UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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For Quarter Ended March 31, 2000 Commission File No. 0-20031
American Income Fund I-C, a Massachusetts Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3077437
- ------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 BROAD STREET, BOSTON, MA 02110
- ----------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
-----------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes No
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AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 2000 and December 31, 1999 3
Statement of Operations
for the three months ended March 31, 2000 and 1999 4
Statement of Changes in Partners' Capital
for the three months ended March 31, 2000 5
Statement of Cash Flows
for the three months ended March 31, 2000 and 1999 6
Notes to the Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
PART II. OTHER INFORMATION:
Items 1 - 6 17
2
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
March 31, 2000 and December 31, 1999
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
ASSETS
Cash and cash equivalents $ 1,185,395 $ 3,970,877
Rents receivable 91,424 92,215
Accounts receivable 25,947 --
Accounts receivable--affiliate 110,035 133,950
Note receivable 2,780,000 --
Note receivable--affiliate 459,729 459,729
Investment securities--affiliate 112,208 120,037
Equipment at cost, net of accumulated depreciation
of $7,466,370 and $7,486,725 at March 31, 2000
and December 31, 1999, respectively 6,223,274 6,405,777
------------ ------------
Total assets $ 10,988,012 $ 11,182,585
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 2,410,835 $ 2,363,628
Accrued interest 12,524 16,416
Accrued liabilities 202,529 386,918
Accrued liabilities--affiliate 38,509 17,783
Deferred rental income 36,642 57,307
Cash distributions payable to partners -- 158,577
------------ ------------
Total liabilities 2,701,039 3,000,629
------------ ------------
Partners' capital (deficit):
General Partner (468,191) (473,442)
Limited Partnership Interests
(803,454.56 Units; initial purchase price of $25 each) 8,755,164 8,655,398
------------ ------------
Total partners' capital 8,286,973 8,181,956
------------ ------------
Total liabilities and partners' capital $ 10,988,012 $ 11,182,585
============ ============
The accompanying notes are an integral
part of these financial statements.
3
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
-------- --------
Income:
Lease revenue $360,598 $527,086
Interest income 72,373 35,047
Interest income--affiliate 11,461 11,336
Gain on sale of equipment 11,000 86,252
-------- --------
Total income 455,432 659,721
-------- --------
Expenses:
Depreciation 182,503 238,567
Interest expense 53,289 64,291
Equipment management fees--affiliate 16,564 24,437
Operating expenses--affiliate 90,230 49,209
-------- --------
Total expenses 342,586 376,504
-------- --------
Net income $112,846 $283,217
======== ========
Net income
per limited partnership unit $ 0.13 $ 0.33
======== ========
Cash distribution declared
per limited partnership unit $ -- $ 0.19
======== ========
The accompanying notes are an integral
part of these financial statements.
4
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the three months ended March 31, 2000
(Unaudited)
General Limited Partners
Partner ---------------------------
Amount Units Amount Total
----------- ---------- ----------- -----------
Balance at December 31, 1999 $ (473,442) 803,454.56 $ 8,655,398 $ 8,181,956
Net income 5,642 -- 107,204 112,846
Unrealized loss on investment
securities - affiliate (391) -- (7,438) (7,829)
----------- ---------- ----------- -----------
Comprehensive income 5,251 -- 99,766 105,017
----------- ---------- ----------- -----------
Balance at March 31, 2000 $ (468,191) 803,454.56 $ 8,755,164 $ 8,286,973
=========== ========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
5
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the three months ended March 31, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
Cash flows from (used in) operating activities:
Net income $ 112,846 $ 283,217
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 182,503 238,567
Gain on sale of equipment (11,000) (86,252)
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable 791 95,999
Accounts receivable (25,947) --
Accounts receivable--affiliate 23,915 (167,483)
Increase (decrease) in:
Accrued interest (3,892) (5,060)
Accrued liabilities (184,389) (33,500)
Accrued liabilities--affiliate 20,726 9,100
Deferred rental income (20,665) 999
----------- -----------
Net cash from operating activities 94,888 335,587
----------- -----------
Cash flows from (used in) investing activities:
Proceeds from equipment sales 11,000 87,338
Note receivable (2,780,000) --
----------- -----------
Net cash from (used in) investing activities (2,769,000) 87,338
----------- -----------
Cash flows from (used in) financing activities:
Proceeds from notes payable 160,856 --
Principal payments--notes payable (113,649) (288,814)
Distributions paid (158,577) (158,577)
----------- -----------
Net cash used in financing activities (111,370) (447,391)
----------- -----------
Net decrease in cash and cash equivalents (2,785,482) (24,466)
Cash and cash equivalents at beginning of period 3,970,877 3,243,631
----------- -----------
Cash and cash equivalents at end of period $ 1,185,395 $ 3,219,165
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 57,181 $ 69,351
=========== ===========
Supplemental disclosure of non-cash activity:
See Note 6 to the financial statements regarding the reduction of the
Partnership's carrying value of its investment securities--affiliate
during the three months ended March 31, 2000.
