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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995 Commission File Number 0-16615
PHOENIX LEASING CASH DISTRIBUTION FUND III,
- --------------------------------------------------------------------------------
A CALIFORNIA LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0062480
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2401 Kerner Boulevard, San Rafael, California 94901-5527
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 485-4500
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Units of
Limited Partnership Interest
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
------
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
--- ---
As of December 31, 1995, 516,716 Units of Limited Partnership interest were
outstanding. No market exists for the Units of Partnership interest and
therefore there exists no aggregate market value at December 31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 5
Item 3. Legal Proceedings............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders........... 6
PART II
Item 5. Market for the Registrant's Securities and Related Security
Holder Matters................................................ 6
Item 6. Selected Financial Data....................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
Item 8. Financial Statements and Supplementary Data................... 11
Item 9. Disagreements on Accounting and Financial Disclosure Matters.. 32
PART III
Item 10. Directors and Executive Officers of the Registrant............ 32
Item 11. Executive Compensation........................................ 33
Item 12. Security Ownership of Certain Beneficial Owners and Management 34
Item 13. Certain Relationships and Related Transactions................ 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34
Signatures............................................................. 36
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PART I
Item 1. Business.
General Development of Business.
Phoenix Leasing Cash Distribution Fund III, a California limited
partnership (the Partnership), was organized on June 29, 1987. The Partnership
was registered with the Securities and Exchange Commission with an effective
date of January 5, 1988 and shall continue to operate until its termination date
unless dissolved sooner due to the sale of substantially all of the assets of
the Partnership or a vote of the Limited Partners. The Partnership will
terminate on December 31, 1998. The General Partner is Phoenix Leasing
Incorporated, a California corporation. The General Partner or its affiliates
also is or has been a general partner in several other limited partnerships
formed to invest in capital equipment and other assets.
The initial public offering was for 400,000 units of limited
partnership interest at a price of $250 per unit with an option of increasing
the public offering up to a maximum of 600,000 units. The Partnership sold
528,151 units for a total capitalization of $132,037,750. The public offering
terminated on December 31, 1990. Of the proceeds received through the offering,
the Partnership has incurred $17,240,775 in organizational and offering
expenses.
Phoenix Black Rock Cable J.V. (the "Subsidiary") is a majority owned
subsidiary of the Partnership (hereinafter, both entities are collectively
referred to as the "Consolidated Partnership"). The Subsidiary was formed under
the laws of California on January 10, 1992 to own and operate a cable television
system in the states of Nevada and California.
Narrative Description of Business.
The Consolidated Partnership conducts its business in two business
segments: Equipment Leasing and Financing Operations, and Cable Television
System Operations. A discussion of these two segments follows:
Equipment Leasing and Financing Operations.
From the initial formation of the Partnership through December 31,
1995, the total investments in equipment leases and financing transactions
(loans), including the Partnership's pro rata interest in investments made by
joint ventures, approximate $219,986,000. The average initial firm term of
contractual payments from equipment subject to lease was 38.64 months, and the
average initial net monthly payment rate as a percentage of the original
purchase price was 2.53%. The average initial firm term of contractual payments
from loans was 58.53 months.
The Partnership's principal objective is to produce cash flow to the
investors on a continuing basis over the life of the Partnership. To achieve
this objective, the Partnership has invested in various types of capital
equipment and other assets to provide leasing or financing of the same to third
parties, including Fortune 1000 companies and their subsidiaries, middle-market
companies, emerging growth companies, cable television system operators and
others, on either a long-term or short-term basis. The types of equipment that
the Partnership will invest in will include, but is not limited to, computer
peripherals, terminal systems, small computer systems, communications equipment,
IBM mainframes, IBM-software compatible mainframes, office systems, CAE/CAD/CAM
equipment, telecommunications equipment, cable television equipment, medical
equipment, production and manufacturing equipment and software products.
The Partnership has acquired equipment pursuant to either "Operating"
leases or "Financing" leases. At December 31, 1995 approximately 74% of the
equipment owned by the Partnership was classified as Financing leases. The
Partnership has also provided and intends to provide financing secured by assets
in the form of notes receivable. Operating leases are generally short-term
leases under which the lessor will receive aggregate rental payments in an
amount that is less than the purchase price of the equipment. Financing leases
are generally for a longer term under which the non-cancellable rental payments
due during the initial term of the lease are at least sufficient to recover the
purchase price of the equipment. A significant portion of the net offering
proceeds to the Partnership has been invested in capital equipment subject to
Operating leases.
The Partnership has made secured loans to emerging growth companies,
security monitoring companies, cable television systems and other businesses.
These loans are asset-based and the Partnership receives a security interest in
the assets financed.
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The Partnership's financing activities have been concentrated in the
cable television industry. The Partnership has made secured loans to operators
of cable television systems for the acquisition, refinancing, construction,
upgrade and extension of such systems located throughout the United States. The
loans to cable television system operators are secured by a senior or
subordinated interest in the assets of the cable television system, its
franchise agreements, subscriber lists, material contracts and other related
assets. In some cases the Partnership has also received personal guarantees from
the owners of the systems.
Several of the cable television system operators to whom the
Partnership provided financing have experienced financial difficulties. These
difficulties are believed to have been caused by several factors. Some of these
factors are: a significant reduction in the availability of debt from banks and
other financial institutions to finance the acquisition and operations,
uncertainties related to future government regulation in the cable television
industry and the economic recession in the United States. These factors have
resulted in a significant decline in the demand for the acquisition of cable
systems and have further caused an overall decrease in the value of many cable
television systems. As a result of the above, many of the Partnership's notes
receivable from cable television system operators have gone into default. The
result is that the Partnership has not received scheduled payments, has had to
grant loan extensions, has experienced an increase in legal and collection costs
and in some cases, has had to foreclose on the cable television system. The
impact of this has been a decrease in the overall return on the Partnership's
investments in such notes.
The Partnership has obtained an ownership interest in several cable
system joint ventures that it obtained through foreclosure. These cable systems
currently generate a positive monthly cash flow and provided cash distributions
to the Partnership during 1995 and 1994. The cable systems are managed and
operated by an affiliate of the General Partner. Upon foreclosure, the assets of
the cable television system were booked at the lower of the Partnership's cost
(the carrying value of the note) or the estimated fair value of the cable
television system.
Competition. The General Partner has concentrated the Partnership's
activities in the equipment leasing and financing industry, an area in which the
General Partner has developed an expertise. The computer equipment leasing
industry is extremely competitive. The Partnership competes with many well
established companies having substantially greater financial resources.
Competitive factors include pricing, technological innovation and methods of
financing (including use of various short-term and long-term financing plans, as
well as the outright purchase of equipment). Generally, the impact of these
factors to the Partnership would be the realization of increased equipment
remarketing and storage costs, as well as lower residuals received from the sale
or remarketing of such equipment.
Cable Television System Operations.
Phoenix Black Rock Cable J.V. (the Subsidiary), a majority owned
subsidiary of the Partnership, owns a cable television system in the states of
Nevada and California that was acquired through foreclosure on a defaulted note
receivable to the Partnership on January 10, 1992. The net carrying value of the
Partnership's share of this defaulted note receivable was approximately
$1,620,000, which was exchanged for an 81.22% ownership interest in this joint
venture. Phoenix Cable Management Inc. (PCMI), an affiliate of the General
Partner, provides day to day management services in connection with the
operation of the system.
The cable television system owned by Phoenix Black Rock Cable J.V. is
located in the counties of Clark and Nye in the State of Nevada and in the
county of Inyo in the State of California. The cable television system consists
of headend equipment in five locations and 156 miles of plant passing
approximately 2,900 homes and has approximately 1,838 cable subscribers. The
Subsidiary's cable television system serves the communities of Pahrumph, Beatty
and Blue Diamond in Nevada and Cow Creek and Grapevine in California. The
Subsidiary operates under one non-exclusive franchise agreement with the county
of Nye in Nevada, which expires in 2009, and a National Park Service Permit for
Death Valley, California, which expires in 1996.
Cable television systems receive signals transmitted by nearby radio
and television broadcast stations, microwave relay systems and communications
satellites and distribute the signals to subscribers via coaxial cable. The
subscribers pay a monthly fee to the cable television system for such services.
Cable television companies operate under a non-exclusive franchise agreement
granted by each local government authority. As part of the franchise agreement,
the franchisee typically pays a portion of the gross revenues of the system to
the local government.
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The Partnership intends to own and operate the cable system until
market conditions would enable a sale at acceptable terms. Any excess cash
generated from operations of the cable system will be used for upgrades and
improvements to the system in order to maximize the value of the system.
Competition. The Partnership's cable operations compete with numerous
other companies with far greater financial resources. In addition, cable
television franchises are typically non-exclusive and the Partnership could be
directly competing with other cable television systems. Cable television also
competes with conventional over-the-air broadcast television and direct
broadcast satellite transmission. Future technological developments may also
provide additional competitive factors.
The newly passed Telecommunications Bill allows telephone companies to
enter into the cable television business and vice-versa. Large cable television
systems that have upgraded their systems with fiber and two way capabilities may
find themselves getting a piece of the much larger telephone revenue. For the
smaller rural cable systems, such as those owned by the Partnership or through
investments in joint ventures, it is unlikely that the Partnership will enter
into telephone services nor will the telephone companies try to seek our
customers in the near future. The systems owned by the Partnership are too small
and not dense enough to pay for the large amount of capital expenditures needed
for these services.
A favorable part of the bill is that small cable systems will be
immediately deregulated from most regulations and that the definition of a small
cable operator is under 600,000 subscribers. This will allow small operators to
raise rates if needed, and eliminate the need to provide franchise authorities
with costly rate filings and justifications. The new bill also allows the local
telephone companies to buy out small cable operators in their own region as well
as to joint venture with small cable operators. During 1995, the General Partner
has observed a renewed market interest in small cable systems. The final impact
of the newly passed Telecommunications Bill will not be known fully until a
technical rewrite is completed and all the legal challenges have been made.
Please see Note 16 in the Partnership's financial statements for
financial information about the Partnership's business segments.
Other.
A brief description of the type of assets in which the Partnership has
invested as of December 31, 1995, together with information concerning the uses
of assets is set forth in Item 2.
Item 2. Properties.
Equipment Leasing and Financing Operations.
The Partnership is engaged in the equipment leasing and financing
industry. The primary assets held by the Partnership are its investments in
leases and loans, either directly or through its investments in joint ventures.
As of December 31, 1995, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $38,539,000.
The equipment and loans have been made to customers located throughout the
United States. The following table summarizes the type of equipment owned or
financed by the Partnership, including its pro rata interest in joint ventures,
at December 31, 1995.
Percentage of
Asset Types Purchase Price(1) Total Assets
----------- ----------------- -------------
(Amounts in Thousands)
Financing Related to Cable Television
Systems and Other Media $ 16,674 43%
Computer Peripherals 11,298 29
Computer Mainframes 5,654 15
Small Computer Systems 1,698 4
Reproduction Equipment 1,670 4
Capital Equipment Leased to Emerging
Growth Companies 853 2
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Miscellaneous 494 2
Financing of Security Monitoring
Systems Companies 198 1
--------- -----
TOTAL $ 38,539 100%
========= =====
(1) These amounts include the Partnership's pro rata interest in equipment
joint ventures of $1,238,000, cost of equipment on financing leases of
$979,000 and original cost of outstanding loans of $16,873,000 at December
31, 1995.
Cable Television System Operations.
The Subsidiary's principal plants and property consist of electronic
headend equipment and its plant (cable). The headends are located on land that
is leased by the Subsidiary.
Item 3. Legal Proceedings.
The Registrant is not a party to any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of limited partners, through the
solicitation of proxies or otherwise, during the year covered by this report.
PART II
Item 5. Market for the Registrant's Securities and Related Security
Holder Matters.
