10-K/A 1 fund510k2003.txt AMENDED REPORT FOR 12/31/03 Form 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |X| Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) For the Year Ended December 31, 2003 OR |_| Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) For the transition period from ____ to ____ Commission File number 0-23842 ATEL Cash Distribution Fund V, L.P. California 94-3165807 ---------- ---------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 600 California Street, 6th Floor, San Francisco, California 94108 (Address of principal executive offices) Registrant's telephone number, including area code (415) 989-8800 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Limited Partnership Units Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X| State the aggregate market value of voting stock held by non-affiliates of the registrant. Inapplicable The number of Limited Partnership Units outstanding as of December 31, 2003 was 12,471,600. DOCUMENTS INCORPORATED BY REFERENCE Prospectus dated February 22, 1993, filed pursuant to Rule 424(b) (Commission File No. 33-53162) is hereby incorporated by reference into Part IV hereof. This amendment is being filed in order to correct the format of the certifications included as Exhibits 31.1 and 31.2. 1 PART I Item 1: BUSINESS General Development of Business ATEL Cash Distribution Fund V, L.P. (the Partnership) was formed under the laws of the state of California in September 1992. The Partnership was formed for the purpose of acquiring equipment to engage in equipment leasing and sales activities. The General Partner of the Partnership is ATEL Financial Services LLC (AFS). Prior to converting to a limited liability company structure, AFS was formerly known as ATEL Financial Corporation. The Partnership conducted a public offering of 12,500,000 units of Limited Partnership interest (Units) at a price of $10 per Unit. As of November 15, 1994, the Partnership had received and accepted subscriptions for 12,500,000 ($125,000,000) Limited Partnership Units in addition to the Initial Limited Partners' Units and the offering was terminated. Of those Units, 12,471,600 were issued and outstanding as of December 31, 2003. The Partnership's principal objectives were to invest in a diversified portfolio of equipment that would (i) preserve, protect and return the Partnership's invested capital; (ii) generate substantial distributions to the partners of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period ("Reinvestment Period") and (iii) provide significant distributions following the reinvestment period and until all equipment has been sold. The Partnership is governed by its Limited Partnership Agreement. The Reinvestment Period ended December 31, 2000 and the Partnership is now in the final stages of its liquidation phase. Narrative Description of Business The Partnership acquired various types of equipment and leases such equipment pursuant to "Operating" leases and "Full Payout" leases, whereby "Operating" leases are defined as being leases in which the minimum lease payments during the initial lease term do not recover the full cost of the equipment and "Full Payout" leases recover such cost. It was the intention of AFS that no more than 25% of the aggregate purchase price of equipment would be subject to "Operating" leases upon final investment of the Net Proceeds of the Offering and that no more than 20% of the aggregate purchase price of equipment would be invested in equipment acquired from a single manufacturer. The Partnership only purchased equipment for which a lease existed or for which a lease would be entered into at the time of the purchase. The Partnership has completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. As of December 31, 2003, the Partnership had purchased equipment with a total acquisition price of $186,995,157. The Partnership's objective was to lease a minimum of 75% of the equipment acquired with the net proceeds of the offering to lessees that (i) had an aggregate credit rating by Moody's Investor Service, Inc. of Baa or better, or the credit equivalent as determined by AFS, with the aggregate rating weighted to account for the original equipment cost for each item leased or (ii) were established hospitals with histories of profitability or municipalities. The balance of the original equipment portfolio could include equipment leased to lessees, which although deemed creditworthy by AFS, would not satisfy the general credit rating criteria for the portfolio. In excess of 75% of the equipment acquired with the net proceeds of the offering (based on original purchase cost) was leased to lessees with an aggregate credit rating of Baa or better or to such hospitals or municipalities as described in (ii) above. AFS sought to limit the amount invested in equipment to any single lessee to not more than 20% of the aggregate purchase price of equipment owned at any time during the Reinvestment Period. As set forth below, during 2003, 2002 and 2001, certain lessees generated significant portions of the Partnership's total lease revenues as follows:
