<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 September 30, 1996
------------------------------------------------
OR
[___] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________________to________________________
_______________________
For Quarter Ended September 30, 1996 Commission File No. 0-20029
American Income Fund I-E, a Massachusetts Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Massachusetts 04-3127244
- ---------------------------------------------------- --------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
- ---------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
--------------
</TABLE>
- --------------------------------------------------------------------------------
(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-E,
a Massachusetts Limited Partnership
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C>
Statement of Financial Position
at September 30, 1996 and December 31, 1995 3
Statement of Operations
for the three and nine months ended September 30, 1996 and 1995 4
Statement of Cash Flows
for the nine months ended September 30, 1996 and 1995 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II. OTHER INFORMATION:
Items 1 - 6 15
</TABLE>
2
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
September 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
- ------ -------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 1,756,346 $ 2,189,633
Contractual right for equipment -- 1,276,051
Rents receivable 756,067 1,087,061
Accounts receivable - affiliate 200,594 130,911
Note receivable - affiliate 210,377 210,377
Equipment at cost, net of accumulated
depreciation of $14,036,657 and
$11,496,078 at September 30, 1996
and December 31, 1995, respectively 16,033,044 13,860,717
Organization costs, net of accumulated
amortization of $4,833 and $4,083 at
September 30, 1996 and December 31,
1995, respectively 167 917
----------- -----------
Total assets $18,956,595 $18,755,667
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------
Notes payable $ 7,260,189 $ 5,839,543
Accrued interest 61,469 68,000
Accrued liabilities 18,750 21,770
Accrued liabilities - affiliate 14,292 11,875
Deferred rental income 188,779 139,424
Cash distributions payable to partners 639,613 639,613
----------- -----------
Total liabilities 8,183,092 6,720,225
----------- -----------
Partners' capital (deficit):
General Partner (435,676) (372,579)
Limited Partnership Interests
(883,829.31 Units; initial
purchase price of $25 each) 11,209,179 12,408,021
----------- -----------
Total partners' capital 10,773,503 12,035,442
----------- -----------
Total liabilities and partners'
capital $18,956,595 $18,755,667
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the three and nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Income:
Lease revenue $1,330,028 $1,391,459 $3,991,023 $4,231,017
Interest income 23,075 32,350 117,548 96,185
Interest income - affiliate 4,662 4,125 13,892 21,186
Gain (loss) on sale of equipment (1,818) (23,182) 25,199 (93,455)
Loss on exchange of equipment -- (776,635) -- (776,635)
---------- ---------- ---------- ----------
Total income 1,355,947 628,117 4,147,662 3,478,298
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization 943,200 943,257 2,818,363 2,925,533
Interest expense 145,898 134,228 438,518 361,503
Equipment management fees
- affiliate 37,967 40,364 113,799 123,845
Operating expenses - affiliate 47,376 29,381 120,081 93,525
---------- ---------- ---------- ----------
Total expenses 1,174,441 1,147,230 3,490,761 3,504,406
---------- ---------- ---------- ----------
Net income (loss) $ 181,506 $ (519,113) $ 656,901 $ (26,108)
========== ========== ========== ==========
Net income (loss)
per limited partnership unit $ 0.20 $ (0.56) $ 0.71 $ (0.03)
========== ========== ========== ==========
Cash distributions declared
per limited partnership unit $ 0.69 $ 0.69 $ 2.06 $ 2.06
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from (used in) operating
activities:
Net income (loss) $ 656,901 $ (26,108)
Adjustments to reconcile net income
(loss) to net cash from operating activities:
Depreciation and amortization 2,818,363 2,925,533
(Gain) loss on sale of equipment (25,199) 93,455
Loss on exchange of equipment -- 776,635
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 330,994 (93,430)
accounts receivable - affiliate (69,683) (99,321)
note receivable - affiliate -- 119,052
Increase (decrease) in:
accrued interest (6,531) 786
accrued liabilities (3,020) 20
accrued liabilities - affiliate 2,417 (106)
deferred rental income 49,355 (7,922)
----------- -----------
Net cash from operating 3,753,597 3,688,594
activities ----------- -----------
Cash flows from (used in) investing
activities:
Purchase of equipment (37,677) --
Proceeds from equipment sales 121,965 225,215
----------- -----------
Net cash from investing activities 84,288 225,215
----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (2,352,332) (2,083,276)
Distributions paid (1,918,840) (1,918,840)
----------- -----------
Net cash used in financing activities (4,271,172) (4,002,116)
----------- -----------
Net decrease in cash and cash equivalents (433,287) (88,307)
Cash and cash equivalents at beginning
of period 2,189,633 2,488,845
----------- -----------
Cash and cash equivalents at end of period $ 1,756,346 $ 2,400,538
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 445,049 $ 360,717
=========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
See Notes 4 and 5 to the financial statements.
