-----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, SH/kG4cwUYJ0KQVnxrty8L+i7S4+JuVxGZFygJHeyEKWwfOiLL9GQ5qN0gqJCCAS PkH5D2W3zFfFoEIlRM7Now== /in/edgar/work/0001021408-00-003598/0001021408-00-003598.txt : 20001115 0001021408-00-003598.hdr.sgml : 20001115 ACCESSION NUMBER: 0001021408-00-003598 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME FUND I-C CENTRAL INDEX KEY: 0000868679 STANDARD INDUSTRIAL CLASSIFICATION: [7359 ] IRS NUMBER: 043077437 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20031 FILM NUMBER: 766977 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 0001.txt AMERICAN INCOME FUND I-C UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-20031 American Income Fund I-C, a Massachusetts Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-3077437 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 88 Broad Street, Boston, MA 02110 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 854-5800 (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [_] 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 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
2 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership STATEMENT OF FINANCIAL POSITION September 30, 2000 and December 31, 1999 (Unaudited)
September 30, December 31, 2000 1999 ------------ ------------ ASSETS Cash and cash equivalents ....................................................... $ 1,649,519 $ 3,970,877 Rents receivable ................................................................ 96,156 92,215 Account receivable--affiliate ................................................... 71,571 133,950 Accounts receivable--other........................................................ 39,177 - Investment in real estate venture ............................................... 2,717,106 - Note receivable--affiliate ...................................................... 459,729 459,729 Investment securities--affiliate ................................................ 104,380 120,037 Equipment at cost, net of accumulated depreciation of $6,427,616 and $7,486,725 at September 30, 2000 and December 31, 1999, respectively ........... 5,687,513 6,405,777 ----------- ----------- Total assets ............................................................... $10,825,151 $11,182,585 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Notes payable ................................................................... $ 2,159,754 $ 2,363,628 Accrued interest ................................................................ 10,693 16,416 Accrued liabilities ............................................................. 392,480 386,918 Accrued liabilities---affiliate ................................................. 27,524 17,783 Deferred rental income .......................................................... 38,166 57,307 Cash distributions payable to partners .......................................... - 158,577 ----------- ----------- Total liabilities .......................................................... 2,628,617 3,000,629 ----------- ----------- Partners' capital (deficit): General Partner ................................................................ (472,713) (473,442) Limited Partnership Interests (803,454.56 Units; initial purchase price of $25 each) ................................................................. 8,669,247 8,655,398 ----------- ----------- Total partners' capital .................................................... 8,196,534 8,181,956 ----------- ----------- Total liabilities and partners' capital .................................... $10,825,151 $11,182,585 =========== ===========
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 nine months ended September 30, 2000 and 1999 (Unaudited)
For the three months ended For the nine months ended September 30, September 30, 2000 1999 2000 1999 --------- -------- ---------- ---------- Income: Lease revenue....................................... $ 272,050 $507,999 $1,026,637 $1,676,339 Interest income..................................... 28,072 50,177 94,983 157,894 Interest income--affiliate.......................... 11,588 11,588 34,385 34,385 Gain on sale of equipment........................... 71,209 34,500 93,209 483,673 --------- -------- ---------- ---------- Total income.................................... 382,919 604,264 1,249,214 2,352,291 --------- -------- ---------- ---------- Expenses: Depreciation........................................ 155,374 239,577 482,228 716,710 Interest expense.................................... 47,778 52,517 148,142 174,540 Equipment management fees--affiliate................ 12,549 23,802 47,406 76,348 Operating expenses--affiliate....................... 314,660 37,217 478,309 200,229 Partnership's share of unconsolidated real estate venture's loss.............................. 45,071 - 62,894 - --------- -------- ---------- ---------- Total expenses.................................. 575,432 353,113 1,218,979 1,167,827 --------- -------- ---------- ---------- Net (loss) income.................................... $(192,513) $251,151 $ 30,235 $1,184,464 ========= ======== ========== ========== Net (loss) income per limited partnership unit....... $ (.23) $ 0.30 $ .04 $ 1.40 ========= ======== ========== ========== Cash distributions declared per limited partnership unit................................... $ - $ 0.19 $ - $ 0.56 ========= ======== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership STATEMENT OF CHANGES IN PARTNERS' CAPITAL For the nine months ended September 30, 2000 (Unaudited)
