC, 99% owned by Banyan and 1% owned by EFG), which was established
for the sole purpose of facilitating the exchange. There were no fees paid to
EFG by Equis Exchange LLC or Banyan or by any other party that otherwise
would not have been paid to EFG had the Partnership sold its beneficial
interest in the Vessels directly to the Lessee. The Lessee prepaid all of its
remaining contracted rental obligations and purchased the Vessels in two
closings occurring on May 6, 1997 and May 12, 1997. The Note was repaid with
$3,800,000 of cash and delivery of a $4,419,500 note from Banyan (the "Banyan
Note").
12
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
As a result of the exchange transaction and its original 66.15%
beneficial ownership interest in Dove Arrow, one of the three Vessels, the
Partnership received $840,676 in cash and is the beneficial owner of 407,970
shares of Banyan common stock valued at $611,955 ($1.50 per share) and holds
a beneficial interest in the Banyan Note of $898,405. The Banyan Note will be
amortized over three years and bear an annual interest rate of 10%.
Cash equal to the amount of the Banyan Note was placed in escrow for the
benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan agreed
to seek consent ("Consent") from its shareholders to: (1) amend its
certificate of incorporation and by-laws; (2) make additional amendments to
restrict the acquisition of its common stock in a way to protect Banyan's net
operating loss carry-forwards, and (3) engage EFG to provide administrative
services to Banyan, which services EFG will provide at cost. On October 21,
1997, such Consent was obtained from Banyan's shareholders. The Consent also
allowed for (i) the election of a new Board of Directors nominated by EFG for
terms of up to three years and an increase in size of the Board to as many as
nine members, provided a majority of the Board shall consist of members
independent of Banyan, EFG or any affiliate; and (ii) an amendment extending
Banyan's life to perpetual and changing its name. Contemporaneously with the
Consent being obtained, Banyan declared a $0.20 per share dividend to be paid
on all shares, including those beneficially owned by the Partnership. A
dividend of $81,594 is scheduled to be paid to the Partnership on or before
November 15, 1997.
The General Partner believes that the underlying tangible assets of
Banyan, particularly the Rancho Malibu property, can be sold or developed on
a tax free basis due to Banyan's net operating loss carryforwards and can
provide an attractive economic return to the Partnership.
During the three and nine months ended September 30, 1996, the
Partnership sold equipment having a net book value of $116,885 and $247,278,
respectively, to existing lessees and third parties. These sales resulted in
net gains, for financial statement purposes, of $148,743 and $255,150,
respectively.
It cannot be determined whether future sales of equipment will result in
a net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount
of accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological
advances, and many other events can converge to enhance or detract from asset
values at any given time. EFG attempts to monitor these changes in order to
identify opportunities which may be advantageous to the Partnership and which
will maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset,
together with its residual value. The latter consists of cash proceeds
realized upon the asset's sale in addition to all other cash receipts
obtained from renting the asset on a re-lease, renewal or month-to-month
basis. The Partnership classifies such residual rental payments as lease
revenue. Consequently, the amount of gain or loss reported in the financial
statements may not be indicative of the total residual value the Partnership
achieved from leasing the equipment.
Depreciation and amortization expense for the three and nine months ended
September 30, 1997 was $497,137 and $1,842,777, respectively, compared to
$902,043 and $2,919,724 for the same periods in 1996. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the
Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset at the date of
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AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
primary lease expiration on a straight-line basis over such term. For
purposes of this policy, estimated residual values represent equipment values
at the date of the primary lease expiration. To the extent that equipment is
held beyond its primary lease term, the Partnership continues to depreciate
the remaining net book value of the asset on a straight-line basis over the
asset's remaining economic life.
Interest expense was $118,601 and $354,321 or 15% and 10.1% of lease
revenue for the three and nine months ended September 30, 1997, respectively,
compared to $146,713 and $452,276 or 10.9% and 12% of lease revenue for the
same periods in 1996. Interest expense is expected to continue to decline in
amount as the principal balance of notes payable is reduced through the
application of rent receipts to outstanding debt. In addition, the General
Partner expects to use a portion of the Partnership's available cash and
future cash flow to retire indebtedness (see Overview).
