<PAGE>
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 March 31, 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 March 31, 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 March 31, 1996 and December 31, 1995 3
Statement of Operations
for the three months ended March 31, 1996 and 1995 4
Statement of Cash Flows
for the three months ended March 31, 1996 and 1995 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
2
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
March 31, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 201,806 $ 244,878
Accounts receivable, net of allowance for doubtful
accounts of $12,000 and $20,000 at March 31, 1996
and December 31, 1995, respectively 596 19,700
Accounts receivable - affiliate 56,352 200,698
Equipment at cost, net of accumulated depreciation
of $10,298,775 and $10,098,320 at March 31, 1996
and December 31, 1995, respectively 2,490,970 2,728,805
---------- ----------
Total assets $2,749,724 $3,194,081
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 23,749 $ 82,037
Accrued interest 84 953
Accrued liabilities 19,750 20,000
Accrued liabilities - affiliate 6,773 5,954
Deferred rental income 54,401 247,980
Cash distributions payable to partners 45,009 180,038
---------- ----------
Total liabilities 149,766 536,962
---------- ----------
Partners' capital (deficit):
General Partner (130,422) (129,850)
Limited Partnership Interests
(71,295 Units; initial purchase price of $250 each) 2,730,380 2,786,969
---------- ----------
Total partners' capital 2,599,958 2,657,119
---------- ----------
Total liabilities and partners' capital $2,749,724 $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 months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Income:
Lease revenue $244,168 $381,661
Interest income 4,312 3,770
Gain on sale of equipment 7,500 2,800
-------- --------
Total income 255,980 388,231
-------- --------
Expenses:
Depreciation 237,835 251,044
Interest expense 626 6,048
Equipment management fees - affiliate 12,208 19,083
Operating expenses - affiliate 17,463 23,957
-------- --------
Total expenses 268,132 300,132
-------- --------
Net income (loss) $(12,152) $ 88,099
======== ========
Net income (loss)
per limited partnership unit $ (0.17) $ 1.22
======== ========
Cash distribution declared
per limited partnership unit $ 0.62 $ 3.75
======== ========
</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 three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $ (12,152) $ 88,099
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 237,835 251,044
Gain on sale of equipment (7,500) (2,800)
Decrease in allowance for doubtful accounts (8,000) --
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 27,104 --
accounts receivable - affiliate 144,346 (8,014)
Increase (decrease) in:
accrued interest (869) 3,141
accrued liabilities (250) (5,500)
accrued liabilities - affiliate 819 3,265
deferred rental income (193,579) (70,619)
--------- ---------
Net cash from operating activities 187,754 258,616
--------- ---------
Cash flows from investing activities:
Proceeds from equipment sales 7,500 2,800
--------- ---------
Net cash from investing activities 7,500 2,800
--------- ---------
Cash flows used in financing activities:
Principal payments - notes payable (58,288) (33,000)
Distributions paid (180,038) (270,058)
--------- ---------
Net cash used in financing activities (238,326) (303,058)
--------- ---------
Net decrease in cash and cash equivalents (43,072) (41,642)
Cash and cash equivalents at beginning of period 244,878 309,548
--------- ---------
Cash and cash equivalents at end of period $ 201,806 $ 267,906
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,495 $ 2,907
========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 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 March 31, 1996 and December 31, 1995 and results of operations for
the three month periods ended March 31, 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
$3,426,811 are due as follows:
<TABLE>
<CAPTION>
<S> <C>
For the year ending March 31, 1997 $ 793,282
1998 765,294
1999 765,294
2000 765,294
2001 337,647
----------
Total $3,426,811
</TABLE>
6
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 1996
(Continued
NOTE 4 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at March
31, 1996. In the opinion of American Finance Group ("AFG"), the acquisition
cost of the equipment did not exceed its fair market value.
<TABLE>
<CAPTION>
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------- ---------- ---------
<S> <C> <C>
Aircraft 36-60 $ 7,958,361
Flight simulators 120 4,608,992
Materials handling 12-60 108,755
Tractors & heavy duty trucks 24-60 52,369
Trailers & intermodal containers 36-60 22,917
Medical 12-60 20,771
Construction & mining 12-60 17,580
------------
Total equipment cost 12,789,745
Accumulated depreciation (10,298,775)
------------
Equipment, net of accumulated depreciation $ 2,490,970
============
</TABLE>
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $12,567,353 representing approximately
98% of total equipment cost.
At March 31, 1996, the Partnership was not holding any equipment not
subject to a lease and no equipment was held for sale or re-lease.
Effective January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Adoption of this statement did not have a material impact on the financial
statements of the Partnership.
