Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 (fee
required)
For the Year Ended December 31, 1996
OR
|_| Transition report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934 (no fee
required) For the transition period from ____ to
----
Commission File number 000-19160
ATEL Cash Distribution Fund III, L.P.
California 94-3100855
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Partnership
Units
Indicate by a 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 |_|
State the aggregate market value of voting stock held by non-affiliates of the
registrant.
Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405) is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
|X|
<PAGE>
PART I
Item 1. BUSINESS
General Development of Business
ATEL Cash Distribution Fund III, L.P. (the Partnership), was formed under the
laws of the State of California in September 1989. The Partnership was formed
for the purpose of acquiring equipment to engage in equipment leasing and sales
activities.
The Partnership conducted a public offering of 5,000,000 units of Limited
Partnership Interest (Units) (which was increased to 7,500,000 Units at the
option of the General Partners), at a price of $10 per Unit which terminated on
January 3, 1992. As of that date, the Partnership had sold an aggregate of
7,385,584 Units for a total capitalization of $73,855,840.
The Partnership's principal objectives are to invest in a diversified portfolio
of equipment which will (i) preserve, protect and return the Partnership's
invested capital; (ii) generate substantial distributions to the partners of
cash from operations and cash from sales or refinancing, with any balance
remaining after certain minimum distributions to be used to purchase additional
equipment during the reinvestment period, ending December 31, 1999 and (iii)
provide significant distributions following the reinvestment period and until
all equipment has been sold. The Partnership is governed by its Limited
Partnership Agreement.
Narrative Description of Business
The Partnership has acquired and intends to acquire various types of equipment
and to lease such equipment pursuant to "Operating" leases and "Full Payout"
leases, where "Operating" leases are defined as being leases in which the
minimum lease payments during the initial lease term do not recover the full
cost of the equipment and "Full Payout" leases recover such cost. It was the
intention of the General Partner that no more than 30% of the aggregate purchase
price of equipment would be subject to "Operating" leases upon final investment
of the Net Proceeds of the Offering and that no more than 20% of the aggregate
purchase price of equipment would be invested in equipment acquired from a
single manufacturer.
The Partnership only purchases equipment for which a lease exists or for which a
lease will be entered into at the time of the purchase. The Partnership has
completed its initial acquisition stage with the investment of the net proceeds
from the public offering of Units. As noted above, however, it intends to
continue to invest any cash flow in excess of certain amounts required to be
distributed to the Limited Partners in additional items of leased equipment
through December 31, 1999.
The Partnership's objective was to lease a minimum of 75% of the equipment
acquired with the net proceeds of the offering to lessees which (i) had an
aggregate credit rating by Moody's Investor Service, Inc. of Baa or better, or
the credit equivalent as determined by the General Partners, with the aggregate
rating weighted to account for the original equipment cost for each item leased;
or (ii) were established hospitals with histories of profitability or
municipalities. The balance of the original equipment portfolio could include
equipment leased to lessees which, although deemed creditworthy by the General
Partners, would not satisfy the general credit rating criteria for the
portfolio. At December 31, 1996, in excess of 75% of the equipment acquired had
been leased to lessees with an aggregate credit rating of Baa or better or to
such hospitals or municipalities.
<PAGE>
The General Partners will seek to limit the amount invested in equipment to any
single lessee to not more than 25% of the aggregate purchase price of equipment
owned at any time during the reinvestment period. No single lessee accounted for
10% or more of the Partnership's lease revenues during 1996.
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease term and type of equipment. The ability of the Partnership to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depend on various factors (many of which are not in
the control of the General Partners or the Partnership), such as general
economic conditions, including the effects of inflation or recession, and
fluctuations in supply and demand for various types of equipment resulting from,
among other things, technological and economic obsolescence.
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
Equipment Dispositions:
Through December 31, 1996, the Partnership has disposed of certain leased assets
as set forth below:
<TABLE>
<CAPTION>
Excess of
Type of Original Equipment Cost, Rents Over
Equipment Excluding Acquisition Fees Sale Price Expenses *
--------- -------------------------- ---------- ----------
<S> <C> <C> <C>
Construction $5,067,341 $1,804,230 $4,948,930
Data processing 5,009,495 3,079,563 4,163,165
Materials handling 4,647,675 1,638,504 4,682,067
Mining 4,173,051 4,566,777 575,556
Food processing 3,791,002 1,400,000 4,000,050
Transportation 3,599,822 1,461,908 3,938,386
Point-of-sale 3,244,648 1,048,437 3,613,688
Commercial aircraft 2,405,081 1,656,694 226,541
Furniture & fixtures 2,041,222 1,033,020 963,935
Earth moving 560,232 295,000 427,663
Other 389,933 172,170 284,505
--------------- ---------------- -----------------
$34,929,502 $18,156,303 $27,824,486
=============== ================ =================
</TABLE>
* Includes only those expenses directly related to the production of the related
rents.
Equipment Leasing Activities:
The Partnership has acquired a diversified portfolio of equipment. The equipment
has been leased to lessees in various industries. The following tables set forth
the types of equipment acquired by the Partnership through December 31, 1996 and
the industries to which the assets have been leased. <PAGE>
Purchase price excluding Percentage of total
Asset types acquisition fees acquisitions
----------- ---------------- ------------
Earth moving $24,102,343 24.19%
Mining 10,018,844 10.06%
Over-the-road tractors and trailers 9,009,547 9.04%
Other 8,342,298 8.37%
Aircraft 7,571,020 7.60%
Material handling 7,355,483 7.38%
Point-of-sale 6,343,897 6.37%
Food processing 5,947,041 5.97%
Furniture, fixtures and equipment 4,874,797 4.89%
Utility 4,854,844 4.87%
Chemicals manufacturing 4,504,918 4.52%
Printing 3,756,764 3.77%
Medical 2,155,489 2.16%
Railroad locomotives 792,657 0.81%
---------------- -----------------
$99,629,942 100.00%
================ =================
Purchase price excluding Percentage of total
Industry of lessee acquisition fees acquisitions
---------------- ------------
Mining, coal $30,687,214 30.80%
Foods & food processing 9,321,102 9.36%
Manufacturing of auto/truck parts 7,455,451 7.48%
Retail, general 6,834,152 6.86%
Utilities 5,696,857 5.72%
Manufacturing, medical instruments 5,275,000 5.29%
Manufacturing, other 5,095,798 5.11%
Transportation, trucking 4,896,425 4.91%
Chemicals 4,384,918 4.40%
Printing 3,756,764 3.77%
Insurance 2,833,575 2.84%
Mining, metals 2,591,961 2.60%
Transportation, commercial air 2,296,020 2.30%
Medical 2,155,489 2.16%
Retail, foods 2,112,747 2.12%
Retail, apparel 2,041,222 2.05%
Oil & gas 874,180 0.88%
Transportation, rail 792,657 0.80%
Electronics 120,000 0.12%
Primary metals 408,410 0.43%
---------------- -----------------
$99,629,942 100.00%
================ =================
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 1996, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or materially
important physical properties other than the equipment held for lease as set
forth in Item 1.