Management fees were 4.4% and 3.6% of lease revenue during the three and
nine months ended September 30, 1997, respectively, compared to 3.2% and 3%
of lease revenue during the same periods in 1996. Management fees are based
on 5% of gross lease revenue generated by operating leases and 2% of gross
lease revenue generated by full payout leases.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as
printing, distribution and remarketing expenses. In certain cases, equipment
storage or repairs and maintenance costs may be incurred in connection with
equipment being remarketed. Collectively, operating expenses represented
11.6% and 5.4% of lease revenue during the three and nine months ended
September 30, 1997, respectively, compared to 4.1% and 4.2% of lease revenue
for the same periods in 1996. The increase in operating expenses from 1996 to
1997 is primarily attributable to increases in professional service costs and
administrative charges. The amount of future operating expenses cannot be
predicted with certainty; however, such expenses are usually higher during
the acquisition and liquidation phases of a partnership. Other fluctuations
typically occur in relation to the volume and timing of remarketing
activities.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As
an equipment leasing program, the Partnership's principal operating
activities derive from asset rental transactions. Accordingly, the
Partnership's principal source of cash from operations is provided by the
collection of periodic rents. These cash inflows are used to satisfy debt
service obligations associated with leveraged leases, and to pay management
fees and operating costs. Operating activities generated net cash inflows of
$2,933,870 and $3,183,271 for the nine months ended September 30, 1997 and
1996, respectively. Future renewal, re-lease and equipment sale activities
will cause a decline in the Partnership's lease revenue and corresponding
sources of operating cash. Overall, expenses associated with rental
activities, such as management fees, and net cash flow from operating
activities will continue to decline as the Partnership experiences a higher
frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be
sold to the existing lessee or to a third party. Generally, this will occur
upon expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of
an asset. Such circumstances are infrequent and usually result in the
collection of stipulated cash settlements pursuant to terms and conditions
contained in the underlying lease agreements.
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AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. For the nine months ended September 30,
1997, the Partnership realized net cash proceeds of $2,330,599, including
proceeds from the exchange transaction, compared to $502,428 for the same
period in 1996. Future inflows of cash from asset disposals will vary in
timing and amount and will be influenced by many factors including, but not
limited to, the frequency and timing of lease expirations, the type of
equipment being sold, its condition and age, and future market conditions.
During the nine months ended September 30, 1996, the Partnership expended
$63,243 in connection with the like-kind exchange transactions referred to
above. There were no equipment acquisitions during the same period in 1997.
As a result of the exchange transaction (see Results of Operations) the
Partnership became the beneficial owner of 407,970 shares of Banyan common
stock valued at $611,955 ($1.50 per share) and holds a beneficial interest in
the Banyan Note of $898,405.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness
are reported as a component of financing activities. Each note payable is
recourse only to the specific equipment financed and to the minimum rental
payments contracted to be received during the debt amortization period (which
period generally coincides with the lease rental term). As rental payments
are collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future periods, the amount of cash used to repay
debt obligations is scheduled to decline as the principal balance of notes
payable is reduced through the collection and application of rents. However,
the amount of cash used to repay debt obligations may fluctuate due to the
use of the Partnership's available cash and future cash flow to retire
indebtedness (see Overview). In addition, the Partnership has balloon payment
obligations at the expiration of the respective primary lease terms related
to the Finnair Aircraft and the Reno Aircraft of $1,367,145 and $823,037,
respectively.
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar
quarter. The payment of such distributions is presented as a component of
financing activities. For the nine months ended September 30, 1997, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $654,885. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Limited Partners were allocated 95% of these distributions,
or $622,141, and the General Partner was allocated 5%, or $32,744. The third
quarter 1997 cash distribution was paid on October 14, 1997.
Cash distributions paid to the Limited Partners consist of both a return
of and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation
of renewal and/or re-lease rents, and the residual value realized for each
asset at its disposal date. Future market conditions, technological changes,
the ability of EFG to manage and remarket the assets, and many other events
and circumstances, could enhance or detract from individual asset yields and
the collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the
foregoing and will be greatly dependent upon the collection of contractual
rents and the outcome of residual activities. The General Partner anticipates
that cash proceeds resulting from these sources will satisfy the
Partnership's future expense obligations. However, the amount of cash
available for distribution in future periods will fluctuate. Equipment lease
expirations and asset disposals will cause the Partnership's net cash from
operating activities to diminish over time; and equipment sale proceeds will
vary in amount and period of realization. In addition, the Partnership may be
15
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
required to incur asset refurbishment or upgrade costs in connection with
future remarketing activities. Accordingly, fluctuations in the level of
quarterly cash distributions will occur during the life of the Partnership.
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AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 8 to the financial statements herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
17
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity
and on the date indicated.
AMERICAN INCOME FUND I-D, A MASSACHUSETTS LIMITED PARTNERSHIP
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of the
Registrant.
By: /s/ Michael J. Butterfield
--------------------------
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 14, 1997
--------------------------
By: /s/ Gary M. Romano
--------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 14, 1997
---------------------------
18