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AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
Page
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-5
FINANCIAL STATEMENTS:
Report of Independent Auditors 6
Statement of Financial Position
at December 31, 1995 and 1994 7
Statement of Operations
for the years ended December 31, 1995, 1994 and 1993 8
Statement of Changes in Partners' Capital
for the years ended December 31, 1995, 1994 and 1993 9
Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 10
Notes to the Financial Statements 11-19
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 20
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 21
Schedule of Costs Reimbursed to the Managing General Partner and its Affiliates
as Required by Section 10.4 of the Amended and Restated Agreement and
Certificate of
Limited Partnership 22
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1995:
Summary of
Operations 1995 1994 1993 1992 1991
Lease revenue $ 1,103,850 $ 1,947,354 $ 3,451,518 $ 4,189,899 $ 5,488,935
Net income (loss) before
extraordinary item $ 781,201 $ 1,584,993 $ 19,499 $ (830,383) $ (253,791)
Extraordinary item -- -- -- -- (632,431)
Net income (loss) $ 781,201 $ 1,584,993 $ 19,499 $ (830,383) $ (886,222)
Per Unit:
Net income (loss) before
extraordinary item $ 0.88 $ 1.80 $ 0.02 $ (0.94) $ (0.29)
Extraordinary item -- -- -- -- (0.71)
Net income (loss) $ 0.88 $ 1.80 $ 0.02 $ (0.94) $ (1.00)
Cash distributions $ 1.44 $ 2.00 $ 3.50 $ 3.75 $ 3.94
Financial
Position
Total assets $ 4,009,008 $ 4,729,160 $ 5,477,334 $ 10,008,729 $ 16,282,708
Total long-term obligations $ 120,313 $ 198,619 $ 354,739 $ 1,789,581 $ 3,964,172
Partners' capital $ 3,579,548 $ 4,067,319 $ 4,247,850 $ 7,318,020 $ 11,458,762
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1995 compared to the year
ended December 31, 1994 and the year ended December 31, 1994
compared to the year ended December 31, 1993
Overview
As an equipment leasing partnership, American Income Partners IV-B
Limited Partnership (the "Partnership") was organized to acquire a diversified
portfolio of capital equipment subject to lease agreements with third parties.
The Partnership was designed to progress through three principal phases:
acquisitions, operations, and liquidation. During the operations phase, a period
of approximately six years, all equipment in the Partnership's portfolio
progresses through various stages. Initially, all equipment generates rental
revenues under primary term lease agreements. During the life of the
Partnership, these agreements expire on an intermittent basis and equipment held
pursuant to the related leases are renewed, re-leased or sold, depending on
prevailing market conditions and the assessment of such conditions by American
Finance Group ("AFG") to obtain the most advantageous economic benefit. Over
time, a greater portion of the Partnership's original equipment portfolio
becomes available for remarketing and cash generated from operations and from
sales or refinancings begins to fluctuate. Ultimately, all equipment will be
sold and the Partnership will be dissolved. In accordance with the Partnership's
stated investment objectives and policies, the Managing General Partner is
considering the winding-up of the Partnership's operations, including the
liquidation of its entire portfolio. The Partnership's operations commenced in
1988.
Results of Operations
For the year ended December 31, 1995, the Partnership recognized lease
revenue of $1,103,850 compared to $1,947,354 and $3,451,518 for the years ended
December 31, 1994 and 1993, respectively. The decrease in lease revenue between
1993 and 1995 was expected and resulted principally from primary lease term
expirations and the sale of equipment. The Partnership also earns interest
income from temporary investments of rental receipts and equipment sales
proceeds in short-term instruments.
The Partnership's equipment portfolio includes certain assets in which
the Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by AFG or an affiliated equipment leasing program
sponsored by AFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
In 1995, the Partnership sold equipment having a net book value of
$56,323 to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes, of $134,140 compared to a net gain in
1994 of $577,408 and a net gain in 1993 of $278,529 on equipment having a net
book value of $158,762 and $436,923 respectively.
