Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (fee required)
For the Year Ended December 31, 1995
OR
Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required) For the
transition period from ____ to ____
Commission File number 0-17631
ATEL Cash Distribution Fund II, a California Limited Partnership
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
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Partnership
Units
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
State the aggregate market value of voting stock held by non-affiliates of
the registrant: Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
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PART I
Item 1: BUSINESS
General Development of Business
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. The Partnership was formed for the purpose of acquiring equipment to
engage in equipment leasing and sales activities.
In a public offering of 50,000 units of Limited Partnership interest (Units)
(which was increased to 70,000 Units at the option of the General Partners), at
a price of $500 per Unit, the Partnership sold an aggregate of 70,000 Units for
a total capitalization of $35,000,000. Of the proceeds received, $3,325,000 was
paid to ATEL Securities Corporation, a wholly owned subsidiary of ATEL Financial
Corporation (ATEL), the corporate general partner, as sales commissions,
$1,751,426 was paid to ATEL as reimbursements of organization and other
syndication costs and $29,398,574 was used to acquire leased equipment,
including acquisition fees paid to ATEL. An additional $525,000 was held for
reserves for repurchases of Units and for working capital.
At December 31, 1995, cash balances consisted of amounts to be distributed from
1995 operations and sales proceeds ($658,289) and working capital reserves.
The Partnership's principal objectives are to invest in a diversified portfolio
of equipment which will (i) preserve, protect and return the Partnership's
invested capital; (ii) generate substantial distributions to the partners of
cash from operations and cash from sales or refinancing, with any balance
remaining after certain minimum distributions to be used to purchase additional
equipment during the reinvestment period, ending December 31, 1995 and (iii)
provide significant distributions following the reinvestment period and until
all equipment has been sold. The Partnership is governed by its Limited
Partnership Agreement.
Narrative Description of Business
The Partnership has acquired and intends to acquire various types of equipment
and to lease such equipment pursuant to "Operating" leases and "Full Payout"
leases, where "Operating" leases are defined as being leases in which the
minimum lease payments during the initial lease term do not recover the full
cost of the equipment and "Full Payout" leases recover such cost.
The Partnership only purchases equipment for which a lease exists or for which a
lease will be entered into at the time of the purchase. The Partnership's
reinvestment period ended December 31, 1995. The Partnership may acquire
additional assets without the use of any cash or exposure of any of its other
assets by using 100% financing on a non-recourse basis.
The Partnership's objective was to lease a minimum of 75% of the equipment
acquired with the net proceeds of the offering to lessees which (i) have an
aggregate credit rating by Moody's Investor Service, Inc. of Baa or better, or
the credit equivalent as determined by the General Partners, with the aggregate
rating weighted to account for the original equipment cost for each item leased;
or (ii) are established hospitals with histories of profitability or
municipalities. The balance of the original equipment portfolio could include
equipment leased to lessees which, although deemed creditworthy by the General
Partners, would not satisfy the general credit rating criteria for the
portfolio. At December 31, 1995, in excess of 75% of the equipment acquired had
been leased to lessees with an aggregate credit rating of Baa or better or to
such hospitals or municipalities.
One lessee accounted for 12% of the Partnership's lease revenues during 1995.
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease term and type of equipment. The ability of the Partnership to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depend on various factors (many of which are not in
the control of the General Partners or the Partnership), such as general
economic conditions, including the effects of inflation or recession, and
fluctuations in supply and demand for various types of equipment resulting from,
among other things, technological and economic obsolescence.
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<PAGE>
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
Equipment Dispositions:
Through December 31, 1995, the Partnership has disposed of certain lease assets
as set forth below:
Excess of
Acquisition Sales Rents Over
Asset Type Cost Price Expenses *
Aircraft $6,742,040 $4,917,002 $1,846,076
Material handling 5,751,091 2,034,980 5,597,969
Mining 5,483,450 1,637,044 5,509,990
Food processing 2,841,988 903,998 3,050,075
Transportation 2,652,619 986,801 2,699,633
Medical 1,585,800 514,254 1,603,407
Manufacturing 1,476,163 197,000 1,580,298
Furniture, fixtures and equipment 1,432,952 390,584 1,521,587
Communications 1,232,483 689,932 735,482
Data processing 1,003,917 99,552 1,042,407
Motor vehicles 638,670 192,982 648,669
Printing 233,268 110,000 258,130
--------------- --------------- ---------------
$31,074,441 $12,674,129 $26,093,723
=============== =============== ===============
* Includes only those expenses directly related to the production of the related
rents.
Equipment Leasing Activities:
The Partnership has acquired a diversified portfolio of equipment. The equipment
has been leased to lessees in various industries. The following tables set forth
the types of equipment acquired by the Partnership through December 31, 1995 and
the industries to which the assets have been leased.
Purchase price excluding Percentage of total
Asset types acquisition fees acquisitions
Material handling $10,469,425 20.03%
Aircraft 9,799,805 18.75%
Food processing 5,531,182 10.58%
Mining 5,395,983 10.32%
Medical 4,633,726 8.86%
Transportation 4,280,728 8.19%
Manufacturing 3,045,461 5.83%
Furniture, fixtures and
equipment 3,474,306 6.65%
Printing 2,524,690 4.83%
Communication 1,239,467 2.37%
Data processing 1,126,472 2.16%
Motor vehicles 749,291 1.43%
------------- ------------
$52,270,536 100.00%
============= ============
Purchase price excluding Percentage of total
Industry of lessee acquisition fees acquisitions
Manufacturing, other $7,696,525 14.72%
Medical 7,480,492 14.31%
Transportation 6,247,981 11.95%
Mining 6,157,112 11.78%
Food processing 5,881,954 11.25%
Commercial airline 4,592,040 8.79%
Other 4,358,700 8.34%
Primary metals 3,933,919 7.53%
Printing 2,558,495 4.89%
Manufacturing, auto/truck 1,831,257 3.50%
Chemicals 1,532,061 2.94%
------------- ------------
$52,270,536 100.00%
============= ============
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 1995, see Note 3 to the financial statements, Investments in
leases, set forth in Item 8, Financial Statements and Supplementary Data.
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Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or materially
important physical properties other than the equipment held for lease as set
forth in Item 1.
Item 3. 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 below in Part II, Item 7 under the caption "Results of
Operations" where the Partnership has undertaken legal action in pursuit of its
unsecured claim.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS AND
RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states and the Partnership
Agreement. However, as a result of such restrictions, the size of the
Partnership and its investment objectives, to the General Partners' knowledge,
no established public secondary trading market has developed and it is unlikely
that a public trading market will develop in the future.
Holders
As of December 31, 1995, a total of 2,967 investors were record holders of Units
in the Partnership.
