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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 SEPTEMBER 30, 1998 COMMISSION FILE NO. 0-18365
------------------------
AMERICAN INCOME PARTNERS V-B
Limited Partnership
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3061971
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
88 BROAD STREET, BOSTON, MA 02110
(Address of principal executive offices) (Zip Code)
(617) 854-5800
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
report)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes / / No / /
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AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
INDEX
PAGE
---------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position at September 30, 1998 and December 31, 1997........................... 3
Statement of Operations for the three and nine months ended September 30, 1998 and 1997............... 4
Statement of Changes in Partners' Capital for the nine months ended September 30, 1998 and 1997....... 5
Statement of Cash Flows for the nine months ended September 30, 1998 and 1997......................... 6
Notes to the Financial Statements..................................................................... 7-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 13-20
PART II. OTHER INFORMATION:
Items 1 - 6............................................................................................. 21
2
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS
Cash and cash equivalents............................. $ 3,673,469 $ 2,806,479
Rents receivable...................................... 1,862 4,563
Accounts receivable -- affiliate...................... 1,136,535 165,242
Note receivable -- affiliate.......................... 888,844 888,844
Investment securities -- affiliate.................... 186,860 295,046
Equipment at cost, net of accumulated depreciation of
$13,400,680 and $17,907,433 at September 30, 1998 and
December 31, 1997, respectively...................... 215,164 1,555,180
------------- ------------
Total assets...................................... $ 6,102,734 $ 5,715,354
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable......................................... $ -- $ 24,608
Accrued interest...................................... -- 209
Accrued liabilities................................... 303,500 9,200
Accrued liabilities -- affiliate...................... 27,400 26,753
Deferred rental income................................ 24,700 55,718
Cash distributions payable to partners................ 213,862 213,860
------------- ------------
Total liabilities................................. 569,462 330,348
------------- ------------
Partners' capital (deficit):
General Partner..................................... (1,439,871) (1,447,285)
Limited Partnership Interests
(1,547,930 Units; initial purchase price of $25
each)............................................. 6,973,143 6,832,291
------------- ------------
Total partners' capital........................... 5,533,272 5,385,006
------------- ------------
Total liabilities and partners' capital........... $ 6,102,734 $ 5,715,354
------------- ------------
------------- ------------
The accompanying notes are an integral part of these financial statements.
3
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- ---------- -----------
Income:
Lease revenue..................... $ 357,157 $ 476,471 $1,046,387 $ 2,554,075
Interest income................... 49,265 34,544 122,909 83,415
Interest income -- affiliate...... 21,792 -- 66,481 --
Gain on sale of equipment......... 255,416 38,680 772,411 108,892
Loss on exchange of equipment..... -- -- -- (414,165)
--------- --------- ---------- -----------
Total income.................... 683,630 549,695 2,008,188 2,332,217
--------- --------- ---------- -----------
Expenses:
Depreciation...................... 57,177 353,104 466,390 1,114,811
Interest expense.................. -- 2,044 -- 22,767
Equipment management fees --
affiliate....................... 17,505 23,462 51,260 126,691
Operating expenses -- affiliate... 108,531 118,152 592,506 499,268
--------- --------- ---------- -----------
Total expenses.................. 183,213 496,762 1,110,156 1,763,537
--------- --------- ---------- -----------
Net income.......................... $ 500,417 $ 52,933 $ 898,032 $ 568,680
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Net income per limited partnership
unit............................... $ 0.31 $ 0.03 $ 0.55 $ 0.35
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Cash distributions declared per
limited partnership unit........... $ 0.13 $ 0.17 $ 0.39 $ 0.52
--------- --------- ---------- -----------
--------- --------- ---------- -----------
The accompanying notes are an integral part of these financial statements.