It cannot be determined whether future sales of equipment will result in
a net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset
is comprised of all primary lease term revenues generated from that asset,
together with its residual value. The latter consists of cash proceeds realized
upon the asset's sale in addition to all other cash receipts obtained from
renting the asset on a re-lease, renewal or month-to-month basis. The
Partnership classifies such residual rental payments as lease revenue.
Consequently, the amount of gain or loss reported in the financial statements is
not necessarily indicative of the total residual value the Partnership achieved
from leasing the equipment.
Depreciation and amortization expense was $358,661, $787,866 and
$3,360,131 for the years ended December 31, 1995, 1994 and 1993, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i) the cost of
the asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease expiration.
To the extent that equipment is held beyond its primary lease term, the
Partnership continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life. (See Note 2 to
the financial statements herein.)
Interest expense was $11,584 or 1% of lease revenue in 1995, $25,619 or
1.3% of lease revenue in 1994 and $95,430 or 2.8% of lease revenue in 1993.
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.
Management fees were 5% of lease revenue in each of the three years
ended December 31, 1995, 1994 and 1993 and will not change as a percentage of
lease revenue in future periods.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented 6.7%, 3.3%, and 2.9% of
lease revenue in 1995, 1994 and 1993, respectively. Operating expenses as a
percentage of lease revenue were higher during 1995 compared to prior years due
to an increase in professional service costs. The amount of future operating
expenses cannot be predicted with certainty; however, such expenses are usually
higher during the acquisition and liquidation phases of a partnership. Other
fluctuations typically occur in relation to the volume and timing of remarketing
activities.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from asset rental transactions. Accordingly, the Partnership's principal
source of cash from operations is provided by the collection of periodic rents.
These cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $945,180, $1,967,998 and $3,228,287 in
1995, 1994 and 1993, respectively. Future renewal, re-lease and equipment sale
activities will cause a gradual decline in the Partnership's lease revenues and
corresponding sources of operating cash. Overall, expenses associated with
rental activities, such as management fees, and net cash flow from operating
activities will 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 realized from asset disposal transactions is reported under
investing activities on the accompanying Statement of Cash Flows. During 1995,
the Partnership realized $190,463 in equipment sale proceeds compared to
$736,170 and $715,452 in 1994 and 1993, respectively. Future inflows of cash
from asset disposals will vary in timing and amount and will be influenced by
many factors including, but not limited to, the frequency and timing of lease
expirations, the type of equipment being sold, its condition and age, and future
market conditions.
During 1994, the Partnership capitalized $192,500 of refurbishment costs
incurred to upgrade a cargo vessel leased by Gearbulk Shipowning Ltd.
("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S, pursuant to the
terms of an extended and renegotiated contract with Gearbulk. Refurbishment
costs were financed with a third-party lender and shared between the Partnership
and other affiliated partnerships in proportion to their respective ownership
interests in the vessel.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future years, the amount of cash used to repay debt
obligations will continue to decline as the principal balance of notes payable
is reduced through the collection and application of rents.
Cash distributions to the General Partners and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the year ended December 31, 1995, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $1,268,972. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership (the
"Restated Agreement, as amended"), the Recognized Owners were allocated 99% of
these distributions, or $1,256,282, and the General Partners were allocated 1%,
or $12,690. The fourth quarter 1995 cash distribution was paid on January 22,
1996.