General Partner Limited Partners Amount Units Amount Total --------- ---------- ---------- ---------- Balance at December 31, 1999 ...................... $(473,442) 803,454.56 $8,655,398 $8,181,956 Net income ....................................... 1,512 28,723 30,235 Unrealized loss on investment securities-- affiliate ....................................... (783) - (14,874) (15,657) --------- ---------- ---------- ---------- Comprehensive income .............................. 729 - 13,849 14,578 --------- ---------- ---------- ---------- Balance at September 30, 2000 ..................... $(472,713) 803,454.56 $8,669,247 $8,196,534 ========= ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 5 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership STATEMENT OF CASH FLOWS For the nine months ended September 30, 2000 and 1999 (Unaudited)
2000 1999 ----------- ----------- Cash flows provided by (used in) operating activities: Net income ............................................................... $ 30,235 $ 1,184,464 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................................. 482,228 716,710 Gain on sale of equipment................................................ (93,209) (483,673) Partnership's share of unconsolidated real estate venture's loss......... 62,894 - Changes in assets and liabilities Decrease (increase) in: Rents receivable......................................................... (3,941) 119,186 Accounts receivable - affiliate.......................................... 62,379 3,570 Accounts receivable - other.............................................. (39,177) - Increase (decrease) in: Accrued interest......................................................... (5,723) (8,634) Accrued liabilities...................................................... 5,562 (86,977) Accrued liabilities--affiliate........................................... 9,741 2,761 Deferred rental income................................................... (19,141) 2,109 ----------- ----------- Net cash provided by operating activities............................. 491,848 1,449,516 ----------- ----------- Cash flows provided by (used in) investing activities: Proceeds from equipment sales............................................. 329,245 484,759 Investment in real estate venture......................................... (2,780,000) - ----------- ----------- Net cash (used in) provided by investing activities................... (2,450,755) 484,759 ----------- ----------- Cash flows provided by (used in) financing activities: Principal payments--notes payable......................................... (364,730) (752,175) Proceeds from notes payable............................................... 160,856 - Distributions paid........................................................ (158,577) (475,730) ----------- ----------- Net cash used in financing activities................................. (362,451) (1,227,905) ----------- ----------- Net (decrease) increase in cash and cash equivalents....................... (2,321,358) 706,370 Cash and cash equivalents at beginning of period........................... 3,970,877 3,243,631 ----------- ----------- Cash and cash equivalents at end of period................................. $ 1,649,519 $ 3,950,001 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for interest ................................ $ 153,865 $ 183,174 =========== ===========
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 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership NOTES TO THE FINANCIAL STATEMENTS September 30, 2000 (Unaudited) Note 1--Basis of Presentation The financial statements presented herein are prepared in conformity with generally accepted accounting principles for interim financial information and with the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and are unaudited. As such, these financial statements do not include all information and footnote disclosures required under generally accepted accounting principles for complete financial statements and, accordingly, the accompanying financial statements should be read in conjunction with the footnotes presented in the 1999 Annual Report. Except as disclosed herein, there have been no material changes to the information presented in the footnotes to the 1999 Annual Report. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary to present fairly the financial position at September 30, 2000 and December 31, 1999 and results of operations for the three and nine month periods ended September 30, 2000 and 1999 have been made and are reflected. Note 2--Cash At September 30, 2000, American Income Fund I-C, a Massachusetts Limited Partnership (the "Partnership") had $1,533,301 invested in federal agency discount notes, repurchase agreements secured by U.S. Treasury Bills or interests in U.S. Government securities, or other highly liquid overnight investments. Note 3--Revenue Recognition Rents are payable to the Partnership monthly, quarterly or semi-annually and no significant amounts are calculated on factors other than the passage of time. The leases are accounted for as operating leases and are noncancellable. Rents received prior to their due dates are deferred. In certain instances, the Partnership may enter renewal or re-lease agreements which expire beyond the Partnership's anticipated dissolution date. This circumstance is not expected to prevent the orderly wind-up of the Partnership's business activities as the General Partner and Equis Financial Group Limited Partnership ("EFG") would seek to sell the then-remaining equipment assets either to the lessee or to a third party, taking into consideration the amount of future noncancellable rental payments associated with the attendant lease agreements. See also Note 8 to the financial statements presented in the Partnership's 1999 Annual Report regarding the Class Action Lawsuit. Future minimum rents of $3,390,359, which include the aircraft re-leases discussed in Note 4 herein, are due as follows: For the year ending September 30, 2001.................................... $1,261,666 2002.................................... 1,126,401 2003.................................... 786,815 2004.................................... 