Item 1. BUSINESS
General Development of Business
ATEL Cash Distribution Fund, a California limited partnership (the Partnership), was formed under the laws of the State of California on November 29, 1985. The Partnership was formed for the purpose of acquiring equipment to engage in equipment leasing and sales activities.
In a public offering of 15,000 units of Limited Partnership interest (Units) (which was increased to 20,000 Units at the option of the General Partners), at a price of $500 per Unit, the Partnership sold an aggregate of 20,000 Units for a total capitalization of $10,000,000. Of the proceeds received, $950,000 was paid to ATEL Securities Corporation, a wholly owned subsidiary of ATEL Financial Corporation (ATEL), the corporate general partner, as sales commissions, $550,000 was paid to ATEL as reimbursements of organization and other syndication costs and $8,250,000 was used to acquire leased equipment, including acquisition fees paid to ATEL. An additional $250,000 was held for reserves for repurchases of Units and for working capital. The offering was closed as of December 18, 1987.
At December 31, 1996, the Partnership's cash balances ($205,418) consisted of amounts held for distribution to the Limited Partners in January 1997 ($55,900) and working capital reserves.
Narrative Description of Business
The Partnership has acquired various types of equipment and leased such equipment pursuant to "Operating" leases and "Full Payout" leases, where "Operating" leases are defined as being leases in which the minimum lease payments during the initial lease term do not recover the full cost of the equipment and "Full Payout" leases recover such cost.
The Partnership would only enter into leases with (i) companies that have credit ratings of not less than Baa as determined by Moody's Investor Services, Inc. or comparable credit ratings as determined by other nationally recognized credit rating services (which represent approximately 26% of the purchase price of the portfolio as of December 31, 1996), (ii) companies which, although not rated by nationally recognized credit rating services, are believed by the General Partners to have comparable creditworthiness (33% at December 31, 1996), or (iii) under circumstances where, as a result of collateral given, deposits made or other security provided, the credit risk to the Partnership is deemed by the General Partners to be equivalent to at least a Baa rating (40% at December 31, 1996).
One lessee in the food processing industry accounted for 50% of the Partnership's lease revenues during 1996. As of December 31, 1996, the Partnership had acquired equipment manufactured by Caterpillar with a total acquisition cost of $2,328,249, representing 20.9% of the total acquisitions. There is a ready market for the equipment and there are numerous companies which service these types of equipment. No adverse consequences are anticipated because of this concentration in equipment manufactured by one company. As of December 31, 1996, food processing equipment on lease to WSMP, Inc. represents 67% of the Partnership's total net lease assets. WSMP, Inc. is not affiliated with the Partnership or its General Partners. Due to the collateral given, the General Partners do not consider that a default under the lease would have a significant adverse effect on the Partnership.
The equipment leasing industry is highly competitive. Equipment manufacturers, corporations, partnerships and others offer users an alternative to the purchase of most types of equipment with payment terms which vary widely depending on the lease term and type of equipment. The ability of the Partnership to keep the equipment leased and/or operating and the terms of the acquisitions, leases and dispositions of equipment depend on various factors (many of which are not in the control of the General Partners or the Partnership), such as general economic conditions, including the effects of inflation or recession, and fluctuations in supply and demand for various types of equipment resulting from, among other things, technological and economic obsolescence.
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
Equipment Dispositions:
Through December 31, 1996, the Partnership has disposed of certain lease assets as set forth below:
Excess of Acquisition Sales Rents Over Asset Type Cost Price Expenses * - ---------- ---- ----- ---------- Material Handling $2,590,452 $671,322 $2,632,587 Transportation 1,456,876 957,000 1,377,074 Other 1,579,698 990,617 922,018 Communications 845,305 48,318 828,345 Medical 899,672 99,000 996,499 Data processing 743,578 83,527 855,547 Motor Vehicles 279,455 84,086 310,452 Furniture & fixtures 247,000 147,148 167,876 Mining 194,887 70,000 257,059 --------------- ------------- ------------- $8,836,923 $3,151,018 $8,347,457 =============== ============= =============
* Includes only those expenses directly related to the production of the related rents.
Equipment Leasing Activities:
The Partnership has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries. The following tables set forth the types of equipment acquired by the Partnership through December 31, 1996 and the industries to which the assets have been leased.
