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 000-19160
ATEL Cash Distribution Fund III, L.P.
(Exact name of registrant as specified in its charter)
California 94-3100855
(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 III, L.P.
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
ASSETS
1996 1995
---- ----
Cash and cash equivalents $1,122,411 $1,874,774
Accounts receivable 604,229 873,451
Notes receivable 22,430 44,861
Investments in leases 33,691,962 39,107,792
---------------- ---------------
$35,441,032 $41,900,878
================ ===============
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $9,057,367 $11,451,641
Accrued interest 86,593 125,026
Accounts payable:
General partners 120,995 109,779
Other 197,514 290,428
Deposits due to lessees 75,340 75,340
Unearned operating lease income 492,247 396,749
---------------- ---------------
Total liabilities 10,030,056 12,448,963
Partners' capital:
General partners 105,305 97,750
Limited partners 25,305,671 29,354,165
---------------- ---------------
Total partners' capital 25,410,976 29,451,915
---------------- ---------------
$35,441,032 $41,900,878
================ ===============
See notes to financial statements
3
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
INCOME STATEMENTS
THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
Revenues: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Lease revenues:
Operating leases $5,108,126 $6,879,307 $2,434,471 $3,405,619
Direct financing leases 235,054 283,439 113,546 152,539
Leveraged leases 42,515 35,093 21,257 20,205
Gain on sales of assets 181,879 79,968 37,511 32,631
Interest income 25,814 13,211 9,920 6,916
Other (192) 1,499 (192) 221
---------------- ---------------- ---------------- ---------------
5,593,196 7,292,517 2,616,513 3,618,131
---------------- ---------------- ---------------- ---------------
Expenses:
Depreciation 3,801,365 4,660,197 1,847,887 2,376,961
Interest expense 389,779 558,948 158,872 264,604
Equipment and partnership management fees 373,497 490,869 176,182 279,797
Administrative cost reimbursements 108,924 135,502 69,368 80,800
Provision for losses 55,882 72,892 26,169 36,181
Other 38,701 50,254 34,013 25,208
Professional fees 21,604 42,758 15,170 12,195
Taxes 47,978 14,795 47,978 14,795
---------------- ---------------- ---------------- ---------------
4,837,730 6,026,215 2,375,639 3,090,541
---------------- ---------------- ---------------- ---------------
Net Income $755,466 $1,266,302 $240,874 $527,590
================ ================ ================ ===============
Net income:
General partners $7,555 $12,663 $2,409 $5,276
Limited partners 747,911 1,253,639 238,465 522,314
---------------- ---------------- ---------------- ---------------
$755,466 $1,266,302 $240,874 $527,590
================ ================ ================ ===============
Net income per limited partnership unit $0.10 $0.17 $0.03 $0.07
Weighted average number of units
outstanding 7,377,584 7,378,884 7,376,284 7,378,884
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
SIX MONTH PERIOD ENDED
JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
<S> <C> <C> <C> <C>
Balance December 31, 1994 7,378,884 $29,354,165 $97,750 $29,451,915
Distributions to limited partners (4,787,797) (4,787,797)
Repurchases of limited partnership units (2,600) (8,608) (8,608)
Net income 747,911 7,555 755,466
---------------- ---------------- ---------------- ---------------
Balance June 30, 1995 7,376,284 $25,305,671 $105,305 $25,410,976
================ ================ ================ ===============
</TABLE>
See notes to financial statements
4
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Operating activities:
<S> <C> <C> <C> <C>
Net income $755,466 $1,266,302 $240,874 $527,590
Adjustment to reconcile net income to net cash
provided by operations:
Depreciation 3,801,365 4,660,197 1,847,887 2,376,961
Leveraged lease income (32,892) (25,536) (16,446) (15,394)
Gain on sales of assets (181,879) (79,968) (37,511) (32,631)
Provision for losses 55,882 72,892 26,169 36,181
Changes in operating assets and liabilities:
Accounts receivable 269,222 (163,506) 92,436 (103,023)
Notes receivable 22,431 22,430 11,216 11,215
Accounts payable, general partner 11,216 134,830 74,492 (74,987)
Accounts payable, other (92,914) 13,726 68,525 234,614
Accrued interest (38,433) (75,457) (32,253) (27,802)
Unearned operating lease income 95,498 189,783 (142,241) (53,671)
---------------- ---------------- ---------------- ---------------
Net cash provided by operating activities 4,664,962 6,015,693 2,133,148 2,879,053
---------------- ---------------- ---------------- ---------------
Investing activities:
Reduction in net investment in direct
financing leases 867,605 762,449 398,714 370,405
Proceeds from sales of lease assets 1,025,749 440,313 485,500 309,470
Purchase of equipment on operating leases - (80,500) - (80,500)
Purchase of equipment on direct financing
leases (120,000) - - -
---------------- ---------------- ---------------- ---------------
Net cash provided by investing activities 1,773,354 1,122,262 884,214 599,375
---------------- ---------------- ---------------- ---------------
</TABLE>
5
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
(CONTINUED)
THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Financing activities:
Distributions to limited partners (4,787,797) (5,171,804) (2,208,563) (2,585,345)
Repayments of long-term non-recourse debt (2,394,274) (1,790,604) (993,880) (114,467)
Repurchases of units (8,608) - (8,608) -
---------------- ---------------- ---------------- ---------------
Net cash used in financing activities (7,190,679) (6,962,408) (3,211,051) (2,699,812)
---------------- ---------------- ---------------- ---------------
Net (decrease) increase in cash and
cash equivalents (752,363) 175,547 (193,689) 778,616
Cash and cash equivalents at
beginning of period 1,874,774 1,566,318 1,316,100 963,249
---------------- ---------------- ---------------- ---------------
Cash and cash equivalents at end of
period $1,122,411 $1,741,865 $1,122,411 $1,741,865
================ ================ ================ ===============
Supplemental disclosures of cash flow information:
Cash paid during period for interest $389,779 $558,948 $158,872 $264,604
================ ================ ================ ===============
</TABLE>
See notes to financial statements
6
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
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 III, L.P. (the Partnership), was formed under the
laws of the State of California in September 1989, 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 7, 1989, $100 of which
represented the General Partners' continuing interest, and $500 of which
represented the Initial Limited Partners' 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 1, 1990,
the Partnership commenced operations.
The Partnership's business consists of leasing various types of equipment. As of
June 30, 1996, the Partnership's leases were for terms of two and one half to
eight and one half years.
Pursuant to the Agreement of Limited Partnership, the General Partners receive
compensation and reimbursements for services rendered on behalf of the
Partnership (Note 5.)
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 $32,622,297 ($3,801,365) ($460,009) $28,360,923
Net investment in direct
financing leases 5,254,109 $120,000 (867,605) - 4,506,504
Net investment in leveraged
leases 1,623,406 - 32,892 - 1,656,298
Equipment held for lease 432,348 - - (345,053) 87,295
Reserve for losses (824,368) (55,882) - (38,808) (919,058)
------------------ ---------------- ---------------- ---------------- ---------------
$39,107,792 $64,118 ($4,636,078) ($843,870) $33,691,962
================== ================ ================ ================ ===============
</TABLE>
7
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
3. Investment in leases (continued):
The following schedule provides an analysis of the Partnership's investment in
property on operating leases by major classifications as of December 31, 1995,
acquisitions and dispositions during the quarters ended March 31, 1996 and June
30, 1996 and as of June 30, 1996.