<PAGE>
Item 3. LEGAL PROCEEDINGS
No material legal proceedings are currently pending against the Partnership or
against any of its assets.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS
AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states and by the Partnership
Agreement. However, as a result of such restrictions, the size of the
Partnership and its investment objectives, to the General Partners' knowledge,
no established public secondary trading market has developed and it is unlikely
that a public trading market will develop in the future.
Holders
As of December 31, 1996, a total of 5,059 investors were record holders of Units
in the Partnership.
Dividends
The Limited Partners of the Partnership are entitled to certain distributions as
provided under the Limited Partnership Agreement.
The General Partners shall have sole discretion in determining the amount of
distributions; provided, however, that the General Partners will not reinvest in
equipment, but will distribute, subject to payment of any obligations of the
Partnership, such available cash from operations and cash from sales or
refinancing as may be necessary to cause total distributions to the Limited
Partners for each year during the reinvestment period to equal the following
amounts per unit: $1.20 in 1993; $1.30 in 1994 and 1995; $1.40 in 1996 and 1997
and $1.50 in 1998 and 1999. The reinvestment period ends December 31, 1999.
The rates for monthly distributions from 1996 operations were made monthly and
quarterly. Per Unit monthly distributions were $0.11667in February and March
1996, $0.08333 in April 1996 and $0.10 in May through December 1996 and January
1997. Per Unit quarterly distributions were $0.31667 in April 1996, $0.30 in
July and October 1996 and in January 1997. Total distributions were $1.21667 per
Unit Distributions were from cash flows from operations and sales proceeds in
1996.
The rates for monthly distributions from 1995 operations were $.11667 per Unit
for monthly distributions made from February through December 1995 and in
January 1996. The rates for quarterly distributions made in April, July and
October 1995 and in January 1996 were $.35 per Unit. Total distributions were
$1.40 per Unit. Distributions were from cash flows from operations and sales
proceeds in 1995.
The rates for monthly distributions from 1994 operations were $.11667 per Unit
for monthly distributions made from February through December 1994 and in
January 1995. The rates for quarterly distributions made in April, July and
October 1994 and in January 1995 were $.35 per Unit. Total distributions were
$1.40 per Unit. Distributions were from cash flows from operations in 1994.
<PAGE>
The following table presents summarized information regarding distributions to
Limited Partners:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Distributions of net income $0.38 $0.27 $0.23 $0.25 $0.47
Return of investment 0.87 1.13 1.15 1.05 0.78
---------------- ---------------- ----------------- ----------------- ----------------
Distributions per unit 1.25 1.40 1.38 1.30 1.25
Differences due to timing of distributions (0.03) - 0.02 - 0.05
---------------- ---------------- ----------------- ----------------- ----------------
Nominal distribution rates from above $1.22 $1.40 $1.40 $1.30 $1.30
================ ================ ================= ================= ================
</TABLE>
Commencing in 1991, Limited Partners may elect to receive distributions on a
monthly basis. Owners of 2,000 or more units may make the election without
charge. Owners of less than 2,000 units may make the election upon payment of a
$20.00 annual fee.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership for the
years ended December 31, 1996, 1995, 1994, 1993 and 1992. This financial data
should be read in conjunction with the financial statements and related notes
included under Item 8 of this report.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues $11,709,770 $14,332,795 $14,368,274 $13,829,714 $13,915,468
Net income $2,851,478 $2,032,662 $1,688,646 $1,871,587 $3,522,915
Weighted average Limited Partner Units
(Units) outstanding 7,376,934 7,378,884 7,379,447 7,383,634 7,384,530
Net income per Unit, based on
weighted average Units outstanding $0.38 $0.27 $0.23 $0.25 $0.47
Distributions per Unit, based on
weighted average Units outstanding $1.25 $1.40 $1.38 $1.30 $1.25
Total Assets $29,791,041 $41,900,878 $54,727,541 $67,533,367 $66,760,353
Total Non-recourse Debt $6,068,326 $11,451,641 $15,675,776 $19,783,538 $9,500,907
Total Partners' Capital $23,081,480 $29,451,915 $37,757,442 $46,279,817 $54,024,631
</TABLE>
In 1996, cash flows and distributions to Limited Partners were not sufficient to
allow the Partnership to reinvest in additional equipment.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The liquidity of the Partnership will vary in the future, increasing to the
extent cash flows from leases and proceeds from asset sales exceed expenses, and
decreasing as lease assets are acquired, as distributions are made to the
Limited Partners and to the extent expenses exceed cash flows from leases and
proceeds from asset sales.
<PAGE>
As another source of liquidity, the Partnership has contractual obligations with
a diversified group of lessees for fixed lease terms at fixed rental amounts. As
the initial lease terms expire the Partnership will re-lease or sell the
equipment. The future liquidity beyond the contractual minimum rentals will
depend on the General Partner's success in re-leasing or selling the equipment
as it comes off lease.
The Partnership participates with the General Partner and certain of its
affiliates in a $90,000,000 revolving line of credit with a financial
institution that includes certain financial covenants. The line of credit
expires on October 28, 1997. As of December 31, 1996 the Partnership had no
borrowings under this line of credit and the remaining availability was
$38,857,117.
The Partnership anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to the General Partner
and providing for cash distributions to the Limited Partners.
At December 31, 1996, there were no commitments to purchase additional lease
assets.
As of December 31, 1996, cash balances consisted of working capital and
$1,447,854 reserved for distributions in January 1997.
The Partnership currently has available adequate reserves to meet its immediate
cash requirements, but in the event those reserves were found to be inadequate,
the Partnership would likely be in a position to borrow against its current
portfolio to meet such requirements. The General Partners envision no such
requirements for operating purposes.
As of December 31, 1996, the Partnership had borrowed approximately $32,425,000.
The remaining unpaid balance of such borrowings at December 31, 1996 was
$6,068,326. The borrowings are non-recourse to the Partnership, that is, the
only recourse of the lender will be to the equipment or corresponding lease
acquired with the loan proceeds. Through December 31, 1996, debt proceeds were
approximately 40% of the aggregate cost of equipment acquired by the
Partnership. The Agreement of Limited Partnership limits the amount of
additional debt that the Partnership may incur at any point in time. The
Partnership may only incur additional debt to the extent that the then
outstanding balance of all such debt, including the additional debt, does not
exceed 40% of the original cost of the lease assets then owned by the
Partnership, including any such assets purchased with the proceeds of such
additional debt.
The Partnership commenced regular distributions, based on cash flows from
operations, beginning with the second quarter of 1990. See Items 5 and 6 of this
report for additional information regarding the distributions.
If inflation in the general economy becomes significant, it may affect the
Partnership inasmuch as the residual (resale) values and rates on re-leases of
the Partnership's leased assets may increase as the costs of similar assets
increase. However, the Partnership's revenues from existing leases would not
increase, as such rates are generally fixed for the terms of the leases without
adjustment for inflation.
If interest rates increase significantly, the lease rates that the Partnership
can obtain on future leases will be expected to increase as the cost of capital
is a significant factor in the pricing of lease financing. Leases already in
place, for the most part, would not be affected by changes in interest rates.
<PAGE>
A number of the Partnership's leases are scheduled to terminate in 1997. If they
are terminated as scheduled, gross lease rents from operating leases are
expected to decrease by $2,905,700 (from $9,980,700 in 1996 to $7,075,000 in
1997). Depreciation expense related to operating leases is also expected to
decrease. Cash flows from direct financing leases are expected to decrease by
about $712,000 (from $2,045,000 in 1996 to $1,333,000 in 1997).
