Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 1996
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission File Number 0-17631
ATEL Cash Distribution Fund II, a California Limited
Partnership (Exact name of registrant as
specified in its charter)
California 94-3051991
(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
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 |_|
DOCUMENTS INCORPORATED BY REFERENCE
None
1
<PAGE>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements.
2
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
1996 1995
---- ----
Cash and cash equivalents $723,337 $874,714
Accounts receivables, net of allowance for
doubtful accounts of $15,552 in 1995 and 1996 44,884 69,558
Investment in equipment and leases 6,113,064 7,459,980
---------------- ----------------
$6,881,285 $8,404,252
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $2,316,581 $2,965,946
Accrued interest 41,300 53,047
Accounts payable:
General partners 33,820 61,192
Other 100,199 79,398
Customer deposit 77,409 77,409
Unearned operating lease income 23,595 36,385
---------------- ----------------
Total liabilities 2,592,904 3,273,377
Partners' capital:
General partners 76,425 73,539
Limited partners 4,211,956 5,057,336
---------------- ----------------
Total partners' capital 4,288,381 5,130,875
---------------- ----------------
$6,881,285 $8,404,252
================ ================
See notes to financial statements
3
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
INCOME STATEMENTS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
Revenues: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Lease income:
Operating $806,088 $1,308,662 $374,416 $606,945
Direct financing 178,607 236,205 85,603 111,610
Leveraged leases 9,645 7,664 4,822 3,832
Gain on sales of assets 63,650 375,457 61,723 330,263
Other income 97,828 73,148 18,362 53,577
Gain on sale of marketable securities - 124,879 - -
Interest income 6,145 18,180 3,148 8,888
---------------- ----------------- ---------------- ----------------
1,161,963 2,144,195 548,074 1,115,115
---------------- ----------------- ---------------- ----------------
Expenses:
Depreciation and amortization 527,880 848,599 204,415 362,525
Interest expense 134,967 197,660 63,782 95,020
Equipment and partnership management
fees 74,040 122,601 33,820 63,256
Administrative cost reimbursements 60,902 73,128 37,361 41,820
Professional fees 13,211 39,231 11,009 8,819
Taxes 32,050 25,778 32,050 25,778
Other 18,969 23,859 11,868 13,826
Provision for losses 11,344 10,965 5,470 675
---------------- ----------------- ---------------- ----------------
873,363 1,341,821 399,775 611,719
---------------- ----------------- ---------------- ----------------
Net Income $288,600 $802,374 $148,299 $503,396
================ ================= ================ ================
Net income:
General partners $2,886 $8,024 $1,483 $5,034
Limited partners 285,714 794,350 146,816 498,362
---------------- ----------------- ---------------- ----------------
$288,600 $802,374 $148,299 $503,396
================ ================= ================ ================
Net income per limited partnership unit $4.08 $11.35 $2.10 $7.12
Weighted average number of units
outstanding 69,979 69,979 69,979 69,979
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
----- ------ -------- -----
<S> <C> <C> <C> <C>
Balance December 31, 1995 69,979 $5,057,336 $73,539 $5,130,875
Net income 285,714 2,886 288,600
Distributions (1,131,094) - (1,131,094)
--------- ----------------- ---------------- ----------------
Balance June 30, 1996 69,979 $4,211,956 $76,425 $4,288,381
========= ================= ================ ================
</TABLE>
See notes to financial statements
4
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating activities:
Net income $288,600 $802,374 $148,299 $503,396
Adjustment to reconcile net income to
net cash provided by operations:
Depreciation and amortization 527,880 848,599 204,415 362,525
Revenues from leveraged leases (9,645) (7,664) (4,822) (3,832)
Gain on sales of assets (63,650) (375,457) (61,723) (330,263)
Gain on sale of marketable securities - (124,879) - -
Provision for losses 11,344 10,965 5,470 675
Changes in operating assets and liabilities:
Decrease (increase) in accounts
Accounts receivable 24,674 571,047 45,366 (15,683)
Accounts payable, general partner (27,372) 12,752 (6,400) 63,257
Accounts payable, other 20,801 23,413 (5,350) (33,819)
Accrued interest (11,747) (11,487) (5,570) (5,363)
Unearned operating lease income (12,790) 4,765 7,034 8,174
---------------- ----------------- ---------------- ----------------
Net cash from operations 748,095 1,754,428 326,719 549,067
---------------- ----------------- ---------------- ----------------
Investing activities:
Proceeds from sales of assets 431,159 1,862,815 329,390 593,997
