UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-18367
American Income Partners IV-D Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3036130
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 N. Washington St., Fifth Floor, Boston, MA 02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
Securities registered pursuant to Section 12(b) of the Act NONE
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
1,085,941 Units Representing Limited Partnership Interest
(Title of class)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes XX No
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. Not applicable. Securities are nonvoting for
this purpose. Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1995 (Part I and II)
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17-
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
<S> <C>
Page
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Partnership 9
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14-16
</TABLE>
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP (the "Partnership")
was organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on March 30, 1989 for the purpose of
acquiring and leasing to third parties a diversified portfolio of capital
equipment. Partners' capital initially consisted of contributions of $1,000 from
the Managing General Partner (AFG Leasing IV Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On July 6, 1989, the
Partnership issued 1,085,941 units, representing assignments of limited
partnership interests (the "Units"), to 1,982 investors. Unitholders and Limited
Partners (other than the Initial Limited Partner) are collectively referred to
as Recognized Owners. Subsequent to the Partnership's Closing, the Partnership
had three General Partners: AFG Leasing IV Incorporated, a Massachusetts
corporation, Daniel J. Roggemann and Geoffrey A. MacDonald (collectively, the
"General Partners"). Mr. Roggemann subsequently elected to withdraw as an
Individual General Partner. The common stock of the Managing General Partner is
owned by AF/AIP Programs Limited Partnership, of which American Finance Group
("AFG"), a Massachusetts partnership, and a wholly-owned subsidiary, are the 99%
limited partners and AFG Programs, Inc., which is wholly-owned by Geoffrey A.
MacDonald, is the 1% general partner. The General Partners are not required to
make any other capital contributions except as may be required under the Uniform
Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of
Limited Partnership (the "Restated Agreement, as amended").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full payout or operating lease basis. Full payout leases are those in which
aggregate noncancellable rents exceed the Purchase Price of the leased
equipment. Operating leases are those in which the aggregate noncancellable
rental payments are less than the Purchase Price of the leased equipment.
Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of
capital equipment subject to various full payout and operating leases and to
lease the equipment to third parties as income-producing investments. More
specifically, the Partnership's primary investment objectives are to acquire and
lease equipment which will:
1. Generate quarterly cash distributions;
2. Preserve and protect invested capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain
federal income tax benefits.
The Closing Date of the Offering of Units of the Partnership was July 6,
1989. The initial purchase of equipment and the associated lease commitments
occurred on July 7, 1989. The acquisition of the equipment and its associated
leases is described in detail in Note 3 to the financial statements included in
Item 14, herein. The Partnership is expected to terminate no later than December
31, 2000.
The Partnership has no employees; however, it entered into a Management
Agreement with AF/AIP Programs Limited Partnership. At the same time, AF/AIP
Programs Limited Partnership entered into an identical Management Agreement with
AFG (the "Manager") (collectively, the "Management Agreement"). The Manager's
role, among other things, is to (i) evaluate, select, negotiate, and consummate
the acquisition of equipment, (ii) manage the leasing, re-leasing, financing,
and refinancing of equipment, and (iii) arrange the resale of equipment. The
Manager is compensated for such services as described in the Restated Agreement,
as amended, Item 13 herein, and in Note 4 to the financial statements included
in Item 14, herein.
The Partnership's investment in equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
Consequently, the success of the Partnership is largely dependent upon the
ability of the Managing General Partner and its Affiliates to forecast
technological advances, the ability of the lessees to fulfill their lease
obligations and the quality and marketability of the equipment at the time of
sale.
In addition, the leasing industry is very competitive. Although all
funds available for acquisitions have been invested in equipment, subject to
noncancellable lease agreements, the Partnership will encounter considerable
competition when equipment is re-leased or sold at the expiration of primary
lease terms. The Partnership will compete with lease programs offered directly
by manufacturers and other equipment leasing companies, including limited
partnerships and trusts, organized and managed similarly to the Partnership and
including other AFG sponsored partnerships and trusts, which may seek to
re-lease or sell equipment within their own portfolios to the same customers as
the Partnership. Many competitors have greater financial resources and more
experience than the Partnership, the General Partners and the Manager.
Generally, the Partnership is prohibited from reinvesting the proceeds
generated by refinancing or selling equipment. Accordingly, it is anticipated
that the Partnership will begin to liquidate its portfolio of equipment at the
expiration of the initial and renewal lease terms and to distribute the net
liquidation proceeds. As an alternative to sale, the Partnership may enter
re-lease agreements when considered advantageous by the Managing General Partner
and the Manager. In accordance with the Partnership's stated investment
objectives and policies, the Managing General Partner also is considering
winding-up the Partnership's operations, including the liquidation of its entire
portfolio.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1995, 1994 and 1993 is
incorporated herein by reference to Note 2 to the financial statements in the
1995 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
Default by a lessee under a lease may cause equipment to be returned to
the Partnership at a time when the Managing General Partner or the Manager is
unable to arrange for the re-lease or sale of such equipment. This could result
in the loss of a material portion of anticipated revenues and significantly
weaken the Partnership's ability to repay related debt.
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's management,
principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of
AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings
Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts
effected this event by acquiring all of the equity interests of AFG's two
partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and
AFG Corporation. Holdings Massachusetts incurred significant indebtedness to
finance this acquisition, a significant portion of which was scheduled to mature
in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and a member of the Executive Committee of AFG. As a
result of this transaction, GDE Acquisitions Limited Partnership acquired all of
the assets, rights and obligations of AFG from the Senior Lender and assumed
control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG
and member of its Executive Committee.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Not applicable.
Item 2. Properties.
Incorporated herein by reference to Note 3 to the financial statements
in the 1995 Annual Report.
Item 3. Legal Proceedings.
Incorporated herein by reference to Note 7 to the financial statements
in the 1995 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder
Matters.
(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1995, there were 1,738 recordholders of Units in the
Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the
Partnership's Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings are determined and distributed to the Partners quarterly.
Each quarter's distribution may vary in amount. Distributions may be made to the
Managing General Partner prior to the end of the fiscal quarter; however, the
amount of such distribution reflect only amounts to which the Managing General
Partner is entitled at the time such distributions are made. Currently, there
are no restrictions that materially limit the Partnership's ability to
distribute Distributable Cash From Operations and Distributable Cash From Sales
or Refinancings or that the Partnership believes are likely to materially limit
the future distribution of Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings. The Partnership expects to continue to
distribute all Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings on a quarterly basis.