1996 vs. 1995
Cash flows from operations decreased by approximately $1,900,000. This decrease
resulted primarily from decreased operating lease rents ($2,709,574). This was
partially offset by decreased interest expense ($434,373). Operating lease rents
remain the Partnership's most significant source of cash flows.
Cash flows from investing activities increased by about $2,400,000. Most of this
increase (about $2,058,000) resulted from increased sales of lease assets. The
primary sources of cash from investing activities are proceeds from sales of
assets and rents from direct financing leases. Such direct financing lease rents
increased by about $112,000 compared to 1995.
There were no financing sources of cash in 1996.
1995 vs. 1994
Rents from operating leases were the Partnership's primary source of cash from
operations in 1995. Cash flows from operations decreased by approximately
$1,068,000. Of this amount, $790,000 was due to decreased lease revenues. The
remainder is due to the increase in the Partnership's receivables at the end of
1995 compared to the end of 1994. This is the result of differences in the
timing of collections of such receivables at the end of the year compared to
1994.
Cash flows from investing activities increased by $3,102,000 compared to 1994.
Proceeds from the sales of lease assets were the largest source of such cash
flows. Such proceeds increased from $682,595 in 1994 to $3,276,705 in 1995. The
other major source of cash from investing activities was lease rents from direct
financing leases accounted for as reductions in the Partnership's net investment
in direct financing leases.
In 1995, the Partnership's only source of cash from financing activities was
$1,225,652 in proceeds from non-recourse debt.
Results of Operations
As of March 1, 1990, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Partnership. As of that date,
the Partnership commenced operations in its primary business (leasing
activities). Operations resulted in net income of $1,087,302 in 1991, $3,522,915
in 1992, $1,871,587 in 1993, $1,688,646 in 1994, $2,032,662 in 1995 and
$2,851,478 in 1996.
As of December 31, 1996, 19% (28% in 1995 and 30% in 1994) of the Partnership's
lease assets (based on equipment cost) was leased to lessees in the mining
industry. Leases are subject to the general partners' credit committee review.
The leases provide for the return of the equipment upon default. The
concentration of the Partnership's assets in these industries is not known to
have had any effect on the Partnership's results of operations nor is there any
known trend regarding these industries that would effect its operations in
future periods.
<PAGE>
1996 vs. 1995
Net income increased from $2,032,662 in 1995 to $2,851,478 in 1996. The increase
resulted from a number of factors. Operating lease rents decreased by $2,709,574
compared to 1995, but this was largely offset by the resulting decrease in
depreciation expense ($1,985,825) on those assets. Of this decline in operating
lease revenues, approximately $428,000 was due to the 1996 default of Barney's,
Inc. (Barney's), one of the Partnership's lessees, as further described below.
The most significant changes in expenses were the reductions in interest expense
($434,373) and in the Partnership's provision for losses and impairments
($708,527). The 1995 provision included $471,906 relating to the default of
Barney's. There were no similar defaults in 1996. Interest expense declined due
to scheduled debt payments and due to the early extinguishment of the
non-recourse debt on the Barney's lease assets.
Gains on sales of assets increased by $189,692 compared to 1995. Included in the
1996 gains was $417,975 realized on the sale of the Barney's lease assets in
July 1996. The sale also relieved the Partnership of the related non-recourse
debt and resulted in an extraordinary gain on the early extinguishment of that
debt in the amount of $97,608.
Management fees have decreased by $178,059. This decrease is related to the
decrease in lease revenues and to the decrease in distributions to the limited
partners.
1995 vs. 1994
In 1995, net income increased to $2,032,662 compared to $1,688,646 in 1994.
In 1995, revenues from operating leases decreased by $612,086. The decrease was
the result of scheduled lease terminations and subsequent sales of the
underlying assets. Revenues from direct financing leases decreased by $156,874.
This decrease was due to the use of the financing method of accounting for
direct financing leases. Gross rents from direct financing leases (including the
portion accounted for as a reduction of the Partnership's net investment in
direct financing leases) actually increased by $44,791. These decreases in
revenues were offset in 1995 by an increase in the amounts of gains recognized
on the sales of lease assets. Such gains increased by $798,618 compared to 1994.
In all, revenues declined by about 0.2% ($35,479) compared to 1994.
Depreciation expense decreased by $696,958 compared to 1994. The decrease was
the result of scheduled operating lease terminations and asset sales as noted
above. Interest expense declined as non-recourse debt balances were reduced
through scheduled debt payments.
In January 1996, Barney's, Inc. (Barney's), one of the Partnership's lessees,
filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The
Partnership's lease transaction had been financed primarily with non-recourse
debt. In addition, the Partnership held certain deposits which it ultimately
retained.
The following table summarizes the cash flows relating to the lease transaction
with Barney's through December 31, 1995:
Purchase of lease assets, at cost ($2,041,222)
Rents received and retained by the Partnership 752,853
Non-recourse debt proceeds received by the Partnership 1,225,652
----------------
(62,717)
Deposits received from lessee which were retained by
the Partnership 75,340
----------------
Net cash flows $12,623
================
<PAGE>
Effective January 1, 1995, the Partnership adopted Financial Accounting
Standards Board Statement Number 121 (FAS 121). As a result, the Partnership
established a reserve for the impairment of the value of assets leased to
Barney's in the amount of $471,906. Of this amount, $338,187 related to the
adoption of FAS 121. See Note 9 to the financial statements included as Item 8
of Part I of this report for additional information regarding the reserve.
The reserve related to Barney's constitutes the majority of the Partnership's
provision for losses and impairments. Reserves for losses were first established
in the fourth quarter of 1994. The amounts provided, exclusive of the amounts
related to Barney's, increased over 1994. Provisions for losses and impairments
were made in one quarter in 1994 and were made in all four quarters in 1995.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto at
pages 11 through 25.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
ATEL Cash Distribution Fund III, L.P.
