Form 10-KSB
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 (no fee required)
For the Year Ended December 31, 1997
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 (ss.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, 1997, 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. During 1997, two lessees
accounted for 16% and 15% of the Partnership's lease revenues.
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, 1997, 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>
Mining $ 17,109,802 $ 8,641,846 $ 14,721,920
Commercial aircraft 2,322,136 1,656,694 226,541
Materials handling 4,852,405 1,541,187 5,293,383
Transportation 10,908,752 7,642,081 10,926,201
Food processing 6,014,685 2,406,813 6,061,124
Point-of-sale 6,358,094 3,775,309 5,947,266
Furniture & fixtures 3,195,613 1,366,326 2,375,001
Other 5,289,114 1,662,825 5,405,927
---------------- ---------------- ----------------
$ 56,050,601 $ 28,693,081 $ 50,957,363
================ ================ ================
</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, 1997 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%
Primary metals 408,410 0.41%
Electronics 120,000 0.14%
---------------- ----------------
$ 99,629,942 100.00%
================ ================
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 1997, 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, 1997, a total of 5,047 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 1997 operations were $.08333 per Unit
for monthly distributions made from February through December 1997 and in
January 1998. The rates for quarterly distributions made in April, July and
October 1997 and in January 1998 were $.25 per Unit. Total distributions were
$1.00 per Unit. Distributions were from cash flows from operations and sales
proceeds in 1997.
The rates for monthly distributions from 1996 operations were $0.11667 in
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.
<PAGE>
The following table presents summarized information regarding distributions to
Limited Partners:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Distributions of net income $ 0.58 $ 0.38 $ 0.27 $ 0.23 $ 0.25
Return of investment 0.45 0.87 1.13 1.15 1.05
---------------- ---------------- ----------------- ---------------- ----------------
Distributions per unit 1.03 1.25 1.40 1.38 1.30
Differences due to timing of distributions (0.03) (0.03) - 0.02 -
---------------- ---------------- ----------------- ---------------- ----------------
Nominal distribution rates from above $ 1.00 $ 1.22 $ 1.40 $ 1.40 $ 1.30
================ ================ ================= ================ ================
</TABLE>
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, 1997, 1996, 1995, 1994 and 1993. This financial data
should be read in conjunction with the financial statements and related notes
included under Item 8 of this report.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues $ 10,433,457 $ 11,709,770 $ 14,332,795 $ 14,368,274 $ 13,829,714
Net income $ 4,334,639 $ 2,851,478 $ 2,032,662 $ 1,688,646 $ 1,871,587
Weighted average Limited Partner Units
(Units) outstanding 7,376,934 7,376,934 7,378,884 7,379,447 7,383,634
Net income per Unit, based on
weighted average Units outstanding $ 0.58 $ 0.38 $ 0.27 $ 0.23 $ 0.25
Distributions per Unit, based on
weighted average Units outstanding $ 1.03 $ 1.25 $ 1.40 $ 1.38 $ 1.30
Total Assets $ 22,727,752 $ 29,791,041 $ 41,900,878 $ 54,727,541 $ 67,533,367
Non-recourse Debt $ 2,497,392 $ 6,068,326 $ 11,451,641 $ 15,675,776 $ 19,783,538
Total Partners' Capital $ 19,797,739 $ 23,081,480 $ 29,451,915 $ 37,757,442 $ 46,279,817
</TABLE>
In 1997, distributions to Limited Partners were not sufficient to allow the
Partnership to reinvest in additional equipment.
In 1996, cash flows and distributions to Limited Partners were not sufficient to
allow the Partnership to reinvest in additional equipment.
<PAGE>
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.
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 (which has been increased
to $105,000,000 through March 31, 1998) with a financial institution that
includes certain financial covenants. The line of credit expires on October 28,
1998. As of December 31, 1997 the Partnership had no borrowings under this line
of credit and the remaining availability was $17,754,812.
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, 1997, there were no commitments to purchase additional lease
assets.
As of December 31, 1997, cash balances consisted of working capital and amounts
reserved for distributions in 1998.
