-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Li1qJzs4pFbSGIZLXJafzBbHOJmnP8BbmFNrs/1YvYzT3mHx32cqddAnMUiluA42 r/Hd/QqA+Cnlr1gsjfEkAA== 0000950109-97-002687.txt : 19970401 0000950109-97-002687.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950109-97-002687 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME PARTNERS V D LTD PARTNERSHIP CENTRAL INDEX KEY: 0000847560 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 043090151 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19135 FILM NUMBER: 97570803 BUSINESS ADDRESS: STREET 1: 98 NORTH WASHINGTON ST. CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6175421200 MAIL ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 10-K 1 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______________ to ______________________________ Commission file number 0-19135 ---------------------------------------------------------- American Income Partners V-D Limited Partnership - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3090151 - ---------------------------------------------------- ---------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 98 N. Washington St., Fifth Floor, Boston, MA 02114 - ---------------------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 854-5800 ------------------------------ Securities registered pursuant to Section 12(b) of the Act NONE ---------------------- Title of each class Name of each exchange on which registered _______________________________ __________________________________________ _______________________________ __________________________________________ Securities registered pursuant to Section 12(g) of the Act: 480,227 Units Representing Limited Partnership Interest - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No ------ ------ State the aggregate market value of the voting stock held by nonaffiliates of the registrant. Not applicable. Securities are nonvoting for this purpose. Refer to Item 12 for further information. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to security holders for the year ended December 31, 1996 (Part I and II) AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP FORM 10-K TABLE OF CONTENTS Page ---- PART I Item 1. Business 3 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II Item 5. Market for the Partnership's Securities and Related Security Holder Matters 6 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8. Financial Statements and Supplementary Data 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 7 PART III Item 10. Directors and Executive Officers of the Partnership 8 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 Item 13. Certain Relationships and Related Transactions 11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-15 -2- PART I Item 1. Business. - ------------------ (a) General Development of Business AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP (the "Partnership") was organized as a limited partnership under the Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on May 21, 1990 for the purpose of acquiring and leasing to third parties a diversified portfolio of capital equipment. Partners' capital initially consisted of contributions of $1,000 from the General Partner (AFG Leasing IV Incorporated) and $100 from the Initial Limited Partner (AFG Assignor Corporation). On September 27, 1990, the Partnership issued 480,227 units, representing assignments of limited partnership interests (the "Units"), to 806 investors. Unitholders and Limited Partners (other than the Initial Limited Partner) are collectively referred to as Recognized Owners. The Partnership has one General Partner, AFG Leasing IV Incorporated, a Massachusetts corporation and an affiliate of Equis Financial Group Limited Partnership (formerly American Finance Group), a Massachusetts limited partnership ("EFG"). The common stock of the General Partner is owned by AF/AIP Programs Limited Partnership, of which EFG and a wholly-owned subsidiary are the 99% limited partners, and AFG Programs, Inc., which is wholly-owned by EFG, is the 1% General Partner. The General Partner is not required to make any other capital contributions except as may be required under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"). (b) Financial Information About Industry Segments The Partnership is engaged in only one industry segment: the business of acquiring capital equipment and leasing the equipment to creditworthy lessees on a full payout or operating lease basis. (Full payout leases are those in which aggregate noncancellable rents exceed the Purchase Price of the leased equipment. Operating leases are those in which the aggregate noncancellable rental payments are less than the Purchase Price of the leased equipment.) Industry segment data is not applicable. (c) Narrative Description of Business The Partnership was organized to acquire a diversified portfolio of capital equipment subject to various full payout and operating leases and to lease the equipment to third parties as income-producing investments. More specifically, the Partnership's primary investment objectives are to acquire and lease equipment which will: 1. Generate quarterly cash distributions; 2. Preserve and protect invested capital; and 3. Maintain substantial residual value for ultimate sale. The Partnership has the additional objective of providing certain federal income tax benefits. The Closing Date of the Offering of Units of the Partnership was September 27, 1990. The initial purchase of equipment and the associated lease commitments occurred on September 28, 1990. The acquisition of the equipment and its associated leases is described in detail in Note 3 to the financial statements included in Item 14, herein. The Partnership is expected to terminate no later than December 31, 2000; however, the General Partner is evaluating winding-up the Partnership operations in 1997 or 1998. The Partnership has no employees; however, it entered into a Management Agreement with AF/AIP Programs Limited Partnership. At the same time AF/AIP Programs Limited Partnership entered into an identical Management Agreement with EFG (the "Manager") (collectively, the "Management Agreement"). The Manager's role, among other things, is to (i) evaluate, select, negotiate, and consummate the acquisition of equipment, (ii) manage the leasing, re-leasing, financing, and refinancing of equipment, and (iii) arrange the resale of equipment. -3- The Manager is compensated for such services as described in the Restated Agreement, as amended, Item 13 herein, and in Note 4 to the financial statements included in Item 14, herein. The Partnership's investment in equipment is, and will continue to be, subject to various risks, including physical deterioration, technological obsolescence and defaults by lessees. A principal business risk of owning and leasing equipment is the possibility that aggregate lease revenues and equipment sale proceeds will be insufficient to provide an acceptable rate of return on invested capital after payment of all debt service costs and operating expenses. Consequently, the success of the Partnership is largely dependent upon the ability of the General Partner and its Affiliates to forecast technological advances, the ability of the lessees to fulfill their lease obligations and the quality and marketability of the equipment at the time of sale. In addition, the leasing industry is very competitive. Although all funds available for acquisitions have been invested in equipment, subject to noncancellable lease agreements, the Partnership will encounter considerable competition when equipment is re-leased or sold at the expiration of primary lease terms. The Partnership will compete with lease programs offered directly by manufacturers and other equipment leasing companies, including limited partnerships and trusts organized and managed similarly to the Partnership, and including other EFG sponsored partnerships and trusts, which may seek to re- lease or sell equipment within their own portfolios to the same customers as the Partnership. Many competitors have greater financial resources and more experience than the Partnership, the General Partner and the Manager. Default by a lessee under a lease may cause equipment to be returned to the Partnership at a time when the General Partner or the Manager is unable to arrange for the re-lease or sale of such equipment. This could result in the loss of a material portion of anticipated revenues and significantly weaken the Partnership's ability to repay related debt. Generally, the Partnership is prohibited from reinvesting the proceeds generated by refinancing or selling equipment. Accordingly, it is anticipated that the Partnership will begin to liquidate its portfolio of equipment at the expiration of the initial and renewal lease terms and to distribute the net liquidation proceeds. As an alternative to sale, the Partnership may enter re- lease agreements when considered advantageous by the General Partner and the Manager. In accordance with the Partnership's stated investment objective and policies, the General Partner is evaluating winding-up the Partnership's operations, including the liquidation of its entire portfolio. Revenue from individual lessees which accounted for 10% or more of lease revenue during the years ended December 31, 1996, 1995 and 1994 is incorporated herein by reference to Note 2 to the financial statements in the 1996 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the Securities and Exchange Commission. EFG is a Massachusetts limited partnership formerly known as American Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general partnership and succeeded American Finance Group, Inc., a Massachusetts corporation organized in 1980. EFG and its subsidiaries (collectively, the "Company") are engaged in various aspects of the equipment leasing business, including EFG's role as Equipment Manager or Advisor to the Partnership and several other Direct-Participation equipment leasing programs sponsored or co- sponsored by EFG (the "Other Investment Programs"). The Company arranges to broker or originate equipment leases, acts as remarketing agent and asset manager, and provides leasing support services, such as billing, collecting, and asset tracking. The general partner of EFG, with a 1% controlling interest, is Equis