-----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, E3ejV2ADFUS6Irl51VkPZXHIpw7ol9M7Twjp93G0jzAV4b9BolpR6LbJJzqOXiJ2 1TCe0z66afT/zgoUT2ShOw== 0000927016-96-001664.txt : 19961113 0000927016-96-001664.hdr.sgml : 19961113 ACCESSION NUMBER: 0000927016-96-001664 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME FUND I-D CENTRAL INDEX KEY: 0000868680 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 043122696 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20030 FILM NUMBER: 96659348 BUSINESS ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6178545800 MAIL ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------------------------------------ OR [___] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- --------------------- For Quarter Ended September 30, 1996 Commission File No. 0-20030 American Income Fund I-D, a Massachusetts Limited Partnership - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3122696 - ------------------------------------------------- ----------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 98 North Washington Street, Boston, MA 02114 - -------------------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 854-5800 ----------------------------- - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ----- ----- AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership FORM 10-Q INDEX Page -------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Statement of Financial Position at September 30, 1996 and December 31, 1995 3 Statement of Operations for the three and nine months ended September 30, 1996 and 1995 4 Statement of Cash Flows for the nine months ended September 30, 1996 and 1995 5 Notes to the Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 PART II. OTHER INFORMATION: Items 1 - 6 15 2 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership STATEMENT OF FINANCIAL POSITION September 30, 1996 and December 31, 1995 (Unaudited)
September 30, December 31, 1996 1995 ------------- ------------ ASSETS - ------ Cash and cash equivalents $ 838,936 $ 407,253 Contractual right for equipment -- 1,882,960 Rents receivable 722,506 792,169 Accounts receivable - affiliate 189,399 226,659 Note receivable - affiliate 209,910 209,910 Equipment at cost, net of accumulated depreciation of $14,061,613 and $13,131,217 at September 30, 1996 and December 31, 1995, respectively 15,824,605 11,455,410 Organization costs, net of accumulated amortization of $5,000 and $4,333 at September 30, 1996 and December 31, 1995, respectively -- 667 ----------- ----------- Total assets $17,785,356 $14,975,028 =========== =========== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- Notes payable $ 8,411,749 $ 5,303,736 Accrued interest 51,042 57,938 Accrued liabilities 21,250 108,385 Accrued liabilities - affiliate 17,833 21,994 Deferred rental income 111,528 66,364 Cash distributions payable to partners 218,295 272,869 ----------- ----------- Total liabilities 8,831,697 5,831,286 ----------- ----------- Partners' capital (deficit): General Partner (470,122) (460,618) Limited Partnership Interests (829,521.3 Units; initial purchase price of $25 each) 9,423,781 9,604,360 ----------- ----------- Total partners' capital 8,953,659 9,143,742 ----------- ----------- Total liabilities and partners' capital $17,785,356 $14,975,028 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership STATEMENT OF OPERATIONS for the three and nine months ended September 30, 1996 and 1995 (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, 1996 1995 1996 1995 ---- ---- ---- ---- Income: Lease revenue $1,341,736 $ 1,291,854 $3,758,379 $ 3,984,797 Interest income 8,955 7,873 79,754 21,004 Interest income - affiliate 4,650 4,114 13,860 21,137 Gain (loss) on sale of equipment 148,743 (2,970) 255,150 (107,904) Loss on exchange of equipment -- (1,142,996) -- (1,142,996) ---------- ----------- ---------- ----------- Total income 1,504,084 157,875 4,107,143 2,776,038 ---------- ----------- ---------- ----------- Expenses: Depreciation and amortization 902,043 1,023,465 2,919,724 3,154,657 Interest expense 146,713 115,944 452,276 323,301 Equipment management fees - affiliate 42,483 36,885 111,339 116,857 Operating expenses - affiliate 54,641 27,459 159,002 101,759 ---------- ----------- ---------- ----------- Total expenses 1,145,880 1,203,753 3,642,341 3,696,574 ---------- ----------- ---------- ----------- Net income (loss) $ 358,204 $(1,045,878) $ 464,802 $ (920,536) ========== =========== ========== =========== Net income (loss) per limited partnership unit $ 0.41 $ (1.20) $ 0.53 $ (1.05) ========== =========== ========== =========== Cash distributions declared per limited partnership unit $ 0.25 $ 0.31 $ 0.75 $ 0.94 ========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements. 4 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership STATEMENT OF CASH FLOWS for the nine months ended September 30, 1996 and 1995 (Unaudited)
