<PAGE>
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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 June 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. 0-21390
----------------
AFG Investment Trust B
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 04-3157230
(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)
</TABLE>
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 B
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at June 30, 2000 and December 31, 1999............................... 3
Statement of Operations
for the three and six months ended June 30, 2000 and 1999............ 4
Statement of Changes in Participants' Capital
for the six months ended June 30, 2000............................... 5
Statement of Cash Flows
for the six months ended June 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................................................ 11-14
PART II. OTHER INFORMATION:
Items 1-6...................................................................... 16
</TABLE>
2
<PAGE>
AFG INVESTMENT TRUST B
STATEMENT OF FINANCIAL POSITION
June 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................. $5,274,938 $10,193,277
Marketable securities.................................. 72,000 108,544
Rents receivable....................................... -- 635
Accounts receivable--affiliate......................... 112,090 112,228
Accounts receivable--other............................. 10,210 --
Interest receivable.................................... 3,681 3,681
Investment in EFG/Kirkwood............................. 1,663,776 1,353,400
Investment--other ..................................... 23,700 --
Equipment at cost, net of accumulated depreciation of
$6,321,527 and $6,686,836 at June 30, 2000 and
December 31, 1999, respectively....................... 1,117,844 1,280,251
---------- -----------
Total assets....................................... $8,278,239 $13,052,016
========== ===========
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable.......................................... $ 600,888 $ 656,454
Accrued interest....................................... 2,058 2,386
Accrued liabilities.................................... 29,000 53,608
Accrued liabilities--affiliate......................... 14,530 15,436
Deferred rental income................................. 42,406 42,050
Cash distributions payable to participants............. -- 5,300,000
---------- -----------
Total liabilities.................................. 688,882 6,069,934
---------- -----------
Participants' capital (deficit):
Managing Trustee...................................... 503 (26,988)
Special Beneficiary................................... 4,148 (222,647)
Class A Beneficiary Interests (582,017 Interests;
initial purchase price of $25 each).................. 8,365,260 8,336,812
Class B Beneficiary Interests (1,000,961 Interests;
initial purchase price of $5 each)................... 10,821 (313,720)
Treasury Interests (83,477 Class A Interests at
Cost)................................................ (791,375) (791,375)
---------- -----------
Total participants' capital........................ 7,589,357 6,982,082
---------- -----------
Total liabilities and participants' capital........ $8,278,239 $13,052,016
========== ===========
</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 six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
--------------------------- -------------------------
2000 1999 2000 1999
------------- ------------- -------------------------
<S> <C> <C> <C> <C>
Income:
Lease revenue........... $ 284,778 $ 346,650 $ 563,408 $ 670,391
Interest income......... 84,763 155,194 178,298 265,180
Gain on sale of
equipment.............. 24,264 329,688 20,124 474,303
Gain on sale of
marketable securities.. -- -- 21,520 --
Other income............ -- -- 68,110 261,116
------------- ------------- ----------- -------------
Total income......... 393,805 831,532 851,460 1,670,990
------------- ------------- ----------- -------------
Expenses:
Depreciation............ 31,803 195,939 70,955 518,704
Interest expense........ 11,800 12,544 23,758 25,501
Management fees--
affiliates............. 18,080 17,784 35,245 33,606
Operating expenses--
affiliate.............. 50,882 119,377 108,698 370,432
------------- ------------- ----------- -------------
Total expenses....... 112,565 345,644 238,656 948,243
------------- ------------- ----------- -------------
Net income............... $ 281,240 $ 485,888 $ 612,804 $ 722,747
============= ============= =========== =============
Net income
per Class A Beneficiary
Interest............... $ .06 $ .49 $ .06 $ .73
============= ============= =========== =============
per Class B Beneficiary
Interest............... $ .14 $ .14 $ .32 $ .21
============= ============= =========== =============
Cash distributions
declared
per Class A Beneficiary
Interest .............. $ -- $ 1.22 $ -- $ 1.63
============= ============= =========== =============
per Class B Beneficiary
Interest............... $ -- $ .12 $ -- $ .24
============= ============= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AFG INVESTMENT TRUST B
STATEMENT OF CHANGES IN PARTICIPANTS' CAPITAL
For the six months ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
Managing Special Beneficiaries Beneficiaries
Trustee Beneficiary -------------------- ------------------- Treasury
Amount Amount Interests Amount Interests Amount Interests Total
-------- ----------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1999.................... $(26,988) $(222,647) 582,017 $8,336,812 1,000,961 $(313,720) $(791,375) $6,982,082
Net income.............. 27,545 227,007 -- 33,711 -- 324,541 -- 612,804
Unrealized loss on
marketable securities.. (54) (212) -- (5,263) -- -- -- (5,529)
-------- --------- ------- ---------- --------- --------- --------- ----------
Comprehensive income..... 27,491 226,795 -- 28,448 -- 324,541 -- 607,275
-------- --------- ------- ---------- --------- --------- --------- ----------
Balance at June 30,
2000.................... $ 503 $ 4,148 582,017 $8,365,260 1,000,961 $ 10,821 $(791,375) $7,589,357
======== ========= ======= ========== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AFG INVESTMENT TRUST B
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating
activities:
Net income.......................................... $ 612,804 $ 722,747
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation...................................... 70,955 518,704
Accretion of bond discount........................ (1,117) --