4
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
GENERAL RECOGNIZED OWNERS
PARTNER ----------------------
AMOUNT UNITS AMOUNT TOTAL
------------ --------- ----------- -----------
Balance at December 31, 1997.............................. $ (1,447,285) 1,547,930 $ 6,832,291 $ 5,385,006
Net income.............................................. 44,902 -- 853,130 898,032
Unrealized loss on investment securities -- affiliate... (5,409) -- (102,777) (108,186)
------------ --------- ----------- -----------
Comprehensive income...................................... 39,493 -- 750,353 789,846
------------ --------- ----------- -----------
Cash distributions declared............................... (32,079) -- (609,501) (641,580)
------------ --------- ----------- -----------
Balance at September 30, 1998............................. $ (1,439,871) 1,547,930 $ 6,973,143 $ 5,533,272
------------ --------- ----------- -----------
------------ --------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
5
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
Cash flows from (used in) operating activities:
Net income............................................ $ 898,032 $ 568,680
Adjustments to reconcile net income to net cash from
(used in) operating activities:
Depreciation...................................... 466,390 1,114,811
Gain on sale of equipment......................... (772,411) (108,892)
Loss on exchange of equipment..................... -- 414,165
Non-cash proceeds on termination rents............ -- (295,533)
Decrease in allowance for doubtful accounts....... -- (10,000)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable.................................. 2,701 241,486
accounts receivable -- affiliate.................. (971,293) 307,176
Increase (decrease) in:
accrued interest.................................. (209) (6,408)
accrued liabilities............................... 294,300 (42,250)
accrued liabilities -- affiliate.................. 647 (210,894)
deferred rental income............................ (31,018) (1,250)
----------- -----------
Net cash from (used in) operating activities.... (112,861) 1,971,091
Cash flows from investing activities:
Proceeds from equipment sales....................... 1,646,039 124,598
----------- -----------
Net cash from investing activities.............. 1,646,039 124,598
----------- -----------
Cash flows used in financing activities:
Principal payments -- notes payable................. (24,608) (586,840)
Distributions paid.................................. (641,580) (855,435)
----------- -----------
Net cash used in financing activities........... (666,188) (1,442,275)
----------- -----------
Net increase in cash and cash equivalents............. 866,990 653,414
Cash and cash equivalents at beginning of period...... 2,806,479 1,961,623
----------- -----------
Cash and cash equivalents at end of period............ $ 3,673,469 $ 2,615,037
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............ $ 209 $ 29,175
----------- -----------
----------- -----------
Supplemental disclosure of non-cash investing and
financing activities:
See Note 5 to the financial statements.
The accompanying notes are an integral part of these financial statements.
6
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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 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 September 30, 1998 and December 31, 1997 and results of operations
for the three and nine months ended September 30, 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 nine
months ended September 30, 1998, total comprehensive income amounted to
$789,846.
Certain reclassifications have been made to the financial statements for the
nine months ended September 30, 1997 to conform to the 1997 Annual Report
presentation.
NOTE 2 -- CASH
At September 30, 1998, the Partnership had $3,563,632 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 $340,733 are due as
follows:
For the year ending September 30, 1999 $187,752
2000 47,071
2001 47,071
2002 47,071
2003 11,768
--------
Total $340,733
--------
--------
7
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 -- EQUIPMENT
The following is a summary of equipment owned by the Partnership at
September 30, 1998. Remaining Lease Term (Months), as used below, represents the
number of months remaining from September 30, 1998 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
------------------------------------------------------ ---------- -------------
Aircraft.............................................. 1-4 $ 12,311,220
Materials handling.................................... 0-2 486,053
Construction and mining............................... 7 433,283
Trailers/intermodal containers........................ 51 299,661
Retail store fixtures................................. 3 30,320
Energy systems........................................ 0 29,996
Tractors and heavy duty trucks........................ 0 18,426
Computers and peripherals............................. 0-3 6,885
-------------
Total equipment cost 13,615,844
Accumulated depreciation (13,400,680)
-------------
Equipment, net of accumulated depreciation $ 215,164
-------------
-------------
At September 30, 1998, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $12,617,770, representing
approximately 93% of total equipment cost.
At September 30, 1998, the cost and net book value of equipment held for
sale or re-lease was approximately $12,311,000 and $35,000, respectively. This
equipment represents the Partnership's proportionate interests in two Boeing
727-251 ADV aircraft. The Partnership has received an irrevocable notice of the
lessees' intention to purchase the Partnership's interest in one of these
aircraft for approximately $1,470,000 in January 1999, at the expiration of the
existing lease term. The Partnership's interest in this aircraft had a cost of
$5,827,110 that was fully depreciated at September 30, 1998. The General Partner
is currently holding discussions with a potential third-party purchaser
regarding the second aircraft. The Partnership's interest in this aircraft had a
cost and net book value of $6,484,110 and $35,373, respectively, at September
30, 1998. The summary above also 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
8
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
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").