(a) The Registrant's limited partnership interests are not publicly
traded. There is no market for the Registrant's limited
partnership interests and it is unlikely that any will develop.
(b) Approximate Number of Equity Security Investments:
Number of Unit Holders
Title of Class as of December 31, 1995
-------------- -----------------------
Limited Partners 12,801
Item 6. Selected Financial Data.
Amounts in Thousands Except for Per Unit Amounts
------------------------------------------------
1995(1) 1994(1) 1993 1992 1991
---- ---- ---- ---- ----
Total Income $ 5,109 $ 7,697 $ 15,345 $ 25,221 $ 34,245
Net Income (Loss) 3,800 945 194 (7,118) (4,273)
Total Assets 20,381 24,322 32,435 58,644 97,344
Long-term Debt Obligations -- -- -- 1,479 6,361
Distributions to Partners 7,751 7,751 18,886 18,323 18,382
Net Income (Loss) per
Limited Partnership Unit 7.28 .85 -- (13.53) (8.08)
Distributions per Limited
Partnership Unit 15.00 15.00 36.43 35.17 33.80
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(1) The 1995 and 1994 amounts reflect the consolidated activity of the
Partnership and its subsidiary.
The above selected financial data should be read in conjunction with
the financial statements and related notes appearing elsewhere in this report.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Phoenix Leasing Cash Distribution Fund III, a California limited
partnership, and Subsidiary (the Partnership) reported net income of $3,800,000
during the year ended December 31, 1995, as compared to net income of $945,000
and $194,000 during 1994 and 1993, respectively. The increase in net income
during 1995, as compared to 1994, is primarily attributable to the recognition,
as income, of the recovery of a portion of the allowance for loan losses.
Total revenues decreased by $2,588,000 and $7,648,000 during 1995 and
1994, respectively, when compared to the same period in the previous year. The
decrease in total revenues is primarily the result of decreases in rental income
of $2,373,000 and $4,757,000 during 1995 and 1994, respectively, as compared to
the same period in the previous year. Rental income decreased primarily as the
result of a decrease in the amount of equipment owned. At December 31, 1995, the
Partnership owned equipment, excluding the Partnership's pro rata interest in
joint ventures, with an aggregate original cost of $20.4 million, as compared to
$48.6 million at December 31, 1994. During 1994, the Partnership also reported
declines in interest income from notes receivable and a decreased gain on the
sale of equipment.
During 1995, the Partnership received payoffs on six notes receivable
from cable television system operators totaling $7.8 million of which $7.5
million was from notes receivable considered to be impaired. The Partnership
recognized interest income of $1.1 million from the receipt of the final payoff
on these notes receivable. Included in the payoff of $7.8 million is a
settlement payment of $2.7 million on a defaulted note receivable from a cable
television system operator. The Partnership had provided a loan loss reserve in
an amount equal to the net carrying value of this note in a prior year. Upon
recovery of a portion of this defaulted note receivable, the Partnership reduced
the allowance for loan losses by $2 million during 1995. This reduction in the
allowance for loan losses was recognized as income during the period.
At December 31, 1995, the Partnership holds notes receivable from
cable television system operators and security monitoring companies with a net
carrying value of approximately $17 million, of which $16 million is considered
to be impaired. The Partnership has suspended the accrual of interest on these
impaired notes and has provided an allowance for loan losses. The General
Partner is currently working with the borrowers, other creditors and the
bankruptcy court in order to seek remedies that will maximize the recovery of
the Partnership's investment in these notes.
Total expenses decreased by $5,436,000 and $8,430,000 during 1995 and
1994, respectively, as compared to the same period in the previous year. The
decrease in total expenses for these periods is primarily due to the decrease in
depreciation and amortization expense of $2,400,000 and $5,730,000, during 1995
and 1994, respectively, as compared to the same period in the prior year. The
decrease in depreciation and amortization is a result of the reduction in the
amount of equipment owned by the Partnership. Additionally, an increasing
portion of the equipment owned by the Partnership has been fully depreciated.
Another factor contributing to the decrease in total expenses during 1995, when
compared to 1994, was a recovery of a prior provision for losses on receivables
as discussed previously.
Lease related operating expenses experienced a decrease during 1995 and
1994, as compared to the same period in the previous year, primarily due to a
decrease in remarketing and administrative expenses charged to the Partnership
on its reproduction equipment that is leased pursuant to a vendor lease
agreement. This decrease is reflective of the decrease in the amount of
reproduction equipment owned by the Partnership and a corresponding decrease in
the rental revenues received from such equipment.
Cable Television System Operations:
The Partnership reported cable subscriber revenues from its Subsidiary
of $676,000 during 1995, as compared to $654,000 during 1994, and total expenses
of $582,000 during 1995 as compared to $527,000 during 1994. During 1994, the
Partnership determined that the financial position of this cable television
system had become material to the operations of the Partnership; accordingly,
the financial statements for the Partnership 1995 and 1994 have been
consolidated. However, during 1993, this cable television system subsidiary was
reflected as an investment in a foreclosed cable system joint venture on the
balance sheet and the net earnings were reported as equity in earnings from
foreclosed cable system joint ventures.
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The Partnership has also foreclosed upon the collateral of several
notes receivable from certain cable television system operators. As a result,
the Partnership has ownership interests in the operating cable television
systems organized as joint ventures with affiliates also holding ownership
interests. During 1995, the Partnership foreclosed upon an additional cable
television system in which it held a note receivable. The Partnership's equity
interest in the earnings (losses) from the foreclosed cable system joint
ventures was minimal during 1995 and 1994.
Inflation affects the Partnership in relation to the current cost of
equipment placed on lease and the residual values realized when the equipment
comes off-lease and is sold. During the last several years inflation has been
low, thereby having very little impact upon the Partnership.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from its
contractual obligations with lessees and borrowers for fixed payment terms. As
the initial lease terms of the leases expire, the Partnership will continue to
renew, remarket or sell the equipment. The future liquidity of the Partnership
will depend upon the General Partner's success in collecting contractual amounts
and re-leasing and selling the Partnership's equipment as it comes off lease. As
another source of liquidity, the Partnership owns a cable television system, has
investments in foreclosed cable systems joint ventures and investments in
leasing joint ventures.
The net cash generated by operating activities decreased by $2,960,000
and $3,668,000 during 1995 and 1994, respectively, as compared to the previous
year. This decrease is primarily due to a decrease in rental income, a result of
the decrease in the size of the equipment portfolio. The decrease in proceeds
from the sale of equipment during 1995 and 1994, as compared to the same period
in the prior year, is attributable to a decrease in the value of the equipment
sold.
Principal payments from notes receivable increased substantially during
1995, when compared to the same period in 1994, due to payoffs from several
outstanding notes receivable during 1995. During 1995, the Partnership received
payoffs of notes receivable from seven cable television system operators.
During the third quarter of 1995, the Partnership invested an
additional $6,146,000 in a note receivable from a cable television system
operator. The Partnership had previously extended credit with a net carrying
value of approximately $2.9 million of subordinated debt to this cable
television system operator. This cable television system operator is in default
on its outstanding debt. The current funding of $6.1 million was paid to the
senior lender and the Partnership has now assumed a first and second secured
position in the assets of the cable television system. The General Partner
believes that it is now in a better position to negotiate a settlement or
foreclosure with the borrower in order to maximize the Partnership's recovery of
its investment. To help finance this additional funding, the Partnership
borrowed an additional $2,000,000 from a bank during 1995. The debt is repayable
over 30 months with interest tied to the bank's prime rate. During 1995, the
Partnership repaid $1,671,000 of this debt, which included a prepayment of
$1,471,000 made in November of 1995.
During 1995, the Partnership reported an overall increase in cash
distributions received from its joint ventures. The overall increase in
distributions reflects an increase in distributions from equipment joint
ventures and foreclosed cable system joint ventures. The increased distributions
from the equipment joint venture during 1995 is related to distributions
received from a joint venture that was formed in October of 1994. The increased
cash distributions from foreclosed cable system joint ventures for 1995 was
attributable to the sale of a cable system in one joint venture and the
distribution of excess cash from operations in the other remaining cable system.
As of December 31, 1995, the Partnership owned equipment held for lease
with an aggregate original cost of $3,690,000 and a net book value of $22,000,
compared to $18,707,000 and $447,000, respectively, as of December 31, 1994. The
General Partner is actively engaged, on behalf of the Partnership, in
remarketing and selling the Partnership's off-lease portfolio.
The cash distributed to limited partners during 1995, 1994 and 1993 was
$7,751,000, $7,751,000 and $18,886,000, respectively. As a result, the
cumulative cash distributions to the limited partners are $96,226,000,
$88,475,000 and $80,724,000 as of December 31, 1995, 1994 and 1993,
respectively. The General Partner did not receive cash distributions during
1995, 1994 and 1993. The General Partner has elected not to receive payment, at
this time, for its share of the cash available for distribution due to its
negative capital account.
The Partnership's asset portfolio continues to decline as a result of
the ongoing liquidation of assets, and therefore it is expected that the cash
generated from Partnership leasing operations will also decline. As the cash
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generated by operations continues to decline, the rate of cash distributions
made to limited partners will also decline. The distributions to partners on
January 15, 1996 were made at approximately the same rate as the distributions
made during 1995. However, after the January 15, 1996 distribution, the
Partnership will switch to annual distributions with the first annual
distribution expected to be made on January 15, 1997.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's continuing
operational expenses and to provide for distributions to partners.
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Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
YEAR ENDED DECEMBER 31, 1995
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REPORT OF INDEPENDENT AUDITORS
The Partners
Phoenix Leasing Cash Distribution Fund III, a California limited partnership
We have audited the consolidated financial statements of Phoenix Leasing Cash
Distribution Fund III, a California limited partnership, and Subsidiary, listed
in the accompanying index to financial statements (Item 14(a)). Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and the schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements listed in the accompanying
index to financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Phoenix Leasing Cash
Distribution Fund III, a California limited partnership, and Subsidiary, at
December 31, 1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
San Francisco, California
January 19, 1996
except for Note 15, as to which
the date is February 14, 1996
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
December 31,
1995 1994
---- ----
ASSETS
Cash and cash equivalents $ 3,619 $ 4,636
Accounts receivable (net of allowance for losses
on accounts receivable of $63 and $392 at
December 31, 1995 and 1994, respectively) 254 910
Notes receivable (net of allowance for losses
on notes receivable of $3,880 and $8,357 at
December 31, 1995 and 1994, respectively) 13,153 13,668
Equipment on operating leases and held for lease
(net of accumulated depreciation of $17,004
and $38,267 at December 31, 1995 and 1994,
respectively) 79 959
Net investment in financing leases (net of allowance
for early terminations of $81 and $129 at December
31, 1995 and 1994, respectively) 227 971
Cable systems, property and equipment (net of
accumulated depreciation of $548 and $394 at
December 31, 1995 and 1994, respectively) 1,449 1,555
Investment in joint ventures 742 951
Capitalized acquisition fees (net of accumulated
amortization of $7,994 and $7,661 at December 31,
1995 and 1994, respectively) 283 615
Other assets 575 57
-------- --------
Total Assets $ 20,381 $ 24,322
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 3,637 $ 4,513
Minority interest in subsidiary 311 311
Note payable 329 --
-------- --------
Total Liabilities 4,277 4,824
-------- --------
Partners' Capital:
General Partner (71) (109)
Limited Partners, 600,000 units authorized,
528,151 units issued, 516,716 units
outstanding at December 31, 1995 and 1994 15,618 19,607
Unrealized gains on marketable securities
available-for-sale 557 --
-------- --------
Total Partners' Capital 16,104 19,498
-------- --------
Total Liabilities and Partners' Capital $ 20,381 $ 24,322
======== ========
The accompanying notes are an integral
part of these statements.
