Form 10-KSB
(Final Report)
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, 1998
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 Partnershi
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 |_| 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. The General Partners of the
Partnership are ATEL Financial Corporation (ATEL), a California corporation and
two individuals, who are principals of ATEL Capital Group, the parent of ATEL.
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, 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.
As of December 31, 1998, the Partnership had disposed of all of its assets and
had ceased operations.
The Partnership's principal objectives were to invest in a diversified portfolio
of equipment which would (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 was governed by its Limited
Partnership Agreement.
Narrative Description of Business
The Partnership acquired various types of equipment and leased 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's objective was to lease a minimum of 75% of the equipment
acquired with the net proceeds of the offering to lessees which (i) had 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) were 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. As of December 31, 1998, all of the Partnership's assets had been
sold.
Two lessees, in the health care and wine industries, accounted for 31% and 27%,
respectively, of the Partnership's lease revenues during 1998. One lessee in the
health care industry accounted for 26% of the Partnership's lease revenues
during 1997.
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
<PAGE>
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or materially
important physical properties as of December 31, 1998.
Item 3. LEGAL PROCEEDINGS
Inapplicable.
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 were 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 was ever developed.
Holders
As of December 31, 1998, a total of 2,964 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 had 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 1998
were $7.50 per Unit and in December 1998 were $45.00 per Unit (a total of $67.50
per Unit). All distributions were from cash flows from operations and sales
proceeds in 1998.
The following table presents summarized information regarding distributions to
Limited Partners:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Distributions of net income $ 28.39 $ 7.26 $ 8.98 $ 18.49 $ 21.00
Return of investment 41.77 11.19 20.71 49.07 66.05
--------------- --------------- --------------- -------------- ---------------
Distributions per unit 70.16 18.45 29.69 67.56 87.05
Differences due to timing of
distributions and due to distribution
reinvestments (2.66) (3.45) (3.69) (14.76) (2.05)
--------------- --------------- --------------- -------------- ---------------
Nominal distribution rates from above $ 67.50 $ 15.00 $ 26.00 $ 52.80 $ 85.00
=============== =============== =============== ============== ===============
</TABLE>
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership for the
years ended December 31, 1998, 1997, 1996, 1995 and 1994. This financial data
should be read in conjunction with the financial statements and related notes
included under Item 8 of this report.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues $ 2,527,269 $ 1,313,735 $ 2,163,088 $3,645,794 $ 5,624,499
Net Income $ 2,006,605 $ 513,216 $ 634,555 $1,307,185 $ 1,484,900
Weighted average Units outstanding 69,979 69,979 69,979 69,979 69,990
Net income per Unit, based on
weighted average Units outstanding $ 28.39 $ 7.26 $ 8.98 $ 18.49 $ 21.00
Distributions per Unit, based on
weighted average Units outstanding $ 70.16 $ 18.45 $ 29.69 $ 67.56 $ 87.05
Total Assets $ - $ 3,668,297 $ 5,584,504 $8,404,252 $ 13,123,098
Non-recourse Debt $ - $ 656,712 $ 1,693,865 $2,965,946 $ 4,255,444
Total Partners' Capital $ - $ 2,910,078 $ 3,687,982 $5,130,875 $ 8,551,736
</TABLE>
In 1995, cash flows and distributions to Limited Partners were not sufficient to
allow the Partnership to reinvest in additional equipment.
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.
As of December 31, 1998, the Partnership had disposed of all of its assets and
had ceased operations.
The Partnership commenced regular distributions, based on cash flows from
operations, beginning with the second quarter of 1988. Distributions of cash
from 1998 operations and sales proceeds were made in April, July, October and
December 1998. See Items 5 and 6 of this report for additional information
regarding the distributions.
Cash Flows:
Cash flows from operations decreased from $635,243 in 1997 to $459,213 in 1998.