<TABLE>
<CAPTION>
Acquisitions &
December 31, Dispositions June 30,
1995 1st Quarter 2nd Quarter 1996
---- ----------- ----------- ----
<S> <C> <C> <C> <C>
Mining $18,592,029 ($114,492) $18,477,537
Manufacturing 12,773,604 - 12,773,604
Transportation 7,777,179 - 7,777,179
Aircraft 5,275,000 - 5,275,000
Materials handling 3,946,886 (225,066) 3,721,820
Utilities 3,987,085 ($347,028) - 3,640,057
Printing 3,454,353 - - 3,454,353
Food processing 2,438,524 - - 2,438,524
Medical 2,041,222 - - 2,041,222
Furniture, fixtures and equipment 345,815 - - 345,815
Other 290,175 - - 290,175
Communications 2,155,489 (1,887,374) - 268,115
---------------- ---------------- ---------------- ---------------
63,077,361 (2,234,402) (339,558) 60,503,401
Less accumulated depreciation (30,455,064) (114,018) (1,573,396) (32,142,478)
---------------- ---------------- ---------------- ---------------
$32,622,297 ($2,348,420) ($1,912,954) $28,360,923
================ ================ ================ ===============
</TABLE>
Equipment on operating leases was acquired in 1990, 1991, 1992, 1993 and 1995.
At June 30, 1996, the aggregate amounts of future minimum lease payments are as
follows:
Year ending Direct
December 31, Financing Operating Total
------------ --------- --------- -----
1996 $1,121,846 $4,761,594 $5,883,440
1997 1,286,463 7,396,751 8,683,214
1998 1,053,142 4,645,575 5,698,717
1999 542,146 816,880 1,359,026
2000 140,876 - 140,876
Thereafter 45,255 - 45,255
---------------- ---------------- ----------------
$4,189,728 $17,620,800 $21,810,528
================ ================ ================
8
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
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
6.81% to 11.3%.
Future minimum principal and interest payments of long-term non-recourse debt as
of June 30, 1996 are as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
1996 $2,301,175 $314,241 $2,615,416
1997 3,812,234 413,772 4,226,006
1998 2,530,248 147,354 2,677,602
1999 356,419 22,119 378,538
2000 57,291 2,374 59,665
---------------- ---------------- ----------------
$9,057,367 $899,860 $9,957,227
================ ================ ================
5. Related party transactions:
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 management of the Partnership.
The General Partners and/or Affiliates earned partnership and equipment
management fees of $373,497 in 1996 and $490,869 in 1995, pursuant to the
Agreement of Limited Partnership.
The amounts above are gross amounts incurred by the General Partners and/or
Affiliates, including commissions to broker dealers for the sales of Partnership
Units.
9
<PAGE>
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
6. Partners' capital:
The Partnership Net Profits, Net Losses, and Tax Credits are to be allocated 99%
to the Limited Partners and 1% to the General Partners.
As more fully described in the Partnership Agreement, available Cash from
Operations and Cash from Sales or Refinancing shall be distributed as follows:
First, 5% of Distributions of Cash from Operations to the General Partners
as Incentive Management Compensation.
Second, the balance to the Limited Partners until the Limited Partners have
received aggregate Distributions, as defined, in an amount equal to their
Original Invested Capital, as defined, plus an 8% per annum cumulative
(compounded daily) return on their Adjusted Invested Capital, as defined.
Third, the General Partners will receive as Incentive Management
Compensation, the following:
(A) 10% of remaining Cash from Operations, as defined,
(B) 15% of remaining Cash from Sales or Refinancing, as defined.
Fourth, the balance to the Limited Partners.
7. Line of credit:
The Partnership participates with ATEL and certain of its Affiliates in a
$70,000,000 revolving line of credit with a financial institution that includes
certain financial covenants. The line of credit expires on July 18, 1997.
The current line of credit, when used, is collateralized by (i) specific lease
assets assigned or (ii) all lease receivables and other lease related proceeds
owned by the Partnership, all equipment subject to leases and related insurance
policies and maintenance contracts owned by the Partnership and all deposit
accounts with the lender and all cash on deposit.
8. Subsequent event:
On July 19, 1996, the Partnership's interest in the bankruptcy of Barney's, Inc.
(Barney's), a former lessee of the Partnership was settled. The terms of the
settlement provided for the sale of the assets which had been leased to
Barney's, for the repayment of the non-recourse debt used by the Partnership to
finance the assets and for net cash proceeds to the Partnership. The settlement
resulted in a gain on the sale of the assets of $417,975 and an extraordinary
gain on the extinguishment of the debt of $97,608.
10
<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 during the first six months of
1996 was lease rents. 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.
