<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, 1999
-----------------------
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, 1999 Commission File No. 0-21396
AFG INVESTMENT TRUST A
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3145953
- ------------------------------- --------------------------
(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
--------------------------
</TABLE>
- --------------------------------------------------------------------------------
(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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1999 and December 31, 1998 3
Statement of Operations
for the three months ended March 31, 1999 and 1998 4
Statement of Changes in Participants' Capital
for the three months ended March 31, 1999 5
Statement of Cash Flows
for the three months ended March 31, 1999 and 1998 6
Notes to the Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
PART II. OTHER INFORMATION:
Items 1 - 6 17
</TABLE>
2
<PAGE>
AFG Investment Trust A
STATEMENT OF FINANCIAL POSITION
March 31, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,560,567 $ 3,456,154
Restricted cash 1,343,053 1,343,053
Rents receivable 37,214 188,331
Accounts receivable - affiliate 94,995 70,959
Interest receivable - affiliate 11,401 --
Note receivable - affiliate 462,353 462,353
Investment securities - affiliate 76,013 86,497
Equipment at cost, net of accumulated depreciation
of $10,168,445 and $10,824,318 at March 31, 1999
and December 31, 1998, respectively 2,787,011 3,893,098
----------- -----------
Total assets $ 9,372,607 $ 9,500,445
----------- -----------
----------- -----------
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable $ 742,104 $ 861,300
Accrued interest 2,165 2,933
Accrued liabilities 125,200 118,500
Accrued liabilities - affiliate 14,745 11,947
Deferred rental income 33,432 10,265
Cash distributions payable to participants 180,702 180,702
----------- -----------
Total liabilities 1,098,348 1,185,647
----------- -----------
Participants' capital (deficit):
Managing Trustee 1,074 (16,788)
Special Beneficiary 9,729 (129,812)
Class A Beneficiary Interests (482,016 Interests;
initial purchase price of $25 each) 7,441,569 7,567,249
Class B Beneficiary Interests (826,072 Interests;
initial purchase price of $5 each) 1,456,298 1,528,560
Treasury Interests (67,202 Class A Interests at Cost) (634,411) (634,411)
----------- -----------
Total participants' capital 8,274,259 8,314,798
----------- -----------
Total liabilities and participants' capital $ 9,372,607 $ 9,500,445
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these finanical statements.
3
<PAGE>
AFG Investment Trust A
STATEMENT OF OPERATIONS
for the three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income:
Lease revenue $ 311,913 $ 731,888
Interest income 59,837 78,871
Interest income--affiliate 11,401 11,559
Gain (loss) on sale of equipment 75,830 (1,298)
Other income 261,116 --
----------- -----------
Total income 720,097 821,020
----------- -----------
Expenses:
Depreciation 316,239 653,588
Interest expense 13,372 32,136
Equipment management fees--affiliate 13,563 33,126
Operating expenses--affiliate 82,375 50,233
----------- -----------
Total expenses 425,549 769,083
----------- -----------
Net income $ 294,548 $ 51,937
----------- -----------
----------- -----------
Net income
per Class A Beneficiary Interest $ 0.15 $ --
----------- -----------
----------- -----------
per Class B Beneficiary Interest $ 0.04 $ --
----------- -----------
----------- -----------
Cash distributions declared
per Class A Beneficiary Interest $ 0.41 $ 0.41
----------- -----------
----------- -----------
per Class B Beneficiary Interest $ 0.12 $ 0.16
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AFG Investment Trust A
STATEMENT OF CHANGES IN PARTICIPANTS'
CAPITAL for the three months ended
March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
MANAGING SPECIAL CLASS A BENEFICIARIES
TRUSTEE BENEFICIARY ----------------------------
AMOUNT AMOUNT INTERESTS AMOUNT
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ (16,788) $ (129,812) 482,016 $ 7,567,249
Net income 21,213 166,321 -- 71,707
Unrealized loss on investment
securities--affiliate (105) -- -- --
----------- ------------ ----------- -----------
Comprehensive income 21,108 166,321 -- 71,707
----------- ------------ ----------- -----------
Cash distributions declared (3,246) (26,780) -- (197,387)
----------- ------------ ----------- -----------
Balance at March 31, 1999 $ 1,074 $ 9,729 482,016 $ 7,441,569
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
CLASS B BENEFICIARIES
---------------------------- TREASURY