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
September 30, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not
include all information and footnote disclosures required under generally
accepted accounting principles for complete financial statements and,
accordingly, the accompanying financial statements should be read in conjunction
with the footnotes presented in the 1995 Annual Report. Except as disclosed
herein, there has been no material change to the information presented in the
footnotes to the 1995 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1996 and December 31, 1995 and results of operations
for the three and nine months ended September 30, 1996 and 1995 have been made
and are reflected.
NOTE 2 - CASH
- -------------
The Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. The reverse repurchase
agreements are secured by U.S. Treasury Bills or interests in U.S. Government
securities.
NOTE 3 - REVENUE RECOGNITION
- ----------------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually and
no significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$10,813,866 are due as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ending September 30, 1997 $ 4,376,036
1998 2,731,201
1999 1,272,194
2000 751,075
2001 638,371
Thereafter 1,044,989
-----------
Total $10,813,866
===========
</TABLE>
In September 1995, the Partnership transferred its ownership interest in a
Boeing 747-SP-21 commercial jet aircraft (the "United Aircraft") to the existing
lessee, United Air Lines, Inc., pursuant to the rules for a like-kind exchange
transaction for income tax reporting purposes (See Note 4 herein). In November
1995, the Partnership partially replaced the United Aircraft with an 11.74%
interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines, Inc.
(the "Southwest Aircraft"). The Partnership will receive approximately $338,000
of rental revenue in each of the years in the period ending September 30, 1999,
and $113,000 in the year ending September 30, 2000, pursuant to the Southwest
Aircraft lease agreement.
6
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of a 9.71% ownership interest in two
McDonnell-Douglas MD-82 Aircraft leased by Finnair OY (the "Finnair Aircraft")
and a 17.43% ownership interest in a McDonnell-Douglas MD-87 aircraft leased by
Reno Air, Inc. (the "Reno Aircraft"). The Partnership will receive
approximately $419,000 of rental revenue in each of the years in the period
ending September 30, 1998 and approximately $205,000 in the year ending
September 30, 1999 pursuant to the Finnair Aircraft lease agreement. With
respect to the Reno Aircraft lease agreement, the Partnership will receive
approximately $309,000 of rental revenue in each of the years in the period
ending September 30, 2002 and approximately $77,000 in the year ending September
30, 2003. Pursuant to the Reno Aircraft lease agreement, rents are adjusted
monthly for changes of the London Inter-Bank Offered Rate ("LIBOR"). Future
rents reported above reflect the most recent LIBOR effected rental payment.
NOTE 4 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at September
30, 1996. In the opinion of American Finance Group ("AFG"), the acquisition
cost of the equipment did not exceed its fair market value.
