UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File Number 0-16615
PHOENIX LEASING CASH DISTRIBUTION FUND III,
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A CALIFORNIA LIMITED PARTNERSHIP
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(Exact name of Registrant as specified in its charter)
California 68-0062480
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2401 Kerner Boulevard, San Rafael, California 94901-5527
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(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-B 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-KSB or any amendment to
this Form 10-KSB. ____________
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 _____
The Registrant's revenue for its most recent fiscal year was $2,733,000.
As of December 31, 1997, 516,662 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, 1997.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format:
Yes _____ No __X__
Page 1 of 29
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
1997 FORM 10-KSB 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. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 7
Item 7. Financial Statements and Supplementary Data................ 9
Item 8. Disagreements on Accounting and Financial Disclosure
Matters.................................................... 26
PART III
Item 9. Directors and Executive Officers of the Registrant......... 26
Item 10. Executive Compensation..................................... 27
Item 11. Security Ownership of Certain Beneficial Owners and
Management................................................. 28
Item 12. Certain Relationships and Related Transactions............. 28
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 28
Signatures............................................................... 29
2
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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 Concept Cablevision of Indiana, L.L.C., is a wholly-owned
subsidiary of the Partnership. The Subsidiary was formed under the laws of
Delaware on February 2, 1996 to own and operate a cable television system in the
state of Indiana.
Hereinafter, these entities are collectively referred to as "the
Partnership."
Narrative Description of Business.
The 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,
1997, 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 38.56 months, and the
average initial net monthly payment rate as a percentage of the original
purchase price was 2.52%. The average initial firm term of contractual payments
from loans was 59.38 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, 1997, the remaining equipment
owned by the Partnership was classified as Operating leases. The Partnership has
also provided 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 were generally for a longer term under
which the non-cancellable rental payments due during the initial term of the
lease were 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.
3
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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
have generated a positive monthly cash flow and provided cash distributions to
the Partnership during 1997 and 1996. 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 Systems Operations.
As of December 31, 1997, the Partnership's only remaining subsidiary,
Phoenix Concept Cablevision of Indiana, L.L.C., is in the cable television
system business segment of the Partnership's operations. The Partnership's
previous majority-owned subsidiaries, Phoenix Black Rock Cable J.V. and Phoenix
Grassroots Cable Systems, L.L.C., were also in this business segment.
During the year ended December 31, 1996, the Partnership acquired
through foreclosure two cable television systems. Phoenix Concept Cablevision of
Indiana, L.L.C. and Phoenix Grassroots Cable Systems, L.L.C. were formed to own
and operate these cable television systems.
Phoenix Concept Cablevision of Indiana, L.L.C., a wholly-owned
subsidiary of the Partnership, owns a cable television system in the state of
Indiana that was acquired through foreclosure on a defaulted note receivable to
the Partnership on February 2, 1996. The net carrying value of the Partnership's
share of this defaulted note receivable was approximately $4,321,000, which was
exchanged for a 100% ownership interest in this limited liability company.
The cable television system owned by Phoenix Concept Cablevision of
Indiana, L.L.C. is located in the counties of Benton, Parke, Greene, Montgomery,
Putnam, Boone, Hendricks, Clinton, Hamilton, and Madison in the state of
Indiana. The cable television system consists of headend equipment and 166 miles
of plant passing approximately 9,449 homes with approximately 5,392 subscribers.
The Subsidiary operates under non-exclusive franchise agreements with several of
these counties and with communities located within these counties.
Phoenix Grassroots Cable Systems, L.L.C., a majority owned subsidiary
of the Partnership, was acquired through foreclosure on a defaulted note
receivable on February 14, 1996. The net carrying value of the Partnership's
share of this defaulted note was exchanged for a 98.5% ownership interest in
this limited liability company. On August 30, 1996, Phoenix Grassroots Cable
Systems, L.L.C. sold all the assets used in the operation of the cable
television system, with a net carrying value of $8.7 million, receiving net
proceeds of approximately $8.9 million, recognizing a gain on the sale of the
4
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assets of the cable television system of $162,000. As a result of the sale of
the cable television system's assets, the Subsidiary ceased operations.
Phoenix Black Rock Cable J.V., a majority-owned subsidiary owned 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. Phoenix Black Rock Cable J.V. sold all of its assets used in the
operation of the cable television system, with a net carrying value of $1.4
million, on January 17, 1996, receiving proceeds from the sale of the assets of
the cable system of $2.6 million, recognizing a gain on the sale of these assets
of $1.2 million. As a result of the sale of the cable television system's
assets, the Subsidiary ceased operations.
Phoenix Cable Management Inc. (PCMI), an affiliate of the General
Partner, provides day to day management services in connection with the
operation of the cable television systems.
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.
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 Telecommunications Bill which was passed 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 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.
Please see Note 13 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, 1997, 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,
to businesses located throughout the United States.
5
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As of December 31, 1997, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $12,088,000.
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,
1997.
Percentage of
Asset Types Purchase Price(1) Total Assets
- ------------------------------ ----------------- -------------
(Amounts in Thousands)
Computer Mainframes $ 5,654 47%
Computer Peripherals 3,698 31
Reproduction Equipment 914 7
Financing Related to Cable Television Systems
and Other Media 813 7
Capital Equipment Leased to Emerging Growth
Companies 541 4
Small Computer Systems 468 4
------- ---
TOTAL $12,088 100%
======= ===
(1) These amounts include the Partnership's pro rata interest in equipment joint
ventures of $626,000 and original cost of outstanding loans of $813,000 at
December 31, 1997.
Cable Television System Operations.
The Subsidiaries' principal plants and property consist of electronic
headend equipment and its plant (cable). The headends are located on land that
is owned or leased by the Subsidiaries.
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, 1997
---------------------------------- -----------------------
Limited Partners 12,541
General Partner 1
6
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Item 6. 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 Subsidiaries (the Partnership) reported net income of $770,000
during the years ended December 31, 1997, as compared to net income of
$4,542,000 during 1996. The decline in net income experienced in 1997, compared
to 1996, is primarily attributable to declines in gain on sale of cable systems,
net revenues from cable television system operations and rental income.
Additionally, the Partnership experienced a recovery of losses on receivables in
1996 which the Partnership did not have in 1997.
Total revenues decreased by $4,342,000 for the year ended December 31,
1997, as compared to the previous year. The decrease in total revenues for 1997
is primarily the result of a decline in revenues from the Partnership's cable
television systems business segment. Cable subscriber revenue decreased to
$1,710,000 in 1997 from $3,114,000 in 1996. Several of the Partnership's
subsidiaries sold the assets of their cable systems and ceased operations in
1996. During the year ended December 31, 1996, Phoenix Black Rock Cable J.V., a
wholly owned subsidiary of the Partnership, and Phoenix Grassroots Cable
Systems, L.L.C., a majority owned subsidiary of the Partnership, sold the assets
of their cable television systems for a total of $11.5 million in cash. As a
result of these sales the Partnership recognized a gain on sale of cable systems
of $1.3 million in 1996.
