<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ___________________
_______________
For Quarter Ended September 30, 1997 Commission File No. 0-18364
American Income Partners V-A Limited Partnership
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3057303
- ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street Boston, MA 02110
- ------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
----------------------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes No
--- ---
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at September 30, 1997 and December 31, 1996 3
Statement of Operations
for the three and nine months ended September 30, 1997 and 1996 4
Statement of Cash Flows
for the nine months ended September 30, 1997 and 1996 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II. OTHER INFORMATION:
Items 1-6 16
2
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
September 30, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................... $ 2,588,650 $1,709,301
Rents receivable, net of allowance for doubtful
accounts of $5,000.................. 1,317 214,338
Accounts receivable--affiliate...................................................... 43,890 484,358
Note receivable--Banyan............................................................. 771,450 --
Investment in Banyan................................................................ 512,153 --
Equipment at cost, net of accumulated depreciation of
$6,018,512 and $9,264,523 at September 30, 1997
and December 31, 1996, respectively............................................... 166,691 1,858,784
------------- ------------
Total assets.................................................................... $ 4,084,151 $4,266,781
------------- ------------
------------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable....................................................................... $ -- $ 144,594
Accrued interest.................................................................... -- 1,836
Accrued liabilities................................................................. 22,500 38,430
Accrued liabilities--affiliate...................................................... 9,021 95,991
Deferred rental income.............................................................. 9,221 11,664
Cash distributions payable to partners.............................................. 181,665 181,665
------------- ------------
Total liabilities................................................................... 222,407 474,180
------------- ------------
Partners' capital (deficit):
General Partner................................................................... (1,337,884) (1,341,341)
Limited Partnership Interests
(1,380,661 Units; initial purchase price of $25 each)............................. 5,199,628 5,133,942
------------- ------------
Total partners' capital......................................................... 3,861,744 3,792,601
------------- ------------
Total liabilities and partners' capital......................................... $ 4,084,151 $4,266,781
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the three and nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ --------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- ------------ ------------ ------------
Income:
Lease revenue............................................. $ 137,611 $ 1,498,156 $ 1,468,972 $ 3,339,961
Interest income........................................... 33,439 47,715 81,551 95,728
Gain(loss) on sale/exchange of equipment.................. 18,760 762,202 (275,589) 953,129
---------- ------------ ------------ ------------
Total income............................................. 189,810 2,308,073 1,274,934 4,388,818
---------- ------------ ------------ ------------
Expenses:
Depreciation.............................................. 86,764 307,124 306,343 1,357,866
Interest expense.......................................... -- 4,825 3,388 69,165
Equipment management fees--affiliate...................... 6,873 73,527 73,441 168,920
Operating expenses--affiliate............................. 98,121 14,613 277,624 294,284
---------- ------------ ------------ ------------
Total expenses........................................... 191,758 400,089 660,796 1,890,235
---------- ------------ ------------ ------------
Net income (loss).......................................... $ (1,948) $ 1,907,984 $ 614,138 $ 2,498,583
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Net income
per limited partnership unit.............................. $ -- $ 1.31 $ 0.42 $ 1.72
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Cash distributions declared
per limited partnership unit.............................. $ 0.12 $ 3.31 $ 0.37 $ 4.06
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>
The accompanying notes an integral part
of these financial statements.
