<PAGE>
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 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. 0-15621
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
----- -----
<PAGE>
AMERICAN INCOME 5 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 6-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-14
PART II. OTHER INFORMATION
ITEMS 1-6 15
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
1996 1995
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 467,871 $ 244,878
Rents receivable, net of allowance for doubtful
accounts $20,000 at of December 31, 1995 - 19,700
Due from Buyer 2,931,004 -
Accounts receivable--affiliate 47,974 200,698
Equipment, at cost, net of accumulated depreciation
of $10,098,320 at December 31, 1995 - 2,728,805
------------ ------------
Total assets $ 3,446,849 $ 3,194,081
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Notes payable $ - $ 82,037
Accrued interest - 953
Accrued liabilities 72,115 20,000
Accrued liabilities--affiliate 11,569 5,954
Deferred rental income - 247,980
Cash distributions payable to partners 3,012,034 180,038
------------ ------------
Total liabilities 3,095,718 536,962
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (152,910) (129,850)
Limited Partnership Interests (71,295 Units;
initial purchase price of $250 each) 504,041 2,786,969
------------ ------------
Total partners' capital 351,131 2,657,119
------------ ------------
Total liabilities and partners' capital $ 3,446,849 $ 3,194,081
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCOME:
Lease revenue $ 281,905 $ 364,660 $ 752,199 $ 1,115,283
Interest income 5,374 2,453 12,297 9,181
Gain on sale of equipment 839,572 20,700 847,072 39,000
------------ ------------ ------------ ------------
Total income 1,126,851 387,813 1,611,568 1,163,464
------------ ------------ ------------ ------------
EXPENSES:
Depreciation 161,702 251,044 637,373 753,134
Interest expense - 1,726 731 12,479
Equipment management fees--affiliate 14,095 18,233 37,610 55,764
Operating expenses--affiliate 100,158 11,798 139,790 55,623
------------ ------------ ------------ ------------
Total expenses 275,955 282,801 815,504 877,000
------------ ------------ ------------ ------------
NET INCOME $ 850,896 $ 105,012 $ 796,064 $ 286,464
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 11.82 $ 1.46 $ 11.05 $ 3.98
------- ------- ------- -------
------- ------- ------- -------
CASH DISTRIBUTIONS DECLARED PER
LIMITED PARTNERSHIP UNIT $ 41.83 $ 2.50 $ 43.08 $ 10.00
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 796,064 $ 286,464
Adjustments to reconcile net income to cash from operating activities-
Depreciation 637,373 753,134
Gain on sale of equipment (847,072) (39,000)
Decrease in allowance for doubtful accounts (20,000) -
Changes in assets and liabilities-
Decrease in-
Rents receivable 39,700 -
Accounts receivable--affiliate 152,724 10,932
Increase (decrease) in-
Accrued interest (953) (933)
Accrued liabilities 52,115 297
Accrued liabilities--affiliate 5,615 (4,044)
Deferred rental income (247,980) (85,939)
---------- ----------
Cash from operating activities 567,586 920,911
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from equipment sales 7,500 39,000
---------- ----------
Cash from investing activities 7,500 39,000
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments--notes payable (82,037) (262,663)
Distributions paid (270,056) (810,171)
---------- ----------
Cash used in financing activities (352,093) (1,072,834)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 222,993 (112,923)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 244,878 309,548
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 467,871 $ 196,625
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,684 $ 13,412
---------- ----------
---------- ----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
As discussed in Note 1, the Partnership entered into a sale transaction to
dispose of its equipment portfolio. This transaction was closed on
September 30, 1996. The Partnership received net sales proceeds of
$2,931,004 that were deposited into an escrow account and transferred to
the Partnership on October 3, 1996. This amount has been reflected as Due
from Buyer on the Statement of Financial Position at September 30, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(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.