As a result of the exchange transaction and its original 53.54% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $847,080 in cash, became the beneficial owner of 393,394 shares of
Semele common stock (valued at $590,091 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$888,844. 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 $66,481 related to
the Semele Note during the nine months ended September 30, 1998. The
Partnership's interest in the vessel had an original cost and net book value of
$4,205,030 and $1,597,566, respectively. The proceeds realized by the
Partnership of $1,183,401 resulted in a net loss, for financial statement
purposes, of $414,165. In addition, as this vessel was disposed of prior to the
expiration of the related lease term, the Partnership received a prepayment of
the remaining contracted rent due under the vessel's lease agreement of
$1,142,614.
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 sought
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 $78,679 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. On June 30, 1998, Semele affected a 1-for-300 reverse
stock
9
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
split followed by a 30-for-1 forward stock split resulting in a reduction of the
number of shares of Semele common stock owned by the Partnership to 39,339
shares. During the nine months ended September 30, 1998, the Partnership
decreased the carrying value of its investment in Semele common stock to $4.75
per share (the quoted price of the Semel stock on NASDAQ at September 30, 1998)
resulting in an unrealized loss in 1998 of $108,186. This loss was reported as a
component of comprehensive income, included in partners' capital.
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 nine month
periods ended September 30, 1998 and 1997, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
1998 1997
-------- --------
Equipment management fees................................... $ 51,260 $126,691
Administrative charges...................................... 44,802 41,995
Reimbursable operating expenses due to third parties........ 547,704 457,273
-------- --------
Total................................................... $643,766 $625,959
-------- --------
-------- --------
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 September 30, 1998, the
Partnership was owed $1,136,535 by EFG for such funds and the interest thereon.
This balance included proceeds of $948,141 related to the sale of equipment in
September 1998, including the sale of the Partnership's interest in two
Fairchild Metro III aircraft. These funds were remitted to the Partnership in
October 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.
10
AMERICAN INCOME PARTNERS V-B
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 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 Stipulation of Settlement was based upon and supersedes a
Memorandum of Understanding between the partie dated March 9, 1998 which
outlined the terms of a possible settlement. The Stipulation of Settlement was
filed with the Court on July 23, 1998. On August 20, 1998, 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"). The Court's August 20 Order enjoined certain class members,
including all of the partners of the Partnership, from transferring, selling,
assigning, giving, pledging, hypothesizing, or otherwise disposing of any Units
pending the Court's final determination of whether the settlement should be
approved. Similarly, the August 20 Order enjoined the General Partner of the
Partnership (and the general partners of certain affiliated partnerships) from,
among other things, recording any such transfers.
The Stipulation of Settlement, as preliminarily approved by the Court,
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 Stipulation of Settlement provides for the restructuring of their respective
business operations into a single successor company whose securities would be
listed and traded on a national securities 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. The Stipulation of Settlement prescribes certain conditions
necessary to effecting the settlement, including providing the partners of the
Exchange Partnerships with the opportunity to object to the participation of
their partnership in the restructuring.
A preliminary Solicitation Statement, describing, among other things, the
various terms of settlement, was filed with the Securities and Exchange
Commission on August 25, 1998. Upon completion of the review process, a
definitive Solicitation Statement will be distributed to all of the partners of
the Exchange Partnerships to enable them to vote on the restructuring. Prior to
the settlement becoming final, the Court will hold a hearing on the settlement
that will be open to all interested parties. The Court has scheduled a hearing
date for December 11, 1998. Currently, it is anticipated that a request for
extension will be filed with the Court to permit sufficient time to complete the
regulatory review process and print and mail the definitive Solicitation
Statement. Class members will be notified of the final hearing date in advance.
There can be no assurance that the outcome of the voting by the partners of
the Exchange Partnerships, including the Partnership, will result in all or any
of the Exchange Partnerships, including the Partnership, being included in the
proposed restructuring. There also can be no assurance that a settlement,
including the restructuring, will be approved by the Court and effected. The
General Partner and its affiliates, in consultation with counsel, concur that
there is a reasonable basis to believe that a final settlement 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. 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,
11
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
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 filed an
Amended and Supplemental Complaint alleging further default under the MLA and
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 parties have since resumed settlement discussions. The Partnership does not
anticipate that it will experience any material losses as a result of this
action.