Cash distributions paid to the Recognized Owners consist of both a
return of and a return on capital. To the extent that cash distributions consist
of Cash From Sales or Refinancings, substantially all of such cash distributions
should be viewed as a return of capital. Cash distributions do not represent and
are not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of AFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The Partnership's future cash distributions will be adversely affected
by the 1991 bankruptcy of Midway Airlines, Inc. 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. This bankruptcy will have a material adverse effect on
the ability of the Partnership to achieve all of its originally intended
economic benefits. However, the final yield on capital will be dependent upon
the collective performance results of all 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 Managing General Partner anticipates
that cash proceeds resulting from these sources will satisfy the Partnership's
future expense obligations. However, the amount of cash available for
distribution in future periods will fluctuate. Equipment lease expirations and
asset disposals will cause the Partnership's net cash from operating activities
to diminish over time; and equipment sale proceeds will vary in amount and
period of realization. In addition, the Partnership may be required to incur
asset refurbishment or upgrade costs in connection with future remarketing
activities. Accordingly, fluctuations in the level of quarterly cash
distributions will occur during the life of the Partnership.
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Partners IV-B Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners IV-B Limited Partnership as of December 31, 1995 and
1994, and the related statements of operations, changes in partners' capital,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Income
Partners IV-B Limited Partnership at December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Partners is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
The accompanying notes are an integral part of
these financial statements.
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AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1995 and 1994
1995 1994
ASSETS
Cash and cash equivalents $ 644,253 $ 1,021,406
Rents receivable, net of allowance
for doubtful accounts of $100,000 95,053 32,321
Accounts receivable - affiliate 119,651 110,398
Equipment at cost, net of accumulated
depreciation of $5,827,635 and $7,213,395
at December 31, 1995 and 1994, respectively 3,150,051 3,565,035
Total assets $ 4,009,008 $ 4,729,160
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 120,313 $ 198,619
Accrued interest 1,523 2,343
Accrued liabilities 20,000 15,500
Accrued liabilities - affiliate 11,761 3,336
Deferred rental income -- 662
Cash distributions payable to partners 275,863 441,381
Total liabilities 429,460 661,841
Partners' capital (deficit):
General Partners (156,078) (151,200)
Limited Partnership Interests
(873,935 Units; initial purchase
price of $25 each) 3,735,626 4,218,519
Total partners' capital 3,579,548 4,067,319
Total liabilities and partners' capital $ 4,009,008 $ 4,729,160
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Income:
Lease revenue $ 1,103,850 $ 1,947,354 $ 3,451,518
Interest income 42,118 35,665 18,658
Gain on sale of equipment 134,140 577,408 278,529
Total income 1,280,108 2,560,427 3,748,705
Expenses:
Depreciation and amortization 358,661 787,866 3,360,131
Interest expense 11,584 25,619 95,430
Equipment management fees - affiliate 55,193 97,368 172,576
Operating expenses - affiliate 73,469 64,581 101,069
Total expenses 498,907 975,434 3,729,206
Net income $ 781,201 $ 1,584,993 $ 19,499
Net income
per limited partnership unit $ 0.88 $ 1.80 $ 0.02
Cash distributions declared
per limited partnership unit $ 1.44 $ 2.00 $ 3.50
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994 and 1993
General
Partners Recognized Owners
Amount Units Amount Total
Balance at December 31, 1992 $ (118,693) 873,935 $ 7,436,713 $ 7,318,020
Net income - 1993 195 -- 19,304 19,499
Cash distributions declared (30,897) -- (3,058,772) (3,089,669)
Balance at December 31, 1993 (149,395) 873,935 4,397,245 4,247,850
Net income - 1994 15,850 -- 1,569,143 1,584,993
Cash distributions declared (17,655) -- (1,747,869) (1,765,524)
Balance at December 31, 1994 (151,200) 873,935 4,218,519 4,067,319
Net income - 1995 7,812 -- 773,389 781,201
Cash distributions declared (12,690) -- (1,256,282) (1,268,972)
Balance at December 31, 1995 $ (156,078) 873,935 $ 3,735,626 $ 3,579,548
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from (used in) operating activities:
Net income $ 781,201 $ 1,584,993 $ 19,499