Corporation, a Massachusetts corporation owned and controlled entirely by Gary D. Engle, its President and Chief Executive Officer. Equis Corporation also owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were established in December 1994 by Mr. Engle for the sole purpose of acquiring the business of AFG. In January 1996, the Company sold certain assets of AFG relating primarily to the business of originating new leases, and the name "American Finance Group," and its acronym, to a third party (the "Buyer"). AFG changed its name to Equis Financial Group Limited Partnership after the sale was concluded. Pursuant to terms -4- of the sale agreements, EFG agreed not to compete with the Buyer's lease origination business for a period of five years; however, EFG is permitted to originate certain equipment leases, principally those involving non-investment grade lessees and ocean-going vessels, which are not in competition with the Buyer. In addition, the sale agreements specifically reserved to EFG the rights to continue using the name American Finance Group and its acronym in connection with the Partnership and the Other Investment Programs and to continue managing all assets owned by the Partnership and the Other Investment Programs, including the right to satisfy all required equipment acquisitions utilizing either brokers or the Buyer. Geoffrey A. MacDonald, Chairman of Equis Corporation and Gary D. Engle agreed not to compete with the sold business on terms and conditions similar to those for the Company. (d) Financial Information About Foreign and Domestic Operations and Export Sales Not applicable. Item 2. Properties. - -------------------- Incorporated herein by reference to Note 3 to the financial statements in the 1996 Annual Report. Item 3. Legal Proceedings. - --------------------------- Incorporated herein by reference to Note 7 to the financial statements in the 1996 Annual Report. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- None. -5- PART II Item 5. Market for the Partnership's Securities and Related Security Holder - ---------------------------------------------------------------------------- Matters. - -------- (a) Market Information There is no public market for the resale of the Units and it is not anticipated that a public market for resale of the Units will develop. (b) Approximate Number of Security Holders At December 31, 1996, there were 749 recordholders of Units in the Partnership. (c) Dividend History and Restrictions Pursuant to Article VI of the Restated Agreement, as amended, the Partnership's Distributable Cash From Operations and Distributable Cash From Sales or Refinancings are determined and distributed to the Partners quarterly. Each quarter's distribution may vary in amount. Distributions may be made to the General Partner prior to the end of the fiscal quarter; however, the amount of such distribution reflects only amounts to which the General Partner is entitled at the time such distribution is made. Currently, there are no restrictions that materially limit the Partnership's ability to distribute Distributable Cash From Operations and Distributable Cash From Sales or Refinancings or that the Partnership believes are likely to materially limit the future distribution of Distributable Cash From Operations and Distributable Cash From Sales or Refinancings. The Partnership expects to continue to distribute all Distributable Cash From Operations and Distributable Cash From Sales or Refinancings on a quarterly basis. Distributions in 1996 and 1995 were as follows:
General Recognized Total Partner Owners ----------- --------- ----------- Total 1996 distributions $2,284,869 $114,243 $2,170,626 Total 1995 distributions 1,011,004 50,550 960,454 ---------- -------- ---------- Total $3,295,873 $164,793 $3,131,080 ========== ======== ==========
Distributions payable at December 31, 1996 and 1995 were $75,825 and $252,751, respectively. "Distributable Cash From Operations" means the net cash provided by the Partnership's normal operations after general expenses and current liabilities of the Partnership are paid, reduced by any reserves for working capital and contingent liabilities to be funded from such cash, to the extent deemed reasonable by the General Partner, and increased by any portion of such reserves deemed by the General Partner not to be required for Partnership operations and reduced by all accrued and unpaid Equipment Management Fees and, after Payout, further reduced by all accrued and unpaid Subordinated Remarketing Fees. Distributable Cash From Operations does not include any Distributable Cash From Sales or Refinancings. "Distributable Cash From Sales or Refinancings" means Cash From Sales or Refinancings as reduced by (i)(a) amounts realized from any loss or destruction of equipment which the General Partner determines shall be reinvested in similar equipment for the remainder of the original lease term of the lost or destroyed equipment, or in isolated instances, in other equipment, if the General Partner determines that investment of such proceeds will significantly improve the diversity of the Partnership's equipment portfolio, and subject in either case to satisfaction of all existing indebtedness secured by such equipment to the extent deemed necessary or appropriate by the -6- General Partner, or (b) the proceeds from the sale of an interest in equipment pursuant to any agreement governing a joint venture which the General Partner determines will be invested in additional equipment or interests in equipment and which ultimately are so reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after Payout, any accrued and unpaid Subordinated Remarketing Fees. "Cash From Sales or Refinancings" means cash received by the Partnership from sale or refinancing transactions, as reduced by (i)(a) all debts and liabilities of the Partnership required to be paid as a result of sale or refinancing transactions, whether or not then due and payable (including any liabilities on an item of equipment sold which are not assumed by the buyer and any remarketing fees required to be paid to persons not affiliated with the General Partner, but not including any Subordinated Remarketing Fees whether or not then due and payable) and (b) any reserves for working capital and contingent liabilities funded from such cash to the extent deemed reasonable by the General Partner and (ii) increased by any portion of such reserves deemed by the General Partner not to be required for Partnership operations. In the event the Partnership accepts a note in connection with any sale or refinancing transaction, all payments subsequently received in cash by the Partnership with respect to such note shall be included in Cash From Sales or Refinancings, regardless of the treatment of such payments by the Partnership for tax or accounting purposes. If the Partnership receives purchase money obligations in payment for equipment sold, which are secured by liens on such equipment, the amount of such obligations shall not be included in Cash From Sales or Refinancings until the obligations are fully satisfied. Each distribution of Distributable Cash From Operations and Distributable Cash From Sales or Refinancings of the Partnership shall be made 95% to the Recognized Owners and 5% to the General Partner. "Payout" is defined as the first time when the aggregate amount of all distributions to the Recognized Owners of Distributable Cash From Operations and Distributable Cash From Sales or Refinancings equals the aggregate amount of the Recognized Owners' original capital contributions plus a cumulative annual return of 11% (compounded quarterly and calculated beginning with the last day of the month of the Partnership's Closing Date) on their aggregate unreturned capital contributions. For purposes of this definition, capital contributions shall be deemed to have been returned only to the extent that distributions of cash to the Recognized Owners exceed the amount required to satisfy the cumulative annual return of 11% (compounded quarterly) on the Recognized Owners' aggregate unreturned capital contributions, such calculation to be based on the aggregate unreturned capital contributions outstanding on the first day of each fiscal quarter. Distributable Cash From Operations and Distributable Cash From Sales or Refinancings ("Distributions") are distributed within 45 days after the completion of each quarter, beginning with the first full quarter following the Partnership's Closing Date. Each Distribution is described in a statement sent to the Recognized Owners. Item 6. Selected Financial Data. - --------------------------------- Incorporated herein by reference to the section entitled "Selected Financial Data" in the 1996 Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations. - -------------- Incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1996 Annual Report. Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- Incorporated herein by reference to the financial statements and supplementary data included in the 1996 Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure. - --------------------- None. -7- PART III Item 10. Directors and Executive Officers of the Partnership. - -------------------------------------------------------------- (a-b) Identification of Directors and Executive Officers The Partnership has no Directors or Officers. As indicated in Item 1 of this report, AFG Leasing IV Incorporated is the sole General Partner of the Partnership. Under the Restated Agreement, as amended, the General Partner is solely responsible for the operation of the Partnership's properties and the Recognized Owners have no right to participate in the control of such operations. The names, titles and ages of the Directors and Executive Officers of the General Partner as of March 15, 1997 are as follows: DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER (See Item 13) - -----------------------------------