On September 22, 1995, Investors Asset Holding Corp. and First Security
Bank, N.A., trustees of the Partnership and various other affiliated investment
programs, filed an action in the United States District Court for the District
of Massachusetts against Northwest Airlines, Inc. ("Northwest"), a lessee of the
Partnership. The trustees are seeking damages from Northwest and a declaratory
judgment concerning Northwest's maintenance and return obligations for certain
aircraft owned by the Partnership. In addition to filing its Answer to the
Plaintiffs' Complaint, Northwest also filed a motion to transfer venue of this
proceeding to Minnesota. The Court denied such motion. The parties have
completed the initial phase of discovery, and motions for partial summary
judgment are pending. While the United States Magistrate Judge recommended entry
of partial summary judgment in favor of Plaintiffs, the District Judge has
scheduled a hearing in January 1999 to consider that recommendation. At present,
it is not possible to determine the ultimate outcome of this matter.
On November 9, 1998, First Security Bank, N.A. (the "Trustee"), as trustee
of the Partnership and various other affiliated investment programs (the
"Affiliated Programs"), filed an action in the Superior Court of the
Commonwealth of Massachusetts in Suffolk County against Prime Air, Inc. d/b/a
Transmeridian Airlines ("Transmeridian"), Atkinson & Mullen Travel, Inc. and
Apple Vacations, West, Inc., both d/b/a Apple Vacations, asserting various
causes of action for declaratory judgment and breach of contract.
The Trustee is seeking a declaration that Transmeridian has breached the
lease agreement that the Partnership and the Affiliated Programs entered into
with Transmeridian to lease a Boeing 727-251 ADV aircraft (the "Aircraft") by,
among other things, (i) refusing to pay for inspections of the Aircraft; (ii)
refusing to repair or replace burned engine blades found in one engine; and
(iii) failing to pay $70,000 of rents due for the month subsequent to the lease
agreement expiration date on October 29, 1998 but prior to the return of the
Aircraft. A maintenance contractor has refused to continue to perform
maintenance work on the Aircraft, including a C Check required under the lease,
due to Transmeridian's failure to make full payment for such maintenance.
Transmeridian's breaches are impeding the ability of the Partnership and the
Affiliated Programs to sell the Aircraft to a third party. In addition, the
Partnership seeks to enforce written guaranties issued by Apple Vacations that
absolutely and unconditionally guarantee Transmeridian's performance under the
lease agreement. Thus, Apple Vacations is liable to the Partnership and the
Affiliated Programs for any harm they may suffer as a result of Transmeridian's
breaches. At present, it is not possible to determine the outcome of this
matter.
12
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements in this quarterly report of American Income Partners V-B
Limited Partnership (the "Partnership") that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are subject to a variety of risks and
uncertainties. There are a number of 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) ("EFG"), to collect all rents due
under the attendant lease agreements and successfully remarket the Partnership's
equipment upon the expiration of such leases.
YEAR 2000 ISSUE
The Year 2000 Issue generally refers to the capacity of computer programming
logic to correctly identify the calendar year. Many companies utilize computer
programs or hardware with date sensitive software or embedded chips that could
interpret dates ending in "00" as the year 1900 rather than the year 2000. In
certain cases, such errors could result in system failures or miscalculations
that disrupt the operations of the affected businesses. The Partnership uses
information systems provided by EFG and has no information systems of its own.
EFG has adopted a plan to address the Year 2000 Issue that consists of four
phases: assessment, remediation, testing, and implementation and has elected to
utilize principally internal resources to perform all phases. Presently, EFG
anticipates completing its Year 2000 project by December 31, 1998 at a di
minimus cost to the Partnership. Aggregate costs for the entire project are
anticipated to be less than $50,000, all of which will have been expensed as
incurred.
EFG's primary information software was coded by IBM at the point of original
design to use a four-digit field to identify calendar year. All of the
Partnership's lease billings, cash receipts and equipment remarketing processes
are performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and are expected to require only minor modifications to function properly with
respect to dates in the year 2000 and thereafter. Moreover, EFG understands that
each of its and the Partnership's significant vendors and third-party servicers
are in the process, or have completed the process, of making their systems Year
2000 compliant. Substantially all parties queried have indicated that their
systems will be Year 2000 compliant by the end of 1998. Presently, EFG is not
aware of any outside customer with a Year 2000 Issue that would have a material
effect on the Partnership's results of operations, liquidity, or financial
position. However, non-compliance on the part of a lessee could, under a worse
case scenario, result in lost revenues to the Partnership.
