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 March 31, 1997
|_| 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
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEET
MARCH 31, 1997
(Unaudited)
ASSETS
Cash and cash equivalents $1,045,503
Accounts receivable, net of allowance for doubtful
accounts of $15,551 46,583
Investment in equipment and leases 3,862,788
----------------
Total assets $4,954,874
================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $1,404,945
Accrued interest 23,182
Accounts payable:
General Partners 17,912
Other 74,523
Customer deposit 9,000
Unearned income 22,704
----------------
Total liabilities 1,552,266
Partners' capital:
General Partners 81,759
Limited partners 3,320,849
----------------
Total partners' capital 3,402,608
----------------
Total liabilities and partners' capital $4,954,874
================
See accompanying notes.
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
INCOME STATEMENTS
THREE MONTH PERIODS ENDED
MARCH 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues:
Lease income:
Operating $274,437 $431,672
Direct financing 46,622 93,004
Leveraged 6,069 4,823
Gain on sale of lease assets 82,072 1,927
Interest income 6,227 2,997
Other 819 79,466
-------------------- ----------------
416,246 613,889
-------------------- ----------------
Expenses:
Depreciation and amortization 113,174 323,465
Interest expense 39,376 71,185
Equipment and partnership management fees to General Partners 25,968 40,220
Administrative cost reimbursements to General Partners 37,249 23,541
Other 8,886 9,303
Provision for losses 4,162 5,874
-------------------- ----------------
228,815 473,588
-------------------- ----------------
Net Income $187,431 $140,301
==================== ================
Net income:
General Partners $1,874 $1,403
Limited Partners 185,557 138,898
-------------------- ----------------
$187,431 $140,301
==================== ================
Net income per Limited Partnership unit $2.65 $1.98
Weighted average number of units outstanding 69,979 69,979
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
Limited Partners General
Units Amount Partners Total
Balance December 31, 1996 69,979 $3,608,097 $79,885 $3,687,982
Net income 185,557 1,874 187,431
Distributions (472,805) - (472,805)
----------------- ---------------- -------------------- ----------------
Balance March 31, 1997 69,979 $3,320,849 $81,759 $3,402,608
================= ================ ==================== ================
See accompanying notes.
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED
MARCH 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Operating activities:
Net income $187,431 $140,301
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 113,174 323,465
Leveraged lease income (6,069) (4,823)
Gain on sale of lease assets (82,072) (1,927)
Provision for losses 4,162 5,874
Changes in operating assets and liabilities:
Accounts receivable (16,340) (20,692)
Accounts payable, general partner (3,370) (20,972)
Accounts payable, other 7,739 26,151
Accrued interest (5,910) (6,177)
Customer deposits (60,000) -
Unearned income 6,205 (19,824)
-------------------- ----------------
Net cash provided by operations 144,950 421,376
-------------------- ----------------
Investing activities:
Reductions of net investment in direct financing leases 209,530 220,195
Proceeds from sales of lease assets 463,411 101,769
-------------------- ----------------
Net cash provided by investing activities 672,941 321,964
-------------------- ----------------
Financing activities:
Repayment of non-recourse debt (288,920) (320,677)
Distributions to limited partners (472,805) (658,289)
-------------------- ----------------
Net cash used in financing activities (761,725) (978,966)
-------------------- ----------------
Net increase (decrease) in cash and cash equivalents 56,166 (235,626)
Cash and cash equivalents at beginning of period 989,337 874,714
-------------------- ----------------
Cash and cash equivalents at end of period $1,045,503 $639,088
==================== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest: $45,286 $77,362
==================== ================
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.
