<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 0-20031
American Income Fund I-C, a Massachusetts Limited
Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3077437
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
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
<TABLE>
<CAPTION>
Page
------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at September 30, 2000 and December 31, 1999........................ 3
Statement of Operations
for the three and nine months ended September 30, 2000 and 1999.... 4
Statement of Changes in Partners' Capital
for the nine months ended September 30, 2000....................... 5
Statement of Cash Flows
for the nine months ended September 30, 2000 and 1999.............. 6
Notes to the Financial Statements.................................... 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 12-17
PART II. OTHER INFORMATION:
Items 1-6.................................................................... 18
</TABLE>
2
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ....................................................... $ 1,649,519 $ 3,970,877
Rents receivable ................................................................ 96,156 92,215
Account receivable--affiliate ................................................... 71,571 133,950
Accounts receivable--other........................................................ 39,177 -
Investment in real estate venture ............................................... 2,717,106 -
Note receivable--affiliate ...................................................... 459,729 459,729
Investment securities--affiliate ................................................ 104,380 120,037
Equipment at cost, net of accumulated depreciation of $6,427,616 and
$7,486,725 at September 30, 2000 and December 31, 1999, respectively ........... 5,687,513 6,405,777
----------- -----------
Total assets ............................................................... $10,825,151 $11,182,585
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable ................................................................... $ 2,159,754 $ 2,363,628
Accrued interest ................................................................ 10,693 16,416
Accrued liabilities ............................................................. 392,480 386,918
Accrued liabilities---affiliate ................................................. 27,524 17,783
Deferred rental income .......................................................... 38,166 57,307
Cash distributions payable to partners .......................................... - 158,577
----------- -----------
Total liabilities .......................................................... 2,628,617 3,000,629
----------- -----------
Partners' capital (deficit):
General Partner ................................................................ (472,713) (473,442)
Limited Partnership Interests (803,454.56 Units; initial purchase price
of $25 each) ................................................................. 8,669,247 8,655,398
----------- -----------
Total partners' capital .................................................... 8,196,534 8,181,956
----------- -----------
Total liabilities and partners' capital .................................... $10,825,151 $11,182,585
=========== ===========
</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 and nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Lease revenue....................................... $ 272,050 $507,999 $1,026,637 $1,676,339
Interest income..................................... 28,072 50,177 94,983 157,894
Interest income--affiliate.......................... 11,588 11,588 34,385 34,385
Gain on sale of equipment........................... 71,209 34,500 93,209 483,673
--------- -------- ---------- ----------
Total income.................................... 382,919 604,264 1,249,214 2,352,291
--------- -------- ---------- ----------
Expenses:
Depreciation........................................ 155,374 239,577 482,228 716,710
Interest expense.................................... 47,778 52,517 148,142 174,540
Equipment management fees--affiliate................ 12,549 23,802 47,406 76,348
Operating expenses--affiliate....................... 314,660 37,217 478,309 200,229
Partnership's share of unconsolidated real
estate venture's loss.............................. 45,071 - 62,894 -
--------- -------- ---------- ----------
Total expenses.................................. 575,432 353,113 1,218,979 1,167,827
--------- -------- ---------- ----------
Net (loss) income.................................... $(192,513) $251,151 $ 30,235 $1,184,464
========= ======== ========== ==========
Net (loss) income per limited partnership unit....... $ (.23) $ 0.30 $ .04 $ 1.40
========= ======== ========== ==========
Cash distributions declared per limited
partnership unit................................... $ - $ 0.19 $ - $ 0.56
========= ======== ========== ==========
</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 CHANGES IN PARTNERS' CAPITAL
For the nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
General
Partner Limited Partners
Amount Units Amount Total
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 ...................... $(473,442) 803,454.56 $8,655,398 $8,181,956
Net income ....................................... 1,512 28,723 30,235
Unrealized loss on investment securities--
affiliate ....................................... (783) - (14,874) (15,657)
--------- ---------- ---------- ----------
Comprehensive income .............................. 729 - 13,849 14,578
--------- ---------- ---------- ----------
Balance at September 30, 2000 ..................... $(472,713) 803,454.56 $8,669,247 $8,196,534
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income ............................................................... $ 30,235 $ 1,184,464
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................................. 482,228 716,710
