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 September 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 000-16843 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 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 1 of 13 Part I. FINANCIAL INFORMATION Item 1. Financial Statements. Page 2 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (Unaudited) ASSETS 1996 1995 ---- ---- Cash and cash equivalents $101,363 $91,084 Accounts receivable, net of allowance for doubtful accounts of $22,097 in 1996 and 1995 2,312 6,098 Investment in leases and equipment 410,746 552,050 --------------- --------------- $514,421 $649,232 =============== =============== LIABILITIES AND PARTNERS' CAPITAL Non-recourse debt $164,039 $190,568 Accounts payable and accruals 11,928 10,179 Accrued interest 1,266 1,471 Deposits due to lessees 12,914 12,914 Unearned operating lease income - 915 --------------- --------------- Total liabilities 190,147 216,047 Partners' capital: General Partners 20,625 19,914 Limited Partners 303,649 413,271 --------------- --------------- Total partners' capital 324,274 433,185 --------------- --------------- $514,421 $649,232 =============== =============== See accompanying notes. Page 3 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Lease income: Operating $81,607 $81,503 $24,533 $31,577 Direct financing 33,493 49,620 8,802 15,470 Gain on sale of equipment 12,719 11,731 7,523 1,894 Other 26,037 103,197 82 (111) Gain on sale of marketable securities - 68,158 - - Interest income 697 931 336 365 --------------- ---------------- --------------- --------------- 154,553 315,140 41,276 49,195 --------------- ---------------- --------------- --------------- Expenses: Depreciation and amortization 51,356 18,824 29,784 10,064 Professional fees 9,512 14,337 4,477 2,124 Other 5,526 10,590 879 4,168 Interest 12,227 8,077 3,869 4,796 Taxes 3,326 4,920 - - Provision for losses 1,546 3,288 413 491 --------------- ---------------- --------------- --------------- 83,493 60,036 39,422 21,643 --------------- ---------------- --------------- --------------- Net income $71,060 $255,104 $1,854 $27,552 =============== ================ =============== =============== Net income: General Partners $711 $2,551 $19 $276 Limited Partners 70,349 252,553 1,835 27,276 --------------- ---------------- --------------- --------------- $71,060 $255,104 $1,854 $27,552 =============== ================ =============== =============== Net income per Limited Partnership unit $3.52 $12.65 $0.09 $1.37 =============== ================ =============== =============== Weighted average number of units outstanding 19,962 19,962 19,962 19,962 =============== ================ =============== =============== STATEMENTS OF CHANGES IN PARTNERS' CAPITAL NINE MONTHS ENDED SEPTEMBER 30, 1996 Limited Partners General Units Amount Partners Total ----- ------ -------- ----- Balance December 31, 1995 19,962 $413,271 $19,914 $433,185 Net income 70,349 711 71,060 Distributions (179,971) (179,971) --------------- ---------------- --------------- --------------- Balance September 30, 1996 19,962 $303,649 $20,625 $324,274 =============== ================ =============== =============== See accompanying notes. Page 4 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Operating activities: Net income $71,060 $255,104 $1,854 $27,552 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization expense 51,356 18,824 29,784 10,064 Gain on sales of assets (12,719) (11,731) (7,523) (1,894) Gain on sale of marketable securities - (68,158) - - Provision for losses 1,546 3,288 413 491 Changes in operating assets and liabilities: Accounts receivable 3,786 2,927 1,098 3,618 Accounts payable and accruals 1,749 (35,359) 1,744 (3,096) Accrued interest (205) 1,534 (70) 1,534 Unearned operating lease income (915) (988) (1,254) (125) --------------- ---------------- --------------- --------------- Net cash provided by operations 115,658 165,441 26,046 38,144 --------------- ---------------- --------------- --------------- Investing activities: Investment in operating lease assets - (208,787) - - Proceeds from sale of marketable securities - 68,158 - - Proceeds from sales of equipment 33,365 33,901 19,365 3,901 Reductions in net investment in direct financing leases 67,755 58,085 20,643 20,433 --------------- ---------------- --------------- --------------- Net cash provided by (used in) investing activities 101,120 (48,643) 40,008 24,334 --------------- ---------------- --------------- --------------- Financing activities: Proceeds of non-recourse debt - 205,517 - - Repayments of non-recourse debt (26,528) (6,444) (9,047) (6,444) Distributions to Limited Partners (179,971) (430,696) (55,892) (135,760) --------------- ---------------- --------------- --------------- Net cash used in financing activities (206,499) (231,623) (64,939) (142,204) --------------- ---------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents 10,279 (114,825) 1,115 (79,726) Cash and cash equivalents at beginning of period 91,084 203,776 100,248 168,677 --------------- ---------------- --------------- --------------- Cash and cash equivalents at end of period $101,363 $143,441 $101,363 $143,441 =============== ================ =============== =============== Supplemental