<PAGE>
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 March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
_____________________
For Quarter Ended March 31, 1997 Commission File No. 0-21396
AFG Investment Trust A
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(Exact name of registrant as specified in its charter)
Delaware 04-3145953
- ------------------------------------- --------------------
(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 ___
<PAGE>
AFG Investment Trust A
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1997 and December 31, 1996 3
Statement of Operations
for the three months ended March 31, 1997 and 1996 4
Statement of Cash Flows
for the three months ended March 31, 1997 and 1996 5
Notes to the Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II. OTHER INFORMATION:
Items 1 - 6 15
2
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AFG Investment Trust A
STATEMENT OF FINANCIAL POSITION
March 31, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,123,059 $ 1,832,248
Rents receivable 588,445 623,237
Accounts receivable - affiliate 48,939 55,849
Equipment at cost, net of accumulated depreciation
of $11,699,306 and $11,280,817 at March 31, 1997
and December 31, 1996, respectively 10,721,050 11,663,702
Organization costs, net of accumulated amortization
of $4,917 and $4,667 at March 31, 1997
and December 31, 1996, respectively 83 333
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Total assets $13,481,576 $14,175,369
----------- ------------
----------- ------------
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable $ 3,655,800 $ 4,249,311
Accrued interest 48,990 62,360
Accrued liabilities 18,750 23,250
Accrued liabilities - affiliate 41,381 38,293
Deferred rental income 32,608 18,721
Cash distributions payable to participants 165,220 165,220
----------- ------------
Total liabilities 3,962,749 4,557,155
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Participants' capital (deficit):
Managing Trustee (28,142) (27,148)
Special Beneficiary (239,424) (231,225)
Beneficiary Interests
(549,218 Interests; initial purchase price of $25 each) 9,786,393 9,876,587
----------- ------------
Total participants' capital 9,518,827 9,618,214
----------- ------------
Total liabilities and participants' capital $13,481,576 $14,175,369
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
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AFG Investment Trust A
STATEMENT OF OPERATIONS
for the three months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---------- ----------
Income:
Lease revenue $1,179,837 $1,254,648
Interest income 25,800 6,336
Gain (loss) on sale of equipment 2,095 (148,067)
---------- ----------
Total income 1,207,732 1,112,917
---------- ----------
Expenses:
Depreciation and amortization 932,497 952,119
Interest expense 43,358 104,957
Equipment management fees - affiliate 44,578 48,461
Operating expenses - affiliate 38,857 16,976
---------- ----------
Total expenses 1,059,290 1,122,513
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Net income (loss) $ 148,442 $ (9,596)
---------- ----------
---------- ----------
Net income (loss)
per Beneficiary Interest $ 0.25 $ (0.02)
---------- ----------
---------- ----------
Cash distributions declared
per Beneficiary Interest $ 0.41 $ 0.32
---------- ----------
---------- ----------
The accompanying notes are an integral part
of these financial statements.
4
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AFG Investment Trust A
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---------- -----------
Cash flows from (used in) operating activities:
Net income (loss) $ 148,442 $ (9,596)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization 932,497 952,119
(Gain) loss on sale of equipment (2,095) 148,067
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 34,792 (121,469)
accounts receivable - affiliate 6,910 (29,159)
Increase (decrease) in:
accrued interest (13,370) 23,122
accrued liabilities (4,500) (2,185)
accrued liabilities - affiliate 3,088 53,049
deferred rental income 13,887 (9,805)
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Net cash from operating activities 1,119,651 1,004,143
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Cash flows from (used in) investing activities:
Purchase of equipment -- (1,441,796)
Proceeds from equipment sales 12,500 1,407,550
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Net cash from (used in) investing activities 12,500 (34,246)
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Cash flows from (used in) financing activities:
Proceeds from notes payable -- 997,888
Principal payments - notes payable (593,511) (710,033)
Distributions paid (247,829) (190,638)
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Net cash from (used in) financing activities (841,340) 97,217
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Net increase in cash and cash equivalents 290,811 1,067,114
Cash and cash equivalents at beginning of period 1,832,248 455,262
---------- -----------
Cash and cash equivalents at end of period $2,123,059 $1,522,376
---------- -----------
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 56,728 $ 81,835
---------- -----------
---------- -----------
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
March 31, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing
Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not
include all information and footnote disclosures required under generally
accepted accounting principles for complete financial statements and,
accordingly, the accompanying financial statements should be read in
conjunction with the footnotes presented in the 1996 Annual Report. Except
as disclosed herein, there has been no material change to the information
presented in the footnotes to the 1996 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 1997 and December 31, 1996 and results of operations
for the three month periods ended March 31, 1997 and 1996 have been made and
are reflected.
