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 September 30, 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 September 30, 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
- ---------------------------------------------------- ----------------------
(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 September 30, 1996 and December 31, 1995 3
Statement of Operations
for the three and nine months ended September 30, 1996 and 1995 4
Statement of Cash Flows
for the nine months ended September 30, 1996 and 1995 5
Notes to the Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15 11-15
PART II. OTHER INFORMATION:
Items 1 - 6 16
2
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 1996 and December 31, 1995
(Unaudited)
September 30, December 31,
ASSETS 1996 1995
- ------ ------------- ------------
Cash and cash equivalents $ 683,529 $ 799,133
Contractual right for equipment -- 1,562,463
Rents receivable 618,327 716,657
Accounts receivable - affiliate 192,498 13,652
Note receivable - affiliate 210,144 210,144
Equipment at cost, net of accumulated
depreciation of $13,089,242
and $13,427,155 at September 30, 1996
and December 31, 1995, respectively 12,806,524 9,384,501
Organization costs, net of accumulated
amortization of $5,000 and $4,250 at
September 30, 1996 and December 31, 1995,
respectively -- 750
----------- -----------
Total assets $14,511,022 $12,687,300
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 7,065,489 $ 4,574,713
Accrued interest 37,758 42,509
Accrued liabilities 18,750 157,002
Accrued liabilities - affiliate 17,587 23,344
Deferred rental income 134,978 140,519
Cash distributions payable to partners 317,154 317,154
----------- -----------
Total liabilities 7,591,716 5,255,241
----------- -----------
Partners' capital (deficit):
General Partner (536,574) (510,936)
Limited Partnership Interests
(803,454.56 Units; initial purchase
price of $25 each) 7,455,880 7,942,995
----------- -----------
Total partners' capital 6,919,306 7,432,059
----------- -----------
Total liabilities and partners'
capital $14,511,022 $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 and nine months ended September 30, 1996 and 1995
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
----------- ------------ ----------- ------------
Income:
Lease revenue $1,095,573 $1,127,010 $3,113,111 $3,552,396
Interest income 6,574 12,769 72,635 40,624
Interest income - affiliate 4,656 4,119 13,876 21,161
Gain on sale of equipment 197,843 69,944 348,717 43,885
Loss on exchange of equipment -- (965,396) -- (965,396)
---------- ---------- ---------- ----------
Total income 1,304,646 248,446 3,548,339 2,692,670
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization 694,735 965,585 2,473,795 3,007,624
Interest expense 128,993 109,685 392,281 293,195
Equipment management fees
- affiliate 37,870 33,534 100,689 108,848
Operating expenses - affiliate 52,167 28,156 142,868 102,826
---------- ---------- ---------- ----------
Total expenses 913,765 1,136,960 3,109,633 3,512,493
---------- ---------- ---------- ----------
Net income (loss) $ 390,881 $ (888,514) $ 438,706 $ (819,823)
========== ========== ========== ==========
Net income (loss)
per limited partnership unit $0.46 $(1.05) $0.52 $(0.97)
========= ========== ========== ==========
Cash distributions declared
per limited partnership unit $0.37 $0.37 $1.12 $1.63
========== ========== ========== ==========
The accompanying notes are an integral part
of these financial statements.
