<PAGE>
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, 1997
----------------------------------------------
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, 1997 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
----- -----
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
----- -----
<PAGE>
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, 1997 and December 31, 1996 3
Statement of Operations
for the three months ended March 31, 1997 and 1996 4
Statement of Cash Flows
for the three months ended March 31, 1997 and 1996 5
Notes to the Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II. OTHER INFORMATION:
Items 1--6 15
2
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
March 31, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................... $ 1,007,315 $ 1,187,478
Rents receivable............................................... 403,369 469,090
Accounts receivable--affiliate................................. 141,055 89,539
Equipment at cost, net of accumulated depreciation of
$13,687,495 and $13,677,519 at March 31, 1997 and December
31, 1996, respectively....................................... 11,393,326 12,102,782
------------ -----------
Total assets........................................... $12,945,065 $13,848,889
------------ -----------
------------ -----------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable.................................................. $ 5,668,171 $ 6,547,519
Accrued interest............................................... 51,395 79,752
Accrued liabilities............................................ 18,500 22,750
Accrued liabilities--affiliate................................. 50,403 33,067
Deferred rental income......................................... 54,265 133,044
Cash distributions payable to partners......................... 211,436 211,436
----------- -----------
Total liabilities...................................... 6,054,170 7,027,568
----------- -----------
Partners' capital (deficit):
General Partner............................................ (537,995) (541,473)
Limited Partnership Interests
(803,454.56 Units; initial purchase price of $25 each)..... 7,428,890 7,362,794
----------- -----------
Total partners' capital............................... 6,890,895 6,821,321
----------- -----------
Total liabilities and partners' capital............... $12,945,065 $13,848,889
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Income:
Lease revenue.................................................. $1,039,428 $ 988,527
Interest income................................................ 16,479 55,053
Interest income--affiliate..................................... -- 4,610
Gain on sale of equipment...................................... 36,275 61,646
------------ ----------
Total income............................................... 1,092,182 1,109,836
---------- ----------
Expenses:
Depreciation and amortization.................................. 667,431 916,654
Interest expense............................................... 77,021 95,015
Equipment management fees--affiliate........................... 40,542 30,135
Operating expenses--affiliate.................................. 26,178 28,959
---------- ----------
Total expenses............................................. 811,172 1,070,763
---------- ----------
Net income......................................................... $ 281,010 $ 39,073
---------- ----------
---------- ----------
Net income
per limited partnership unit................................... $ 0.33 $ 0.05
---------- ----------
---------- ----------
Cash distribution declared
per limited partnership unit................................... $ 0.25 $ 0.37
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income....................................................... $ 281,010 $ 39,073
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization............................. 667,431 916,654
Gain on sale of equipment................................. (36,275) (61,646)
Changes in assets and liabilities
Decrease (increase) in:
rents receivable.......................................... 65,721 42,859
accounts receivable--affiliate............................ (51,516) (32,396)
Increase (decrease) in:
accrued interest.......................................... (28,357) 15,929
accrued liabilities....................................... (4,250) (4,785)
accrued liabilities--affiliate............................ 17,336 3,026
deferred rental income.................................... (78,779) (1,213)
----------- -----------
Net cash from operating activities.................... 832,321 917,501
----------- -----------
Cash flows from (used in) investing activities:
Purchase of equipment.......................................... -- (43,297)
Proceeds from equipment sales.................................. 78,300 135,000
----------- -----------
Net cash from investing activities.................... 78,300 91,703
----------- -----------
Cash flows used in financing activities:
Principal payments--notes payable.............................. (879,348) (695,740)
Distributions paid............................................. (211,436) (317,154)
----------- -----------
Net cash used in financing activities................. (1,090,784) (1,012,894)
----------- -----------
Net decrease in cash and cash equivalents........................ (180,163) (3,690)
Cash and cash equivalents at beginning of period................. 1,187,478 799,133
----------- -----------
Cash and cash equivalents at end of period....................... $ 1,007,315 $ 795,443
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest....................... $ 105,378 $ 79,086
----------- -----------
----------- -----------
Supplemental disclosure of investing and financing activities:
At December 31, 1995, the Partnership held $1,562,463 in a special-purpose escrow account pending
the completion of an aircraft exchange (See Results of Operations). The Partnership completed the
exchange in March 1996 obtaining interests in aircraft at an aggregate cost of $6,217,805, utilizing
cash of $1,605,760 (including the escrowed funds) and third-party financing of $4,612,045.