We have audited the accompanying balance sheets of ATEL Cash Distribution Fund
III, L.P. as of December 31, 1996 and 1995, and the related statements of
operations, changes in partners' capital and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership'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 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Cash Distribution Fund
III, L.P. at December 31, 1996 and 1995 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
February 7, 1997
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
---- ----
Cash and cash equivalents $2,766,552 $1,874,774
Accounts receivable 821,480 873,451
Notes receivable - 44,861
Investments in equipment and leases 26,203,009 39,107,792
----------------- ----------------
Total assets $29,791,041 $41,900,878
================= ================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $6,068,326 $11,451,641
Accrued interest 60,162 125,026
Accounts payable:
General Partners 107,589 109,779
Other 259,442 290,428
Deposits due to lessees - 75,340
Unearned operating lease income 214,042 396,749
----------------- ----------------
Total liabilities 6,709,561 12,448,963
Partners' capital:
General Partners 126,265 97,750
Limited Partners 22,955,215 29,354,165
----------------- ----------------
Total partners' capital 23,081,480 29,451,915
----------------- ----------------
Total liabilities and partners' capital $29,791,041 $41,900,878
================= ================
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Leasing activities:
Operating leases $9,980,709 $12,690,283 $13,302,369
Direct financing leases 434,019 563,519 720,393
Leveraged leases 85,030 75,505 96,282
Gain (loss) on sale of equipment 1,143,807 954,115 155,497
Other 11,520 3,672 49,985
Interest income 54,685 45,701 43,748
----------------- ----------------- ----------------
11,709,770 14,332,795 14,368,274
----------------- ----------------- ----------------
Expenses:
Depreciation 7,051,625 9,037,450 9,734,408
Interest expense 630,450 1,064,823 1,395,276
Equipment and incentive management fees to General Partner 722,425 900,484 999,086
Provision for losses and impairments 118,023 826,550 36,626
Administrative cost reimbursements to General Partner 245,242 300,952 340,269
Professional fees 38,522 59,237 60,552
Other 149,613 110,637 113,411
----------------- ----------------- ----------------
8,955,900 12,300,133 12,679,628
----------------- ----------------- ----------------
Income before extraordinary item 2,753,870 2,032,662 1,688,646
Extraordinary gain on early extinguishment of debt 97,608 - -
----------------- ----------------- ----------------
Net income $2,851,478 $2,032,662 $1,688,646
================= ================= ================
Net income:
General Partners $28,515 $20,327 $16,886
Limited Partners 2,822,963 2,012,335 1,671,760
----------------- ----------------- ----------------
$2,851,478 $2,032,662 $1,688,646
================= ================= ================
Income before extraordinary item per limited partnership unit $0.37 $0.27 $0.23
Extraordinary gain on early extinguishment of debt per limited
partnership unit 0.01 - -
----------------- ----------------- ----------------
Net income per Limited Partnership unit $0.38 $0.27 $0.23
================= ================= ================
Weighted average number of units outstanding 7,376,934 7,378,884 7,379,447
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
----- ------ -------- -----
<S> <C> <C> <C> <C>
Balance December 31, 1993 7,381,134 $46,219,280 $60,537 $46,279,817
Repurchases of Limited Partnership Units (2,250) (9,536) (9,536)
Distributions to limited partners ($1.38 per Unit) (10,201,485) (10,201,485)
Net income 1,671,760 16,886 1,688,646
---------------- ----------------- ----------------- ----------------
Balance December 31, 1994 7,378,884 37,680,019 77,423 37,757,442
Distributions to limited partners ($1.40 per Unit) (10,338,189) (10,338,189)
Net income 2,012,335 20,327 2,032,662
---------------- ----------------- ----------------- ----------------
Balance December 31, 1995 7,378,884 29,354,165 97,750 29,451,915
Distributions to limited partners ($1.25 per Unit) (9,213,305) (9,213,305)
Repurchases of Limited Partnership Units (2,600) (8,608) (8,608)
Net income 2,822,963 28,515 2,851,478
---------------- ----------------- ----------------- ----------------
Balance December 31, 1996 7,376,284 $22,955,215 $126,265 $23,081,480
================ ================= ================= ================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $2,851,478 $2,032,662 $1,688,646
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation 7,051,625 9,037,450 9,734,408
Gain on sales of equipment (1,143,807) (954,115) (155,497)
Income from investment in leveraged leases (85,030) (75,505) (96,282)
Provision for losses and impairments 118,023 826,550 36,626
Extraordinary gain on early extinguishment of debt (97,608) - -
Changes in operating assets and liabilities:
Accounts receivable 51,971 (281,673) 323,788
Notes receivable 44,861 44,860 44,861
Accounts payable, General Partner (2,190) (35,188) (123,323)
Accounts payable, other (30,986) (156,200) (109,028)
Accrued interest (64,864) (58,637) (59,881)
Deposits due to lessees (75,340) - 75,340
Unearned operating lease income (182,707) (46,976) 41,203
----------------- ----------------- ----------------
Net cash provided by operating activities 8,435,426 10,333,228 11,400,861
Investing activities:
Proceeds from sales of lease assets 5,335,135 3,276,705 682,595
Reductions of net investment in direct financing leases 1,611,128 1,499,011 1,297,346
Reductions of net investment in leveraged leases 17,709 19,180 20,185
Investments in equipment on direct financing leases - (139,600) (490,255)
Purchases of equipment on operating leases - (117,744) -
Investments in leveraged leases - - (73,939)
----------------- ----------------- ----------------
Net cash provided by investing activities 6,963,972 4,537,552 1,435,932
Financing activities:
Distributions to limited partners (9,213,305) (10,338,189) (10,201,485)
Repayments of non-recourse debt (5,285,707) (5,449,787) (4,107,762)
Repurchase of limited partner units (8,608) - (9,536)
Proceeds from non-recourse debt - 1,225,652 -
Borrowings under lines of credit - - 1,044,138
Repayments of borrowings under lines of credit - - (1,044,138)
----------------- ----------------- ----------------
Net cash used in financing activities (14,507,620) (14,562,324) (14,318,783)
----------------- ----------------- ----------------
Net increase (decrease) in cash and cash equivalents 891,778 308,456 (1,481,990)
Cash and cash equivalents at beginning of period 1,874,774 $1,566,318 3,048,308
----------------- ----------------- ----------------
Cash and cash equivalents at end of period $2,766,552 $1,874,774 $1,566,318
================= ================= ================
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $695,314 $1,123,460 $1,455,157
================= ================= ================
Supplemental disclosure of non-cash transactions:
Operating lease assets reclassified to direct financing leases $674,771
Less accumulated depreciation (554,771)
-----------------
$120,000
=================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Organization and partnership matters:
ATEL Cash Distribution Fund III, L.P. (the Partnership), was formed under the
laws of the State of California in September 1989, for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. Contributions in
the amount of $600 were received as of September 7, 1989, $100 of which
represented the General Partners' continuing interest, and $500 of which
represented the Initial Limited Partners' capital investment.
Upon the sale of the minimum amount of Units of Limited Partnership Interest
(Units) of $1,200,000 and the receipt of the proceeds thereof on March 1, 1990,
the Partnership commenced operations.
The General Partners are ATEL Financial Corporation (ATEL), a California
corporation and two individuals, who are principals of ATEL Capital Group, the
parent of ATEL.
The Partnership's business consists of leasing various types of equipment. As of
December 31, 1996, the original terms of the leases ranged from two years to
eight years and nine months.
Pursuant to the Limited Partnership Agreement, the General Partners receive
compensation and reimbursements for services rendered on behalf of the
Partnership (Note 5.) The General Partners are required to maintain in the
Partnership reasonable cash reserves for working capital, the repurchase of
Units and contingencies.
2. Summary of significant accounting policies:
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the life of the
related leases.
Direct financing leases:
Income from direct financing lease transactions is reported on the financing
method of accounting, in which the Partnership's investment in the leased
property is reported as a receivable from the lessee to be recovered through
future rentals and the realization of residual values. The income portion of
each rental payment is calculated so as to generate a constant rate of return on
the net receivable outstanding.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. Summary of significant accounting policies (continued):
Investment in leveraged leases:
Leases which are financed principally with non-recourse debt at lease inception
and which meet certain other criteria are accounted for as leveraged leases.