Reductions of net investment in direct
financing leases 449,828 445,104 229,633 226,902
Proceeds from sale of marketable securities - 124,879 - -
---------------- ----------------- ---------------- ----------------
Net cash provided by investing
activities 880,987 2,432,798 559,023 820,899
---------------- ----------------- ---------------- ----------------
</TABLE>
5
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Financing activities:
Repayment of non-recourse debt (649,365) (669,682) (328,688) (302,233)
Distributions to limited partners (1,131,094) (2,909,566) (472,805) (1,363,859)
---------------- ----------------- ---------------- ----------------
Net cash used in financing activities (1,780,459) (3,579,248) (801,493) (1,666,092)
---------------- ----------------- ---------------- ----------------
Net (decrease) increase in cash and
cash equivalents (151,377) 607,978 84,249 (296,126)
Cash and cash equivalents at
beginning of period 874,714 924,041 639,088 1,828,145
---------------- ----------------- ---------------- ----------------
Cash and cash equivalents at end of
period $723,337 $1,532,019 $723,337 $1,532,019
================ ================= ================ ================
Supplemental disclosures of cash flow information:
Cash paid for interest during the period $134,967 $197,660 $63,782 $95,020
================ ================= ================ ================
Operating lease assets reclassified to direct
financing lease assets $28,996 $28,996
================= ================
</TABLE>
See notes to financial statements
6
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
1. Summary of significant accounting policies:
Interim financial statements:
The unaudited interim financial statements reflect all adjustments which are, in
the opinion of the general partners, necessary to a fair statement of financial
position and results of operations for the interim periods presented. All such
adjustments are of a normal recurring nature. These unaudited interim financial
statements should be read in conjunction with the most recent report on Form
10K.
2. Organization and partnership matters:
ATEL Cash Distribution Fund II, a California Limited Partnership (the
Partnership), was formed under the laws of the State of California on September
30, 1987, 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 30, 1987, $100 of which represented the General Partners' continuing
interest, and $500 of which represented the Initial Limited Partner's capital
investment.
3. Investment in leases:
The Partnership's investment in leases consists of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
December 31, Amortization ifications & June 30,
1995 Additions of Leases Dispositions 1996
---- --------- --------- -------------- ----
<S> <C> <C> <C> <C> <C>
Net investment in operating
leases $4,278,094 ($526,949) ($309,206) $3,441,939
Net investment in direct
financing leases 2,940,554 (449,828) - 2,490,726
Net investment in leveraged
leases 74,635 9,645 - 84,280
Equipment held for sale 199,474 - (58,303) 141,171
Reserve for losses (37,588) ($11,344) - - (48,932)
Initial direct costs 4,811 - (931) - 3,880
------------------ ---------------- ----------------- ---------------- ----------------
$7,459,980 ($11,344) ($968,063) ($367,509) $6,113,064
================== ================ ================= ================ ================
</TABLE>
7
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
3. Investment in leases (continued):
Operating leases:
The following schedule provides an analysis of the Partnership's investment in
equipment on operating leases by major classifications as of December 31, 1995,
additions and dispositions during the three month periods ended March 31, 1996
and June 30, 1996 and as of June 30, 1996:
<TABLE>
<CAPTION>
Reclassifications &
December 31, Dispositions June 30,
Equipment type 1995 1st Quarter 2nd Quarter 1996
-------------- ---- ----------- ----------- ----
<S> <C> <C> <C> <C>
Aircraft $3,164,533 $3,164,533
Mining 2,104,643 2,104,643
Materials handling 1,918,334 ($187,555) ($579,632) 1,151,147
Manufacturing 835,681 - - 835,681
Communications 481,738 - - 481,738
Data processing 527,739 - (195,522) 332,217
Food processing 344,799 - (13,728) 331,071
Transportation 697,722 (511,041) (33,029) 153,652
Motor vehicles 95,277 - - 95,277
Furniture, fixtures and equipment 22,967 - - 22,967
---------------- ----------------- ---------------- ----------------
10,193,433 (698,596) (821,911) 8,672,926
Less accumulated depreciation (5,915,339) 303,412 380,940 (5,230,987)
---------------- ----------------- ---------------- ----------------
$4,278,094 ($395,184) ($440,971) $3,441,939
================ ================= ================ ================
</TABLE>
Equipment on operating leases was acquired in 1988, 1989, 1990, 1991 and 1994.