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 358,661 787,866 3,360,131
Gain on sale of equipment (134,140) (577,408) (278,529)
Increase in allowance for doubtful accounts -- -- 100,000
Changes in assets and liabilities:
Decrease (increase) in:
rents receivable (62,732) 65,594 153,975
accounts receivable - affiliate (9,253) 187,440 (155,579)
Increase (decrease) in:
accrued interest (820) (1,098) (26,632)
accrued liabilities 4,500 2,500 (8,500)
accrued liabilities - affiliate 8,425 3,336 (1,362)
deferred rental income (662) (85,225) 65,284
Net cash from operating activities 945,180 1,967,998 3,228,287
Cash flows from investing activities:
Proceeds from equipment sales 190,463 736,170 715,452
Net cash from investing activities 190,463 736,170 715,452
Cash flows used in financing activities:
Principal payments - notes payable (78,306) (348,620) (1,434,842)
Distributions paid (1,434,490) (2,096,560) (3,144,842)
Net cash used in financing activities (1,512,796) (2,445,180) (4,579,684)
Net increase (decrease) in cash and cash equivalents (377,153) 258,988 (635,945)
Cash and cash equivalents at beginning of year 1,021,406 762,418 1,398,363
Cash and cash equivalents at end of year $ 644,253 $ 1,021,406 $ 762,418
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 12,404 $ 26,717 $ 122,062
Supplemental schedule of non-cash investing and financing activities:
During 1994, the Partnership capitalized $192,500 of refurbishment costs
incurred to upgrade certain equipment, all of which was financed by a
third-party lender.
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1995
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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 September
29, 1988, for the purpose of acquiring and leasing to third parties a
diversified portfolio of capital equipment. Partners' capital initially
consisted of contributions of $1,000 from the Managing General Partner (AFG
Leasing IV Incorporated) and $100 from the Initial Limited Partner (AFG Assignor
Corporation). The common stock of the Managing General Partner is owned by
AF/AIP Programs Limited Partnership, of which American Finance Group ("AFG"),
and a wholly-owned affiliate, are the 99% limited partners and AFG Programs,
Inc., a Massachusetts corporation wholly-owned by Geoffrey A. MacDonald, is the
1% general partner. On December 29, 1988 the Partnership issued 873,935 units,
representing assignments of limited partnership interests (the "Units"), to
1,331 investors. Unitholders and Limited Partners (other than the Initial
Limited Partner) are collectively referred to as Recognized Owners. Subsequent
to the Partnership's Closing on December 29, 1988, the Partnership had four
General Partners: AFG Leasing IV Incorporated, a Massachusetts corporation,
Daniel J. Roggemann, Martin F. Laughlin and Geoffrey A. MacDonald (collectively,
the "General Partners"). Pursuant to Section 7.6 of the Amended and Restated
Agreement and Certificate of Limited Partnership (the "Restated Agreement, as
amended"), the General Partners agreed to the withdrawal of Messrs. Laughlin and
Roggemann as Individual General Partners. The General Partners are not required
to make any other capital contributions except as may be required under the
Uniform Act and Section 6.1(b) of the Restated Agreement, as amended.
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's management,
principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of
AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings
Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts
effected this event by acquiring all of the equity interests of AFG's two
partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and
AFG Corporation. Holdings Massachusetts incurred significant indebtedness to
finance this acquisition, a significant portion of which was scheduled to mature
in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and a member of the Executive Committee of AFG. As a
result of this transaction, GDE Acquisitions Limited Partnership acquired all of
the assets, rights and obligations of AFG from the Senior Lender and assumed
control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG
and member of its Executive Committee.
Significant operations commenced December 30, 1988 when the Partnership
made its initial equipment purchase. Pursuant to the Restated Agreement, as
amended, Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 99% to the Recognized Owners and 1% to the
General Partners until Payout and 85% to the Recognized Owners and 15% to the
General Partners after Payout. Payout will occur when the Recognized Owners have
received distributions equal to their original investment plus a cumulative
annual return of 10.5% (compounded quarterly) on undistributed invested capital.