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1997
(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 1996 Annual Report. Except as
disclosed herein, there has been no material change to the information
presented in the footnotes to the 1996 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, 1997 and December 31, 1996 and results of operations
for the three month periods ended March 31, 1997 and 1996 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. Rents from Reno Air, Inc. ("Reno Air"), as provided for in the lease
agreement, are adjusted monthly for changes in the London Inter-Bank Offered
Rate ("LIBOR"). Future rents from Reno Air, included below, reflect the most
recent LIBOR effected rental payment. The leases are accounted for as
operating leases and are noncancellable. Rents received prior to their due
dates are deferred. Future minimum rents of $7,711,702 are due as follows:
For the year ending March 31, 1998 $2,530,634
1999 1,749,309
2000 1,103,349
2001 756,999
2002 756,999
Thereafter 814,412
----------
Total $7,711,702
----------
----------
NOTE 4--EQUIPMENT
The following is a summary of equipment owned by the Partnership at March
31, 1997. In the opinion of Equis Financial Group Limited Partnership
("EFG"), (formerly American Finance Group), the acquisition cost of the
equipment did not exceed its fair market value.
6
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST
- -------------------------------------- ------------- -------------
Aircraft.............................. 39-81 $ 8,318,862
Materials handling.................... 4-60 5,903,865
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................. 36-60 752,357
Retail store fixtures................. 48 517,488
Motor vehicles........................ 48-60 394,669
Communications........................ 1-60 295,245
Research & test....................... 24 116,406
Computers & peripherals............... 6-37 93,790
Manufacturing......................... 72 35,218
------------
Total equipment cost 25,080,821
Accumulated depreciation (13,687,495)
------------
Equipment, net of accumulated depreciation $ 11,393,326
------------
------------
At March 31, 1997, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $13,431,527, representing
approximately 54% of total equipment cost.
The summary above includes equipment held for sale or release with a cost
and net book value of approximately $1,332,000 and $83,000, respectively, at
March 31, 1997. The General Partner is actively seeking the sale or re-lease
of all equipment not on lease. See also Note 8--Subsequent Event.
NOTE 5--RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the three month periods
ended March 31, 1997 and 1996 which were paid or accrued by the Partnership
to EFG or its Affiliates, are as follows:
1997 1996
-------- -------
Equipment management fees......................... $40,542 $30,135
Administrative charges............................ 10,074 5,250
Reimbursable operating expenses
due to third parties........................... 16,104 23,709
------- -------
Total.................................. $66,720 $59,094
------- -------
------- -------
7
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
During the three months ended March 31, 1996, the Partnership earned
interest income of $4,610 on a note receivable from EFG resulting from a
settlement with ICCU Containers, S.p.A, a former lessee of the Partnership
and an affiliate of which was a former partner in American Finance Group.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the
Partnership. At March 31, 1997, the Partnership was owed $141,055 by EFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in April 1997.
NOTE 6--NOTES PAYABLE
Notes payable at March 31, 1997 consisted of installment notes of
$5,668,171 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 8.65% and 8.89%, except one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.7% at March
31, 1997). 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 aircraft leased
by Finnair OY and Reno Air of $1,127,840 and $679,276, respectively. The
carrying value of notes payable approximates fair value at March 31, 1997.
The annual maturities of the installment notes payable are as follows:
For the year ending March 31, 1998 $1,481,435
1999 1,007,019
2000 1,703,686
2001 290,548
2002 314,211
Thereafter 871,272
----------
Total $5,668,171
----------
----------
NOTE 7--LEGAL PROCEEDINGS
On July 27, 1995, EFG, on behalf of the Partnership and other
EFG-sponsored investment programs, filed an action in the Commonwealth of
Massachusetts Superior Court Department of the Trial Court in and for the
County of Suffolk, for damages and declaratory relief against a lessee of the
Partnership, National Steel Corporation ("National Steel"), under a certain
Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is
seeking the reimbursement by National Steel of certain sales and/or use taxes
paid to the State of Illinois and other remedies provided by the MLA. On
August 30, 1995, National Steel filed a Notice of Removal which removed the
case to the United States District Court, District of Massachusetts. On
September 7, 1995, National Steel filed its Answer to EFG's Complaint along
with Affirmative Defenses and Counterclaims, seeking declaratory relief and
alleging breach of contract, implied covenant of good faith and fair dealing
and specific performance. EFG filed its Answer to these counterclaims on
September 29, 1995. Though the parties have been discussing settlement with
respect to this matter for some time, to date, the negotiations have been
unsuccessful. Notwithstanding these discussions, EFG recently filed an
Amended and Supplemental Complaint alleging a further default by National
Steel under the MLA and EFG recently filed a Summary Judgment on all claims
and
8
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
counterclaims. The matter remains pending before the Court. The Partnership
has not experienced any material losses as a result of this action.
