<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-21396
AFG Investment Trust A
(Exact name of registrant as specified in its charter)
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
(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 September 30, 2000 and December 31, 1999............................. 3
Statement of Operations
for the three and nine months ended September 30, 2000 and 1999......... 4
Statement of Changes in Participants' Capital
for the nine months ended September 30, 2000............................ 5
Statement of Cash Flows
for the nine months ended September 30, 2000 and 1999................... 6
Notes to the Financial Statements.......................................... 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 11-15
PART II. OTHER INFORMATION:
Items 1-6............................................................................ 16
</TABLE>
2
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF FINANCIAL POSITION
September 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................. $2,835,193 $ 5,016,965
Marketable securities..................................................... 73,500 108,544
Marketable securities--affiliate.......................................... 104,845 120,572
Rents receivable.......................................................... 12,675 1,639
Accounts receivable--affiliate............................................ 11,568 84,630
Accounts receivable--other................................................ 12,933 -
Interest receivable....................................................... 1,287 3,681
Note receivable--affiliate................................................ 462,353 462,353
Investment in EFG/Kirkwood................................................ 882,389 676,700
Investment--other......................................................... 14,443 -
Equipment at cost, net of accumulated depreciation of $3,945,139 and
$7,601,220 at September 30, 2000 and December 31, 1999, respectively..... 1,098,345 2,395,139
---------- -----------
Total assets......................................................... $5,509,531 $ 8,870,223
========== ===========
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable............................................................. $ 572,084 $ 656,454
Accrued interest.......................................................... 1,880 2,386
Accrued liabilities....................................................... 41,800 52,160
Accrued liabilities--affiliate............................................ 24,085 13,237
Deferred rental income.................................................... 6,927 26,999
Cash distributions payable to participants................................ - 3,900,000
---------- -----------
Total liabilities.................................................... 646,776 4,651,236
---------- -----------
Participants' capital (deficit):
Managing Trustee......................................................... (15,626) (31,493)
Special Beneficiary...................................................... (129,092) (263,171)
Class A Beneficiary Interests (482,016 Interests; initial purchase price
of $25 each)............................................................ 6,143,329 6,171,613
Class B Beneficiary Interests (826,072 Interests; initial purchase price
of $5 each)............................................................. (501,445) (1,023,551)
Treasury Interests (67,202 Class A Interests at Cost).................... (634,411) (634,411)
---------- -----------
Total participants' capital.......................................... 4,862,755 4,218,987
---------- -----------
Total liabilities and participants' capital.......................... $5,509,531 $ 8,870,223
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF OPERATIONS
For the three and nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Lease revenue............................. $157,025 $213,021 $ 554,690 $ 837,031
Interest income........................... 49,785 71,407 120,526 205,239
Interest income--affiliate................ 11,654 11,654 34,582 34,582
Gain on sale of equipment................. 5,000 61,794 371,925 760,457
Gain on sale of marketable securities..... - - 21,520 -
Other income.............................. 6,761 - 47,933 261,116
-------- -------- ---------- ----------
Total income.......................... 230,225 357,876 1,151,176 2,098,425
-------- -------- ---------- ----------
Expenses:
Depreciation.............................. 27,968 119,402 165,899 627,990
Interest expense.......................... 11,424 12,433 35,182 38,348
Management fees--affiliates............... 9,965 12,098 33,619 41,211
Operating expenses--affiliate............. 61,200 83,851 252,443 268,542
-------- -------- ---------- ----------
Total expenses........................ 110,557 227,784 487,143 976,091
-------- -------- ---------- ----------
Net income................................. $119,668 $130,092 $ 664,033 $1,122,334
======== ======== ========== ==========
Net income
per Class A Beneficiary Interest.......... $ - $ 0.17 $ - $ 1.17
======== ======== ========== ==========
per Class B Beneficiary Interest.......... $ 1.11 $ 0.05 $ 0.62 $ 0.34
======== ======== ========== ==========
Cash distributions declared
per Class A Beneficiary Interest.......... $ - $ 0.41 $ - $ 2.04