Under the terms of a Management Agreement between the Partnership and
AF/AIP Programs Limited Partnership and the terms of an identical management
agreement between AF/AIP Programs Limited Partnership and AFG (collectively, the
"Management Agreement"), management services are provided by AFG to the
Partnership at fees which the Managing General Partner believes to be
competitive for similar services. (Also see Note 4.)
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities. At December 31,
1995, the Partnership had $640,000 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
$2,427,041 are due as follows:
For the year ending December 31, 1996 $ 872,355
1997 739,093
1998 573,645
1999 241,948
Total $ 2,427,041
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1995, 1994 and 1993 is as
follows:
1995 1994 1993
Gearbulk Shipowning Ltd. (formerly Kristian
Gerhard Jebsen Skipsrederi A/S) $ 403,824 $ 410,752 $ 444,033
Northwest Airlines, Inc. $ 282,750 $ 351,988 $ 440,220
Building Materials Corporation of America $ 171,037 $ 199,542 --
Fred Meyer, Inc. -- $ 277,195 $ 396,011
Bally's Health & Tennis Corporation -- -- $ 419,575
The Managing General Partner identified certain rents receivable as
potentially uncollectable at December 31, 1993. As such, lease revenue was
reduced by $100,000 in 1993. The reserve was reviewed and considered adequate at
December 31, 1994 and 1995. It cannot be determined whether the Partnership will
recover any such rents in the future; however, the Managing General Partner will
pursue the collection of all past due items.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
All equipment was acquired from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
Equipment cost represents asset base price plus acquisition fees and was
determined in accordance with the Restated Agreement, as amended, and certain
regulatory guidelines. Asset base price is affected by the relationship of the
seller to the Partnership as summarized herein. Where the seller of the
equipment was AFG or an affiliate, asset base price was the lower of (i) the
actual price paid for the equipment by AFG or the affiliate plus all actual
costs accrued by AFG or the affiliate while carrying the equipment less the
amount of all rents earned by AFG or the affiliate prior to selling the
equipment or (ii) fair market value as determined by the Managing General
Partner in its best judgment, including all liens and encumbrances on the
equipment and other actual expenses. Where the seller of the equipment was a
third party who did not manufacture the equipment, asset base price was the
lower of (i) the price invoiced by the third party or (ii) fair market value as
determined by the Managing General Partner. Where the seller of the equipment
was a third party who also manufactured the equipment, asset base price was the
manufacturer's invoice price, which price was considered to be representative of
fair market value.
Depreciation
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
Accrued Liabilities - Affiliate
Unpaid operating expenses paid by AFG on behalf of the Partnership are
reported as Accrued Liabilities - Affiliate.(See Note 4.)
Allocation of Profits and Losses
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (99% to the
Recognized Owners and 1% to the General Partners). See Note 6 concerning
allocation of income or loss for income tax purposes.
Net Income and Cash Distributions Per Unit
Net income and cash distributions per Unit are based on 873,935 limited
partnership units outstanding during each of the three years ended December 31,
1995, 1994 and 1993 and computed after allocation of the General Partners' 1%
share of net income and cash distributions.
Provision for Income Taxes
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the impact of adoption to be material to
the financial statements of the Partnership.
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
December 31, 1995. In the opinion of AFG, the acquisition cost of the equipment
did not exceed its fair market value.
Lease
Term Equipment
Equipment Type (Months) at Cost Location
Vessels 63-72 $ 3,296,257 Foreign
Aircraft 38 3,110,533 MN
Manufacturing 60 1,348,044 CA/UT
Retail store fixtures 36-72 636,001 FL
Materials handling 5-60 437,744 MI/NC/VA
Medical 24-60 73,506 CA/IN
Locomotives 60 53,445 MO
Tractors and heavy duty trucks 12-60 22,156 NC
Total equipment cost 8,977,686
Accumulated depreciation (5,827,635)
Equipment, net of accumulated depreciation $ 3,150,051
In 1994, the Partnership incurred and capitalized costs of $192,500 to
refurbish and improve a cargo vessel leased by Gearbulk Shipowning Ltd.
