Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 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 000-17631
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
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
1996 1995
---- ----
Cash and cash equivalents $639,088 $874,714
Accounts receivable, net of allowance for
doubtful accounts of $15,551 in 1995
and 1996 90,250 69,558
Investment in equipment and leases 6,815,427 7,459,980
-------------------- ----------------
Total assets $7,544,765 $8,404,252
==================== ================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $2,645,269 $2,965,946
Accrued interest 46,870 53,047
Accounts payable:
General Partners 40,220 61,192
Other 105,549 79,398
Customer deposit 77,409 77,409
Unearned income 16,561 36,385
-------------------- ----------------
Total liabilities 2,931,878 3,273,377
Partners' capital:
General Partners 74,942 73,539
Limited partners 4,537,945 5,057,336
-------------------- ----------------
Total partners' capital 4,612,887 5,130,875
-------------------- ----------------
Total liabilities and partners' capital $7,544,765 $8,404,252
==================== ================
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
INCOME STATEMENTS
THREE MONTH PERIODS ENDED
MARCH 31, 1996 and 1995
(Unaudited)
Revenues: 1996 1995
---- ----
Lease income:
Operating $431,672 $701,717
Direct financing 93,004 124,595
Leveraged 4,823 3,832
Gain(loss) on sale of lease assets 1,927 45,194
Gain on sale of marketable securities - 124,879
Interest income 2,997 9,292
Other 79,466 19,571
-------------------- ----------------
613,889 1,029,080
-------------------- ----------------
Expenses:
Depreciation and amortization 323,465 486,074
Interest expense 71,185 102,640
Equipment and partnership management fees
to General Partners 40,220 59,345
Administrative cost reimbursements to
General Partners 23,541 31,308
Other 9,303 40,445
Provision for losses 5,874 10,290
-------------------- ----------------
473,588 730,102
-------------------- ----------------
Net Income $140,301 $298,978
==================== ================
Net income:
General Partners $1,403 $2,990
Limited Partners 138,898 295,988
-------------------- ----------------
$140,301 $298,978
==================== ================
Net income per Limited Partnership unit $1.98 $4.23
Weighted average number of units outstanding 69,979 69,979
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
THREE MONTHS ENDED MARCH 31, 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 138,898 1,403 140,301
Distributions (658,289) (658,289)
================= ================ ==================== ================
Balance March 31, 1996 69,979 $4,537,945 $74,942 $4,612,887
================= ================ ==================== ================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED
MARCH 31, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Operating activities:
Net income $140,301 $298,978
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 323,465 486,074
Leveraged lease income (4,823) (3,832)
Loss (gain) on sale of lease assets (1,927) (45,194)
Gain on sale of marketable securities - (124,879)
Provision for losses 5,874 10,290
Changes in operating assets and liabilities:
Accounts receivable (20,692) 586,730
Accounts payable, general partner (20,972) (50,505)
Accounts payable, other 26,151 57,232
Accrued interest (6,177) (6,124)
Unearned income (19,824) (3,409)
-------------------- ----------------
Net cash provided by operations 421,376 1,205,361
-------------------- ----------------
Investing activities:
Reductions of net investment in direct
financing leases 220,195 218,202
Proceeds from sales of lease assets 101,769 1,268,818
Proceeds from sales of marketable
securities - 124,879
-------------------- ----------------
Net cash provided by investing activities 321,964 1,611,899
-------------------- ----------------
Financing activities:
Repayment of non-recourse debt (320,677) (367,449)
Distributions to limited partners (658,289) (1,545,707)
-------------------- ----------------
Net cash used in financing activities (978,966) (1,913,156)
-------------------- ----------------
Net (decrease) increase in cash and
cash equivalents (235,626) 904,104
Cash and cash equivalents at beginning
of period 874,714 924,041
-------------------- ----------------
Cash and cash equivalents at end of period $639,088 $1,828,145
==================== ================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $77,362 $108,764
==================== ================
Supplemental schedule of non-cash transaction:
Operating Lease assets reclassified to
assets held for sale or lease $389,211
Less accumulated depreciation (286,178)
--------------------
$103,033
====================
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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.