disclosure of cash flow information: Cash paid for interest $12,227 $8,077 $3,869 $4,796 =============== ================ =============== =============== See accompanying notes. Page 5 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 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 Reclass- December 31, Amortization ifications & September 30, 1995 Additions of Leases Dispositions 1996 ---- --------- --------- ------------ ---- Net investment in operating leases $301,079 ($50,676) ($20,647) $229,756 Net investment in direct financing leases 252,989 (67,755) (133,002) 52,232 Assets held for sale or lease - - 133,003 133,003 Initial direct costs 2,344 (681) - 1,663 Reserve for losses (4,362) ($1,546) - - (5,908) ------------------- --------------- ---------------- --------------- --------------- $552,050 ($1,546) ($119,112) ($20,646) $410,746 =================== =============== ================ =============== =============== 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, June 30 and September 30, 1996 and as of September 30, 1996. December 31, ----- Dispositions ----- September 30, 1995 1st Quarter 2nd Quarter 3rd Quarter 1996 ---- ----------- ----------- ----------- ---- Materials handling $271,352 ($25,755) ($12,127) $233,470 Food processing 208,787 - - 208,787 Manufacturing equipment 120,663 (16,052) - 104,611 Motor vehicles 35,653 - (30,764) 4,889 ------------------- --------------- ---------------- --------------- --------------- 636,455 (41,807) (42,891) 551,757 Less accumulated depreciation (335,376) 22,221 ($10,336) 1,490 (322,001) ------------------- --------------- ---------------- --------------- --------------- $301,079 ($19,586) ($10,336) ($41,401) $229,756 =================== =============== ================ =============== =============== Equipment on operating leases was acquired in 1987, 1988, 1989, 1990, 1992, 1993 and 1995. Page 6 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (Unaudited) 2. Investment in leases: (continued) At September 30, 1996, the aggregate amounts of future minimum lease payments from direct financing leases and operating leases are as follows: Direct Financing Operating Total --------- --------- ----- Three months ending December 31, 1996 $16,531 $16,572 $33,103 Year ending December 31, 1997 66,125 52,837 118,962 1998 - 51,948 51,948 1999 - 51,948 51,948 2000 - 25,974 25,974 --------------- ---------------- --------------- $82,656 $199,279 $281,935 =============== ================ =============== 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 September 30, 1996 is due in monthly payments through 2000. Future minimum principal and interest payments of debt as of September 30, 1996 are as follows: Principal Interest Total --------- -------- ----- Three months ending December 31, 1996 $9,259 $3,728 $12,987 Year ending December 31, 1997 39,248 12,700 51,948 1998 43,042 8,906 51,948 1999 47,204 4,745 51,949 2000 25,286 688 25,974 --------------- ---------------- --------------- $164,039 $30,767 $194,806 =============== ================ =============== Page 7 ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 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. Effective April 1, 1994, the General Partners elected to waive all management fees. 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, $39,919 was waived. In 1995, $39,824 was waived. Page 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity At September 30, 1996, the Partnership had cash balances of $101,363. During the nine months and the quarter ended September 30, 1996, the Partnership's primary sources of liquidity were cash flows from leasing operations. 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. The Partnership currently has available adequate reserves to meet contingencies. As of September 30, 1996, the Partnership had borrowed approximately $2,817,500 with a remaining unpaid balance of approximately $164,000. There were no borrowings between December 31, 1995 and September 30, 1996. The borrowings are non-recourse to the Partnership, that is the only recourse of the lender for a lessee default is to the equipment or corresponding lease acquired with the loan proceeds. The Partnership Agreement limits such borrowings to 80% of the total cost of equipment, in aggregate. No commitments of capital have been made or are expected to be made in connection with the acquisition of additional equipment. The General Partners have determined that the Partnership's investment objectives will be best served by making limited additional investments by means of non-recourse debt. The Partnership may acquire an asset for lease without use of any cash or exposure of any of its other assets by using 100% financing on a non-recourse basis. The Partnership may sell the asset when its lease terminates or sell it subject to the lease and debt. In either case, the potential residual proceeds may provide additional liquidation distributions to the Limited Partners. The Partnership will have the ability to dispose of the asset at any time consistent with the final liquidation of its portfolio and termination of the Partnership. The General Partners have in certain cases determined that waiver of fees or reimbursement of expenses to which they were entitled under the terms of the