Percentage of Total Lease Revenues Lessee Type of Equipment 2003 2002 2001 ------ ----------------- ---- ---- ---- Florida Canyon Mining Mining 22% 18% 13% Southern Pacific Railroad Railroad Auto Racks 13% * * Burlington Northern Railroad Locomotives * 19% 13% Tarmac America Construction * 14% 16% Union Carbide Corporation Rail tank cars * 10% *
* Less than 10% These percentages are not expected to be comparable in future periods. 2 The equipment leasing industry is highly competitive. Equipment manufacturers, corporations, partnerships and others offer users an alternative to the purchase of most types of equipment with payment terms that vary widely depending on the lease term and type of equipment. The ability of the Partnership to keep the equipment leased and/or operating and the terms of the acquisitions, leases and dispositions of equipment depends on various factors (many of which are not in the control of AFS or the Partnership), such as general economic conditions, including the effects of inflation or recession, and fluctuations in supply and demand for various types of equipment resulting from, among other things, technological and economic obsolescence. The business of the Partnership is not seasonal. The Partnership has no full time employees. Equipment Leasing Activities The Partnership has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries. The following tables set forth the types of equipment acquired by the Partnership through December 31, 2003 and the industries to which the assets have been leased. Purchase Price Excluding Percentage of Total Asset Types Acquisition Fees Acquisitions ----------- ---------------- ------------ Transportation, over-the-road tractors and trailers $34,546,518 18.47% Furniture, fixtures and office equipment 24,145,180 12.91% Transportation, other 18,454,853 9.87% Mining equipment 15,986,308 8.55% Transportation, intermodal containers 15,484,688 8.28% Construction 15,335,327 8.20% Materials handling 14,469,358 7.74% Railroad locomotives 12,350,000 6.60% Earth moving 11,943,745 6.39% Transportation, rail cars 7,180,000 3.84% Printing 4,707,508 2.52% Other * 12,391,672 6.63% ---------------- ---------------- $186,995,157 100.00% ================ ================ * Individual amounts included in "Other" represent less than 2.5% of the total. Purchase Price Excluding Percentage of Total Industry of Lessee Acquisition Fees Acquisitions ------------------ ---------------- ------------ Transportation, rail $45,670,556 24.42% Mining 29,823,055 15.95% Oil & gas 21,301,523 11.39% Retail, foods 11,215,586 6.00% Food processing 9,828,623 5.26% Construction 9,410,789 5.03% Chemicals 9,075,487 4.85% Retail, restaurant 8,528,067 4.56% Transportation, other 8,311,346 4.44% Primary metals 7,526,037 4.02% Manufacturing, other 6,815,862 3.64% Manufacturing, auto/truck 6,690,185 3.58% Printing 4,707,508 2.52% Other * 8,090,533 4.34% ---------------- ---------------- $186,995,157 100.00% ================ ================ * Individual amounts included in "Other" represent less than 2.5% of the total. Through December 31, 2003, the Partnership has disposed of certain leased assets as set forth below:
Original Equipment Cost, Excess of Excluding Rents Over Asset Types Acquisition Fees Sales Price Expenses * ----------- ---------------- ----------- ---------- Transportation $62,045,050 $32,715,022 $48,689,152 Furniture, fixtures and office equipment 22,209,670 8,314,618 18,925,245 Mining equipment 20,717,330 7,796,573 16,430,409 Materials handling 13,108,989 2,570,725 13,977,788 Office automation 4,593,822 970,163 4,813,683 Other 18,838,253 6,909,600 20,427,449 ---------------- -------------------------------- $141,513,114 $59,276,701 $123,263,726 ================ ================================
* Includes only those expenses directly related to the production of the related rents. 3 For further information regarding the Partnership's equipment lease portfolio as of December 31, 2003, see Note 3 to the financial statements, Investments in equipment and leases, as set forth in Part II, Item 8, Financial Statements and Supplementary Data. Item 2. PROPERTIES The Partnership does not own or lease any real property, plant or material physical properties other than the equipment held for lease as set forth in Item 1. Item 3. LEGAL PROCEEDINGS In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Partnership. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Partnership's consolidated financial position or results of operations. There are no material legal proceedings currently pending against the Partnership or against any of its assets. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED MATTERS Market Information The Units are transferable subject to restrictions on transfers that have been imposed under the securities laws of certain states. However, as a result of such restrictions, the size of the Partnership and its investment objectives, to AFS's knowledge, no established public secondary trading market has developed and it is unlikely that a public trading market will develop in the future. As a result, there is no currently ascertainable market value for the Units. Holders As of December 31, 2003, a total of 7,159 investors were holders of record of Units in the Partnership. ERISA Valuation In order to permit ERISA fiduciaries who hold Units to satisfy their annual reporting requirements, AFS estimated the value per Unit of the Partnership's assets as of September 30, 2003. AFS calculated the estimated liquidation proceeds that would be realized by the Partnership, assuming an orderly disposition of all of the Partnership's assets as of January 1, 2004. The estimates were based on the amount of remaining lease payments on existing Partnership leases, and the estimated residual values of the equipment held by the Partnership upon the termination of those leases. This valuation was based solely on AFS's perception of market conditions and the types and amounts of the Partnership's assets. No independent valuation was sought. After calculating the aggregate estimated disposition proceeds, AFS then calculated the portion of the aggregate estimated value of the Partnership assets that would be distributed to Unit holders on liquidation of the Partnership, and divided the total so distributable by the number of outstanding Units. As of September 30, 2003, the value of the Partnership's assets, calculated on this basis, was approximately $1.27 per Unit. The foregoing valuation was performed solely for the ERISA purposes described above. There is no market for the Units, and, accordingly, this value does not represent an estimate of the amount a Unit holder would receive if he were to seek to sell his Units. Furthermore, there can be no assurance as to the amount the Partnership may actually receive if and when it seeks to liquidate its assets, or the amount of lease payments and equipment disposition proceeds it will actually receive over the remaining term of the Partnership. Dividends The Partnership does not make dividend distributions. However, the Limited Partners of the Partnership are entitled to certain distributions as provided under the Limited Partnership Agreement. AFS has sole discretion in determining the amount of distributions; provided, however, that AFS will not reinvest in equipment, but will distribute, subject to payment of any obligations of the Partnership, such available cash from operations and cash from sales or refinancing as may be necessary to cause total distributions to the Limited Partners for each year during the Reinvestment Period to equal the following amounts per unit: $1.05 in 1995 and 1996; $1.10 in 1997 and 1998; and $1.20 in 1999 and 2000. The Reinvestment Period ended December 31, 2000. 4 Two distributions were made from cash generated from 2003 operations. The first distribution was made in May 2003. The rate was $0.13 per Unit. The second distribution was made in January 2004 and the rate was $0.15 per Unit. A single distribution was paid from 2002 operations. The distribution was paid in January 2003 and the rate was $0.15 per Unit. The rate for monthly distributions from 2001 operations was $0.10 per Unit for distributions paid in February through July 2001 and $0.0667 for distributions paid in August through December 2001 and in January 2002. For quarterly distributions, the rate was $0.30 per Unit for distributions paid in April and July 2001 and $0.20 per Unit for distributions paid in October 2001 and in January 2002. Distributions were from 2001 cash flows from operations. The amounts paid to holders of Units were adjusted based on the length of time within the previous calendar month or quarter that the Units were outstanding. The following table presents summarized information regarding distributions to Limited Partners:
2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Net (loss) income per Unit, based on weighted average Units outstanding $ (0.07) $ 0.12 $ 0.01 $ 0.13 $ 0.41 Return of investment 0.35 (0.03) 1.03 1.08 0.79 --------------- ---------------- -------------------------------- ---------------- Distributions per Unit, based on weighted average Units outstanding 0.28 0.09 1.04 1.21 1.20 Differences due to timing of distributions - 0.06 (0.04) (0.01) - --------------- ---------------- -------------------------------- ---------------- Actual distribution rates per Unit $ 0.28 $ 0.15 $ 1.00 $ 1.20 $ 1.20 =============== ================ ================================ ================
Owners of 1,000 or more units may make the election without charge to receive distributions on a monthly basis. Owners of less than 1,000 units may make the election upon payment of a $20.00 annual fee. Item 6. SELECTED FINANCIAL DATA The following table presents selected financial data of the Partnership for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 and for the years then ended. This financial data should be read in conjunction with the financial statements and related notes included under Part II, Item 8.