Purchase price excluding Percentage of total Asset types acquisition fees acquisitions ----------- ---------------- ------------ Materials handling $3,061,707 27.50% Medical 1,518,245 13.64% Transportation 1,200,000 10.78% Manufacturing 1,038,478 9.33% Studio and broadcasting 909,735 8.17% Communications 835,563 7.50% Printing 721,266 6.48% Motor vehicles 545,148 4.90% Data processing 489,039 4.39% Mining 358,710 3.22% Food processing 208,787 1.88% Furniture and fixtures 247,000 2.21% --------------- ------------- $11,133,678 100.00% =============== =============
Purchase price excluding Percentage of total Industry of lessee acquisition fees acquisitions ------------------ ---------------- ------------ Manufacturing, other $3,427,773 30.79% Forest products 1,653,596 14.85% Medical 1,518,245 13.64% Manufacturing, chemicals 1,417,908 12.74% Communications 909,735 8.17% Printing 721,266 6.48% Manufacturing, automobiles 622,632 5.59% Food processing 526,287 4.73% Retail food sales 247,000 2.22% Insurance 89,236 0.79% --------------- ============= $11,133,678 100.00% =============== =============
For further information regarding the Partnership's equipment lease portfolio as of December 31, 1996, see Note 3 to the financial statements, Investment in equipment and leases, set forth in Item 8, Financial Statements and Supplementary Data.
Item 2.
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or materially important physical properties other than equipment held for lease as set forth in Item 1.
Item 3.
Item 3. LEGAL PROCEEDINGS
Inapplicable
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been imposed under the securities laws of certain states and the Partnership Agreement. However, as a result of such restrictions, the size of the Partnership and its investment objectives, to the General Partners' knowledge, no established public secondary trading market has developed and it is unlikely that a public trading market will develop in the future.
Holders
As of December 31, 1996, a total of 1031 investors were record holders of Units in the Partnership.
Dividends
The Limited Partners of the Partnership are entitled to certain distributions as provided under the Limited Partnership Agreement.
The General Partners have sole discretion in determining the amount of distributions. However, since the reinvestment period ended December 31, 1994, the General Partners are required to distribute, subject to payment of any obligations of the Partnership, such available cash from operations and cash from sales or refinancing.
The rates for distributions to Limited Partners in April, July and October 1996 and in January 1997 were $2.50, each, per Unit (a total of $10.00 per Unit). All distributions were made from cash flows from operations and sales proceeds in 1996.
The rates for distributions to Limited Partners in April, July and October 1995 and in January 1996 were $3.43, $6.07, $2.50 and $3.05, respectively, per Unit (a total of $15.05 per Unit). All distributions were made from cash flows from operations and sales proceeds in 1995.
The rates for distributions to Limited Partners in April, July and October 1994 and in January 1995 were $15.00, $15.00, $10.00 and $9.76, respectively, per Unit (a total of $49.76 per Unit). All distributions were made from cash flows from operations and sales proceeds in 1994.
The following table presents summarized information regarding distributions to Limited Partners:
In 1992, 1993 and 1994, cash flows and distributions to Limited Partners were not sufficient to allow the Partnership to reinvest in additional equipment. The reinvestment period ended December 31, 1994 in accordance with the terms of the Limited Partnership Agreement.
Effective April 1, 1993, the capital accumulation period was terminated by the General Partners.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership for the years ended December 31, 1996, 1995, 1994, 1993 and 1992. This financial data should be read in conjunction with the financial statements and the related notes included under Item 8 of this report.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
At December 31, 1996, the Partnership's cash balances ($205,418) consisted of amounts held for distribution to the Limited Partners in January 1997 ($55,900) and working capital reserves.
During 1996, the Partnership generated cash flows available for distribution (as defined in the Partnership Agreement) of $420,000.
During the year, the Partnership's primary sources of liquidity were cash flows from leasing operations and proceeds from the sales of assets. The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from operations and proceeds from asset sales exceed expenses, and decreasing as distributions are made to the Limited Partners and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The Partnership currently has available adequate reserves to meet its immediate cash requirements.
Through December 31, 1996, the Partnership had borrowed approximately $2,818,000. The outstanding balance at December 31, 1996 was $154,780. There were no new borrowings between December 31, 1996 and February 28, 1997. The borrowings were 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. The Partnership Agreement limits such borrowings to 80% of the total cost of equipment, in aggregate.
No commitments of capital have been made or will be made in connection with the reinvestment of available cash from operations and cash from sales or refinancing for the acquisition of additional equipment as described in Item 1. The Partnership's reinvestment period ended December 31, 1994. The Partnership may, however, use the proceeds of non-recourse debt to purchase additional assets. In 1995, the Partnership acquired assets with a cost of $208,787 by this method.
