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Form 10K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required) For
the Year Ended December 31, 1998
OR
|_| Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 (no fee required)
For the transition period from ____ to ____
Commission File number 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.)
235 Pine Street, 6th Floor, San Francisco,
California 94104 (Address of principal
executive offices)
Registrant's telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Partnership
Units
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
State the aggregate market value of voting stock held by non-affiliates of the
registrant.
Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
|X|
PART I
Item 1: BUSINESS
General Development of Business
ATEL Cash Distribution Fund 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 Corporation
(ATEL).
The Partnership conducted a public offering of 12,500,000 units of Limited
Partnership Interest (Units), at a price of $10 per Unit. 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. On
January 3, 1995, the Partnership commenced operations in its primary business
(leasing activities).
The Partnership's principal objectives are to invest in a diversified portfolio
of equipment which will (i) preserve, protect and return the Partnership's
invested capital; (ii) generate substantial distributions to the partners of
cash from operations and cash from sales or refinancing, with any balance
remaining after certain minimum distributions to be used to purchase additional
equipment during the reinvestment period, ending December 31, 2002 and (iii)
provide significant distributions following the reinvestment period and until
all equipment has been sold. The Partnership is governed by its Limited
Partnership Agreement.
Narrative Description of Business
The Partnership has acquired and intends to acquire various types of equipment
and to lease such equipment pursuant to "Operating" leases and "Full Payout"
leases, where "Operating" leases are defined as being leases in which the
minimum lease payments during the initial lease term do not recover the full
cost of the equipment and "Full Payout" leases recover such cost. It is the
intention of ATEL that no more than 50% of the aggregate purchase price of
equipment will 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 will be invested in equipment acquired from a single
manufacturer.
The Partnership only purchases equipment for which a lease exists or for which a
lease will 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
intends 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.
As of December 31, 1998, the Partnership had purchased equipment with a total
acquisition price of $208,275,158.
The Partnership's objective is to lease a minimum of 75% of the equipment
acquired with the net proceeds of the offering to lessees which (i) have an
aggregate credit rating by Moody's Investor Service, Inc. of Baa or better, or
the credit equivalent as determined by ATEL, with the aggregate rating weighted
to account for the original equipment cost for each item leased; or (ii) are
established hospitals with histories of profitability or municipalities. The
balance of the original equipment portfolio may include equipment leased to
lessees which, although deemed creditworthy by ATEL, would not satisfy the
general credit rating criteria for the portfolio.
During 1998, 1997 and 1996 certain lessees generated significant portions of the
Partnership's total lease revenues as follows:
1998 1997 1996
---- ---- ----
Lessee Type of Equipment
NEC Electronics Semiconductor manufacturing 12% 10% *
Consolidated Rail Corporation Locomotives & intermodal
containers 10% 10% 14%
* Less than 10%.
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease term and type of equipment. The ability of the Partnership to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depends on various factors (many of which are not in
the control of ATEL 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.
ATEL will seek 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.
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
Equipment Leasing Activities:
Through December 31, 1998, the Partnership has disposed of certain leased assets
as set forth below:
Original
Equipment Cost, Excess of
Type of Excluding Rents Over
Equipment Acquisition Fees Sale Price Expenses *
--------- ---------------- ---------- ----------
Office automation $ 3,401,411 $ 614,438 $ 3,624,015
Transportation 3,376,753 2,736,976 1,401,893
Manufacturing 635,084 240,000 397,992
Construction 452,811 216,367 368,001
Materials handling 244,702 101,500 218,184
Railcars 195,208 191,303 14,316
Containers 160,077 169,344 22,426
Other 101,024 53,426 42,174
---------------- ---------------- ----------------
$ 8,567,070 $ 4,323,354 $ 6,089,001
================ ================ ================
* Includes only those expenses directly related to the
production of the related rents.
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, 1998 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%
================ ================
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 & gas 16,535,633 7.94%
Other 6,182,198 2.97%
Communications 5,282,291 2.53%
---------------- ----------------
$208,275,158 100.00%
================ ================
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 1998, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or materially
important physical properties other than the equipment held for lease as set
forth in Item 1.
Item 3. LEGAL PROCEEDINGS
No material legal proceedings are currently pending against the Partnership or
against any of its assets.
On December 31, 1997, Quaker Coal Company requested a moratorium on lease
payments from January through March 1998. No lease payments were made through
June of 1998. As a result, ATEL declared the lease in default. Subsequently, the
lessee cured the outstanding payments, however, ATEL has insisted on additional
damages including for diminishment in value of the equipment. ATEL is currently
negotiating a settlement with the lessee.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS
AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Partnership and its investment objectives, to
the General Partner's knowledge, no established public secondary trading market
has developed and it is unlikely that a public trading market will develop in
the future.
Holders
As of December 31, 1998, a total of 6,445 investors were record holders of Units
in 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.
The rate for monthly distributions from 1998 operations was $0.0833 per Unit.
The distributions were made in February 1998 through December 1998 and in
January 1999. For each quarterly distribution (made in April, July and October
1998 and in January 1999) the rate was $0.25 per Unit. Distributions were from
1998 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 1997 operations was $0.0833 per Unit.
The distributions were made in February 1997 through December 1997 and in
January 1998. For each quarterly distribution (made in April, July and October
1997 and in January 1998) the rate was $0.25 per Unit. Distributions were from
1997 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 1996 operations was $0.0833 per Unit.
The distributions were made in February 1996 through December 1996 and in
January 1997. For each quarterly distribution (made in April, July and October
1996 and in January 1997) the rate was $0.25 per Unit. Distributions were from
1996 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.
ATEL shall have sole discretion in determining the amount of distributions;
provided, however, that the General Partner 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; $1.10 in 2001 and 2002.
Holders may make the election without charge to receive distributions on a
monthly basis.