4
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Cash flows from (used in) operating
activities: $ 438,706 $ (819,823)
Net income (loss)
Adjustments to reconcile net income
(loss) to
net cash from operating activities: 2,473,795 3,007,624
Depreciation and amortization
Gain on sale of equipment (348,717) (43,885)
Loss on exchange of equipment -- 965,396
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 98,330 144,038
accounts receivable - affiliate (178,846) (135,203)
note receivable - affiliate -- 118,919
Increase (decrease) in:
accrued interest (4,751) (46,272)
accrued liabilities (138,252) 25,385
accrued liabilities - affiliate (5,757) (6,902)
deferred rental income (5,541) 6,855
----------- -----------
Net cash from operating
activities 2,328,967 3,216,132
----------- -----------
Cash flows from (used in) investing
activities:
Purchase of equipment (43,297) --
Proceeds from equipment sales 671,454 547,708
----------- -----------
Net cash from investing
activities 628,157 547,708
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (2,121,269) (2,566,458)
Distributions paid (951,459) (1,585,767)
----------- -----------
Net cash used in financing
activities (3,072,728) (4,152,225)
----------- -----------
Net decrease in cash and cash
equivalents (115,604) (388,385)
Cash and cash equivalents at beginning
of period 799,133 1,113,814
----------- -----------
Cash and cash equivalents at end of
period $ 683,529 $ 725,429
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 397,032 $ 339,467
=========== ===========
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
September 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 September 30, 1996 and December 31, 1995 and results of operations
for the three and nine month periods ended September 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
$9,444,191 are due as follows:
For the year ending September 30, 1997 $2,998,264
1998 2,146,121
1999 1,439,339
2000 899,508
2001 761,748
Thereafter 1,199,211
----------
Total $9,444,191
==========
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 September 30, 1999,
and approximately $138,000 in the year ending September 30, 2000, pursuant to
the Southwest Aircraft lease agreement.
6
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with the acquisitions of an 11.87% interest in two McDonnel-
Dougla s MD-82 Aircraft leased by Finnair OY (the "Finnair 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 September
30, 1998, and approximately $250,000 in the year ending September 30, 1999,
pursuant to the Finnair Aircraft lease agreement. With respect to the Reno
Aircraft lease agreement, the Partnership will receive approximately $381,000 of
rental revenue in each of the years in the period ending September 30, 2002 and
approximately $98,000 in the year ending September 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 September
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 $ 8,318,862
Materials handling 4-60 6,388,904
Vessels 72 2,605,381
Trailers/intermodal containers 66-99 2,187,937
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 48-60 431,545
Computers & peripherals 6-37 377,025
Communications 12-60 295,245
Research & test 24 116,406
Manufacturing 72 35,218
------------
Total equipment cost 25,895,766
------------
Accumulated depreciation (13,089,242)
------------
Equipment, net of accumulated depreciation $ 12,806,524
============
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.
7
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 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 gain
was deferred in anticipation of completing a like-kind exchange during the three
months ended June 30, 1996. The Partnership intended to replace these trailers
with comparable trailers and lease such equipment to a new lessee. The
Partnership had accounted for this transaction as a like-kind exchange for
income tax reporting purposes. Accordingly, the net cash consideration of
$26,250 was deposited in a special-purpose escrow account through a third-party
Exchange Agent pending completion of the equipment exchange. The Partnership
subsequently elected not to replace the trailers and, accordingly, the deferred
gain of $4,556 was recognized as Gain on Sale of Equipment on the Statement of
Operations during the second quarter of 1996. In addition, the cash
consideration of $26,250, which was reported as Contractual Right for Equipment
on the Statement of Financial Position at March 31, 1996, was recognized as
proceeds from equipment sales.
At September 30, 1996, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $13,431,527, representing
approximately 52% of total equipment cost.
The summary above includes equipment held for sale or release with a cost and
net book value of approximately $840,000 and $87,000, respectively, at September
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 the nine month periods ended
September 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 $100,689 $108,848
Administrative charges 15,750 15,750
Reimbursable operating expenses
due to third parties 127,118 87,076
-------- --------
Total $243,557 $211,674
======== ========
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 $38,847,
represent less than 1% of the Partnership's equipment portfolio at September 30,
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
September 30, 1996, the Partnership was owed $192,498 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in October
1996.