2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Gross Revenues $ 3,019,440 $ 7,541,282 $ 7,939,473 $11,138,639 $ 17,064,600 Net (loss) income $ (916,504) $ 1,455,267 $ 170,758 $ 1,682,730 $ 5,198,570 Weighted average Units 12,471,600 12,478,700 12,497,000 12,497,000 12,497,000 Net (loss) income per Unit, based on weighted average Units outstanding $ (0.07) $ 0.12 $ 0.01 $ 0.13 $ 0.41 Distributions per Unit, based on weighted average Units outstanding $ 0.28 $ 0.09 $ 1.04 $ 1.21 $ 1.20 Total Assets $15,339,294 $19,875,015 $37,160,843 $50,000,894 $ 67,961,144 Non-recourse Debt $ 463,614 $ 667,460 $11,663,273 $16,389,312 $ 22,138,639 Total Partners' Capital $14,511,002 $18,865,005 $18,546,425 $31,416,576 $ 44,820,397
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements contained in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-K, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-K. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events, other than as required by law. 5 Capital Resources and Liquidity The Partnership's public offering provided for a total maximum capitalization of $125,000,000. The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from leases 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. Through December 31, 2000, the Partnership anticipated reinvesting a portion of lease payments from assets owned in new leasing transactions. Such reinvestment would occur only after the payment of all obligations, including debt service (both principal and interest), the payment of management and acquisition fees to AFS and providing for cash distributions to the Limited Partners. The Partnership participates with AFS and certain of its affiliates in a $58,627,656 revolving line of credit (comprised of an acquisition facility and a warehouse facility) with a financial institution that includes certain financial covenants. As of December 31, 2003, the Partnership was no longer a qualified borrower under the line of credit as the Partnership's equity had fallen below the $15,000,000 minimum required in order to borrow. The Partnership was still contingently liable for any borrowings under the warehouse facility. As of December 31, 2003, there were no borrowings under the warehouse facility by any of the Partnership's affiliates. The line of credit expires on June 28, 2004. As of December 31, 2003, borrowings under the facility were as follows: Amount borrowed by the Partnership under the acquisition facility $ - Amounts borrowed by affiliated partnerships and limited liability companies under theacquisition facility 23,000,000 ------------- Total borrowings under the acquisition facility 23,000,000 Amounts borrowed by AFS and its sister corporation under the warehouse facility - ------------- Total outstanding balance $ 23,000,000 ============= Total available under the line of credit $ 58,627,656 Total outstanding balance 23,000,000) ------------- Remaining availability $ 35,627,656 ============= Draws on the acquisition facility by any individual borrower are secured only by that borrower's assets, including equipment and related leases. Borrowings on the warehouse facility are recourse jointly to certain of the affiliated partnerships and limited liability companies, the Partnership and AFS. Effective January 2004, the revolving line of credit was extended. The revolving line of credit now expires on June 28, 2005. In addition, the total amount available under the revolving line of credit has been increased to $65,700,000. As of December 31, 2003, cash balances consisted of working capital and amounts reserved for distributions in January 2004, generated from operations in 2003. The Partnership currently has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Partnership would likely be in a position to borrow against its current portfolio to meet such requirements. AFS envisions no such requirements for operating purposes. Through the term of the Partnership, the Partnership had borrowed $58,317,911 of non-recourse debt. As of December 31, 2003, the remaining unpaid balance as of that date was $463,614. The Partnership's long-term borrowings are 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. See Note 4 to the financial statements, Non-recourse debt, as set forth in Part II, Item 8, Financial Statements and Supplementary Data, for additional information regarding non-recourse debt. The Partnership commenced regular distributions, based on cash flows from operations, beginning with the second quarter of 1993. See Items 5 and 6 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 of the Partnership's leased assets may increase as the costs of similar assets increase. However, the Partnership's revenues from existing leases would not increase, as such rates are generally fixed for the terms of the leases without adjustment for inflation. In future periods, cash flows from operating leases are expected to be the Partnership's primary source of cash flows from operations. 