Form 10-KSB
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 (no fee required)
For the Year Ended December 31, 1997
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|
<PAGE>
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, 1997, cash balances consisted of amounts to be distributed from
1997 operations and sales proceeds ($272,772) 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 would only purchase 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. There are
currently no commitments to acquire such assets.
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, 1997, 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.
<PAGE>
One lessee in the health care industry accounted for 26% of the Partnership's
lease revenues during 1997. One lessee in the health care industry accounted for
15% of the Partnership's lease revenues during 1996.
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.
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
Equipment Dispositions:
Through December 31, 1997, the Partnership has disposed of certain lease assets
as set forth below:
Excess of
Acquisition Sales Rents Over
Asset Type Cost Price Expenses *
Transportation $8,427,016 $3,599,098 $7,925,818
Mining 7,825,584 2,630,912 8,081,140
Material handling 5,835,647 1,664,934 6,442,820
Aircraft 4,450,572 3,444,589 463,076
Furniture, fixtures and equipment 3,056,807 744,777 3,384,157
Food processing 2,991,923 917,573 3,410,327
Medical 2,830,512 514,255 3,286,651
Manufacturing 1,889,006 215,361 2,322,858
Printing 1,463,647 119,000 1,787,698
Communications 1,248,736 701,545 803,151
Data processing 957,821 81,192 1,026,747
-------------- ---------------- ---------------
$40,977,271 $14,633,236 $38,934,443
============== ================ ===============
* Includes only those expenses directly related to the production of the related
rents.
<PAGE>
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, 1997 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, 1997, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
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.
<PAGE>
Item 3. LEGAL PROCEEDINGS
No material legal proceedings are currently pending against the Partnership or
against any of its assets.
The Partnership has undertaken legal action in pursuit of its unsecured claim
relating to the bankruptcy of Rocky Mountain Helicopters, Inc. noted below in
Part II, Item 7 under the caption "Results of Operations".
The Partnership has undertaken legal action to recover amounts due under the
exercise of a purchase option from The Budd Company, one of the Partnership's
lessees, in the amount of $103,000.
The Partnership has taken legal action to void the purported sale of certain of
the Partnership's equipment by a non-recourse lender to CMS/Sherwood
Rehabilitation Hospital, one of the Partnership's lessees.
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, 1997, a total of 2,948 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 1997
and in January 1998 were $3.75 per Unit (a total of $15.00 per Unit). All
distributions were from cash flows from operations and sales proceeds in 1997.
The rates for distributions to Limited Partners in April, July and October 1996
and in January 1997 were $6.50 per Unit (a total of $26.00 per Unit). All
distributions were from cash flows from operations and sales proceeds in 1996.
<PAGE>
The following table presents summarized information regarding distributions to
Limited Partners:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Distributions of net income $7.26 $8.98 $18.49 $21.00 $15.54
Return of investment 11.19 20.07 49.07 66.05 66.26
-------------- ---------------- --------------- --------------- --------------
Distributions per unit 18.45 29.69 67.56 87.05 81.80
Differences due to timing of
distributions and due to distribution
reinvestments (3.45) (3.69) (14.76) (2.05) (1.80)
-------------- ---------------- --------------- --------------- --------------
Nominal distribution rates from above $15.00 $26.00 $52.80 $85.00 $80.00
============== ================ =============== =============== ==============
</TABLE>
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993. This financial data
should be read in conjunction with the financial statements and related notes
included under Item 8 of this report.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues $1,313,735 $2,163,088 $3,645,794 $5,624,499 $7,083,181
Net Income $513,216 $634,555 $1,307,185 $1,484,900 $1,099,015
Weighted average Limited Partnership
Units (Units) outstanding 69,979 69,979 69,979 69,990 70,001
Net income per Unit, based on
weighted average Units outstanding $7.26 $8.98 $18.49 $21.00 $15.54
Distributions per Unit, based on
weighted average Units outstanding $18.45 $29.69 $67.56 $87.05 $81.80
Total Assets $3,668,297 $5,584,504 $8,404,252 $13,123,098 $20,421,000
Non-recourse Debt $656,712 $1,693,865 $2,965,946 $4,255,444 $6,807,471
Total Partners' Capital $2,910,078 $3,687,982 $5,130,875 $8,551,736 $13,161,644
</TABLE>
In 1995, cash flows and distributions to Limited Partners were not sufficient to
allow the Partnership to reinvest in additional equipment.
