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 March 31, 1998
------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------------------- to ---------------
-------------------------
For Quarter Ended March 31, 1998 Commission File No. 0-18364
American Income Partners V-A Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3057303
- ------------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Boston, MA 02110
- ----------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
--------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes / / No / /
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
INDEX
Page
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1998 and December 31, 1997 3
Statement of Operations
for the three months ended March 31, 1998 and 1997 4
Statement of Changes in Partners' Capital
for the three months ended March 31, 1998 5
Statement of Cash Flows
for the three months ended March 31, 1998 and 1997 6
Notes to the Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
PART II. OTHER INFORMATION:
Items 1 - 6 16
2
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
March 31, 1998 and December 31, 1997
(Unaudited)
March 31, December 31,
1998 1997
----------- -----------
ASSETS
Cash and cash equivalents $ 2,627,137 $ 2,614,272
Rents receivable 2,699 3,971
Accounts receivable - affiliate 53,896 67,828
Notes receivable - affiliate 771,450 771,450
Investment securities - affiliate 298,756 256,076
Equipment at cost, net of accumulated depreciation
of $5,720,390 and $5,824,458 at March 31, 1998
and December 31, 1997, respectively -- 80,952
----------- -----------
Total assets $ 3,753,938 $ 3,794,549
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Accrued liabilities $ 10,662 $ 9,200
Accrued liabilities - affiliate 10,711 16,868
Deferred rental income 24,378 10,358
Cash distributions payable to partners 136,250 136,250
----------- -----------
Total liabilities 182,001 172,676
----------- -----------
Partners' capital (deficit):
General Partner (1,352,375) (1,349,878)
Limited Partnership Interests
(1,380,661 Units; initial purchase price
of $25 each) 4,924,312 4,971,751
----------- -----------
Total partners' capital 3,571,937 3,621,873
----------- -----------
Total liabilities and partners' capital $ 3,753,938 $ 3,794,549
----------- -----------
----------- -----------
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
----------- -----------
Income:
Lease revenue $ 117,616 $ 245,447
Interest income 33,315 24,940
Interest income - affiliate 19,286 --
Gain on sale of equipment -- 44,300
----------- -----------
Total income 170,217 314,687
----------- -----------
Expenses:
Depreciation 80,952 120,331
Interest expense -- 2,363
Equipment management fees - affiliate 5,881 12,272
Operating expenses - affiliate 39,750 109,599
----------- -----------
Total expenses 126,583 244,565
----------- -----------
Net income $ 43,634 $ 70,122
----------- -----------
----------- -----------
Net income
per limited partnership unit $ 0.03 $ 0.05
----------- -----------
----------- -----------
Cash distribution declared
per limited partnership unit $ 0.09 $ 0.12
----------- -----------
----------- -----------
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL for the three
months ended March 31, 1998
(Unaudited)
General Recognized Owners
Partner ------------------------
Amount Units Amount Total
----------- ----------- ----------- -----------
Balance at December 31, 1997 $(1,349,878) 1,380,661 $ 4,971,751 $ 3,621,873
Net income 2,182 -- 41,452 43,634
Unrealized gain on investment
securities - affiliate 2,134 -- 40,546 42,680
----------- ----------- ----------- -----------
Comprehensive income 4,316 -- 81,998 86,314
----------- ----------- ----------- -----------
Cash distribution declared (6,813) -- (129,437) (136,250)
----------- ----------- ----------- -----------
Balance at March 31, 1998 $(1,352,375) 1,380,661 $ 4,924,312 $ 3,571,937
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
----------- -----------
Cash flows from (used in) operating activities:
Net income $ 43,634 $ 70,122
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 80,952 120,331
Gain on sale of equipment -- (44,300)
Changes in assets and liabilities
Decrease in:
Rents receivable 1,272 17,947
Accounts receivable - affiliate 13,932 445,232
Increase (decrease) in:
Accrued interest -- (426)
Accrued liabilities 1,462 9,888
Accrued liabilities - affiliate (6,157) (71,265)
Deferred rental income 14,020 (1,228)
----------- -----------
Net cash from operating activities 149,115 546,301
----------- -----------
Cash flows from investing activities:
Proceeds from equipment sales -- 44,300
----------- -----------
Net cash from investing activities -- 44,300
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable -- (35,694)
Distributions paid (136,250) (181,665)
----------- -----------
Net cash used in financing activities (136,250) (217,359)
----------- -----------
Net increase in cash and cash equivalents 12,865 373,242
Cash and cash equivalents at beginning of period 2,614,272 1,709,301
----------- -----------
Cash and cash equivalents at end of period $ 2,627,137 $ 2,082,543
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- $ 2,789
----------- -----------
----------- -----------
Supplemental disclosure of non-cash activities:
See Note 5 to the financial statements regarding the recognition of an
unrealized gain on the Partnership's investment securities - affiliate
during the three months ended March 31, 1998.
