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, 1994
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 0-16512
American Income Partners III-B Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2968859
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Exchange Place, 14th Floor, Boston, MA 02109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 542-1200
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:
1,127,330 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, 1994 (Part I and II)
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AMERICAN INCOME PARTNERS III-B 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 Related
Security Holder Matters 6
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Partnership 9
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 14-16
PART I
Item 1. Business.
(a) General Development of Business
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on June 29, 1987 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 Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On September 29, 1987, the
Partnership issued 1,127,330 units, representing assignments of limited
partnership interests (the "Units") to 2,125 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
September 29, 1987, the Partnership had five General Partners: AFG Leasing
Incorporated, a Massachusetts corporation, Kestutis J. Makaitis, Daniel J.
Roggemann, Martin F. Laughlin, and Geoffrey A. MacDonald (collectively the
"General Partners"). Messrs. Makaitis, Roggemann and Laughlin subsequently
elected to withdraw as Individual General Partners. The General Partners, each
of which is affiliated with American Finance Group ("AFG"), a Massachusetts
partnership, are not required to make any other capital contributions except as
may be required under the Uniform Act and Section 6.1(b) of the Amended and
Restated Agreement and Certificate of Limited Partnership (the "Restated
Agreement").
(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 equal or 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, 1987. The initial purchase of equipment and the associated lease
commitments occurred on September 29, 1987. The acquisition of the equipment
and its associated leases is described in detail in Note 3 to the financial
statements included in Item 14, herein. The Partnership will terminate no later
than September 29, 1998.
The Partnership has no employees; however, it entered into a Management
Agreement with AFG (the "Manager") coincident with the commencement of
operations. The Manager's role, among other things, is to (i) evaluate, select,
negotiate, and consummate the acquisition of equipment, (ii) manage the leasing,
re-leasing, financing, and refinancing of equipment, and (iii) arrange the
resale of equipment. The Manager is compensated for such services as described
in the Restated Agreement, as amended, Item 13 herein, and in Note 4 to the
financial statements included in Item 14, herein.
The Partnership's investment in equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
Consequently, the success of the Partnership is largely dependent upon the
ability of the Managing General Partner and its Affiliates to forecast
technological advances, the ability of the lessees to fulfill their lease
obligations and the quality and marketability of the equipment at the time of
sale.
In addition, the leasing industry is very competitive. Although all funds
available for acquisitions have been invested in equipment, subject to
noncancellable lease agreements, the Partnership will encounter considerable
competition when equipment is re-leased or sold at the expiration of primary
lease terms. The Partnership will compete with lease programs offered directly
by manufacturers and other equipment leasing companies, including limited
partnerships and trusts, organized and managed similarly to the Partnership and
including other AFG sponsored partnerships and trusts, which may seek to
re-lease or sell equipment within their own portfolios to the same customers as
the Partnership. Many competitors have greater financial resources and more
experience than the Partnership, the Managing General Partner and the Manager.
Generally, the Partnership is prohibited from reinvesting the proceeds
generated by refinancing or selling equipment. Accordingly, it is anticipated
that the Partnership will begin to liquidate its portfolio of equipment at the
expiration of the initial lease terms and to distribute the net liquidation
proceeds. As an alternative to sale, the Partnership may enter re-lease
agreements when considered advantageous by the Managing General Partner and the
Manager.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1994, 1993 and 1992 is
incorporated herein by reference to Note 2 to the financial statements in the
1994 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
Default by a lessee under a lease may cause equipment to be returned to the
Partnership at a time when the Managing General Partner or the Manager is unable
to arrange for the re-lease or sale of such equipment. This could result in the
loss of a material portion of anticipated revenues and significantly weaken the
Partnership's ability to repay related debt.
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's
management, principally Geoffrey A. MacDonald, Chief Executive Officer and
co-founder of AFG, established AFG Holdings (Massachusetts) Limited Partnership
("Holdings Massachusetts") to acquire ownership and control of AFG. Holdings
Massachusetts effected this event by acquiring all of the equity interests of
AFG's two partners, AFG Holdings Illinois Limited Partnership ("Holdings
Illinois") and AFG Corporation. Holdings Massachusetts incurred significant
indebtedness to finance this acquisition, a significant portion of which was
scheduled to mature in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and 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.
In 1991, Clou Investments (U.S.A.), Inc. ("CLOU"), a newly formed and
wholly-owned subsidiary of Clou Containers GmbH, purchased approximately a five
percent (5%) non-voting limited partnership interest (the "Minority Interest")
in Holdings Illinois. On October 29, 1992, AFG repurchased the Minority
Interest at the purchase price originally paid by CLOU.
(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 1994 Annual Report.
Item 3. Legal Proceedings.
Incorporated herein by reference to Note 7 to the financial statements in
the 1994 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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, 1994, there were 2,151 recordholders of Units in the
Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the
Partnership's Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings are determined and distributed to the Partners quarterly.
Each quarter's distribution may vary in amount. Distributions may be made to
the Managing General Partner prior to the end of the fiscal quarter; however,
the amount of such distribution reflects only amounts to which the Managing
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.