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Distributions in 1995 and 1994 were as follows:
<S> <C> <C> <C>
General Recognized
Total Partners Owners
Total 1995 distributions $ 2,742,274 $ 27,423 $ 2,714,851
Total 1994 distributions 2,742,274 27,423 2,714,851
Total $ 5,484,548 $ 54,846 $ 5,429,702
</TABLE>
Distributions payable were $685,569 at both December 31, 1995 and 1994.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the Managing General Partner, and increased by any portion of such
reserves deemed by the Managing General Partner not to be required for
Partnership operations and reduced by all accrued and unpaid Equipment
Management Fees and, after Payout, further reduced by all accrued and unpaid
Subordinated Remarketing Fees. Distributable Cash From Operations does not
include any Distributable Cash From Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the Managing General Partner determines shall be reinvested
in similar equipment for the remainder of the original lease term of the lost or
destroyed equipment, or in isolated instances, in other equipment, if the
Managing General Partner determines that investment of such proceeds will
significantly improve the diversity of the Partnership's equipment portfolio,
and subject in either case to satisfaction of all existing indebtedness secured
by such equipment to the extent deemed necessary or appropriate by the Managing
General Partner, or (b) the proceeds from the sale of an interest in equipment
pursuant to any agreement governing a joint venture which the Managing General
Partner determines will be invested in additional equipment or interests in
equipment and which ultimately are so reinvested and (ii) any accrued and unpaid
Equipment Management Fees and, after Payout, any accrued and unpaid Subordinated
Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partners, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) any reserves for working capital and
contingent liabilities funded from such cash to the extent deemed reasonable by
the Managing General Partner and (ii) increased by any portion of such reserves
deemed by the Managing General Partner not to be required for Partnership
operations. In the event the Partnership accepts a note in connection with any
sale or refinancing transaction, all payments subsequently received in cash by
the Partnership with respect to such note shall be included in Cash From Sales
or Refinancings, regardless of the treatment of such payments by the Partnership
for tax or accounting purposes. If the Partnership receives purchase money
obligations in payment for equipment sold, which are secured by liens on such
equipment, the amount of such obligations shall not be included in Cash From
Sales or Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings of the Partnership shall be made
99% to the Recognized Owners and 1% to the General Partners until Payout and 85%
to the Recognized Owners and 15% to the General Partners after Payout.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Recognized Owners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Recognized Owners' original capital contributions plus a cumulative annual
return of 11% (compounded quarterly and calculated beginning with the last day
of the month of the Partnership's Closing Date) on their aggregate unreturned
capital contributions. For purposes of this definition, capital contributions
shall be deemed to have been returned only to the extent that distributions of
cash to the Recognized Owners exceed the amount required to satisfy the
cumulative annual return of 11% (compounded quarterly) on the Recognized Owners'
aggregate unreturned capital contributions, such calculation to be based on the
aggregate unreturned capital contributions outstanding on the first day of each
fiscal quarter.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") are distributed within 45 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing Date. Each Distribution is described in a
statement sent to the Recognized Owners.
Item 6. Selected Financial Data.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1995 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1995 Annual Report.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1995 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of
this report, AFG Leasing IV Incorporated is the Managing General Partner of the
Partnership. Under the Restated Agreement, as amended, the Managing General
Partner is responsible for the operation of the Partnership's properties and the
Recognized Owners have no right to participate in the control of such
operations. The names, titles and ages of the Directors and Executive Officers
of the Managing General Partner as of March 15, 1996 are as follows:
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DIRECTORS AND EXECUTIVE OFFICERS OF THE
MANAGING GENERAL PARTNER (See Item 13)
<S> <C> <C> <C>
Name Title Age Term
Geoffrey A. MacDonald Chief Executive Officer, Until a
Chairman and a member of the successor
Executive Committee of AFG and is duly
President and a Director of the elected
Managing General Partner 47 and
qualified
Gary D. Engle President, Chief Operating
Officer, and a member of the
Executive Committee of AFG and a Director
of the Managing General Partner 47
Gary M. Romano Vice President and
Controller of AFG and Clerk of the
Managing General Partner 36
James F. Livesey Vice President, Aircraft and Vessels 46
of AFG
Sandra L. Simonsen Vice President, Information Systems 45
of AFG
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners,
Directors or Executive Officers.
(e) Business Experience
Mr. MacDonald, age 47, is a co-founder, Chief Executive Officer, Chairman and a member of the Executive Committee
of AFG and President and a Director of the Managing General Partner. Mr. MacDonald served as a co-founder, Director and
Senior Vice President of AFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is Vice President of American
Finance Group Securities Corp. and a limited partner in Atlantic Acquisition Limited Partnership ("AALP"). Prior to
co-founding AFG's predecessor, Mr. MacDonald held various executive and management positions in the leasing and
pharmaceutical industries. Mr. MacDonald holds an M.B.A. from Boston College and a B.A. degree from the University of
Massachusetts (Amherst).
Mr. Engle, age 47, is President, Chief Operating Officer, and a member of the Executive Committee of AFG and
President of AFG Realty Corporation. Mr. Engle is Vice President and a Director of certain of AFG's affiliates, and a
Director of the Managing General Partner. On December 16, 1994, Mr. Engle acquired control of AFG, the Managing General
Partner, and each of AFG's subsidiaries. Mr. Engle controls the general partner of AALP and is also a limited partner in
AALP. From 1987 to 1990, Mr. Engle was a principal and co-founder of Cobb Partners Development, Inc., a real estate and
mortgage banking company. From 1980 to 1987, Mr. Engle was Senior Vice President and Chief Financial Officer of Arvida
Disney Company, a large scale community development company owned by Walt Disney Company. Prior to 1980, Mr. Engle
served in various management consulting and institutional brokerage capacities. Mr. Engle has an M.B.A. from Harvard
University and a B.S. degree from the University of Massachusetts (Amherst).
Mr. Romano, age 36, is Vice President and Controller of AFG and certain of its affiliates and Clerk of the
Managing General Partner. Mr. Romano joined AFG in November 1989 and was appointed Vice President and Controller in
April 1993. Prior to joining AFG, Mr. Romano was Assistant Controller for a privately-held real estate company which he
joined in 1987. Mr. Romano held audit staff and manager positions at Ernst & Whinney from 1982 to 1986. Mr. Romano is a
C.P.A. and holds a B.S. degree from Boston College.
Mr. Livesey, age 46, is Vice President, Aircraft and Vessels, of AFG. Mr. Livesey joined AFG in October, 1989,
and was promoted to Vice President in January, 1992. Prior to joining AFG, Mr. Livesey held sales and marketing
positions with two privately-held equipment leasing firms. Mr. Livesey holds an M.B.A. from Boston College and B.A.
degree from Stonehill College.
Ms. Simonsen, age 45, joined AFG in February 1990 and was promoted to Vice President, Information Systems in April
1992. Prior to joining AFG, Ms. Simonsen was Vice President, Information Systems with Investors Mortgage Insurance
Company which she joined in 1973. Ms. Simonsen provided systems consulting for a subsidiary of American International
Group and authored a software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson College.
</TABLE>
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
Item 11. Executive Compensation.
