UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
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| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
(Exact name of registrant as specified in its charter)
| | |
| California | 94-3207229 | |
| (State or other jurisdiction of Incorporation or organization) | (I. R. S. Employer Identification No.) |
600 California Street, 6th Floor, San Francisco, California 94108-2733
(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.Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesx Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filero Accelerated filero Non-accelerated filero Smaller reporting companyx
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yeso Nox
The number of Limited Partnership Units outstanding as of October 31, 2012 was 12,478,676.
None.
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Part I. Financial Information | 3 | |||
Item 1. Financial Statements (Unaudited) | 3 | |||
| Balance Sheets, September 30, 2012 and December 31, 2011 | 3 | |||
| Statements of Income for the three and nine months ended September 30, 2012 and 2011 | 4 | |||
| Statements of Changes in Partners’ Capital for the year ended December 31, 2011 and for the nine months ended September 30, 2012 | 5 | |||
| Statements of Cash Flows for the three and nine months ended September 30, 2012 and 2011 | 6 | |||
| Notes to the Financial Statements | 7 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and | 12 | |||
Item 4. Controls and Procedures | 15 | |||
Part II. Other Information | 16 | |||
Item 1. Legal Proceedings | 16 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 16 | |||
Item 3. Defaults Upon Senior Securities | 16 | |||
Item 4. Mine Safety Disclosures | 16 | |||
Item 5. Other Information | 16 | |||
Item 6. Exhibits | 16 | |||
2
| | | ||||||
| September 30, 2012 | December 31, 2011 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 1,107 | $ | 205 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $3 at September 30, 2012 | 530 | 204 | ||||||
| Prepaid expenses and other assets | 11 | 3 | ||||||
| Investments in equipment and leases, net of accumulated depreciation of $20,970 at September 30, 2012 and $21,017 at December 31, 2011 | 3,262 | 3,605 | ||||||
| Total assets | $ | 4,910 | $ | 4,017 | ||||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
| Accounts payable and accrued liabilities: | ||||||||
| General Partner | $ | 7 | $ | 78 | ||||
| Lessees and other | 168 | 87 | ||||||
| Unearned operating lease income | 3 | 7 | ||||||
| Total liabilities | 178 | 172 | ||||||
| Commitments and contingencies | ||||||||
| Partners’ capital: | ||||||||
| General Partner | — | — | ||||||
| Limited Partners | 4,732 | 3,845 | ||||||
| Total Partners’ capital | 4,732 | 3,845 | ||||||
| Total liabilities and Partners’ capital | $ | 4,910 | $ | 4,017 | ||||
See accompanying notes.
3
| | | | | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Revenues: | ||||||||||||||||
| Leasing activities: | ||||||||||||||||
| Operating leases | $ | 676 | $ | 602 | $ | 2,167 | $ | 1,883 | ||||||||
| Gain on sales of assets | 23 | 22 | 93 | 59 | ||||||||||||
| Other revenue | 2 | 1 | 2 | 1 | ||||||||||||
| Total revenues | 701 | 625 | 2,262 | 1,943 | ||||||||||||
| Expenses: | ||||||||||||||||
| Depreciation of operating lease assets | 91 | 161 | 271 | 532 | ||||||||||||
| Cost reimbursements to General Partner | 58 | 61 | 175 | 188 | ||||||||||||
| Railcar maintenance | 215 | 136 | 637 | 356 | ||||||||||||
| Equipment and incentive management fees to General Partner | 12 | 17 | 45 | 52 | ||||||||||||
| Taxes on income and franchise fees | — | 1 | �� | 1 | 3 | |||||||||||
| Other management fees | 41 | 31 | 92 | 87 | ||||||||||||
| Professional fees | 5 | 3 | 22 | 22 | ||||||||||||
| Outside services | 19 | 17 | 53 | 42 | ||||||||||||
| Provision (reversal of provision) for doubtful accounts | 3 | (1 | ) | 3 | — | |||||||||||
| Postage | 1 | — | 17 | 15 | ||||||||||||
| Printing and photocopying | 2 | (2 | ) | 25 | 18 | |||||||||||
| Other | 9 | 12 | 34 | 34 | ||||||||||||
| Total operating expenses | 456 | 436 | 1,375 | 1,349 | ||||||||||||
| Net income | $ | 245 | $ | 189 | $ | 887 | $ | 594 | ||||||||
| Net income: | ||||||||||||||||
| General Partner | $ | — | $ | — | $ | — | $ | — | ||||||||
| Limited Partners | 245 | 189 | 887 | 594 | ||||||||||||
| $ | 245 | $ | 189 | $ | 887 | $ | 594 | |||||||||
| Net income per Limited Liability Partnership Unit | $ | 0.02 | $ | 0.02 | $ | 0.07 | $ | 0.05 | ||||||||
| Weighted average number of Units outstanding | 12,478,676 | 12,478,676 | 12,478,676 | 12,478,676 | ||||||||||||
See accompanying notes.