Name Title Age Term - --------------------------- ------------------------------------ ------- ------------ Geoffrey A. MacDonald Chairman and a member of the Until a Executive Committee of EFG successor and President and a Director is duly of the General Partner 48 elected and qualified Gary D. Engle President and Chief Executive Officer and member of the Executive Committee of EFG and a Director of the General Partner 48 Gary M. Romano Executive Vice President and Chief Operating Officer of EFG and Clerk of the General Partner 37 James A. Coyne Senior Vice President of EFG 36 Michael J. Butterfield Vice President, Finance and Treasurer of EFG and Treasurer of the General Partner 37 James F. Livesey Vice President, Aircraft and Vessels 47 of EFG Sandra L. Simonsen Senior Vice President, Information 46 Systems of EFG Gail D. Ofgant Vice President, Lease Operations of 31 EFG
(c) Identification of Certain Significant Persons None. (d) Family Relationship No family relationship exists among any of the foregoing Partners, Directors or Executive Officers. -8- (e) Business Experience Mr. MacDonald, age 48, is a co-founder, Chairman and a member of the Executive Committee of EFG and President and a Director of the General Partner. Mr. MacDonald was also a co-founder, Director and Senior Vice President of EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is Vice President of American Finance Group Securities Corp. and a limited partner in Atlantic Acquisition Limited Partnership ("AALP"). Prior to co-founding EFG's predecessors, Mr. MacDonald held various executive and management positions in the leasing and pharmaceutical industries. Mr. MacDonald holds an M.B.A. from Boston College and a B.A. degree from the University of Massachusetts (Amherst). Mr. Engle, age 48, is President and Chief Executive Officer, a member of the Executive Committee of EFG, a Director of the General Partner, and President of AFG Realty Corporation. Mr. Engle is Vice President and a Director of certain of EFG's affiliates. On December 16, 1994, Mr. Engle acquired control of EFG, the General Partner and each of EFG's subsidiaries. Mr. Engle controls the general partner of AALP and is also a limited partner in AALP. From 1987 to 1990, Mr. Engle was a principal and co-founder of Cobb Partners Development, Inc., a real estate and mortgage banking company. From 1980 to 1987, Mr. Engle was Senior Vice President and Chief Financial Officer of Arvida Disney Company, a large scale community development company owned by Walt Disney Company. Prior to 1980, Mr. Engle served in various management consulting and institutional brokerage capacities. Mr. Engle has an M.B.A. from Harvard University and a B.S. degree from the University of Massachusetts (Amherst). Mr. Romano, age 37, is Executive Vice President and Chief Operating Officer of EFG and certain of its affiliates and Clerk of the General Partner. Mr. Romano joined EFG in November 1989 and was appointed Executive Vice President and Chief Operating Officer in April 1996. Prior to joining EFG, Mr. Romano was Assistant Controller for a privately-held real estate company which he joined in 1987. Mr. Romano held audit staff and manager positions at Ernst & Whinney (now Ernst & Young LLP) from 1982 to 1986. Mr. Romano is a C.P.A. and holds a B.S. degree from Boston College. Mr. Coyne, age 36, is Senior Vice President of EFG. Mr. Coyne joined EFG in 1989, remained until May 1993, and rejoined EFG in November 1994. From May 1993 through November 1994, he was with the Raymond Company, a private investment firm, where he was responsible for financing corporate and real estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a real estate investment company and an equipment leasing company. Prior to 1985 he was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He has a BS in Business Administration from John Carroll University, a Masters Degree in Accounting from Case Western Reserve University and is a Certified Public Accountant. Mr. Butterfield, age 37, joined EFG in June 1992 and became Vice President, Finance and Treasurer of EFG and certain of its affiliates in April 1996 and is Treasurer of the General Partner. Prior to joining EFG, Mr. Butterfield was an Audit Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield was employed in public and industry positions in New Zealand and London (U.K.) prior to coming to the United States in 1987. Mr. Butterfield attained his Associate Chartered Accountant (A.C.A.) professional qualification in New Zealand and has completed his C.P.A. requirements in the United States. He holds a Bachelor of Commerce degree from the University of Otago, Dunedin, New Zealand. Mr. Livesey, age 47, is Vice President, Aircraft and Vessels, of EFG. Mr. Livesey joined EFG in October, 1989, and was promoted to Vice President in January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing positions with two privately-held equipment leasing firms. Mr. Livesey holds an M.B.A. from Boston College and B.A. degree from Stonehill College. Ms. Simonsen, age 46, joined EFG in February 1990 and was promoted to Senior Vice President, Information Systems of EFG in April 1996. Prior to joining EFG, Ms. Simonsen was Vice President, Information Systems with Investors Mortgage Insurance Company which she joined in 1973. Ms. Simonsen provided systems consulting for a subsidiary of American International Group and authored a software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson College. -9- Ms. Ofgant, age 31, is Vice President, Lease Operations of EFG and certain of its affiliates. Ms. Ofgant joined EFG in June 1989, and was promoted to Manager, Lease Operations in April 1994. In April 1996, Ms. Ofgant was appointed Vice President, Lease Operations. Prior to joining EFG, Ms. Ofgant was employed by Security Pacific National Trust Company. Ms. Ofgant holds a B.S. degree in Finance from Providence College. (f) Involvement in Certain Legal Proceedings None. (g) Promoters and Control Persons See Item 10 (a-b) above. Item 11. Executive Compensation. - --------------------------------- (a) Cash Compensation Currently, the Partnership has no employees. However, under the terms of the Restated Agreement, as amended, the Partnership is obligated to pay all costs of personnel employed full or part-time by the Partnership, including officers or employees of the General Partner or its Affiliates. There is no plan at the present time to make any officers or employees of the General Partner or its Affiliates employees of the Partnership. The Partnership has not paid and does not propose to pay any options, warrants or rights to the officers or employees of the General Partner or its Affiliates. (b) Compensation Pursuant to Plans None. (c) Other Compensation Although the Partnership has no employees, as discussed in Item 11(a), pursuant to section 10.4 of the Restated Agreement, as amended, the Partnership incurs a monthly charge for personnel costs of the Manager for persons engaged in providing administrative services to the Partnership. A description of the remuneration paid by the Partnership to the Manager for such services is included in Item 13, herein and in Note 4 to the financial statements included in Item 14, herein. (d) Compensation of Directors None. (e) Termination of Employment and Change of Control Arrangement There exists no remuneration plan or arrangement with the General Partner or its Affiliates which results or may result from their resignation, retirement or any other termination. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ By virtue of its organization as a limited partnership, the Partnership has no outstanding securities possessing traditional voting rights. However, as provided in Section 11.2(a) of the Restated Agreement, as amended (subject to Sections 11.2(b) and 11.3), a majority interest of the Recognized Owners have voting rights with respect to: 1. Amendment of the Restated Agreement; 2. Termination of the Partnership; -10- 3. Removal of the General Partner; and 4. Approval or disapproval of the sale of all, or substantially all, of the assets of the Partnership (except in the orderly liquidation of the Partnership upon its termination and dissolution). No person or group is known by the General Partner to own beneficially more than 5% of the Partnership's 480,227 outstanding Units as of March 1, 1997. The ownership and organization of EFG is described in Item 1 of this report. Item 13. Certain Relationships and Related Transactions. - --------------------------------------------------------- The General Partner of the Partnership is AFG Leasing IV Incorporated, an affiliate of EFG. (a) Transactions with Management and Others All operating expenses incurred by the Partnership are paid by EFG on behalf of the Partnership and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the years ended December 31, 1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows:
1996 1995 1994 --------- --------- --------- Equipment management fees $ 89,296 $ 93,197 $115,699 Administrative charges 37,037 20,544 12,000 Reimbursable operating expenses 65,882 108,100 83,167 due to third parties -------- --------- -------- Total $192,215 $221,841 $210,866 ======== ======== ========