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Partnership's business operations. However, EFG has no means of ensuring that
all customers, vendors and third-party
13
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
servicers will conform ultimately to Year 2000 standards. The effect of this
risk to the Partnership is not determinable.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 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 and nine months ended September 30, 1998, the Partnership
recognized lease revenue of $357,157 and $1,046,387, respectively, compared to
$476,471 and $2,554,075 for the same periods in 1997. The decrease in lease
revenue from 1997 to 1998 reflects the effects of 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 nine months ended September 30, 1997,
the Partnership recognized lease revenue of $1,279,436 related to this vessel.
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 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, 1998, the Partnership
earned interest income of $71,057 and $189,390, respectively, compared to
$34,544 and $83,415 for the same periods in 1997. Interest income during the
three and nine months ended September 30, 1998 included $21,792 and $66,481,
respectively, earned on the note receivable from Semele. Interest income is
typically generated from temporary investment of rental receipts and equipment
sales proceeds in short-term instruments. 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.
14
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
During the three and nine months ending September 30, 1998, the Partnership
sold equipment having a net book value of $692,728 and $873,628, respectively,
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $255,416 and $772,411, respectively.
During the three and nine months ended September 30, 1997, the Partnership
sold equipment having a net book value of $320 and $15,706, respectively, to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $38,680 and $108,892, respectively. During the
nine months ended September 30, 1997, the Partnership also exchanged its
interest in a vessel with an original cost and net book value of $4,205,030 and
$1,597,566, respectively. In connection with this transaction, the Partnership
realized proceeds of $1,183,401, which resulted in a net loss for financial
statement purposes, of $414,165. In addition, as this vessel was disposed of
prior to the expiration of the related lease term, the Partnership received a
prepayment of the remaining contracted rent due under the vessel's lease
agreement in the amount of $1,142,614. 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 Gearbulk
Shipowning Ltd. (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, 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 a 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").
As a result of the exchange transaction and its original 53.54% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $847,080 in cash, became the beneficial owner of 393,394 shares of
Semele common stock (valued at $590,091 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$888,844. 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.
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 sought
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
15
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 the 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 $78,679 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.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation expense for the three and nine months ended September 30, 1998
was $57,177 and $466,390 respectively, compared to $353,104 and $1,114,811 for
the same periods in 1997. For financial reporting purposes, to the extent that
an asset is held on primary lease term, the Partnership depreciates the
difference between (i) the cost of the asset and (ii) the estimated residual
value of the asset on a straight-line basis over such term. For purposes of this
policy, estimated residual values represent estimates of equipment values at the
date of primary lease expiration. To the extent that an asset is held beyond its
primary lease term, the Partnership continues to depreciate the remaining net
book value of the asset on a straight-line basis over the asset's remaining
economic life.
Interest expense was $2,044 and $22,767 during the three and nine months
ended September 30, 1997. The Partnership's notes payable were fully amortized
on January 1, 1998.
Management fees were approximately 4.9% of lease revenue for each of the
three and nine months ended September 30, 1998, compared to 4.9% and 5% of lease
revenue for the same periods in 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.
16
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 $108,531 and $592,506 for the three and nine
months ended September 30, 1998, respectively, compared to $118,152 and $499,268
for the same periods in 1997. During the nine months ended September 30, 1998,
the Partnership incurred or accrued approximately $302,000 for certain legal and
administrative expenses related to the Class Action Lawsuit described in Note 7
to the financial statements. Significant operating expenses were incurred during
the nine months ended September 30, 1997 due to heavy maintenance and airframe
overhaul costs incurred or accrued in connection with the Partnership's
interests in two Boeing 727 aircraft. 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 a net cash outflow of $112,861 and a net cash inflow of $1,971,091 for
the nine months ended September 30, 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 nine months
ended September 30, 1998, the Partnership realized net cash proceeds of
$1,646,039, compared to $124,598 for the same period in 1997. 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.
Pursuant to a purchase option contained in the lease agreement, the lessee,
Sunworld International Airlines, Inc., has given the Partnership irrevocable
notice of the its intention to purchase the Partnership's interest in a Boeing
727-251 ADV aircraft for approximately $1,470,000 in January 1999, at the
expiration of the existing lease term. The Partnership's interest in the
aircraft was fully depreciated at September 30, 1998. The Partnership's ability
to remarket its interest in a second Boeing 727-251 ADV aircraft is being
17
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
impeded due to the lessee's, Transmeridian Airlines, failure to perform its
obligations under the lease agreement. See Note 7 to the accompanying financial
statements for details regarding legal action undertaken by the Partnership
related to this situation.