The accompanying notes are an integral
part of these financial statements.
6
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
March 31, 2000
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1999 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1999 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 2000 and December 31, 1999 and results of operations for
the three month periods ended March 31, 2000 and 1999 have been made and are
reflected.
NOTE 2--CASH
At March 31, 2000, American Income Fund I-C, a Massachusetts Limited
Partnership (the "Partnership") had $1,162,807 invested in federal agency
discount notes, repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities, or other highly liquid overnight
investments.
NOTE 3--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. In certain instances, the
Partnership may enter renewal or re-lease agreements which expire beyond the
Partnership's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Partnership's business activities as the
General Partner and Equis Financial Group Limited Partnership ("EFG") would seek
to sell the then-remaining equipment assets either to the lessee or to a third
party, taking into consideration the amount of future noncancellable rental
payments associated with the attendant lease agreements. See also Note 8 to the
financial statements presented in the Partnership's 1999 Annual Report regarding
the Class Action Lawsuit. Future minimum rents of $2,631,952 are due as follows:
For the year ending March 31, 2001 $ 1,048,771
2002 768,645
2003 651,717
2004 162,819
-----------
Total $ 2,631,952
===========
7
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements--(Continued)
March 31, 2000
(Unaudited)
NOTE 4--EQUIPMENT
The following is a summary of equipment owned by the Partnership at March
31, 2000. Remaining Lease Term (Months), as used below, represents the number of
months remaining from March 31, 2000 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost
-------------- -------- -------
Aircraft 0-33 $ 8,318,862
Materials handling 0-21 2,695,520
Trailers/intermodal containers 33-39 1,973,687
Retail store fixtures 4 517,488
Motor vehicles 0 97,400
Communications 0 51,469
Manufacturing 0 35,218
----------------
Total equipment cost 13,689,644
Accumulated depreciation (7,466,370)
----------------
Equipment, net of accumulated depreciation $ 6,223,274
================
At March 31, 2000, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $10,810,044, representing approximately
79% 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 $6,218,000
and a net book value of approximately $4,714,000 at March 31, 2000 (see Note 8).
The summary above includes equipment held for re-lease or sale with an
original cost of approximately $3,763,000 and a net book value of approximately
$2,039,000 at March 31, 2000. This equipment includes the Partnership's
interests in three Boeing 737 aircraft formerly leased to Southwest Airlines
Inc. Each of the Partnership's interests in these aircraft had an original cost
of approximately $700,000 and a net book value of approximately $241,000 at
March 31, 2000. This equipment also includes the Partnership's interest in a
McDonnell-Douglas MD-82 aircraft formerly leased to Finnair OY. The
Partnership's interest in this aircraft had an original cost of approximately
$1,662,000 and a net book value of approximately $1,293,000 at March 31, 2000.
The aircraft were returned by the lessees upon their respective lease term
expirations in December 1999 and January 2000. The General Partner is actively
seeking the sale or re-lease of all equipment not on lease.
