Form 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required) For the Year Ended
December 31, 2003
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 000-28368
ATEL Cash Distribution Fund VI, L.P.
California 94-3207229
---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
600 California Street, 6th Floor, San Francisco, California 94108
(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 |_|
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|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
State the aggregate market value of voting stock held by non-affiliates of the
registrant. Inapplicable
The number of Limited Partnership Units outstanding as of December 31, 2003 was
12,490,076.
DOCUMENTS INCORPORATED BY REFERENCE
Prospectus dated November 23, 1994, filed pursuant to Rule 424(b) (Commission
File No. 33-81952) is hereby incorporated by reference into Part IV hereof.
This amendment is being filed in order to correct the format of the
certifications included as Exhibits 31.1 and 31.2.
1
PART I
Item 1: BUSINESS
General Development of Business
ATEL Cash Distribution Fund VI, L.P. (the Partnership) was formed under the laws
of the state of California in June 1994. The Partnership was formed for the
purpose of acquiring equipment to engage in equipment leasing and sales
activities. 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 units of Limited
Partnership Interest (Units) at a price of $10 per Unit. On January 3, 1995, the
Partnership commenced operations in its primary business (leasing activities).
As of November 23, 1996, the Partnership had received subscriptions for
12,500,000 ($125,000,000) Limited Partnership Units in addition to the Initial
Limited Partners' Units and terminated its offering.
The Partnership's principal objectives are to invest in a diversified portfolio
of equipment that 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 ("Reinvestment Period") 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.
The Reinvestment Period ended December 31, 2002 and the fund is now in its
liquidation phase.
Narrative Description of Business
The Partnership acquired various types of equipment and leased such equipment
pursuant to "Operating" leases and "Full Payout" leases, whereby "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. It was the intention of AFS that no more than
50% of the aggregate purchase price of equipment would be subject to "Operating"
leases upon final investment of the net proceeds of the offering and that no
more than 20% of the aggregate purchase price of equipment would be invested in
equipment acquired from a single manufacturer.
The Partnership only purchased equipment for which a lease existed or for which
a lease would be entered into at the time of the purchase. During early 1997,
the Partnership completed its initial acquisition stage with the investment of
the net proceeds from the public offering of Units. As noted above, however, it
intended to continue to invest any cash flow in excess of certain amounts
required to be distributed to the Limited Partners in additional items of leased
equipment through December 31, 2002.
Through December 31, 2003, the Partnership had purchased equipment with a total
acquisition price of $208,275,158.
The Partnership's objective was to lease a minimum of 75% of the equipment
acquired with the net proceeds of the offering to lessees that (i) had an
aggregate credit rating by Moody's Investor Service, Inc. of Baa or better, or
the credit equivalent as determined by AFS, with the aggregate rating weighted
to account for the original equipment cost for each item leased or (ii) were
established hospitals with histories of profitability or municipalities. The
balance of the original equipment portfolio could include equipment leased to
lessees which, although deemed creditworthy by AFS, would not satisfy the
general credit rating criteria for the portfolio. In excess of 75% of the
equipment acquired with the net proceeds of the offering (based on original
purchase cost) was leased to lessees with an aggregate credit rating of Baa or
better or to such hospitals or municipalities as described in (ii) above.
AFS sought to limit the amount invested in equipment to any single lessee to not
more than 20% of the aggregate purchase price of equipment owned at any time
during the Reinvestment Period.
During 2003, 2002 and 2001, certain lessees generated significant portions of
the Partnership's total lease revenues as follows:
2003 2002 2001
---- ---- ----
Lessee Type of Equipment
Consolidated Rail Corporation Locomotives & intermodal containers 19% 19% 13%
Transamerica Leasing Inc. Containers 11% * *
United States Steel Corporation Steel manufacturing 10% * *
Daimler Chrysler Corporation Automobile manufacturing 10% * 11%
Burlington Northern Santa Fe Locomotives & intermodal containers * 13% *
National Steel Corporation Steel manufacturing * 11% 12%
Tarmac America Construction * * 10%
* Less than 10%
These percentages are not expected to be comparable between periods.
2
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 that 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 depends on various factors (many of which are not in
the control of AFS 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 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, 2003 and
the industries to which the assets have been leased.
Purchase Price Excluding Percentage of Total
Asset Types Acquisition Fees Acquisitions
- ----------- ---------------- ------------
Transportation, rail cars $39,275,195 18.86%
Manufacturing 30,469,834 14.63%
Transportation, other 24,476,511 11.75%
Materials handling 24,043,881 11.54%
Railroad locomotives 22,353,332 10.73%
Transportation, intermodal containers 21,694,688 10.42%
Mining equipment 18,557,225 8.91%
Office automation 13,824,024 6.64%
Construction 9,259,221 4.45%
Other * 4,321,247 2.07%
---------------- ----------------
$208,275,158 100.00%
================ ================
* Individual lessee industries included in "Other" represent less than 2% of the
total.
Purchase Price Excluding Percentage of Total
Industry of Lessee Acquisition Fees Acquisitions
- ------------------ ---------------- ------------
Transportation, rail $55,950,904 26.86%
Electronics manufacturing 29,030,626 13.94%
Business services 28,360,969 13.62%
Mining 24,793,242 11.90%
Transportation, other 23,217,066 11.15%
Manufacturing, other 18,922,229 9.09%
Oil and gas 16,535,633 7.94%
Communications 5,282,291 2.54%
Other * 6,182,198 2.96%
---------------- ----------------
$208,275,158 100.00%
================ ================
* Individual lessee industries included in "Other" represent less than 2% of the
total.
Through December 31, 2003, the Partnership has disposed of certain leased assets
as set forth below:
Original
Equipment Cost, Excess of
Asset Excluding Rents Over
Types Acquisition Fees Sales Price Expenses *
- ----- ---------------- ----------- ----------
Manufacturing $33,193,187 $ 7,955,855 $27,886,465
Railcars and locomotives 29,419,796 25,056,358 11,507,538
Transportation 15,389,892 5,226,827 12,254,914
Office automation 14,634,983 1,763,459 14,175,290
Construction 11,858,010 4,084,570 11,662,147
Materials handling 10,795,272 1,418,049 10,817,273
Containers 8,308,890 2,014,737 8,027,115
Mining 7,830,671 2,061,091 7,766,029
Other 2,856,241 475,157 2,293,599
---------------- ---------------- ----------------
$134,286,942 $50,056,103 $106,390,370
================ ================ ================
* Includes only those expenses directly related to the production of the related
rents.
3
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 2003, see Note 3 to the financial statements, Investments in
equipment and leases, as set forth in Part II, Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or material
physical properties other than the equipment held for lease as set forth in Item
1.
Item 3. LEGAL PROCEEDINGS
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 consolidated financial position or results of operations.
No material legal proceedings are currently pending against the Partnership or
against any of its assets. The following is a discussion of legal matters
involving the Partnership, but which do not represent claims against the
Partnership or its assets.
AT&T Corp.:
The Partnership has filed suit against AT&T Corp. and CIT Leasing for recovery
of lease payments due to the Partnership under a lease agreement with AT&T Corp.
Accounts receivable related to the lease (included in the Partnership's balance
sheet) total $115,924 and have been fully reserved as of December 31, 2003.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 that have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Partnership and its investment objectives, to
AFS's knowledge, no established public secondary trading market has developed
and it is unlikely that a public trading market will develop in the future. As a
result, there is no currently ascertainable market value for the Units.
Holders
As of December 31, 2003, a total of 6,506 investors were record holders of Units
in the Partnership.
ERISA Valuation
In order to permit ERISA fiduciaries who hold Units to satisfy their annual
reporting requirements, AFS estimated the value per Unit of the Partnership's
assets as of September 30, 2003. AFS calculated the estimated liquidation
proceeds that would be realized by the Partnership, assuming an orderly
disposition of all of the Partnership's assets as of January 1, 2004. The
estimates were based on the amount of remaining lease payments on existing
Partnership leases, and the estimated residual values of the equipment held by
the Partnership upon the termination of those leases. This valuation was based
solely on AFS's perception of market conditions and the types and amounts of the
Partnership's assets. No independent valuation was sought.