Dividends
The Limited Partners of the Partnership are entitled to certain distributions as
provided under the Limited Partnership Agreement.
The General Partners have sole discretion in determining the amount of
distributions. However, since the reinvestment period ended December 31, 1995,
the General Partners are required to distribute, subject to payment of any
obligations of the Partnership, such available cash from operations and cash
from sales or refinancing.
The rates for distributions to Limited Partners in April, July and October 1995
and in January 1996 were $18.75, $12.50, $12.50 and $9.05, respectively per Unit
(a total of $52.80 per Unit). All distributions were from cash flows from
operations and sales proceeds in 1995.
The rates for distributions to Limited Partners in April, July and October 1994
and in January 1995 were each $21.25 per Unit (a total of $85.00 per Unit). All
distributions were from cash flows from operations and sales proceeds in 1994.
The rates for distributions to Limited Partners in April, July and October 1993
and in January 1994 were each $20.00 per Unit (a total of $80.00 per Unit). All
distributions were from cash flows from operations in 1993.
The following table presents summarized information regarding distributions to
Limited Partners:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Distributions of net income $18.49 $21.00 $15.54 $14.50 $15.81
Return of investment 49.07 66.05 66.26 61.22 54.09
-------------- ---------------- --------------- --------------- --------------
Distributions per unit 67.56 87.05 81.80 75.72 69.90
Differences due to timing of
distributions and due to distribution
reinvestments (14.76) (2.05) (1.80) (0.72) 0.10
-------------- ---------------- --------------- --------------- --------------
Nominal distribution rates from above $52.80 $85.00 $80.00 $75.00 $70.00
============== ================ =============== =============== ==============
</TABLE>
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<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995. This financial data
should be read in conjunction with the financial statements and related notes
included under Item 8 of this report.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues $3,645,794 $5,624,499 $7,083,181 $8,260,374 $8,743,176
Net Income $1,307,185 $1,484,900 $1,099,015 $1,025,357 $1,117,799
Weighted average Limited Partnership
Units (Units) outstanding 69,979 69,990 70,001 70,001 70,001
Net income per Unit, based on
weighted average Units outstanding $18.49 $21.00 $15.54 $14.50 $15.81
Distributions per Unit, based on
weighted average Units outstanding $67.56 $87.05 $81.80 $75.72 $69.90
Total Assets $8,404,252 $13,123,098 $20,421,000 $27,646,894 $34,494,031
Total Non-recourse Debt $2,965,946 $4,255,444 $6,807,471 $9,298,808 $12,189,768
Total Partners' Capital $5,130,875 $8,551,736 $13,161,644 $17,577,696 $21,479,585
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
During the year, the Partnership's primary sources of liquidity were cash
balances and cash flows from leasing operations. The liquidity of the
Partnership will vary in the future, increasing to the extent cash flows from
operations and proceeds from asset sales 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 and proceeds from asset
sales.
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 its immediate
cash requirements, 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 December 31, 1995, cash balances were reserved for distributions in
January 1996 ($658,289) and working capital reserves.
As of December 31, 1995, the Partnership had borrowed approximately $21,700,000.
The remaining unpaid balance on those borrowings was approximately $2,966,000.
There were no additional borrowings from December 31, 1995 through February 29,
1996. The borrowings are no
n-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 Li
mited Partnership Agreement 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 as described in Item 1. As of December
31, 1995, the Partnership had no such commitments.
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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.
The Partnership commenced regular distributions, based on cash flows from
operations, beginning with the second quarter of 1988. Distributions of cash
from 1995 operations and sales proceeds were made in April, July and October
1995 and in January 1996. See Items 5 and 6 of this report for additional
information regarding the distributions.
Cash Flows:
1995 vs. 1994
Cash flows from operations decreased by $1,114,000. The decrease resulted from
decreased lease revenues ($2,804,259 in 1995 compared to $5,395,153 in 1994), a
decrease of $2,590,894. This was partially offset by cash received from
bankruptcy settlements ($228,033) and improved collections of accounts
receivable at the end of 1995 compared to 1994. In 1994, accounts receivable had
increased by $396,017 and they decreased by $606,422 in 1995, resulting in
increased cash flows in 1995 of $1,002,439 compared to 1994. Lease rents
declined as the result of sales of the underlying pool of lease assets at the
end of the related lease terms. See further discussion under the heading
"Results of Operations".
Cash flows from investing activities increased from $1,967,923 in 1994 to
$3,180,99 in 1995. In 1994, $2,322,591 was used to purchased lease assets and to
pay related initial direct costs. There were no such purchases in 1995. The
largest source of cash from investing activities in both years was the proceeds
from sales of operating lease assets. These proceeds declined from $2,955,209 in
1994 to $2,179,490 in 1995. The second major source of cash from investing
activities is direct financing lease rents which are accounted for as reductions
of the Partnership's net investment in direct financing leases. These amounts
decreased from $1,311,673 in 1994 to $875,730 in 1995.
There were no financing sources of cash in 1995. Repayments of non-recourse debt
have decreased as a result of scheduled debt payments.
1994 vs. 1993
Cash flows from operations decreased by $1,051,000. The decrease resulted from
lower lease rents in 1994 compared to 1993 ($5,395,000 compared to $6,795,500).
Lease rents decreased due to a decrease in the underlying asset base. Assets are
being sold more rapidly than new assets are being acquired.
Investing sources of cash increased by approximately $890,000. Investing sources
of cash came from the proceeds from sales of lease assets ($2,959,500 in 1994
compared to $2,643,300 in 1993) and from reductions in the Partnership's
investment in direct financing leases ($1,312,000 in 1994 compared to $736,000
in 1993).
There were no financing sources of cash in 1994. Repayments of non-recourse debt
have decreased as a result of scheduled debt payments.
Results of Operations
As of March 23, 1988, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Partnership. As of that date,
the Partnership commenced operations in its primary business (leasing
activities). Operations resulted in net income of $1,117,799, $1,025,357,
$1,099,015, $1,484,900 and $1,307,185 in 1991, 1992, 1993, 1994 and 1995,
respectively. The results of operations in future periods may vary significantly
from those of 1995 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 rents. The
ultimate effect on net income is not determinable as it will depend to a large
degree on the amounts received from the sales of assets and/or from re-leases to
either the same or new lessees once the initial lease terms expire.
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A number of the Partnership's leases are scheduled to terminate in 1996. If they
are terminated as scheduled, gross lease rents from operating and direct
financing leases are expected to decrease by $1,093,000 (from $3,665,000 in 1995
to $2,572,000 in 1996). Depreciation expense related to operating leases is also
expected to decrease. The ultimate effect on net income will also depend on the
amounts, if any, of re-lease rentals and/or the amounts of proceeds received
upon sales of the assets.
