-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RR43t9bs1+QSa5+1/efvq17iI7e8JbaJChh8d7jnmdCiOiBFMepI3Lgyi9T3IkE/ sFnrIhwUeZeU+/C4OnJ1rA== 0000927016-96-000848.txt : 19960816 0000927016-96-000848.hdr.sgml : 19960816 ACCESSION NUMBER: 0000927016-96-000848 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME FUND I-C CENTRAL INDEX KEY: 0000868679 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 043077437 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20031 FILM NUMBER: 96612492 BUSINESS ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6178545800 MAIL ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 --------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------ ----------------------- ------------------------- For Quarter Ended June 30, 1996 Commission File No. 0-20031 American Income Fund I-C, a Massachusetts Limited Partnership - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3077437 - --------------------------------------- ------------------------- State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 98 North Washington Street, Boston, MA 02114 - ---------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 854-5800 ----------------------------- - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ------ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ------ ------ AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q INDEX
Page ----- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Statement of Financial Position at June 30, 1996 and December 31, 1995 3 Statement of Operations for the three and six months ended June 30, 1996 and 1995 4 Statement of Cash Flows for the six months ended June 30, 1996 and 1995 5 Notes to the Financial Statements 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 PART II. OTHER INFORMATION: Items 1 - 6 16
2 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership STATEMENT OF FINANCIAL POSITION June 30, 1996 and December 31, 1995 (Unaudited)
June 30, December 31, 1996 1995 ------------- ------------ ASSETS - ------- Cash and cash equivalents $ 538,434 $ 799,133 Contractual right for equipment -- 1,562,463 Rents receivable 847,697 716,657 Accounts receivable - affiliate 116,452 13,652 Note receivable - affiliate 210,144 210,144 Equipment at cost, net of accumulated depreciation of $13,851,679 and $13,427,155 at June 30, 1996 and December 31, 1995, respectively 13,641,070 9,384,501 Organization costs, net of accumulated amortization of $4,750 and $4,250 at June 30, 1996 and December 31, 1995, respectively 250 750 ----------- ----------- Total assets $15,354,047 $12,687,300 =========== =========== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- Notes payable $ 7,805,894 $ 4,574,713 Accrued interest 88,277 42,509 Accrued liabilities 152,072 157,002 Accrued liabilities - affiliate 15,538 23,344 Deferred rental income 129,536 140,519 Cash distributions payable to partners 317,154 317,154 ----------- ----------- Total liabilities 8,508,471 5,255,241 ----------- ----------- Partners' capital (deficit): General Partner (540,260) (510,936) Limited Partnership Interests (803,454.56 Units; initial purchase price of $25 each) 7,385,836 7,942,995 ----------- ----------- Total partners' capital 6,845,576 7,432,059 ----------- ----------- Total liabilities and partners' capital $15,354,047 $12,687,300 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership STATEMENT OF OPERATIONS for the three and six months ended June 30, 1996 and 1995 (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 -------------- --------------- ----------- ------------ Income: Lease revenue $1,029,011 $1,185,656 $2,017,538 $2,425,386 Interest income 11,008 14,532 66,061 27,855 Interest income - affiliate 4,610 7,168 9,220 17,042 Gain (loss) on sale of equipment 89,228 (18,710) 150,874 (26,059) ---------- ---------- ---------- ---------- Total income 1,133,857 1,188,646 2,243,693 2,444,224 ---------- ---------- ---------- ---------- Expenses: Depreciation and amortization 862,406 979,230 1,779,060 2,042,039 Interest expense 168,273 84,183 263,288 183,510 Equipment management fees - affiliate 32,684 36,231 62,819 75,314 Operating expenses - affiliate 61,742 33,813 90,701 74,670 ---------- ---------- ---------- ---------- Total expenses 1,125,105 1,133,457 2,195,868 2,375,533 ---------- ---------- ---------- ---------- Net income $ 8,752 $ 55,189 $ 47,825 $ 68,691 ========== ========== ========== ========== Net income per limited partnership unit $ 0.01 $ 0.07 $ 0.06 $ 0.08 ========== ========== ========== ========== Cash distributions declared per limited partnership unit $ 0.37 $ 0.63 $ 0.75 $ 1.25 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership STATEMENT OF CASH FLOWS for the six months ended June 30, 1996 and 1995 (Unaudited)