The following table presents summarized information regarding distributions to
Limited Partners:
1998 1997 1996 1995
---- ---- ---- ----
Distributions of net income (loss) $ 0.06 $ (0.18) $ (0.23) $ (0.19)
Return of investment 0.94 1.18 1.16 0.97
---------------- ---------------- ---------------- ---------------
Distributions per unit 1.00 1.00 0.93 0.78
Differences due to timing of
distributions 0.00 0.00 0.07 0.22
---------------- ---------------- ---------------- ---------------
Nominal distribution rates from above $ 1.00 $ 1.00 $ 1.00 $ 1.00
================ ================ ================ ===============
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership at
December 31, 1998, 1997, 1996, 1995 and 1994. This financial data should be read
in conjunction with the financial statements and related notes included under
Item 8 of this report.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Gross revenues $36,149,061 $ 36,485,165 $ 25,729,470 $ 6,444,037 $ -
Net income (loss) $710,923 $ (2,297,964) $ (2,210,330) $ (602,674) $ -
Weighted average Units 12,500,050 12,500,050 9,424,045 3,154,291 50
Net income (loss) per Unit, based on
weighted average Units
outstanding $ 0.06 $ (0.18) $ (0.23) $ (0.19) $ -
Distributions per Unit, based on
weighted average Units
outstanding $ 1.00 $ 1.00 $ 0.93 $ 0.78 $ -
Total Assets $140,096,180 $ 170,290,581 $ 192,831,691 $ 96,883,645 $ 600
Non-recourse Debt $65,164,309 $ 77,647,591 $ 80,789,732 $ 836,181 $ -
Total Partners' Capital $66,322,437 $ 78,274,435 $ 93,201,156 $ 50,576,037 $ 600
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership commenced its offering on November 23, 1994. As of December 31,
1994, all of the proceeds of the offering were held by the escrow agent. Upon
sale of the minimum amount of Units of $1,200,000 and receipt of the proceeds
thereof on January 3, 1995, the Partnership commenced operations. During the
funding period and until the Partnership's initial portfolio of equipment had
been purchased, funds which had been received, but which had not yet been
invested in leased equipment, were invested in interest-bearing accounts or
high-quality/short-term commercial paper. 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.
During the funding period, the Partnership's primary source of liquidity is
subscription proceeds from the public offering of Units. 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 ATEL's success in re-leasing or selling the equipment as it comes off
lease.
The Partnership participates with ATEL and certain of its affiliates in a
$90,000,000 revolving line of credit with a financial institution that includes
certain financial covenants. The line of credit expires on January 31, 2000. As
of December 31, 1998, the Partnership had $5,100,000 of borrowings under this
line of credit and the remaining availability was $13,070,344.
The Partnership anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to ATEL and providing
for cash distributions to the Limited Partners. At December 31, 1998, the
Partnership had no commitments to purchase lease assets.
As of December 31, 1998, all cash balances consisted of amounts reserved for
distributions in January 1999, generated from operations in 1998.
The Partnership currently has available adequate reserves to meet its immediate
cash requirements, but in the event those reserves were found to be inadequate,
the Partnership would likely be in a position to borrow against its current
portfolio to meet such requirements. ATEL envisions no such requirements for
operating purposes.
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. ATEL 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.
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:
1998 vs. 1997:
Cash flows from operations increased by $179,668 compared to 1997. The increase
was not significant and resulted from a number of offsetting fluctuations of
revenues, expenses and changes in operating accounts.
Cash flows from investing activities in 1998 consisted of proceeds from sales of
lease assets ($3,357,017) and rents from direct financing leases ($428,622).
Sources of cash from financing activities consisted of the proceeds on
non-recourse debt ($4,199,995) and borrowings under the line of credit
($2,200,000). The most significant uses of cash related to financing activities
were distributions to the limited partners ($12,500,645), repayments of
non-recourse debt ($15,747,720) and repayments of borrowings under the line of
credit ($5,850,000).
1997 vs. 1996:
In 1997, the Partnership's primary sources of cash were the rents from operating
leases and proceeds of non-recourse debt.
Cash flows from operations increased from $13,940,220 in 1996 to $23,899,770 in
1997. The increase was due to increased operating lease rents compared to 1996.
In 1997, 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 due to acquisitions of lease assets
in 1996 and in 1997. Uses of cash in investing activities consisted of lease
assets purchases.
In 1997, sources of cash from financing activities consisted of debt proceeds
(non-recourse and line of credit). Borrowings under the line of credit were used
primarily to purchase lease assets. Proceeds from non-recourse debt were used to
repay borrowings under the line of credit and to purchase lease assets.
Distributions to limited partners increased due to the increased number of Units
outstanding in 1997 compared to 1996.
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). Because of the timing of the commencement of operations and the
fact that the initial portfolio acquisitions were not completed until early
1997, the results of operations in 1996 are not comparable to 1997.
1998 vs. 1997
Operations resulted in net income of $710,923 in 1998 compared to a loss of
$2,297,964 in 1997. Operating lease revenues decreased by $1,007,698 compared to
1997. This decrease resulted from scheduled lease terminations and asset sales.
This decrease in lease revenues was largely offset by an increase in the gains
recognized on the sales of assets coming off lease. Gains on sales of assets
increased by $759,639. Overall, revenues decreased by $336,104 or about one
percent.
Expenses decreased by $3,344,991 compared to 1997. Most significant were the
decreases in depreciation and amortization and interest expenses. Depreciation
and amortization expense decreased by $1,403,401. This decrease resulted from
the sales of operating lease assets noted above. Interest decreased by
$1,436,195 as a result of decreased debt balances compared to 1997. Non-recourse
debt balances have been reduced as a result of scheduled debt payments.
1997 vs. 1996
Revenues in 1997 increased to $36,485,165 compared to $25,729,470 in 1996.
Almost all of the Partnership's revenues are generated from operating leases.
These rents have increased as a result of 1996 asset acquisitions contributing a
full year's revenues in 1997 compared to only a part of 1996.
Depreciation and interest are the most significant 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 1996 acquisitions which led to 1997 revenue
increases also gave rise to the 1997 increase in depreciation expense.
In 1997, the Partnership's average indebtedness was about $91,000,000 compared
to about $68,000,000 in 1996. This increase in the average amount of debt
carried by the Partnership led to the $2,220,283 increase in interest expense
compared to 1996.
