<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. 0-20029
American Income Fund I-E, a Massachusetts Limited
Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3127244
(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-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 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-E,
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................................................... $ 1,973,196 $ 6,089,722
Rents receivable............................................................ 171,384 171,582
Accounts receivable - affiliate............................................. 60,350 555,112
Accounts receivable - other................................................. 32,056 -
Investment in real estate venture........................................... 4,681,633 -
Note receivable - affiliate................................................. 938,718 938,718
Investment securities - affiliate........................................... 212,870 244,801
Equipment at cost, net of accumulated depreciation of $5,943,136 and
$6,929,313 at September 30, 2000 and December 31, 1999, respectively..... 5,574,758 6,289,323
--------------- ---------------
Total assets...................................................... $ 13,644,965 $ 14,289,258
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Notes payable............................................................... $ 2,372,327 $ 2,651,371
Accrued interest............................................................ 18,980 25,556
Accrued liabilities......................................................... 399,053 398,951
Accrued liabilities - affiliate............................................. 26,384 17,512
Deferred rental income...................................................... 31,226 47,861
Cash distributions payable to partners...................................... - 235,495
--------------- ---------------
Total liabilities................................................. 2,847,970 3,376,746
--------------- ---------------
Partners' capital (deficit):
General Partner.......................................................... (434,501) (428,725)
Limited Partnership Interests (883,829.31 Units; initial purchase price
of $25 each)........................................................... 11,231,496 11,341,237
--------------- ---------------
Total partners' capital........................................... 10,796,995 10,912,512
--------------- ---------------
Total liabilities and partners' capital........................... $ 13,644,965 $ 14,289,258
=============== ===============
</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, 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............................... $ 289,953 $ 507,181 $ 908,717 $ 1,626,384
Interest income............................. 33,033 78,521 133,000 216,924
Interest income--affiliate.................. 23,661 23,661 70,211 70,211
Gain on sale of equipment................... 48,994 863 56,494 509,275
------------- ------------- ------------- -------------
Total income......................... 395,641 610,226 1,168,422 2,422,794
------------- ------------- ------------- -------------
Expenses:
Depreciation................................ 181,147 234,200 524,234 713,755
Interest expense............................ 49,320 55,614 153,198 182,809
Equipment management fees--affiliate........ 13,458 24,144 42,305 75,195
Operating expenses--affiliate............... 297,654 67,993 423,904 279,442
Partnership's share of unconsolidated real
estate venture's loss..................... 77,658 - 108,367 -
------------- ------------- ------------- -------------
Total expenses....................... 619,237 381,951 1,252,008 1,251,201
------------- ------------- ------------- -------------
Net (loss) income.............................. $ (223,596) $ 228,275 $ (83,586) $ 1,171,593
============= ============= ============= =============
Net (loss) income per limited partnership unit. $ (0.24) $ 0.25 $ (0.09) $ 1.26
============= ============= ============= =============
Cash distributions declared per limited
partnership unit............................ $ - $ 0.25 $ - $ 0.76
============= ============= ============= =============
</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 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....................... $ (428,725) 883,829.31 $ 11,341,237 $ 10,912,512
Net loss........................................ (4,179) - (79,407) (83,586)
Unrealized loss on investment securities--
affiliate..................................... (1,597) - (30,334) (31,931)
------------- ------------- ------------- -------------
Comprehensive loss................................. (5,776) - (109,741) (115,517)
------------- ------------- ------------- -------------
Balance at September 30, 2000...................... $ (434,501) 883,829.31 $ 11,231,496 $ 10,796,995
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INCOME FUND I-E,
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 (loss) income..................................................... $ (83,586) $ 1,171,593
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation..................................................... 524,234 713,755
Gain on sale of equipment........................................ (56,494) (509,275)
Partnership's share of unconsolidated real estate venture's loss. 108,367 -
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable................................................. 198 (59,470)
Accounts receivable - affiliate.................................. 494,762 76,641
Accounts receivable - other...................................... (32,056) -
Increase (decrease) in:
Accrued interest................................................. (6,576) (8,816)
Accrued liabilities.............................................. 102 (87,277)
Accrued liabilities - affiliate.................................. 8,872 (201)
Deferred rental income........................................... (16,635) (383)
------------ ------------
Net cash provided by operating activities................... 941,188 1,296,567
------------ ------------
Cash flows provided by (used in) investing activities:
Proceeds from equipment sales...................................... 246,825 1,732,126
Investment in real estate venture.................................. (4,790,000) -
------------ ------------
Net cash (used in) provided by investing activities......... (4,543,175) 1,732,126
------------ ------------