215,477 ---------- Total................................... $3,390,359 ========== 7 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership NOTES TO THE FINANCIAL STATEMENTS (Continued) Note 4--Equipment The following is a summary of equipment owned by the Partnership at September 30, 2000. Remaining Lease Term (Months), as used below, represents the number of months remaining from September 30, 2000 under contracted lease terms and is presented as a range when more than one lease agreement is contained in the stated equipment category. A Remaining Lease Term equal to zero reflects equipment either held for sale or re-lease or being leased on a month-to-month basis. In the opinion of EFG, the acquisition cost of the equipment did not exceed its fair market value. Remaining Lease Term Equipment Equipment Type (Months) at Cost -------------- ---------- --------- Aircraft......................... 0-47 $ 7,618,510 Materials handling............... 0-15 2,384,342 Trailers/intermodal containers... 27-33 1,963,408 Motor vehicles................... 0 97,400 Communications................... 0 51,469 ----------- Total equipment cost 12,115,129 Accumulated depreciation 6,427,616 ----------- Equipment, net of accumulated depreciation $ 5,687,513 =========== At September 30, 2000, the Partnership's equipment portfolio included equipment having a proportionate original cost of $9,581,926, representing approximately 79% of total equipment cost. Certain of the equipment and related lease payment streams were used to secure term loans with third-party lenders. The preceding summary of equipment includes leveraged equipment having an original cost of approximately $6,218,000 and a net book value of approximately $4,576,000 at September 30, 2000. The Partnership entered into a three year re-lease agreement with Air Slovakia for its proportionate interest in a Boeing 737-2H4 aircraft, effective September 2000. Under the terms of this agreement, the Partnership will receive rents of $376,688 over the term of the lease. In addition, the Partnership entered into a four year lease agreement with Aero-Mexico for its proportionate interest in a McDonnell-Douglas MD-82 aircraft, effective September 2000. Under the terms of this agreement, the Partnership will receive rents of $920,675 over the term of the lease. The summary above includes equipment held for re-lease or sale with an original cost of approximately $700,000 and a net book value of $224,715 at September 30, 2000. This equipment represents the Partnership's interest in a Boeing 737 aircraft. The aircraft was returned by the lessee in December 1999 upon expiration of the lease and was remarketed in October 2000. Note 5--Investment in Real Estate Venture On March 8, 2000, the Partnership and 10 affiliated partnerships (the "Exchange Partnerships") collectively loaned $32 million to Echelon Residential Holdings LLC ("Echelon Residential Holdings"), a newly formed real estate development company. Echelon Residential Holdings is owned by several investors, including James A. Coyne, Executive Vice President of EFG. Mr. Coyne, in his individual capacity, is the only equity investor in Echelon Residential Holdings related to EFG. In addition, certain affiliates of the General Partner made loans to Echelon Residential Holdings in their individual capacities. 8 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership NOTES TO THE FINANCIAL STATEMENTS (Continued) Note 5--Investment in Real Estate Venture (continued) The Partnership's participation in the loan is $2,780,000. Echelon Residential Holdings, through a wholly-owned subsidiary (Echelon Residential LLC), used the loan proceeds to acquire various real estate assets from Echelon International Corporation, a Florida-based real estate company. The loan has a term of 30 months, maturing on September 8, 2002, and an annual interest rate of 14% for the first 24 months and 18% for the final six months. Interest accrues and compounds monthly and is payable at maturity. In connection with the transaction, Echelon Residential Holdings has pledged a security interest in all of its right, title and interest in and to its membership interests in Echelon Residential LLC to the Exchange Partnerships as collateral. Using the guidance set forth in the Third Notice to Practitioners by the American Institute of Certified Public Accountants ("AICPA") in February 1986 entitled "ADC Arrangements" (the "Third Notice"), the Partnership has evaluated this investment to determine whether loan, joint venture or real estate accounting is appropriate. Such determination affects the Partnership's balance sheet classification of the investment and the recognition of revenues derived therefrom. The Third Notice was issued to address those real estate acquisition, development and construction arrangements where a lender has virtually the same risk and potential awards as those of owners or joint ventures. Emerging Issues Task Force ("EITF") 86-21, "Application of the AICPA Notice to Practitioners regarding Acquisition, Development and Construction Arrangements to Acquisition of an Operating Property" expanded the applicability of the Third Notice to entities other than financial institutions. Based on the applicability of the Third Notice, EITF 86-21 and consideration of the economic substance of the transaction, the loan is considered to be an investment in a real estate venture for accounting purposes. In accordance with the provisions of Statement of Position No. 78-9, "Accounting for Investments in Real Estate Ventures", the Partnership reports its share of income or loss of Echelon Residential Holdings under the equity method of accounting. The Partnership's accompanying financial statements as of and for the three and nine months ended September 30, 2000 are presented in accordance with the guidance above. The investment is net of the Partnership's share of losses in this real estate venture. For the three and nine months ended September 30, 2000, the Partnership's share of losses in Echelon Residential Holdings is $45,071 and $62,894, respectively, and is reflected on the Statement of Operations as "Partnership's share of unconsolidated real estate venture's loss". The summarized financial information for Echelon Residential Holdings as of September 30, 2000 and for the period March 8, 2000 (commencement of operations) through September 30, 2000 is as follows: (Unaudited) ----------- Total assets.............. $ 63,457,759 Total liabilities......... $ 64,221,109 Total deficit............. $ (763,350) Total revenues............ $ 1,565,618 Total expenses............ $ 5,109,324 Net loss.................. $ (3,543,706) 9 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership NOTES TO THE FINANCIAL STATEMENTS (Continued) Note 6--Investment Securities--Affiliate and Note Receivable--Affiliate As a result of an exchange transaction in 1997, the Partnership owns 20,876 shares of Semele Group, Inc. ("Semele") common stock and holds a beneficial interest in a note from Semele (the "Semele Note") of $459,729. The Semele Note matures in April 2001 and bears an annual interest rate of 10% with mandatory principal reductions prior to maturity, if and to the extent that net proceeds are received by Semele from the sale or refinancing of its principal real estate asset consisting of an undeveloped 274-acre parcel of land near Malibu, California. The Partnership recognized interest income of $11,588 and $34,385, respectively, related to the Semele Note for each of the three and nine months ended September 30, 2000 and 1999. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", marketable equity securities classified as available-for-sale are carried at fair value. During the nine months ended September 30, 2000, the Partnership decreased the carrying value of its investment in Semele common stock to $5 per share (the quoted price on the NASDAQ SmallCap market at the date the stock traded closest to September 30, 2000), resulting in an unrealized loss of $15,657. This loss is reported as a component of comprehensive income included in the Statement of Changes in Partners' Capital. Note 7--Related Party Transactions All operating expenses incurred by the Partnership are paid by EFG on behalf of the Partnership and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the nine month periods ended September 30, 2000 and 1999 which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows:
For the nine months ended September 30, 2000 1999 -------- -------- Equipment management fees............................... $ 47,406 $ 76,348 Administrative charges.................................. 101,323 99,180 Reimbursable operating expenses due to third parties.... 376,986 101,049 -------- -------- Total................................................. $525,715 $276,577 ======== ========
All rents and proceeds from the sale of equipment are paid directly to either EFG or to a lender. EFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At September 30, 2000, the Partnership was owed $71,571 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in October 2000. Note 8--Notes Payable Notes payable at September 30, 2000 consisted of installment notes of $2,159,754 payable to banks and institutional lenders. The installment notes bear an interest rate of either 8.225% or a fluctuating interest rate based on LIBOR (approximately 6.62% at September 30, 2000) plus a margin. All of the installment notes are non-recourse and are collateralized by the equipment and assignment of any related lease payments. The Partnership has balloon payment obligations at the expiration of the lease terms related to aircraft leased by Reno Air, Inc. and Finnair OY of $679,276 and $106,516, respectively. The Reno Air, Inc. and Finnair OY indebtedness matures in 10 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership NOTES TO THE FINANCIAL STATEMENTS (Continued) Note 8--Notes Payable (continued) January 2003 and April 2001, respectively. In addition, the Partnership has a balloon payment obligation of $560,358 which matured in August 2000. The General Partner is currently negotiating with the existing lender to extend the terms of this indebtedness and the Partnership is currently paying interest only on the outstanding debt amount. This obligation is related to the Partnership's interest in a McDonnell-Douglas MD-82 aircraft which was returned in January 2000 upon its lease term expiration and was re-leased in September 2000. The carrying amount of notes payable approximates fair value at September 30, 2000. The annual maturities of the installment notes payable are as follows: For the year ending September 30, 2001............................. $1,076,286 2002............................. 320,472 2003............................. 762,996 ---------- Total............................ $2,159,754 ========== Note 9--Legal Proceedings As described more fully in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1999, the Partnership is a Nominal Defendant in a Class Action Lawsuit, the outcome of which could significantly alter the nature of the Partnership's organization and its future business operations. 