As provided under the terms of the Management Agreement, EFG is compensated for its services to the Partnership. Such services include all aspects of acquisition, management and sale of equipment. For acquisition services, EFG is compensated by an amount equal to 2.23% of Equipment Base Price paid by the Partnership. For management services, EFG is compensated by an amount equal to the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross full payout lease rental revenue received by the Partnership or (ii) fees which the General Partner reasonably believes to be competitive for similar services for similar equipment. Both of these fees are subject to certain limitations defined in the Management Agreement. Compensation to EFG for services connected to the sale of equipment is calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under arm's length circumstances. Payment of the remarketing fee is subordinated to Payout and is subject to certain limitations defined in the Management Agreement. Administrative charges represent amounts owed to EFG, pursuant to Section 10.4 of the Restated Agreement, as amended, for persons employed by EFG who are engaged in providing administrative services to the Partnership. Reimbursable operating expenses due to third parties represent costs paid by EFG on behalf of the Partnership which are reimbursed to EFG. All equipment was acquired from EFG, one of its affiliates, including other equipment leasing programs sponsored by EFG, or from third-party sellers. The Partnership's Purchase Price was determined by the method described in Note 2 to the financial statements, included in Item 14, herein. 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 -11- Partnership. At December 31, 1996, the Partnership was owed $101,298 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in January 1997. On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a newly formed Massachusetts limited partnership owned and controlled by certain principals of EFG, commenced a voluntary cash Tender Offer (the "Offer") for up to approximately 45% of the outstanding units of limited partner interest in this Partnership and 20 affiliated partnerships sponsored and managed by EFG. The Offer was subsequently amended and supplemented in order to provide additional disclosure to unitholders; increase the offer price; reduce the number of units sought to approximately 35% of the outstanding units; and extend the expiration date of the Offer to October 20, 1995. Following commencement of the Offer, certain legal actions were initiated by interested persons against AALP, each of the general partners (4 in total) of the 21 affected programs, and various other affiliates and related parties. One action, a class action brought in the United States District Court for the District of Massachusetts (the "Court") on behalf of the unitholders (Recognized Owners), sought to enjoin the Offer and obtain unspecified monetary damages. A settlement of this litigation was approved by the Court on November 15, 1995. The Plaintiffs filed an appeal in this matter. On November 26, 1996, the United States Court of Appeals for the First Circuit handed down a decision affirming the Court's approval of the settlement. A second class action, brought in the Superior Court of the Commonwealth of Massachusetts (the "Superior Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and intervene in the first class action, was dismissed by the Superior Court. The Recognized Owners of the Partnership tendered approximately 20,888 units or 4.35% of the total outstanding units of the Partnership to AALP. The operations of the Partnership were not adversely affected by these proceedings or settlements. On December 1, 1996, EFG purchased a Class D interest, representing a 49% economic interest in AALP. (b) Certain Business Relationships None. (c) Indebtedness of Management to the Partnership None. (d) Transactions with Promoters See Item 13(a) above. -12- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - -------------------------------------------------------------------------- (a) Documents filed as part of this report: (1) Financial Statements: Report of Independent Auditors................................ * Statement of Financial Position at December 31, 1996 and 1995................................. * Statement of Operations for the years ended December 31, 1996, 1995 and 1994.......... * Statement of Changes in Partners' Capital for the years ended December 31, 1996, 1995 and 1994.......... * Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994.......... * Notes to the Financial Statements............................. * (2) Financial Statement Schedules: None required. (3) Exhibits: Except as set forth below, all Exhibits to Form 10-K, as set forth in Item 601 of Regulation S-K, are not applicable. Exhibit Number -------- 4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to the Prospectus which is included in Registration Statement on Form S-1 (No. 33-35148). 13 The 1996 Annual Report to security holders, a copy of which is furnished for the information of the Securities and Exchange Commission. Such Report, except for those portions thereof which are incorporated herein by reference, is not deemed "filed" with the Commission. 23 Consent of Independent Auditors. 99 (a) Lease agreement with Northwest Airlines, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 as Exhibit 28 (a) and is incorporated herein by reference. * Incorporated herein by reference to the appropriate portion of the 1996 Annual Report to security holders for the year ended December 31, 1996. (See Part II) -13- Exhibit Number ------- 99 (b) Lease agreement with Roses Stores, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 as Exhibit 28 (b) and is incorporated herein by reference. 99 (c) Lease agreement with Consolidated Rail Corporation was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 as Exhibit 99 (c) and is incorporated herein by reference. (b) Reports on Form 8-K: None. -14- Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10- K) of American Income Partners V-D Limited Partnership of our report dated March 14, 1997, included in the 1996 Annual Report to Partners of American Income Partners V-D Limited Partnership. ERNST & YOUNG LLP Boston, Massachusetts March 14, 1997 -15- SIGNATURES 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-D LIMITED PARTNERSHIP By: AFG Leasing IV Incorporated, a Massachusetts corporation and the General Partner of the Registrant. By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle ----------------------------- ------------------------------- Geoffrey A. MacDonald Gary D. Engle Chairman and a member of the President and Chief Executive Executive Committee of EFG and Officer and a member of the President and a Director of the Executive Committee of EFG and a General Partner Director of the General Partner (Principal Executive Officer) Date: March 31, 1997 Date: March 31, 1997 --------------------------- ----------------------------- By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield ----------------------------- ------------------------------- Gary M. Romano Michael J. Butterfield Executive Vice President and Chief Vice President, Finance and Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer of the General Partner of the General Partner (Principal Financial Officer) (Principal Accounting Officer) Date: March 31, 1997 Date: March 31, 1997 --------------------------- ----------------------------- -16- SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. No annual report has been sent to the Recognized Owners. A report will be furnished to the Recognized Owners subsequent to the date hereof. No proxy statement has been or will be sent to the Recognized Owners. -17- EX-13 2 EXHIBIT 13 AMERICAN INCOME PARTNERS V American Income Partners V-D Limited Partnership Annual Report to the Partners, December 31, 1996 AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP INDEX TO ANNUAL REPORT TO THE PARTNERS Page ---- SELECTED FINANCIAL DATA 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3-6 FINANCIAL STATEMENTS: Report of Independent Auditors 7 Statement of Financial Position at December 31, 1996 and 1995 8 Statement of Operations for the years ended December 31, 1996, 1995 and 1994 9 Statement of Changes in Partners' Capital for the years ended December 31, 1996, 1995 and 1994 10 Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994 11 Notes to the Financial Statements 12-20 ADDITIONAL FINANCIAL INFORMATION: Schedule of Excess (Deficiency) of Total Cash Generated to Cost of Equipment Disposed 21 Statement of Cash and Distributable Cash From Operations, Sales and Refinancings 22 Schedule of Costs Reimbursed to the General Partner and its Affiliates as Required by Section 10.4 of the Amended and and Restated Agreement and Certificate of Limited Partnership 23 -1- SELECTED FINANCIAL DATA The following data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements. For each of the five years in the period ended December 31, 1996:
Summary of Operations 1996 1995 1994 1993 1992 - ----------------------------- ----------- ----------- ----------- ------------- ------------ Lease revenue $1,816,273 $2,179,607 $2,992,070 $ 3,663,342 $ 3,893,557 Net income (loss) $1,656,646 $ 733,938 $ 213,680 $(1,165,153) $ 237,963 Per Unit: Net income (loss) $ 3.28 $ 1.45 $ 0.42 $ (2.30) $ 0.47 Cash distributions $ 4.52 $ 2.00 $ 2.50 $ 2.50 $ 2.88 Financial Position - ----------------------------- Total assets $3,551,413 $4,132,437 $5,673,509 $ 8,184,084 $12,377,650 Total long-term obligations $ 307,479 $ 86,802 $1,182,287 $ 2,683,780 $ 4,439,182 Partners' capital $2,927,711 $3,555,934 $3,833,000 $ 4,883,075 $ 7,311,984
-2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year ended December 31, 1996 compared to the year ended December 31, 1995 and the year ended December 31, 1995 compared to the year ended December 31, 1994 Overview - -------- American Income Partners V-D Limited Partnership (the "Partnership") was organized in 1990 as a direct-participation equipment leasing program to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. The Partnership's stated investment objectives and policies contemplated that the Partnership would wind-up its operations within approximately seven years of its inception. The value of the Partnership's equipment portfolio decreases over time due to depreciation resulting from age and usage of the equipment, as well as technological changes and other market factors. In addition, the Partnership does not replace equipment as it is sold; therefore, its aggregate investment value in equipment declines from asset disposals occurring in the normal course. As a result of the Partnership's age and a declining equipment portfolio, the General Partner is evaluating a variety of transactions that will reduce the Partnership's prospective costs to operate as a publicly registered limited partnership and, therefore, enhance overall cash distributions to the limited partners. Such a transaction might involve the sale of the Partnership's remaining equipment or a transaction that would allow for the consolidation of the Partnership's expenses with other similarly- organized equipment leasing programs. In order to increase the marketability of the Partnership's remaining equipment, the General Partner expects to use a portion of the Partnership's available cash and future cash flow to retire indebtedness. This may negatively effect short-term cash distributions. Results of Operations - --------------------- For the year ended December 31, 1996, the Partnership recognized lease revenue of $1,816,273 compared to $2,179,607 and $2,992,070 for the years ended December 31, 1995 and 1994, respectively. Lease revenue in 1996 includes the receipt of $516,712 of lease termination rents received in connection with the sale of the Partnership's interest in two Boeing 727-251 Advanced aircraft in July 1996 (see below). The decrease in lease revenue from 1994 to 1996 was expected and resulted principally from primary lease term expirations and the sale of equipment. The Partnership also earns interest income from temporary investments of rental receipts and equipment sales proceeds in short-term instruments. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by an affiliated equipment leasing program sponsored by Equis Financial Group Limited Partnership (formerly American Finance Group), a Massachusetts limited partnership ("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. In 1996, the Partnership sold equipment having a net book value of $858,150 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $703,591 compared to a net gain of $229,279 in 1995 on equipment having a net book value of $199,826 and a net loss of $98,695 in 1994 on equipment having a net book value of $332,613. The 1996 equipment sales included the sale of the Partnership's interest in two Boeing 727-251 Advanced Aircraft with an original cost and net book value of $4,536,732 and $740,021, respectively, sold to the existing lessee in July 1996. In connection with this sale, the Partnership realized sale proceeds of $1,195,994 which resulted in a net gain, for financial statement purposes, of $455,973. This equipment was sold prior to the expiration of the related lease term, resulting in the receipt by the Partnership of lease termination rents, described above. -3- During July 1996, the Partnership transferred its ownership interest in certain trailers to a third party for cash consideration of $60,170 (See Note 3 to the financial statements). The trailers had a net book value of $22,808 at the time of the transfer, resulting in a net gain, for financial statement purposes, of $37,362. In September 1996, the Partnership replaced these trailers with comparable trailers and leased such to a new lessee. The transaction was structured as a like-kind exchange for income tax reporting purposes. The net carrying value of the new trailers, $357,884, was net of $36,574, representing the proportionate amount of gain deferred on the original trailers. The Partnership funded this transaction with $58,901 of the cash consideration and long-term financing of $335,557. The unused cash consideration of $1,269 was recognized as proceeds from equipment sales. The associated deferred gain of $788 was recognized as Gain on Sale of Equipment on the Statement of Operations in 1996. 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 and amortization expense was $753,448, $1,441,415 and $2,313,381 for the years ended December 31, 1996, 1995 and 1994, respectively. For financial reporting purposes, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that 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 (see Note 2 to the financial statements herein.) Interest expense was $15,362 or less than 1% of lease revenue in 1996, $57,049 or 2.6% of lease revenue in 1995 and $189,677 or 6.3% of lease revenue in 1994. Interest expense in 1996 resulted from financing obtained from a third-party lender in connection with the like-kind exchange transaction which occurred during the third quarter of 1996, described above. Interest expense in the near-term will increase due to leveraging obtained during 1996. Subsequently, interest expense will decline in amount and as a percentage of lease revenue as the principal balance of notes payable is reduced through the application of rent receipts to outstanding debt. In addition, the General Partner expects to use a portion of the Partnership's available cash and future cash flow to retire indebtedness (see Overview). Management fees were 4.9%, 4.3% and 3.9% of lease revenue during the years ended December 31, 1996, 1995 and 1994, respectively. Management fees during the year ended December 31, 1996 include $4,617, resulting from an underaccrual in 1995. Management fees are based on 5% of gross lease revenue generated by operating leases and 2% of gross lease revenue generated by full payout leases. Operating expenses consist principally of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. In certain cases, equipment storage or repairs and maintenance costs may be incurred in connection with equipment being remarketed. Collectively, -4- operating expenses represented 5.7%, 5.9% and 3.2% of lease revenue in 1996, 1995 and 1994, respectively. Operating expenses increased in 1995 due to additional maintenance costs associated with the Partnership's interest in an aircraft engine and an increase in professional service costs. 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 satisfy debt service obligations associated with leveraged leases, and to pay management fees and operating costs. Operating activities generated net cash inflows of $1,772,557, $1,953,038 and $2,775,280 in 1996, 1995 and 1994, respectively. Future renewal, re-lease and equipment sale activities will continue to 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 expended for equipment acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. The Partnership capitalized $66,000 of refurbishment costs incurred to upgrade certain equipment in 1994. During 1996, the Partnership realized $1,563,010 in equipment sale proceeds compared to $429,105 and $233,918 in 1995 and 1994, respectively. Future inflows of cash from asset disposals will vary in timing and amount and will be influenced by many factors including, but not limited to, the frequency and timing of lease expirations, the type of equipment being sold, its condition and age, and future market conditions. The Partnership obtained long-term financing in connection with certain equipment leases. The repayments of principal related to such indebtedness are reported as a component of financing activities. Each note payable is recourse only to the specific equipment financed and to the minimum rental payments contracted to be received during the debt amortization period (which period generally coincides with the lease rental term). As rental payments are collected, a portion or all of the rental payment is used to repay the associated indebtedness. In September 1996, the Partnership obtained additional long-term financing in connection with the like-kind exchange transaction involving certain trailers (see Results of Operations). In future years, the amount of cash used to repay debt obligations is scheduled to be less than that used during 1996. However, the level of cash required may fluctuate due to the use of the Partnership's available cash and future cash flow to retire indebtedness (see Overview). 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 year ended December 31, 1996, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $2,284,869. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Recognized Owners were allocated 95% of these distributions, or $2,170,626, and the General Partner was allocated 5%, or $114,243. The fourth quarter 1996 cash distribution was paid on January 13, 1997. -5- 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 and will be greatly dependent upon the collection of contractual rents and the outcome of residual activities. The General Partner anticipates that cash proceeds resulting from these sources will satisfy the Partnership's future expense obligations. However, the amount of cash available for distribution in future periods will fluctuate. Equipment lease expirations and asset disposals will cause the Partnership's net cash from operating activities to diminish over time; and equipment sale proceeds will vary in amount and period of realization. In addition, the Partnership may be 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. -6- REPORT OF INDEPENDENT AUDITORS ------------------------------ To the Partners of American Income Partners V-D Limited Partnership: We have audited the accompanying statements of financial position of American Income Partners V-D Limited Partnership as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Income Partners V-D Limited Partnership at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Additional Financial Information identified in the Index to Annual Report to the Partners is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ERNST & YOUNG LLP Boston, Massachusetts March 14, 1997 -7- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP STATEMENT OF FINANCIAL POSITION December 31, 1996 and 1995
1996 1995 ------------ ------------ ASSETS - ------ Cash and cash equivalents $1,867,874 $1,108,982 Rents receivable 15,859 49,874 Accounts receivable - affiliate 101,298 130,677 Equipment at cost, net of accumulated depreciation of $4,761,138 and $9,947,876 at December 31, 1996 and 1995, respectively 1,566,382 2,842,904 ---------- ---------- Total assets $3,551,413 $4,132,437 ========== ========== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- Notes payable $ 307,479 $ 86,802 Accrued interest 1,336 2,029 Accrued liabilities 23,245 20,000 Accrued liabilities - affiliate 20,837 11,673 Deferred rental income 194,980 203,248 Cash distributions payable to partners 75,825 252,751 ---------- ---------- Total liabilities 623,702 576,503 ---------- ---------- Partners' capital (deficit): General Partner (385,667) (354,256) Limited Partnership Interests (480,227 Units; initial purchase price of $25 each) 3,313,378 3,910,190 ---------- ---------- Total partners' capital 2,927,711 3,555,934 ---------- ---------- Total liabilities and partners' $3,551,413 $4,132,437 capital ========== ==========
The accompanying notes are an integral part of these financial statements. -8- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP STATEMENT OF OPERATIONS for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ----------- ----------- ------------ Income: Lease revenue $1,816,273 $2,179,607 $2,992,070 Interest income 97,019 45,357 34,229 Gain (loss) on sale of equipment 704,379 229,279 (98,695) ---------- ---------- ---------- Total income 2,617,671 2,454,243 2,927,604 ---------- ---------- ---------- Expenses: Depreciation and amortization 753,448 1,441,415 2,313,381 Interest expense 15,362 57,049 189,677 Equipment management fees - affiliate 89,296 93,197 115,699 Operating expenses - affiliate 102,919 128,644 95,167 ---------- ---------- ---------- Total expenses 961,025 1,720,305 2,713,924 ---------- ---------- ---------- Net income $1,656,646 $ 733,938 $ 213,680 ========== ========== ========== Net income per limited partnership unit $ 3.28 $ 1.45 $ 0.42 ========== ========== ========== Cash distributions declared per limited partnership unit $ 4.52 $ 2.00 $ 2.50 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. -9- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL for the years ended December 31, 1996, 1995 and 1994