======== ======== ========== ==========
per Class B Beneficiary Interest.......... $ - $ 0.11 $ - $ 0.35
======== ======== ========== ==========
</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 nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Managing Special Class A Class B
Trustee Beneficiary Beneficiaries Beneficiaries Treasury
Amount Amount Interests Amount Interests Amount Interests Total
------ ------ --------- ------ --------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999...... $(31,493) $(263,171) 482,016 $6,171,613 826,072 $(1,023,551) $(634,411) $4,218,987
Net income....................... 15,944 132,653 - - - 515,436 - 664,033
Unrealized gain (loss) on mar-
ketable securities/marketable
securities--affiliate........... (77) 1,426 - (28,284) - 6,670 - (20,265)
-------- --------- ------- ---------- ------- ----------- --------- ----------
Comprehensive income (loss)....... 15,867 134,079 - (28,284) - 522,106 - 643,768
-------- --------- ------- ---------- ------- ----------- --------- ----------
Balance at September 30, 2000..... $(15,626) $(129,092) 482,016 $6,143,329 826,072 $ (501,445) $(634,411) $4,862,755
======== ========= ======= ========== ======= =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AFG INVESTMENT TRUST A
STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income..................................................... $ 664,033 $ 1,122,334
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................. 165,899 627,990
Accretion of bond discount................................... (1,626) -
Gain on sale of equipment.................................... (371,925) (760,457)
Gain on sale of marketable securities........................ (21,520) -
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable............................................. (11,036) 186,939
Accounts receivable--affiliate............................... 73,062 20,839
Accounts receivable--other................................... (12,933) -
Interest receivable.......................................... 2,394 -
Increase (decrease) in:
Accrued interest............................................. (506) (917)
Accrued liabilities.......................................... (10,360) (84,000)
Accrued liabilities--affiliate............................... 10,848 2,124
Deferred rental income....................................... (20,072) 2,309
----------- -----------
Net cash provided by operating activities................. 466,258 1,117,161
----------- -----------
Cash flows provided by (used in) investing activities:
Proceeds from equipment sales................................. 1,502,820 1,510,560
Proceeds from sale of marketable securities................... 53,652 -
Investment--other............................................. (14,443) -
Investments in EFG/Kirkwood................................... (205,689) (606,000)
Purchase of marketable securities............................. - (32,132)
----------- -----------
Net cash provided by investing activities................. 1,336,340 872,428
----------- -----------
Cash flows provided by (used in) financing activities:
Principal payments--notes payable............................. (84,370) (178,021)
Distributions paid............................................ (3,900,000) (1,364,843)
Restricted cash............................................... - 1,343,053
----------- -----------
Net cash used in financing activities..................... (3,984,370) (199,811)
----------- -----------
Net (decrease) increase in cash and cash equivalents........... (2,181,772) 1,789,778
Cash and cash equivalents at beginning of period............... 5,016,965 3,456,154
----------- -----------
Cash and cash equivalents at end of period..................... $ 2,835,193 $ 5,245,932
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ 35,688 $ 39,265
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AFG INVESTMENT TRUST A
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
Note 1--Basis of Presentation
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles for interim financial information and
with the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X
of the Securities and Exchange Commission and are unaudited. As such, these
financial statements do not include all information and footnote disclosures
required under generally accepted accounting principles for complete financial
statements and, accordingly, the accompanying financial statements should be
read in conjunction with the footnotes presented in the Trust's 1999 Annual
Report. Except as disclosed herein, there have been no material changes to the
information presented in the footnotes to the 1999 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 2000 and December 31, 1999 and results of operations
for the three and nine months ended September 30, 2000 and 1999 have been made
and are reflected.
Note 2--Cash Equivalents and Marketable Securities
The Trust considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Marketable securities consist of
equity securities and debt securities that are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with unrealized gains
and losses reported as a separate component of participants' capital. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion are included
in interest income on the accompanying Statement of Operations.