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 three month
periods ended March 31, 1996 and 1995, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
7
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
Notes to the Financial Statements
March 31, 1996
(Continued
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Equipment management fees $12,208 $19,083
Administrative charges 4,032 3,000
Reimbursable operating expenses
due to third parties 13,431 20,957
------- -------
Total $29,671 $43,040
======= =======
</TABLE>
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 March 31, 1996, the Partnership was owed $56,352 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in April
1996.
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at March 31, 1996 consisted of one installment note of
$23,749 payable to a bank. The installment note is non-recourse, with an
interest rate of 6.35% and is collateralized by the equipment and assignment of
the related lease payments. The installment note will be fully amortized by
noncancellable rents during the year ending March 31, 1997. The carrying amount
of notes payable approximates fair value at March 31, 1996.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
Pursuant to its agreements with PLM International, Inc., referred to in
Note 7 of the Partnership's 1995 financial statements, American Finance Group
agreed to change its name and logo, except where they are used in connection
with the Partnership and other affiliated investment programs. For all other
purposes, American Finance Group will operate as Equis Financial Group effective
April 2, 1996.
8
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations.
- ----------------------
Three months ended March 31, 1996 compared to the three months ended March 31,
- ------------------------------------------------------------------------------
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 progresses through various stages. Initially, all
equipment generates rental revenues under primary term lease agreements. During
the life of the Partnership, these agreements expire on an intermittent basis
and equipment held pursuant to the related leases are 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 becomes
available for remarketing and cash generated from operations and from sales or
refinancings begins to fluctuate. Ultimately, all equipment will be sold and
the Partnership will be dissolved. In accordance with the Partnership's stated
investment objectives and policies, the General Partner is considering the
winding-up of the Partnership's operations, including the liquidation of its
entire portfolio. The Partnership's operations commenced in 1986.
Results of Operations
- ---------------------
For the three months ended March 31, 1996, the Partnership recognized lease
revenue of $244,168 compared to $381,661 for the same period 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 earns interest income from temporary investments of rental
receipts and equipment sales proceeds in short-term instruments.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by 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 months ended March 31, 1996 and 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 $7,500 and $2,800, respectively.
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
9
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
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 for the three months ended March 31, 1996 was
$237,835, compared to $251,044 for the same period 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 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 $626 or less than 1% of lease revenue for the three
months ended March 31, 1996, compared to $6,048 or 1.6% of lease revenue for the
same period in 1995. In the future, interest expense will be minimal due to the
scheduled maturity of the Partnership's debt obligations in June 1996.
Management fees were 5% of lease revenue during each of the periods ended
March 31, 1996 and 1995 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 7.2% of
lease revenue for the three months ended March 31, 1996 compared to 6.3% of
lease revenue for the same period in 1995. 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 $187,754 and $258,616 for the three
months ended March 31, 1996 and 1995, 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.
10
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
The Partnership's lease agreement in connection with its 26.9% ownership
interest in a SAAB SF340A aircraft is scheduled to expire in June 1996. The
Partnership's proportionate interest in the aircraft had a cost and net book
value of $2,254,723 and $449,181, respectively, at March 31, 1996. The General
Partner is actively pursuing the remarketing of this aircraft.
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 three months
ended March 31, 1996, the Partnership realized $7,500 in equipment sale proceeds
compared to $2,800 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. The Partnership's notes payable will be fully
amortized by noncancellable rents in June 1996.
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 three months ended March 31, 1996, the Partnership declared
total cash distributions of Distributable Cash From Operations and Distributable
Cash From Sales and Refinancings of $45,009. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the Limited Partners
were allocated 99% of these distributions, or $44,559, and the General Partner
was allocated 1%, or $450. The first quarter 1996 cash distribution was paid on
April 15, 1996.
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
11
<PAGE>
AMERICAN INCOME 5 LIMITED PARTNERSHIP
FORM 10-Q
PART 1. FINANCIAL INFORMATION
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.
12
<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
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 201,806
<SECURITIES> 0
<RECEIVABLES> 68,948
<ALLOWANCES> 12,000
<INVENTORY> 0
<CURRENT-ASSETS> 258,754
<PP&E> 12,789,745
<DEPRECIATION> 10,298,775
<TOTAL-ASSETS> 2,749,724
<CURRENT-LIABILITIES> 126,017
<BONDS> 23,749
0
0
<COMMON> 0
<OTHER-SE> 2,599,958
<TOTAL-LIABILITY-AND-EQUITY> 2,749,724
<SALES> 244,168
<TOTAL-REVENUES> 255,980
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 267,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 626
<INCOME-PRETAX> (12,152)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,152)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,152)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