INTERESTS AMOUNT INTERESTS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 826,072 $ 1,528,560 $ (634,411) $ 8,314,798
Net income -- 35,307 -- 294,548
Unrealized loss on investment
securities--affiliate -- (10,379) -- (10,484)
-------- ----------- ----------- -----------
Comprehensive income -- 24,928 -- 284,064
-------- ----------- ----------- -----------
Cash distributions declared -- (97,190) -- (324,603)
-------- ----------- ----------- -----------
Balance at March 31, 1999 826,072 $ 1,456,298 $ (634,411) $ 8,274,259
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AFG Investment Trust A
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 294,548 $ 51,937
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 316,239 653,588
(Gain) loss on sale of equipment (75,830) 1,298
Changes in assets and liabilities Decrease (increase) in:
rents receivable 151,117 156,483
accounts receivable--affiliate (24,036) 127,311
interest receivable--affiliate (11,401) --
Increase (decrease) in:
accrued interest (768) (9,695)
accrued liabilities 6,700 9,888
accrued liabilities--affiliate 2,798 (17,830)
deferred rental income 23,167 (73,191)
----------- -----------
Net cash from operating activities 682,534 899,789
----------- -----------
Cash flows from investing activities:
Proceeds from equipment sales 865,678 137,900
----------- -----------
Net cash from investing activities 865,678 137,900
----------- -----------
Cash flows used in financing activities:
Principal payments--notes payable (119,196) (471,311)
Distributions paid (324,603) (367,602)
----------- -----------
Net cash used in financing activities (443,799) (838,913)
----------- -----------
Net increase in cash and cash equivalents 1,104,413 198,776
Cash and cash equivalents at beginning of period 3,456,154 3,176,850
----------- -----------
Cash and cash equivalents at end of period $ 4,560,567 $ 3,375,626
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 14,140 $ 41,831
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
March 31, 1999
(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 1998 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1998 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, 1999 and December 31, 1998 and results of operations for
the three months ended March 31, 1999 and 1998 have been made and are reflected.
NOTE 2--CASH
At March 31, 1999, the Trust had $5,790,311 invested in federal agency
discount notes and reverse repurchase agreements secured by U.S. Treasury Bills
or interests in U.S. Government securities. Such cash includes $1,343,053 which
is classified as Restricted Cash and represents the net proceeds realized from
the offering of the Class B Interests less ( i ) the portion thereof used to pay
a special distribution to the Class A Beneficiaries and to redeem Class A
Interests and ( ii ) the portion used to pay a capital distribution to the
Class B Beneficiaries. The remainder is expected to be used according to terms
negotiated in conjunction with settling the Class Action Lawsuit described in
Note 9.
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.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. In certain instances, the Trust
may enter primary-term, renewal or re-lease agreements which expire beyond the
Trust's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Trust's business activities as the Managing
Trustee and the Advisor 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. Future minimum rents of $1,279,714 are due as follows:
For the year ending March 31, 2000 $ 545,473
2001 417,098
2002 181,142
2003 136,001
-----------
Total $ 1,279,714
-----------
-----------
7
<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,
1999. Remaining Lease Term (Months), as used below, represents the number of
months remaining from March 31, 1999 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
REMAINING
LEASE TERM EQUIPMENT
EQUIPMENT TYPE (MONTHS) AT COST
-------------- ---------- -------------
<S> <C> <C>
Aircraft 0-45 $ 5,660,857
Materials handling 0-30 2,012,315
Communications 21 1,802,423
Retail store fixtures 0-7 1,242,830
Construction and mining 0-45 887,040
Research and test 0 459,282
Manufacturing 0 442,590
Computers and peripherals 0 328,094
Energy systems 0 108,975
Photocopying 7 11,050
-------------
Total equipment cost 12,955,456
Accumulated depreciation (10,168,445)
-------------
Equipment, net of accumulated depreciation $ 2,787,011
-------------
-------------
</TABLE>
At March 31, 1999, the Trust's equipment portfolio included equipment
having a proportionate original cost of $4,145,374, representing approximately
32% of total equipment cost.