1996 1995 ------------ ------------ Cash flows from (used in) operating activities: Net income (loss) $ 464,802 $ (920,536) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 2,919,724 3,154,657 (Gain) loss on sale of equipment (255,150) 107,904 Loss on exchange of equipment -- 1,142,996 Changes in assets and liabilities Decrease in: rents receivable 69,663 8,729 accounts receivable - affiliate 37,260 66,177 note receivable - affiliate -- 118,787 Increase (decrease) in: accrued interest (6,896) (33,055) accrued liabilities (87,135) 83,884 ccrued liabilities - affiliate (4,161) 10,963 deferred rental income 45,164 10,126 ----------- ----------- Net cash from operating activities 3,183,271 3,750,632 ----------- ----------- Cash flows from (used in) investing activities: Purchase of equipment (63,243) (43,831) Proceeds from equipment sales 502,428 115,225 ----------- ----------- Net cash from investing activities 439,185 71,394 ----------- ----------- Cash flows used in financing activities: Principal payments - notes payable (2,481,314) (2,890,427) Distributions paid (709,459) (818,607) ----------- ----------- Net cash used in financing activities (3,190,773) (3,709,034) ----------- ----------- Net increase in cash and cash equivalents 431,683 112,992 Cash and cash equivalents at beginning of period 407,253 288,658 ----------- ----------- Cash and cash equivalents at end of period $ 838,936 $ 401,650 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 459,172 $ 356,356 =========== ===========
Supplemental disclosure of non-cash investing and financing activities: See Notes 4 and 5 to the financial statements. The accompanying notes are an integral part of these financial statements. 5 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership Notes to the Financial Statements September 30, 1996 (Unaudited) NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The financial statements presented herein are prepared in conformity with generally accepted accounting principles and the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and are unaudited. As such, these financial statements do not include all information and footnote disclosures required under generally accepted accounting principles for complete financial statements and, accordingly, the accompanying financial statements should be read in conjunction with the footnotes presented in the 1995 Annual Report. Except as disclosed herein, there has been no material change to the information presented in the footnotes to the 1995 Annual Report. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary to present fairly the financial position at September 30, 1996 and December 31, 1995 and results of operations for the three and nine month periods ended September 30, 1996 and 1995 have been made and are reflected. NOTE 2 - CASH - ------------- The Partnership invests excess cash with large institutional banks in reverse repurchase agreements with overnight maturities. The reverse repurchase agreements are secured by U.S. Treasury Bills or interests in U.S. Government securities. NOTE 3 - REVENUE RECOGNITION - ---------------------------- Rents are payable to the Partnership monthly, quarterly or semi-annually and no significant amounts are calculated on factors other than the passage of time. The leases are accounted for as operating leases and are noncancellable. Rents received prior to their due dates are deferred. Future minimum rents of $11,242,819 are due as follows:
For the year ending September 30, 1997 $ 3,767,834 1998 2,626,337 1999 1,688,873 2000 1,011,807 2001 844,863 Thereafter 1,303,105 ----------- Total $11,242,819 ===========
In September 1995, the Partnership transferred its ownership interest in a Boeing 747-SP-21 commercial jet aircraft (the "United Aircraft") to the existing lessee, United Air Lines, Inc., pursuant to the rules for a like-kind exchange transaction for income tax reporting purposes (See Note 4 herein). In November 1995, the Partnership partially replaced the United Aircraft with a 17.39% interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines, Inc. (the "Southwest Aircraft"). The Partnership will receive approximately $501,000 of rental revenue in each of the years in the period ending September 30, 1999, and $167,000 in the year ending September 30, 2000, pursuant to the Southwest Aircraft lease agreement. 