Cash flows provided by (used in) financing activities:
Proceeds from notes payable........................................ 131,618 -
Principal payments--notes payable................................... (410,662) (720,377)
Distributions paid................................................. (235,495) (706,496)
------------ ------------
Net cash used in financing activities....................... (514,539) (1,426,873)
------------ ------------
Net (decrease) increase in cash and cash equivalents.................. (4,116,526) 1,601,820
Cash and cash equivalents at beginning of period...................... 6,089,722 4,468,062
------------ ------------
Cash and cash equivalents at end of period............................ $ 1,973,196 $ 6,069,882
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........................... $ 159,774 $ 191,625
============ ============
</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-E,
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-E, a Massachusetts Limited
Partnership (the "Partnership") had $1,858,394 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 $3,536,087, which include the
aircraft re-leases discussed in Note 4 herein, are due as follows:
For the year ending September 30,
2001........................... $ 1,240,590
2002........................... 1,133,275
2003........................... 888,040
2004........................... 274,182
------------
Total.......................... $ 3,536,087
============
7
<PAGE>
AMERICAN INCOME FUND I-E,
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.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment,
Equipment Type (Months) at Cost
-------------- -------- -------
<S> <C> <C>
Aircraft.............................. 0-47 $ 6,232,659
Trailers and intermodal containers.... 33 1,756,524
Locomotives........................... 42 1,522,810
Materials handling.................... 0-15 1,497,082
Construction & mining................. 0 500,670
Photocopying.......................... 0 8,149
-------------
Total equipment cost 11,517,894
Accumulated depreciation 5,943,136
-------------
Equipment, net of
accumulated depreciation $ 5,574,758
=============
</TABLE>
At September 30, 2000, the Partnership's equipment portfolio included
equipment having a proportionate original cost of $9,513,043, representing
approximately 83% 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 $6,609,000
and a net book value of $4,621,206 at September 30, 2000.
The Partnership entered into a three year re-lease agreement with Air
Slovakia for its prorportionate interest in a Boeing 737-2H4 aircraft, effective
September 2000. Under the terms of this agreement, the Partnership will receive
rents of $308,175 over the term of the lease. In addition, the Partnership
entered into a four year re-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 $753,320 over the term of the lease.
The summary above includes equipment held for re-lease or sale with an
original cost of approximately $573,000 and a net book value of $183,843 at
September 30, 2000. This equipment represents the Partnership's interests 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.
8
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
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.
The Partnership's participation in the loan is $4,790,000. 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 is $77,658 and $108,367, respectively,
and is reflected on the Statement of Operations as "Partnership's share of
unconsolidated real estate venture's loss".
9
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 5--Investment in Real Estate Venture (continued)
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)
Note 6--Investment Securities--Affiliate and Note Receivable--Affiliate
As a result of an exchange transaction in 1997, the Partnership owns 42,574
shares of Semele Group, Inc. ("Semele") common stock and holds a beneficial
interest in a note from Semele (the "Semele Note") of $938,718. 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 $23,661 and $70,211,
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 $31,931. This loss is
reported as a component of comprehensive loss 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................................ $ 42,305 $ 75,195
Administrative charges................................... 74,552 92,778
Reimbursable operating expenses due to third parties..... 349,352 186,664
---------- ----------
Total.......................................... $ 466,209 $ 354,637
========== ==========
</TABLE>
10
<PAGE>
AMERICAN INCOME FUND I-E,
a Massachusetts Limited Partnership
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 7--Related Party Transactions (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 September 30, 2000, the Partnership was owed $60,350 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
$2,372,327 payable to banks and institutional lenders. The installment notes
bear an interest rate of 6.76%, 8.22% 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 $555,597 and $87,154, respectively. The Reno
Air, Inc. and Finnair OY indebtedness matures in January 2003 and April 2001,
respectively. In addition, the Partnership has a balloon payment obligation of
$458,501 which matured in August 2000. The General Partner is currently
negotiating with the existing lender to extend the term of this indebtedness and
the Partnership is currently paying interest-only on the outstanding debt
amount. This obligation is related to its 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......................... $ 1,039,340
2002......................... 431,908
2003......................... 805,633
2004......................... 95,446
-------------
Total........................ $ 2,372,327
=============
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-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.
Certain statements in this quarterly report of American Income Fund I-E, 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
Partnership's 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 $289,953 and $908,717, respectively, compared to
$507,181 and $1,626,384, 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 Partnerships 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 be increased due to the re-lease of the McDonnell-Douglas MD-82 and a
Boeing 737-2H4 aircraft in September 2000. Subsequently, the Partnership's lease
revenue is expected to decline due to lease term expirations and equipment
sales.