Gain on sale of equipment................................................ (93,209) (483,673)
Partnership's share of unconsolidated real estate venture's loss......... 62,894 -
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable......................................................... (3,941) 119,186
Accounts receivable - affiliate.......................................... 62,379 3,570
Accounts receivable - other.............................................. (39,177) -
Increase (decrease) in:
Accrued interest......................................................... (5,723) (8,634)
Accrued liabilities...................................................... 5,562 (86,977)
Accrued liabilities--affiliate........................................... 9,741 2,761
Deferred rental income................................................... (19,141) 2,109
----------- -----------
Net cash provided by operating activities............................. 491,848 1,449,516
----------- -----------
Cash flows provided by (used in) investing activities:
Proceeds from equipment sales............................................. 329,245 484,759
Investment in real estate venture......................................... (2,780,000) -
----------- -----------
Net cash (used in) provided by investing activities................... (2,450,755) 484,759
----------- -----------
Cash flows provided by (used in) financing activities:
Principal payments--notes payable......................................... (364,730) (752,175)
Proceeds from notes payable............................................... 160,856 -
Distributions paid........................................................ (158,577) (475,730)
----------- -----------
Net cash used in financing activities................................. (362,451) (1,227,905)
----------- -----------
Net (decrease) increase in cash and cash equivalents....................... (2,321,358) 706,370
Cash and cash equivalents at beginning of period........................... 3,970,877 3,243,631
----------- -----------
Cash and cash equivalents at end of period................................. $ 1,649,519 $ 3,950,001
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................................ $ 153,865 $ 183,174
=========== ===========
</TABLE>
Supplemental disclosure of non-cash activity:
See Note 6 to the financial statements regarding the reduction of the
Partnership's carrying value of its investment securities--affiliate during the
nine months ended September 30, 2000.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Note 1--Basis of Presentation
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles for interim financial information and
with the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X
of the Securities and Exchange Commission and are unaudited. As such, these
financial statements do not include all information and footnote disclosures
required under generally accepted accounting principles for complete financial
statements and, accordingly, the accompanying financial statements should be
read in conjunction with the footnotes presented in the 1999 Annual Report.
Except as disclosed herein, there have been no material changes to the
information presented in the footnotes to the 1999 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 2000 and December 31, 1999 and results of operations
for the three and nine month periods ended September 30, 2000 and 1999 have been
made and are reflected.
Note 2--Cash
At September 30, 2000, American Income Fund I-C, a Massachusetts Limited
Partnership (the "Partnership") had $1,533,301 invested in federal agency
discount notes, repurchase agreements secured by U.S. Treasury Bills or
interests in U.S. Government securities, or other highly liquid overnight
investments.
Note 3--Revenue Recognition
Rents are payable to the Partnership monthly, quarterly or semi-annually and
no significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. In certain instances, the
Partnership may enter renewal or re-lease agreements which expire beyond the
Partnership's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Partnership's business activities as the
General Partner and Equis Financial Group Limited Partnership ("EFG") would
seek to sell the then-remaining equipment assets either to the lessee or to a
third party, taking into consideration the amount of future noncancellable
rental payments associated with the attendant lease agreements. See also Note 8
to the financial statements presented in the Partnership's 1999 Annual Report
regarding the Class Action Lawsuit. Future minimum rents of $3,390,359, which
include the aircraft re-leases discussed in Note 4 herein, are due as follows:
For the year ending September 30,
2001.................................... $1,261,666
2002.................................... 1,126,401
2003.................................... 786,815
2004.................................... 215,477
----------
Total................................... $3,390,359
==========
7
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 4--Equipment
The following is a summary of equipment owned by the Partnership at September
30, 2000. Remaining Lease Term (Months), as used below, represents the number of
months remaining from September 30, 2000 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost
-------------- ---------- ---------
Aircraft......................... 0-47 $ 7,618,510
Materials handling............... 0-15 2,384,342
Trailers/intermodal containers... 27-33 1,963,408
Motor vehicles................... 0 97,400
Communications................... 0 51,469
-----------
Total equipment cost 12,115,129
Accumulated depreciation 6,427,616
-----------
Equipment, net of
accumulated depreciation $ 5,687,513
===========
At September 30, 2000, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $9,581,926, representing
approximately 79% of total equipment cost.