On September 30, 1996, the Partnership sold all of its remaining equipment
assets for $2,931,004 (see Notes 4 and 5). In October 1996, the
Partnership filed Form 8-K, which provided a description of the remarketing
process and the terms of sale. The entire remarketing effort was
undertaken jointly by 15 individual equipment leasing programs, consisting
of the Partnership and 14 affiliated partnerships, each of which
individually executed separate purchase and sale agreements with RSL
Finance Limited Partnership II (the Buyer) to sell all or a portion of
their equipment assets (the Sale Assets).
The General Partner anticipates that the Partnership will be dissolved on
or before December 31, 1996, in accordance with the Partnership's Amended
and Restated Agreement and Certificate of Limited Partnership. Prior to
December 31, 1996, the General Partner will wind up the operations of the
Partnership and make a liquidating distribution of $3,012,034 to the
Partners. The distribution approximates all of the Partnership's available
cash net of estimated wind up costs and a contingency reserve. In November
1996, the contingency reserve of $350,000 was deposited in a separate
account to cover any unforeseen liabilities that may arise in future
periods. At such time as the General Partner considers appropriate, any
balance in the reserve account will be distributed to the Partners
according to their respective ownership interests in the Partnership at the
date of its dissolution (see Note 6).
6
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(1) BASIS OF PRESENTATION (Continued)
The financial statements presented have been prepared on a going-concern
basis through September 30, 1996. Due to the imminent dissolution of the
Partnership requiring liquidation and distribution of its net assets, a
statement of net assets in liquidation as of September 30, 1996 is
presented below. This statement is prepared based on anticipated
liquidating values of assets and liabilities. Management has determined
the liquidating values of amounts receivable based on collectibility of
balances prior to any final distribution and termination of the
Partnership. Accrued liabilities have been estimated based on the existing
obligations and anticipated fees and costs associated with the sales
transaction and the wind-up effort. Cash distributions to partners,
including contingency reserves, may vary depending upon the realization of
the amounts estimated by management. Values estimated by management may be
different from actual amounts.
Assets:
Cash and cash equivalents $ 467,871
Due from Buyer 2,931,004
Accounts receivable--affiliate 47,974
-----------
Total assets $ 3,446,849
-----------
-----------
Liabilities:
Accrued liabilities $ 72,115
Accrued liabilities--affiliate 11,569
Cash distributions payable to partners,
including contingency reserve 3,363,165
-----------
Total liabilities $ 3,446,849
-----------
-----------
Net assets $ -
-----------
-----------
(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. At September 30, 1996, the Partnership had
$465,000 invested in reverse repurchase agreements.
7
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(3) REVENUE RECOGNITION
Rents were payable to the Partnership monthly, quarterly or semiannually,
and no significant amounts were calculated on factors other than the
passage of time. The leases were accounted for as operating leases and
were noncancelable. Rents received prior to their due dates were deferred.
(4) EQUIPMENT
The following is a summary of equipment owned by the Partnership
immediately prior to the sales transaction described in Note 1.
LEASE TERM EQUIPMENT,
EQUIPMENT TYPE (MONTHS) AT COST
Aircraft 36-60 $ 7,958,361
Flight simulators 108 4,608,992
Materials handling 12-60 108,755
Tractors and heavy duty trucks 24-60 52,369
Trailers and intermodal containers 36-60 22,917
Medical 12-60 20,771
Construction and mining 12-60 17,580
------------
Total equipment cost 12,789,745
Accumulated depreciation (10,698,313)
------------
Equipment, net of accumulated depreciation $ 2,091,432
------------
------------
As discussed in Note 1, on September 30, 1996, the Partnership sold all of
the foregoing equipment for $2,931,004.
8
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(5) RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by American
Finance Group (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 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 $ 37,610 $ 55,764
Administrative charges 16,128 12,096
Reimbursable operating expenses due
to third parties 123,662 43,527
---------- ----------
Total $ 177,400 $ 111,387
---------- ----------
---------- ----------
Administrative charges and reimbursable operating expenses due to third
parties in 1996 include all costs anticipated in connection with the
Partnership's wind-up and dissolution.