Administrative costs decreased from $748,745 in 1996 to $435,759 in 1997. The
decrease was related to the decrease in administrative activities which
coincided with the termination of the Partnership's offering of Limited
Partnership Units in November 1996.
Management fees are related to lease revenues and to the amounts of
distributions to the limited partners. In 1997, both of these factors increased.
Revenues increased as noted above and distributions increased as a result of the
larger number of Units outstanding (on average) in 1997 compared to 1996.
Impact of the Year 2000
The year 2000 issue is the result of certain computer programs being written
using two digits rather than four to define the applicable year. As a result,
these programs are not designed to make the transition to the year 2000. This
computer software problem is commonly referred to as the "year 2000" (or "Y2K")
issue. Computer programs with date-sensitive applications may, if not modified,
fail or miscalculate dates, causing system failures, the inability to process
transactions or other disruptions of operations.
ATEL uses, and on behalf of the Partnership uses, primarily third party software
and is communicating with key software vendors to ensure that the systems used
by General Partner and the Partnership are not impacted by the year 2000 issue.
Currently, all of ATEL's critical software systems are believed by ATEL to be
Y2K compliant except one. Compliance of this final system is expected to be
obtained in the first half of 1999. Based on discussions with ATEL's third party
software vendor, ATEL believes that any cost to be incurred by the Partnership
to bring this system into compliance will not be material. ATEL's third party
software vendor for the system in question has indicated that it expects the
cost of compliance to be included in the annual upgrade and maintenance cost for
the software system, and that the total incremental amount of such cost is
expected to be minimal. Any such cost would be allocated by ATEL over the six
public funds (including the Partnership) under its management which use or will
use the software. This allocation would be based on the relative size of each
such program and its proportionate allocation of the expected minimal cost will
in itself be minimal. In no event will offering proceeds be required to be
committed to any such expenditure. If any cost is incurred by the Partnership,
it would be an operating expense funded out of operating revenues.
The ultimate impact of the year 2000 issue on the Partnership will depend to a
great extent on the manner in which the issue is addressed by those businesses
whose operational capability is important to the Partnership. Failure of these
businesses to be Y2K compliant may impact credit quality or cause a delay in
payments made to the Partnership. ATEL has contacted those businesses with which
the Partnership currently has material relationships in order to request
verification of Y2K compliance. ATEL believes that each of those entities will
have a material self interest in resolving any year 2000 issue affecting its own
operations.
Equipment purchased by the Partnership may include technology subject to the
year 2000 issue. Potential year 2000 issues will be among the many factors
considered by ATEL and its affiliates in analyzing and pricing lease
transactions for acquisition by the Partnership. The lessees of the equipment
will select such equipment and may be expected to consider year 2000 issues
themselves in determining the suitability of the equipment for the lessee's use.
Most equipment is subject to fixed term, non-cancelable, triple net leases. In
addition, new equipment may be covered by manufacturer's warranties. As a result
of such triple net provisions and warranties, repairs or modifications necessary
to correct year 2000 issues will most likely be the responsibility of the
manufacturers or the lessees, and the Partnership's rights to lease payments as
a triple net lessor will not be affected by any functional issues affecting the
equipment. It is expected that the lease terms for such equipment will extend
well beyond the year 2000.
As a result of the year 2000 issue, the Partnership may experience increased
costs resulting from delayed payments from lessees, the costs associated with
the collection of those payments, or costs associated with manual processing
efforts in the event of a Y2K related system failure. In any event, ATEL does
not expect these increased costs to be significant or that such costs will have
any material adverse effect on the operations of the Partnership. Nevertheless,
the impact of year 2000 issues cannot be predicted with certainty and the
Partnership may be affected both by the impact these issues have on parties with
which it has direct contractual and other relationships as well as by their
impact on financial institutions and the national and international economy as a
whole. Accordingly, there can be no assurance that year 2000 issues might not
have some adverse impact on the operating results experienced by the
Partnership.
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 which is coterminous with the Partnership's fixed rate
lease receivables. 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 line of credit and is therefore exposed to
interest rate risk until fixed rate financing is arranged, or the floating rate
line of credit is repaid. As of December 31, 1998, $5,100,000 was outstanding on
the floating rate line of credit.
To hedge its interest rate risk related to this variable rate debt, the
Partnership may enter into interest rate swaps. As of December 31, 1998, 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 24.
REPORT OF 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. as of December 31, 1998 and 1997, 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, 1998. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Cash Distribution Fund VI,
L.P. at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
January 29, 1999
ATEL CASH DISTRIBUTION FUND VI, L.P.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
Cash and cash equivalents $ 744,132 $ 739,701
Accounts receivable 9,786,041 10,694,629
Investments in equipment and leases 129,566,007 158,856,251
---------------- ----------------
Total assets $ 140,096,180 $170,290,581
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $ 65,164,309 $77,647,591
Line of credit 5,100,000 8,750,000
Accounts payable and accruals:
General Partner 171,050 314,358
Equipment purchases 255,252 255,252
Other 604,768 415,660
Accrued interest payable 2,275,444 4,108,922
Unearned lease income 202,920 524,363
---------------- ----------------
73,773,743 92,016,146
Partners' capital (deficit):
General Partner (409,182) (254,015)
Limited Partners 66,731,619 78,528,450
---------------- ----------------
Total partners' capital 66,322,437 78,274,435
---------------- ----------------
Total liabilities and partners' capital $ 140,096,180 $170,290,581
================ ================
See accompanying notes.