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
INCOME
Rental income $ 2,125 $ 4,498 $ 9,255
Earned income, financing leases 69 268 1,043
Gain on sale of equipment 356 1,019 2,371
Interest income, notes receivable 1,171 810 2,089
Cable subscriber revenue 676 654 --
Other income 712 448 587
------- ------- -------
Total Income 5,109 7,697 15,345
------- ------- -------
EXPENSES
Depreciation and amortization 1,149 3,549 9,279
Lease related operating expenses 280 805 1,571
Program service, cable system 181 154 --
Management fees to General Partner 522 381 817
Reimbursed administrative costs
to General Partner 321 403 489
Provision for (recovery of) losses
on receivables (2,245) 550 1,793
Legal expense 619 379 673
General and administrative expenses 458 500 529
------- ------- -------
Total Expenses 1,285 6,721 15,151
------- ------- -------
NET INCOME BEFORE MINORITY INTEREST $ 3,824 $ 976 $ 194
Minority Interest in earnings of subsidiary (24) (31) --
------- ------- -------
NET INCOME $ 3,800 $ 945 $ 194
======= ======= =======
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 7.28 $ .85 $ --
======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 38 $ 504 $ 194
Limited Partners 3,762 441 --
------- ------- -------
$ 3,800 $ 945 $ 194
======= ======= =======
The accompanying notes are an integral
part of these statements.
<PAGE>
Page 15 of 37
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
General
Partner's Limited Partners' Unrealized Total
Amount Units Amount Gains Amount
--------- ---------------- ---------- ------
Balance, December 31, 1992 $ (807) 519,683 $46,049 $ -- $45,242
Distributions to partners ($36.43
per limited partnership unit) -- -- (18,886) -- (18,886)
Redemptions of capital -- (2,967) (246) -- (246)
Net income 194 -- -- -- 194
-------- -------- -------- -------- --------
Balance, December 31, 1993 (613) 516,716 26,917 -- 26,304
Distributions to partners ($15.00
per limited partnership unit) -- -- (7,751) -- (7,751)
Net income 504 -- 441 -- 945
-------- -------- -------- -------- --------
Balance, December 31, 1994 (109) 516,716 19,607 -- 19,498
Distributions to partners ($15.00
per limited partnership unit) -- -- (7,751) -- (7,751)
Change for the year in unrealized
gain on available-for-sale
securities -- -- -- 557 557
Net income 38 -- 3,762 -- 3,800
-------- -------- -------- -------- --------
Balance, December 31, 1995 $ (71) 516,716 $ 15,618 $ 557 $ 16,104
======== ======== ======== ======== ========
The accompanying notes are an integral
part of these statements.
<PAGE>
Page 16 of 37
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
Operating Activities:
Net income $ 3,800 $ 945 $ 194
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,149 3,549 9,279
Gain on sale of equipment (356) (1,019) (2,371)
Gain on sale of securities (7) (154) --
Equity in losses (earnings) from
joint ventures (240) 82 (45)
Provision for early termination,
financing leases -- -- 120
Provision for losses on notes receivable (2,428) 576 1,404
Provision for losses on accounts receivable 183 (26) 269
Settlement -- (106) --
Minority interest in earnings of subsidiary 24 31 --
Decrease in accounts receivable 473 578 1,534
Decrease in accounts payable and
accrued expenses (876) (239) (2,065)
Decrease in other assets 39 378 70
Other -- 126 --
------- ------- --------
Net cash provided by operating activities 1,761 4,721 8,389
------- ------- --------
Investing Activities:
Principal payments, financing leases 695 1,620 4,139
Principal payments, notes receivable 8,937 926 1,910
Proceeds from sale of equipment 623 1,965 4,133
Proceeds from sale of securities 7 165 --
Distributions from joint ventures 601 60 2,038
Purchase of equipment -- (107) (79)
Investment in financing leases -- (40) (2)
Investment in notes receivable (6,146) -- (47)
Investment in joint ventures -- (117) (4)
Investment in securities -- (11) --
Cable systems, property and equipment (49) (32) --
Payment of acquisition fees -- (5) (45)
------- ------- --------
Net cash provided by investing activities 4,668 4,424 12,043
------- ------- --------
Financing Activities:
Proceeds from notes payable 2,000 -- --
Payments of principal, notes payable (1,671) (1,479) (5,165)
Redemptions of capital -- -- (246)
Distributions to partners (7,751) (7,751) (18,886)
Distributions to minority partners (24) (46) --
------- ------- --------
Net cash used by financing activities (7,446) (9,276) (24,297)
------- ------- --------
Decrease in cash and cash equivalents (1,017) (131) (3,865)
Cash and cash equivalents, beginning of period 4,636 4,767 8,632
------- ------- --------
Cash and cash equivalents, end of period $ 3,619 $ 4,636 $ 4,767
======= ======= ========
Supplemental Cash Flow Information:
Cash paid for interest expense $ 31 $ 19 $ 167
The accompanying notes are an integral
part of these statements.
<PAGE>
Page 17 of 37
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1. Organization and Partnership Matters.
Phoenix Leasing Cash Distribution Fund III, a California limited
partnership (the Partnership), was formed on July 30, 1985, to invest in capital
equipment of various types and to lease such equipment to third parties on
either a long-term or short-term basis, and to provide financing to emerging
growth companies and cable television system operators. The Partnership's
minimum investment requirements were met January 21, 1988. The Partnership's
termination date is December 31, 1998.
The Partnership has also made investments in joint ventures with
affiliated partnerships managed by the General Partner for the purpose of
spreading the risks of financing or acquiring certain capital equipment leased
to third parties. (See Note 7.)
On January 10, 1992, the Partnership foreclosed upon a cable television
system in Nevada and California that was in default on a subordinated loan
payable to the Partnership with a carrying amount of approximately $1,620,000
which was carried over to the basis in the cable system. As part of the
settlement between the Partnership and the borrower, the borrower transferred
ownership of all of its assets and liabilities to a subsidiary of the
Partnership. Phoenix Black Rock Cable J.V. (the Subsidiary), which was formed
under the laws of California on January 10, 1992 to own and operate the
foreclosed cable television system (hereinafter, the Partnership and the
Subsidiary are collectively referred to as the Consolidated Partnership). The
acquisition of the assets and liabilities of the borrower by the Subsidiary
through foreclosure was accounted for using the "purchase method" of accounting
in which the transfer price was allocated to the net assets in accordance with
the relative fair market value of the assets acquired and liabilities assumed.
For financial reporting purposes, Partnership income shall be allocated
as follows: (a) first, to the General Partner until the cumulative income so
allocated is equal to the cumulative distributions to the General Partner, (b)
second, one percent to the General Partner and 99% to the Limited Partners until
the cumulative income so allocated is equal to any cumulative Partnership loss
and syndication expenses for the current and all prior accounting periods, and
(c) the balance, if any, to the Unit Holders. All Partnership losses shall be
allocated, one percent to the General Partner and 99% to the Unit Holders.
The General Partner is entitled to receive five percent of all cash
distributions until the Limited Partners have recovered their initial capital
contributions plus a cumulative return of 12% per annum. Thereafter, the General
Partner will receive 15% of all cash distributions. In the event the General
Partner has a deficit balance in its capital account at the time of partnership
liquidation, it will be required to contribute the amount of such deficit to the
Partnership. During 1993, 1994 and 1995 the General Partner did not draw its
share of the 1993, 1994 and 1995 cash available for distribution.
As compensation for management services, the General Partner receives a
fee payable quarterly, subject to certain limitations, in an amount equal to
3.5% of the Partnership's gross revenues for the quarter from which such payment
is being made, which revenues shall include rental receipts, maintenance fees,
proceeds from the sale of equipment and interest income.
Phoenix Cable Management Inc. (PCMI), an affiliate of the General
Partner, provides day to day management services in connection with the
operation of the Subsidiary. The Subsidiary will pay a management fee equal to
four and one-half percent of the System's monthly gross revenue for these
services. Revneues subject to a management fee at the joint venture level will
not be subject to management fees at the Partnership level.
The General Partner will be compensated for services performed in
connection with the analysis of equipment available to the Partnership, the
selection of such assets and the acquisition thereof, including negotiating and
concluding agreements with equipment manufacturers and obtaining leases for the
equipment. As compensation for such acquisition services, the General Partner
<PAGE>
Page 18 of 37
will receive a fee equal to four percent of (a) the purchase price of equipment
acquired by the Partnership, or equipment leased by manufacturers, the financing
for which is provided by the Partnership, or (b) financing provided to
businesses such as cable operators, or emerging growth companies, payable upon
such acquisition or financing, as the case may be. Such acquisition fees are
amortized principally on a straight-line basis.
Schedule of compensation paid and distributions made to the General
Partner and affiliates for the years ended December 31,
1995 1994 1993
---- ---- ----
(Amounts in Thousands)
Management fees $ 522 $ 381 $ 817
Acquisition fees - 2 3
--------- --------- ------
$ 522 $ 383 $ 820
========= ========= ======
Note 2. Summary of Significant Accounting Policies.
Principles of Consolidation. The 1995 financial statements include the
accounts of the Partnership and its majority owned subsidiary, Phoenix Black
Rock Cable J.V. All significant intercompany accounts and transactions have been
eliminated in consolidation.
During 1994, the Partnership determined that the financial position and
operations of Phoenix Black Rock Cable J.V. had become material to the
operations of the Partnership. Accordingly, the Partnership has consolidated the
financial results of this joint venture with those of the Partnership beginning
in 1994. The Partnership reported this joint venture using the equity method of
accounting for 1993. The effect of this change has no impact on the net income
or equity of the Partnership. The impact on assets, liabilities, revenues and
expenses between the consolidation versus equity method was not material to
1993.
Leasing Operations. The Partnership's leasing operations consist of both
financing and operating leases. The financing method of accounting for leases
records as unearned income at the inception of the lease, the excess of net
rentals receivable and estimated residual value at the end of the lease term,
over the cost of equipment leased. Unearned income is credited to income monthly
over the term of the lease on a declining basis to provide an approximate level
rate of return on the unrecovered cost of the investment. Initial direct costs
of consummating new leases are capitalized and included in the cost of
equipment.
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset at cost and depreciated. The Partnerhsip's
leased equipment is depreciated primarily using an accelerated depreciation
method over the estimated useful life of six years.
The Partnership's policy is to review periodically the remaining
expected economic life of its rental equipment in order to determine the
probability of recovering its undepreciated cost. Such reviews address, among
other things, recent and anticipated technological developments affecting
computer equipment and competitive factors within the computer marketplace.
Although remarketing rental rates are expected to decline in the future with
respect to some of the Partnership's rental equipment, such rentals are expected
to exceed projected expenses and depreciation. Where subsequent reviews of the
equipment portfolio indicate that rentals plus anticipated sales proceeds will
not exceed expenses in any future period, the Partnership revises its
depreciation policy and provides for additional depreciation as appropriate. As
a result of such periodic reviews, the Partnership recognized additional
depreciation expense of $68,000, $27,000 and $588,000 ($.13, $.05 and $1.13 per
limited partnership unit) for the year ended December 31, 1995, 1994 and 1993,
respectively.
Rental income for the year is determined on the basis of rental
payments due for the period under the terms of the lease. Maintenance, repairs
and minor renewals of the leased equipment are charged to expense.
Cable Television System Operations. The consolidated statement of
operations includes the operating activity of the Subsidiary for the year ended
December 31, 1995 and 1994. The Subsidiary's cable television system is located
in the counties of Clark and Nye in the State of Nevada and in the county of
Inyo in the State of California. The cable television system consists of headend
equipment in five locations and 156 miles of plant passing approximately 2,900
<PAGE>
Page 19 of 37
homes and has approximately 1,838 cable subscribers. The Subsidiary's cable
television system serves the communities of Pahrumph, Beatty and Blue Diamond in
Nevada and Cow Creek and Grapevine in California. The Subsidiary operates under
one non-exclusive franchise agreement with the county of Nye in Nevada, which
expires in 2009, and a National Park Service Permit for Death Valley,
California, which expires in 1996.