NOTE 2 - CASH
At March 31, 1997, the Trust had $1,930,000 invested in reverse repurchase
agreements secured by U.S. Treasury Bills or interests in U.S. Government
securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Trust monthly, quarterly or semi-annually and no
significant amounts are calculated on factors other than the passage of time.
Rents from Reno Air, Inc. ("Reno Air"), as provided for in the lease
agreement, are adjusted monthly for changes in the London Inter-Bank Offered
Rate ("LIBOR"). Future rents from Reno Air, included below, reflect the most
recent LIBOR effected rental payment. The leases are accounted for as
operating leases and are noncancellable. Rents received prior to their due
dates are deferred. Future minimum rents of $5,348,865 are due as follows:
For the year ending March 31, 1998 $ 3,524,872
1999 1,057,754
2000 242,318
2001 208,771
2002 179,149
Thereafter 136,001
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Total $ 5,348,865
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-----------
6
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
NOTE 4 - EQUIPMENT
The following is a summary of equipment owned by the Trust at March 31,
1997. In the opinion of Equis Financial Group ("EFG"), (formerly American
Finance Group), the acquisition cost of the equipment did not exceed its fair
market value.
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------------------- -------- ------------
Aircraft 9-71 $ 6,814,662
Materials handling 1-43 3,687,803
Retail store fixtures 1-24 2,992,236
Vessels 11 2,399,580
Construction and mining 1-70 1,945,484
Communications 21 1,802,423
Computers and peripherals 1-18 1,738,961
Research and test 6 459,282
Manufacturing 15 442,590
Energy systems 9 108,975
Photocopying 1-7 28,360
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Total equipment cost 22,420,356
Accumulated depreciation (11,699,306)
-------------
Equipment, net of accumulated depreciation $ 10,721,050
-------------
-------------
At March 31, 1997, the Trust's equipment portfolio included equipment
having a proportionate original cost of $8,721,813, representing
approximately 39% of total equipment cost.
At March 31, 1997, the cost and net book value of equipment held for sale
or re-lease was approximately $133,800 and $35,900, respectively. The
Managing Trustee is actively seeking the sale or re-lease of all equipment
not on lease. See also Note 9 - Subsequent Event.
NOTE 5 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Trust are paid by EFG on behalf of
the Trust and EFG is reimbursed at its actual cost for such expenditures.
Fees and other costs incurred during the three month periods ended March 31,
1997 and 1996, which were paid or accrued by the Trust to EFG or its
Affiliates, are as follows:
1997 1996
-------- ---------
Equipment acquisition fees -- $ 36,109
Equipment management fees $ 44,578 48,461
Administrative charges 10,134 5,250
Reimbursable operating expenses
due to third parties 28,723 11,726
-------- ---------
Total $ 83,435 $ 101,546
-------- ---------
-------- ---------
7
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Trust.
At March 31, 1997, the Trust was owed $48,939 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in April 1997.
NOTE 6 - NOTES PAYABLE
Notes payable at March 31, 1997 consisted of installment notes of
$3,655,800 payable to banks and institutional lenders. The notes bear
interest rates ranging between 5.7% and 9.17%, except for one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.7% at March
31, 1997). All of the installment notes are non-recourse and are
collateralized by the equipment and assignment of the related lease payments.