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the Managing General Partner or its Affiliates. There
is no plan at the present time to make any officers or employees of the Managing
General Partner or its Affiliates employees of the Partnership. The Partnership
has not paid and does not propose to pay any options, warrants or rights to the
officers or employees of the Managing General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
<PAGE>
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to section 10.4 of the Restated Agreement, as amended, the Partnership
incurs a monthly charge for personnel costs of the Manager for persons engaged
in providing administrative services to the Partnership. A description of the
remuneration paid by the Partnership to the Manager for such services is
included in Item 13, herein and in Note 4 to the financial statements included
in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the Individual
General Partners or the Managing General Partner or its Affiliates which results
or may result from their resignation, retirement or any other termination.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
By virtue of its organization as a limited partnership, the Partnership
has no outstanding securities possessing traditional voting rights. However, as
provided in Section 11.2(a) of the Restated Agreement, as amended (subject to
Sections 11.2(b) and 11.3), a majority interest of the Recognized Owners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partners; and
4. Approval or disapproval of the sale of all, or substantially all,
of the assets of the Partnership (except in the orderly
liquidation of the Partnership upon its termination and
dissolution).
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<CAPTION>
As of March 1, 1996, the following person or group owns beneficially more than 5% of the Partnership's 1,085,941
outstanding Units:
<S> <C> <C> <C>
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
Units Representing Atlantic Acquisition Limited Partnership
Limited Partnership 98 North Washington Street 107,674 Units 9.92%
Interests Boston, MA 02114
Messrs. Engle and MacDonald have ownership interests in AALP. See Item 10 of this report.
</TABLE>
The ownership and organization of AFG is described in Item 1 of this
report.
<PAGE>
Item 13. Certain Relationships and Related Transactions.
The Managing General Partner of the Partnership is AFG Leasing IV
Incorporated, an affiliate of AFG.
(a) Transactions with Management and Others
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 years ended December 31,
1995, 1994 and 1993, which were paid or accrued by the Partnership to AFG or its
Affiliates, are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Equipment acquisition fees -- -- $ 48
Equipment management fees $ 134,665 $ 189,831 241,781
Administrative charges 21,000 12,000 14,955
Reimbursable operating expenses
due to third parties 128,432 89,370 97,763
Total $ 284,097 $ 291,201 $ 354,547
</TABLE>
As provided under the terms of the Management Agreement, AFG is
compensated for its services to the Partnership. Such services include all
aspects of acquisition, management and sale of equipment. For acquisition
services, AFG is compensated by an amount equal to 4.75% of Equipment Base Price
paid by the Partnership. For management services, AFG is compensated by an
amount equal to the lesser of (i) 5% of gross lease rental revenue earned by the
Partnership or (ii) fees which the Managing General Partner reasonably believes
to be competitive for similar services for similar equipment. Both of these fees
are subject to certain limitations defined in the Management Agreement.
Compensation to AFG for services connected to the sale of equipment is
calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of
reasonable brokerage fees otherwise payable under arm's length circumstances.
Payment of the remarketing fee is subordinated to Payout and is subject to
certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to AFG, pursuant to
Section 10.4 of the Restated Agreement, as amended, for persons employed by AFG
who are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by AFG
on behalf of the Partnership which are reimbursed to AFG.
All equipment was purchased from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
The Partnership's Purchase Price was determined by the method described in Note
2 to the financial statements, included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid directly to
either AFG or to a lender. AFG temporarily deposits collected funds in a
separate interest bearing escrow account prior to remittance to the Partnership.
At December 31, 1995, the Partnership was owed $213,685 by AFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1996.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of AFG, commenced a voluntary cash Tender Offer (the "Offer") for up
to approximately 45% of the outstanding units of limited partner interest in
this Partnership and 20 affiliated partnerships sponsored and managed by AFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action brought
in the United States District Court for the District of Massachusetts (the
"Court") on behalf of the unitholders (Recognized Owners), sought to enjoin the
Offer and obtain unspecified monetary damages. A settlement of this litigation
was approved by the Court on November 15, 1995. A second class action, brought
in the Superior Court of the Commonwealth of Massachusetts (the "Superior
Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and
intervene in the first class action, was dismissed by the Superior Court. The
Plaintiffs have filed an appeal in this matter. The Recognized Owners of the
Partnership tendered approximately 107,674 units or 9.92% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
are not expected to be adversely affected by these proceedings or settlements.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
<PAGE>
<TABLE>
<S> <C>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors...................................................................*
Statement of Financial Position
at December 31, 1995 and 1994....................................................................*
Statement of Operations
for the years ended December 31, 1995, 1994 and 1993.............................................*
Statement of Changes in Partners' Capital
for the years ended December 31, 1995, 1994 and 1993.............................................*
Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993.............................................*
Notes to the Financial Statements................................................................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K,
as set forth in Item 601 of Regulation S-K, are not
applicable.
Exhibit
Number
4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to
the Prospectus which is included in Registration Statement on Form S-1 (No. 33-19513).
13 The 1995 Annual Report to security holders, a copy of which Is furnished for the information of
the Securities and Exchange Commission. Such Report, except for those portions hereof which are
incorporated herein by reference, is not deemed "filed" with the Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with Kristian Gerhard Jebsen
Skipsrederi A/S was filed in the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1989 as Exhibit 28(a) and is incorporated herein by
reference.
* Incorporated herein by reference to the appropriate portion of the 1995 Annual Report to security holders for the
year ended December 31, 1995. (See Part II)
</TABLE>
<PAGE>
Exhibit
Number
99 (b) Lease agreement with Fred Meyer, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 as Exhibit 28(b) and is
incorporated herein by reference.
99 (c) Lease agreement with Ford Motor Company was filed
in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 as Exhibit 28(c) and is
incorporated herein by reference.
99 (d) Lease agreement with Union Pacific Railroad Company
was filed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 as Exhibit
99(d) and is incorporated herein by reference.
(b) Reports on Form 8-K
None.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American Income Partners IV-D Limited Partnership of our report dated
March 12, 1996, included in the 1995 Annual Report to the Partners of American
Income Partners IV-D Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report has been sent to the Recognized Owners. A report will
be furnished to the Recognized Owners subsequent to the date hereof.
No proxy statement has been or will be sent to the Recognized Owners.
<PAGE>
-17-
<TABLE>
<CAPTION>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacity and on the date indicated.