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, 1997, the Partnership had borrowed approximately $32,425,000.
The remaining unpaid balance of such borrowings at December 31, 1997 was
$2,497,392. 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, 1997, 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.
<PAGE>
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.
A number of the Partnership's leases are scheduled to terminate in 1998. If they
are terminated as scheduled, gross lease rents from operating leases are
expected to decrease by $3,264,366 (from $7,116,131 in 1997 to $3,851,765 in
1998). Depreciation expense related to operating leases is also expected to
decrease. Cash flows from direct financing leases are expected to decrease by
about $66,302 (from $1,333,784 in 1997 to $1,267,482 in 1998).
Cash flows from operations decreased by approximately $1,900,000. This decrease
resulted primarily from decreased operating lease rents ($2,864,578). This was
partially offset by decreased interest expense ($311,035). Operating lease rents
remain the Partnership's most significant source of operating cash flows.
Cash flows from investing activities increased by about $4,266,000. Most of this
increase (about $4,847,000) 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
decreased by about $563,000 compared to 1996.
There were no financing sources of cash in 1997 or 1996. Repayments of
non-recourse debt decreased due to scheduled debt payments. Cash used for
distributions to Limited Partners decreased as a result of the reduction of the
per Unit rate of distributions from $1.22 in 1996 to $1.00 in 1997.
Results of Operations
Operations resulted in net income of $2,851,478 in 1996 and $4,334,639 in 1997.
As of December 31, 1997, 43%, 17% and 14% of the Partnership's lease assets
(based on equipment cost) were leased to lessees in the mining,
electrical/electronics manufacturing and utilities industries, respectively. As
of December 31, 1996, 19% 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.
Net income increased from $2,851,478 in 1996 to $4,334,639 in 1997. The increase
resulted from a number of factors. Gains on sales of assets increased by
$1,679,288. The increase was largely due to the sale of the Partnership's
interest in a Falcon 50 aircraft which resulted in a gain of approximately
$1,905,000. Operating lease rents decreased by $2,864,578 offset by a decrease
in depreciation expense ($2,491,612) on those assets.
<PAGE>
The most significant change in expenses, other than depreciation expense, was
the reduction in interest expense ($311,035). Interest expense declined due to
scheduled debt payments.
Management fees have decreased by $61,651. This decrease is related to the
decrease in lease revenues and to the decrease in distributions to the limited
partners.
Impact of the Year 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in similar normal
business activities.
The Partnership believes that it will not be required to modify or replace
significant portions of its software and that the year 2000 issue will not pose
significant operational problems for its computer systems. The Partnership does
not expect that the costs related to the year 2000 issue will be significant.
Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by businesses and other entities whose
financial condition or operational capability is important to the Partnership.
Therefore, the Partnership is communicating to these parties to ensure they are
aware of the year 2000 issue, to learn how they are addressing it, and to
evaluate any likely impact on the Partnership.