Certain of the equipment and related lease payment streams were used to secure
term loans with third-party lenders. The preceding summary of equipment includes
leveraged equipment having an original cost of approximately $6,218,000 and a
net book value of approximately $4,576,000 at September 30, 2000.
The Partnership entered into a three year re-lease agreement with Air Slovakia
for its proportionate interest in a Boeing 737-2H4 aircraft, effective September
2000. Under the terms of this agreement, the Partnership will receive rents of
$376,688 over the term of the lease. In addition, the Partnership entered into a
four year lease agreement with Aero-Mexico for its proportionate interest in a
McDonnell-Douglas MD-82 aircraft, effective September 2000. Under the terms of
this agreement, the Partnership will receive rents of $920,675 over the term of
the lease.
The summary above includes equipment held for re-lease or sale with an
original cost of approximately $700,000 and a net book value of $224,715 at
September 30, 2000. This equipment represents the Partnership's interest in a
Boeing 737 aircraft. The aircraft was returned by the lessee in December 1999
upon expiration of the lease and was remarketed in October 2000.
Note 5--Investment in Real Estate Venture
On March 8, 2000, the Partnership and 10 affiliated partnerships (the
"Exchange Partnerships") collectively loaned $32 million to Echelon Residential
Holdings LLC ("Echelon Residential Holdings"), a newly formed real estate
development company. Echelon Residential Holdings is owned by several investors,
including James A. Coyne, Executive Vice President of EFG. Mr. Coyne, in his
individual capacity, is the only equity investor in Echelon Residential Holdings
related to EFG. In addition, certain affiliates of the General Partner made
loans to Echelon Residential Holdings in their individual capacities.
8
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 5--Investment in Real Estate Venture (continued)
The Partnership's participation in the loan is $2,780,000. Echelon Residential
Holdings, through a wholly-owned subsidiary (Echelon Residential LLC), used the
loan proceeds to acquire various real estate assets from Echelon International
Corporation, a Florida-based real estate company. The loan has a term of 30
months, maturing on September 8, 2002, and an annual interest rate of 14% for
the first 24 months and 18% for the final six months. Interest accrues and
compounds monthly and is payable at maturity. In connection with the
transaction, Echelon Residential Holdings has pledged a security interest in all
of its right, title and interest in and to its membership interests in Echelon
Residential LLC to the Exchange Partnerships as collateral.
Using the guidance set forth in the Third Notice to Practitioners by the
American Institute of Certified Public Accountants ("AICPA") in February 1986
entitled "ADC Arrangements" (the "Third Notice"), the Partnership has evaluated
this investment to determine whether loan, joint venture or real estate
accounting is appropriate. Such determination affects the Partnership's balance
sheet classification of the investment and the recognition of revenues derived
therefrom. The Third Notice was issued to address those real estate acquisition,
development and construction arrangements where a lender has virtually the same
risk and potential awards as those of owners or joint ventures. Emerging Issues
Task Force ("EITF") 86-21, "Application of the AICPA Notice to Practitioners
regarding Acquisition, Development and Construction Arrangements to Acquisition
of an Operating Property" expanded the applicability of the Third Notice to
entities other than financial institutions.
Based on the applicability of the Third Notice, EITF 86-21 and consideration
of the economic substance of the transaction, the loan is considered to be an
investment in a real estate venture for accounting purposes. In accordance with
the provisions of Statement of Position No. 78-9, "Accounting for Investments
in Real Estate Ventures", the Partnership reports its share of income or loss
of Echelon Residential Holdings under the equity method of accounting.
The Partnership's accompanying financial statements as of and for the three
and nine months ended September 30, 2000 are presented in accordance with the
guidance above. The investment is net of the Partnership's share of losses in
this real estate venture. For the three and nine months ended September 30,
2000, the Partnership's share of losses in Echelon Residential Holdings is
$45,071 and $62,894, respectively, and is reflected on the Statement of
Operations as "Partnership's share of unconsolidated real estate venture's
loss".
