<PAGE>
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, 1996
------------------------------------------------
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 0-18364
-------
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.)
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:
1,380,661 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, 1996 (Part I and II)
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
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 6
Related Security Holder Matters
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 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Partnership 8
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and
Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 13-15
-2-
<PAGE>
PART I
Item 1. Business.
- ------------------
(a) General Development of Business
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on July 24, 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 General Partner (AFG Leasing IV Incorporated) and $100 from the Initial
Limited Partner (AFG Assignor Corporation). On September 29, 1989, the
Partnership issued 1,380,661 units, representing assignments of limited
partnership interests (the "Units"), to 1,815 investors. Unitholders and
Limited Partners (other than the Initial Limited Partner) are collectively
referred to as Recognized Owners. The Partnership has one General Partner, AFG
Leasing IV Incorporated, a Massachusetts corporation formed in 1987 and an
affiliate of Equis Financial Group Limited Partnership (formerly American
Finance Group), a Massachusetts limited partnership ("EFG"). The common stock
of the General Partner is owned by AF/AIP Programs Limited Partnership, of which
EFG and a wholly-owned subsidiary are the 99% limited partners and AFG Programs,
Inc., which is wholly-owned by EFG, is the 1% general partner. The General
Partner is 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 September
29, 1989. The initial purchase of equipment and the associated lease
commitments occurred on September 29, 1989. The acquisition of the equipment
and its associated leases is described in Note 3 to the financial statements
included in Item 14, herein. The Partnership is expected to terminate no later
than December 31, 2000; however, the General Partner is evaluating winding-up
the Partnership's operations in 1997 or 1998.
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
EFG (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.
-3-
<PAGE>
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 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 EFG 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 Partner and the Manager.
Default by a lessee under a lease may cause equipment to be returned to the
Partnership at a time when the 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.
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 General Partner and the
Manager. In accordance with the Partnership's stated investment objective and
policies, the General Partner is evaluating 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, 1996, 1995 and 1994 is
incorporated herein by reference to Note 2 to the financial statements in the
1996 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Partnership and
several other Direct-Participation equipment leasing programs sponsored or co-
sponsored by EFG (the "Other Investment Programs"). The Company arranges to
broker or originate equipment leases, acts as remarketing agent and asset
manager, and provides leasing support services, such as billing, collecting, and
asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also
owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym to a third party (the "Buyer"). AFG changed its name to
Equis Financial Group Limited Partnership after the sale was concluded. Pursuant
to terms
-4-
<PAGE>
of the sale agreements, EFG agreed not to compete with the Buyer's lease
origination business for a period of five years; however, EFG is permitted to
originate certain equipment leases, principally those involving non-investment
grade lessees and ocean-going vessels, which are not in competition with the
Buyer. In addition, the sale agreements specifically reserved to EFG the rights
to continue using the name American Finance Group and its acronym in connection
with the Partnership and the Other Investment Programs and to continue managing
all assets owned by the Partnership and the Other Investment Programs, including
the right to satisfy all required equipment acquisitions utilizing either
brokers or the Buyer. Geoffrey A. MacDonald, Chairman of Equis Corporation and
Gary D. Engle agreed not to compete with the sold business on terms and
conditions similar to those for the Company.
(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 1996 Annual Report.
Item 3. Legal Proceedings.
- ---------------------------
Incorporated herein by reference to Note 7 to the financial statements in
the 1996 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
-5-
<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, 1996, there were 1,629 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 General Partner prior to the end of the fiscal quarter; however, the amount
of such distribution reflects only amounts to which the General Partner is
entitled at the time such distribution is 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.
Distributions in 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
General Recognized
Total Partner Owners
----------- --------- -----------
<S> <C> <C> <C>
Total 1996 distributions $6,082,175 $304,109 $5,778,066
Total 1995 distributions 2,906,655 145,333 2,761,322
---------- -------- ----------
Total $8,988,830 $449,442 $8,539,388
========== ======== ==========
</TABLE>
Distributions payable at December 31, 1996 and 1995 were $181,665 and
$726,664, respectively.
"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 General Partner, and increased by any portion of such reserves
deemed by the 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 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 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 General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
-6-
<PAGE>
governing a joint venture which the 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 Partner, 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 General Partner and (ii) increased by any portion of such reserves deemed by
the 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 95% to the
Recognized Owners and 5% to the General Partner.
"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 1996 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
1996 Annual Report.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
Incorporated herein by reference to the financial statements and
supplementary data included in the 1996 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
- ---------------------
None.
-7-
<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 sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely 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 General Partner as of March 15, 1997 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (See Item 13)
- -----------------------------------
<TABLE>
<CAPTION>
Name Title Age Term
- --------------------------- ------------------------------------ ------- ----
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the General Partner 48 elected and
qualified
Gary D. Engle President and Chief Executive Officer
and member of the
Executive Committee of EFG and a
Director of the General Partner 48
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and Clerk of
the General Partner 37
James A. Coyne Senior Vice President of EFG 36
Michael J. Butterfield Vice President, Finance and
Treasurer of EFG and Treasurer of
the General Partner 37
James F. Livesey Vice President, Aircraft and Vessels 47
of EFG
Sandra L. Simonsen Senior Vice President, Information 46
Systems of EFG
Gail D. Ofgant Vice President, Lease Operations of 31
EFG
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners, Directors
or Executive Officers.
