-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H3TaUzG/KJtj6eNrY2rw4GuZxrlH94bw5f1WI7DY65ZFYjlJtornYAQxH3aVY9Dg fqeUIu68r/5RmxBuhYtxwg== 0000823065-97-000001.txt : 19970329 0000823065-97-000001.hdr.sgml : 19970329 ACCESSION NUMBER: 0000823065-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATEL CASH DISTRIBUTION FUND II CENTRAL INDEX KEY: 0000823065 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943051991 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17631 FILM NUMBER: 97566155 BUSINESS ADDRESS: STREET 1: 235 PINE ST, 6TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4159898800 10-K 1 ANNUAL REPORT Form 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |X| Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (fee required) For the Year Ended December 31, 1996 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 |_| 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| 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, 1996, cash balances consisted of amounts to be distributed from 1996 operations and sales proceeds ($472,805) 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. 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, 1996, in excess of 75% of the equipment acquired had been leased to lessees with an aggregate credit rating of Baa or better or to such hospitals or municipalities. One lessee 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, 1996, the Partnership has disposed of certain lease assets as set forth below:
Excess of Acquisition Sales Rents Over Asset Type Cost Price Expenses * Material handling $6,985,394 $2,333,202 $7,085,852 Aircraft 6,742,040 4,917,002 1,846,076 Mining 6,271,546 1,923,844 6,176,018 Transportation 4,391,911 1,324,405 4,699,230 Food processing 2,923,031 913,233 3,193,761 Furniture, fixtures and equipment 1,939,952 692,626 1,866,175 Medical 1,585,800 514,254 1,603,407 Manufacturing 1,476,163 197,000 1,580,298 Data processing 1,450,824 141,702 1,535,093 Communications 1,232,483 689,932 735,482 Motor vehicles 708,525 211,865 755,560 Printing 233,268 110,000 258,130 -------------- ---------------- --------------- $35,940,937 $13,969,065 $31,335,082 ============== ================ ===============
* Includes only those expenses directly related to the production of the related rents. Equipment Leasing Activities: The Partnership has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries. The following tables set forth the types of equipment acquired by the Partnership through December 31, 1996 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, 1996, 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. 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". 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, 1996, a total of 2,934 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 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. The rates for distributions to Limited Partners in April, July and October 1995 and in January 1996 were $18.75, $12.50, $12.50 and $9.05, respectively per Unit (a total of $52.80 per Unit). All distributions were from cash flows from operations and sales proceeds in 1995. The rates for distributions to Limited Partners in April, July and October 1994 and in January 1995 were each $21.25 per Unit (a total of $85.00 per Unit). All distributions were from cash flows from operations and sales proceeds in 1994. The following table presents summarized information regarding distributions to Limited Partners:
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Distributions of net income $8.98 $18.49 $21.00 $15.54 $14.50 Return of investment 20.71 49.07 66.05 66.26 61.22 -------------- ---------------- --------------- --------------- -------------- Distributions per unit 29.69 67.56 87.05 81.80 75.72 Differences due to timing of distributions and due to distribution reinvestments (3.69) (14.76) (2.05) (1.80) (0.72) -------------- ---------------- --------------- --------------- -------------- Nominal distribution rates from above $26.00 $52.80 $85.00 $80.00 $75.00 ============== ================ =============== =============== ==============
Item 6. SELECTED FINANCIAL DATA The following table presents selected financial data of the Partnership for the years ended December 31, 1996, 1995, 1994, 1993 and 1992. This financial data should be read in conjunction with the financial statements and related notes included under Item 8 of this report.
