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 September 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 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
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ATEL CASH DISTRIBUTION FUND III, L.P.
BALANCE SHEETS
SEPTEMBER 30, 1998
(Unaudited)
ASSETS
Cash and cash equivalents $7,971,365
Accounts receivable 191,289
Investment in leases 7,394,730
----------------
$15,557,384
================
|
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $875,694
Accrued interest 8,196
Accounts payable:
General Partners 30,999
Other 1,370,814
Unearned operating lease income 118,545
----------------
Total liabilities 2,404,248
Partners' capital:
General Partners 180,076
Limited Partners 12,973,060
----------------
Total partners' capital 13,153,136
----------------
$15,557,384
================
|
See accompanying notes
ATEL CASH DISTRIBUTION FUND III, L.P.
INCOME STATEMENTS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Lease income:
Operating $3,134,750 $5,647,733 $841,181 $1,661,728
Direct financing 211,082 228,725 70,570 62,548
Leveraged 13,930 29,461 4,643 7,365
(Loss) gain on sales of assets (37,875) 608,992 36,709 668
Other 24,272 1,701 20,315 951
Interest income 302,393 92,500 104,066 38,724
--------------- ---------------- ---------------- ----------------
3,648,552 6,609,112 1,077,484 1,771,984
--------------- ---------------- ---------------- ----------------
Expenses:
Depreciation 1,953,426 3,609,021 567,924 1,025,491
Interest expense 98,487 259,436 21,109 59,244
Management fees 257,236 415,165 80,796 121,004
Administrative cost reimbursements 168,747 192,612 59,200 67,634
Professional fees 20,546 26,538 12,779 13,840
Provision for losses 17,173 43,337 - 9,242
Taxes 28,746 75,738 (13,824) 2,006
Other 57,652 77,090 21,572 12,589
--------------- ---------------- ---------------- ----------------
2,602,013 4,698,937 749,556 1,311,050
--------------- ---------------- ---------------- ----------------
Net income 1,046,539 1,910,175 327,928 460,934
=============== ================ ================ ================
Net income:
General Partners $10,465 $19,102 $3,279 $4,609
Limited Partners 1,036,074 1,891,073 324,649 456,325
--------------- ---------------- ---------------- ----------------
$1,046,539 $1,910,175 $327,928 $460,934
=============== ================ ================ ================
Net income per limited partnership unit $0.14 $0.26 $0.04 $0.06
Weighted average number of units
outstanding 7,376,284 7,376,284 7,376,284 7,376,284
|
See accompanying notes
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1998
(Unaudited)
Limited Partners General
Units Amount Partners Total
Balance December 31, 1997 7,376,284 $19,628,128 $169,611 $19,797,739
Distributions to limited partners (7,691,142) - (7,691,142)
Net income 1,036,074 10,465 1,046,539
--------------- ---------------- ---------------- ----------------
Balance September 30, 1998 7,376,284 $12,973,060 $180,076 $13,153,136
=============== ================ ================ ================
|
See accompanying notes
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Operating activities:
Net income $1,046,539 $1,910,175 $327,928 $460,934
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 1,953,426 3,609,021 567,924 1,025,491
Leveraged lease income (13,930) 141,883 (4,643) (6,809)
Loss (gain) on sales of assets 37,875 (608,992) (36,709) (668)
Provision for losses 17,173 43,337 - 9,242
Changes in operating assets and liabilities:
Accounts receivable 33,746 312,765 (9,248) (279,348)
Accounts payable, General Partner (41,540) 17,396 30,999 75,888
Accounts payable, other 1,177,023 (135,245) 1,033,544 (103,650)
Accrued interest (3,646) (31,027) 2,654 10,403
Deposits due to lessees - - -
Unearned operating lease income (35,904) 44,996 (94,139) (82,097)
--------------- ---------------- ---------------- ----------------
Net cash provided by operations 4,170,762 5,304,309 1,818,310 1,109,386
--------------- ---------------- ---------------- ----------------
Investing activities:
Proceeds from sales of equipment 3,203,765 3,012,880 403,951 669,447
Reduction in net investment in direct financing
leases 566,951 908,501 118,550 301,041
--------------- ---------------- ---------------- ----------------
Net cash provided by investing activities 3,770,716 3,921,381 522,501 970,488
--------------- ---------------- ---------------- ----------------
|
ATEL CASH DISTRIBUTION FUND III, L.P.