Leveraged lease contracts receivable are stated net of the related non-recourse
debt service (which includes unpaid principal and aggregate interest on such
debt) plus estimated residual values. Unearned income represents the excess of
anticipated cash flows (after taking into account the related debt service and
residual values) over the investment in the lease and is amortized using a
constant rate of return applied to the net investment when such investment is
positive.
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
Income taxes:
The Partnership does not provide for income taxes since all income and losses
are the liability of the individual partners and are allocated to the partners
for inclusion in their individual tax returns.
The tax basis of the Partnership's net assets and liabilities varies from the
amounts presented in these financial statements.
1996 1995
---- ----
Financial statement basis of net assets
and liabilities $23,081,480 $29,451,915
Tax basis of net assets and liabilities 19,194,869 20,011,995
----------------- -----------------
Difference $3,886,611 $9,439,920
================= =================
The following reconciles the net income reported in these financial statements
to the income (loss) reported on the Partnership's federal tax return
(unaudited):
1996 1995
---- ----
Net income per financial statements $2,851,478 $2,032,662
Adjustment to depreciation expense 610,802 (721,496)
Extraordinary gain on extinguishment of debt (97,608) -
Adjustments to revenues 4,922,093 4,143,721
Provision for losses and impairments 118,023 826,550
----------------- -----------------
Net income per federal tax return $8,404,788 $6,281,437
================= =================
Credit Risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk include cash and cash equivalents. The Partnership
places its cash deposits and temporary cash investments with creditworthy, high
quality financial institutions. The concentration of such deposits and temporary
cash investments is not deemed to create a significant risk to the Partnership.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. Summary of significant accounting policies (continued):
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 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.
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
3. Investments in equipment and leases:
As of December 31, 1996, the Partnership's investments in equipment and leases
consist of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
Lease ifications or
1995 Additions Amortization Dispositions 1996
---- --------- ------------ ------------ ----
<S> <C> <C> <C> <C> <C>
Net investment in operating leases $32,622,297 ($6,998,510) ($3,769,987) $21,853,800
Net investment in direct financing leases 5,254,109 (1,611,128) 37,968 3,680,949
Net investment in leveraged leases 1,623,406 67,321 (933,073) 757,654
Assets held for lease or sale 432,348 (53,115) 40,665 419,898
Reserve for losses and impairments (824,368) ($118,023) - 433,099 (509,292)
---------------- ---------------- ----------------- ----------------- ----------------
$39,107,792 ($118,023) ($8,595,432) ($4,191,328) $26,203,009
================ ================ ================= ================= ================
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
3. Investments in equipment and leases (continued):
Operating leases:
Property on operating lease consists of the following as of December 31, 1995,
additions and dispositions during 1996 and as of December 31, 1996:
<TABLE>
<CAPTION>
Balance Reclass- Balance
December 31, ifications or December 31,
1995 Additions Dispositions 1996
---- --------- ------------ ----
<S> <C> <C> <C> <C>
Mining $18,592,029 ($1,094,121) $17,497,908
Manufacturing 12,773,604 (2,629,098) 10,144,506
Aircraft 5,275,000 - 5,275,000
Utilities 3,946,886 - 3,946,886
Transportation 7,777,179 (3,853,371) 3,923,808
Printing 3,454,353 - 3,454,353
Food processing 2,438,524 - 2,438,524
Medical 2,155,489 - 2,155,489
Materials handling 3,987,085 (2,028,692) 1,958,393
Communications 290,175 - 290,175
Other 345,815 (280,120) 65,695
Furniture, fixtures and equipment 2,041,222 (2,041,222) -
---------------- ----------------- ----------------- ----------------
63,077,361 (11,926,624) 51,150,737
Less accumulated depreciation (30,455,064) ($6,998,510) 8,156,637 (29,296,937)
---------------- ----------------- ----------------- ----------------
$32,622,297 ($6,998,510) ($3,769,987) $21,853,800
================ ================= ================= ================
</TABLE>
Direct financing leases:
As of December 31, 1996, investment in direct financing leases consists of
mining equipment, turbine generating units, and office furniture and fixtures.
The following lists the components of the Partnership's investment in direct
financing leases as of December 31, 1996 and 1995. <TABLE> <CAPTION>
1996 1995
---- ----
<S> <C> <C>
Total minimum lease payments receivable $3,165,207 $5,070,206
Estimated residual values of leased equipment (unguaranteed) 1,088,580 1,170,610
----------------- -----------------
Investment in direct financing leases 4,253,787 6,240,816
Less unearned income (572,838) (986,707)
----------------- -----------------
Net investment in direct financing leases $3,680,949 $5,254,109
================= =================
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
3. Investments in equipment and leases (continued):
Direct financing leases (continued):
At December 31, 1996, the aggregate amounts of future minimum lease payments
under operating and direct financing leases are as follows:
Year ending Direct
December 31, Operating Financing Total
------------ --------- --------- -----
1997 $7,074,996 $1,333,179 $8,408,175
1998 4,324,264 1,099,859 5,424,123
1999 816,880 546,039 1,362,919
2000 - 144,416 144,416
2001 - 23,837 23,837
Thereafter - 17,877 17,877
---------------- ---------------- -----------------
$12,216,140 $3,165,207 $15,381,347
================ ================ =================
Leveraged leases:
The Partnership participates in leveraged lease transactions in which the costs
of assets leased to others is financed primarily by loans from financial
institutions, but the ownership of the assets is retained by the Partnership.
The lessees' rental obligations are assigned to the financial institutions and
the leased property is pledged as collateral for the loans and are without
recourse to the general credit of the Partnership. Equipment under leveraged
leases consists of coal mining and processing equipment. The net investment in
leveraged leases at December 31, 1996 and 1995 is as follows:
1996 1995
---- ----
Aggregate rentals receivable $1,237,303 $2,364,193
Aggregate principal and interest payable
on non-recourse loans (1,226,609) (2,335,790)
Estimated residual value of leased assets 875,381 1,808,454
Less unearned income (128,421) (213,451)
----------------- -----------------
Net investment in leveraged leases $757,654 $1,623,406
================= =================
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
4. Non-recourse debt:
At December 31, 1996 and 1995, non-recourse debt, other than that related to
leveraged leases which is accounted for as a part of the net investment in
leveraged leases, consists of notes payable to financial institutions of
$6,068,326 and $11,451,641, respectively. The notes are due in varying monthly,
quarterly and semi-annual payments. Interest on the notes is at rates from 6.8%
to 11.2%. The notes are secured by assignments of lease payments and pledges of
assets. At December 31, 1996, the carrying value of the pledged assets is
approximately $11,427,583. The notes mature from 1997 through 2000.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
1997 $3,434,960 $370,908 $3,805,868
1998 2,219,659 136,631 2,356,290
1999 356,416 22,120 378,536
2000 57,291 2,374 59,665
---------------- ---------------- -----------------
$6,068,326 $532,033 $6,600,359
================ ================ =================
5. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partners
and/or Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Partnership.
The General Partners and/or Affiliates earned fees, commissions and
reimbursements pursuant to the Limited Partnership Agreement as follows:
The General Partners earned partnership management fees equal to 5% of cash
distributed from operations and equipment management fees equal to 2% of full
payout lease rentals and 5% of operating lease rentals pursuant to the Limited
Partnership Agreement. The amounts earned in 1996, 1995 and 1994 were $722,425,
$900,484 and $999,086, respectively.