All rents and proceeds from the sale of equipment, including the sales
transaction described in Note 1, 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 $47,974 by AFG for such funds
and the interest thereon. Theses funds were remitted to the Partnership in
October 1996. The sales proceeds due from the Buyer were deposited into an
escrow account subsequent to September 30, 1996.
The remarketing effort described in Note 1 was undertaken jointly by 15
individual equipment leasing programs, consisting of the Partnership and 14
affiliated partnerships (Other Affected Partnerships). Collectively, the
Partnership and the Other Affected Partnerships offered for sale all or a
portion of their Sale Assets. Thirteen of the programs, including the
Partnership, sold all of their equipment assets and are expected to wind up
business operations by December 31, 1996; the remaining two programs, which
will continue their business operations beyond December 31, 1996, sold only
their interest in assets owned jointly with one or more of the 13 programs
anticipating wind-up by December 31, 1996. Substantially all of the
Partnership's equipment assets of material value represented partial
ownership interests whereby the Partnership owned less than a 100% interest
in the equipment it sold. The remaining interests in such assets were
owned by one or more of the Other Affected Partnerships. Ultimately, the
Sale Assets were sold for an aggregate adjusted sale price of approximately
$32,997,000, of which the Partnership's proportionate share, net of
associated costs, was determined to be $2,931,004. The Partnership's
proportionate share in this transaction is net of certain third-party
advisory fees incurred in connection with the equipment sales.
9
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Continued)
(5) RELATED PARTY TRANSACTIONS (Continued)
The Buyer is a limited partnership established to acquire the Sale Assets
and has no direct affiliation with the Partnership, the Other Affected
Partnerships, the General Partner or AFG. The sole general partner of the
Buyer is RSL Holdings, Inc. (RSL). An affiliate of RSL purchased a
significant limited partnership interest in a direct-participation
equipment leasing program co-sponsored by AFG in 1992. AFG acquired this
interest in 1993 for cash and assumption of indebtedness. There have been
no other business dealings between the buyer and AFG and their affiliates.
(6) SUBSEQUENT EVENTS
On October 10, 1996, the General Partner entered into a Cross Partnership
Agreement with general partners of certain other affiliated partnerships.
Under this agreement, each of the general partners has agreed to set aside
a contingency reserve amount for future liabilities and deposit that amount
into an account that may be accessed by any of the general partners to fund
any and all obligations contemplated under the Cross Partnership Agreement.
Any obligation of the Partnership that is not associated with the sales
transactions (see Note 1) will directly reduce the Partnership's reserve
amount. All costs arising as a result of the sales transactions will be
allocated against the reserve amount of the Partnership and other
affiliated partnerships. If the reserve amount contributed by the
Partnership is reduced below zero, the reserve amounts contributed by the
general partners of the other affiliated partnerships shall be debited on a
pro rata basis to cover the deficit. If the reserve amount contributed by
one of the affiliated partnerships is reduced below zero, the reserve
amounts of the Partnership and the other affiliated partnerships shall be
debited on a pro rata basis to cover the deficit. Upon termination of the
contingency reserve account, any monies remaining will be distributed to
those partnerships with positive balances. The Partnership's reserve
amount under this agreement was determined to be $350,000 and was deposited
in the reserve account in November 1996.
In connection with the wind-up effort, certain general partner interests in
AFG Leasing Associates II, the General Partner of the Partnership,
[including the general partner interest owned by Geoffrey A. MacDonald,]
were transferred to AFG Leasing IV Incorporated, resulting in AFG Leasing
IV Incorporated and AFG Leasing Incorporated being the two general partners
of AFG Leasing Associates II. AFG Leasing Incorporated then merged with
and into AFG Leasing IV Incorporated effective October 17, 1996.