NOTE 5--NOTE RECEIVABLE
On March 8, 2000, the Partnership and 10 different partnerships (the
"Exchange Partnerships") (see Note 8 to the financial statements presented in
the Partnership's 1999 Annual Report) collectively loaned $32 million to
8
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements--(Continued)
March 31, 2000
(Unaudited)
Echelon Residential Holdings LLC, a newly-formed real estate development company
that will be owned by several investors, including James A. Coyne, Executive
Vice President of EFG. Mr. Coyne, in his individual capacity, is the only
investor in Echelon Residential Holdings LLC who is related to EFG.
The Partnership's participation in the loan is $2,780,000. Echelon
Residential Holdings LLC, through a subsidiary (Echelon Residential LLC), used
the loan proceeds to acquire various real estate assets from Echelon
International Corporation, a Florida based real estate company. The loan has a
term of 30 months maturing on September 7, 2002 and bears interest at the annual
rate of 14% for the first 24 months and 18% for the final six months of the
term. Interest accrues and compounds monthly but is not payable until maturity.
The Partnership accrued interest income of $25,947 related to this loan during
the three months ended March 31, 2000. In connection with the transaction,
Echelon Residential Holdings LLC has pledged a security interest in all of its
right, title and interest in and to its membership interests in Echelon
Residential LLC to the Exchange Partnerships as collateral.
NOTE 6--INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE
As a result of an exchange transaction in 1997, the Partnership owns 20,876
shares of Semele Group, Inc. ("Semele") common stock and holds a beneficial
interest in a note from Semele (the "Semele Note") of $459,729. The Semele Note
matures in April 2001 and bears an annual interest rate of 10% with mandatory
principal reductions prior to maturity, if and to the extent that net proceeds
are received by Semele from the sale or refinancing of its principal real estate
asset consisting of an undeveloped 274-acre parcel of land near Malibu,
California. The Partnership recognized interest income of $11,461 and $11,336
related to the Semele Note during the three months ended March 31, 2000 and
1999, respectively.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are carried at fair value.
During the three months ended March 31, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5.375 per share (the
quoted price on the NASDAQ SmallCap market at March 31, 2000), resulting in an
unrealized loss of $7,829. This loss was reported as a component of
comprehensive income included in partners' capital.
NOTE 7--RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the three month periods ended
March 31, 2000 and 1999 which were paid or accrued by the Partnership to EFG or
its Affiliates, are as follows:
2000 1999
--------- --------
Equipment management fees $ 16,564 $ 24,437
Administrative charges 44,341 17,013
Reimbursable operating expenses
due to third parties 45,889 32,196
--------- --------
Total $ 106,794 $ 73,646
========= ========
9
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements--(Continued)
March 31, 2000
(Unaudited)
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At March 31, 2000, the Partnership was owed $110,035 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in April
2000.
NOTE 8--NOTES PAYABLE
Notes payable at March 31, 2000 consisted of installment notes of
$2,410,835 payable to banks and institutional lenders. The installment notes
bear an interest rate of either 8.225% or a fluctuating interest rate based on
LIBOR (approximately 6% at March 31, 2000) plus a margin. All of the installment
notes are non-recourse and are collateralized by the equipment and assignment of
any related lease payments. The Partnership has balloon payment obligations at
the expiration of the lease terms related to aircraft leased by Reno Air, Inc.
($679,276) and Finnair OY ($106,516). The Reno Air and Finnair indebtedness
matures in January 2003 and April 2001, respectively. In addition, the
Partnership has a balloon payment obligation of $560,358 which matures in August
2000. This obligation is related to its interest in a McDonnell-Douglas MD-82
aircraft which was returned in January 2000 upon its lease term expiration. This
aircraft is being stored in a warehouse pending its remarketing. The carrying
amount of notes payable approximates fair value at March 31, 2000.
The annual maturities of the installment notes payable are as follows:
For the year ending March 31, 2001 $ 1,089,962
2002 420,123
2003 900,750
-----------
Total $ 2,410,835
===========
NOTE 9--LEGAL PROCEEDINGS
As described more fully in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999, the Partnership is a Nominal Defendant in a
Class Action Lawsuit, the outcome of which could significantly alter the nature
of the Partnership's organization and its future business operations.