At March 31, 1999, the cost and net book value of equipment held for sale
or re-lease was approximately $5,116,000 and $1,364,000, respectively. This
equipment includes a SAAB SF340A aircraft formerly leased to Comair, Inc. with a
cost and net book value of $4,421,116 and $1,354,239, respectively. The Managing
Trustee is actively seeking the sale of the SAAB SF340A aircraft and the sale or
re-lease of all other equipment not on lease. In addition, the summary above
includes equipment being leased on a month-to-month basis.
NOTE 5--INVESTMENT SECURITIES--AFFILIATE / NOTE RECEIVABLE--AFFILIATE
As a result of an asset exchange in 1997, the Trust owns 20,969 common
shares of an affiliate, Semele Group Inc. ("Semele"), and has a beneficial
interest in a Note from Semele (the "Semele Note") of $462,353. The Semele Note
bears an annual interest rate of 10% and will be amortized over three years with
mandatory principal reductions, 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 ("Rancho Malibu"). The Trust recognized interest income of $11,401
related to the Semele Note during the three months ended March 31, 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 required to be carried at
fair value. During the three months ended March 31, 1999, the Trust decreased
the carrying value of its
8
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
investment in Semele common stock to $3.625 per share (the quoted price of the
Semele stock on the NASDAQ SmallCap Market at March 31, 1999) resulting in an
unrealized loss in 1999 of $10,484. This unrealized loss was reported as a
component of comprehensive income, included in participants' capital.
NOTE 6--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, 1999 and
1998, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Equipment management fees $ 13,563 $ 33,126
Administrative charges 17,070 17,070
Reimbursable operating expenses
due to third parties 65,305 33,163
---------- ----------
Total $ 95,938 $ 83,359
---------- ----------
---------- ----------
</TABLE>
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, 1999, the Trust was owed $94,995 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in April 1999.
NOTE 7--NOTES PAYABLE
Notes payable at March 31, 1999 consisted of installment notes of $742,104
payable to banks and institutional lenders. The notes bear interest rates of
5.7%, except for one note which bears a fluctuating interest rate based on LIBOR
(4.94% at March 31, 1999) plus a margin. 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 its interest in
an aircraft leased to Reno Air, Inc. The carrying amount of notes payable
approximates fair value at March 31, 1999.
The annual maturities of the notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending March 31, 2000 $ 118,933
2001 120,800
2002 130,639
2003 371,732
----------
Total $ 742,104
----------
----------
</TABLE>
9
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
NOTE 8--SOLICITATION STATEMENT
On May 5, 1998, the Trust filed a definitive Solicitation Statement with
the United States Securities and Exchange Commission in connection with the
solicitation by the Trust of the consent of the Beneficiaries to a proposed
amendment (the "Amendment") to the Second Amended and Restated Declaration of
Trust (the "Trust Agreement"). The Solicitation Statement and Consent of
Beneficiary were mailed to all of the Beneficiaries of the Trust on May 6, 1998.
The Beneficiaries were requested to use the Consent of Beneficiary to vote on
seven proposals and return their votes on or before June 5, 1998. Equis II
Corporation, which has voting control of the Trust, agreed to vote all of its
Class B Interests in the same manner in which the majority of the Class A
Interests were actually voted. Accordingly, the Amendment would be adopted or
rejected based upon the voting results of the majority of Class A Interests that
were actually voted (including 1,702 Class A Interests owned by affiliates of
EFG), regardless of how few Class A Interests were actually voted.
The results of the voting reflected that a majority of Class A Interests
voted in favor of each of the proposals. Therefore, the Trust Agreement was
amended to (i) broaden the Trust's stated investment policies and objectives and
permit the Trust to invest in assets other than leased equipment; (ii) modify
the Trust's financing provisions to eliminate any cap on the amount of aggregate
Trust indebtedness and permit the Trust to use cross-collateralized and other
recourse debt structures; (iii) extend the Trust's reinvestment period, which
originally expired on May 29, 1996, until December 31, 2001; (iv) reduce
acquisition fees paid to EFG in connection with reinvestment assets acquired
after the Amendment date from a maximum of 3% to 1% and management fees earned
in connection with such assets from a maximum of 5% to 2%; and (v) institute a
management fee of 1% annually of the fair market value (or, if unattainable, the
cost) of non-equipment assets.
