Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 											 x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 1995 											 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _______ to _______ Commission File Number 000-17631 											 ATEL Cash Distribution Fund II, a California Limited Partnership (Exact name of registrant as specified in its charter) 											 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 											 Former name, former address and former fiscal year, if changed since last report 											 Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 			Yes x 			No 											 DOCUMENTS INCORPORATED BY REFERENCE 											 None 											 Part I FINANCIAL INFORMATION 											 Item 1. Financial Statements. 											 ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) 														 BALANCE SHEETS 											 SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 (Unaudited) 											 ASSETS 											 1995 1994 ---- ---- Cash and cash equivalents $1,253,445 $924,041 Accounts receivable, net of allowance for doubtful accounts of $15,552 in 1995 and 1994 - 675,980 											 Investment in equipment and leases 8,192,403 1,523,077 ---------- ----------- $9,445,848 $13,123,098 ========== =========== 											 			LIABILITIES AND PARTNERS' CAPITAL 											 Non-recourse debt $3,279,507 $4,255,444 Accrued interest 59,197 75,141 Accounts payable: General Partners 49,120 50,505 Other 68,816 55,219 Deposits due to lessees 77,409 77,409 Unearned lease income 42,292 57,644 ---------- ---------- Total liabilities 3,576,341 4,571,362 											 Partners' capital: General Partners 71,833 60,467 Limited Partners 5,797,674 8,491,269 ---------- ---------- Total partners' capital 5,869,507 8,551,736 ---------- ---------- $9,445,848 $13,123,098 ========== =========== See accompanying notes. 											 ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) 											 INCOME STATEMENTS 											 NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 											 (Unaudited) 											 Nine Months Ended Three Months Ended September 30, September 30, 1995 1994 1995 1994 ---- ---- ---- ---- Revenues: Lease income: Operating $1,856,003 $3,907,883 $547,341 $1,279,726 Direct financing 339,916 572,792 103,711 105,959 Leveraged 11,496 9,135 3,832 3,045 Gain (loss) on disposition of assets 396,058 (258,988) 20,601 (39,937) Interest income 27,858 48,967 9,678 27,738 Gain on sale of marketable securities 124,879 - - - Other 228,600 161,215 155,452 (1,046) ----------- ----------- ----------- ---------- 2,984,810 4,441,004 840,615 1,375,485 Expenses: Depreciation 1,159,568 2,374,368 310,969 661,970 Interest expense 286,058 385,435 88,398 114,635 Management fees 171,722 357,406 49,121 118,408 Administrative cost reimbursements 107,480 166,465 34,352 45,960 Professional fees 42,853 34,857 3,622 1,668 Other expense 35,342 53,718 11,483 22,337 Taxes 25,841 - 63 - Provision for losses 19,371 - 8,406 - ----------- ----------- ----------- ---------- 1,848,235 3,372,249 506,414 964,978 ----------- ----------- ----------- ---------- Net income $1,136,575 $1,068,755 $334,201 $410,507 =========== =========== =========== ========== Net income: General Partners $11,366 $10,688 $3,342 $4,105 Limited Partners 1,125,209 1,058,067 330,859 406,402 ----------- ----------- ----------- ---------- $1,136,575 $1,068,755 $334,201 $410,507 =========== =========== =========== ========== Net income per Limited Partnership unit $16.08 $15.12 $4.73 $5.81 Weighted average number of units outstanding 69,979 69,994 69,979 69,990 											 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL NINE MONTHS ENDED SEPTEMBER 30, 1995 											 Limited Partners ---------------- General Units Amount Partners Total ----- ------ -------- ----- Balance December 31, 1994 69,979 $8,491,269 $60,467 $8,551,736 Net income 1,125,209 11,366 1,136,575 Distributions to limited partners (3,818,804) - (3,818,804) ------ ----------- ------- ----------- Balance September 30, 1995 69,979 $5,797,674 $71,833 $5,869,507 ====== =========== ======= =========== 											 See accompanying notes. 			 ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) 											 STATEMENTS OF CASH FLOWS 											 NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 											 (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, 1995 1994 1995 1994 ---- ---- ---- ---- Operating activities: Net income $1,136,575 $1,068,755 $334,201 $410,507 Adjustments to reconcile net income to net cash provided by operations: Depreciation 1,159,568 2,374,368 310,969 661,970 Revenues from leveraged leases (11,496) (9,135) (3,832) (3,045) (Gain) loss on dispositions of assets (396,058) 258,988 (20,601) 39,937 Gain on sale of marketable securities (124,879) - - - Provision for losses 19,371 - 8,406 - Changes in operating assets and liabilities: Accounts receivable 675,980 152,599 104,933 (65,261) Accounts payable, General Partner (1,385) 7,603 (14,137) 3,788 Accounts payable, other 13,597 38,490 (9,816) 30,199 Accrued interest (15,944) (76,977) (4,457) (22,588) Customer deposit - 77,410 - (9,097) Unearned operating lease income (15,352) (89,066) (20,117) (119,800) ----------- ---------- ---------- ---------- Net cash provided by operations 2,439,977 3,803,035 685,549 926,610 ----------- ---------- ---------- ---------- 											 Investing activities: Proceeds from sales of equipment 1,901,361 2,108,670 38,546 1,261,316 Proceeds from sales of marketable securities 124,879 - - - Reductions of net investment in direct financing leases 657,928 726,913 212,824 104,254 Purchase of equipment on operating leases - (1,368,301) - - Purchase of equipment on direct financing leases - (820,607) - - Payment of initial direct costs - (7,605) - - ----------- ------------ ---------- ----------- Net cash provided by investing activities 2,684,168 639,070 251,370 1,365,570 ----------- ----------- ----------- ----------- Financing activities: Repayment of non-recourse debt (975,937) (1,984,923) (306,255) (671,676) Distributions to limited partners (3,818,804) (4,547,104) (909,238) (1,545,707) ----------- ----------- ----------- ----------- Net cash used in financing activities (4,794,741) (6,532,027) (1,215,493) (2,217,383) ----------- ----------- ----------- ----------- 											 Net increase (decrease) in cash and cash equivalents 329,404 (2,089,922) (278,574) 74,797 Cash and cash equivalents at beginning of period 924,041 3,700,348 1,532,019 1,535,629 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period $1,253,445 $1,610,426 $1,253,445 $1,610,426 =========== =========== =========== ========== 											 Supplemental disclosures of cash flow information: 											 Cash paid for interest $286,058 $385,435 $88,398 $114,635 											 Non-cash transactions: 											 Operating lease assets reclassified to direct financing lease assets $166,612 $166,612 Less accumulated depreciation (127,649) (127,649) --------- --------- $38,963 $38,963 ========= ========= 											 Operating lease assets reclassified to equipment held for lease $324,310 $324,310 Less accumulated depreciation (259,448) (259,448) --------- --------- $64,862 $64,862 ========= ========= See accompanying notes. 											 ATEL CASH DISTRIBUTION FUND II (A CALIFORNIA LIMITED PARTNERSHIP) 											 NOTES TO FINANCIAL STATEMENTS 											 SEPTEMBER 30, 1995 (Unaudited) 											 											 1. Interim financial statements: 											 The unaudited interim financial statements reflect all adjustments which are, in the opinion of the general partners, necessary to a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the most recent report on Form 10K. 												 												 2. Investment in leases: 												 The Partnership's investment in leases consists of the following: 												 Depreciation Expense or Reclass- December 31, Amortization ifications & September 30, 1994 Additions of Leases Dispositions 1995 ---- --------- --------- ------------ ---- Net investment in operating leases $7,691,388 ($1,158,171) ($1,609,128) $4,924,089 Net investment in direct financing leases 3,777,324 (657,928) 38,963 3,158,359 Net investment in leveraged leases 59,307 11,496 - 70,803 Equipment held for lease - - 64,862 64,862 Reserve for losses (11,616) ($19,371) - - (30,987) Initial direct costs 6,674 - (1,397) - 5,277 ----------- --------- ------------ ------------ ----------- $11,516,403 ($19,371) ($1,804,603) ($1,505,303) $8,192,403 =========== ========= ============ ============ =========== 												 The following schedule provides an analysis of the Partnership's investment in equipment on operating leases by major classifications as of December 31, 1994, dispositions during the three month periods ended March 31, June 30 and September 30, 1995 and as of September 30, 1995: 												 December 31, -------- Dispositions -------- September 30, Equipment type 1994 1st Quarter 2nd Quarter 3rd Quarter 1995 ---- ----------- ----------- ----------- ---- Aircraft $3,164,533 $3,164,533 Materials handling 3,398,792 ($51,407) ($784,122) ($109,811) 2,453,452 Transportation 2,474,788 - (339,457) (19,641) 2,115,690 Mining 6,435,092 (4,330,449) - - 2,104,643 Manufacturing 835,681 - - - 835,681 Data processing 