The Trust recorded a net unrealized loss on available-for-sale securities of
$20,265 during the nine month period ended September 30, 2000 that is included
as a separate component of participants' capital. At September 30, 2000, total
debt securities had an amortized cost of $72,996 and a fair value of $73,500.
During the nine months ended September 30, 2000, total comprehensive income
amounted to $643,768.
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 $485,884 are due as follows:
For the year ending September 30,
2001.................................. $260,059
2002.................................. 179,399
2003.................................. 46,426
--------
Total................................. $485,884
========
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 September 30,
2000. Remaining Lease Term (Months), as used below, represents the number of
months remaining from September 30, 2000 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment,
Equipment Type (Months) At Cost
-------------- -------- -------
<S> <C> <C>
Communications................ 3 $1,802,423
Aircraft...................... 27 1,239,741
Materials handling............ 0-13 1,206,299
Construction and mining....... 0-27 347,888
Manufacturing................. 0 221,295
Computers and peripherals..... 0 214,788
Photocopying.................. 0 11,050
----------
Total equipment cost 5,043,484
Accumulated depreciation 3,945,139
----------
Equipment, net of
accumulated depreciation $1,098,345
==========
</TABLE>
At September 30, 2000, the Trust's equipment portfolio included equipment
having a proportionate original cost of $3,701,751, representing approximately
73% of total equipment cost.
Certain of the Trust's equipment and the related lease terms were used to
secure the Trust's term loans with third-party lenders. The preceding summary
includes leveraged equipment having an aggregate original cost of approximately
$1,240,000 and a net book value of $973,555 at September 30, 2000.
The summary above includes fully-depreciated equipment held for sale or re-
lease with a cost of $436,078. The Managing Trustee is actively seeking the sale
or re-lease of all equipment not on lease.
Note 5--Marketable Securities--Affiliate and Note Receivable--Affiliate
As a result of an exchange transaction in 1997, the Trust owns 20,969 shares
of Semele Group Inc. ("Semele") common stock and holds a beneficial interest in
a note from Semele (the "Semele Note") of $462,353. The Semele Note matures in
April 2001 and bears an annual interest rate of 10% with mandatory principal
reductions prior to maturity, if and to the extent that net proceeds are
received by Semele from the sale or refinancing of its principal real estate
asset consisting of an undeveloped 274-acre parcel of land near Malibu,
California. The Trust recognized interest income of $11,654 and $34,582,
respectively, related to the Semele Note for each of the three and nine months
ended September 30, 2000 and 1999.
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," marketable
equity securities classified as available-for-sale are carried at fair value.
During the nine months ended September 30, 2000, the Trust decreased the
carrying value of its investment in Semele common stock to $5 per share (the
quoted price on the NASDAQ SmallCap market at the
8
<PAGE>
date the stock traded closest to September 30, 2000), resulting in an unrealized
loss of $15,727. This loss was reported as a component of comprehensive income
(loss) included in participant's capital.
AFG INVESTMENT TRUST A
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 6--Investment In EFG/Kirkwood
On May 1, 1999, the Trust and three affiliated trusts (collectively the
"Trusts") and another affiliate formed EFG/Kirkwood Capital LLC
("EFG/Kirkwood") for the purpose of acquiring preferred and common stock
interests in Kirkwood Associates Inc. ("KAI"). The Trusts purchased Class A
Interests in EFG/Kirkwood and the other affiliate purchased Class B Interests in
EFG/Kirkwood. Generally, the Class A Interest holders are entitled to certain
preferred returns prior to distribution payments to the Class B Interest holder.