The Limited Partnership Agreement allows for the reimbursement of costs incurred
by the Corporate General Partner in providing administrative services to the
Partnership. Administrative services provided include Partnership accounting,
investor relations, legal counsel and lease and equipment documentation. The
General Partner is not reimbursed for services where it is entitled to receive a
separate fee as compensation for such services, such as acquisition and
disposition of equipment. Reimbursable costs incurred by the General Partner are
allocated to the Partnership based upon actual time incurred by employees
working on Partnership business and an allocation of rent
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. Related party transactions (continued):
and other costs based on utilization studies.
In 1996, 1995 and 1994, the Partnership reimbursed ATEL Financial Corporation
$245,242, $300,952 and $340,269, respectively, for costs incurred in the
administration of Partnership business.
Substantially all employees of the General Partner record time incurred in
performing administrative services on behalf of all of the Partnerships serviced
by the General Partner. The General Partner believes that the costs reimbursed
are the lower of (i) actual costs incurred on behalf of the Partnership or (ii)
the amount the Partnership would be required to pay independent parties for
comparable administrative services in the same geographic location and are
reimbursable in accordance with the Limited Partnership Agreement.
6. Partners' capital:
As of December 31, 1996, 7,376,284 Units were issued and outstanding (including
the Units issued to the Initial Limited Partners.) The Partnership is authorized
to issue up to 7,500,000 Units of Limited Partnership Interest in addition to
the 50 Units issued to the initial limited partners.
The Partnership Net Profits, Net Losses, and Tax Credits are to be allocated 99%
to the Limited Partners and 1% to the General Partners.
Available Cash from Operations and Cash from Sales and Refinancing, as defined
in the Limited Partnership Agreement, shall be distributed as follows:
First, 5% of Distributions of Cash from Operations to the General Partners
as Incentive Management Compensation.
Second, the balance to the Limited Partners until the Limited Partners have
received Aggregate Distributions in an amount equal to their Original
Invested Capital, as defined, plus a 10% per annum cumulative (compounded
daily) return on their Adjusted Invested Capital.
Third, the General Partners will receive as Incentive Management
Compensation, the following:
(A) 10% of remaining Cash from Operations,
(B) 15% of remaining Cash from Sales or Refinancing.
Fourth, the balance to the Limited Partners.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
7. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. Leases
are subject to the General Partners' credit committee review. The leases provide
for the return of the equipment upon default.
As of December 31, 1996, 1995 and 1994, 19%, 28% and 30%, respectively, of the
Partnership's equipment was leased to lessees in the mining industry.
During 1996, 1995 and 1994, no customers comprised 10% or more of the
Partnership's revenues from leases.
8. Line of credit:
The Partnership participates with the General Partner and certain of its
Affiliates in a $90,000,000 revolving credit agreement with a group of financial
institutions which expires on October 28, 1997. The agreement includes an
acquisition facility to be used by the Partnership and Affiliates to provide
bridge financing for assets on leases. Draws on the acquisition facility by any
individual borrower are secured only by that borrower's assets, including
equipment and related leases.
The Partnership had no borrowings under the agreement during 1996.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of December
31, 1996. At December 31, 1996, $38,857,117 was available under this agreement.
9. Extraordinary gain on extinguishment of debt:
In January 1996, Barney's, Inc., one of the Partnership's lessees, filed for
reorganization under Chapter 11 of the United States Bankruptcy Code. In
accordance with Financial Accounting Standards Board Statement No. 121 (FAS 121)
the Partnership determined that the assets under an operating lease to this
particular lessee were impaired as of December 31, 1995. The Partnership
estimated that only a portion of the contractual cash flows would be received
under the lease. Under FAS 121, the estimated cash flows were discounted at the
effective rate of the non-recourse debt related to the lease and the assets were
written down to the present value of those cash flows.
Assets and liabilities related to the lease transaction were as follows as of
December 31, 1995:
Assets at cost $2,041,222
Accumulated depreciation (780,765)
----------------
Book value of lease assets 1,260,457
Deposits from lessee (75,340)
Non-recourse debt (1,051,398)
----------------
Net assets included in the Partnership's balance sheet as of
December 31, 1995 before provision for impairment 133,719
Reserve for impairment (471,906)
----------------
Excess of non-recourse debt over net assets ($338,187)
================
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
9. Extraordinary gain on extinguishment of debt (continued):
On July 19, 1996, the assets subject to the lease were purchased by a third
party. As part of the purchase and transaction restructure, the related
non-recourse debt was extinguished by the lender and the Partnership received a
small amount of cash proceeds. The sale resulted in a gain on the sale of the
assets and a gain on the extinguishment of the related non-recourse debt. The
following summarizes this transaction:
Assets at cost $2,041,222
Accumulated depreciation at June 30, 1996 (954,271)
-----------------
Book value of lease assets at June 30, 1996 1,086,951
Reserve for impairment (471,906)
-----------------
Carrying value at June 30, 1996 615,045
Deposits from lessee retained by Partnership (75,340)
-----------------
Excess of carrying value over deposits from lessee 539,705
Gross sales proceeds 957,680
-----------------
Gain on sale of assets $417,975
=================
Non-recourse debt $1,051,398
Gross sales proceeds used to extinguish non-recourse debt (953,790)
-----------------
Extraordinary gain on extinguishment of debt $97,608
=================
Gross sales proceeds $957,680
Gross sales proceeds used to extinguish non-recourse debt (953,790)
-----------------
Net cash proceeds to Partnership $3,890
=================
10. Fair value of financial instruments:
The Partnership has adopted Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," which requires
disclosure of the fair value of financial instruments for which it is
practicable to estimate fair value. The following methods and assumptions were
used to estimate the fair value of each class of financial instrument for which
it is practicable to estimate that value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
Accounts payable, accrued interest and customer deposits:
The carrying amounts of accounts payable, accrued interest and customer deposits
approximate fair value because of the short maturity of these instruments.
Non-recourse debt:
The fair value of the Partnership's non-recourse debt is estimated using
discounted cash flow analyses, based on the Partnership's current incremental
borrowing rates for similar types of borrowing arrangements. The estimated fair
value of the Partnership's non-recourse debt at December 31, 1996 is $5,950,868.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Corporation (the
corporate General Partner) is held by ATEL Capital Group ("ACG"), a holding
company formed to control the General Partner and affiliated companies pursuant
to a corporate restructuring completed in July 1994. The outstanding capital
stock of ATEL Capital Group is owned 75% by A. J. Batt and 25% by Dean Cash (the
individual General Partners), and was obtained in the restructuring in exchange
for their capital interests in ATEL Financial Corporation.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Corporation ("AFC") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Partnership. Acquisition services are performed for the Partnership by ALC,
equipment management, lease administration and asset disposition services are
performed by AEC, investor relations and communications services are performed
by AIS and general administrative services for the Partnership are performed by
AFC. ATEL Securities Corporation ("ASC"), is a wholly-owned subsidiary of ATEL
Financial Corporation.