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Revenues:
Leasing activities:
Operating leases $ 35,178,175 $ 36,185,873 $25,480,263
Direct financing leases 137,159 243,423 215,650
Gain (loss) on sales of assets 786,070 26,431 (107,873)
Interest income 23,292 19,461 66,348
Other 24,365 9,977 75,082
---------------- --------------- ----------------
36,149,061 36,485,165 25,729,470
Expenses:
Depreciation and amortization 26,193,147 27,596,548 19,298,500
Interest 6,557,551 7,993,746 5,773,463
Equipment and incentive management fees to affiliates 1,394,138 1,492,716 1,061,856
Other 693,512 807,883 612,698
Administrative cost reimbursements to General Partner 427,872 435,759 748,745
Provision for losses and impairments 97,528 364,852 257,814
Professional fees 74,390 91,625 186,724
---------------- --------------- ----------------
35,438,138 38,783,129 27,939,800
---------------- --------------- ----------------
Net income (loss) $ 710,923 $ (2,297,964) $ (2,210,330)
================ =============== ================
Net income (loss):
General Partner $ 7,109 $ (22,980) $ (22,103)
Limited Partners 703,814 (2,274,984) (2,188,227)
---------------- --------------- ----------------
$ 710,923 $ (2,297,964) $ (2,210,330)
================ =============== ================
Net income (loss) per Limited Partnership unit $ 0.06 $ (0.18) $ (0.23)
Weighted average number of units outstanding 12,500,050 12,500,050 9,424,045
See accompanying notes.
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Limited Partners General
Units Amount Partner Total
Balance December 31, 1995 6,269,013 $ 50,599,712 $ (23,675) $50,576,037
Capital contributions received 6,231,037 62,310,370 62,310,370
Less selling commissions paid to affiliates (5,919,485) (5,919,485)
Other syndication costs paid to affiliates (2,762,793) (2,762,793)
Distributions to limited partners ($0.93 per Unit) (8,719,731) (8,719,731)
Distributions to General Partner (72,912) (72,912)
Net loss (2,188,227) (22,103) (2,210,330)
---------------- ---------------- --------------- ----------------
Balance December 31, 1996 12,500,050 93,319,846 (118,690) 93,201,156
Other syndication costs paid to affiliates (41,174) (41,174)
Distributions to limited partners ($1.00 per Unit) (12,475,238) (12,475,238)
Distributions to General Partner (112,345) (112,345)
Net loss (2,274,984) (22,980) (2,297,964)
---------------- ---------------- --------------- ----------------
Balance December 31, 1997 12,500,050 78,528,450 (254,015) 78,274,435
Distributions to limited partners ($1.00 per Unit) (12,500,645) (12,500,645)
Distributions to General Partner (162,276) (162,276)
Net income 703,814 7,109 710,923
---------------- ---------------- --------------- ----------------
Balance December 31, 1998 12,500,050 $ 66,731,619 $ (409,182) $66,322,437
================ ================ =============== ================
See accompanying notes.
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Operating activities:
Net income (loss) $ 710,923 $ (2,297,964) $ (2,210,330)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 26,193,147 27,596,548 19,298,500
Provision for losses and impairments 97,528 364,852 257,814
(Gain) loss on sales of assets (786,070) (26,431) 107,873
Changes in operating assets and liabilities:
Accounts receivable (3,891,412) (4,496,371) (4,191,555)
Accounts payable, General Partner (143,308) 269,288 (1,233,996)
Accounts payable, other 189,108 652 297,525
Accrued interest payable 2,030,965 2,362,716 1,515,239
Unearned lease income (321,443) 126,480 99,150
---------------- --------------- ----------------
Net cash provided by operating activities 24,079,438 23,899,770 13,940,220
---------------- --------------- ----------------
Investing activities:
Purchases of equipment on operating leases - (2,661,808) (113,775,023)
Purchases of equipment on direct financing leases - (94,469) (1,177,807)
Purchases of residual value interests - - (379,551)
Initial direct lease costs paid to affiliate - - (2,716,021)
Reduction of net investment in direct financing leases 428,622 685,665 501,623
Proceeds from sales of assets 3,357,017 406,362 636,397
---------------- --------------- ----------------
Net cash provided by (used in) investing activities 3,785,639 (1,664,250) (116,910,382)
---------------- --------------- ----------------
Financing activities:
Capital contributions received - - 62,310,370
Payment of syndication costs to General Partner - (41,174) (8,682,278)
Distributions to Limited Partners (12,500,645) (12,475,238) (8,719,731)
Distributions to General Partner (162,276) (112,345) (72,912)
Borrowings under line of credit 2,200,000 3,210,974 64,426,319
Repayments of borrowings under line of credit (5,850,000) (10,059,231) (87,196,734)
Proceeds of non-recourse debt 4,199,995 10,701,894 84,675,980
Repayments of non-recourse debt (15,747,720) (13,844,035) (4,722,429)
----------------- -------------- ----------------
Net cash (used in) provided by financing activities (27,860,646) (22,619,155) 102,018,585
----------------- -------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,431 (383,635) (951,577)
Cash and cash equivalents at beginning of period 739,701 1,123,336 2,074,913
----------------- -------------- ----------------
Cash and cash equivalents at end of period $ 744,132 $ 739,701 $ 1,123,336
================ =============== ================
ATEL CASH DISTRIBUTION FUND VI, L.P.
STATEMENTS OF CASH FLOWS
(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 4,526,586 $ 5,631,030 $ 4,258,224
================ =============== ================
Schedule of non-cash transactions:
Offset of accounts receivable and debt service per lease and debt agreement:
Accrued interest payable $ (3,864,443)
Non-recourse debt (935,557)
----------------
Accounts receivable $ (4,800,000)
================
See accompanying notes.
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. Contributions in
the amount of $600 were received as of July 21, 1994, $100 of which represented
the General Partner's (ATEL Financial Corporation's) (ATEL's) continuing
interest, and $500 of which represented the Initial Limited Partners' capital
investment.
Upon the sale of the minimum amount of Units of Limited Partnership interest
(Units) of $1,200,000 and the receipt of the proceeds thereof on January 3,
1995, the Partnership commenced operations.
The Partnership or ATEL on behalf of the Partnership, incurred costs in
connection with the organization, registration and issuance of the Units. The
amount of such costs to be born by the Partnership was limited to 15% of Gross
Proceeds of up to $25,000,000 and 14% of Gross Proceeds in excess of
$25,000,000.
The Partnership's business consists of leasing various types of equipment. As of
December 31, 1998, the original terms of the leases ranged from six months to
twenty years.