Cable systems, property and equipment are depreciated using the
straight-line method over estimated service lives ranging from five to ten
years. Replacements, renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.
Cable television services are billed monthly in advance. Revenue is
deferred and recognized as the services are provided.
Investment in Joint Ventures. Minority investments in net assets of
equipment joint ventures and foreclosed cable systems joint ventures reflect the
Partnership's equity basis in the ventures. Under the equity method of
accounting, the original investment is recorded at cost and is adjusted
periodically to recognize the Partnership's share of earnings, losses, cash
contributions and cash distributions after the date of acquisition. Foreclosed
cable systems were non-performing notes receivable where foreclosure has
occurred.
Notes Receivable. Notes receivable generally are stated at their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.
Impaired Notes Receivable. Generally, notes receivable are classified as
impaired and the accrual of interest on such notes are discontinued when the
contractual payment of principal or interest has become 90 days past due or
management has serious doubts about further collectibility of the contractual
payments, even though the loan may currently be performing. When a note
receivable is classified as impaired, income recognition is discontinued. Any
payments received subsequent to the placement of the note receivable on to
impaired status will generally be applied towards the reduction of the
outstanding note receivable balance, which may include previously accrued
interest as well as principal. Once the principal and accrued interest balance
has been reduced to zero, the remaining payments will be applied to interest
income. Generally, notes receivable are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Allowance for Losses. An allowance for losses is established through
provisions for losses charged against income. Notes receivable deemed to be
uncollectible are charged against the allowance for losses, and subsequent
recoveries, if any, are credited to the allowance.
Reclassification. Certain 1994 and 1993 amounts have been reclassified to
conform to the 1995 presentation.
Cash and Cash Equivalents. Cash and cash equivalents include deposits at
banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days. The Partnership
places its cash deposits in temporary cash investments with credit worthy, high
quality financial institutions. The concentration of such cash deposits and
temporary cash investments is not deemed to create a significant risk to the
Partnership.
<PAGE>
Page 20 of 37
Non Cash Investing Activities.
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
(Amounts in Thousands)
Contributions to a joint venture of assets
received pursuant to a settlement agreement $ -- $212 $ --
Foreclosed notes receivable contributed
to joint ventures 151 161 265
Payoff of outstanding note receivable through
receipt of cash and the issuance of a new note
receivable -- -- 371
---- ---- ----
Total $151 $373 $636
==== ==== ====
Credit and Collateral. The Partnership's activities have been
concentrated in the equipment leasing and financing industry. A credit
evaluation is performed by the General Partner for all leases and loans made,
with the collateral requirements determined on a case-by-case basis. The
Partnership's loans are generally secured by the equipment or assets financed
and, in some cases, other collateral of the borrower. In the event of default,
the Partnership has the right to foreclose upon the collateral used to secure
such loans.
Financial Accounting Pronouncements. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity would estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. Statement No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. The Partnership does not expect
the adoption of this statement to have a material impact on its financial
position and results of operations. The Partnership plans to adopt Statement No.
121 on January 1, 1996.
On January 1, 1995, the Partnership adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan," and Statement No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures." Statement No. 114 requires that certain
impaired loans be measured based on the present value of expected cash flows
discounted at the loan's effective interest rate; or, alternatively, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. Prior to 1995, the allowance for losses on notes
receivable was based on the undiscounted cash flows or the fair value of the
collateral dependent loans. The adoption of this statement had no impact on the
overall allowance for credit losses and did not effect the Partnership's charge
offs or income recognition policies.
In accordance with Statement No. 114, a loan is classified as
in-substance foreclosure when the Company has taken possession of the collateral
regardless of whether formal foreclosure proceedings take place. Notes
receivable previously classified as in-substance foreclosed cable systems but
for which the Company had not taken possession of the collateral have been
reclassified to notes receivable.
Investment in Marketable Securities Available for Sale. The Partnership
has investments in stock warrants in public companies. The Partnership has
classified its investments in stock warrants as available-for-sale in accordance
with FASB Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Available-for-sale securities are stated at their fair
market value, with unrealized gains and losses reported as a separate component
of partners' capital. The stock warrants held by the Partnership were granted by
certain lessees or borrowers as additional compensation for leasing or financing
equipment. At the date of grant, such warrants were determined to have no fair
market value and were recorded at their historical cost of $0.
<PAGE>
Page 21 of 37
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Note 3. Accounts Receivable.
Accounts receivable consist of the following at December 31:
1995 1994
---- ----
(Amounts in Thousands)
Lease payments $ 271 $ 822
Reimbursement for sales and property tax 2 429
Other 37 48
General Partner 7 3
------- -------
317 1,302
Less: allowance for losses on accounts receivable (63) (392)
------- -------
Total $ 254 $ 910
======= =======
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1995 1994
---- ----
(Amounts in Thousands)
Notes receivable from cable television system
operators with stated interest ranging from 8%
to 21% per annum, receivable in installments
ranging from 57 to 117 months, collateralized
by a security interest in the cable system assets.
These notes have a graduated repayment schedule
followed with a balloon payment. $ 16,791 $ 20,868
Notes receivable from security monitoring companies
with stated interest at 16% per annum, with
payments to be taken out of the monthly payments
received from assigned contracts, collateralized
by all assets of the borrower. At the end of 48
months, the remaining balance, if any, is due and
payable. 242 1,157
-------- --------
17,033 22,025
Less: allowance for losses on notes receivable (3,880) (8,357)
-------- --------
Total $ 13,153 $ 13,668
======== ========
The Partnership's notes receivable from cable television system
operators provide for a monthly payment rate in an amount that is less than the
contractual interest rate. The difference between the payment rate and the
contractual interest rate is added to the principal and therefore deferred until
the maturity date of the note. Upon maturity of the note, the original principal
and deferred interest is due and payable in full. Although the contractual
interest rates may be higher, the amount of interest being recognized on the
Partnership's outstanding notes receivable to cable television system operators
is being limited to the amount of the payments received, thereby deferring the
recognition of a portion of the deferred interest until the loan is paid off.
<PAGE>
Page 22 of 37
At December 31, 1995, the recorded investment in notes that are
considered to be impaired under Statement 114 was $15,978,000. Included in this
amount is $11,673,000 of impaired notes for which the related allowance for
losses is $3,619,000 and $4,305,000 of impaired notes for which there is no
allowance. The average recorded investment in impaired loans during the year
ended December 31, 1995 was approximately $16,448,000. The Partnership
recognized interest income totaling $1,079,000 from these impaired notes during
the year ended 1995.
During the year ended December 31, 1995, the Partnership received a
settlement on one of its notes receivable from a cable television system
operator which was considered to be impaired under Statement No. 114. The
Partnership received a partial recovery of $2,714,000 as a settlement which was
applied towards the $4,562,000 outstanding note receivable balance which had
been fully reserved for in a previous year. The remaining balance of $1,848,000
was written-off through its related allowance for loan losses. The Partnership
received settlements from seven other impaired notes receivable, a payoff from
one note receivable to a cable television system operator and foreclosed upon
the assets of another note receivable to a cable television system operator
during the year ended December 31, 1995. Upon receipt of the settlement and
payoffs of the above-mentioned notes receivable, the Partnership reduced the
allowance for loan losses by $2,428,000 during the year ended December 31, 1995.
This reduction in the allowance for loan losses was recognized as income during
the period.
The activity in the allowance for losses on notes receivable during the
years ended December 31, is as follows:
1995 1994
---- ----
(Amounts in Thousands)
Beginning balance $ 8,357 $7,781
Provision for (recovery of) losses (2,428) 576
Write downs (2,049) --
------- ------
Ending balance $ 3,880 $8,357
======= ======
Note 5. Equipment on Operating Leases and Investment in Financing Leases.
Equipment on lease consists primarily of computer peripheral equipment
and computer mainframes subject to operating and financing leases.
The Partnership's operating leases are for initial lease terms of
approximately 12 to 48 months. During the remaining terms of existing operating
leases, the Partnership will not recover all of the undepreciated cost and
related expenses of its rental equipment, and therefore must remarket a portion
of its equipment in future years.
The Partnership has agreements with one manufacturer of its equipment,
whereby such manufacturer will undertake to remarket off-lease equipment on a
best efforts basis. These agreements permit the Partnership to assume the
remarketing function directly if certain conditions contained in the agreements
are not met. For their remarketing services, the manufacturers are paid a
percentage of net monthly rentals.
The Partnership has also entered into direct lease arrangements with
lessees consisting of Fortune 1000 companies and other businesses in different
industries located throughout the United States. Generally, it is the
responsibility of the lessee to provide maintenance on leased equipment. The
General Partner administers the equipment portfolio of leases acquired through
the direct leasing program. Administration includes the collection of rents from
the lessees and remarketing of the equipment.
The net investment in financing leases consists of the following at
December 31:
1995 1994
---- ----
(Amounts in Thousands)
Minimum lease payments to be received $ 30 $ 826
Estimated residual value of leased equipment
(unguaranteed) 287 336
Less: unearned income (9) (62)
allowance for early termination (81) (129)
--------- ---------
Net investment in financing leases $ 227 $ 971
========= =========
<PAGE>
Page 23 of 37
Minimum rentals to be received on noncancellable operating and
financing leases for the years ended December 31 are as follows:
Operating Financing
--------- ---------
(Amounts in Thousands)
1996 .................................. $ 518 $ 30
1997................................... 20 -
------- -------
Totals $ 538 $ 30
======= =======
The net book value of equipment held for lease at December 31, 1995 and
1994 amounted to $22,000 and $447,000, respectively.
Note 6. Cable Systems, Property and Equipment.
The cost of cable systems, property, and equipment and the related
accumulated depreciation consist of the following at December 31:
1995 1994
---- ----
(Amounts in Thousands)
Distributions systems $ 1,935 $ 1,899
Building 38 37
Automobiles 11 8
Headend equipment 13 5
------- -------
1,997 1,949
Less: accumulated depreciation (548) (394)
------- -------
Net property, cable systems and equipment $ 1,449 $ 1,555
======= =======
Depreciation expense totaled approximately $154,000 and $150,000 for
the years ended December 31, 1995 and 1994, respectively.
Note 7. Investment in Joint Ventures.
Equipment Joint Ventures.
The Partnership owns a limited or general partnership interest in
equipment joint ventures. These investments are accounted for using the equity
method of accounting. The other partners of the ventures are entities organized
and managed by the General Partner.
The purpose of the joint ventures is the acquisition and leasing of
various types of equipment. The Partnership is participating in the following
equipment joint ventues:
Weighted
Joint Venture Percentage Interest
------------- -------------------
Leveraged Joint Venture 1990-1 35.29%
Phoenix Post Joint Venture(1) 26.69
Phoenix Joint Venture 1994-1 4.64
(1) Closed during 1995
An analysis of the Partnership's investment in equipment joint ventures
is as follows:
<PAGE>
<TABLE>
Page 24 of 37
<CAPTION>
Net Investment Equity in Net Investment
at Beginning Earnings at End
Date of Period Contributions (Losses) Distributions of Period
-------------- ------------- --------- ------------- --------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1993 $ 1,271 $ 0 $ (267) $ 951 $ 53
======== ====== ======= ======= =========
Year Ended
December 31, 1994 $ 53 $ 302 $ (104) $ 9 $ 242
======== ====== ======= ======= =========
Year Ended
December 31, 1995 $ 242 $ 0 $ 222 $ 347 $ 117
======== ====== ======= ======= =========
</TABLE>
The aggregate combined financial information of the equipment joint
ventures as of December 31 and for the years then ended is presented as follows:
COMBINED BALANCE SHEETS
ASSETS
December 31,
1995 1994
---- ----
(Amounts in Thousands)
Cash and cash equivalents $ 532 $ 132
Accounts receivable 1,772 2,155
Operating lease equipment 1,021 2,528
Other assets 691 890
------ ------
Total Assets $4,016 $5,705
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 918 $ 904
Partners' capital 3,098 4,801
------ ------
Total Liabilities and Partners' Capital $4,016 $5,705
====== ======
COMBINED STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
(Amounts in Thousands)
Rental income $3,595 $2,583 $3,791
Gain on sale of equipment 1,637 1,096 1,177
Other income 717 71 10
------ ------ ------
Total Income 5,949 3,750 4,978
------ ------ ------
<PAGE>
Page 25 of 37
EXPENSES
Depreciation 1,186 1,248 1,677
Lease related operating expenses 2,832 2,378 3,688
Management fee to the General Partner 286 199 291
Other expenses 268 62 57
------ ------- -------
Total Expenses 4,572 3,887 5,713
------ ------- -------
Net Income (Loss) $1,377 $ (137) $ (735)
====== ======= =======
As of December 31, 1995 and 1994, the Partnership's pro rata interest
in the equipment joint ventures' net book value of off-lease equipment was
$5,000 and $35,000, respectively.