11 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership PART I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain statements in this quarterly report of American Income Fund I-C, a Massachusetts Limited Partnership (the "Partnership") that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a variety of risks and uncertainties. There are a number of factors that could cause actual results to differ materially from those expressed in any forward-looking statements made herein. These factors include, but are not limited to, the outcome of the Class Action Lawsuit described in Note 8 to the financial statements presented in the 1999 Annual Report, the remarketing of the Partnership's equipment, and the performance of the Partnership's non-equipment assets. Three and nine months ended September 30, 2000 compared to the three and nine months ended September 30, 1999 The Partnership was organized in 1991 as a direct-participation equipment leasing program to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. Presently, the Partnership is a Nominal Defendant in a Class Action Lawsuit, the outcome of which could significantly alter the nature of the Partnership's organization and its future business operations. See Note 8 to the financial statements presented in the Partnership's 1999 Annual Report. Pursuant to the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"), the Partnership is scheduled to be dissolved by December 31, 2002. Results of Operations For the three and nine months ended September 30, 2000, the Partnership recognized lease revenue of $272,050 and $1,026,637, respectively, compared to $507,999 and $1,676,339, respectively, for the same periods in 1999. The decrease in lease revenue from 1999 to 2000 resulted in part from the expiration of lease terms related to the Partnership's interests in three Boeing 737-2H4 aircraft (one of which was sold in July 2000) and a McDonnell-Douglas MD-82 aircraft. See below for a detailed discussion of variances in lease revenue between the respective periods. The amount of lease revenue in the near term will increase due to the re-lease of the McDonnell-Douglas MD-82 aircraft and one of the Boeing 737-2H4 aircraft in September 2000. Subsequently, the Partnership's lease revenue is expected to decline due to primary and renewal lease term expirations and equipment sales. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by an affiliated equipment leasing program sponsored by Equis Financial Group Limited Partnership ("EFG"). Proportionate equipment ownership enabled the Partnership to further diversify its equipment portfolio at inception by participating in the ownership of selected assets, thereby reducing the general levels of risk which could have resulted from a concentration in any single equipment type, industry or lessee. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. 12 The lease terms related to the three Boeing 737-2H4 aircrafat, in which the Partnership held a proportionate interest, expired on December 31, 1999 and the aircraft were stored pending their remarketing. In July 2000, one of the Boeing 737-2H4 aircraft was sold resulting in $279,825 of proceeds and a net gain, for financial statement purposes, of $47,179 for the Partnership's proportional interest in the aircraft. In September 2000, one of the Boeing 737-2H4 aircraft was re-leased with a lease term expiring in September 2003. Under the terms of this re-lease agreement, the Partnership will receive rents of $376,688 over the term of the lease. The remaining Boeing 737-2H4 aircraft was remarketed in October 2000. The Partnership recognized lease revenue of $8,969 and $309,960, respectively, related to these three aircraft during the nine months ended September 30, 2000 and 1999. The lease term associated with the second McDonnell-Douglas MD-82 aircraft, in which the Partnership holds an ownership interest, expired in January 2000. The aircraft was re-leased in September 2000, with a lease term expiring in September 2004. Under the terms of this re-lease agreement, the Partnership will receive rents of $920,675 over the term of the lease. The Partnership recognized lease revenue related to this aircraft of $38,273 and $190,388, respectively, during the nine months ended September 30, 2000 and 1999. Interest income for the three and nine months ended September 30, 2000 was $39,660 and $129,368 compared to $61,765 and $192,279 for the same periods in 1999. Interest income is typically generated from temporary investment of rental receipts and equipment sale proceeds in short-term instruments. Interest income during the three and nine months ended September 30, 2000 and 1999 included $11,588 and $34,385, respectively, earned on a note receivable from Semele Group Inc. ("Semele") (see Note 6 to the financial statements herein). On March 8, 2000, the Partnership utilized $2,780,000 of available cash for a loan to Echelon Residential Holdings LLC ("Echelon Residential Holdings"). See Note 5 to the financial statements herein. The amount of future interest income is expected to fluctuate as a result of changing interest rates and the amount of cash available for investment, among other factors. During the three and nine months ended September 30, 2000, the Partnership an aggregate of equipment with a net book value of $236,036 and fully-depreciated equipment to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $71,209 and $93,209, respectively. During the nine months ended September 30, 1999, the Partnership sold equipment having a net book value of $1,086, resulting in a net gain, for financial statement purposes of $483,673. During the three months ended September 30, 1999, the Partnership sold fully-depreciated equipment to existing lessees and third-parties, resulting in a net gain, for financial statement purposes, of $34,500. It cannot be determined whether future sales of equipment will result in a net gain or a net loss to the Partnership, as such transactions will be dependent upon the condition and type of equipment being sold and its marketability at the time of sale. In addition, the amount of gain or loss reported for financial statement purposes is partly a function of the amount of accumulated depreciation associated with the equipment being sold. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including EFG's ability to sell and re-lease equipment. Changing market conditions, industry trends, technological advances, and many other events can converge to enhance or detract from asset values at any given time. EFG attempts to monitor these changes in order to identify opportunities which may be advantageous to the Partnership and which will maximize total cash returns for each asset. The total economic value realized upon final disposition of each asset is comprised of all primary lease term revenue generated from that asset, together with its residual value. The latter consists of cash proceeds realized upon the asset's sale in addition to all other cash receipts obtained from renting the asset on a re-lease, renewal or month- 13 to-month basis. The Partnership classifies such residual rental payments as lease revenue. Consequently, the amount of gain or loss reported in the financial statements is not necessarily indicative of the total residual value the Partnership achieved from leasing the equipment. Depreciation expense for the three and nine months ended September 30, 2000 was $155,374 and $482,228, respectively, compared to $239,577 and $716,710 for the same periods in 1999. For financial reporting purposes, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset at the date of primary lease expiration on a straight-line basis over such term. For the purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that equipment is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. Interest expense was $47,778 and $148,142, respectively, for the three and nine months ended September 30, 2000 compared to $52,517 and $174,540, respectively, for the same periods in 1999. Interest expense will continue to decrease in future periods as the principal balance of notes payable is reduced through the application of rent receipts to outstanding debt. Management fees were $12,549 and $47,406, respectively, for the three and nine month periods ended September 30, 2000 and $23,802 and $76,348, respectively, for the same periods in 1999. Management fees are based on 5% of gross lease revenue generated by operating leases and 2% of gross lease revenue generated by full payout leases. Operating expenses were $314,660 and $478,309, respectively, for the three and nine month periods ended September 30, 2000 compared to $37,217 and $200,229, respectively, for the same periods in 1999. The primary reason for the increase in operating expenses from 1999 to 2000 is storage and remarketing costs associated with the Partnership's off-lease aircraft and approximately $160,000 accrued for the Partnership's proportionate share of the cost of a required D- check on the McDonnell-Douglas MD-82 aircraft leased to Finnair OY. In addition, 2000 operating expenses include approximately $40,000 of costs incurred in connection with the Class Action Lawsuit discussed in Note 8 to the financial statements presented in the Partnership's 1999 Annual Report. Operating expenses include professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. In certain cases, equipment storage or repairs and maintenance costs may be incurred in connection with equipment being remarketed. For the three and nine months ended September 30, 2000, the Partnership's share of losses in Echelon Residential Holdings is $45,071 and $62,894, respectively, and is reflected on the Statement of Operations as "Partnership's share of unconsolidated real estate venture's loss". See further discussion below. Liquidity and Capital Resources and Discussion of Cash Flows The Partnership by its nature is a limited life entity. As an equipment leasing program, the Partnership's principal operating activities derive from asset rental transactions. Accordingly, the Partnership's principal source of cash from operations is provided by the collection of periodic rents. These cash inflows are used to satisfy debt service obligations associated with leveraged leases, and to pay management fees and operating costs. Operating activities generated net cash inflows of $491,848 and $1,449,516 for the nine months ended September 30, 2000 and 1999, respectively. In the near term, lease revenue is expected to increase due to the re-lease of the aircraft discussed above. Subsequently, remarketing activities will cause a decline in the Partnership's lease revenue and corresponding sources of operating cash. Overall, expenses associated with rental activities, such as management fees, and net cash flow from operating activities will also decline as the Partnership experiences a higher frequency of remarketing events. See additional discussion below regarding the loan made by the Partnership to Echelon Residential Holding in March 2000. 14 Cash realized from asset disposal transactions is reported under investing activities on the accompanying Statement of Cash Flows. During the nine months ended September 30, 2000 and 1999, the Partnership realized equipment sales proceeds of $329,245 and $484,759, respectively. Future inflows of cash from asset disposals will vary in timing and amount and will be influenced by many factors including, but not limited to, the frequency and timing of lease expirations, the type of equipment being sold, its condition and age, and future market conditions. At September 30, 2000, the Partnership was due aggregate future minimum lease payments of $3,390,359 from contractual lease agreements, a portion of which will be used to amortize the principal balance of notes payable of $2,159,754. See Notes 3 and 8 to the financial statements herein. At the expiration of the individual primary and renewal lease terms underlying the Partnership's future minimum lease payments, the Partnership will sell the equipment or enter re- lease or renewal agreements when considered advantageous by the General Partner and EFG. Such future remarketing activities will result in the realization of additional cash inflows in the form of equipment sale proceeds or rents from renewals and re-leases, the timing and extent of which cannot be predicted with certainty. This is because the timing and extent of remarketing events often is dependent upon the needs and interests of the existing lessees. Some lessees may choose to renew their lease contracts, while others may elect to return the equipment. In the latter instances, the equipment could be re-leased to another lessee or sold to a third party. In connection with a preliminary settlement agreement