Form 10-QSB
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 September 30, 1998
|_| 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
Former name, former address and former fiscal year, if changed since last report
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
SEPTEMBER 30, 1998
(Unaudited)
ASSETS
Cash and cash equivalents $830,667
Accounts receivable 707,846
Investment in equipment and leases 1,557,988
--------------
$3,096,501
==============
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $481,073
Accrued interest 4,510
Accounts payable:
General Partners 17,128
Other 91,880
Unearned lease income 73,559
--------------
Total liabilities 668,150
Partners' capital:
General Partners 93,838
Limited Partners 2,334,513
--------------
Total partners' capital 2,428,351
--------------
$3,096,501
==============
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
INCOME STATEMENTS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
Revenues: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Lease income:
Operating $422,324 $695,748 $139,103 $178,166
Direct financing 180,531 120,782 56,531 33,779
Leveraged 30,550 14,161 - 2,023
Gain on disposition of assets 680,418 150,984 423,532 867
Interest income 18,322 20,681 5,746 7,716
Other 8,763 64,298 7,031 546
--------------- ---------------- ---------------- ----------------
1,340,908 1,066,654 631,943 223,097
--------------- ---------------- ---------------- ----------------
Expenses:
Depreciation 191,239 291,868 50,946 74,075
Administrative cost reimbursements 86,397 99,420 30,201 34,552
Management fees 68,551 63,963 30,797 14,048
Interest expense 46,479 96,282 14,029 24,964
Other expense 24,288 28,987 5,948 2,916
Taxes 18,806 20,641 - -
Professional fees 18,020 21,052 8,975 12,602
Provision for losses 4,995 4,162 - -
--------------- ---------------- ---------------- ----------------
458,775 626,375 140,896 163,157
--------------- ---------------- ---------------- ----------------
Net income $882,133 $440,279 $491,047 $59,940
=============== ================ ================ ================
Net income:
General Partners $8,821 $4,403 $4,910 $599
Limited Partners 873,312 435,876 486,137 59,341
--------------- ---------------- ---------------- ----------------
$882,133 $440,279 $491,047 $59,940
=============== ================ ================ ================
Net income per Limited Partnership unit $12.48 $6.23 $6.95 $0.85
Weighted average number of units
outstanding 69,979 69,979 69,979 69,979
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
<S> <C> <C> <C> <C>
Balance December 31, 1997 69,979 $2,825,061 $85,017 $2,910,078
Net income 873,312 8,821 882,133
Distributions to limited partners (1,363,860) - (1,363,860)
--------------- ---------------- ---------------- ----------------
Balance September 30, 1998 69,979 $2,334,513 $93,838 $2,428,351
=============== ================ ================ ================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Operating activities:
<S> <C> <C> <C> <C>
Net income $882,133 $440,279 $491,047 $59,940
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation 191,239 291,868 50,946 74,075
Revenues from leveraged leases (30,550) (14,161) - (2,023)
Gain on dispositions of assets (680,418) (150,984) (423,532) (867)
Provision for losses 4,995 4,162 - -
Changes in operating assets and liabilities:
Accounts receivable (672,135) (89,363) (673,404) (26,286)
Accounts payable, General Partner 6,236 (1,165) 15,154 18,576
Accounts payable, other 17,594 3,714 27,909 (1,583)
Accrued interest (2,107) (17,485) (496) (5,663)
Customer deposit - (60,000) - -
Unearned operating lease income 63,847 8,989 (10,472) 14,807
--------------- ---------------- ---------------- ----------------
Net cash (used in) provided by operations (219,166) 415,854 (522,848) 130,976
--------------- ---------------- ---------------- ----------------
Investing activities:
Proceeds from sales of equipment 1,600,029 768,223 1,164,589 204,259
Reductions of net investment in direct
financing leases 97,146 639,725 20,661 216,916
--------------- ---------------- ---------------- ----------------
Net cash provided by investing activities 1,697,175 1,407,948 1,185,250 421,175
--------------- ---------------- ---------------- ----------------
</TABLE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Financing activities:
Repayment of non-recourse debt (175,639) (825,532) (52,908) (240,258)
Distributions to limited partners (1,363,860) (1,018,348) (545,545) (272,772)
--------------- ---------------- ---------------- ----------------
Net cash used in financing activities (1,539,499) (1,843,880) (598,453) (513,030)
--------------- ---------------- ---------------- ----------------
Net (decrease) increase in cash and cash
equivalents (61,490) (20,078) 63,949 39,121