General Recognized Owners Partner --------------------- Amount Units Amount Total ----------- ------- ------------ ------------ Balance at December 31, 1993 $(287,899) 480,227 $ 5,170,974 $ 4,883,075 Net income - 1994 10,684 -- 202,996 213,680 Cash distributions declared (63,188) -- (1,200,567) (1,263,755) --------- ------- ----------- ----------- Balance at December 31, 1994 (340,403) 480,227 4,173,403 3,833,000 Net income - 1995 36,697 -- 697,241 733,938 Cash distributions declared (50,550) -- (960,454) (1,011,004) --------- ------- ----------- ----------- Balance at December 31, 1995 (354,256) 480,227 3,910,190 3,555,934 Net income - 1996 82,832 -- 1,573,814 1,656,646 Cash distributions declared (114,243) -- (2,170,626) (2,284,869) --------- ------- ----------- ----------- Balance at December 31, 1996 $(385,667) 480,227 $ 3,313,378 $ 2,927,711 ========= ======= =========== ===========
The accompanying notes are an integral part of these financial statements. -10- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ---------------- -------------- ------------- Cash flows from (used in) operating activities: Net income $ 1,656,646 $ 733,938 $ 213,680 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 753,448 1,441,415 2,313,381 (Gain) loss on sale of equipment (704,379) (229,279) 98,695 Changes in assets and liabilities: Decrease (increase) in: Rents receivable 34,015 78,404 (17,683) Accounts receivable - affiliate 29,379 33,893 126,214 Increase (decrease) in: Accrued interest (693) (14,928) (20,817) Accrued liabilities 3,245 4,500 3,000 Accrued liabilities - affiliate 9,164 (73,919) 76,863 Deferred rental income (8,268) (20,986) (18,053) ----------- ----------- ----------- Net cash from operating activities 1,772,557 1,953,038 2,775,280 ----------- ----------- ----------- Cash flows from (used in) investing activities: Purchase of equipment -- -- (66,000) Proceeds from equipment sales 1,563,010 429,105 233,918 ----------- ----------- ----------- Net cash from investing activities 1,563,010 429,105 167,918 ----------- ----------- ----------- Cash flows used in financing activities: Principal payments - notes payable (114,880) (1,095,485) (1,501,493) Distributions paid (2,461,795) (1,074,192) (1,263,755) ----------- ----------- ----------- Net cash used in financing activities (2,576,675) (2,169,677) (2,765,248) ----------- ----------- ----------- Net increase in cash and cash equivalents 758,892 212,466 177,950 Cash and cash equivalents at beginning of year 1,108,982 896,516 718,566 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,867,874 $ 1,108,982 $ 896,516 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 16,055 $ 71,977 $ 210,494 =========== =========== ===========
Supplemental disclosure of non-cash investing and financing activities: See Note 3 to the Financial Statements. The accompanying notes are an integral part of these financial statements. -11- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements December 31, 1996 NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS - --------------------------------------------- The Partnership was organized as a limited partnership under the Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on May 21, 1990 for the purpose of acquiring and leasing to third parties a diversified portfolio of capital equipment. Partners' capital initially consisted of contributions of $1,000 from the General Partner (AFG Leasing IV Incorporated) and $100 from the Initial Limited Partner (AFG Assignor Corporation). On September 27, 1990, the Partnership issued 480,227 units, representing assignments of limited partnership interests (the "Units"), to 806 investors. Unitholders and Limited Partners (other than the Initial Limited Partner) are collectively referred to as Recognized Owners. The Partnership has one General Partner, AFG Leasing IV Incorporated, a Massachusetts corporation and an affiliate of Equis Financial Group Limited Partnership (formerly American Finance Group) a Massachusetts limited partnership ("EFG"). The common stock of the General Partner is owned by AF/AIP Programs Limited Partnership, of which AFG and a wholly-owned subsidiary are the 99% limited partners and AFG Programs, Inc., which is wholly-owned by Geoffrey A. MacDonald, is the 1% General Partner. The General Partner is not required to make any other capital contributions except as may be required under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"). Significant operations commenced September 28, 1990 when the Partnership made its initial equipment purchase. Pursuant to the Restated Agreement, as amended, Distributable Cash From Operations and Distributable Cash From Sales or Refinancings will be allocated 95% to the Recognized Owners and 5% to the General Partner. Payout will occur when the Recognized Owners have received distributions equal to their original investment plus a cumulative return of 11% (compounded quarterly) on undistributed invested capital. Under the terms of a management agreement between the Partnership and AF/AIP Programs Limited Partnership and the terms of an identical management agreement between AF/AIP Programs Limited Partnership and EFG (collectively, the "Management Agreement"), management services are provided by EFG to the Partnership at fees which the General Partner believes to be competitive for similar services. (Also see Note 4.) EFG is a Massachusetts limited partnership formerly known as American Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general partnership and succeeded American Finance Group, Inc., a Massachusetts corporation organized in 1980. EFG and its subsidiaries (collectively, the "Company") are engaged in various aspects of the equipment leasing business, including EFG's role as Equipment Manager or Advisor to the Partnership and several other Direct-Participation equipment leasing programs sponsored or co- sponsored by EFG (the "Other Investment Programs"). The Company arranges to broker or originate equipment leases, acts as remarketing agent and asset manager, and provides leasing support services, such as billing, collecting, and asset tracking. The general partner of EFG, with a 1% controlling interest, is Equis Corporation, a Massachusetts corporation owned and controlled entirely by Gary D. Engle, its President and Chief Executive Officer. Equis Corporation also owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were established in December 1994 by Mr. Engle for the sole purpose of acquiring the business of AFG. In January 1996, the Company sold certain assets of AFG relating primarily to the business of originating new leases, and the name "American Finance Group," and its acronym, to a third party (the "Buyer"). AFG changed its name to Equis Financial Group Limited Partnership after the sale was concluded. Pursuant to terms of the sale agreements, EFG agreed not to compete with the Buyer's lease origination business for a period of five years; however, EFG is permitted to originate certain equipment leases, principally those involving non-investment grade lessees and ocean-going vessels, which are not in competition with the Buyer. In addition, the sale agreements specifically reserved to EFG the rights to continue using the name American Finance Group and its acronym in connection with the Partnership and the Other Investment Programs and to continue managing all -12- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) assets owned by the Partnership and the Other Investment Programs, including the right to satisfy all required equipment acquisitions utilizing either brokers or the Buyer. Geoffrey A. MacDonald, Chairman of Equis Corporation and Gary D. Engle agreed not to compete with the sold business on terms and conditions similar to those for the Company. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Statement of Cash Flows - ----------------------- The Partnership considers liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. From time to time, the Partnership invests excess cash with large institutional banks in reverse repurchase agreements with overnight maturities. Under the terms of the agreements, title to the underlying securities passes to the Partnership. The securities underlying the agreements are book entry securities. At December 31, 1996, the Partnership had $1,755,000 invested in reverse repurchase agreements secured by U.S. Treasury Bills or interests in U.S. Government securities. Revenue Recognition - ------------------- Rents are payable to the Partnership monthly, quarterly or semi-annually and no significant amounts are calculated on factors other than the passage of time. The leases are accounted for as operating leases and are noncancellable. Rents received prior to their due dates are deferred. Future minimum rents of $503,775 are due as follows: For the year ending December 31, 1997 $184,967 1998 102,488 1999 85,478 2000 84,778 2001 46,064 -------- Total $503,775 ========
Revenue from major individual lessees which accounted for 10% or more of lease revenue during the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994 --------- --------- --------- Consolidated Rail Corporation $218,922 $218,923 -- Northwest Airlines, Inc. $936,905 $720,331 $720,329 Roses Stores, Inc. -- -- $457,189