Gain on sale of equipment......................... (20,124) (474,303)
Gain on sale of marketable securities............. (21,520) --
Changes in assets and liabilities
Decrease (increase) in:
Rents receivable.................................. 635 228,450
Accounts receivable--affiliate.................... 138 (38,069)
Accounts receivable--other........................ (10,210) --
Increase (decrease) in:
Accrued interest.................................. (328) (568)
Accrued liabilities............................... (24,608) (18,875)
Accrued liabilities--affiliate.................... (906) 532,019
Deferred rental income............................ 356 358
Other liabilities................................. -- (197,950)
----------- -----------
Net cash provided by operating activities....... 606,075 1,272,513
----------- -----------
Cash flows provided by (used in) investing
activities:
Purchase of marketable securities.................. -- (32,132)
Proceeds from equipment sales...................... 111,576 4,673,204
Proceeds from sale of marketable securities........ 53,652 --
Investment--other.................................. (23,700) --
Investment in EFG/Kirkwood......................... (310,376) (1,212,000)
----------- -----------
Net cash provided by (used in) investing
activities..................................... (168,848) 3,429,072
----------- -----------
Cash flows provided by (used in) financing
activities:
Principal payments--notes payable.................. (55,566) (98,635)
Distributions paid................................. (5,300,000) (786,828)
Restricted cash.................................... -- 1,126,595
----------- -----------
Net cash provided by (used in) financing
activities..................................... (5,355,566) 241,132
----------- -----------
Net (decrease) increase in cash and cash
equivalents........................................ (4,918,339) 4,942,717
Cash and cash equivalents at beginning of period.... 10,193,277 5,909,535
----------- -----------
Cash and cash equivalents at end of period.......... $ 5,274,938 $10,852,252
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 24,086 $ 26,069
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AFG INVESTMENT TRUST B
NOTES TO THE FINANCIAL STATEMENTS
June 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 Form10-Q under Rule 10-01 of Regulation S-X
of the Securities and Exchange Commission and are unaudited. As such, these
financial statements do not include all information and footnote disclosures
required under generally accepted accounting principles for complete financial
statements and, accordingly, the accompanying financial statements should be
read in conjunction with the footnotes presented in the 1999 Annual Report.
Except as disclosed herein, there have been no material changes to the
information presented in the footnotes to the 1999 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at June 30, 2000 and December 31, 1999 and results of operations for
the three and six months ended June 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 an unrealized loss on available-for-sale securities of
$5,529 during the six months ended June 30, 2000 that is included as a separate
component of participants' capital. At June 30, 2000, total debt securities had
an amortized cost of $72,487 and a fair value of $72,000. During the six months
ended June 30, 2000, total comprehensive income amounted to $607,275.
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 $652,979 are due as follows:
<TABLE>
<S> <C>
For the year ending June 30, 2001............................. $412,819
2002............................................ 160,420
2003............................................ 79,740
--------
Total........................................... $652,979
========
</TABLE>
7
<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 June 30, 2000.
Remaining Lease Term (Months), as used below, represents the number of months
remaining from June 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............................. 6 $2,703,591
Materials handling......................... 0-16 2,126,772
Aircraft................................... 30 1,239,741
Computers and peripherals.................. 0-1 1,051,435
Construction and mining.................... 6 219,162
Trailers/intermodal containers............. 0-8 56,976
Manufacturing.............................. 0 41,694
----------
Total equipment cost 7,439,371
Accumulated depreciation 6,321,527
----------
Equipment, net of
accumulated depreciation $1,117,844
==========
</TABLE>
At June 30, 2000, the Trust's equipment portfolio included equipment having
a proportionate original cost of $5,245,162, representing approximately 71% of
total equipment cost.
Certain of the Trust's equipment and the related lease streams 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 $988,074 at June 30, 2000.
The summary above includes fully-depreciated equipment held for sale or re-
lease with a cost of $859,132. The Managing Trustee is actively seeking the
sale or re-lease of all equipment not on lease.
Note 5--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 making an investment in Kirkwood Associates
Inc. ("KAI"). EFG/Kirkwood's investment consists of a common stock interest in
KAI of approximately 16% as well as preferred stock and convertible debt. 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. KAI 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 KAI, 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 $1,663,776, including a 1% acquisition
fee ($16,473) paid to EFG. The Trust's investment in EFG/Kirkwood is accounted
for on the equity method.
8
<PAGE>
AFG INVESTMENT TRUST B
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
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 six month periods ended June 30, 2000 and
1999, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
For the six months
ended June 30,
-------------------
2000 1999
--------- ---------
<S> <C> <C>
Management fees............................................ $ 35,245 $ 33,606
Acquisition fees........................................... 3,073 12,321
Administrative charges..................................... 55,897 75,556
Reimbursable operating expenses due to third parties....... 52,801 294,876
--------- ---------
Total.................................................... $ 147,016 $ 416,359
========= =========
</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
June 30, 2000, the Trust was owed $112,090 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in July 2000.
