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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number: 0-25780
PRESIDIO CAPITAL CORP.
(Exact name of registrant as specified in its charter)
British Virgin Islands N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Hemisphere Management (Cayman) Limited
Zephyr House, Mary Street, Grand Cayman,
Cayman Islands, British West Indies N/A
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (441) 295-9166
Former name, former address and former fiscal year, if changed since last report
N/A
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 2, 1997, there were 8,797,255 Class A Common Shares,
U.S. $0.01 par value, outstanding.
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<PAGE>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Net Assets in Liquidation as of
March 31, 1997 (unaudited) and December 31, 1996 (audited)
Unaudited Consolidated Statements of Changes in Net Assets in
Liquidation for the Three Month Periods Ended March 31, 1997
and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
March 31, December 31,
1997 1996
(unaudited) (audited)
----------- ---------
<S> <C> <C>
Assets:
Cash and cash equivalents (including restricted
cash of $20,864 and $20,527 at March 31, 1997
and December 31, 1996) ............................ $119,408 $ 78,639
Investments ........................................... 26,462 29,993
Contract rights ....................................... 1,283 41,083
Notes and other receivables ........................... 20,903 22,467
Loans to affiliates ................................... 40,538 38,532
Other assets .......................................... 1,343 1,814
-------- --------
Total assets .................... $209,937 $212,528
======== ========
Liabilities:
Debt .................................................. $ 900 $ 900
Dividends payable ..................................... 16,523 --
Estimated costs of liquidation ........................ 24,012 29,434
Estimated tax liability ............................... 5,363 5,970
-------- --------
Total liabilities ............... 46,798 36,304
-------- --------
Net Assets in Liquidation $163,139 $176,224
======== ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN
NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
Three Month Periods
Ended March 31,
-----------------------------
1997 1996
--------- ---------
<S> <C> <C>
Net Assets in Liquidation,
beginning of period .................. $ 176,224 $ 385,228
Dividends declared ................... (16,523) (52,572)
Accretions of loans to
affiliates ........................ 2,006 109
Increase from revaluation of
assets and liabilities ............ 380 1,349
Interest income ...................... 1,052 1,018
--------- ---------
Net Assets in Liquidation,
end of period ........................ $ 163,139 $ 335,132
========= =========
See notes to consolidated financial statements
</TABLE>
<PAGE>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in United States Dollars)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Presidio Capital Corp. ("Presidio" and, collectively with its subsidiaries, the
"Company") was organized on August 29, 1994, in the British Virgin Islands under
the International Business Companies Act (Cap. 291), to purchase, directly or
through its subsidiaries, substantially all of the assets of Integrated
Resources, Inc. ("Integrated") for the purpose of liquidation and distribution
of capital to shareholders. The Company was formed in accordance with the Sixth
Amended Plan of Reorganization Submitted by the Official Committee of
Subordinated Bondholders and the Steinhardt Group, (the "Plan") confirmed by the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") by order dated August 8, 1994. The Plan was officially
consummated on November 3, 1994 (the "Consummation Date").
The Plan gave creditors of Integrated the right to receive 88% of Presidio's
Class A shares in lieu of all or part of their cash distribution as defined in
the Plan. The remaining 12% of stock was issued to and purchased by IR Partners,
a general partnership among Steinhardt Management Company Inc., ("Steinhardt")
certain of its affiliates and an affiliate of Charles E. Davidson, the principal
of Presidio Management Company, LLC ("Presidio Management") and Chairman of the
Board of the Company and Joseph M. Jacobs, the Chief Executive Officer and
President of the Company, for approximately $35.8 million, under the terms of an
Asset Purchase Agreement.
Reference is made to the notes to the consolidated financial statements for the
year ended December 31, 1996, included in the Company's Annual Report on Form
10-K (the "Form 10-K") for information with regard to the organization,
significant accounting policies and disclosures made pursuant to the rules and
regulations of the Securities and Exchange Commission.
The interim financial data is unaudited; however, in the opinion of management,
the Company's interim financial data for the three month period ended March 31,
1997 includes all adjustments (consisting of normal recurring adjustments)
necessary for fair presentation of the results of the interim period. These
consolidated interim financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements included in the Form 10-K.
Liquidation Basis
The Company's financial statements are prepared under the liquidation basis of
accounting. The liquidation basis of accounting is appropriate when liquidation
is imminent and the Company is no longer viewed as a going concern. Under this
method of accounting, assets are stated at their estimated net realizable values
and liabilities are stated at their anticipated settlement amounts. The
valuations presented in these financial statements are presented in U.S. dollars
under U.S. Generally Accepted Accounting Principles.