Generally, the installment notes will be fully amortized by noncancellable
rents. However, the Trust has a balloon payment obligation of $282,421 at
the expiration of the primary lease term related to the Reno Air aircraft.
The carrying amount of notes payable approximates fair value at March 31,
1997.
The annual maturities of the notes payable are as follows:
For the year ending March 31, 1998 $ 2,106,594
1999 818,412
2000 111,702
2001 120,800
2002 130,639
Thereafter 367,653
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Total $ 3,655,800
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NOTE 7 - LEGAL PROCEEDINGS
On July 27, 1995, EFG, on behalf of the Trust and other EFG-sponsored
investment programs, filed an action in the Commonwealth of Massachusetts
Superior Court Department of the Trial Court in and for the County of
Suffolk, for damages and declaratory relief against a lessee of the Trust,
National Steel Corporation ("National Steel"), under a certain Master Lease
Agreement ("MLA") for the lease of certain equipment. EFG is seeking the
reimbursement by National Steel of certain sales and/or use taxes paid to the
State of Illinois and other remedies provided by the MLA. On August 30,
1995, National Steel filed a Notice of Removal which removed the case to the
United States District Court, District of Massachusetts. On September 7,
1995, National Steel filed its Answer to EFG's Complaint along with
Affirmative Defenses and Counterclaims, seeking declaratory relief and
alleging breach of contract, implied covenant of good faith and fair dealing
and specific performance. EFG filed its Answer to these counterclaims on
September 29, 1995. Though the parties have been discussing settlement with
respect to this matter for some time, to date, the negotiations have been
unsuccessful. Notwithstanding these discussions, EFG recently filed an
Amended and Supplemental Complaint alleging a further default by National
Steel under the MLA and EFG recently filed a Summary Judgment on all claims
and counterclaims. The matter remains pending before the Court. The Trust
has not experienced any material losses as a result of this action.
NOTE 8- SOLICITATION AND REGISTRATION STATEMENTS
On October 26, 1996, the Managing Trustee, on behalf of the Trust, filed a
Solicitation Statement with the Securities and Exchange Commission which was
subsequently sent to the Beneficiaries pursuant to Regulation
8
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AFG Investment Trust A
Notes to the Financial Statements
(Continued)
14A of Section 14 of the Securities Exchange Act. The Solicitation
Statement sought to solicit the consent of the Beneficiaries to a proposed
amendment ("the Amendment") to the Amended and Restated Declaration of Trust
(the "Trust Agreement").
The Amendment would (i) amend the provisions of the Trust Agreement
governing the redemption of Interests to permit the Trust to offer to redeem
outstanding interests at such times, in such amounts, in such manner and at
such prices as the Managing Trustee may determine from time to time, in
accordance with applicable law; and (ii) add a provision to the Trust
Agreement that would permit the Trust to issue, at the discretion of the
Managing Trustee and without further consent or approval of the
Beneficiaries, an additional class of security with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties as the Managing Trustee may fix. Such a security, if it
were to be offered and sold, would provide the Trust with the funds to (a)
implement more expansive Interest redemption opportunities for Beneficiaries
without using Trust funds which may otherwise be available for current cash
distributions; and (b) make a special one-time distribution to the
Beneficiaries.
Pursuant to the Trust Agreement, the adoption of the Amendment required the
consent of the Beneficiaries holding more than fifty percent in the aggregate
of the Interests held by all Beneficiaries. A majority of Beneficiary
Interests, representing 286,868 or 52.2% of all Beneficiary Interests, voted
in favor of the Amendment; 49,019 or 8.9% of all Beneficiary Interests voted
against the Amendment; and 16,104 or 2.9% of all Beneficiary Interests
abstained. Approximately 64% of all Beneficiary Interests participated in
the vote. Accordingly, the Amendment was adopted.