Pursuant to the Limited Partnership Agreement, ATEL receives compensation and
reimbursements for services rendered on behalf of the Partnership (Note 5). ATEL
is required to maintain in the Partnership reasonable cash reserves for working
capital, the repurchase of Units and contingencies.
2. Summary of significant accounting policies:
Equipment on operating leases:
Revenues from operating leases are recognized evenly over the life of the
related 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.
Direct financing leases:
Income from direct financing lease transactions is reported on the financing
method of accounting, in which the Partnership's investment in the leased
property is reported as a receivable from the lessee to be recovered through
future rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. Summary of significant accounting policies (continued):
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
Income taxes:
The Partnership does not provide for income taxes since all income and losses
are the liability of the individual partners and are allocated to the partners
for inclusion in their individual tax returns.
The tax basis of the Partnership's net assets and liabilities varies from the
amounts presented in these financial statements (unaudited):
1998 1997
---- ----
Financial statement basis of net assets $ 66,322,437 $ 78,274,435
Tax basis of net assets 23,162,026 39,757,262
---------------- ---------------
Difference $ 43,160,411 $ 38,517,173
================ ===============
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 syndication costs and differences between the depreciation methods used in
the financial statements and the Partnership's tax returns.
The following reconciles the net income (loss) reported in these financial
statements to the loss reported on the Partnership's federal tax return
(unaudited):
1998 1997
---- ----
Net income (loss) per financial statements $ 710,923 $ (2,297,964)
Adjustment to depreciation expense (6,669,671) (19,855,425)
Other adjustments to revenues and expenses 1,928,904 (644,595)
Provision for losses and impairments 97,528 364,852
---------------- ---------------
Net loss per federal tax return $ (3,932,316) $ (22,433,132)
================ ===============
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
Credit Risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk include cash and cash equivalents 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, 1998.
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. Summary of significant accounting policies (continued):
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Such estimates primarily
relate to the determination of residual values at the end of the lease term.
Reserve for losses and impairments:
The Partnership maintains a reserve on its investments in equipment and leases
for losses and impairments which are inherent in the portfolio as of the balance
sheet date. The General Partner's evaluation of the adequacy of the allowance is
a judgmental estimate that is based on a review of individual leases, past loss
experience and other factors. While the General Partner believes the allowance
is adequate to cover known losses, it is reasonably possible that the allowance
may change in the near term. However, such change is not expected to have a
material effect on the financial position or future operating results of the
Partnership. It is the Partnership's policy to charge off amounts which, in the
opinion of the General Partner, are not recoverable from lessees or the
disposition of the collateral.
3. Investments in equipment and leases:
As of December 31, 1998, the Partnership's investments in equipment and leases
consist of the following:
Depreciation
Expense or Reclass-
December 31, Amortization ifications or December 31,
1997 Additions of Leases Dispositions 1998
---- --------- --------- ------------ ----
Net investment in operating leases $152,814,493 $ (25,325,663) $ (1,041,781) $126,447,049
Net investment in direct financing
leases 2,850,933 (428,622) (1,199,595) 1,222,716
Assets held for sale or lease 428,609 - (329,571) 99,038
Residual value interests 379,551 - - 379,551
Reserve for losses and impairments (687,558) $ (97,528) - - (785,086)
Initial direct costs, net of accumulated
amortization of $2,423,318 in 1998
and $2,366,645 in 1997 3,070,223 - (867,484) - 2,202,739
---------------- ---------------- ---------------- --------------- ----------------
$158,856,251 $ (97,528) $ (26,621,769) $ (2,570,947) $129,566,007
================ ================ ================ =============== ================
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. Investments in equipment and leases (continued):
Operating leases:
Property on operating leases consists of the following as of December 31, 1997,
additions and dispositions during 1998 and as of December 31, 1998:
Reclass-
December 31, ifications or December 31,
1997 Additions Dispositions 1998
---- --------- ------------ ----
Transportation $100,087,024 ($121,730) $99,965,294
Construction 32,643,774 (465,037) 32,178,737
Manufacturing 30,738,706 (652,232) 30,086,474
Materials handling 18,710,808 (267,899) 18,442,909
Office automation 13,068,112 (2,582,956) 10,485,156
Miscellaneous 3,683,663 (229,912) 3,453,751
Communications 658,185 - 658,185
Medical 343,409 - 343,409
Food processing 317,520 - 317,520
---------------- ---------------- --------------- ----------------
200,251,201 (4,319,766) 195,931,435
Less accumulated depreciation (47,436,708) ($25,325,663) 3,277,985 (69,484,386)
---------------- ---------------- --------------- ----------------
$152,814,493 ($25,325,663) ($1,041,781) $126,447,049
================ ================ =============== ================
Direct financing leases:
As of December 31, 1998 and 1997, 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, 1998 and 1997:
1998 1997
---- ----
Total minimum lease payments receivable $1,369,085 $1,853,748
Estimated residual values of leased equipment (unguaranteed) 255,570 1,483,554
---------------- ---------------
Investment in direct financing leases 1,624,655 3,337,302
Less unearned income (401,939) (486,369)
---------------- ---------------
Net investment in direct financing leases $1,222,716 $2,850,933
================ ===============
All of the property on leases was acquired in 1997, 1996 and 1995.