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[CAPTION]
Distributions in 1994 and 1993 were as follows:
<TABLE>
<S> <C> <C> <C>
General Recognized
Total Partners Owners
Total 1994 distributions $ 2,277,434 $ 22,774 $ 2,254,660
Total 1993 distributions 2,277,434 22,774 2,254,660
Total $ 4,554,868 $ 45,548 $ 4,509,320
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Distributions payable were $569,359 at both December 31, 1994 and 1993.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the Managing General Partner, and increased by any portion of such
reserves deemed by the Managing General Partner not to be required for
Partnership operations and reduced by all accrued and unpaid Equipment
Management Fees and, after Payout, further reduced by all accrued and unpaid
Subordinated Remarketing Fees. Distributable Cash From Operations does not
include any Distributable Cash From Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the Managing General Partner determines shall be reinvested
in similar equipment for the remainder of the original lease term of the lost or
destroyed equipment, or in isolated instances, in other equipment, if the
Managing General Partner determines that investment of such proceeds will
significantly improve the diversity of the Partnership's equipment portfolio,
and subject in either case to satisfaction of all existing indebtedness secured
by such equipment to the extent deemed necessary or appropriate by the Managing
General Partner, and (b) the proceeds from the sale of an interest in equipment
pursuant to any agreement governing a joint venture which the Managing General
Partner determines will be invested in additional equipment or interests in
equipment and which ultimately are so reinvested and (ii) any accrued and unpaid
Equipment Management Fees and, after Payout, any accrued and unpaid Subordinated
Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partners, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) any reserves for working capital and
contingent liabilities funded from such cash to the extent deemed reasonable by
the Managing General Partner and (ii) increased by any portion of such reserves
deemed by the Managing General Partner not to be required for Partnership
operations. In the event the Partnership accepts a note in connection with any
sale or refinancing transaction, all payments subsequently received in cash by
the Partnership with respect to such note shall be included in Cash From Sales
or Refinancings, regardless of the treatment of such payments by the Partnership
for tax or accounting purposes. If the Partnership receives purchase money
obligations in payment for equipment sold, which are secured by liens on such
equipment, the amount of such obligations shall not be included in Cash From
Sales or Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings of the Partnership shall be made 99% to the
Recognized Owners and 1% to the General Partners until Payout and 85% to the
Recognized Owners and 15% to the General Partners after Payout.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Recognized Owners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Recognized Owners' original capital contributions plus a cumulative annual
return of 10% (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 10% (compounded quarterly) on the Recognized Owners'
<PAGE>
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 60 days after the
completion of each quarter of the year, 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 1994 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
1994 Annual Report.
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1994 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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 Incorporated is the Managing General Partner of the
Partnership. Under the Restated Agreement, as amended, the Managing General
Partner is responsible for the operation of the Partnership's properties and the
Recognized Owners have no right to participate in the control of such
operations. The names, titles and ages of the Directors and Executive Officers
of the Managing General Partner as of March 15, 1995 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF THE
MANAGING GENERAL PARTNER (See Item 13)
Name Title Age Term
Geoffrey A. MacDonald Chief Executive Officer, 46 Until a
Chairman and a member of the successor
Executive Committee of AFG and is duly
President and a Director of the elected
Managing General Partner and
qualified
Gary D. Engle President, Chief Operating 46
Officer, and a member of the
Executive Committee of AFG and
Vice President and a Director
of the Managing General Partner
J. Patrick Dowdall Executive Vice President, General 47
Counsel, Secretary and a member
of the Executive Committee of AFG
and Vice President, Clerk and a
Director of the Managing General
Partner
Gary M. Romano Vice President and Controller 35
of AFG and the Managing General
Partner
Jeffrey F. Zerrer Senior Vice President, Lease 38
Marketing, of AFG and Vice
President of the Managing
General Partner
Joseph P. Tufts Vice President, Asset Management, 43
of AFG and the Managing General
Partner
Donald R. Dugan Vice President and Treasurer of 33
AFG and the Managing General
Partner
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners,
Directors or Executive Officers.
(e) Business Experience
Mr. MacDonald, age 46 is a co-founder, Chief Executive Officer, Chairman
and a member of the Executive Committee of AFG and President and a Director of
the Managing General Partner. Mr. MacDonald served as a co-founder, Director
and Senior Vice President of AFG's predecessor corporation from 1980 to 1988.
Mr. MacDonald is Vice President of American Finance Group Securities Corp.
Prior to co-founding AFG's predecessor, Mr. MacDonald held various executive and
management positions in the leasing and pharmaceutical industries. Mr.
MacDonald holds an M.B.A. from Boston College and a B.A. degree from the
University of Massachusetts (Amherst).
Mr. Engle, age 46 is President, Chief Operating Officer and a member of the
Executive Committee of AFG and President of AFG Realty. Mr. Engle is Vice
President, and a Director of certain of AFG's affiliates, including the Managing
General Partner. On December 16, 1994, Mr. Engle acquired control of AFG, the
Managing General Partner and each of AFG's subsidiaries. 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. Dowdall, age 47, joined AFG in January 1994 as General Counsel,
Executive Vice President, Secretary and a member of the Executive Committee of
AFG. Mr. Dowdall is also a Director, Vice President and Clerk of certain of
AFG's affiliates, including the Managing General Partner. Prior to joining AFG,
Mr. Dowdall was a Partner with Bingham, Dana & Gould. Mr. Dowdall holds a J.D.
degree from Harvard Law School, a Ph.D. in Government from Harvard University
and a B.A. degree from the University of Notre Dame.
Mr. Romano, age 35, is Vice President and Controller of AFG and certain of
its affiliates, including the Managing General Partner. Mr. Romano joined AFG
in November 1989 and was appointed Vice President and Controller in April 1993.
Prior to joining AFG, Mr. Romano was Assistant Controller for a privately-held
real estate development and management company which he joined in 1987. Mr.
Romano held audit staff and Manager positions at Ernst & Whinney from 1982 to
1986. Mr. Romano is a C.P.A. and holds a B.S. degree from Boston College.
Mr. Zerrer, age 38, joined AFG in May 1984 and was promoted to Regional
Vice President in 1987. In 1988, Mr. Zerrer was promoted to Vice President of
Marketing. In 1990, Mr. Zerrer was appointed Senior Vice President, Lease
Marketing, of AFG. Mr. Zerrer is also a Vice President of certain of AFG's
affiliates, including the Managing General Partner. Prior to joining AFG, Mr.