("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S, pursuant to the
terms of an extended and renegotiated lease contract with Gearbulk.
Refurbishment costs were financed by a third-party lender and shared between the
Partnership and other affiliated partnerships in proportion to their respective
ownership interests in the vessel. The refurbishment costs will be depreciated
over 15 years.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by AFG or an
affiliated equipment leasing program sponsored by AFG. The Partnership and each
affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Partnership to further diversify its equipment portfolio by
participating in the ownership of selected assets, thereby reducing the general
levels of risk which could result from a concentration in any single equipment
type, industry or lessee. At December 31, 1995, the Partnership's equipment
portfolio included equipment having a proportionate original cost of $8,406,412,
representing approximately 94% 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 $193,000
and a net book value of approximately $159,000 at December 31, 1995. (See Note
5.)
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, AFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the primary lease terms. The summary above includes equipment held
for sale or re-lease with an original cost and net book value of approximately
$53,000 and $17,000, respectively, at December 31, 1995.
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by AFG on
behalf of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1995, 1994 and 1993, which were paid or accrued by the Partnership to AFG or its
Affiliates, are as follows:
1995 1994 1993
Equipment management fees $ 55,193 $ 97,368 $ 172,576
Administrative charges 17,592 12,000 14,955
Reimbursable operating expenses
due to third parties 55,877 52,581 86,114
Total $ 128,662 $ 161,949 $ 273,645
As provided under the terms of the Management Agreement, AFG is
compensated for its services to the Partnership. Such services include all
aspects of acquisition, management and sale of equipment. For acquisition
services, AFG is compensated by an amount equal to 4.75% of Equipment Base Price
paid by the Partnership. For management services, AFG is compensated by an
amount equal to the lesser of (i) 5% of gross lease rental revenue earned by the
Partnership or (ii) fees which the Managing General Partner reasonably believes
to be competitive for similar services for similar equipment. Both of these fees
are subject to certain limitations defined in the Management Agreement.
Compensation to AFG for services connected to the sale of equipment is
calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of
reasonable brokerage fees otherwise payable under arm's length circumstances.
Payment of the remarketing fee is subordinated to Payout and is subject to
certain limitations defined in the Management Agreement.
Administrative charges represent amounts owed to AFG, pursuant to
Section 10.4 of the Restated Agreement, as amended, for persons employed by AFG
who are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by AFG
on behalf of the Partnership which are reimbursed to AFG.
All equipment was purchased from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
The Partnership's Purchase Price was determined by the method described in Note
2, Equipment on Lease.
All rents and proceeds from the sale of equipment are paid directly to
either AFG or to a lender. AFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1995, the Partnership was owed $119,651 by AFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1996.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of AFG, commenced a voluntary cash Tender Offer (the "Offer") for up
to approximately 45% of the outstanding units of limited partner interest in
this Partnership and 20 affiliated partnerships sponsored and managed by AFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action brought
in the United States District Court for the District of Massachusetts (the
"Court") on behalf of the unitholders (Recognized Owners), sought to enjoin the
Offer and obtain unspecified monetary damages. A settlement of this litigation
was approved by the Court on November 15, 1995. A second class action, brought
in the Superior Court of the Commonwealth of Massachusetts (the "Superior
Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and
intervene in the first class action, was dismissed by the Superior Court. The
Plaintiffs have filed an appeal in this matter. The Recognized Owners of the
Partnership tendered approximately 77,141 units or 8.83% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
are not expected to be adversely affected by these proceedings or settlements.
NOTE 5 - NOTES PAYABLE
Notes payable at December 31, 1995 consisted of an installment note of
$120,313 payable to an institutional lender. This note is non-recourse, with a
fluctuating interest rate based on the London Inter-Bank Offered Rate ("LIBOR")
plus 1.5%. At December 31, 1995, the applicable LIBOR rate was approximately
7.44%. The note is collateralized by the equipment and assignment of the related
lease payments and will be fully amortized by noncancellable rents.