The Partnership made distributions of cash from operations and sales proceeds to the Limited Partners in April, July and October 1996 and in January 1997. These distributions were based on the results of operations and asset sales in 1996.
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.
1996 vs. 1995.
Cash flows from operations decreased by $106,560 compared to 1995. In 1995, the Partnership had received $103,286 from the Financial News Network (FNN) bankruptcy settlement. The Partnership had also received marketable securities in a prior year as part of that bankruptcy settlement and in 1995, received $68,158 from the sale of that stock. There were no such receipts or stock sales in 1996. None were expected in 1996 nor are any expected in any future period.
Sources of cash from investing activities increased from $191,880 in 1995 to $292,322 in 1996. The increase was the result of an increased amount of asset sales in 1996 compared to 1995. The assets sales occurred at scheduled lease terminations and in one case, an early termination ($147,148).
There were no sources of cash from financing activities in 1996.
1995 vs. 1994.
Cash flows from operations increased by $5,111. Although the net change is not large, it is the result of two significant (and offsetting) factors. Lease revenues declined by $70,114 as a result of continued lease maturities, terminations and asset sales. This was offset by the receipt of $103,286 as a part of the 1992 settlement of the FNN bankruptcy.
Sources of cash from investing activities decreased from $742,095 in 1994 to $191,880 in 1995. The largest factor was the decrease in the amounts of proceeds from sales of lease assets from $450,553 in 1994 to $44,030 in 1995. This decrease reflects the decrease in the amounts of equipment sold in 1994 compared to 1995. The original cost of operating lease assets sold in 1994 was $609,385 compared to $149,558 in 1995. The amounts received from the sales of marketable securities decreased from $171,797 in 1994 to $68,158 in 1995. The stock was received at no cost as part of the 1992 FNN bankruptcy settlement. All of the stock had been sold as of the end of the first quarter of 1995.
In 1995, the only source of cash from financing sources was the $205,517 received as the proceeds of non-recourse debt. This cash was used to finance the assets acquired in 1995.
Results of Operations
1996 vs. 1995
Lease revenues decreased from about $175,000 in 1995 to about $142,000 in 1996. This decrease was primarily due to scheduled lease terminations and subsequent asset sales. Depreciation expense increased from $29,324 in 1995 to $62,028 in 1996. The increase resulted primarily from depreciation taken on assets acquired in 1995. A full year's depreciation was taken on these assets for the first time in 1996. There were no sales of marketable securities in 1996 nor were any settlement proceeds received from the FNN bankruptcy. The Partnership no longer owns any marketable securities.
Other revenues and expenses have not changed significantly compared to 1995.
1995 vs. 1994
Lease revenues decreased from $245,000 in 1994 to $175,000 in 1995. This decrease is primarily the result of scheduled lease terminations. All of the assets coming off lease in 1995 were sold. Depreciation expense decreased from $98,835 in 1994 to $29,324 in 1995. This decrease is also the result of asset sales in 1994 and 1995. Gains on the sales of marketable securities decreased from $171,797 in 1994 to $68,158 in 1995 as the remainder of the common stock received in the FNN bankruptcy settlement was sold in the first quarter of 1995. In 1995, the Partnership also received a one time distribution from that settlement in the amount of $103,286. There will not be any similar amounts in future periods.
The decrease in the management fees and administrative cost reimbursements resulted from the General Partners' decision in 1994 to waive such fees and reimbursements. Interest expense increased as a direct result of the 1995 non-recourse borrowings ($205,517).
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto at pages 10 through 21.
REPORT OF INDEPENDENT AUDITORS
The Partners ATEL Cash Distribution Fund
We have audited the accompanying balance sheets of ATEL Cash Distribution Fund (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of income, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ATEL Cash Distribution Fund (a California limited partnership) at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP San Francisco, California January 27, 1997
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1996 and 1995
ASSETS 1996 1995 ---- ----
Cash and cash equivalents $205,418 $91,084
Accounts receivable, net of allowance for doubtful accounts of $22,097 in 1996 and in 1995 25,877 6,098
Investment in equipment and leases 234,707 552,050 ------------- -------------- Total assets $466,002 $649,232 ============= ==============
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $154,780 $190,568
Accounts payable 11,174 10,179 Deposits due to lessees - 12,914 Accrued interest 1,195 1,471 Unearned lease income - 915 ------------- -------------- Total liabilities 167,149 216,047
Partners' capital: General Partners 20,929 19,914 Limited Partners 277,924 413,271 ------------- -------------- Total partners' capital 298,853 433,185 ------------- -------------- Total liabilities and partners' capital $466,002 $649,232 ============= ==============
See accompanying notes.
