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 0-16843 ATEL Cash Distribution Fund, a California Limited Partnership (Exact name of registrant as specified in its charter) California 94-2985201 (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 Part I. FINANCIAL INFORMATION Item 1. Financial Statements. 2 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS JUNE 30, 1996 and DECEMBER 31, 1995 (Unaudited) ASSETS 1996 1995 ---- ---- Cash and cash equivalents $100,248 $91,084 Accounts receivable, net of allowance for doubtful accounts of $22,097 in 1996 and 1995 3,410 6,098 Investment in leases and equipment 473,429 552,050 --------------- --------------- $577,087 $649,232 =============== =============== LIABILITIES AND PARTNERS' CAPITAL Non-recourse debt $173,087 $190,568 Accounts payable and accruals 10,184 10,179 Deposits due to lessees 12,914 12,914 Accrued interest 1,336 1,471 Unearned operating lease income 1,254 915 --------------- --------------- Total liabilities 198,775 216,047 Partners' capital: General partners 20,606 19,914 Limited partners 357,706 413,271 --------------- --------------- Total partners' capital 378,312 433,185 --------------- --------------- $577,087 $649,232 =============== =============== See notes to financial statements 3 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS SIX AND THREE MONTH PERIODS ENDED JUNE 30, 1996 and 1995 (Unaudited) Six Months Three Months Ended June 30, Ended June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Lease income: Operating $57,074 $49,926 $27,878 $28,249 Direct financing 24,691 34,150 11,663 16,566 Gain (loss) on sale of equipment 5,196 9,837 - (2) Other 25,955 103,308 25,946 103,296 Gain on sale of marketable securities - 68,158 - - Interest income 361 566 215 246 -------------- -------------- --------------- --------------- 113,277 265,945 65,702 148,355 -------------- -------------- --------------- --------------- Expenses: Professional fees 5,035 12,213 3,797 3,808 Depreciation 21,572 8,760 10,562 6,990 Other 4,647 6,422 3,045 3,907 Taxes 3,326 4,920 3,326 4,920 Interest 8,358 3,281 4,078 3,281 Provision for losses 1,133 2,797 1,133 1,389 -------------- -------------- --------------- --------------- 44,071 38,393 25,941 24,295 -------------- -------------- --------------- --------------- Net income $69,206 $227,552 $39,761 $124,060 ============== ============== =============== =============== Net income: General partners $692 $2,276 $398 $1,241 Limited partners 68,514 225,276 39,363 122,819 -------------- -------------- --------------- --------------- $69,206 $227,552 $39,761 $124,060 ============== ============== =============== =============== Net income per limited partnership unit $3.43 $11.29 $1.97 $6.15 Weighted average number of units outstanding 19,962 19,962 19,962 19,962 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL SIX MONTHS ENDED JUNE 30, 1996 Limited Partners General Units Amount Partners Total Balance December 31, 1995 19,962 $413,271 $19,914 $433,185 Net income 68,514 692 69,206 Distributions (124,079) - (124,079) -------------- -------------- --------------- --------------- Balance June 30, 1996 19,962 $357,706 $20,606 $378,312 ============== ============== =============== =============== See notes to financial statements 4 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS SIX AND THREE MONTH PERIODS ENDED JUNE 30, 1996 and 1995 (Unaudited) Six Months Three Months Ended June 30, Ended June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Operating activities: Net income $69,206 $227,552 $39,761 $124,060 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization expense 21,572 8,760 10,562 6,990 (Gain) loss on sales of assets (5,196) (9,837) - 2 Provision for losses 1,133 2,797 1,133 1,389 Changes in operating assets and liabilities: Accounts receivable 2,688 (691) 8,076 (4,297) Accrued interest (135) - (68) - Unearned operating lease income 339 (863) 1,254 125 Accounts payable, other 5 (32,263) 3,386 (21,544) -------------- -------------- --------------- --------------- Net cash from operations 89,612 195,455 64,104 106,725 -------------- -------------- --------------- --------------- Investing activities: Purchase of assets on operating leases - (208,789) - (208,789) Proceeds from sales of lease assets 14,000 30,000 1 - Reductions in net investment in direct financing leases 47,112 37,654 24,237 19,336 -------------- -------------- --------------- --------------- Net cash provided by (used in) investing activities 61,112 (141,135) 24,238 (189,453) -------------- -------------- --------------- --------------- Financing activities: Distributions to limited partners (124,079) (294,936) (55,891) (76,735) Proceeds from non-recourse debt - 205,517 - 205,517 Repayments of non-recourse debt (17,481) - (8,842) - -------------- -------------- --------------- --------------- Net cash (used in) provided by financing activities (141,560) (89,419) (64,733) 128,782 -------------- -------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents 9,164 (35,099) 23,609 46,054 Cash and cash equivalents at beginning of period 91,084 203,776 76,639 122,623 -------------- -------------- --------------- --------------- Cash and cash equivalents at end of period $100,248 $168,677 $100,248 $168,677 ============== ============== =============== =============== Supplemental disclosures of cash flow information: Cash paid during the period for interest $8,358 $3,281 $4,078 $3,281 ============== ============== =============== =============== See notes to financial statements 5 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (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: Depreciation Expense or December 31, Amortization June 30, 1995 Additions of Leases Dispositions 1996 ---- --------- --------- -------------- ---- Net investment in operating leases $301,079 ($21,119) ($8,803) $271,157 Net investment in direct financing leases 252,989 (47,112) - 205,877 Initial direct costs 2,344 (453) (1) 1,890 Reserve for losses (4,362) ($1,133) - - (5,495) -------------- -------------- -------------- --------------- --------------- $552,050 ($1,133) ($68,684) ($8,804) $473,429 ============== ============== ============== =============== =============== Operating leases: 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, and June 30, 1996 and as of June 30, 1996. December 31, Dispositions June 30, 1995 1st Quarter 2nd Quarter 1996 ---- ----------- ----------- ---- Materials handling $271,352 ($25,755) $245,597 Food processing 208,787 - 208,787 Manufacturing equipment 120,663 (16,052) 104,611 Motor vehicles 35,653 - 35,653 -------------- -------------- --------------- --------------- 636,455 (41,807) 594,648 Less accumulated depreciation (335,376) 22,221 ($10,336) (323,491) -------------- -------------- --------------- --------------- $301,079 ($19,586) ($10,336) $271,157 ============== ============== =============== =============== Equipment on operating leases was acquired in 1987, 1988, 1989, 1990, 1992 , 1993 and 1995. 