1996 1995 ------------ ------------ Cash flows from (used in) operating activities: $ 47,825 $ 68,691 Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 1,779,060 2,042,039 (Gain) loss on sale of equipment (150,874) 26,059 Changes in assets and liabilities Decrease (increase) in: rents receivable (131,040) 174,200 accounts receivable - affiliate (102,800) (60,181) note receivable - affiliate -- 118,919 Increase (decrease) in: accrued interest 45,768 (37,880) accrued liabilities (4,930) 14,960 accrued liabilities - affiliate (7,806) (6,432) deferred rental income (10,983) (31,132) ----------- ----------- Net cash from operating activities 1,464,220 2,309,243 ----------- ----------- Cash flows from (used in) investing activities: Purchase of equipment (43,297) -- Proceeds from equipment sales 333,550 258,892 ----------- ----------- Net cash from investing activities 290,253 258,892 ----------- ----------- Cash flows used in financing activities: Principal payments - notes payable (1,380,864) (1,668,951) Distributions paid (634,308) (1,057,178) ----------- ----------- Net cash used in financing activities (2,015,172) (2,726,129) ----------- ----------- Net decrease in cash and cash equivalents (260,699) (157,994) ----------- ----------- Cash and cash equivalents at beginning of period 799,133 1,113,814 ----------- ----------- Cash and cash equivalents at end of period $ 538,434 $ 955,820 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 217,520 $ 221,390 =========== ===========
Supplemental disclosure of non-cash investing and financing activities: See Notes 4 and 5 to the financial statements. The accompanying notes are an integral part of these financial statements. 5 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership Notes to the Financial Statements June 30, 1996 (Unaudited) NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The financial statements presented herein are prepared in conformity with generally accepted accounting principles and the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and are unaudited. As such, these financial statements do not include all information and footnote disclosures required under generally accepted accounting principles for complete financial statements and, accordingly, the accompanying financial statements should be read in conjunction with the footnotes presented in the 1995 Annual Report. Except as disclosed herein, there has been no material change to the information presented in the footnotes to the 1995 Annual Report. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary to present fairly the financial position at June 30, 1996 and December 31, 1995 and results of operations for the three and six month periods ended June 30, 1996 and 1995 have been made and are reflected. NOTE 2 - CASH - ------------- The Partnership invests excess cash with large institutional banks in reverse repurchase agreements with overnight maturities. The reverse repurchase agreements are secured by U.S. Treasury Bills or interests in U.S. Government securities. NOTE 3 - REVENUE RECOGNITION - ---------------------------- Rents are payable to the Partnership monthly, quarterly or semi-annually and no significant amounts are calculated on factors other than the passage of time. The leases are accounted for as operating leases and are noncancellable. Rents received prior to their due dates are deferred. Future minimum rents of $10,215,664 are due as follows:
For the year ending June 30, 1997 $ 3,152,504 1998 2,336,152 1999 1,572,570 2000 1,002,878 2001 761,798 Thereafter 1,389,762 ------------ Total $10,215,664 ============
In September 1995, the Partnership transferred its ownership interest in a Boeing 747-SP-21 commercial jet aircraft (the "United Aircraft") to the existing lessee, United Air Lines, Inc., pursuant to the rules for a like-kind exchange transaction for income tax reporting purposes (See Note 4 herein). In November 1995, the Partnership partially replaced the United Aircraft with a 14.35% interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines, Inc. (the "Southwest Aircraft"). The Partnership will receive approximately 6 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued) $413,000 of rental revenue in each of the years in the period ending June 30, 1999, and approximately $241,000 in the year ending June 30, 2000, pursuant to the Southwest Aircraft lease agreement. Additionally, in March 1996, the Partnership completed the replacement of the United Aircraft with the acquisitions of an 11.87% interest in two McDonnell- Douglas MD-82 Aircraft leased by Finnair OY (the "Finnair Aircraft") and a 21.31% ownership interest in a McDonnell-Douglas MD-87 aircraft leased by Reno Air, Inc. (the "Reno Aircraft"). The Partnership will receive approximately $511,000 of rental revenue in each of the years in the period ending June 30, 1998, and approximately $378,000 in the year ending June 30, 1999, pursuant to the Finnair Aircraft lease agreement. With respect to the Reno Aircraft lease agreement, the Partnership will receive approximately $381,000 of rental revenue in each of the years in the period ending June 30, 2002 and approximately $191,000 in the year ending June 30, 2003. Pursuant to the Reno Aircraft lease agreement, rents are adjusted monthly for changes of the London Inter-Bank Offered Rate ("LIBOR"). Future rents reported above reflect the most recent LIBOR effected rental payment. NOTE 4 - EQUIPMENT - ------------------ The following is a summary of equipment owned by the Partnership at June 30, 1996. In the opinion of American Finance Group ("AFG"), the acquisition cost of the equipment did not exceed its fair market value.