During the year ended December 31, 1997, Phoenix Grassroots Cable
Systems, L.L.C. received proceeds of $169,000 which were held in escrow from the
sale of its assets. At the time of the sale, a portion of the proceeds were held
in escrow to cover liabilities which may have arisen after the sale. The escrow
proceeds have been treated as an adjustment to the sales price, and as a result,
the Partnership recognized an additional gain on the sale of cable systems for
the year ended December 31, 1997 of $169,000.
The decrease in rental income and interest income from notes receivable
for the year ended December 31, 1997, compared to 1996, also contributed to the
decline in total revenues. Rental income decreased by $530,000 and interest
income from notes receivable decreased by $732,000 for the year ended December
31, 1997, compared to 1996. The decrease in rental income is primarily the
result of a reduction in the amount of equipment owned by the Partnership. At
December 31, 1997, the Partnership owned equipment, excluding the Partnership's
pro rata interest in joint ventures, with an aggregate original cost of $10.6
million compared to $14.3 million at December 31, 1996.
During the year ended December 31, 1996, the Partnership recognized
interest income from notes receivable due to payoffs which exceeded the net
carrying value on these notes. There were no such payoffs during 1997 and as a
result, the Partnership experienced a decline in interest income in notes
receivable.
Total expenses decreased by $361,000 for the year ended December 31,
1997, compared to 1996. All line items of expense have decreased, except for
provision for losses on receivable, for the year ended December 31, 1997, as
compared to 1996, with depreciation and amortization, as well as program service
and management fees contributing the most significant decreases. These decreases
are a result of several of the Partnership's subsidiaries selling their assets
and ceasing operations, as previously discussed.
During the year ended December 31, 1996, the Partnership reduced the
allowance for loan losses by $2,035,000 as a result of the foreclosure of a
cable television system, in which the Partnership had extended credit. The net
carrying value, before allowance for loan losses, for this note receivable was
carried over to the basis of the cable television system. This reduction in the
allowance for loan losses was recognized as income during 1996.
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.
7
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As another source of liquidity, the Partnership owns cable television systems,
has investments in foreclosed cable systems joint ventures and investments in
leasing joint ventures.
The Partnership reported net cash used by operating activities of
$1,300,000 for the year ended December 31, 1997, compared to net cash generated
by operating activities of $1,528,000 during 1996. This decrease is primarily
due to a decline in rental income and cable subscriber revenue, as well as the
payment of outstanding liabilities related to reimbursed costs to the General
Partner.
The Partnership received principal payments from notes receivable of
$13,000 for the year ended December 31, 1997 compared to $2,020,000 during 1996.
Principal payments were higher during 1996 due to the Partnership having
received early payoffs from one of its notes.
The Partnership received proceeds from the sale of securities of
$151,000 for both the years ended December 31, 1997 and 1996. The securities
sold for both years consisted of common stock received through the exercise of
stock warrants granted to the Partnership as part of a financing agreement with
several emerging growth companies.
As of December 31, 1997, the Partnership owned equipment held for lease
with an aggregate original cost of $2,857,000 and a net book value of $0,
compared to $2,736,000 and $0, respectively, as of December 31, 1996. 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 1997 and 1996 were
$11,625,000 and $1,954,000, respectively. As a result, the cumulative cash
distributions to the limited partners are $109,805,000 and $98,180,000 as of
December 31, 1997 and 1996, respectively. The General Partner did not receive
cash distributions during 1997 and 1996. 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
generated by operations continues to decline, the rate of cash distributions
made to limited partners will also decline. The Partnership currently
distributes on an annual basis with the first annual distribution having been
made on January 15, 1997. As a result of the sale of certain cable television
systems and the settlement of an impaired note during 1996, the Partnership
included the excess cash provided by these events on the January 15, 1997
distribution.
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.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results could differ from those anticipated by some of the statements
made above. Limited Partners are cautioned that such forward-looking statements
involve risks and uncertainties including without limitation the following: (I)
the Partnership's plans are subject to change at any time at the discretion of
the General Partner of the Partnership, (ii) future technological developments
in the industry in which the Partnership operates, (iii) competitive pressure on
pricing or services, (iv) substantial customer defaults or cancellations, (v)
changes in business conditions and the general economy, (vi) changes in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets.
8
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Item 7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1997
9
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Phoenix Leasing Cash Distribution Fund III, a California
limited partnership:
We have audited the accompanying consolidated balance sheet of Phoenix Leasing
Cash Distribution Fund III, a California limited partnership and Subsidiaries as
of December 31, 1997 and the related consolidated statements of operations,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit. The consolidated statements of operations,
partners' capital and cash flows of Phoenix Leasing Cash Distribution Fund III
as of December 31, 1996, were audited by other auditors whose report dated
January 20, 1997, expressed an unqualified opinion on these statements.
We conducted our audit 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Phoenix Leasing Cash
Distribution Fund III, a California limited partnership and Subsidiaries as of
December 31, 1997 and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Francisco, California
January 23, 1998
10
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Amounts in Thousands Except for Unit Amounts)
December 31, 1997
-----------------
ASSETS
Cash and cash equivalents $ 3,072
Accounts receivable (net of allowance for losses on
accounts receivable of $73) 192
Notes receivable (net of allowance for losses on notes
receivable of $604) 45
Equipment on operating leases and held for lease (net of
accumulated depreciation of $10,017) --
Cable systems, property and equipment (net of accumulated
depreciation of $521) 3,086
Cable subscriber lists (net of accumulated amortization of $380) 1,135
Investment in joint ventures 310
Capitalized acquisition fees (net of accumulated amortization
of $8,266) 10
Other assets 38
-------
Total Assets $ 7,888
=======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 608
-------
Total Liabilities 608
-------
Partners' Capital:
General Partner (18)
Limited Partners, 600,000 units authorized, 528,151 units
issued, 516,662 units outstanding 7,298
-------
Total Partners' Capital 7,280
-------
Total Liabilities and Partners' Capital $ 7,888
=======
The accompanying notes are an integral
part of these statements.
11
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PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
For the Years Ended December 31,
1997 1996
---- ----
INCOME
Rental income $ 332 $ 862
Gain on sale of cable systems 169 1,347
Gain on sale of equipment 74 68
Interest income, notes receivable 107 839
Cable subscriber revenue 1,710 3,114
Equity in earnings (losses) from joint
ventures, net (83) 148
Gain on sale of securities 151 151
Other income 273 546
------- -------
Total Income 2,733 7,075
------- -------
EXPENSES
Depreciation and amortization 457 1,613
Lease related operating expenses 31 93
Program service, cable system 556 906
Management fees to General Partner and
affiliate 108 724
Reimbursed administrative costs to General
Partner 125 176
Provision for (recovery of) losses on
receivables 43 (2,294)
Legal expense 83 259
General and administrative expenses 566 853
------- -------
Total Expenses 1,969 2,330
------- -------
NET INCOME BEFORE MINORITY INTEREST 764 4,745
Minority Interest in losses (earnings)
of subsidiary 6 (203)
------- -------
NET INCOME $ 770 $ 4,542
======= =======
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 1.48 $ 8.70
======= =======
ALLOCATION OF NET INCOME:
General Partner $ 7 $ 46
Limited Partners 763 4,496
------- -------
$ 770 $ 4,542
======= =======
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 SUBSIDIARIES
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, 1995 $ (71) 516,716 $ 15,618 $ 557 $ 16,104
Distributions to partners ($3.78
per limited partnership unit) -- -- (1,954) -- (1,954)
Change for the year in unrealized
gain on available-for-sale
securities -- -- -- (557) (557)
Net income 46 -- 4,496 -- 4,542
------ -------- ------- ------ --------
Balance, December 31, 1996 (25) 516,716 18,160 -- 18,135
Distributions to partners ($22.50
per limited partnership unit) -- -- (11,625) -- (11,625)
Redemptions of capital -- (54) -- -- --
Net income 7 -- 763 -- 770
------ -------- ------- ------ --------
Balance, December 31, 1997 $ (18) 516,662 $ 7,298 $ -- $ 7,280
====== ======== ======= ====== ========
The accompanying notes are an integral
part of these statements.