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Gross Revenues $2,163,088 $3,645,794 $5,624,499 $7,083,181 $8,260,374 Net Income $634,555 $1,307,185 $1,484,900 $1,099,015 $1,025,357 Weighted average Limited Partnership Units (Units) outstanding 69,979 69,979 69,990 70,001 70,001 Net income per Unit, based on weighted average Units outstanding $8.98 $18.49 $21.00 $15.54 $14.50 Distributions per Unit, based on weighted average Units outstanding $29.69 $67.56 $87.05 $81.80 $75.72 Total Assets $5,584,504 $8,404,252 $13,123,098 $20,421,000 $27,646,894 Total Non-recourse Debt $1,693,865 $2,965,946 $4,255,444 $6,807,471 $9,298,808 Total Partners' Capital $3,687,982 $5,130,875 $8,551,736 $13,161,644 $17,577,696
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. The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from operations and proceeds from asset sales exceed expenses, and decreasing as lease assets are acquired, as distributions are made to the Limited Partners and to the extent expenses exceed cash flows from leases and proceeds from asset sales. As another source of liquidity, the Partnership has contractual obligations with a diversified group of lessees for fixed lease terms at fixed rental amounts. As the initial lease terms expire the Partnership will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on the General Partner's success in re-leasing or selling the equipment as it comes off lease. The Partnership currently has available adequate reserves to meet its immediate cash requirements, but in the event those reserves were found to be inadequate, the Partnership would likely be in a position to borrow against its current portfolio to meet such requirements. The General Partners envision no such requirements for operating purposes, nor have they explored with lenders the possibility of obtaining loans. There can be no assurance as to the terms of any such financing or that the Partnership will be able to obtain such loans. All of the Partnership's non-recourse debt is paid by lease payments assigned to the lenders. The assigned lease payments match the required payments on the debt and such payments fully amortize the debt. As of December 31, 1996, cash balances were reserved for distributions in January 1997 ($472,805) and working capital reserves. As of December 31, 1996, the Partnership had borrowed approximately $21,700,000. The remaining unpaid balance on those borrowings was approximately $1,694,000. There were no additional borrowings from December 31, 1996 through February 28, 1997. 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. No commitments of capital have been or are expected to be made other than for the acquisition of additional equipment as described in Item 1. As of December 31, 1996, the Partnership had no such commitments. 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 1996 operations and sales proceeds were made in April, July and October 1996 and in January 1997. See Items 5 and 6 of this report for additional information regarding the distributions. Cash Flows: 1996 vs. 1995 Cash flows from operations decreased from $2,788,119 in 1995 to $1,288,526 in 1996. Of this decrease, $1,003,940 is due to decreases in lease revenues. In 1995, the Partnership received $228,033 as partial settlement of its claim in the bankruptcy of Rocky Mountain Helicopters, Inc. (RMH). In 1996, $77,654 was received. This contributed $150,379 of the decline in cash flows from operations compared to 1995. In 1996, 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 $881,374 compared to 1995. This was primarily due to decreased sales of operating lease assets. In 1995, operating lease assets with an original cost of about $6,700,000 were sold compared to about $3,124,000 in 1996. There were no sources of cash from financing sources in either 1995 or 1996. 1995 vs. 1994 Cash flows from operations decreased by $1,114,000. The decrease resulted from decreased lease revenues ($2,804,259 in 1995 compared to $5,395,153 in 1994), a decrease of $2,590,894. This was partially offset by cash received from bankruptcy settlements ($228,033) and improved collections of accounts receivable at the end of 1995 compared to 1994. In 1994, accounts receivable had increased by $396,017 and they decreased by $606,422 in 1995, resulting in increased cash flows in 1995 of $1,002,439 compared to 1994. Lease rents declined as the result of sales of the underlying pool of lease assets at the end of the related lease terms. See further discussion under the heading "Results of Operations". Cash flows from investing activities increased from $1,967,923 in 1994 to $3,180,098 in 1995. In 1994, $2,322,591 was used to purchased lease assets and to pay related initial direct costs. There were no such purchases in 1995. The largest source of cash from investing