-8-
<PAGE>
(e) Business Experience
Mr. MacDonald, age 48, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General Partner.
Mr. MacDonald was also a co-founder, Director and Senior Vice President of EFG'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 EFG's
predecessors, 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 48, is President and Chief Executive Officer, a member of the
Executive Committee of EFG, a Director of the General Partner, and President of
AFG Realty Corporation. Mr. Engle is Vice President and a Director of certain
of EFG's affiliates. On December 16, 1994, Mr. Engle acquired control of EFG,
the General Partner and each of EFG'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 37, is Executive Vice President and Chief Operating Officer
of EFG and certain of its affiliates and Clerk of the General Partner. Mr.
Romano joined EFG in November 1989 and was appointed Executive Vice President
and Chief Operating Officer in April 1996. Prior to joining EFG, 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 (now
Ernst & Young LLP) from 1982 to 1986. Mr. Romano is a C.P.A. and holds a B.S.
degree from Boston College.
Mr. Coyne, age 36, is Senior Vice President of EFG. Mr. Coyne joined EFG in
1989, remained until May 1993, and rejoined EFG in November 1994. From May 1993
through November 1994, he was with the Raymond Company, a private investment
firm, where he was responsible for financing corporate and real estate
acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a real
estate investment company and an equipment leasing company. Prior to 1985 he
was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He has
a BS in Business Administration from John Carroll University, a Masters Degree
in Accounting from Case Western Reserve University and is a Certified Public
Accountant.
Mr. Butterfield, age 37, joined EFG in June 1992 and became Vice President,
Finance and Treasurer of EFG and certain of its affiliates in April 1996 and is
Treasurer of the General Partner. Prior to joining EFG, Mr. Butterfield was an
Audit Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield
was employed in public accounting and industry positions in New Zealand and
London (U.K.) prior to coming to the United States in 1987. Mr. Butterfield
attained his Associate Chartered Accountant (A.C.A.) professional qualification
in New Zealand and has completed his C.P.A. requirements in the United States.
He holds a Bachelor of Commerce degree from the University of Otago, Dunedin,
New Zealand.
Mr. Livesey, age 47, is Vice President, Aircraft and Vessels, of EFG. Mr.
Livesey joined EFG in October, 1989, and was promoted to Vice President in
January 1992. Prior to joining EFG, 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 46, joined EFG in February 1990 and was promoted to Senior
Vice President, Information Systems of EFG in April 1996. Prior to joining EFG,
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.
-9-
<PAGE>
Ms. Ofgant, age 31, is Vice President, Lease Operations of EFG and certain
of its affiliates. Ms. Ofgant joined EFG in June 1989, and was promoted to
Manager, Lease Operations in April 1994. In April 1996, Ms. Ofgant was
appointed Vice President, Lease Operations. Prior to joining EFG, Ms. Ofgant
was employed by Security Pacific National Trust Company. Ms. Ofgant holds a
B.S. degree in Finance from Providence College.
(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 General Partner or its Affiliates. There is no
plan at the present time to make any officers or employees of the 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 General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(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 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 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;
-10-
<PAGE>
3. Removal of the General Partner; 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).
As of March 1, 1997, the following person or group owns beneficially more
than 5% of the Partnership's 1,380,661 outstanding Units:
<TABLE>
<CAPTION>
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
- --------------------------- --------------------------- ------------- ------
<S> <C> <C> <C>
Units Representing Atlantic Acquisition
Limited Partnership
Limited Partnership 98 North Washington Street 125,843 Units 9.11%
Interests Boston, MA 02114
</TABLE>
Messrs. Engle, MacDonald and Coyne have ownership interests in AALP. On
December 1, 1996, EFG purchased a Class D interest, representing a 49% economic
interest in AALP. See Item 10 of this report.
The ownership and organization of EFG is described in Item 1 of this report.
Item 13. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The General Partner of the Partnership is AFG Leasing IV Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
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 the years ended December 31,
1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $181,367 $189,250 $274,382
Administrative charges 36,560 21,000 12,000
Reimbursable operating expenses
due to third parties 406,871 176,990 113,520
-------- -------- --------
Total $624,798 $387,240 $399,902
======== ======== ========
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenues and 2% of gross
full payout lease rental revenues received by the Partnership or (ii) fees which
the 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 EFG 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 EFG, pursuant to Section
10.4 of the Restated Agreement, as amended, for persons employed by EFG who are
engaged in providing administrative services to the Partnership. Reimbursable
operating expenses due to third parties represent costs paid by EFG on behalf of
the Partnership which are reimbursed to EFG.