On February 12, 1997, the Trust filed a Registration Statement on Form S-1
(which was amended on April 11, 1997 and May 9, 1997) with the Securities and
Exchange Commission which covers, among other things, the creation and sale
of a new class of beneficiary interests in the Trust (the "Class B
Interests"). A portion of the proceeds from the offering of the Class B
Interests would be used to make a one-time special cash distribution to
existing Beneficiaries (the "Class A Beneficiaries") of the Trust and to
enable the Trust to redeem a portion of the existing Beneficiary Interests
(the "Class A Interests"). The characteristics of the Class B Interests,
associated risk factors, and other matters of importance to the Beneficiaries
and prospective purchasers of the Class B Interests are contained in the
Registration Statement. Presently, the Registration Statement is undergoing
regulatory review and has not been declared effective.
NOTE 9 - SUBSEQUENT EVENT
On April 30, 1997, the vessel partnerships, in which the Trust and certain
affiliated investment programs are limited partners and through which the
Trust and the affiliated investment programs shared economic interests in
three cargo vessels (the "Vessels") leased by KGJS/Gearbulk Holdings Limited
(the "Lessee"), exchanged their ownership interests in the Vessels for
1,987,000 shares of common stock in Banyan Strategic Land Fund II ("Banyan")
and a purchase money note of $8,219,500 (the "Note"). Banyan is a Delaware
corporation organized on April 14, 1987 and has its common stock listed on
NASDAQ. Banyan holds certain real estate investments, the most significant
being a 274 acre site near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Banyan and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Banyan or by any other party that otherwise would not
have been paid to EFG had the Trust sold its beneficial interest in the
Vessels directly to the Lessee. The Lessee prepaid all of its remaining
contracted rental obligations and purchased the Vessels in two closings
occurring on May 6, 1997 and May 12, 1997. The above-referenced Note was
repaid with $3,800,000 of cash and delivery of a $4,419,500 note from Banyan
(the "Banyan Note").
9
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
As a result of the exchange transaction and its original 33% beneficial
ownership interest in Hato Arrow, one of the three Vessels, the Trust received
$435,768 in cash and is the beneficial owner of 209,694 shares of Banyan common
stock and holds a beneficial interest in the Banyan Note of $462,353.
Cash equal to the amount of the Banyan Note is being held by Banyan in a
segregated account pending the outcome of certain shareholder proposals.
Specifically, as part of the exchange, Banyan agreed to seek consent ("Consent")
from its shareholders to: (1) amend its certificate of incorporation and by-
laws; (2) make additional amendments to restrict the acquisition of its common
stock in a way to protect Banyan's net operating loss carry-forwards, and (3)
engage EFG to provide administrative services to Banyan, which services EFG will
provide at cost. If the Consent is not obtained, repayment of the Banyan Note
will be accelerated and repaid from the cash held in the segregated account.
If the Consent is obtained, the Banyan Note will be amortized over three years
and bear an annual interest rate of 10%.
In connection with the Banyan transaction, Gary D. Engle, President and
Chief Executive Officer of EFG, joined the Board of Directors of Banyan and
James A. Coyne, Senior Vice President of EFG became Banyan's Chief Operating
Officer. The agreement also provides that a majority of the Board of
Directors remain independent of Banyan and EFG. Provided Consent is received
by October 31, 1997, Banyan has agreed to declare a $0.20 per share dividend
to be paid on all shares, including those beneficially owned by the Trust.
The Managing Trustee believes that the underlying tangible assets of
Banyan, particularly the Rancho Malibu property, can be sold or developed on a
tax free basis due to Banyan's net operating loss carryforwards and can provide
an attractive economic return to the Trust.
10
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996:
OVERVIEW
As an equipment leasing trust, AFG Investment Trust A ("the Trust") was
organized to acquire a diversified portfolio of capital equipment subject to
lease agreements with third parties. The Trust 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 Trust's portfolio will progress through various stages.