Zerrer was employed as a Regional Manager by Leasing Services, Inc. from 1982 to
1984 and previously by Chancellor Corporation (both equipment leasing
companies). Mr. Zerrer holds a B.S. degree from Northeastern University.
Mr. Tufts, age 43, joined AFG in August 1992 as Vice President, Asset
Management of AFG and certain of its affiliates, including the Managing General
Partner. Prior to joining AFG, Mr. Tufts was employed by McDonnell-Douglas
Capital Corporation as Director of Asset Management Operations from 1991 to 1992
and previously by Bank of New England Leasing from 1975 to 1991 as Vice
President of Asset Management. Mr. Tufts holds a B.A. degree from Bowdoin
College.
Mr. Dugan, age 33, is Vice President and Treasurer of AFG and certain of
its affiliates, including the Managing General Partner. Prior to joining AFG in
November 1989, Mr. Dugan was a Lieutenant in the United States Navy. Mr. Dugan
holds an M.B.A. from Boston College and a B.S. degree from the United States
Naval Academy.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
Item 11. Executive Compensation.
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the Managing General Partner or its Affiliates. There
is no plan at the present time to make any officers or employees of the Managing
General Partner or its Affiliates employees of the Partnership. The Partnership
has not paid and does not propose to pay any options, warrants or rights to the
officers or employees of the Managing General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to section 10.4 of the Restated Agreement, as amended, the Partnership
incurs a monthly charge for personnel costs of the Manager for persons engaged
in providing administrative services to the Partnership. A description of the
remuneration paid by the Partnership to the Manager for such services is
included in Item 13, herein and in Note 4 to the financial statements included
in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partners
or the Managing General Partner or its Affiliates which results or may result
from their resignation, retirement or any other termination.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided in Section 11.2(a) of the Restated Agreement, as amended (subject to
Sections 11.2(b) and 11.3), a majority interest of the Recognized Owners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partners; and
4. Approval or disapproval of the sale of all, or substantially all, of the
assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
No person or group is known by the Managing General Partner to own
beneficially more than 5% of the Partnership's 1,127,330 outstanding Units as of
March 1, 1995.
The ownership and organization of AFG is described in Item 1 of this
report.
Item 13. Certain Relationships and Related Transactions.
The Managing General Partner of the Partnership is AFG Leasing
Incorporated, an affiliate of AFG.
(a) Transactions with Management and Others
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[CAPTION]
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, 1994, 1993 and 1992, which were paid or accrued by the Partnership
to AFG or its Affiliates, are as follows:
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<S> <C> <C> <C>
1994 1993 1992
Equipment management fees $ 92,431 $ 104,953 $ 217,961
Administrative charges 12,000 14,955 12,000
Reimbursable operating expenses
due to third parties 146,185 92,152 131,794
Total $ 250,616 $ 212,060 $ 361,755
</TABLE>
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<S><C>
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 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 acquired 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,
included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid directly to
either AFG or to a lender. AFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1994, the Partnership was owed $125,811 by AFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1995.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
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, 1994 and 1993............................ *
Statement of Operations
for the years ended December 31, 1994, 1993 and 1992..... *
Statement of Changes in Partners' Capital
for the years ended December 31, 1994, 1993 and 1992..... *
Statement of Cash Flows
for the years ended December 31, 1994, 1993 and 1992..... *
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.
33-11160).
13 The 1994 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.
* Incorporated herein by reference to the appropriate portion of the 1994 Annual
Report to security holders for the year ended December 31, 1994. (See Part II)
Exhibit
Number
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, 1991 as Exhibit 28 (b) and is incorporated
herein by reference.
99 (b) Lease agreement with Bally's Health and Tennis Corporation
was filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 as Exhibit 28 (d) and is
incorporated herein by reference.
99 (c) Lease agreement with Equicor, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 as Exhibit 28 (e) and is incorporated
herein by reference.
(b) Reports on Form 8-K
Report on Form 8-K was filed electronically on January 4, 1995
describing the change of ownership and control of AFG.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American Income Partners III-B Limited Partnership of our report dated
February 24, 1995, included in the 1994 Annual Report to the Partners of
American Income Partners III-B Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
February 24, 1995
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 III-B LIMITED PARTNERSHIP
By: AFG Leasing Incorporated,
a Massachusetts corporation and the
Managing General Partner of the Registrant.
By: /s/ GEOFFREY A. MACDONALD By: /s/ GARY D. ENGLE
Geoffrey A. MacDonald Gary D. Engle
Chief Executive Officer, President, Chief Operating
Chairman and a member of the Officer, and a member of the
Executive Committee of AFG and Executive Committee of AFG and
President and a Director of the Vice President and a Director
Managing General Partner of the Managing General Partner
(Principal Executive Officer) (Principal Financial Officer)
Date: March 30, 1995 Date: March 30, 1995
By: /s/ J. PATRICK DOWDALL By: /s/ GARY M. ROMANO
J. Patrick Dowdall Gary M. Romano
Executive Vice President, General Vice President and Controller
Counsel, Secretary and a member of of AFG and the Managing General
the Executive Committee of AFG Partner
and Vice President, Clerk and a (Principal Accounting Officer)
Director of the Managing General
Partner
Date: March 30, 1995 Date: March 30, 1995
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.
</TABLE>
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AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
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Page
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1994 and 1993 9
Statement of Operations
for the years ended December 31, 1994, 1993 and 1992 10
Statement of Changes in Partners' Capital
for the years ended December 31, 1994, 1993 and 1992 11
Statement of Cash Flows
for the years ended December 31, 1994, 1993 and 1992 12
Notes to the Financial Statements 13-21
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 22
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 23
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 24
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[CAPTION]
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the financial statements.