-11-
<PAGE>
All equipment was acquired from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, 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 by the lessees
directly to either EFG or a lender. EFG temporarily deposits collected funds in
a separate interest-bearing escrow account prior to remittance to the
Partnership. At December 31, 1996 the Partnership was owed $484,358 by EFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in January 1997.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"),
a newly formed Massachusetts limited partnership owned and controlled by certain
principals of EFG, 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 EFG.
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. The Plaintiffs filed
an appeal in this matter. On November 26, 1996, the United States Court of
Appeals for the First Circuit handed down a decision affirming the Court's
approval of the settlement. 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 Recognized Owners
of the Partnership tendered approximately 125,843 units or 9.11% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
were not adversely affected by these proceedings or settlements. On December 1,
1996, EFG purchased a Class D interest, representing a 49% economic interest in
AALP.
On September 30, 1996, the Partnership sold (i) a 23% ownership interest,
representing its entire ownership interest, in a cargo vessel leased by
KGJS/Gearbulk Holding Limited (the "Vessel"), having an original cost to the
Partnership of $1,829,796 and a net book value at September 30, 1996 of $782,887
and (ii) a 50% ownership interest, representing its entire ownership interest,
in 22 locomotives leased by Union Pacific Railroad Company (the "Locomotives"),
having an original cost to the Partnership of $4,692,023 and a net book value at
September 30, 1996 of $2,584,785. 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 Partnership
sold its interests in the Vessel and Locomotives prior to the expiration of the
related lease terms. These sales were effected in connection with a joint
remarketing effort involving 15 individual equipment leasing programs sponsored
by EFG, consisting of the Partnership and 14 affiliates. In October 1996, the
Partnership filed Form 8-K with the Securities and Exchange Commission which
provided a description of the remarketing process and the terms of sale.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
-12-
<PAGE>
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, 1996 and 1995................................... *
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994............ *
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994............ *
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994............ *
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. 33-27828).
13 The 1996 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 thereof which
are incorporated herein by reference, is not deemed "filed" with
the Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with Northwest Airlines, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990 as Exhibit 28 (b) and is incorporated herein by
reference.
* Incorporated herein by reference to the appropriate portion of the 1996 Annual
Report to security holders for the year ended December 31, 1996. (See Part II)
-13-
<PAGE>
Exhibit
Number
-------
99 (b) Lease agreement with Gearbulk Shipowning Ltd. (formerly Kristian
Gerhard Jebsen Skipsrederi A/S) 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 (c) 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, 1995 as Exhibit 99(c) and is incorporated herein by
reference.
(b) Reports on Form 8-K
Report on Form 8-K was filed on October 3, 1996 describing the
remarketing process and terms of sale related to certain of the
Partnership's equipment. The sale was effected in connection with a
joint remarketing effort involving 15 individual equipment leasing
programs sponsored by EFG, consisting of the Partnership and 14
affiliates. See Item 13 herein.
-14-
<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 V-A Limited Partnership of our report dated
March 14, 1997, included in the 1996 Annual Report to Partners of American
Income Partners V-A Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
-15-
<PAGE>
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.
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
--------------------------- -------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG and a
General Partner Director of the General Partner
(Principal Executive Officer)
Date: March 31, 1997 Date: March 31, 1997
------------------- -------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
-------------------- -----------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1997 Date: March 31, 1997
------------------- --------------------
-16-
<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.
-17-
<PAGE>
AMERICAN INCOME PARTNERS V
American Income Partners V-A Limited Partnership
Annual Report to the Partners, December 31, 1996
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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, 1996 and 1995 8
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994 9
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994 10
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 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
General Partner and its Affiliates as
Required by Section 10.4 of the Amended
and Restated Agreement and Certificate of
Limited Partnership 23
</TABLE>
- 1 -
<PAGE>
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, 1996:
<TABLE>
<CAPTION>
Summary of
Operations 1996 1995 1994 1993 1992
- ------------------------- ----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Lease revenue $3,616,524 $3,993,645 $ 6,528,735 $ 7,108,672 $10,337,733
Net income (loss) before
extraordinary item $2,922,308 $ 974,602 $ 782,396 $(3,932,716) $ 465,042
Extraordinary item -- -- -- 417,451 --
---------- ---------- ----------- ----------- -----------
Net income (loss) $2,922,308 $ 974,602 $ 782,396 $(3,515,265) $ 465,042
Per Unit:
Net income (loss)
before extraordinary
item $ 2.01 $ 0.67 $ 0.54 $ (2.71) $ 0.32
Extraordinary item -- -- -- 0.29 --
---------- ---------- ----------- ----------- -----------
Net income (loss) $ 2.01 $ 0.67 $ 0.54 $ (2.42) $ 0.32
Cash distributions $ 4.18 $ 2.00 $ 2.94 $ 3.25 $ 3.69
Financial Position
- -------------------------
Total assets $4,266,781 $9,980,073 $14,457,077 $21,676,535 $31,519,800
Total long-term obligations $ 144,594 $2,231,365 $ 4,725,690 $ 7,793,200 $ 9,013,024
Partners' capital $3,792,601 $6,952,468 $ 8,884,521 $12,371,274 $20,609,851
</TABLE>
- 2 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to the year
ended December 31, 1995 and the year ended December 31, 1995
compared to the year ended December 31, 1994
Overview
- --------
American Income Partners V-A Limited Partnership (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. The value of the Partnership's
equipment portfolio decreases over time due to depreciation resulting from age
and usage of the equipment, as well as technological changes and other market
factors. In addition, the Partnership does not replace equipment as it is sold;
therefore, its aggregate investment value in equipment declines from asset
disposals occurring in the normal course. As a result of the Partnership's age
and a declining equipment portfolio, the General Partner is evaluating a variety
of transactions that will reduce the Partnership's prospective costs to operate
as a publicly registered limited partnership and, therefore, enhance overall
cash distributions to the limited partners. Such a transaction might involve the
sale of the Partnership's remaining equipment or a transaction that would allow
for the consolidation of the Partnership's expenses with other similarly-
organized equipment leasing programs. In order to increase the marketability of
the Partnership's remaining equipment, the General Partner expects to use a
portion of the Partnership's available cash and future cash flow to retire
indebtedness. This may negatively effect short-term cash distributions.