The General Partner earns a management fee of 3.5% of the Partnership's
respective interest in gross revenues of each equipment joint venture. Revenues
subject to management fees at the joint venture level are not subject to
management fees at the Partnership level.
Foreclosed Cable Systems Joint Ventures.
The Partnership owns an interest in foreclosed cable system joint
ventures, along with other partnerships managed by the General Partner and its
affiliates. The Partnership foreclosed upon nonperforming outstanding notes
receivable to cable television operators to whom the Partnership, along with
other affiliated partnerships managed by the General Partner, had extended
credit. The partnerships' notes receivables were exchanged for interests (their
capital contribution), on a pro rata basis, in newly formed joint ventures owned
by the partnerships and managed by the General Partner. Title to the cable
television systems is held by the joint ventures. These investments are
accounted for using the equity method of accounting.
The joint ventures owned by the Partnership, along with their
percentage ownership is as follows:
Weighted
Joint Venture Percentage Interest
------------- -------------------
Phoenix Black Rock Cable J.V.(2) 81.22%
Phoenix Pacific Northwest J.V. 37.72
Phoenix Glacier J.V.(1) 45.78
Phoenix Country Cable J.V. 40.00
Phoenix Concept Cablevision, Inc. 14.19
Phoenix Independence Cable, LLC 28.76
(1) cable system sold and joint venture closed during 1993.
(2) cable systems operations are consolidated during 1994 and 1995.
An analysis of the Partnership's net investment in foreclosed cable
systems joint ventures at December 31, is as follows:
<PAGE>
<TABLE>
Page 26 of 37
<CAPTION>
Net Investment Net Investment
at Beginning Equity in at End
Date of Period Contributions(1) Earnings Distributions of Period
-------------- ---------------- --------- ------------- --------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1993 $ 2,462 $ 269 $ 312 $ 1,087 $ 1,956
======== ========= ====== ======== ========
Year Ended
December 31, 1994 $ 1,956 $ (1,218) $ 22 $ 51 $ 709
======== ========= ====== ======== ========
Year Ended
December 31, 1995 $ 709 $ 152 $ 18 $ 254 $ 625
======== ========= ====== ======== ========
</TABLE>
(1) Includes the reclassification effects of accounting for an
unconsolidated joint venture in 1993 as a consolidated subsidiary in
1994. This foreclosed cable systems joint venture is now being
consolidated with the Partnership.
(See Note 2.)
The aggregate combined financial information of the foreclosed cable
systems joint ventures as of December 31 and for the years then ended is
presented as follows:
COMBINED BALANCE SHEETS
ASSETS
December 31,
1995 1994
---- ----
(Amounts in Thousands)
Cash and cash equivalents $ 375 $ 203
Accounts receivable 88 100
Property, plant and equipment 2,176 2,298
Cable subscriber lists and franchise rights 116 145
Other assets 22 67
Deferred income taxes 118 142
------ ------
Total Assets $2,895 $2,955
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 323 $ 265
Notes payable -- 11
Partners' capital 2,572 2,679
------ ------
Total Liabilities and Partners' Capital $2,895 $2,955
====== ======
<PAGE>
Page 27 of 37
COMBINED STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31,
1995 1994 1993
---- ---- ----
(Amounts in Thousands)
Subscriber revenue $ 1,065 $ 628 $1,082
Gain on sale of cable systems 25 -- 476
Other income 14 5 25
------- ----- ------
Total Income 1,104 633 1,583
------- ----- ------
EXPENSES
Depreciation 321 160 255
Program services 328 192 302
General and administrative expenses 310 164 300
Management fees to an affiliate of the
General Partner 48 28 98
Provision for losses on accounts receivable 11 9 11
------- ----- ------
Total Expenses 1,018 553 966
------- ----- ------
Net Income Before Income Taxes 86 80 617
Income tax expense (39) (19) --
------- ----- ------
Net Income $ 47 $ 61 $ 617
======= ===== ======
Phoenix Cable Management Inc. (PCMI), an affiliate of the General
Partner, provides day to day management services in connection with the
operation of the foreclosed cable systems joint ventures. The foreclosed cable
systems joint ventures will pay a management fee equal to four and one-half
percent of the System's monthly gross revenue for these services. Revenues
subject to a management fee at the joint venture level will not be subject to
management fees at the Partnership level.
Note 8. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1995 1994
---- ----
(Amounts in Thousands)
General Partner and affiliates $2,086 $2,068
Equipment lease operations 1,276 1,968
Security deposits -- 258
Other 275 219
------ ------
Total $3,637 $4,513
====== ======
<PAGE>
Page 28 of 37
Note 9. Notes Payable.
Notes payable consist of the following at December 31:
1995 1994
---- ----
(Amounts in Thousands)
Note payable to a bank, collateralized by
the assets of the Partnership with interest
tied to the bank's prime rate, with monthly
payments of 30 months. $329 $ --
---- ------
Total $329 $ --
==== ======
Principal payments due for 1996 are $329,000.
The interest rate was 8.75% at December 31, 1995. The loan agreement
contains certain restrictions on distributions made to partners and requires
pre-payment of the outstanding debt upon the sale of certain significant assets
of the Partnership. The Partnership made a pre-payment of $1,471,000 on November
17, 1995.
Note 10. Settlement.
On July 1, 1991, Phoenix Leasing Incorporated, as General Partner to
the Partnership and sixteen other affiliated partnerships, filed suit in the
Superior Court for the County of Marin, Case No. 150016, against Xerox
Corporation, a corporation with which the General Partner had entered into
contractual agreements for the acquisition and administration of leased
equipment. The lawsuit was settled out of court effective as of October 28, 1994
pursuant to the terms of a Confidential Settlement Agreement and Mutual Release.
The settlement agreement generally provides for compensation payable to the
Partnership and its affiliates in cash and kind, including the assignment by
Xerox of certain goods and services. The agreement further provides for the sale
by Xerox to the Partnership and its affiliates of equipment subject to lease.
The suit that was filed in the Superior Court for the County of Marin, Case No.
150016, has been dismissed with prejudice on the merits.
The Partnership's pro rata share of the Xerox settlement was $175,000,
which consists of cash of $69,000, and assigned monthly rentals and credits for
goods and services valued at $106,000. In addition, the Partnership purchased
additional leased equipment at an aggregate cost of $107,000. The Partnership,
along with sixteen other affiliated partnerships managed by the General Partner,
contributed its share of the assigned monthly rentals, credits for goods and
services and purchased equipment leases to a joint venture, in exchange for an
interest in the joint venture.
Note 11. Income Taxes.
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership and its majority owned subsidiary are
reportable by the partners in their individual income tax returns. Accordingly,
no provision for such taxes has been made in the accompanying financial
statements.
The net differences between the tax basis and the reported amounts of
the Partnership's assets and liabilities is as follows at December 31:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
1995
- ----
Assets $19,980 $23,407 $(3,427)
Liabilities 3,876 3,763 113
<PAGE>
Page 29 of 37
1994
- ----
Assets $23,909 $32,388 $(8,479)
Liabilities 4,411 4,405 6
Note 12. Related Entities.
The General Partner serves in the capacity of general partner in other
partnerships, all of which are engaged in the equipment leasing and financing
business.
Note 13. Reimbursed Costs to the General Partner.
The General Partner incurs certain administrative costs, such as data
processing, investor and lessee communications, lease administration,
accounting, equipment storage and equipment remarketing, for which it is
reimbursed by the Partnership. These expenses incurred by the General Partner
are to be reimbursed at the lower of the actual costs or an amount equal to 90%
of the fair market value for such services.
The reimbursed administrative costs to the General Partner were
$321,000, $403,000 and $489,000 for the years ended December 31, 1995, 1994 and
1993, respectively. The equipment storage, remarketing and data processing costs
reimbursed to the General Partner during the years ended December 31, 1995, 1994
and 1993 were $112,000, $264,000 and $471,000, respectively.
In addition, the General Partner receives a management fee and an
acquisition fee (see Note 1).
Note 14. Net Income and Distributions per Limited Partnership Unit.
Net income and distributions per limited partnership unit were based on
the Limited Partner's share of consolidated net income and distributions, and
the weighted average number of units outstanding of 516,716, 516,716 and 518,380
for the years ended December 31, 1995, 1994 and 1993, respectively. For the
purposes of allocating consolidated income (loss) and distributions to each
individual limited partner, the Partnership allocates consolidated net income
(loss) and distributions based upon each respective limited partner's net
capital contributions.
Note 15. Subsequent Events.
In January 1996, cash distributions of $1,954,000 were made to the
Limited Partners.
On January 17, 1996, Phoenix Black Rock Cable J.V., a majority owned
subsidiary of the Partnership, sold its cable television systems for
approximately $2.7 million. The identifiable assets of this cable television
system at December 31, 1995 were approximately $1.7 million.
On February 2, 1996, Phoenix Leasing Cash Distribution Fund III and
Phoenix Concept Cablevision of Indiana, L.L.C. (collectively referred to as "the
Partnership") entered into a Commercial Code Section 9505 Agreement (the
"Agreement") with Concept Cablevision of Indiana, Inc., a cable television
company that the Partnership had extended credit. Phoenix Concept Cablevision of
Indiana, L.L.C. is a newly formed limited liability company and wholly owned
subsidiary of Phoenix Leasing Cash Distribution Fund III. The closing date of
the Agreement was February 2, 1996. This Agreement allowed the Partnership to
foreclose upon the cable television system (the collateral for the note) of
Concept Cablevision of Indiana, Inc. The Partnership's net carrying value for
this outstanding note receivable was $4,321,098 at December 31, 1995, for which
the Partnership had no related allowance. In addition, the Partnership is
required to make a cash payment of $200,000, will assume certain liabilities
including a note payable of $600,000 and certain other miscellaneous accounts
payable as specified in the agreement.
On February 14, 1996, Phoenix Leasing Cash Distribution Fund III and
Phoenix Grassroots Cable Systems, L.L.C. (collectively referred to as "the
Partnership") entered into a Settlement Agreement and Releases (the "Agreement")
with Grassroots Cable Systems, Inc., a cable television company that the
Partnership had extended credit. Phoenix Grassroots Cable Systems, L.L.C. is a
<PAGE>
Page 30 of 37
newly formed limited liability company and majority owned (98.5%) subsidiary of
Phoenix Leasing Cash Distribution Fund III. The closing date of the Agreement
was February 14, 1996. This Agreement allowed the Partnership to foreclose upon
the cable television system (the collateral for the note) of Grassroots Cable
Systems, Inc. The Partnership's net carrying value for this outstanding note
receivable was $9,014,483 at December 31, 1995, for which the Partnership had an
allowance for losses on notes of $2,035,301. In addition, the Partnership is
required to make a cash payment of $75,000 and assume certain liabilities and
miscellaneous payables as specified in the agreement.