6 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued) Additionally, in March 1996, the Partnership completed the replacement of the United Aircraft with the acquisitions of a 14.39% interest in two McDonnell-Douglas MD-82 Aircraft leased by Finnair OY (the "Finnair Aircraft") and a 25.82% ownership interest in a McDonnell-Douglas MD-87 aircraft leased by Reno Air, Inc. (the "Reno Aircraft"). The Partnership will receive approximately $620,000 of rental revenue in each of the years in the period ending September 30, 1998 and approximately $303,000 in the year ending September 30, 1999, pursuant to the Finnair Aircraft lease agreement. With respect to the Reno Aircraft lease agreement, the Partnership will receive approximately $462,000 of rental revenue in each of the years in the period ending September 30, 2002 and approximately $115,000 in the year ending September 30, 2003. Pursuant to the Reno Aircraft lease agreement, rents are adjusted monthly for changes of the London Inter-Bank Offered Rate ("LIBOR"). Future rents reported above reflect the most recent LIBOR-effected rental payment. NOTE 4 - EQUIPMENT - ------------------ The following is a summary of equipment owned by the Partnership at September 30, 1996. In the opinion of American Finance Group ("AFG"), the acquisition cost of the equipment did not exceed its fair market value.
Lease Term Equipment Equipment Type (Months) at Cost - -------------------------------- ---------------- ------------- Aircraft 39-81 $ 10,081,685 Materials handling 1-60 5,187,347 Vessels 72 5,091,464 Construction & mining 11-72 4,893,321 Trailers/intermodal containers 36-99 2,155,360 Furniture & fixtures 60-90 1,507,620 Computers & peripherals 18-60 366,040 Retail store fixtures 48 316,563 Photocopying 24-48 119,685 Communications 13-63 95,022 Tractors & heavy duty trucks 60-78 62,319 Research & test 24 9,792 ------------ Total equipment cost 29,886,218 ------------ Accumulated depreciation (14,061,613) ------------ Equipment, net of accumulated depreciation $ 15,824,605 ============
In September 1995, the Partnership transferred its 39.9% ownership interest in the United Aircraft, pursuant to the rules for a like-kind exchange for income tax reporting purposes (See Note 3 herein). In November 1995, the Partnership partially replaced the United Aircraft with a 17.39% interest in the Southwest Aircraft, at an aggregate cost of $2,546,156. To acquire the interests in the Southwest Aircraft, the Partnership obtained financing of $1,900,028 from a third-party lender and utilized $646,128 of the cash consideration received from the transfer of the United Aircraft. The remaining ownership interest of 82.61% in the Southwest Aircraft is held by affiliated equipment leasing programs sponsored by AFG. 7 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued) Additionally, in March 1996, the Partnership completed the replacement of the United Aircraft with the acquisitions of a 14.39% ownership interest in the Finnair Aircraft and a 25.82% ownership interest in the Reno Aircraft at a total cost to the Partnership of $4,027,969 and $3,507,561, respectively. To acquire the ownership interest in the Finnair Aircraft, the Partnership paid $1,346,709 in cash and obtained financing of $2,681,260 from a third-party lender. To acquire the ownership interest in the Reno Aircraft, the Partnership paid $599,494 in cash and obtained financing of $2,908,067 from a third-party lender. The remaining ownership interests of 85.61% and 74.18% in the Finnair Aircraft and Reno Aircraft, respectively, are held by affiliated equipment leasing programs sponsored by AFG. During the three months ended March 31, 1996, the Partnership transferred its ownership interest in trailers, previously leased to The Atchison Topeka and Santa Fe Railroad, to a third party for cash consideration of $35,000. The trailers had a net book value of $29,442 at the date of transfer resulting in a net gain, for financial statement purposes, of $5,558. The gain was deferred in anticipation of completing a like-kind exchange during the three months ended June 30, 1996. The Partnership intended to replace these trailers with comparable trailers and lease such equipment to a new lessee. The Partnership had accounted for this transaction as a like-kind exchange for income tax reporting purposes. Accordingly, the net cash consideration of $35,000 was deposited in a special-purpose escrow account through a third-party Exchange Agent pending completion of the equipment exchange. The Partnership subsequently elected not to replace the trailers and, accordingly, the deferred gain of $5,558 was recognized as Gain on Sale of Equipment on the Statement of Operations during the second quarter of 1996. In addition, the cash consideration of $35,000, which was reported as Contractual Right for Equipment on the Statement of Financial Position at March 31, 1996, was recognized as proceeds from equipment sales. At September 30, 1996, the Partnership's