Results of Operations
- ---------------------
For the year ended December 31, 1996, the Partnership recognized lease revenue
of $3,616,524 compared to $3,993,645 and $6,528,735 for the years ended December
31, 1995 and 1994, respectively. Lease revenue for the year ended December 31,
1996 includes 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 decrease in lease
revenue between 1994 and 1996 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 an affiliated equipment leasing program
sponsored by Equis Financial Group Limited Partnership (formerly American
Finance Group), a Massachusetts limited partnership ("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.
In 1996, the Partnership sold equipment having a net book value of $4,679,670
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $1,410,867. 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
- 3 -
<PAGE>
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 vessel and the railroad
equipment were effected in connection with a joint remarketing effort involving
15 individual leasing programs sponsored by EFG, consisting of the Partnership
and 14 affiliates. See Note 3 to the financial statements for additional
discussion of the vessel and railroad equipment transactions.
In 1995, the Partnership sold equipment having a net book value of $275,880 to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $680,698 compared to a net gain of $260,462 on
equipment having a net book value of $680,476 in 1994.
It cannot be determined whether future sales of equipment will result in a net
gain or a net loss to the Partnership, as such transactions will be dependent
upon the condition and type of equipment being sold and its marketability at the
time of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including 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 and amortization expense was $1,540,402, $3,100,690 and
$5,221,757 for the years ending December 31, 1996, 1995 and 1994, 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.
Interest expense was $73,121, or 2% of lease revenue for the year ended
December 31, 1996, compared to $339,404 and $505,276, or 8.5% and 7.7% of lease
revenue for the years ending December 31, 1995 and 1994, respectively. Interest
expense in future periods will continue to decline in amount and as a percentage
of lease revenue as the principal balance of notes payable is reduced through
the application of rent receipts to outstanding debt. In addition, the General
Partner expects to use a portion of the Partnership's available cash and future
cash flow to retire indebtedness (see Overview).
Management fees were approximately 5%, 4.7% and 4.2% of lease revenue during
the years ended December 31, 1996, 1995 and 1994, respectively. Management fees
during the year ended December 31, 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.
Collectively, operating expenses represented 12.3%, 5% and 1.9% of lease revenue
for the years ended December 31, 1996,
- 4 -
<PAGE>
1995 and 1994, respectively. The overall increase in operating expenses from
1994 to 1996 was due primarily to heavy maintenance costs of approximately
$272,000 incurred or accrued in connection with the Partnership's interests in
two Boeing 727 aircraft. In 1996, the Partnership entered into a new 36-month
lease agreement with Sunworld International Airlines, Inc. to re-lease one of
the aircraft at a base rent to the Partnership of $14,560 per month (see
discussion below relating to the second aircraft). 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 $2,745,878, $3,705,226 and $5,509,693
in 1996, 1995 and 1994, respectively. 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 year ended December 31, 1996, the
Partnership expended $245,280 to replace certain aircraft engines to facilitate
the re-lease of an aircraft, in which the Partnership has an ownership interest,
to Transmeridian Airlines (see discussion below). There were no equipment
acquisitions during 1995 and 1994. During the year ended December 31, 1996, the
Partnership realized $6,090,537 in equipment sale proceeds compared to $956,578
and $940,938 in 1995 and 1994, respectively. The proceeds in 1996 include sale
proceeds of $3,104,537 received by the Partnership in connection with the
disposition of its interest in the vessel and railroad equipment, discussed
above. 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.
On November 30, 1995, upon the expiration of its lease term, Northwest
Airlines, Inc., returned a Boeing 727-251 Advanced aircraft (the "Aircraft") in
which the Partnership has a 22.4% ownership interest. The aircraft had a cost
and net book value to the Partnership of approximately $2,421,000 and $337,000,
respectively, at December 31, 1996. The Aircraft is currently undergoing heavy
maintenance expected to cost the Partnership approximately $205,000, all of
which was incurred or accrued during the year ended December 31, 1996. The
Partnership had entered into a 28-month lease agreement with Transmeridian
Airlines effective upon completion of the heavy maintenance. However, as a
result of delays in completing the heavy maintenance, the Aircraft could not be
delivered to the lessee on the stipulated date, resulting in the cancellation of
the agreement. The General Partner is currently negotiating a new lease
agreement for the Aircraft.