Note 16. Business Segments.
The Consolidated Partnership currently operates in two business
segments: the equipment leasing and financing industry and the cable TV
industry. The operations in the cable TV industry are for the year ended
December 31, 1995 and 1994 (segment activity for 1993 was not material).
Information about the Consolidated Partnership's operations in these two
segments are as follows:
1995 1994
---- ----
(Amounts in Thousands)
Total Revenues
Equipment leasing and financing $ 4,422 $ 7,035
Cable TV operations 687 662
------- -------
Total $ 5,109 $ 7,697
======= =======
Net Income (Loss)
Equipment leasing and financing $ 3,695 $ 810
Cable TV operations 105 135
------- -------
Total $ 3,800 $ 945
======= =======
Identifiable Assets
Equipment leasing and financing $18,643 $22,571
Cable TV operations 1,738 1,751
------- -------
Total $20,381 $24,322
======= =======
Depreciation and Amortization Expense
Equipment leasing and financing $ 995 $ 3,399
Cable TV operations 154 150
------- -------
Total $ 1,149 $ 3,549
======= =======
Capital Expenditures
Equipment leasing and financing $ 6,146 $ 147
Cable TV operations 49 32
------- -------
Total $ 6,195 $ 179
======= =======
Note 17. Fair Value of Financial Instruments.
During the year ended December 31, 1995, the Partnership adopted
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair
Value of Financial Instruments," which requires disclosure of the fair value of
financial instruments for which it is practicable to estimate fair value. The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument which it is practicable to estimate that value.
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
<PAGE>
Page 31 of 37
Notes Receivable
The fair value of notes receivable is estimated based on the lesser of the
discounted expected future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings, or the estimated
fair value of the underlying collateral.
Marketable Securities
The fair values of investments in marketable securities are estimated based on
quoted market prices.
Notes Payable
The carrying amount of the Partnership's variable rate notes payable
approximates fair value.
The estimated fair values of the Partnership's financial instruments at
December 31, 1995 are as follows:
Carrying
Amount Fair Value
-------- ----------
(Amounts in Thousands)
Assets
Cash and cash equivalents $ 3,619 $ 3,619
Marketable securities 559 559
Notes receivable 13,153 16,555
Liabilities
Notes payable 329 329
<PAGE>
Page 32 of 37
Item 9. Disagreements on Accounting and Financial Disclosure Matters.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The registrant is a limited partnership and, therefore, has no
executive officers or directors. The general partner of the registrant is
Phoenix Leasing Incorporated, a California corporation. The directors and
executive officers of Phoenix Leasing Incorporated (PLI) are as follows:
GUS CONSTANTIN, age 58, is President, Chief Executive Officer and a
Director of PLI. Mr. Constantin received a B.S. degree in Engineering from the
University of Michigan and a Master's Degree in Management Science from Columbia
University. From 1969 to 1972, he served as Director, Computer and Technical
Equipment of DCL Incorporated (formerly Diebold Computer Leasing Incorporated),
a corporation formerly listed on the American Stock Exchange, and as Vice
President and General Manager of DCL Capital Corporation, a wholly-owned
subsidiary of DCL Incorporated. Mr. Constantin was actively engaged in marketing
manufacturer leasing programs to computer and medical equipment manufacturers
and in directing DCL Incorporated's IBM System/370 marketing activities. Prior
to 1969, Mr. Constantin was employed by IBM as a data processing systems
engineer for four years. Mr. Constantin is an individual general partner in four
active partnerships and is an NASD registered principal. Mr. Constantin is the
founder of PLI and the beneficial owner of all of the common stock of Phoenix
American Incorporated.
PARITOSH K. CHOKSI, age 42, is Senior Vice President, Chief Financial
Officer and Treasurer of PLI. He has been associated with PLI since 1977. Mr.
Choksi oversees the finance, accounting, information services and systems
development departments of the General Partner and its Affiliates and oversees
the structuring, planning and monitoring of the partnerships sponsored by the
General Partner and its Affiliates. Mr. Choksi graduated from the Indian
Institute of Technology, Bombay, India with a degree in Engineering. He holds an
M.B.A. degree from the University of California, Berkeley.
GARY W. MARTINEZ, age 45, is Senior Vice President of PLI. He has been
associated with PLI since 1976. He manages the Asset Management Department,
which is responsible for lease and loan portfolio management. This includes
credit analysis, contract terms, documentation and funding; remittance
application, change processing and maintenance of customer accounts; customer
service, invoicing, collection, settlements and litigation; negotiating lease
renewals, extensions, sales and buyouts; and management information reporting.
From 1973 to 1976, Mr. Martinez was a Loan Officer with Crocker National Bank,
San Francisco. Prior to 1973, he was an Area Manager with Pennsylvania Life
Insurance Company. Mr. Martinez is a graduate of California State University,
Chico.
BRYANT J. TONG, age 41, is Senior Vice President, Financial Operations
of PLI. He has been with PLI since 1982. Mr. Tong is responsible for investor
services and overall company financial operations. He is also responsible for
the technical and administrative operations of the cash management, corporate
accounting, partnership accounting, accounting systems, internal controls and
tax departments, in addition to Securities and Exchange Commission and other
regulatory agency reporting. Prior to his association with PLI, Mr. Tong was
Controller-Partnership Accounting with the Robert A. McNeil Corporation for two
years and was an auditor with Ernst & Whinney (succeeded by Ernst & Young) from
1977 through 1980. Mr. Tong holds a B.S. in Accounting from the University of
California, Berkeley, and is a Certified Public Accountant.
CYNTHIA E. PARKS, age 40, is Vice President, General Counsel, Assistant
Secretary and a Director of PLI. Prior to joining PLI in 1984, she was with GATX
Leasing Corporation, and had previously been Corporate Counsel for Stone
Financial Companies, and an Assistant Vice President of the Bank of America,
Bank Amerilease Group. She has a bachelor's degree from Santa Clara University,
and earned her J.D. from the University of San Francisco School of Law.
HOWARD SOLOVEI, age 34, is Vice President, Finance, Assistant Treasurer
and a Director of PLI. He has been associated with PLI since 1984. Mr. Solovei's
principal activities are in the areas of arranging and managing the company's
banking relationships for its various corporations, partnerships and securitized
asset pools. Mr. Solovei is also involved in corporate financial planning and
<PAGE>
Page 33 of 37
various data processing-related projects. Mr. Solovei graduated with a B.S. in
Business from the University of California at Berkeley in 1984.
Neither the General Partner nor any Executive Officer of the General
Partner has any family relationship with the others.
Phoenix Leasing Incorporated or its affiliates and the executive
officers of the General Partner serve in a similar capacity to the following
affiliated limited partnerships:
Phoenix Leasing American Business Fund, L.P.
Phoenix Leasing Cash Distribution Fund V, L.P.
Phoenix Income Fund, L.P.
Phoenix High Tech/High Yield Fund
Phoenix Leasing Cash Distribution Fund IV
Phoenix Leasing Cash Distribution Fund II
Phoenix Leasing Capital Assurance Fund
Phoenix Leasing Income Fund VII
Phoenix Leasing Income Fund VI
Phoenix Leasing Growth Fund 1982
Phoenix Leasing Income Fund 1981 and
Phoenix Leasing Income Fund 1977
The General Partner of the Registrant, which may be deemed to be a
"director" of Registrant under the rules promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), failed to file a
Statement of Changes in Beneficial Ownership of Securities on Form 4 in July
1995 to reflect the purchase by the General Partner in June 1995 of 17 units of
limited partnership interest in the Registrant from a limited partner of
Registrant. Such acquisition was reported on Form 5 for the fiscal year ended
December 31, 1995, as filed with the Commission on behalf of the General Partner
on February 5, 1996.
Item 11. Executive Compensation.
<TABLE>
Set forth is the information relating to all direct remuneration paid
or accrued by the Registrant during the last year to the General Partner and its
affiliate.
<CAPTION>
(A) (B) (C) (D)
Cash and cash- Aggregate of
Name of Individual Capacities in equivalent forms contingent forms
or persons in group which served of remuneration of remuneration
- ------------------- ------------ ------------------------------------------------------ ----------------
(C1) (C2)
Securities or property
Salaries, fees, directors' insurance benefits or
fees, commissions, and reimbursement, personal
bonuses benefits
------------------------- -----------------------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Phoenix Leasing
Incorporated General Partner $ 492(1) $ 0 $ 0
Phoenix Cable
Management, Inc. Manager 30(1) 0 0
-------- ----- -----
$ 522 $ 0 $ 0
======== ===== =====
</TABLE>
(1) consists of management fees.
<PAGE>
Page 34 of 37
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of any class of voting
securities of the Registrant.
<TABLE>
(b) The General Partner of the Registrant owns the equity securities
of the Registrant set forth in the following table:
<CAPTION>
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
-------------- ------------------------- ----------------
<S> <C> <C> <C>
General Partner Interest Represents a 5% interest in the Registrant's profits 100%
and distributions, until the Limited Partners have
recovered their capital contributions plus a
cumulative return of 12% per annum, compounded
quarterly, on the unrecovered portion thereof.
Thereafter, the General Partner will receive 15%
interest in the Registrant's profits and distributions.
Limited Partner Interest 177 units .03%
</TABLE>
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No.
(a) 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994 13
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 14
Consolidated Statements of Partners' Capital for the
Years Ended December 31, 1995, 1994 and 1993 15
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 16
Notes to Consolidated Financial Statements 17-31
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and Reserves 37
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the year ended December 31, 1995.
(c) Exhibits
21. Additional Exhibits
a) Balance Sheet of Phoenix Leasing Incorporated E21 1-9
<PAGE>
Page 35 of 37
b) Listing of all subsidiaries of the Registrant:
Phoenix Black Rock Cable J.V., a California general
partnership and majority (81.22%) owned subsidiary.
27. Financial Data Schedule
<PAGE>
Page 36 of 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHOENIX LEASING CASH DISTRIBUTION FUND III
(Registrant)
BY: PHOENIX LEASING INCORPORATED,
A CALIFORNIA CORPORATION
GENERAL PARTNER
Date: March 28, 1996 By: /S/ GUS CONSTANTIN
-------------- -------------------------
Gus Constantin, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ GUS CONSTANTIN President, Chief Executive Officer and a March 28, 1996
- ----------------------- Director of Phoenix Leasing Incorporated --------------
(Gus Constantin) General Partner
/S/ PARITOSH K. CHOKSI Chief Financial Officer, March 28, 1996
- ----------------------- Senior Vice President --------------
(Paritosh K. Choksi) and Treasurer of
Phoenix Leasing Incorporated
General Partner
/S/ BRYANT J. TONG Senior Vice President, Financial March 28, 1996
- ----------------------- Operations of --------------
(Bryant J. Tong) (Principal Accounting Officer)
Phoenix Leasing Incorporated
General Partner
/S/ GARY W. MARTINEZ Senior Vice President of March 28, 1996
- ----------------------- Phoenix Leasing Incorporated --------------
(Gary W. Martinez) General Partner
/S/ HOWARD SOLOVEI Vice President, Finance March 28, 1996
- ----------------------- Assistant Treasurer and a --------------
(Howard Solovei) Director of Phoenix Leasing Incorporated
General Partner
/S/ MICHAEL K. ULYATT Partnership Controller March 28, 1996
- ----------------------- Phoenix Leasing Incorporated --------------
General Partner
<PAGE>
<TABLE>
Page 37 of 37
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY
SCHEDULE II
(Amounts in Thousands)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Classification Balance at Charged to Charged to Deductions Balance at
Beginning of Expense Revenue End of
Period Period
-------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for losses on accounts
receivable $ 398 $ 269 $ 0 $ 74 $ 593
Allowance for early termination
of financing leases 141 120 0 33 228
Allowance for losses on notes
receivable 6,393 1,404 0 16 7,781
------ ------ ------ ------ ------
Totals $6,932 $1,793 $ 0 $ 123 $8,602
====== ====== ====== ====== ======
Year ended December 31, 1994
Allowance for losses on accounts
receivable $ 597(1) $ 6 $ 32 $ 179 $ 392
Allowance for early termination
of financing leases 228 0 0 99 129
Allowance for losses on notes
receivable 7,781 576 0 0 8,357
------ ------ ------ ------ ------
Totals $8,606 $ 582 $ 32 $ 278 $8,878
====== ====== ====== ====== ======
Year ended December 31, 1995
Allowance for losses on accounts
receivable $ 392 $ 183 $ 0 $ 512 $ 63
Allowance for early termination
of financing leases 129 0 0 48 81
Allowance for losses on notes
receivable 8,357 0 2,428 2,049 3,880
------ ------ ------ ------ ------
Totals $8,878 $ 183 $2,428 $2,609 $4,024
====== ====== ====== ====== ======
(1) Includes allowance for losses on accounts receivable of $4,000 for the Subsidiary which in prior years was not
consolidated.