13
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1997 1996
---- ----
Operating Activities:
Net income $ 770 $ 4,542
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization 457 1,613
Gain on sale of cable systems (169) (1,347)
Gain on sale of equipment (74) (68)
Gain on sale of securities (151) (151)
Equity in losses (earnings) from joint
ventures, net 83 (148)
Provision for (recovery of) early
termination, financing leases -- (81)
Provision for (recovery of) losses on
notes receivable -- (2,260)
Provision for losses on accounts
receivable 43 47
Minority interest in earnings (losses)
of subsidiary (6) 203
Increase in accounts receivable (7) (222)
Decrease in accounts payable and
accrued expenses (2,223) (977)
Decrease (increase) in other assets (23) 3
Other -- 374
-------- --------
Net cash provided (used) by operating
activities (1,300) 1,528
-------- --------
Investing Activities:
Principal payments, notes receivable 13 2,020
Proceeds from sale of cable systems 169 11,510
Proceeds from sale of equipment 75 79
Proceeds from sale of securities 151 151
Distributions from joint ventures 154 343
Cable systems, property and equipment (153) (337)
-------- --------
Net cash provided by investing activities 409 13,766
-------- --------
Financing Activities:
Payments of principal, notes payable -- (729)
Distributions to partners (11,625) (1,954)
Distributions to minority partners (3) (639)
-------- --------
Net cash used by financing activities (11,628) (3,322)
-------- --------
Increase (decrease) in cash and cash
equivalents (12,519) 11,972
Cash and cash equivalents, beginning
of period 15,591 3,619
-------- --------
Cash and cash equivalents, end of period $ 3,072 $ 15,591
======== ========
Supplemental Cash Flow Information:
Cash paid for interest expense $ -- $ 26
The accompanying notes are an integral
part of these statements.
14
<PAGE>
PHOENIX LEASING CASH DISTRIBUTION FUND III,
A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
reducing the risks of financing or acquiring certain capital equipment leased to
third parties. (See Note 7.)
The Partnership's current and prior subsidiaries, Phoenix Black Rock
Cable J.V., Phoenix Concept Cablevision of Indiana, L.L.C. and Phoenix
Grassroots Cable Systems, L.L.C. were formed to acquire the assets and
liabilities of specific foreclosed cable television systems that the Partnership
had extended credit. The acquisition of assets and liabilities of the borrower
by the subsidiaries through foreclosure were 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.
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 $1.6 million
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. which was formed under the laws of
California on January 10, 1992 to own and operate the foreclosed cable
television system.
On January 17, 1996, Phoenix Black Rock Cable J.V., a majority owned
subsidiary of the Partnership, sold all of the assets used in the operation of
its cable television system receiving net proceeds of approximately $2.6
million, recognizing a gain on the sale of the assets of this cable system of
$1.2 million. As a result of the sale of the cable television system's assets,
the Subsidiary ceased operations.
On February 2, 1996, the Partnership and Phoenix Concept Cablevision of
Indiana, L.L.C. (Phoenix Concept), a newly formed limited liability company in
the State of Delaware on November 9, 1995 and a wholly owned subsidiary of 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. The Agreement, which closed on
February 2, 1996, allowed Phoenix Concept 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 $4.3
million at February 2, 1996, which was carried over to the basis in the cable
system and exchanged for a 100% ownership interest in this limited liability
company. The Partnership had no related allowance for this note receivable. In
addition, Phoenix Concept made a cash payment of $200,000 and assumed certain
liabilities, including a note payable of $600,000 and certain other
miscellaneous accounts payable as specified in the agreement.
Phoenix Concept Cablevision of Indiana, L.L.C. has accepted and agreed
to the terms stated on a Letter of Intent dated December 1, 1997 to sell all or
substantially all of its assets with a carrying value of $4.2 million at
December 31, 1997 for $6 million. Cash, accounts receivables, automobiles and
certain other miscellaneous items, currently owned by Phoenix Concept
Cablevision of Indiana, L.L.C. are excluded from this sale. This Letter of
Intent is subject to a definitive asset purchase agreement which is currently
being negotiated with the potential buyer.
On February 14, 1996, the Partnership and Phoenix Grassroots Cable
Systems, L.L.C. (Phoenix Grassroots), a newly formed limited liability company
in the State of Delaware on February 9, 1996 and majority owned (98.5%)
subsidiary of the Partnership, entered in a Settlement Agreement and Releases
(the "Amendment") with Grassroots Cable Systems, Inc., a cable television
company that the Partnership had extended credit. The Agreement, which closed
15
<PAGE>
on February 14,1996, 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, before allowance for loan losses, for
this outstanding note receivable was $9.0 million at February 14, 1996, which
was carried over to the basis in the cable system and exchanged for a 98.5%
ownership interest in this limited liability company. The Partnership had an
allowance for loan losses of $2.0 million for this note receivable. The
Partnership reduced its allowance for loan losses by $2.0 million as a result of
the acquisition of this cable system. This reduction in the allowance for loan
losses was recognized as income during the year ended December 31, 1996. In
addition, Phoenix Grassroots assumed certain liabilities and miscellaneous
payables as specified in the agreement.
On August 30, 1996, Phoenix Grassroots Cable Systems, L.L.C., sold the
assets of the cable television system receiving net proceeds of approximately
$8.9 million, recognizing a gain on sale of these assets of $162,000. As a
result of the sale of the cable television system's assets, the Subsidiary
ceased operations. On September 2, 1997, the Partnership received additional
proceeds of $169,000, which had been held in escrow for the sale of this system,
and recognized a gain of $169,000 during the year ended December 31, 1997.
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 1996 and 1997 the General Partner did not draw its share of
the 1996 and 1997 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 Subsidiaries. The Subsidiaries will pay a management fee equal
to four and one-half percent of the systems' 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.
The General Partner is 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 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.
Compensation paid and distributions made to the General Partner and
affiliates for the years ended December 31,
1997 1996
---- ----
(Amounts in Thousands)
Management fees $ 108 $ 724
--------- ---------
$ 108 $ 724
========= =========
Redemptions of Limited Partner units will only be made to the extent
permitted by applicable laws and regulations, the Partnership Agreement and if,
in the opinion of the General Partner, it is in the best interest of the
Partnership. In addition, redemptions will not be made if such redemptions would
cause the Partnership to be categorized as a publicly traded partnership for
federal income tax purposes.