On March 28, 1997, a complaint was filed by EFG, on behalf of the
Partnership, in Suffolk Superior Court in the state of Massachusetts against
Quaker State Corporation as Guarantor of The Helen Mining Company, a lessee
of the Partnership. The complaint seeks to recover unpaid rents of
approximately $205,000 and other damages equal to the casualty value of the
underlying equipment of approximately $1,200,000. The parties are actively
engaged in settlement negotiations. Quaker State Corporation is due to
provide a formal response to the complaint by May 16, 1997. The Partnership
does not expect to incur any material losses as a result of this action.
NOTE 8--SUBSEQUENT EVENT
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic
interests in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk
Holdings Limited (the "Lessee"), exchanged their ownership interests in the
Vessels for 1,987,000 shares of common stock in Banyan Strategic Land Fund II
("Banyan") and a purchase money note of $8,219,500 (the "Note"). Banyan is a
Delaware corporation organized on April 14, 1987 and has its common stock
listed on NASDAQ. Banyan holds certain real estate investments, the most
significant being a 274 acre site near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis
Exchange LLC, 99% owned by Banyan and 1% owned by EFG), which was established
for the sole purpose of facilitating the exchange. There were no fees paid to
EFG by Equis Exchange LLC or Banyan or by any other party that otherwise
would not have been paid to EFG had the Partnership sold its beneficial
interest in the Vessels directly to the Lessee. The Lessee prepaid all of its
remaining contracted rental obligations and purchased the Vessels in two
closings occurring on May 6, 1997 and May 12, 1997. The above-referenced Note
was repaid with $3,800,000 of cash and delivery of a $4,419,500 note from
Banyan (the "Banyan Note").
As a result of the exchange transaction and its original 33.85%
beneficial ownership interest in Dove Arrow, one of the three Vessels, the
Partnership received $433,294 in cash and is the beneficial owner of 208,764
shares of Banyan common stock and holds a beneficial interest in the Banyan
Note of $459,729.
Cash equal to the amount of the Banyan Note is being held by Banyan in a
segregated account pending the outcome of certain shareholder proposals.
Specifically, as part of the exchange, Banyan agreed to seek consent
("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Banyan's net operating
loss carry-forwards, and (3) engage EFG to provide administrative services to
Banyan, which services EFG will provide at cost. If the Consent is not
obtained, repayment of the Banyan Note will be accelerated and repaid from
the cash held in the segregated account. If the Consent is obtained, the
Banyan Note will be amortized over three years and bear an annual interest
rate of 10%.
In connection with the Banyan transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, joined the Board of Directors of Banyan and
James A. Coyne, Senior Vice President of EFG became Banyan's Chief Operating
Officer. The agreement also provides that a majority of the Board of
Directors remain independent of Banyan and EFG. Provided Consent is received
by October 31, 1997, Banyan has agreed to declare a $0.20 per share dividend
to be paid on all shares, including those beneficially owned by the
Partnership.
9
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
The General Partner believes that the underlying tangible assets of
Banyan, particularly the Rancho Malibu property, can be sold or developed on
a tax free basis due to Banyan's net operating loss carryforwards and can
provide an attractive economic return to the Partnership.
10
<PAGE>
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, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1996:
OVERVIEW
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment
subject to lease agreements with third parties. The Partnership's stated
investment objectives and policies contemplated that the Partnership would
wind-up its operations within approximately seven years of its inception. The
value of the Partnership's equipment portfolio decreases over time due to
depreciation resulting from age and usage of the equipment, as well as
technological changes and other market factors. In addition, the Partnership
does not replace equipment as it is sold; therefore, its aggregate investment
value in equipment declines from asset disposals occurring in the normal
course. As a result of the Partnership's age and a declining equipment
portfolio, the General Partner is evaluating a variety of transactions that
will reduce the Partnership's prospective costs to operate as a publicly
registered limited partnership and, therefore, enhance overall cash
distributions to the limited partners. Such a transaction may involve the
sale of the Partnership's remaining equipment or a transaction that would
allow for the consolidation of the Partnership's expenses with other
similarly-organized equipment leasing programs. In order to increase the
marketability of the Partnership's remaining equipment, the General Partner
expects to use the Partnership's available cash and future cash flow to
retire indebtedness. This will negatively effect short-term cash
distributions.
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, the Partnership recognized
lease revenue of $1,039,428 compared to $988,527 for the same period in 1996.
The increase in lease revenue from 1996 to 1997 reflects the effects of an
aircraft exchange completed in March 1996 offset by lease term expirations
and equipment sales. As a result of this exchange, the Partnership replaced
its ownership interest in a Boeing 747-SP aircraft, 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.). The Southwest Aircraft were
exchanged into the Partnership in 1995, while the Finnair Aircraft and the
Reno Aircraft were exchanged into the Partnership on March 25 and March 26,
1996, respectively. Accordingly, revenue for the first quarter of 1996
reflected only a portion of the rents ultimately earned from the like-kind
exchange. In aggregate, the replacement aircraft generated approximately
$326,000 of lease revenue during the first quarter of 1997 compared to
approximately $104,000 for the same period in 1996. In the future, lease
revenue will decline due to primary and renewal lease term expirations and
the sale of equipment.