The officers and directors of ATEL Capital Group, ATEL Financial Corporation and
their affiliates are as follows:
A. J. Batt . . . . . . . . Chairman of the Board of Directors of ACG, AFC, ALC,
AEC, AIS and ASC; President and Chief Executive
Officer of ACG, AFC and AEC
Dean L. Cash . . . . . . . Director, Executive Vice President and Chief
Operating Officer of ACG, AFC, and AEC; Director,
President and Chief Executive Officer of ALC, AIS
and ASC
F. Randall Bigony . . . . Senior Vice President and Chief Financial Officer of
ACG, AFC, ALC, AIS and AEC
Donald E. Carpenter . . . Vice President and Controller of ACG, AFC, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais . . . . . General Counsel for ACG, AFC, ALC, AIS and AEC
William J. Bullock . . . . Director of Asset Management of AEC
Jeffrey A. Schwager . . . Vice President - Syndication of ALC
Russell H. Wilder . . . . Vice President - Credit of AEC
John P. Scarcella . . . . Vice President of ASC
<PAGE>
A. J. Batt, age 60, founded ATEL in 1977 and has been its president and chairman
of the board of directors since its inception. From 1973 to 1977, he was
employed by GATX Leasing Corporation as manager-data processing and equity
placement for the lease underwriting department, which was involved in equipment
financing for major corporations. From 1967 to 1973 Mr. Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support services for computer time-sharing applications for corporations and
financial institutions. Prior to that time, he was employed by North American
Aviation as an engineer involved in the Apollo project. Mr. Batt received a
B.Sc. degree with honors in mathematics and physics from the University of
British Columbia in 1961.
Dean L. Cash, age 46, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing
representative for Martin Marietta Corporation, data systems division, from 1979
to 1980. From 1977 to 1979, he was employed by General Electric Corporation,
where he was an applications specialist in the medical systems division and a
marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was
involved in maintaining and developing software for commercial applications. Mr.
Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A.
degree with a concentration in finance in 1975 from Florida State University.
Mr. Cash is an arbitrator with the American Arbitration Association.
F. Randall Bigony, age 39, joined ATEL in 1992 to review administrative
operations within ATEL Financial Corporation and to develop and implement
functional plans to support company growth. He currently oversees ATEL's
accounting, MIS and treasury functions. From 1987 until joining ATEL, Mr. Bigony
was president of F. Randall Bigony & Co., a consulting firm that provided
financial and strategic planning services to emerging growth companies. From
1983 to 1987, he was a manager with the accounting firm of Ernst & Whinney,
serving clients in its management consulting practice. Mr. Bigony received a
B.A. degree in business from the University of Massachusetts and an M.B.A.
degree in finance from the University of California, Berkeley. He is a founding
board member and acting treasurer of the I Have a Dream Foundation - Bay Area
Chapter.
Donald E. Carpenter, age 48, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 38, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the Corporate and Securities Legal Department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley and a J.D. degree in 1986 from Golden Gate University Law
School. Mr. Morais has been an active member of the State Bar of California
since 1986.
<PAGE>
William J. Bullock, age 33, joined ATEL in 1991, as the director of asset
management. He assumed responsibility for the disposition of off-lease equipment
and residual valuation analysis on new lease transactions. Prior to joining
ATEL, Mr. Bullock was a senior member of the equipment group at McDonnell
Douglas Finance Corporation("MDFC") responsible for managing its $4 billion
portfolio of leases. Mr. Bullock was involved in negotiating sales and renewals
as well as preparing and inspecting equipment. Prior to joining MDFC in 1989,
Mr. Bullock was the Senior Negotiator at Equitable Leasing (a subsidiary of GE
Capital Equipment Corp.) in San Diego. At Equitable, he handled the end-of-lease
negotiations and equipment dispositions of a portfolio comprised of equipment
leased primarily to Fortune 200 companies. Mr. Bullock has been a member of the
Equipment Lessors Association ("ELA") since 1987 and has authored ELA industry
articles. He received a B.S. degree in Finance in 1987 from San Diego State
University and is pursuing his M.B.A.
Jeffrey A. Schwager, age 36, joined ATEL in 1991 as vice president - syndication
and is responsible for acquiring transactions from intermediaries as well as
debt and equity placement. Prior to joining ATEL, Mr. Schwager was a member of
General Electric Capital Corporation's Institutional Financing Group. There, he
was responsible for originating equipment lease and corporate finance
opportunities, as well as soliciting equipment portfolios in conjunction with
marketing a proprietary capital enhancement product. From 1985 through 1990, Mr.
Schwager held several positions with Bank Ireland/First Financial, most recently
Vice President Marketing, where he was responsible for originating and
negotiating tax-oriented leveraged lease financings for Fortune 500 companies.
From 1983 to 1985 Mr. Schwager was an Associate Consultant with The Bigelow
Company, a middle market investment banking and management consulting firm,
developing and implementing strategic plans for a number of clients. Prior to
The Bigelow Company, he worked for Petro-Lewis Corporation as a joint-interest
accountant. Mr. Schwager received his B.S. in Business Administration from
Babson College in 1982, majoring in Finance and Entrepreneurial Studies.
Russell H. Wilder, age 42, joined ATEL in 1992 as Vice President of ATEL
Business Credit, a wholly-owned subsidiary of ACG. Immediately prior to joining
ATEL, Mr. Wilder was a personal property broker specializing in equipment
leasing and financing and an outside contractor in the areas of credit and
collections. From 1985 to 1990 he was Vice President and Manager of Leasing for
Fireside Thrift Co., a Teledyne subsidiary, and was responsible for all aspects
of setting up and managing the department, which operated as a small ticket
lease funding source. From 1983 to 1985 he was with Wells Fargo Leasing
Corporation as Assistant Vice President in the credit department where he
oversaw all credit analysis on transactions in excess of $2 million. From 1978
to 1983 he was District Credit Manager with Westinghouse Credit Corporation's
Industrial Group and was responsible for all non-marketing operations of various
district offices. Mr. Wilder holds a B.S. with Honors in Agricultural Economics
and Business Management from the University of California at Davis. He has been
awarded the Certified Lease Professional designation by the Western Association
of Equipment Lessors.
John P. Scarcella, age 35, joined ATEL Securities as vice president in 1992. He
is involved in the marketing of securities offered by ASC. Prior to joining ASC,
from 1987 to 1991, he was employed by Lansing Pacific Fund, a real estate
investment trust in San Mateo, California and acted as director of investor
relations. From 1984 to 1987, Mr. Scarcella acted as broker dealer
representative for Lansing Capital Corporation, where he was involved in the
marketing of direct participation programs and REITs. Mr. Scarcella received a
B.S.C. degree with emphasis in investment finance in 1983 and an M.B.A. degree
with a concentration in marketing in 1991 from Santa Clara University.
Item 11. EXECUTIVE COMPENSATION
The registrant is a limited Partnership and, therefore, has no officers or
directors.
<PAGE>
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to the General Partners and their affiliates. The amount of such
remuneration paid through December 31, 1991 is set forth in Item 8 of this
report under the caption "Financial Statements and Supplementary Data - Notes to
the Financial Statements - Related party transactions," at Note 5 thereof which
information is hereby incorporated by reference.
Selling Commissions
The Partnership paid selling commissions in the amount of 9.5% of Gross
Proceeds, as defined, ($7,016,305), to ATEL Securities Corporation, an affiliate
of the General Partners . Of this amount, $6,455,378 was reallowed to other
broker/dealers.