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. Investments in equipment and leases (continued):
At December 31, 1998, 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
1999 $27,025,091 $345,493 $27,370,584
2000 20,285,928 259,074 20,545,002
2001 10,777,239 158,238 10,935,477
2002 4,847,069 112,480 4,959,549
2003 3,050,287 98,760 3,149,047
Thereafter 12,975,397 395,040 13,370,437
---------------- ---------------- ----------------
$78,961,011 $1,369,085 $80,330,096
================ ================ ================
Reserves for losses and impairments:
Activity in the reserve for losses and impairments consists of the following:
Balance 12/31/95 $ 64,892
Provision 257,814
----------------
Balance 12/31/96 322,706
Provision 364,852
----------------
Balance 12/31/97 687,558
Provision 97,528
----------------
Balance 12/31/98 $ 785,086
================
4. Non-recourse debt:
At December 31, 1998, 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 rates from 6.37% to 14.98%. The notes are
secured by assignments of lease payments and pledges of assets. At December 31,
1998, the carrying value of the pledged assets is approximately $87,364,383. The
notes mature from 1999 through 2016.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
1999 $18,635,830 $5,177,815 $23,813,645
2000 15,889,562 3,714,499 19,604,061
2001 8,834,242 2,531,010 11,365,252
2002 5,755,960 1,831,550 7,587,510
2003 5,488,995 1,241,942 6,730,937
Thereafter 10,559,720 4,302,772 14,862,492
---------------- ---------------- ----------------
$65,164,309 $18,799,588 $83,963,897
================ ================ ================
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
5. Related party transactions:
The terms of the Limited Partnership Agreement provide that ATEL 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 ATEL in providing administrative services to the Partnership. Administrative
services provided include Partnership accounting, investor relations, legal
counsel and lease and equipment documentation. ATEL is not reimbursed for
services where it is entitled to receive a separate fee as compensation for such
services, such as acquisition and disposition of equipment. Reimbursable costs
incurred by ATEL are allocated to the Partnership based upon actual time
incurred by employees working on Partnership business and an allocation of rent
and other costs based on utilization studies.
Substantially all employees of ATEL record time incurred in performing
administrative services on behalf of all of the Partnerships serviced by ATEL.
ATEL believes that the costs reimbursed are the lower of (i) actual costs
incurred on behalf of the Partnership or (ii) the amount the Partnership would
be required to pay independent parties for comparable administrative services in
the same geographic location and are reimbursable in accordance with the Limited
Partnership Agreement.
ATEL and/or Affiliates earned fees, commissions and reimbursements, pursuant to
the Limited Partnership Agreement as follows during 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Incentive management fees (computed as 3.25% of distributions of cash from
operations, as defined in the Limited Partnership Agreement) and equipment
management fees (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). $ 1,394,138 $ 1,492,716 $ 1,061,856
Administrative cost reimbursements to ATEL 427,872 435,759 748,745
Reimbursement of other syndication costs - 41,174 2,762,793
Selling commissions (equal to 9.5% of the selling price of the
Limited Partnership units, deducted from Limited Partners' capital) - - 5,919,485
Acquisition fees equal to 3% of the equipment purchase price, for evaluating and
selecting equipment to be acquired (not to exceed approximately 4.5% of Gross
Proceeds, included in investment in
leases) - - 2,716,021
---------------- --------------- ----------------
$ 1,822,010 $ 1,969,649 $13,208,900
================ =============== ================
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
6. Partners' capital:
As of December 31, 1998 and 1997, 12,500,050 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.
The Partnership Net Profits, Net Losses, and Tax Credits are to be allocated 99%
to the Limited Partners and 1% to the General Partner.
Available Cash from Operations and Cash from Sales and Refinancing, as defined
in the Limited Partnership Agreement, shall 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 ATEL and 3.25% to an affiliate of
ATEL 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
the General Partner.
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 ATEL will receive as an Incentive Management Fee, 4% of
remaining Cash from Sales or Refinancing.
Fourth, the balance to the Limited Partners.
7. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. Leases
are subject to ATEL's credit committee review. The leases provide for the return
of the equipment upon default.
As of December 31, 1998, 1997 and 1996 there were concentrations (greater than
10%) of equipment leased to lessees in certain industries (as a percentage of
total equipment cost) as follows:
1998 1997 1996
---- ---- ----
Rail transportation 22% 21% 27%
Other transportation services 13% 12% 12%
Electronics manufacturing 12% 14% *
Business services 10% 11% 11%
* Less than 10%.
ATEL CASH DISTRIBUTION FUND VI, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. Concentration of credit risk and major customers (continued):
During 1998, two customers each comprised 12 % and 10% of the Partnership's
revenues from leases. During 1997, two customers each comprised 10% of the
Partnership's revenues from leases. During 1996, one customer comprised 14% of
the Partnership's revenues from leases.
8. Lines of credit:
The Partnership participates with ATEL and certain of its Affiliates in a
$90,000,000 revolving credit agreement with a group of financial institutions
which expires on January 31, 2000. The agreement includes an acquisition
facility and a warehouse facility which are used to provide bridge financing for
assets on leases. 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 Affiliates, the Partnership and ATEL.
During 1998, the Partnership borrowed $2,200,000 under the line of credit.
Repayments on the line of credit were $5,850,000 during 1998 and $5,100,000
remained outstanding as of December 31, 1998. At December 31, 1998, the rates on
such borrowings varied from 6.28% to 7.75%. Interest on the line of credit is
based on either the thirty day LIBOR rate or the bank's prime rate.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of December
31, 1998. At December 31, 1998, $13,070,344 was available under this agreement.
9. Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short-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, 1998 is
$67,645,653.
Line of credit:
The carrying amounts of the Partnership's variable rate lines of credit
approximate fair value.
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Corporation (the General
Partner) is held by ATEL Capital Group ("ACG"), a holding company formed to
control ATEL and affiliated companies pursuant to a corporate restructuring
completed in July 1994. The outstanding capital stock of ATEL Capital Group is
owned 75% by A. J. Batt and 25% by Dean Cash, and was obtained in the
restructuring in exchange for their capital interests in ATEL Financial
Corporation.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Corporation ("AFC") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Partnership. Acquisition services are performed for the Partnership by ALC,
equipment management, lease administration and asset disposition services are
performed by AEC, investor relations and communications services are performed
by AIS and general administrative services for the Partnership are performed by
AFC. ATEL Securities Corporation ("ASC"), is a wholly-owned subsidiary of ATEL
Financial Corporation.