Note 7--Notes Payable
Notes payable at June 30, 2000 consisted of an installment note of $600,888
payable to an institutional lender. The note bears a fluctuating interest rate
based on LIBOR (approximately 6.52% at June 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 June 30, 2000.
The annual maturities of the note are as follows:
<TABLE>
<S> <C>
For the year ending June 30, 2001...................... $126,313
2002.................................. 134,078
2003.................................. 340,497
--------
Total.................................. $600,888
========
</TABLE>
9
<PAGE>
AFG INVESTMENT TRUST B
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 8--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 11.58% of the current
guaranteed amount, or $3,816,008 at June 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 $115,800, excluding interest. During the six months
ended June 30, 2000, the Trust received an upfront cash fee of $57,900 and
recognized $68,110 of income related to this guaranty fee. The guaranty fee is
reflected as Other Income on the accompanying Statement of Operations for the
six months ended June 30, 2000.
10
<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.
Certain statements in this quarterly report of AFG Investment Trust B (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 six months ended June 30, 2000 compared to the three and six months
ended June 30, 1999
Results of Operations
For the three and six months ended June 30, 2000, the Trust recognized lease
revenue of $284,778 and $563,408, respectively, compared to $346,650 and
$670,391 for the same periods in 1999. The decrease in lease revenue from 1999
to 2000 resulted primarily 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 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 six months ended June 30, 2000 was $84,763
and $178,298, respectively, compared to $155,194 and $265,180 for the same
periods in 1999. Generally, interest income is generated from the temporary
investment of rental receipts and equipment sales proceeds in short-term
instruments. 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 $5,300,000 in January
2000, which resulted in a reduction in cash available for investment.
During the three and six months ended June 30, 2000, the Trust sold
equipment having a net book value of $48,312 and $91,452, respectively, to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $24,264 and $20,124, respectively.
During the three and six months ended June 30, 1999, the Trust sold
equipment having a net book value of $11,807 and $4,198,901, respectively, to
existing lessees and third parties. These sales resulted in a net gain for
financial statement purposes of $329,688 and $474,303, respectively.
11
<PAGE>
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 six months ended June 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 six months ended June 30, 2000, the Trust received an
upfront cash fee of $57,900 and recognized $68,110 of income related to this
guaranty fee. The guaranty fee is reflected as Other Income on the accompanying
Statement of Operations for the six months ended June 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 six months
ended June 30, 1999.
Depreciation expense for the three and six months ended June 30, 2000 was
$31,803 and $70,955, respectively, compared to $195,939 and $518,704 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.
Interest expense was $11,800 and $23,758, respectively, for the three and
six months ended June 30, 2000, compared to $12,544 and $25,501 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 totaled $18,080 and $35,245, respectively, for the three and
six months ended June 30, 2000, compared to $17,784 and $33,606, respectively,
for the same periods in 1999.
12
<PAGE>
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 $50,882 and
$108,698, respectively, for the three and six months ended June 30, 2000
compared to $119,377 and $370,432 for the same periods in 1999. Operating
expenses were
greater in 1999 primarily as a result of costs incurred of approximately
$191,000 related to the repair and remarketing of an aircraft formerly leased
to Alaska Airlines, Inc., in which the Trust held an interest. In addition,
operating expenses in 1999 included an adjustment for 1998 actual
administrative and third-party costs of approximately $46,000. 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 $606,075 and $1,272,513 for the six months ended June 30, 2000 and
1999, 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. 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 six months ended June 30, 2000 and 1999,
the Trust expended $310,376 and $1,212,000, respectively, for its investment in
EFG/Kirkwood (See Note 5 to the financial statements). The Trust expended
$23,700 to acquire a certain investment and $32,132 to purchase marketable
securities during the six months ended June 30, 2000 and 1999, respectively.
During the six months ended June 30, 2000, the Trust realized net cash proceeds
from equipment disposals of $111,576 compared to $4,673,204 for the same period
in 1999. Sale proceeds in 1999 include $4,619,262 related to the Trust's 39.59%
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 six months ended June 30, 2000.
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<PAGE>
At June 30, 2000, the Trust was due aggregate future minimum lease payments
of $652,979 from contractual lease agreements, a portion of which will be used
to amortize the principal balance of notes payable of $600,888. See Notes 3 and
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 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 six months ended June 30, 2000, the Trust
recorded an unrealized loss on available-for-sale securities of $5,529.
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 June 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.
During 1999, 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
$5,300,000 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. 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 will periodically 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 change 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.
14
<PAGE>
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, 1999, 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 B
FORM 10-Q
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
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
</TABLE>
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
27 Financial Data Schedule
16
<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.
/s/ Michael J. Butterfield
By: ______________________________________________
Michael J. Butterfield
Treasurer of AFG ASIT Corporation
(Duly Authorized Officer and
Principal Accounting Officer)
Date: August 14, 2000
17