<PAGE>
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 and sales of lease assets. 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 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, 1997, cash balances were reserved for distributions in
January 1998 ($272,772) and working capital reserves.
As of December 31, 1997, the Partnership had borrowed approximately $21,700,000.
The remaining unpaid balance on those borrowings was approximately $657,000.
There were no additional borrowings from December 31, 1997 through February 28,
1998. The borrowings are non-recourse to the Partnership, that is, the only
recourse of the lender will be to the equipment or corresponding lease acquired
with the loan proceeds. The Limited Partnership Agreement limits such borrowings
to 40% of the total cost of equipment, in aggregate.
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 1997 operations and sales proceeds were made in April, July and October
1997 and in January 1998. See Items 5 and 6 of this report for additional
information regarding the distributions.
<PAGE>
The General Partner plans that the Partnership will sell its remaining assets
during 1998 and that it will cease operations by December 31, 1998. These plans
will only be carried out to the extent that economic conditions are favorable to
the Partnership and only if the General Partners deem it to be in the best
interest of the Limited Partners to do so.
Cash Flows:
Cash flows from operations decreased to $635,243 in 1997 from $1,288,526 in
1996. Of this decrease, $759,678 is due to decreases in lease revenues. In 1997,
the Partnership received $116,481 as partial settlement of its claim in the
bankruptcy of Rocky Mountain Helicopters, Inc. (RMH). In 1996, $77,654 was
received. This partially offset the decline in lease revenues.
In 1997, investing sources of cash consisted of the proceeds from sales of lease
assets and from rents on direct financing leases. Proceeds from sales of lease
assets declined by $519,188 compared to 1996. This was primarily due to
decreased sales of operating lease assets. In 1996, operating lease assets with
an original cost of about $3,124,000 were sold compared to about $2,107,000 in
1997.
There were no sources of cash from financing sources in either 1997 or 1996.
Results of Operations
Operations resulted in net income of $634,555 in 1996 and $513,216 in 1997. The
results of operations in future periods may vary significantly from those of
1997 as the Partnership's lease portfolio of capital equipment matures. Revenues
from leases are expected to continue to decline 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.
A number of the Partnership's leases are scheduled to terminate in 1998. If they
are terminated as scheduled, gross lease rents from operating and direct
financing leases are expected to decrease by $986,000 (from $1,833,000 in 1997
to $847,000 in 1998). 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, 1997, 64% (28% in 1996) 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 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, $62,123
in April 1997 and $54,358 in December 1997 and may receive an additional minimal
amount of its unsecured claim of $776,654.
<PAGE>
Operating leases have continued to mature in 1997. As the leases reached their
scheduled terminations, most of the assets were sold. As a result, operating
lease revenues have declined from $1,478,191 in 1996 to $862,129 in 1997. Direct
financing leases have also continued to mature in 1997 and their related
revenues have also declined by $148,609 ($154,229 in 1997 compared to $302,838
in 1996).
Gains and losses on sales of assets are not expected to be consistent from one
year to another. Such gains declined from $168,927 in 1996 to $124,594 in 1997,
a decrease of $44,333.
Depreciation expense is related to operating lease assets and as such leases
have matured (and the majority of the assets sold), depreciation expense has
declined. Interest expense has declined as a result of scheduled debt payments.
Management fees are related to lease rents and to the amounts of distributions
to the limited partners. Both lease rents and distributions decreased from 1996
to 1997 and this resulted in the decline in management fees.
Impact of the Year 2000
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 believes that it will not be required to modify or replace
significant portions of its software and that the year 2000 issue will not pose
significant operational problems for its computer systems. 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 not only on
the corrective measures the Partnership undertakes, but also 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.