Cash and cash equivalents at beginning of
period 892,157 989,337 766,718 930,138
--------------- ---------------- ---------------- ----------------
Cash and cash equivalents at end of
period $830,667 $969,259 $830,667 $969,259
=============== ================ ================ ================
Supplemental disclosures of cash flow information:
Cash paid for interest $46,479 $96,282 $14,029 $24,964
=============== ================ ================ ================
Supplemental schedule of non-cash transactions:
Operating lease assets reclassified to equipment
held for lease $1,131,256 $85,102
Less accumulated depreciation (865,387) (62,762)
---------------- ----------------
$265,869 $22,340
================ ================
Assets held for lease reclassified as operating
lease assets $1,045,766 $1,045,766
Less accumulated depreciation (802,625) (802,625)
---------------- ----------------
$243,141 $243,141
================ ================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
1. 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. Investment in leases:
The Partnership's investment in leases consists of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
December 31, Amortization ifications & September 30,
1997 Additions of Leases Dispositions 1998
---- --------- --------- -------------- ----
<S> <C> <C> <C> <C> <C>
Net investment in operating leases $1,749,575 ($191,239) ($413,999) $1,144,337
Net investment in direct
financing leases 944,264 (97,146) (369,688) 477,430
Net investment in leveraged
leases 118,208 30,550 (148,758) -
Assets held for sale 388 - (388) -
Reserve for losses (72,006) ($4,995) - 13,222 (63,779)
---------------- --------------- ---------------- ---------------- ----------------
$2,740,429 ($4,995) ($257,835) ($919,611) $1,557,988
================ =============== ================ ================ ================
</TABLE>
The following schedule provides an analysis of the Partnership's investment in
equipment on operating leases by major classifications as of December 31, 1997,
dispositions during the three month periods ended March 31, June 30 and
September 30, 1998 and as of September 30, 1998:
<TABLE>
<CAPTION>
December 31, -------- Reclassifications & Dispositions -------- September 30,
Equipment type 1997 1st Quarter 2nd Quarter 3rd Quarter 1998
-------------- ---- ----------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
Aircraft $2,354,533 $2,354,533
Other 183,599 183,599
Materials handling 432,139 ($54,592) ($350,720) 26,827
Mining 1,546,341 (186,232) ($21,866) (1,338,243) -
Communications 445,877 - - (445,877) -
---------------- --------------- ---------------- ---------------- ----------------
4,962,489 (240,824) (21,866) (2,134,840) 2,564,959
Less accumulated depreciation (3,212,914) 142,180 (52,198) 1,702,310 (1,420,622)
---------------- --------------- ---------------- ---------------- ----------------
$1,749,575 ($98,644) ($74,064) ($432,530) $1,144,337
================ =============== ================ ================ ================
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
2. Investment in leases (continued):
At September 30, 1998, the aggregate amounts of future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
Direct
Financing Operating Total
<S> <C> <C> <C>
Three months ending December 31, 1998 $58,405 $69,766 $128,171
Year ending December 31, 1999 224,000 269,732 493,732
2000 224,000 202,299 426,299
2001 224,000 - 224,000
2002 224,000 - 224,000
--------------- ---------------- ----------------
$954,405 $541,797 $1,496,202
=============== ================ ================
</TABLE>
3. 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
9.43% to 12.86%.
Future minimum principal payments of debt as of September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Principal Interest Total
<S> <C> <C> <C>
Three months ending December 31, 1998 $54,410 $13,023 $67,433
Year ending December 31, 1999 233,530 36,202 269,732
2000 193,133 9,166 202,299
--------------- ---------------- ----------------
$481,073 $58,391 $539,464
=============== ================ ================
</TABLE>
4. Commitments, management and report of fees:
The terms of the Agreement of Limited Partnership 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 the following fees, commissions
and reimbursements, pursuant to the Limited Partnership Agreement as follows:
1998 1997
---- ----
Reimbursement of administrative costs $86,397 $99,420
Incentive and equipment management fees 68,551 63,963
---------------- ----------------
$154,948 $163,383
================ ================
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership's primary source of liquidity is cash received from sales of
lease assets and 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.