for the Class Action Lawsuit described in Note 8 to the financial statements presented in the Partnership's 1999 Annual Report, the Partnership is permitted to invest in new equipment or other business activities, subject to certain limitations. On March 8, 2000, the Partnership and 10 different partnerships (the "Exchange Partnerships") collectively loaned $32 million to Echelon Residential Holdings, a newly-formed real estate development company owned by several investors, including James A. Coyne, Executive Vice President of EFG. Mr. Coyne, in his individual capacity, is the only equity investor in Echelon Residential Holdings who is related to EFG. In addition, certain affiliates of the General Partner made loans to Echelon Residential Holdings in their individual capacities. The Partnership's participation in the loan is $2,780,000. Echelon Residential Holdings, through a subsidiary (Echelon Residential LLC), used the loan proceeds to acquire various real estate assets from Echelon International Corporation, a Florida based real estate company. The loan has a term of 30 months maturing on September 8, 2002 and bears interest at the annual rate of 14% for the first 24 months and 18% for the final six months. Interest accrues and compounds monthly and is payable at maturity. In connection with the transaction, Echelon Residential Holdings has pledged a security interest in all of its right, title and interest in and to its membership interests in Echelon Residential LLC to the Exchange Partnerships as collateral. As discussed in Note 5 to the Partnership's financial statements here in, the loan is considered to be an investment in a real estate venture for accounting purposes. In accordance with the provisions of Statement of Position No. 78-9, "Accounting for Investments in Real Estate Ventures", the Partnership reports its share of income or loss of Echelon Residential Holdings under the equity method of accounting. As a result of an exchange transaction in 1997, the Partnership owns 20,876 shares of Semele common stock and holds a beneficial interest in a note from Semele (the "Semele Note") of $459,729. The Semele Note matures in April 2001 and bears an annual interest rate of 10% with mandatory principal reductions prior to maturity, if and to the extent that net proceeds are received by Semele from the sale or refinancing of its principal real estate asset consisting of an undeveloped 274-acre parcel of land near Malibu, California. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", marketable equity securities classified as available-for-sale are carried at fair value. During the nine months ended September 30, 2000, the Partnership decreased the carrying value of its investment in Semele common stock to $5 per share (the quoted price on the NASDAQ SmallCap market at the date the stock traded closest to September 30, 2000), resulting in an unrealized loss of $15,657. This loss was reported as a component of comprehensive income included in the Statement of Changes in Partners' Capital. 15 The Partnership obtained long-term financing in connection with certain equipment leases. The origination of such indebtedness and the subsequent repayments of principal are reported as components of financing activities. Each note payable is recourse only to the specific equipment financed and to the minimum rental payments contracted to be received during the debt amortization period, which period generally coincides with the lease rental term. As rental payments are collected, a portion or all of the rental payment is used to repay the associated indebtedness. The Partnership has balloon payment obligations at the expiration of the lease terms related to aircraft leased by Reno Air, Inc. and Finnair OY of $679,276 and $106,516, respectively. The Reno Air, Inc. and Finnair OY indebtedness matures in January 2003 and April 2001, respectively. In addition, in February 2000, the Partnership and certain affiliated investment programs (collectively, the "Programs") refinanced the indebtedness which matured in January 2000 associated with a McDonnell-Douglas MD-82 aircraft formerly leased to Finnair OY. In addition to refinancing the existing indebtedness of $3,370,000, the Programs received additional debt proceeds of $1,350,000 required to perform a D-Check on the aircraft. The Partnership received $160,856 from such proceeds. The note bears a fluctuating interest rate based on LIBOR plus a margin with interest payments due monthly. The Partnership's aggregate share of the refinanced and new indebtedness was $560,358, which matured in August 2000. The General Partner is currently negotiating with the existing lender to extend the terms of this indebtedness and the Partnership is currently paying interest-only on the outstanding debt amount. The aircraft was returned in January 2000 upon its lease term expiration was re-leased in September 2000. See discussion above. There are no formal restrictions under the Restated Agreement, as amended, that materially limit the Partnership's ability to pay cash distributions, except that the General Partner may suspend or limit cash distributions to ensure that the Partnership maintains sufficient working capital reserves to cover, among other things, operating costs and potential expenditures, such as refurbishment costs to remarket equipment upon lease expiration. Liquidity is especially important as the Partnership matures and sells equipment, because the remaining equipment base consists of fewer revenue-producing assets that are available to cover prospective cash disbursements. Insufficient liquidity could inhibit the Partnership's ability to sustain its operations or maximize the realization of proceeds from remarketing its remaining assets. In particular, the Partnership must contemplate the potential liquidity risks associated with its investment in commercial jet aircraft. The management and remarketing of aircraft can involve, among other things, significant costs and lengthy remarketing initiatives. Although the Partnership's lessees are required to maintain the aircraft during the period of lease contract, repair, maintenance, and/or refurbishment costs at lease expiration can be substantial. For example, an aircraft that is returned to the Partnership meeting minimum airworthiness standards, such as flight hours or engine cycles, nonetheless may require heavy maintenance in order to bring its engines, airframe and other hardware up to standards that will permit its prospective use in commercial air transportation. At September 30, 2000, the Partnership had ownership interests in five commercial jet aircraft. Two of the aircraft are Boeing 737 aircraft formerly leased to Southwest Airlines, Inc.