<S> <C>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and the
Managing General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
Geoffrey A. MacDonald Gary D. Engle
Chief Executive Officer, President and Chief Operating
Chairman, and a member of the Officer and a member of the
Executive Committee of AFG and Executive Committee of AFG
President and a Director of the and a Director of the
Managing General Partner Managing General Partner
(Principal Executive Officer) (Principal Financial Officer)
Date: March 29, 1996 Date: March 29, 1996
By: /s/ Gary M. Romano
Gary M. Romano
Vice President and Controller
of AFG and Clerk of the Managing General
Partner
(Principal Accounting Officer)
Date: March 29, 1996
</TABLE>
<TABLE>
<CAPTION>
-1-
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
<S> <C>
Page
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-6
FINANCIAL STATEMENTS:
Report of Independent Auditors 7
Statement of Financial Position
at December 31, 1995 and 1994 8
Statement of Operations
for the years ended December 31, 1995, 1994 and 1993 9
Statement of Changes in Partners' Capital
for the years ended December 31, 1995, 1994 and 1993 10
Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 11
Notes to the Financial Statements 12-20
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 21
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 22
Schedule of Costs Reimbursed to the Managing General Partner and its Affiliates
as Required by Section 10.4 of the Amended and Restated Agreement and
Certificate of
Limited Partnership 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1995:
<S> <C> <C> <C> <C> <C>
Summary of
Operations 1995 1994 1993 1992 1991
Lease revenue $ 2,693,294 $ 3,796,618 $ 4,835,623 $ 5,697,559 $ 6,917,322
Net income (loss) before
extraordinary item $ 1,811,605 $ 1,044,147 $ (2,962,151) $ (1,148,843) $ (2,229,908)
Extraordinary item -- -- 2,713,427 -- --
Net income (loss) $ 1,811,605 $ 1,044,147 $ (248,724) $ (1,148,843) $ (2,229,908)
Per Unit:
Net income (loss) before
extraordinary item $ 1.65 $ 0.95 $ (2.70) $ (1.05) $ (2.03)
Extraordinary item -- -- 2.47 -- --
Net income (loss) $ 1.65 $ 0.95 $ (0.23) $ (1.05) $ (2.03)
Cash distributions $ 2.50 $ 2.50 $ 2.50 $ 2.75 $ 3.25
Financial
Position
Total assets $ 8,488,286 $ 10,333,211 $ 13,233,144 $ 21,375,739 $ 27,774,893
Total long-term obligations $ 2,095,524 $ 2,997,584 $ 4,177,880 $ 8,952,432 $ 11,081,120
Partners' capital $ 5,645,999 $ 6,576,668 $ 8,274,795 $ 11,265,793 $ 15,431,138
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1995 compared to the year
ended December 31, 1994 and the year ended December 31, 1994
compared to the year ended December 31, 1993
Overview
As an equipment leasing partnership, American Income Partners IV-D Limited
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 American
Finance Group ("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 Managing 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
1989.
Results of Operations
For the year ended December 31, 1995, the Partnership recognized lease
revenue of $2,693,294 compared to $3,796,618 and $4,835,623 for the years ended
December 31, 1994 and 1993, respectively. The decrease in lease revenue from
1993 to 1995 was expected and resulted principally from primary lease term
expirations and the sale of equipment. The Partnership also earns interest
income from temporary investments of rental receipts and equipment sales
proceeds in short-term instruments.
The Partnership's equipment portfolio includes certain assets in which
the Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by 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.
In 1995, the Partnership sold equipment having a net book value of
$86,672 to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes of $803,927 compared to a net gain in
1994 of $733,270 on equipment having a net book value of $578,703 and a net loss
in 1993 of $294,309 on equipment having a net book value of $1,660,173.
In March 1991, a lessee of the Partnership, Midway Airlines Inc.,
("Midway"), filed for protection under Chapter 11 of the Bankruptcy Code. On
November 27, 1991, this proceeding was converted to a Chapter 7 liquidation.
Midway had leased two DC-9 aircraft in which the Partnership owned a 65% share.
These aircraft had an original cost of $9,538,068 to the Partnership. To finance
the purchase of the aircraft, the Partnership had borrowed $6,481,736 on a
non-recourse basis from a third-party lending institution. In 1991, the
estimated fair market value of the Midway aircraft was determined to be less
than the outstanding balance of the loan. Accordingly, in 1991, the Partnership
reduced the carrying value of its interest in these aircraft to an amount equal
to the outstanding indebtedness (the reduction of the carrying value was
$2,587,826 or $2.36 per limited partnership unit). The lender agreed to
forestall, until April 30, 1992, any actions to force a cure of the defaulted
note pending efforts by AFG to sell or re-lease the aircraft. Such efforts were
unsuccessful and on May 26, 1992 the lender declared a loan default and demanded
full payment of all amounts owed under the note agreement. On March 19, 1993,
both aircraft were transferred to a designee of the lender in lieu of
foreclosure. The Partnership recorded a net gain on disposition of its interests
in the aircraft of $266,578 or $0.24 per limited partnership unit, representing
interest expense recorded in 1992 and forgiven at the date of disposition. For
financial statement purposes, this gain was reported as a loss on equipment
forfeiture of $2,446,849 and an extraordinary gain of $2,713,427. The
extraordinary gain resulted from the related indebtedness at the date of
foreclosure being in excess of the fair market value of the Partnership's
interests in the aircraft. At the time of disposition, the Partnership's
interests in the aircraft had an estimated fair market value of $2,990,000 and a
net book value of $5,436,849. The amount of indebtedness forgiven was
$5,703,427, including accrued interest of $345,071. In consideration of this
transfer, the lender reimbursed to the Partnership the sum of $89,068,
representing the amount previously advanced by the Partnership to the lender in
its unsuccessful attempt to facilitate the remarketing of these aircraft. For
financial statement purposes, this sum was reported as other income on the
statement of operations for the year ended December 31, 1993. These advances
were originally reported as operating expenses when incurred.
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 revenues generated from that asset,
together with its residual value. The latter consists of cash proceeds realized
upon the asset's sale in addition to all other cash receipts obtained from
renting the asset on a re-lease, renewal or month-to-month basis. The
Partnership classifies such residual rental payments as lease revenue.
Consequently, the amount of gain or loss reported in the financial statements is
not necessarily indicative of the total residual value the Partnership achieved
from leasing the equipment.
Depreciation and amortization expense was $1,270,771, $3,065,031 and
$4,603,501 for the years ended December 31, 1995, 1994 and 1993, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i) the cost of
the asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease expiration.
To the extent that an asset is held beyond its primary lease term, the
Partnership continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life. (See Note 2 to
the financial statements herein.)
Interest expense was $252,048 or 9.4% of lease revenue in 1995, $213,668
or 5.6% of lease revenue in 1994 and $233,260 or 4.8% of lease revenue in 1993.
The increase in interest expense from 1994 to 1995 resulted principally from
interest rate adjustments associated with variable-rate financing obtained in
1993. The increase in interest expense as a percentage of lease revenue from
1993 to 1994 was due principally to additional long-term financing obtained in
1993 relating to the overhaul of certain railroad equipment. Interest expense in
the near-term will fluctuate due to the variable-rate financing. Over time,
interest expense will decline 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 in the years ended December
31, 1995, 1994 and 1993 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 5.5%, 2.7% and 2.3% of
lease revenue in 1995, 1994 and 1993, respectively. The increase in operating
expenses from 1994 to 1995 was due to an increase in professional service costs
and remarketing expenses and insurance premium adjustments for aircraft
previously owned by the Partnership. 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 $2,312,828, $3,681,751 and $4,618,551
in 1995, 1994 and 1993, 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 also decline as the Partnership experiences a higher frequency
of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. The Partnership capitalized $1,069 of
refurbishment costs to upgrade certain equipment in 1993. During 1995, the
Partnership realized $890,599 in equipment sale proceeds compared to $1,311,973
and $1,365,864 in 1994 and 1993, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
During 1994, the Partnership capitalized $592,500 of refurbishment costs
incurred to upgrade two cargo vessels leased by Gearbulk Shipowning Ltd.
("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S, pursuant to the
terms of an extended and renegotiated contract with Gearbulk. The refurbishment
costs were financed with a third-party lender and shared between the Partnership
and other affiliated partnerships in proportion to their respective ownership
interests in the vessels.