This decrease, was due to a $385,008 decrease in lease revenues, offset by an
increase in other income of $188,903 in 1998. Most of the increase in other
income was the result of the recovery of excess reserves for losses and
impairments that were not required in conjunction with the sales of the
remaining lease assets. In 1997, the Partnership received $116,481 as partial
settlement of its claim in the bankruptcy of Rocky Mountain Helicopters, Inc. No
similar amounts were received in 1998.
<PAGE>
In 1998 and 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 increased by $3,306,240 compared to 1997. This was primarily due
to sales of all of the Partnership's remaining lease assets during the third and
fourth quarters of 1998.
There were no sources of cash from financing sources in either 1998 or 1997.
Results of Operations
Operations resulted in net income of $2,006,605 in 1998 and $513,216 in 1997.
Operations of the Partnership were concluded on December 31, 1998 with the sale
of the remaining lease assets to an unrelated third party and the transfer of
the remaining cash balances ($19,645) and liabilities ($12,855) to a liquidating
trust. If funds remain in the liquidating trust after paying all of the expenses
related to closing the operations of the fund, the remaining amounts will be
paid to the holders of interests in the trust. The Limited Partners hold
interests in the trust proportionate to their interests in the Partnership. If
expenses of the liquidating trust exceed the net assets transferred to it by the
Partnership, the excess amounts will be funded by the General Partners.
Revenues from operating leases decreased compared to 1997 due lease terminations
and sales. As a result of the final sales of lease assets in 1998, gains on
sales of assets increased compared to 1997.
Depreciation expense decreased as a result of the sales of operating leases
noted above.
Impact of the Year 2000
As of December 31, 1998, the Partnership had disposed of all of its assets and
had ceased operations. The year 2000 issue will therefore have no impact on the
Partnership.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1998, the Partnership had disposed of all of its assets and
had ceased operations. The Partnership therefore has no exposure to market
risks.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 6 through 14.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
ATEL Cash Distribution Fund II
We have audited the accompanying statements of income, changes in partners'
capital and cash flows of ATEL Cash Distribution Fund II (a California limited
partnership) for the years ended December 31, 1998 and 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 results of operations, changes in partners' capital,
and cash flows of ATEL Cash Distribution Fund II (a California limited
partnership) for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
January 25, 1999
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
Revenues:
Leasing activities:
<S> <C> <C>
Operating $ 426,269 $ 862,129
Direct financing 198,724 154,229
Leveraged 30,550 24,283
Gain on sale of lease assets 1,647,529 124,594
Proceeds from bankruptcy settlement - 116,481
Interest income 31,507 28,232
Other 192,690 3,787
-------------- ---------------
2,527,269 1,313,735
-------------- ---------------
Expenses:
Depreciation and amortization 191,489 364,425
Administrative cost reimbursements to General Partner 123,597 127,992
Equipment and partnership management fees to General Partner 87,906 84,156
Other 49,779 54,154
Interest expense 41,969 115,320
Professional fees 20,930 24,303
Provision for losses and impairments 4,994 13,097
Provision for doubtful accounts - 17,072
-------------- ---------------
520,664 800,519
-------------- ---------------
Net income $2,006,605 $ 513,216
============== ===============
Net income:
General Partners $20,066 $5,132
Limited Partners 1,986,539 508,084
-------------- ---------------
$2,006,605 $ 513,216
============== ===============
Net income per Limited Partnership unit $28.39 $7.26
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, 1998 AND 1997
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 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, 1997 69,979 2,825,061 85,017 2,910,078
Distributions ($70.16 per unit) (4,909,893) - (4,909,893)
Net income 1,986,539 20,066 2,006,605
Cash transferred to liquidating trust (19,449) (196) (19,645)
Liabilities transferred to liquidating trust 12,726 129 12,855
Special allocation of income (loss) 105,016 (105,016) -
--------------- --------------- -------------- --------------=
Balance, December 31, 1998 69,979 $ 0 $ 0 $ 0
=============== =============== ============== ===============