16
<PAGE>
The Partnership will acquire such limited partnership units for an
amount equal to 85% of the "accrual basis capital account" relating to the
redeemed units. The Partnership will retain the remaining 15% of the "accrual
basis capital account" relating to the redeemed units. Redemptions retained by
the Partnership were $0 during the years ended December 31, 1997 and 1996.
"Accrual basis capital account" is computed in accordance with the books and
records regularly maintained by the Partnership for financial reporting
purposes, utilizing the accrual method of accounting.
Note 2. Summary of Significant Accounting Policies.
Principles of Consolidation. The 1997 and 1996 financial statements
include the accounts of Phoenix Leasing Cash Distribution Fund III and its
wholly owned subsidiary, Phoenix Concept Cablevision of Indiana, L.L.C. (a
Delaware limited liability company). Hereinafter these entities are collectively
referred to as "the Partnership." The 1996 financial statements include the
accounts of the Partnership and its majority owned subsidiary, Phoenix Black
Rock Cable J.V. and Phoenix Grassroots Cable Systems, L.L.C. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Leasing Operations. The Partnership's leasing operations consisted of
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. The Partnership reviews its estimates of residual value at least
annually. If a decline in value has occurred which is other than temporary, a
reduction in the investment is recognized currently.
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.
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 $0 and $26,000 ($0 and
$.05 per limited partnership unit) for the year ended December 31, 1997 and
1996, 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 one Subsidiary, Phoenix Concept
Cablevision of Indiana, L.L.C. for the year ended December 31, 1997 and 1996.
The cable television system owned by Phoenix Concept Cablevision of Indiana,
L.L.C. is located in the counties of Benton, Parke, Greene, Montgomery, Putnam,
Boone, Hendricks, Clinton, Hamilton and Madison in the state of Indiana. The
cable television system consists of headend equipment and 166 miles of plant
passing approximately 9,449 homes with approximately 5,392 subscribers. The
Subsidiary operates under non-exclusive franchise agreements with several of
these counties and with communities located within these counties.
Phoenix Black Rock Cable J.V. is included in the consolidated
statements for the year ended December 31, 1996. The cable television system
owned by Phoenix Black Rock Cable, J.V. was 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 consisted of headend equipment in five locations and
156 miles of plant passing approximately 2,900 homes and had approximately 1,820
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, and under a National Park
Service Permit for Death Valley, California.
17
<PAGE>
Phoenix Grassroots Cable Systems, L.L.C. is also included in the
consolidated statements for the year ended December 31, 1996. The cable
television system owned by Phoenix Grassroots Cable Systems, L.L.C. was located
in the counties of Franklin, Hancock, Kennebec, Knox, Oxford and Penobscot in
the State of Maine and the counties of Carroll, Coos, Grafton, Merrimack,
Strafford and Sullivan in the State of New Hampshire. The cable television
system consisted of headend equipment and 676 miles of plant passing
approximately 12,429 homes with approximately 7,197 subscribers. The Subsidiary
operates under non-exclusive franchise agreements with several of these counties
and with communities located within these counties.
Cable systems, property and equipment are depreciated using the
straight-line method over estimated service lives ranging from five to thirteen
years. Replacements, renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.
Cable subscriber lists are amortized using the straight-line method
over an estimated period of eight years.
Cable television services are billed monthly in advance. Revenue is
deferred and recognized as the services are provided.
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.
Portfolio Valuation Methodology. The Partnership uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.
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.
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.
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.
Reclassification. Certain 1996 amounts have been reclassified to
conform to the 1997 presentation.
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.
18
<PAGE>
Note 3. Accounts Receivable.
Accounts receivable consist of the following at December 31:
1997
----
(Amounts in Thousands)
Cable system service $ 155
Lease payments 56
Other 37
General Partner 17
---------
265
Less: allowance for losses on accounts receivable (73)
---------
Total $ 192
=========
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1997
----
(Amounts in Thousands)
Notes receivable from cable television system
operators with stated interest ranging from
12% to 13% per annum, receivable in installments
ranging from 60 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. $ 649
Less: allowance for losses on notes receivable (604)
--------
Total $ 45
========
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.
At December 31, 1997, the recorded investment in notes that are
considered to be impaired is $649,000, for which the related allowance for
losses is $604,000. The average recorded investment in impaired loans during the
years ended December 31, 1997 and 1996 was approximately $652,000 and
$1,530,000, respectively. The Partnership recognized interest income totaling $0
and $63,000 from these impaired notes during the years ended 1997 and 1996,
respectively.
During the year ended December 31, 1996, the Partnership received a
settlement on one of its notes receivable from a cable television system
operator which was considered to be impaired. The Partnership received a partial
recovery of $1,008,000 as a settlement which was applied towards the $1,781,000
outstanding note receivable balance. The remaining balance of $773,000 was
written-off through its related allowance for loan losses provided for in a
previous year. Upon receipt of the settlement of this note receivable, the
Partnership reduced the remaining allowance for loan losses for this note by
$150,000 during the year ended December 31, 1996. This reduction in the
allowance for loan losses was recognized as income during the period.
19
<PAGE>
The Partnership also wrote-off the outstanding note receivable balance
of $243,000 during the year ended December 31, 1996 from a security monitoring
system company which was considered to be impaired. This note receivable had
been fully reserved for in a previous year.
During the year ended December 31, 1996, the Partnership also
foreclosed on two notes receivable from cable television system operators as
discussed in Note 1.
The activity in the allowance for losses on notes receivable during the
years ended December 31, is as follows:
1997
----
(Amounts in Thousands)
Beginning balance $ 604
Provision for (recovery of) losses -
Write downs -
---------
Ending balance $ 604
=========
Note 5. Equipment on Operating 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.
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.
Minimum rentals to be received on noncancellable operating leases for
the years ended December 31 are as follows:
Operating
---------
(Amounts in Thousands)
1998.......................................... $ 31
-------
Totals $ 31
=======
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:
20
<PAGE>
1997
----
(Amounts in Thousands)
Distributions systems $ 2,362
Headend equipment 1,065
Automobiles 97
Land 41
Building 42
--------
3,607
Less: accumulated depreciation (521)
--------
Net property, cable systems and equipment $ 3,086
========
Depreciation expense totaled approximately $282,000 and $583,000 for
the years ended December 31, 1997 and 1996, 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 ventures:
Weighted
Joint Venture Percentage Interest
------------- -------------------
Leveraged Joint Venture 1990-1 35.29%
Phoenix Joint Venture 1994-1 4.64
An analysis of the Partnership's investment in equipment joint ventures
is as follows:
Net
Net Investment Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- ------------- ------------- -------- ------------- ---------
(Amounts in Thousands)
Year Ended
December 31, 1996 $ 117 $ 0 $ 158 $ 230 $ 45
======== ====== ======= ======= ======
Year Ended
December 31, 1997 $ 45 $ 0 $ 30 $ 133 $ (58)
======== ====== ======= ======= ======
The aggregate combined financial information of the equipment joint
ventures is presented as follows:
December 31, 1997
-----------------
(Amounts in Thousands)
Assets $ 1,055
Liabilities 409
Partners' Capital 646
21
<PAGE>
For the Years Ended December 31,
1997 1996
---- ----
(Amounts in Thousands)
Revenue $ 1,571 $ 3,338
Expenses 1,631 1,961
Net Income (Loss) (60) 1,377
As of December 31, 1997, the Partnership's pro rata interest in the
equipment joint ventures' net book value of off-lease equipment was $0.
