<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ---------------------
------------------------
For Quarter Ended March 31, 1997 Commission File No. 0-20029
American Income Fund I-E, a Massachusetts Limited Partnership
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3127244
- ------------------------------------ --------------------
(State orother jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
- ------------------------------------ --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
-------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes No
--- ---
<PAGE>
AMERICAN INCOME FUND I-E,
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 March 31, 1997 and December 31, 1996 3
Statement of Operations
for the three months ended March 31, 1997 and 1996 4
Statement of Cash Flows
for the three months ended March 31, 1997 and 1996 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. OTHER INFORMATION:
Items 1-6 14
</TABLE>
2
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
March 31, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................... $ 1,853,723 $ 1,838,896
Rents receivable............................................... 991,655 864,959
Accounts receivable--affiliate................................. 311,581 239,386
Equipment at cost, net of accumulated depreciation of
$14,574,196 and $14,050,647 at March 31, 1997 and December
31, 1996, respectively....................................... 14,270,292 15,131,587
------------- -------------
Total assets............................................ $ 17,427,251 $ 18,074,828
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable.................................................. $ 5,860,018 $ 6,586,970
Accrued interest............................................... 77,716 96,123
Accrued liabilities............................................ 19,000 23,250
Accrued liabilities--affiliate................................. 51,844 34,223
Deferred rental income......................................... 50,898 155,008
Cash distributions payable to partners......................... 313,993 313,993
------------- -------------
Total liabilities....................................... 6,373,469 7,209,567
------------- -------------
Partners' capital (deficit):
General Partner............................................ (421,662) (431,088)
Limited Partnership Interests
(883,829.31 Units; initial purchase price of $25 each)...... 11,475,444 11,296,349
------------- -------------
Total partners' capital................................. 11,053,782 10,865,261
------------- -------------
Total liabilities and partners' capital................. $ 17,427,251 $ 18,074,828
------------- -------------
------------- -------------
</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 months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Income:
Lease revenue................................................. $ 1,417,382 $ 1,304,863
Interest income............................................... 24,532 67,291
Interest income--affiliate.................................... -- 4,615
Gain (loss) on sale of equipment.............................. 41,738 (12,904)
------------ ------------
Total income............................................. 1,483,652 1,363,865
Expenses:
Depreciation and amortization................................. 830,583 921,063
Interest expense.............................................. 80,029 98,420
Equipment management fees--affiliate.......................... 45,779 37,002
Operating expenses--affiliate................................. 24,747 23,472
------------ ------------
Total expenses........................................... 981,138 1,079,957
------------ ------------
Net income........................................................ $ 502,514 $ 283,908
------------ ------------
------------ ------------
Net income
per limited partnership unit.................................. $ 0.54 $ 0.31
------------ ------------
------------ ------------
Cash distribution declared
per limited partnership unit.................................. $ 0.34 $ 0.69
------------ ------------
------------ ------------
</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 three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income......................................................... $ 502,514 $ 283,908
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization............................ 830,583 921,063
(Gain) loss on sale of equipment......................... (41,738) 12,904
Changes in assets and liabilities
Decrease (increase) in:
rents receivable......................................... (126,696) 41,205
accounts receivable--affiliate........................... (72,195) (75,290)
Increase (decrease) in:
accrued interest......................................... (18,407) (14,529)
accrued liabilities...................................... (4,250) (250)
accrued liabilities--affiliate........................... 17,621 8,375
deferred rental income................................... (104,110) 29,862
----------- -----------
Net cash from operating activities..................... 983,322 1,207,248
----------- -----------
Cash flows from (used in) investing activities:
Purchase of equipment.......................................... -- (37,677)
Proceeds from equipment sales.................................. 72,450 21,525
----------- -----------
Net cash from (used in) investing activities........... 72,450 (16,152)
----------- -----------
Cash flows used in financing activities:
Principal payments--notes payable.............................. (726,952) (747,590)
Distributions paid............................................. (313,993) (639,613)
----------- -----------
Net cash used in financing activities................. (1,040,945) (1,387,203)
----------- -----------
Net increase (decrease) in cash and cash equivalents............... 14,827 (196,107)
----------- -----------
Cash and cash equivalents at beginning of period................... 1,838,896 2,189,633
----------- -----------
Cash and cash equivalents at end of period......................... $ 1,853,723 $ 1,993,526
Supplemental disclosure of cash flow information:
Cash paid during the period for interest....................... $ 98,436 $ 112,949
=========== ============
</TABLE>
Supplemental disclosure of investing and financing activities:
At December 31, 1995, the Partnership held $1,276,051 in a special-
purpose escrow account pending the completion of an aircraft exchange
(See Results of Operations). The Partnership completed the exchange in
March 1996 obtaining interests in aircraft at an aggregate cost of
$5,086,706, utilizing cash of $1,313,728 (including the escrowed funds)
and third-party financing of $3,772,978.