The Partnership also incurred and capitalized costs of approximately
$2,717,000 to refurbish and improve certain railroad equipment in 1993 pursuant
to a re-lease contract with Union Pacific Railroad Company ("Union Pacific"). As
with Gearbulk, the refurbishment costs were financed by a third-party lender and
shared between the Partnership and other affiliated partnerships in proportion
to their respective ownership interests in the equipment.
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 years, 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 Partners and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the year ended December 31, 1995, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $2,742,274. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership (the
"Restated Agreement, as amended"), the Recognized Owners were allocated 99% of
these distributions, or $2,714,851, and the General Partners were allocated 1%,
or $27,423. The fourth quarter 1995 cash distribution was paid on January 22,
1996.
Cash distributions paid to the Recognized Owners 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 Partnership's future cash distributions will be adversely affected
by the bankruptcy of Midway. Although this bankruptcy had no immediate adverse
effect on the Partnership's cash flow, as the Partnership had fully leveraged
its ownership interest in the underlying aircraft, this event resulted in the
Partnership's loss of any future interest in the residual value of these
aircraft. This bankruptcy will have a material adverse effect on the ability of
the Partnership to achieve all of its originally intended economic benefits.
However, the final yield on capital will be dependent upon the collective
performance results of all the Partnership's equipment leases.
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 Managing 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.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Partners IV-D Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners IV-D Limited Partnership as of December 31, 1995 and
1994, and the related statements of operations, changes in partners' capital,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Income
Partners IV-D Limited Partnership at December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Partners is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
<PAGE>
The accompanying notes are an integral part of
these financial statements.
<TABLE>
<CAPTION>
-11-
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1995 and 1994
<S> <C> <C>
1995 1994
ASSETS
Cash and cash equivalents $ 2,000,212 $ 2,441,119
Rents receivable, net of allowance
for doubtful accounts of $75,000 291,960 292,398
Accounts receivable - affiliate 213,685 259,822
Equipment at cost, net of accumulated
depreciation of $10,767,778 and $12,866,900
at December 31, 1995 and 1994, respectively 5,982,429 7,339,872
Total assets $ 8,488,286 $ 10,333,211
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 2,095,524 $ 2,997,584
Accrued interest 29,643 40,810
Accrued liabilities 20,000 15,500
Accrued liabilities - affiliate -- 4,459
Deferred rental income 11,551 12,621
Cash distributions payable to partners 685,569 685,569
Total liabilities 2,842,287 3,756,543
Partners' capital (deficit):
General Partners (182,186) (172,879)
Limited Partnership Interests (1,085,941
Units; initial purchase price of $25 each) 5,828,185 6,749,547
Total partners' capital 5,645,999 6,576,668
Total liabilities and partners' capital $ 8,488,286 $ 10,333,211
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C>
1995 1994 1993
Income:
Lease revenue $ 2,693,294 $ 3,796,618 $ 4,835,623
Interest income 121,300 84,159 45,576
Other income -- -- 89,068
Gain (loss) on sale/forfeiture of equipment 803,927 733,270 (2,741,158)
Total income 3,618,521 4,614,047 2,229,109
Expenses:
Depreciation and amortization 1,270,771 3,065,031 4,603,501
Interest expense 252,048 213,668 233,260
Equipment management fees - affiliate 134,665 189,831 241,781
Operating expenses - affiliate 149,432 101,370 112,718
Total expenses 1,806,916 3,569,900 5,191,260
Net income (loss) before extraordinary item 1,811,605 1,044,147 (2,962,151)
Extraordinary item -- -- 2,713,427
Net income (loss) $ 1,811,605 $ 1,044,147 $ (248,724)
Net income (loss) before extraordinary item
per limited partnership unit $ 1.65 $ 0.95 $ (2.70)
Extraordinary item
per limited partnership unit -- -- 2.47
Net income (loss)
per limited partnership unit $ 1.65 $ 0.95 $ (0.23)
Cash distributions declared
per limited partnership unit $ 2.50 $ 2.50 $ 2.50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C> <C>
General
Partners Recognized Owners
Amount Units Amount Total
Balance at December 31, 1992 $ (125,987) 1,085,941 $ 11,391,780 $ 11,265,793
Net loss - 1993 (2,487) -- (246,237) (248,724)
Cash distributions declared (27,423) -- (2,714,851) (2,742,274)
Balance at December 31, 1993 (155,897) 1,085,941 8,430,692 8,274,795
Net income - 1994 10,441 -- 1,033,706 1,044,147
Cash distributions declared (27,423) -- (2,714,851) (2,742,274)
Balance at December 31, 1994 (172,879) 1,085,941 6,749,547 6,576,668
Net income - 1995 18,116 -- 1,793,489 1,811,605
Cash distributions declared (27,423) -- (2,714,851) (2,742,274)
Balance at December 31, 1995 $ (182,186) 1,085,941 $ 5,828,185 $ 5,645,999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C>
1995 1994 1993
Cash flows from (used in) operating activities:
Net income (loss) $ 1,811,605 $ 1,044,147 $ (248,724)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation and amortization 1,270,771 3,065,031 4,603,501
Increase in allowance for doubtful accounts -- -- 10,000
(Gain) loss on sale/forfeiture of equipment (803,927) (733,270) 2,741,158
Extraordinary item -- -- (2,713,427)
Changes in assets and liabilities:
Decrease (increase) in:
rents receivable 438 336,416 73,004
accounts receivable - affiliate 46,137 (9,063) 185,013
Increase (decrease) in:
accrued interest (11,167) 4,529 (33,410)
accrued liabilities 4,500 1,500 (9,500)
accrued liabilities - affiliate (4,459) 725 (710)
deferred rental income (1,070) (28,264) 11,646
Net cash from operating activities 2,312,828 3,681,751 4,618,551
Cash flows from (used in) investing activities:
Purchase of equipment -- -- (1,069)
Proceeds from equipment sales 890,599 1,311,973 1,365,864
Net cash from investing activities 890,599 1,311,973 1,364,795
Cash flows used in financing activities:
Principal payments - notes payable (902,060) (1,772,796) (2,132,757)
Distributions paid (2,742,274) (2,742,274) (2,742,274)
Net cash used in financing activities (3,644,334) (4,515,070) (4,875,031)
Net increase (decrease) in cash and
cash equivalents (440,907) 478,654 1,108,315
Cash and cash equivalents at beginning of year 2,441,119 1,962,465 854,150
Cash and cash equivalents at end of year $ 2,000,212 $ 2,441,119$ 1,962,465
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 263,215 $ 209,139$ 266,670
Supplemental disclosure of non-cash investing and financing activities:
During 1994 and 1993 the Partnership capitalized $592,500 and $2,716,561,
respectively, of refurbishment costs incurred to upgrade certain equipment,
all of which was financed by third-party lenders.
During 1993, the Partnership forfeited equipment with a fair market value
of $2,990,000 to a lender in consideration of forgiveness of the related
debt and interest of $5,703,427.
