UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------------------------------------------
OR
[ _ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
_____________________
For Quarter Ended March 31, 1996 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.)
98 North Washington Street, Boston, MA 02114
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(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (617) 854-5800
---------------------------------------
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
-----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes___ No___
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, 1996 and December 31, 1995 3
Statement of Operations
for the three months ended March 31, 1996 and 1995 4
Statement of Cash Flows
for the three months ended March 31, 1996 and 1995 5
Notes to the Financial Statements 6-10
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION:
Items 1 - 6 16
2
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
March 31, 1996 and December 31, 1995
(Unaudited)
March 31, December 31,
1996 1995
------------ ------------
ASSETS
- - ------
Cash and cash equivalents $ 795,443 $ 799,133
Contractual right for equipment 26,250 1,562,463
Rents receivable 673,798 716,657
Accounts receivable - affiliate 46,048 13,652
Note receivable - affiliate 210,144 210,144
Equipment at cost, net of accumulated depreciation of
$13,704,108 and $13,427,155 at March 31, 1996
and December 31, 1995, respectively 14,590,854 9,384,501
Organization costs, net of accumulated amortization
of $4,500 and $4,250 at March 31, 1996
and December 31, 1995, respectively 500 750
------------ ------------
Total assets $ 16,343,037 $ 12,687,300
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- - ---------------------------------
Notes payable $ 8,491,018 $ 4,574,713
Accrued interest 58,438 42,509
Accrued liabilities 152,217 157,002
Accrued liabilities - affiliate 26,370 23,344
Other liabilities 4,556 --
Deferred rental income 139,306 140,519
Cash distributions payable to partners 317,154 317,154
------------ ------------
Total liabilities 9,189,059 5,255,241
------------ ------------
Partners' capital (deficit):
General Partner (524,840) (510,936)
Limited Partnership Interests
(803,454.56 Units; initial purchase price of $25 each) 7,678,818 7,942,995
------------ ------------
Total partners' capital 7,153,978 7,432,059
------------ ------------
Total liabilities and partners' capital $ 16,343,037 $ 12,687,300
============ ============
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, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Income:
Lease revenue $ 988,527 $ 1,239,730
Interest income 55,053 13,323
Interest income - affiliate 4,610 9,874
Gain (loss) on sale of equipment 61,646 (7,349)
------------ ------------
Total income 1,109,836 1,255,578
------------ ------------
Expenses:
Depreciation and amortization 916,654 1,062,809
Interest expense 95,015 99,327
Equipment management fees - affiliate 30,135 39,083
Operating expenses - affiliate 28,959 40,857
------------ ------------
Total expenses 1,070,763 1,242,076
------------ ------------
Net income $ 39,073 $ 13,502
============ ============
Net income
per limited partnership unit $ 0.05 $ 0.02
============ ============
Cash distribution declared
per limited partnership unit $ 0.37 $ 0.63
============ ============
The accompanying notes are an integral part
these financial statements
4
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Cash flows from (used in) operating activities:
Net Income $ 39,073 $ 13,502
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 915,654 1,062,809
(Gain) loss on sale of equipment (61,646) 7,349
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 42,859 (28,868)
accounts receivable - affiliate (32,396) (216,172)
Increase (decrease) in:
accrued interest 15,929 3,930
accrued liabilities (4,785) 1,605
accrued liabilities - affiliate 3,026 (7,037)
deferred rental income (1,213) 4,141
------------ ------------
Net cash from operating activities 917,501 833,399
------------ ------------
Cash flows from (used in) investing activities:
Purchase of equipment (43,297)
Proceeds from equipment sales 135,000 207,892
------------ ------------
Net cash from investing activities 91,703 207,892
------------ ------------
Cash flows used in financing activities:
Principal payments - notes payable (695,740) (683,470)
Distributions paid (317,154) (528,589)
------------ ------------
Net cash used in financing activities (1,012,894) (1,212,059)
Net decrease in cash and cash equivalents (3,690) (170,768)
Cash and cash equivalents at beginning of period 799,133 1,113,814
------------ ------------
Cash and cash equivalents at end of period $ 795,443 $ 943,046
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 79,086 $ 103,257
============ ============
Supplemental disclosure of non-cash investing and financing activities:
See Notes 4 and 5 to the financial statements.
The accompanying notes are an integral part
of these financial statements.
5
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
March 31, 1996
(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 1995 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1995 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, 1996 and December 31, 1995 and results of operations for
the three month periods ended March 31, 1996 and 1995 have been made and are
reflected.