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 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. Investments in the joint
ventures are accounted for using the equity method of accounting.
The joint venture investments of the Partnership, along with their
percentage ownership is as follows:
Weighted
Joint Venture Percentage Interest
------------- -------------------
Phoenix Black Rock Cable J.V.(2)(3) 81.23%
Phoenix Pacific Northwest J.V. 37.72
Phoenix Country Cable J.V.(1) 40.00
Phoenix Concept Cablevision, Inc. 14.19
Phoenix Independence Cable, LLC 28.76
(1) cable system sold during 1995 and joint venture closed during 1996.
(2) cable systems operations are consolidated during 1996.
(3) cable system sold and joint venture closed during 1996.
An analysis of the Partnership's net investment in foreclosed cable
systems joint ventures at December 31, is as follows:
Net
Net Investment Investment
at Beginning Equity in at End
Date of Period Contributions(1) Losses Distributions of Period
- ---- ------------- ---------------- -------- ------------- ---------
(Amounts in Thousands)
Year Ended
December 31, 1996 $ 625 $ 0 $ (10) $ 113 $ 502
====== ======= ====== ======== =======
Year Ended
December 31, 1997 $ 502 $ 0 $ (113) $ 21 $ 368
====== ======= ====== ======== =======
22
<PAGE>
The aggregate combined financial information of the foreclosed cable
systems joint ventures is presented as follows:
December 31, 1997
-----------------
(Amounts in Thousands)
Assets $ 2,071
Liabilities 519
Partners' Capital 1,552
For the Years Ended December 31,
1997 1996
---- ----
(Amounts in Thousands)
Revenue $ 1,011 $ 1,033
Expenses 1,407 1,076
Net Loss (396) (43)
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.
Phoenix Concept Cablevision of South Carolina, Inc., which is wholly
owned by Phoenix Concept Cablevision, Inc., has accepted and agreed to the terms
stated on a Letter of Intent dated December 23, 1997 to sell all or
substantially all of its assets with a net carrying value of $1.0 million at
December 31, 1997 for approximately $1.8 million. Cash, accounts receivable,
marketable securities and similar investments will be excluded from the sale.
This Letter of Intent is subject to a definitive asset purchase agreement which
is currently being negotiated with the potential buyer.
Note 8. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1997
----
(Amounts in Thousands)
General Partner and affiliates $ 98
Equipment lease operations 143
Cable system service 144
Other 223
--------
Total $ 608
========
Note 9. 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 are as follows at December 31, 1997:
23
<PAGE>
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
Assets $ 7,888 $ 8,461 $ (573)
Liabilities 608 279 329
Note 10. 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 11. 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
$125,000 and $176,000 for the years ended December 31, 1997 and 1996,
respectively. The equipment storage, remarketing and data processing costs
reimbursed to the General Partner during the years ended December 31, 1997 and
1996 were $4,000 and $12,000, respectively.
In addition, the General Partner receives a management fee and an
acquisition fee (see Note 1).
Note 12. 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 516,662 and 516,716 for the
years ended December 31, 1997 and 1996, 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 13. Business Segments.
The 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 years ended December 31, 1997
and 1996. Information about the Partnership's operations in these two segments
are as follows:
1997 1996
---- ----
(Amounts in Thousands)
Total Revenues
Equipment leasing and financing $ 833 $ 2,563
Cable TV operations 1,900 4,512
----------- ----------
Total $ 2,733 $ 7,075
=========== ==========
Net Income
Equipment leasing and financing $ 415 $ 3,376
Cable TV operations 355 1,166
----------- ----------
Total $ 770 $ 4,542
=========== ==========
Identifiable Assets
Equipment leasing and financing $ 3,278 $ 15,871
Cable TV operations 4,610 5,120
----------- ----------
Total $ 7,888 $ 20,991
=========== ==========
24
<PAGE>
Depreciation and Amortization Expense
Equipment leasing and financing $ (16) $ 687
Cable TV operations 473 926
----------- ----------
Total $ 457 $ 1,613
=========== ==========
Capital Expenditures
Cable TV operations $ 153 $ 337
----------- ----------
Total $ 153 $ 337
=========== ==========
Note 14. Fair Value of Financial Instruments.
The carrying amounts reported on the balance sheet for cash and cash
equivalents, available-for-sale securities and notes receivable approximate the
fair values.
Note 15. Subsequent Events.
In January 1998, cash distributions of $1,292,000 were made to the
Limited Partners.
25
<PAGE>
Item 8. Disagreements on Accounting and Financial Disclosure Matters.
None.
PART III
Item 9. 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 60, 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.
GARY W. MARTINEZ, age 47, is Executive Vice President, Chief Operating
Officer and a Director 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.
HOWARD SOLOVEI, age 36, is the Chief Financial Officer, Treasurer and a
Director of PLI. He has been associated with PLI since 1984. Mr. Solovei
oversees the Finance Department. He is responsible for the structuring,
planning, and monitoring of the partnerships sponsored by the General Partner
and its affiliates, as well as maintaining the banking relationships. Mr.
Solovei graduated with a B.S. in Business Administration from the University of
California, Berkeley.
BRYANT J. TONG, age 43, is Senior Vice President, Financial Operations
and a Director 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 42, is Senior Vice President, General Counsel and
Assistant Secretary 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.
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:
26
<PAGE>
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 and
Phoenix Leasing Income Fund VII
Disclosure Pursuant to Section 16, Item 405 of Regulation S-K:
The General Partner (and any corporate general partner of the General
Partner) of the Registrant, and the executive officers of the General Partner
(or any corporate general partner of the General Partner) of the Registrant,
file reports pursuant to Section 16(a) of the Securities Exchange Act of 1934,
as amended. Based solely on the Registrant's review of the copies of such forms
received by the Registrant, the Registrant believes that, during 1997, all such
required reports were filed on a timely basis, except for reports on Form 3
(Initial Statement of Beneficial Ownership of Securities) filed late by Howard
Solovei and Cynthia E. Parks, each an executive officer of the General Partner
(or any corporate general partner of the General Partner) of the Registrant. No
units of limited partnership interest are held by such executive officers.
Certain Legal Proceedings.
On October 28, 1997 a Class Action Complaint was filed against Phoenix
Leasing Incorporated, Phoenix Leasing Associates, II and III L.P., Phoenix
Securities Inc. and Phoenix American Incorporated (the "Companies") in
California Superior Court for the County of Sacramento by eleven individuals on
behalf of investors in Phoenix Leasing Cash Distribution Funds I through V (the
"Partnerships"). The Companies were served with the Complaint on December 9,
1997. The Complaint seeks declaratory and other relief including accounting,
receivership, imposition of constructive trust and judicial dissolution and
winding up of the Partnerships, and damages based on fraud, breach of fiduciary
duty and breach of contract by the Companies as general partners of the
Partnerships. The Companies received an extension of time to answer the
Complaint and formal discovery has not commenced. The Companies intend to
vigorously defend the Complaint.