The accompanying notes are an integral part
of these financial statements.
6
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTAT
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 1997 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1997 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 1998 and December 31, 1997 and results of operations for
the three month periods ended March 31, 1998 and 1997 have been made and are
reflected.
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Partnership's net income or partners'
capital. Statement 130 requires unrealized gains or losses on the Partnership's
available-for-sale securities, which prior to adoption were reported separately
in partners' capital, to be included in comprehensive income. During the first
quarter of 1998, total comprehensive income amounted to $86,314.
NOTE 2 - CASH
At March 31, 1998, the Partnership had $2,484,270 invested in federal
agency discount notes and reverse repurchase agreements secured by U.S. Treasury
Bills or interests in U.S. Government securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Partnership monthly or quarterly and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of $239,623
are due as follows:
For the year ending March 31, 1999 $ 239,236
2000 387
--------------
Total $ 239,623
--------------
--------------
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at March
31, 1998. Remaining Lease Term (Months), as used below, represents the number of
months remaining from March 31, 1998 under
7
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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
-------------- -------- -------
Aircraft 7-10 $4,596,188
Materials handling 0-14 1,074,110
Communications 0 40,997
Furniture and fixtures 0 5,636
Computers and peripherals 0 3,459
----------
Total equipment cost 5,720,390
Accumulated depreciation (5,720,390)
-----------
Equipment, net of accumulated depreciation $ --
----------
----------
At March 31, 1998, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $4,596,188 representing
approximately 80% of total equipment cost.
The summary above includes equipment held for sale or re-lease which had
been fully depreciated with a cost of approximately $3,500. The General Partner
is actively seeking the sale or re-lease of all equipment not on lease. In
addition, the summary above includes equipment being leased on a month-to-month
basis.
NOTE 5 - INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE
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 Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land
Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375.
Semele is a Delaware corporation organized on April 14, 1987 and has its common
stock listed on NASDAQ. At the date of the exchange transaction, the common
stock of Semele had a net book value of approximately $1.50 per share and
closing market value of $1.00 per share. Semele has one principal real estate
asset consisting of an undeveloped 274 acre parcel of land near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele 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 Semele 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 Semele (the "Semele Note").
8
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
As a result of the exchange transaction and its original 46.46% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $735,201 in cash, became the beneficial owner of 341,435 shares of
Semele common stock (valued at $512,153 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$771,450. The Semele Note bears an annual interest rate of 10% and will be
amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu. The Partnership recognized interest income of $19,286 related to
the Semele Note during the three months ended March 31, 1998. The Partnership's
interest in the vessel had an original cost and net book value of $3,666,680 and
$1,385,750, respectively. The proceeds realized by the Partnership of $1,027,101
resulted in a net loss, for financial statement purposes, of $358,649. 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 of $991,703.