Lease Term Equipment Equipment Type (Months) at Cost - ---------------- ------------- ------------ Aircraft 39-81 $ 8,318,862 Materials handling 4-60 6,482,602 Trailers/intermodal containers 66-99 3,588,755 Vessels 72 2,605,381 Tractors & heavy duty trucks 3-78 1,945,458 Furniture & fixtures 90 1,914,145 Construction & mining 36-60 762,152 Retail store fixtures 48 517,488 Motor vehicles 48-60 471,845 Computers & peripherals 6-37 377,025 Communications 12-60 295,245 Research & test 24 116,406 Graphic printing & display 36 62,167 Manufacturing 72 35,218 ------------- Total equipment cost 27,492,749 Accumulated depreciation (13,851,679) ------------- Equipment, net of accumulated depreciation $ 13,641,070 =============
In September 1995, the Partnership transferred its 33.07% ownership interest in the United Aircraft, pursuant to the rules of a like-kind exchange for income tax reporting purposes (See Note 3 herein). In November 1995, the Partnership partially replaced the United Aircraft with a 14.35% interest in the Southwest 7 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued) Aircraft, at an aggregate cost of $2,101,054. To acquire the interests in the Southwest Aircraft, the Partnership obtained financing of $1,567,878 from a third-party lender and utilized $533,176 of the cash consideration received from the transfer of the United Aircraft. The remaining ownership interest of 85.65% in the Southwest Aircraft is held by affiliated equipment leasing programs sponsored by AFG. Additionally, in March 1996, the Partnership completed the replacement of the United Aircraft with the acquisitions of an 11.87% ownership interest in the Finnair Aircraft and a 21.31% ownership interest in the Reno Aircraft at a total cost of $3,322,913 and $2,894,892, respectively. To acquire the ownership interest in the Finnair Aircraft, the Partnership paid $1,110,980 in cash and obtained financing of $2,211,933 from a third-party lender. To acquire the ownership interest in the Reno Aircraft, the Partnership paid $494,780 in cash and obtained financing of $2,400,112 from a third-party lender. The remaining ownership interests of 88.13% and 78.69% in the Finnair Aircraft and Reno Aircraft, respectively, are held by affiliated equipment leasing programs sponsored by AFG. During the three months ended March 31, 1996, the Partnership transferred its ownership interest in certain trailers, previously leased to The Atchison Topeka and Santa Fe Railroad to a third party for cash consideration of $26,250. The trailers had an aggregate net book value of $21,694 at the date of transfer resulting in a net gain, for financial statement purposes, of $4,556. The gain was deferred in anticipation of completing a like-kind exchange during the three months ended June 30, 1996. The Partnership intended to replace these trailers with comparable trailers and lease such equipment to a new lessee. The Partnership had accounted for this transaction as a like-kind exchange for income tax reporting purposes. Accordingly, the net cash consideration of $26,250 was deposited in a special-purpose escrow account through a third-party Exchange Agent pending completion of the equipment exchange. During the three months ended June 30, 1996, the Partnership elected not to replace the trailers and, accordingly, the deferred gain of $4,556 was recognized as Gain on Sale of Equipment on the Statement of Operations for the three months ended June 30, 1996. In addition, the cash consideration of $26,250, which was reported as Contractual Right for Equipment on the Statement of Financial Position at March 31, 1996, was recognized as proceeds from equipment sales. At June 30, 1996, the Partnership's equipment portfolio included equipment having a proportionate original cost of $13,431,527, representing approximately 49% of total equipment cost. The summary above includes equipment held for sale or release with a cost and net book value of approximately $2,216,000 and $220,000, respectively, at June 30, 1996. The General Partner is actively seeking the sale or re-lease of all equipment not on lease. NOTE 5 - RELATED PARTY TRANSACTIONS - ----------------------------------- All operating expenses incurred by the Partnership are paid by AFG on behalf of the Partnership and AFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the six month periods ended June 30, 1996 and 1995 which were paid or accrued by the Partnership to AFG or its Affiliates, are as follows: 8 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued)
1996 1995 --------- --------- Equipment management fees $ 62,819 $ 75,314 Administrative charges 10,500 10,500 Reimbursable operating expenses due to third parties 80,201 64,170 -------- -------- Total $153,520 $149,984 ======== ========