4
| | | | | ||||||||||||
| Limited Partners | ||||||||||||||||
| Units | Amount | General Partner | Total | |||||||||||||
| Balance December 31, 2010 | 12,478,676 | $ | 4,829 | $ | — | $ | 4,829 | |||||||||
| Distributions to Limited Partners ($0.13 per Unit) | — | (1,684 | ) | — | (1,684 | ) | ||||||||||
| Distributions to General Partner | — | — | (17 | ) | (17 | ) | ||||||||||
| Net income | — | 700 | 17 | 717 | ||||||||||||
| Balance December 31, 2011 | 12,478,676 | 3,845 | — | 3,845 | ||||||||||||
| Net income | — | 887 | — | 887 | ||||||||||||
| Balance September 30, 2012 | 12,478,676 | $ | 4,732 | $ | — | $ | 4,732 | |||||||||
See accompanying notes.
5
| | | | | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Operating activities: | ||||||||||||||||
| Net income | $ | 245 | $ | 189 | $ | 887 | $ | 594 | ||||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||
| Depreciation of operating lease assets | 91 | 161 | 271 | 532 | ||||||||||||
| Provision (reversal of provision) for doubtful accounts | 3 | (1 | ) | 3 | — | |||||||||||
| Gain on sales of assets | (23 | ) | (22 | ) | (93 | ) | (59 | ) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | (139 | ) | 48 | (329 | ) | 24 | ||||||||||
| Prepaid expenses and other assets | (4 | ) | (3 | ) | (8 | ) | — | |||||||||
| Accounts payable, General Partner | (3 | ) | (4 | ) | (71 | ) | (31 | ) | ||||||||
| Accounts payable, other | 99 | 3 | 81 | (39 | ) | |||||||||||
| Unearned operating lease income | (8 | ) | (4 | ) | (4 | ) | (18 | ) | ||||||||
| Net cash provided by operating activities | 261 | 367 | 737 | 1,003 | ||||||||||||
| Investing activities: | ||||||||||||||||
| Proceeds from sales of assets | 48 | 45 | 165 | 138 | ||||||||||||
| Net cash provided by investing activities | 48 | 45 | 165 | 138 | ||||||||||||
| Financing activities: | ||||||||||||||||
| Net cash provided by financing activities | — | — | — | — | ||||||||||||
| Net increase in cash and cash equivalents | 309 | 412 | 902 | 1,141 | ||||||||||||
| Cash and cash equivalents at beginning of period | 798 | 1,175 | 205 | 446 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 1,107 | $ | 1,587 | $ | 1,107 | $ | 1,587 | ||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||||
| Cash paid during the period for taxes | $ | — | $ | — | $ | 3 | $ | 6 | ||||||||
See accompanying notes.