4
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------------- ------------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income..................................................................... $ 614,138 $ 2,498,583
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation................................................................. 306,343 1,357,866
(Gain) loss on sale/exchange of equipment.................................... 275,589 (953,129)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable............................................................. 213,021 (71,335)
accounts receivable--affiliate............................................... 440,468 (85,894)
Increase (decrease) in:
accrued interest............................................................. (1,836) (29,274)
accrued liabilities.......................................................... (15,930) 40,142
accrued liabilities--affiliate............................................... (86,970) 4,621
deferred rental income....................................................... (2,443) 1,093
------------------- ------------
Net cash from operating activities......................................... 1,742,380 2,762,673
------------------- ------------
Cash flows from (used in) investing activities:
Investment in Banyan stock.................................................... (512,153) --
Note receivable--Banyan....................................................... (771,450) --
Purchase of equipment......................................................... -- (245,280)
Proceeds from equipment sales/exchange........................................ 1,110,161 2,527,893
------------------- ------------
Net cash from (used in) investing activities............................... (173,442) 2,282,613
------------------- ------------
------------------- ------------
Cash flows used in financing activities:
Principal payments--notes payable............................................. (144,594) (1,969,454)
Distributions paid............................................................ (544,995) (1,816,660)
------------------- ------------
Net cash used in financing activities...................................... (689,589) (3,786,114)
------------------- ------------
Net increase in cash and cash equivalents...................................... 879,349 1,259,172
Cash and cash equivalents at beginning of period............................... 1,709,301 1,832,111
------------------- ------------
Cash and cash equivalents at end of period..................................... $ 2,588,650 $ 3,091,283
------------------- ------------
------------------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................................... $ 5,224 $ 98,439
------------------- ------------
------------------- ------------
</TABLE>
Supplemental disclosure of non-cash investing activity:
The Partnership sold its interests in a vessel and certain railroad
equipment on September 30, 1996. The Partnership received net sale proceeds
of $3,104,537, a portion of which was used to repay the outstanding
principal balance of notes payable associated with the vessel of $65,690.
The remainder, $3,038,847, was deposited into an escrow account and
transferred to the Partnership on October 3, 1996. See also Results of
Operations.
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1997
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
- -----------------------------
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1996 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1997 and December 31, 1996 and results of operations
for the three and nine month periods ended September 30, 1997 and 1996 have been
made and are reflected.
NOTE 2--CASH
- ------------
At September 30, 1997, the Partnership had $2,480,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3--REVENUE RECOGNITION
- ---------------------------
Rents are payable to the Partnership monthly or quarterly 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 $438,590 are due as
follows:
For the year ending September 30, 1998 $ 392,086
1999 46,504
---------
Total $ 438,590
---------
---------
The Partnership entered into a new 18-month lease agreement with
Transmeridian Airlines for its proportionate interest in a Boeing 727 aircraft
at a base rent to the Partnership of $17,920 per month for 8 months and $15,680
per month for 10 months.
NOTE 4--EQUIPMENT
- -----------------
The following is a summary of equipment owned by the Partnership at
September 30, 1997. In the opinion of Equis Financial Group Limited Partnership
("EFG"), the acquisition cost of the equipment did not exceed its fair market
value.
6
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
REMAINING
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST
- -------------- ----------- ------------
<S> <C> <C>
Aircraft........................ 13-16 $ 4,596,188
Materials handling.............. 0-20 1,105,942
Retail store fixtures........... 0 247,961
Communications.................. 0 226,017
Furniture and fixtures.......... 0 5,636
Computers and peripherals....... 0 3,459
-----------
Total equipment cost 6,185,203
Accumulated depreciation (6,018,512)
-----------
Equipment, net of accumulated depreciation $ 166,691
-----------
-----------
</TABLE>
At September 30, 1997, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $4,596,189, representing
approximately 74% of total equipment cost.
The summary above includes equipment held for sale or re-lease which has
been fully depreciated with a cost of approximately $188,000, at September 30,
1997. The General Partner is actively seeking the sale or re-lease of all
equipment not on lease. In addition, the summary above also includes equipment
being leased on a month- to-month basis.
NOTE 5--INVESTMENT IN BANYAN
- ----------------------------
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk Holdings Limited
(the "Lessee"), exchanged their ownership interests in the Vessels for aggregate
consideration of $11,565,375, including 1,987,000 shares (at $1.50 per share) of
common stock in Banyan Strategic Land Fund II ("Banyan") and a purchase money
note of $8,219,500 (the "Note"). Banyan is a Delaware corporation organized on
April 14, 1987 and has its common stock listed on NASDAQ. Banyan, at the time of
the exchange transaction, held certain real estate investments, the only one of
which remained unsold at September 30, 1997 being a 274 acre site near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Banyan or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Banyan (the "Banyan Note").