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
- 5 -
<PAGE>
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 is scheduled to decline as the principal balance of notes
payable is reduced through the collection and application of rents. The General
Partner may also use a portion of the Partnership's available cash and future
cash flow to retire indebtedness (see Overview).
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 year ended December 31, 1996, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $6,082,175. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Recognized Owners were allocated 95% of these distributions, or $5,778,066, and
the General Partner was allocated 5%, or $304,109. The fourth quarter 1996 cash
distribution was paid on January 13, 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. 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 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.
- 6 -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of American Income Partners V-A Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners V-A Limited Partnership as of December 31, 1996 and
1995, 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,
1996. 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 V-A
Limited Partnership at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, 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 14, 1997
- 7 -
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 1,709,301 $ 1,832,111
Rents receivable, net of allowance for
doubtful accounts of $5,000 214,338 179,945
Accounts receivable - affiliate 484,358 134,441
Equipment at cost, net of accumulated
depreciation of $9,264,523 and
$22,974,327 at December 31, 1996
and 1995, respectively 1,858,784 7,833,576
----------- -----------
Total assets $ 4,266,781 $ 9,980,073
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 144,594 $ 2,231,365
Accrued interest 1,836 31,667
Accrued liabilities 38,430 20,000
Accrued liabilities - affiliate 95,991 9,546
Deferred rental income 11,664 8,363
Cash distributions payable to partners 181,665 726,664
----------- -----------
Total liabilities 474,180 3,027,605
----------- -----------
Partners' capital (deficit):
General Partner (1,341,341) (1,183,347)
Limited Partnership Interests
(1,380,661 Units; initial purchase
price of $25 each) 5,133,942 8,135,815
----------- -----------
Total partners' capital 3,792,601 6,952,468
----------- -----------
Total liabilities and partners'
capital $ 4,266,781 $ 9,980,073
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
- 8 -
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
Income:
<S> <C> <C> <C>
Lease revenue $3,616,524 $3,993,645 $6,528,735
Interest income 133,238 127,593 120,134
Gain on sale of equipment 1,410,867 680,698 260,462
---------- ---------- ----------
Total income 5,160,629 4,801,936 6,909,331
---------- ---------- ----------
Expenses:
Depreciation and amortization 1,540,402 3,100,690 5,221,757
Interest expense 73,121 339,404 505,276
Equipment management fees - affiliate 181,367 189,250 274,382
Operating expenses - affiliate 443,431 197,990 125,520
---------- ---------- ----------
Total expenses 2,238,321 3,827,334 6,126,935
---------- ---------- ----------
Net income $2,922,308 $ 974,602 $ 782,396
========== ========== ==========
Net income
per limited partnership unit $ 2.01 $ 0.67 $ 0.54
========== ========== ==========
Cash distributions declared
per limited partnership unit $ 4.18 $ 2.00 $ 2.94
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
- 9 -
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Recognized Owners
Partner ------------------------
Amount Units Amount Total
------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ (912,407) 1,380,661 $13,283,681 $12,371,274
Net income - 1994 39,120 -- 743,276 782,396
Cash distributions declared (213,457) -- (4,055,692) (4,269,149)
----------- --------- ----------- -----------
Balance at December 31, 1994 (1,086,744) 1,380,661 9,971,265 8,884,521
Net income - 1995 48,730 -- 925,872 974,602
Cash distributions declared (145,333) -- (2,761,322) (2,906,655)
----------- --------- ----------- -----------
Balance at December 31, 1995 (1,183,347) 1,380,661 8,135,815 6,952,468
Net income - 1996 146,115 -- 2,776,193 2,922,308
Cash distributions declared (304,109) -- (5,778,066) (6,082,175)
----------- --------- ----------- -----------
Balance at December 31, 1996 $(1,341,341) 1,380,661 $ 5,133,942 $ 3,792,601
=========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
- 10 -
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from (used in)
operating activities:
Net income $ 2,922,308 $ 974,602 $ 782,396
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 1,540,402 3,100,690 5,221,757
Gain on sale of equipment (1,410,867) (680,698) (260,462)
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable (34,393) 138,583 102,869
Accounts receivable - affiliate (349,917) 222,675 (125,836)
Increase (decrease) in:
Accrued interest (29,831) (28,995) 1,603
Accrued liabilities 18,430 4,500 1,500
Accrued liabilities - affiliate 86,445 (18,095) 25,233
Deferred rental income 3,301 (8,036) (239,367)
----------- ----------- -----------
Net cash from operating activities 2,745,878 3,705,226 5,509,693
----------- ----------- -----------
Cash flows from (used in)
investing activities:
Purchase of equipment (245,280) -- --
Proceeds from equipment sales 6,090,537 956,578 940,938
----------- ----------- -----------
Net cash from investing activities 5,845,257 956,578 940,938
----------- ----------- -----------
Cash flows used in financing
activities:
Principal payments - notes payable (2,086,771) (2,494,325) (3,585,010)
Distributions paid (6,627,174) (2,906,655) (4,723,313)
----------- ----------- -----------
Net cash used in financing activities (8,713,945) (5,400,980) (8,308,323)
----------- ----------- -----------
Net decrease in cash and cash equivalents (122,810) (739,176) (1,857,692)
Cash and cash equivalents at beginning of year 1,832,111 2,571,287 4,428,979
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,709,301 $ 1,832,111 $ 2,571,287
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 102,952 $ 368,399 $ 503,673
=========== =========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1994, the Partnership capitalized $517,500 of refurbishment costs
incurred to upgrade certain equipment, all of which was financed by a
third-party lender.