Cash equal to the amount of the Semele Note was placed in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele 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 Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele'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 the size of the Board to as many as nine members,
provided a majority of the Board shall consist of members independent of Semele,
EFG or any affiliate; and (ii) an amendment extending Semele's life to perpetual
and changing its name from Banyan Strategic Land Fund II. Contemporaneously with
the Consent being obtained, Semele declared a $0.20 per share dividend to be
paid on all shares, including those beneficially owned by the Partnership. A
dividend of $68,287 was paid to the Partnership on November 17, 1997. This
dividend represented a return of equity to the Partnership, which
proportionately reduced the Partnership's investment in Semele. Subsequent to
the exchange transaction, Gary D. Engle, President and Chief Executive Officer
of EFG, was elected to the Board of Directors and appointed Chief Executive
Officer of Semele and James A. Coyne, Executive Vice President of EFG was
appointed Semele's President and Chief Operating Officer, and elected to the
Board of Directors.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. During the three months ended March 31, 1998, the
Partnership increased the carrying value of its investment in Semele common
stock to $0.875 per share (the quoted price of the Semele stock on NASDAQ at
March 31, 1998) resulting in an unrealized gain in 1998 of $42,680. This gain
was reported as a component of comprehensive income, included in partners'
capital.
9
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three month
periods ended March 31, 1998 and 1997, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
1998 1997
--------- ---------
Equipment management fees $ 5,881 $ 12,272
Administrative charges 14,709 9,141
Reimbursable operating expenses
due to third parties 25,041 100,458
--------- ---------
Total $ 45,631 $ 121,871
--------- ---------
--------- ---------
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 March 31, 1998, the Partnership was owed $53,896 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in April
1998.
NOTE 7 - LEGAL PROCEEDINGS
On or about January 15, 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.
On March 9, 1998, counsel for the Defendants and the Plaintiffs entered
into a Memorandum of Understanding setting forth the 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 Memorandum of Understanding represents a preliminary
step towards a comprehensive Stipulation of Settlement between the parties that
must be presented to and approved by the Court as a condition precedent to
effecting a settlement. The Memorandum of Understanding (i) prescribes a number
of conditions necessary to achieving a settlement, including providing the
partners (or beneficiaries, as applicable) of the Nominal Defendants with the
opportunity to vote on any settlement and (ii) contemplates various changes
that, if effected, would alter the future operations of the Nominal Defendants.
With respect to the Partnership and 10 affiliated partnerships (hereafter
referred to as the "Exchange Partnerships"), the Memorandum of Understanding
provides for the restructuring of their respective business operations into a
single successor company whose
10
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
securities would be listed and traded on a national stock exchange. The partners
of the Exchange Partnerships would receive both common stock in the new company
and a cash distribution in exchange for their existing partnership interests.
Such a transaction would, among other things, allow for the consolidation of the
Partnership's operating expenses with other similarly-organized equipment
leasing programs. To the extent that the parties agree upon a Stipulation of
Settlement that is approved by the Court, the complete terms thereof will be
communicated to all of the partners (or beneficiaries) of the Nominal Defendants
to enable them to vote thereon.
There can be no assurance that the parties will agree upon a Stipulation
of Settlement, or that it will be approved by the Court, or that the outcome of
the voting by the partners (or beneficiaries) of the Nominal Defendants,
including the Partnership, will result in a settlement finally being effected or
in the Partnership being included in any such settlement. The General Partner
and its affiliates, in consultation with counsel, concur that there is a
reasonable basis to believe that a Stipulation of Settlement will be agreed upon
by the parties and approved by the Court. In the absence of a Stipulation of
Settlement approved by the Court, the Defendants intend to defend vigorously
against the claims asserted in the Class Action Lawsuit. The General Partner and
its affiliates cannot predict with any degree of certainty the ultimate outcome
of such litigation.
On July 27, 1995, EFG, on behalf of the Partnership and other
EFG-sponsored investment programs, filed an action in the Commonwealth of
Massachusetts Superior Court Department of the Trial Court in and for the County
of Suffolk, for damages and declaratory relief against a lessee of the
Partnership, National Steel Corporation ("National Steel"), under a certain
Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is
seeking the reimbursement by National Steel of certain sales and/or use taxes
paid to the State of Illinois and other remedies provided by the MLA. On August
30, 1995, National Steel filed a Notice of Removal which removed the case to the
United States District Court, District of Massachusetts. On September 7, 1995,
National Steel filed its Answer to EFG's Complaint along with Affirmative
Defenses and Counterclaims, seeking declaratory relief and alleging breach of
contract, implied covenant of good faith and fair dealing and specific
performance. EFG filed its Answer to these counterclaims on September 29, 1995.