7
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
As a result of the exchange transaction and its original 46.46% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $735,201 in cash and is the beneficial owner of 341,435 shares of
Banyan common stock valued at $512,153 ($1.50 per share) and holds a beneficial
interest in the Banyan Note of $771,450. The Banyan Note will be amortized over
three years and bear an annual interest rate of 10%.
Cash equal to the amount of the Banyan Note was placed in escrow for the
benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Banyan's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Banyan,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Banyan's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to 3 years
and an increase in size of the Board to as many as nine members, provided a
majority of the Board shall consist of members independent of Banyan, EFG or
any affiliate; and (ii) an amendment extending Banyan's life to perpetual and
changing its name. Contemporaneously with the Consent being obtained, Banyan
declared a $0.20 per share distribution to be paid on all shares, including
those beneficially owned by the Partnership. A distribution of $68,287 ($0.20
per share) is scheduled to be paid to the Partnership on or before November 15,
1997.
In connection with the Banyan transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, joined the Board of Directors of Banyan and
James A. Coyne, Senior Vice President of EFG became Banyan's Chief Operating
Officer. The General Partner believes that the underlying tangible assets of
Banyan, particularly the Rancho Malibu property, can be sold or developed on a
tax free basis due to Banyan's net operating loss carryforwards and can provide
an attractive economic return to the Partnership.
NOTE 6--RELATED PARTY TRANSACTIONS
- ----------------------------------
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the nine month
periods ended September 30, 1997 and 1996, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
1997 1996
---------- ----------
Equipment management fees......................... $ 73,441 $ 168,920
Administrative charges............................ 40,959 15,750
Reimbursable operating expenses
due to third parties............................ 236,665 278,534
---------- ----------
Total............................ $ 351,065 $ 463,204
---------- ----------
---------- ----------
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At September 30, 1997, the Partnership was owed $43,890 by EFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
October 1997.
8
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
NOTE 7--LEGAL PROCEEDINGS
- -------------------------
On July 27, 1995, EFG, on behalf of the Partnership and other EFG-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. EFG 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 EFG's Complaint along with Affirmative Defenses and
Counterclaims, seeking declaratory relief and specific performance and alleging,
among other things, breach of contract and breach of the implied covenant of
good faith and fair dealing. EFG filed its Answer to these counterclaims on
September 29, 1995. Though the parties have been discussing settlement with
respect to this matter for some time, to date, the negotiations have been
unsuccessful. Notwithstanding these discussions, EFG recently filed an Amended
and Supplemental Complaint alleging a further default by National Steel under
the MLA and EFG recently filed a motion for Summary Judgment on all claims and
counterclaims. The matter remains pending before the Court and is scheduled for
a hearing on EFG's motion in December 1997. The Partnership has not experienced
any material losses as a result of this action.
On June 24, 1997, four plaintiffs (the "Plaintiffs") owning limited partner
units or beneficiary interests in eight investment programs sponsored by EFG
filed a lawsuit, as a derivative action, on behalf of the Partnership and 27
other investment programs (collectively, the "Nominal Defendants") in the
Superior Court of the Commonwealth of Massachusetts for the County of Suffolk
against EFG and certain of EFG's affiliates, including the General Partner of
the Partnership and four other wholly-owned subsidiaries of EFG which are the
general partner or managing trustee of one or more of the investment programs,
(collectively, the "Managing Defendants"), and certain other entities and
individuals that have control of the Managing Defendants and the Nominal
Defendants (the "Controlling Defendants"). The Plaintiffs assert claims of
breach of fiduciary duty, breach of contract, unjust enrichment, and equitable
relief and seek various remedies, including compensatory and punitive damages to
be determined at trial.