The summarized financial information for Echelon Residential Holdings as of
September 30, 2000 and for the period March 8, 2000 (commencement of operations)
through September 30, 2000 is as follows:
(Unaudited)
-----------
Total assets.............. $ 63,457,759
Total liabilities......... $ 64,221,109
Total deficit............. $ (763,350)
Total revenues............ $ 1,565,618
Total expenses............ $ 5,109,324
Net loss.................. $ (3,543,706)
9
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 6--Investment Securities--Affiliate and Note Receivable--Affiliate
As a result of an exchange transaction in 1997, the Partnership owns 20,876
shares of Semele Group, Inc. ("Semele") common stock and holds a beneficial
interest in a note from Semele (the "Semele Note") of $459,729. The Semele
Note matures in April 2001 and bears an annual interest rate of 10% with
mandatory principal reductions prior to maturity, if and to the extent that net
proceeds are received by Semele from the sale or refinancing of its principal
real estate asset consisting of an undeveloped 274-acre parcel of land near
Malibu, California. The Partnership recognized interest income of $11,588 and
$34,385, respectively, related to the Semele Note for each of the three and nine
months ended September 30, 2000 and 1999.
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", marketable
equity securities classified as available-for-sale are carried at fair value.
During the nine months ended September 30, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5 per share (the
quoted price on the NASDAQ SmallCap market at the date the stock traded closest
to September 30, 2000), resulting in an unrealized loss of $15,657. This loss is
reported as a component of comprehensive income included in the Statement of
Changes in Partners' Capital.
Note 7--Related Party Transactions
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the nine month periods ended
September 30, 2000 and 1999 which were paid or accrued by the Partnership to EFG
or its Affiliates, are as follows:
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
-------- --------
<S> <C> <C>
Equipment management fees............................... $ 47,406 $ 76,348
Administrative charges.................................. 101,323 99,180
Reimbursable operating expenses due to third parties.... 376,986 101,049
-------- --------
Total................................................. $525,715 $276,577
======== ========
</TABLE>
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
September 30, 2000, the Partnership was owed $71,571 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in October
2000.
Note 8--Notes Payable
Notes payable at September 30, 2000 consisted of installment notes of
$2,159,754 payable to banks and institutional lenders. The installment notes
bear an interest rate of either 8.225% or a fluctuating interest rate based on
LIBOR (approximately 6.62% at September 30, 2000) plus a margin. All of the
installment notes are non-recourse and are collateralized by the equipment and
assignment of any related lease payments. The Partnership has balloon payment
obligations at the expiration of the lease terms related to aircraft leased by
Reno Air, Inc. and Finnair OY of $679,276 and $106,516, respectively. The Reno
Air, Inc. and Finnair OY indebtedness matures in
10
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 8--Notes Payable (continued)
January 2003 and April 2001, respectively. In addition, the Partnership has a
balloon payment obligation of $560,358 which matured in August 2000. The General
Partner is currently negotiating with the existing lender to extend the terms of
this indebtedness and the Partnership is currently paying interest only on the
outstanding debt amount. This obligation is related to the Partnership's
interest in a McDonnell-Douglas MD-82 aircraft which was returned in January
2000 upon its lease term expiration and was re-leased in September 2000. The
carrying amount of notes payable approximates fair value at September 30, 2000.
The annual maturities of the installment notes payable are as follows:
For the year ending September 30,
2001............................. $1,076,286
2002............................. 320,472
2003............................. 762,996
----------
Total............................ $2,159,754
==========
Note 9--Legal Proceedings
As described more fully in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999, the Partnership is a Nominal Defendant in a
Class Action Lawsuit, the outcome of which could significantly alter the nature
of the Partnership's organization and its future business operations.
11
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this quarterly report of American Income Fund I-C, a
Massachusetts Limited Partnership (the "Partnership") that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of factors that could cause actual results
to differ materially from those expressed in any forward-looking statements made
herein. These factors include, but are not limited to, the outcome of the Class
Action Lawsuit described in Note 8 to the financial statements presented in the
1999 Annual Report, the remarketing of the Partnership's equipment, and the
performance of the Partnership's non-equipment assets.