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 sheet of ATEL Cash Distribution Fund
III, L.P. as of December 31, 1997, and the related statements of income, changes
in partners' capital and cash flows for each of the two years in the period
ended December 31, 1997. 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, 1997 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
February 3, 1998
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash and cash equivalents $ 9,342,727
Accounts receivable 225,035
Investments in equipment and leases 13,159,990
----------------
Total assets $ 22,727,752
================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $ 2,497,392
Accrued interest 11,842
Accounts payable:
General Partners 72,539
Other 193,791
Unearned operating lease income 154,449
----------------
Total liabilities 2,930,013
Partners' capital:
General Partners 169,611
Limited Partners 19,628,128
----------------
Total partners' capital 19,797,739
----------------
Total liabilities and partners' capital $ 22,727,752
================
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Leasing activities:
Operating leases $ 7,116,131 $ 9,980,709
Direct financing leases 286,103 434,019
Leveraged leases 28,225 85,030
Gain on sale of equipment 2,823,095 1,143,807
Other 4,385 11,520
Interest income 175,518 54,685
---------------- ----------------
10,433,457 11,709,770
---------------- ----------------
Expenses:
Depreciation 4,560,013 7,051,625
Equipment and incentive management fees to General Partner 660,774 722,425
Interest expense 319,415 630,450
Administrative cost reimbursements to General Partner 248,250 245,242
Other 174,046 149,613
Provision for losses and impairments 104,335 118,023
Professional fees 31,985 38,522
---------------- ----------------
6,098,818 8,955,900
---------------- ----------------
Income before extraordinary item 4,334,639 2,753,870
Extraordinary gain on early extinguishment of debt - 97,608
---------------- ----------------
Net income $ 4,334,639 $ 2,851,478
================ ================
Net income:
General Partners $ 43,346 $ 28,515
Limited Partners 4,291,293 2,822,963
---------------- ----------------
$ 4,334,639 $ 2,851,478
================ ================
Income before extraordinary item per limited partnership unit $ 0.58 $ 0.37
Extraordinary gain on early extinguishment of debt per limited partnership unit - 0.01
---------------- ----------------
Net income per Limited Partnership unit $ 0.58 $ 0.38
================ ================
Weighted average number of units outstanding 7,376,934 7,376,934
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
<S> <C> <C> <C> <C>
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
Distributions to limited partners ($1.03 per Unit) (7,618,380) - (7,618,380)
Net income 4,291,293 43,346 4,334,639
---------------- ----------------- ---------------- ----------------
7,376,284 $ 19,628,128 $ 169,611 $ 19,797,739
================ ================= ================ ================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $ 4,334,639 $ 2,851,478
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation 4,560,013 7,051,625
Gain on sales of equipment (2,823,095) (1,143,807)
Income from investment in leveraged leases (28,225) (85,030)
Provision for losses and impairments 104,335 118,023
Extraordinary gain on early extinguishment of debt - (97,608)
Changes in operating assets and liabilities:
Accounts receivable 596,445 51,971
Notes receivable - 44,861
Accounts payable, General Partner (35,050) (2,190)
Accounts payable, other (65,651) (30,986)
Accrued interest (48,320) (64,864)
Deposits due to lessees - (75,340)
Unearned operating lease income (59,593) (182,707)
---------------- ----------------
Net cash provided by operating activities 6,535,498 8,435,426
Investing activities:
Proceeds from sales of lease assets 10,182,310 5,335,135
Reductions of net investment in direct financing leases 1,047,681 1,611,128
Reductions of net investment in leveraged leases - 17,709
---------------- ----------------
Net cash provided by investing activities 11,229,991 6,963,972
Financing activities:
Distributions to limited partners (7,618,380) (9,213,305)
Repayments of non-recourse debt (3,570,934) (5,285,707)
Repurchase of limited partner units - (8,608)
---------------- ----------------
Net cash used in financing activities (11,189,314) (14,507,620)
---------------- ----------------
Net increase in cash and cash equivalents 6,576,175 891,778
Cash and cash equivalents at beginning of period 2,766,552 1,874,774
---------------- ----------------
Cash and cash equivalents at end of period $ 9,342,727 $ 2,766,552
================ ================
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 367,735 $ 695,314
=============== ================
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, 1997
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, 1997, the original terms of the leases ranged from six months to
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, 1997
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 (unaudited):
Financial statement basis of net assets $ 19,797,739
Tax basis of net assets 21,983,006
----------------
Difference $ 2,185,267
================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the accounting for syndication costs
and differences between the depreciation methods used in the financial
statements and the Partnership's tax returns.