The accompanying notes are an integral part of
these financial statements.
- 11 -
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1996
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 July 24,
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 General Partner (AFG Leasing IV Incorporated)
and $100 from the Initial Limited Partner (AFG Assignor Corporation). On
September 29, 1989, the Partnership issued 1,380,661 units, representing
assignments of limited partnership interests (the "Units"), to 1,815 investors.
Unitholders and Limited Partners (other than the Initial Limited Partner) are
collectively referred to as Recognized Owners. The Partnership has one General
Partner, AFG Leasing IV Incorporated, a Massachusetts corporation formed in
1987 and an affiliate of Equis Financial Group Limited Partnership (formerly
American Finance Group), a Massachusetts limited partnership ("EFG"). The
common stock of the General Partner is owned by AF/AIP Programs Limited
Partnership, of which EFG 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 Partner is 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").
Significant operations commenced September 29, 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 95% to the Recognized Owners and 5% to the
General Partner. 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 EFG (collectively, the
"Management Agreement") management services are provided by EFG to the
Partnership at fees which the General Partner believes to be competitive for
similar services. (Also see Note 4.)
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Partnership and
several other Direct-Participation equipment leasing programs sponsored or co-
sponsored by EFG (the "Other Investment Programs"). The Company arranges to
broker or originate equipment leases, acts as remarketing agent and asset
manager, and provides leasing support services, such as billing, collecting, and
asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also
owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party (the "Buyer"). AFG changed its name
to Equis Financial Group Limited Partnership after the sale was concluded.
Pursuant to terms of the sale agreements, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG the rights to continue using the name American Finance Group and
its
-12-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
acronym in connection with the Partnership and the Other Investment Programs and
to continue managing all assets owned by the Partnership and the Other
Investment Programs, including the right to satisfy all required equipment
acquisitions utilizing either brokers or the Buyer. Geoffrey A. MacDonald,
Chairman of Equis Corporation and Gary D. Engle agreed not to compete with the
sold business on terms and conditions similar to those for the Company.
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 securities. 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,
1996, the Partnership had $1,515,000 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
$1,657,586 are due as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1997 $842,868
1998 814,718
----------
Total $1,657,586
==========
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Northwest Airlines, Inc. $1,535,146 $1,487,210 $1,851,216
Gearbulk Shipowning Ltd. (formerly
Kristian $ 905,688 $ 957,130 $ 953,680
Gerhard Jebsen Skipsrederi A/S)
Union Pacific Railroad Company $ 463,087 $ 658,318 --
</TABLE>
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 EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, 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.
-13-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Asset base price is affected by the relationship of the seller to the
Partnership as summarized herein. Where the seller of the equipment was EFG or
an affiliate, asset base price was the lower of (i) the actual price paid for
the equipment by EFG or the affiliate plus all actual costs accrued by EFG or
the affiliate while carrying the equipment less the amount of all rents earned
by EFG or the affiliate prior to selling the equipment or (ii) fair market value
as determined by the 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 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 and Amortization
- -----------------------------
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.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
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.
Organization costs are amortized using the straight-line method over a
period of five years.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges are reported as Accrued Liabilities -
Affiliate. (See Note 4.)
At December 31, 1996, Accrued Liabilities - Affiliate includes $75,189
representing aircraft reserves funded by the lessee and used to pay maintenance
costs which were advanced by EFG (See Note 3).
Allocation of Profits and Losses
- --------------------------------
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the
Recognized Owners and 5% to the General Partner). See Note 6 concerning
allocation of income or loss for income tax purposes.
Net Income and Cash Distributions Per Unit
- ------------------------------------------
Net income and cash distributions per Unit are based on 1,380,661 Units
outstanding during each of the three years in the period ended December 31, 1996
and computed after allocation of the General Partner's 5% share of net income
and cash distributions.
-14-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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.
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 adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 did not have a material effect on the financial statements of the
Partnership.