Initially, all equipment will generate rental revenues under primary term
lease agreements. During the life of the Trust, 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 EFG to obtain the most advantageous
economic benefit. Over time, a greater portion of the Trust'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 Trust will be dissolved. The
Trust's operations commenced in 1992.
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, the Trust recognized lease
revenue of $1,179,837, compared to $1,254,648 for the same period in 1996.
The decrease in lease revenue from 1996 to 1997 is due to the Trust's sale of
its interest in a Boeing 747-SP aircraft leased to United Air Lines, Inc.
(the "United Aircraft") in February 1996, as discussed below and primary
lease term expirations. The Trust also earns interest income from temporary
investments of rental receipts and equipment sales proceeds in short-term
instruments.
The Trust's equipment portfolio includes certain assets in which the Trust
holds a proportionate ownership interest. In such cases, the remaining
interests are owned by EFG or an affiliated equipment leasing program
sponsored by EFG. Proportionate equipment ownership enables the Trust 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 Trust 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.
During the three months ended March 31, 1997, the Trust sold equipment
having a net book value of $10,405 to existing lessees and third parties.
These sales resulted in a net gain, for financial statement purposes, of
$2,095.
On February 5, 1996, the Trust concluded the sale of its interest in the
United Aircraft to the lessee, United Air Lines, Inc., ("United"), as
reported in Note 3 to the Trust's 1996 Annual Report. The Trust recognized a
net loss of $458,638 in connection with this transaction, of which $311,621
was recognized as Write-Down of Equipment in 1995. The remainder of $147,017
was recognized as a loss on sale of equipment on the accompanying Statement
of Operations for the three months ended March 31, 1996. In addition to
lease rents, the Trust received net sale proceeds of $1,392,779 from United
for the aircraft. A portion of such sale proceeds was reinvested in other
equipment in March 1996 through the acquisition of an 8.86% ownership
interest in an aircraft (the "Reno Aircraft") at an aggregate cost to the
Trust of $1,239,741. To acquire its interest in the Reno Aircraft, the Trust
obtained long-term financing of $997,888 from a third-party lender and
utilized cash proceeds of $241,853 from the sale of the United Aircraft.
During the three months ended March 31, 1996, the Trust sold other equipment
having a net book value of $15,821, to existing lessees and third parties.
These sales resulted in a net loss, for financial statement purposes, of
$1,050.
11
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART I. FINANCIAL INFORMATION
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Trust, 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 Trust 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 Trust 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 Trust achieved
from leasing the equipment.
Depreciation and amortization expense was $932,497 and $952,119 for the
three month periods ended March 31, 1997 and 1996, respectively. For
financial reporting purposes, to the extent that an asset is held on primary
lease term, the Trust depreciates the difference between (i) the cost of the
asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease
expiration. To the extent that an asset is held beyond its primary lease
term, the Trust 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 $43,358 or 3.7% of lease revenue in the three months
ended March 31, 1997, compared to $104,957 or 8.4% of lease revenue for the
same period in 1996. Interest expense in future periods will continue to
decline in amount and as a percentage of lease revenue as the principal
balance of notes payable is reduced through the application of rent receipts
to outstanding indebtedness.
Management fees were 3.8% and 3.9% of lease revenue during the three months
ended March 31, 1997 and 1996, respectively. 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. Collectively, operating
expenses represented 3.3% and 1.4% of lease revenue during the three months
ended March 31, 1997 and 1996, respectively. The increase in operating
expenses from 1996 to 1997 was due primarily to professional service costs
incurred in connection with the Solicitation and Registration Statements
described in Note 8 to the accompanying financial statements. 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 trust. Other fluctuations typically occur in relation to the volume and
timing of remarketing activities.
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Trust 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 Trust's principal operating activities derive from asset
rental transactions. Accordingly, the Trust'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
12
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART I. FINANCIAL INFORMATION
inflows of $1,119,651 and $1,004,143 for the three months ended March 31,
1997 and 1996, respectively. Future renewal, re-lease and equipment sale
activities will cause a gradual decline in the Trust's primary-term 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 decline as the Trust experiences a higher
frequency of remarketing events.