The Partnership's equipment portfolio includes certain assets in which
the Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by EFG. 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, 1997 the Partnership earned interest
income of $16,479 compared to $55,053 for the same period in 1996. Interest
income is typically generated from temporary investment of rental receipts
and equipment sale proceeds in short-term instruments. Interest income in
1996 included interest of $44,994 earned on cash held in a special-purpose
escrow account in connection with the like-kind exchange transaction,
discussed above. During the three months ended March 31, 1996, the
Partnership earned interest
11
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
income of $4,610 on a note receivable from EFG resulting from a settlement
with ICCU Containers, S.p.A, a former lessee of the Partnership and an
affiliate of which was a former partner in American Finance Group. All
amounts due from EFG pursuant to this note had been received at December 31,
1996. 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.
In 1997, the Partnership sold equipment having a net book value of
$42,025 to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes, of $36,275 compared to a net gain in
1996 of $61,646 on equipment having a net book value of $73,354.
It cannot be determined whether future sales of equipment will result in
a net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount
of accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological
advances, and many other events can converge to enhance or detract from asset
values at any given time. EFG attempts to monitor these changes in order to
identify opportunities which may be advantageous to the Partnership and which
will maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset,
together with its residual value. The latter consists of cash proceeds
realized upon the asset's sale in addition to all other cash receipts
obtained from renting the asset on a re-lease, renewal or month-to-month
basis. The Partnership classifies such residual rental payments as lease
revenue. Consequently, the amount of gain or loss reported in the financial
statements is not necessarily indicative of the total residual value the
Partnership achieved from leasing the equipment.
Depreciation and amortization expense for the three months ended March
31, 1997 was $667,431 compared to $916,654 for the same period in 1996. 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 $77,021 or 7.4% of lease revenue for the three
months ended March 31, 1997 compared to $95,015 or 9.6% of lease revenue for
the same period in 1996. Interest expense in future periods will continue to
decline in amount and as a percentage of lease revenue as the principal
balance of notes payable is reduced through the application of rent receipts
to outstanding debt. In addition, the General Partner expects to use a
portion of the Partnership's available cash and future cash flow to retire
indebtedness (see Overview).
Management fees were approximately 3.9% of lease revenue for the three
months ended March 31, 1997, compared to approximately 3% of lease revenue
during the same period in 1996. 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.
12
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
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 2.5%
of lease revenue for the three months ended March 31, 1997, compared to 2.9%
of lease revenue for the same period in 1996. 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
$832,321 and $917,501 for the three months ended March 31, 1997 and 1996,
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 three months ended March 31,
1996, the Partnership expended $43,297 in cash in connection with the
like-kind exchange transaction referred to above. During the three months
ended March 31, 1997, the Partnership realized $78,300 in equipment sale
proceeds compared to $135,000 for the same period in 1996. 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 is scheduled to decline as the principal balance of notes
payable is reduced through the collection and application of rents. However,
the amount of cash used to repay debt obligations may fluctuate due to the
use of the Partnership's available cash and future cash flow to retire
indebtedness (see Overview). In addition, the Partnership has balloon payment
obligations at the expiration of the respective primary lease terms related
to the Finnair Aircraft and the Reno Aircraft of $1,127,840 and $679,276,
respectively.
13
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART I. FINANCIAL INFORMATION
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, 1997, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $211,436. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Limited Partners were allocated 95% of these distributions,
or $200,864, and the General Partner was allocated 5%, or $10,572. The first
quarter 1997 cash distribution was paid on April 14, 1997.
Cash distributions paid to the Limited Partners consist of both a return
of and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation
of renewal and/or re-lease rents, and the residual value realized for each
asset at its disposal date. Future market conditions, technological changes,
the ability of EFG 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 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.
14
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Form 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
15
<PAGE>
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, 1997
--------------------------------------------------
By: /s/ Gary Romano
--------------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1997
--------------------------------------------------
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,007,315
<SECURITIES> 0
<RECEIVABLES> 544,424
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,551,739
<PP&E> 25,080,821
<DEPRECIATION> 13,687,495
<TOTAL-ASSETS> 12,945,065
<CURRENT-LIABILITIES> 385,999
<BONDS> 5,668,171
0
0
<COMMON> 0
<OTHER-SE> 6,890,895
<TOTAL-LIABILITY-AND-EQUITY> 12,945,065
<SALES> 1,039,428
<TOTAL-REVENUES> 1,092,182
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 734,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,021
<INCOME-PRETAX> 281,010
<INCOME-TAX> 0
<INCOME-CONTINUING> 281,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 281,010
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