equipment portfolio included equipment having a proportionate original cost of $17,831,788, representing approximately 60% of total equipment cost. The summary above includes equipment held for sale or re-lease with a cost and net book value of approximately $2,524,000 and $353,000, respectively, at September 30, 1996. The General Partner is actively seeking the sale or re- lease of all equipment not on lease. NOTE 5 - RELATED PARTY TRANSACTIONS - ----------------------------------- All operating expenses incurred by the Partnership are paid by AFG on behalf of the Partnership and AFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the nine month periods ended September 30, 1996 and 1995 which were paid or accrued by the Partnership to AFG or its Affiliates, are as follows:
1996 1995 -------- -------- Equipment management fees $111,339 $116,857 Administrative charges 15,750 15,750 Reimbursable operating expenses due to third parties 143,252 86,009 -------- -------- Total $270,341 $218,616 ======== ========
8 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued) In 1991, the Partnership acquired 900 intermodal cargo containers, at a cost of $1,840,140, and leased such containers to ICCU Containers, S.p.A. ("ICCU"), an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which formerly owned a minority interest in AFG Holdings Illinois Limited Partnership. The ability of ICCU to fulfill all of its obligations under the lease contract deteriorated, in AFG's view, in 1994. As a result, AFG, on the Partnership's behalf, began negotiations with other parties to either assume the lease obligations of ICCU or acquire the containers. As a result of these negotiations, the Partnership transferred 897 containers, having a net book value of $970,944, to a third party on November 30, 1994. The Partnership received, as settlement from ICCU and the third party, consideration as follows: (i) a contractual right to receive comparable containers with an estimated fair market value of $1,033,013 and (ii) beneficial assignment of an existing AFG note payable to CLOU which had a principal balance of $369,852 at the date of the transaction. The note has an effective interest rate of 8% and matures on December 31, 1996. AFG will pay all of the note balance plus interest to the Partnership according to the original amortization schedule. A portion of the consideration received was used to satisfy the Partnership's accounts receivable balance of $184,178 outstanding from ICCU at November 30, 1994. The remaining three containers of the original equipment group were disposed of in 1992 for stipulated payments as a result of casualty events. In April 1995, the Partnership replaced the original containers with comparable containers and leased such containers to a new lessee pursuant to the rules for completing a like-kind exchange for income tax reporting purposes. The carrying value of the new containers, $1,958,034, was reduced by $247,743, representing the amount of gain deferred on the original containers. The Partnership obtained approximately $925,000 of long-term financing in connection with the replacement containers. All rents and proceeds from the sale of equipment are paid directly to either AFG or to a lender. AFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At September 30, 1996, the Partnership was owed $189,399 by AFG for such funds and the interest thereon. These funds were remitted to the Partnership in October 1996. NOTE 6 - NOTES PAYABLE - ---------------------- Notes payable at September 30, 1996 consisted of installment notes of $8,411,749 payable to banks and institutional lenders. The installment notes bear interest rates ranging between 5.88% and 10.65%, except for one note which bears a fluctuating interest rate based on LIBOR plus a margin (5.4% at September 30, 1996). All of the installment notes are non-recourse and are collateralized by the equipment and assignment of the related lease payments. Generally, the installment notes will be fully amortized by noncancellable rents. However, the Partnership has balloon payment obligations at the expiration of the respective primary lease terms related to the Finnair Aircraft and the Reno Aircraft. The carrying amount of notes payable approximates fair value at September 30, 1996. The annual maturities of the installment notes payable are as follows:
For the year ending September 30, 1997 $1,774,715 1998 1,348,897 1999 2,495,035 2000 607,934 2001 528,193 Thereafter 1,656,975 ---------- Total $8,411,749 ==========