Use of Estimates - ---------------- The preparation of the financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. -13- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) Equipment on Lease - ------------------ All equipment was acquired from EFG, one of its affiliates, including other equipment leasing programs sponsored by EFG, or from third-party sellers. Equipment cost represents asset base price plus acquisition fees and was determined in accordance with the Restated Agreement, as amended, and certain regulatory guidelines. Asset base price is affected by the relationship of the seller to the Partnership as summarized herein. Where the seller of the equipment was EFG or an affiliate, asset base price was the lower of (i) the actual price paid for the equipment by EFG or the affiliate plus all actual costs accrued by EFG or the affiliate while carrying the equipment less the amount of all rents earned by EFG or the affiliate prior to selling the equipment or (ii) fair market value as determined by the General Partner in its best judgment, including all liens and encumbrances on the equipment and other actual expenses. Where the seller of the equipment was a third party who did not manufacture the equipment, asset base price was the lower of (i) the price invoiced by the third party or (ii) fair market value as determined by the General Partner. Where the seller of the equipment was a third party who also manufactured the equipment, asset base price was the manufacturer's invoice price, which price was considered to be representative of fair market value. Depreciation and Amortization - ----------------------------- The Partnership's depreciation policy is intended to allocate the cost of equipment over the period during which it produces economic benefit. The principal period of economic benefit is considered to correspond to each asset's primary lease term, which term generally represents the period of greatest revenue potential for each asset. Accordingly, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that an asset is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. Periodically, the General Partner evaluates the net carrying value of equipment to determine whether it exceeds estimated net realizable value. Adjustments to reduce the net carrying value of equipment are recorded in those instances where estimated net realizable value is considered to be less than net carrying value. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including EFG's ability to sell and re-lease equipment. Changing market conditions, industry trends, technological advances, and many other events can converge to enhance or detract from asset values at any given time. 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. Organization costs were amortized using the straight-line method over a period of five years. Accrued Liabilities - Affiliate - ------------------------------- Unpaid operating expenses paid by EFG on behalf of the Partnership and accrued but unpaid administrative charges are reported as Accrued Liabilities - Affiliate. (See Note 4.) Allocation of Profits and Losses - -------------------------------- For financial statement purposes, net income or loss is allocated to each Partner according to their respective ownership percentages (95% to the Recognized Owners and 5% to the General Partner). See Note 6 concerning allocation of income or loss for income tax purposes. -14- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) Net Income and Cash Distributions Per Unit - ------------------------------------------ Net income and cash distributions per Unit are based on 480,227 Units outstanding during each of the three years in the period ended December 31, 1996 and computed after allocation of the General Partner's 5% share of net income and cash distributions. Provision for Income Taxes - -------------------------- No provision or benefit from income taxes is included in the accompanying financial statements. The Partners are responsible for reporting their proportionate shares of the Partnership's taxable income or loss and other tax attributes on their tax returns. Impact of Recently Issued Accounting Standards - ---------------------------------------------- In March 1995, the Financial Accounting Standards Board issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership adopted Statement 121 in the first quarter of 1996. The adoption of Statement 121 did not have a material effect on the financial statements of the Partnership. NOTE 3 - EQUIPMENT - ------------------ The following is a summary of equipment owned by the Partnership at December 31, 1996. In the opinion of EFG, the acquisition cost of the equipment did not exceed its fair market value.
Lease Term Equipment Equipment Type (Months) at Cost Location - -------------------------------- ----------- ------------ ----------------------------- Locomotives 78 $ 1,656,854 IL/PA Materials handling 1-60 1,445,590 CA/IA/IL/KY/MI/MN/NE/NY/OH/PA WA/WI Aircraft 1-19 1,160,990 NY Computer and peripherals 12-60 371,579 AK/CA/CT/KS/LA/MI/MS/ND/NM/OK PA/TX/UT/WV/WY Construction and mining 12-60 364,308 AL/GA/IL/MI/SC/WV Trailers/intermodal containers 60 357,884 GA Tractors and heavy duty trucks 24-60 301,746 CO/NJ/WV Manufacturing 60 268,764 NJ Communications 23-60 229,633 CA/FL/GA/LA/MS/OK/SC/TN/TX/UT Research and test 9-48 105,805 CA Motor vehicles 60 64,367 NJ ----------- Total equipment cost 6,327,520 Accumulated depreciation (4,761,138) ----------- Equipment, net of accumulated depreciation $ 1,566,382 ===========
-15- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) During July 1996, the Partnership transferred its ownership interest in certain trailers, previously leased to The Atchison Topeka and Santa Fe Railroad, to a third party for cash consideration of $60,170. The trailers had a net book value of $22,808 at the time of the transfer, which resulted in a net gain, for financial statement purposes, of $37,362. In September 1996, the Partnership replaced these trailers with comparable trailers and leased such to a new lessee. The transaction was structured as a like-kind exchange for income tax reporting purposes. The net carrying value of the new trailers, $357,884, was net of $36,574, representing the proportionate amount of gain deferred on the original trailers. The Partnership funded this transaction with $58,901 of the cash consideration and long-term financing of $335,557. The unused cash consideration of $1,269 was recognized as proceeds from equipment sales. The associated deferred gain of $788 was recognized as Gain on Sale of Equipment on the Statement of Operations in 1996. In certain cases, the cost of the Partnership's equipment represents a proportionate ownership interest. The remaining interests are owned by EFG or an affiliated equipment leasing program sponsored by EFG. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. Proportionate equipment ownership 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. At December 31, 1996, the Partnership's equipment portfolio included equipment having a proportionate original cost of $2,989,562, representing approximately 47% of total equipment cost. Certain of the equipment and related lease payment streams were used to secure term loans with third-party lenders. The preceding summary of equipment includes leveraged equipment having an original cost of approximately $358,000 and a net book value of approximately $336,000 at December 31, 1996. (See Note 5.) Generally, the costs associated with maintaining, insuring and operating the Partnership's equipment are incurred by the respective lessees pursuant to terms specified in their individual lease agreements with the Partnership. As equipment is sold to third parties, or otherwise disposed of, the Partnership recognizes a gain or loss equal to the difference between the net book value of the equipment at the time of sale or disposition and the proceeds realized upon sale or disposition. The ultimate realization of estimated residual value in the equipment is dependent upon, among other things, EFG's ability to maximize proceeds from selling or re-leasing the equipment upon the expiration of the primary lease terms. The summary above includes equipment held for sale or re-lease with an original cost and net book value of approximately $535,000 and $2,000, respectively, at December 31, 1996. The General Partner is actively seeking the sale or re-lease of all equipment not on lease. NOTE 4 - RELATED PARTY TRANSACTIONS - ----------------------------------- All operating expenses incurred by the Partnership are paid by EFG on behalf of the Partnership and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the years ended December 31, 1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows:
1996 1995 1994 --------- --------- --------- Equipment management fees $ 89,296 $ 93,197 $115,699 Administrative charges 37,037 20,544 12,000 Reimbursable operating expenses due to third parties 65,882 108,100 83,167 -------- -------- -------- Total $192,215 $221,841 $210,866 ======== ======== ========
-16- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) As provided under the terms of the Management Agreement, EFG is compensated for its services to the Partnership. Such services include all aspects of acquisition, management and sale of equipment. For acquisition services, EFG is compensated by an amount equal to 2.23% of Equipment Base Price paid by the Partnership. For management services, EFG is compensated by an amount equal to the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross full payout lease rental revenue received by the Partnership or (ii) fees which the General Partner reasonably believes to be competitive for similar services for similar equipment. Both of these fees are subject to certain limitations defined in the Management Agreement. Compensation to EFG for services connected to the sale of equipment is calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under arm's length circumstances. Payment of the remarketing fee is subordinated to Payout and is subject to certain limitations defined in the Management Agreement. Administrative charges represent amounts owed to EFG, pursuant to Section 10.4 of the Restated Agreement, as amended, for persons employed by EFG who are engaged in providing administrative services to the Partnership. Reimbursable operating expenses due to third parties represent costs paid by EFG on behalf of the Partnership which are reimbursed to EFG. All equipment was acquired from EFG, one of its affiliates, including other equipment leasing programs sponsored by EFG, or from third-party sellers. The Partnership's Purchase Price was determined by the method described in Note 2, Equipment on Lease. All rents and proceeds from the sale of equipment are paid directly to 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 December 31, 1996, the Partnership