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
See accompanying notes.
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
See accompanying notes.
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
See accompanying notes.
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Organization and partnership matters:
ATEL Cash Distribution Fund, a California limited partnership (the Partnership), was formed under the laws of the State of California on November 29, 1985, for the purpose of acquiring equipment to engage in equipment leasing and sales activities. Initial contributions of $600 were received, and of this amount, $100 was contributed by the General Partners for their General Partner interest. One unit of Limited Partnership interest was issued to the initial Limited Partner for $500. Partnership operations commenced on November 17, 1986 when subscriptions for the minimum amount of Units of Limited Partnership Interest (Units) offered by the prospectus ($1,200,000) and the proceeds thereof had been received by the Partnership. The General Partners are ATEL Financial Corporation (ATEL), a California corporation and two individuals, who are principals of ATEL Capital Group, the parent of ATEL Financial Corporation.
The Partnership's business consists of leasing various types of equipment. As of December 31, 1996, the original terms of the leases ranged from three to seven years.
Pursuant to the Limited Partnership Agreement, the General Partners are entitled to receive compensation and reimbursement for services rendered on behalf of the Partnership (Note 5). The General Partners are required to maintain reasonable cash reserves for working capital in the Partnership.
2. Summary of significant accounting policies:
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided by use of the straight-line method over the terms of the related leases to the equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the life of the related leases.
Direct financing leases:
Income from direct financing lease transactions is reported on the financing method of accounting, in which the Partnership's investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals and realization of residual values. The income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. Summary of significant accounting policies (continued):
Investment in leveraged leases:
Leases which are financed principally with non-recourse debt at lease inception and which meet certain other criteria are accounted for as leveraged leases. Leveraged lease contracts receivable are stated net of the related non-recourse debt service (which includes unpaid principal and aggregate interest on such debt) plus estimated residual values. Unearned income represents the excess of anticipated cash flows (after taking into account the related debt service and residual values) over the investment in the lease and is amortized using a constant rate of return applied to the net investment when such investment is positive.
Statements of cash flows:
For purposes of the 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. 1996 1995 ---- ---- Financial statement basis of net assets and liabilities $298,853 $433,185 Tax basis of net assets and liabilities 2,045,416 2,087,467 ------------- ------------- Difference $1,746,563 $1,654,282 ============= =============
The following reconciles the net loss reported in these financial statements to the loss reported on the Partnership's federal tax return (unaudited): 1996 1995 ---- ---- Net income per financial statements $101,543 $310,695 Adjustment to depreciation expense 10,896 (31,898) Adjustments to revenues 81,640 56,712 Provision for losses and impairments 2,088 3,768 Adjustments to other expenses (2,345) (2) ------------- ------------- Net income per federal tax return $193,822 $339,275 ============= =============
Credit Risk:
Financial instruments which potentially subject the Partnership to concentrations of credit risk include cash and cash equivalents. The Partnership places its cash deposits and temporary cash investments with creditworthy, high quality financial institutions. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Partnership.
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
Use of estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Per unit data:
Net income and distributions per unit are based upon the weighted average number of Units outstanding during the period, without giving effect to changes in capital interests as a result of reinvestment of distributions.
3. Investment in equipment and leases:
The Partnership's investment in equipment and leases consists of the following:
Operating leases:
Property on operating lease consists of the following as of December 31, 1995, additions and dispositions during 1996 and as of December 31, 1996:
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
3. Investment in equipment and leases (continued):
Direct financing leases:
Equipment under direct financing leases consists of an industrial heater. The following lists the components of the Partnership's investment in direct financing leases as of December 31, 1996 and 1995:
1996 1995 ---- ---- Total minimum lease payments receivable $66,125 $338,303 Estimated residual values of leased equipment (unguaranteed) 1 1 ------------- ------------- Investment in direct financing leases 66,126 338,304 Less unearned income (25,659) (85,315) ------------- -------------
Net investment in direct financing leases $40,467 $252,989 ============= =============
At December 31, 1996, the aggregate amounts of future minimum lease payments from direct financing leases and operating leases are as follows:
Year ending Direct December 31, Financing Operating Total ------------ --------- --------- ----- 1997 $66,125 $57,219 $123,344 1998 - 51,948 51,948 1999 - 51,948 51,948 2000 - 25,974 25,974 ------------- --------------- ------------- $66,125 $187,089 $253,214 ============= =============== =============
4. Non-recourse debt:
At December 31, 1996, non-recourse debt consisted of a note payable to a financial institution of $154,780. The note is due in monthly payments of $4,329. Interest on the note is at the rate of 9.264%. The note is secured by an assignment of lease payments and a pledge of assets. At December 31, 1996, the carrying value of the pledged assets is approximately $156,591.
