<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------------------------------------
OR
[___] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
_____________________to_____________________
_____________________
For Quarter Ended September 30, 1996 Commission File No. 0-21390
AFG Investment Trust B
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 04-3157230
- ---------------------------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
- ---------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
--------------------------
</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 B
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Statement of Financial Position
at September 30, 1996 and December 31, 1995 3
Statement of Operations
for the three and nine months ended September 30, 1996 and 1995 4
Statement of Cash Flows
for the nine months ended September 30, 1996 and 1995 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. OTHER INFORMATION:
Items 1 - 6 14
</TABLE>
2
<PAGE>
AFG Investment Trust B
STATEMENT OF FINANCIAL POSITION
September 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 2,496,927 $ 337,293
Rents receivable 384,339 729,555
Accounts receivable - affiliate 197,554 105,494
Equipment at cost, net of accumulated
depreciation of $11,826,952 and
$9,940,387 at September 30, 1996
and December 31, 1995, respectively 14,429,965 18,399,341
Organization costs, net of accumulated
amortization of $4,083 and $3,333 at
September 30, 1996 and December 31,
1995, respectively 917 1,667
----------- -----------
Total assets $17,509,702 $19,573,350
=========== ===========
LIABILITIES AND PARTICIPANTS' CAPITAL
- ----------------------------------------
Notes payable $ 5,291,093 $ 7,097,113
Accrued interest 51,717 124,186
Accrued liabilities 18,750 20,000
Accrued liabilities - affiliate 22,580 --
Deferred rental income 151,261 20,802
Cash distributions payable to 200,199 153,998
participants ----------- -----------
Total liabilities 5,735,600 7,416,099
----------- -----------
Participants' capital (deficit):
Managing Trustee (31,897) (28,065)
Special Beneficiary (270,392) (238,783)
Beneficiary Interests (665,494
Interests; initial purchase
price of $25 each) 12,076,391 12,424,099
----------- -----------
Total participants' capital 11,774,102 12,157,251
----------- -----------
Total liabilities and
participants' capital
$17,509,702 $19,573,350
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AFG Investment Trust B
STATEMENT OF OPERATIONS
for the three and nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Lease revenue $1,549,287 $1,534,181 $4,434,013 $4,598,135
Interest income 29,423 17,190 71,433 25,390
Loss on sale of equipment (1,063) (3,167) (275,888) (205,129)
---------- ---------- ---------- ----------
Total income 1,577,647 1,548,204 4,229,558 4,418,396
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization 1,058,070 1,088,360 3,289,919 3,061,671
Write-down of equipment -- 384,782 -- 384,782
Interest expense 86,503 135,425 309,697 410,677
Interest expense - affiliate -- -- -- 41
Equipment management fees
- affiliate 66,192 65,320 187,687 177,162
Operating expenses - affiliate 37,921 14,942 86,211 97,001
---------- ---------- ---------- ----------
Total expenses 1,248,686 1,688,829 3,873,514 4,131,334
---------- ---------- ---------- ----------
Net income (loss) $ 328,961 $ (140,625) $ 356,044 $ 287,062
========== ========== ========== ==========
Net income (loss)
per Beneficiary Interest $ 0.45 $ (0.19) $ 0.49 $ 0.39
========== ========== ========== =========
Cash distributions declared
per Beneficiary Interest $ 0.38 $ 0.53 $ 1.01 $ 1.79
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
AFG Investment Trust B
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from (used in) operating
activities:
Net income $ 356,044 $ 287,062
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 3,289,919 3,061,671
Loss on sale of equipment 275,888 205,129
Write-down of equipment -- 384,782
Changes in assets and liabilities
Decrease (increase) in:
rents receivable 345,216 (119,055)
accounts receivable - affiliate (92,060) (154,158)
Increase (decrease) in:
accrued interest (72,469) 42,025
accrued liabilities (1,250) (1,750)
accrued liabilities - affiliate 22,580 (60,413)
deferred rental income 130,459 9,426
----------- -----------
Net cash from operating 4,254,327 3,654,719
activities ----------- -----------
Cash flows from (used in) investing
activities:
Purchase of equipment (1,441,796) (4,498,137)
Proceeds from equipment sales 1,846,115 3,584,259
----------- -----------
Net cash from (used in)
investing activities 404,319 (913,878)
----------- -----------
Cash flows from (used in) financing
activities:
Proceeds from notes payable 997,888 2,296,728
Proceeds from notes payable -
affiliate -- 9,080
Principal payments - notes payable (2,803,908) (2,853,215)
Principal payments - notes payable -
affiliate -- (2,905)
Distributions paid (692,992) (1,387,198)
----------- -----------
Net cash used in financing
activities (2,499,012) (1,937,510)
----------- -----------
Net increase in cash and cash
equivalents 2,159,634 803,331
Cash and cash equivalents at beginning
of period 337,293 441,329
----------- -----------
Cash and cash equivalents at end of
period $ 2,496,927 $ 1,244,660
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 382,166 $ 368,693
=========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1995, the Trust sold equipment to a lessee which assumed related debt
and interest of $269,023 and $1,734, respectively.