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 23, 1988,
the Partnership commenced operations.
3. Investment in equipment and leases:
The Partnership's investment in leases consists of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
December 31, Amortization ifications & March 31,
1995 Additions of Leases Dispositions 1996
---- --------- --------- ------------- ----
<S> <C> <C> <C> <C> <C>
Net investment in operating
leases $4,278,094 ($252,319) ($142,865) $3,882,910
Net investment in direct
financing leases 2,940,554 (220,195) - 2,720,359
Net investment in leveraged
leases 74,635 4,823 - 79,458
Equipment held for sale or lease 199,474 (70,680) 43,023 171,817
Reserve for losses (37,588) ($5,874) - - (43,462)
Initial direct costs 4,811 - (466) - 4,345
================ ================= ================ ==================== ================
$7,459,980 ($5,874) ($538,837) ($99,842) $6,815,427
================ ================= ================ ==================== ================
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
3. Investment in equipment and 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 months ended March 31, 1996 and as
of March 31, 1996:
<TABLE>
<CAPTION>
Balance Reclass- Balance
December 31, ifications & March 31,
Equipment type 1995 Additions Dispositions 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) 1,730,779
Manufacturing 835,681 835,681
Data processing 527,739 527,739
Communications 481,738 481,738
Food processing 344,799 344,799
Transportation 697,722 (511,041) 186,681
Motor vehicles 95,277 95,277
Furniture, fixtures and equipment 22,967 22,967
----------------- ---------------- -------------------- ----------------
10,193,433 (698,596) 9,494,837
Less accumulated depreciation (5,915,339) ($252,319) 555,731 (5,611,927)
----------------- ---------------- -------------------- ----------------
$4,278,094 ($252,319) ($142,865) $3,882,910
================= ================ ==================== ================
</TABLE>
Equipment on operating leases was acquired in 1988, 1989, 1990, 1992, 1993 and
1994.
At March 31, 1996, the aggregate amounts of future minimum lease payments are as
follows:
Year ending Direct
December 31, Financing Operating Total
1996 $920,161 $975,573 $1,895,734
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
----------------- ---------------- --------------------
$2,271,007 $2,266,265 $4,537,272
================= ================ ====================
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
1996 $951,404 $215,583 $1,166,987
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
----------------- ---------------- --------------------
$2,645,269 $460,355 $3,105,624
================= ================ ====================
5. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partners
and/or their Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Partnership.
The General Partners earned partnership management fees equal to 5% of cash
distributed from operations and equipment management fees equal to 2% of full
payout lease rentals and 5% of operating lease rentals pursuant to the Limited
Partnership Agreement. The amounts earned in 1996 and 1995 were $40,220 and
$59,345 respectively.
The Limited Partnership Agreement allows for the reimbursement of costs incurred
by ATEL in providing administrative services to the Partnership. Administrative
services provided include partnership accounting, investor relations, legal
counsel and lease and equipment documentation. ATEL 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 ATEL 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 1996 and 1995, the Partnership reimbursed ATEL Financial Corporation $23,541
and $31,308, respectively, for costs incurred in the administration of
Partnership business.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Capital Resources and Liquidity
Funds which have been received, but which have not yet been invested in leased
equipment, are 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 and the sales of assets upon lease terminations. 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.
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's objective is to reinvest 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.
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 March 31, 1996, the Partnership had borrowed approximately $21,700,000.
The remaining unpaid balance on those borrowings was approximately $2,645,000.
The borrowings are generally non-recourse to the Partnership, that is, the only
recourse of the lender for a default by the lessee on the underlying lease will
be to the equipment or corresponding lease acquired with the loan proceeds. The
General Partners expect that aggregate borrowings in the future will not exceed
40% of aggregate 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 March
31, 1996
The Partnership made a distribution of cash from operations in April 1996. The
amount of the distribution was $6.50 per Unit (which is equal to an annualized
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 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.