Future minimum payments of non-recourse debt are as follows:
Year ending December 31, Principal Interest Total ------------ --------- -------- ----- 1997 $39,248 $12,700 $51,948 1998 43,042 8,906 51,948 1999 47,204 4,744 51,948 2000 25,286 688 25,974 --------------- ------------- ------------- $154,780 $27,038 $181,818 =============== ============= =============
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partners and/or their Affiliates are entitled to receive certain fees for equipment acquisition, management and resale and for management of the Partnership.
The General Partners earned partnership management fees equal to 5% of cash distributed from operations and equipment management fees equal to 2% of full payout lease rentals and 5% of operating lease rentals pursuant to the Limited Partnership Agreement. Effective April 1, 1994, the General Partners elected to waive all management fees. The amounts of management fees earned in 1994 were $20,359.
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. Effective May 1, 1994, the General Partners have elected to waive all reimbursements of administrative costs. In 1996, 1995 and 1994, $50,914, $58,200 and $52,800 were waived, respectively. Costs charged and reimbursed in 1994 totaled $34,380.
6. Partners' capital:
The Partnership is authorized to issue up to 20,001 Units of Limited Partnership Interest. As of December 18, 1987, all of the Units had been subscribed and issued. Limited Partners had the option to elect to accumulate their share of distributions for reinvestment during the Partnership's reinvestment period (through December 31, 1994). Reinvested distributions do not result in the issuance of additional Units. Each limited partner's capital interest in the Partnership is based upon his original invested capital plus any reinvested distributions. This capital accumulation period was terminated effective April 1, 1993 by the General Partners.
The Partnership's net profits and losses are allocated 99% to the Limited Partners and 1% to the General Partners.
Available Cash from Operations and Cash from Sales or Refinancing, as defined in the Limited Partnership Agreement, shall be distributed as follows:
First, 5% of Cash from Operations to the General Partners as the Partnership Management Fee,
Second, the balance to the Limited Partners until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital plus an 8% per annum cumulative (compounded daily) return on their Adjusted Invested Capital.
Third, the General Partners will receive a Subordinated Incentive Fee, as follows: A) 10% of remaining Cash from Operations B) 15% of remaining Cash from Sales or Refinancing
Fourth, the balance to the Limited Partners.
ATEL CASH DISTRIBUTION FUND (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
7. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. As of December 31, 1996, 74% and 26% of total equipment cost was leased to lessees in the manufacturing industries and transportation industry, respectively. Leases are subject to the General Partners' investment committee review. The leases provide for the return of the equipment upon default.
During 1996, lease rentals from one customer represented 50% of total gross lease payments. During 1995, lease rentals from the same customer represented 30% of total gross lease payments. During 1994, lease rentals from another customer represented 18% of total gross lease payments.
8. Fair value of financial instruments:
The Partnership has adopted Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," which requires disclosure of the fair value of financial instruments for which it is practicable to estimate fair value. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of these instruments.
Accounts payable, accrued interest and customer deposits:
The carrying amount of accounts payable, accrued interest and customer deposits approximates fair value because of the short maturity of these instruments.
Non-recourse debt:
The fair value of the Partnership's non-recourse debt is estimated using discounted cash flow analyses, based on the Partnership's current incremental borrowing rates for similar types of borrowing arrangements. The estimated fair value of the Partnership's non-recourse debt at December 31, 1996 is $151,326.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Inapplicable.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Partnership and, therefore, has no officers or directors.