As of December 31, 1995, 22% (14% in 1994) of total equipment cost was leased to
lessees in the health care industry. Leases are subject to the general partners'
credit committee review. The leases provide for the return of the equipment upon
default. The concentration of the Partnership's assets in this industry is not
known to have had any effect on the Partnership's results of operations nor is
there any known trend regarding this industry that would effect its operations
in future periods.
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 may receive an additional 5% to
10% of its unsecured claim of $776,654.
1995 vs. 1994
Operating lease revenues declined by $2,560,888 (from $4,912,864 in 1994 to
$2,351,976 in 1995) due to continued sales of operating lease assets at the end
of their related lease terms. In 1995, the Partnership realized a gain on lease
assets sales of $453,960 compared to a loss of $3,239 in 1994. A large part of
the 1995 gain related to the sale of materials handling equipment after it was
returned by the lessees upon termination of the lease. In 1995, the Partnership
sold the remainder of the common stock it had received as a part of the 1992
Financial News Network (FNN) bankruptcy settlement. The gain realized in 1995
was $128,878 compared to $19,292 in 1994. In 1995, the Partnership also received
additional cash payments from the bankruptcies of FNN and Rocky Mountain
Helicopters, Inc. totaling $228,033. No further amounts are expected from the
FNN transaction.
Depreciation expense has continued to decrease as the Partnership's underlying
portfolio of operating lease assets is sold at the scheduled terminations of the
related lease terms. Depreciation decreased from $2,963,445 in 1994 to
$1,451,193 in 1995. Interest expense has declined from $509,267 in 1994 to
$365,099 in 1995 as the result of scheduled debt payments. Management fees are
based on the Partnership's lease rents received and on the amounts of cash
distributed to the limited partners from its leasing activities (as defined in
the Limited Partnership Agreement). Both of these factors decreased in 1995
compared to 1994 and as a result, management fees decreased from $313,115 to
$222,936.
1994 vs. 1993
Operating lease revenues declined by $1,424,006 (from $6,336,870 in 1993 to
$4,912,864 in 1994) due to sales of assets in 1993 and 1994. Direct financing
lease revenues increased by $21,150 due to the addition of such assets in 1994.
Other income increased by $161,000. In 1994, other income included fees of
$139,200 imposed on a lessee for the early termination of the lease contract.
There were no such fees in 1993.
Depreciation expense has declined as the amount of equipment on operating leases
(at cost) has declined from $35,604,457 at the end of 1992 to $26,479,548 at the
end of 1993 and to $18,224,077 at the end of 1994. It is expected to continue to
decrease as additional operating leases mature and the related assets are sold.
The reductions (in both 1993 and in 1994) of the asset base have contributed to
the decrease in depreciation in 1994.
Interest expense has declined as the balances of long-term debt have been
reduced by scheduled debt payments.
Equipment management fees are related to the Partnership's gross lease rents.
Such fees decreased from $195,000 in 1993 to $146,000 in 1994. The decline is
related to the decrease in lease rents noted above. Partnership management fees
are related to the amounts of distributions of "Cash from Operations", as
defined in the Limited Partnership Agreement, to the Limited Partners. These
fees decreased from $233,000 in 1993 to $167,000 in 1994 as a greater portion of
the cash distributed to the Limited Partners was from the proceeds from asset
sales rather than from operations.
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In 1994, the assets of the Partnership represent a smaller portion of the total
assets of all of the affiliated partnerships managed by the General Partners.
Its partners also represent a smaller portion of the total number of such
partners in all of the partnerships administered by the General Partners.
Administrative costs incurred by the General Partners on behalf of the
affiliated partnerships are subject to certain economies of scale and the
Partnership was consequently allocated a smaller portion of those costs in 1994.
Additionally, certain portions of the lease administration process were
automated. This resulted in the decrease in the amounts of administrative costs
reimbursed to the General Partners.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto at
pages 9 through 23.
-8-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
ATEL Cash Distribution Fund II
We have audited the accompanying balance sheets of ATEL Cash Distribution Fund
II (a California limited partnership) as of December 31, 1995 and 1994, and the
related statements of income, changes in partners' capital and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Cash Distribution Fund II
(a California limited partnership) at December 31, 1995 and 1994 and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Francisco, California
February 2, 1996
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<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---- ----
Cash and cash equivalents $874,714 $924,041
Accounts receivable, net of allowance
for doubtful accounts of $15,552 in
1995 and 1994 69,558 675,980
Investment in equipment and leases 7,459,980 11,523,077
--------------- --------------
Total assets $8,404,252 $13,123,098
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $2,965,946 $4,255,444
Accrued interest 53,047 75,141
Accounts payable and accrued liabilities:
General Partners 61,192 50,505
Trade and other 79,398 55,219
Customer deposits 77,409 77,409
Unearned operating lease income 36,385 57,644
--------------- --------------
Total liabilities 3,273,377 4,571,362
Partners' capital:
General Partners 73,539 60,467
Limited Partners 5,057,336 8,491,269
--------------- --------------
Total partners' capital 5,130,875 8,551,736
--------------- --------------
Total liabilities and partners' capital $8,404,252 $13,123,098
=============== ==============
See accompanying notes.
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<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Leasing activities:
Operating $2,351,976 $4,912,864 $6,336,870
Direct financing 436,955 470,109 448,959
Leveraged 15,328 12,180 9,679
Gain (loss) on sale of lease assets 453,960 (3,239) 184,599
Interest income 32,340 38,720 89,830
Gain on sale of marketable securities 124,878 19,292 -
Proceeds from bankruptcy settlements 228,033 - -
Other 2,324 174,573 13,244
--------------- --------------- --------------
3,645,794 5,624,499 7,083,181
--------------- --------------- --------------
Expenses:
Depreciation and amortization 1,451,193 2,963,445 4,285,373
Interest expense 365,099 509,267 860,663
Equipment and partnership management
fees to General Partner 222,936 313,115 427,874
Administrative cost reimbursements
to General Partner 157,444 238,185 313,421
Provision for losses 25,972 11,616 -
Professional fees 44,864 37,647 47,110
Other 71,101 66,324 49,725
--------------- --------------- --------------
2,338,609 4,139,599 5,984,166
--------------- --------------- --------------
Net Income $1,307,185 $1,484,900 $1,099,015
=============== =============== ==============
Net income:
General Partners $13,072 $14,849 $10,990
Limited Partners 1,294,113 1,470,051 1,088,025
--------------- --------------- --------------
$1,307,185 $1,484,900 $1,099,015
=============== =============== ==============
Net income per Limited Partnership unit $18.49 $21.00 $15.54
Weighted average number of units
outstanding 69,979 69,990 70,001
</TABLE>
See accompanying notes.