Though the parties discussed settlement with respect to this matter for some
time, the negotiations were unsuccessful. Notwithstanding these discussions, EFG
recently filed an Amended and Supplemental Complaint alleging further default
under the MLA and EFG recently filed a motion for Summary Judgment on all claims
and counterclaims. The Court held a hearing on EFG's motion in December 1997 and
the Court recently entered a decision dismissing certain of National Steel's
counterclaims and finding in favor of EFG on certain issues and in favor of
National Steel on other issues. The Partnership does not anticipate that it will
experience any material losses as a result of this action.
11
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements in this quarterly report of American Income Partners
V-A Limited Partnership (the "Partnership") that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of 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
outcome of the Class Action Lawsuit described in Note 7 to the accompanying
financial statements and the ability of Equis Financial Group Limited
Partnership (formerly American Finance Group), a Massachusetts limited
partnership ("EFG"), to collect all rents due under the attendant lease
agreements and successfully remarket the Partnership's equipment upon the
expiration of such leases.
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. EFG's computer
programs were designed and written using four digits to define the applicable
year. As a result, EFG does not anticipate system failure or miscalculations
causing disruptions of operations. Based on recent assessments, EFG determined
that minimal modification of software is required so that its network operating
system will function properly with respect to dates in the year 2000 and
thereafter. EFG believes that with these modifications to the existing operating
system, the Year 2000 Issue will not pose significant operational problems for
its computer systems. EFG will utilize internal resources to upgrade software
for Year 2000 modifications and anticipates completing the Year 2000 project by
December 31, 1998, which is prior to any anticipated impact on its operating
system. The total cost of the Year 2000 project is expected to be insignificant
and have no effect on the results of operations of the Partnership.
Three months ended March 31, 1998 compared to the three months ended March 31,
1997:
Overview
The Partnership was organized in 1989 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The 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. The Partnership's stated investment objectives
and policies contemplated that the Partnership would wind-up its operations
within approximately seven years of its inception. Presently, the Partnership is
a Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action
Lawsuit could alter the nature of the Partnership's organization and its future
business operations. See Note 7 to the accompanying financial statements.
Results of Operations
For the three months ended March 31, 1998, the Partnership recognized
lease revenue of $117,616 compared to $245,447 for the same period in 1997. The
decrease in lease revenue between 1997 and 1998 was expected and resulted
principally from renewal lease term expirations, the sale of equipment and the
exchange in the second quarter of 1997 of the Partnership's interest in a vessel
for consideration consisting of newly issued shares of common stock in Semele
Group, Inc. (formerly Banyan Strategic Land Fund II) ("Semele"), a note
receivable from Semele and cash (see Note 5 to the financial statements herein).
During the three months ended March 31, 1997, the Partnership recognized revenue
of $157,282 related to this vessel. In the future, lease revenue will continue
to decline due to primary and renewal lease term expirations and the sale of
equipment.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment
12
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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.
Interest income for the three months ended March 31, 1998 was $52,601
compared to $24,940 for the same period in 1997. Interest income is typically
generated from temporary investment of rental receipts and equipment sale
proceeds in short-term instruments. Interest income in 1998 included $19,286
earned on the note receivable from Semele. 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.
For the three months ended March 31, 1997, the Partnership sold equipment
which had been fully depreciated to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $44,300.
There were no equipment sales during the three months ended March 31, 1998.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation expense was $80,952 and $120,331 for the three months ending
March 31, 1998 and 1997, respectively. The Partnership's equipment was fully
depreciated at March 31, 1998.
Interest expense was $2,363, or 1% of lease revenue for the three months
ended March 31, 1997. There was no interest expense for the same period in 1998
as the Partnership's notes payable were fully amortized during 1997.