Three and nine months ended September 30, 2000 compared to the three and nine
months ended September 30, 1999
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. Presently, the Partnership is a Nominal
Defendant in a Class Action Lawsuit, the outcome of which could significantly
alter the nature of the Partnership's organization and its future business
operations. See Note 8 to the financial statements presented in the
Partnership's 1999 Annual Report. Pursuant to the Amended and Restated Agreement
and Certificate of Limited Partnership (the "Restated Agreement, as amended"),
the Partnership is scheduled to be dissolved by December 31, 2002.
Results of Operations
For the three and nine months ended September 30, 2000, the Partnership
recognized lease revenue of $272,050 and $1,026,637, respectively, compared to
$507,999 and $1,676,339, respectively, for the same periods in 1999. The
decrease in lease revenue from 1999 to 2000 resulted in part from the expiration
of lease terms related to the Partnership's interests in three Boeing 737-2H4
aircraft (one of which was sold in July 2000) and a McDonnell-Douglas MD-82
aircraft. See below for a detailed discussion of variances in lease revenue
between the respective periods. The amount of lease revenue in the near term
will increase due to the re-lease of the McDonnell-Douglas MD-82 aircraft and
one of the Boeing 737-2H4 aircraft in September 2000. Subsequently, the
Partnership's lease revenue is expected to decline due to primary and renewal
lease term expirations and equipment sales.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by Equis Financial Group Limited Partnership ("EFG"). Proportionate
equipment ownership enabled the Partnership to further diversify its equipment
portfolio at inception by participating in the ownership of selected assets,
thereby reducing the general levels of risk which could have resulted from a
concentration in any single equipment type, industry or lessee. The Partnership
and each affiliate individually report, in proportion to their respective
ownership interests, their respective shares of assets, liabilities, revenues,
and expenses associated with the equipment.
12
<PAGE>
The lease terms related to the three Boeing 737-2H4 aircrafat, in which the
Partnership held a proportionate interest, expired on December 31, 1999 and the
aircraft were stored pending their remarketing. In July 2000, one of the Boeing
737-2H4 aircraft was sold resulting in $279,825 of proceeds and a net gain, for
financial statement purposes, of $47,179 for the Partnership's proportional
interest in the aircraft. In September 2000, one of the Boeing 737-2H4 aircraft
was re-leased with a lease term expiring in September 2003. Under the terms of
this re-lease agreement, the Partnership will receive rents of $376,688 over
the term of the lease. The remaining Boeing 737-2H4 aircraft was remarketed in
October 2000. The Partnership recognized lease revenue of $8,969 and $309,960,
respectively, related to these three aircraft during the nine months ended
September 30, 2000 and 1999.
The lease term associated with the second McDonnell-Douglas MD-82 aircraft, in
which the Partnership holds an ownership interest, expired in January 2000. The
aircraft was re-leased in September 2000, with a lease term expiring in
September 2004. Under the terms of this re-lease agreement, the Partnership will
receive rents of $920,675 over the term of the lease. The Partnership recognized
lease revenue related to this aircraft of $38,273 and $190,388, respectively,
during the nine months ended September 30, 2000 and 1999.
Interest income for the three and nine months ended September 30, 2000 was
$39,660 and $129,368 compared to $61,765 and $192,279 for the same periods in
1999. Interest income is typically generated from temporary investment of rental
receipts and equipment sale proceeds in short-term instruments. Interest income
during the three and nine months ended September 30, 2000 and 1999 included
$11,588 and $34,385, respectively, earned on a note receivable from Semele Group
Inc. ("Semele") (see Note 6 to the financial statements herein). On March 8,
2000, the Partnership utilized $2,780,000 of available cash for a loan to
Echelon Residential Holdings LLC ("Echelon Residential Holdings"). See Note 5
to the financial statements herein. The amount of future interest income is
expected to fluctuate as a result of changing interest rates and the amount of
cash available for investment, among other factors.