After calculating the aggregate estimated disposition proceeds, AFS then
calculated the portion of the aggregate estimated value of the Partnership
assets that would be distributed to Unit holders on liquidation of the
Partnership, and divided the total so distributable by the number of outstanding
Units. As of September 30, 2003, the value of the Partnership's assets,
calculated on this basis, was approximately $3.34 per Unit. The foregoing
valuation was performed solely for the ERISA purposes described above. There is
no market for the Units, and, accordingly, this value does not represent an
estimate of the amount a Unit holder would receive if he were to seek to sell
his Units. Furthermore, there can be no assurance as to the amount the
Partnership may actually receive if and when it seeks to liquidate its assets,
or the amount of lease payments and equipment disposition proceeds it will
actually receive over the remaining term of the Partnership.
Dividends
The Partnership does not make dividend distributions. However, the Limited
Partners of the Partnership are entitled to certain distributions as provided
under the Limited Partnership Agreement.
4
A single distribution was made from cash generated from 2003 operations. The
distribution was made in January 2004 at the rate of $0.05 per Unit.
The rate for monthly distributions from 2002 operations was $0.0875 per Unit.
The distributions were paid in February 2002 through December 2002 and in
January 2003. For each quarterly distribution (paid in April, July and October
2002 and in January 2003) the rate was $0.2625 per Unit. Distributions were from
2002 cash flows from operations. The amounts paid to holders of Units were
adjusted based on the length of time within the previous calendar month or
quarter that the Units were outstanding.
The rate for monthly distributions from 2001 operations was $0.0875 per Unit.
The distributions were paid in February 2001 through December 2001 and in
January 2002. For each quarterly distribution (paid in April, July and October
2001 and in January 2002) the rate was $0.2625 per Unit. Distributions were from
2001 cash flows from operations. The amounts paid to holders of Units were
adjusted based on the length of time within the previous calendar month or
quarter that the Units were outstanding.
AFS has sole discretion in determining the amount of distributions; provided,
however, that AFS will not reinvest in equipment, but will distribute, subject
to payment of any obligations of the Partnership, such available cash from
operations and cash from sales or refinancing as may be necessary to cause total
distributions to the Limited Partners for each year during the Reinvestment
Period to equal the following amounts per unit: $1.00 in 1997 and 1998; $1.05 in
1999 and 2000; and $1.10 in 2001 and 2002. The Reinvestment Period ended
December 31, 2002.
Holders of Units may make the election without charge to receive distributions
on a monthly basis rather than on a quarterly basis.
The following table presents summarized information regarding distributions to
Limited Partners:
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net income (loss) per Unit, based on
weighted average Units
outstanding $ 0.12 $ (0.10) $ 0.17 $ 0.76 $ (0.07)
Return of investment (0.01) 1.15 0.88 0.30 1.11
---------------- ---------------- ---------------- ---------------- ----------------
Distributions per Unit, based on
weighted average Units
outstanding 0.11 1.05 1.05 1.06 1.04
Differences due to timing of
distributions (0.06) - - (0.01) 0.01
---------------- ---------------- ---------------- ---------------- ----------------
Actual distribution rates per Unit $ 0.05 $ 1.05 $ 1.05 $ 1.05 $ 1.05
================ ================ ================ ================ ================
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership at
December 31, 2003, 2002, 2001, 2000 and 1999 and for the years then ended. This
financial data should be read in conjunction with the financial statements and
related notes included under Part II Item 8.
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Gross revenues $ 7,642,647 $13,735,916 $16,549,229 $27,796,597 $34,400,228
Net income (loss) $ 1,585,834 $ (1,148,403) $ 2,838,363 $ 9,533,716 $ (906,676)
Weighted average Units 12,490,076 12,495,063 12,500,050 12,500,050 12,500,050
Net income (loss) allocated to
Limited Partners $ 1,538,968 $ (1,280,043) $ 2,123,116 $ 9,438,379 $ (897,609)
Net income (loss) per Unit, based on
weighted average Units
outstanding $ 0.12 $ (0.10) $ 0.17 $ 0.76 $ (0.07)
Distributions per Unit, based on
weighted average Units
outstanding $ 0.11 $ 1.05 $ 1.05 $ 1.06 $ 1.04
Total Assets $25,410,604 $34,625,398 $65,841,842 $79,350,099 $110,704,998
Non-recourse Debt $ 823,077 $ 4,853,239 $21,712,993 $28,971,912 $46,490,585
Total Partners' Capital $23,783,263 $23,607,548 $38,008,680 $48,537,398 $52,207,752
5
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements contained in this Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form 10-K,
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. Investors are cautioned not
to attribute undue certainty to these forward-looking statements, which speak
only as of the date of this Form 10-K. 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-K or to reflect the occurrence of
unanticipated events, other than as required by law.
Capital Resources and Liquidity
The Partnership's public offering provided for a total maximum capitalization of
$125,000,000 and was completed as of November 23, 1996. As of that date,
subscriptions had been received and accepted for $125,000,000.
The liquidity of the Partnership will vary in the future, increasing to the
extent cash flows from leases and proceeds of 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 AFS's success in re-leasing or selling the equipment as it comes off
lease.
The Partnership participates with AFS and certain of its affiliates in a
$58,627,656 revolving line of credit (comprised of an acquisition facility and a
warehouse facility) with a financial institution that includes certain financial
covenants. The line of credit expires on June 28, 2004. As of December 31, 2003,
borrowings under the facility were as follows:
Amount borrowed by the Partnership under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited liability
companies under the acquisition facility 23,000,000
--------------
Total borrowings under the acquisition facility 23,000,000
Amounts borrowed by AFS and its sister corporation under the
warehouse facility -
--------------
Total outstanding balance $ 23,000,000
==============
Total available under the line of credit $ 58,627,656
Total outstanding balance (23,000,000)
--------------
Remaining availability $ 35,627,656
==============
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Partnership and AFS.
Effective January 2004, the revolving line of credit was extended. The revolving
line of credit now expires on June 28, 2005. In addition, the total amount
available under the revolving line of credit has been increased to $65,700,000.
As of December 31, 2003, cash balances consisted of working capital and amounts
reserved for distributions in January 2004, generated from operations in 2003.
The Partnership currently 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.
To date, the Partnership has borrowed $101,227,460 of non-recourse debt. As of
December 31, 2003, the remaining unpaid balance as of that date was $823,077.
The Partnership's long-term borrowings are generally non-recourse to the
Partnership, that is, the only recourse of the lender is to the equipment or
corresponding lease acquired with the loan proceeds. AFS expects that aggregate
borrowings in the future will be approximately 40%-50% of aggregate equipment
cost. In any event, the Agreement of Limited Partnership limits such borrowings
to 50% of the total cost of equipment, in aggregate. The Partnership may only
incur additional debt to the extent that the then outstanding balance of all
such debt, including the additional debt, does not exceed 50% of the original
cost of the lease assets then owned by the Partnership, including any such
assets purchased with the proceeds of such additional debt.
6
See Note 4 to the financial statements, Non-recourse debt, as set forth in Part
II, Item 8, Financial Statements and Supplementary Data, for additional
information regarding non-recourse debt.
The Partnership commenced regular distributions, based on cash flows from
operations, beginning with the month of January 1995. See Items 5 and 6 of this
report for additional information regarding the distributions.
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.
Cash Flows
2003 vs. 2002:
In 2003, the Partnership's primary source of cash was the rents from operating
leases. In 2002, the Partnership's primary source of cash flows was proceeds
from sales of lease assets. Cash flows from operations decreased from $7,228,660
in 2002 to $4,176,922 in 2003, a decrease of $3,051,738. The decrease resulted
from decreased operating lease rents.