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at December
31, 1996. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Lease Term Equipment
Equipment Type (Months) at Cost Location
- -------------------------------- ----------- ------------ -----------------------------
<S> <C> <C> <C>
Aircraft 10-72 4,596,188 IL/KY/MN
Vessels 57 3,666,680 Foreign
Materials handling 6-60 1,348,991 CT/GA/IL/IN/MA/MI/MN/NC/NY/PA
SC/TN/TX/UT/VA/WA
Computers & peripherals 3-48 579,954 CT/TX/
Construction and mining 6-60 289,336 IL
Retail store fixtures 48-56 247,961 CA/GA/IL/MD/MO/NE/OH/OR/PA
PR/SC/VA/WA
Communications 12-36 226,017 GA/MO
Research and test 60 108,304 NJ
Tractors and heavy duty trucks 6-84 54,240 MI
Furniture & fixtures 60 5,636 NJ
-----------
Total equipment cost 11,123,307
Accumulated depreciation (9,264,523)
-----------
Equipment, net of accumulated depreciation $ 1,858,784
===========
</TABLE>
On September 30, 1996, the Partnership sold (i) a 23% ownership interest,
representing its entire ownership interest, in a cargo vessel leased by Gearbulk
Shipowning Ltd. ("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S
(the "Vessel"), having an original cost to the Partnership of $1,829,796 and a
net book value at September 30, 1996 of $782,887 and (ii) a 50% ownership
interest, representing its entire ownership interest, in 22 locomotives leased
by Union Pacific Railroad Company (the "Locomotives"), having an original cost
to the Partnership of $4,692,023 and a net book value at September 30, 1996 of
$2,584,785. 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
-15-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Partnership sold its interests in the Vessel and Locomotives prior to the
expiration of the related lease terms. These sales were effected in connection
with a joint remarketing effort involving 15 individual equipment leasing
programs sponsored by EFG, consisting of the Partnership and 14 affiliates. In
October 1996, the Partnership filed Form 8-K with the Securities and Exchange
Commission which provided a description of the remarketing process and the terms
of sale.
In 1994, the Partnership incurred and capitalized costs of $517,500 to
refurbish and improve two cargo vessels leased by Gearbulk, 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. One of the cargo vessels was subsequently
sold in connection with the joint remarketing effort described above. The
refurbishment costs for the remaining cargo vessel are being 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 EFG or
an affiliated equipment leasing program sponsored by EFG. 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, 1996, the Partnership's equipment
portfolio included equipment having a proportionate original cost of $8,502,006
representing approximately 76% 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 $1,420,000
and a net book value of approximately $247,000 at December 31, 1996. (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, EFG'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 sale or re-lease with an original cost and net book value of
approximately $3,240,000 and $341,000, respectively, at December 31, 1996. This
equipment includes the Partnership's proportionate interest in a Boeing 727-251
Advanced aircraft (the "Aircraft"), formerly leased to Northwest Airlines, Inc.
("Northwest"), having a cost and net book value of approximately $2,421,000 and
$337,000, respectively at December 31, 1996. This aircraft was returned upon
expiration of its lease term on November 30, 1995 and is currently undergoing
heavy maintenance expected to cost the Partnership approximately $205,000, all
of which was accrued or incurred during the year ended December 31, 1996. The
Partnership had entered into a 28-month lease agreement with Transmeridian
Airlines effective upon completion of the heavy maintenance. However, as a
result of delays in completing the heavy maintenance, the Aircraft could not be
delivered to the lessee on the stipulated date, resulting in the cancellation of
the agreement. The General Partner is currently negotiating a new lease
agreement for the Aircraft.
-16-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 4 - 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 the years ended December 31,
1996, 1995 and 1994 which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $181,367 $189,250 $274,382
Administrative charges 36,560 21,000 12,000
Reimbursable operating
expenses due to third parties 406,871 176,990 113,520
-------- -------- --------
Total $624,798 $387,240 $399,902
======== ======== ========
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross
full payout lease rental revenue received by the Partnership or (ii) fees which
the 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 EFG 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 EFG, pursuant to Section
10.4 of the Restated Agreement, as amended, for persons employed by EFG who are
engaged in providing administrative services to the Partnership. Reimbursable
operating expenses due to third parties represent costs paid by EFG on behalf of
the Partnership which are reimbursed to EFG.
All equipment was acquired from EFG, one of its affiliates, including other
equipment leasing programs sponsored by EFG, 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 EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1996, the Partnership was owed $484,358 by EFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1997.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of EFG, 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 EFG.
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
-17-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
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. The
Plaintiffs filed an appeal in this matter. On November 26, 1996, the United
States Court of Appeals for the First Circuit handed down a decision affirming
the Court's approval of the settlement. 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 Recognized
Owners of the Partnership tendered approximately 125,843 units or 9.11% of the
total outstanding units of the Partnership to AALP. The operations of the
Partnership were not adversely affected by these proceedings or settlements. On
December 1, 1996, EFG purchased a Class D interest, representing a 49% economic
interest in AALP.