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
September 30, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1995 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1995 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1996 and December 31, 1995 and results of operations
for the three and nine month periods ended September 30, 1996 and 1995 have been
made and are reflected.
NOTE 2 - CASH
- -------------
At September 30, 1996, the Trust had $2,394,000 invested in reverse repurchase
agreements secured by U.S. Treasury Bills or interests in U.S. Government
securities.
NOTE 3 - REVENUE RECOGNITION
- ----------------------------
Rents are payable to the Trust monthly, quarterly or semi-annually and no
significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$8,954,441 are due as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ending September 30, 1997 $5,199,694
1998 2,645,938
1999 477,378
2000 255,987
2001 179,109
Thereafter 196,335
----------
Total $8,954,441
==========
</TABLE>
During March 1996, the Trust acquired an 8.86% proportionate ownership
interest in an MD-87 jet aircraft leased by Reno Air, Inc. (the "Reno Aircraft")
- - See Note 4 herein. The Trust will receive approximately $157,000 of rental
revenue in each of the years in the period ending September 30, 2002 and $39,000
in the year ending September 30, 2003, pursuant to the Reno Aircraft lease
agreement. Rents from the Reno Aircraft, as provided for in the lease
agreement, are adjusted monthly for changes of the London Inter-Bank Offered
Rate ("LIBOR"). Future rents from the Reno Aircraft, included above, reflect
the most recent LIBOR effected rental payment.
6
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
NOTE 4 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Trust at September 30,
1996. In the opinion of American Finance Group ("AFG"), the acquisition cost of
the equipment did not exceed its fair market value.
<TABLE>
<CAPTION>
Lease Term Equipment
Equipment Type (Months) at Cost
- -------------- ---------- --------
<S> <C> <C>
Aircraft 60-81 $ 8,018,105
Computers and peripherals 12-62 4,982,599
Materials handling 4-60 4,764,326
Communications 12-60 3,039,531
General plant and warehouse 60 1,576,077
Construction and mining 36-60 1,200,577
Retail store fixtures 36 1,145,861
Tractors and heavy duty trucks 48-78 605,644
Manufacturing 60 449,902
Furniture and fixtures 60 284,019
Trailers/intermodal containers 36-60 128,443
Photocopying 36-60 61,833
------------
Total equipment cost 26,256,917
Accumulated depreciation (11,826,952)
------------
Equipment, net of accumulated depreciation $ 14,429,965
============
</TABLE>
On September 29, 1995, the Trust entered into an agreement with United Air
Lines, Inc. ("United") to sell the Trust's proportionate ownership interest in a
Boeing 747-SP aircraft (the "United Aircraft"), to United for cash consideration
of $1,946,849 including unpaid rents through the date of sale, which event
concluded in February 1996. In March 1996, the Trust acquired an 8.86%
ownership interest in the Reno Aircraft, pursuant to the reinvestment provisions
of the Trust's prospectus, at a cost of $1,239,741. To acquire the interest in
the Reno Aircraft, the Trust obtained leveraging of $997,888 from a third-party
lender and utilized cash proceeds of $241,853 from the sale of the United
Aircraft. The Managing Trustee intends to reinvest the remaining proceeds from
the sale of the United Aircraft in other equipment in 1996.
At September 30, 1996, the Trust's equipment portfolio included equipment
having a proportionate original cost of $11,023,146, representing approximately
42% of total equipment cost.
At September 30, 1996, the cost and net book value of equipment held for sale
or re-lease was approximately $787,000 and $153,000, respectively. The Managing
Trustee is actively seeking the sale or re-lease of all equipment not on lease.
7
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Trust are paid by AFG on behalf of the
Trust and AFG is reimbursed at its actual cost for such expenditures. Fees and
other costs incurred during the nine month periods ended September 30, 1996 and
1995, which were paid or accrued by the Trust to AFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Equipment acquisition fees $ 52,786 $104,322
Interest on note payable - affiliate -- 41
Equipment management fees 187,687 177,162
Administrative charges 15,750 15,750
Reimbursable operating expenses
due to third parties 70,461 81,251
-------- --------
Total $326,684 $378,526
======== ========
</TABLE>
All rents and proceeds from the sale of equipment are paid directly to either
AFG or to a lender. AFG temporarily deposits collected funds in a separate
interest-bearing escrow account prior to remittance to the Trust. At September
30, 1996, the Trust was owed $197,554 by AFG for such funds and the interest
thereon. These funds were remitted to the Trust in October 1996.