STATEMENTS OF CASH FLOWS
(CONTINUED)
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Financing activities:
Repayments of non-recourse debt (1,621,698) (2,903,015) (217,672) (452,855)
Distributions to limited partners (7,691,142) (5,773,489) (2,766,711) (1,844,118)
--------------- ---------------- ---------------- ----------------
Net cash used in financing activities (9,312,840) (8,676,504) (2,984,383) (2,296,973)
--------------- ---------------- ---------------- ----------------
Net increase (decrease) in cash and cash
equivalents (1,371,362) 549,186 (643,572) (217,099)
Cash and cash equivalents at beginning
of period 9,342,727 2,766,552 8,614,937 3,532,837
--------------- ---------------- ---------------- ----------------
Cash and cash equivalents at end of period $7,971,365 $3,315,738 $7,971,365 $3,315,738
=============== ================ ================ ================
Supplemental disclosures of cash flow information:
Cash paid for interest $98,487 $259,436 $21,109 $59,244
=============== ================ ================ ================
|
See accompanying notes
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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,
1997 Additions of Leases Dispositions 1998
---- --------- --------- -------------- ----
Net investment in operating
leases $11,267,650 ($1,953,426) ($3,353,557) $5,960,667
Net investment in direct
financing leases 2,379,596 (566,951) (576,872) 1,235,773
Net investment in leveraged
leases 126,371 13,930 - 140,301
Equipment held for sale or lease - - 688,789 688,789
Reserve for losses (613,627) ($17,173) - - (630,800)
------------------ --------------- ---------------- ---------------- ----------------
$13,159,990 ($17,173) ($2,506,447) ($3,241,640) $7,394,730
================== =============== ================ ================ ================
|
The following schedule provides an analysis of the Partnership's investment in property on operating leases by major classifications as of December 31, 1997, acquisitions and dispositions during the quarters ended March 31, June 30 and September 30, 1998 and as of September 30, 1998.
December 31, --------------- Dispositions --------------- September 30,
1997 1st Quarter 2nd Quarter 3rd Quarter 1998
Mining $12,690,592 ($6,070,379) ($1,069,657) $5,550,556
Utilities 3,946,886 - - 3,946,886
Manufacturing 4,881,231 ($1,099,749) (346,794) - 3,434,688
Printing 3,044,659 - - - 3,044,659
Transportation 3,760,326 (1,313,606) - - 2,446,720
Food processing 2,438,524 - - - 2,438,524
Medical 2,155,489 - - - 2,155,489
Materials handling 964,980 (35,759) (632,656) - 296,565
Communications 290,175 - - - 290,175
Other 65,695 - (37,182) - 28,513
------------------ --------------- ---------------- ---------------- ----------------
34,238,557 (2,449,114) (7,087,011) (1,069,657) 23,632,775
Less accumulated
depreciation (22,970,907) 1,170,067 3,928,035 200,697 (17,672,108)
------------------ --------------- ---------------- ---------------- ----------------
$11,267,650 ($1,279,047) ($3,158,976) ($868,960) $5,960,667
================== =============== ================ ================ ================
|
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
2. Investment in leases (continued):
At September 30, 1998, the aggregate amounts of future minimum lease payments are as follows:
Direct
Operating Financing Total
Three months ending December 31, 1998 $965,37298 $192,662 $1,158,034
Year ending December 31, 1999 664,724 546,645 1,211,369
2000 238,486 140,876 379,362
2001 59,415 23,836 83,251
2002 - 17,877 17,877
--------------- ---------------- ----------------
$1,927,997 $921,896 $2,849,893
=============== ================ ================
|
3. 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 or financed with the proceeds of the particular notes. Interest rates on the notes vary from 8% to 13.3%.
Future minimum principal payments of non-recourse debt as of September 30, 1998 are as follows:
Principal Interest Total
Three months ending December 31, 1998 $461,987 $23,350 $485,337
Year ending December 31, 1999 356,416 22,120 378,536
2000 57,291 2,374 59,665
--------------- ---------------- ----------------
$875,694 $47,844 $923,538
=============== ================ ================
|
4. 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 $168,747 $192,612
Incentive and equipment management fees 257,236 415,165
---------------- ----------------
$425,983 $607,777
================ ================
|
ATEL CASH DISTRIBUTION FUND III, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
5. Line of credit:
The Partnership participates with the General Partner and certain of its Affiliates in a $90,000,000 revolving credit agreement with a group of financial institutions which expires on November 28, 1999. The agreement includes an acquisition facility to be used by the Partnership and Affiliates to provide bridge financing for assets on leases. Draws on the acquisition facility by any individual borrower are secured only by that borrower's assets, including equipment and related leases.
The Partnership had no borrowings under the agreement during 1998.
The credit agreement includes certain financial covenants applicable to each borrower. The Partnership was in compliance with its covenants as of September 30, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
During the third quarter of 1998, the Partnership's primary sources of liquidity were proceeds from sales of assets and from operating 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.
In the event the Partnership's 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 September 30, 1998, the Partnership had borrowed approximately $32,425,000. The remaining unpaid balance of such borrowings at September 30, 1998 was approximately $875,000. The borrowings are non-recourse to the Partnership, that is, the only recourse of the lender for a lessee default 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.
The Partnership participates with the General Partner and certain of its affiliates in a $90,000,000 revolving line of credit with a financial institution. The line of credit expires on November 28, 1998.