In 1991, the Partnership acquired 900 intermodal cargo containers, at a cost of $1,840,140, and leased such containers to ICCU Containers, S.p.A. ("ICCU"), an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which formerly owned a minority interest in AFG Holdings Illinois Limited Partnership. The ability of ICCU to fulfill all of its obligations under the lease contract deteriorated, in AFG's view, in 1994. As a result, AFG, on the Partnership's behalf, began negotiations with other parties to either assume the lease obligations of ICCU or acquire the containers. As a result of these negotiations, the Partnership transferred 740 containers, having a net book value of $756,501, to a third party on November 30, 1994. The Partnership received, as settlement from ICCU and the third party, consideration as follows: (i) a contractual right to receive comparable containers with an estimated fair market value of $852,207 and (ii) beneficial assignment of an existing AFG note payable to CLOU which had a principal balance of $370,264 at the date of the transaction. The note has an effective interest rate of 8% and matures on December 31, 1996. AFG will pay all of the note balance plus interest directly to the Partnership according to the original amortization schedule. A portion of the consideration received was used to satisfy the Partnership's accounts receivable balance of $183,128 outstanding from ICCU at November 30, 1994. An additional 158 containers, having a net book value of $161,523, were pending settlement at December 31, 1994. On March 31, 1995, 82 of these containers, having a net book value of $77,841 were transferred to the third party and the Partnership received $92,551 as consideration for these containers. The remaining 76 containers, having a net book value of $44,397, represent less than 1% of the Partnership's equipment portfolio at June 30, 1996. The remaining two containers of the original equipment group were disposed of in 1992 for stipulated payments as a result of casualty events. By April 1995, the Partnership had replaced 822 of the original containers with comparable containers and leased such containers to a new lessee pursuant to the rules for completing a like-kind exchange for income tax reporting purposes. The carrying value of the new containers, $1,958,040, was reduced by $282,842, representing the amount of gain deferred on the original containers and $14,710, the amount of gain deferred on the 82 containers settled during 1995. The Partnership obtained approximately $925,000 of long-term financing in connection with the replacement containers. All rents and proceeds from the sale of equipment are paid directly to either AFG or to a lender. AFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At June 30, 1996, the Partnership was owed $116,452 by AFG for such funds and the interest thereon. These funds were remitted to the Partnership in July 1996. 9 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership Notes to the Financial Statements (Continued) NOTE 6 - NOTES PAYABLE - ---------------------- Notes payable at June 30, 1996 consisted of installment notes of $7,805,894 payable to banks and institutional lenders. The installment notes bear interest rates ranging between 7.04% and 10.65%, except one note which bears a fluctuating interest rate based on LIBOR plus a margin (5.5% at June 30, 1996). All of the installment notes are non-recourse and are collateralized by the equipment and assignment of the related lease payments. Generally, the installment notes will be fully amortized by noncancellable rents. However, the Partnership has balloon payment obligations at the expiration of the respective primary lease terms related to the Finnair Aircraft and the Reno Aircraft. The carrying value of notes payable approximates fair value at June 30, 1996. The annual maturities of the installment notes payable are as follows: For the year ending June 30, 1997 $1,905,197 1998 1,125,411 1999 2,163,321 2000 618,568 2001 454,293 Thereafter 1,539,104 ----------- Total $7,805,894 ===========
10 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations. - -------------- Three and six months ended June 30, 1996 compared to the three and six months - ----------------------------------------------------------------------------- ended June 30, 1995: - -------------------- Overview - -------- As an equipment leasing partnership, the Partnership was organized to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. The Partnership was designed to progress through three principal phases: acquisitions, operations, and liquidation. During the operations phase, a period of approximately six years, all equipment in the Partnership's portfolio will progress through various stages. Initially, all equipment will generate rental revenue under primary term lease agreements. During the life of the Partnership, these agreements will expire on an intermittent basis and equipment held pursuant to the related leases will be renewed, re-leased or sold, depending on prevailing market conditions and the assessment of such conditions by AFG to obtain the most advantageous economic benefit. Over time, a greater portion of the Partnership's original equipment portfolio will become available for remarketing and cash generated from operations and from sales or refinancings will begin to