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
MARCH 31, 1997
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
- -----------------------------
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1996 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 1997 and December 31, 1996 and results of operations for
the three months ended March 31, 1997 and 1996 have been made and are reflected.
NOTE 2--CASH
- ------------
At March 31, 1997, the Partnership had $1,810,000 invested in reverse
repurchase agreements, 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.
Rents from Reno Air, Inc. ("Reno Air"), as provided for in the lease agreement,
are adjusted monthly for changes in the London Inter-Bank Offered Rate
("LIBOR"). Future rents from Reno Air, included below, reflect the most recent
LIBOR effected rental payment. The leases are accounted for as operating leases
and are noncancellable. Rents received prior to their due dates are deferred.
Future minimum rents of $8,272,585 are due as follows:
<TABLE>
<S> <C>
For the year ending March 31, 1998 $3,599,118
1999 1,755,088
2000 919,082
2001 637,322
2002 637,322
Thereafter 724,653
----------
Total $8,272,585
==========
</TABLE>
NOTE 4--EQUIPMENT
- -----------------
The following is a summary of equipment owned by the Partnership at March
31, 1997. In the opinion of Equis Financial Group Limited Partnership ("EFG"),
(formerly American Finance Group), the acquisition cost of the equipment did not
exceed its fair market value.
6
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<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 4,762,353
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
Retail store fixtures............................................ 48 687,947
Communications................................................... 12-48 659,442
Photocopying..................................................... 12-36 68,633
Computers & peripherals.......................................... 1-36 66,596
------------
Total equipment cost 28,844,488
Accumulated depreciation (14,574,196)
------------
Equipment, net of accumulated depreciation $ 14,270,292
------------
------------
</TABLE>
At March 31, 1997, the Partnership's equipment portfolio included equipment
having a proportionate original cost of $16,945,333, representing approximately
59% of total equipment cost.
The summary above includes equipment held for sale or re-lease with a cost
and net book value of approximately $3,141,000 and $535,000, respectively, at
March 31, 1997. The General Partner is actively seeking the sale or re-lease of
all equipment not on lease. See also Note 8--Subsequent Event.
NOTE 5--RELATED PARTY TRANSACTIONS
- ----------------------------------
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three month
periods ended March 31, 1997 and 1996, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Equipment management fees.................. $ 45,779 $ 37,002
Administrative charges..................... 9,936 5,250
Reimbursable operating expenses
due to third parties................... 14,811 18,222
--------- ---------
Total........ $ 70,526 $ 60,474
--------- ---------
--------- ---------
</TABLE>
During the three months ended March 31, 1996, the Partnership earned
interest income of $4,615, on a note receivable from EFG resulting from a
settlement with ICCU Containers, S.p.A, a former lessee of the Partnership and
an affiliate of which was a former partner in American Finance Group.
7
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At March 31, 1997, the Partnership was owed $311,581 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in April
1997.
NOTE 6--NOTES PAYABLE
- ---------------------
Notes payable at March 31, 1997 consisted of installment notes of $5,860,018
payable to banks and institutional lenders. The installment notes bear interest
rates ranging between 7.35% and 8.95%, except for one note which bears a
fluctuating interest rate based on LIBOR plus a margin (5.7% at March 31, 1997).