During the three and nine months ended September 30, 2000, the Partnership an
aggregate of equipment with a net book value of $236,036 and fully-depreciated
equipment to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes, of $71,209 and $93,209, respectively.
During the nine months ended September 30, 1999, the Partnership sold equipment
having a net book value of $1,086, resulting in a net gain, for financial
statement purposes of $483,673. During the three months ended September 30,
1999, the Partnership sold fully-depreciated equipment to existing lessees and
third-parties, resulting in a net gain, for financial statement purposes, of
$34,500.
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-
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to-month basis. The Partnership classifies such residual rental payments as
lease revenue. Consequently, the amount of gain or loss reported in the
financial statements is not necessarily indicative of the total residual value
the Partnership achieved from leasing the equipment.
Depreciation expense for the three and nine months ended September 30, 2000
was $155,374 and $482,228, respectively, compared to $239,577 and $716,710 for
the same periods in 1999. For financial reporting purposes, to the extent that
an asset is held on primary lease term, the Partnership depreciates the
difference between (i) the cost of the asset and (ii) the estimated residual
value of the asset at the date of primary lease expiration on a straight-line
basis over such term. For the purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease expiration.
To the extent that equipment is held beyond its primary lease term, the
Partnership continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life.
Interest expense was $47,778 and $148,142, respectively, for the three and
nine months ended September 30, 2000 compared to $52,517 and $174,540,
respectively, for the same periods in 1999. Interest expense will continue to
decrease in future periods as the principal balance of notes payable is reduced
through the application of rent receipts to outstanding debt.
Management fees were $12,549 and $47,406, respectively, for the three and nine
month periods ended September 30, 2000 and $23,802 and $76,348, respectively,
for the same periods in 1999. Management fees are based on 5% of gross lease
revenue generated by operating leases and 2% of gross lease revenue generated by
full payout leases.
Operating expenses were $314,660 and $478,309, respectively, for the three and
nine month periods ended September 30, 2000 compared to $37,217 and $200,229,
respectively, for the same periods in 1999. The primary reason for the increase
in operating expenses from 1999 to 2000 is storage and remarketing costs
associated with the Partnership's off-lease aircraft and approximately $160,000
accrued for the Partnership's proportionate share of the cost of a required D-
check on the McDonnell-Douglas MD-82 aircraft leased to Finnair OY. In addition,
2000 operating expenses include approximately $40,000 of costs incurred in
connection with the Class Action Lawsuit discussed in Note 8 to the financial
statements presented in the Partnership's 1999 Annual Report. Operating expenses
include professional service costs, such as audit and legal fees, as well as
printing, distribution and remarketing expenses. In certain cases, equipment
storage or repairs and maintenance costs may be incurred in connection with
equipment being remarketed.
For the three and nine months ended September 30, 2000, the Partnership's
share of losses in Echelon Residential Holdings is $45,071 and $62,894,
respectively, and is reflected on the Statement of Operations as "Partnership's
share of unconsolidated real estate venture's loss". See further discussion
below.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity. As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These cash
inflows are used to satisfy debt service obligations associated with leveraged
leases, and to pay management fees and operating costs. Operating activities
generated net cash inflows of $491,848 and $1,449,516 for the nine months ended
September 30, 2000 and 1999, respectively. In the near term, lease revenue is
expected to increase due to the re-lease of the aircraft discussed above.
Subsequently, remarketing 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 decline as the Partnership experiences a
higher frequency of remarketing events. See additional discussion below
regarding the loan made by the Partnership to Echelon Residential Holding in
March 2000.
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Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the nine months
ended September 30, 2000 and 1999, the Partnership realized equipment sales
proceeds of $329,245 and $484,759, respectively. Future inflows of cash from
asset disposals will vary in timing and amount and will be influenced by many
factors including, but not limited to, the frequency and timing of lease
expirations, the type of equipment being sold, its condition and age, and future
market conditions.
At September 30, 2000, the Partnership was due aggregate future minimum lease
payments of $3,390,359 from contractual lease agreements, a portion of which
will be used to amortize the principal balance of notes payable of $2,159,754.