6
ATEL Cash Distribution Fund VI, L.P. (the “Partnership” or the “Fund”) was formed under the laws of the State of California on June 29, 1994 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to engage in equipment leasing and sales activities, primarily in the United States. The Partnership may continue until December 31, 2015. The General Partner of the Partnership is ATEL Financial Services, LLC (“AFS”). Prior to converting to a limited liability company structure, AFS was formerly known as ATEL Financial Corporation.
The Partnership conducted a public offering of 12,500,000 Limited Partnership Units (“Units”), at a price of $10 per Unit. Upon the sale of the minimum amount of Units of $1.2 million and the receipt of the proceeds thereof on January 3, 1995, the Partnership commenced operations in its primary business (acquiring equipment to engage in equipment leasing and sales activities). On November 23, 1996, subscriptions for 12,500,000 ($125 million) Limited Partnership Units had been received, in addition to the Initial Limited Partners’ Units, and the offering terminated. As of September 30, 2012, 12,478,676 Units were issued and outstanding.
The Partnership’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Partnership’s invested capital; (ii) generates regular 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 (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended December 31, 2002 and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Partnership is governed by its Limited Partnership Agreement (“Partnership Agreement”).
Pursuant to the Partnership Agreement, AFS receives compensation for services rendered and reimbursements for costs incurred on behalf of the Partnership (Note 4). The Partnership is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.
As of September 30, 2012, the Partnership is in the liquidation phase of its life cycle, as defined in the Partnership Agreement, and is generally making distributions on an annual basis or at the discretion of the General Partner.
On or about December 1, 2012, the offices of the Fund and the General Partner will be relocated to The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111. The telephone number for the General Partner will be the same in its new location.
These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the General Partner, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results from operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
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In preparing the accompanying unaudited financial statements, the General Partner has reviewed events that have occurred after September 30, 2012, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, and adjustments thereto.
The preparation of financial statements in conformity with GAAP 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. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.
The Partnership is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Partnership operates in one reportable operating segment in the United States.
Certain of the Partnership’s lessee customers may have international operations. In these instances, the Partnership is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Partnership to track, on an asset-by-asset, day-by-day basis, where these assets are deployed.
The primary geographic regions in which the Partnership sought leasing opportunities were North America and Europe. Currently, 100% of the Partnership’s operating revenues are from customers domiciled in North America.
Net income and distributions per Unit are based upon the weighted average number of Limited Partners’ Units outstanding during the period.
The Partnership’s investments in equipment and leases consists of the following (in thousands):
| | | | | ||||||||||||
| Balance December 31, 2011 | Reclassifications & Additions/ Dispositions | Depreciation/ Amortization Expense or Amortization of Leases | Balance September 30, 2012 | |||||||||||||
| Net investment in operating leases | $ | 3,600 | $ | (72 | ) | $ | (271 | ) | $ | 3,257 | ||||||
| Assets held for sale or lease, net | 5 | — | — | 5 | ||||||||||||
| Total | $ | 3,605 | $ | (72 | ) | $ | (271 | ) | $ | 3,262 | ||||||
Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale for impairment. As a result of these reviews, management determined that no impairment losses existed for the respective three and nine month periods ended September 30, 2012 and 2011.
8
The Partnership utilizes a straight-line depreciation method over the term of the equipment lease for equipment in all of the categories currently in its portfolio of lease transactions. Depreciation expense on the Partnership’s equipment totaled $91 thousand and $161 thousand for the respective three months ended September 30, 2012 and 2011, and was $271 thousand and $532 thousand for the respective nine months ended September 30, 2012 and 2011
All of the equipment on leases was acquired in the years 1995 through 1997.