On May 1, 2000, the Trusts exchanged their interests in KAI common stock and
preferred stock for corresponding pro-rata interests in Mountain Resort Holdings
LLC ("Mountain Resort"). Mountain Resort owns a ski resort, a local public
utility, and land which is held for development. The resort is located in
Kirkwood, California and is approximately 30 miles from South Lake Tahoe,
Nevada. Subsequent to making its investment in Mountain Resort, EFG/Kirkwood
made a 50% investment in Mountain Springs Resorts LLC, an entity formed for the
purpose of acquiring an ownership interest in a Colorado ski resort. The Trust's
ownership interest in EFG/Kirkwood had a cost of $882,389, including a 1%
acquisition fee ($8,737) paid to EFG. The Trust's investment in EFG/Kirkwood is
accounted for on the equity method.
Note 7--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 nine month periods ended September 30, 2000 and
1999, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
-------- --------
<S> <C> <C>
Management fees................................................ $ 33,619 $ 41,211
Acquisition fees............................................... 2,180 6,321
Administrative charges......................................... 74,511 95,301
Reimbursable operating expenses due to third parties........... 177,932 173,241
-------- --------
Total........................................................ $288,242 $316,074
======== ========
</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 September
30, 2000, the Trust was owed $11,568 by EFG for such funds and the interest
thereon. These funds were remitted to the Trust in October 2000.
Note 8--Notes Payable
Notes payable at September 30, 2000 consisted of an installment note of
$572,084 payable to an institutional lender. The note bears a fluctuating
interest rate based on LIBOR (approximately 6.62% at September 30, 2000) plus a
margin. The installment note is non-recourse and is collateralized by the
Trust's interest in an aircraft leased to Reno Air, Inc. and the assignment of
the related lease payments. The Trust has a balloon payment obligation of
$282,421 at the expiration of the related lease term in January 2003. The
carrying amount of the note approximates fair value at September 30, 2000.
9
<PAGE>
AFG INVESTMENT TRUST A
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 8--Notes Payable (continued)
The annual maturities of the note are as follows:
For the year ending September 30,
2001................................... $121,614
2002................................... 133,242
2003................................... 317,228
--------
Total.................................. $572,084
========
Note 9--Guaranty Agreement
On March 8, 2000, the Trust and three affiliated trusts entered into a
guaranty agreement whereby the trusts, jointly and severally, have guaranteed
the payment obligations under a master lease agreement between Echelon
Commercial LLC, a newly-formed Delaware company that is controlled by Gary D.
Engle, President and Chief Executive Officer of EFG, as lessee, and Heller
Affordable Housing of Florida, Inc., and two other entities, as lessor
(``Heller''). The lease payments of Echelon Commercial LLC to Heller are
supported by lease payments to Echelon Commercial LLC from various sub-lessees
who are parties to commercial and residential lease agreements under the master
lease agreement. The guarantee of lease payments by the Trust and the three
affiliated trusts is capped at a maximum of $34,500,000, excluding expenses that
could result in the event that Echelon Commercial LLC experiences a default
under the terms of the master lease agreement. An agreement among the four
trusts provides that the Trust is responsible for 7% of the current guaranteed
amount, or $1,671,536 at September 30, 2000. In consideration for its guarantee,
the Trust will receive an annualized fee equal to 4% of the average guarantee
amount outstanding during each quarterly period. Accrued but unpaid fees will
accrue and compound interest quarterly at an annualized interest rate of 7.5%
until paid. The Trust will receive minimum aggregate fees for its guarantee of
not less than $70,000, excluding interest. During the nine months ended
September 30, 2000, the Trust received an upfront cash fee of $35,000 and
recognized $47,933 of income related to this guaranty fee. The guaranty fee is
reflected as Other Income on the accompanying Statement of Operations for the
nine months ended September 30, 2000.
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.
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 collection of the Trust's contracted rents,
the realization of residual proceeds for the Trust's equipment, the performance
of the Trust's non-equipment investments, and future economic conditions.