See Notes 3 and 8 to the financial statements herein. At the expiration of the
individual primary and renewal lease terms underlying the Partnership's future
minimum lease payments, the Partnership will sell the equipment or enter re-
lease or renewal agreements when considered advantageous by the General Partner
and EFG. Such future remarketing activities will result in the realization of
additional cash inflows in the form of equipment sale proceeds or rents from
renewals and re-leases, the timing and extent of which cannot be predicted with
certainty. This is because the timing and extent of remarketing events often is
dependent upon the needs and interests of the existing lessees. Some lessees may
choose to renew their lease contracts, while others may elect to return the
equipment. In the latter instances, the equipment could be re-leased to another
lessee or sold to a third party.
In connection with a preliminary settlement agreement for the Class Action
Lawsuit described in Note 8 to the financial statements presented in the
Partnership's 1999 Annual Report, the Partnership is permitted to invest in new
equipment or other business activities, subject to certain limitations. On March
8, 2000, the Partnership and 10 different partnerships (the "Exchange
Partnerships") collectively loaned $32 million to Echelon Residential Holdings,
a newly-formed real estate development company owned by several investors,
including James A. Coyne, Executive Vice President of EFG. Mr. Coyne, in his
individual capacity, is the only equity investor in Echelon Residential Holdings
who is related to EFG. In addition, certain affiliates of the General Partner
made loans to Echelon Residential Holdings in their individual capacities.
The Partnership's participation in the loan is $2,780,000. Echelon Residential
Holdings, through a subsidiary (Echelon Residential LLC), used the loan proceeds
to acquire various real estate assets from Echelon International Corporation, a
Florida based real estate company. The loan has a term of 30 months maturing on
September 8, 2002 and bears interest at the annual rate of 14% for the first 24
months and 18% for the final six months. Interest accrues and compounds monthly
and is payable at maturity. In connection with the transaction, Echelon
Residential Holdings has pledged a security interest in all of its right, title
and interest in and to its membership interests in Echelon Residential LLC to
the Exchange Partnerships as collateral.
As discussed in Note 5 to the Partnership's financial statements here in, the
loan is considered to be an investment in a real estate venture for accounting
purposes. In accordance with the provisions of Statement of Position No. 78-9,
"Accounting for Investments in Real Estate Ventures", the Partnership reports
its share of income or loss of Echelon Residential Holdings under the equity
method of accounting.
As a result of an exchange transaction in 1997, the Partnership owns 20,876
shares of Semele common stock and holds a beneficial interest in a note from
Semele (the "Semele Note") of $459,729. The Semele Note matures in April 2001
and bears an annual interest rate of 10% with mandatory principal reductions
prior to maturity, if and to the extent that net proceeds are received by Semele
from the sale or refinancing of its principal real estate asset consisting of an
undeveloped 274-acre parcel of land near Malibu, California.
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", marketable
equity securities classified as available-for-sale are carried at fair value.
During the nine months ended September 30, 2000, the Partnership decreased the
carrying value of its investment in Semele common stock to $5 per share (the
quoted price on the NASDAQ SmallCap market at the date the stock traded closest
to September 30, 2000), resulting in an unrealized loss of $15,657. This loss
was reported as a component of comprehensive income included in the Statement of
Changes in Partners' Capital.
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The Partnership obtained long-term financing in connection with certain
equipment leases. The origination of such indebtedness and the subsequent
repayments of principal are reported as components of financing activities. Each
note payable is recourse only to the specific equipment financed and to the
minimum rental payments contracted to be received during the debt amortization
period, which period generally coincides with the lease rental term. As rental
payments are collected, a portion or all of the rental payment is used to repay
the associated indebtedness. The Partnership has balloon payment obligations at
the expiration of the lease terms related to aircraft leased by Reno Air, Inc.
and Finnair OY of $679,276 and $106,516, respectively. The Reno Air, Inc. and
Finnair OY indebtedness matures in January 2003 and April 2001, respectively.