In addition, subject to attaining a settlement in the Class Action Lawsuit
described in Note 9 herein, the Trust Agreement will be modified in the
following principal respects: (i) the Trust will pay a Special Cash Distribution
to the Class A Beneficiaries of record as of September 1, 1997, or to their
successors or assigns, totaling $413,247 (or approximately $0.75 per Class A
Beneficiary Interest) using a portion of the Class B capital contributions that
otherwise would be distributed as a Class B Capital Distribution to Equis II
Corporation, the parent company of the Managing Trustee and an affiliate of EFG;
(ii) Equis II Corporation will be required to reduce its prospective Class B
Capital Distributions by $929,806 and treat such amount as a long-term equity
investment in the Trust and (iii) certain voting restrictions will be placed
upon the Class B Interests owned by Equis II Corporation.
NOTE 9--LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a
class and derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Trust (collectively, the "Nominal Defendants"), against EFG and a number of its
affiliates, including the Managing Trustee, as defendants (collectively, the
"Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed
an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit."
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth terms pursuant to which a settlement of
the Class Action Lawsuit is intended to be achieved and which,
10
<PAGE>
AFG Investment Trust A
Notes to the Financial Statements
(Continued)
among other things, is expected to reduce the burdens and expenses attendant to
continuing litigation. The Stipulation of Settlement was based upon and
superseded a Memorandum of Understanding between the parties dated March 9, 1998
which outlined the terms of a possible settlement. The Stipulation of Settlement
was filed with the Court on July 23, 1998 and was preliminarily approved by the
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement."
On March 15, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended Stipulation of Settlement (the "Amended Stipulation") which was
filed with the Court on March 15, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999.
The Amended Stipulation, among other things, divides the Class Action Lawsuit
into two separate sub-classes that can be settled individually. This revision is
expected to expedite the settlement of the Trust's claims by the middle of 1999.
The second sub-class, which does not include the Trust, is expected to remain
pending for a longer period.
On April 5, 1999, the Trust mailed a notice to all Class A and Class B
Beneficiaries describing, among other things, the Class Action Lawsuit and the
proposed settlement terms for the Trust. In addition, the notice advises the
Beneficiaries that the Court will conduct a fairness hearing on May 21, 1999 and
describes the rights of the Beneficiaries and the procedures they should follow
if they wish to object to the settlement.
Assuming the proposed settlement of the claims of the sub-class that
includes the Trust is effected according to present terms, the Trust's share of
legal fees and expenses related to the Class Action Lawsuit is estimated to be
approximately $88,000, all of which was accrued and expensed by the Trust in
1998. There can be no assurance that settlement of the claims of the sub-class
that includes the Trust will receive final Court approval and be effected.
However, the Managing Trustee and its affiliates, in consultation with counsel,
concur that there is a reasonable basis to believe that a final settlement of
the claims of the sub-class that includes the Trust will be achieved. In the
absence of a final settlement approved by the Court, the Defendants intend to
defend vigorously against the claims asserted in the Class Action Lawsuit.
Neither the Managing Trustee nor its affiliates can predict with any degree of
certainty the cost of continuing litigation to the Trust or the ultimate
outcome.
11
<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.
Certain statements in this quarterly report of AFG Investment Trust A (the
"Trust") 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
important 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 9 to the accompanying financial statements, the collection all
rents due under the Trust's lease agreements and remarketing of the Trust's
equipment.
YEAR 2000 ISSUE
The Year 2000 Issue generally refers to the capacity of computer
programming logic to correctly identify the calendar year. Many companies
utilize computer programs or hardware with date sensitive software or embedded
chips that could interpret dates ending in "00" as the year 1900 rather than the
year 2000. In certain cases, such errors could result in system failures or
miscalculations that disrupt the operations of the affected businesses. The
Trust uses information systems provided by Equis Financial Group Limited
Partnership (formerly American Finance Group) ("EFG") and has no information
systems of its own. EFG has adopted a plan to address the Year 2000 Issue that
consists of four phases: assessment, remediation, testing, and implementation
and has elected to utilize principally internal resources to perform all phases.
EFG has completed substantially all of its Year 2000 project at an aggregate
cost of less than $50,000 and at a di minimus cost to the Trust. All costs
incurred in connection with EFG's Year 2000 project have been expensed as
incurred.