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
Operating activities:
<S> <C> <C>
Net income $2,006,605 $ 513,216
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 191,489 364,425
Gain on sale of lease assets (1,647,529) (124,594)
Leveraged lease income (30,550) (24,283)
Provision for doubtful accounts - 17,072
Provision for losses and impairments 4,994 13,097
Changes in operating assets and liabilities:
Accounts receivable 35,711 (22,540)
Accounts payable, general partner (10,892) (10,390)
Accounts payable, other (74,286) 7,502
Accrued interest (6,617) (22,475)
Customer deposits - (69,000)
Unearned operating lease income (9,712) (6,787)
-------------- ---------------
Net cash provided by operating activities 459,213 635,243
-------------- ---------------
Investing activities:
Proceeds from sales of lease assets 4,085,168 778,928
Reductions of net investment in direct financing leases 136,857 816,922
-------------- ---------------
Net cash provided by investing activities 4,222,025 1,595,850
-------------- ---------------
Financing activities:
Distributions to limited partners (4,909,893) (1,291,120)
Repayments of non-recourse debt (656,712) (1,037,153)
Transfer to liquidating trust, net (6,790) -
-------------- ---------------
Net cash used in financing activities (5,573,395) (2,328,273)
-------------- ---------------
Net decrease in cash and cash equivalents (892,157) (97,180)
Cash and cash equivalents at beginning of year 892,157 989,337
-------------- ---------------
Cash and cash equivalents at end of year $ 0 $ 892,157
============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 48,586 $ 137,795
============== ===============
</TABLE>
See accompanying notes.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 General Partners of the
Partnership are ATEL Financial Corporation (ATEL), a California corporation and
two individuals, who are principals of ATEL Capital Group, the parent of ATEL.
The Partnership's business consisted of leasing various types of equipment. As
of December 31, 1998, the Partnership had sold all of its assets and had ceased
operations.
Pursuant to the Limited Partnership Agreement, the General Partners received
compensation and reimbursement for services rendered on behalf of the
Partnership (Note 4).
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, 1998
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 Statements 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 following reconciles the net income reported in these financial statements
to the net income reported on the Partnership's federal tax return (unaudited):
1998 1997
---- ----
Net income per financial statements $2,006,605 $513,216
Adjustment to depreciation expense 136,558 (5,161)
Adjustments to revenues 2,993,912 832,269
Adjustments to other expenses 31,507 (13,421)
Provision for doubtful accounts - 17,072
Provision for losses and impairments 4,994 13,097
-------------- ---------------=
Net income per federal tax return $5,173,576 $1,357,072
============== ===============
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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.
3. Investments in equipment and leases:
The Partnership's investments in equipment and leases consist of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
December 31, Amortization ifications & December 31,
1997 Additions of Leases Dispositions 1998
---- --------- --------- -------------- ----
<S> <C> <C> <C> <C>
Net investment in operating leases $ 1,749,575 $ (191,489) ($1,558,086) $ 0
Net investment in direct financing leases 944,264 (136,857) (807,407) -
Net investment in leveraged leases 118,208 30,550 (148,758) -
Equipment held for lease 388 - (388) -
Reserves for losses (72,006) $ (4,994) - 77,000 -
--------------- --------------- --------------- -------------- ---------------
$ 2,740,429 $ (4,994) $ (297,796) $(2,437,639) $ 0
=============== =============== =============== ============== ===============
</TABLE>
Reserves for losses and impairments:
Activity in the reserve for losses and impairments consists of the following:
Balance 12/31/96 $ 59,809
Provision 13,097
Charge-offs (900)
---------------
Balance 12/31/97 72,006
Provision 4,994
Charge-offs (13,221)
Excess reserves included in other income (63,779)
---------------
Balance 12/31/98 $ -
===============
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
4. 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 1998 and 1997 were $87,906 and
$84,156, 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 1998 and 1997, the Partnership reimbursed ATEL $123,597 and $127,992,
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.