The annual maturities of the installment note payable are as follows:
For the year ending December 31, 1996 $ 48,125
1997 48,125
1998 24,063
Total $ 120,313
NOTE 6 - INCOME TAXES
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income
or loss to each class of partner according to their respective ownership
percentages (99% to the Recognized Owners and 1% to the General Partners). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partners will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partners' tax
capital account. At December 31, 1995, the General Partners had a positive tax
capital account balance.
The following is a reconciliation between net income reported for
financial statement and federal income reporting tax purposes for the years
ended December 31, 1995, 1994 and 1993:
1995 1994 1993
Net income $ 781,201 $ 1,584,993 $ 19,499
Financial statement depreciation
in excess of (less than) tax depreciation (264,266) 39,495 1,643,600
Prepaid rental income (662) (85,225) 65,284
Other 47,858 (17,652) 187,839
Net income for federal income tax
reporting purposes $ 564,131 $ 1,521,611 $ 1,916,222
The principal component of "Other" consists of the difference between
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, 1995 and 1994:
1995 1994
Partners' capital $ 3,579,548 $ 4,067,319
Add back selling commissions and
organization and offering costs 2,562,184 2,562,184
Financial statement distributions
in excess of tax distributions 2,759 4,414
Cumulative difference between federal income
tax and financial statement income (loss) (1,533,800) (1,316,730)
Partners' capital for federal income tax reporting purposes $ 4,610,691 $ 5,317,187
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
In April 1992, a lessee of the Partnership, Ryan Operations G.P. (d.b.a.
"Ryan Homes"), filed for protection under Chapter 11 of the Bankruptcy Code.
AFG, on behalf of the Partnership and certain other AFG-sponsored programs,
filed a proof of claim in this matter. The lease obligations of Ryan Homes were
guaranteed by its affiliate, NV Homes L.P., which also filed for protection
under Chapter 11 in 1992. Equipment leased to Ryan Homes had a cost of
approximately $377,700 at the time of the bankruptcy filing. In 1994 and 1995,
the Partnership sold all of the affected equipment resulting in net gains of
$106,570 and $13,100, respectively, for financial statement purposes. This
bankruptcy did not have a material adverse effect on the financial position of
the Partnership.
In 1993, Affiliated Food Stores, Inc., a lessee of the Partnership,
filed for protection under Chapter 11 of the Bankruptcy Code. AFG filed a proof
of claim on behalf of the Partnership for all amounts owed by this lessee.
Equipment leased to this lessee had a cost of approximately $712,000 at the time
of the bankruptcy filing. The Partnership sold the equipment in 1993, 1994 and
1995, resulting in net gains of approximately $30,000, $27,000 and $45,000,
respectively, for financial statement purposes. This bankruptcy did not have a
material adverse effect on the financial position of the Partnership.
On September 7, 1993, Rose's Stores, Inc. (the "Debtor"), a lessee of
the Partnership, filed for protection under Chapter 11 of the Bankruptcy Code.
AFG, on behalf of the Partnership and various other AFG-sponsored investment
programs, filed a proof of claim in this case, which claim was amended and
restated. In August 1994, the Bankruptcy Court approved a Motion to Reject
Certain Executory Equipment Leases filed by the Debtor relating to approximately
$224,000 of equipment owned by this Partnership. The Partnership sold all such
equipment during 1994 and recognized a net gain of $344 for financial statement
purposes. During 1995, the Partnership sold an additional $1,451 of equipment
previously leased to the Debtor and recognized a net gain of $213 for financial
statement purposes. At December 31, 1995, the Partnership owned other equipment,
having an original cost of $636,274, which was leased to the Debtor. This
equipment represents approximately 7% of the Partnership's aggregate equipment
portfolio and is fully depreciated for financial statement purposes. All of this
equipment is being leased pursuant to renewal rental schedules executed by the
Debtor; however, a sale with respect to such equipment is currently pending.