The Trust's equipment is leased by a number of creditworthy,
investment-grade companies and, to date, the Trust has not experienced any
material collection problems and has not considered it necessary to provide
an allowance for doubtful accounts. Notwithstanding a positive collection
history, there is no assurance that all future contracted rents will be
collected or that the credit quality of the Trust's lessees will be
maintained. Collection risk could increase in the future, particularly as
the Trust remarkets its equipment and enters re-lease agreements with
different lessees. The Managing Trustee will continue to evaluate and
monitor the Trust's experience in collecting accounts receivable to determine
whether a future allowance for doubtful accounts may become appropriate.
Ultimately, the Trust 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 asset acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During the three months ended March 31, 1996, the
Trust expended $1,441,796 to acquire equipment. This amount reflects the
acquisition of an ownership interest in a commercial jet aircraft at a cost
of $1,239,741, pursuant to the reinvestment provisions of the Trust's
prospectus and an original equipment acquisition of $202,055. There were no
equipment acquisitions during the same period in 1997. During the three
months ended March 31, 1997, the Trust realized net cash proceeds of $12,500
compared to $1,407,550 for the same period in 1996. Future inflows of cash
from asset disposals will vary in timing and amount and will be influenced by
many factors including, but not limited to, the frequency and timing of lease
expirations, the type of equipment being sold, its condition and age, and
future market conditions.
The Trust 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. Cash
inflows of $997,888 in 1996 resulted from leveraging a portion of the Trust's
equipment portfolio with third-party lenders. 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 Trust
has a balloon payment obligation of $282,421 at the expiration of the primary
lease term related to the Reno Aircraft.
Cash distributions to the Managing Trustee, the Special Beneficiary and the
Beneficiaries are declared and generally paid within 45 days following the
end of each calendar month. The payment of such distributions is presented
as a component of financing activities. For the three months ended March 31,
1997, the Trust declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $247,829.
In accordance with the Trust Agreement, the Beneficiaries were allocated
90.75% of these distributions, or $224,905; the Special Beneficiary was
allocated 8.25%, or $20,446; and the Managing Trustee was allocated 1%, or
$2,478.
13
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART I. FINANCIAL INFORMATION
For financial reporting purposes, the Managing Trustee and the Special
Beneficiary each have accumulated a capital deficit at March 31, 1997. This
is the result of aggregate cash distributions to these Participants being in
excess of their aggregate capital contributions ($1,000 each) and their
respective allocations of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the Managing Trustee or
the Special Beneficiary for financial reporting purposes is not indicative of
any further capital obligations to the Trust by either the Managing Trustee
or the Special Beneficiary. However, for income tax purposes, the Trust
Agreement requires that income be allocated first to those Participants
having negative tax capital account balances so as to eliminate any such
balances. In accordance with the Trust Agreement, upon the dissolution of
the Trust, the Managing Trustee will be required to contribute to the Trust
an amount equal to any negative balance which may exist in the Managing
Trustee's tax capital account. No such requirement exists with respect to
the Special Beneficiary. At December 31, 1996, the Managing Trustee had a
positive tax capital account balance.
At March 31, 1997, the Trust had aggregate future minimum lease payments of
$5,348,865 from contractual lease agreements (see Note 3 to the financial
statements), of which $3,655,800 will be used to amortize the principal
balance of notes payable (see Note 6 to the financial statements).
Additional cash inflows will be realized from future remarketing activities,
such as lease renewals and equipment sales, the timing and extent of which
cannot be predicted with certainty. This is because the timing and extent of
equipment sales is often 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.
Accordingly, as the Trust matures and a greater level of its equipment assets
become available for remarketing, the cash flows of the Trust will become
less predictable. In addition, the Trust will have cash outflows to satisfy
interest on indebtedness and to pay management fees and operating expenses.
