UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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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 June 30, 1996 Commission File No. 0-20029
American Income Fund I-E, a Massachusetts Limited Partnership
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3127244
- ------------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
- --------------------------------------- --------------
(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______
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at June 30, 1996 and December 31, 1995 3
Statement of Operations
for the three and six months ended
June 30, 1996 and 1995 4
Statement of Cash Flows
for the six months ended
June 30, 1996 and 1995 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
PART II. OTHER INFORMATION:
Items 1 - 6 15
2
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
June 30, 1996 and December 31, 1995
(Unaudited)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
- -------
Cash and cash equivalents $ 1,777,562 $ 2,189,633
Contractual right for equipment -- 1,276,051
Rents receivable 913,847 1,087,061
Accounts receivable - affiliate 306,012 130,911
Note receivable - affiliate 210,377 210,377
Equipment at cost, net of accumulated
depreciation of $13,187,592 and
$11,496,078 at June 30, 1996
and December 31, 1995, respectively 17,016,002 13,860,717
Organization costs, net of accumulated
amortization of $4,583 and $4,083 at
June 30, 1996 and December 31, 1995,
respectively 417 917
----------- -----------
Total assets $20,224,217 $18,755,667
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 8,070,628 $ 5,839,543
Accrued interest 98,210 68,000
Accrued liabilities 12,500 21,770
Accrued liabilities - affiliate 13,360 11,875
Deferred rental income 158,295 139,424
Cash distributions payable to partners 639,613 639,613
----------- -----------
Total liabilities 8,992,606 6,720,225
----------- -----------
Partners' capital (deficit):
General Partner (412,770) (372,579)
Limited Partnership Interests
(883,829.31 Units; initial purchase 11,644,381 12,408,021
price of $25 each) ---------- -----------
Total partners' capital 11,231,611 12,035,442
----------- -----------
Total liabilities and partners'
capital $20,224,217 $18,755,667
=========== ===========
The accompanying notes are an integral part
of these financial statements.
3
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three and six months ended June 30, 1996 and 1995
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
-------------- --------------- ----------- ------------
Income:
Lease revenue $1,356,132 $1,419,457 $2,660,995 $2,839,558
Interest income 27,182 32,217 94,473 63,835
Interest income - affiliate 4,615 7,176 9,230 17,061
Gain (loss) on sale of equipment 39,921 (92,591) 27,017 (70,273)
---------- ---------- ---------- ----------
Total income 1,427,850 1,366,259 2,791,715 2,850,181
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization 954,100 942,832 1,875,163 1,982,276
Interest expense 194,200 107,548 292,620 227,275
Equipment management fees
- affiliate 38,830 41,001 75,832 83,481
Operating expenses - affiliate 49,233 29,880 72,705 64,144
---------- ---------- ---------- ----------
Total expenses 1,236,363 1,121,261 2,316,320 2,357,176
---------- ---------- ---------- ----------
Net income $ 191,487 $ 244,998 $ 475,395 $ 493,005
========== ========== ========== ==========
Net income per limited partnership unit $ 0.21 $ 0.26 $ 0.51 $ 0.53
========== ========== ========== ==========
Cash distributions declared
per limited partnership unit $ 0.69 $ 0.69 $ 1.37 $ 1.37
========== ========== ========== ==========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Cash flows from (used in) operating
activities:
Net income $ 475,395 $ 493,005
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 1,875,163 1,982,276
(Gain) loss on sale of equipment (27,017) 70,273
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 173,214 (52,807)
accounts receivable - affiliate (175,101) (84,997)
note receivable - affiliate -- 119,052
Increase (decrease) in:
accrued interest 30,210 (10,007)
accrued liabilities (9,270) (500)
accrued liabilities - affiliate 1,485 (2,202)
deferred rental income 18,871 (30,516)
----------- -----------
Net cash from operating activities 2,362,950 2,483,577
----------- -----------
Cash flows from (used in) investing
activities:
Purchase of equipment (37,677) --
Proceeds from equipment sales 83,775 171,332
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Net cash from investing activities 46,098 171,332
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (1,541,893) (1,450,998)
Distributions paid (1,279,226) (1,279,226)
----------- -----------
Net cash used in financing
activities (2,821,119) (2,730,224)
----------- -----------
Net decrease in cash and cash
equivalents (412,071) (75,315)
Cash and cash equivalents at beginning
of period 2,189,633 2,488,845
----------- -----------
Cash and cash equivalents at end of
period $ 1,777,562 $ 2,413,530
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 262,410 $ 237,282
=========== ===========
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 fiancial statements.