Property on operating leases consists of the following (in thousands):
| | | | | ||||||||||||
| Balance December 31, 2011 | Additions | Reclassifications or Dispositions | Balance September 30, 2012 | |||||||||||||
| Transportation, rail | $ | 24,117 | $ | — | $ | (389 | ) | $ | 23,728 | |||||||
| Transportation, other | 295 | — | — | 295 | ||||||||||||
| Material handling | 199 | — | — | 199 | ||||||||||||
| 24,611 | — | (389 | ) | 24,222 | ||||||||||||
| Less accumulated depreciation | (21,011 | ) | (271 | ) | 317 | (20,965 | ) | |||||||||
| Total | $ | 3,600 | $ | (271 | ) | $ | (72 | ) | $ | 3,257 | ||||||
The average estimated residual value for assets on operating leases was 12% and 13% of the assets’ original cost at September 30, 2012 and December 31, 2011, respectively.
The Partnership earns revenues from certain lease assets based on utilization of such assets. Such contingent rentals and the associated expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of Operating Lease Revenues, and totaled $32 thousand and $126 thousand for the respective three months ended September 30, 2012 and 2011, and was $270 thousand and $358 thousand for the respective nine months ended September 30, 2012 and 2011.
At September 30, 2012, the aggregate amounts of future minimum lease payments under operating leases are as follows (in thousands):
| | |||
| Operating Leases | ||||
| Three months ending December 31, 2012 | $ | 528 | ||
| Year ending December 31, 2013 | 1,419 | |||
| 2014 | 1,143 | |||
| 2015 | 88 | |||
| $ | 3,178 | |||
The terms of the Partnership Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment acquisition, management and resale and for management of the Partnership.
The Partnership Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as acquisition and disposition of equipment. The Partnership is contingently liable for certain future costs to be incurred by AFS to manage the administrative services provided to the Partnership.
9
Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Partnership. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications and general administrative services are performed by AFS.
Cost reimbursements to the General Partner are based on its costs incurred in performing administrative services for the Partnership. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred.
Incentive management fees are computed as 4% of distributions of cash from operations, as defined in the Partnership Agreement. Equipment management fees are computed as 3.5% of gross revenues from operating leases, as defined in the Partnership Agreement plus 2% of gross revenues from full payout leases, as defined in the Partnership Agreement.
During the three and nine months ended September 30, 2012 and 2011, AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Limited Partnership Agreement, as follows (in thousands):
| | | | | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Cost reimbursements to General Partner | $ | 58 | $ | 61 | $ | 175 | $ | 188 | ||||||||
| Equipment and incentive management fees to General Partner | 12 | 17 | 45 | 52 | ||||||||||||
| $ | 70 | $ | 78 | $ | 220 | $ | 240 | |||||||||
The Partnership enters into contracts that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
The General Partner knows of no facts or circumstances that would make the Partnership’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Partnership believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Partnership’s similar commitments is remote. Should any such indemnification obligation become payable, the Partnership would separately record and/or disclose such liability in accordance with GAAP.
As of September 30, 2012 and December 31, 2011, 12,478,676 Units were issued and outstanding. The Partnership was authorized to issue up to 12,500,000 Units, in addition to the 50 Units issued to the Initial Limited Partners, as defined.
The Partnership has the right, exercisable at the General Partner’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Partnership is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Agreement of Limited Partnership. The repurchase would be at the discretion of the General Partner on terms it determines to be appropriate under given circumstances, in the event that the General Partner deems such repurchase to be in the best interest of the Partnership; provided, the Partnership is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original
10
investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.
As defined in the Limited Partnership Agreement, the Partnership’s Net Income, Net Losses, and Tax Credits are to be allocated 99% to the Limited Partners and 1% to AFS. The Limited Partnership Agreement allows the Partnership to make an allocation of income to AFS in order to maintain the capital account of AFS at zero. In accordance with the terms of the Limited Partnership Agreement, additional allocations of income were made to AFS for the year ended December 31, 2011. The amounts allocated were determined so as to bring AFS’s ending capital account balance to zero at the end of the year.