6 Cash Flows 2003 vs. 2002: In 2003 and 2002, operating lease rents were the Partnership's primary source of cash flows from operating activities. Cash flows from operations decreased from $5,223,621 in 2002 to $988,239 in 2003, a decrease of $4,235,382. This decrease was mainly due to two factors; (i) operating lease revenues decreased from $4,254,501 in 2002 to $2,563,288 in 2003, a decrease of $1,691,213 and (ii) in 2002, the Partnership received a bankruptcy settlement in the amount of $1,954,952. There was no similar settlement in 2003. Sources of cash from investing activities consisted of rents from direct financing leases and proceeds from sales of lease assets. Financing lease rents decreased from $1,402,177 in 2002 to $465,430 in 2003, a decrease of $936,747. Proceeds from the sales of lease assets are not expected to be consistent from one period to another as the sales of lease assets is subject to various factors such as the timing of lease terminations, the timing of market demand and the condition and uniqueness of the assets subject to sale. Proceeds from sales of lease assets decreased from $15,369,490 in 2002 to $821,919 in 2003, a decrease of $14,547,571. Sales in 2002 included approximately $23,789,000 of equipment that had been on operating leases. In 2003, fewer leases matured and the amount of operating lease assets sold decreased to approximately $4,558,000. In both years, transportation equipment constituted a majority of the assets sold. In 2002 the main items of cash flows used in financing activities were the repayment of the line of credit of $7,000,000 and the repayment of the non-recourse debt of $10,995,813. The repayment of non-recourse debt was funded in part ($8,300,000) by the sale of lease assets. Cash provided by financing activities in 2003 consisted of a new non-recourse note payable of $217,596. Cash provided by financing activities in 2002 was $500,000 borrowed under the line of credit. Effective in 2001, the amounts of distributions are based on the amounts of cash available for distribution after retaining sufficient balances for working capital. In prior periods the distributions were at a predetermined rate, subject only to the availability of sufficient cash balances. As a result, distributions are expected to fluctuate from one period to another. 2002 vs. 2001: In 2002 and 2001, operating lease rents were the Partnership's primary source of cash flows from operating activities. Cash flows from operations decreased from $5,779,190 in 2001 to $5,223,621 in 2002, a decrease of $555,569. This decrease was primarily due to decreases in operating lease revenues from $5,850,367 in 2001 to $4,254,501 in 2002, a decrease of $1,595,866. Sources of cash from investing activities consisted of rents from direct financing leases and proceeds from sales of lease assets. Financing lease rents decreased from $1,625,595 in 2001 to $1,402,177 in 2002, a decrease of $223,418. Proceeds from the sales of lease assets are not expected to be consistent from one period to another as the sales of lease assets is subject to various factors such as the timing of lease terminations, the timing of market demand and the condition and uniqueness of the assets subject to sale. Proceeds from sales of lease assets increased from $3,733,992 in 2001 to $15,369,490 in 2002, an increase of $11,635,498. Approximately $8,300,000 of the sales proceeds was used to repay non-recourse debt associated with assets that were sold in 2002. In 2002 and 2001, the only source of cash flows from financing activities was the amounts borrowed on the line of credit. Repayments of debt increased as a result of additional debt payments noted above. Results of Operations As of December 31, 2003, 2002 and 2001, significant amounts of the Partnership's assets were leased to lessees in certain industries as follows. 2003 2002 2001 ---- ---- ---- Rail transportation 67% 53% 41% Mining 18% 21% 10% Manufacturing, other * 15% 26% Construction * * 13% * Less than 10%. Substantially all employees of AFS track time incurred in performing administrative services on behalf of the Partnership. AFS believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Partnership or (ii) the amount the Partnership would be required to pay independent parties for comparable administrative services in the same geographic location. 2003 vs. 2002: Operations in 2003 resulted in a net loss of $916,504 compared to net income of $1,455,267 in 2002. In 2002, revenues included $1,954,952 received as a partial settlement of the bankruptcy of a former lessee. The payment in 2002 was the final payment of the settlement. 