5
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
June 30, 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 June 30, 1996 and December 31, 1995 and results of operations for
the three and six months ended June 30, 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 interests 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 $12,006,288 are due as follows:
For the year ending June 30, 1997 $ 4,669,298
1998 3,169,808
1999 1,488,414
2000 835,653
2001 638,421
Thereafter 1,204,694
-----------
Total $12,006,288
===========
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 an 11.74% interest in three Boeing 737-2H4 aircraft leased to
Southwest Airlines, Inc. (the "Southwest Aircraft"). The Partnership will
receive approximately $338,000 of rental revenue in each of the years in the
period ending June 30, 1999, and $197,000 in the year ending June 30, 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 a 9.71% ownership interest in
two McDonnell-Douglas MD-82 Aircraft leased by Finnair OY
6
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
(the "Finnair Aircraft") and a 17.43% ownership interest in a McDonnell-Douglas
MD-87 aircraft leased by Reno Air, Inc. (the "Reno Aircraft"). The Partnership
will receive approximately $419,000 of rental revenue in each of the years in
the period ending June 30, 1998 and approximately $309,000 in the year ending
June 30, 1999, pursuant to the Finnair Aircraft lease agreement. With respect to
the Reno Aircraft lease agreement, the Partnership will receive approximately
$309,000 of rental revenue in each of the years in the period ending June 30,
2002 and approximately $155,000 in the year ending June 30, 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 June
30, 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 $ 8,697,671
Materials handling 8-60 5,260,530
Vessels 72 5,160,573
Construction & mining 36-72 2,709,146
Trailers and intermodal containers 78-99 1,773,184
Locomotives 60 1,572,196
Tractors & heavy duty trucks 60-78 1,493,330
General purpose plant/warehouse 72 1,193,417
Furniture & fixtures 60 742,160
Retail store fixtures 48 687,947
Communications 12-48 659,442
Research & test 48 99,130
Photocopying 12-36 88,272
Computers & peripherals 1-36 66,596
------------
Total equipment cost 30,203,594
Accumulated depreciation (13,187,592)
------------
Equipment, net of accumulated depreciation $ 17,016,002
============
In September 1995, the Partnership transferred its 27.02% ownership
interest in the United Aircraft, pursuant to the rules for a like-kind exchange
for income tax reporting purposes (See Note 3 herein). In November 1995, the
Partnership partially replaced the United Aircraft with an 11.74% interest in
the Southwest Aircraft, at an aggregate cost of $1,718,912. To acquire the
interests in the Southwest Aircraft, the Partnership obtained financing of
$1,282,711 from a third-party lender and utilized $436,201 of the cash
consideration received from the transfer of the United Aircraft. The remaining
ownership interest of 88.26% 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 a 9.71% ownership interest in the
Finnair Aircraft and a 17.43% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $2,718,900 and $2,367,806, respectively. To acquire
the
7
AMERICAN INCOME FUND I-E
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
ownership interest in the Finnair Aircraft, the Partnership paid $909,035 in
cash and obtained financing of $1,809,865 from a third-party lender. To acquire
the ownership interest in the Reno Aircraft, the Partnership paid $404,693 in
cash and obtained financing of $1,963,113 from a third-party lender. The
remaining ownership interests of 90.29% and 82.57% in the Finnair Aircraft and
Reno Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by AFG.
At June 30, 1996, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $16,945,333, representing approximately
56% of total equipment cost.
The summary above includes equipment held for sale or re-lease with a cost
and net book value of approximately $296,000 and $69,000, respectively, at June
30, 1996. The General Partner is actively seeking the sale or re-lease of all
equipment not on lease.
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 each of the six month
periods ended June 30, 1996 and 1995, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
1996 1995
--------- ---------
Equipment management fees $ 75,832 $ 83,481
Administrative charges 10,500 10,500
Reimbursable operating expenses
due to third parties 62,205 53,644
-------- --------
Total $148,537 $147,625
======== ========
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 899 containers, having a net book
value of $1,037,983, 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 $1,035,318 and (ii) beneficial assignment of an existing AFG
note payable to CLOU which had a principal balance of $370,676 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 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 $183,161 outstanding from ICCU at November 30, 1994. The remaining
container of the original equipment group was disposed of in 1992 for a
stipulated payment as a result of a casualty event.
In April 1995, the Partnership replaced 899 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, $1,958,034, was reduced by
$184,850, representing the amount of gain deferred on the original containers.
The Partnership obtained approximately $925,000 of long-term financing in
connection with the replacement containers.
8
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 June 30, 1996, the Partnership was owed $306,012 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in July
1996.
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at June 30, 1996 consisted of installment notes of
$8,070,628 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 6% and 9.25%, except for one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.5% at June 30,
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 primary
lease terms related to the Finnair Aircraft and the Reno Aircraft. The carrying
amount of notes payable approximates fair value at June 30,1996.