5. Partners' capital:
The Partnership was authorized to issue up to 70,000 Units (in addition to the
Unit issued to the Initial Limited Partner). 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, were 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.
<PAGE>
ATEL CASH DISTRIBUTION FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
5. Partners' capital (continued):
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.
Operations of the Partnership were concluded on December 31, 1998 with the sale
of the remaining lease assets to an unrelated third party and the transfer of
the remaining cash balances ($19,645) and liabilities ($12,855) to a liquidating
trust. If funds remain in the liquidating trust after paying all of the expenses
related to closing the operations of the Partnership, the remaining amounts will
be paid to the holders of interests in the trust. The Limited Partners hold
interests in the trust proportionate to their interests in the Partnership. If
expenses of the liquidating trust exceed the net assets transferred to it by the
Partnership, the excess amounts will be funded by the General Partners.
Upon termination of operations on December 31, 1998, a special allocation of
income was made to the Limited Partners under the terms of the Partnership
Agreement in an amount sufficient to bring their capital accounts to zero.
6. Concentration of credit risk and major customers:
Two lessees, in the health care and wine industries, accounted for 31% and 27%,
respectively, of the Partnership's lease revenues during 1998. One lessee in the
health care industry accounted for 26% of the Partnership's lease revenues
during 1997.
<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
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
Carl W. Magnuson Vice President - Syndication of ALC
Barbara F. Medwadowski Vice President - Syndication of ALC
James A. Kamradt Director of Pricing and Syndication of ALC
Thomas D. Sbordone Senior Vice President - Marketing of ALC
Russell H. Wilder Vice President - Credit of AEC
John P. Scarcella Vice President of ASC
<PAGE>
A. J. Batt, age 62, 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 48, 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.
Donald E. Carpenter, age 50, 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 40, 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, a J.D. degree in 1986 from Golden Gate University Law
School and an MBA (Finance) in 1997 from Golden Gate University. Mr. Morais has
been an active member of the State Bar of California since 1986.
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.
<PAGE>
Carl W. Magnuson, age 55, joined ATEL in 1994 and is Vice President -
Syndication for ALC. Mr. Magnuson is responsible for acquiring third party lease
transactions and debt placement. Prior to joining ATEL he was a Regional Group
Manager and Portfolio Sales Manager for Bell Atlantic Systems Leasing for 10
years. From 1983 to 1984 he was Vice President and Chief Financial Officer of
the Handi-Kup Company, a plastics manufacturer, and from 1981 to 1982 he was
Controller for the Cyclotron Corporation, engaged in nuclear medicine research
and development. From 1978 to 1981 he was Executive Vice President of Shannon
Financial Corporation, a middle market leasing corporation. From 1975 to 1978 he
was a Deputy Program Manager for the Watkins Johnson Company. From 1968 to 1973
Mr. Magnuson was an engineering duty officer in the U. S. Navy. Mr. Magnuson
received a B.S. in Engineering Science and an M.S. in Applied Mathematics from
the Rensselaer Polytechnic Institute, an MS in Industrial Engineering/Operations
Research from Stanford University, and an M.B.A. from the University of
California at Berkeley.
Barbara F. Medwadowski, age 59, joined ATEL in 1997 and is vice president -
syndication for ALC. Ms. Medwadoski is responsible for acquiring third party
lease transactions. Prior to joining ATEL, she was a syndications manager for
Mellon US Leasing (successor to USL Capital and U.S. Leasing Corporation) for
nine years. From 1985 to 1987, she was a vice president with Great Western
Leasing where she acquired lease and loan transactions from intermediaries. From
1982 through 1984, she was a portfolio manager with U.S. Leasing Corporation.