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable at September 30, 1996 consisted of installment notes of
$5,291,093 payable to banks and institutional lenders. The notes bear interest
rates ranging between 5.7% and 7.7%, except for one note which bears a
fluctuating interest rate based on LIBOR plus a margin (5.4% at September 30,
1996). All of the installment notes are non-recourse and are collateralized by
the equipment and assignment of the related lease payments. Generally, the
installment notes will be fully amortized by noncancellable rents. However, the
Trust has a balloon payment obligation at the expiration of the primary lease
term related to the Reno Aircraft. The carrying amount of notes payable
approximates fair value at September 30, 1996.
The annual maturities of the notes payable are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ending September 30, 1997 $2,777,087
1998 1,575,655
1999 244,762
2000 111,206
2001 121.530
Thereafter 460,853
----------
Total $5,291,093
==========
</TABLE>
8
<PAGE>
AFG Investment Trust B
Notes to the Financial Statements
(Continued)
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
On October 26, 1996, the Managing Trustee, on behalf of the Trust, filed a
Solicitation Statement with the Securities and Exchange Commission which was
subsequently sent to the Beneficiaries pursuant to Regulation 14A of Section 14
of the Securities Exchange Act. The Solicitation Statement seeks to solicit the
consent of the Beneficiaries to a proposed amendment ("the Amendment") to the
Amended and Restated Declaration of Trust (the "Trust Agreement").
The Amendment would (i) amend the provisions of the Trust Agreement governing
the redemption of Interests to permit the Trust to offer to redeem outstanding
interests at such times, in such amounts, in such manner and at such prices as
the Managing Trustee may determine from time to time, in accordance with
applicable law; and (ii) add a provision to the Trust Agreement that would
permit the Trust to issue, at the discretion of the Managing Trustee and without
further consent or approval of the Beneficiaries, an additional class of
security with such designations, preferences and relative, participating,
optional or other special rights, powers and duties as the Managing Trustee may
fix. Such a security, if it were to be offered and sold, would provide the
Trust with the funds to a) implement more expansive Interest redemption
opportunities for Beneficiaries without using Trust funds which may otherwise be
available for current cash distributions; and b) make a special one-time
distribution to the Beneficiaries.
Pursuant to the Trust Agreement, the adoption of the Amendment requires the
consent of the Beneficiaries holding more than fifty percent in the aggregate of
the Interests held by all Beneficiaries. To be valid, consent forms must be
received by the Managing Trustee by December 6, 1996 (subject to extension at
the discretion of the Managing Trustee). The outcome of this solicitation can
not be determined at this time.
9
<PAGE>
AFG Investment Trust B
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Three and nine months ended September 30, 1996 compared to the three and nine
- -----------------------------------------------------------------------------
months ended September 30, 1995:
- -------------------------------
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 AFG to obtain the most advantageous economic benefit. Over time,
a greater portion of the Trust's original equipment portfolio will become
available for remarketing and cash generated from operations and from sales or
refinancings will begin to fluctuate. Ultimately, all equipment will be sold
and the Trust will be dissolved. The Trust's operations commenced in 1992.
Results of Operations
- ---------------------
For the three and nine months ended September 30, 1996, the Trust recognized
lease revenue of $1,549,287 and $4,434,013, respectively, compared to $1,534,181
and $4,598,135 for the same periods in 1995. The overall decrease in lease
revenue from 1995 to 1996 is due primarily to the Trust's sale of its interest
in the United Aircraft in February 1996, as discussed below. The increase in
revenue for the three months ended September 30, 1996 compared to the same
period in 1995 reflects the recognition of revenue for the full nine months in
1996 related to reinvestment equipment purchased during 1995. In the near-term,
lease revenue is expected to increase, due to reinvestment of the proceeds from
the sale of the United Aircraft in other equipment. Over time, the level of
lease revenue will decline due to the expiration of the Trust's primary lease
term agreements. The Trust also earns interest income from temporary
investments of rental receipts and equipment sales proceeds in short-term
instruments.
The Trust's equipment portfolio includes certain assets in which the Trust
holds a proportionate ownership interest. In such cases, the remaining
interests are owned by AFG or an affiliated equipment leasing program sponsored
by AFG. 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.