("Southwest"). The lease agreements for each of these aircraft expired on December 31, 1999 and Southwest elected to return the aircraft. In September 2000 and October 2000, the aircraft were re-leased and remarketed, respectively, to users outside of the United States. The remaining three aircraft in the Partnership's portfolio have lease agreements that expire in April 2001, January 2003 and September 2004, respectively. Cash distributions to the General and Limited Partners had been declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is reported under financing activities on the accompanying Statement of Cash Flows. No cash distributions were declared for the nine months ended September 30, 2000. Cash distributions paid to the Limited Partners consist of both a return of and a return on capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all 16 future contracted rents, the generation of renewal and/or re-lease rents, and the residual value realized for each asset at its disposal date. The Partnership's capital account balances for federal income tax and for financial reporting purposes are different primarily due to differing treatments of income and expense items for income tax purposes in comparison to financial reporting purposes, generally referred to as permanent or timing differences. See Note 7 to the financial statements presented in the 1999 Annual Report. For instance, selling commissions and organization and offering costs pertaining to syndication of the Partnership's limited partnership units are not deductible for federal income tax purposes, but are recorded as a reduction of partners' capital for financial reporting purposes. Therefore, such differences are permanent differences between capital accounts for financial reporting and federal income tax purposes. Other differences between the bases of capital accounts for federal income tax and financial reporting purposes occur due to timing differences. Such items consist of the cumulative difference between income or loss for tax purposes and financial statement income or loss, the difference between distributions (declared vs. paid) for income tax and financial reporting purposes, and the treatment of unrealized gains or losses on investment securities for book and tax purposes. The principal component of the cumulative difference between financial statement income or loss and tax income or loss results from different depreciation policies for book and tax purposes. For financial reporting purposes, the General Partner has accumulated a capital deficit at September 30, 2000. This is the result of aggregate cash distributions to the General Partner being in excess of its capital contribution of $1,000 and its allocation of financial statement net income or loss. Ultimately, the existence of a capital deficit for the General Partner for financial reporting purposes is not indicative of any further capital obligations to the Partnership by the General Partner. The Restated Agreement, as amended, requires that upon the dissolution of the Partnership, the General Partner will be required to contribute to the Partnership an amount equal to any negative balance which may exist in the General Partner's tax capital account. At December 31, 1999, the General Partner had a positive tax capital account balance. The outcome of the Class Action Lawsuit described in Note 8 to the financial statements presented in the Partnership's 1999 Annual Report will be the principal factor in determining the future of the Partnership's operations. The proposed settlement to that lawsuit, if effected, will materially change the future organizational structure and business interests of the Partnership, as well as its cash distribution policies. In addition, commencing with the first quarter of 2000, the General Partner suspended the payment of quarterly cash distributions pending final resolution of the Class Action Lawsuit. Accordingly, future cash distributions are not expected to be paid until the Class Action Lawsuit is adjudicated. 17 AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership FORM 10-Q PART II. OTHER INFORMATION Item 1. Legal Proceedings Response: Refer to Note 9 to the financial statements herein. Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6(a). Exhibits 27 Financial Data Schedule Item 6(b). Reports on Form 8-K 27 Financial Data Schedule Exhibit Index ------------- Exhibit Description - ------- ----------- 27 Financial Data Schedule 18 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacity and on the date indicated. AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership By: AFG Leasing VI Incorporated, a Massachusetts corporation and the General Partner of the Registrant. /s/ Michael J. Butterfield By: Michael J. Butterfield Treasurer of AFG Leasing VI Incorporated (Duly Authorized Officer and Principal Accounting Officer) Date: November 14, 2000 19 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1,649,519 104,308 3,383,739 0 0 5,137,638 12,115,129 6,427,616 10,825,151 468,863 2,159,754 0 0 0 8,196,534 10,825,151 0 1,249,214 0 1,070,837 0 0 148,142 30,235 0 30,235 0 0 0 30,235 0 0
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