In 2003 and 2002, sources of cash from investing activities consisted of
proceeds from sales of lease assets and cash flows from direct financing leases.
The cash flows from direct financing leases increased from $45,586 in 2002 to
$329,341 in 2003. Proceeds from asset sales decreased from $18,588,007 in 2002
to $2,560,308 in 2003, a decrease of $16,027,699. The assets that were sold in
2002 had an original costs of approximately $32,941,000. The assets sold in 2003
had an original cost of approximately $13,735,000. A significant portion of the
assets sold in 2002 were still on lease and had higher average values than those
sold in 2003. As a result, sales proceeds were lower in 2003 when compared to
2002. Proceeds from sales of lease assets are not expected to be consistent from
one year to another. In 2003, assets sold consistent primarily of containers,
materials handling and truck and trailers. In 2002, assets sold consisted
largely of rail transportation and construction equipment.
In 2003, the only source of cash from financing activities was the proceeds of a
new non-recourse note payable. In 2002, the only financing source of cash was
borrowings made under the line of credit. Repayments of non-recourse debt
decreased (from $13,048,829 in 2002 to $459,251 in 2003) as a result of
scheduled debt payments and an early repayment of $7,305,683 in 2002. The
Partnership's Reinvestment Period ended December 31, 2002. In 2003, the only
distributions that were made were the monthly distribution related to December
2002 and the quarterly distribution related to the fourth quarter of 2002. A
single distribution was made from 2003 operations in January 2004. Effective in
2003, the amounts of distributions are based on the amounts of cash available
for distribution after retaining sufficient balances for working capital. In
prior periods the distributions were at a predetermined rate, subject only to
the availability of sufficient cash balances.
2002 vs. 2001:
In 2002, the Partnership's primary source of cash was proceeds from the sales of
lease assets. In 2001, the Partnership's primary source of cash was the rents
from operating leases. Cash flows from operations decreased from $8,719,200 in
2001 to $7,228,660 in 2002, a decrease of $1,490,540. The decrease resulted from
decreased operating lease rents.
In 2002 and 2001, sources of cash from investing activities consisted of
proceeds from sales of lease assets and cash flows from direct financing leases.
Proceeds from asset sales increased from $2,511,046 in 2001 to $18,588,007 in
2002. The assets that were sold in 2002 had an original costs of approximately
$32,941,000. The assets sold in 2001 had an original cost of approximately
$13,472,000. A significant portion of the assets sold in 2002 were still on
lease and had higher average values than those sold in 2001. Proceeds from sales
of lease assets are not expected to be consistent from one year to another. The
cash flows from direct financing leases decreased from $259,277 in 2001 to
$45,586 in 2002.
In 2002 and 2001, the only source of cash from financing activities was
borrowings under the line of credit. Repayments of non-recourse debt increased
from $3,863,254 in 2001 to $13,048,829 in 2002 as a result of scheduled debt
payments. Scheduled repayments in 2002 were $5,743,147, compared to $7,257,968
in 2001. An additional $7,305,683 of non-recourse debt was repaid with a portion
of the proceeds from the sales of leased assets. The notes repaid ahead of time
had been used to finance a portion of the assets that were sold in 2002.
7
Results of Operations
As of January 3, 1995, 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).
As of December 31, 2003, 2002 and 2001, significant amounts of the Partnership's
assets were leased to lessees in certain industries as follows.
2003 2002 2001
---- ---- ----
Rail transportation 42% 44% 33%
Other transportation services 23% 13% *
Other manufacturing 20% 21% 30%
Municipalities * 15% 13%
* Less than 10%.
Substantially all employees of AFS track time incurred in performing
administrative services on behalf of the Partnership. AFS 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.
2003 vs. 2002:
Revenues in 2003 decreased to $7,642,647 compared to $13,735,916 in 2002. Most
of the Partnership's revenues are generated from operating leases. These rents
have decreased as a result of 2002 and 2003 asset sales. In addition, gains on
sales of assets, which comprise a part of total revenues also decreased. The
Partnership is the liquidation phase of its life cycle. As leases mature, the
assets are returned to inventory. Most of the assets have been sold. This
reduces the amounts of equipment actually on lease and producing revenue. This
trend of decreasing operating lease revenues is expected to continue in future
periods. Gains or losses on sales of lease assets are not expected to be
consistent between periods.
Depreciation is the most significant ongoing Partnership expense. Depreciation
expense is directly related to the Partnership's investment in operating leases
and is, therefore, also directly related to the revenues generated by those
assets. The 2002 and 2003 sales that led to 2003 revenue decreases also gave
rise to the decrease in depreciation expense from $6,422,385 in 2002 to
$3,448,538 in 2003.
Interest expense has decreased as a result of scheduled debt payments and the
early repayment of $7,305,683 in 2002.
Equipment and incentive management fees are related to lease revenues. In 2003,
revenues decreased as noted above and, as a result, the management fees also
decreased from $695,721 in 2002 to $310,867 in 2003, a decrease of $384,854.
Railcar maintenance costs increased from $296,946 in 2002 to $463,732 in 2003.
The Partnership owns a fleet of railcars managed by a third party. The
maintenance related to that fleet of cars increased from $296,946 in 2002 to
$415,525 in 2003. As of December 31, 2002 and during the year then ended, a
portion of those cars were off lease. Early in 2003, the remainder of the off
lease railcars were placed on new leases as the demand for the cars had
improved. As a result of increased usage of the managed railcars in 2003, the
amounts of ongoing maintenance has also increased. In addition, the Partnership
owns other railcars that are managed directly by AFS. In 2003, maintenance costs
of $48,207 were incurred in order to place these assets on new leases and to
maintain them once on lease. The assets had previously been on net leases with
other lessees.
Impairment losses are not expected to be consistent between periods. There were
no impairment losses in 2003. The last two years in which such losses were
recorded were 2002 and 1999.
Initial direct costs are associated with the Partnership's investments in leases
and are amortized over the lives of the related leases. As the Partnership's
portfolio of leases has matured, the unamortized balances of initial direct
costs has diminished. This has led to a decrease of amortization of such costs
from $494,992 in 2002 to $35,186 in 2003. Amortization of initial direct costs
is expected to continue to decline in the future.
2002 vs. 2001:
Revenues in 2002 decreased to $13,735,916 compared to $16,549,229 in 2001. Most
of the Partnership's revenues are generated from operating leases. These rents
have decreased as a result of 2001 and 2002 asset sales and lower lease rates on
lease renewals.
Depreciation and interest are the most significant ongoing recurring Partnership
expenses. Depreciation expense is directly related to the Partnership's
investment in operating leases and is, therefore, also directly related to the
revenues generated by those assets. The 2001 and 2002 sales that led to 2002
revenue decreases also gave rise to the decrease in depreciation expense from
$8,401,319 in 2001 to $6,422,385 in 2002.
8
Interest expense has decreased as a result of lower average debt balances in
2002, in part due to a large principal repayment of $7,305,683 in 2002, compared
to 2001.
Equipment management fees are related to lease revenues. In 2002, revenues
decreased as noted above and, as a result, the management fees also decreased
from $771,498 in 2001 to $695,721 in 2002, a decrease of $75,777.
Impairment losses increased from zero in 2001 to $4,636,923 in 2002. Impairment
losses are not expected to be consistent between periods.
Management periodically reviews the carrying values of its assets on leases and
assets held for lease or sale. As a result of that review, management determined
that the value of a fleets of jumbo covered hopper cars had declined in value to
the extent that the carrying values had become impaired. This decline is the
result of decreased long-term demand for these types of assets and a
corresponding reduction in the amounts of rental payments that these assets
command currently. Management recorded a provision for the decline in value of
those assets in the amount of $4,636,923 for the year ended December 31, 2002.