Therefore, the Partnership is communicating to these parties to ensure they are
aware of the year 2000 issue, to learn how they are addressing it, and to
evaluate any likely impact on the Partnership.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto at
pages 11 through 22.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
ATEL Cash Distribution Fund II
We have audited the accompanying balance sheet of ATEL Cash Distribution Fund II
(a California limited partnership) as of December 31, 1997, and the related
statements of income, changes in partners' capital and cash flows for each of
the two years in the period ended December 31, 1997. 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, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
January 27, 1998
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents $892,157
Accounts receivable, net of allowance for doubtful accounts of $32,623 35,711
Investments in equipment and leases 2,740,429
--------------
Total assets $3,668,297
==============
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $656,712
Accrued interest 6,617
Accounts payable and accrued liabilities:
General Partners 10,892
Trade and other 74,286
Unearned operating lease income 9,712
--------------
Total liabilities 758,219
Partners' capital:
General Partners 85,017
Limited Partners 2,825,061
--------------
Total partners' capital 2,910,078
--------------
Total liabilities and partners' capital $3,668,297
==============
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
Revenues:
Leasing activities:
<S> <C> <C>
Operating $862,129 $1,478,191
Direct financing 154,229 302,838
Leveraged 24,283 19,290
Gain on sale of lease assets 124,594 168,927
Proceeds from bankruptcy settlements 116,481 77,654
Interest income 28,232 15,264
Other 3,787 100,924
--------------- --------------
1,313,735 2,163,088
--------------- --------------
Expenses:
Depreciation and amortization 364,425 885,426
Administrative cost reimbursements to General Partner 127,992 132,994
Interest expense 115,320 237,226
Equipment and partnership management fees to General Partner 84,156 157,355
Other 54,154 72,138
Professional fees 24,303 21,173
Provision for doubtful accounts 17,072 -
Provision for losses and impairments 13,097 22,221
--------------- --------------
800,519 1,528,533
--------------- --------------
Net Income $513,216 $634,555
=============== ==============
Net income:
General Partners $5,132 $6,346
Limited Partners 508,084 628,209
--------------- --------------
$513,216 $634,555
=============== ==============
Net income per Limited Partnership unit $7.26 $8.98
Weighted average number of units outstanding 69,979 69,979
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
<S> <C> <C> <C> <C>
Balance, January 1, 1996 69,979 $5,057,336 $73,539 $5,130,875
Distributions ($29.69 per unit) (2,077,448) - (2,077,448)
Net income 628,209 6,346 634,555
---------------- --------------- --------------- --------------
Balance, December 31, 1996 69,979 3,608,097 79,885 3,687,982
Distributions ($18.45 per unit) (1,291,120) - (1,291,120)
Net income 508,084 5,132 513,216
---------------- --------------- --------------- --------------
Balance, December 31, 1996 69,979 $2,825,061 $85,017 $2,910,078
================ =============== =============== ==============
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $513,216 $634,555
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 364,425 885,426
Gain on sale of lease assets (124,594) (168,927)
Leveraged lease income (24,283) (19,290)
Provision for doubtful accounts 17,072 -
Provision for losses and impairments 13,097 22,221
Changes in operating assets and liabilities:
Accounts receivable (22,540) 39,315
Accounts payable, general partner (10,390) (39,910)
Accounts payable, other 7,502 (12,614)
Accrued interest (22,475) (23,955)
Customer deposits (69,000) (8,409)
Unearned operating lease income (6,787) (19,886)
--------------- --------------
Net cash provided by operating activities 635,243 1,288,526
--------------- --------------
Investing activities:
Reductions of net investment in direct financing leases 816,922 877,510
Proceeds from sales of lease assets 778,928 1,298,116
--------------- --------------
Net cash provided by investing activities 1,595,850 2,175,626
--------------- --------------
Financing activities:
Distributions to limited partners (1,291,120) (2,077,448)
Repayments of non-recourse debt (1,037,153) (1,272,081)
--------------- --------------
Net cash used in financing activities (2,328,273) (3,349,529)
--------------- --------------
Net (decrease) increase in cash and cash equivalents (97,180) 114,623
Cash and cash equivalents at beginning of year 989,337 874,714
--------------- --------------
Cash and cash equivalents at end of year $892,157 $989,337
=============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $137,795 $261,181
=============== ==============
Supplemental schedule of non-cash transactions:
Direct financing lease assets reclassified to operating lease asset $12,000
==============
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
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, 1997, the original terms of the leases ranged from six months 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.
The General Partner plans that the Partnership will sell its remaining assets
during 1998 and that it will cease operations by December 31, 1998. These plans
will only be carried out to the extent that economic conditions are favorable to
the Partnership and only if the General Partners deem it to be in the best
interest of the Limited Partners to do so.