EFG's primary information software was coded by IBM at the point of
original design to use a four digit field to identify calendar year. All of the
Trust's lease billings, cash receipts and equipment remarketing processes are
performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and have required only minor modifications to function properly with respect to
dates in the year 2000 and thereafter. EFG understands that each of its and the
Trust's significant vendors and third-party servicers are in the process, or
have completed the process, of making their systems Year 2000 compliant.
Substantially all parties queried have indicated that their systems are Year
2000 compliant.
Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Trust's results of operations,
liquidity, or financial position. The Trust's equipment leases were structured
as triple net leases, meaning that the lessees are responsible for, among other
things, (i) maintaining and servicing all equipment during the lease term, (ii)
ensuring that all equipment functions properly and is returned in good
condition, normal wear and tear excepted, and (iii) insuring the assets against
casualty and other events of loss. Non-compliance with lease terms on the part
of a lessee, including failure to address Year 2000 Issues could result in lost
revenues and impairment of residual values of the Trust's equipment assets under
a worst-case scenario.
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Trust's business operations. However, EFG has no means of ensuring that all
customers, vendors and third-party servicers will conform ultimately to Year
2000 standards. The effect of this risk to the Trust is not determinable.
12
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART I. FINANCIAL INFORMATION
OVERVIEW
As an equipment leasing trust, 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
fluctuate. Presently, the Trust is a Nominal Defendant in a Class Action
Lawsuit, the resolution of which remains pending. See Note 9 to the accompanying
financial statements. The Trust's operations commenced in 1992 and pursuant to
the Trust Agreement, the Trust is scheduled to be dissolved by December 31,
2003.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998:
RESULTS OF OPERATIONS
For the three months ended March 31, 1999, the Trust recognized lease
revenue of $311,913 compared to $731,888 for same period in 1998. The decrease
in lease revenue from 1998 to 1999 resulted principally from lease term
expirations and the sale of equipment. The level of lease revenue to be
recognized by the Trust in the future may be impacted by the amendment to the
Trust Agreement described in Note 8 to the accompanying financial statements;
however, the extent of such impact cannot be determined at this time.
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.
Interest income for the three months ended March 31, 1999 was $71,238
compared to $90,430 for the same period in 1998. Interest income is typically
generated from temporary investment of rental receipts and equipment sales
proceeds in short-term instruments. Interest income in 1999 and 1998 included
$11,401 and $11,559, respectively, earned on the note receivable from Semele
Group, Inc. ("Semele"). See Note 5 to the accompanying financial statements.
Interest income also included interest earned on proceeds from the issuance of
Class B Interests. The amount of future interest income is expected to fluctuate
in relation to prevailing interest rates, the collection of lease revenue, and
the proceeds from equipment sales.
The Trust received $261,116 in 1999 as a breakage fee from a third-party
seller in connection with a transaction for new investments that was canceled by
the seller in the first quarter of 1999. This amount is reflected as Other
Income on the accompanying Statement of Operations for the three months ended
March 31, 1999.
During the three months ended March 31, 1999, the Trust sold equipment
having a net book value of $789,848 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $75,830
compared to a net loss of $1,298 on equipment having a net book value of
$139,198 during the same period in 1998.
13
<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 expense was $316,239 and $653,588 for the three months ended
March 31, 1999 and 1998, 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 $13,372 or 4.3% of lease revenue in 1999 and $32,136
or 4.4% of lease revenue in 1998. Interest expense in future periods is expected
to decline in amount and as a percentage of lease revenue as the principal
balance of notes payable is reduced through the application of rent receipts to
outstanding indebtedness.
Management fees were 4.3% and 4.5% of lease revenue during the three months
ended March 31, 1999 and 1998, 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 were
$82,375 and $50,233 during the three months ended March 31, 1999 and 1998,
respectively. Operating expenses were higher in 1999 principally as a result of
costs incurred of approximately $32,000 related to the repair and remarketing of
an aircraft formerly leased to Alaska Airlines, Inc. in which the Trust held an
interest. 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.
14
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART I. FINANCIAL INFORMATION
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Trust by its nature is a limited life entity. 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
inflows of $682,534 and $899,789 for the three months ended March 31, 1999 and
1998, respectively. Future renewal, re-lease and equipment sale activities will
cause a 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 also
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.