Cash flows, 1996 vs. 1995
For the first three months of 1996, lease rents and proceeds from the sales of
lease assets were the Partnership's primary sources of cash flows. Operating
cash flows from lease revenues decreased from $830,144 in 1995 to $529,499 in
1996, a decrease of $300,645. The decrease is mainly due to the effects of
terminated leases. The cost of assets on operating leases has decreased from
$13,666,706 in 1995 to $9,494,837 in 1996.
Cash flows from investing activities decreased by $1,289,936 compared to 1995.
The decrease was the result of substantial reduction in proceeds from sale of
lease assets. The book value of the assets coming off operating leases was
$1,250,622 in 1995 and only $173,789 in 1996. The other factor was that there
were no proceeds from sale of marketable securities in 1996 as all the common
stock received as a part of the 1992 Financial News Network bankruptcy was sold
by March 1995.
There were no financing sources of cash in either 1995 and 1996. The net cash
used in financing activities decreased by $934,190. Distribution to limited
partners was reduced as a result of decreased cash flows in the fourth quarter
of 1995.
Results of Operations
The results of operations in future periods may vary significantly from those of
the first quarter 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.
Operations, 1996 vs. 1995
Compared to 1995, operating lease revenues decreased by $270,045. The revenues
decreased (and are expected to decrease in future periods) as a result of
scheduled lease terminations and asset sales. Direct financing lease revenues
decreased due to these same factors. Interest Income decreased by $ 6,295 from
1995 as the averaged cash balance for first quarter of 1996 decreased about
$600,000 from first quarter of 1995. Other income increased by $59,895 from
1995. The increase is due to the cash payment from the bankruptcy of Rocky
Mountain Helicopters, Inc.. The partnership continues to have an unsecured claim
against Rocky Mountain Helicopters, Inc. (RMH), a former lessee of the
partnership. RMH filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in 1993. In addition to the amounts previously received from the
RMH bankruptcy, the partnership received $77,654 in March 1996 and may receive
an additional 5% to 10% of its unsecured claim of $776,654.
Depreciation expense relates to operating lease assets and has declined in
relation to the total amounts of such assets owned by the Partnership. The
original cost of such assets owned by the Partnership decreased from $13,666,706
to $9,494,836 from March 31, 1995 to March 31, 1996.
Interest expense decreased by $31,455 compared to 1995. This is a direct result
of decreased debt balances compared to 1995. These reductions of debt balances
resulted from scheduled debt payments.
Management fees decreased from $59,345 in 1995 to $40,220 in 1996. This decrease
was composed of a decrease of equipment management fees of $5,271 and a decrease
of partnership management fees of $13,854. Equipment management fees are related
to lease revenues and are expected to decline over time as those revenues
decrease. Partnership management fees are related to the amounts of
distributions of cash from operations to Limited Partners and are expected to
decline in future periods as those distributions decrease as a result of asset
sales.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No material legal proceedings are currently pending against the Partnership or
against any of its assets except for the bankruptcy of Rocky Mountain
Helicopters, Inc. noted above in Part I, Item 2 under the caption "Results of
Operations" where the Partnership has undertaken legal action in pursuit of its
unsecured claim.
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, March 31, 1996 and December 31, 1995
Income statements for the three month periods ended
March 31, 1996 and 1995
Statement of changes in partners' capital for the three
months ended March 31, 1996
Statements of cash flows for the three month periods ended
March 31, 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.
(b) Report on Fork 8-K
None
<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:
May 10, 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 L. 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 639088
<SECURITIES> 0
<RECEIVABLES> 105801
<ALLOWANCES> 15551
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7544765
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4612887
<TOTAL-LIABILITY-AND-EQUITY> 7544765
<SALES> 0
<TOTAL-REVENUES> 613889
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 461840
<LOSS-PROVISION> 5874
<INTEREST-EXPENSE> 71185
<INCOME-PRETAX> 140301
<INCOME-TAX> 0
<INCOME-CONTINUING> 140301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140301
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