For each of the five years in the period ended December 31, 1994:
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Summary of
Operations 1994 1993 1992 1991 1990
Lease revenue $ 1,848,626 $ 2,099,057 $ 4,359,224 $ 5,319,789 $ 6,711,006
Net income
(loss) $ 699,271 $ 387,803 $ (243,574) $ (539,206) $ 1,145,972
Per Unit:
Net income
(loss) $ 0.61 $ 0.34 $ (0.21) $ (0.47) $ 1.01
Cash
distributions $ 2.00 $ 2.00 $ 1.50 $ 3.12 $ 3.28
Financial
Position
Total assets $ 6,464,885 $ 8,503,879 $10,835,606 $16,013,399 $23,601,801
Total long-term
obligations $ 223,620 $ 591,954 $ 1,117,971 $ 4,041,438 $ 6,518,739
Partners'
capital $ 5,614,292 $ 7,192,455 $ 9,082,086 $11,033,736 $15,131,433
</TABLE>
<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1994 compared to the year
ended December 31, 1993 and the year ended December 31, 1993
compared to the year ended December 31, 1992
Overview
As an equipment leasing partnership, American Income Partners III-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
will progress through various stages. Initially, all equipment will generate
rental revenue under primary term lease agreements. During the life of the
Partnership, these agreements will expire on an intermittent basis and equipment
held pursuant to the related leases will be 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 will become available for remarketing and cash generated from
operations and from sales or refinancings will begin to fluctuate. Ultimately,
all equipment will be sold and the Partnership will be dissolved. The
Partnership's operations commenced in 1987.
Results of Operations
For the year ended December 31, 1994, the Partnership recognized lease
revenue of $1,848,626 compared to $2,099,057 and $4,359,224 for the years ended
December 31, 1993 and 1992, respectively. The decrease in lease revenue between
1992 and 1994 was expected and resulted principally from primary lease term
expirations and the sale of equipment.
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.
During 1994, the Managing General Partner lowered the aggregate amount
reserved against potentially uncollectable rents to $60,000. This caused an
increase in lease revenue of $53,000 in 1994. It cannot be determined whether
the Partnership will recover any past due rents in the future; however, the
Managing General Partner will pursue the collection of all such items.
<PAGE>
Interest income for the year ended December 31, 1994 was $51,202 compared
to $37,642 and $16,359 in 1993 and 1992, respectively. Interest income is
generated from temporary investment of rental receipts and equipment sale
proceeds in short-term instruments. The increase in interest income from 1992
to 1994 is attributable to a greater availability of cash used for investment
prior to distribution to the Partners and an increase in interest rates. The
amount of future interest income is expected to fluctuate in relation to
prevailing interest rates, the level of lease revenue and the proceeds from
equipment sales.
In 1994, the Partnership sold equipment having a net book value of $4,926
to existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $199,001 compared to a net gain of $516,300 and
$166,345 on equipment having a net book value of $461,140 and $816,968 in 1993
and 1992, respectively.
In 1990, a lessee of the Partnership, Affiliated Land Corporation
("Affiliated"), filed for protection under Chapter 11 of the Bankruptcy Code.
Equipment leased by Affiliated consisted of office furniture and fixtures (the
"Equipment") having an original cost to the Partnership of $1,977,747. To
finance the purchase of this Equipment, the Partnership had borrowed $1,509,545
on a non-recourse basis from a third-party lending institution. On
April 16, 1992, all Equipment was transferred to the financing lender in lieu of
foreclosure, in full satisfaction of all outstanding indebtedness under the note
agreements. The Partnership recorded a gain on the forfeiture of this Equipment
of $66,881 or $.06 per limited partnership unit. At the time of disposition,
the Equipment had a net book value of $870,642 and the amount of indebtedness
forgiven was $937,523, including accrued interest of $80,492. As the
Partnership will be unable to realize any future residual value from this
Equipment, future cash distributions will be adversely affected.
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 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.
<PAGE>
Depreciation and amortization expense was $1,125,714, $1,994,828 and
$4,293,764 for the years ended December 31, 1994, 1993 and 1992, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i) the cost of
the asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease expiration.
To the extent that an asset is held beyond its primary lease term, the
Partnership continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life (See Note 2 to
the financial statements herein.)
In 1992, the Partnership changed its estimates of end-of-lease residual
values to reflect anticipated deterioration in market values for the
Partnership's equipment over the remainder of their primary lease terms. This
change in estimate increased depreciation expense and reduced net income by
$988,670 ($0.87 per limited partnership unit) in 1992.
Interest expense was $23,228 or 1.3% of lease revenue in 1994, $58,308 or
2.8% of lease revenue in 1993 and $196,864 or 4.5% of lease revenue in 1992.
Interest expense in future years 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 years ended
December 31, 1994, 1993 and 1992 and will not change as a percentage of lease
revenue in future years.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented approximately 8.6%,
5.1% and 3.3% of lease revenue in 1994, 1993 and 1992, respectively. Operating
expenses in 1994 include repair, maintenance, legal and other costs incurred in
connection with the re-lease of an L1011-100 aircraft formerly leased to British
Airways, Plc. ("the L1011-100") to Ing Aviation Lease ("Ing Aviation").
Operating expenses in 1992 included a provision for estimated storage and
remarketing costs for the same 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.
The relatively low inflation rates in 1994, 1993 and 1992 and the economic
recession may have caused some re-lease and sale proceeds to be lower than that
which may have been achieved in a stronger economic environment. In other
cases, the economic recession may have had an adverse effect on the ability of
certain lessees to fulfill all of their financial obligations under the leases.