On February 5, 1996, the Trust concluded the sale of its interest in a Boeing
747-SP to the lessee, United Air Lines, Inc., as reported in Note 3 to the
Trust's 1995 Annual Report. The Trust recognized a net loss of $560,982 in
connection with this transaction, of which $384,782 was recognized as Write-Down
of Equipment in 1995. The remainder of $176,200 was recognized as a loss on
sale of equipment on the accompanying financial statements for the nine months
ended September 30, 1996. In addition to lease rents, the Trust received net
sale proceeds of $1,684,292 from United for the aircraft. The Trust plans to
reinvest all of such proceeds in other equipment in
10
<PAGE>
AFG Investment Trust B
FORM 10-Q
PART I. FINANCIAL INFORMATION
1996, a portion of which was completed in March 1996 through the acquisition of
an 8.86% ownership interest in the Reno Aircraft at an aggregate cost of
$1,239,741. To acquire the interest in the Reno Aircraft, the Trust obtained
long-term financing of $997,888 from a third-party lender and utilized cash
proceeds of $241,853 from the sale of the United Aircraft. During the three and
nine months ended September 30, 1996, the Trust sold other equipment having a
net book value of $71,017 and $261,511, respectively, to existing lessees and
third parties. These sales resulted in net losses, for financial statement
purposes, of $1,063 and $99,688, respectively.
During the three and nine months ended September 30, 1995, the Trust sold
equipment having a net book value of $7,675 and $4,060,145, respectively, to
existing lessees and third parties. These sales resulted in net losses, for
financial statement purposes, of $3,167 and $205,129, respectively. The
equipment sales during the nine months ended September 30, 1995 included the
Trust's interest in a vessel with an original cost and net book value of
$5,406,468 and $4,023,021, respectively, which the Trust sold to an existing
lessee in June 1995. In connection with this sale, the Trust realized sale
proceeds of $3,567,942 and the purchaser assumed related debt and interest of
$269,023 and $1,734, respectively, which resulted in a net loss, for financial
statement purposes, of $184,322. This equipment was sold prior to the
expiration of the related lease term. The sale proceeds were fully reinvested
in other equipment during 1995.
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 AFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Trust and which will maximize
total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Trust classifies such
residual rental payments as lease revenue. Consequently, the amount of gain or
loss reported in the financial statements is not necessarily indicative of the
total residual value the Trust achieved from leasing the equipment.
Depreciation and amortization expense for the three and nine months ended
September 30, 1996 was $1,058,070 and $3,289,919, respectively, compared to
$1,088,360 and $3,061,671 for the same periods in 1995. 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. The overall increase in depreciation expense
from 1995 to 1996 reflects the acquisition of equipment subsequent to September
30, 1995.
Interest expense was $86,503 and $309,697 or 5.6% and 7% of lease revenue for
the three and nine months ended September 30, 1996, respectively, compared to
$135,425 and $410,718 or 8.8% and 8.9% of lease revenue for the same periods in
1995. Interest expense in the near-term is expected to increase due to
11
<PAGE>
AFG Investment Trust B
FORM 10-Q
PART I. FINANCIAL INFORMATION
leveraging to be obtained to finance the acquisition of reinvestment equipment,
discussed above. Thereafter, interest expense will decline in amount and as a
percentage of lease revenue as the principal balance of notes payable is reduced
through the application of rent receipts to outstanding debt.
Management fees were approximately 4.3% and 4.2% of lease revenue for the
three and nine months ended September 30, 1996, respectively, compared to 4.3%
and 3.9% of lease revenue for the same periods in 1995. Management fees are
based on 5% of gross lease revenue generated by operating leases and 2% of gross
lease revenue generated by full payout leases.
Operating expenses consist principally of administrative charges, professional
service costs, such as audit and legal fees, as well as printing, distribution
and remarketing expenses. Collectively, operating expenses represented 2.4% and
1.9% of lease revenue for the three and nine months ended September 30, 1996,
respectively, compared to 1% and 2.1% of lease revenue for the same periods in
1995. The amount of future operating expenses cannot be predicted with
certainty; however, such expenses are usually higher during the acquisition and
liquidation phases of a trust. Other fluctuations typically occur in relation
to the volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Trust by its nature is a limited life entity which was established for
specific purposes described in the preceding "Overview". As an equipment
leasing program, the Trust's principal operating activities derive from asset
rental transactions. Accordingly, the Trust's principal source of cash from
operations is provided by the collection of periodic rents. These cash inflows
are used to satisfy debt service obligations associated with leveraged leases,
and to pay management fees and operating costs. Operating activities generated
net cash inflows of $4,254,327 and $3,654,719 for the nine months ended
September 30, 1996 and 1995, respectively. In the near-term, net cash inflows
generated from operating activities are expected to increase due to the receipt
of additional lease revenue from reinvestment equipment purchased during the
nine months ended September 30, 1996 and additional reinvestment equipment to be
purchased during the remainder of 1996. Subsequently, future renewal, re-lease
and equipment sale activities will cause a gradual decline in the Trust's lease
revenue and corresponding sources of operating cash. Overall, expenses
associated with rental activities, such as management fees, and net cash flow
from operating activities will decline as the Trust experiences a higher
frequency of remarketing events.