The General Partner and EFG are in the early stages of evaluating the nature
and extent of the claims asserted in this lawsuit and cannot predict its outcome
with any degree of certainty. However, based upon all of the facts presently
being considered by management, the General Partner and EFG do not believe that
any likely outcome will have a material adverse effect on the Partnership. The
General Partner, EFG and their affiliates intend to vigorously defend against
the lawsuit.
9
<PAGE>
AMERCIAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
--------------
Certain statements in this quarterly report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of
risks and uncertainties. There are a number of important factors that could
cause actual results to differ materially from those expressed in any
forward-looking statements made herein. These factors include, but are not
limited to, the ability of EFG to collect all rents due under the attendant
lease agreements and successfully remarket the Partnership's equipment upon
the expiration of such leases.
Three and nine months ended September 30, 1997 compared to the three and nine
months ended September 30, 1996:
OVERVIEW
- --------
The Partnership was organized in 1989 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The Partnership's stated investment
objectives and policies contemplated that the Partnership would wind-up its
operations within approximately seven years of its inception. Accordingly, the
General Partner is pursuing the remarketing of all of the Partnership's
remaining equipment. Currently, the General Partner anticipates that it will
wind-up the operations of the Partnership and make a liquidating distribution to
the Partners, net of any cash reserves which the General Partner may consider
appropriate, possibly by December 31, 1998.
RESULTS OF OPERATIONS
- ---------------------
For the three and nine months ended September 30, 1997, the Partnership
recognized lease revenue of $137,611 and $1,468,972, respectively, compared to
$1,498,156 and $3,339,961 for the same periods in 1996. Lease revenue during the
nine months ended September 30, 1997 includes the receipt of prepaid contractual
rental obligations of $991,703 associated with the exchange of the Partnership's
interest in the vessel (see discussion below). The decrease in lease revenue
from 1996 to 1997 reflects renewal lease expirations and the sale or exchange of
equipment. In addition, lease revenue for the three and nine months ended
September 30, 1996 included the receipt of $846,649 of lease termination rents
received in connection with the sale of the Partnership's interest in two Boeing
727-Advanced aircraft in July 1996 (see discussion below). 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 an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
During the three months ending September 30, 1997, the Partnership sold
equipment which had been fully depreciated to existing lessees and third
parties. These sales resulted in a net gain, for financial statement purposes,
of $18,760. During the nine months ended September 30, 1997, the Partnership
sold or exchanged
10
<PAGE>
AMERCIAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
equipment having a net book value of $1,385,750, to existing lessees and
third parties. These transactions resulted in a net loss, for financial
statement purposes, of $275,589. The equipment transactions included the
Partnership's interest in a vessel with an original cost and net book value
of $3,666,680 and $1,385,750, respectively. In connection with this
transaction, the Partnership realized proceeds of $1,027,101, which resulted
in a net loss for financial statement purposes, of $358,649. In addition, as
this vessel was disposed of prior to the expiration of the related lease
term, the Partnership received a prepayment of the remaining contracted rent
due under the vessel's lease agreement, as described above. See below for
further discussion related to the vessel.
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk Holdings Limited
(the "Lessee"), exchanged their ownership interests in the Vessels for aggregate
consideration of $11,565,375, including 1,987,000 shares (at $1.50 per share) of
common stock in Banyan Strategic Land Fund II ("Banyan") and a purchase money
note of $8,219,500 (the "Note"). Banyan is a Delaware corporation organized on
April 14, 1987 and has its common stock listed on NASDAQ. Banyan, at the time of
the exchange transaction, held certain real estate investments, the only one of
which remained unsold at September 30, 1997 being a 274 acre site near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Banyan or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Banyan (the "Banyan Note").
As a result of the exchange transaction and its original 46.46% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $735,201 in cash and is the beneficial owner of 341,435 shares of
Banyan common stock valued at $512,153 ($1.50 per share) and holds a beneficial
interest in the Banyan Note of $771,450. The Banyan Note will be amortized over
three years and bear an annual interest rate of 10%.