NOTE 2 - CASH
- - -------------
The Partnership invests excess cash with large institutional banks in
reverse repurchase agreements with overnight maturities. The reverse repurchase
agreements are secured by U.S. Treasury Bills or interest in U.S. Government
securities.
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. Future minimum rents of
$10,802,001 are due as follows:
For the year ending March 31, 1997 $ 3,162,766
1998 2,468,028
1999 1,712,309
2000 1,110,489
2001 764,139
Thereafter 1,584,270
------------
Total $ 10,802,001
============
In September 1995, the Partnership transferred its ownership interest in a
Boeing 747-SP-21 commercial jet aircraft (the United Aircraft) to the existing
lessee, United Air Lines, Inc., pursuant to the rules for a like-kind exchange
transaction for income tax reporting purposes (See Note 4 herein). In November
1995, the Partnership partially replaced the United Aircraft with a 14.35%
interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines, Inc.
(the Southwest Aircraft). The Partnership will receive approximately $413,000 of
rental revenue in each of the years in the period ending March 31, 1999, and
approximately $344,000 in the year ending March 31, 2000, pursuant to the
Southwest Aircraft lease agreement.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with the acquisitions of an 11.87% interest in two
McDonnell-Douglas MD-82 Aircraft leased by Finnair OY (the Finnair
6
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Aircraft) and a 21.31% ownership interest in a McDonnell-Douglas MD-87 aircraft
leased by Reno Air, Inc. (the Reno Aircraft). The Partnership will receive
approximately $511,000 of rental revenue in each of the years in the period
ending March 31, 1999 pursuant to the Finnair Aircraft lease agreement. With
respect to the Reno Aircraft lease agreement, the Partnership will receive
approximately $344,000 of rental revenue in the year ending March 31, 1997,
$384,000 in each of the years in the period ending March 31, 2002 and $288,000
in the year ending March 31, 2003. Pursuant to the Reno Aircraft lease
agreement, rents are adjusted monthly for changes of the London Inter-Bank
Offered Rate (LIBOR). Future rents reported above reflect the most recent LIBOR
effected rental payment.
NOTE 4 - EQUIPMENT
- - ------------------
The following is a summary of equipment owned by the Partnership at March
31, 1996. In the opinion of American Finance Group ("AFG"), the acquisition cost
of the equipment did not exceed its fair market value.
Lease Term Equipment
Equipment Type (Months) at Cost
- - ------------------------------ ---------- ------------
Aircraft 39-81 $ 8,318,862
Materials handling 4-60 6,561,298
Trailers/intermodal containers 66-99 4,312,272
Vessels 72 2,605,381
Tractors & heavy duty trucks 3-78 1,945,458
Furniture & fixtures 90 1,914,145
Construction & mining 36-60 762,152
Retail store fixtures 48 517,488
Motor vehicles 48-60 471,845
Computers & peripherals 6-37 377,025
Communications 1-60 295,245
Research & test 24 116,406
Graphic printing & display 36 62,167
Manufacturing 72 35,218
------------
Total equipment cost 28,294,962
Accumulated depreciation (13,704,108)
------------
Equipment, net of accumulated depreciation $ 14,590,854
============
In September 1995, the Partnership transferred its 33.07% ownership
interest in the United Aircraft, pursuant to the rules of a like-kind exchange
for income tax reporting purposes (See Note 3 herein). In November 1995, the
Partnership partially replaced the United Aircraft with a 14.35% interest in the
Southwest Aircraft, at an aggregate cost of $2,101,054. To acquire the interests
in the Southwest Aircraft, the Partnership obtained financing of $1,567,878 from
a third-party lender and utilized $533,176 of the cash consideration received
from the transfer of the United Aircraft. The remaining ownership interest of
85.65% in the Southwest Aircraft is held by affiliated equipment leasing
programs sponsored by AFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with the acquisitions of an 11.87% ownership interest in the
Finnair Aircraft and a 21.31% ownership interest in the Reno
7
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Aircraft at a total cost of $3,322,913 and $2,894,892, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $1,110,980
in cash and obtained financing of $2,211,933 from a third-party lender. To
acquire the ownership interest in the Reno Aircraft, the Partnership paid
$494,780 in cash and obtained financing of $2,400,112 from a third-party lender.