The following reconciles the net income reported in these financial statements
to the income (loss) reported on the Partnership's federal tax return
(unaudited):
1997 1996
---- ----
Net income per financial statements $ 4,334,639 $ 2,851,478
Adjustment to depreciation expense 342,622 610,802
Extraordinary gain on extinguishment of debt - (97,608)
Adjustments to revenues 5,624,921 4,922,093
Provision for losses and impairments 104,335 118,023
----------------- ----------------
Net income per federal tax return $ 10,406,517 $ 8,404,788
================= ================
Credit Risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk include cash and cash equivalents and accounts
receivable. 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. Accounts receivable represent
amounts due from lessees in various industries, related to equipment on
operating and direct financing leases. See Note 7 for a description of lessees
by industry as of December 31, 1997.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, 1997, the Partnership's investments in equipment and leases
consist of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
Lease ifications or
1996 Additions Amortization Dispositions 1997
---- --------- ------------ -------------- ----
<S> <C> <C> <C> <C> <C>
Net investment in operating leases $ 21,853,800 $ (4,560,013) $ (6,026,137) $11,267,650
Net investment in direct financing leases 3,680,949 (1,047,681) (253,672) 2,379,596
Net investment in leveraged leases 757,654 28,225 (659,508) 126,371
Assets held for lease or sale 419,898 - (419,898) -
Reserve for losses and impairments (509,292) $ (104,335) - - (613,627)
---------------- ---------------- ----------------- ---------------- ----------------
$ 26,203,009 $ (104,335) $ (5,579,469) $ (7,359,215) $ 13,159,990
================ ================ ================= ================ ================
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. Investments in equipment and leases (continued):
Operating leases:
Property on operating lease consists of the following as of December 31, 1996,
additions and dispositions during 1997 and as of December 31, 1997:
<TABLE>
<CAPTION>
Balance Reclass- Balance
December 31, ifications or December 31,
1996 Additions Dispositions 1997
---- --------- ------------ ----
<S> <C> <C> <C> <C>
Mining $ 17,497,908 $ (4,807,316) $ 12,690,592
Manufacturing 10,144,506 (5,263,275) 4,881,231
Utilities 3,946,886 - 3,946,886
Transportation 3,923,808 (163,482) 3,760,326
Printing 3,454,353 (409,694) 3,044,659
Food processing 2,438,524 - 2,438,524
Medical 2,155,489 - 2,155,489
Materials handling 1,958,393 (993,413) 964,980
Communications 290,175 - 290,175
Other 65,695 - 65,695
Aircraft 5,275,000 (5,275,000) -
---------------- ----------------- ---------------- ----------------
51,150,737 (16,912,180) 34,238,557
Less accumulated depreciation (29,296,937) $ (4,560,013) 10,886,043 (22,970,907)
---------------- ----------------- ---------------- ----------------
$21,853,800 ($4,560,013) ($6,026,137) $11,267,650
================ ================= ================ ================
</TABLE>
Direct financing leases:
As of December 31, 1997, 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, 1997.
Total minimum lease payments receivable $2,000,256
Estimated residual values of leased equipment (unguaranteed) 834,458
-----------------
Investment in direct financing leases 2,834,714
Less unearned income (455,118)
-----------------
INet investment in direct financing leases $2,379,596
=================
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. Investments in equipment and leases (continued):
Direct financing leases (continued):
At December 31, 1997, 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
1998 $ 3,851,765 $ 1,267,482 $ 5,119,247
1999 364,941 546,645 911,586
2000 - 144,416 144,416
2001 - 23,836 23,836
2002 - 17,877 17,877
---------------- ---------------- -----------------
$ 4,216,706 $ 2,000,256 $ 6,216,962
================ ================ =================
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, 1997 is as follows:
Aggregate rentals receivable $ 173,606
Aggregate principal and interest payable on non-recourse loans (172,539)
Estimated residual value of leased assets 165,000
Less unearned income (39,696)
-----------------
Net investment in leveraged leases $ 126,371
=================
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Non-recourse debt:
At December 31, 1997, 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 $2,497,392. The
notes are due in varying monthly, quarterly and semi-annual payments. Interest
on the notes is at rates from 6.8% to 11%. The notes are secured by assignments
of lease payments and pledges of assets. At December 31, 1997, the carrying
value of the pledged assets is approximately $6,992,485. The notes mature from
1998 through 2000.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
1998 $ 2,083,685 $ 132,689 $ 2,216,374
1999 356,416 22,120 378,536
2000 57,291 2,374 59,665
---------------- ---------------- -----------------
$ 2,497,392 $ 157,183 $ 2,654,575
================ ================ =================
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 1997 and 1996 were $660,774 and
$722,425, 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
Corporate 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 Corporate
General Partner are allocated to the Partnership based upon actual time incurred
by employees working on Partnership business and an allocation of rent and other
costs based on utilization studies.