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.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 (unaudited):
Financial statement basis of net assets $2,910,078
Tax basis of net assets 4,819,533
--------------
Difference $1,909,455
==============
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the accounting for syndication costs
and differences between the depreciation methods used in the financial
statements and the Partnership's tax returns.
The following reconciles the net income reported in these financial statements
to the net income reported on the Partnership's federal tax return (unaudited):
1997 1996
---- ----
Net income per financial statements $513,216 $634,555
Adjustment to depreciation expense (5,161) 7,997
Adjustments to revenues 832,269 1,415,151
Adjustments to other expenses (13,421) -
Provision for doubtful accounts 17,072 -
Provision for losses and impairments 13,097 22,221
--------------- --------------
Net income per federal tax return $1,357,072 $2,079,924
=============== ==============
Credit Risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk include cash and cash equivalents and accounts
receivable. 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. Accounts receivable represent
amounts due from lessees in various industries, related to equipment on
operating and direct financing leases. See Note 7 for a description of lessees
by industry as of December 31, 1997.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
Reclassification:
Certain 1996 amounts have been reclassified to conform to the 1997 presentation.
3. Investments in equipment and leases:
The Partnership's investments in equipment and leases consist of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
Amortization ifications &
1996 Additions of Leases Dispositions 1997
---- --------- --------- ------------ ----
<S> <C> <C> <C> <C> <C>
Net investment in operating leases $2,756,220 ($364,425) ($642,220) $1,749,575
Net investment in direct financing leases 1,774,588 (816,922) (13,402) 944,264
Net investment in leveraged leases 93,925 24,283 - 118,208
Equipment held for lease - - 388 388
Reserves for losses (59,809) ($13,097) - 900 (72,006)
-------------- ---------------- --------------- --------------- --------------
$4,564,924 ($13,097) ($1,157,064) ($654,334) $2,740,429
============== ================ =============== =============== ==============
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. Investments in equipment and leases (continued):
Operating leases:
Property on operating lease consists of the following as of December 31, 1996,
additions and dispositions during 1997 and as of December 31, 1997:
<TABLE>
<CAPTION>
Balance Reclass- Balance
December 31, ifications & December 31,
1996 Additions Dispositions 1997
---- --------- ------------ ----
<S> <C> <C> <C> <C>
Aircraft $3,164,533 ($810,000) $2,354,533
Mining 1,546,341 - 1,546,341
Communications 504,703 (58,826) 445,877
Materials handling 728,247 (296,108) 432,139
Other 349,590 (165,991) 183,599
Manufacturing 775,756 (775,756) -
---------------- --------------- --------------- --------------
7,069,170 (2,106,681) 4,962,489
Less accumulated depreciation (4,312,950) ($364,425) 1,464,461 (3,212,914)
---------------- --------------- --------------- --------------
$2,756,220 ($364,425) ($642,220) $1,749,575
================ =============== =============== ==============
</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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total minimum lease payments receivable $1,249,072 $1,086,935
Estimated residual values of leased equipment (unguaranteed) 618,172 857,859
--------------- ---------------
Investment in direct financing leases 1,867,244 1,944,794
Less unearned income (922,980) (170,206)
--------------- ---------------
Net investment in direct financing leases $944,264 $1,774,588
=============== ===============
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. Investments in equipment and leases (continued):
At December 31, 1997, 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
1998 $497,931 $348,824 $846,755
1999 411,332 228,248 639,580
2000 239,499 224,000 463,499
2001 37,200 224,000 261,200
2002 18,600 224,000 242,600
-------------- ---------------- ---------------
$1,204,562 $1,249,072 $2,453,634
============== ================ ===============
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 processing equipment. The net investment
in leveraged leases at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Aggregate rentals receivable $50,898 $254,490
Aggregate principal and interest payable on non-recourse loans (50,898) (254,490)
Estimated residual value of leased assets 148,750 148,750
Less unearned income (30,542) (54,825)
-------------- ---------------
Net investment in leveraged leases $118,208 $93,925
============== ===============
</TABLE>
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Non-recourse debt:
At December 31, 1997, non-recourse debt, other than that related to leveraged
leases which is accounted for debt as a part of the net investment in leveraged
leases, consists of notes payable to financial institutions of $656,712. The
notes are due in varying monthly, quarterly and semi-annual payments. Interest
on the notes is at rates from 11.25% to 12.58%. The notes are secured by
assignments of lease payments and pledges of assets. At December 31, 1997, the
carrying value of the pledged assets is approximately $1,295,842. The notes
mature from 1998 through 2000.