These factors will result in the investors achieving a rate-of-return lower than
that anticipated at the Partnership's commencement date.
<PAGE>
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 $1,547,716, $2,478,853 and $3,498,272
in 1994, 1993 and 1992, respectively. Future renewal, re-lease and equipment
sale activities will cause a gradual 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 decline as the Partnership experiences a higher frequency of
remarketing events.
During 1994, the Partnership and other affiliated partnerships, executed a
renewal lease agreement in connection with an MD-82 aircraft leased by Northwest
Airlines, Inc. ("Northwest"). Pursuant to the agreement, Northwest will
continue to lease the aircraft until July 31, 1997. The Partnership, which owns
a 16% interest in this aircraft, will receive $311,525 in lease revenue during
the years ending December 31, 1995 and 1996 and $181,723 during the year ending
December 31, 1997.
The Partnership re-leased the L1011-100, in which it owns a 26.21%
interest, to Ing Aviation in 1994. This re-lease will generate approximately
$621,000 in additional lease revenue for the Partnership through December 1997.
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 1994, the Partnership capitalized
$18,346 in connection with an upgrade of the L1011-100 aircraft. In 1994, the
Partnership realized $203,927 in equipment sale proceeds compared to $977,440
and $983,313 in 1993 and 1992, 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.
The Partnership obtained long-term financing in connection with certain
equipment leases. The origination of such indebtedness and the subsequent
repayments of principal are reported as a component of financing activities.
Cash inflows of $125,631 in 1993 resulted from leveraging a portion of the
Partnership's equipment portfolio with third-party lenders. No leveragings of
equipment occurred in 1994 or 1992.
<PAGE>
Each note payable is recourse only to the specific equipment financed and
to the minimum rental payments contracted to be received during the debt
amortization period (which period generally coincides with the lease rental
term). As rental payments are collected, a portion or all of the rental payment
is used to repay the associated indebtedness. The amount of cash used to repay
debt obligations will decline as the principal balance of notes payable is
reduced through the collection and application of rents.
Cash distributions to the General Partners and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the year ended December 31, 1994, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $2,277,434. In accordance
with the Amended and Restated Agreement and Certificate of Limited Partnership
(the "Restated Agreement, as amended"), the Recognized Owners were allocated 99%
of these distributions, or $2,254,660, and the General Partners were allocated
1%, or $22,774. The fourth quarter 1994 cash distribution was paid on
January 13, 1995.
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.
Further, the Partnership's future cash distributions will be negatively
affected by the bankruptcy of certain lessees (See Results of Operations and
Note 7 to the financial statements - Legal Proceedings). The bankruptcy of
Affiliated will result in the Partnership's loss of any future interest in the
residual value of the equipment Affiliated leased from the Partnership.
However, until all proceedings are fully resolved, it cannot be determined with
certainty the extent to which the overall investment results of the Partnership
will be influenced by these matters. Aggregate program performance will be
dependent upon many factors, including the outcome of these proceedings, the
collection of all future noncancellable rents, and the results of remarketing
the Partnership's remaining equipment.
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.
Accordingly, fluctuations in the level of quarterly cash distributions will
occur during the life of the Partnership.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Partners III-B Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners III-B Limited Partnership as of December 31, 1994 and
1993, 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, 1994. 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
III-B Limited Partnership at December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, 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
February 24, 1995
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[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1994 and 1993
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1994 1993
ASSETS
Cash and cash equivalents $ 958,005 $ 1,870,476
Rents receivable, net of allowance for
doubtful accounts of $60,000 and $113,000
at December 31, 1994 and 1993, respectively 225,496 236,763
Accounts receivable - affiliate 125,811 128,773
Equipment at cost, net of accumulated
depreciation of $10,675,416 and $11,753,129
at December 31, 1994 and 1993, respectively 5,155,573 6,267,867
Total assets $ 6,464,885 $ 8,503,879
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 223,620 $ 591,954
Accrued interest 8,572 26,632
Accrued liabilities 15,500 64,500
Accrued liabilities - affiliate 3,557 11,533
Deferred rental income 29,985 47,446
Cash distributions payable to partners 569,359 569,359
Total liabilities 850,593 1,311,424
Partners' capital (deficit):
General Partners (191,728) (175,947)
Limited Partnership Interests
(1,127,330 Units; initial purchase
price of $25 each) 5,806,020 7,368,402
Total partners' capital 5,614,292 7,192,455
Total liabilities and partners' capital $ 6,464,885 $ 8,503,879
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1994, 1993 and 1992
<TABLE>
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1994 1993 1992
Income:
Lease revenue $ 1,848,626 $ 2,099,057 $ 4,359,224
Interest income 51,202 37,642 16,359
Gain on sale/forfeiture of equipment 199,001 516,300 233,226
Total income 2,098,829 2,652,999 4,608,809
Expenses:
Depreciation and amortization 1,125,714 1,994,828 4,293,764
Interest expense 23,228 58,308 196,864
Equipment management fees - affiliate 92,431 104,953 217,961
Operating expenses - affiliate 158,185 107,107 143,794
Total expenses 1,399,558 2,265,196 4,852,383
Net income (loss) $ 699,271 $ 387,803 $ (243,574)
Net income (loss)
per limited partnership unit $ 0.61 $ 0.34 $ (0.21)
Cash distributions declared
per limited partnership unit $ 2.00 $ 2.00 $ 1.50
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1994, 1993 and 1992
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General
Partners Recognized Owners
Amount Units Amount Total