Ultimately, the Trust will dispose of all assets under lease. This will occur
principally through sale transactions whereby each asset will be sold to the
existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During the nine month periods ended September 30, 1996
and 1995, the Trust expended $1,441,796 and $4,498,137, respectively, to acquire
equipment, including reinvestment equipment discussed above. During the nine
months ended September 30, 1996, the Trust realized net cash proceeds of
$1,846,115 compared to $3,584,259 for the same period in 1995. Future inflows
of cash from asset disposals will vary in timing and amount and will be
influenced
12
<PAGE>
AFG Investment Trust B
FORM 10-Q
PART I. FINANCIAL INFORMATION
by many factors including, but not limited to, the frequency and timing of lease
expirations, the type of equipment being sold, its condition and age, and future
market conditions.
The Trust obtained long-term financing in connection with certain equipment
leases. The origination of such indebtedness and the subsequent repayments of
principal are reported as components of financing activities. Cash inflows of
$997,888 and $2,296,728 in 1996 and 1995, respectively, resulted from leveraging
a portion of the Trust's equipment portfolio with third-party lenders. AFG also
provided interim financing of $9,080 during the nine months ended September 30,
1995, until third-party financing was finalized. 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 the near-term, the amount of cash used to repay
debt obligations will increase due to leveraging obtained during the nine months
ended September 30, 1996 and leveraging expected to be obtained to finance the
acquisition of additional reinvestment equipment. Subsequently, the amount of
cash used to repay debt obligations will decline as the principal balance of
notes payable is reduced through the collection and application of rents.
However, the Trust has a balloon payment obligation at the expiration of the
primary lease term related to the Reno Aircraft.
Cash distributions to the Managing Trustee, the Special Beneficiary and the
Beneficiaries are declared and generally paid within 45 days following the end
of each calendar month. The payment of such distributions is presented as a
component of financing activities. For the nine months ended September 30,
1996, the Trust declared total cash distributions of Distributable Cash From
Operations and Distributable Cash From Sales and Refinancings of $739,193. In
accordance with the Amended and Restated Declaration of Trust, the Beneficiaries
were allocated 90.75% of these distributions, or $670,818; the Special
Beneficiary was allocated 8.25%, or $60,983; and the Managing Trustee was
allocated 1%, or $7,392.
Cash distributions paid to the Participants consist of both a return of and a
return on capital. To the extent that cash distributions consist of Cash From
Sales or Refinancings, substantially all of such cash distributions should be
viewed as a return of capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the 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 AFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Trust's equipment portfolio.
The future liquidity of the Trust will be influenced by the foregoing and will
be greatly dependent upon the collection of contractual rents and the outcome of
residual activities. The Managing Trustee anticipates that cash proceeds
resulting from these sources will satisfy the Trust's future expense
obligations. However, the amount of cash available for distribution in future
periods will fluctuate. Equipment lease expirations and asset disposals will
cause the Trust's net cash from operating activities to diminish over time; and
equipment sale proceeds will vary in amount and period of realization.
Accordingly, fluctuations in the level of monthly cash distributions will occur
during the life of the Trust.
13
<PAGE>
AFG Investment Trust B
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
14
<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 B
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 12, 1996
---------------------------------
By: /s/ Gary M. Romano
----------------------------------
Gary M. Romano
Clerk of AFG ASIT Corporation
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 12, 1996
-----------------------------------
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,496,927
<SECURITIES> 0
<RECEIVABLES> 581,893
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,078,820
<PP&E> 26,256,917
<DEPRECIATION> 11,826,952
<TOTAL-ASSETS> 17,509,702
<CURRENT-LIABILITIES> 444,507
<BONDS> 5,291,093
0
0
<COMMON> 0
<OTHER-SE> 11,774,102
<TOTAL-LIABILITY-AND-EQUITY> 17,509,702
<SALES> 4,434,013
<TOTAL-REVENUES> 4,229,558
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,563,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309,697
<INCOME-PRETAX> 356,044
<INCOME-TAX> 0
<INCOME-CONTINUING> 356,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356,044
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