The remaining ownership interests of 88.13% and 78.69% in the Finnair Aircraft
and Reno Aircraft, respectively, are held by affiliated equipment leasing
programs sponsored by AFG.
During the three months ended March 31, 1996, the Partnership transferred
its ownership interest in certain trailers, previously leased to The Atchison
Topeka and Santa Fe Railroad to a third party for cash consideration of $26,250.
The trailers had an aggregate net book value of $21,694 at the date of transfer
resulting in a net gain, for financial statement purposes, of $4,556. The
transaction was structured as a like-kind exchange for income tax reporting
purposes. The Partnership intends to replace these trailers with comparable
trailers and lease such equipment to a new lessee. Accordingly, the net cash
consideration of $26,250 was deposited into a special-purpose escrow account
through a third-party Exchange Agent pending completion of the equipment
exchange. For financial statement purposes, the cash consideration has been
reported as Contractual Right for Equipment on the Statement of Financial
Position at March 31, 1996. The amount of gain will reduce the carrying value of
the replacement trailers upon completion of the exchange and has been reported
as Other Liabilities on the Statement of Financial Position at March 31, 1996.
At March 31, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $13,431,527, representing approximately
47% of total equipment cost.
The summary above includes equipment held for sale or release with a cost
and net book value of approximately $2,177,000 and $269,000, respectively, at
March 31, 1996. The General Partner is actively seeking the sale or re-lease of
all equipment not on lease.
Effective January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Adoption of this statement did not have a material impact on the financial
statements of the Partnership.
NOTE 5 - RELATED PARTY TRANSACTIONS
- - -----------------------------------
All operating expenses incurred by the Partnership are paid by AFG on
behalf of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the three month periods ended
March 31, 1996 and 1995 which were paid or accrued by the Partnership to AFG or
its Affiliates, are as follows:
1996 1995
--------- ---------
Equipment management fees $ 30,135 $ 39,083
Administrative charges 5,250 3,000
Reimbursable operating expenses
due to third parties 23,709 37,857
--------- ---------
Total $ 59,094 $ 79,940
========= =========
8
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
In 1991, the Partnership acquired 900 intermodal cargo containers, at a
cost of $1,840,140, and leased such containers to ICCU Containers, S.p.A.
("ICCU"), an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which
formerly owned a minority interest in AFG Holdings Illinois Limited Partnership.
The ability of ICCU to fulfill all of its obligations under the lease contract
deteriorated, in AFG's view, in 1994. As a result, AFG, on the Partnership's
behalf, began negotiations with other parties to either assume the lease
obligations of ICCU or acquire the containers. As a result of these
negotiations, the Partnership transferred 740 containers, having a net book
value of $756,501, to a third party on November 30, 1994. The Partnership
received, as settlement from ICCU and the third party, consideration as follows:
(i) a contractual right to receive comparable containers with an estimated fair
market value of $852,207 and (ii) beneficial assignment of an existing AFG note
payable to CLOU which had a principal balance of $370,264 at the date of the
transaction. The note has an effective interest rate of 8% and matures on
December 31, 1996. AFG will pay all of the note balance plus interest directly
to the Partnership according to the original amortization schedule. A portion of
the consideration received was used to satisfy the Partnership's accounts
receivable balance of $183,128 outstanding from ICCU at November 30, 1994.
An additional 158 containers, having a net book value of $161,523, were
pending settlement at December 31, 1994. On March 31, 1995, 82 of these
containers, having a net book value of $77,841 were transferred to the third
party and the Partnership received $92,551 as consideration for these
containers. The remaining 76 containers, having a net book value of $49,947,
represent less than 1% of the Partnerships equipment portfolio at March 31,
1996. The remaining two containers of the original equipment group were disposed
of in 1992 for stipulated payments as a result of casualty events.
By April 1995, the Partnership had replaced 822 of the original containers
with comparable containers and leased such containers to a new lessee pursuant
to the rules for completing a like-kind exchange for income tax reporting
purposes. The carrying value of the new containers, $1,958,040, was reduced by
$282,842, representing the amount of gain deferred on the original containers
and $14,710, the amount of gain deferred on the 82 containers settled during
1995. The Partnership obtained approximately $925,000 of long-term financing in
connection with the replacement containers.
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 March 31, 1996, the Partnership was owed $46,048 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in April
1996.