6 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (Unaudited) 2. Investment in leases: (continued) Operating leases: (continued) At June 30, 1996, the aggregate amounts of future minimum lease payments from direct financing leases and operating leases are as follows: Year ending Direct December 31, Financing Operating Total ------------ --------- --------- ----- 1996 $71,803 $36,615 $108,418 1997 143,606 52,837 196,443 1998 51,091 51,948 103,039 1999 - 51,948 51,948 2000 - 25,974 25,974 -------------- -------------- --------------- $266,500 $219,322 $485,822 ============== ============== =============== 3. Non-recourse debt: Note payable to financial institution is due in monthly installments of principal and interest. The note is secured by an assignment of lease payments and a pledge of the assets which were purchased with the proceeds of the note. Interest on the note is at an annual rate of 9.25%. The balance remaining at June 30, 1996 is due in monthly payments through 2000. Future minimum principal and interest payments of debt as of June 30, 1996 are as follows: Year ending December 31, Principal Interest Total 1996 $18,307 $7,667 $25,974 1997 39,248 12,700 51,948 1998 43,042 8,906 51,948 1999 47,203 4,745 51,948 2000 25,287 688 25,975 -------------- -------------- --------------- $173,087 $34,706 $207,793 ============== ============== =============== 7 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 (Unaudited) 4. 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 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. Effective May 1, 1994, the General Partners have elected to waive all reimbursements of administrative costs. In 1996 and 1995, $28,402 and $32,427 were waived. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity At June 30, 1996, the Partnership had cash balances of $100,248. Of this amount, $55,892 was cash held for the distribution made to the Limited Partners in July of 1996. During the first and second quarters, the Partnership's primary sources of liquidity were cash flows from lease rentals. In the second quarter, the Partnership received $25,938 relating to the bankruptcy settlement of Financial News Network (FNN), a former lessee of the Partnership. The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from operations exceed expenses, and decreasing as distributions are made to the Limited Partners and to the extent expenses exceed cash flows from leases and proceeds form asset sales. The Partnership currently has available adequate reserves to meet contingencies. As of June 30, 1996, the Partnership had borrowed approximately $2,817,500 with a remaining unpaid balance of $173,087. The borrowings are non-recourse to the Partnership, that is the only recourse of the lender is to the equipment or corresponding lease acquired or secured with the loan proceeds. The Agreement of Limited Partnership limits such borrowings to 80% of the total cost of equipment, in aggregate. The Partnership made distributions of cash from operations to the Limited Partners in April and July 1996. These distributions were based on the results of operations in the first and second quarters of 1996. The amount of each of the distributions was $2.50 per Unit. The distributions represent an annualized distribution rate of 2.00%. 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. Cash Flows Six months, 1996 vs. 1995 During the first six months of 1996, the Partnership's primary source of cash was from rents from operating and direct financing leases. The amounts of such rents, in total, was almost unchanged from 1995. During the second quarter of 1996, the Partnership received $25,938 relating to the FNN bankruptcy settlement. The Partnership does not expect to receive additional amount in future periods. Sources of cash from investing activities decreased from $67,654 in 1995 to $61,112 in 1996. The decrease was primarily due to a decrease in sales of lease assets compared to 1995. In 1996, there were no sources of cash flows from financing activities. 9 Three months, 1996 vs. 1995 Cash flows from operations decreased due to the same causes noted above for the six month period. Cash flows from investing activities increased due to the method of income recognition and lease amortization for direct financing leases. The total cash flows provided by such leases was unchanged from 1995 for both the three and six month periods. In 1996, there were no financing sources of cash flows. 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. Six and three months, 1996 vs. 1995 Operating lease revenues have increases due to a lease acquisition at the end of the second quarter of 1995. Depreciation has also increased due to the asset acquisition. Interest expense has increased as the average balances of outstanding debt have increased due to the borrowings at the end of the second quarter of 1995. This has been partially offset as debt balances have been reduced as a result of scheduled debt payments. The gains on sales of marketable securities and cash received related to FNN are not expected to occur again in future periods. Revenues from leases and sales of lease assets decreased slightly compared to 1995. These decreases resulted primarily from decreased asset sales compared to the prior year. In the second quarter of 1995, the Partnership received $103,286 relating to the bankruptcy of FNN. In 1996, $25,938 was received from the settlement. No further payments are anticipated. In the first quarter of 1995, the Partnership sold common stock it had received from the FNN bankruptcy settlement and realized a gain of $68,158 on the sale of the stock. Upon completion of the sale, the Partnership no longer held any equity securities. Combined, these factors caused a decline in revenues of $145,511 from 1995 to 1996. The Partnership's expenses increased by $5,678 for the six month period compared to 1995. The increase was primarily related to increases in depreciation and interest expenses. These increases were the result of assets acquired at the end of the second quarter of 1995 using the proceeds of non-recourse debt. 10 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 Statements of operations for the six and three month periods ended June 30, 1996 and 1995 Statements of changes in partners' capital for the six months 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 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. 11 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, 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 12