All of the outstanding capital stock of ATEL Financial Corporation (the corporate General Partner) is held by ATEL Capital Group ("ACG"), a holding company formed to control the General Partner and affiliated companies pursuant to a corporate restructuring completed in July 1994. The outstanding capital stock of ATEL Capital Group is owned 75% by A. J. Batt and 25% by Dean Cash (the individual General Partners), and was obtained in the restructuring in exchange for their capital interests in ATEL Financial Corporation.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"), ATEL Investor Services ("AIS") and ATEL Financial Corporation ("AFC") is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Partnership. Acquisition services are performed for the Partnership by ALC, equipment management, lease administration and asset disposition services are performed by AEC, investor relations and communications services are performed by AIS and general administrative services for the Partnership are performed by AFC. ATEL Securities Corporation ("ASC"), is a wholly-owned subsidiary of ATEL Financial Corporation.
The officers and directors of ATEL Capital Group, ATEL Financial Corporation and their affiliates are as follows:
A. J. Batt . . . . . . . . Chairman of the Board of Directors of ACG, AFC, ALC, AEC, AIS and ASC; President and Chief Executive Officer of ACG, AFC and AEC
Dean L. Cash . . . . . . . Director, Executive Vice President and Chief Operating Officer of ACG, AFC, and AEC; Director, President and Chief Executive Officer of ALC, AIS and ASC
F. Randall Bigony . . . . Senior Vice President and Chief Financial Officer of ACG, AFC, ALC, AIS and AEC
Donald E. Carpenter . . . Vice President and Controller of ACG, AFC, ALC, AEC and AIS; Chief Financial Officer of ASC
Vasco H. Morais . . . . . General Counsel for ACG, AFC, ALC, AIS and AEC
William J. Bullock . . . . Director of Asset Management of AEC
Jeffrey A. Schwager . . . Vice President - Syndication of ALC
Russell H. Wilder . . . . Vice President - Credit of AEC
John P. Scarcella . . . . Vice President of ASC
A. J. Batt, age 60, founded ATEL in 1977 and has been its president and chairman of the board of directors since its inception. From 1973 to 1977, he was employed by GATX Leasing Corporation as manager-data processing and equity placement for the lease underwriting department, which was involved in equipment financing for major corporations. From 1967 to 1973 Mr. Batt was a senior technical representative for General Electric Corporation, involved in sales and support services for computer time-sharing applications for corporations and financial institutions. Prior to that time, he was employed by North American Aviation as an engineer involved in the Apollo project. Mr. Batt received a B.Sc. degree with honors in mathematics and physics from the University of British Columbia in 1961.
Dean L. Cash, age 46, joined ATEL as director of marketing in 1980 and has been a vice president since 1981, executive vice president since 1983 and a director since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A. degree with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association.
F. Randall Bigony, age 39, joined ATEL in 1992 to review administrative operations within ATEL Financial Corporation and to develop and implement functional plans to support company growth. He currently oversees ATEL's accounting, MIS and treasury functions. From 1987 until joining ATEL, Mr. Bigony was president of F. Randall Bigony & Co., a consulting firm that provided financial and strategic planning services to emerging growth companies. From 1983 to 1987, he was a manager with the accounting firm of Ernst & Whinney, serving clients in its management consulting practice. Mr. Bigony received a B.A. degree in business from the University of Massachusetts and an M.B.A. degree in finance from the University of California, Berkeley. He is a founding board member and acting treasurer of the I Have a Dream Foundation - Bay Area Chapter.
Donald E. Carpenter, age 48, joined ATEL in 1986 as controller. Prior to joining ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified public accountants in San Francisco, California, from 1983 to 1986. From 1979 to 1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells, certified public accountants, in San Jose, California. From 1971 to 1975, Mr. Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a B.S. degree in mathematics (magna cum laude) from California State University, Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter has been a California certified public accountant since 1981.
Vasco H. Morais, age 38, joined ATEL in 1989 as general counsel to provide legal support in the drafting and reviewing of lease documentation, advising on general corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of America's equipment leasing subsidiaries, providing in-house legal support on the documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in the Corporate and Securities Legal Department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley and a J.D. degree in 1986 from Golden Gate University Law School. Mr. Morais has been an active member of the State Bar of California since 1986.
William J. Bullock, age 33, joined ATEL in 1991, as the director of asset management. He assumed responsibility for the disposition of off-lease equipment and residual valuation analysis on new lease transactions. Prior to joining ATEL, Mr. Bullock was a senior member of the equipment group at McDonnell Douglas Finance Corporation("MDFC") responsible for managing its $4 billion portfolio of leases. Mr. Bullock was involved in negotiating sales and renewals as well as preparing and inspecting equipment. Prior to joining MDFC in 1989, Mr. Bullock was the Senior Negotiator at Equitable Leasing (a subsidiary of GE Capital Equipment Corp.) in San Diego. At Equitable, he handled the end-of-lease negotiations and equipment dispositions of a portfolio comprised of equipment leased primarily to Fortune 200 companies. Mr. Bullock has been a member of the Equipment Lessors Association ("ELA") since 1987 and has authored ELA industry articles. He received a B.S. degree in Finance in 1987 from San Diego State University and is pursuing his M.B.A.