As a result of the exchange transaction (see Results of Operations), the
Partnership holds a beneficial interest in the Semele Note of $888,844 and
became the beneficial owner of 393,394 shares of Semele common stock valued at
$590,091 ($1.50 per share) at the date of the transaction.
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. On June 30, 1998, Semele effected a 1-for-300 reverse
stock split followed by a 30-for-1 forward stock split resulting in a reduction
of the number of shares of Semele common stock owned by the Partnership to
39,339 shares. During the nine months ended September 30, 1998, the Partnership
decreased the carrying value of its investment in Semele common stock to $4.75
per share (the quoted price of the Semele stock on NASDAQ at September 30, 1998)
resulting in an unrealized loss in 1998 of $108,186. This loss 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 carry forwards 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 on January 1, 1998.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes (generally referred to as permanent or timing differences;
see Note 7 to the financial statements presented in the Partnership's 1997
Annual Report). For instance, selling commissions, organization and offering
costs pertaining to syndication of the Partnership's limited partnership units
are not deductible for federal income tax purposes but are recorded as a
reduction of partners' capital for financial reporting purposes. Therefore, such
differences are permanent differences between capital accounts for financial
reporting and federal income tax purposes. Other differences between the bases
of capital accounts for federal income tax and financial reporting purposes
occur due to timing differences. Such items consist of the cumulative difference
between income or loss for tax purposes and financial statement income or loss,
the difference between distributions (declared vs. paid) for income tax and
financial reporting purposes, and the treatment of unrealized gains or losses on
investment securities, if any, for book and tax purposes. The principal
component of the cumulative difference between financial statement income or
loss and tax income or loss results from different depreciation policies for
book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at September 30, 1998. 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 Amended and Restated
Agreement and Certificate of Limited Partnership 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
18
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
balance which may exist in the General Partner's tax capital account. At
December 31, 1997, the General Partner had a positive tax capital account
balance.
At September 30, 1998, the Partnership had aggregate future minimum lease
payments of $340,733 from contractual lease agreements (see Note 3 to the
financial statements). At the expiration of the individual lease terms
underlying the Partnership's future minimum lease payments, the Partnership will
sell the equipment or enter re-lease or renewal agreements when considered
advantageous by the General Partner and EFG. Such future remarketing activities
will result in the realization of additional cash inflows in the form of
equipment sale proceeds or rents from renewals and re-leases, the timing and
extent of which cannot be predicted with certainty. This is because the timing
and extent of remarketing events is often 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.
Accordingly, as the terms of the currently existing contractual lease agreements
expire, the cash flows of the Partnership will become less predictable. In
addition, the Partnership will have cash outflows to pay management fees and
operating expenses. The Partnership may also be required to expend funds to
refurbish or otherwise improve the equipment being remarketed in order to make
it more desirable to a potential lessee or purchaser. Ultimately, the
Partnership is expected to meet its future disbursement obligations and to
distribute any excess of cash inflows over cash outflows to the Partners in
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership. However, several factors, including month-to-month lease
extensions, lessee defaults, equipment casualty events, and early lease
terminations could alter the timing and amount of the Partnership's anticipated
cash flows as described herein and in the accompanying financial statements and
result in fluctuations to the Partnership's periodic cash distribution payments.
Further, the outcome of the Class Action Lawsuit described above could effect
the ability of the Partnership to collect all of its contracted future minimum
lease payments and remarketing proceeds, as well as the amount and timing of
future cash distributions to the Partners.
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 nine months ended September 30, 1998, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $641,580. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 95% of these distributions, or
$609,501, and the General Partner was allocated 5%, or $32,079. The third
quarter 1998 cash distribution was paid on October 15, 1998.
Cash distributions paid to the Recognized Owners consist of both a return of
and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing,
as well as the outcome of the Class Action Lawsuit described in Note 7 to the
accompanying financial statement. The General
19
AMERICAN INCOME PARTNERS V-B
LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
Partner anticipates that cash proceeds resulting from the collection of
contractual rents and the outcome of residual activities 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.
20
AMERICAN INCOME PARTNERS V-B
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
21
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP
By: AFG Leasing 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 13, 1998
------------------------------------------
By: /s/ GARY M. ROMANO
------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 13, 1998
------------------------------------------
22