NOTE 6 - NOTES PAYABLE
- - ----------------------
Notes payable at March 31, 1996 consisted of installment notes of
$8,491,018 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 7.5% and 10.65%, except one note which bears
a fluctuating interest rate based on LIBOR plus a margin (7.63% at March 31,
1996). All of the installment notes are non-recourse and are collateralized by
the equipment and assignment of the related lease payments. Generally, the
installment notes will be fully amortized by noncancellable rents. However, the
Partnership has balloon payment obligations at the expiration of the respective
primary lease terms related to the Finnair Aircraft and the Reno Aircraft. The
carrying value of notes payable approximates fair value at March 31, 1996.
9
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
The annual maturities of the installment notes payable are as follows:
For the year ending March 31, 1997 $2,236,981
1998 1,206,520
1999 1,136,125
2000 1,810,590
2001 444,621
Thereafter 1,656,181
----------
Total $8,491,018
==========
NOTE 7 - SUBSEQUENT EVENT
- - -------------------------
Pursuant to its agreements with PLM International, Inc., referred to in
Note 8 of the Partnerships 1995 financial statements, American Finance Group
agreed to change its name and logo, except where they are used in connection
with the Partnership and other affiliated investment programs. For all other
purposes, American Finance Group will operate as Equis Financial Group effective
April 2, 1996.
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.
- - --------------
Three months ended March 31, 1996 compared to the three months ended March 31,
- - ------------------------------------------------------------------------------
1995:
- - -----
Overview
- - --------
As an equipment leasing 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 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 1991.
Results of Operations
- - ---------------------
For the three months ended March 31, 1996, the Partnership recognized lease
revenue of $988,527 compared to $1,239,730 for the same period in 1995. The
decrease in lease revenue from 1995 to 1996 reflects the effects of primary
lease term expirations and a temporary decline in aircraft lease revenues
associated with the Partnerships aircraft exchange (discussed below) which was
concluded late in the first quarter of 1996. As a result of this exchange, the
Partnership replaced its ownership interest in a Boeing 747-SP, having aggregate
quarterly lease revenues of $213,302, with interests in six other aircraft
(three Boeing 737 aircraft leased by Southwest Airlines, Inc., two McDonnell
Douglas MD-82 aircraft leased by Finnair OY and one McDonnell Douglas MD-87
aircraft leased by Reno Air, Inc.), having aggregate quarterly lease revenues of
$326,498. The Finnair Aircraft and the Reno Aircraft were exchanged into the
Partnership on March 25 and March 26, 1996, respectively. Accordingly, the first
quarter of 1996 reflected only a portion of the rents ultimately anticipated
from the like-kind exchange.
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.
For the three months ended March 31, 1996, the Partnership earned interest
income of $59,663 compared to $23,197 for the period ended March 31, 1995.
Interest income is typically generated from temporary investment of rental
receipts and equipment sales proceeds in short-term instruments. The increase in
interest income in 1996 compared to 1995 is a result of interest of $44,994
earned on cash held in a special-purpose escrow account in connection with the
like-kind exchange transactions, discussed below. During the three months ended
March 31, 1996 and 1995, the Partnership also earned interest income of $4,610
and $9,874, respectively, on a note receivable from AFG resulting from the
settlement with ICCU Containers S.p.A. (See Note 5 to the financial
11
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
statements). The amount of future interest income is expected to fluctuate in
relation to prevailing interest rates, the collection of lease revenue, and the
proceeds from equipment sales.
For the three months ended March 31, 1996, the Partnership sold equipment
with a net book value of $73,354 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $61,646,
compared to a net loss of $7,349 on equipment having a net book value of
$200,543 for the same period in 1995.
In September 1995, the Partnership transferred its 33.07% ownership
interest in the United Aircraft, pursuant to the rules of a like-kind exchange
for income tax reporting purposes (See Note 3 to the financial statements). In
November 1995, the Partnership partially replaced the United Aircraft with a
14.35% interest in the Southwest Aircraft, at an aggregate cost of $2,101,054.
To acquire the interests in the Southwest Aircraft, the Partnership obtained
financing of $1,567,878 from a third-party lender and utilized $533,176 of the
cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 85.65% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by AFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with the acquisitions of an 11.87% ownership interest in the
Finnair Aircraft and a 21.31% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $3,322,913 and $2,894,892, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $1,110,980
in cash and obtained financing of $2,211,933 from a third-party lender. To
acquire the ownership interest in the Reno Aircraft, the Partnership paid
$494,780 in cash and obtained financing of $2,400,112 from a third-party lender.