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<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
<S> <C> <C> <C> <C>
Balance, January 1, 1993 70,001 $17,543,068 $34,628 $17,577,696
Distributions ($81.80 per unit) (5,726,239) (5,726,239)
Distributions reinvested 211,172 211,172
Net income 1,088,025 10,990 1,099,015
---------------- --------------- --------------- --------------
Balance, December 31, 1993 70,001 13,116,026 45,618 13,161,644
Distributions ($87.05 per unit) (6,092,811) (6,092,811)
Repurchase of units (22) (1,997) (1,997)
Net income 1,470,051 14,849 1,484,900
---------------- --------------- --------------- --------------
Balance, December 31, 1994 69,979 8,491,269 60,467 8,551,736
Distributions ($67.56 per unit) (4,728,046) (4,728,046)
Net income 1,294,113 13,072 1,307,185
---------------- --------------- --------------- --------------
Balance, December 31, 1995 69,979 $5,057,336 $73,539 $5,130,875
================ =============== =============== ==============
</TABLE>
See accompanying notes.
-12-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $1,307,185 $1,484,900 $1,099,015
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 1,451,193 2,963,445 4,285,373
(Gain) loss on sale of lease assets (453,960) 3,239 (184,599)
Leveraged lease income (15,328) (12,180) (9,679)
Gain on sale of marketable securities (124,878) (19,292) -
Provision for losses 25,972 11,616 -
Changes in operating assets and liabilities:
Accounts receivable 606,422 (396,017) 76,161
Notes receivable - 2,861 6,031
Accounts payable, general partner (40,528) (60,300) 12,563
Accounts payable, other 75,394 (10,997) (27,516)
Accrued interest (22,094) (75,075) -
Customer deposit - 77,409 (203,000)
Unearned operating lease income (21,259) (67,004) (100,552)
--------------- --------------- --------------
Net cash provided by operating activities 2,788,119 3,902,605 4,953,797
--------------- --------------- --------------
Investing activities:
Proceeds from sale of equipment on operating leases 2,179,490 2,955,209 2,640,861
Purchase of equipment on operating leases - (1,368,301) (211,747)
Reductions of net investment in direct financing leases 875,730 1,311,673 736,040
Investment in equipment on direct financing leases - (946,685) -
Proceeds from sales of marketable securities 124,878 19,292 -
Payments of initial direct costs - (7,605) -
Proceeds from sale of assets on direct financing leases - 4,340 2,475
Investment in equipment on leveraged leases - - (37,448)
--------------- --------------- --------------
Net cash provided by investing activities 3,180,098 1,967,923 3,130,181
--------------- --------------- --------------
Financing activities:
Distributions to limited partners, net of reinvestments (4,728,046) (6,092,811) (5,515,067)
Repayments of non-recourse debt (1,289,498) (2,552,027) (3,610,005)
Repurchase of units - (1,997) -
Proceeds from non-recourse debt - - 1,118,668
--------------- --------------- --------------
Net cash used in financing activities (6,017,544) (8,646,835) (8,006,404)
--------------- --------------- --------------
Net (decrease) increase in cash and cash equivalents (49,327) (2,776,307) 77,574
Cash and cash equivalents at beginning of year 924,041 3,700,348 3,622,774
--------------- --------------- --------------
Cash and cash equivalents at end of year $874,714 $924,041 $3,700,348
=============== =============== ==============
</TABLE>
-13-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $387,193 $509,267 $860,663
=============== =============== ==============
Supplemental schedule of non-cash transactions:
Operating lease assets reclassified to assets held for sale or lease $1,147,373
Less accumulated depreciation (947,899)
===============
$199,474
===============
Operating lease assets reclassified to direct financing lease assets $166,609 $1,806,923
Less accumulated depreciation (127,649) (1,294,744)
=============== ==============
$38,960 $512,179
=============== ==============
Notes receivable received on asset sales $8,892
==============
</TABLE>
See accompanying notes.
-14-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. 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.
The Partnership incurred costs of $5,076,426 in connection with organization,
registration, and issuance of the Units. The General Partners are ATEL Financial
Corporation (ATEL), a California corporation and two individuals, who are
principals of ATEL Capital Group, the parent of Financial Corporation.
On January 3, 1990, the Partnership's offering of Limited Partnership units was
completed. Total contributed capital from the offering was $35,000,000.
The Partnership's business consists of leasing various types of equipment. As of
December 31, 1995, the original terms of the leases ranged from one to twelve
years.
Pursuant to the Limited Partnership Agreement, the General Partners receive
compensation and reimbursement for services rendered on behalf of the
Partnership (Note 5). The General Partners are required to maintain in the
Partnership reasonable cash reserves for working capital, the repurchase of
Units and contingencies.
2. Summary of significant accounting policies:
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the life of the
related leases.
Direct financing leases:
Income from direct financing lease transactions is reported on the financing
method of accounting, in which the Partnership's investment in the leased
property is reported as a receivable from the lessee to be recovered through
future rentals and realization of residual values. The income portion of each
rental payment is calculated so as to generate a constant rate of return on the
net receivable outstanding.
-15-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. Summary of significant accounting policies (continued):
Investment in leveraged leases:
Leases which are financed principally with non-recourse debt at lease inception
and which meet certain other criteria are accounted for as leveraged leases.
Leveraged lease contracts receivable are stated net of the related non-recourse
debt service (which includes unpaid principal and aggregate interest on such
debt) plus estimated residual values. Unearned income represents the excess of
anticipated cash flows (after taking into account the related debt service and
residual values) over the investment in the lease and is amortized using a
constant rate of return applied to the net investment when such investment is
positive.
Statements of cash flows:
For purposes of the Statement of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
Income taxes:
The Partnership does not provide for income taxes since all income and losses
are the liability of the individual partners and are allocated to the partners
for inclusion in their individual tax returns.
The tax basis of the Partnership's net assets and liabilities varies from the
amounts presented in these financial statements.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Financial statement basis of net assets and liabilities $5,130,875 $8,551,736
Tax basis of net assets and liabilities 4,751,106 6,377,316
--------------- --------------
Difference $379,769 $2,174,420
=============== ==============
</TABLE>
The following reconciles the net income reported in these financial statements
to the net income reported on the Partnership's federal tax return (unaudited):
1995 1994
---- ----
Net income per financial statements $1,307,185 $1,484,900
Adjustment to depreciation expense (158,820) 49,417
Adjustments to revenues 1,926,962 2,821,248
Adjustments to other expenses 26,508 (15,006)
--------------- --------------
Net income per federal tax return $3,101,835 $4,340,559
=============== ==============
Credit Risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk include cash and cash equivalents. The Partnership
places its cash deposits and temporary cash investments with creditworthy, high
quality financial institutions. The concentration of such deposits and temporary
cash investments is not deemed to create a significant risk to the Partnership.