Management fees were 5% of lease revenue for the three months ended March
31, 1998 and 1997. 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. Operating expenses were $39,750 for the three months ended March 31,
1998 compared to $109,599 for the same period in 1997. Significant operating
expenses were incurred in 1997 due to heavy maintenance and airframe overhaul
costs incurred or accrued to facilitate the remarketing of two Boeing 727
aircraft in which the Partnership has an
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AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
ownership interest. 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 generally provided by the collection of
periodic rents. These cash inflows are used to pay management fees and operating
costs. In addition, in 1997 such cash inflows were used to satisfy debt service
obligations associated with leveraged leases. Operating activities generated net
cash inflows of $149,115 and $546,301 for the three months ended March 31, 1998
and 1997, respectively. Future renewal, re-lease and equipment sale activities
will cause a decline in the Partnership's lease revenue and corresponding
sources of operating cash. Overall, expenses associated with rental activities,
such as management fees, and net cash flow from operating activities will also
decline as the Partnership experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the three months
ended March 31, 1997, the Partnership realized $44,300 in equipment sale
proceeds. There were no equipment sales during the three months ending March 31,
1998. Future inflows of cash from asset disposals will vary in timing and amount
and will be influenced by many factors including, but not limited to, the
frequency and timing of lease expirations, the type of equipment being sold, its
condition and age, and future market conditions.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. During the three months ended March 31, 1998, the
Partnership increased the carrying value of its investment in Semele common
stock to $0.875 per share (the quoted price of the Semele stock on NASDAQ at
March 31, 1998) resulting in an unrealized gain in 1998 of $42,680. This gain
was reported as a component of comprehensive income, included in partners'
capital. The General Partner believes that the underlying tangible assets of
Semele, particularly the Rancho Malibu property, can be sold or developed on a
tax free basis due to Semele's net operating loss carryforwards and can provide
an attractive economic return to the Partnership.
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. The Partnership's notes payable
were fully amortized during 1997.
Cash distributions to the General Partner and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the three months ended March 31, 1998, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $136,250. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 95% of these distributions, or
$129,437, and the General Partner was allocated 5%, or $6,813. The first quarter
1998 cash distribution was paid on April 14, 1998.
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AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Cash distributions paid to the Recognized Owners consist of both a return
of and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The Partnership's future cash distributions will be adversely affected by
the bankruptcy of a former lessee of the Partnership, Midway Airlines, Inc.
("Midway"). In 1993, the Partnership's interests in two DC-9-30 aircraft leased
by Midway were transferred to a designee of the lender in lieu of foreclosure.
Although this bankruptcy had no immediate adverse effect on the Partnership's
cash flow, as the Partnership had almost fully leveraged its ownership interest
in the underlying aircraft, this event resulted in the Partnership's loss of any
future interest in the residual value of the aircraft. Notwithstanding such
adverse impact, the overall investment results to be achieved by the Partnership
will be dependent upon the collective performance results of all of the
Partnership's equipment leases.
The future liquidity of the Partnership will be influenced by the
foregoing, as well as the outcome of the Class Action Lawsuit described in Note
7 to the accompanying financial statements. The General Partner anticipates that
cash proceeds resulting from the collection of contractual rents, the outcome of
residual activities and the Partnership's available cash will satisfy the
Partnership's future expense obligations. However, the amount of cash available
for distribution in future periods will fluctuate. Equipment lease expirations
and asset disposals will cause the Partnership's net cash from operating
activities to diminish over time; and equipment sale proceeds will vary in
amount and period of realization. In addition, the Partnership may be required
to incur asset refurbishment or upgrade costs in connection with future
remarketing activities. Accordingly, fluctuations in the level of future
quarterly cash distributions are anticipated.
15
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 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
16
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated, a Massachusetts
corporation and the General Partner of the
Registrant.
By: /s/ Michael J. Butterfield
--------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 15, 1998
--------------------------------------------
By: /s/ Gary Romano
--------------------------------------------
Gary M. Romano
Clerk of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1998
--------------------------------------------
17