There were no impairment losses in 2001.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." The
primary objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities") and how to determine
when and which business enterprise (the "primary beneficiary") should
consolidate the variable interest entity. This new model for consolidation
applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises with a
significant variable interest in a variable interest entity, make additional
disclosures. Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows:
(i) Special purpose entities ("SPEs") created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first interim or annual reporting period ending
after December 15, 2003.
(ii) Non-SPEs created prior to February 1, 2003. The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.
(iii) All entities, regardless of whether a SPE, that were created subsequent to
January 31, 2003. The provisions of FIN 46 were applicable for variable
interests in entities obtained after January 31, 2003.
The Partnership is required to adopt FIN 46-R at the end of the first interim or
annual reporting period ending after March 15, 2004. The adoption of the
provisions applicable to SPEs and all other variable interests obtained after
January 31, 2003 did not have a material impact on the Partnership's financial
statements. The Partnership is currently evaluating the impact of adopting FIN
46-R applicable to Non-SPEs created prior to February 1, 2003 but does not
expect a material impact.
In April 2002, the FASB issued FASB Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (Statement No. 145). Among other things, Statement No. 145 rescinds
Statement No. 4, which required that all gains and losses from extinguishment of
debt be reported as an extraordinary item. The adoption of Statement No. 145,
effective January 1, 2003, did not have any effect on the Partnership's
consolidated financial position, consolidated results of operations, or
liquidity.
Critical Accounting Policies
The policies discussed below are considered by management of the Partnership to
be critical to an understanding of the Partnership's financial statements
because their application requires significant complex or subjective judgments,
decisions, or assessments, with financial reporting results relying on
estimation about the effect of matters that are inherently uncertain. Specific
risks for these critical accounting policies are described in the following
paragraphs. The Partnership also states these accounting policies in the notes
to the financial statements and in relevant sections in this discussion and
analysis. For all of these policies, management cautions that future events
rarely develop exactly as forecast, and the best estimates routinely require
adjustment.
9
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
estimated residual values of the equipment at the end of the leases. Revenues
from operating leases are recognized evenly over the lives of the related
leases.
Direct financing leases:
Income from direct financing lease transactions is reported using 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. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.
Direct financing leases are placed in a non-accrual status based on specifically
identified lessees. Such leases are only returned to an accrual status based on
a case by case review of AFS. Direct financing leases are charged off on
specific identification by AFS.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Asset Valuation:
Recorded values of the Partnership's asset portfolio are periodically reviewed
for impairment in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
An impairment loss is measured and recognized only if the estimated undiscounted
future cash flows of the asset are less than their net book value. The estimated
undiscounted future cash flows are the sum of the estimated residual value of
the asset at the end of the asset's expected holding period and estimates of
undiscounted future rents. The residual value assumes, among other things, that
the asset is utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of the
assets, if held in quantity, simultaneously or to dispose of the asset quickly.
Impairment is measured as the difference between the fair value (as determined
by the discounted estimated future cash flows) of the assets and its carrying
value on the measurement date.
The Partnership adopted SFAS 144 as of January 1, 2002. The adoption of the
Statement did not have a significant impact on the Partnership's financial
position and results of operations.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Partnership believes its
exposure to other market risks including foreign currency exchange rate risk,
commodity risk and equity price risk are insignificant to both its financial
position and results of operations.
In general, the Partnership manages its exposure to interest rate risk by
obtaining fixed rate debt. The fixed rate debt is structured so as to match the
cash flows required to service the debt to the payment streams under fixed rate
lease receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. Furthermore, the Partnership has historically been
able to maintain a stable spread between its cost of funds and lease yields in
both periods of rising and falling rates. Nevertheless, the Partnership
frequently funds leases with its floating rate revolving line of credit and is,
therefore, exposed to interest rate risk until fixed rate financing is arranged,
or the floating rate revolving line of credit is repaid. As of December 31,
2003, there were no outstanding balances on the floating rate revolving line of
credit.
To hedge its interest rate risk related to such variable rate debt, the
Partnership may enter into interest rate swaps. As of December 31, 2003, no
swaps or other derivative financial instruments were held by the Partnership.
The Partnership does not hold or issue derivative financial instruments for
speculative purposes.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 11 through 27.
10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
ATEL Cash Distribution Fund VI, L.P.
We have audited the accompanying balance sheets of ATEL Cash Distribution Fund
VI, L.P. (Partnership) as of December 31, 2003 and 2002, and the related
statements of operations, changes in partners' capital, and cash flows for each
of the three years in the period ended December 31, 2003. 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 auditing standards generally accepted
in the United States. 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 VI,
L.P. at December 31, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California
February 20, 2004
11
ATEL CASH DISTRIBUTION FUND VI, L.P.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
---- ----
Cash and cash equivalents $ 1,664,963 $ 861,707
Accounts receivable, net of allowance for
doubtful accounts of $314,000 in 2003
and $460,000 in 2002 704,470 4,572,615
Investments in equipment and leases 23,041,171 29,191,076
---------------- ----------------
Total assets $25,410,604 $34,625,398
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $ 823,077 $ 4,853,239
Revolving line of credit - 5,100,000
Accounts payable and accruals:
General Partner 67,438 29,145
Other 623,533 570,779
Accrued interest payable 4,056 395,555
Unearned lease income 109,237 69,132
---------------- ----------------
Total liabilities 1,627,341 11,017,850
Partners' capital:
General Partner - -
Limited Partners 23,783,263 23,607,548
---------------- ----------------
Total Partners' capital 23,783,263 23,607,548
---------------- ----------------
Total liabilities and Partners' capital $25,410,604 $34,625,398
================ ================
See accompanying notes.
12
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
Revenues:
Leasing activities:
Operating leases $ 6,552,736 $11,837,377 $ 16,849,677
Direct financing leases 803,886 383,338 197,224
Gain (loss) on sales of assets 223,468 1,439,127 (559,525)
Interest income 4,485 7,432 50,520
Other 58,072 68,642 11,333
---------------- ---------------- -----------------
7,642,647 13,735,916 16,549,229
Expenses:
Depreciation of operating lease assets 3,448,538 6,422,385 8,401,319
Cost reimbursements to General Partner 668,922 789,052 866,915
Railcar maintenance 463,732 296,946 337,429
Equipment and incentive management fees to affiliates 310,867 695,721 771,498
Interest 268,047 1,364,442 2,217,411
Taxes on income and franchise fees 258,961 99,123 97,468
Other management fees 137,084 102,043 122,500
Professional fees 85,535 118,723 121,068
Outside services 78,632 87,155 89,069
(Recovery of) provision for doubtful accounts (66,000) (401,254) 276,067
Amortization of initial direct costs 35,186 494,992 239,885
Impairment losses - 4,636,923 -
Other 367,309 178,068 170,237
---------------- ---------------- -----------------
6,056,813 14,884,319 13,710,866
---------------- ---------------- -----------------
Net income (loss) $ 1,585,834 $ (1,148,403) $ 2,838,363
================ ================ =================
Net income (loss):
General Partner $ 46,866 $ 131,640 $ 715,247
Limited Partners 1,538,968 (1,280,043) 2,123,116
---------------- ---------------- -----------------
$ 1,585,834 $ (1,148,403) $ 2,838,363
================ ================ =================
Net income (loss) per Limited Partnership unit $ 0.12 $ (0.10) $ 0.17
Weighted average number of units outstanding 12,490,076 12,495,063 12,500,050
See accompanying notes.