10
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements in this quarterly report of American Income Fund I-C, a
Massachusetts Limited Partnership (the "Partnership") that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of factors that could cause actual results
to differ materially from those expressed in any forward-looking statements made
herein. These factors include, but are not limited to, the outcome of the Class
Action Lawsuit described in Note 8 to the financial statements presented in the
1999 Annual Report, the remarketing of the Partnership's equipment, and the
performance of the Partnership's non-equipment assets.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999:
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. Presently, the Partnership is a Nominal
Defendant in a Class Action Lawsuit, the outcome of which could significantly
alter the nature of the Partnership's organization and its future business
operations. See Note 8 to the financial statements presented in the
Partnership's 1999 Annual Report. Pursuant to the Amended and Restated Agreement
and Certificate of Limited Partnership (the "Restated Agreement, as amended"),
the Partnership is scheduled to be dissolved by December 31, 2002.
RESULTS OF OPERATIONS
For the three months ended March 31, 2000, the Partnership recognized lease
revenue of $360,598 compared to $527,086 for the same period in 1999. The
decrease in lease revenue from 1999 to 2000 primarily reflects the effects of
lease term expirations and the sale of equipment. In the future, lease revenue
will continue to decline due to primary and renewal 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 an affiliated equipment leasing program
sponsored by Equis Financial Group Limited Partnership ("EFG"). Proportionate
equipment ownership enabled the Partnership to further diversify its equipment
portfolio at inception by participating in the ownership of selected assets,
thereby reducing the general levels of risk which could have resulted 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.
Interest income for the three months ended March 31, 2000 was $83,834
compared to $46,383 for the same period in 1999. Interest income is typically
generated from temporary investment of rental receipts and equipment sale
proceeds in short-term instruments. Interest income during the three months
ended March 31, 2000 and 1999 included $11,461 and $11,336, respectively, earned
on a note receivable from Semele (see Note 6 to the financial statements
herein). Also included in interest income for the three months ending March 31,
2000 was interest earned on a note receivable from Echelon Residential Holdings
LLC in the amount of $25,947 (see below). The amount of future interest income
is expected to fluctuate as a result of changing interest rates and the amount
of cash available for investment, among other factors.
During the three months ended March 31, 2000, the Partnership sold
fully-depreciated equipment to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes, of $11,000 compared to
a net gain of $86,252 on equipment having a net book value of $1,086, sold
during the three months ended March 31, 1999.
11
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation expense for the three months ended March 31, 2000 was $182,503
compared to $238,567 for the same period in 1999. 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 at the date of primary lease
expiration on a straight-line basis over such term. For the 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.
Interest expense was $53,289 or 14.8% of lease revenue for the three months
ended March 31, 2000 compared to $64,291 or 12.2% of lease revenue for the same
period in 1999. Interest expense in future periods will decline as the principal
balance of notes payable is reduced through the application of rent receipts to
outstanding debt.
Management fees were approximately 4.6% of lease revenue for each of the
three months ended March 31, 2000 and 1999. Management fees are based on 5% of
gross lease revenue generated by operating leases and 2% of gross lease revenue
generated by full payout leases.
Operating expenses were $90,230 for the three months ended March 31, 2000
compared to $49,209 for the same period in 1999. The principle reason for the
increase in operating expenses from 1999 to 2000 was an increase in
administrative charges. Other operating expenses include 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.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership by its nature is a limited life entity. 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 $94,888 and $335,587 for the three months ended
March 31,
12
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
2000 and 1999 respectively. Future renewal, re-lease and equipment sale
activities will cause a decline in the Partnership's lease revenues and
corresponding sources of operating cash. Overall, expenses associated with
rental activities, such as management fees, and net cash flow from operating
activities will also continue to decline as the Partnership experiences a higher
frequency of remarketing events.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the three months
ended March 31, 2000 and 1999, the Partnership realized equipment sales proceeds
of $11,000 and $87,338, 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.
