Form 10-QSB
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, 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 0-17631
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
JUNE 30, 1998
(Unaudited)
ASSETS
Cash and cash equivalents $766,718
Accounts receivables, net of allowance for doubtful accounts of $32,623 34,442
Investment in equipment and leases 2,370,652
----------------
$3,171,812
================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $533,981
Accrued interest 5,006
Accounts payable:
General partners 1,974
Other 63,971
Unearned operating lease income 84,031
----------------
Total liabilities 688,963
Partners' capital:
General partners 88,928
Limited partners 2,393,921
----------------
Total partners' capital 2,482,849
----------------
$3,171,812
================
See notes to financial statements
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
INCOME STATEMENTS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
Revenues: 1998 1997 1998 1997
---- ---- ---- ----
Lease income:
Operating $283,221 $517,582 $141,338 $243,145
Direct financing 124,000 87,003 60,208 40,381
Leveraged leases 30,550 12,138 - 6,069
Gain on sales of assets 256,886 150,117 1,201 68,045
Other income 1,732 63,752 345 62,933
Interest income 12,576 12,965 6,495 6,738
---------------- ----------------- ---------------- ----------------
708,965 843,557 209,587 427,311
---------------- ----------------- ---------------- ----------------
Expenses:
Depreciation and amortization 140,293 217,793 71,064 104,619
Administrative cost reimbursements 56,196 64,868 19,800 27,619
Equipment and partnership management
fees 37,754 49,915 10,896 23,947
Interest expense 32,450 71,318 15,504 31,942
Taxes 18,806 20,641 18,806 20,641
Other 18,340 26,071 5,319 18,676
Professional fees 9,045 8,450 9,045 6,959
Provision for losses 4,995 4,162 - -
---------------- ----------------- ---------------- ----------------
317,879 463,218 150,434 234,403
---------------- ----------------- ---------------- ----------------
Net Income $391,086 $380,339 $59,153 $192,908
================ ================= ================ ================
Net income:
General partners $3,911 $2,886 $592 $1,483
Limited partners 387,175 285,714 58,561 146,816
---------------- ----------------- ---------------- ----------------
$391,086 $288,600 $59,153 $148,299
================ ================= ================ ================
Net income per limited partnership unit $5.53 $4.08 $0.84 $2.10
Weighted average number of units
outstanding 69,979 69,979 69,979 69,979
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
SIX MONTHS ENDED JUNE 30, 1998
Limited Partners General
Units Amount Partners Total
Balance December 31, 1997 69,979 $2,825,061 $85,017 $2,910,078
Net income 387,175 3,911 391,086
Distributions (818,315) - (818,315)
---------------- ----------------- ---------------- ----------------
Balance June 30, 1998 69,979 $2,393,921 $88,928 $2,482,849
================ ================= ================ ================
See notes to financial statements
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Operating activities:
Net income $391,086 $380,339 $59,153 $192,908
Adjustment to reconcile net income to
net cash provided by operations:
Depreciation and amortization 140,293 217,793 71,064 104,619
Revenues from leveraged leases (30,550) (12,138) - (6,069)
Gain on sales of assets (256,886) (150,117) (1,201) (68,045)
Provision for losses 4,995 4,162 - -
Changes in operating assets and liabilities:
Decrease (increase) in accounts
Accounts receivable 1,269 (63,077) (3,692) (46,737)
Accounts payable, general partner (8,918) (19,741) (63,515) (16,371)
Accounts payable, other (10,315) 5,297 33,492 (2,442)
Accrued interest (1,611) (11,822) (482) (5,912)
Customer deposits - (60,000) - -
Unearned operating lease income 74,319 (5,818) 66,025 (12,023)
---------------- ----------------- ---------------- ----------------
Net cash from operations 303,682 284,878 160,844 139,928
---------------- ----------------- ---------------- ----------------
Investing activities:
Proceeds from sales of assets 435,440 563,964 4,199 100,553
Reductions of net investment in direct
financing leases 76,485 422,809 29,072 213,279
---------------- ----------------- ---------------- ----------------
Net cash provided by investing
activities 511,925 986,773 33,271 313,832
---------------- ----------------- ---------------- ----------------
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
(Continued)
Six Months Three Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Financing activities:
Repayment of non-recourse debt (122,731) (585,274) (51,447) (296,354)
Distributions to limited partners (818,315) (745,576) (545,543) (272,771)
---------------- ----------------- ---------------- ----------------
Net cash used in financing activities (941,046) (1,330,850) (596,990) (569,125)
---------------- ----------------- ---------------- ----------------
Net (decrease) increase in cash and
cash equivalents (125,439) (59,199) (402,875) (115,365)
Cash and cash equivalents at
beginning of period 892,157 989,337 1,169,593 1,045,503
---------------- ----------------- ---------------- ----------------
Cash and cash equivalents at end of
period $766,718 $930,138 $766,718 $930,138
================ ================= ================ ================
Supplemental disclosures of cash flow information:
Cash paid for interest during the period $32,450 $71,318 $15,504 $31,942
================ ================= ================ ================
Operating lease assets reclassified to assets
held or sale or lease $1,046,154 $1,046,154
Less accumulated depreciation (802,625) (802,625)
----------------- ----------------
$243,529 $243,529
================= ================
See notes to financial statements
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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.