was owed $101,298 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in January 1997. On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a newly formed Massachusetts limited partnership owned and controlled by certain principals of EFG, commenced a voluntary cash Tender Offer (the "Offer") for up to approximately 45% of the outstanding units of limited partner interest in this Partnership and 20 affiliated partnerships sponsored and managed by EFG. The Offer was subsequently amended and supplemented in order to provide additional disclosure to unitholders; increase the offer price; reduce the number of units sought to approximately 35% of the outstanding units; and extend the expiration date of the Offer to October 20, 1995. Following commencement of the Offer, certain legal actions were initiated by interested persons against AALP, each of the general partners (4 in total) of the 21 affected programs, and various other affiliates and related parties. One action, a class action brought in the United States District Court for the District of Massachusetts (the "Court") on behalf of the unitholders (Recognized Owners), sought to enjoin the Offer and obtain unspecified monetary damages. A settlement of this litigation was approved by the Court on November 15, 1995. The Plaintiffs filed an appeal in this matter. On November 26, 1996, the United States Court of Appeals for the First Circuit handed down a decision affirming the Court's approval of the settlement. A second class action, brought in the Superior Court of the Commonwealth of Massachusetts (the "Superior Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and intervene in the first class action, was dismissed by the Superior Court. The limited partners of the Partnership tendered approximately 20,888 units or 4.35% of the total outstanding units of the Partnership to AALP. The operations of the Partnership were not adversely affected by these proceedings or settlements. On December 1, 1996, EFG purchased a Class D interest, representing a 49% economic interest in AALP. -17- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) NOTE 5 - NOTES PAYABLE - ---------------------- Notes payable at December 31, 1996 consisted of installment notes payable to banks of $307,479. The installment notes are non-recourse, with interest rates ranging between 9.75% and 9.9% and are collateralized by the equipment and assignment of the related lease payments. All of the notes were originated in connection with the like-kind exchange transaction (see Note 3) and will be fully amortized by noncancellable rents. The carrying amount of notes payable approximates fair value as December 31, 1996. The annual maturities of the installment notes payable are as follows: For the year ending December 31, 1997 $ 57,097 1998 62,952 1999 69,425 2000 76,564 2001 41,441 -------- Total $307,479 ========
NOTE 6 - INCOME TAXES - --------------------- The Partnership is not a taxable entity for federal income tax purposes. Accordingly, no provision for income taxes has been recorded in the accounts of the Partnership. For financial statement purposes, the Partnership allocates net income or loss to each class of partner according to their respective ownership percentages (95% to the Recognized Owners and 5% to the General Partner). This convention differs from the income or loss allocation requirements for income tax and Dissolution Event purposes as delineated in the Restated Agreement, as amended. For income tax purposes, the Partnership allocates net income or net loss in accordance with the provisions of such agreement. The Restated Agreement, as amended, requires that upon dissolution of the Partnership, the General Partner will be required to contribute to the Partnership an amount equal to any negative balance which may exist in the General Partner's tax capital account. At December 31, 1996, the General Partner had a positive tax capital account balance. The following is a reconciliation between net income reported for financial statement and federal income tax reporting purposes for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ------------ ------------ ---------- Net income $1,656,646 $ 733,938 $ 213,680 Financial statement depreciation in excess of tax depreciation 137,148 195,845 695,987 Prepaid rental income (8,268) (20,986) (18,053) Other (881,535) 116,488 (212,753) ---------- ---------- --------- Net income for federal income tax reporting purposes $ 903,991 $1,025,285 $ 678,861 ========== ========== =========
-18- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP Notes to the Financial Statements (Continued) The principal component of "Other" consists of the differences between the tax gain or loss on equipment disposals and the financial statement gain or loss on disposals. The following is a reconciliation between partners' capital reported for financial statement and federal income tax reporting purposes for the years ended December 31, 1996 and 1995:
1996 1995 ------------ ------------ Partners' capital $2,927,711 $3,555,934 Add back selling commissions and organization and offering costs 1,345,638 1,345,638 Financial statement distributions in excess of tax distributions 3,791 12,638 Cumulative difference between federal income tax and financial statement income (loss) (823,603) (70,948) ---------- ---------- Partners' capital for federal income tax reporting purposes $3,453,537 $4,843,262 ========== ==========
Financial statement distributions in excess of tax distributions and cumulative difference between federal income tax and financial statement income (loss) represent timing differences. NOTE 7 - LEGAL PROCEEDINGS - -------------------------- On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored investment programs, filed an action in the Commonwealth of Massachusetts Superior Court Department of the Trial Court in and for the County of Suffolk, for damages and declaratory relief against a lessee of the Partnership, National Steel Corporation ("National Steel"), under a certain Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by National Steel of certain sales and/or use taxes paid to the State of Illinois and other remedies provided by the MLA. On August 30, 1995, National Steel filed a Notice of Removal which removed the case to the United States District Court, District of Massachusetts. On September 7, 1995, National Steel filed its Answer to EFG's Complaint along with Affirmative Defenses and Counterclaims, seeking declaratory relief and 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 have been discussing settlement with respect to this matter for some time, to date, the negotiations have been unsuccessful. Notwithstanding these discussions, EFG recently filed an Amended and Supplemental Complaint alleging further default under the MLA and the matter remains pending before the Court. The Partnership has not experienced any material losses as a result of this action. -19- ADDITIONAL FINANCIAL INFORMATION AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST OF EQUIPMENT DISPOSED for the years ended December 31, 1996, 1995 and 1994 The Partnership classifies all rents from leasing equipment as lease revenue. Upon expiration of the primary lease terms, equipment may be sold, rented on a month-to-month basis or re-leased for a defined period under a new or extended lease agreement. The proceeds generated from selling or re-leasing the equipment, in addition to any month-to-month revenue, represent the total residual value realized for each item of equipment. Therefore, the financial statement gain or loss, which reflects the difference between the net book value of the equipment at the time of sale or disposition and the proceeds realized upon sale or disposition, may not reflect the aggregate residual proceeds realized by the Partnership for such equipment. The following is a summary of cash excess associated with equipment dispositions occurring in the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 ----------- ----------- ----------- Rents earned prior to disposal of $6,375,173 $1,260,881 $3,176,177 equipment, net of interest charges Sale proceeds realized upon disposition of equipment 1,563,010 429,105 233,918 ---------- ---------- ---------- Total cash generated from rents and equipment sale proceeds 7,938,183 1,689,986 3,410,095 Original acquisition cost of equipment disposed 6,821,144 1,293,887 3,356,797 ---------- ---------- ---------- Excess of total cash generated to cost of equipment disposed $1,117,039 $ 396,099 $ 53,298 ========== ========== ==========
AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS, SALES AND REFINANCINGS for the year ended December 31, 1996
Sales and Operations Refinancings Total -------------- ------------- -------------- Net income $ 952,267 $ 704,379 $ 1,656,646 Add: Depreciation 753,448 -- 753,448 Management fees 89,296 -- 89,296 Book value of disposed equipment -- 858,631 858,631 Less: Principal reduction of notes payable (114,880) -- (114,880) ---------- ------------ ----------- Cash from operations, sales and refinancings 1,680,131 1,563,010 3,243,141 Less: Management fees (89,296) -- (89,296) ---------- ------------ ----------- Distributable cash from operations, sales and refinancings 1,590,835 1,563,010 3,153,845 ---------- ------------ ----------- Other sources and uses of cash: Cash at beginning of year 1,108,982 -- 1,108,982 Net change in receivables and accruals 66,842 -- 66,842 Less: Cash distributions paid (898,785) (1,563,010) (2,461,795) ---------- ------------ ----------- Cash at end of year $1,867,874 -- $ 1,867,874 ========== ============ ===========
-21- AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP SCHEDULE OF COSTS REIMBURSED TO THE GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED BY SECTION 10.4 OF THE AMENDED AND RESTATED AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP December 31, 1996 For the year ended December 31, 1996, the Partnership reimbursed the General Partner and its Affiliates for the following costs: Operating expenses $96,042 EX-27 3 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1,867,874 0 117,157 0 0 1,985,031 6,327,520 4,761,138 3,551,413 316,223 307,479 0 0 0 2,927,711 3,551,413 1,816,273 2,617,671 0 0 945,663 0 15,362 1,656,646 0 1,656,646 0 0 0 1,656,646 0 0
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