The lease terms related to three Boeing 737-2H4 aircraft, 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 $228,930 of proceeds and a net gain, for
financial statement purposes, of $35,598 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 $308,175 over the
term of the lease. The remaining Boeing 737-2H4 aircraft was remarketed in
October 2000. The Partnership recognized lease revenue of $7,338 and $253,584,
respectively, related to these three aircraft during the nine months ended
September 30, 2000 and 1999.
The lease term associated with a McDonnell-Douglas MD-82 aircraft, in which
the Partnership holds an ownership interest expired in January 2000 and 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
$753,320 over the term of the lease. The Partnership recognized lease revenue of
$31,316 and $155,781, respectively, during the three and nine months ended
September 30, 2000 and 1999.
12
<PAGE>
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.
Interest income for the three and nine months ended September 30, 2000 was
$56,694 and $203,211 compared to $102,182 and $287,135 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
$23,661 and $70,211, 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 $4,790,000 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
sold equipment with an aggregate net book value of $190,331 to existing lessees
and third parties for a net gain, for financial statement purposes, of $48,994
and $56,494 respectively. During the three and nine months ended September 30,
1999, the Partnership sold equipment having a net book value of of $1,636 and
$1,222,851, respectively, to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes, of $863 and $509,725,
respectively.
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 expense for the three and nine months ended September 30, 2000
was $181,147 and $524,234, respectively, compared to $234,200 and $713,755 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 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 $49,320 and $153,198 respectively, for the three and
nine months ended September 30, 2000, compared to $55,614 and $182,809,
respectively, for the same periods in 1999. Interest expense in future
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periods will decline as the principal balance of notes payable is reduced
through the application of rent receipts to outstanding debt.
Management fees were $13,458 and $42,305, respectively, for the three and
nine month periods ended September 30, 2000, compared to $24,144 and $75,195,
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 $297,654 and $423,904, respectively, for the three
and nine months ended September 30, 2000 compared to $67,993 and $279,442,
respectively, 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 $131,000 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 Class Action Lawsuit discussed in Note 8 to the financial statements
presented in the Partnership's 1999 Annual Report. During the nine months ended
September 30, 1999, the Partnership incurred approximately $52,000 in connection
with the remarketing of an aircraft in which it held an ownership interest. The
Partnership sold its interest in this aircraft during the nine months ended
September 30, 1999. In addition, operating expenses in 1999 include an
adjustment for 1998 actual administrative charges and third-party costs of
approximately $42,000. Operating expenses consist principally of administrative
charges, professional service costs, such as audit and legal fees, as well as
printing, distribution and other remarketing expenses. In certain cases,
equipment storage or repairs and maintenance costs may be incurred in connection
with other equipment being remarketed.
For the three and nine months ended September 30, 2000, the Partnership's
share of losses of Echelon Residential Holdings were $77,658 and $108,367,
respectively, and are 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 $941,188 and $1,296,567 for the nine months ended
September 30, 2000 and 1999, respectively. Future renewal, re-lease and
equipment sale activities will cause a decline in the Partnership's lease
revenues 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 Holdings in
March 2000.
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 sale
proceeds of $246,825 and $1,732,126, 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.
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At September 30, 2000, the Partnership was due aggregate future minimum
lease payments of $3,536,087 from contractual lease agreements, a portion of
which will be used to amortize the principal balance of notes payable of
$2,372,327. 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 affiliated 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
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 $4,790,000. 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 herein,
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 42,574
shares of Semele common stock and holds a beneficial interest in a note from
Semele (the "Semele Note") of $938,718. 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 $31,931. This loss
was reported as a component of comprehensive loss included in the Statement of
Changes in Partners' Capital.
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
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leased by Reno Air, Inc. and Finnair OY of $555,597 and $87,154, 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 $131,618 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
$458,801, which matured in August 2000. The General Partner is currently
negotiating with the existing lender to extend the term of this indebtedness and
is currently paying interest-only on the outstanding debt amount. The aircraft
was returned in January 2000 upon its lease term expiration and was re-leased in
September 2000.
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 terms
expiring 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 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 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 Partnership's 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.
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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 Partnership is a Nominal Defendant in a Class Action Lawsuit described
in Note 8 to the financial statements presented in the Partnership's 1999 Annual
Report. 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-E,
a Massachusetts Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: Refer to Note 9 of 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
Response: None
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-E,
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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