fluctuate. Ultimately, all equipment will be sold and the Partnership will be dissolved. The Partnership's operations commenced in 1991. Results of Operations - --------------------- For the three and six months ended June 30, 1996, the Partnership recognized lease revenue of $1,029,011 and $2,017,538, respectively, compared to $1,185,656 and $2,425,386 for the same periods in 1995. The decrease in lease revenue from 1995 to 1996 reflects the effects of primary lease term expirations and a temporary decline in aircraft lease revenues associated with the Partnership's aircraft exchange (discussed below) which was concluded late in the first quarter of 1996. As a result of this exchange, the Partnership replaced its ownership interest in a Boeing 747-SP, having aggregate quarterly lease revenues of $213,302, with interests in six other aircraft (three Boeing 737 aircraft leased by Southwest Airlines, Inc., two McDonnell Douglas MD-82 aircraft leased by Finnair OY and one McDonnell Douglas MD-87 aircraft leased by Reno Air, Inc.), having aggregate quarterly lease revenues of $326,498. The Finnair Aircraft and the Reno Aircraft were exchanged into the Partnership on March 25 and March 26, 1996, respectively. Accordingly, revenue for the six month period ended June 30, 1996 reflects only a portion of the rents ultimately anticipated from the like-kind exchange. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by AFG or an affiliated equipment leasing program sponsored by AFG. Proportionate equipment ownership enables the Partnership to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. For the three and six months ended June 30, 1996, the Partnership earned interest income of $11,008 and $66,061, respectively, compared to $14,532 and $27,855 for the same periods in 1995. Interest income is typically generated from temporary investment of rental receipts and equipment sales proceeds in short-term instruments. The overall increase in interest income in 1996 compared to the same period in 1995 is a 11 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION result of interest of $44,994 earned on cash held in a special-purpose escrow account in connection with the like-kind exchange transactions, discussed below. During the three and six months ended June 30, 1996, the Partnership also earned interest income of $4,610 and $9,220, respectively, on a note receivable from AFG resulting from the settlement with ICCU Containers S.p.A. (See Note 5 to the financial statements), compared to $7,168 and $17,042 for the same periods in 1995. The amount of future interest income is expected to fluctuate in relation to prevailing interest rates, the collection of lease revenue, and the proceeds from equipment sales. For the three months ended June 30, 1996, the Partnership sold equipment having a net book value of $87,628 to existing lessees and third parties. These sales resulted in a net gain for financial statement purposes, of $84,672 compared to a net loss of $18,710 on equipment having a net book value of $69,710 for the same period in 1995. For the six months ended June 30, 1996, the Partnership sold equipment having a net book value of $160,982 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $146,318 compared to a net loss of $26,059 on equipment having a net book value of $284,951 for the same period in 1995. In September 1995, the Partnership transferred its 33.07% ownership interest in the United Aircraft, pursuant to the rules of a like-kind exchange for income tax reporting purposes (See Note 3 to the financial statements). In November 1995, the Partnership partially replaced the United Aircraft with a 14.35% interest in the Southwest Aircraft, at an aggregate cost of $2,101,054. To acquire the interests in the Southwest Aircraft, the Partnership obtained financing of $1,567,878 from a third-party lender and utilized $533,176 of the cash consideration received from the transfer of the United Aircraft. The remaining ownership interest of 85.65% in the Southwest Aircraft is held by affiliated equipment leasing programs sponsored by AFG. Additionally, in March 1996, the Partnership completed the replacement of the United Aircraft with the acquisitions of an 11.87% ownership interest in the Finnair Aircraft and a 21.31% ownership interest in the Reno Aircraft at a total cost to the Partnership of $3,322,913 and $2,894,892, respectively. To acquire the ownership interest in the Finnair Aircraft, the Partnership paid $1,110,980 in cash and obtained financing of $2,211,933 from a third-party lender. To acquire the ownership interest in the Reno Aircraft, the Partnership paid $494,780 in cash and obtained financing of $2,400,112 from a third-party lender. The remaining ownership interests of 88.13% and 78.69% of the Finnair Aircraft and Reno Aircraft, respectively, are held by affiliated equipment leasing programs sponsored by AFG. During the three months ended March 31, 1996, the Partnership transferred its ownership interest in trailers previously leased to The Atchison Topeka and Santa Fe Railroad. The Partnership