activities in both years was the proceeds from sales of operating lease assets. These proceeds declined from $2,959,549 in 1994 to $2,179,490 in 1995. The second major source of cash from investing activities is direct financing lease rents which are accounted for as reductions of the Partnership's net investment in direct financing leases. These amounts decreased from $1,311,673 in 1994 to $875,730 in 1995. There were no financing sources of cash in 1995 or 1994. Repayments of non-recourse debt have decreased as a result of scheduled debt payments. Results of Operations As of March 23, 1988, subscriptions for the minimum amount of the offering ($1,200,000) had been received and accepted by the Partnership. As of that date, the Partnership commenced operations in its primary business (leasing activities). Operations resulted in net income of $1,025,357, $1,099,015, $1,484,900, $1,307,185 and $634,555 in 1992, 1993, 1994, 1995 and 1996, respectively. The results of operations in future periods may vary significantly from those of 1996 as the Partnership's lease portfolio of capital equipment matures. Revenues from leases are expected to decline over the long term as leased assets come off lease and are sold or re-leased at lower lease rents. The ultimate effect on net income is not determinable as it will depend to a large degree on the amounts received from the sales of assets and/or from re-leases to either the same or new lessees once the initial lease terms expire. A number of the Partnership's leases are scheduled to terminate in 1997. If they are terminated as scheduled, gross lease rents from operating and direct financing leases are expected to decrease by $1,046,000 (from $2,658,000 in 1996 to $1,612,000 in 1997). 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, 1996, 28% (22% in 1995) 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 and may receive an additional 5% to 10% of its unsecured claim of $776,654. 1996 vs. 1995 Operating leases have continued to mature in 1996. As the leases reached their scheduled terminations, most of the assets were sold. As a result, operating lease revenues have declined from $2,351,976 in 1995 to $1,478,191 in 1996. Direct financing leases have also continued to mature in 1996 and their related revenues have also declined by $134,117 ($302,838 in 1996 compared to $436,955 in 1995). Gains and losses on sales of assets are not expected to be consistent from one year to another. Such gains declined from $453,960 in 1995 to $168,927 in 1996, a decrease of $285,033. In 1995, the Partnership sold the last of the marketable securities it had received in the Financial News Network (FNN) bankruptcy settlement and realized a gain of $124,878. There were no similar sales in 1996. The proceeds from the RMH bankruptcy decreased from $228,033 in 1995 to $77,654 in 1996. It is uncertain whether any additional amounts will be received. 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 1995 to 1996 and this resulted in the decline in management fees. 1995 vs. 1994 Operating lease revenues declined by $2,560,888 (from $4,912,864 in 1994 to $2,351,976 in 1995) due to continued sales of operating lease assets at the end of their related lease terms. In 1995, the Partnership realized a gain on lease assets sales of $453,960 compared to a loss of $3,239 in 1994. A large part of the 1995 gain related to the sale of materials handling equipment after it was returned by the lessees upon termination of the lease. In 1995, the Partnership sold the remainder of the common stock it had received as a part of the 1992 FNN bankruptcy settlement. The gain realized in 1995 was $124,878 compared to $19,292 in 1994. In 1995, the Partnership also received additional cash payments from the bankruptcies of FNN and RMH totaling $228,033. No further amounts were expected from the FNN transaction. Depreciation expense has continued to decrease as the Partnership's underlying portfolio of operating lease assets is sold at the scheduled terminations of the related lease terms. Depreciation decreased from $2,963,445 in 1994 to $1,451,193 in 1995. Interest expense has declined from $509,267 in 1994 to $365,099 in 1995 as the result of scheduled debt payments. Management fees are based on the Partnership's lease rents received and on the amounts of cash distributed to the limited partners from its leasing activities (as defined in the Limited Partnership Agreement). Both of these factors decreased in 1995 compared to 1994 and as a result, management fees decreased from $313,115 to $222,936. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Financial Statements and Notes to Financial Statements attached hereto at pages 10 through 23. REPORT OF INDEPENDENT AUDITORS The Partners ATEL Cash Distribution Fund II We have audited the accompanying balance sheets of ATEL Cash Distribution Fund II (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of income, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Francisco, California January 28, 1997 ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 ---- ---- Cash and cash equivalents $989,337 $874,714 Accounts receivable, net of allowance for doubtful accounts of $15,552 in 1996 and 1995 30,243 69,558 Investments in equipment and leases 4,564,924 7,459,980 --------------- -------------- Total assets $5,584,504 $8,404,252 =============== ============== LIABILITIES AND PARTNERS' CAPITAL Non-recourse debt $1,693,865 $2,965,946 Accrued interest 29,092 53,047 Accounts payable and accrued liabilities: General Partners 21,282 61,192 Trade and other 66,784 79,398 Customer deposits 69,000 77,409 Unearned operating lease income 16,499 36,385 --------------- -------------- Total liabilities 1,896,522 3,273,377 Partners' capital: General Partners 79,885 73,539 Limited Partners 3,608,097 5,057,336 --------------- -------------- Total partners' capital 3,687,982 5,130,875 --------------- -------------- Total liabilities and partners' capital $5,584,504 $8,404,252 =============== ============== See accompanying notes. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Revenues: Leasing activities: Operating $1,478,191 $2,351,976 $4,912,864 Direct financing 302,838 436,955 470,109 Leveraged 19,290 15,328 12,180 Gain (loss) on sale of lease assets 168,927 453,960 (3,239) Interest income 15,264 32,340 38,720 Gain on sale of marketable securities - 124,878 19,292 Proceeds from bankruptcy settlements 77,654 228,033 - Other 100,924 2,324 174,573 --------------- --------------- -------------- 2,163,088 3,645,794 5,624,499 --------------- --------------- -------------- Expenses: Depreciation and amortization 885,426 1,451,193 2,963,445 Interest expense 237,226 365,099 509,267 Equipment and partnership management fees to General Partner 157,355 222,936 313,115 Administrative cost reimbursements to General Partner 132,994 157,444 238,185 Provision for losses 22,221 25,972 11,616 Professional fees 21,173 44,864 37,647 Other 72,138 71,101 66,324 --------------- --------------- -------------- 1,528,533 2,338,609 4,139,599 --------------- --------------- -------------- Net Income $634,555 $1,307,185 $1,484,900 =============== =============== ============== Net income: General Partners $6,346 $13,072 $14,849 Limited Partners 628,209 1,294,113 1,470,051 --------------- --------------- -------------- $634,555 $1,307,185 $1,484,900 =============== =============== ============== Net income per Limited Partnership unit $8.98 $18.49 $21.00 Weighted average number of units outstanding 69,979 69,979 69,990
See accompanying notes. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Limited Partners General Units Amount Partners Total Balance, January 1, 1994 70,001 $13,116,026 $45,618 $13,161,644 Distributions ($87.05 per unit) (6,092,811) (6,092,811) Repurchase of units (22) (1,997) - (1,997) Net income 1,470,051 14,849 1,484,900 ---------------- --------------- --------------- -------------- Balance, December 31, 1994 69,979 8,491,269 60,467 8,551,736 Distributions ($67.56 per unit) (4,728,046) (4,728,046) Net income 1,294,113 13,072 1,307,185 ---------------- --------------- --------------- -------------- Balance, December 31, 1995 69,979 5,057,336 73,539 5,130,875 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 ================ =============== =============== ==============
See accompanying notes. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Operating activities: Net income $634,555 $1,307,185 $1,484,900 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 885,426 1,451,193 2,963,445 (Gain) loss on sale of lease assets (168,927) (453,960) 3,239 Leveraged lease income (19,290) (15,328) (12,180) Gain on sale of marketable securities - (124,878) (19,292) Provision for losses 22,221 25,972 11,616 Changes in operating assets and liabilities: Accounts receivable 39,315 606,422 (396,017) Notes receivable - - 2,861 Accounts payable, general partner (39,910) 10,687 (60,300) Accounts payable, other (12,614) 24,179 (10,997) Accrued interest (23,955) (22,094) (75,075) Customer deposits (8,409) - 77,409 Unearned operating lease income (19,886) (21,259) (67,004) --------------- --------------- -------------- Net cash provided by operating activities 1,288,526 2,788,119 3,902,605 --------------- --------------- -------------- Investing activities: Proceeds from sales of lease assets 1,298,116 2,179,490 2,959,549 Purchase of equipment on operating leases - - (1,368,301) Reductions of net investment in direct financing leases 877,510 875,730 1,311,673 Investment in equipment on direct financing leases - - (946,685) Proceeds from sales of marketable securities - 124,878 19,292 Payments of