The valuation of assets and liabilities require many estimates and assumptions.
The actual value of any liquidating distributions depends upon a variety of
factors including, among others, the actual market prices of any assets
distributed in kind, the proceeds from the sale of any of the Company's assets
and the actual timing of distributions.
<PAGE>
The valuations presented in the accompanying Statements of Net Assets in
Liquidation represent current estimates, based on facts and circumstances, of
the estimated net realizable value of assets and estimated costs of implementing
the Plan. The net values ultimately realized could be higher or lower than the
amounts recorded.
NOTE 2 - INVESTMENTS
During the quarter ended March 31, 1997, the Company purchased units in certain
real estate limited partnerships, wherein subsidiaries of the Company are the
General Partner, for an aggregate cost of approximately $0.5 million. Through
March 31, 1997, the total investments in real estate limited partnerships were
approximately $4.2 million. These purchases were intended to be consistent with,
and incidental to the Company's liquidation strategy, as these purchases will
protect and enhance the values of the respective general partnership positions.
NOTE 3 - CONTRACT RIGHTS
At December 31, 1996, there were four Contract Rights remaining, which the
Company estimated had an approximate net realizable value of $41.1 million. On
March 12, 1997, a Partnership exercised its option and prepaid approximately
$40.0 million to the Company, which represented the remaining balance due under
such Contract Right obligation.
NOTE 4 - DIVIDENDS
On March 19, 1997, the Board of Directors of Presidio declared a dividend
payable on April 3, 1997, of approximately $16.5 million, or $1.65 per share, to
all shareholders of record as of March 25, 1997. After payment of this dividend,
Presidio will have made liquidating distributions since consummation of the Plan
of $364.3 million or $36.38 per share.
NOTE 5 - REVALUATION OF ASSETS AND LIABILITIES
The increase in Net Assets in Liquidation resulting from revaluation of assets
and liabilities for the three month periods ended March 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
(000's)
Three Month Periods
Ended March 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Increase in estimated net
realizable value of assets ............... $ 15 $ --
Realized gains on liquidation
and other ................................ 365 1,349
------ ------
$ 380 $1,349
====== ======
</TABLE>
<PAGE>
NOTE 6 - LITIGATION
Mark Erwin, Trustee, et. al. v. Resources High Equity, Inc.,et. al. On or about
May 11, 1993 the HEP Partnerships (the "HEP Partnerships", a series of three
public partnerships which invested in unleveraged commercial real estate between
1985-1989), were advised of the existence of an action (the "HEP Action") in
which a complaint (the "HEP Complaint") was filed in the Superior Court for the
State of California for the County of Los Angeles (the "Court") on behalf of a
purported class consisting of all of the purchasers of limited partnership
interests in the HEP Partnerships.
In January, 1996, the parties to the HEP Action agreed upon a revised settlement
(the "Revised Settlement"). The principal features of the Revised Settlement
were the surrender by the General Partners of certain fees that they are
entitled to receive, the reorganization of the HEP Partnerships into a publicly
traded real estate investment trust ("REIT"), and the issuance of stock in the
REIT to the limited partners (in exchange for their limited partnership
interests) and General Partners (in exchange for their existing interest in the
HEP Partnerships and future income). The principal benefits of the Revised
Settlement were (1) substantially increased distributions to limited partners,
(2) market liquidity through a NASDAQ listed security, and (3) the opportunity
for growth and diversification that was not permitted under the Partnership
structure. There were also other significant tax benefits, corporate governance
advantages and other benefits of the Revised Settlement.
On July 18, 1996, the Court preliminarily approved the Revised Settlement and
made a preliminary finding that the Revised Settlement was fair, adequate and
reasonable to the class. In August 1996, the Court approved the form and method
of notice regarding the Revised Settlement which was sent to the limited
partners.
Only approximately 2.5% of the limited partners of the HEP Partnerships elected
to "opt out" of the Revised Settlement. Despite this, following the submission
of additional materials, the Court entered an order on January 14, 1997
rejecting the Revised Settlement and concluded that there had not been an
adequate showing that the settlement was fair and reasonable. Thereafter, the
plaintiffs filed a motion seeking to have the Court reconsider its order.
Subsequently, the defendants withdrew the Revised Settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion. Also, at the
February 24, 1997 hearing, the Court recused itself from considering a motion to
intervene and to file a new complaint in intervention by one of the objectors to
the Revised Settlement, and granted the request of one plaintiffs' law firm to
withdraw as class counsel and scheduled future hearings on various matters.