Future minimum principal and interest payments of non-recourse debt as of
December 31, 1997 are as follows:
Year ending
December 31, Principal Interest Total
1998 $230,049 $61,609 $291,658
1999 233,530 36,202 269,732
2000 193,133 9,166 202,299
-------------- ---------------- ---------------
$656,712 $106,977 $763,689
============== ================ ===============
5. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partners
and/or their Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Partnership.
The General Partners earned partnership management fees equal to 5% of cash
distributed from operations and equipment management fees equal to 2% of full
payout lease rentals and 5% of operating lease rentals pursuant to the Limited
Partnership Agreement. The amounts earned in 1997 and 1996 were $84,156 and
$157,355, 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.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. Related party transactions (continued):
In 1997 and 1996, the Partnership reimbursed ATEL Financial Corporation $127,992
and $132,994, 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.
6. Partners' capital:
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, 1997, 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.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
7. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. As of
December 31, 1997, 64% (28% in 1996) 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 1997, rentals from one customer in the health care industry comprised 26%
of the Partnership's revenues from leases.
During 1996, rentals from one customer in the health care industry comprised 15%
of the Partnership's revenues from leases.
8. Fair value of financial instruments:
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.
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, 1997 is $672,175.
<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 General Counsel for ACG, AFC, ALC, AIS and AEC
William J. Bullock Director of Asset Management of AEC
Russell H. Wilder Vice President - Credit of AEC
John P. Scarcella Vice President of ASC
<PAGE>
A. J. Batt, age 61, 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.
Dean L. Cash, age 47, 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 40, 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 49, 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 39, 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.
<PAGE>
William J. Bullock, age 34, 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.
Russell H. Wilder, age 43, 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.
John P. Scarcella, age 36, 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 for the years ended December 31, 1997 and 1996 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.
<PAGE>
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.
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.
<PAGE>
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 1996 and 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1997 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 Ownershipof 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>
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 also owned a 30% undivided interest in the Boeing 727 executive
aircraft on lease to DJ Aerospace (Bermuda) Ltd. The Partnership's interest was
purchased from an unrelated third party on the same terms as that of the
affiliated partnership, ATEL Cash Distribution Fund IV which owned the remaining
70%. The aircraft was sold on January 2, 1997 to the lessee.
<PAGE>
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 Sheet at December 31, 1997
Statements of Income for the years ended December
31, 1997 and 1996
Statements of Changes in Partners' Capital for the
years ended December 31, 1997 and 1996
Statements of Cash Flows for the years ended
December 31, 1997 and 1996
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 1997
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)
<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: 3/27/1998
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)
<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 registrant; 3/27/1998
- ---------------------------- president, chairman and chief
A. J. Batt executive officer of ATEL
Financial Corporation
/s/ Dean Cash General Partner of registrant; 3/27/1998
- ---------------------------- executive vice president and
Dean Cash director of ATEL Financial
Corporation
/s/ F. Randall Bigony Principal financial officer 3/27/1998
- ---------------------------- of registrant; principal
F. Randall Bigony financial officer of ATEL
Financial Corporation
/s/ Donald E. Carpenter Principal accounting officer 3/27/1998
- ---------------------------- of registrant; principal
Donald E. Carpenter accounting officer of ATEL
Financial Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> dec-31-1997
<CASH> 892,157
<SECURITIES> 0
<RECEIVABLES> 68,334
<ALLOWANCES> 32,623
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,668,297
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,910,078
<TOTAL-LIABILITY-AND-EQUITY> 3,668,297
<SALES> 0
<TOTAL-REVENUES> 1,313,735
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 668,127
<LOSS-PROVISION> 17,072
<INTEREST-EXPENSE> 115,320
<INCOME-PRETAX> 513,216
<INCOME-TAX> 0
<INCOME-CONTINUING> 513,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513,216
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