initial direct costs - - (7,605) --------------- --------------- -------------- Net cash provided by investing activities 2,175,626 3,180,098 1,967,923 --------------- --------------- -------------- Financing activities: Distributions to limited partners, net of reinvestments (2,077,448) (4,728,046) (6,092,811) Repayments of non-recourse debt (1,272,081) (1,289,498) (2,552,027) Repurchase of units - - (1,997) --------------- --------------- -------------- Net cash used in financing activities (3,349,529) (6,017,544) (8,646,835) --------------- --------------- -------------- Net increase (decrease) in cash and cash equivalents 114,623 (49,327) (2,776,307) Cash and cash equivalents at beginning of year 874,714 924,041 3,700,348 --------------- --------------- -------------- Cash and cash equivalents at end of year $989,337 $874,714 $924,041 =============== =============== ==============
ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Supplemental disclosures of cash flow information: Cash paid during the year for interest $261,181 $387,193 $509,267 =============== =============== ============== Supplemental schedule of non-cash transactions: Operating lease assets reclassified to assets held for sale or lease $1,147,373 Less accumulated depreciation (947,899) --------------- $199,474 =============== Operating lease assets reclassified to direct financing lease assets $166,609 Less accumulated depreciation (127,649) --------------- $38,960 =============== Direct financing lease assets reclassified to operating lease assets $12,000 ===============
See accompanying notes. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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, 1996, the original terms of the leases ranged from one to twelve years. Pursuant to the Limited Partnership Agreement, the General Partners receive compensation and reimbursement for services rendered on behalf of the Partnership (Note 5). The General Partners are required to maintain in the Partnership reasonable cash reserves for working capital, the repurchase of Units and contingencies. 2. Summary of significant accounting policies: Equipment on operating leases: Equipment on operating leases is stated at cost. Depreciation is being provided by use of the straight-line method over the terms of the related leases to the equipment's estimated residual values at the end of the leases. Revenues from operating leases are recognized evenly over the life of the related leases. Direct financing leases: Income from direct financing lease transactions is reported on the financing method of accounting, in which the Partnership's investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals and realization of residual values. The income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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. 1996 1995 ---- ---- Financial statement basis of net assets and liabilities $3,687,982 $5,130,875 Tax basis of net assets and liabilities 4,753,581 4,751,106 --------------- -------------- Difference $1,065,599 $379,769 =============== ============== The following reconciles the net income reported in these financial statements to the net income reported on the Partnership's federal tax return (unaudited): 1996 1995 ---- ---- Net income per financial statements $634,555 $1,307,185 Adjustment to depreciation expense 7,997 (158,820) Adjustments to revenues 1,415,151 1,926,962 Provision for losses and impairments 22,221 25,972 Adjustments to other expenses - 536 --------------- -------------- Net income per federal tax return $2,079,924 $3,101,835 =============== ============== Credit Risk: Financial instruments which potentially subject the Partnership to concentrations of credit risk include cash and cash equivalents. The Partnership places its cash deposits and temporary cash investments with creditworthy, high quality financial institutions. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Partnership. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 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 consists of the following:
Depreciation Expense or Reclass- Amortization ifications & 1995 Additions of Leases Dispositions 1996 ---- --------- --------- ------------ ---- Net investment in operating leases $4,278,094 ($880,615) ($641,259) $2,756,220 Net investment in direct financing leases 2,940,554 (877,510) (288,456) 1,774,588 Net investment in leveraged leases 74,635 19,290 - 93,925 Equipment held for lease 199,474 - (199,474) - Reserves for losses (37,588) ($22,221) - - (59,809) Initial direct costs 4,811 - (4,811) - - -------------- ---------------- --------------- --------------- -------------- $7,459,980 ($22,221) ($1,743,646) ($1,129,189) $4,564,924 ============== ================ =============== =============== ==============
ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 3. Investments in equipment and leases (continued): Operating leases: Property on operating lease consists of the following as of December 31, 1995, additions and dispositions during 1996 and as of December 31, 1996:
Balance Reclass- Balance December 31, ifications & December 31, 1995 Additions Dispositions 1996 ---- --------- ------------ ---- Aircraft $3,164,533 $3,164,533 Mining 2,104,643 ($788,096) 1,316,547 Manufacturing 835,681 - 835,681 Materials handling 1,918,334 (1,201,275) 717,059 Communications 481,738 - 481,738 Food processing 344,799 (13,728) 331,071 Data processing 527,739 (446,907) 80,832 Motor vehicles 95,277 (22,060) 73,217 Transportation 697,722 (652,197) 45,525 Furniture, fixtures and equipment 22,967 - 22,967 ---------------- --------------- --------------- -------------- 10,193,433 (3,124,263) 7,069,170 Less accumulated depreciation (5,915,339) ($880,615) 2,483,004 (4,312,950) ---------------- --------------- --------------- -------------- $4,278,094 ($880,615) ($641,259) $2,756,220 ================ =============== =============== ==============
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, 1996 and 1995:
1996 1995 ---- ---- Total minimum lease payments receivable $1,086,935 $2,584,207 Estimated residual values of leased equipment (unguaranteed) 857,859 873,309 --------------- --------------- Investment in direct financing leases 1,944,794 3,457,516 Less unearned income (170,206) (516,962) =============== =============== Net investment in direct financing leases $1,774,588 $2,940,554 =============== ===============
ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 3. Investments in equipment and leases (continued): At December 31, 1996, 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 ------------ --------- --------- ----- 1997 $644,280 $967,483 $1,611,763 1998 272,090 115,204 387,294 1999 269,732 4,248 273,980 2000 202,299 - 202,299 -------------- ---------------- --------------- $1,388,401 $1,086,935 $2,475,336 ============== ================ =============== 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, 1996 and 1995 is as follows: 1996 1995 ---- ---- Aggregate rentals receivable $254,490 $485,082 Aggregate principal and interest payable on non-recourse loans (254,490) (485,082) Estimated residual value of leased assets 148,750 148,750 Less unearned income (54,825) (74,115) --------------- --------------- Net investment in leveraged leases $93,925 $74,635 =============== =============== 4. Non-recourse debt: At December 31, 1996 and 1995, non-recourse, 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 $1,693,865 and $2,965,946, respectively. The notes are due in varying monthly, quarterly and semi-annual payments. Interest on the notes is at rates from 7.69% to 12.86%. The notes are secured by assignments of lease payments and pledges of assets. At December 31, 1996, the carrying value of the pledged assets is approximately $3,348,709. The notes mature from 1997 through 2000. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 4. Non-recourse debt (continued): Future minimum principal and interest payments of non-recourse debt as of December 31, 1996 are as follows: Year ending December 31, Principal Interest Total ------------ --------- -------- ----- 1997 $1,037,153 $137,795 $1,174,948 1998 230,049 61,609 291,658 1999 233,530 36,202 269,732 2000 193,133 9,166 202,299 -------------- ---------------- --------------- $1,693,865 $244,772 $1,938,637 ============== ================ =============== 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 1996, 1995 and 1994 were $157,355, $222,936 and $313,115, 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 1996, 1995 and 1994, the Partnership reimbursed ATEL Financial Corporation $132,994, $157,444 and $238,185, 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. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 6. Partners' capital: As of December 31, 1991, 70,000 Units were issued and outstanding (in addition to the Unit issued to the Initial Limited Partner). The Partnership is authorized to issue up to 70,000 Units (in addition to the Unit issued to the Initial Limited Partner). As of December 31, 1996, 69,979 Units were issued and outstanding. Limited Partners could elect to accumulate their share of distributions for reinvestment during the Partnership's reinvestment period. Effective April 1, 1993, the General Partners terminated this capital accumulation period. Reinvested distributions do not result in the issuance of additional Units. Each limited partner's capital interest in the Partnership is based upon his original invested capital plus any reinvested distributions. The Partnership's net profits and net losses are to be allocated 99% to the Limited Partners and 1% to the General Partners. Available Cash from Operations and Cash from Sales and Refinancing, as defined in the Limited Partnership Agreement, shall be distributed as follows: First, 5% of Distributions of Cash from Operations to the General Partners as the Partnership Management Fee. Second, the balance to the Limited Partners until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital. Third, the General Partners will receive as a Subordinated Incentive Fee, as follows: A) 10% of remaining Cash from Operations B) 15% of remaining Cash from Sales and Refinancing Fourth, the remainder to the Limited Partners. 