intended to replace the trailers with comparable trailers and account for the transaction as a like-kind exchange for income tax reporting purposes. A gain of $4,556 was deferred in anticipation of completing the exchange during the three months ended June 30, 1996. During the three months ended June 30, 1996, the Partnership elected not to replace the trailers and, accordingly, the deferred gain of $4,556 was recognized as Gain on Sale of Equipment on the Statement of Operations for the three months ended June 30, 1996. In addition, the cash consideration of $26,250, which was reported as Contractual Right for Equipment on the Statement of Financial Position at March 31, 1996, was recognized as proceeds from equipment sales. See Note 4 to the financial statements for additional discussion of this transaction. 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 12 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION and its marketability at the time of sale. In addition, the amount of gain or loss reported for financial statement purposes is partly a function of the amount of accumulated depreciation associated with the equipment being sold. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including AFG's ability to sell and re-lease equipment. Changing market conditions, industry trends, technological advances, and many other events can converge to enhance or detract from asset values at any given time. AFG attempts to monitor these changes in order to identify opportunities which may be advantageous to the Partnership and which will maximize total cash returns for each asset. The total economic value realized upon final disposition of each asset is comprised of all primary lease term revenue generated from that asset, together with its residual value. The latter consists of cash proceeds realized upon the asset's sale in addition to all other cash receipts obtained from renting the asset on a re-lease, renewal or month-to-month basis. The Partnership classifies such residual rental payments as lease revenue. Consequently, the amount of gain or loss reported in the financial statements is not necessarily indicative of the total residual value the Partnership achieved from leasing the equipment. Depreciation and amortization expense for the three and six months ended June 30, 1996 was $862,406 and $1,779,060, respectively, compared to $979,230 and $2,042,039 for the same periods in 1995. For financial reporting purposes, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset at the date of primary lease expiration on a straight-line basis over such term. For the purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that equipment is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. Interest expense was $168,273 and $263,288, or 16.4% and 13.1% of lease revenue for the three and six months ended June 30, 1996, respectively, compared to $84,183 and $183,510 or 7.1% and 7.6% of lease revenue for the same periods in 1995. The increase in interest expense in 1996 compared to 1995 was due primarily to interest incurred in connection with the leveraging obtained to finance the like-kind exchange transactions, discussed above. Interest expense in future periods is expected to decline in amount and as a percentage of lease revenue as the principal balance of notes payable is reduced through the application of rent receipts to outstanding debt. Management fees were approximately 3.2% and 3.1% of lease revenue for the three and six months ended June 30, 1996, respectively, compared to 3.1% of lease revenue for each of the same periods in 1995. Management fees are based on 5% of gross lease revenue generated by operating leases and 2% of gross lease revenue generated by full payout leases. Operating expenses consist principally of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. In certain cases, equipment storage or repairs and maintenance costs may be incurred in connection with equipment being remarketed. Collectively, operating expenses represented 6% and 4.5% of lease revenue for the three and six months ended June 30, 1996, respectively, compared to 2.9% and 3.1% of lease revenue for the same periods in 1995. The increase in operating expenses from 1995 to 1996 is due principally to costs incurred in connection with the like-kind exchange transactions, discussed above. The amount of future operating expenses cannot be predicted with certainty; however, such expenses are usually higher during the acquisition and liquidation phases of a partnership. Other fluctuations typically occur in relation to the volume and timing of remarketing activities. 