The HEP Partnerships and the General Partners believe that each of the claims
asserted in the Consolidated Complaint are meritless and intend to continue to
vigorously defend the HEP Action.
Presidio v. Koll Management Services, Inc., Liquidity Financial Group, L.P. and
Liquidity Financial Corporation. On November 9, 1995, Presidio and the General
Partners of the HEP Partnerships, commenced an action in the United States
Bankruptcy Court for the Southern District of New York, against Koll Management
Services, Inc. ("Koll"), Liquidity Financial Group, L.P. and the Liquidity
Financial Corporation (collectively, "Liquidity"). The plaintiffs sought a
preliminary and permanent injunction to prevent violations of the
Confidentiality and Standstill Agreement (the "Agreement") which had been
<PAGE>
entered into between Koll and Integrated in 1994 during Integrated's
reorganization proceeding and damages in an amount to be proven at trial. The
complaint alleged that Liquidity, which had become an affiliate of Koll and was,
for that reason, bound by the Agreement, was violating the Agreement by, among
other things, objecting to a settlement involving the HEP Partnerships which was
an integral part of the Integrated Plan of Reorganization, and that Liquidity
was otherwise interfering with the management and policies of the HEP
Partnerships.
On November 21, 1995, after a contested hearing, the Bankruptcy Court granted
plaintiffs' motion for a preliminary injunction. The preliminary injunction has
been extended periodically since its entry. The defendants have denied the
material allegations of the complaint, and asserted various defenses. The
parties are actively engaged in discovery. On March 7, 1997, the defendants
filed a motion seeking to dissolve the preliminary injunction. On April 11,
1997, the Bankruptcy Court denied the motion.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND LIQUIDATION ACTIVITIES
The following section includes a discussion and analysis of financial condition
and liquidation activities of the Company for the three month period ended March
31, 1997.
Liquidity and Capital Resources
The Company's primary objectives are to liquidate its assets in the shortest
time period possible while realizing the maximum values for such assets and
reduction of operating costs. Although the Company considers its assumptions and
estimates as to the values and timing of such liquidations to be reasonable, the
period of time to liquidate the assets and distribute the proceeds of such
assets is subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control.
Cash available for distributions, defined as cash and cash equivalents less
restricted cash, increased by approximately $40.4 million for the quarter ended
March 31, 1997, primarily due to the prepayment of one of the Company's Contract
Right Receivables.
Restricted cash at March 31, 1997 was approximately $20.9 million and is
primarily comprised of reserves for bankruptcy claims of approximately $1.0
million and deposits for escrow accounts as security for indemnification of
certain former officers and directors of Integrated and the Class A Directors of
Presidio of approximately $18.7 million (see A) and B) below).
A) The indemnity for the former officers and directors of Integrated
("Qualified Indemnity") is collateralized by cash and all the stock and
partnership interests in the Company's non-U.S. subsidiaries under the
Indemnification Agreements (the "Indemnification Agreements"). All
distributions made by the Company are limited by a requirement that the
Company have certain minimum net assets after distribution to discharge
any pending and expected Qualified Indemnity obligations. The balance
in the Qualified Indemnity escrow account at March 31, 1997 was $11.2
million.
Presidio's ability to make distributions to stockholders remains
limited in accordance with the terms of the indemnification obligations
of the former officers and directors of Integrated and its subsidiaries
under the Indemnification Agreements. Presidio has no basis for
believing that any of those indemnification obligations will be
material and, to date, no claim for such indemnification has been made.
However, pursuant to the terms of the Indemnification Agreements,
Presidio is required to notify beneficiaries thereunder of proposed
dividends and certain other proposed transfers of cash made by certain
subsidiaries of Presidio to Presidio, and by Presidio to its
shareholders, and to retain the value of certain collateral granted as
security for such indemnification obligations. Presidio provided notice
to the beneficiaries of the Indemnification Agreements prior to
distribution of all dividends paid and declared during the three months
ended March 31, 1997.
<PAGE>
B) The Plan also provided for indemnification of the Class A Directors of
Presidio. The indemnification amounts are secured by an initial escrow
deposit made on the Consummation Date. Presidio is also required to
make quarterly escrow deposits equal to the greater of (i) $750,000, or
(ii) 1% of any amounts distributed to shareholders of Presidio, for
additional indemnification security. In accordance therewith, Presidio
deposited $750,000 during the first quarter of 1997. The escrowed
amounts will not be available for distribution to shareholders until
the indemnification agreement expires. The balance in the Class A
Directors escrow account at March 31, 1997 was $7.5 million.