Three and nine months ended September 30, 2000 compared to the three and nine
months ended September 30, 1999
Results of Operations
For the three and nine months ended September 30, 2000, the Trust recognized
lease revenue of $157,025 and $554,690, respectively, compared to $213,021 and
$837,031, respectively, for same periods in 1999. The decrease in lease revenue
from 1999 to 2000 resulted primarily from lease term expirations and equipment
sales. The level of lease revenue to be recognized by the Trust in the future
may be impacted by future reinvestment; 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 and nine months ended September 30, 2000 was
$61,439 and $155,108, respectively, compared to $83,061 and $239,821,
respectively, for the same periods in 1999. Interest income is typically
generated from temporary investment of rental receipts and equipment sales
proceeds in short-term instruments. Interest income during the three and nine
months ended September 30, of 2000 and 1999 includes interest earned of $11,654
and $34,582, respectively, on the note receivable from Semele Group, Inc.
("Semele") which is reflected as interest income-affiliate on the accompanying
Statement of Operations. See also Note 5 to the financial statements herein.
Interest income in 1999 also included interest earned on proceeds from the
issuance of the Trust's Class B Interests in 1997. The amount of future interest
income is expected to fluctuate as a result of changing interest rates and the
amount of cash available for investment, among other factors. In addition, the
Trust made a distribution of $3,900,000 in January 2000, which resulted in a
reduction in cash available for investment.
During the three and nine months ended September 30, 2000, the Trust sold
fully-depreciated equipment and equipment having a net book value $1,130,895,
respectively, to existing lessees and third parties. These sales resulted in a
net gain, for financial statement purposes, of $5,000 and $371,925,
respectively.
11
<PAGE>
During the three and nine months ended September 30, 1999, the Trust sold
equipment having a net book value of $1,337 and $750,103, respectively, to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $61,794 and $760,457, respectively.
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.
During the nine months ended September 30, 2000, the Trust sold marketable
securities, having a book value of $32,132, resulting in a gain, for financial
statement purposes, of $21,520.
On March 8, 2000, the Trust and three affiliated trusts entered into a
guaranty agreement whereby the trusts, jointly and severally, have guaranteed
the payment obligations under a master lease agreement between Echelon
Commercial LLC, as lessee, and Heller Affordable Housing of Florida, Inc., and
two other entities, as lessor ("Heller"). In consideration for its guarantee,
the Trust will receive an annualized fee equal to 4% of the average guarantee
amount outstanding during each quarterly period. Accrued but unpaid fees will
accrue and compound interest quarterly at an annualized interest rate of 7.5%
until paid. During the nine months ended September 30, 2000, the Trust received
an upfront cash fee of $35,000 and recognized $47,933 of income related to this
guaranty fee. The guaranty fee is reflected as Other Income on the accompanying
Statement of Operations for the nine months ended September 30, 2000.
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 during the first quarter of 1999. This amount is reflected as Other
Income on the accompanying Statement of Operations for the nine months ended
September 30, 1999.
Depreciation expense was $27,968 and $165,899, respectively, for the three and
nine months ended September 30, 2000, compared to $119,402 and $627,990 for the
same periods in 1999. 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.
12
<PAGE>
Interest expense was $11,424 and $35,182, respectively, for the three and nine
months ended September 30, 2000 compared to $12,433 and $38,348 for the same
periods in 1999. Interest expense will continue to decrease in future periods as
the principal balance of notes payable is reduced through the application of
rent receipts to outstanding debt.
Management fees were $9,965 and $33,619, respectively, for the three and nine
months ended September 30, 2000 compared to $12,098 and $41,211 for the same
periods in 1999. Management fees are based on 5% of gross lease revenue
generated by operating leases and 2% of gross lease revenue generated by full
payout leases. Management fees also include a 1% management fee on non-equipment
investments, excluding cash.
Operating expenses consist principally of administrative charges, professional
service costs, such as audit and legal fees, as well as printing, distribution
and remarketing expenses. Operating expenses were $61,200 and $252,443,
respectively, for the three and nine months ended September 30, 2000 compared to
$83,851 and $268,542 for the same periods in 1999. 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. 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 $466,258 and $1,117,161 for the nine months ended September 30, 2000
and 1999, respectively. Future renewal, re-lease and equipment sale activities
will cause a decline in the Trust's lease revenue and corresponding sources of
operating cash. Expenses associated with rental activities, such as management
fees, also 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.