13
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Limited Partners General
Units Amount Partner Total
Balance December 31, 2000 12,500,050 $49,010,005 $ (472,607) $48,537,398
Distributions to Limited Partners ($1.05 per Unit) (13,124,441) - (13,124,441)
Distributions to General Partner - (242,640) (242,640)
Net income 2,123,116 715,247 2,838,363
---------------- ---------------- ---------------- -----------------
Balance December 31, 2001 12,500,050 38,008,680 - 38,008,680
Distributions to Limited Partners ($1.05 per Unit) (13,117,182) - (13,117,182)
Distributions to General Partner - (131,640) (131,640)
Limited partnership units repurchased (9,974) (3,907) - (3,907)
Net income (loss) (1,280,043) 131,640 (1,148,403)
---------------- ---------------- ---------------- -----------------
Balance December 31, 2002 12,490,076 23,607,548 - 23,607,548
Distributions to Limited Partners ($0.11 per Unit) (1,363,253) - (1,363,253)
Distributions to General Partner - (46,866) (46,866)
Net income 1,538,968 46,866 1,585,834
---------------- ---------------- ---------------- -----------------
Balance December 31, 2003 12,490,076 $23,783,263 $ - $23,783,263
================ ================ ================ =================
See accompanying notes.
14
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
Operating activities:
Net income (loss) $ 1,585,834 $ (1,148,403) $ 2,838,363
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation of operating lease assets 3,448,538 6,422,385 8,401,319
Amortization of initial direct costs 35,186 494,992 239,885
Impairment losses - 4,636,923 -
(Recovery of) provision for doubtful accounts (66,000) (401,254) 276,067
(Gain) loss on sales of assets (223,468) (1,439,127) 559,525
Changes in operating assets and liabilities:
Accounts receivable (865,855) (1,770,373) (4,785,126)
Accounts payable, General Partner 38,293 (179,542) (55,708)
Accounts payable, other 52,754 (15,214) 254,608
Accrued interest payable 131,535 622,154 1,064,450
Unearned lease income 40,105 6,119 (74,183)
---------------- ---------------- -----------------
Net cash provided by operating activities 4,176,922 7,228,660 8,719,200
---------------- ---------------- -----------------
Investing activities:
Proceeds from sales of assets 2,560,308 18,588,007 2,511,046
Reduction of net investment in direct financing leases 329,341 45,586 259,277
Purchases of equipment on operating leases - - (5,452)
---------------- ---------------- -----------------
Net cash provided by investing activities 2,889,649 18,633,593 2,764,871
---------------- ---------------- -----------------
Financing activities:
Repayments of borrowings under revolving line of credit (5,100,000) (6,000,000) (1,000,000)
Distributions to Limited Partners (1,363,253) (13,117,182) (13,124,441)
Proceeds from borrowings of non-recourse debt 706,055 - -
Repayments of non-recourse debt (459,251) (13,048,829) (3,863,254)
Distributions to General Partner (46,866) (131,640) (242,640)
Borrowings under revolving line of credit - 6,600,000 5,500,000
Repurchase of limited partnership units - (3,907) -
---------------- ---------------- -----------------
Net cash used in financing activities (6,263,315) (25,701,558) (12,730,335)
---------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 803,256 160,695 (1,246,264)
Cash and cash equivalents at beginning of year 861,707 701,012 1,947,276
---------------- ---------------- -----------------
Cash and cash equivalents at end of year $ 1,664,963 $ 861,707 $ 701,012
================ ================ =================
15
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENTS OF CASH FLOWS
(Continued)
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 136,512 $ 742,288 $ 1,152,961
================ ================ =================
Schedule of non-cash transactions:
Offset of accounts receivable and debt service per lease and
debt agreement:
Accrued interest payable $ (523,034) $ (989,075) $ (1,404,335)
Non-recourse debt (4,276,966) (3,810,925) (3,395,665)
---------------- ---------------- -----------------
$ (4,800,000) $ (4,800,000) $ (4,800,000)
================ ================ =================
Accounts receivable $ 4,800,000 $ 4,800,000 $ 4,800,000
================ ================ =================
See accompanying notes.
16
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
1. Organization and Partnership matters:
ATEL Cash Distribution Fund VI, L.P. (the Partnership) was formed under the laws
of the state of California on June 29, 1994 for the purpose of acquiring
equipment to engage in equipment leasing and sales activities, primarily in the
United States. The Partnership may continue until December 31, 2015.
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 January 3,
1995, the Partnership commenced operations.
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. AFS is a wholly owned subsidiary of ATEL
Capital Group.
The Partnership's business consists of leasing various types of equipment. As of
December 31, 2003, the original terms of the leases ranged from one to ten
years.
Pursuant to the Limited Partnership Agreement, AFS receives compensation and
reimbursements for services rendered on behalf of the Partnership (Note 5). AFS
is required to maintain in the Partnership reasonable cash reserves for working
capital, the repurchase of Units and contingencies.
The Partnership's principal objectives are to invest in a diversified portfolio
of equipment that will (i) preserve, protect and return the Partnership's
invested capital; (ii) generate 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, which ended December 31, 2002 and (iii) provide
additional distributions following the Reinvestment Period and until all
equipment has been sold. The Partnership is governed by its Limited Partnership
Agreement.
2. Summary of significant accounting policies:
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments
with original maturities of ninety days or less.
Accounts receivable:
Accounts receivable represent the amounts billed under lease contracts and
currently due to the Partnership. Allowances for doubtful accounts are typically
established based on historical charge offs and collection experience and are
usually determined by specifically identified lessees and invoiced amounts.
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
estimated residual values of the equipment at the end of the leases. Revenues
from operating leases are recognized evenly over the lives of the related
leases.
17
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
Direct financing leases:
Income from direct financing lease transactions is reported using 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. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.
Direct financing leases are placed in a non-accrual status based on specifically
identified lessees. Such leases are only returned to an accrual status based on
a case by case review of AFS. Direct financing leases are charged off on
specific identification by AFS.
Initial direct costs:
The Partnership capitalizes initial direct costs associated with the acquisition
of lease assets. The costs are amortized over a five year period using a
straight line method. Upon disposal of the underlying lease assets, both the
initial direct costs and the associated accumulated amortization are relieved.
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 as of December 31 (unaudited):
2003 2002
Financial statement basis of net assets $23,783,263 $23,607,548
Tax basis of net assets 15,060,130 15,390,267
---------------- ----------------
Difference $ 8,723,133 $ 8,217,281
================ ================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the result of differences in accounting
for impairment losses, syndication costs and differences between the
depreciation methods used in the financial statements and the Partnership's tax
returns.
18
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
Income taxes (continued):
The following reconciles the net income reported in these financial statements
to the loss reported on the Partnership's federal tax return (unaudited) for
each of the years ended December 31:
2003 2002 2001
Net income (loss) per financial statements $ 1,585,834 $ (1,148,403) $ 2,838,363
Adjustment to depreciation expense 1,985,215 2,227,441 429,207
Other adjustments to revenues and expenses (2,691,933) 16,402,696 811,895
Provision for losses - 4,636,923 -
Provision for doubtful accounts (66,000) (401,254) 276,067
---------------- ---------------- -----------------
Net income per federal tax return $ 813,116 $21,717,403 $ 4,355,532
================ ================ =================
Per unit data:
Net income (loss) and distributions per unit are based upon the weighted average
number of units outstanding during the period.
Asset valuation:
Recorded values of the Partnership's asset portfolio are periodically reviewed
for impairment in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
An impairment loss is measured and recognized only if the estimated undiscounted
future cash flows of the asset are less than their net book value. The estimated
undiscounted future cash flows are the sum of the estimated residual value of
the asset at the end of the asset's expected holding period and estimates of
undiscounted future rents. The residual value assumes, among other things, that
the asset is utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of the
assets, if held in quantity, simultaneously or to dispose of the asset quickly.
Impairment is measured as the difference between the fair value (as determined
by the discounted estimated future cash flows) of the assets and its carrying
value on the measurement date.
The Partnership adopted SFAS 144 as of January 1, 2002. The adoption of the
Statement did not have a significant impact on the Partnership's financial
position and results of operations.