Jeffrey A. Schwager, age 36, joined ATEL in 1991 as vice president - syndication and is responsible for acquiring transactions from intermediaries as well as debt and equity placement. Prior to joining ATEL, Mr. Schwager was a member of General Electric Capital Corporation's Institutional Financing Group. There, he was responsible for originating equipment lease and corporate finance opportunities, as well as soliciting equipment portfolios in conjunction with marketing a proprietary capital enhancement product. From 1985 through 1990, Mr. Schwager held several positions with Bank Ireland/First Financial, most recently Vice President Marketing, where he was responsible for originating and negotiating tax-oriented leveraged lease financings for Fortune 500 companies. From 1983 to 1985 Mr. Schwager was an Associate Consultant with The Bigelow Company, a middle market investment banking and management consulting firm, developing and implementing strategic plans for a number of clients. Prior to The Bigelow Company, he worked for Petro-Lewis Corporation as a joint-interest accountant. Mr. Schwager received his B.S. in Business Administration from Babson College in 1982, majoring in Finance and Entrepreneurial Studies.
Russell H. Wilder, age 43, joined ATEL in 1992 as Vice President of ATEL Business Credit, a wholly-owned subsidiary of ACG. Immediately prior to joining ATEL, Mr. Wilder was a personal property broker specializing in equipment leasing and financing and an outside contractor in the areas of credit and collections. From 1985 to 1990 he was Vice President and Manager of Leasing for Fireside Thrift Co., a Teledyne subsidiary, and was responsible for all aspects of setting up and managing the department, which operated as a small ticket lease funding source. From 1983 to 1985 he was with Wells Fargo Leasing Corporation as Assistant Vice President in the credit department where he oversaw all credit analysis on transactions in excess of $2 million. From 1978 to 1983 he was District Credit Manager with Westinghouse Credit Corporation's Industrial Group and was responsible for all non-marketing operations of various district offices. Mr. Wilder holds a B.S. with Honors in Agricultural Economics and Business Management from the University of California at Davis. He has been awarded the Certified Lease Professional designation by the Western Association of Equipment Lessors.
John P. Scarcella, age 35, joined ATEL Securities as vice president in 1992. He is involved in the marketing of securities offered by ASC. Prior to joining ASC, from 1987 to 1991, he was employed by Lansing Pacific Fund, a real estate investment trust in San Mateo, California and acted as director of investor relations. From 1984 to 1987, Mr. Scarcella acted as broker dealer representative for Lansing Capital Corporation, where he was involved in the marketing of direct participation programs and REITs. Mr. Scarcella received a B.S.C. degree with emphasis in investment finance in 1983 and an M.B.A. degree with a concentration in marketing in 1991 from Santa Clara University.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The registrant is a Limited Partnership and, therefore, has no officers or directors.
Set forth hereinafter is a description of the nature of remuneration paid and to be paid to the General Partners and their Affiliates. The amount of such remuneration paid to the General Partners and their Affiliates during the years ended December 31, 1994, 1995 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 herein by reference.
Selling Commissions
The Partnership paid selling commissions in the amount of $950,000 to ATEL Securities Corporation, an affiliate of the General Partners through December 1987. No further commissions are to be paid. Of this amount, $933,761 was reallowed to other broker/dealers.
Acquisition Fees
Acquisition fees were paid to the General Partners for services rendered in finding, reviewing and evaluating equipment to be purchased by the Partnership and rejecting equipment not to be purchased by the Partnership. Total acquisition fees paid through December 31, 1994 were $450,000, the maximum allowable amount.
Equipment Management Fees
As compensation for its services rendered generally in managing or supervising the management of the Partnership's equipment and in supervising other ongoing services and activities including, among others, broker assistance, cash management, product development, property and sales tax monitoring and preparation of financial data, the General Partners or their Affiliates are entitled to receive management fees which are payable for each fiscal quarter and are to be in an amount equal to (i) 5% of the gross revenues from "operating" leases and (ii) 2% of gross revenues from "full payout" leases which contain net lease provisions. See Note 5 to the financial statements under Item 8 of this report for amounts paid. Effective April 1, 1994, the General Partners elected to waive Equipment Management fees due from the Partnership.