Agreement of Limited Partnership would be in the best interest of the Partnership and appropriate given the circumstances under which the Partnership was operating. Although the General Partners may be entitled to certain payments, they are fiduciaries and must analyze each payment authorized by the Partnership under all of the facts and circumstances prevailing. Any fees or reimbursements disclosed as waived will not be deferred or recovered in the future. However, unless a fee or reimbursement right is altered by an amendment to the Agreement of Limited Partnership, it is not permanently waived for any future period or transaction. The Partnership made distributions of cash from operations and sales proceeds to the Limited Partners in April, July and October 1996. The amount of the distribution was $2.50 per Unit. The distribution represents 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. Leases already in place, for the most part, would not be affected by changes in interest rates. Page 9 Cash flows 1996 vs. 1995 Nine months: Cash flows from operations decreased for the nine month period compared to the same period in 1995. In 1996, cash flows from operating and direct financing leases were the primary sources of operating cash flows. Other income decreased by $77,160 compared to 1995. In 1995, the other income represented the Partnership's sharing in certain cash flows generated by the successor company to a former lessee. The rights to participate in these cash flows were a part of the bankruptcy settlement regarding that lessee, Financial News Network (FNN). These amounts were received in June 1995. In 1996 $25,938 was received compared to $103,286 in 1995. No such amounts are expected to be received in the future. Sources of cash from investing activities consisted of rents received on direct financing leases and the proceeds from sales of lease assets. The amounts of proceeds from the sales of assets are expected to vary considerably from one period to another but are expected to generally decline over the long-term as the Partnership's underlying portfolio of assets diminishes. There were no financing sources of cash in 1996. In 1995, the only financing source of cash was the $205,517 of non-recourse debt proceeds. The debt proceeds were used to finance the acquisition of lease assets in the second quarter. Three months: In both 1996 and 1995, lease rents were the primary source of operating cash flows. Lease rents decreased to about $33,300 in 1996 from about $47,000 in 1995. In both years, the most significant investing source of cash was rents from direct financing leases. There were no financing sources of cash in either year. The primary financing use of cash continues to be distributions to the Limited Partners for both the three and nine month periods. Results of Operations As of December 29, 1986, the Partnership commenced operations in its primary business (leasing activities). Operations in the first nine months of 1996 resulted in net income of $71,060 compared to $255,104 in the previous year. 1996 vs. 1995: Nine months: Lease revenues were almost unchanged from the prior year. Other income in 1996 consisted of the $25,938 received in the second quarter as a part of the FNN bankruptcy settlement. In the second quarter of 1995, $103,286 was received from the same source. No further amounts are expected. In 1995, the Partnership sold certain securities at a gain of $68,158. The stock had been received as a part of the settlement of the bankruptcy of FNN. The stock was sold in the first quarter of 1995. In the second quarter, the Partnership received a cash payment from the successor to FNN. This was a sharing of certain cash flows generated by that successor and which the Partnership had received a right to participate in as a result of that bankruptcy settlement. The Partnership owns no more stock and there will not be any further cash flows received from the successor company. Page 10 Depreciation expense and interest expense have increased as a result of the second quarter 1995 asset acquisitions. Three months: Lease revenues have declined from 1995 to 1996 as a result of asset sales over the last year. Depreciation has increased for the three month period for the same reasons as noted above for the nine month period. Interest expense increased for the three month period due to the amounts borrowed at the end of the second quarter of 1995. The results of operations in future periods may vary significantly from those of the first nine months of 1996 as the Partnership's lease portfolio of capital equipment matures. Revenues from leases are expected to decline 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. Page 11 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, September 30, 1996 and December 31, 1995 Statements of operations for the nine and three month periods ended September 30, 1996 and 1995 Statement of changes in partners' capital for the nine months ended September 30, 1996 Statements of cash flows for the nine and three month periods ended September 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. (b) Report on Form 8-K None Page 12 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 11, 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 Page 13