</TABLE>
<PAGE>
-21-
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
The Partnership was organized as a limited partnership under the
Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on March 30,
1989, for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Partners' capital initially consisted of
contributions of $1,000 from the Managing General Partner (AFG Leasing IV
Incorporated) and $100 from the Initial Limited Partner (AFG Assignor
Corporation). On July 6, 1989 the Partnership issued 1,085,941 units,
representing assignments of limited partnership interests (the "Units"), to
1,982 investors. Unitholders and Limited Partners (other than the Initial
Limited Partner) are collectively referred to as Recognized Owners. Subsequent
to the Partnership's Closing, the Partnership had three General Partners: AFG
Leasing IV Incorporated, a Massachusetts corporation, Daniel J. Roggemann and
Geoffrey A. MacDonald (collectively, the "General Partners"). Mr. Roggemann
subsequently elected to withdraw as an Individual General Partner. The common
stock of the Managing General Partner is owned by AF/AIP Programs Limited
Partnership, of which American Finance Group ("AFG"), a Massachusetts
partnership, and a wholly-owned subsidiary, are the 99% limited partners and AFG
Programs, Inc., which is wholly-owned by Geoffrey A. MacDonald, is the 1%
general partner. The General Partners are not required to make any other capital
contributions except as may be required under the Uniform Act and Section 6.1(b)
of the Amended and Restated Agreement and Certificate of Limited Partnership
(the "Restated Agreement, as amended").
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's management,
principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of
AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings
Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts
effected this event by acquiring all of the equity interests of AFG's two
partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and
AFG Corporation. Holdings Massachusetts incurred significant indebtedness to
finance this acquisition, a significant portion of which was scheduled to mature
in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and a member of the Executive Committee of AFG. As a
result of this transaction, GDE Acquisitions Limited Partnership acquired all of
the assets, rights and obligations of AFG from the Senior Lender and assumed
control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG
and member of its Executive Committee.
Significant operations commenced July 7, 1989 when the Partnership made
its initial equipment purchase. Pursuant to the Restated Agreement, as amended,
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 99% to the Recognized Owners and 1% to the
General Partners until Payout and 85% to the Recognized Owners and 15% to the
General Partners after Payout. Payout will occur when the Recognized Owners have
received distributions equal to their original investment plus a cumulative
annual return of 11% (compounded quarterly) on undistributed invested capital.
Under the terms of a management agreement between the Partnership and
AF/AIP Programs Limited Partnership and the terms of an identical management
agreement between AF/AIP Programs Limited Partnership and AFG (collectively, the
"Management Agreement"), management services are provided by AFG to the
Partnership at fees which the Managing General Partner believes to be
competitive for similar services. (Also see Note 4.)
<PAGE>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities. At December 31,
1995, the Partnership had $1,995,000 invested in reverse repurchase agreements
secured by U.S. Treasury Bills or interests in U.S. Government securities.
Revenue Recognition
Rents are payable to the Partnership monthly, quarterly or semi-annually
and no significant amounts are calculated on factors other than the passage of
time. The leases are accounted for as operating leases and are noncancellable.
Rents received prior to their due dates are deferred. Future minimum rents of
$8,579,365 are due as follows:
For the year ending December 31, 1996 $ 1,929,426
1997 1,688,370
1998 1,638,634
1999 853,138
2000 617,449
Thereafter 1,852,348
Total $ 8,579,365
<TABLE>
<CAPTION>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1995, 1994 and 1993 is as
follows:
<S> <C> <C> <C>
1995 1994 1993
Gearbulk Shipowning Ltd. (formerly Kristian
Gerhard Jebsen Skipsrederi A/S) $ 1,009,910 $ 1,005,818 $ 876,436
Union Pacific Railroad Company $ 658,070 $ 585,367 --
Ford Motor Company -- -- $ 528,670
Fred Meyer, Inc. -- -- $ 514,062
</TABLE>
At December 31, 1993, the Managing General Partner increased the
aggregate amount reserved against potentially uncollectable rents to $75,000.
This caused a decrease in lease revenue of $10,000 in 1993. The reserve was
reviewed and considered adequate as of December 31, 1994 and 1995. It cannot be
determined whether the Partnership will recover any past due rents in the
future; however, the Managing General Partner will pursue the collection of all
such items.
<PAGE>
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
All equipment was acquired from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
Equipment cost represents asset base price plus acquisition fees and was
determined in accordance with the Restated Agreement, as amended, and certain
regulatory guidelines. Asset base price is affected by the relationship of the
seller to the Partnership as summarized herein. Where the seller of the
equipment was AFG or an affiliate, asset base price was the lower of (i) the
actual price paid for the equipment by AFG or the affiliate plus all actual
costs accrued by AFG or the affiliate while carrying the equipment less the
amount of all rents earned by AFG or the affiliate prior to selling the
equipment or (ii) fair market value as determined by the Managing General
Partner in its best judgment, including all liens and encumbrances on the
equipment and other actual expenses. Where the seller of the equipment was a
third party who did not manufacture the equipment, asset base price was the
lower of (i) the price invoiced by the third party or (ii) fair market value as
determined by the Managing General Partner. Where the seller of the equipment
was a third party who also manufactured the equipment, asset base price was the
manufacturer's invoice price, which price was considered to be representative of
fair market value.
Depreciation
The Partnership's depreciation policy is intended to allocate the cost
of equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
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.
Accrued Liabilities - Affiliate
Unpaid operating expenses paid by AFG on behalf of the Partnership are
reported as Accrued Liabilities-Affiliate. (See Note 4.)
Allocation of Profits and Losses
For financial statement purposes, net income or loss is allocated to
each Partner according to their respective ownership percentages (99% to the
Recognized Owners and 1% to the General Partners). See Note 6 concerning
allocation of income or loss for income tax purposes.
<PAGE>
Net Income (Loss) and Cash Distributions Per Unit
Net income (loss) and cash distributions per Unit are based on 1,085,941
Units outstanding during each of the three years in the period ended December
31, 1995 and computed after allocation of the General Partners' 1% share of net
income (loss) and cash distributions.
Provision for Income Taxes
No provision or benefit from income taxes is included in the
accompanying financial statements. The Partners are responsible for reporting
their proportionate shares of the Partnership's taxable income or loss and other
tax attributes on their tax returns.
Reclassification
Certain reclassifications have been made to prior year financial
statements to conform to the 1995 presentation.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the impact of adoption to be material to
the financial statements of the Partnership.
<TABLE>
<CAPTION>
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
December 31, 1995. In the opinion of AFG, the acquisition cost of the equipment
did not exceed its fair market value.