The officers and directors of ATEL Capital Group, ATEL Financial Corporation and
their affiliates are as follows:
A. J. Batt Chairman of the Board of Directors of ACG, AFC, ALC,
AEC, AIS and ASC; President and Chief Executive
Officer of ACG, AFC and AEC
Dean L. Cash Director, Executive Vice President and Chief Operating
Officer of ACG, AFC, and AEC; Director, President and
Chief Executive Officer of ALC, AIS and ASC
Donald E. Carpenter Vice President and Controller of ACG, AFC, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General Counsel
for ACG, AFC, ALC, AIS and AEC
William J. Bullock Director of Asset Management of AEC
Carl W. Magnuson Vice President - Syndication of ALC
Barbara F. Medwadowski Vice President - Syndication of ALC
James A. Kamradt Director of Pricing and Syndication of ALC
Thomas D. Sbordone Senior Vice President - Marketing of ALC
Russell H. Wilder Vice President - Credit of AEC
John P. Scarcella Vice President of ASC
A. J. Batt, age 62, founded ATEL in 1977 and has been its president and chairman
of the board of directors since its inception. From 1973 to 1977, he was
employed by GATX Leasing Corporation as manager-data processing and equity
placement for the lease underwriting department, which was involved in equipment
financing for major corporations. From 1967 to 1973 Mr. Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support services for computer time-sharing applications for corporations and
financial institutions. Prior to that time, he was employed by North American
Aviation as an engineer involved in the Apollo project. Mr. Batt received a
B.Sc. degree with honors in mathematics and physics from the University of
British Columbia in 1961.
Dean L. Cash, age 48, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing
representative for Martin Marietta Corporation, data systems division, from 1979
to 1980. From 1977 to 1979, he was employed by General Electric Corporation,
where he was an applications specialist in the medical systems division and a
marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was
involved in maintaining and developing software for commercial applications. Mr.
Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A.
degree with a concentration in finance in 1975 from Florida State University.
Mr. Cash is an arbitrator with the American Arbitration Association.
Donald E. Carpenter, age 50, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 40, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the Corporate and Securities Legal Department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law
School and an MBA (Finance) in 1997 from Golden Gate University. Mr. Morais has
been an active member of the State Bar of California since 1986.
William J. Bullock, age 35, joined ATEL in 1991, as the director of asset
management. He assumed responsibility for the disposition of off-lease equipment
and residual valuation analysis on new lease transactions. Prior to joining
ATEL, Mr. Bullock was a senior member of the equipment group at McDonnell
Douglas Finance Corporation ("MDFC") responsible for managing its $4 billion
portfolio of leases. Mr. Bullock was involved in negotiating sales and renewals
as well as preparing and inspecting equipment. Prior to joining MDFC in 1989,
Mr. Bullock was the Senior Negotiator at Equitable Leasing (a subsidiary of GE
Capital Equipment Corp.) in San Diego. At Equitable, he handled the end-of-lease
negotiations and equipment dispositions of a portfolio comprised of equipment
leased primarily to Fortune 200 companies. Mr. Bullock has been a member of the
Equipment Lessors Association ("ELA") since 1987 and has authored ELA industry
articles. He received a B.S. degree in Finance in 1987 from San Diego State
University and is pursuing his M.B.A.
Carl W. Magnuson, age 55, joined ATEL in 1994 and is Vice President -
Syndication for ALC. Mr. Magnuson is responsible for acquiring third party lease
transactions and debt placement. Prior to joining ATEL he was a Regional Group
Manager and Portfolio Sales Manager for Bell Atlantic Systems Leasing for 10
years. From 1983 to 1984 he was Vice President and Chief Financial Officer of
the Handi-Kup Company, a plastics manufacturer, and from 1981 to 1982 he was
Controller for the Cyclotron Corporation, engaged in nuclear medicine research
and development. From 1978 to 1981 he was Executive Vice President of Shannon
Financial Corporation, a middle market leasing corporation. From 1975 to 1978 he
was a Deputy Program Manager for the Watkins Johnson Company. From 1968 to 1973
Mr. Magnuson was an engineering duty officer in the U. S. Navy. Mr. Magnuson
received a B.S. in Engineering Science and an M.S. in Applied Mathematics from
the Rensselaer Polytechnic Institute, an MS in Industrial Engineering/Operations
Research from Stanford University, and an M.B.A. from the University of
California at Berkeley.
Barbara F. Medwadowski, age 59, joined ATEL in 1997 and is vice president -
syndication for ALC. Ms. Medwadoski is responsible for acquiring third party
lease transactions. Prior to joining ATEL, she was a syndications manager for
Mellon US Leasing (successor to USL Capital and U.S. Leasing Corporation) for
nine years. From 1985 to 1987, she was a vice president with Great Western
Leasing where she acquired lease and loan transactions from intermediaries. From
1982 through 1984, she was a portfolio manager with U.S. Leasing Corporation.
Ms. Medwadowski received an M.B.A. degree from the University of California at
Berkeley in 1982. From 1964 through 1979, she was a senior researcher in lipids
and lipoproteins at the University of California at Berkeley. In 1964, she
earned an M.S. degree in nutrition and in 1961 a B.S. degree in child
development, each from the University of California at Berkeley
James A. Kamradt, age 37, Director of Pricing and Syndication for ALC, joined
ATEL in 1997. Mr. Kamradt is involved in the pricing of lease transactions and
the placement of debt to leverage certain transactions. From 1985 to 1997, Mr.
Kamradt managed his own private consulting business, providing underwriting and
operational services for numerous leasing companies. Prior to that, Mr. Kamradt
was the National Operations Officer for the computer leasing division of Phoenix
American; and Regional Credit Manager for Dana Commercial Credit Corporation.
Mr. Kamradt received his B.S. from Michigan Technological University's
Engineering School of Business, and his M.B.A. from Haas School of Business of
the University of California, Berkeley.
Thomas D. Sbordone, age 40, is Senior Vice President - Marketing for ALC. He
joined ATEL in 1993, as a regional vice president in the northeastern United
States. Mr. Sbordone is currently responsible for new business development
within the eastern U.S., including management of filed sales personnel and
directly interfacing with ATEL's existing and prospective clients to achieve the
company's lease investment objectives. Prior to joining ATEL, Mr. Sbordone was
employed, from 1985, by American Finance Group, a Boston-based equipment lessor.
While there, Mr. Sbordone's various responsibilities involved lease origination
of vendor finance relationships. Mr. Sbordone earned a B.S., with honors, in
finance and marketing from Northeastern University, and has attended Bentley
College Graduate School of Business.