<TABLE>
<CAPTION>
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------- ------------- --------------
<S> <C> <C>
Aircraft 39-81 $ 8,697,671
Vessels 72 5,160,573
Materials handling 8-60 5,146,276
Construction & mining 36-72 2,709,146
Trailers and intermodal containers 78-99 1,773,184
Locomotives 60 1,572,196
Tractors & heavy duty trucks 60-78 1,493,330
General purpose plant/warehouse 72 1,193,417
Furniture & fixtures 60 742,160
Retail store fixtures 48 687,947
Communications 12-48 659,442
Research & test 48 99,130
Photocopying 12-36 68,633
Computers & peripherals 1-36 66,596
------------
Total equipment cost 30,069,701
Accumulated depreciation (14,036,657)
------------
Equipment, net of accumulated depreciation $ 16,033,044
============
</TABLE>
In September 1995, the Partnership transferred its 27.02% ownership interest
in the United Aircraft, pursuant to the rules for a like-kind exchange for
income tax reporting purposes (See Note 3 herein). In November 1995, the
Partnership partially replaced the United Aircraft with an 11.74% interest in
the Southwest Aircraft, at an aggregate cost of $1,718,912. To acquire the
interests in the Southwest Aircraft, the Partnership obtained financing of
$1,282,711 from a third-party lender and utilized $436,201 of the cash
consideration received from the transfer of the United Aircraft. The remaining
ownership interest of 88.26% in the Southwest Aircraft is held by affiliated
equipment leasing programs sponsored by AFG.
7
<PAGE>
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of a 9.71% ownership interest in the
Finnair Aircraft and a 17.43% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $2,718,900 and $2,367,806, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $909,035 in
cash and obtained financing of $1,809,865 from a third-party lender. To acquire
the ownership interest in the Reno Aircraft, the Partnership paid $404,693 in
cash and obtained financing of $1,963,113 from a third-party lender. The
remaining ownership interests of 90.29% and 82.57% in the Finnair Aircraft and
the Reno Aircraft, respectively, are held by affiliated equipment leasing
programs sponsored by AFG.
At September 30, 1996, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $16,945,333, representing
approximately 56% of total equipment cost.
The summary above includes equipment held for sale or re-lease with a cost and
net book value of approximately $1,159,000 and $241,000, respectively, at
September 30, 1996. The General Partner is actively seeking the sale or re-
lease of all equipment not on lease.
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Partnership are paid by AFG on behalf
of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the nine month
periods ended September 30, 1996 and 1995, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Equipment management fees $113,799 $123,845
Administrative charges 15,750 15,750
Reimbursable operating expenses
due to third parties 104,331 77,775
-------- --------
Total $233,880 $217,370
======== ========
</TABLE>
In 1991, the Partnership acquired 900 intermodal cargo containers, at a cost
of $1,840,140, and leased such containers to ICCU Containers, S.p.A. ("ICCU"),
an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which formerly owned a
minority interest in AFG Holdings Illinois Limited Partnership. The ability of
ICCU to fulfill all of its obligations under the lease contract deteriorated, in
AFG's view, in 1994. As a result, AFG, on the Partnership's behalf, began
negotiations with other parties to either assume the lease obligations of ICCU
or acquire the containers. As a result of these negotiations, the Partnership
transferred 899 containers, having a net book value of $1,037,983, to a third
party on November 30, 1994. The Partnership received, as settlement from ICCU
and the third party, consideration as follows: (i) a contractual right to
receive comparable containers with an estimated fair market value of $1,035,318
and (ii) beneficial assignment of an existing AFG note payable to CLOU which had
a principal balance of $370,676 at the date of the transaction. The note has an
effective interest rate of 8% and matures on December 31, 1996. AFG will pay
all of the note balance plus interest to the Partnership according to the
original amortization schedule. A portion of the consideration received was
used to satisfy the Partnership's accounts receivable balance of $183,161
outstanding from ICCU at November 30, 1994. The remaining container of the
original equipment group was disposed of in 1992 for a stipulated payment as a
result of a casualty event.
8
<PAGE>
In April 1995, the Partnership replaced 899 of the original containers with
comparable containers and leased such containers to a new lessee pursuant to the
rules for completing a like-kind exchange for income tax reporting purposes.
The carrying value of the new containers, $1,958,034, was reduced by $184,850,
representing the amount of gain deferred on the original containers. The
Partnership obtained approximately $925,000 of long-term financing in connection
with the replacement containers.