At June 30, 1996, the aggregate amounts of future minimum lease payments are as
follows:
Year ending Direct
December 31, Financing Operating Total
------------ --------- --------- -----
1996 $607,626 $635,574 $1,243,200
1997 1,126,523 546,571 1,673,094
1998 220,075 272,090 492,165
1999 4,248 269,732 273,980
2000 - 202,299 202,299
---------------- ----------------- ----------------
$1,958,472 $1,926,266 $3,884,738
================ ================= ================
8
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
4. Non-recourse debt:
Notes payable to financial institutions are due in varying monthly, quarterly
and semi-annual installments of principal and interest. The notes are secured by
assignments of lease payments and pledges of the assets which were purchased
with the proceeds of the particular notes. Interest rates on the notes vary from
7.69% to 12.86%.
Future minimum principal and interest payments of debt as of June 30, 1996 are
as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
1996 $622,716 $146,231 $768,947
1997 1,037,153 137,795 1,174,948
1998 230,049 61,609 291,658
1999 233,530 36,202 269,732
2000 193,133 9,166 202,299
---------------- ----------------- ----------------
$2,316,581 $391,003 $2,707,584
================ ================= ================
5. Commitments, management and report of fees:
The terms of the Limited Partnership Agreement provide that the General Partners
and/or Affiliates are entitled to receive certain fees.
The General Partners and/or Affiliates earned partnership and equipment
management fees of $74,040 in 1996 and $122,601 in 1995, as permitted in the
Agreement of Limited Partnership .
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Partnership cash which has been received, but which has not yet been invested in
leased equipment or distributed to partners, is invested in interest-bearing
accounts or high-quality/short-term commercial paper.
The partnership's primary source of liquidity is cash received from lease
rentals. The liquidity of the partnership will vary in the future, increasing to
the extent cash flows from leases 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.
The partnership currently has available adequate reserves to meet contingencies,
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, nor have they explored with lenders the possibility of
obtaining loans. There can be no assurance as to the terms of any such financing
or that the partnership will be able to obtain such loans.
All of the Partnership's non-recourse debt is paid by lease payments assigned to
the lenders. The assigned lease payments match the required payments on the debt
and such payments fully amortize the debt.
As of June 30, 1996, the partnership had borrowed approximately $21,700,000. The
remaining unpaid balance on those borrowings was $2,316,581. 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. The
general partners expect that aggregate borrowings in the future will decrease as
a percentage of equipment cost. In any event, the Agreement of Limited
Partnership limits such borrowings to 40% of the total cost of equipment, in
aggregate.
No commitments of capital have been or are expected to be made other than for
the acquisition of additional equipment. There were no such commitments at June
30, 1995.
The Partnership made distributions of cash from 1996 first and second quarter
operations in April and July 1996, respectively. The amounts of these
distributions were each $6.50 per Unit. These distributions represent an
annualized distribution rate of 5.2%.
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 or decrease significantly, the lease rates that the
partnership can obtain on future leases will be expected to increase or decrease
in parallel 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.
10
<PAGE>
Cash flows, six months, 1996 vs. 1995
In the first six months of 1996, the Partnership's primary source of cash flows
from operations was lease rents, particularly operating lease rents. Cash flows
from operations decreased by $1,006,333. The Partnership's operating lease
revenues declined by $502,574 compared to 1995 and direct financing lease
revenues declined by $57,598. These decreases are a result of scheduled lease
terminations and subsequent sales of the underlying lease assets since the
second quarter of 1995.