7. Concentration of credit risk and major customers: The Partnership leases equipment to lessees in diversified industries. As of December 31, 1996, 28% (22% in 1995) 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 1996, rentals from one customer in the health care industry comprised 15% of the Partnership's revenues from leases. ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 8. Fair value of financial instruments: The Partnership has adopted Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," which requires disclosure of the fair value of financial instruments for which it is practicable to estimate fair value. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value. Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of these instruments. Accounts payable, accrued interest and customer deposits: The carrying amounts of accounts payable, accrued interest and customer deposits approximate fair value because of the short maturity of these instruments. Non-recourse debt: The fair value of the Partnership's non-recourse debt is estimated using discounted cash flow analyses, based on the Partnership's current incremental borrowing rates for similar types of borrowing arrangements. The estimated fair value of the Partnership's non-recourse debt at December 31, 1996 is $1,717,098. 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 Jeffrey A. Schwager . . . Vice President - Syndication of ALC Russell H. Wilder . . . . Vice President - Credit of AEC John P. Scarcella . . . . Vice President of ASC A. J. Batt, age 60, founded ATEL in 1977 and has been its president and chairman of the board of directors since its inception. From 1973 to 1977, he was employed by GATX Leasing Corporation as manager-data processing and equity placement for the lease underwriting department, which was involved in equipment financing for major corporations. From 1967 to 1973 Mr. Batt was a senior technical representative for General Electric Corporation, involved in sales and support services for computer time-sharing applications for corporations and financial institutions. Prior to that time, he was employed by North American Aviation as an engineer involved in the Apollo project. Mr. Batt received a B.Sc. degree with honors in mathematics and physics from the University of British Columbia in 1961. Dean L. Cash, age 46, joined ATEL as director of marketing in 1980 and has been a vice president since 1981, executive vice president since 1983 and a director since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A. degree with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association. F. Randall Bigony, age 39, 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 48, 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 38, joined ATEL in 1989 as general counsel to provide legal support in the drafting and reviewing of lease documentation, advising on general corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of America's equipment leasing subsidiaries, providing in-house legal support on the documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in the Corporate and Securities Legal Department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley and a J.D. degree in 1986 from Golden Gate University Law School. Mr. Morais has been an active member of the State Bar of California since 1986. William J. Bullock, age 33, joined ATEL in 1991, as the director of asset management. He assumed responsibility for the disposition of off-lease equipment and residual valuation analysis on new lease transactions. Prior to joining ATEL, Mr. Bullock was a senior member of the equipment group at McDonnell Douglas Finance Corporation("MDFC") responsible for managing its $4 billion portfolio of leases. Mr. Bullock was involved in negotiating sales and renewals as well as preparing and inspecting equipment. Prior to joining MDFC in 1989, Mr. Bullock was the Senior Negotiator at Equitable Leasing (a subsidiary of GE Capital Equipment Corp.) in San Diego. At Equitable, he handled the end-of-lease negotiations and equipment dispositions of a portfolio comprised of equipment leased primarily to Fortune 200 companies. Mr. Bullock has been a member of the Equipment Lessors Association ("ELA") since 1987 and has authored ELA industry articles. He received a B.S. degree in Finance in 1987 from San Diego State University and is pursuing his M.B.A. Jeffrey A. Schwager, age 36, joined ATEL in 1991 as vice president - syndication and is responsible for acquiring transactions from intermediaries as well as debt and equity placement. Prior to joining ATEL, Mr. Schwager was a member of General Electric Capital Corporation's Institutional Financing Group. There, he was responsible for originating equipment lease and corporate finance opportunities, as well as soliciting equipment portfolios in conjunction with marketing a proprietary capital enhancement product. From 1985 through 1990, Mr. Schwager held several positions with Bank Ireland/First Financial, most recently Vice President Marketing, where he was responsible for originating and negotiating tax-oriented leveraged lease financings for Fortune 500 companies. From 1983 to 1985 Mr. Schwager was an Associate Consultant with The Bigelow Company, a middle market investment banking and management consulting firm, developing and implementing strategic plans for a number of clients. Prior to The Bigelow Company, he worked for Petro-Lewis Corporation as a joint-interest accountant. Mr. Schwager received his B.S. in Business Administration from Babson College in 1982, majoring in Finance and Entrepreneurial Studies. Russell H. Wilder, age 42, 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 35, joined ATEL Securities as vice president in 1992. He is involved in the marketing of securities offered by ASC. Prior to joining ASC, from 1987 to 1991, he was employed by Lansing Pacific Fund, a real estate investment trust in San Mateo, California and acted as director of investor relations. From 1984 to 1987, Mr. Scarcella acted as broker dealer representative for Lansing Capital Corporation, where he was involved in the marketing of direct participation programs and REITs. Mr. Scarcella received a B.S.C. degree with emphasis in investment finance in 1983 and an M.B.A. degree with a concentration in marketing in 1991 from Santa Clara University. Item 11. EXECUTIVE COMPENSATION The registrant is a limited partnership and, therefore, has no officers or directors. Set forth hereinafter is a description of the nature of remuneration paid and to be paid to the general partners and their affiliates. The amount of such remuneration paid through December 31, 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. 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. 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 1994, 1995 and 1996. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners At December 31, 1996 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:
(1) (2) (3) (4) Name and Address of Amount and Nature of Percent Title of Class Beneficial Owner Beneficial Ownership of Class 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)
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 owns a 30% undivided interest in the Boeing 727 executive aircraft on lease to DJ Aerospace (Bermuda) Ltd. The Partnership's interest was purchased on the same terms as that of the affiliated partnership, ATEL Cash Distribution Fund IV which owns the remaining 70%. The aircraft was sold on January 2, 1997 to the lessee. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules 1. Financial Statements Included in Part II of this report: Report of Independent Auditors Balance Sheets at December 31, 1996 and 1995 Statements of Income for the years ended December 31, 1996, 1995 and 1994 Statements of Changes in Partners' Capital for the years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 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 1996 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) 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: 3/27/1997 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) 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 President, chairman and 3/27/1997 - --------------------- chief executive officer of A. J. Batt ATEL Financial Corporation /s/ Dean Cash Executive vice president and 3/27/1997 - --------------------- director of ATEL Financial Dean Cash Corporation /s/ F. Randall Bigony Principal financial officer 3/27/1997 - ----------------------- of registrant; principal F. Randall Bigony financial officer of ATEL Financial Corporation /s/ Donald E. Carpenter Principal accounting officer 3/27/1997 - ------------------------ of registrant; principal Donald E. Carpenter accounting officer of ATEL Financial Corporation EX-27 2 FDS --
5 YEAR DEC-31-1996 DEC-31-1996 989,337 0 45,795 15,552 0 0 0 0 5,584,504 0 0 0 0 0 3,687,982 5,584,504 0 2,163,088 0 0 1,269,106 22,221 237,226 634,535 0 634,535 0 0 0 634,535 0 0
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