All rents and proceeds from the sale of equipment are paid directly to either
AFG or to a lender. AFG temporarily deposits collected funds in a separate
interest-bearing escrow account prior to remittance to the Partnership. At
September 30, 1996, the Partnership was owed $200,594 by AFG for such funds and
the interest thereon. These funds were remitted to the Partnership in October
1996.
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at September 30, 1996 consisted of installment notes of
$7,260,189 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 6% and 9.25%, except for one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.4% at
September 30, 1996). All of the installment notes are non-recourse and are
collateralized by the equipment and assignment of the related lease payments.
Generally, the installment notes will be fully amortized by noncancellable
rents. However, the Partnership has balloon payment obligations at the
expiration of the primary lease terms related to the Finnair Aircraft and the
Reno Aircraft. The carrying amount of notes payable approximates fair value at
September 30, 1996.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ending September 30, 1997 $2,103,859
1998 1,439,028
1999 1,776,537
2000 418,390
2001 365,803
Thereafter 1,156,572
-----------
Total $7,260,189
===========
</TABLE>
9
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Three and nine months ended September 30, 1996 compared to the three and nine
- -----------------------------------------------------------------------------
months ended September 30, 1995:
- -------------------------------
Overview
- --------
As an equipment leasing partnership, the Partnership was organized to
acquire a diversified portfolio of capital equipment subject to lease agreements
with third parties. The Partnership was designed to progress through three
principal phases: acquisitions, operations, and liquidation. During the
operations phase, a period of approximately six years, all equipment in the
Partnership's portfolio will progress through various stages. Initially, all
equipment will generate rental revenue under primary term lease agreements.
During the life of the Partnership, these agreements will expire on an
intermittent basis and equipment held pursuant to the related leases will be
renewed, re-leased or sold, depending on prevailing market conditions and the
assessment of such conditions by AFG to obtain the most advantageous economic
benefit. Over time, a greater portion of the Partnership's original equipment
portfolio will become available for remarketing and cash generated from
operations and from sales or refinancings will begin to fluctuate. Ultimately,
all equipment will be sold and the Partnership will be dissolved. The
Partnership's operations commenced in 1991.
Results of Operations
- ---------------------
For the three and nine months ended September 30, 1996, the Partnership
recognized lease revenue of $1,330,028 and $3,991,023, respectively, compared to
$1,391,459 and $4,231,017 for the same periods in 1995. The decrease in lease
revenue from 1995 to 1996 reflects the effects of primary lease term expirations
and the sale of equipment. The Partnership concluded an aircraft exchange late
in the first quarter of 1996 (see discussion below). As a result of this
exchange, the Partnership replaced its ownership interest in a Boeing 747-SP,
having aggregate quarterly lease revenues of $174,279, with interests in six
other aircraft (three Boeing 737 aircraft leased by Southwest Airlines, Inc.,
two McDonnell Douglas MD-82 aircraft leased by Finnair OY and one McDonnell
Douglas MD-87 aircraft leased by Reno Air, Inc.), having aggregate quarterly
lease revenues of $266,415. The Finnair Aircraft and the Reno Aircraft were
exchanged into the Partnership on March 25 and March 26, 1996, respectively.
Accordingly, revenue for the nine months ended September 30, 1996 does not fully
reflect the rents ultimately anticipated from the like-kind exchange.
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by AFG or an affiliated equipment leasing program
sponsored by AFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
For the three and nine months ended September 30, 1996, the Partnership earned
interest income of $23,075 and $117,548, respectively, compared to $32,350 and
$96,185 for the corresponding periods in 1995. Interest income is typically
generated from temporary investment of rental receipts and equipment sales
proceeds in short-term instruments. The overall increase in interest income in
1996 compared to 1995 is a result of interest of $36,763 earned on cash held in
a special-purpose escrow in connection with the like-kind exchange transactions,
10
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
discussed below. During the three and nine months ended September 30, 1996, the
Partnership also earned interest income of $4,662 and $13,892, respectively, on
a note receivable from AFG resulting from the settlement with ICCU Containers
S.p.A. (See Note 5 to the financial statements), compared to $4,125 and $21,186
for the same periods in 1995. The amount of future interest income is expected
to fluctuate in relation to prevailing interest rates, the collection of lease
revenue, and the proceeds from equipment sales.