Accordingly, AFG Leasing IV Incorporated became the sole General Partner of
the Partnership commencing October 17, 1996. AFG Leasing IV Incorporated
was established in 1987 and is also the general partner or managing general
partner of certain other affiliated partnerships sponsored by AFG.
10
<PAGE>
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
The Three and Nine Months Ended September 30, 1996 Compared To the Three and
Nine Months Ended September 30, 1995:
OVERVIEW
The Partnership was organized in 1986 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.
On September 30, 1996, the Partnership sold all of its remaining equipment
assets. The remarketing effort described in Note 1 was undertaken jointly by 15
individual equipment leasing programs, consisting of the Partnership and 14
affiliated partnerships (Other Affected Partnerships). Collectively, the
Partnership and the Other Affected Partnerships offered for sale all or a
portion of their equipment assets (Sale Assets). Thirteen of the programs,
including the Partnership, sold all of their equipment assets and are expected
to wind up business operations by December 31, 1996; the remaining two programs,
which will continue their business operations beyond December 31, 1996, sold
only their interest in assets owned jointly with one or more of the 13 programs
anticipating wind-up by December 31, 1996. Substantially all of the
Partnership's equipment assets of material value represented partial ownership
interests whereby the Partnership owned less than a 100% interest in the
equipment it sold. The remaining interests in such assets were owned by one or
more of the Other Affected Partnerships. Ultimately, the Sale Assets were sold
for an aggregate adjusted sale price of approximately $32,997,000, of which the
Partnership's proportionate share, net of associated costs, was determined to be
$2,931,004. The Partnership's proportionate share in this transaction is net of
certain third-party advisory fees incurred in connection with the equipment
sales.
The General Partner anticipates that the Partnership will be dissolved on or
before December 31, 1996 in accordance with the Partnership's Amended and
Restated Agreement and Certificate of Limited Partnership (Partnership
Agreement). Prior to December 31, 1996, the General Partner will wind up the
operations of the Partnership and make a liquidating cash distribution of
$3,012,034 to the Partners. The distribution approximates all of the
Partnership's available cash, net of estimated wind-up costs and a contingency
reserve. In November 1996, the contingency reserve of $350,000 was deposited in
a separate account to cover any unforeseen liabilities that may arise in future
periods. At such time as the General Partner considers appropriate, any balance
in the reserve account will be distributed to the Partners according to their
respective ownership interests in the Partnership at the date of its dissolution
(see Note 6 to the financial statements).
11
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
(Continued)
OVERVIEW (Continued)
The financial statements presented have been prepared on a going-concern basis
through September 30, 1996. Due to the imminent dissolution of the Partnership
requiring liquidation and distribution of its net assets, management has
determined the liquidating values of amounts receivable based on collectibility
of balances prior to any final distribution and termination of the Partnership.
Accrued liabilities have been estimated based on the existing obligations and
anticipated fees and costs associated with the sale transaction and the wind-up
effort. Cash distributions to partners, including contingency reserves, may
vary depending upon the realization of the amounts estimated by management.
Values estimated by management may be different from actual amounts.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1996, the Partnership
recognized lease revenue of $281,905 and $752,199, respectively, compared to
$364,660 and $1,115,283 for the same periods in 1995. The decrease in lease
revenue from 1995 to 1996 was expected and resulted principally from renewal
lease term expirations and the sale of equipment. The Partnership also earned
interest income from temporary investments of rental receipts and equipment
sales proceeds in short-term instruments.
Prior to the sale of the Partnership's assets, the Partnership's equipment
portfolio included certain assets in which the Partnership held a proportionate
ownership interest. In such cases, the remaining interests were owned by AFG or
an affiliated equipment leasing program sponsored by AFG. Proportionate
equipment ownership enabled the Partnership to further diversify its equipment
portfolio by participating in the ownership of selected assets, thereby reducing
the general levels of risk that could result from a concentration in any single
equipment type, industry or lessee. The Partnership and each affiliate
individually reported, in proportion to their respective ownership interests,
their respective shares of assets, liabilities, revenues and expenses associated
with the equipment.