Cash equal to the amount of the Banyan Note was placed in escrow for the
benefit of Banyan in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Banyan agreed to
seek consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Banyan's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Banyan,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Banyan's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to 3 years
and an increase in size of the Board to as many as nine members, provided a
majority of the Board shall consist of members independent of Banyan, EFG or any
affiliate; and (ii) an amendment extending Banyan's life to perpetual and
changing its name. Contemporaneously with the Consent being obtained, Banyan
declared a $0.20 per share distribution to be paid on all shares, including
those beneficially owned by the Partnership. A distribution of $68,287 ($0.20
per share) is scheduled to be paid to the Partnership on or before November 15,
1997.
The General Partner believes that the underlying tangible assets of Banyan,
particularly the Rancho Malibu property, can be sold or developed on a tax free
basis due to Banyan's net operating loss carryforwards and can provide an
attractive economic return to the Partnership.
11
<PAGE>
AMERCIAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
For the three and nine months ended September 30, 1996, the Partnership sold
equipment having a net book value of $4,614,169 and $4,679,301, respectively, to
existing lessees and third parties. These sales resulted in net gains for
financial statement purposes of $762,202 and $953,129, respectively. These
equipment sales included the sale of the Partnership's interest in two Boeing
727-Advanced jet aircraft with an original cost and net book value of
$7,622,493, and $1,188,593, respectively, which the Partnership sold to the
existing lessee in July 1996. In connection with these sales, the Partnership
realized sale proceeds of $1,959,671, which resulted in a net gain, for
financial statement purposes, of $771,078. This equipment was sold prior to the
expiration of the related lease term. The Partnership realized lease termination
rents equal to $846,649, relating to these aircraft. In addition, equipment
sales included the Partnership's interest in a vessel with an original cost and
net book value of $1,829,796 and $782,887, respectively which the Partnership
sold to a third party in September 1996. In connection with this sale, the
Partnership realized net sale proceeds of $603,243 which resulted in a net loss,
for financial statement purposes, of $179,644. This equipment was sold prior to
the expiration of the related lease term. The Partnership also sold its interest
in certain railroad equipment with an original cost and net book value of
$4,692,023 and $2,584,785, respectively, to a third party. The Partnership
realized net sale proceeds of $2,501,294, which resulted in a net loss, for
financial statement purposes, of $83,491. This equipment was sold prior to the
expiration of the related lease term. The sales of the Partnership's interests
in the vessel and railroad equipment were effected in connection with a joint
remarketing effort involving 15 individual leasing programs sponsored by AFG,
consisting of the Partnership and 14 affiliates.
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 EFG'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. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation expense for the three and nine months ended September 30, 1997
was $86,764 and $306,343, respectively, compared to $307,124 and $1,357,866 for
the same periods in 1996. 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.
Interest expense was $3,388, or less than 1% of lease revenue for the nine
months ended September 30, 1997 compared to $4,825 and $69,165, or less than 1%
and 2.1% of lease revenue for the three
12
<PAGE>
AMERCIAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
and nine months ended September 30, 1996. The Partnership's notes payable
were fully amortized during the nine months ended September 30, 1997.