<S> <C> <C> <C>
Lease
Term Equipment
Equipment Type (Months) at Cost Location
Vessels 57-72 $ 6,412,930 Foreign
Locomotives 21-120 4,787,949 NE
Materials handling 1-60 2,784,244 CA/FL/GA/IL/IN/MD/MI/NC/NY/OH
PA/TX
Computers and peripherals 18-60 1,004,073 WI
Construction and mining 6-60 529,211 CA/MI/TX
Graphics printing and display 24 390,511 IL
Motor vehicles 12-60 360,547 CA
Manufacturing 36-60 155,954 PA
Tractors and heavy duty trucks 1-78 146,947 GA/IL/MD/MN/NJ/NY
Communications 12-60 101,473 PA
Photocopying 1-36 54,084 AZ/IN/NJ/TX
Research and test 30-78 22,284 LA
Total equipment cost 16,750,207
Accumulated depreciation (10,767,778)
Equipment, net of accumulated depreciation $ 5,982,429
</TABLE>
In 1994, the Partnership incurred and capitalized costs of $592,500 to
refurbish and improve two cargo vessels leased by Gearbulk Shipowning Ltd.
("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S, pursuant to the
terms of an extended and renegotiated lease contract with Gearbulk.
Refurbishment costs were financed by a third-party lender and shared between the
Partnership and other affiliated partnerships in proportion to their respective
ownership interests in each vessel. The refurbishment costs will be depreciated
over 15 years.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by AFG or an
affiliated equipment leasing program sponsored by AFG. The Partnership and each
affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Partnership to further diversify its equipment portfolio by
participating in the ownership of selected assets, thereby reducing the general
levels of risk which could result from a concentration in any single equipment
type, industry or lessee. At December 31, 1995, the Partnership's equipment
portfolio included equipment having a proportionate original cost of
$11,200,873, representing approximately 67% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately $5,380,000
and a net book value of approximately $3,381,000 at December 31, 1995. (See Note
5.)
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, AFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the primary lease terms. The summary above includes equipment held
for re-lease or sale with an original cost and net book value of approximately
$68,000 and $2,600, respectively, at December 31, 1995.
<TABLE>
<CAPTION>
NOTE 4 - 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 years ended December 31,
1995, 1994 and 1993, which were paid or accrued by the Partnership to AFG or its
Affiliates, are as follows:
<S> <C> <C> <C>
1995 1994 1993
Equipment acquisition fees -- -- $ 48
Equipment management fees $ 134,665 $ 189,831 241,781
Administrative charges 21,000 12,000 14,955
Reimbursable operating expenses
due to third parties 128,432 89,370 97,763
Total $ 284,097 $ 291,201 $ 354,547
</TABLE>
As provided under the terms of the Management Agreement, AFG is
compensated for its services to the Partnership. Such services include all
aspects of acquisition, management and sale of equipment. For acquisition
services, AFG is compensated by an amount equal to 4.75% of Equipment Base Price
paid by the Partnership. For management services, AFG is compensated by an
amount equal to the lesser of (i) 5% of gross lease rental revenue earned by the
Partnership or (ii) fees which the Managing General Partner reasonably believes
to be competitive for similar services for similar equipment. Both of these fees
are subject to certain limitations defined in the Management Agreement.
Compensation to AFG for services connected to the sale of equipment is
calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of
reasonable brokerage fees otherwise payable under arm's length circumstances.
Payment of the remarketing fee is subordinated to Payout and is subject to
certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to AFG, pursuant to
Section 10.4 of the Restated Agreement, as amended, for persons employed by AFG
who are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by AFG
on behalf of the Partnership which are reimbursed to AFG.
All equipment was purchased from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
The Partnership's Purchase Price was determined by the method described in Note
2, Equipment on Lease.
All rents and proceeds from the sale of equipment are paid directly to
either AFG or to a lender. AFG temporarily deposits collected funds in a
separate interest bearing escrow account prior to remittance to the Partnership.
At December 31, 1995, the Partnership was owed $213,685 by AFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1996.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of AFG, commenced a voluntary cash Tender Offer (the "Offer") for up
to approximately 45% of the outstanding units of limited partner interest in
this Partnership and 20 affiliated partnerships sponsored and managed by AFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action brought
in the United States District Court for the District of Massachusetts (the
"Court") on behalf of the unitholders (Recognized Owners), sought to enjoin the
Offer and obtain unspecified monetary damages. A settlement of this litigation
was approved by the Court on November 15, 1995. A second class action, brought
in the Superior Court of the Commonwealth of Massachusetts (the "Superior
Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and
intervene in the first class action, was dismissed by the Superior Court. The
Plaintiffs have filed an appeal in this matter. The Recognized Owners of the
Partnership tendered approximately 107,674 units or 9.92% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
are not expected to be adversely affected by these proceedings or settlements.
NOTE 5 - NOTES PAYABLE
Notes payable at December 31, 1995 consisted of three installment notes
of $2,095,524 payable to banks and institutional lenders. Two of the notes bear
fluctuating interest rates based on the London Inter-Bank Offered Rate ("LIBOR")
plus a margin (7.31% at December 31, 1995) and the remaining note bears a
fluctuating interest rate tied to the U.S. Treasury yields plus a margin (8.45%
at December 31, 1995). The notes are collateralized by the equipment and
assignment of the related lease payments and will be fully amortized by
noncancellable rents. The carrying amount of notes payable approximates fair
value at December 31, 1995.
The annual maturities of the installment notes payable are as follows:
For the year ending December 31, 1996 $ 664,226
1997 698,329
1998 623,590
1999 109,379
Total $ 2,095,524
NOTE 6 - INCOME TAXES
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income
or loss to each class of partner according to their respective ownership
percentages (99% to the Recognized Owners and 1% to the General Partners). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partners will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partners' tax
capital account. At December 31, 1995, the General Partners had a positive tax
capital account balance.
<TABLE>
<CAPTION>
The following is a reconciliation between net income or loss reported
for financial statement and federal income tax reporting purposes for the years
ended December 31, 1995, 1994 and 1993:
<S> <C> <C> <C>
1995 1994 1993
Net income (loss) $ 1,811,605 $ 1,044,147 $ (248,724)
Financial statement depreciation in
excess of (less than) tax depreciation (245,967) 968,007 1,863,131
Prepaid rental income (1,070) (28,264) 11,646
Other (172,959) 401,937 1,435,489
Net income for federal income
tax reporting purposes $ 1,391,609 $ 2,385,827 $ 3,061,542
The principal component of "Other" consists of the difference between
the tax gain on equipment disposals and the financial statement gain (loss) on
equipment disposals.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1995 and 1994:
<S> <C> <C>
1995 1994
Partners' capital $ 5,645,999 $ 6,576,668
Add back selling commissions and
organization and offering costs 3,184,952 3,184,952
Financial statement distributions
in excess of tax distributions 6,856 6,856
Cumulative difference between federal income
tax and financial statement income (loss) (722,051) (302,055)
Partners' capital for federal income
tax reporting purposes $ 8,115,756 $ 9,466,421
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
</TABLE>
NOTE 7 - LEGAL PROCEEDINGS
In March 1991, a lessee of the Partnership, Midway Airlines, Inc.
("Midway"), filed for protection under Chapter 11 of the Bankruptcy Code. On
November 27, 1991, this proceeding was converted to a Chapter 7 liquidation.