In addition, in February 2000, the Partnership and certain affiliated
investment programs (collectively, the "Programs") refinanced the indebtedness
which matured in January 2000 associated with a McDonnell-Douglas MD-82 aircraft
formerly leased to Finnair OY. In addition to refinancing the existing
indebtedness of $3,370,000, the Programs received additional debt proceeds of
$1,350,000 required to perform a D-Check on the aircraft. The Partnership
received $160,856 from such proceeds. The note bears a fluctuating interest rate
based on LIBOR plus a margin with interest payments due monthly. The
Partnership's aggregate share of the refinanced and new indebtedness was
$560,358, which matured in August 2000. The General Partner is currently
negotiating with the existing lender to extend the terms of this indebtedness
and the Partnership is currently paying interest-only on the outstanding debt
amount. The aircraft was returned in January 2000 upon its lease term expiration
was re-leased in September 2000. See discussion above.
There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets. In particular,
the Partnership must contemplate the potential liquidity risks associated with
its investment in commercial jet aircraft. The management and remarketing of
aircraft can involve, among other things, significant costs and lengthy
remarketing initiatives. Although the Partnership's lessees are required to
maintain the aircraft during the period of lease contract, repair, maintenance,
and/or refurbishment costs at lease expiration can be substantial. For example,
an aircraft that is returned to the Partnership meeting minimum airworthiness
standards, such as flight hours or engine cycles, nonetheless may require heavy
maintenance in order to bring its engines, airframe and other hardware up to
standards that will permit its prospective use in commercial air transportation.
At September 30, 2000, the Partnership had ownership interests in five
commercial jet aircraft. Two of the aircraft are Boeing 737 aircraft formerly
leased to Southwest Airlines, Inc.("Southwest"). The lease agreements for each
of these aircraft expired on December 31, 1999 and Southwest elected to return
the aircraft. In September 2000 and October 2000, the aircraft were re-leased
and remarketed, respectively, to users outside of the United States. The
remaining three aircraft in the Partnership's portfolio have lease agreements
that expire in April 2001, January 2003 and September 2004, respectively.
Cash distributions to the General and Limited Partners had been declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is reported under financing activities on the
accompanying Statement of Cash Flows. No cash distributions were declared for
the nine months ended September 30, 2000.
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
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future contracted rents, the generation of renewal and/or re-lease rents, and
the residual value realized for each asset at its disposal date.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes, generally referred to as permanent or timing differences.
See Note 7 to the financial statements presented in the 1999 Annual Report. For
instance, selling commissions and organization and offering costs pertaining to
syndication of the Partnership's limited partnership units are not deductible
for federal income tax purposes, but are recorded as a reduction of partners'
capital for financial reporting purposes. Therefore, such differences are
permanent differences between capital accounts for financial reporting and
federal income tax purposes. Other differences between the bases of capital
accounts for federal income tax and financial reporting purposes occur due to
timing differences. Such items consist of the cumulative difference between
income or loss for tax purposes and financial statement income or loss, the
difference between distributions (declared vs. paid) for income tax and
financial reporting purposes, and the treatment of unrealized gains or losses on
investment securities for book and tax purposes. The principal component of the
cumulative difference between financial statement income or loss and tax income
or loss results from different depreciation policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at September 30, 2000. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Restated Agreement,
as amended, requires that upon the dissolution of the Partnership, the General
Partner will be required to contribute to the Partnership an amount equal to any
negative balance which may exist in the General Partner's tax capital account.
At December 31, 1999, the General Partner had a positive tax capital account
balance.
The outcome of the Class Action Lawsuit described in Note 8 to the financial
statements presented in the Partnership's 1999 Annual Report will be the
principal factor in determining the future of the Partnership's operations. The
proposed settlement to that lawsuit, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. In addition, commencing with the first
quarter of 2000, the General Partner suspended the payment of quarterly cash
distributions pending final resolution of the Class Action Lawsuit. Accordingly,
future cash distributions are not expected to be paid until the Class Action
Lawsuit is adjudicated.
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AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: Refer to Note 9 to the financial statements herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
27 Financial Data Schedule
Item 6(b). Reports on Form 8-K
27 Financial Data Schedule
Exhibit Index
-------------
Exhibit Description
------- -----------
27 Financial Data Schedule
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a
Massachusetts corporation and the
General Partner of the Registrant.
/s/ Michael J. Butterfield
By:
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 14, 2000
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