For the three months ended September 30, 1996, the Partnership sold equipment
having a net book value of $40,008 to existing lessees and third parties. These
sales resulted in a net loss, for financial statement purposes, of $1,818
compared to a net loss of $23,182 on equipment having a net book value of
$77,065 for the same period in 1995.
For the nine months ended September 30, 1996, the Partnership sold equipment
having a net book value of $96,766 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $25,199
compared to a net loss of $93,455 on equipment having a net book value of
$318,670 for the same period in 1995.
In September 1995, the Partnership transferred its 27.02% ownership interest
in the United Aircraft, pursuant to the rules for a like-kind exchange for
income tax reporting purposes. The Partnership received aggregate cash
consideration of $2,225,548 including $174,279 for rent accrued through the
transfer date. A portion of the consideration was used to satisfy the balance
of outstanding debt and interest of $339,017. The net cash consideration of
$1,712,252 was deposited into a special-purpose escrow account through a third-
party exchange agent pending the completion of the aircraft exchange. The
Partnership's interest in the Aircraft had a net book value of $2,827,904 at the
date of transfer and resulted in a net loss for financial reporting purposes of
$776,635.
In November 1995, the Partnership partially replaced the United Aircraft with
an 11.74% interest in the Southwest Aircraft, at an aggregate cost of
$1,718,912. To acquire the interests in the Southwest Aircraft, the Partnership
obtained financing of $1,282,711 from a third-party lender and utilized $436,201
of the cash consideration received from the transfer of the United Aircraft.
The remaining ownership interest of 88.26% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by AFG.
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of a 9.71% ownership interest in the
Finnair Aircraft and a 17.43% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $2,718,900 and $2,367,806, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $909,035
and obtained financing of $1,809,865 from a third-party lender. To acquire the
ownership interest in the Reno Aircraft, the Partnership paid $404,693 and
obtained financing of $1,963,113 from a third-party lender. The remaining
ownership interests of 90.29% and 82.57% in the Finnair Aircraft and the Reno
Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by AFG.
It cannot be determined whether future sales of equipment will result in a net
gain or a net loss to the Partnership, as such transactions will be dependent
upon the condition and type of equipment being sold and its marketability at the
time of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG
11
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
attempts to monitor these changes in order to identify opportunities which may
be advantageous to the Partnership and which will maximize total cash returns
for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership
classifies such residual rental payments as lease revenue. Consequently, the
amount of gain or loss reported in the financial statements may not be
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation and amortization expense for the three and nine months ended
September 30, 1996 was $943,200 and $2,818,363, respectively, compared to
$943,257 and $2,925,533 for the same periods in 1995. For financial reporting
purposes, to the extent that an asset is held on primary lease term, the
Partnership depreciates the difference between (i) the cost of the asset and
(ii) the estimated residual value of the asset at the date of primary lease
expiration on a straight-line basis over such term. For purposes of this
policy, estimated residual values represent estimates of equipment values at the
date of primary lease expiration. To the extent that equipment is held beyond
its primary lease term, the Partnership continues to depreciate the remaining
net book value of the asset on a straight-line basis over the asset's remaining
economic life.
Interest expense was $145,898 and $438,518, or 11% of lease revenue for each
of the three and nine month periods ended September 30, 1996, respectively,
compared to $134,228 and $361,503, or 9.6% and 8.5% of lease revenue for the
same periods in 1995. The increase in interest expense in 1996 compared to 1995
was due primarily to interest incurred in connection with the leveraging
obtained to finance the like-kind exchange transactions, discussed above.
Interest expense in future periods is expected to decline in amount and as a
percentage of lease revenue as the principal balance of notes payable is reduced
through the application of rent receipts to outstanding debt.