The remaining ownership interests of 88.13% and 78.69% of the Finnair Aircraft
and Reno Aircraft, respectively are held by affiliated equipment leasing
programs sponsored by AFG.
During the three months ended March 31, 1996, the Partnership transferred
its ownership interest in certain trailers, previously leased to The Atchison
Topeka and Santa Fe Railroad to a third party for cash consideration of $26,250.
The trailers had an aggregate net book value of $21,694 at the date of transfer
resulting in a net gain, for financial statement purposes, of $4,556. The
transaction was structured as a like-kind exchange for income tax reporting
purposes. The Partnership intends to replace these trailers with comparable
trailers and lease such equipment to a new lessee. Accordingly, the net cash
consideration of $26,250 was deposited into a special-purpose escrow account
through a third-party Exchange Agent pending completion of the equipment
exchange. For financial statement purposes, the cash consideration has been
reported as Contractual Right for Equipment on the Statement of Financial
Position at March 31, 1996. The amount of gain will reduce the carrying value of
the replacement trailers upon completion of the exchange and has been reported
as Other Liabilities on the Statement of Financial Position at March 31, 1996.
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.
12
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.
Depreciation and amortization expense for the three months ended March 31,
1996 was $916,654 compared to $1,062,809 for the same period in 1995. 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 $95,015, or 9.6% of lease revenue for the three months
ended March 31, 1996, compared to $99,327 or 8% of lease revenue for the same
period in 1995. In the near-term, interest expense is expected to increase due
to interest to be incurred in connection with the leveraging obtained to finance
the like-kind exchange transactions, discussed above. Thereafter, interest
expense will 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 approximately 3% of lease revenue for the three months
ended March 31, 1996, compared to 3.2% of lease revenue for the same period in
1995. Management fees are based on 5% of gross lease revenue generated by
operating leases and 2% of gross lease revenue generated by full payout leases.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented 2.9% of lease revenue
for the three months ended March 31, 1996, compared to 3.3% of lease revenue for
the same period in 1995. The amount of future operating expenses cannot be
predicted with certainty; however, such expenses are usually higher during the
acquisition and liquidation phases of a partnership. Other fluctuations
typically occur in relation to the volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- - ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from asset rental transactions. Accordingly, the Partnership's principal
source of cash from operations is provided by the collection of periodic rents.
These cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $917,501 and $833,399 for the three
months ended March 31, 1996 and 1995, respectively. In the 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 continue to decline as the
Partnership experiences a higher frequency of remarketing events.
13
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 is reported under investing activities on the accompanying
Statement of Cash Flows. During the three months ended March 31, 1996, the
Partnership expended $43,297 in cash in connection with the like-kind exchange
transactions referred to above. There were no equipment acquisitions during the
same period in 1995. For the three months ended March 31, 1996, the Partnership
realized $135,000 in equipment sale proceeds, compared to $207,892 during the
three months ended March 31, 1995. 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 repayments of principal related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In the near-term, the amount of cash used to repay debt
obligations is expected to increase due in part to leveraging obtained to
finance the acquisition of equipment relating to the like-kind exchange
transactions, discussed above. Thereafter, the amount of cash used to repay debt
obligations will generally decline as the principal balance of notes payable is
reduced through the collection and application of rents. However, the
Partnership has balloon payment obligations at the expiration of the respective
primary lease terms related to the Finnair Aircraft and Reno Aircraft.
Cash distributions to the General and Limited Partners 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 three months ended March 31, 1996, the Partnership declared
total cash distributions of Distributable Cash From Operations and Distributable
Cash From Sales and Refinancings of $317,154. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the Limited Partners
were allocated 95% of these distributions, or $301,296, and the General Partner
was allocated 5%, or $15,858. The first quarter 1996 cash distribution was paid
on April 15, 1996.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. To the extent that cash distributions consist of Cash
From Sales or Refinancings, substantially all of such cash distributions should
be viewed as a return of capital. Cash distributions do not represent and are
not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of AFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset
14
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
disposals will cause the Partnership's net cash from operating activities to
diminish over time; and equipment sale proceeds will vary in amount and period
of realization. In addition, the Partnership may be required to incur asset
refurbishment or upgrade costs in connection with future remarketing activities.
Accordingly, fluctuations in the level of quarterly cash distributions will
occur during the life of the Partnership.
15
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
16
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, 1996
---------------------------------------------
By: /s/ Gary Romano
---------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1996
---------------------------------------------
17