Item 10. 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
------------------------- -----------------------
<S> <C> <C> <C> <C>
(Amounts in Thousands)
Phoenix Leasing
Incorporated General Partner $ 24(1) $ - $ -
Phoenix Cable Manager 84(1) - -
Managment, Inc. -------- ----- ---
$ 108 $ - $ -
======== ===== ===
</TABLE>
(1) consists of management fees.
27
<PAGE>
Item 11. 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.
(b) The General Partner of the Registrant owns the equity securities
of the Registrant set forth in the following table:
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
-------------- ------------------------- ----------------
General Partner Interest Represents a 5% interest in 100%
the Registrant's profits 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%
Item 12. Certain Relationships and Related Transactions.
None.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No.
--------
(a) 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 11
Consolidated Statements of Operations for the Years
Ended December 31, 1997 and 1996 12
Consolidated Statements of Partners' Capital
for the Years Ended December 31, 1997 and 1996 13
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997 and 1996 14
Notes to Consolidated Financial Statements 15-25
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 quarter ended December 31,
1997.
(c) Exhibits
21. Additional Exhibits
a) Balance Sheet of Phoenix Leasing Incorporated E21 1-14
b) Listing of all subsidiaries of the Registrant:
Phoenix Concept Cablevision of Indiana, LLC, a
wholly owned Subsidiary.
27. Financial Data Schedule
28
<PAGE>
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,
A CALIFORNIA LIMITED PARTNERSHIP
(Registrant)
BY: PHOENIX LEASING INCORPORATED,
A CALIFORNIA CORPORATION
GENERAL PARTNER
Date: March 24, 1998 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 March 24, 1998
- ------------------------- and a Director of --------------
(Gus Constantin) Phoenix Leasing Incorporated
General Partner
/S/ GARY W. MARTINEZ Executive Vice President, March 24, 1998
- ------------------------- Chief Operating Officer and a --------------
(Gary W. Martinez) Director of Phoenix Leasing
Incorporated
General Partner
/S/ HOWARD SOLOVEI Chief Financial Officer, March 24, 1998
- ------------------------- Treasurer and a Director of --------------
(Howard Solovei) Phoenix Leasing Incorporated
General Partner
/S/ BRYANT J. TONG Senior Vice President, March 24, 1998
- ------------------------- Financial Operations --------------
(Bryant J. Tong) (Principal Accounting Officer)
and a Director of
Phoenix Leasing Incorporated
General Partner
29
Exhibit 21
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, 1997 and
1996. 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 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 balance sheets referred to above present fairly, in all
material respects, the financial position of Phoenix Leasing Incorporated and
Subsidiaries as of June 30, 1997 and 1996, in conformity with generally accepted
accounting principles.
San Francisco, California, ARTHUR ANDERSEN LLP
September 5, 1997
Page 1 of 14
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, June 30,
1997 1996
----------- -----------
Cash and cash equivalents $11,409,747 $ 3,767,098
Investments in securities 5,105,289 1,287,323
Trade accounts receivable, net of allowance
for doubtful accounts of $121,944 and $31,246
at June 30, 1997 and 1996, respectively 289,284 989,030
Receivables from Phoenix Leasing Partnerships and
other affiliates 4,796,513 3,955,935
Notes receivable from related party 710,598 8,767,694
Equipment inventory -- 2,240,448
Equipment subject to lease 4,320,755 14,232,017
Notes receivable 5,825,842 3,560,830
Investments in Phoenix Leasing Partnerships 1,678,239 1,773,887
Property and equipment, net of accumulated
depreciation of $10,881,577 and $11,398,438 at
June 30, 1997 and 1996, respectively 6,009,049 6,933,608
Other assets 3,087,741 3,011,229
----------- -----------
TOTAL ASSETS $43,233,057 $50,519,099
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Short-term lines of credit $ -- $ 1,750,000
Warehouse lines of credit 10,310,568 16,930,044
Payables to affiliates 2,950,748 2,155,626
Accounts payable and accrued expenses 2,564,226 3,205,932
Deferred revenue -- 328,676
Long-term debt 147,532 620,899
Deficit in investments in Phoenix Leasing
Partnerships 738,297 761,214
----------- -----------
TOTAL LIABILITIES 16,711,371 25,752,391
----------- -----------
Minority Interests in Consolidated Subsidiaries 105,901 27,615
----------- -----------
Commitments and Contingencies (Note 15)
SHAREHOLDER'S EQUITY:
Common stock, without par value, 30,000,000 shares
authorized, 5,433,600 issued and outstanding at
June 30, 1997 and 1996, respectively 20,369 20,369
Additional paid-in capital 11,466,920 11,466,920
Unrealized gains on investments in securities,
available for sale 243,311 --
Retained earnings 14,685,185 13,251,804
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 26,415,785 24,739,093
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $43,233,057 $50,519,099
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
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, 1997, the Company held a 50%
general partner ownership interest in two of the Partnerships and a 62.5%
interest in one. 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, 1997,
the Company is the corporate general partner in 11 actively operating limited
partnerships and manager of 7 actively operating joint ventures, all of which
own and lease equipment. Seven of the partnership agreements provide for payment
of management fees based on partnership revenues and acquisition fees when the
partnerships' assets are acquired. Five 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 equity proceeds received by the
partnership and a percentage of net income. Most of the joint venture agreements
provide for 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.
3
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 1. Summary of Significant Accounting Policies (continued):
e. Liquidation Fee Income - The Company earned liquidation fees from five
of the Phoenix Leasing 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 recognized liquidation fee income when the fees were
paid by the partnerships. During the year ended June 30, 1996, the Company
recognized the remaining $1,062,046 in liquidation fees from these partnerships.
In two 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 method of accounting for finance leases
recognizes unearned income at the inception of the lease calculated as the
excess of net rentals receivable and estimated residual value at the end of the
lease term over the cost of the equipment leased. 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.
When accounting for operating 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. See Note 14 for further information.
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. During the year ended June 30, 1997, the Company
discontinued sales of such contracts and all deferred revenue was fully
amortized.
j. Investments in Securities - Investments in securities, available for
sale, are stated at fair value or amortized cost, as specified by SFAS 115.
Interest is recognized when earned.
4
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 1. Summary of significant Accounting Policies (continued):
k. 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 amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
l. Reclassification - Certain 1996 balances have been reclassified to
conform to the 1997 presentation.
Note 2. Receivables from Phoenix Leasing Partnerships and Other Affiliates:
Receivables from Phoenix Leasing Partnerships and other affiliates consist
of the following for the years ended June 30:
1997 1996
---- ----
Management Fees $ 156,668 $ 416,149
Acquisition fees 283,133 74,099
Other receivables from Phoenix Leasing Partnerships, net 2,668,081 3,458,687
Other receivables from corporate affiliates 1,688,631 7,000
---------- ---------
$4,796,513 $3,955,935
========== ==========
The Company collected $2,155,543 of these other receivables from the
Phoenix Leasing Partnerships on September 2, 1997.
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.