Cash realized from asset disposal transactions is reported under investing
activities on the accompanying Statement of Cash Flows. During the three months
ended March 31, 1999, the Trust realized net cash proceeds of $865,678 compared
to $137,900 for the same period in 1998. Sale proceeds in 1999 include $786,406
related to the Trust's 6.74% interest in a McDonnell Douglas MD-82 aircraft
formerly leased to Alaska Airlines, Inc. which was sold in January 1999. 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.
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 required to be carried at
fair value. During the three months ended March 31, 1999, the Trust decreased
the carrying value of its investment in Semele common stock to $3.625 per share
(the quoted price of the Semele stock on the NASDAQ SmallCap Market at March 31,
1999) resulting in an unrealized loss in 1999 of $10,484. This unrealized loss
was reported as a component of comprehensive income, included in participants'
capital.
The Trust obtained long-term financing in connection with certain equipment
leases. The repayments of principal related to such indebtedness are reported as
a component of financing activities. Each note payable is recourse only to the
specific equipment financed and to the minimum rental payments contracted to be
received during the debt amortization period (which period generally coincides
with the lease rental term). As rental payments are collected, a portion or all
of the rental payment is used to repay the associated indebtedness. In future
periods, the amount of cash used to repay debt obligations will decline as the
principal balance of notes payable is reduced through the collection and
application of rents. Notwithstanding the foregoing, the Trust has a balloon
payment obligation of $282,421 at the expiration of the primary lease term
related to its interest in an aircraft leased to Reno Air, Inc.
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. At December 31, 1998, the Managing Trustee had a positive tax capital
account balance. No such requirement exists with respect to the Special
Beneficiary.
15
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART I. FINANCIAL INFORMATION
At March 31, 1999, the Trust was due aggregate future minimum lease
payments of $1,279,714 from contractual lease agreements (see Note 3 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $742,104 (see Note 7 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 becomes available for
remarketing, the cash flows of the Trust will become less predictable. In
addition, the Trust will have cash needs 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. Class A
distributions have been maintained at an annualized rate of $1.64 per Class A
Interest since October 1996. Class B distributions were set at an annualized
distribution rate of $0.66 per Class B Interest commencing July 18, 1997 and
decreased to an annualized distribution rate of $0.47 per Class B Interest in
August 1998 following the Class B Capital Distribution paid at that time. Future
distributions with respect to Class B Interests will be subordinate to certain
distributions with respect to Class A Interests.
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, 1999,
the Trust declared total cash distributions of $324,603. Of the total
distributions, the Beneficiaries were allocated $294,577 ($197,387 for Class A
Beneficiaries and $97,190 for Class B Beneficiaries); the Special Beneficiary
was allocated $26,780, and the Managing Trustee was allocated $3,246.
The nature of the Trust's operations and principal cash flows gradually
will shift from rental receipts to equipment sale proceeds as the Trust matures
and change as a result of new investments not consisting of equipment
acquisitions. As this occurs, the Trust's cash flows resulting from equipment
investments may 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 in order to maximize the residual
value of the Trust's equipment and will consider these factors, in addition to
new investment activities and the collection of contractual rents, the
retirement of scheduled indebtedness, and the Trust's future working capital
requirements, in establishing future cash distribution rates.
16
<PAGE>
AFG Investment Trust A
FORM 10-Q
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
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
Response: None
Item 6(b). Reports on Form 8-K
Response: None
</TABLE>
17
<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 13, 1999
By: /S/ GARY ROMANO
----------------------------------------
Gary M. Romano
Clerk of AFG ASIT Corporation
(Duly Authorized Officer and
Principal Financial Officer)
Date: MAY 13, 1999
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AFG
INVESTMENT TRUST A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,903,620
<SECURITIES> 76,013
<RECEIVABLES> 605,963
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,585,596
<PP&E> 12,955,456
<DEPRECIATION> (10,168,445)
<TOTAL-ASSETS> 9,372,607
<CURRENT-LIABILITIES> 475,177
<BONDS> 623,171
0
0
<COMMON> 0
<OTHER-SE> 8,274,259
<TOTAL-LIABILITY-AND-EQUITY> 9,372,607
<SALES> 0
<TOTAL-REVENUES> 720,097
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 412,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,372
<INCOME-PRETAX> 294,548
<INCOME-TAX> 0
<INCOME-CONTINUING> 294,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,548
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