</TABLE>
<PAGE>
Exhibit 21 - Page 1 of 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Phoenix Leasing Incorporated:
We have audited the accompanying consolidated balance sheets of Phoenix Leasing
Incorporated (a California corporation) and subsidiaries as of June 30, 1995 and
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated balance sheets are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheets referred to above present
fairly, in all material respects, the financial position of Phoenix Leasing
Incorporated and subsidiaries as of June 30, 1995 and 1994, in conformity with
generally accepted accounting principles.
San Francisco, California ARTHUR ANDERSEN LLP
September 8, 1995
<PAGE>
Exhibit 21 - Page 2 of 9
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1995 1994
---- ----
Cash and cash equivalents $ 4,100,325 $ 5,880,532
Investments in marketable securities, at cost 7,298,771 2,923
Trade accounts receivable, net of allowance for
doubtful accounts of $237,458 and $167,837 at
June 30, 1995 and 1994, respectively 913,437 748,958
Receivables from Phoenix Leasing Partnerships and
other affiliates 3,975,262 5,806,921
Notes receivable from related party 5,574,452 5,714,493
Equipment subject to lease 17,044,686 2,118,116
Investments in Phoenix Leasing Partnerships 1,577,419 685,130
Property and equipment, net of accumulated
depreciation and amortization of $10,457,763 and
$9,698,164 at June 30, 1995 and 1994, respectively 7,669,302 7,771,869
Other assets 2,366,983 1,722,230
----------- -----------
Total Assets $50,520,637 $30,451,172
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Short-term lines of credit $ -- $ 750,000
Warehouse line of credit 17,644,012 --
Payables to affiliates 5,832,765 2,812,408
Accounts payable and accrued expenses 2,829,490 2,261,982
Deferred revenue 1,059,736 869,638
Long-term debt 229,390 421,756
Deficit in investments in Phoenix Leasing
Partnerships 1,164,445 1,806,110
----------- -----------
Total Liabilities 28,759,838 8,921,894
----------- -----------
Minority Interests in Consolidated Subsidiaries 37,639 161,072
----------- -----------
Commitments and Contingencies (Note 12)
Shareholder's Equity:
Common stock, no par value, 30,000,000 shares
authorized, 5,433,600 shares issued and
outstanding at June 30, 1995 and 1994,
respectively 20,369 20,369
Additional capital 5,508,800 5,508,800
Retained earnings 16,193,991 15,839,037
----------- -----------
Total Shareholder's Equity 21,723,160 21,368,206
----------- -----------
Total Liabilities and Shareholder's Equity $50,520,637 $30,451,172
=========== ===========
The accompanying notes are an integral
part of these financial statements.
<PAGE>
Exhibit 21 - Page 3 of 9
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
Note 1. Summary of Significant Accounting Policies:
a. Organization - Phoenix Leasing Incorporated and subsidiaries (the
Company), a wholly owned subsidiary of Phoenix American Incorporated (PAI), is
engaged in the organization and management of partnerships which specialize in
the purchase and lease of primarily high-technology and data processing
equipment. The partnerships purchase equipment directly from equipment vendors
for lease to financial, commercial and industrial businesses and governmental
agencies. The partnerships also finance transactions in the areas of
microcomputers and emerging growth companies. The Company has also engaged in
similar leasing activities for its own account. The Company also provides
ongoing equipment maintenance services for end-users of high-technology data
processing equipment and graphic plotters.
b. Principles of Consolidation - The consolidated financial statements
include the accounts of Phoenix Leasing Incorporated and its wholly- or
majority-owned subsidiaries and subsidiaries over which the Company exerts
control. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Except as otherwise explained below, minority interests in the net assets
and net income or loss of majority-owned subsidiaries are allocated on the basis
of the proportionate ownership interests of the minority owners.
Three of the consolidated subsidiaries are California limited partnerships
(the Partnerships) which are general partners of three of the Phoenix Leasing
Partnerships. As of June 30, 1995, the Company held a 50% general partner
ownership interest in two of the Partnerships and a 62.5% interest in the third.
Under the terms of the partnership agreements, profits and losses attributable
to acquisition fees paid to the Partnerships from Phoenix Leasing Partnerships
are allocated to the limited partner (the minority owner in the Partnerships) in
proportion to the limited partner's ownership interest. All remaining profits
and losses are allocated to the Company. Distributions to the partners are made
in accordance with the terms of the partnership agreement. The limited partner
of each of the Partnerships is Lease Management Associates, Inc., a Nevada
corporation controlled by an officer of the Company, who is the owner of PAI.
c. Management, Acquisition and Incentive Fee Income - As of June 30, 1995,
the Company is the corporate general partner in 17 actively operating limited
partnerships and manager of 13 actively operating joint ventures, all of which
own and lease equipment. Nine of the partnership agreements provide for payment
of management fees based on partnership revenues and acquisition fees when the
partnerships' assets are acquired. Seven of the limited partnership agreements
provide for payment of management fees and liquidation fees (see discussion
later in this footnote). One of the partnership agreements provides for a fee to
be paid to the Company based on a percentage of the equity proceeds received by
the partnership and a percentage of net income. Most of the joint venture
agreements provide for a payment of management fees based on joint venture
revenues.
These partnerships and the joint ventures are collectively referred to as
the "Phoenix Leasing Partnerships."
d. Investments - Investments in Phoenix Leasing Partnerships reflect the
Company's equity basis in the Phoenix Leasing Partnerships. Under the equity
method of accounting the original investment is recorded at cost and is adjusted
periodically to recognize the Company's share of earnings, losses and
distributions after the date of acquisition. The Company has adopted the equity
method of accounting on the basis of its control and significant influence over
the Phoenix Leasing Partnerships.
e. Liquidation Fee Income - The Company earns liquidation fees not to
exceed 15% of the net contributed capital from seven of the partnerships in
consideration for the services and activities performed in connection with the
disposition of the partnerships' assets. Management of the Company concluded
that the total liquidation fees to be earned over the life of these partnerships
may not be fully realizable. Accordingly, the Company recognizes liquidation fee
income when the fees are paid by the partnerships.
<PAGE>
Exhibit 21 - Page 4 of 9
The Company received and recognized $3,221,000 and $3,929,000 in liquidation
fees from these partnerships during the years ended June 30, 1995 and 1994,
respectively.
In three other partnerships, cash distributions received in excess of the
allocated cumulative net profits represent a liquidation fee which cannot
exceed, in the aggregate, 7.792% of the net contributed capital.
f. Lease Accounting - The Company's leasing operations consist of both
financing and operating leases. The finance method of accounting for leases
records as unearned income, at the inception of the lease, the excess of net
rentals receivable and estimated residual value over the cost of the leased
equipment. Unearned income is amortized monthly over the term of the lease on a
declining basis to provide an approximate level rate of return on the
unrecovered cost of the investment. Initial direct costs of originating new
leases are capitalized and amortized over the initial lease term.
Under the operating method of accounting for leases, the leased equipment
is recorded as an asset, at cost, and is depreciated on a straight-line basis
over its estimated useful life, ranging up to six years. Rental income
represents the rental payments due during the period under the terms of the
lease.
The Company is the lessor in leveraged lease agreements under which
computer equipment having an estimated useful life of 5 years was leased for
periods from 4-5 years. The Company is the equity participant and equipment
owner. A portion of the purchase price was furnished by third-party financing in
the form of long-term debt that provides no recourse to the Company and is
secured by a first lien on the financed equipment.
g. Property and Equipment - Property and equipment which the Company holds
for its own use are recorded at cost and depreciated on a straight-line basis
over estimated useful lives ranging up to 45 years.
h. Income Taxes - The Company is included in consolidated and combined tax
returns filed by PAI.
i. Deferred Revenue - Deferred revenue is the result of selling maintenance
contracts which provide service over a specific period of time. Deferred revenue
is amortized on a straight-line basis over the service period not to exceed 5
years.
j. Investments in Marketable Securities - Investments in marketable
securities, which will be held to maturity, are stated at cost and consist
primarily of United States government obligations. Interest is recognized when
earned.
k. Reclassification - Certain 1994 balances have been reclassified to
conform to the 1995 presentation.
Note 2. Receivables from Phoenix Leasing Partnerships and Other Affiliates:
Receivables from Phoenix Leasing Partnerships and other affiliates consist
of the following:
June 30,
1995 1994
---- ----
Management fees ................................... $ 330,158 $ 846,027
Acquisition fees .................................. 102,994 514,685
Other receivables from Phoenix Leasing Partnerships 3,535,110 3,828,069
Receivable from PAI ............................... -- 483,800
Other receivables from corporate affiliates ....... 7,000 134,340
----------- ---------
$3,975,262 $5,806,921
========== ==========
Note 3. Investments in Phoenix Leasing Partnerships:
The Company records its investments in Phoenix Leasing Partnerships under
the equity method of accounting. The ownership interest percentages vary,
ranging from .5% up to 25%. As general partner, the Company has complete
authority in, and responsibility for, the overall management and control of each
partnership, which includes responsibility for supervising partnership
acquisition, leasing, remarketing and sale of equipment. Distributions of cash
from the partnerships are made at the discretion of the general partner;
historically, a significant portion of the partnerships' earnings has been
distributed annually.
<PAGE>
Exhibit 21 - Page 5 of 9
A shareholder of PAI and officers of the Company also have general and
limited partner interests in several of the partnerships.
The activity in the investments in Phoenix Leasing Partnerships is as
follows:
Year Ended June 30,
1995 1994
---- ----
Balance, beginning of year ............ $(1,120,980) $ (945,797)
Additional investments .............. 688,615 --
Equity in earnings .................. 2,412,056 1,213,974
Cash distributions .................. (1,566,717) (1,389,157)
----------- -----------
Balance, end of year .................. $ 412,974 $(1,120,980)
=========== ===========
The Company's total investments in Phoenix Leasing Partnerships are
comprised of investments in certain partnerships which are subject to
fluctuations due to partnerships' performances and timing of cash distributions.
At times the investment in those partnerships will be a deficit.
Certain of the partnership agreements requires the Company to restore any
deficit in its capital account to zero at the dissolution of the partnership.
This deficit is a result of cash distributions received and losses allocated to
the Company. The Company has determined that in certain partnerships it will be
unlikely that the deficit investment will reverse and as a result during the
year ended June 30, 1993 the Company elected to make capital contributions prior
to partnership dissolution totaling $2,028,733. As of April 1, 1992, the Company
elected to forgo any future cash distributions from, and will not record its
share of future earnings generated from the operations of, one of these
partnerships. The Company has deferred any future cash distributions from two
other partnerships. The Company believes that it would be likely that any future
cash distributions received from these partnerships would have to be paid back
at the dissolution of the partnerships. The Company will continue to record fee
income earned from the management of, and acquisition of equipment for these
partnerships.