A shareholder of PAI and officers of the Company also have general and
limited partner interests in several of the partnerships.
5
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 3. Investments in Phoenix Leasing Partnerships (continued):
The activity in the investments in Phoenix Leasing Partnerships for the
years ended June 30 are as follows:
1997 1996
---- ----
Balance, beginning of year $1,012,673 $ 412,974
Additional investments 178,243 830,085
Equity in earnings 2,933,649 2,093,488
Cash distributions (3,184,621) (2,323,874)
---------- ----------
Balance, end of year $ 939,942 $1,012,673
========== ==========
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 require 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, 1997 and
1996.
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, 1997 and for the
twelve months then ended:
Assets $ 120,259,000
Liabilities 19,520,000
Partners' Capital 100,739,000
Revenue 33,479,000
Net Income 13,994,000
6
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 4. Equipment Subject to Lease and Notes Receivable:
Equipment subject to lease includes the Company's investments in leveraged
leases, investments in financing leases, operating leases and notes receivable.
Equipment subject to lease consists of the following at June 30:
1997 1996
---- ----
Equipment on lease, net of accumulated
depreciation of $47,177 and $258,102 at
June 30, 1997 and 1996, respectively $ 83,057 $ 92,008
Leverage leases 1,913,392 1,589,772
Equipment held for resale 225,084 305,840
Investment in financing leases 1,863,214 12,036,604
Operating leases 236,008 207,793
----------- -----------
Total equipment subject to lease $ 4,320,755 $14,232,017
=========== ===========
Notes receivable 5,825,842 3,560,830
Leverage Leases:
The Company's net investment in leveraged leases is composed of the
following elements at June 30:
1997 1996
---- ----
Rental receivable (net of principal and
interest on the nonrecourse debt) $ - $ -
Estimated residual value of leased assets 2,602,636 2,498,233
Less: Unearned and deferred income (689,244) (908,461)
----------- -----------
Net investment in leveraged leases $ 1,913,392 $ 1,589,772
=========== ===========
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
at June 30:
1997 1996
---- ----
Minimum lease payments to be received $ 2,420,101 $ 16,089,868
Less:unearned income (542,155) (4,053,264)
allowance for early termination (14,732) -
----------- ------------
Net investment in financing leases $ 1,863,214 $ 12,036,604
=========== ============
7
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 4. Equipment Subject to Lease and Notes Receivable (continued):
Minimum rentals to be received on non-cancelable financing leases for the
years ended June 30, are as follows:
1998 $ 751,632
1999 704,531
2000 467,636
2001 401,409
2002 94,893
-----------
Total $ 2,420,101
===========
Notes Receivable:
Notes receivable for the years ended June 30, are as follows:
1997 1996
---- ----
Notes receivable from emerging growth and
other companies with stated interest ranging
from 13.8% to 19.8% per annum receivable in
installments ranging from 35 to 85 months
collateralized by the equipment financed $ 5,825,842 $ 3,560,830
=========== ===========
Minimum payments to be received on non-cancelable notes receivable for the
years ended June 30, are as follows:
1998 $ 1,838,665
1999 1,793,111
2000 1,919,794
2001 1,230,924
2002 564,672
Thereafter 353,946
-----------
Total minimum payments to be received $ 7,701,112
===========
Less: unearned interest (1,875,270)
-----------
Net investment in notes receivable $ 5,825,842
===========
Note 5. Sale of Leased Assets and Notes Receivable:
The Company adopted SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", as it related to
transactions including revolving periods completed after January 1, 1997. Prior
to this date, such transactions were accounted for under SFAS 77, "Reporting by
Transferors for Transfers of Receivables without Recourse". The change in
standards has not had a material effect on the financial statements of the
Company during the year ended June 30, 1997.
8
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 5. Sale of Leased Assets and Notes Receivable (continued):
The Company acquires leased or financed equipment with the intent to
subsequently transfer those assets, accounted for herein as a sale, to a trust
which issues lease backed certificates and notes receivables. As of June 30,
1997, the Company has acquired $7,689,056 in such leased or financed equipment
which is included in Equipment subject to lease and notes receivable. The
Company uses proceeds from its two warehouse lines of credit to purchase or
finance this equipment. During the holding period the Company recognizes the
revenues generated from these leases or notes and the interest expense related
to the drawdowns from the warehouse lines of credit.
On June 4, 1997, the Company entered into an agreement to transfer
certain assets and notes receivables with a net carrying value of $30,817,909 to
a trust for the purpose of the trust issuing contract backed certificates in
exchange for cash proceeds, of which $10 million was held back in a specified
account ("Pre-funding Account") to acquire additional assets from a subsidiary .
The Pre-Funding Account has a termination date of September 25, 1997. The
Company recognized a gain on this transaction of $127,209. The contract backed
certificates are recourse only to the assets used to collateralize the
obligation. Under the terms of the agreement, the Company will continue to
acquire and transfer additional assets to the trust over the twelve month period
beginning June 5, 1997 and ending June 4, 1998. In accordance with this
agreement, the Company transferred additional assets to the trust for
$3,629,166. These assets had a net carrying value of $3,527,757, resulting in a
gain of $101,409.
On October 11, 1996, the Company entered into an agreement to transfer
certain assets and notes receivables with a net carrying value of $24,141,511 to
a trust for the purpose of the trust issuing lease backed certificates in
exchange for cash proceeds. The Company recognized a gain on this transaction of
$307,069. The certificates are recourse only to the assets used to collateralize
the obligation. Under the terms of the agreement, the Company will continue to
acquire and transfer additional assets to the trust over the twelve month period
beginning October 12, 1996 and ending October 11, 1997. During the period
October 12, 1996 through May 1, 1997, the Company transferred additional assets
to the trust for $4,786,735. These assets had a net carrying value of
$4,254,031, resulting in a gain of $532,704. Subsequent to May 1, 1997, the
Company ceased to acquire and transfer additional assets to the trust under this
agreement.
On November 29, 1995, the Company entered into an agreement to transfer
certain assets and notes receivables with a net carrying value of $27,337,402 to
a trust for the purpose of the trust issuing lease backed certificates in
exchange for cash proceeds. The Company recognized a gain on this transaction of
$459,633. The leased backed certificates are recourse only to the assets used to
collateralize the obligation. Under the terms of the agreement, the Company
continued to acquire and transfer additional assets to the trust over the twelve
month period beginning November 30, 1995 and ending November 28, 1996. During
the period November 30, 1995 through June 30, 1996, the Company transferred
additional assets to the trust for $4,668,388. These assets had a net carrying
value of $4,225,596, resulting in a gain of $442,792.
In addition, in accordance with the November 29, 1995 agreement, during
the period July 1, through November 28, 1996, the Company transferred assets to
the trust for $4,052,704,. These assets had a net carrying value of $3,676,390,
resulting in a gain of $376,314.
9
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 6. Property and Equipment:
Major classes of property and equipment at June 30 are as follows:
1997 1996
---- ----
Land $ 1,077,830 $ 1,077,830
Buildings 7,420,201 7,352,608
Office furniture, fixtures and equipment 7,468,072 8,441,476
Other 924,523 843,450
----------- -----------
16,890,626 17,715,364
Less accumulated depreciation and amortization (10,881,577) (11,398,438)
Inventory held for resale - 616,682
----------- -----------
Net Property and Equipment $ 6,009,049 $ 6,933,608
=========== ===========
PAI owns its 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 $335,127 and $248,325 in interest
payments related to the IDB during the year ended June 30, 1997 and 1996,
respectively.