13 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION 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 $1,464,220 and $ 2,309,243 for the six months ended June 30, 1996 and 1995, respectively. Future renewal, re-lease and equipment sale activities will cause a gradual 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 continue to decline as the Partnership experiences a higher frequency of remarketing events. Ultimately, the Partnership will dispose of all assets under lease. This will occur principally through sale transactions whereby each asset will be sold to the existing lessee or to a third party. Generally, this will occur upon expiration of each asset's primary or renewal/re-lease term. In certain instances, casualty or early termination events may result in the disposal of an asset. Such circumstances are infrequent and usually result in the collection of stipulated cash settlements pursuant to terms and conditions contained in the underlying lease agreements. Cash expended for equipment acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. During the six months ended June 30, 1996, the Partnership expended $43,297 in cash in connection with the like-kind exchange transactions referred to above. For the six months ended June 30, 1996, the Partnership realized $333,550 in equipment sale proceeds compared to $258,892 for the same period in 1995. Future inflows of cash from asset disposals will vary in timing and amount and will be influenced by many factors including, but not limited to, the frequency and timing of lease expirations, the type of equipment being sold, its condition and age, and future market conditions. The Partnership obtained long-term financing in connection with certain equipment leases. The repayments of principal 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 will decline as the principal balance of notes payable is reduced through the collection and application of rents. However, the Partnership has balloon payment obligations at the expiration of the respective primary lease terms related to the Finnair Aircraft and Reno Aircraft. Cash distributions to the General and Limited Partners are declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is presented as a component of financing activities. For the six months ended June 30, 1996, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $634,308. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Limited Partners were allocated 95% of these distributions, or $602,593, and the General Partner was allocated 5%, or $31,715. The second quarter 1996 cash distribution was paid on July 15, 1996. 14 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q PART I. FINANCIAL INFORMATION Cash distributions paid to the Limited Partners consist of both a return of and a return on capital. To the extent that cash distributions consist of Cash From Sales or Refinancings, substantially all of such cash distributions should be viewed as a return of capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all future contracted rents, the generation of renewal and/or re-lease rents, and the residual value realized for each asset at its disposal date. Future market conditions, technological changes, the ability of AFG to manage and remarket the assets, and many other events and circumstances, could enhance or detract from individual asset yields and the collective performance of the Partnership's equipment portfolio. The future liquidity of the Partnership will be influenced by the foregoing and will be greatly dependent upon the collection of contractual rents and the outcome of residual activities. The General Partner anticipates that cash proceeds resulting from these sources will satisfy the Partnership's future expense obligations. However, the amount of cash available for distribution in future periods will fluctuate. Equipment lease expirations and asset disposals will cause the Partnership's net cash from operating activities to diminish over time; and equipment sale proceeds will vary in amount and period of realization. In addition, the Partnership may be required to incur asset refurbishment or upgrade costs in connection with future remarketing activities. Accordingly, fluctuations in the level of quarterly cash distributions will occur during the life of the Partnership. 15 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6(a). Exhibits Response: None Item 6(b). Reports on Form 8-K Response: None 16 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacity and on the date indicated. AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership By: AFG Leasing VI Incorporated, a Massachusetts corporation and the General Partner of the Registrant. By: /s/ Michael J. Butterfield ---------------------------------------------- Michael J. Butterfield Treasurer of AFG Leasing VI Incorporated (Duly Authorized Officer and Principal Accounting Officer) Date: August 14, 1996 -------------------------------------------- By: /s/ Gary M. Romano ---------------------------------------------- Gary M. Romano Clerk of AFG Leasing VI Incorporated (Duly Authorized Officer and Principal Financial Officer) Date: August 14, 1996 -------------------------------------------- 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 528,434 0 1,174,293 0 0 1,712,977 27,492,749 13,851,679 15,354,047 702,577 7,805,894 0 0 0 6,845,576 15,354,047 0 2,243,693 0 0 2,195,868 0 263,288 47,825 0 47,825 0 0 0 47,825 0 0
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