-16-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. Summary of significant accounting policies (continued):
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period, without giving effect to changes in
capital interests as a result of reinvestment of distributions.
New accounting pronouncement:
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Live
Assets to be Disposed Of" (FAS 121). This statement requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets during the holding period are less than the assets' carrying
amount. The impairment loss is measured by comparing the fair value of the asset
to its carrying amount. FAS 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Partnership adopted FAS 121 as
of January 1, 1995. No impairment losses were required to be recorded as a
result of adopting FAS 121.
Prior to 1995, a provision for impairment of value was recorded when a decline
in the value of the property was determined to be other than temporary. The
impairment loss was measured as the difference between the sum of the estimated
future undiscounted cash flows and the carrying amount of the asset.
Reclassification and 1993 restatement:
Certain 1994 and 1993 amounts have been reclassified to conform to the 1995
presentation. Also, direct financing leases and revenues from operating lease
activities for 1993 were restated in 1994 from amounts previously reported in
the financial statements and footnotes to reflect an increase in the amount of
$233,000. The restatement corrected certain errors in recognizing lease income
and its effects on the Partnership's investments in leases.
-17-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
3. Investment in leases:
The Partnership's investment in leases consists of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
Amortization ifications &
1994 Additions of Leases Dispositions 1995
---- --------- --------- ------------ ----
<S> <C> <C> <C> <C> <C>
Net investment in operating leases $7,691,388 ($1,449,331) ($1,963,963) $4,278,094
Net investment in direct financing leases 3,777,324 (875,730) 38,960 2,940,554
Net investment in leveraged leases 59,307 15,328 - 74,635
Equipment held for lease - - 199,474 199,474
Reserves for losses (11,616) ($25,972) - - (37,588)
Initial direct costs 6,674 - (1,863) - 4,811
-------------- ---------------- --------------- --------------- --------------
$11,523,077 ($25,972) ($2,311,596) ($1,725,529) $7,459,980
============== ================ =============== =============== ==============
</TABLE>
Operating leases:
Property on operating lease consists of the following as of December 31, 1994,
additions and dispositions during 1995 and as of December 31, 1995:
<TABLE>
<CAPTION>
Balance Reclass- Balance
December 31, ifications & December 31,
1994 Additions Dispositions 1995
---- --------- ------------ ----
<S> <C> <C> <C> <C>
Aircraft $3,164,533 $3,164,533
Mining 6,435,092 ($4,330,449) 2,104,643
Materials handling 3,398,792 (1,480,458) 1,918,334
Manufacturing 835,681 - 835,681
Transportation 2,474,788 (1,777,066) 697,722
Data processing 527,739 - 527,739
Communications 481,738 - 481,738
Food processing 344,799 - 344,799
Motor vehicles 176,962 (81,685) 95,277
Furniture, fixtures and equipment 347,277 (324,310) 22,967
Medical 36,676 (36,676) -
---------------- --------------- --------------- --------------
18,224,077 (8,030,644) 10,193,433
Less accumulated depreciation (10,532,689) ($1,449,331) 6,066,681 (5,915,339)
================ =============== =============== ==============
$7,691,388 ($1,449,331) ($1,963,963) $4,278,094
================ =============== =============== ==============
</TABLE>
-18-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
3. Investment in leases (continued):
The following table summarizes activity in the Partnership's investment in
assets under operating leases and the related accumulated depreciation for the
years ended December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
Operating Operating
Lease Assets Accumulated Lease
Stated at Cost Depreciation Assets, Net
---------------- --------------- ---------------
<S> <C> <C> <C>
Balance December 31, 1992 $35,607,457 ($16,311,347) $19,296,110
Assets reclassified to assets held for lease (1,806,923) 1,294,744 (512,179)
Acquisitions and increases 211,747 (4,285,373) (4,073,626)
Dispositions (7,532,933) 4,501,259 (3,031,674)
---------------- --------------- ---------------
Balance December 31, 1993 26,479,348 (14,800,717) 11,678,631
Acquisitions and increases 1,368,301 (2,962,514) (1,594,213)
Dispositions (9,623,572) 7,230,542 (2,393,030)
---------------- --------------- ---------------
Balance December 31, 1994 18,224,077 (10,532,689) 7,691,388
Acquisitions and increases - (1,449,331) (1,449,331)
Dispositions (8,030,644) 6,066,681 (1,963,963)
---------------- --------------- ---------------
Balance December 31, 1995 $10,193,433 ($5,915,339) $4,278,094
================ =============== ===============
</TABLE>
Direct financing leases:
Equipment under direct financing leases includes wine barrels, a wine bottling
line, various medical furniture, fixtures and equipment and color separation
equipment. The following lists the components of the Partnership's investment in
direct financing leases as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Total minimum lease payments receivable $2,584,207 $3,776,897
Estimated residual values of leased equipment (unguaranteed) 873,309 859,312
--------------- ---------------
Investment in direct financing leases 3,457,516 4,636,209
Less unearned income (516,962) (858,885)
=============== ===============
Net investment in direct financing leases $2,940,554 $3,777,324
=============== ===============
</TABLE>
-19-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
3. Investment in leases (continued):
At December 31, 1995, the aggregate amounts of future minimum lease payments
from direct financing leases and operating leases are as follows:
Year ending Direct
December 31, Operating Financing Total
1996 $1,338,248 $1,233,361 $2,571,609
1997 543,627 1,126,523 1,670,150
1998 271,610 220,075 491,685
1999 269,732 4,248 273,980
2000 202,299 - 202,299
-------------- ---------------- ---------------
$2,625,516 $2,584,207 $5,209,723
============== ================ ===============
Leveraged leases:
The Partnership participates in leveraged lease transactions in which the costs
of assets leased to others is financed primarily by loans from financial
institutions, but the ownership of the assets is retained by the Partnership.
The lessees' rental obligations are assigned to the financial institutions and
the leased property is pledged as collateral for the loans and are without
recourse to the general credit of the Partnership. Leases have been structured
so that lease rental payments and debt service amounts are equal. Equipment
under leveraged leases consists of coal mining and processing equipment. The net
investment in leveraged leases at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Aggregate rentals receivable $458,082 $661,674
Aggregate principal and interest payable on non-recourse loans (458,082) (661,674)
Estimated residual value of leased assets 148,750 148,750
Less unearned income (74,115) (89,443)
--------------- ---------------
Net investment in leveraged leases $74,635 $59,307
=============== ===============
</TABLE>
4. Non-recourse debt:
At December 31, 1995 and 1994, non-recourse debt consists of notes payable to
financial institutions of $2,965,946 and $4,255,444, respectively. The notes are
due in varying monthly, quarterly and semi-annual payments. Interest on the
notes is at rates from 7.69% to 12.86%. The notes are secured by assignments of
lease payments and pledges of assets. At December 31, 1995, the carrying value
of the pledged assets is approximately $3,060,070. The notes mature from 1996
through 2000.