At March 31, 2000, the Partnership was due aggregate future minimum lease
payments of $2,631,952 from contractual lease agreements (see Note 3 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $2,410,835 (see Note 8 to the financial statements).
At the expiration of the individual primary and renewal lease terms underlying
the Partnership's future minimum lease payments, the Partnership will sell the
equipment or enter re-lease or renewal agreements when considered advantageous
by the General Partner and EFG. Such future remarketing activities will result
in the realization of additional cash inflows in the form of equipment sale
proceeds or rents from renewals and re-leases, the timing and extent of which
cannot be predicted with certainty. This is because the timing and extent of
remarketing events often is dependent upon the needs and interests of the
existing lessees. Some lessees may choose to renew their lease contracts, while
others may elect to return the equipment. In the latter instances, the equipment
could be re-leased to another lessee or sold to a third party.
In connection with a preliminary settlement agreement for the Class Action
Lawsuit described in Note 8 to the financial statements presented in the
Partnership's 1999 Annual Report, the Partnership is permitted to invest in new
equipment or other business activities, subject to certain limitations. On March
8, 2000, the Partnership and 10 different partnerships (the "Exchange
Partnerships") (see Note 8 to the financial statements presented in the
Partnership's 1999 Annual Report) collectively loaned $32 million to Echelon
Residential Holdings LLC, a newly-formed real estate development company that
will be owned by several investors, including James A. Coyne, Executive Vice
President of EFG. Mr. Coyne, in his individual capacity, is the only investor in
Echelon Residential Holdings LLC who is related to EFG.
The Partnership's participation in the loan is $2,780,000. Echelon
Residential Holdings LLC, through a subsidiary (Echelon Residential LLC), used
the loan proceeds to acquire various real estate assets from Echelon
International Corporation, a Florida based real estate company. The loan has a
term of 30 months maturing on September 7, 2002 and bears interest at the annual
rate of 14% for the first 24 months and 18% for the final six months of the
term. Interest accrues and compounds monthly but is not payable until maturity.
In connection with the transaction, Echelon Residential Holdings LLC has pledged
a security interest in all of its right, title and interest in and to its
membership interests in Echelon Residential LLC to the Exchange Partnerships as
collateral.
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 components 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. The Partnership has balloon payment obligations at
the expiration of the lease terms related to aircraft leased by Reno Air, Inc.
and Finnair OY of $679,276 and $106,516, respectively. The Reno Air and Finnair
OY indebtedness matures in January 2003 and April 2001, respectively.
13
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
In addition, in February 2000, the Partnership and certain affiliated
investment programs (collectively, the "Programs") refinanced the indebtedness
which matured in January 2000 associated with a McDonnell-Douglas MD-82 aircraft
formerly leased to Finnair OY. In addition to refinancing the existing
indebtedness of $3,370,000, the Programs received additional debt proceeds of
$1,350,000 required to perform a D-Check on the aircraft. The Partnership
received $160,856 from such proceeds. The note bears a fluctuating interest rate
based on LIBOR plus a margin with interest payments due monthly. The
Partnership's aggregate share of the refinanced and new indebtedness was
$560,358 which is due at maturity on August 9, 2000. The aircraft was returned
in January 2000 upon its lease term expiration and is currently being stored in
a warehouse.
As a result of an exchange transaction in 1997, the Partnership owns 20,876
shares of Semele common stock and holds a beneficial interest in a note from
Semele (the "Semele Note") of $459,729. The Semele Note matures in April 2001
and bears an annual interest rate of 10% with mandatory principal reductions
prior to maturity, if and to the extent that net proceeds are received by Semele
from the sale or refinancing of its principal real estate asset consisting of an
undeveloped 274-acre parcel of land near Malibu, California.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
equity securities classified as available-for-sale are carried at fair value.
During the three months ended March 31, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5.375 per share (the
quoted price on the NASDAQ SmallCap market at March 31, 2000), resulting in an
unrealized loss of $7,829. This loss was reported as a component of
comprehensive income included in partners' capital.