As defined in the Limited Partnership Agreement, available Cash from Operations and Cash from Sales and Refinancing are to be distributed as follows:
Cash from Operations is distributed 95% to the Limited Partners, 1% to AFS and 4% to an affiliate of AFS as an Incentive Management Fee.
First, 99% to the Limited Partners and 1% to AFS until each Limited Partner has received Aggregate Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital; and
Thereafter, 95% to the Limited Partners, 1% to AFS and 4% to an affiliate of AFS as an Incentive Management Fee.
There were no distributions made to the Limited Partners during the three and nine-month periods ended September 30, 2012 and 2011.
11
Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (“MD&A”) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Partnership’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Partnership’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
ATEL Cash Distribution Fund VI, L.P. (the “Partnership” or the “Fund”) is a California partnership that was formed in June 1994 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States. The General Partner of the Partnership is ATEL Financial Services, LLC (“AFS”), a California limited liability company.
The Partnership conducted a public offering of 12,500,000 Limited Partnership Units (“Units”), at a price of $10 per Unit. The offering was terminated in November 1996. During early 1997, the Partnership completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, throughout the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Partnership reinvested cash flow in excess of certain amounts required to be distributed to the Limited Partners and/or utilized its credit facilities to acquire additional equipment.
The Partnership may continue until December 31, 2015. Pursuant to the guidelines of the Limited Partnership Agreement (“Partnership Agreement”), the Partnership began to liquidate its assets and distribute the proceeds thereof after the end of the Reinvestment Period which ended in December 2002.
As of September 30, 2012, the Partnership remains in its liquidation phase. Accordingly, assets that mature will be returned to inventory and most likely will be subsequently sold, which will result in decreasing revenue as earning assets decrease. The Partnership continues to generally make distributions on an annual basis or at the discretion of the General Partner.
The Partnership had net income of $245 thousand and $189 thousand for the three months ended September 30, 2012 and 2011, respectively. The results for the third quarter of 2012 reflect an increase in total revenues partially offset by a nominal increase in total operating expenses when compared to the prior year period.
Total revenues for the third quarter of 2012 increased by $76 thousand, or 12%, as compared to the prior year period largely due to an increase in operating lease revenues.
The increase in operating lease revenues totaled $74 thousand and was largely due to higher negotiated rates on certain re-marketed leases offset, in part, by a decline in usage-based rental revenues and continued run-off and sales of lease assets.
Total expenses for the third quarter of 2012 increased by $20 thousand, or 5%, as compared to the prior year period. The net increase in expenses was primarily due to increases in railcar maintenance costs and other management fees partially offset by a decrease in depreciation expense.
12
Railcar maintenance costs increased by $79 thousand due to an increase in the base rate for maintenance by the Partnership’s third party railcar manager; and, other management fees were higher by $10 thousand as a result of a period over period increase in third party billings received relative to railcar management and maintenance.
These aforementioned increases in expenses were partially offset by a $70 thousand decrease in depreciation expense. Such decrease in depreciation expense was mainly a result of continued run-off and disposition of lease assets.
The Partnership had net income of $887 thousand and $594 thousand for the nine months ended September 30, 2012 and 2011, respectively. The results for the first nine months of 2012 reflect an increase in total revenues partially offset by an increase in total operating expenses when compared to the prior year period.
Total revenues for the nine months of 2012 increased by $319 thousand, or 16%, as compared to the prior year period due to increases in operating lease revenues and gain on sales of assets.
The increase in operating lease revenues totaled $284 thousand and was largely due to higher negotiated rates on certain re-marketed leases partially offset by a reduction in usage-based rental revenues and continued run-off and sales of lease assets. Gain on sales of lease assets increased by $34 thousand primarily due to the higher volume and the change in the mix of assets sold.
Total expenses for the first nine months of 2012 increased by $26 thousand, or 2%, as compared to the prior year period. The net increase in total operating expenses was primarily due to an increase in railcar maintenance costs partially offset by a decrease in depreciation expense.
