FORWARD LOOKING STATEMENTS
Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as "may," "will," "could," "anticipate," "believe," "estimate," "expects," "intend," "predict" or "project" and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with generally accepted accounting principles in
We believe that our critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
See Note 2 to our condensed financial statements included herein for a discussion related to recent accounting pronouncements.
LEASE INCOME RECEIVABLE
Lease income receivable includes current lease income receivable net of allowances for uncollectible amounts, if any. The Partnership monitors lease income receivable to ensure timely and accurate payment by lessees. The Partnership's Lease Relations department is responsible for monitoring lease income receivable and, as necessary, resolving outstanding invoices.
The Partnership reviews a customer's credit history before extending credit. When the analysis indicates that the probability of full collection is unlikely, the Partnership may establish an allowance for uncollectible lease income receivable based upon the credit risk of specific customers, historical trends and other information. The Partnership writes off its lease income receivable when it determines that it is uncollectible and all economically sensible means of recovery have been exhausted.
Finance lease interest income is recorded over the term of the lease using the effective interest method. For finance leases, we record, at lease inception, unearned finance lease income which is calculated as follows: total lease payments, plus any residual value and initial direct costs, less the cost of the leased equipment.
Upon the end of the lease term, if the lessee has not met the return conditions as set out in the lease, the Partnership is entitled in certain cases to additional compensation from the lessee. The Partnership's accounting policy for recording such payments is to treat them as revenue.
Gain or losses from sales of leased and off lease equipment are recorded on a net basis in the Fund's condensed Statement of Operations.
Depreciation on technology and inventory management equipment for financial statement purposes is based on the straight-line method estimated generally over useful lives of two to four years. Once an asset comes off lease or is released, the Partnership reassesses the useful life of an asset.
The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset then impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. Fair value is determined based on estimated discounted cash flows to be generated by the asset.
Residual values are determined by management and are calculated using information from both internal and external sources, as well as other economic indicators.
As discussed elsewhere in this report, management determined that approximately
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our primary sources of cash for the three months ended
Cash was provided by operating activities for the three months ended
As we continue to increase the size of our equipment portfolio in this phase of the operating cycle, operating expenses will increase, which reflects the administrative costs of servicing the portfolio, but because of our investment strategy of leasing equipment primarily through triple-net leases, we avoid operating expenses related to equipment maintenance or taxes.
CCC, on our behalf and on behalf of other affiliated partnerships, acquires equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors. Capital expenditures and distributions are expected to continue to increase overall during the remainder of 2013 as management focuses on additional equipment acquisitions and funding limited partner distributions. We intend to invest approximately
We consider cash equivalents to be highly liquid investments with an original maturity of 90 days or less.
March 31, 2013Balance Total bank balance $ 542,000 FDICinsured (250,000 ) Uninsured amount $ 292,000
The Partnership believes it mitigates the risk of holding uninsured deposits by depositing funds with more than one institution and by only depositing funds with major financial institutions. The Partnership deposits its funds with two institutions that are Moody's Aaa-and Aa3 Rated. The Partnership has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk. The amounts in such accounts will fluctuate throughout 2013 due to many factors, including cash receipts, equipment acquisitions, interest rates and distributions to investors.
The Partnership's investment strategy of acquiring equipment and generally leasing it under triple-net leases to operators who generally meet specified financial standards minimizes our operating expenses. As of
The Partnership is in negotiations with a significant lessee in related to the buy-out of several operating and direct financing leases. The amount of future rentals from operating and direct financing leases will be affected by the ongoing negotiations with the lessee. If settlement is reached, the Partnership will not record future revenue on the equipment being leased to the lessee. Therefore, there is a potential impact on future revenue and cash flows, with an offset by a potential cash settlement. The impact of the potential settlement cannot be determined at this time.
RESULTS OF OPERATIONS
Three months ended
Our lease revenue decreased to approximately
The Partnership had 256 (restated) active operating leases that generated lease revenue of approximately
Sale of Equipment
We sold equipment with a net book value of approximately
Our operating expenses, excluding depreciation, primarily consist of accounting and legal fees, outside service fees and reimbursement of expenses to CCC for administration and operation of the Partnership. These expenses decreased to approximately
Equipment Management Fees
We pay an equipment management fee to our general partner for managing our equipment portfolio. The equipment management fee is approximately 5% of the gross lease revenue attributable to equipment that is subject to operating leases and approximately 2% of the gross lease revenue attributable to equipment that is subject to direct financing leases. The equipment management fee decreased to approximately
Depreciation and Amortization Expense
Depreciation and amortization expenses consist of depreciation on equipment and amortization of equipment acquisition fees. These expenses decreased to approximately
Net Income (Loss)
For the three months ended