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(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:
Depreciation
Expense or Reclass-
December 31, Amortization ifications & March 31,
1996 Additions of Leases Dispositions 1997
---- --------- --------- ---------------- ----
Net investment in operating
leases $2,756,220 ($113,174) ($382,237) $2,260,809
Net investment in direct
financing leases 1,774,588 (209,530) - 1,565,058
Net investment in leveraged
leases 93,925 6,069 - 99,994
Reserve for losses (59,809) ($4,162) - 898 (63,073)
---------------- ----------------- ---------------- -------------------- ----------------
$4,564,924 ($4,162) ($316,635) ($381,339) $3,862,788
================ ================= ================ ==================== ================
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1996,
additions and dispositions during the three months ended March 31, 1997 and as
of March 31, 1997:
Balance Reclass- Balance
December 31, ifications & March 31,
Equipment type 1996 Additions Dispositions 1997
-------------- ---- --------- ------------ ----
Aircraft $3,164,533 ($810,000) $2,354,533
Mining 1,316,547 - 1,316,547
Materials handling 835,681 - 835,681
Manufacturing 717,059 - 717,059
Data processing 481,738 - 481,738
Communications 331,071 - 331,071
Food processing 80,832 - 80,832
Transportation 45,525 (3,696) 41,829
Motor vehicles 22,967 - 22,967
Furniture, fixtures and equipment 73,217 (73,217) -
----------------- ---------------- -------------------- ----------------
7,069,170 (886,913) 6,182,257
Less accumulated depreciation (4,312,950) ($113,174) 504,676 (3,921,448)
----------------- ---------------- -------------------- ----------------
$2,756,220 ($113,174) ($382,237) $2,260,809
================= ================ ==================== ================
Equipment on operating leases was acquired in 1988, 1989, 1990, 1992, 1993 and
1994.
At March 31, 1997, the aggregate amounts of future minimum lease payments are as
follows:
Year ending Direct
December 31, Financing Operating Total
1997 $712,230 $430,838 $1,143,068
1998 115,204 272,615 387,819
1999 4,248 269,732 273,980
2000 - 202,299 202,299
----------------- ---------------- --------------------
$831,682 $1,175,484 $2,007,166
================= ================ ====================
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(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
1997 $748,233 $92,509 $840,742
1998 230,049 61,609 291,658
1999 233,530 36,202 269,732
2000 193,133 9,566 202,699
----------------- ---------------- --------------------
$1,404,945 $199,886 $1,604,831
================= ================ ====================
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 1997 and 1996 were $25,968 and
$40,220 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 1997 and 1996, the Partnership reimbursed ATEL Financial Corporation $37,249
and $23,541, respectively, for costs incurred in the administration of
Partnership business.
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 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, 1997, the Partnership had borrowed approximately $21,700,000.
The remaining unpaid balance on those borrowings was approximately $1,405,000.
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, 1997.
The Partnership made a distribution of cash from operations in April 1997. The
amount of the distribution was $3.75 per Unit (which is equal to an annualized
rate of 3%).
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, 1997 vs. 1996
For the first three months of 1997, 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 $529,499 in 1996 to $327,128 in
1997, a decrease of $202,371. The decrease is mainly due to the effects of
terminated leases. The cost of assets on operating leases has decreased from
$9,494,837 in 1996 to $6,072,599 in 1997.
Cash flows from investing activities increased by $350,977 compared to 1996. The
increase was the result of a substantial increase in proceeds from sale of lease
assets. Most of the assets sold were operating lease assets. The original cost
of operating lease assets sold in the first quarter of 1997 was $996,571
compared to $698,596 in 1996. Proceeds from asset sales are expected to vary
from one period to another.
There were no financing sources of cash in either 1996 or 1997. The net cash
used in financing activities decreased by $217,241. Distributions to limited
partners were reduced as a result of decreased cash flows in the fourth quarter
of 1996.
Results of Operations
The results of operations in future periods may vary significantly from those of
the first quarter of 1997 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, 1997 vs. 1996
Compared to 1996, operating lease revenues decreased by $157,235. 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. Other income decreased by $78,647 from
1996. The decrease is due to a first quarter 1996 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 an
additional $62,123 was received in April 1997. The Partnership may receive an
additional 2% to 5% 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 $9,494,836
to $6,072,599 from March 31, 1996 to March 31, 1997.
Interest expense decreased by $31,809 compared to 1996. This is a direct result
of decreased debt balances compared to 1996. These reductions of debt balances
resulted from scheduled debt payments.
Management fees decreased from $40,220 in 1996 to $25,968 in 1997. 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.
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 Sheet, March 31, 1997
Income statements for the three month periods
ended March 31, 1997 and 1996
Statement of changes in partners' capital for
the three months ended March 31, 1997
Statements of cash flows for the three month
periods ended March 31, 1997 and 1996
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
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 12, 1997
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