Russell H. Wilder, age 44, joined ATEL in 1992 as Vice President of ATEL
Business Credit, a wholly-owned subsidiary of ACG. Immediately prior to joining
ATEL, Mr. Wilder was a personal property broker specializing in equipment
leasing and financing and an outside contractor in the areas of credit and
collections. From 1985 to 1990 he was Vice President and Manager of Leasing for
Fireside Thrift Co., a Teledyne subsidiary, and was responsible for all aspects
of setting up and managing the department, which operated as a small ticket
lease funding source. From 1983 to 1985 he was with Wells Fargo Leasing
Corporation as Assistant Vice President in the credit department where he
oversaw all credit analysis on transactions in excess of $2 million. From 1978
to 1983 he was District Credit Manager with Westinghouse Credit Corporation's
Industrial Group and was responsible for all non-marketing operations of various
district offices. Mr. Wilder holds a B.S. with Honors in Agricultural Economics
and Business Management from the University of California at Davis. He has been
awarded the Certified Lease Professional designation by the Western Association
of Equipment Lessors.
John P. Scarcella, age 37, joined ATEL Securities as vice president in 1992. He
is involved in the marketing of securities offered by ASC. Prior to joining ASC,
from 1987 to 1991, he was employed by Lansing Pacific Fund, a real estate
investment trust in San Mateo, California and acted as director of investor
relations. From 1984 to 1987, Mr. Scarcella acted as broker dealer
representative for Lansing Capital Corporation, where he was involved in the
marketing of direct participation programs and REITs. Mr. Scarcella received a
B.S.C. degree with emphasis in investment finance in 1983 and an M.B.A.
degree with a concentration in marketing in 1991 from Santa Clara University.
Item 11. EXECUTIVE COMPENSATION
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to ATEL and their Affiliates. The amount of such remuneration paid for
the years ended December 31, 1998, 1997 and 1996 is set forth in Item 8 of this
report under the caption "Financial Statements and Supplementary Data - Notes to
the Financial Statements - Related party transactions," at Note 5 thereof which
information is hereby incorporated by reference.
Selling Commissions
The Partnership will pay selling commissions in the amount of 9.5% of Gross
Proceeds, as defined, to ATEL Securities Corporation, an affiliate of ATEL. Of
this amount, the majority is expected to be reallowed to other broker/dealers.
Through December 31, 1996, $11,875,000 of such commissions (the maximum
allowable) had been paid to ATEL or its affiliates. Of that amount, $10,163,554
was reallowed to other broker/dealers.
Acquisition Fees
Acquisition fees were paid to ATEL 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 ATEL 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 ATEL or its affiliates.
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, ATEL 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 Notes to the financial statements included at 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, ATEL shall be 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 ATEL 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 ATEL shall be 4% of all
distributions of cash from operations, sales or refinancing.
See Notes to the financial statements included at Item 8 of this report for
amounts paid.
Equipment Resale Fees
As compensation for services rendered in connection with the sale of equipment,
ATEL shall be entitled to receive an amount equal to the lesser of (i) 3% of the
sales price of the equipment, or (ii) one-half the normal competitive equipment
sales commission charged by unaffiliated parties for such services. Such fee is
payable only after the Limited Partners have received a return of their adjusted
invested capital (as defined in the Limited Partnership Agreement) plus 10% of
their adjusted invested capital per annum calculated on a cumulative basis,
compounded daily, commencing the last day of the quarter in which the limited
partner was admitted to the Partnership. To date, none have been accrued or
paid.
Equipment Re-lease Fee
As compensation for providing re-leasing services, ATEL shall 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) ATEL 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) ATEL or its affiliates have rendered substantial re-leasing
services in connection with such re-lease and (iv) ATEL 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 ATEL. See financial statements included in Item 8, Part I of
this report for amounts allocated to ATEL in 1998, 1997 and 1996.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1998 no investor is known to the Partnership to hold
beneficially more than 5% of the issued and outstanding Units.
Security Ownership of Management
The shareholders of ATEL 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 0.0004%
235 Pine Street, 6th Floor 25 Units ($250)
San Francisco, CA 94104 (owned by wife)
Limited Partnership Units Dean Cash Initial Limited Partner Units 0.0004%
235 Pine Street, 6th Floor 25 Units ($250)
San Francisco, CA 94104 (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.
ATEL may at any time call a meeting of the Limited Partners or a vote of the
Limited Partners without a meeting, on matters on which they are entitled to
vote, and shall call such meeting or for vote without a meeting following
receipt of a written request therefor of Limited Partners holding 10% or more of
the total outstanding Limited Partnership units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 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 herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 1998 and 1997
Statements of Operations for the years ended December
31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital for the
years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Allschedules for which provision is made in the
applicable accounting regulations of the Securities
and Exchange Commission are not required under the
related instructions or are inapplicable, and
therefore have been omitted.
(b)Reports on Form 8-K for the fourth quarter of 1998
None
(c)Exhibits
(3)and (4) 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).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: 3/26/1999
ATEL Cash Distribution Fund VI, L.P.
(Registrant)
By: ATEL Financial Corporation,
General Partner of Registrant
By: /s/ A. J. Batt
--------------------------------------------------
A. J. Batt,
President and Chief Executive Officer of
ATEL Financial Corporation (General
Partner)
By: /s/ Dean Cash
--------------------------------------------------
Dean Cash,
Executive Vice President of ATEL
Financial Corporation (General Partner)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ A. J. Batt President, chairman and chief executive 3/26/1999
- -------------------------officer of ATEL Financial Corporation
A. J. Batt
/s/ Dean Cash Executive vice president and director 3/26/1999
- -------------------------of ATEL Financial Corporation
Dean Cash
/s/ Donald E. Carpenter Principal financial officer of registrant; 3/26/1999
- -------------------------principalfinancial officer of ATEL Financial
Donald E. Carpenter Corporation Principal accounting officer
of registrant; principal accounting officer
of ATEL Financial Corporation
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 supplementally to the
Commission when forwarded to the security holders.