The aggregate positive investment and aggregate deficit investment balances
are presented separately on the balance sheets as of June 30, 1995 and 1994.
The partnerships own and lease equipment. All debt of the partnerships is
secured by the equipment and is without recourse to the general partners. The
unaudited financial statements of the partnerships reflect the following
combined, summarized financial information as of June 30, 1995 and for the
twelve months then ended:
Assets ........................................... $215,090,000
Liabilities ...................................... 39,956,000
Partners' Capital ................................ 175,134,000
Revenue .......................................... 62,093,000
Net Income ....................................... 18,280,000
Note 4. Equipment Subject to Lease:
Equipment subject to lease includes the Company's investments in leveraged
leases, investments in financing leases and notes receivable.
Equipment subject to lease consists of the following at June 30:
1995 1994
---- ----
Leverage leases ............................. $ 1,696,703 $1,990,343
Investment in financing leases .............. 13,284,177 --
Notes receivable ............................ 2,063,806 127,773
----------- ----------
$17,044,686 $2,118,116
=========== ==========
<PAGE>
Exhibit 21 - Page 6 of 9
Leverage Leases:
The Company's net investment in leveraged leases is composed of the
following elements:
June 30, June 30,
1995 1994
Rental receivable (net of principal and interest
on the nonrecourse debt) .................. $ -- $ --
Estimated residual value of leased assets ...... 2,759,783 3,268,772
Less: Unearned and deferred income ............. (1,063,080) (1,278,429)
----------- -----------
Investment in leveraged leases ................. 1,696,703 1,990,343
Less: Deferred taxes arising from
leveraged leases ....................... (2,960,190) (2,773,840)
----------- -----------
Net investment in leveraged leases ............. $(1,263,487) $ (783,497)
=========== ===========
Investment in Financing Leases:
The Company has entered into direct lease arrangements with companies
engaged in the development of technologies and other growth industry businesses
operating in different industries located throughout the United States.
Generally, it is the responsibility of the lessee to provide maintenance on
leased equipment.
The Company's net investment in financing leases consists of the following:
June 30,
1995
Minimum lease payments to be received ............ $ 17,731,628
Less: unearned income ............................ (4,447,451)
------------
Net investment in financing leases ............... $ 13,284,177
============
Minimum rentals to be received on noncancellable financing leases for the
years ended June 30, are as follows:
1996 ............................................. $ 4,478,150
1997 ............................................. 4,502,090
1998 ............................................. 4,422,824
1999 ............................................. 2,829,532
2000 ............................................. 1,475,565
2001 and thereafter .............................. 23,467
-----------
Total ........................................ $17,731,628
===========
Notes Receivable:
Notes receivable for the years ended June 30, are as follows:
1995 1994
---- ----
Notes receivable from emerging growth
and other companies with stated interest
ranging from 10% to 18% per annum receivable
in installments ranging from 36 to 60 months,
collateralized by the equipment financed .... $2,063,806 $127,773
========== ========
Note 5. Property and Equipment:
Major classes of property and equipment are as follows:
<PAGE>
Exhibit 21 - Page 7 of 9
June 30,
1995 1994
---- ----
Land .........................................$ 1,077,830 $ 1,077,830
Buildings .................................... 7,345,648 7,336,424
Office furniture, fixtures and equipment ..... 8,259,319 7,968,786
Other ........................................ 766,975 534,303
------------ ------------
17,449,772 16,917,343
Less accumulated depreciation and amortization (10,457,763) (9,698,164)
Inventory held for resale .................... 677,293 552,690
------------ ------------
Net Property and Equipment ...................$ 7,669,302 $ 7,771,869
============ ============
PAI owns its own headquarters building in San Rafael, California. The
Company paid $7,749,476 to purchase the land and construct the building. The
cost of construction was paid for with a combination of $2,749,476 in cash from
the Company's operations and a $5,000,000 advance from PAI. The $5,000,000
advance is included as a reduction in receivable from Phoenix Leasing
Partnerships and other affiliates. PAI has pledged the market value of the
building as security for a $5,000,000 Industrial Revenue Bond ("IDB") which PAI
has with the City of San Rafael, California. The principal of the IDB is payable
in a lump sum payment on October 1, 2004. The Company paid $206,798 and $156,129
in interest payments related to the IDB during the year ended June 30, 1995 and
1994, respectively.
As of June 30, 1995, a portion of the Company's headquarters has been
leased to third parties. The remaining lease term is for 2 years and the minimum
lease payments receivable are as follows:
1996 ............................................. $537,882
1997 ............................................. 362,901
--------
Total ....................................... $900,783
========
Note 6. Investments in Marketable Securities:
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115 - Accounting for Certain
Investments in Debt and Equity Securities. The Company adopted this statement on
July 1, 1994. This pronouncement prescribes specific accounting treatment for
securities based on their classification as either held-to-maturity securities,
trading securities or available-for-sale securities, as defined in the
statement. All of the Company's investments meet the definition of
held-to-maturity securities and, accordingly, are reported at amortized costs.
The Company holds $7,000,000 face value U.S. Treasury Notes with the
contractual maturities of these debt securities as of June 30, 1995 as follows:
Amortized Estimated
Costs Fair Value
Due in one year or less ..................... $4,202,115 $4,214,051
Due in one through five years ............... 3,096,656 3,142,908
---------- ----------
Total debt securities ....................... $7,298,771 $7,356,959
========== ==========
Note 7. Short-Term and Warehouse Lines of Credit:
To provide interim financing for equipment and working capital needs, the
Company executes lines of credit which consist of short-term notes with banks
with interest rates equal to the prime rate or the banks' index rate. All lines
of credit are renewable annually at the banks' option.
<PAGE>
Exhibit 21 - Page 8 of 9
As of June 30, 1995, the Company, through PAI, had access to one short-term
line of credit totaling $2.5 million all of which was available for borrowing at
June 30, 1995. Draw downs under this credit line are secured by the Company's
receivable from Phoenix Leasing Partnerships.
In addition, the Company has two secured short-term warehouse lines of
credit totaling $35 million, which are used to provide interim financing for the
acquisition of equipment and the financing of notes receivable. As of June 30,
1995, $17.6 million of these lines have been drawn down. The draw downs under
these lines are collateralized by investments in financing leases and notes
receivable included in equipment subject to lease. The interest rate is tied to
the IBOR (Eurodollar) rate. The initial commitment period for these lines of
credit is 18 months and may be extended to 36 months at the discretion of the
bank. Principal payments are based on the lesser of the aggregate payments
received by the Company on its leases and notes receivable or the aggregate
principal and interest amount outstanding on the payment date of the credit
line.
In connection with the Company's lines of credit, various financial ratios
and other covenants must be maintained. The Company has guaranteed its right,
title and interest in certain of its assets and the future receipts from these
assets in order to secure payment and performance of these credit lines.
Additional information relating to the Company's short-term bank lines
follows:
1995 1994
---- ----
Balance at June 30 ............................. $17,644,012 $ 750,000
Maximum amount outstanding ..................... 17,644,012 2,500,000
Average amount outstanding ..................... 2,522,340 1,457,413
Weighted average interest rate during the period 7.9% 6.2%
Note 8. Long-Term Debt:
Long-term debt consists of the following:
June 30,
1995 1994
---- ----
Mortgage payable at varying interest
rates with an initial rate of 8.75%
secured by a first deed of trust on
real property with a cost of $250,000.
Note is amortized over 83 months with
monthly payments of $559 with a final
payment of $122,151 ............................ $160,944 $167,650
Note payable at 9.75% secured by computer
equipment with a cost of $668,994. Note
is amortized over 46 months with monthly
payments of $16,887 ............................ 68,446 254,106
-------- --------
Total long-term debt ............................. $229,390 $421,756
======== ========
The aggregate long-term debt maturities for the fiscal years ended June 30,
are as follows:
1996 ............................................. $ 74,920
1997 ............................................. 6,706
1998 ............................................. 6,706
1999 ............................................. 6,706
2000 ............................................. 6,706
2001 and thereafter .............................. 127,646
--------
Total ........................................ $229,390
========
<PAGE>
Exhibit 21 - Page 9 of 9
Note 9. Profit Sharing Plan:
The Company has a profit sharing plan covering substantially all employees
who meet certain age and service requirements. Contributions to the plan by the
Company are made at the discretion of the board of directors. The profit sharing
expense was $600,000 and $500,000 for the years ended June 30, 1995 and 1994,
respectively.
Note 10. Leased Facilities:
The Company leases office and warehouse space in various parts of the
country and had annual rental expense of approximately $402,000 and $424,000 for
the years ended June 30, 1995 and 1994, respectively.
Note 11. Transactions with Related Parties:
The Company provides an interest bearing line of credit totaling $6,000,000
to PAI's controlling shareholder which is secured by common stock of Phoenix
Precision Graphics, Inc. (an unaffiliated Nevada corporation). As of June 30,
1995 and 1994, $4,837,814 and $2,002,346 of this line of credit has been drawn
down and is included in notes receivable from related party. As of June 30, 1995
and 1994, Phoenix Precision Graphics is in a start-up mode and has cumulative
losses of $5,959,708 and $3,129,240, respectively.
The Company provided an interest bearing line of credit totaling $1,000,000
to PAI's controlling shareholder which was secured by common stock of Phoenix
Communications Incorporated and Phoenix Communications - LD, Inc. (unaffiliated
Nevada corporations). As of June 30, 1994, $858,133 of this line of credit had
been drawn down and is included in notes receivable from related party. This
note was paid in full on October 17, 1994.
The Company provided two interest bearing lines of credit each totaling
$5,000,000 to PAI's controlling shareholder which were secured by common stock
of Phoenix Fiberlink Incorporated and Phoenix Fiberlink II, Inc. (unaffiliated
Nevada corporations). As of June 30, 1994, $2,854,014 of these lines of credit
had been drawn down and are included in notes receivable from related party.
These notes were paid in full on October 17, 1994.
The Company provides an interest bearing line of credit to PAI's
controlling shareholder, which is secured by common stock of Phoenix Fiberlink
Inc. (an unaffiliated Nevada Corporation). As of June 30, 1995, $736,638 of this
line of credit has been drawn down and is included in notes receivable from
related party.
The Company earned a management fee from affiliates of $678,947 and
$325,624 for the years ended June 30, 1995 and 1994, respectively. This
management fee is included in Fees from Phoenix Leasing Partnerships and
affiliates.
The Company paid an affiliate an asset management fee of $1,026,714 and
$815,563 for the years ended June 30, 1995 and 1994, respectively. These asset
management fees are included in equipment lease operations, maintenance,
remarketing and administrative fees.
Note 12. Commitments and Contingencies:
The Company has entered into agreements which contain specific purchase
commitments. The Company may satisfy these commitments by purchasing equipment
for its own account or by assigning equipment purchases to its affiliated
partnerships. At June 30, 1995 the Company anticipates being able to satisfy its
future obligations under the agreements and intends to assign most of the
purchases under the agreements to its affiliated partnerships.
The Company enters into commitments to purchase and sell high-technology
equipment on behalf of a corporate affiliate. The Company is reimbursed for
these services.
The Company is party to legal actions which arise as part of the normal
course of its business. The Company believes, after consultation with counsel,
that it has meritorious defenses in these actions, and that the liability, if
any, will not have a material adverse effect on the financial position of the
Company.
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,619
<SECURITIES> 0
<RECEIVABLES> 17,350
<ALLOWANCES> 3,943
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,080
<DEPRECIATION> 17,552
<TOTAL-ASSETS> 20,381
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0
0
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<OTHER-SE> 16,104
<TOTAL-LIABILITY-AND-EQUITY> 20,381
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<TOTAL-REVENUES> 5,109
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