All of the installment notes are non-recourse and are collateralized by the
equipment and assignment of the related lease payments. Generally, the
installment notes will be fully amortized by noncancellable rents. However, the
Partnership has balloon payment obligations at the expiration of the primary
lease terms related to aircraft leased by Finnair OY and Reno Air of $922,830
and $555,597, respectively. The carrying amount of notes payable approximates
fair value at March 31,1997.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C>
For the year ending March 31, 1998 $2,166,682
1999 1,123,008
2000 1,367,663
2001 237,646
2002 257,002
Thereafter 708,017
----------
Total $5,860,018
==========
</TABLE>
NOTE 7--LEGAL PROCEEDINGS
- -------------------------
On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored
investment programs, filed an action in the Commonwealth of Massachusetts
Superior Court Department of the Trial Court in and for the County of Suffolk,
for damages and declaratory relief against a lessee of the Partnership, National
Steel Corporation ("National Steel"), under a certain Master Lease Agreement
("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by
National Steel of certain sales and/or use taxes paid to the State of Illinois
and other remedies provided by the MLA. On August 30, 1995, National Steel filed
a Notice of Removal which removed the case to the United States District Court,
District of Massachusetts. On September 7, 1995, National Steel filed its Answer
to EFG's Complaint along with Affirmative Defenses and Counterclaims, seeking
declaratory relief and alleging breach of contract, implied covenant of good
faith and fair dealing and specific performance. EFG filed its Answer to these
counterclaims on September 29, 1995. Though the parties have been discussing
settlement with respect to this matter for some time, to date, the negotiations
have been unsuccessful. Notwithstanding these discussions, EFG recently filed an
Amended and Supplemental Complaint alleging a further default by National Steel
under the MLA and EFG recently filed a Summary Judgment on all claims and
counterclaims. The matter remains pending before the Court. The Partnership has
not experienced any material losses as a result of this action.
8
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 8--SUBSEQUENT EVENT
- ------------------------
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic
interests in three cargo vessels (the "Vessels") leased by KGJS/Gearbulk
Holdings Limited (the "Lessee"), exchanged their ownership interests in the
Vessels for 1,987,000 shares of common stock in Banyan Strategic Land Fund II
("Banyan") and a purchase money note of $8,219,500 (the "Note"). Banyan is a
Delaware corporation organized on April 14, 1987 and has its common stock
listed on NASDAQ. Banyan holds certain real estate investments, the most
significant being a 274 acre site near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Banyan or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The above-referenced Note was repaid with $3,800,000 of
cash and delivery of a $4,419,500 note from Banyan (the "Banyan Note").
As a result of the exchange transaction and its original 67% beneficial
ownership interest in Hato Arrow, one of the three Vessels, the Partnership
received $884,740 in cash and is the beneficial owner of 425,743 shares of
Banyan common stock and holds a beneficial interest in the Banyan Note of
$938,718.
Cash equal to the amount of the Banyan Note is being held by Banyan in a
segregated account pending the outcome of certain shareholder proposals.
Specifically, as part of the exchange, Banyan agreed to seek consent ("Consent")
from its shareholders to: (1) amend its certificate of incorporation and by-
laws; (2) make additional amendments to restrict the acquisition of its common
stock in a way to protect Banyan's net operating loss carry-forwards, and (3)
engage EFG to provide administrative services to Banyan, which services EFG will
provide at cost. If the Consent is not obtained, repayment of the Banyan Note
will be accelerated and repaid from the cash held in the segregated account. If
the Consent is obtained, the Banyan Note will be amortized over three years and
bear an annual interest rate of 10%.
In connection with the Banyan transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, joined the Board of Directors of Banyan and
James A. Coyne, Senior Vice President of EFG became Banyan's Chief Operating
Officer. The agreement also provides that a majority of the Board of
Directors remain independent of Banyan and EFG. Provided Consent is received
by October 31, 1997, Banyan has agreed to declare a $0.20 per share dividend
to be paid on all shares, including those beneficially owned by the
Partnership.
The General Partner believes that the underlying tangible assets of Banyan,
particularly the Rancho Malibu property, can be sold or developed on a tax free
basis due to Banyan's net operating loss carryforwards and can provide an
attractive economic return to the Partnership.
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 months ended March 31, 1997 compared to the three
-----------------------------------------------------------------------
months ended March 31, 1996:
----------------------------
Overview
- --------
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The Partnership's stated investment
objectives and policies contemplated that the Partnership would wind-up its
operations within approximately seven years of its inception. The value of the
Partnership's equipment portfolio decreases over time due to depreciation
resulting from age and usage of the equipment, as well as technological changes
and other market factors. In addition, the Partnership does not replace
equipment as it is sold; therefore, its aggregate investment value in equipment
declines from asset disposals occurring in the normal course. As a result of the
Partnership's age and a declining equipment portfolio, the General Partner is
evaluating a variety of transactions that will reduce the Partnership's
prospective costs to operate as a publicly registered limited partnership and,
therefore, enhance overall cash distributions to the limited partners. Such a
transaction may involve the sale of the Partnership's remaining equipment or a
transaction that would allow for the consolidation of the Partnership's expenses
with other similarly-organized equipment leasing programs. In order to increase
the marketability of the Partnership's remaining equipment, the General Partner
expects to use the Partnership's available cash and future cash flow to retire
indebtedness. This will negatively effect short-term cash distributions.