The Debtor's First Amended Joint Plan of Reorganization (the "Plan of
Reorganization") was adopted on December 14, 1994. On June 8, 1995 and August
18, 1995, AFG, on behalf of the Partnership and various other AFG-sponsored
investment programs, was issued 24,319 shares of the Debtor's common stock
pursuant to the Plan of Reorganization. The common stock, which had a market
value of $2.38 per share (for 17,023 of the shares) and $2.56 per share (for
7,296 of the shares) at the respective settlement dates, was issued in full
satisfaction of the outstanding unsecured claims of the affected investment
programs. The Partnership's proportionate interest in this settlement is 8.03%
or approximately 1,954 shares. This bankruptcy did not have a material adverse
effect on the financial position of the Partnership.
NOTE 8 - SUBSEQUENT EVENT
On January 1, 1995, AFG entered into a series of agreements with PLM
International, Inc., a Delaware corporation headquartered in San Francisco,
California ("PLM"), whereby PLM would: (i) purchase, in a multi-step
transaction, certain of AFG's assets and (ii) provide accounting, asset
management and investor services to AFG and certain of AFG's affiliates,
including the Partnership and all other equipment leasing programs managed by
AFG (the "Investment Programs").
On January 3, 1996, AFG and PLM executed an amendment to the 1995
agreements whereby PLM purchased: (i) AFG's lease origination business and
associated contracts, (ii) the rights to the name "American Finance Group" and
associated logo, and (iii) certain furniture, fixtures and computer software.
PLM hired AFG's marketing force and certain other support personnel effective
January 1, 1996 in connection with the transaction and relinquished its
responsibilities under the 1995 agreements to provide accounting, asset
management and investor services to AFG, its affiliates and the Investment
Programs after December 31, 1995. Accordingly, AFG and its affiliates retain
ownership and control and all authority and rights with respect to each of the
general partners or managing trustees of the Investment Programs; and AFG, as
Manager, will continue to provide accounting, asset management and investor
services to the Partnership.
Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain
of its affiliates agreed not to compete with the lease origination business sold
to PLM for a period of five years. AFG reserved the right to satisfy all
equipment needs of the Partnership and all other Investment Programs and
reserved certain other rights not material to the Partnership. AFG also agreed
to change its name, except where it is used in connection with the Investment
Programs. AFG's management considers the amendment to the 1995 agreements to be
in the best interest of AFG and the Partnership.
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1995, 1994 and 1993
The Partnership classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month 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, 1995, 1994 and 1993.
1995 1994 1993
Rents earned prior to disposal of equipment,
net of interest charges $ 2,000,791 $ 5,840,174 $ 4,082,161
Sale proceeds realized upon disposition
of equipment 190,463 736,170 715,452
Total cash generated from rents and
equipment sale proceeds 2,191,254 6,576,344 4,797,613
Original acquisition cost of equipment disposed 1,800,744 5,354,535 4,338,490
Excess of total cash generated to
cost of equipment disposed $ 390,510 $ 1,221,809 $ 459,123
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1995
Sales and
Operations Refinancings Total
Net income $ 647,061 $ 134,140 $ 781,201
Add back:
Depreciation 358,661 -- 358,661
Management fees 55,193 -- 55,193
Book value of disposed equipment -- 56,323 56,323
Less:
Principal reduction of notes payable (78,306) -- (78,306)
Cash from operations, sales
and refinancings 982,609 190,463 1,173,072
Less:
Management fees (55,193) -- (55,193)
Distributable cash from operations, sales
and refinancings 927,416 190,463 1,117,879
Other sources and uses of cash:
Cash at beginning of year 1,021,406 -- 1,021,406
Net change in receivables and accruals (60,542) -- (60,542)
Less:
Cash distributions paid (1,244,027) (190,463) (1,434,490)
Cash at end of year $ 644,253 $ -- $ 644,253
AMERICAN INCOME PARTNERS IV-B LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1995
For the year ended December 31, 1995, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
Operating expenses $ 60,992