Balance at December 31, 1991 $ (137,534) 1,127,330 $11,171,270 $11,033,736
Net loss - 1992 (2,436) -- (241,138) (243,574)
Cash distributions declared (17,081) -- (1,690,995) (1,708,076)
Balance at December 31, 1992 (157,051) 1,127,330 9,239,137 9,082,086
Net income - 1993 3,878 -- 383,925 387,803
Cash distributions declared (22,774) -- (2,254,660) (2,277,434)
Balance at December 31, 1993 (175,947) 1,127,330 7,368,402 7,192,455
Net income - 1994 6,993 -- 692,278 699,271
Cash distributions declared (22,774) -- (2,254,660) (2,277,434)
Balance at December 31, 1994 $ (191,728) 1,127,330 $ 5,806,020 $ 5,614,292
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992
<TABLE>
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1994 1993 1992
Cash flows from (used in) operating activities:
Net income (loss) $ 699,271 $ 387,803 $ (243,574)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 1,125,714 1,994,828 4,293,764
Gain on sale/forfeiture of equipment (199,001) (516,300) (233,226)
Decrease in allowance for doubtful accounts (53,000) -- --
Changes in assets and liabilities:
Decrease (increase) in:
rents receivable 64,267 195,495 226,232
accounts receivable - affiliate 2,962 475,446 (604,219)
Increase (decrease) in:
accrued interest (18,060) (15,820) (6,174)
accrued liabilities (49,000) (8,000) 34,800
accrued liabilities - affiliate (7,976) (22,997) 17,262
deferred rental income (17,461) (11,602) 13,407
Net cash from operating activities 1,547,716 2,478,853 3,498,272
Cash flows from (used in) investing activities:
Purchase of equipment (18,346) -- --
Proceeds from equipment sales 203,927 977,440 983,313
Net cash from investing activities 185,581 977,440 983,313
Cash flows from (used in) financing activities:
Proceeds from notes payable -- 125,631 --
Principal payments - notes payable (368,334) (651,648) (2,066,436)
Distributions paid (2,277,434) (2,135,094) (1,989,555)
Net cash used in financing activities (2,645,768) (2,661,111) (4,055,991)
Net increase (decrease) in cash
and cash equivalents (912,471) 795,182 425,594
Cash and cash equivalents at beginning of year 1,870,476 1,075,294 649,700
Cash and cash equivalents at end of year $ 958,005 $ 1,870,476 $ 1,075,294
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 41,288 $ 74,128 $ 203,038
Supplemental disclosure of non-cash investing and financing activities:
During 1992, the Partnership forfeited equipment to a lender in consideration of
forgiveness of the related debt and interest of $937,523.
</TABLE>
<TABLE>
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AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1994
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
June 29, 1987, 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 Incorporated) and $100 from the Initial Limited Partner (AFG Assignor
Corporation). On September 29, 1987 the Partnership issued 1,127,330 units
representing assignments of limited partnership interests (the "Units") to 2,125
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 September 29, 1987, the Partnership had five General
Partners: AFG Leasing Incorporated, a Massachusetts corporation, Kestutis J.
Makaitis, Daniel J. Roggemann, Martin F. Laughlin and Geoffrey A. MacDonald
(collectively the "General Partners"). Messrs. Makaitis, Roggemann and Laughlin
elected to withdraw as Individual General Partners. The General Partners, each
of which is affiliated with American Finance Group ("AFG"), a Massachusetts
partnership, 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 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.
In 1991, Clou Investments (U.S.A.), Inc. ("CLOU"), a newly formed and
wholly-owned subsidiary of Clou Containers GmbH, purchased approximately a five
percent (5%) non-voting limited partnership interest (the "Minority Interest")
in Holdings Illinois. On October 29, 1992, AFG repurchased the Minority
Interest at the purchase price originally paid by CLOU.
<PAGE>
Significant operations commenced September 29, 1987 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% (compounded quarterly) on undistributed invested capital.
Under the terms of a Management Agreement between the Partnership and AFG,
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.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows
For purposes of the 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, 1994, the Partnership had $955,000
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
$1,995,224 are due as follows:
For the year ending December 31, 1995 $ 961,020
1996 634,052
1997 400,152
Total $ 1,995,224
</TABLE>
[CAPTION]
Revenue from major individual lessees which accounted for 10% or more of
lease revenue in each of the past three years is as follows:
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Northwest Airlines, Inc. $ 493,661 $ 585,067 $ 583,488
Equicor, Inc. $ 213,939 $ 226,302 --
Bally's Health and Tennis Corporation -- $ 256,798 --
</TABLE>
<TABLE>
<S><C>
During 1994, the Partnership and other affiliated partnerships, executed a
renewal lease agreement in connection with an MD-82 aircraft leased by
Northwest. Pursuant to the agreement, Northwest will continue to lease the
aircraft until July 31, 1997. The Partnership, which owns a 16% interest in
this aircraft, will receive $311,525 in lease revenue during the years ending
December 31, 1995 and 1996 and $181,723 during the year ending
December 31, 1997. Such rents are included in the future minimum rents above.
The Partnership re-leased the L1011-100, in which it owns a 26.21%
interest, to Ing Aviation in 1994. This re-lease will generate approximately
$621,000 in additional lease revenue for the Partnership through December 1997.
During 1994, the Managing General Partner lowered the aggregate amount
reserved against potentially uncollectable rents to $60,000. This caused an
increase in lease revenue of $53,000 in 1994. It cannot be determined whether
the Partnership will recover any of past due rents in the future; however, the
Managing General Partner will pursue the collection of all such items.
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 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
<PAGE>
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.
Organization costs are amortized using the straight-line method over a
period of five years.
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 (Loss) and Cash Distributions Per Unit
Net income (loss) and cash distributions per Unit are based on 1,127,330
Units outstanding during each of the three years in the period ended
December 31, 1994 and computed after allocation of the General Partners' 1%
share of net income (loss) and cash distributions.