Credit risk:
Financial instruments that potentially subject the Partnership to concentrations
of credit risk include cash and cash equivalents, direct finance lease
receivables and accounts receivable. The Partnership places its cash deposits
and temporary cash investments with creditworthy, high quality financial
institutions. The concentration of such deposits and temporary cash investments
is not deemed to create a significant risk to the Partnership. Accounts
receivable represent amounts due from lessees in various industries, related to
equipment on operating and direct financing leases. See Note 7 for a description
of lessees by industry as of December 31, 2003, 2002 and 2001.
19
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
Derivative financial instruments:
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Partnership to recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. It further provides criteria for derivative
instruments to be designated as fair value, cash flow, or foreign currency
hedges, and establishes accounting standards for reporting changes in the fair
value of the derivative instruments.
The Partnership does not utilize derivative financial instruments.
Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Basis of presentation:
The accompanying financial statements as of December 31, 2003 and 2002 and for
the three years ended December 31, 2003 have been prepared in accordance with
accounting principles generally accepted in the United States. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Recent accounting pronouncements:
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." The
primary objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities") and how to determine
when and which business enterprise (the "primary beneficiary") should
consolidate the variable interest entity. This new model for consolidation
applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises with a
significant variable interest in a variable interest entity, make additional
disclosures. Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows:
20
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
Recent accounting pronouncements (continued):
(i) Special purpose entities ("SPEs") created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first interim or annual reporting period ending
after December 15, 2003.
(ii) Non-SPEs created prior to February 1, 2003. The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.
(iii) All entities, regardless of whether a SPE, that were created subsequent to
January 31, 2003. The provisions of FIN 46 were applicable for variable
interests in entities obtained after January 31, 2003.
The Partnership is required to adopt FIN 46-R at the end of the first interim or
annual reporting period ending after March 15, 2004. The adoption of the
provisions applicable to SPEs and all other variable interests obtained after
January 31, 2003 did not have a material impact on the Partnership's financial
statements. The Partnership is currently evaluating the impact of adopting FIN
46-R applicable to Non-SPEs created prior to February 1, 2003 but does not
expect a material impact.
In April 2002, the FASB issued FASB Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (Statement No. 145). Among other things, Statement No. 145 rescinds
Statement No. 4, which required that all gains and losses from extinguishment of
debt be reported as an extraordinary item. The adoption of Statement No. 145,
effective January 1, 2003, did not have any effect on the Partnership's
consolidated financial position, consolidated results of operations, or
liquidity.
3. Investments in equipment and leases:
The Partnership's investments in equipment and leases consist of the following:
Depreciation /
Amortization
Expense or
Amortization of Reclassi-
December 31, Direct Financing fications or December 31,
2002 Leases Dispositions 2003
Net investment in operating leases $21,546,403 $ (3,448,538) $ (272,255) $17,825,610
Net investment in direct financing leases 4,108,968 (329,341) (32,052) 3,747,575
Assets held for sale or lease, net of accumulated
depreciation of $4,893,039 in 2003 and $2,759,500
in 2002 3,406,389 - (2,032,533) 1,373,856
Residual value interests 34,159 - - 34,159
Initial direct costs, net of accumulated amortization
of $407,188 in 2003 and $798,164 in 2002 95,157 (35,186) - 59,971
---------------- ---------------- ---------------- -----------------
$29,191,076 $ (3,813,065) $ (2,336,840) $23,041,171
================ ================ ================ =================
21
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
3. Investments in equipment and leases (continued):
Management periodically reviews the carrying values of its assets on leases and
assets held for lease or sale. As a result of that review, management determined
that the value of a fleet of jumbo covered hopper cars had declined in value to
the extent that the carrying values had become impaired. This decline is the
result of decreased long-term demand for these types of assets and a
corresponding reduction in the amounts of rental payments that these assets
currently command. Management recorded a provision for the decline in value of
those assets in the amount of $4,636,923 for the year ended December 31, 2002.
Impairment losses are recorded as an addition to accumulated depreciation of the
impaired assets. Depreciation expense and impairment losses on property subject
to operating leases and property held for lease or sale consist of the following
for the years ended December 31:
2003 2002 2001
Depreciation expense $ 3,448,538 $ 6,422,385 $ 8,401,319
Impairment losses - 4,636,923 -
---------------- ---------------- -----------------
$ 3,448,538 $11,059,308 $ 8,401,319
================ ================ =================
All of the property on leases was acquired in 1997, 1996 and 1995.
Operating leases:
Property on operating leases consists of the following:
Reclassi-
December 31, fications or December 31,
2002 Additions Dispositions 2003
Transportation $49,393,031 $ - $ (9,625,001) $39,768,030
Construction 11,727,006 - (398,262) 11,328,744
Materials handling 8,317,703 - (2,189,721) 6,127,982
Office automation 1,298,837 - (469,923) 828,914
Miscellaneous 759,867 - (393,664) 366,203
Manufacturing 78,484 - (78,484) -
---------------- ---------------- ---------------- -----------------
71,574,928 - (13,155,055) 58,419,873
Less accumulated depreciation (50,028,525) (3,448,538) 12,882,800 (40,594,263)
---------------- ---------------- ---------------- -----------------
$21,546,403 $ (3,448,538) $ (272,255) $17,825,610
================ ================ ================ =================
22
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
3. Investments in equipment and leases (continued):
Direct financing leases:
As of December 31, 2003, investment in direct financing leases consists of
railroad locomotives and ground support equipment. As of December 31, 2002,
investment in direct financing leases consists of railroad tank cars and various
office automation equipment. The following lists the components of the
Partnership's investment in direct financing leases as of December 31, 2003 and
2002:
2003 2002
Total minimum lease payments receivable $ 4,216,103 $ 5,349,330
Estimated residual values of leased equipment
(unguaranteed) 151,730 183,782
---------------- ----------------
Investment in direct financing leases 4,367,833 5,533,112
Less unearned income (620,258) (1,424,144)
---------------- ----------------
Net investment in direct financing leases $ 3,747,575 $ 4,108,968
================ ================
At December 31, 2003, the aggregate amounts of future minimum lease payments
under operating and direct financing leases are as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
2004 $ 1,770,615 $ 3,919,823 $5,690,438
2005 637,444 98,760 736,204
2006 343,577 98,760 442,337
2007 - 98,760 98,760
----------------- ---------------- ----------------
$2,751,636 $4,216,103 $6,967,739
================= ================ ================
4. Non-recourse debt:
At December 31, 2003, non-recourse debt consists of notes payable to financial
institutions. The notes are due in varying monthly, quarterly and semi-annual
payments. Interest on the notes is at fixed rates ranging from 5.5% to 8.64%.
The notes are secured by assignments of lease payments and pledges of assets. At
December 31, 2003, the carrying value of the pledged assets is $1,198,703. The
notes mature from 2004 through 2007.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
2004 $ 561,869 $ 32,964 $ 594,833
2005 79,916 18,844 98,760
2006 86,868 11,892 98,760
2007 94,424 4,337 98,761
----------------- ---------------- ----------------
$ 823,077 $ 68,037 $ 891,114
================= ================ ================
23
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
5. Related party transactions:
The terms of the Limited 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 Limited 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. Reimbursable
costs incurred by AFS 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.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC 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 AFS.
Substantially all employees of AFS record time incurred in performing
administrative services on behalf of all of the Partnerships serviced by AFS.
AFS 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.
Incentive management fees are computed as 3.25% of distributions of cash from
operations, as defined in the Limited Partnership Agreement. Equipment
management fees are computed as 3.5% of gross revenues from operating leases, as
defined in the Limited Partnership Agreement plus 2% of gross revenues from full
payout leases, as defined in the Limited Partnership Agreement.
AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to
the Limited Partnership Agreement as follows during 2003, 2002 and 2001:
2003 2002 2001
Cost reimbursements to AFS $ 668,922 $ 789,052 $ 866,915
Incentive and equipment management fees to AFS 310,867 695,721 771,498
---------------- ---------------- -----------------
$ 979,789 $ 1,484,773 $ 1,638,413
================ ================ =================
24
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
6. Partners' capital:
As of December 31, 2003 and 2002, 12,490,076 Units were issued and outstanding,
including the 50 Units issued to the Initial Limited Partners. The Partnership's
registration statement with the Securities and Exchange Commission became
effective November 23, 1994. The Partnership is authorized to issue up to
12,500,000 Units, in addition to those issued to the Initial Limited Partners.
As defined in the Limited Partnership Agreement, the Partnership's Net Profits,
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 of Limited Partnership Agreement,
additional allocations of income were made to AFS in 2003, 2002 and 2001. The
amounts allocated were determined to bring AFS's ending capital account balance
to zero.
As defined in the Limited Partnership Agreement, available Cash from Operations
and Cash from Sales and Refinancing are to be distributed as follows:
First, 95.75% of Distributions of Cash from Operations to the Limited Partners,
1% of Distributions of Cash from Operations to AFS and 3.25% to an affiliate of
AFS as an Incentive Management Fee, 99% of Distributions of Cash from Sales or
Refinancing to the Limited Partners and 1% of Cash from Sales or Refinancing to
AFS.
Second, the balance to the Limited Partners until the Limited Partners have
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.
Third, an affiliate of AFS will receive as an Incentive Management Fee, 4% of
remaining Cash from Sales or Refinancing.
Fourth, the balance to the Limited Partners.
25
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
7. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. Leases
are subject to AFS's credit committee review. The leases provide for the return
of the equipment upon default.
As of December 31, 2003, 2002 and 2001 there were concentrations (greater than
10%) of equipment leased to lessees in certain industries (as a percentage of
total equipment cost) as follows:
2003 2002 2001
---- ---- ----
Rail transportation 42% 44% 33%
Other transportation services 23% 13% *
Other manufacturing 20% 21% 30%
Municipalities * 15% 13%
* Less than 10%.
During 2003, four customers comprised 19%, 11%, 10% and 10% of the Partnership's
revenues from leases. During 2002, three customer comprised 19%, 13% and 11% of
the Partnership's revenues from leases. During 2001, four customer comprised
13%, 12%, 11% and 10% of the Partnership's revenues from leases.
8. Revolving line of credit:
The Partnership participates with AFS and certain of its affiliates in a
$58,627,656 revolving line of credit (comprised of an acquisition facility and a
warehouse facility) with a financial institution that includes certain financial
covenants. The line of credit expires on June 28, 2004. As of December 31, 2003,
borrowings under the facility were as follows:
Amount borrowed by the Partnership under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited liability
companies under the acquisition facility 23,000,000
--------------
Total borrowings under the acquisition facility 23,000,000
Amounts borrowed by AFS and its sister corporation under the
warehouse facility -
--------------
Total outstanding balance $ 23,000,000
==============
Total available under the line of credit $ 58,627,656
Total outstanding balance (23,000,000)
--------------
Remaining availability $ 35,627,656
==============
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Partnership and AFS.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of December
31, 2003.
Effective January 2004, the revolving line of credit was extended. The revolving
line of credit now expires on June 28, 2005. In addition, the total amount
available under the revolving line of credit has been increased to $65,700,000.
26
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
9. Fair value of financial instruments:
The recorded amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accruals at December 31, 2003 approximate fair
value because of the liquidity and short-term 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, 2003 is $808,968.
10. Selected quarterly data (unaudited):
March 31, June 30, September 30, December 31,
Quarter ended 2002 2002 2002 2002
---- ---- ---- ----
Total revenues $ 3,029,272 $ 3,547,202 $ 4,387,980 $ 2,771,462
Net Income (loss) $ (26,444) $ 696,381 $ 1,494,292 $ (3,312,632)
Net income (loss) per limited partnership unit $ - $ 0.05 $ 0.12 $ (0.27)
March 31, June 30, September 30, December 31,
Quarter ended 2003 2003 2003 2003
---- ---- ---- ----
Total revenues $ 2,592,474 $ 2,350,297 $ 1,020,913 $ 1,678,963
Net Income (loss) $ 1,207,875 $ 623,869 $ (407,705) $ 161,795
Net income (loss) per limited partnership unit $ 0.09 $ 0.05 $ (0.03) $ 0.01
11. Reserves, impairment losses and provisions for doubtful accounts:
Activity in the reserve for losses and impairments and allowances for doubtful
accounts consists of the following:
Reserve for Allowance for
losses and doubtful
impairments accounts
Balance December 31, 2000 $ 291,905 $ 585,187
Charge offs - 276,067
Provision (103,896) -
---------------- ----------------
Balance December 31, 2001 188,009 861,254
Provision 4,636,923 -
Recoveries - (401,254)
Charge offs (4,824,932) -
---------------- ----------------
Balance December 31, 2002 - 460,000
Recoveries - (66,000)
Charge offs - (80,000)
---------------- ----------------
Balance December 31, 2003 $ - $ 314,000
================ ================
27
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management (ATEL
Financial Services, LLC as General Partner of the registrant, including the
chief executive officer and chief financial officer), an evaluation of the
effectiveness of the design and operation of the Partnership's disclosure
controls and procedures [as defined in Rules 240.13a-14(c) under the Securities
Exchange Act of 1934] was performed as of a date within ninety days before the
filing date of this annual report. Based upon this evaluation, the chief
executive officer and the chief financial officer concluded that, as of the
evaluation date, except as noted below, our disclosure controls and procedures
were effective for the purposes of recording, processing, summarizing, and
timely reporting information required to be disclosed by us in the reports that
we file under the Securities Exchange Act of 1934; and that such information is
accumulated and communicated to our management in order to allow timely
decisions regarding required disclosure.
Due to the increased scrutiny and reporting requirements of Sarbanes-Oxley, it
came to the attention of the chief executive officer and the chief financial
officer of the Partnership in connection with the audit of the Partnership for
the year ended December 31, 2003, that enhanced internal controls were needed to
facilitate a more effective closing of the Partnership's financial statements,
and that this would require additional skilled personnel. To address this issue
the Partnership has taken steps to upgrade the accounting staff and will take
additional steps in 2004 to add personnel to its accounting department to ensure
that the Partnership's ability to execute internal controls in accounting and
reconciliation in the closing process will be adequate in all respects. It
should be noted that the control issues affecting the closing process and
disclosure did not materially affect the accuracy and completeness of the
Partnership's financial reporting and disclosure reflected in this report, and
the audited financial statements included herein contain no qualification or
limitation on the scope of the auditor's opinion.
Changes in internal controls
There have been no significant changes in our internal controls or in other
factors that could significantly affect our disclosure controls and procedures
subsequent to the evaluation date nor were there any significant deficiencies or
material weaknesses in our internal controls, except as described in the prior
paragraphs.
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 Services LLC (AFS) is
held by ATEL Capital Group ("ACG"), a holding company formed to control ATEL and
affiliated companies. The outstanding voting capital stock of ATEL Capital Group
is owned 5% by A. J. Batt and 95% by Dean Cash.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC ("AFS") 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
AFS. ATEL Securities Corporation ("ASC") is a wholly-owned subsidiary of AFS.
The officers and directors of ATEL Capital Group and its affiliates are as
follows:
Dean L. Cash Chairman of the Board of Directors of ACG, AFS, ALC,
AEC, AIS and ASC; President and Chief Executive
Officer of ACG, AFS and AEC
Paritosh K. Choksi Director, Executive Vice President, Chief Operating
Officer and Chief Financial Officer of ACG,
AFS, ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFS, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General Counsel
for ACG, AFS, ALC, AIS and AEC
28
Dean L. Cash, age 53, 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. He has been President and CEO since April 2001. 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.