The annual maturities of the installment notes payable are as follows:
For the year ending June 30, 1997 $2,678,341
1998 1,573,397
1999 2,035,078
2000 612,930
2001 489,381
Thereafter 681,501
----------
Total $8,070,628
==========
9
AMERICAN INCOME FUND I-E,
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 and six months ended June 30, 1996 compared to the three and six months
- -----------------------------------------------------------------------------
ended June 30, 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 and six months ended June 30, 1996, the Partnership
recognized lease revenue of $1,356,132 and $2,660,995, respectively, compared to
$1,419,457 and $2,839,558 for the same periods 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
Partnership's 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 $174,279, 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 $266,415. The
Finnair Aircraft and the Reno Aircraft were exchanged into the Partnership on
March 25 and March 26, 1996, respectively. Accordingly, revenue for the six
months ended June 30, 1996 reflects 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 and six months ended June 30, 1996, the Partnership earned
interest income of $27,182 and $94,473, respectively, compared to $32,217 and
$63,835 for the corresponding periods in 1995. Interest income is typically
generated from temporary investment of rental receipts and equipment sales
proceeds in short-term instruments. The overall increase in interest income in
1996 compared to 1995 is a result of
10
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Parternship
FORM 10-Q
PART I. FINANCIAL INFORMATION
interest of $36,763 earned on cash held in a special-purpose escrow in
connection with the like-kind exchange transactions, discussed below. During the
three and six months ended June 30, 1996, the Partnership also earned interest
income of $4,615 and $9,230, respectively, on a note receivable from AFG
resulting from the settlement with ICCU Containers S.p.A. (See Note 5 to the
financial statements) compared to $7,176 and $17,061 for the same periods in
1995. 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 June 30, 1996, the Partnership sold equipment
having a net book value of $22,329 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $39,921
compared to a net loss of $92,591 on equipment having a net book value of
$209,282 for the same period in 1995.
For the six months ended June 30, 1996, the Partnership sold equipment
having a net book value of $56,758 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $27,017
compared to a net loss of $70,273 on equipment having a net book value of
$241,605 for the same period in 1995.
In September 1995, the Partnership transferred its 27.02% ownership
interest in the United Aircraft, pursuant to the rules for 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 an
11.74% interest in the Southwest Aircraft, at an aggregate cost of $1,718,912.
To acquire the interests in the Southwest Aircraft, the Partnership obtained
financing of $1,282,711 from a third-party lender and utilized $436,201 of the
cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 88.26% 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 a 9.71% ownership interest in the
Finnair Aircraft and a 17.43% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $2,718,900 and $2,367,806, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $909,035
and obtained financing of $1,809,865 from a third-party lender. To acquire the
ownership interest in the Reno Aircraft, the Partnership paid $404,693 and
obtained financing of $1,963,113 from a third-party lender. The remaining
ownership interests of 90.29% and 82.57% in the Finnair Aircraft and Reno
Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by AFG.
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.
11
AMERICAN INCOME FUND I-E,
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 may not be
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation and amortization expense for the three and six months ended
June 30, 1996 was $954,100 and $1,875,163, respectively, compared to $942,832
and $1,982,276 for the same periods 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 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 $194,200 and $292,620, or 14.3% and 11% of lease
revenue for the three and six months ended June 30, 1996, respectively, compared
to $107,548 and $227,275, or 7.6% and 8% of lease revenue for the same periods
in 1995. The increase in interest expense in 1996 compared to 1995 was due
primarily to interest incurred in connection with the leveraging obtained to
finance the like-kind exchange transactions, discussed above. Interest expense
in future periods is expected 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 approximately 2.9% of lease revenue for each of the
three and six month periods ended June 30, 1996 and 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 3.6% and 2.7% of lease
revenue for the three and six months ended June 30, 1996, respectively, compared
to 2.1% and 2.3% of lease revenue for the same periods in 1995. The increase in
operating expenses from 1995 to 1996 is due principally to costs incurred in
connection with the like-kind exchange transactions, discussed above. 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 $2,362,950 and $2,483,577 for the six
months ended June 30, 1996 and 1995, respectively. Future renewal, re-lease and
equipment sale activities will continue to 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.
12
AMERICAN INCOME FUND I-E,
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 are reported under investing activities on the
accompanying Statement of Cash Flows. During the six months ended June 30,
1996, the Partnership expended $37,677 in cash in connection with the like-kind
exchange transactions referred to above. There were no equipment acquisitions
in the corresponding period in 1995. During the six months ended June 30, 1996,
the Partnership realized $83,775 in equipment sale proceeds compared to $171,332
for the same period in 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 are reported as a component of
financing activities. Each note payable is recourse only to the specific
equipment financed and to the minimum rental payments contracted to be received
during the debt amortization period (which period generally coincides with the
lease rental term). As rental payments are collected, a portion or all of the
rental payment is used to repay the associated indebtedness. In future periods,
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. 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.
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 six months ended June 30, 1996, the Partnership declared
total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $1,279,226. In accordance
with the Amended and Restated Agreement and Certificate of Limited Partnership,
the Limited Partners were allocated 95% of these distributions, or $1,215,265
and the General Partner was allocated 5%, or $63,961. The second quarter 1996
cash distribution was paid on July 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.
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AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
The future liquidity of the Partnership will be influenced by the
foregoing and will be greatly dependent upon the collection of contractual rents
and the outcome of residual activities. The General Partner anticipates that
cash proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities. Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
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AMERICAN INCOME FUND I-E,
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
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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-E, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of
the Registrant.
By: /S/ Michael J. Butterfield
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Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 14, 1996
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By: /s/ Gary M. Romano
--------------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 1996
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