-20-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. Non-recourse debt (continued):
Future minimum principal and interest payments of non-recourse debt as of
December 31, 1995 are as follows:
Year ending
December 31, Principal Interest Total
1996 $1,272,081 $261,180 $1,533,261
1997 1,037,153 137,795 1,174,948
1998 230,049 61,609 291,658
1999 233,530 36,202 269,732
2000 193,133 9,166 202,299
-------------- ---------------- ---------------
$2,965,946 $505,952 $3,471,898
============== ================ ===============
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 1995, 1994 and 1993 were $222,936,
$313,115 and $427,874, 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 1995, 1994 and 1993, the Partnership reimbursed ATEL Financial Corporation
$157,444, $238,185 and $313,421, respectively, for costs incurred in the
administration of Partnership business.
Substantially all employees of the General Partner record time incurred in
performing administrative services on behalf of all of the Partnerships serviced
by the General Partner. The General Partner believes that the costs reimbursed
are the lower of (i) actual costs incurred on behalf of the Partnership or (ii)
the amount the Partnership would be required to pay independent parties for
comparable administrative services in the same geographic location and are
reimbursable in accordance with the Limited Partnership Agreement.
-21-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
6. Partners' capital:
As of December 31, 1991, 70,000 Units were issued and outstanding (in addition
to the Unit issued to the Initial Limited Partner). The Partnership is
authorized to issue up to 70,000 Units (in addition to the Unit issued to the
Initial Limited Partner). As of December 31, 1995, 69,979 Units were issued and
outstanding. Limited Partners could elect to accumulate their share of
distributions for reinvestment during the Partnership's reinvestment period.
Effective April 1, 1993, the General Partners terminated this capital
accumulation period. Reinvested distributions do not result in the issuance of
additional Units. Each limited partner's capital interest in the Partnership is
based upon his original invested capital plus any reinvested distributions.
The Partnership's net profits and net losses are to be allocated 99% to the
Limited Partners and 1% to the General Partners.
Available Cash from Operations and Cash from Sales and Refinancing, as defined
in the Limited Partnership Agreement, shall be distributed as follows:
First, 5% of Distributions of Cash from Operations to the General Partners as
the Partnership Management Fee.
Second, the balance to the Limited Partners until the Limited Partners have
received Aggregate Distributions in an amount equal to their Original
Invested Capital plus a 10% per annum cumulative (compounded daily) return on
their Adjusted Invested Capital.
Third, the General Partners will receive as a Subordinated Incentive Fee, as
follows:
A) 10% of remaining Cash from Operations
B) 15% of remaining Cash from Sales and Refinancing
Fourth, the remainder to the Limited Partners.
7. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. As of
December 31, 1995, 22% (14% in 1994) of total equipment cost was leased to
lessees in the health care industry. Leases are subject to the general partners'
credit committee review. The leases provide for the return of the equipment upon
default.
During 1995, rentals from one customer in the health care industry comprised 12%
of the Partnership's revenues from leases
-22-
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
8. Fair value of financial instruments:
During the year ended December 31, 1995, the Partnership adopted Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of the fair value of financial
instruments for which it is practicable to estimate fair value. The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate that value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
Accounts payable, accrued interest and customer deposits:
The carrying amounts of accounts payable, accrued interest and customer deposits
approximate fair value because of the short maturity of these instruments.
Non-recourse debt:
The fair value of the Partnership's non-recourse debt is estimated using
discounted cash flow analyses, based on the Partnership's current incremental
borrowing rates for similar types of borrowing arrangements. The estimated fair
value of the Partnership's non-recourse debt at December 31, 1995 is $3,063,590.
-23-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Corporation (the
corporate General Partner) is held by ATEL Capital Group ("ACG"), a holding
company formed to control the General Partner and affiliated companies pursuant
to a corporate restructuring completed in July 1994. The outstanding capital
stock of ATEL Capital Group is owned 75% by A. J. Batt and 25% by Dean Cash (the
individual General Partners), and was obtained in the restructuring in exchange
for their capital interests in ATEL Financial Corporation.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Corporation ("AFC") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Partnership. Acquisition services are performed for the Partnership by ALC,
equipment management, lease administration and asset disposition services are
performed by AEC, investor relations and communications services are performed
by AIS and general administrative services for the Partnership are performed by
AFC. ATEL Securities Corporation ("ASC"), is a wholly-owned subsidiary of ATEL
Financial Corporation.
The officers and directors of ATEL Capital Group, ATEL Financial Corporation and
their affiliates are as follows:
A. J. Batt . . . . . . . . . Chairman of the Board of Directors of ACG, AFC,
ALC, AEC, AIS and ASC; President and Chief
Executive Officer of ACG, AFC and AEC
Dean L. Cash . . . . . . . . Director, Executive Vice President and Chief
Operating Officer of ACG, AFC, and AEC; Director,
President and Chief Executive Officer of ALC, AIS
and ASC
F. Randall Bigony . . . . . .Senior Vice President and Chief Financial Officer
of ACG, AFC, ALC, AIS and AEC
Donald E. Carpenter . . . . .Vice President and Controller of ACG, AFC, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais . . . . . . .Senior Vice President, Secretary and General
Counsel for ACG, AFC, ALC, AIS and AEC
William J. Bullock . . . . . Director of Asset Management of AEC
Jeffrey A. Schwager . . . . .Vice President - Syndication of ALC
Russell H. Wilder . . . . . .Vice President - Credit of AEC
J. Edwin Holliday . . . . . .Senior Vice President - National Sales Manager of
ASC
John P. Scarcella . . . . . .Vice President of ASC
A. J. Batt, age 60, founded ATEL in 1977 and has been its president and chairman
of the board of directors since its inception. From 1973 to 1977, he was
employed by GATX Leasing Corporation as manager-data processing and equity
placement for the lease underwriting department, which was involved in equipment
financing for major corporations. From 1967 to 1973 Mr. Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support services for computer time-sharing applications for corporations and
financial institutions. Prior to that time, he was employed by North American
Aviation as an engineer involved in the Apollo project. Mr. Batt received a
B.Sc. degree with honors in mathematics and physics from the University of
British Columbia in 1961.
-24-
<PAGE>
Dean L. Cash, age 46, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing
representative for Martin Marietta Corporation, data systems division, from 1979
to 1980. From 1977 to 1979, he was employed by General Electric Corporation,
where he was an applications specialist in the medical systems division and a
marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was
involved in maintaining and developing software for commercial applications. Mr.
Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A.
degree with a concentration in finance in 1975 from Florida State University.
Mr. Cash is an arbitrator with the American Arbitration Association.