Presidio believes that cash on hand, revenues generated from interests in
businesses that continue to operate and proceeds from the disposition of
businesses and other assets will be sufficient to support the Company's
operations and meet its obligations.
<PAGE>
Liquidation Activities
The Company's cash and cash equivalents increased by $40.8 million for the three
month period ended March 31, 1997, as compared to an increase of $134.4 million
for the same periods of the prior year. Excess cash was made available for
distribution to shareholders on March 19, 1997, when the Board of Directors of
Presidio declared a dividend payable on April 3, 1997, of approximately $16.5
million, or $1.65 per share, to all shareholders of record as of March 25, 1997.
After payment of this dividend, Presidio will have made liquidating
distributions since consummation of the Plan of $364.3 million or $36.38 per
share.
The components of the change in cash and cash equivalents, are as follows:
<TABLE>
<CAPTION>
(Millions)
(unaudited)
Three Month Periods
March 31,
1997 1996
------ -------
<S> <C> <C>
Cash Inflow
Contract rights securitization proceeds, net ....... $ -- $ 205.1
Other liquidating activities ....................... 40.5 8.8
Operating cash inflows ............................. 6.2 2.7
Interest income .................................... 1.1 1.0
------ -------
Total Cash Inflows ............................ 47.8 217.6
------ -------
Cash Outflows
Dividends paid ..................................... -- 30.0
Loans to affiliates ................................ -- 31.5
Legal and other expenses - contract rights ......... -- 14.7
Legal, accounting and consulting fees .............. 1.7 1.9
General, administrative and other costs ............ 4.1 4.5
Bankruptcy claims paid ............................. 0.6 --
Management fees .................................... 0.6 0.6
------ -------
Total Cash Outflows ........................... 7.0 83.2
------ -------
Increase in cash and cash equivalents .............. 40.8 134.4
Cash and cash equivalents, beginning of period ..... 78.6 120.6
------ -------
Cash and cash equivalents, end of period ........... $119.4 $ 255.0
====== =======
</TABLE>
Current Operations
Operating cash inflows from period to period are not comparable due to the
timing of liquidation activities, and the size of the remaining portfolio.
During the quarter ended March 31, 1997, payments were made in connection with
the resolution of certain remaining disputed bankruptcy claims against
Integrated of $0.6 million. The payments were made in accordance with the Plan.
<PAGE>
Legal, accounting and consulting fees, and miscellaneous general and
administrative expenses decreased in the quarter ended March 31, 1997, as
compared to the same period of the prior year due to timing of various
liquidating activities, and the reduction of the overall portfolio of assets.
For the three months ended March 31, 1997
Investments
During the quarter ended March 31, 1997, the Company purchased units in certain
real estate limited partnerships, wherein subsidiaries of the Company are the
General Partner, for an aggregate cost of approximately $0.5 million. Through
March 31, 1997, the total investments in real estate limited partnerships were
approximately $4.2 million. These purchases were intended to be consistent with,
and incidental to the Company's liquidation strategy, as these purchases will
protect and enhance the values of the respective general partnership positions.
Contract Rights
At December 31, 1996, there were four Contract Rights remaining, which the
Company estimated had an approximate net realizable value of $41.1 million. On
March 12, 1997, a Partnership exercised its option and prepaid approximately
$40.0 million to the Company, which represented the remaining balance due under
such Contract Right obligation. The prepayment represented approximately 97% of
the Company's remaining investment in its Contract Right portfolio.
<PAGE>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The following information should be read in conjunction with Item 3. "Legal
Proceedings" of the Company's December 31, 1996 Form 10-K.
Mark Erwin, Trustee, et al v. Resources High Equity, Inc., et al (the "HEP
Action")
Presidio v. Koll Management Services, Inc., Liquidity Financial Group, L.P. and
Liquidity Financial Corporation.
Reference is made to Note 6 of the Consolidated Financial Statements in Part I,
Item 1, Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable
(b) The Company was not required to file any reports on Form 8-K
during the quarter ended March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PRESIDIO CAPITAL CORP.
(Registrant)
By: /s/Joseph M. Jacobs
-----------------
Joseph M. Jacobs
Chief Executive Officer and
President
By: /s/Jay L. Maymudes
------------------
Jay L. Maymudes
Vice President, Treasurer and
Date: May 14, 1997 Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE MARCH 31, 1997 FORM 10-Q OF PRESIDIO CAPITAL CORP. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 119,408
<SECURITIES> 26,462
<RECEIVABLES> 62,724
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 209,937
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 209,937
<CURRENT-LIABILITIES> 45,898
<BONDS> 900
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 209,937
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