9 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------- Results of Operations. ---------------------- Three and nine months ended September 30, 1996 compared to the three and nine - ----------------------------------------------------------------------------- months ended September 30, 1995: - ------------------------------- Overview - -------- As an equipment leasing partnership, the Partnership was organized to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. The Partnership was designed to progress through three principal phases: acquisitions, operations, and liquidation. During the operations phase, a period of approximately six years, all equipment in the Partnership's portfolio will progress through various stages. Initially, all equipment will generate rental revenue under primary term lease agreements. During the life of the Partnership, these agreements will expire on an intermittent basis and equipment held pursuant to the related leases will be renewed, re-leased or sold, depending on prevailing market conditions and the assessment of such conditions by AFG to obtain the most advantageous economic benefit. Over time, a greater portion of the Partnership's original equipment portfolio will become available for remarketing and cash generated from operations and from sales or refinancings will begin to fluctuate. Ultimately, all equipment will be sold and the Partnership will be dissolved. The Partnership's operations commenced in 1991. Results of Operations - --------------------- For the three and nine months ended September 30, 1996, the Partnership recognized lease revenue of $1,341,736 and $3,758,379, respectively, compared to $1,291,854 and $3,984,797 for the same periods in 1995. The overall decrease in lease revenue from 1995 to 1996 reflects the effects of primary lease term expirations and the sale of equipment. The Partnership concluded an aircraft exchange late in the first quarter of 1996 (see discussion below). As a result of this exchange, the Partnership replaced its ownership interest in a Boeing 747-SP, having aggregate quarterly lease revenues of $257,420, with interests in six other aircraft (three Boeing 737 aircraft leased by Southwest Airlines, Inc., two McDonnell Douglas MD-82 aircraft leased by Finnair OY and one McDonnell Douglas MD-87 aircraft leased by Reno Air, Inc.), having aggregate quarterly lease revenues of $395,689. The Finnair Aircraft and the Reno Aircraft were exchanged into the Partnership on March 25 and March 26, 1996, respectively. Accordingly, revenue for the nine month period ended September 30, 1996 does not fully reflect the rents ultimately anticipated from the like- kind exchange. 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 AFG or an affiliated equipment leasing program sponsored by AFG. Proportionate equipment ownership enables the Partnership to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. For the three and nine months ended September 30, 1996, the Partnership earned interest income of $8,955 and $79,754, respectively, compared to $7,873 and $21,004 for the same periods in 1995. Interest income is typically generated from temporary investment of rental receipts and equipment sales proceeds in short-term 10 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION instruments. The increase in interest income in 1996 compared to 1995 is a result of interest of $54,300 earned on cash held in a special-purpose escrow in connection with the like-kind exchange transactions, discussed below. During the three and nine months ended September 30, 1996, the Partnership also earned interest income of $4,650 and $13,860, respectively, on a note receivable from AFG resulting from the settlement with ICCU Containers S.p.A. (See Note 5 to the financial statements) compared to $4,114 and $21,137 for the same periods in 1995. The amount of future interest income is expected to fluctuate in relation to prevailing interest rates, the collection of lease revenue, and the proceeds from equipment sales. During the three and nine months ended September 30, 1996, the Partnership sold equipment having a net book value of $116,885 and $217,836, respectively, to existing lessees and third parties. These sales resulted in net gains, for financial statement purposes, of $148,743 and $249,592, respectively, compared to net losses of $2,970 and $107,904 on equipment having a net book value of $4,070 and $223,129, respectively, for the same periods in 1995. In September 1995, the Partnership transferred its 39.9% ownership interest in the United Aircraft, pursuant to the rules of a like-kind exchange for income tax reporting purposes. The Partnership received aggregate cash consideration of $3,287,253 including $257,419 for rent accrued through the transfer date. A portion of the consideration was used to satisfy the balance of outstanding debt and interest of $500,746. The net cash consideration of $2,529,088 was deposited into a special-purpose escrow account