Provision for Income Taxes
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
</TABLE>
[CAPTION]
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
December 31, 1994. In the opinion of AFG, the carrying value of the equipment
does not exceed its fair market value.
<TABLE>
<S> <C> <C> <C>
Lease
Term Equipment
Equipment Type (Months) at Cost Location
Aircraft 36-60 $ 8,412,409 MN/Foreign
Retail store fixtures 1-72 1,511,637 GA/SC
Communications 1-60 1,387,548 CA/KS/MD/MI/NJ/NY/OH
NY/OH/TN/TX
Furniture & fixtures 17-84 1,125,253 CA/CO/IA/IL/KS/NC/NJ
NM/NY/PA/TN/TX/VA
Motor vehicles 12-72 1,177,235 IL
Trailers/intermodal containers 36-60 668,519 MI
Manufacturing 36-72 663,153 OH
Locomotives 57-60 438,017 GA/MI/MO/OH/OK
Materials handling 1-84 291,617 CA/MO/NC/NJ/TX
Medical 24 116,689 CA
Computers & peripherals 1-60 28,127 DE/PA
Photocopying 1-36 10,785 IL
Total equipment cost 15,830,989
Accumulated depreciation (10,675,416)
Equipment, net of accumulated depreciation $ 5,155,573
</TABLE>
<TABLE>
<S><C>
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, 1994, the Partnership's equipment
portfolio included equipment having a proportionate original cost of
$12,674,298, representing approximately 80% 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 $3,162,000
which has been fully depreciated at December 31, 1994. (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. At December 31, 1994, the Partnership
held equipment for sale or re-lease with a cost of approximately $276,000 which
has been fully depreciated. The Managing General Partner is actively seeking
the sale or re-lease of all equipment not on lease.
In 1992, the Partnership changed its estimates of end-of-lease residual
values to reflect anticipated deterioration in market values for the
Partnership's equipment over the remainder of their primary lease terms. This
change in estimate increased depreciation expense and reduced net income by
$988,670 ($0.87 per limited partnership unit) in 1992.
</TABLE>
[CAPTION]
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by AFG on
behalf of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three years in
the period ended December 31, 1994, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Equipment management fees $ 92,431 $ 104,953 $ 217,961
Administrative charges 12,000 14,955 12,000
Reimbursable operating expenses
due to third parties 146,185 92,152 131,794
Total $ 250,616 $ 212,060 $ 361,755
</TABLE>
<TABLE>
<S><C>
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 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.
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, 1994, the Partnership was owed $125,811 by AFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1995.
NOTE 5 - NOTES PAYABLE
Notes payable at December 31, 1994 consisted of installment notes of
$223,620 payable to banks and institutional lenders. All of the installment
notes are non-recourse, with interest rates ranging between 6.25% and 10.3% and
are collateralized by the equipment and assignment of the related lease
payments. The installment notes will be fully amortized by noncancellable rents
in the year ending December 31, 1995.
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, 1994, the General Partners had a positive tax
capital account balance.
</TABLE>
[CAPTION]
The following is a reconciliation between net income or loss reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1994, 1993 and 1992:
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Net income (loss) $ 699,271 $ 387,803 $ (243,574)
Financial statement depreciation
in excess of tax depreciation 288,498 965,303 2,968,447
Prepaid rental income (17,461) (11,602) 13,407
Other (111,399) 621,715 (456,145)
Net income for federal income tax
reporting purposes $ 858,909 $ 1,963,219 $ 2,282,135
</TABLE>
[CAPTION]
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1994 and 1993:
<TABLE>
<S> <C> <C>
1994 1993
Partners' capital $ 5,614,292 $ 7,192,455
Add back selling commissions
and organization and offering costs 1,188,909 1,188,909
Financial statement distributions
in excess of tax distributions 5,694 5,694
Cumulative difference between federal income
tax and financial statement income (loss) (3,425,746) (3,585,384)
Partners' capital for federal income
tax reporting purposes $ 3,383,149 $ 4,801,674
</TABLE>
<TABLE>
<S><C>
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 1991, a lessee of the Partnership, Healthcare Financial Services, Inc.
and Healthcare International, Inc., the guarantor of certain lease obligations
of Healthcare Financial Services, Inc., (collectively, the "Debtors") filed for
bankruptcy protection under Chapter 11 of the Bankruptcy Code. The Partnership
and certain other AFG-sponsored programs filed a proof of claim in this case.
All of the Partnership's affected equipment, having an original cost $116,689
and representing approximately 1% of the Partnership's aggregate equipment
portfolio at December 31, 1994, was fully depreciated and was assumed by a
successor sub-lessee. In November 1993, the successor sub-lessee ceased paying
rent. AFG, on behalf of the Partnership and the other affected programs, filed
a complaint on November 23, 1994 in the Superior Court of the State of
California to recover such unpaid rentals (including late fees, interest and
other related damages) from the successor sub-lessee. This proceeding remains
pending. The Chapter 11 proceeding of the Debtors was dismissed on
July 21, 1994. This bankruptcy is not expected to have a material adverse
effect on the financial position of the Partnership.
On March 15, 1993, Herman's Sporting Goods, Inc., a lessee of the
Partnership (the "Debtor"), filed for protection under Chapter 11 of the
Bankruptcy Code in the United States District Court, Trenton, New Jersey. The
Chapter 11 proceeding remains pending. Certain unpaid rents were scheduled by
the Debtor as unsecured claims. On August 23, 1994, the Court confirmed the
Debtor's First Modified Plan of Reorganization, as Amended and Modified, and the
Partnership received payment from the Debtor with respect to its unsecured
claims. In addition, the Partnership sold a portion of the equipment, having an
original cost of $159,647, during 1994. This disposition resulted in a net gain
of $3,600 for financial statement purposes. At December 31, 1994, the
Partnership's equipment portfolio included other equipment on lease to this
lessee with an original cost of approximately $31,000, which is fully
depreciated for financial reporting purposes and which represents less than 1%
of the Partnership's aggregate equipment portfolio. Renewal rental schedules
for this equipment are currently in effect by order of the Bankruptcy Court.