In 1997 and 1996, the Partnership reimbursed ATEL Financial Corporation $248,250
and $245,242, respectively, for costs incurred in the administration of
Partnership business.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. Related party transactions (continued):
Substantially all employees of the Corporate General Partner record time
incurred in performing administrative services on behalf of all of the
Partnerships serviced by the Corporate General Partner. The Corporate 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, 1997, 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, 1997
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, 1997, 43%, 17% and 14% of the Partnership's lease assets
(based on equipment cost) were leased to lessees in the mining,
electrical/electronics manufacturing and utilities industries, respectively. As
of December 31, 1996, 19% of the Partnership's lease assets (based on equipment
cost) was leased to lessees in the mining industry.
During 1997, two customers comprised 16% and 15% of the Partnership's revenues
from leases. During 1996, no customers comprised 10% or more of the
Partnership's revenues from leases.
8. Line of credit:
The Partnership participates with the Corporate General Partner and certain of
its Affiliates in a $90,000,000 revolving credit agreement (which has been
increased to $105,000,000 through March 31, 1998) with a group of financial
institutions which expires on October 28, 1998. 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 1997.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of December
31, 1997. At December 31, 1997, $17,754,812 was available under this agreement.
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
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
=================
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
10. Fair value of financial instruments:
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.
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, 1997 is $2,451,286.
<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
Russell H. Wilder Vice President - Credit of AEC
John P. Scarcella Vice President of ASC
<PAGE>
A. J. Batt, age 61, 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 47, 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 40, 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 49, 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 39, 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 34, 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.
Russell H. Wilder, age 43, 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 36, 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.
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 for the years ended December 31, 1997 and 1996 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.
<PAGE>
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, 1997 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 1997 and 1996.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1997 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:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Limited Partnership Units A. J. Batt Initial Limited Partner Units 0.0007%
235 Pine Street, 6th Floor 50 Units ($500)
San Francisco, CA 94104 (owned by daughters)
</TABLE>
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 .
<PAGE>
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 owned 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 from an unrelated third party
on the same terms as that of the affiliated Partnership (ATEL Cash Distribution
Fund IV, L.P.) which owned the remaining one-half interest. The aircraft was
sold in 1997.
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 Sheet at December 31, 1997
Income statements for the years ended December
31, 1997 and 1996
Statements of Changes in Partners' Capital for
the years ended December 31, 1997 and
1996
Statements of Cash Flows for the years ended
December 31, 1997 and 1996
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 1997
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: 3/27/1998
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 General Partner of registrant; 3/27/1998
- ---------------------------- president, chairman and chief
A. J. Batt executive officer of ATEL
Financial Corporation
/s/ Dean Cash General Partner of registrant; 3/27/1998
- ---------------------------- executive vice president and
Dean Cash director of ATEL Financial
Corporation
/s/ F. Randall Bigony Principal financial officer 3/27/1998
- ---------------------------- of registrant; principal
F. Randall Bigony financial officer of ATEL
Financial Corporation
/s/ Donald E. Carpenter Principal accounting officer 3/27/1998
- ---------------------------- of registrant; principal
Donald E. Carpenter accounting officer of ATEL
Financial Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> dec-31-1997
<CASH> 9,342,727
<SECURITIES> 0
<RECEIVABLES> 225,035
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,727,752
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,797,739
<TOTAL-LIABILITY-AND-EQUITY> 22,727,752
<SALES> 0
<TOTAL-REVENUES> 10,433,457
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,675,068
<LOSS-PROVISION> 104,335
<INTEREST-EXPENSE> 319,415
<INCOME-PRETAX> 4,334,639
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,334,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,334,639
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