F. Randall Bigony, age 38, joined ATEL in 1992 to review administrative
operations within ATEL Financial Corporation and to develop and implement
functional plans to support company growth. He currently oversees ATEL's
accounting, MIS and treasury functions. From 1987 until joining ATEL, Mr. Bigony
was president of F. Randall Bigony & Co., a consulting firm that provided
financial and strategic planning services to emerging growth companies. From
1983 to 1987, he was a manager with the accounting firm of Ernst & Whinney,
serving clients in its management consulting practice. Mr. Bigony received a
B.A. degree in business from the University of Massachusetts and an M.B.A.
degree in finance from the University of California, Berkeley. He is a founding
board member and acting treasurer of the I Have a Dream Foundation - Bay Area
Chapter.
Donald E. Carpenter, age 47, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 37, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the Corporate and Securities Legal Department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley and a J.D. degree in 1986 from Golden Gate University Law
School. Mr. Morais has been an active member of the State Bar of California
since 1986.
William J. Bullock, age 32, joined ATEL in 1991, as the director of asset
management. He assumed responsibility for the disposition of off-lease equipment
and residual valuation analysis on new lease transactions. Prior to joining
ATEL, Mr. Bullock was a senior member of the equipment group at McDonnell
Douglas Finance Corporation("MDFC") responsible for managing its $4 billion
portfolio of leases. Mr. Bullock was involved in negotiating sales and renewals
as well as preparing and inspecting equipment. Prior to joining MDFC in 1989,
Mr. Bullock was the Senior Negotiator at Equitable Leasing (a subsidiary of GE
Capital Equipment Corp.) in San Diego. At Equitable, he handled the end-of-lease
negotiations and equipment dispositions of a portfolio comprised of equipment
leased primarily to Fortune 200 companies. Mr. Bullock has been a member of the
Equipment Lessors Association ("ELA") since 1987 and has authored ELA industry
articles. He received a B.S. degree in Finance in 1987 from San Diego State
University and is pursuing his M.B.A.
Jeffrey A. Schwager, age 35, joined ATEL in 1991 as vice president - syndication
and is responsible for acquiring transactions from intermediaries as well as
debt and equity placement. Prior to joining ATEL, Mr. Schwager was a member of
General Electric Capital Corporation's Institutional Financing Group. There, he
was responsible for originating equipment lease and corporate finance
opportunities, as well as soliciting equipment portfolios in conjunction with
marketing a proprietary capital enhancement product. From 1985 through 1990, Mr.
Schwager held several positions with Bank Ireland/First Financial, most recently
Vice President Marketing, where he was responsible for originating and
negotiating tax-oriented leveraged lease financings for Fortune 500 companies.
From 1983 to 1985 Mr. Schwager was an Associate Consultant with The Bigelow
Company, a middle market investment banking and management consulting firm,
developing and implementing strategic plans for a number of clients. Prior to
The Bigelow Company, he worked for Petro-Lewis Corporation as a joint-interest
accountant. Mr. Schwager received his B.S. in Business Administration from
Babson College in 1982, majoring in Finance and Entrepreneurial Studies.
-25-
<PAGE>
Russell H. Wilder, age 41, joined ATEL in 1992 as Vice President of ATEL
Business Credit, a wholly-owned subsidiary of ACG. Immediately prior to joining
ATEL, Mr. Wilder was a personal property broker specializing in equipment
leasing and financing and an outside contractor in the areas of credit and
collections. From 1985 to 1990 he was Vice President and Manager of Leasing for
Fireside Thrift Co., a Teledyne subsidiary, and was responsible for all aspects
of setting up and managing the department, which operated as a small ticket
lease funding source. From 1983 to 1985 he was with Wells Fargo Leasing
Corporation as Assistant Vice President in the credit department where he
oversaw all credit analysis on transactions in excess of $2 million. From 1978
to 1983 he was District Credit Manager with Westinghouse Credit Corporation's
Industrial Group and was responsible for all non-marketing operations of various
district offices. Mr. Wilder holds a B.S. with Honors in Agricultural Economics
and Business Management from the University of California at Davis. He has been
awarded the Certified Lease Professional designation by the Western Association
of Equipment Lessors.
J. Edwin Holliday, age 51, joined ATEL Securities Corporation in 1988 as
Regional Vice President for the Southwestern region and has been its Senior Vice
President and National Sales Manager since April 1994. From August 1993 until
April 1994, Mr. Holliday was a Managing Director of HomeMac Corporation, a
mortgage bank that also markets a mortgage-related trust. Prior to joining ATEL,
Mr. Holliday was a Regional Vice President for several firms marketing
securities, including Icon Group from 1986 to 1988, Stonehenge Capital from 1982
to 1986 and Quantum Resources from 1980 to 1982. Mr. Holliday was Sales Manager
for a retail division of Beech Aircraft in Denver, Colorado from 1975 to 1980,
and sales engineer for Trane Company in Canton, Ohio from 1968 to 1975. Mr.
Holliday received a B.S. degree in Mechanical Engineering from West Virginia
Institute of Technology in 1968, and served a Chairman of the Board of the
Orange County, California Chapter of the International Association for Financial
Planning in 1993 and 1994.
John P. Scarcella, age 34, joined ATEL Securities as vice president in 1992. He
is involved in the marketing of securities offered by ASC. Prior to joining ASC,
from 1987 to 1991, he was employed by Lansing Pacific Fund, a real estate
investment trust in San Mateo, California and acted as director of investor
relations. From 1984 to 1987, Mr. Scarcella acted as broker dealer
representative for Lansing Capital Corporation, where he was involved in the
marketing of direct participation programs and REITs. Mr. Scarcella received a
B.S.C. degree with emphasis in investment finance in 1983 and an M.B.A. degree
with a concentration in marketing in 1991 from Santa Clara University.
Item 11. EXECUTIVE COMPENSATION
The registrant is a limited partnership and, therefore, has no officers or
directors.
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to the general partners and their affiliates. The amount of such
remuneration paid through December 31, 1995 is set forth in Item 8 of this
report under the caption "Financial Statements and Supplementary Data - Notes to
the Financial Statements - Related party transactions," at Note 5 thereof which
information is hereby incorporated by reference.
Selling Commissions
Through January 1990, the Partnership paid selling commissions in the amount of
$3,325,000 to ATEL Securities Corporation, a wholly owned subsidiary of ATEL. No
further commissions are to be paid. Of this amount, $3,094,015 was reallowed to
other broker/dealers.
Acquisition Fees
Acquisition fees were paid to the General Partners for services rendered in
finding, reviewing and evaluating equipment to be purchased by the Partnership
and rejecting equipment not to be purchased by the Partnership. Acquisition fees
paid to the General Partners or their affiliates were $1,662,500, the maximum
allowable amount.