All scheduled lease rents from this lessee have been collected to date and the
Partnership has not experienced any material losses as a result of this
bankruptcy.
In July 1993, Fred Meyer, Inc. (the "Plaintiff"), in anticipation of a
declaration of lease default by AFG, filed a complaint against AFG (the
"Defendant") in the Circuit Court of the State of Oregon as a result of a
dispute which arose between the Plaintiff and the Defendant concerning holdover
rents due to the Partnership with respect to certain equipment and the fair
market value of such equipment leased by the Partnership to the Plaintiff. AFG
filed an answer to the Plaintiff's complaint and asserted a counterclaim seeking
monetary damages. A Settlement Agreement, including dismissal of this case, was
executed on June 22, 1994 and resulted in the Plaintiff's payment of $194,988 to
the Partnership for rent and residual proceeds. The equipment dispositions
resulted in a net gain of $44,597, for financial statement purposes, which the
Partnership recorded in June 1994. This settlement did not have a material
adverse effect on the financial position of the Partnership.
NOTE 8 - SUBSEQUENT EVENT
On January 10, 1995, AFG entered into a series of agreements (the
"Agreements") with PLM International, Inc., a Delaware corporation headquartered
in San Francisco, California ("PLM"), whereby PLM will: (i) purchase certain of
AFG's assets and (ii) provide certain accounting, asset management, and investor
services to AFG and AFG's affiliates, including the Partnership and all other
equipment leasing programs currently managed by AFG. The Agreements specify
several terms and conditions necessary to effect a closing, which event is
expected to occur between July 1, 1995 and September 30, 1995. However, the
parties may choose to consummate or terminate the transaction at an earlier date
by mutual agreement. Commencing with the transaction closing date (hereafter
the "Effective Date"), AFG will be prohibited by agreement from sponsoring any
equipment leasing investment program or pursuing certain other business
interests which compete with PLM for a period of five years.
PLM has organized American Finance Group Corporation ("AFGC") pursuant to
the laws of the State of Florida to assume substantially all of PLM's
contractual obligations to AFG and AFG's affiliates under the Agreements,
including all accounting, asset management, and investor services for the
Partnership. AFG will continue to be Manager for the Partnership and will
retain ownership and control of the Managing General Partner and all authority
with respect thereto. The majority of AFG's existing employees, including its
lease origination and general operations staff, will become employees of AFGC at
the Effective Date. Gary D. Engle, President and Chief Operating Officer of
AFG, will assume a similar role with AFGC at such date. AFG's executive
management believes this transaction represents a positive development which
will not adversely affect the Partnership or the other equipment leasing
programs sponsored and managed by AFG.
The Partnership classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition, may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
</TABLE>
[CAPTION]
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1994, 1993 and 1992.
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Rents earned prior to disposal
of equipment, net of interest
charges $ 2,708,776 $ 5,634,384 $ 4,389,851
Sale proceeds, including
forgiveness of debt, realized
upon disposition of equipment 203,927 977,440 1,920,836
Total cash generated from rents
and equipment sale proceeds 2,912,703 6,611,824 6,310,687
Original acquisition cost of
equipment disposed 2,208,353 6,135,896 5,959,280
Excess of total cash generated
to cost of equipment disposed $ 704,350 $ 475,928 $ 351,407
</TABLE>
[CAPTION]
AMERICAN INCOME PARTNERS III-B LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C> <C>
Sales and
Operations Refinancings Total
Net income $ 500,270 $ 199,001 $ 699,271
Add back:
Depreciation 1,125,714 -- 1,125,714
Management fees 92,431 -- 92,431
Book value of disposed equipment -- 4,926 4,926
Decrease in allowance for doubtful
accounts (53,000) -- (53,000)
Less:
Principal reduction of notes
payable (368,334) -- (368,334)
Cash from operations, sales
and refinancings 1,297,081 203,927 1,501,008
Less:
Management fees (92,431) -- (92,431)
Distributable cash from operations,
sales and refinancings 1,204,650 203,927 1,408,577
Other sources and uses of cash:
Cash at beginning of year 1,870,476 -- 1,870,476
Purchase of equipment (18,346) -- (18,346)
Net change in receivables
and accruals (25,268) -- (25,268)
Less:
Cash distributions paid (2,073,507) (203,927) (2,277,434)
Cash at end of year $ 958,005 $ -- $ 958,005
</TABLE>
AMERICAN INCOME PARTNERS III-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, 1994
For the year ended December 31, 1994, the Partnership reimbursed the
Managing General Partner and its Affiliates for the following costs:
Operating expenses $ 156,797
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994
<PERIOD-END> DEC-31-1993 DEC-31-1994
<CASH> 1,870,476 958,005
<SECURITIES> 0 0
<RECEIVABLES> 478,536 411,307
<ALLOWANCES> 113,000 60,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,236,012 1,309,312
<PP&E> 18,020,996 15,830,989
<DEPRECIATION> 11,753,129 10,675,416
<TOTAL-ASSETS> 8,503,879 6,464,885
<CURRENT-LIABILITIES> 719,470 626,973
<BONDS> 591,954 223,620
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 7,192,455 5,614,292
<TOTAL-LIABILITY-AND-EQUITY> 8,503,879 6,464,885
<SALES> 0 0
<TOTAL-REVENUES> 2,652,999 2,098,829
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,206,888 1,376,330
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 58,308 23,228
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 387,803 699,271
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 387,803 699,271
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