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 nine months ended September 30, 2000 and
1999, the Trust expended $205,689 and $606,000, respectively, for its investment
in EFG/Kirkwood. See Note 6 to the financial statements herein. The Trust
expended $14,443 to acquire a certain investment and $32,132 to purchase
marketable securities during the nine months ended September 30, 2000 and 1999,
respectively. During the nine months ended September 30, 2000, the Trust
realized net cash proceeds from equipment disposals of $1,502,820 compared to
$1,510,560 for the same period in 1999. Sale proceeds in 2000 include $1,400,000
related to the sale of the Trust's SAAB SF340A aircraft formerly leased to
Comair, Inc. in May 2000. 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 equipment 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 also realized proceeds from the sale of marketable
securities of $53,652 during the nine months ended September 30, 2000.
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At September 30, 2000, the Trust was due aggregate future minimum lease
payments of $485,884 from contractual lease agreements, a portion of which will
be used to amortize the principal balance of notes payable of $572,084. See
Notes 3 and 8 to the financial statements herein. 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 accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," marketable
debt and equity securities classified as available-for-sale are required to be
carried at fair value. During the nine months ended September 30, 2000, the
Trust recorded a net unrealized loss on available-for-sale securities of
$20,265.
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. At September 30, 2000, the Trust had only
one debt obligation outstanding pertaining to its ownership interest in an
aircraft leased to Reno Air, Inc. That note will be partially amortized by the
remaining contracted lease payments. Upon expiration of the lease agreement in
2003, the Trust will have a balloon payment obligation of $282,421 to retire
this indebtedness.
The Managing Trustee evaluated and pursued a number of potential new
investments, several of which the Managing Trustee concluded had market returns
that it believed were less than adequate given the potential risks. Most
transactions involved the equipment leasing, business finance and real estate
development industries. Although the Managing Trustee intends to continue to
evaluate additional new investments, it anticipates that the Trust will be able
to fund these new investments with cash on hand or other sources, such as the
proceeds from future asset sales or refinancings and new indebtedness. As a
result, the Trust declared a special cash distribution during the fourth quarter
of 1999 to the Trust Beneficiaries totaling $3,900,000, which was paid on
January 19, 2000.
After the special distribution on January 19, 2000, the Trust adopted a new
distribution policy and suspended the payment of regular monthly cash
distributions. Looking forward, the Managing Trustee presently does not expect
to reinstate cash distributions until expiration of the Trust's reinvestment
period in December 2001; however, the Managing Trustee periodically will review
and consider other one-time distributions. In addition to maintaining sale
proceeds for reinvestment, the Managing Trustee expects that the Trust will
retain cash from operations to fully retire its balloon debt obligation and for
the continued maintenance of the Trust's assets. The Managing Trustee believes
that this change in policy is in the best interests of the Trust over the long
term and will have the added benefit of reducing the Trust's distribution
expenses.
In the future, the nature of the Trust's operations and principal cash flows
will continue to shift from rental receipts to equipment sale proceeds as the
Trust matures and changes as a result of potential 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, the collection of contractual
rents, the retirement of scheduled indebtedness, and the Trust's future working
capital requirements, in establishing the amount and timing of future cash
distributions.
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
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Trustee's tax capital account. At December 31, 1999, the Managing Trustee had a
positive tax capital account balance. No such requirement exists with respect to
the Special Beneficiary.
15
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AFG INVESTMENT TRUST A
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
27 Financial Data Schedule
Item 6(b). Reports on Form 8-K
Response: None
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
27 Financial Data Schedule
16
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
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 of AFG ASIT Corporation
(Duly Authorized Officer and
Principal Accounting Officer)
Date: November 14, 2000
17