Acquisition Fees
Acquisition fees were paid to the General Partners for services rendered in
finding, reviewing and evaluating equipment to be purchased by the Partnership
and rejecting equipment not to be purchased by the Partnership. Total
acquisition fees paid through December 31, 1996 were $3,508,152, the maximum
allowable amount.
Equipment Management Fees
As compensation for its services rendered generally in managing or supervising
the management of the Partnership's equipment and in supervising other ongoing
services and activities including, among others, broker assistance, cash
management, product development, property and sales tax monitoring and
preparation of financial data, the General Partners or their affiliates are
entitled to receive management fees which are payable for each fiscal quarter
and are to be in an amount equal to (i) 5% of the gross revenues from
"operating" leases and (ii) 2% of gross revenues from "full payout" leases which
contain net lease provisions. See Note 5 to the financial statements included at
Item 8 of this report for amounts paid.
Incentive Management Fees
As compensation for its services rendered in connection with the management of
the Partnership, including but not limited to employment and supervision of
supervisory managing agents, insurance brokers, equipment lease brokers,
accountants and other professional advisors, and for supervising the preparation
of reports and maintenance of financial and operating data of the Partnership,
Securities and Exchange Commission and Internal Revenue Service filings, returns
and reports, the General Partners shall be entitled to receive the Partnership
management fee which shall be payable for each fiscal quarter and shall be an
amount equal to 5% of distributions of cash from operations until such time as
the Limited Partners have received aggregate distributions of cash from
operations in an amount equal to their original invested capital plus a 10% per
annum return on their average adjusted invested capital (as defined in the
Limited Partnership Agreement). Thereafter, the incentive management fee shall
be 15% of all distributions of cash from operations, sales or refinancing. See
Note 5 to the financial statements included at Item 8 of this report for amounts
paid.
Equipment Resale Fees
As compensation for services rendered in connection with the sale of equipment,
the General Partners shall be entitled to receive an amount equal to the lesser
of (i) 3% of the sales price of the equipment, or (ii) one-half the normal
competitive equipment sales commission charged by unaffiliated parties for such
services. Such fee is payable only after the Limited Partners have received a
return of their adjusted invested capital (as defined in the Limited Partnership
Agreement) plus 10% of their adjusted invested capital per annum calculated on a
cumulative basis, compounded daily, commencing the last day of the quarter in
which the limited partner was admitted to the Partnership. To date, none have
been accrued or paid.
<PAGE>
Equipment Re-lease Fee
As compensation for providing re-leasing services, the General Partners shall
receive fees equal to 2% of the gross rentals or the comparable competitive rate
for such services relating to comparable equipment, whichever is less, derived
from the re-lease provided that (i) the General Partners or their affiliates
have and will maintain adequate staff to render such services to the
Partnership, (ii) no such re-lease fee is payable in connection with the
re-lease of equipment to a previous lessee or its affiliates, (iii) the General
Partners or their affiliates have rendered substantial re-leasing services in
connection with such re-lease and (iv) the General Partners or their affiliates
are compensated for rendering equipment management services.
General Partners' Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 99% to the Limited
Partners and 1% to the general partners. See the statements of income included
in Item 8 of this report for the amounts allocated to the general and Limited
Partners in 1994, 1995 and 1996.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1996 no investor is known to the Partnership to hold
beneficially more than 5% of the issued and outstanding Units.
Security Ownership of Management
The General Partners are beneficial owners of Limited Partnership Units as
follows:
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
Limited Partnership A. J. Batt Initial Limited 0.0007%
Units 235 Pine Street, 6th Floor Partner Units
San Francisco, CA 94104 50 Units ($500)
(owned by daughters)
Changes in Control
The Limited Partners have the right, by vote of the Limited Partners owning more
than 50% of the outstanding limited Partnership units, to remove a General
Partner.
The General Partners may at any time call a meeting of the Limited Partners or a
vote of the Limited Partners without a meeting, on matters on which they are
entitled to vote, and shall call such meeting or for vote without a meeting
following receipt of a written request therefor of Limited Partners holding 10%
or more of the total outstanding Limited Partnership Units .
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 8 of this report under the caption "Financial Statements
and Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 5 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated herein by reference.
The Partnership owns a one-half undivided interest in the Falcon 50 aircraft on
lease to ARR, Inc., a subsidiary of U. S. Surgical Corporation. The
Partnership's interest in the asset was purchased on the same terms as that of
the affiliated Partnership (ATEL Cash Distribution Fund IV, L.P.) which owns the
remaining one-half interest. The term of the lease is seven years and expires in
September 1999. The monthly lease rent from this lease is $57,439.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Financial Statements and Schedules
1. Financial Statements Included in Part II of this
report: Report of Independent Auditors Balance
Sheets at December 31, 1996 and 1995 Income
statements for the years ended December 31, 1996,
1995 and 1994 Statements of Changes in Partners'
Capital for the years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 Notes to
Financial Statements
2. Financial Statement Schedules
Allschedules for which provision is made in the
applicable accounting regulations of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K for the fourth quarter of 1996
None
(c) Exhibits
(3)and (4) Agreement of Limited Partnership,
incorporated by reference to Exhibits (3) and
(4) to the Partnership's Annual Report on Form
10K for the year ended December 31, 1990,
filed March 29,1991 (File No. 33-31395)
<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.
Date: 3/27/1997
ATEL Cash Distribution Fund III, L.P.
(Registrant)
By: ATEL Financial Corporation,
General Partner of Registrant
By: /s/ A. J. Batt
---------------------------------
A. J. Batt,
President and Chief Executive Officer
By: /s/ A. J. Batt
-------------------------------------------------
A. J. Batt,
General Partner of Registrant,
President and Chief Executive Officer of
ATEL Financial Corporation (General
Partner)
By: /s/ Dean Cash
-------------------------------------------------
Dean Cash,
General Partner of Registrant,
Executive Vice President of ATEL
Financial Corporation (General Partner)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ A. J. Batt President, chairman and 3/27/1997
- --------------------- chief executive officer of
A. J. Batt ATEL Financial Corporation
/s/ Dean Cash Executive vice president and 3/27/1997
- --------------------- director of ATEL Financial
Dean Cash Corporation
/s/ F. Randall Bigony Principal financial officer 3/27/1997
- ----------------------- of registrant; principal
F. Randall Bigony financial officer of ATEL
Financial Corporation
/s/ Donald E. Carpenter Principal accounting officer 3/27/1997
- ------------------------ of registrant; principal
Donald E. Carpenter accounting officer of ATEL
Financial Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,766,552
<SECURITIES> 0
<RECEIVABLES> 821,480
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,791,041
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 23,081,480
<TOTAL-LIABILITY-AND-EQUITY> 29,791,041
<SALES> 0
<TOTAL-REVENUES> 11,709,770
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,207,427
<LOSS-PROVISION> 118,023
<INTEREST-EXPENSE> 630,450
<INCOME-PRETAX> 2,753,870
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,753,870
<DISCONTINUED> 0
<EXTRAORDINARY> 97,608
<CHANGES> 0
<NET-INCOME> 2,851,478
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