Partnership Management Fees
As compensation for its services rendered in connection with the management of the Partnership, including but not limited to employment and supervision of supervisory managing agents, insurance brokers, equipment lease brokers, accountants and other professional advisors, and for supervising the preparation of reports and maintenance of financial and operating data of the Partnership, Securities and Exchange Commission and Internal Revenue Service filings, returns and reports, the General Partners shall be entitled to receive a Partnership management fee which shall be payable for each fiscal quarter and shall be an amount equal to 5% of distributions of cash from operations. See Note 5 to the financial statements under Item 8 of this report for amounts paid in 1994. Effective April 1, 1994, the General Partners elected to waive Partnership Management fees due from the Partnership.
Equipment Resale Fees
As compensation for services rendered in connection with the sale of equipment, the General Partners are 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 8% 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. No Equipment Resale fees have been paid to date.
Subordinated Incentive Fee
As compensation for the services rendered in evaluating and selecting equipment for the Partnership, making decisions as to the nature and terms of the acquisition, leasing, re-leasing and disposition of such equipment, and selecting, retaining and supervising consultants, lessees, engineers, lenders, borrowers and others, the General Partners are entitled to receive a subordinated incentive fee equal to a percentage of all distributions of cash from operations and cash from sales or refinancing payable quarterly, but commencing immediately after the Limited Partners have received the return on their Adjusted Invested Capital described under "Equipment Resale Fees" above. The amount of the subordinated incentive fee is 10% of distributions of cash from operations and 15% of distributions of cash from sales or refinancing. No Subordinated Management fees have been paid to date.
General Partners' Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 99% to the Limited Partners and 1% to the general partners. See the statements of income included in the financial statements at Item 8 of this report for the amounts of income allocated to the general and Limited Partners in 1994, 1995 and 1996.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1996 no investor is known to the Partnership to hold beneficially more than 5% of the issued and outstanding Units.
Security Ownership of Management
The General Partners are beneficial owners of Limited Partnership Units as follows:
Changes in Control
The Limited Partners have the right, by vote of the Limited Partners owning more than 50% of the outstanding Limited Partnership Units, to remove a general partner.
The General Partners may at any time call a meeting of the Limited Partners or a vote of the limited partners without a meeting, on matters on which they are entitled to vote, and shall call such meeting or for vote without a meeting following receipt of a written request therefor of Limited Partners holding 10% or more of the total outstanding Limited Partnership Units.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 8 of this report under the caption "Financial Statements and Supplemental Data - Notes to 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.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules 1. Financial Statements Included in Part II of this report: Report of Independent Auditors Balance Sheets at December 31, 1996 and 1995 Statements of Income for the years ended December 31, 1996, 1995 and 1994 Statements of Changes in Partners' Capital for the years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements
2. Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K for the fourth quarter of 1996 None
(c) Exhibits (3) and (4) Agreement of Limited Partnership incorporated by reference to Exhibits (3) and (4) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1988 filed March 31, 1989 (File No. 0-16843)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: 3/27/1997
ATEL CASH DISTRIBUTION FUND a California Limited Partnership (Registrant)
By: ATEL Financial Corporation, General Partner of Registrant
By: /s/ A. J. Batt ------------------------------------------- A. J. Batt, President and Chief Executive Officer
By: /s/ A. J. Batt -------------------------------------- A. J. Batt, General Partner of Registrant, President and Chief Executive Officer of ATEL Financial Corporation (General Partner)
By: /s/ Dean Cash -------------------------------------- Dean Cash, General Partner of Registrant, Executive Vice President of ATEL Financial Corporation (General Partner)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITIES DATE
/s/ A. J. Batt President, chairman and 3/27/1997 - --------------------- chief executive officer of A. J. Batt ATEL Financial Corporation
/s/ Dean Cash Executive vice president and 3/27/1997 - --------------------- director of ATEL Financial Dean Cash Corporation
/s/ F. Randall Bigony Principal financial officer 3/27/1997 - ----------------------- of registrant; principal F. Randall Bigony financial officer of ATEL Financial Corporation
/s/ Donald E. Carpenter Principal accounting officer 3/27/1997 - ------------------------ of registrant; principal Donald E. Carpenter accounting officer of ATEL Financial Corporation