through a third-party exchange agent pending the completion of the aircraft exchange. The Partnership's interest in the Aircraft had a net book value of $4,172,830 at the date of transfer and resulted in a net loss for financial reporting purposes of $1,142,996. In November 1995, the Partnership partially replaced the United Aircraft with a 17.39% interest in the Southwest Aircraft, at an aggregate cost of $2,546,156. To acquire the interests in the Southwest Aircraft, the Partnership obtained financing of $1,900,028 from a third-party lender and utilized $646,128 of the cash consideration received from the transfer of the United Aircraft. The remaining ownership interest of 82.61% in the Southwest Aircraft is held by affiliated equipment leasing programs sponsored by AFG. Additionally, in March 1996, the Partnership completed the replacement of the United Aircraft with the acquisitions of a 14.39% ownership interest in the Finnair Aircraft and a 25.82% ownership interest in the Reno Aircraft at a total cost to the Partnership of $4,027,969 and $3,507,561, respectively. To acquire the ownership interest in the Finnair Aircraft, the Partnership paid $1,346,709 in cash and obtained financing of $2,681,260 from a third-party lender. To acquire the ownership interest in the Reno Aircraft, the Partnership paid $599,494 in cash and obtained financing of $2,908,067 from a third-party lender. The remaining ownership interests of 85.61% and 74.18% of the Finnair Aircraft and Reno Aircraft, respectively, are held by affiliated equipment leasing programs sponsored by AFG. During the three months ended March 31, 1996, the Partnership transferred its ownership interest in trailers previously leased to The Atchison Topeka and Santa Fe Railroad. The Partnership intended to replace the trailers with comparable trailers and account for the transaction as a like-kind exchange for income tax reporting purposes. A gain of $5,558, was deferred in anticipation of completing the exchange during the three months ended June 30, 1996. The Partnership subsequently elected not to replace the trailers and, accordingly, the deferred gain of $5,558 was recognized as Gain on Sale of Equipment on the Statement of Operations during the second quarter of 1996. See Note 4 to the financial statements for additional discussion of this transaction. 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 11 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION 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 AFG'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. AFG 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 future gains or losses reported in the financial statements may not be indicative of the total residual value the Partnership achieved from leasing the equipment. Depreciation and amortization expense for the three and nine months ended September 30, 1996 was $902,043 and $2,919,724, respectively, compared to $1,023,465 and $3,154,657 for the same periods in 1995. For financial reporting purposes, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset at the date of primary lease expiration on a straight-line basis over such term. For purposes of this policy, estimated residual values represent equipment values at the date of the primary lease expiration. To the extent that equipment is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. Interest expense was $146,713 and $452,276 or 10.9% and 12% of lease revenue for the three and nine months ended September 30, 1996 compared to $115,944 and $323,301 or 9% and 8.1% of lease revenue for the same periods in 1995. The increase in interest expense in 1996 compared to 1995 was due primarily to interest incurred in connection with the leveraging obtained to finance the like-kind exchange transactions, discussed above. In the future, interest expense is expected to 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. Management fees were 3.2% and 3% of lease revenue during the three and nine months ended September 30, 1996, respectively, compared to 2.9% of lease revenue during each of the same periods 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, operating expenses represented 4.1% and 4.2% of lease revenue during the three and nine months ended September 30, 1996, respectively, compared to 2.1% and 2.6% of lease revenue for the same periods in 1995. The increase in operating expenses from 1995 to 1996 is due principally to costs incurred in connection with the like-kind exchange transactions, discussed above. 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. 