There were no equipment sales from the normal course of business during the
three months ended September 30, 1996. For the same period in 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 $20,700.
For the nine months ended September 30, 1996, the Partnership sold fully
depreciated equipment in the normal course of business to existing lessees and
third parties. These sales resulted in a net gain, for financial statement
purposes, of $7,500 compared to a net gain of $39,000 on equipment which had
been fully depreciated for the same period in 1995. In connection with the
September 30, 1996 sales transaction discussed above, the Partnership realized a
net gain of $839,572.
12
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
(Continued)
RESULTS OF OPERATIONS (Continued)
Depreciation expense was $161,702 and $637,373 for the three and nine months
ended September 30, 1996, respectively, compared to $251,044 and $753,134 for
the same periods in 1995. For financial reporting purposes, to the extent that
an asset was held on primary lease term, the Partnership depreciated 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. To the extent that equipment was held beyond its primary
lease term, the Partnership continued to depreciate the remaining net book value
of the asset on a straight-line basis over the asset's remaining economic life.
There was no interest expense for the three months ended September 30, 1996.
Interest expense was $1,726 or less than 1% of lease revenue for the same period
in 1995. Interest expense was $731 and $12,479 or less than 1% and 1.1% of
lease revenue for the nine months ended September 30, 1996 and 1995,
respectively.
Management fees were 5% of lease revenue during each of the periods ended
September 30, 1996 and 1995.
Operating expenses consisted 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 were incurred in connection with equipment being remarketed.
Collectively, operating expenses represented 35.5% and 18.6% of lease revenue
for the three and nine months ended September 30, 1996, respectively, compared
to 3.2% and 5% of lease revenue for the same periods in 1995. Operating
expenses for the three and nine month periods ended September 30, 1996 included
all costs anticipated in connection with the Partnership's wind-up and
dissolution.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership, by its nature, is a limited-life entity that was established
for specific purposes described in the preceding "Overview." As an equipment
leasing program, the Partnership's principal operating activities have been
derived from asset rental transactions. Accordingly, the Partnership's
principal source of cash from operations has been provided from the collection
of periodic rents. These cash inflows were 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 $567,586
and $920,911 for the nine months ended September 30, 1996 and 1995,
respectively.
Cash realized from asset disposal transactions, excluding the sales transaction
on September 30, 1996, has been reported under investing activities on the
accompanying Statement of Cash Flows. During the nine months ended
September 30, 1996 and 1995, the Partnership realized $7,500 and $39,000,
respectively, in equipment sale proceeds during the normal course of business.
13
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
(Continued)
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS (Continued)
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. All of the Partnership's
outstanding debt obligations were retired in 1996.
The Partnership also recorded a receivable of $2,931,004 in connection with the
sale of all of its remaining equipment assets on September 30, 1996. These
proceeds were deposited into an escrow account and transferred to the
Partnership on October 3, 1996. In conjunction with this transaction, the
General Partner has commenced the dissolution and liquidation of the
Partnership. The aggregate funds from the sales transaction and liquidation
will be used to fund existing obligations, including estimated costs of the
wind-up effort and sales transaction, and to establish a contingency reserve to
cover any unforeseen liabilities. The remaining funds, including any unutilized
contingency reserves, will be distributed to the Partners in accordance with the
terms of the Partnership Agreement and related agreements.
14
<PAGE>
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.
15
<PAGE>
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 IV Incorporated, a Massachusetts
corporation and the General Partner of the Registrant.
By: /s/ Michael J. Butterfield
--------------------------
Michael J. Butterfield
Treasurer of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 19, 1996
-----------------
By: /s/ Gary M. Romano
------------------
Gary M. Romano
Clerk of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 19, 1996
-----------------
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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