Management fees were approximately 2.9% of lease revenue for each of the three
and nine month periods ended September 30, 1996 and 1995. Management fees are
based on 5% of gross lease revenue generated by operating leases and 2% of gross
lease revenue generated by full payout leases.
Operating expenses consist principally of administrative charges, professional
service costs, such as audit and legal fees, as well as printing, distribution
and remarketing expenses. In certain cases, equipment storage or repairs and
maintenance costs may be incurred in connection with equipment being remarketed.
Collectively, operating expenses represented 3.6% and 3% of lease revenue for
the three and nine months ended September 30, 1996, respectively, compared to
2.1% and 2.2% of lease revenue for the same periods in 1995. The increase in
operating expenses from 1995 to 1996 is due principally to costs incurred in
connection with the like-kind exchange transactions, discussed above. The
amount of future operating expenses cannot be predicted with certainty; however,
such expenses are usually higher during the acquisition and liquidation phases
of a partnership. Other fluctuations typically occur in relation to the volume
and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was established
for specific purposes described in the preceding "Overview". As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided
12
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
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
$3,753,597 and $3,688,594 for the nine months ended September 30, 1996 and 1995,
respectively. Future renewal, re-lease and equipment sale activities will
continue to 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.
Ultimately, the Partnership will dispose of all assets under lease. This will
occur principally through sale transactions whereby each asset will be sold to
the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During the nine months ended September 30, 1996, the
Partnership expended $37,677 in cash in connection with the like-kind exchange
transactions referred to above. There were no equipment acquisitions in the
corresponding period in 1995. During the nine months ended September 30, 1996,
the Partnership realized $121,965 in equipment sale proceeds compared to
$225,215 for the same period in 1995. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal are reported as a component of
financing activities. Each note payable is recourse only to the specific
equipment financed and to the minimum rental payments contracted to be received
during the debt amortization period (which period generally coincides with the
lease rental term). As rental payments are collected, a portion or all of the
rental payment is used to repay the associated indebtedness. In future periods,
the amount of cash used to repay debt obligations will decline as the principal
balance of notes payable is reduced through the collection and application of
rents. However, the Partnership has balloon payment obligations at the
expiration of the respective primary lease terms related to the Finnair Aircraft
and the Reno Aircraft.
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the nine months ended September 30, 1996, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $1,918,840. In accordance
with the Amended and Restated Agreement and Certificate of Limited Partnership,
the Limited Partners were allocated 95% of these distributions, or $1,822,898
and the General Partner was allocated 5%, or $95,942. The third quarter 1996
cash distribution was paid on October 15, 1996.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. To the extent that cash distributions consist of Cash
From Sales or Refinancings, substantially all of such cash distributions should
be viewed as a return of capital. Cash distributions do not represent and are
not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions,
13
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
technological changes, the ability of AFG to manage and remarket the assets, and
many other events and circumstances, could enhance or detract from individual
asset yields and the collective performance of the Partnership's equipment
portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset 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-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
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-E, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated, a Massachusetts
corporation and the General Partner of
the Registrant.
By: /s/ Michael J. Butterfield
----------------------------------------------
Michael J. Butterfield
Treasurer of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 13, 1996
----------------------------------------------
By: /s/ Gary M. Romano
----------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 13, 1996
----------------------------------------------
16
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,756,346
<SECURITIES> 0
<RECEIVABLES> 1,167,038
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,923,384
<PP&E> 30,069,701
<DEPRECIATION> 14,036,657
<TOTAL-ASSETS> 18,956,595
<CURRENT-LIABILITIES> 922,903
<BONDS> 7,260,189
0
0
<COMMON> 0
<OTHER-SE> 10,773,503
<TOTAL-LIABILITY-AND-EQUITY> 18,956,595
<SALES> 3,991,023
<TOTAL-REVENUES> 4,147,662
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,052,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 438,518
<INCOME-PRETAX> 656,901
<INCOME-TAX> 0
<INCOME-CONTINUING> 656,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 656,901
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