There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets.
In particular, the Partnership must contemplate the potential liquidity
risks associated with its investment in commercial jet aircraft. The management
and remarketing of aircraft can involve, among other things, significant costs
and lengthy remarketing initiatives. Although the Partnership's lessees are
required to maintain the aircraft during the period of lease contract, repair,
maintenance, and/or refurbishment costs at lease expiration can be substantial.
For example, an aircraft that is returned to the Partnership meeting minimum
airworthiness standards, such as flight hours or engine cycles, nonetheless may
require heavy maintenance in order to bring its engines, airframe and other
hardware up to standards that will permit its prospective use in commercial air
transportation. At March 31, 2000, the Partnership had ownership interests in
six commercial jet aircraft. Three of the aircraft are Boeing 737 aircraft
formerly leased to Southwest Airlines, Inc. The lease agreements for each of
these aircraft expired on December 31, 1999 and Southwest elected to return the
aircraft. The aircraft are Stage 2 aircraft, meaning that they are prohibited
from operating in the United States after December 31, 1999 unless they are
retro-fitted with hush-kits to meet Stage 3 noise regulations promulgated by the
Federal Aviation Administration. The cost to hush-kit an aircraft, such as the
Partnership's Boeing 737s, can approach $2 million. At this time, the General
Partner is attempting to remarket these assets without further capital
investment by either re-leasing the aircraft to a user outside of the United
States or selling the aircraft as they are without retro-fitting the aircraft to
conform to Stage 3 standards. The remaining three aircraft in the Partnership's
portfolio already are Stage 3 compliant. One of these aircraft had a lease term
that expired in January 2000 and is being held in storage pending the outcome of
ongoing remarketing efforts. The final two aircraft in the Partnership's
portfolio have lease terms expiring in April 2001 and January 2003.
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AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
Cash distributions to the General and Limited Partners had been declared
and generally paid within fifteen days following the end of each calendar
quarter. The payment of such distributions is reported under financing
activities on the accompanying Statement of Cash Flows. No cash distributions
were declared for the quarter ended March 31, 2000 (see discussion below).
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes (generally referred to as permanent or timing differences;
see Note 7 to the financial statements presented in the 1999 Annual Report). For
instance, selling commissions and organization and offering costs pertaining to
syndication of the Partnership's limited partnership units are not deductible
for federal income tax purposes, but are recorded as a reduction of partners'
capital for financial reporting purposes. Therefore, such differences are
permanent differences between capital accounts for financial reporting and
federal income tax purposes. Other differences between the bases of capital
accounts for federal income tax and financial reporting purposes occur due to
timing differences. Such items consist of the cumulative difference between
income or loss for tax purposes and financial statement income or loss, the
difference between distributions (declared vs. paid) for income tax and
financial reporting purposes, and the treatment of unrealized gains or losses on
investment securities for book and tax purposes. The principal component of the
cumulative difference between financial statement income or loss and tax income
or loss results from different depreciation policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at March 31, 2000. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Restated Agreement,
as amended, requires that upon the dissolution of the Partnership, the General
Partner will be required to contribute to the Partnership an amount equal to any
negative balance which may exist in the General Partner's tax capital account.
At December 31, 1999, the General Partner had a positive tax capital account
balance.
The outcome of the Class Action Lawsuit described in Note 8 to the
financial statements presented in the Partnership's 1999 Annual Report will be
the principal factor in determining the future of the Partnership's operations.
The proposed settlement to that lawsuit, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. In addition, commencing with the first
quarter of 2000, the General Partner suspended the payment of quarterly cash
distributions pending final resolution of the Class Action Lawsuit. Accordingly,
future cash distributions are not expected to be paid until the Class Action
Lawsuit is adjudicated.
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AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 9 to the financial statements herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of
the Registrant.
By: /S/ MICHAEL J. BUTTERFIELD
-------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: MAY 15, 2000
-------------------------------------------
By: /S/ GARY M. ROMANO
Gary M. Romano
-------------------------------------------
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: MAY 15, 2000
-------------------------------------------
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