Ultimately, the Trust is expected to meet its future disbursement obligations
and to distribute any excess of cash inflows over cash outflows to the
Participants in accordance with the Trust Agreement. However, several
factors, including month-to-month lease extensions, lessee defaults,
equipment casualty events, and early lease terminations could alter the
Trust's anticipated cash flows as described herein and in the accompanying
financial statements and result in fluctuations to the Trust's periodic cash
distribution payments.
Cash distributions paid to the Participants 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 Trust and will be
dependent upon the collection of all future contracted rents, the generation
of renewal and/or re-lease rents, and the residual value realized for each
asset at its disposal date. Future market conditions, technological changes,
the ability of EFG to manage and remarket the assets, and many other events
and circumstances, could enhance or detract from individual asset yields and
the collective performance of the Trust's equipment portfolio.
It is the intention of the Managing Trustee to maintain a cash distribution
level that is consistent with the operating cash flows of the Trust and to
optimize the long-term value of the Trust. A distribution level that is
higher than the Trust's operating cash flows could compromise the Trust's
working capital position, as well as its ability to refurbish or upgrade
equipment in response to lessee requirements or other market circumstances.
Accordingly, in order to better align monthly cash distributions with the
Trust's operating cash flows, the Managing Trustee reduced the level of
monthly cash distributions from an annualized rate of $2.52 per Beneficiary
Interest (the rate established and paid from the Trust's inception through
September 1995) to an annualized rate of $1.26 per Beneficiary Interest
commencing in October 1995. In October 1996, the Managing Trustee increased
the annualized distribution rate to $1.64 per Beneficiary Interest and
expects that the Trust will be able to sustain this distribution rate
throughout 1997. However, the nature of the Trust's principal cash flows
gradually will shift from rental receipts to equipment sale proceeds as the
Trust matures. As this occurs, the Trust's cash flows will become more
volatile in that certain of the Trust's equipment leases will be renewed and
certain of its assets will be sold. In some cases, the Trust may be required
to expend funds to refurbish or otherwise improve the equipment being
remarketed in order to make it more desirable to a potential lessee or
purchaser. The Trust's Advisor, EFG, and the Managing Trustee will attempt
to monitor and manage these events to maximize the residual value of the
Trust's equipment and will consider these factors, in addition to the
collection of contractual rents, the retirement of scheduled indebtedness and
the Trust's future working capital and equipment requirements, in
establishing future cash distribution rates. Ultimately, the Participants
should expect that cash distribution rates will fluctuate over the long term
as a result of future remarketing activities.
14
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART II. FINANCIAL INFORMATION
Item 1. Legal Proceedings
Response:
Refer to Note 7 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
Response: None
Item 6(b). Reports on Form 8-K
Response: None
15
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity
and on the date indicated.
AFG Investment Trust A
By: AFG ASIT Corporation, a Massachusetts
corporation and the Managing Trustee of
the Registrant.
By: /s/ Michael J. Butterfield
-------------------------------------------
Michael J. Butterfield
Treasurer AFG ASIT Corporation
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 15, 1997
----------------------------------------
By: /s/ Gary M. Romano
-------------------------------------------
Gary M. Romano
Clerk of AFG ASIT Corporation
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1997
-----------------------------------------
16
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,123,059
<SECURITIES> 0
<RECEIVABLES> 637,384
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,760,526
<PP&E> 22,420,356
<DEPRECIATION> 11,699,306
<TOTAL-ASSETS> 13,481,576
<CURRENT-LIABILITIES> 306,949
<BONDS> 3,655,800
0
0
<COMMON> 0
<OTHER-SE> 9,518,827
<TOTAL-LIABILITY-AND-EQUITY> 13,481,576
<SALES> 1,179,837
<TOTAL-REVENUES> 1,207,732
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,015,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,358
<INCOME-PRETAX> 148,442
<INCOME-TAX> 0
<INCOME-CONTINUING> 148,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,442
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