Management fees were 5% of lease revenue for each of the three and nine
month periods ended September 30, 1997, respectively, compared to 4.9% and 5.1%
of lease revenue during the same periods in 1996. Management fees during the
nine months ended September 30, 1996, include $6,065 resulting from an
underaccrual in 1995. Management fees are based on 5% of gross lease revenue
generated by operating leases and 2% of gross lease revenue generated by full
payout leases.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Significant operating expenses were incurred during the nine months
ended September 30, 1997 and 1996 due to heavy maintenance and airframe overhaul
costs incurred or accrued in connection with the Partnership's interests in two
Boeing 727 aircraft. Certain of the costs incurred in the first quarter of 1996
were subsequently reimbursed by the former lessee of the related aircraft during
the third quarter of 1996. In 1996, the Partnership entered into a new 36-month
lease agreement with Sunworld International Airlines, Inc. to re-lease one of
the aircraft. The second aircraft was re-leased to Transmeridian Airlines
beginning April 1997 at a base rent to the Partnership of $17,920 per month for
8 months and $15,680 per month for 10 months. 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 generally 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 $1,742,380 and $2,762,673 for the nine
months ended September 30, 1997 and 1996, respectively. Net cash from operating
activities in both 1997 and 1996 included lease termination rents as described
above. Future renewal, re-lease and equipment sale activities will cause a
decline in the Partnership's lease revenue and corresponding sources of
operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will also decline
as the Partnership experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be
sold to the existing lessee or to a third party. Generally, this will occur
upon expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of
an asset. Such circumstances are infrequent and usually result in the
collection of stipulated cash settlements pursuant to terms and conditions
contained in the underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. During the nine months ended September 30,
1997, the Partnership realized net cash proceeds of $1,110,161, including
proceeds from the
13
<PAGE>
AMERCIAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
exchange transaction, compared to $2,527,893 for the same period in 1996. At
September 30, 1996, cash in the amount of $3,038,847, representing the net
sales proceeds resulting from the Partnerships sale of its interest in a
vessel and certain railroad equipment less an associated debt repayment, was
escrowed and transferred to the Partnership on October 3, 1996. 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 the nine months ended
September 30, 1996, the Partnership expended $245,280 to replace certain
aircraft engines to facilitate the re-lease of an aircraft to Transmeridian
Airlines, discussed above. There were no equipment acquisitions during the
same period in 1997.
As a result of the exchange transaction and its original 46.46% beneficial
ownership interest in Larkfield, one of the three Vessels, the Partnership
received $735,201 in cash and is the beneficial owner of 341,435 shares of
Banyan common stock valued at $512,153 ($1.50 per share) and holds a beneficial
interest in the Banyan Note of $771,450.
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. The Partnership's notes payable
were fully amortized during the nine months ended September 30, 1997.
Cash distributions to the General Partner 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 nine months ended September 30, 1997, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $544,995. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Recognized Owners were allocated 95% of these distributions, or
$517,745, and the General Partner was allocated 5%, or $27,250. The third
quarter 1997 cash distribution was paid on October 14, 1997.
Cash distributions paid to the Recognized Owners consist of both a return of
and a return on 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 EFG 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 a former lessee of the Partnership, Midway Airlines, Inc.
("Midway"). In 1993, the Partnership's interests in two DC-9-30 aircraft leased
by Midway were transferred to a designee of the lender in lieu of foreclosure.
Although this bankruptcy had no immediate adverse effect on the Partnership's
cash flow, as the Partnership had almost 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 the aircraft. Notwithstanding such
adverse impact, the overall investment results to be achieved by the Partnership
will be dependent upon the collective performance results of all of 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 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
14
<PAGE>
AMERCIAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 future quarterly cash
distributions are anticipated.
15
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Response:
Refer to Note 7 to the financial statements herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
16
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated, a Massachusetts
corporation and the General Partner of the
Registrant.
By: /s/ Michael J. Butterfield
---------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 14, 1997
By: /s/ Gary M. Romano
----------------------------------------------
Gary M. Romano
Clerk of AFG Leasing IV Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 14, 1997
17
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,588,650
<SECURITIES> 512,153
<RECEIVABLES> 821,657
<ALLOWANCES> 5,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,917,460
<PP&E> 6,185,203
<DEPRECIATION> 6,018,512
<TOTAL-ASSETS> 4,084,151
<CURRENT-LIABILITIES> 222,407
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,861,744
<TOTAL-LIABILITY-AND-EQUITY> 4,084,151
<SALES> 0
<TOTAL-REVENUES> 1,274,934
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 657,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,388
<INCOME-PRETAX> 614,138
<INCOME-TAX> 0
<INCOME-CONTINUING> 614,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 614,138
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