527,739 - - - 527,739 Communications 481,738 - - - 481,738 Food processing 344,799 - - - 344,799 Furniture, fixtures and equipment 347,277 - - (324,310) 22,967 Motor vehicles 176,962 (175,515) - - 1,447 Medical 36,676 - (36,676) - - ------------ ------------ ----------- ---------- ---------- 18,224,077 (4,557,371) (1,160,255) (453,762) 12,052,689 Less accumulated depreciation (10,532,689) 2,821,141 532,463 50,485 (7,128,600) ------------ ------------ ---------- ---------- ----------- $7,691,388 ($1,736,230) ($627,792) ($403,277) $4,924,089 ============ ============ ========== ========== =========== 												 At September 30, 1995, the aggregate amounts of future minimum lease payments are as follows: Direct Financing Operating Total --------- --------- ----- Three months ending December 31, 1995 $310,794 $501,056 $811,850 Year ending December 31, 1996 1,200,961 1,209,916 2,410,877 1997 1,126,523 543,627 1,670,150 1998 220,075 271,610 491,685 1999 4,248 269,732 273,980 Thereafter - 202,299 202,299 ---------- ---------- ---------- $2,862,601 $2,998,240 $5,860,841 ========== ========== ========== 											 3. Non-recourse debt: 											 Notes payable to financial institutions are due in varying monthly, quarterly and semi-annual installments of principal and interest. The notes are secured by assignments of lease payments and pledges of the assets which were purchased with the proceeds of the particular notes. Interest rates on the notes vary from 9.43% to 12.86%. $3,279,507 ========== 											 Future minimum principal payments of debt as of September 30, 1995 are as follows: 											 Principal Interest Total --------- -------- ----- Three months ending December 31, 1995 $313,562 $70,685 $384,247 Year ending December 31, 1996 1,272,080 261,180 1,533,260 1997 1,037,153 137,795 1,174,948 1998 230,049 61,609 291,658 1999 233,530 36,202 269,732 Thereafter 193,133 9,166 202,299 ---------- -------- ---------- $3,279,507 $576,637 $3,856,144 ========== ======== ========== 												 												 4. Commitments, management and report of fees: 												 The terms of the Agreement of Limited Partnership provide that the General Partners and/or Affiliates are entitled to receive certain fees. 												 The General Partners and/or Affiliates earned partnership and equipment management fees of $171,722 in 1995 and $357,406 in 1994, as permitted in the Agreement of Limited Partnership . 												 												 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 		FINANCIAL CONDITION AND RESULTS OF OPERATIONS 												 Capital Resources and Liquidity 												 Partnership cash which has been received, but which has not yet been invested in leased equipment or distributed to partners, is invested in interest-bearing accounts or high-quality/short-term commercial paper. 												 The Partnership's primary source of liquidity is cash received from lease rentals. The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from leases exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Limited Partners and to the extent expenses exceed cash flows from leases. 												 The Partnership currently has available adequate reserves to meet contingencies, 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. 											 As of September 30, 1995, the Partnership had borrowed approximately $21,700,000. The remaining unpaid balance on those borrowings was approximately $3,280,000. 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 Agreement of Limited Partnership 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. At September 30, 1994, there were no such commitments. 											 The Partnership made a distributions of cash from 1995 first quarter operations in April 1995, from second quarter operations in July 1995 and from third quarter operations in October 1995. The amount of the distributions were $18.75, $12.50 and $12.50 per Unit, respectively. These distributions represent annualized distribution rates of 15%, 10% and 10%, respectively. 											 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 or decrease significantly, the lease rates that the Partnership can obtain on future leases will be expected to increase or decrease in parallel as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates. 											 Cash flows, nine months, 1995 vs. 1994 											 Lease revenues, the Partnership's primary source of cash, decreased by $2,282,395 compared to 1994. 											 Cash flows provided by investing activities decreased by $151,415 as a result of decreased asset sales and direct finance lease rents. This was partially offset by sales of marketable securities. The decrease in rents was the result of sales of such equipment over the last year. 											 