Midway had leased two DC-9-30 aircraft in which the Partnership owned a 65%
share. These aircraft had an original cost of $9,538,068 to the Partnership. To
finance the purchase of the aircraft, the Partnership had borrowed $6,481,736 on
a non-recourse basis from a third-party lending institution. In 1991, the
estimated fair market value of the Midway aircraft was determined to be less
than the outstanding balance of the loan. Accordingly, in 1991, the Partnership
reduced the carrying value of its interests in these aircraft to an amount equal
to the outstanding indebtedness (the reduction of the carrying value was
$2,587,826 or $2.36 per limited partnership unit). The lender agreed to
forestall, until April 30, 1992, any actions to force a cure of the defaulted
note pending efforts by AFG to sell or re-lease the aircraft. Such efforts were
unsuccessful and on May 26, 1992 the lender declared a loan default and demanded
full payment of all amounts owed under the note agreement. On March 19, 1993,
both aircraft were transferred to a designee of the lender in lieu of
foreclosure. The Partnership recorded a net gain on disposition of these
aircraft of $266,578 or $0.24 per limited partnership unit, representing
interest expense recorded in 1992 and forgiven at the date of disposition. For
financial statement purposes, this gain was reported as a loss on equipment
forfeiture of $2,446,849 and an extraordinary gain of $2,713,427. The
extraordinary gain results from the related indebtedness at the date of
foreclosure being in excess of the fair market value of the Partnership's
interests in the aircraft. At the time of disposition, the Partnership's
interests in the aircraft had an estimated fair market value of $2,990,000 and a
net book value of $5,436,849. The amount of indebtedness forgiven was
$5,703,427, including accrued interest of $345,071. In consideration of this
transfer, the lender reimbursed to the Partnership the sum of $89,068,
representing the amount previously advanced by the Partnership to the lender in
its unsuccessful attempt to facilitate the remarketing of these aircraft. For
financial statement purposes, this sum was reported as other income on the
statement of operations for the year ended December 31, 1993. These advances
were originally reported as operating expenses when incurred. As the Partnership
will be unable to realize any future residual value for the aircraft previously
leased to Midway and as these assets represented 23% of the Partnership's
original equipment portfolio, it is expected that cumulative future cash
distributions will be significantly lower than was anticipated at the inception
of the Partnership. Accordingly, this bankruptcy will have a material adverse
effect on the ability of the Partnership to achieve all of its originally
intended economic benefits.
On July 27, 1995, AFG, on behalf of the Partnership and other
AFG-sponsored investment programs, filed an action in the Commonwealth of
Massachusetts Superior Court Department of the Trial Court in and for the County
of Suffolk, for damages and declaratory relief against a lessee of the
Partnership, National Steel Corporation ("National Steel"), under a certain
Master Lease Agreement ("MLA") for the lease of certain equipment. AFG is
seeking the reimbursement by National Steel of certain sales and/or use taxes
paid to the State of Illinois and other remedies provided by the MLA. On August
30, 1995, National Steel filed a Notice of Removal which removed the case to the
United States District Court, District of Massachusetts. On September 7, 1995,
National Steel filed its Answer to AFG's Complaint along with Affirmative
Defenses and Counterclaims, seeking declaratory relief and alleging breach of
contract, implied covenant of good faith and fair dealing and specific
performance. AFG filed its Answer to these counterclaims on September 29, 1995.
A settlement with respect to this matter has been reached and the execution of
the Settlement Agreement is currently pending. The Partnership has not
experienced any material losses as a result of this action.
NOTE 8 - SUBSEQUENT EVENT
On January 1, 1995, AFG entered into a series of agreements with PLM
International, Inc., a Delaware corporation headquartered in San Francisco,
California ("PLM"), whereby PLM would: (i) purchase, in a multi-step
transaction, certain of AFG's assets and (ii) provide accounting, asset
management and investor services to AFG and certain of AFG's affiliates,
including the Partnership and all other equipment leasing programs managed by
AFG (the "Investment Programs").
On January 3, 1996, AFG and PLM executed an amendment to the 1995
agreements whereby PLM purchased: (i) AFG's lease origination business and
associated contracts, (ii) the rights to the name "American Finance Group" and
associated logo, and (iii) certain furniture, fixtures and computer software.
PLM hired AFG's marketing force and certain other support personnel effective
January 1, 1996 in connection with the transaction and relinquished its
responsibilities under the 1995 agreements to provide accounting, asset
management and investor services to AFG, its affiliates and the Investment
Programs after December 31, 1995. Accordingly, AFG and its affiliates retain
ownership and control and all authority and rights with respect to each of the
general partners or managing trustees of the Investment Programs; and AFG, as
Manager, will continue to provide accounting, asset management and investor
services to the Partnership.
Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain
of its affiliates agreed not to compete with the lease origination business sold
to PLM for a period of five years. AFG reserved the right to satisfy all
equipment needs of the Partnership and all other Investment Programs and
reserved certain other rights not material to the Partnership. AFG also agreed
to change its name, except where it is used in connection with the Investment
Programs. AFG's management considers the amendment to the 1995 agreements to be
in the best interest of AFG and the Partnership.
<PAGE>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1995, 1994 and 1993
The Partnership classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
<TABLE>
<CAPTION>
The following is a summary of cash excess or deficiency associated with
equipment dispositions occurring in the years ended December 31, 1995, 1994 and
1993.
<S> <C> <C> <C>
1995 1994 1993
Rents earned prior to disposal of equipment,
net of interest charges $ 3,566,504 $ 5,521,585 $ 5,352,292
Sale proceeds, including forgiveness of debt,
realized upon disposition of equipment 890,599 1,311,973 7,069,291
Total cash generated from rents and
equipment sale proceeds 4,457,103 6,833,558 12,421,583
Original acquisition cost of
equipment disposed 3,456,565 5,710,472 14,368,076
Excess (deficiency) of total cash generated
to cost of equipment disposed $ 1,000,538 $ 1,123,086 $ (1,946,493)
The deficiency of total cash generated to cost of equipment disposed in
1993 resulted principally from the forfeiture of aircraft formerly on lease to
Midway. The cost of equipment disposed in 1993 includes $2,587,826 representing
the 1991 provision for pending foreclosure associated with the Midway aircraft.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1995
<S> <C> <C> <C>
Sales and
Operations Refinancings Total
Net income $ 1,007,678 $ 803,927 $ 1,811,605
Add back:
Depreciation 1,270,771 -- 1,270,771
Management fees 134,665 -- 134,665
Book value of disposed equipment -- 86,672 86,672
Less:
Principal reduction of notes payable (902,060) -- (902,060)
Cash from operations, sales
and refinancings 1,511,054 890,599 2,401,653
Less:
Management fees (134,665) -- (134,665)
Distributable cash from operations, sales
and refinancings 1,376,389 890,599 2,266,988
Other sources and uses of cash:
Cash at beginning of year 2,441,119 -- 2,441,119
Net change in receivables and accruals 34,379 -- 34,379
Less:
Cash distributions paid (1,851,675) (890,599) (2,742,274)
Cash at end of year $ 2,000,212 $ -- $ 2,000,212
</TABLE>
<PAGE>
AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1995
For the year ended December 31, 1995, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
Operating expenses $ 121,188
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,000,212
<SECURITIES> 0
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0
0
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</TABLE>
