UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 June 30, 1995 Commission File No. 0-15621
American Income 5 Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2917026
(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 5 LIMITED PARTNERSHIP
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1995 and December 31, 1994 3
Statement of Operations
for the three and six months ended
June 30, 1995 and 1994 4
Statement of Cash Flows
for the six months ended June 30, 1995 and 1994 5
Notes to the Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION:
Items 1 - 6 13
[CAPTION]
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
June 30, 1995 and December 31, 1994
(Unaudited)
<TABLE>
<S> <C> <C>
June 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 232,683 $ 309,548
Accounts receivable 129 --
Accounts receivable - affiliate 100,045 94,241
Equipment at cost, net of accumulated
depreciation of $10,069,553 and
$9,749,836 at June 30, 1995 and
December 31, 1994, respectively 3,230,894 3,732,984
Total assets $ 3,563,751 $ 4,136,773
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 127,517 $ 356,174
Accrued interest 203 1,263
Accrued liabilities 15,000 15,500
Accrued liabilities - affiliate 3,121 4,328
Deferred rental income 185,504 168,438
Cash distributions payable to partners 270,058 270,058
Total liabilities 601,403 815,761
Partners' capital (deficit):
General Partner (126,797) (123,211)
Limited Partnership Interests
(71,295 Units; initial purchase
price of $250 each) 3,089,145 3,444,223
Total partners' capital 2,962,348 3,321,012
Total liabilities and partners'
capital $ 3,563,751 $ 4,136,773
</TABLE>
[CAPTION]
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
Income:
Lease revenue $ 368,962 $ 407,050 $ 750,623 $ 834,263
Interest income 2,958 6,782 6,728 13,247
Gain on sale of 15,500 -- 18,300 52,989
equipment
Total income 387,420 413,832 775,651 900,499
Expenses:
Depreciation 251,046 251,044 502,090 502,089
Interest expense 4,705 15,586 10,753 32,297
Equipment management
fees - affiliate 18,448 20,352 37,531 41,713
Operating expenses
- affiliate 19,868 14,190 43,825 32,025
Total expenses 294,067 301,172 594,199 608,124
Net income $ 93,353 $ 112,660 $ 181,452 $ 292,375
Net income
per limited
partnership unit $ 1.30 $ 1.56 $ 2.52 $ 4.06
Cash distributions
declared per
limited partnership
unit $ 3.75 $ 5.62 $ 7.50 $ 11.25
</TABLE>
[CAPTION]
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(Unaudited)
<TABLE>
<S> <C> <C>
1995 1994
Cash flows from (used in) operating
activities: $181,452 $292,375
Net income
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 502,090 502,089
Gain on sale of equipment (18,300) (52,989)
Decrease in allowance for doubtful accounts -- (20,000)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable (129) 49,670
accounts receivable - affiliate (5,804) 53,756
Increase (decrease) in:
accrued interest (1,060) (34,024)
accrued liabilities (500) 3,957
accrued liabilities - affiliate (1,207) (6,529)
deferred rental income 17,066 120,308
Net cash from operating activities 673,608 908,613
Cash flows from investing activities:
Proceeds from equipment sales 18,300 52,989
Net cash from investing activities 18,300 52,989
Cash flows used in financing activities:
Principal payments - notes payable (228,657) (443,385)
Distributions paid (540,116) (810,169)
Net cash used in financing activities (768,773) (1,253,554)
Net decrease in cash and cash equivalents (76,865) (291,952)
Cash and cash equivalents at beginning of
period 309,548 1,026,409
Cash and cash equivalents at end of period $ 232,683 $ 734,457
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 11,813 $ 66,321
</TABLE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
Notes to the Financial Statements
June 30, 1995
(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 1994 Annual
Report. Except as disclosed herein, there has been no material
change to the information presented in the footnotes to the 1994
Annual Report.
In the opinion of management, all adjustments (consisting of
normal and recurring adjustments) considered necessary to present
fairly the financial position at June 30, 1995 and December 31,
1994 and results of operations for the three and six month periods
ended June 30, 1995 and 1994 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 $1,579,066
are due as follows:
For the year ending June 30, 1996 $ 1,420,666
1997 158,400
Total $ 1,579,066
[CAPTION]
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Partnership
at June 30, 1995. In the opinion of American Finance Group
("AFG"), the carrying value of the equipment does not exceed its
fair market value.
<TABLE>
<S> <C> <C>
Lease Term Equipment
Equipment Type (Months) at Cost
Aircraft 36-60 $ 7,958,361
Flight simulators 60 4,608,992
Medical 12-60 471,443
Materials handling 12-60 165,968
Tractors & heavy duty trucks 24-60 52,369
Trailers & intermodal containers 36-60 22,917
Construction & mining 12-60 17,580
Motor vehicles 12-72 2,817
Total equipment cost 13,300,447
Accumulated depreciation (10,069,553)
Equipment, net of accumulated depreciation $ 3,230,894
</TABLE>
At June 30, 1995, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $12,567,353
representing approximately 94% of total equipment cost.
The summary above includes equipment held for sale or re-lease
with a cost of approximately $3,000 which had been fully
depreciated at June 30, 1995.
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 each of the six month periods ended June 30, 1995 and 1994,
which were paid or accrued by the Partnership to AFG or its
Affiliates, are as follows:
1995 1994
Equipment management fees $ 37,531 $ 41,713
Administrative charges 8,064 6,000
Reimbursable operating expenses
due to third parties 35,761 26,025
Total $ 81,356 $ 73,738
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 June 30, 1995, the
Partnership was owed $100,045 by AFG for such funds and the
interest thereon. These funds were remitted to the Partnership in
July 1995.