Results of Operations
- ---------------------
For the three months ended March 31, 1997, the Partnership recognized
lease revenue of $1,417,382 compared to $1,304,863 for the same period in
1996. The increase in lease revenue from 1996 to 1997 reflects the effects of
an aircraft exchange concluded in March 1996 offset by lease term expirations
and equipment sales. As a result of this exchange, the Partnership replaced
its ownership interest in a Boeing 747-SP aircraft, with interests in six
other aircraft (three Boeing 737 aircraft leased by Southwest Airlines, Inc.,
two McDonnell Douglas MD-82 aircraft leased by Finnair OY and one McDonnell
Douglas MD-87 aircraft leased by Reno Air, Inc.). The Southwest Aircraft were
exchanged into the Partnership in 1995, while the Finnair Aircraft and the
Reno Aircraft were exchanged into the Partnership on March 25 and March 26,
1996, respectively. Accordingly, revenue for the first quarter of 1996
reflected only a portion of the rents ultimately earned from the like-kind
exchange. In aggregate, the replacement aircraft generated approximately
$266,000 of lease revenue during the first quarter of 1997 compared to
approximately $85,000 for the same period in 1996. In the future, lease
revenue will decline due to primary and renewal lease term expirations and
the sale of equipment.
The Partnership's equipment portfolio includes certain assets in which
the Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Partnership
to further diversify its equipment portfolio by participating in the
ownership of selected assets, thereby reducing the general levels of risk
which could result from a concentration in any single equipment type,
industry or lessee. The Partnership and each affiliate individually report,
in proportion to their respective ownership interests, their respective
shares of assets, liabilities, revenues, and expenses associated with the
equipment.
For the three months ended March 31, 1997, the Partnership earned
interest income of $24,532 compared to $67,291 for the same period in 1996.
Interest income is typically generated from temporary investment of rental
receipts and equipment sale proceeds in short-term instruments. Interest
income in 1996 included interest of $36,763 earned on cash held in a
special-purpose escrow account in connection with the like-kind exchange
transaction, discussed above. During the three months ended March 31, 1996,
the Partnership earned interest income of $4,615, on a note receivable from
EFG resulting from a settlement with ICCU Containers, S.p.A, a former lessee
of the Partnership and an affiliate of which was a former partner in American
Finance Group. All
10
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
amounts due from EFG pursuant to this note had been received at December 31,
1996. The amount of future interest income is expected to fluctuate in
relation to prevailing interest rates, the collection of lease revenue and
the proceeds from equipment sales.
For the three months ended March 31, 1997, the Partnership sold equipment
having a net book value of $30,712, to existing lessees and third parties. These
sales resulted in net gain, for financial statement purposes, of $41,738
compared to a net loss of $12,904 on equipment having a net book value of
$34,429 during the corresponding period in 1996.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset,
together with its residual value. The latter consists of cash proceeds
realized upon the asset's sale in addition to all other cash receipts
obtained from renting the asset on a re-lease, renewal or month-to-month
basis. The Partnership classifies such residual rental payments as lease
revenue. Consequently, the amount of gain or loss reported in the financial
statements may not be indicative of the total residual value the Partnership
achieved from leasing the equipment.
Depreciation and amortization expense for the three months ended March 31,
1997 was $830,583 compared to $921,063 for the same period in 1996. For
financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i) the cost of
the asset and (ii) the estimated residual value of the asset at the date of
primary lease expiration on a straight-line basis over such term. For 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 $80,029 or 5.7% of lease revenue for the three months
ended March 31, 1997, compared to $98,420 or 7.5% of lease revenue for the same
period in 1996. Interest expense in future periods will continue to decline in
amount and as a percentage of lease revenue as the principal balance of notes
payable is reduced through the application of rent receipts to outstanding debt.
In addition, the General Partner expects to use a portion of the Partnership's
available cash and future cash flow to retire indebtedness (see Overview).
Management fees were approximately 3.2% of lease revenue during the three
months ended March 31, 1997 compared to 2.8% of lease revenue for the same
period in 1996. Management fees are based on 5% of gross lease revenue generated
by operating leases and 2% of gross lease revenue generated by full payout
leases.