Paritosh K. Choksi, age 50, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. He became its executive vice
president and COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief
financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to
1997, Mr. Choksi was with Phoenix American Incorporated, a financial services
and management company, where he held various positions during his tenure, and
was senior vice president, chief financial officer and director when he left the
company. Mr. Choksi was involved in all corporate matters at Phoenix and was
responsible for Phoenix's capital market needs. He also served on the credit
committee overseeing all corporate investments, including its venture lease
portfolio. Mr. Choksi was a part of the executive management team which caused
Phoenix's portfolio to increase from $50 million in assets to over $2 billion.
Mr. Choksi received a bachelor of technology degree in mechanical engineering
from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the
University of California, Berkeley.
Donald E. Carpenter, age 55, 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 45, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the corporate and securities legal department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law
School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais
has been an active member of the State Bar of California since 1986.
Audit Committee
ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC.
ATEL Financial Services LLC is the General Partner of the registrant. The board
of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Dean L. Cash and Paritosh K. Choksi are members of the board of
directors of ALC and are deemed to be financial experts. They are not
independent of the Partnership.
Code of Ethics
ACG on behalf of AFS and ALC has adopted a code of ethics for its Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer. The
Code of Ethics is included as Exhibit 14.1 to this report.
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 AFS and its Affiliates. The amount of such remuneration paid for the
years ended December 31, 2003, 2002 and 2001 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
The Partnership will pay selling commissions in the amount of 9.5% of Gross
Proceeds, as defined, to ATEL Securities Corporation, an affiliate of AFS. Of
this amount, the majority is expected to be reallowed to other broker/dealers.
29
Through December 31, 1996, $11,875,000 of such commissions (the maximum
allowable) had been paid to AFS or its affiliates. Of that amount, $10,163,554
was reallowed to other broker/dealers. None have been paid since 1996, nor will
any additional amounts be paid in future periods.
Acquisition Fees
Acquisition fees were paid to AFS 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. The total amount of
acquisition fees paid to AFS or their affiliates was not to exceed 3% of the
aggregate purchase price of equipment acquired with the net proceeds of the
offering and was not to exceed 4.5% of the Gross Proceeds of the Offering.
Through December 31, 1996, $5,625,000 of such fees (the maximum allowable
amount) had been paid to AFS or its affiliates. No such fees have been paid
subsequent to that date.
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, arranging for necessary
maintenance and repair of equipment, collecting revenue, paying operating
expenses, determining the equipment is being used in accordance with all
operative contractual arrangements, property and sales tax monitoring and
preparation of financial data, AFS or its affiliates are entitled to receive
management fees which are payable for each fiscal quarter and are to be in an
amount equal to (i) 3.5% of the gross lease revenues from "operating" leases, as
defined, and (ii) 2% of gross lease revenues from "full payout" leases, as
defined, which contain net lease provisions.
See Note 5 to the Financial Statements included at Part II, Item 8 of this
report for amounts paid.
Incentive Management Fees
As compensation for its services rendered in establishing and maintaining the
composition of the Partnership's equipment portfolio and its acquisition and
debt strategies and supervising fund administration including 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, AFS is entitled to receive the Incentive
management fee which shall be payable for each fiscal quarter and shall be an
amount equal to 1% of cash distributions from operations, sales or refinancing
and 3.25% (4% prior to July 1, 1995) of cash distributions from operations to an
affiliate of AFS until such time as the Limited Partners have received aggregate
distributions of cash from operations in an amount equal to their original
invested capital plus a 10% per annum return on their average adjusted invested
capital (as defined in the Limited Partnership Agreement). Thereafter, the
incentive management fee paid to the affiliate of AFS shall be 4% of all
distributions of cash from operations, sales or refinancing.
See Notes 5 and 6 to the Financial Statements included at Part II, Item 8 of
this report for amounts paid.
Equipment Resale Fees
As compensation for services rendered in connection with the sale of equipment,
AFS is 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.
Equipment Re-lease Fee
As compensation for providing re-leasing services, AFS is entitled to receive
fees equal to 2% of the gross rentals or the comparable competitive rate for
such services relating to comparable equipment, whichever is less, derived from
the re-lease provided that (i) AFS or their affiliates have and will maintain
adequate staff to render such services to the Partnership, (ii) no such re-lease
fee is payable in connection with the re-lease of equipment to a previous lessee
or its affiliates, (iii) AFS or its affiliates have rendered substantial
re-leasing services in connection with such re-lease and (iv) AFS or its
affiliates are compensated for rendering equipment management services. To date,
none have been accrued or paid.
General Partner's Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 99% to the Limited
Partners and 1% to AFS. In accordance with the terms of the of Limited
Partnership Agreement, additional allocations of income were made to AFS in
2003, 2002 and 2001. The amounts allocated was determined so as to bring AFS's
ending capital account balance to zero at the end of each year. See financial
statements included in Part II, Item 8 of this report for amounts allocated to
AFS in 2003, 2002 and 2001.
30
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 2003 no investor is known to the Partnership to hold
beneficially more than 5% of the issued and outstanding Units.
Security Ownership of Management
The ultimate shareholders of AFS 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 A. J. Batt Initial Limited Partner Units 0.0002%
600 California Street, 6th Floor 25 Units ($250)
San Francisco, CA 94108 (owned by wife)
Limited Partnership Units Dean Cash Initial Limited Partner Units 0.0002%
600 California Street, 6th Floor 25 Units ($250)
San Francisco, CA 94108 (owned by wife)
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.
AFS 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 therefore 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 1 of this report under the caption "Equipment Leasing
Activities," 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 by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
During the most recent two years, the Partnership incurred audit, audit related,
tax and other fees with its principal auditors as follows:
2003 2002
---- ----
Audit fees $ 35,246 $ 39,093
Audit related fees - -
Tax fees 27,050 28,311
Other - -
---------------- ----------------
$ 62,296 $ 67,404
================ ================
ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC.
ATEL Financial Services LLC is the General Partner of the registrant. The board
of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Engagements for audit services, audit related services and tax
services are approved in advance by the Chief Financial Officer of ATEL Leasing
Corporation acting as a member of the board of directors of that company.
31
PART IV
Item 15. 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, 2003 and 2002
Statements of Operations for the years ended December 31, 2003, 2002
and 2001
Statements of Changes in Partners' Capital for the years ended
December 31, 2003, 2002 and 2001
Statements of Cash Flows for the years ended December 31, 2003, 2002
and 2001
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 2003
None
(c)Exhibits
(3) and (4) Agreement of Limited Partnership, included as Exhibit B to
Prospectus (Exhibit 28.1), is incorporated herein by reference to the
report on Form 10K for the period ended December 31, 1994 (File No.
33-81952).
(14.1) Code of Ethics
(31.1) Certification of Paritosh K. Choksi
(31.2) Certification of Dean L. Cash
(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
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: 3/26/2004
ATEL Cash Distribution Fund VI, L.P.
(Registrant)
By: ATEL Financial Services, LLC,
General Partner of Registrant
By: /s/ Dean Cash
----------------------------------------
Dean Cash,
President and Chief Executive Officer of
ATEL Financial Services, LLC (General
Partner)
By: /s/ Paritosh K. Choksi
----------------------------------------
Paritosh K. Choksi,
Executive Vice President of ATEL
Financial Services, LLC (General Partner)
33
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/ Dean Cash President, Chairman and Chief Executive 3/26/2004
- -------------------------- Officer of ATEL Financial Services, LLC
Dean Cash
/s/ Paritosh K. Choksi Executive Vice President and director of 3/26/2004
- -------------------------- ATEL Financial Services LLC, Principal
Paritosh K. Choksi financial officer of registrant; principal
financial officer and director of ATEL
Financial Services, LLC
/s/ Donald E. Carpenter Principal accounting officer of 3/26/2004
- -------------------------- registrant; principal accounting officer
Donald E. Carpenter of ATEL Financial Services, LLC
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No proxy materials have been or will be sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of this
report on Form 10-K, and copies thereof will be furnished supplementary to the
Commission when forwarded to the security holders.
34