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at September 30, 1996 consisted of installment notes of
$7,065,489 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 7.04% and 10.65%, except one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.4% at
September 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 respective primary lease terms related to the Finnair Aircraft
and the Reno Aircraft. The carrying value of notes payable approximates fair
value at September 30, 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 September 30, 1997 $1,453,902
1998 1,117,714
1999 2,082,500
2000 527,722
2001 464,176
Thereafter 1,419,475
----------
Total $7,065,489
==========
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 and nine months ended September 30, 1996 compared to the three and nine
- -----------------------------------------------------------------------------
months ended September 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 nine months ended September 30, 1996, the Partnership
recognized lease revenue of $1,095,573 and $3,113,111, respectively, compared to
$1,127,010 and $3,552,396 for the same periods in 1995. The decrease in lease
revenue from 1995 to 1996 reflects the effects of primary lease term expirations
and the sale of equipment. The Partnership concluded an aircraft exchange late
in the first quarter of 1996 (see discussion below). 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, revenue for the nine month period ended September 30, 1996 does not
fully reflect 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 nine months ended September 30, 1996, the Partnership earned
interest income of $6,574 and $72,635, respectively, compared to $12,769 and
$40,624 for the same 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 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 and nine months ended September
30, 1996, the Partnership also earned interest income of $4,656 and $13,876,
respectively, on a note receivable from AFG resulting from the settlement
11
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
with ICCU Containers S.p.A. (See Note 5 to the financial statements), compared
to $4,119 and $21,161 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 and nine months ended September 30, 1996, the Partnership sold
equipment with net book values of $140,061 and $301,043, respectively, to
existing lessees and third parties. These sales resulted in net gains, for
financial statement purposes, of $197,843 and $344,161, respectively, compared
to net gains of $69,944 and $43,885 on equipment having net book values of
$218,872 and $503,823, respectively, for the same periods 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. The Partnership received aggregate cash consideration
of $2,723,865 including $213,301 for rent accrued through the transfer date. A
portion of the consideration was used to satisfy the balance of outstanding debt
and interest of $414,925. The net cash consideration of $2,095,639 was
deposited into a special-purpose escrow account through a third-party exchange
agent pending the completion of the aircraft exchange. The Partnership's
interest in the Aircraft had a net book value of $3,475,960 at the date of
transfer and resulted in a net loss for financial reporting purposes of
$965,396.
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 trailers previously leased to The Atchison Topeka and
Santa Fe Railroad. The Partnership intended to replace the trailers with
comparable trailers and account for the transaction as a like-kind exchange for
income tax reporting purposes. A gain of $4,556 was deferred in anticipation of
completing the exchange during the three months ended June 30, 1996. The
Partnership subsequently elected not to replace the trailers and, accordingly,
the deferred gain of $4,556 was recognized as Gain on Sale of Equipment on the
Statement of Operations during the second quarter of 1996. See Note 4 to the
financial statements for additional discussion of this transaction.
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
12
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 and amortization expense for the three and nine months ended
September 30, 1996 was $694,735 and $2,473,795, respectively, compared to
$965,585 and $3,007,624 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 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 $128,993 and $392,281, or 11.8% and 12.6% of lease
revenue for the three and nine months ended September 30, 1996, respectively,
compared to $109,685 and $293,195, or 9.7% and 8.3% 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 3.5% and 3.2% of lease revenue for the
three and nine months ended September 30, 1996, respectively, compared to 3% and
3.1% of lease revenue for the same periods 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 4.8% and 4.6% of lease revenue for
the three and nine months ended September 30, 1996, respectively, compared to
2.5% and 2.9% 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
13
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $2,328,967 and $3,216,132 for the nine
months ended September 30, 1996 and 1995, respectively. Future renewal, re-
lease and equipment sale activities will cause a 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 also continue to decline as the Partnership
experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This will
occur principally through sale transactions whereby each asset will be sold to
the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash 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 nine months ended September 30, 1996, the
Partnership expended $43,297 in cash in connection with the like-kind exchange
transactions referred to above. For the nine months ended September 30, 1996,
the Partnership realized $671,454 in equipment sale proceeds compared to
$547,708 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 related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future 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 nine months ended September 30, 1996, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $951,459. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership, the
Limited Partners were allocated 95% of these distributions, or $903,886, and the
General Partner was allocated 5%, or $47,573. The third quarter 1996 cash
distribution was paid on October 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
14
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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 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: November 13, 1996
_______________________________________________
By: /s/ Gary M. Romano
________________________________________________
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 13, 1996
__________________________________________________
17