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,
11
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
operating expenses represented 1.8% of lease revenue during each of the three
months ended March 31, 1997 and 1996. The amount of future operating expenses
cannot be predicted with certainty; however, such expenses are usually higher
during the acquisition and liquidation phases of a partnership. Other
fluctuations typically occur in relation to the volume and timing of
remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As
an equipment leasing program, the Partnership's principal operating
activities derive from asset rental transactions. Accordingly, the
Partnership's principal source of cash from operations is provided by the
collection of periodic rents. These cash inflows are used to satisfy debt
service obligations associated with leveraged leases, and to pay management
fees and operating costs. Operating activities generated net cash inflows of
$983,322 and $1,207,248 for the three months ended March 31, 1997 and 1996,
respectively. Future renewal, re-lease and equipment sale activities will
cause a decline in the Partnership's lease revenue and corresponding sources
of operating cash. Overall, expenses associated with rental activities, such
as management fees, and net cash flow from operating activities will also
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. For the three months ended March 31, 1996,
the Partnership expended $37,677 in connection with the like-kind exchange
transaction referred to above. There were no equipment acquisitions in the
corresponding period in 1997. During the three months ended March 31, 1997, the
Partnership realized $72,450 in equipment sale proceeds compared to $21,525 for
the same period in 1996. Future inflows of cash from asset disposals will vary
in timing and amount and will be influenced by many factors including, but not
limited to, the frequency and timing of lease expirations, the type of equipment
being sold, its condition and age, and future market conditions.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness
are reported as a component of financing activities. Each note payable is
recourse only to the specific equipment financed and to the minimum rental
payments contracted to be received during the debt amortization period (which
period generally coincides with the lease rental term). As rental payments
are collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future periods, the amount of cash used to repay
debt obligations is scheduled to decline as the principal balance of notes
payable is reduced through the collection and application of rents. However,
the amount of cash used to repay debt obligations may fluctuate due to the
use of the Partnership's available cash and future cash flow to retire
indebtedness (see Overview). In addition, the Partnership has balloon payment
obligations at the expiration of the respective primary lease terms related
to the Finnair Aircraft and the Reno Aircraft of $922,830 and $555,597,
respectively.
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
12
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART I. FINANCIAL INFORMATION
financing activities. For the three months ended March 31, 1997, the
Partnership declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $313,993. In
accordance with the Amended and Restated Agreement and Certificate of Limited
Partnership, the Limited Partners were allocated 95% of these distributions,
or $298,293 and the General Partner was allocated 5%, or $15,700. The first
quarter 1997 cash distribution was paid on April 14, 1997.
Cash distributions paid to the Limited Partners consist of both a return
of and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation
of renewal and/or re-lease rents, and the residual value realized for each
asset at its disposal date. Future market conditions, technological changes,
the ability of EFG to manage and remarket the assets, and many other events
and circumstances, could enhance or detract from individual asset yields and
the collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the
foregoing and will be greatly dependent upon the collection of contractual
rents and the outcome of residual activities. The General Partner anticipates
that cash proceeds resulting from these sources will satisfy the
Partnership's future expense obligations. However, the amount of cash
available for distribution in future periods will fluctuate. Equipment lease
expirations and asset disposals will cause the Partnership's net cash from
operating activities to diminish over time; and equipment sale proceeds will
vary in amount and period of realization. In addition, the Partnership may be
required to incur asset refurbishment or upgrade costs in connection with
future remarketing activities. Accordingly, fluctuations in the level of
quarterly cash distributions will occur during the life of the Partnership.
13
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 herein.
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
14
<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: May 15, 1997
-------------------------------------------
By: /s/ Gary Romano
--------------------------------------------
Gary M. Romano
Clerk of AFG Leasing VI Incorporated
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1997
------------------------------------------
15
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,853,723
<SECURITIES> 0
<RECEIVABLES> 1,303,236
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,156,959
<PP&E> 28,844,488
<DEPRECIATION> 14,574,196
<TOTAL-ASSETS> 17,427,251
<CURRENT-LIABILITIES> 503,451
<BONDS> 5,860,018
0
0
<COMMON> 0
<OTHER-SE> 11,053,782
<TOTAL-LIABILITY-AND-EQUITY> 17,427,251
<SALES> 1,417,382
<TOTAL-REVENUES> 1,483,652
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 901,109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,029
<INCOME-PRETAX> 502,514
<INCOME-TAX> 0
<INCOME-CONTINUING> 502,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502,514
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