As of September 30, 1998, the Partnership had borrowed approximately
$21,700,000. The remaining unpaid balance on those borrowings was approximately
$481,000. 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 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.
The Partnership made distributions of cash from 1998 first quarter operations in
April 1998, from second quarter operations in July 1998 and from third quarter
operations in October 1998. The amounts of each of the distributions were $7.50
per Unit. These distributions represent an annualized distribution rate of 6.0%.
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.
As of September 30, 1998, the Partnership sold a significant portion of its
portfolio of leases and lease assets to an unrelated third party. The gain on
the sale of these assets is included in the operations of the Partnership for
the three and nine month periods ended September 30, 1998. In October 1998,
additional sales of lease assets were completed. The General Partner anticipates
that all of the Partnership's lease assets will have been sold by December 31,
1998 and that the Partnership will have ceased operations by that date.
Cash flows, nine months, 1998 vs. 1997
Proceeds from the sales of lease assets was the primary source of cash in 1998.
Lease revenues, the Partnership's second most important source of cash,
decreased by $197,286 compared to 1997. Lease revenues have declined as leases
have matured and the underlying assets have been sold.
Cash flows provided by investing activities increased by $289,227 primarily as a
result of increased asset sales. The increase in sales proceeds was partially
offset by a decrease in cash flows from direct financing leases.
There were no financing sources of cash in 1998 or 1997. Debt principal payments
have decreased due to scheduled debt payments.
<PAGE>
Cash flows, three months, 1998 vs. 1997
For the third quarter, lease rents were the primary source of cash from
operations for the Partnership. Lease rents decreased by $18,334 compared to
1997. As noted above, the decrease is the result of assets coming off lease and
being subsequently sold.
Cash flows provided by investing activities increased by $764,065 due largely to
increased asset sales. This was partially offset by decreased rents from direct
financing leases ($196,255).
There were no financing sources of cash in 1998 or 1997. Debt principal payments
decreased due to the causes noted above for the nine month period. In both the
nine and three month periods, distributions increased as the per Unit
distribution rate was increased effective with the distribution in April 1998.
Results of Operations
The results of operations in future periods are expected to vary significantly
from those of the first nine months of 1998 as the Partnership's lease portfolio
of capital equipment matures. As noted above, the General Partners anticipate
that all of the Partnership's assets will have been sold prior to the end of the
current year and that operations will have been concluded by that date. 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.
1998 vs. 1997
Operating lease revenues decreased by $273,424 for the nine month period and
$39,063 for the three month period due to lease terminations and subsequent
asset sales. Direct financing lease revenues increased by $59,749 for the nine
month period and increased by $22,752 for the three month period compared to
1997. The increases resulted from lease renewals which are classified as direct
finance leases. The assets had previously been leased under operating lease
agreements. In 1997, sales of assets resulted in gains of $150,984 (nine months)
and $867 (three months). In 1998, sales of assets resulted in gains of $680,418
for the nine month period and $423,532 for the three month period. Such gains
are not expected to be comparable from one period to another. Depreciation
expense declined by $100,629 (nine months) and $23,129 (three months) as a
result of asset sales. Interest expense continues to decline in both the three
and nine month periods in relation to the declining balances of debt. There have
been no new borrowings in the current year.
<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 sheet, September 30, 1998.
Income statements for the nine and three month
periods ended September 30, 1998 and 1997.
Statement of changes in partners' capital for
the nine months ended September 30, 1998.
Statements of cash flows for the nine and three
month periods ended September 30, 1998 and
1997.
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 Form 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:
November 10, 1998
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> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 830,667
<SECURITIES> 0
<RECEIVABLES> 707,846
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,096,501
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,428,351
<TOTAL-LIABILITY-AND-EQUITY> 3,096,501
<SALES> 0
<TOTAL-REVENUES> 1,340,908
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 407,301
<LOSS-PROVISION> 4,995
<INTEREST-EXPENSE> 46,479
<INCOME-PRETAX> 882,133
<INCOME-TAX> 0
<INCOME-CONTINUING> 882,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 882,133
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