As of May 31, 1997, the Company sold certain assets and liabilities of its
subsidiary, which provided equipment maintenance services for end-users of
high-technology data processing equipment and graphic plotters, to an
unaffiliated company and recorded a gain on sale of property and equipment of
$544,732.
As of June 30, 1997, a portion of the Company's headquarters has been
leased to third parties. The remaining lease term is for less than one year and
the minimum lease payments receivable is $362,785.
Note 7. Investments in Securities:
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 - Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115). The Company adopted this statement on
July 1, 1994. This pronouncement prescribes specific accounting treatment for
investments based on their classification as either held-to-maturity securities
(HTM), available-for-sale securities (AFS) or trading securities, as defined in
the statement.
In connection with the three prior lease and note securitizations (see
Note 7) the Company has acquired Class C Equipment Investment Trust Certificates
(Class C Shares) and notes. The Class C Shares are classified as AFS and are
reported at their amortized cost of $4,658,771 and $1,248,843, as of June 30,
1997 and 1996, respectively, which approximates fair value. The Class C Shares
do not have a specified contractual maturity.
10
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 7. Investments in Securities (continued):
All equities held by the Company are classified as AFS and are reported
at their fair value of $446,518 and $38,480 at June 30, 1997 and 1996,
respectively. Gross unrealized gains on such securities as of June 30, 1997 and
1996 were $405,518 and $0, respectively.
Note 8. Fair Value of Financial Instruments:
Investments in Securities
The carrying amounts of investments in securities, available for sale,
reported in the balance sheets approximate their fair values.
Notes Receivable and Debt
The fair values of the Company's notes receivable and debt are estimated
based on the market prices of similar instruments or on the current market
interest rates for instruments with similar terms, maturities, and risks. The
estimated fair values of the Company's notes receivable and debt approximate the
carrying amounts reported in the balance sheets.
Note 9. 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.
As of June 30, 1997, the Company, through PAI, had access to one
short-term line of credit totaling $2.5 million, all of which was available.
Draw downs under this credit line are secured by the Company's receivable from
Phoenix Leasing Partnerships and its investments in class C shares.
In addition, the Company has two secured short-term warehouse lines of
credit totaling $37.5 million, which are used to provide interim financing for
the acquisition of equipment and the financing of notes receivable. As of June
30, 1997 and 1996, $10.3 and $16.9 million , respectively, of these lines have
been drawn down and are due in one year or less. 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 banks.
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 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.
11
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 10. Long-Term Debt:
Long-term debt consists of the following at June 30:
1997 1996
---- ----
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 $167,650. Note is amortized over 83
months with monthly payments of $559 with a
final payment of $121,267. $ 147,532 $ 154,238
Note payable to a bank, collateralized by the
assets of Phoenix Leasing Liquidation
Corporation, a subsidiary of the Company, with
a variable rate of interest tied to the bank's
prime rate payable in 30 consecutive monthly
installments - 466,661
---------- ----------
$ 147,532 $ 620,899
========== ==========
The aggregate long-term debt maturities for the fiscal years ended June 30, are
as follows:
1998 $ 6,706
1999 6,706
2000 6,706
2001 127,414
----------
Total $ 147,532
==========
Note 11. 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 for the years ended June 30, 1997 and 1996, respectively.
Note 12. Leased Facilities:
The Company leases office and warehouse space in various parts of the
country and had annual rental expense of approximately $437,000 and $417,000 for
the years ended June 30, 1997 and 1996, respectively.
12
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 13. Income Taxes:
The Company's income or loss for tax reporting purposes is included in the
consolidated and combined tax returns filed by PAI which are prepared on the
accrual basis of accounting. In accordance with a Tax Sharing Agreement
effective July 1, 1991, between the Company and PAI, PAI has assumed all tax
liabilities and benefits arising from the Company's income or loss.
The Company computes and records its tax attributes and the related
benefit or provision is transferred to PAI.
The provision (benefit) for income taxes for the year ended June 30
consists of the following:
1997 1996
---- ----
Current tax benefit $ (111,925) $(551,913)
Deferred tax expense 670,305 598,161
---------- ---------
$ 782,230 $ 46,248
========== =========
Cumulative temporary differences of $10,097,889 and $7,977,571 as of June
30, 1997 and 1996, respectively, are primarily related to differences in book
and tax accounting treatments for leveraged leases.
The difference between the effective tax rate and statutory tax rate is
due to certain expenses deductible for financial reporting purposes but not for
tax purposes, state tax expense net of federal benefit and other miscellaneous
items.
Note 14. Transactions with Related Parties:
The Company provides an interest bearing line of credit totaling
$8,000,000 to PAI's controlling shareholder which is secured by common stock of
Phoenix Precision Graphics, Inc. (a Nevada corporation, owned by the principal
shareholder). As of June 30, 1997 and 1996, $511,493 and $6,646,209 of this line
of credit was outstanding and is included in notes receivable from related
party. As of June 30, 1997 and 1996, Phoenix Precision Graphics is in a start-up
mode and has cumulative losses of $13,236,982 and $9,120,711, respectively.
The Company provides an interest bearing line of credit to PAI's
controlling shareholder, which is secured by common stock of Phoenix Fiberlink
Inc. (a Nevada Corporation, owned by the principal shareholder). As of June 30,
1997 and 1996, $199,105 and $2,121,484 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 an affiliate of $515,137 and
$556,453 for the years ended June 30, 1997 and 1996, respectively. This
management fee is included in Portfolio management fees.
The Company paid an affiliate an asset management fee of $305,770 during
the year ended June 30, 1996. This asset management fees is included in
equipment lease operations, maintenance, remarking and administrative fees.
13
<PAGE>
PHOENIX LEASING INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
Note 14. Transactions with Related Parties (continued):
As of January 1, 1997, the Company transferred certain assets and
liabilities to a non-consolidated affiliate, ReSource/Phoenix, Inc., wholly
owned by the Company's controlling shareholder. No gain or loss was recorded as
a result of this transaction. In addition, the Company transferred all of its
third party resource service contracts to ReSource/Phoenix, Inc. The Company
recorded fees from these contracts of $657,295 for the period July 1 through
December 31, 1996 and $980,981 for the year ended June 30, 1996. For the period
January 1 through June 30, 1997, ReSource/Phoenix, Inc. recorded fees of
$746,333. ReSource/Phoenix, Inc. will continue to provide Accounting, Finance,
Human Resources, Legal, Investor Administration, and Information Technology
services to the Company. The Company paid ReSource/Phoenix, Inc. $1,089,012 for
these services for the period January 1 through June 30, 1997, the expense of
which is included in selling, general and administrative for the year ended June
30, 1997.
Note 15. 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, 1997 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 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.
14
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,072
<SECURITIES> 0
<RECEIVABLES> 914
<ALLOWANCES> 677
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,624
<DEPRECIATION> 10,538
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