Railcar maintenance costs were higher by $281 thousand due to an increase in the base rate for maintenance by the Partnership’s third party railcar manager. The decrease in depreciation expense totaled $261 thousand and was mainly attributable to continued run-off and disposition of lease assets.
At September 30, 2012 and December 31, 2011, the Partnership’s cash and cash equivalents totaled $1.1 million and $205 thousand, respectively. The liquidity of the Partnership varies, increasing to the extent cash flows from leases and proceeds from lease asset sales exceed expenses and decreasing as distributions are made to the partners and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The primary source of liquidity for the Partnership has been its cash flow from leasing activities. As the initial lease terms have expired, the Partnership ventured to re-lease or sell the equipment. Future liquidity will depend on the Partnership’s success in remarketing or selling the equipment as it comes off rental.
If inflation in the general economy becomes significant, it may affect the Partnership in as much as the residual (resale) values 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. In addition, if interest rates increase significantly under such circumstances, 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 currently believes it has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, 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. AFS envisions no such requirements for operating purposes.
13
The following table sets forth summary cash flow data (in thousands):
| | | | | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net cash provided by: | ||||||||||||||||
| Operating activities | $ | 261 | $ | 367 | $ | 737 | $ | 1,003 | ||||||||
| Investing activities | 48 | 45 | 165 | 138 | ||||||||||||
| Financing activities | — | — | — | — | ||||||||||||
| Net increase in cash and cash equivalents | $ | 309 | $ | 412 | $ | 902 | $ | 1,141 | ||||||||
During the three months ended September 30, 2012 and 2011, the Partnership’s primary sources of liquidity were cash flows from its portfolio of operating lease contracts. In addition, the Partnership realized $48 thousand and $45 thousand of proceeds from sales of lease assets during the three months ended September 30, 2012 and 2011, respectively.
During the same comparative periods, cash was primarily used to pay invoices related to General Partner fees and expenses. As the Fund is in its liquidation phase, any future financing activity is anticipated to only include distributions to Partners.
During the nine months ended September 30, 2012 and 2011, the Partnership’s primary sources of liquidity were cash flows from its portfolio of operating lease contracts. Moreover, the Partnership realized $165 thousand and $138 thousand of proceeds from sales of lease assets during the nine months ended September 30, 2012 and 2011, respectively.
During the same comparative periods, cash was primarily used to pay invoices related to General Partner fees and expenses.
The Partnership commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1995. During its liquidation phase, the rates and frequency of periodic distributions paid by the Fund are solely at the discretion of the General Partner.
At September 30, 2012, the Partnership had no commitments to purchase lease assets and pursuant to the Partnership Agreement, the Partnership will no longer purchase any new lease assets.
None.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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. On an on-going basis, the Partnership evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
14
The Partnership’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes to the Partnership’s critical accounting policies since December 31, 2011.
The Partnership’s General Partner’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Partnership’s disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Partnership does not control the financial reporting process, and is solely dependent on the Management of the General Partner, which is responsible for providing the Partnership with financial statements in accordance with generally accepted accounting principles in the United States. The General Partner’s disclosure controls and procedures, as it is applicable to the Partnership, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
There were no changes in the General Partner’s internal control over financial reporting, as it is applicable to the Partnership, during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the General Partner’s internal control over financial reporting, as it is applicable to the Partnership.
15
In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Partnership. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Partnership’s financial position or results of operations.
None.
None.
Not Applicable.
None.
Documents filed as a part of this report:
| 1. | 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 not applicable, and therefore have been omitted.
| 2. | Other Exhibits |
| | |
| 31.1 | Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash | |
| 31.2 | Rule 13a-14(a)/ 15d-14(a) Certification of Paritosh K. Choksi | |
| 32.1 | Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash | |
| 32.2 | Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
* In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly
Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”
16
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 13, 2012
| | |
By: ATEL Financial Services, LLC |
| | |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
17
Dean L. Cash,