NOTE 5 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 1996 consisted of installment notes of
$144,594 payable to banks and institutional lenders. All of the installment
notes are non-recourse, two notes bear fluctuating interest rates based on the
London Inter-Bank Offered Rate plus a margin (5.5% at December 31, 1996) and one
note bears an interest rate of 10%. The installment 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, 1996.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1997 $118,724
1998 25,870
---------
Total $144,594
=========
</TABLE>
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 (95% to the Recognized Owners and 5% to the General Partner). 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 Partner will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partner's tax
capital account. At December 31, 1996, the General Partner had a positive tax
capital account balance.
The following is a reconciliation between net income reported for financial
statement and federal income tax reporting purposes for the years ended December
31, 1996, 1995 and 1994:
-18-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income $2,922,308 $ 974,602 $ 782,396
Financial statement depreciation
in excess of tax depreciation 60,169 486,934 1,717,450
Prepaid rental income 3,301 (8,036) (239,367)
Other (83,593) 274,795 307,965
---------- ---------- ----------
Net income for federal income tax
- ------------------------------------- $2,902,185 $1,728,295 $2,568,444
reporting purposes ========== ========== ==========
</TABLE>
The principal component of "Other" consists of the difference between the
tax gain on equipment disposals and the financial statement gain on disposals.
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Partners' capital $3,792,601 $ 6,952,468
Add back selling commissions and
organization 3,878,114 3,878,114
and offering costs
Financial statement distributions in
excess of 9,083 36,333
tax distributions
Cumulative difference between
federal income tax 1,055,940 1,076,063
and financial statement income (loss) ---------- -----------
Partners' capital for federal income $8,735,738 $11,942,978
tax reporting purposes ========== ===========
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
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 alleging breach of contract, implied covenant of
good faith and fair
-19-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
dealing and specific performance. 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 further default under the MLA and the matter
remains pending before the Court. The Partnership has not experienced any
material losses as a result of this action.
On September 22, 1995, Investors Asset Holding Corp. and First Security
Bank, N.A., trustees of the Partnership and various other affiliated investment
programs, filed an action in the United States District Court for the District
of Massachusetts against Northwest, a lessee of the Partnership. The trustees
are seeking damages from Northwest and a declaratory judgment concerning
Northwest's maintenance and return obligations for certain aircraft owned by the
Partnership. In addition to filing its Answer to the Plaintiffs' Complaint,
Northwest also filed a motion to transfer venue of this proceeding to Minnesota.
The Court denied such motion. The parties have completed the initial phase of
discovery, and motions for partial summary judgment are due on March 28, 1997.
At present, it is not possible to determine the ultimate outcome of this matter.
-20-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1996, 1995 and 1994
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 revenues, 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.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Rents earned prior to disposal of $17,670,136 $3,959,099 $5,775,059
equipment, net of interest
charges
Sale proceeds realized upon
disposition of equipment 6,090,537 956,578 940,938
----------- ---------- ----------
Total cash generated from rents
and equipment sale proceeds 23,760,673 4,915,677 6,715,997
Original acquisition cost of
equipment disposed 19,929,876 4,135,962 5,668,026
----------- ---------- ----------
Excess of total cash generated to
cost of equipment disposed $ 3,830,797 $ 779,715 $1,047,971
=========== ========== ==========
</TABLE>
-21-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
-------------- -------------- --------------
<S> <C> <C> <C>
Net income $ 1,511,441 $ 1,410,867 $ 2,922,308
Add:
Depreciation 1,540,402 -- 1,540,402
Management fees 181,367 -- 181,367
Book value of disposed
equipment -- 4,679,670 4,679,670
Less:
Principal reduction of (2,086,771) -- (2,086,771)
notes payable ----------- ------------- -----------
Cash from operations, sales
and refinancings 1,146,439 6,090,537 7,236,976
Less:
Management fees (181,367) -- (181,367)
----------- ------------- -----------
Distributable cash from
operations,
sales and refinancings 965,072 6,090,537 7,055,609
Other sources and uses of cash:
Cash at beginning of year 1,832,111 -- 1,832,111
Purchase of equipment (245,280) -- (245,280)
Net change in receivables
and accruals (305,965) -- (305,965)
Less:
Cash distributions paid (536,637) (6,090,537) (6,627,174)
----------- ------------- -----------
Cash at end of year $ 1,709,301 -- $ 1,709,301
=========== ============= ===========
</TABLE>
-22-
<PAGE>
AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1996
For the year ended December 31, 1996, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
Operating expenses $375,916
-23-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,709,301
<SECURITIES> 0
<RECEIVABLES> 703,696
<ALLOWANCES> 5,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,407,997
<PP&E> 11,123,307
<DEPRECIATION> 9,264,523
<TOTAL-ASSETS> 4,266,781
<CURRENT-LIABILITIES> 329,586
<BONDS> 144,594
0
0
<COMMON> 0
<OTHER-SE> 3,792,601
<TOTAL-LIABILITY-AND-EQUITY> 4,266,781
<SALES> 3,616,524
<TOTAL-REVENUES> 5,160,629
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,165,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,121
<INCOME-PRETAX> 2,922,308
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,922,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,922,308
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