No commitments of capital have been or are expected to be made other than for the acquisition of additional equipment. As of September 30, 1998, there were no such commitments.
The Partnership made distributions of cash from 1998 first quarter operations in February, March and April 1998. The Partnership made distributions of cash from 1998 second quarter operations in May, June and July 1998. The Partnership made distributions of cash from 1998 third quarter operations in August, September and October 1998. The amounts of the monthly distributions were each $0.125 per Unit. The amounts of the quarterly distributions were each $0.375 per Unit. These distributions represent an annualized distribution rate of 15.0%.
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.
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.
1998 vs. 1997 - nine months
During the nine month period ended September 30, 1998, the Partnership's primary source of cash from operating activities was lease rents. Lease rents have decreased compared to the prior year as a result of scheduled lease terminations and asset sales in the last year.
Sources of cash from investing activities consisted primarily of direct financing lease rents accounted for as reductions of the net investment in direct financing leases and the proceeds from sales of lease assets. Proceeds from sales of assets increased by $190,885 compared to 1997. Asset sales have increased as more leases matured and the related assets were subsequently sold. Asset sales are not expected to be consistent from one period to another. Cash flows from direct financing leases have also decreased as a result of lease terminations and asset sales.
In 1998 and 1997, there were no financing sources of cash. Repayments of non-recourse debt have decreased due to scheduled debt payments. Distributions to limited partners have increased due to an increase in the per Unit distribution rates compared to 1997.
1998 vs. 1997 - three months
During the third quarter, the Partnership's primary source of cash from operations was operating lease rents.
Sources of cash from investing activities consisted primarily of direct financing lease rents accounted for as reductions of the net investment in direct financing leases and the proceeds from sales of lease assets as noted above for the nine month period. These cash flows decreased compared to 1997 for the reasons noted above for the nine month period.
In 1998 and 1997, there were no financing sources of cash. Repayments of non-recourse debt have decreased and distributions to limited partners increased compared to 1997 for the reasons noted above for the nine month period.
Results of Operations
Operations in the third quarter of 1998 resulted in net income of $327,928 compared to $460,934 in 1997. Net income for the first nine months of 1998 was $1,046,539 compared to $1,910,175 in 1997.
1998 vs. 1997
Nine months:
Operating lease revenues decreased by $2,512,983 compared to 1997 and depreciation expense decreased by $1,655,595. Both of these decreases are due to scheduled terminations of operating leases over the last year and the subsequent sales of the related assets.
Interest expense has decreased due to scheduled reductions of debt balances in the nine month period.
Management fees are based on the Partnership's revenues and its distributions to its Limited Partners. Lease revenues decreased compared to 1997. This decrease resulted in a decrease in management fees of approximately $158,000.
Three months:
Operating lease revenues decreased by $820,547 compared to 1997. Direct financing lease revenues increased $8,022 compared to 1997. The decreases in operating lease revenues are related to the maturing of the underlying operating leases and subsequent sales of the assets or renewals classified as direct financing leases. Such reclassifications led to the small increase in direct finance lease revenues. Gains or losses on equipment sales have fluctuated significantly for the reasons noted above.
Depreciation expense decreased by $457,567 from 1997 to 1998 for the three month periods. This decrease resulted from the factors discussed above as they related to the nine month period. Management fees also decreased by $40,208 due to the factors noted above relating to the nine month period.
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, September 30, 1998.
Income statements for the nine and three month
periods ended September 30, 1998 and 1997.
Statement of changes in partners' capital for the
nine month period ended September 30, 1998.
Statements of cash flows for the nine and three
month periods ended September 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:
November 10, 1998
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 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
|
| ARTICLE 5 |
| PERIOD TYPE | 9 mos |
| FISCAL YEAR END | Dec 31 1998 |
| PERIOD END | Sep 30 1998 |
| CASH | 7,971,365 |
| SECURITIES | 0 |
| RECEIVABLES | 191,289 |
| ALLOWANCES | 0 |
| INVENTORY | 0 |
| CURRENT ASSETS | 0 |
| PP&E | 0 |
| DEPRECIATION | 0 |
| TOTAL ASSETS | 15,557,384 |
| CURRENT LIABILITIES | 0 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 13,153,136 |
| TOTAL LIABILITY AND EQUITY | 15,557,384 |
| SALES | 0 |
| TOTAL REVENUES | 3,648,552 |
| CGS | 0 |
| TOTAL COSTS | 0 |
| OTHER EXPENSES | 2,486,353 |
| LOSS PROVISION | 17,173 |
| INTEREST EXPENSE | 98,487 |
| INCOME PRETAX | 1,046,539 |
| INCOME TAX | 0 |
| INCOME CONTINUING | 1,046,539 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,046,539 |
| EPS PRIMARY | 0 |
| EPS DILUTED | 0 |