12 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION Liquidity and Capital Resources and Discussion of Cash Flows - ------------------------------------------------------------ The Partnership by its nature is a limited life entity which was established for specific purposes described in the preceding "Overview". As an equipment leasing program, the Partnership's principal operating activities derive from asset rental transactions. Accordingly, the Partnership's principal source of cash from operations is provided by the collection of periodic rents. These cash inflows are used to satisfy debt service obligations associated with leveraged leases, and to pay management fees and operating costs. Operating activities generated net cash inflows of $3,183,271 and $3,750,632 for the nine months ended September 30, 1996 and 1995, respectively. Future renewal, re- lease and equipment sale activities will cause a decline in the Partnership's lease revenue and corresponding sources of operating cash. Overall, expenses associated with rental activities, such as management fees, and net cash flow from operating activities will also continue to decline as the Partnership experiences a higher frequency of remarketing events. Ultimately, the Partnership will dispose of all assets under lease. This will occur principally through sale transactions whereby each asset will be sold to the existing lessee or to a third party. Generally, this will occur upon expiration of each asset's primary or renewal/re-lease term. In certain instances, casualty or early termination events may result in the disposal of an asset. Such circumstances are infrequent and usually result in the collection of stipulated cash settlements pursuant to terms and conditions contained in the underlying lease agreements. Cash expended for equipment acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. During the nine months ended September 30, 1996, the Partnership expended $63,243 in connection with the like-kind exchange transactions referred to above. During the same period in 1995, the Partnership expended $43,831 to upgrade certain equipment. For the nine months ended September 30, 1996, the Partnership realized $502,428 in equipment sale proceeds compared to $115,225 for the same period in 1995. 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 future periods, the amount of cash used to repay debt obligations will decline as the principal balance of notes payable is reduced through the collection and application of rents. However, the Partnership has balloon payment obligations at the expiration of the respective primary lease terms related to the Finnair Aircraft and the Reno Aircraft. Cash distributions to the General and Limited Partners are declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is presented as a component of financing activities. For the nine months ended September 30, 1996, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $654,885. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Limited Partners were allocated 95% of these distributions, or $622,141, and the General Partner was allocated 5%, or $32,744. The third quarter 1996 cash distribution was paid on October 15, 1996. 13 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION Cash distributions paid to the Limited Partners consist of both a return of and a return on capital. To the extent that cash distributions consist of Cash From Sales or Refinancings, substantially all of such cash distributions should be viewed as a return of 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 AFG 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 quarterly cash distributions will occur during the life of the Partnership. 14 AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6(a). Exhibits Response: None Item 6(b). Reports on Form 8-K Response: None 15 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacity and on the date indicated. AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership By: AFG Leasing VI Incorporated, a Massachusetts corporation and the General Partner of the Registrant. By: /s/ Michael J. Butterfield ---------------------------------------------------- Michael J. Butterfield Treasurer of AFG Leasing VI Incorporated (Duly Authorized Officer and Principal Accounting Officer) Date: November 13, 1996 -------------------------------------------------- By: /s/ Gary M. Romano ---------------------------------------------------- Gary M. Romano Clerk of AFG Leasing VI Incorporated (Duly Authorized Officer and Principal Financial Officer) Date: November 13, 1996 -------------------------------------------------- 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 838,936 0 1,121,815 0 0 1,960,751 29,886,218 14,061,613 17,785,356 419,948 8,411,749 0 0 0 8,953,659 17,785,356 3,758,379 4,107,143 0 0 3,190,065 0 452,276 464,802 0 464,802 0 0 0 464,802 0 0
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