3. Investment in leases:
The Partnership's investment in leases consists of the following:
Depreciation
Expense or Reclass-
December 31, Amortization ifications & June 30,
1997 Additions of Leases Dispositions 1998
---- --------- --------- -------------- ----
Net investment in operating
leases $1,749,575 ($140,293) ($32,415) $1,576,867
Net investment in direct
financing leases 944,264 (76,485) (269,098) 598,681
Net investment in leveraged
leases 118,208 30,550 (148,758) -
Equipment held for sale 388 - 271,717 272,105
Reserve for losses (72,006) ($4,995) - - (77,001)
------------------ ---------------- ----------------- ---------------- ----------------
$2,740,429 ($4,995) ($186,228) ($178,554) $2,370,652
================== ================ ================= ================ ================
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
3. Investment in 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, 1997,
additions and dispositions during the three month periods ended March 31, 1998
and June 30, 1998 and as of June 30, 1998:
Reclassifications &
December 31, Dispositions June 30,
Equipment type 1997 1st Quarter 2nd Quarter 1998
-------------- ---- ----------- ----------- ----
Aircraft $2,354,533 $2,354,533
Mining 1,546,341 ($186,232) ($21,866) 1,338,243
Communications 445,877 - - 445,877
Materials handling 432,139 (54,592) 377,547
Other 183,599 - - 183,599
---------------- ----------------- ---------------- ----------------
4,962,489 (240,824) (21,866) 4,699,799
Less accumulated depreciation (3,212,914) 142,180 (52,198) (3,122,932)
---------------- ----------------- ---------------- ----------------
$1,749,575 ($98,644) ($74,064) $1,576,867
================ ================= ================ ================
Equipment on operating leases was acquired in 1988, 1989, 1990, 1991 and 1994.
At June 30, 1998, the aggregate amounts of future minimum lease payments are as
follows:
Year ending Direct
December 31, Financing Operating Total
1998 $148,339 $271,578 $419,917
1999 228,248 415,968 644,216
2000 224,000 239,499 463,499
2001 224,000 37,200 261,200
2002 224,000 18,600 242,600
---------------- ----------------- ----------------
$1,048,587 $982,845 $2,031,432
================ ================= ================
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 and interest payments of debt as of June 30, 1998 are
as follows:
Year ending
December 31, Principal Interest Total
1998 $107,317 $27,548 $134,865
1999 233,531 36,202 269,733
2000 193,133 9,166 202,299
---------------- ----------------- ----------------
$533,981 $72,916 $606,897
================ ================= ================
5. 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 $56,196 $64,868
Incentive and equipment management fees 37,754 49,915
---------------- ----------------
$93,950 $114,783
================ ================
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Partnership cash which has been received, but which has not yet been invested in
leased equipment or distributed to partners, is 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. 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, 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 June 30, 1998, the partnership had borrowed approximately $21,700,000. The
remaining unpaid balance on those borrowings was $533,981. 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 decrease as
a percentage of 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.
The Partnership made distributions of cash from 1998 first and second quarter
operations in April and July 1998, respectively. The amounts of these
distributions were each $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.
Cash flows, six months, 1998 vs. 1997
In the first six months of 1998, the Partnership's primary source of cash flows
from operations was lease rents, particularly operating lease rents. Cash flows
from operations Increased by $18,804. The Partnership's operating lease revenues
declined by $234,361 compared to 1997. Direct financing lease revenues increased
by $36,997. Operating lease rents declined as a result of lease terminations
over the preceding year. Some of the assets coming off of operating leases were
re-leased under new direct financing lease arrangements. These new leases gave
rise to the increase in direct financing lease revenues.
Cash flows from investing activities decreased by $474,828 compared to 1997.
Most of the decrease was due to sales of direct financing lease assets in 1998
and 1997, resulting in decreased cash flows from such leases.
There were no financing sources of cash in the 1998 or 1997 periods. Debt
principal payments have decreased as a result of scheduled debt payments.
Distributions increased due to higher per Unit rate of distributions in 1998
compared to 1997.
Cash flows, three months, 1998 vs. 1997
Lease revenues decreased by $88,049. Lease rentals were the largest source of
cash in the second quarter of 1998. The decrease in lease rents for the three
month period was due to asset sales as noted above for the six month period.
Sources of cash flows from investing activities decreased compared to 197.
Proceeds from the sales of assets decreased by $96,334 compared to 1997.
There were no financing sources of cash in the 1998 or 1997 periods. Cash flows
used in financing activities changed in the three month period due to the same
causes as noted above for the six month period.
Results of Operations
The results of operations in future periods may vary significantly from those of
the first six months of 1998 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.
1998 vs. 1997
Operating lease revenues declined by $234,361 (six months) and $101,807 (three
months). Direct financing lease revenues increased by $36,997 (six months) and
$19,827 (three months) compared to 1997. Depreciation expense decreased by
$77,500 (six months) and $33,555 (three months) compare to 1997. Operating lease
revenues and depreciation have declined as leases have reached their scheduled
terminations and the underlying assets have been sold or re-leased on direct
financing leases. Management fees are related to lease revenues and to
distributions. Both of these factors declined in 1998 compared to 1997,
resulting in lower management fees. Interest expense decreased for both the six
and three month periods due to lower average debt balances than in 1997
resulting from scheduled debt payments.
Other
Year 2000 Issues
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in similar normal
business activities.
The Partnership uses primarily third party software and is communicating with
key vendors to ensure that the Partnership's systems are year 2000 compliant.
Based on these discussions, the Partnership does not expect that the costs
related to the year 2000 issue will be significant. Ultimately, the potential
impact of the year 2000 issue will depend on the way in which the year 2000
issue is addressed by businesses and other entities whose financial condition or
operational capability is important to the Partnership.
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, June 30, 1998.
Income statements for the six and three month periods
ended June 30, 1998 and 1997.
Statement of changes in partners' equity for the six
month period ended June 30, 1998.
Statements of cash flows for the six and three month
periods ended June 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
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 12, 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 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