Ms. Medwadowski received an M.B.A. degree from the University of California at
Berkeley in 1982. From 1964 through 1979, she was a senior researcher in lipids
and lipoproteins at the University of California at Berkeley. In 1964, she
earned an M.S. degree in nutrition and in 1961 a B.S. degree in child
development, each from the University of California at Berkeley
James A. Kamradt, age 37, Director of Pricing and Syndication for ALC, joined
ATEL in 1997. Mr. Kamradt is involved in the pricing of lease transactions and
the placement of debt to leverage certain transactions. From 1985 to 1997, Mr.
Kamradt managed his own private consulting business, providing underwriting and
operational services for numerous leasing companies. Prior to that, Mr. Kamradt
was the National Operations Officer for the computer leasing division of Phoenix
American; and Regional Credit Manager for Dana Commercial Credit Corporation.
Mr. Kamradt received his B.S. from Michigan Technological University's
Engineering School of Business, and his M.B.A. from Haas School of Business of
the University of California, Berkeley.
Thomas D. Sbordone, age 40, is Senior Vice President - Marketing for ALC. He
joined ATEL in 1993, as a regional vice president in the northeastern United
States. Mr. Sbordone is currently responsible for new business development
within the eastern U.S., including management of filed sales personnel and
directly interfacing with ATEL's existing and prospective clients to achieve the
company's lease investment objectives. Prior to joining ATEL, Mr. Sbordone was
employed, from 1985, by American Finance Group, a Boston-based equipment lessor.
While there, Mr. Sbordone's various responsibilities involved lease origination
of vendor finance relationships. Mr. Sbordone earned a B.S., with honors, in
finance and marketing from Northeastern University, and has attended Bentley
College Graduate School of Business.
Russell H. Wilder, age 44, 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.
<PAGE>
John P. Scarcella, age 37, 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 to the
General Partners and their affiliates. The amount of such remuneration paid for
the years ended December 31, 1998 and 1997 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 4 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 were
entitled to receive management fees which were payable for each fiscal quarter
and were in an amount equal to (i) 5% of the gross lease revenues from
"operating" leases and (ii) 2% of gross lease revenues from "full payout" leases
which contain net lease provisions. See Note 4 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 were entitled to receive the partnership
management fee which were payable for each fiscal quarter and were an amount
equal to 5% of distributions of cash from operations. See Note 4 to the
financial statements included at Item 8 of this report for amounts paid.
<PAGE>
Equipment Resale Fees
As compensation for services rendered in connection with the sale of equipment,
the General Partners were 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 was payable only after the Limited Partners 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. From the inception of
the Partnership through December 31, 1998, no equipment resale fees were accrued
or paid to the General Partner.
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 were 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 was 10% of distributions of cash from
operations and 15% of distributions of cash from sales or refinancing. From the
inception of the Partnership through December 31, 1998, no subordinated
incentive fees were accrued or paid to the General Partner.
General Partners' Interest in Operating Proceeds
Net income, net loss and investment tax credits were 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 1998 and 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1998 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
San Francisco, CA 94104 ($2,000)
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>
<PAGE>
Changes in Control
The Limited Partners had 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 could 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 could 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 4 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 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
Statements of Income for the years ended December
31, 1998 and 1997
Statements of Changes in Partners' Capital for the
years ended December 31, 1998 and 1997
Statements of Cash Flows for the years ended
December 31, 1998 and 1997
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 1998
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: 3/26/1999
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; 3/26/1999
- ---------------------------- president, chairman andchief executive
A. J. Batt officer of ATEL Financial Corporation
/s/ Dean Cash General Partner of registrant; executive 3/26/1999
- ---------------------------- vice president and director of ATEL
Dean Cash Financial Corporation
/s/ Donald E. Carpenter Principal financial officer of 3/26/1999
- ---------------------------- registrant; principal financial officer
Donald E. Carpenter of ATEL Financial Corporation
Principal accounting officer of
registrant; principalaccounting officer
of ATEL Financial Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> dec-31-1998
<PERIOD-END> dec-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 2,527,269
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 478,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,969
<INCOME-PRETAX> 2,006,605
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,006,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,006,605
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