Cash flows from investing activities declined from $2,432,798 in 1995 to
$880,987 in 1996. Most of the $1,551,811 decrease was due to reduced sales of
lease assets in 1996 compared to 1995. The original cost of assets sold in 1996
was approximately $1,520,000 compared to $5,718,000 in 1995. The proceeds from
the sales of such assets decreased from $1,862,815 in 1995 to $431,159 in 1996.
In 1995, the Partnership sold certain equity securities it had obtained in the
bankruptcy settlement of Financial News Network (FNN), a former lessee of the
Partnership. The proceeds from the sale were $124,879. This represented the
remainder of stock owned by the Partnership and there were no comparable sales
in 1996.
There were no financing sources of cash in the 1996 or 1995 periods. Debt
principal payments have decreased as a result of scheduled debt payments.
Distributions decreased due to the lower per Unit rate of distributions in
January and April 1996 compared to 1995.
Cash flows, three months, 1996 vs. 1995
Lease revenues decreased by $257,546. Lease rentals and the $329,390 received
from asset sales were the largest sources of cash in the second quarter of 1996.
The decrease in lease rents for the three month period was due to asset sales as
noted above for the six month period.
Sources of cash flows from investing activities decreased compared to 1995. As
noted above for the six month period, proceeds from the sales of assets
decreased compared to 1995.
There were no financing sources of cash in the 1996 or 1995 periods. Cash flows
used in financing activities changed in the three month period due to the same
causes as noted above for the six month period.
Results of Operations
The results of operations in future periods may vary significantly from those of
the first six months of 1996 as the partnership's lease portfolio of capital
equipment matures. Revenues from leases are expected to decline over the long
term as leased assets come off lease and are sold or re-leased at lower lease
rates. The effect on net income is not determinable as it will depend to a large
degree on the amounts received from the sales of assets or from re-leases to
either the same or new lessees once the initial lease terms expire.
1996 vs. 1995
Operating lease revenues declined by $502,574 (six months) and $232,529 (three
months) due to lease terminations and asset dispositions during the preceding
twelve months. Direct financing lease revenues decreased by $57,598 (six months)
and $26,007 (three months) compared to 1995. Depreciation expense decreased due
to the asset dispositions discussed under the caption "Capital Resources and
Liquidity". Management fees are related to lease revenues and to distributions.
Both of these factors declined in 1996 compared to 1995, resulting in lower
management fees. Interest expense decreased for both the six and three month
periods due to lower average debt balances than in 1995.
11
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Inapplicable.
Item 2. CHANGES IN SECURITIES.
Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
Item 5. OTHER INFORMATION.
Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of this report
1 .Financial Statements
Included in Part I of this report:
Balance sheets, June 30, 1996 and December 31, 1995
Income statements for the six and three month periods
ended June 30, 1996 and 1995.
Statement of changes in partners' equity for the six
month period ended June 30, 1996.
Statements of cash flows for the six and three month
periods ended June 30, 1996 and 1995.
Notes to the financial statements
2 .Financial Statement Schedules
All other schedules 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.
12
<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.
Date:
August 13, 1996
ATEL Cash Distribution Fund II,
a California limited partnership
(Registrant)
By: /s/ A. J. BATT
------------------------------
A. J. Batt,
General Partner of registrant
By: /s/ DEAN L. CASH
------------------------------
Dean Cash,
General Partner of registrant
By: /s/ F. RANDALL BIGONY
------------------------------
F. Randall Bigony
Principal financial officer of registrant
By: /s/ DONALD E. CARPENTER
------------------------------
Donald E. Carpenter,
Principal accounting officer of
registrant
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 723337
<SECURITIES> 0
<RECEIVABLES> 60436
<ALLOWANCES> 15552
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6881285
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4288381
<TOTAL-LIABILITY-AND-EQUITY> 6881285
<SALES> 0
<TOTAL-REVENUES> 1161963
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 727052
<LOSS-PROVISION> 11344
<INTEREST-EXPENSE> 134967
<INCOME-PRETAX> 288600
<INCOME-TAX> 0
<INCOME-CONTINUING> 288600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288600
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