NOTE 6 - NOTES PAYABLE
Notes payable at June 30, 1995 consisted of installment notes
of $127,517 payable to banks and institutional lenders. All of the
installment notes are non-recourse, with interest rates ranging
between 6.35% and 8.05% and are collateralized by the equipment and
assignment of the related lease payments. The installment notes
will be fully amortized by noncancellable rents in the year ending
June 30, 1996.
AMERICAN INCOME 5 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 six months ended June 30, 1995 compared to the three and
six months ended June, 1994:
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 revenues 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 1986.
Results of Operations
For the three and six months ended June 30, 1995, the
Partnership recognized lease revenue of $368,962 and $750,623,
respectively, compared to $407,050 and $834,263 for the same
periods in 1994. The decrease in lease revenue from 1994 to 1995
was expected and resulted principally from renewal lease term
expirations and the sale of equipment.
The Partnership's equipment portfolio includes certain assets
in which the Partnership holds a proportionate ownership interest.
In such cases, the remaining interests are owned by 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.
During the three months ended March 31, 1994, the General
Partner reduced the aggregate amount reserved against potentially
uncollectable rents to $20,000. This caused an increase in lease
revenue of $20,000 during the three months ended March 31, 1994.
It cannot be determined whether the Partnership will recover any
past due rents in the future; however, the General Partner will
pursue the collection of all such items.
Interest income for the three and six months ended June 30, 1995
was $2,958 and $6,728, respectively, compared to $6,782 and $13,247
for the same periods in 1994. Interest income is generated from
temporary investment of rental receipts and equipment sale proceeds
in short-term instruments. The decrease in interest income from
1994 to 1995 is principally attributable to a lower availability of
cash used for investment prior to distribution to the Partners.
The amount of future interest income is expected to fluctuate in
relation to prevailing interest rates and the collection of lease
revenue and equipment sale proceeds.
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
For the three months ended June 30, 1995, the Partnership sold
equipment which had been fully depreciated to existing lessees and
third parties. These sales resulted in a net gain, for financial
statement purposes, of $15,500. There were no equipment sales
during the three months ended June 30, 1994.
For the six months ended June 30, 1995, the Partnership sold
equipment which had been fully depreciated to existing lessees and
third parties. These sales resulted in a net gain, for financial
statement purposes, of $18,300 compared to a net gain of $52,989 on
equipment which had been fully depreciated for the same period in
1994.
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 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 gain or loss reported in the financial statements is not
necessarily indicative of the total residual value achieved from
leasing the equipment.
Depreciation expense was $251,046 and $502,090 for the three and
six months ended June 30, 1995, respectively, compared to $251,044
and $502,089 for the same periods in 1994. 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 estimates of equipment values at the date
of 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 $4,705 and $10,753, or 1.3% and 1.4% of
lease revenue for the three and six months ended June 30, 1995,
respectively, compared to $15,586 and $32,297 or 3.8% and 3.9% of
lease revenue for the same periods in 1994. Interest expense in
future periods will continue 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 5% of lease revenue during each of the
periods ended June 30, 1995 and 1994 and will not change as a
percentage of lease revenue in future periods.
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 approximately 5.4% and
5.8% of lease revenue for the three
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
and six months ended June 30, 1995, respectively, compared to 3.5%
and 3.8% of lease revenue for the same periods in 1994. The
increase in operating expenses from 1994 to 1995 was due
principally to higher premiums incurred in connection with
supplemental insurance policies carried by the Partnership on
certain aircraft 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 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 $673,608 and $908,613 for the six months ended June 30,
1995 and 1994, respectively. Future renewal, re-lease and
equipment sale activities will cause a gradual decline in the
Partnership's lease revenues and corresponding sources of operating
cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will
decline as the Partnership experiences a higher frequency of
remarketing events.
Ultimately, the Partnership will dispose of all assets under
lease. This will occur principally through sale transactions
whereby each asset will be sold to the existing lessee or to a
third party. Generally, this will occur upon expiration of each
asset's primary or renewal/re-lease term. In certain instances,
casualty or early termination events may result in the disposal of
an asset. Such circumstances are infrequent and usually result in
the collection of stipulated cash settlements pursuant to terms and
conditions contained in the underlying lease agreements.
Cash realized from asset disposal transactions is reported under
investing activities on the accompanying Statement of Cash Flows.
During the six months ended June 30, 1995, the Partnership realized
$18,300 in equipment sale proceeds compared to $52,989 for the same
period in 1994. 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.
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 six
months ended June 30, 1995, the Partnership declared total cash
distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $540,116. In
accordance with the Amended and Restated Agreement and Certificate
of Limited Partnership, the Limited Partners were allocated 99% of
these distributions, or $534,715, and the General Partner was
allocated 1%, or $5,401. The second quarter 1995 cash distribution
was paid on July 14, 1995.
AMERICAN INCOME 5 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.
Accordingly, fluctuations in the level of quarterly cash
distributions will occur during the life of the Partnership.
AMERICAN INCOME 5 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
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 5 LIMITED PARTNERSHIP
By: AFG Leasing Associates II, a Massachusetts
general partnership and the General Partner
of the Registrant.
By: AFG Leasing Incorporated, a Massachusetts
corporation and general partner in such
general partnership.
By: /s/Gary M. Romano
Gary M. Romano
Vice President And Controller
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 232,683
<SECURITIES> 0
<RECEIVABLES> 100,174
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 332,857
<PP&E> 13,300,447
<DEPRECIATION> 10,069,553
<TOTAL-ASSETS> 3,563,751
<CURRENT-LIABILITIES> 473,886
<BONDS> 127,517
<COMMON> 0
0
0
<OTHER-SE> 2,962,348
<TOTAL-LIABILITY-AND-EQUITY> 3,563,751
<SALES> 0
<TOTAL-REVENUES> 750,623
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 583,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,753
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 181,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,452
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