As of June 30, 1996, the Partnership had borrowed approximately $32,425,000. The
remaining unpaid balance of such borrowings at June 30, 1996 was $9,057,367. 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 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. As of June 30, 1996, there were no such
commitments.
The Partnership made distributions of cash from 1996 first quarter operations in
February, March and April 1996. The Partnership made distributions of cash from
1996 second quarter operations in May, June and July 1996. Distributions were
made to the limited partners as follows:
<TABLE>
<CAPTION>
Annualized
Month in which distribution Amount of distribution per distribution
was made Limited Partnership Unit rate
<S> <C> <C> <C>
Monthly distributions: February $0.11667 14.00%
March $0.11667 14.00%
April $0.08333 10.00%
May $0.10000 12.00%
June $0.10000 12.00%
July $0.10000 12.00%
Quarterly distributions: April $0.31667 12.67%
July $0.30000 12.00%
</TABLE>
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.
11
<PAGE>
Cash Flows, 1996 vs. 1995:
Six months:
Cash flows from operations decreased due to decreases in lease rents compared to
1995. The increases were due to lease asset sales since the second quarter of
1995.
Cash flows from the sales of assets increased by $585,436 compared to 1995. The
increase was due to larger amounts of lease maturities and resulting sales. The
original cost of such assets sold increased to approximately $3,600,000 in 1996
from approximately $1,465,000 in 1995. Cash flows from the reduction of the
Partnership's net investment in direct financing leases increased compared to
1995 and represents the "principal' portion of direct financing lease rents. It
has increased over the prior period due to equipment acquisitions over the last
twelve months.
There were no financing sources of cash flows in 1996 or 1995. Distributions to
limited partners decreased compared to 1995 due to the decrease in the
annualized distribution rates compared to 1995. Debt payments for the six month
period increased due to scheduled debt payments.
Three months:
Cash flows from operations decreased in the three month period for the same
reasons noted above for the six month period.
Cash flows from investing activities in both 1995 and 1996 consisted of proceeds
from sales of assets and from reductions in the Partnership's net investment in
direct financing leases. Proceeds from the sales of assets increased due to
larger amounts of sales activities. In addition, increased amounts were
recovered from the net investment in direct financing leases. The increase of
these amounts is due to investments in such assets during the last twelve
months.
There were no financing sources of cash in 1996 or 1995. Debt payments decreased
for the same reasons as noted above for the six month period.
Results of Operations
Operations in the second quarter of 1995 resulted in net income of $527,590
compared to $72,550 in 1994. Net income for the first six months of 1995 was
$1,266,302 compared to $368,136 in 1994.
1996 vs. 1995:
Lease revenues decreased in both the three and six month periods compared to the
prior year. This is the result of asset sales since June 30, 1995. Interest
income has increased from 1995 to 1996 for both the three and six month periods.
This a direct consequence of having maintained higher average cash balances
during the 1996 periods than in the 1995 periods.
Operating lease revenues have shown a net decrease for both the three and six
month periods. The original cost of the underlying assets has decreased from
$72,043,404 at June 30, 1995 to $60,503,401 at June 30, 1996. The decreased
amounts of equipment owned by the Partnership also gave rise to the decrease in
depreciation expense.
As scheduled debt payments have been made, debt balances have been reduced and
this has caused interest expense to decline from 1995 to 1996.
Management fees are based on distribution to the limited partners and on lease
rents. The decreases in both these revenues and distributions caused the
decrease in management fees.
12
<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 statement 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.
(b) Report on Form 8-K
None
13
<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 III, L.P.
(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
14
<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> 1122411
<SECURITIES> 0
<RECEIVABLES> 604229
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35441032
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25410976
<TOTAL-LIABILITY-AND-EQUITY> 35441032
<SALES> 0
<TOTAL-REVENUES> 5593196
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4392069
<LOSS-PROVISION> 55882
<INTEREST-EXPENSE> 389779
<INCOME-PRETAX> 755466
<INCOME-TAX> 0
<INCOME-CONTINUING> 755466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755466
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