There were no financing sources of cash in 1995. Debt principal payments have decreased due to scheduled debt payments. 											 Cash flows, three months, 1995 vs. 1994 											 For the third quarter, lease rents were the primary source of cash for the Partnership. Lease rents decreased by $733,846 compared to 1994. As noted above, the decrease is the result of assets coming off lease and being subsequently sold. 											 Cash flows provided by investing activities decreased materially due to reduced asset sales. This was the result of a decreased amount of equipment coming off lease in 1995 compared to 1994 and subsequent sales of that equipment. This was partially offset by increases in direct financing lease rents accounted for as reductions of the net investment in such leases. 											 There were no financing sources of cash in 1995. Debt principal payments decreased due to the causes noted above for the nine month period. 											 Results of Operations 											 The results of operations in future periods may vary significantly from those of the first nine months of 1995 as the Partnership's lease portfolio of capital equipment matures. Revenues from leases are expected to decline over the long term as leased assets come off lease and are sold or re-leased at lower lease rates. The effect on net income is not determinable as it will depend to a large degree on the amounts received from the sales of assets or from re-leases to either the same or new lessees once the initial lease terms expire. 											 1995 vs. 1994 											 Operating lease revenues decreased by $2,051,880 for the nine month period and $732,385 for the three month period due to lease terminations and subsequent asset sales. Direct financing lease revenues decreased by $232,876 for the nine month period and decreased by $2,248 for the three month period compared to 1994. The decreases resulted from lease terminations and asset sales. In 1995, sales of assets resulted in gains of $396,058 (nine months) and $20,601 (three months). In 1994, sales of assets resulted in losses of $258,988 (for nine months) and $39,937 (for three months). Such gains and losses are not expected to be comparable from one period to another. Depreciation expense declined by $1,214,800 (nine months) and $351,001 (three months) as a result of asset sales since October 1, 1994. Interest expense continues to decline in both the three and nine month periods in relation to the declining balances of debt. There have been no new borrowings in the current year. 											 											 PART II. OTHER INFORMATION 											 Item 1. LEGAL PROCEEDINGS. 											 		Inapplicable. 											 Item 2. CHANGES IN SECURITIES. 											 		Inapplicable. 											 Item 3. DEFAULTS UPON SENIOR SECURITIES. 											 		Inapplicable. 											 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 	HOLDERS. 		Inapplicable. 											 Item 5. OTHER INFORMATION. 											 		Inapplicable. 											 Item 6. EXHIBITS AND REPORTS ON FORM 8-K. 											 (a) Documents filed as a part of this report 												 1. Financial Statements 											 		Included in Part I of this report: 											 Balance sheets, September 30, 1995 and December 31, 1994 Income statements for the nine and three month periods ended September 30, 1995 and 1994. Statement of changes in partners' capital for the nine months ended September 30, 1995. Statements of cash flows for the nine and three month periods ended September 30, 1995 and 1994. Notes to the financial statements 											 2. Financial Statement Schedules 											 		All other schedules for which provision is made in the applicable accounting 		regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 											 (b) Report on Form 8-K 		None SIGNATURES 											 											 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 											 Date: November 10, 1995 ATEL Cash Distribution Fund II, a California Limited Partnership (Registrant) 											 											 											 											 											 		By: /s/ A. J. BATT 			A. J. Batt 			General Partner of registrant 											 											 											 		By: /s/ DEAN L. CASH 			Dean L. Cash 			General Partner of registrant 											 											 											 		By: /s/ F. RANDALL BIGONY 			F. RANDALL BIGONY 			Principal financial officer 			of registrant 											 											 											 		By: /s/ DONALD E. CARPENTER 			Donald E. Carpenter, 			Principal accounting 			officer of registrant