Equipment Management Fees
As compensation for its services rendered generally in managing or supervising
the management of the Partnership's equipment and in supervising other ongoing
services and activities including, among others, broker assistance, cash
management, product development, property and sales tax monitoring and
preparation of financial data, the General Partners or their affiliates are
entitled to receive management fees which are payable for each fiscal quarter
and are to be in an amount equal to (i) 5% of the gross revenues from
"operating" leases and (ii) 2% of gross revenues from "full payout" leases which
contain net lease provisions. See Note 5 to the financial statements included at
item 8 of this report for amounts paid.
-26-
<PAGE>
Partnership Management Fees
As compensation for its services rendered in connection with the management of
the Partnership, including but not limited to employment and supervision of
supervisory managing agents, insurance brokers, equipment lease brokers,
accountants and other professional advisors, and for supervising the preparation
of reports and maintenance of financial and operating data of the Partnership,
Securities and Exchange Commission and Internal Revenue Service filings, returns
and reports, the General Partners shall be entitled to receive the partnership
management fee which shall be payable for each fiscal quarter and shall be an
amount equal to 5% of distributions of cash from operations. See Note 5 to the
financial statements included at item 8 of this report for amounts paid.
Equipment Resale Fees
As compensation for services rendered in connection with the sale of equipment,
the General Partners shall be entitled to receive an amount equal to the lesser
of (i) 3% of the sales price of the equipment, or (ii) one-half the normal
competitive equipment sales commission charged by unaffiliated parties for such
services. Such fee is payable only after the Limited Partners have received a
return of their adjusted invested capital (as defined in the Limited Partnership
Agreement) plus 10% of their adjusted invested capital per annum calculated on a
cumulative basis, compounded daily, commencing the last day of the quarter in
which the limited partner was admitted to the Partnership. To date, none have
been accrued or paid.
Subordinated Incentive Fees
As compensation for the services rendered in evaluating and selecting equipment
for the Partnership, making decisions as to the nature and terms of the
acquisition, leasing, releasing and disposition of such equipment, and
selecting, retaining and supervising consultants, lessees, engineers, lenders,
borrowers and others, the General Partners shall be entitled to receive a
subordinated incentive fee equal to a percentage of all distributions of cash
from operations and cash from sales or refinancing payable quarterly, but
commencing immediately after the Limited Partners have received the return on
their adjusted capital described under "Equipment Resale Fees" above. The amount
of the subordinated incentive fee shall be 10% of distributions of cash from
operations and 15% of distributions of cash from sales or refinancing. To date,
none have been accrued or paid.
General Partners' Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 99% to the Limited
Partners and 1% to the General Partners. See the statements of income included
in item 8 of this report for the amounts allocated to the General and Limited
Partners in 1993, 1994 and 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1995 no investor is known to the Partnership to hold
beneficially more than 5% of the issued and outstanding Units.
Security Ownership of Management
The General Partners are beneficial owners of Limited Partnership Units as
follows:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Limited Partnership Units Dean L. Cash Individual Retirement 0.0057%
235 Pine Street, 6th Floor Account - 4 Units ($2,000)
San Francisco, CA 94104
Limited Partnership Units Dean L. Cash Initial Limited Partner Unit 0.0014%
235 Pine Street, 6th Floor 1 Unit ($500)
San Francisco, CA 94104 (owned by spouse)
</TABLE>
-27-
<PAGE>
Changes in Control
The Limited Partners have the right, by vote of the Limited Partners owning more
than 50% of the outstanding Limited Partnership Units, to remove a General
Partner.
The General Partners may at any time call a meeting of the Limited Partners or a
vote of the limited partners without a meeting, on matters on which they are
entitled to vote, and shall call such meeting or for vote without a meeting
following receipt of a written request therefor of Limited Partners holding 10%
or more of the total outstanding Limited Partnership Units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 8 of this report under the caption "Financial Statements
and Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 5 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated herein by reference.
The Partnership owns a 39% undivided interest in a lease transaction involving
restaurant furniture, fixtures and equipment on lease to the Galardi Group, Inc.
The Partnership's interest was purchased on the same terms as that of the
affiliated partnerships, ATEL Cash Distribution Fund and ATEL Cash Distribution
Fund IV which own 19% and 42%, respectively. The term of the lease is 49 months
and expires August 31, 1998. The Partnership's monthly rentals from the lease
are $13,253.
The Partnership also owns a 30% undivided interest in the Boeing 727 executive
aircraft on lease to DJ Aerospace (Bermuda) Ltd. The Partnership's interest was
purchased on the same terms as that of the affiliated partnership, ATEL Cash
Distribution Fund IV which owns the remaining 70%. The term of the lease is 36
months and expires June 30, 1997. The Partnership's monthly rentals from the
lease are $20,436.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 1995 and 1994
Statements of Income for the years ended December
31, 1995, 1994 and 1993
Statements of Changes in Partners' Capital for the
years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to 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) Reports on Form 8-K for the fourth quarter of 1995
None
(c) Exhibits
(3) and (4) Limited Partnership Agreement
incorporated by reference to Exhibits (3) and (4)
to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1988 filed March 31,
1989 (File No. 33-17663)
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: 3/27/1996
ATEL Cash Distribution Fund II,
a California Limited Partnership
(Registrant)
By: ATEL Financial Corporation,
General Partner of Registrant
By: /s/ A. J. Batt
A. J. Batt,
President and Chief Executive Officer
By: /s/ A. J. Batt
A. J. Batt,
General Partner of Registrant,
President and Chief Executive Officer of
ATEL Financial Corporation (General
Partner)
By: /s/ Dean Cash
Dean Cash,
General Partner of Registrant,
Executive Vice President of ATEL
Financial Corporation (General Partner)
-29-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ A. J. Batt General Partner of 3/27/1996
A. J. Batt registrant; president,
chairman and chief
executive officer of ATEL
Financial Corporation
/s/ Dean Cash General Partner of 3/27/1996
Dean Cash registrant; executive vice
president and director of
ATEL Financial
Corporation
/s/ F. Randall Bigony Principal financial officer of 3/27/1996
F. Randall Bigony registrant; principal
financial officer of ATEL
Financial Corporation
/s/Donald E. Carpenter Principal accounting officer 3/27/1996
Donald E. Carpenter of registrant; principal
accounting officer of ATEL
Financial Corporation
-30-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 874714
<SECURITIES> 0
<RECEIVABLES> 85110
<ALLOWANCES> 15552
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8404252
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8404252
<SALES> 3645794
<TOTAL-REVENUES> 3645794
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1947539
<LOSS-PROVISION> 25971
<INTEREST-EXPENSE> 365099
<INCOME-PRETAX> 1307185
<INCOME-TAX> 0
<INCOME-CONTINUING> 1307185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1307185
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