7 Operating lease revenues have decreased by $1,691,213 from 2002 to 2003. The Partnership is the liquidation phase of its life cycle. As leases mature, the assets are returned to inventory. Most of the assets have been sold. This reduces the amounts of equipment actually on lease and producing revenue. This trend of decreasing operating lease revenues is expected to continue in future periods. Proceeds from the sales of lease assets are not expected to be consistent from one period to another as the sales of lease assets is subject to various factors such as the timing of lease terminations, the timing of market demand and the condition and uniqueness of the assets subject to sale. As a result, gains and losses recognized on the sales of lease assets are not expected to be consistent from one year to another, however, such gains decreased by $813,050 from 2002 to 2003. Interest expense has decreased as a result of scheduled debt payments (and the early repayments of debt in 2002) and the consequent reductions of the outstanding balances. Equipment management fees are based on the revenues of the Partnership. As those revenues have declined, the management fees have decreased as well. Railcar maintenance costs increased from $230,683 in 2002 to $497,751 in 2003. The Partnership owns a fleet of railcars managed by a third party. The maintenance related to that fleet of cars increased from $230,683 in 2002 to $367,611 in 2003. As of December 31, 2002 and during the year then ended, a portion of those cars were off lease. Early in 2003, the remainder of the off lease railcars were placed on new leases as the demand for the cars had improved. As a result of increased usage of the managed railcars in 2003, the amounts of ongoing maintenance has also increased. In addition, the Partnership owns other railcars that are managed directly by AFS. In 2003, maintenance costs of $130,140 were incurred in order to place these assets on new leases and to maintain them once on lease. The assets had previously been on net leases with other lessees. Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. As a result of that review, management determined that the value of a fleet of jumbo covered hopper cars had declined in value to the extent that the carrying values had become impaired. This decline is the result of decreased long-term demand for these types of assets and a corresponding reduction in the amounts of rental payments that these assets currently command. Management has recorded a provision for the decline in value of those assets in the amount of $543,426 for the year ended December 31, 2003 as more fully described in Note 12 in the financial statements included in Part I, Item 8 of this report. 2002 vs. 2001: Operations in 2002 resulted in net income of $1,455,267 compared to $170,758 in 2001. The increase is primarily due to an increase in other revenues related to the amounts received from the settlement of the bankruptcy of Schwegmann's Giant Supermarkets (a former lessee of the partnership). Such amounts increased from $1,234,542 in 2001 to $1,954,952 in 2002. Operating lease revenues decreased as a result of the maturing of operating leases, the subsequent sales of the related lease assets and lower lease rates realized on lease renewals. This resulted in decreased operating lease rents in 2002 compared to 2001. Such rents decreased from $5,850,367 in 2001 to $4,254,501 in 2002. Assets sales also resulted in decreased depreciation expense in 2002. Depreciation decreased by $1,113,516 compared to 2001. Proceeds from the sales of lease assets are not expected to be consistent from one period to another as the sales of lease assets is subject to various factors such as the timing of lease terminations, the timing of market demand and the condition and uniqueness of the assets subject to sale. As a result, gains and losses recognized on the sales of these lease assets are not expected to be consistent from one year to another, however, such gains increased by $551,961 compared to 2001. This also contributed to the increase in net income. Interest expense has decreased as a result of scheduled debt payments and the early repayments of non-recourse debt noted above and the related reductions of the outstanding balances. Equipment management fees are based on the revenues of the Partnership. As those revenues have declined, the management fees have decreased as well. As a result of management's periodic of review of the carrying values of its assets on leases and assets held for lease or sale, management determined that the value of a fleet of jumbo covered hopper cars had declined in value to the extent that the carrying values had become impaired. This decline is the result of decreased long-term demand for these types of assets and a corresponding reduction in the amounts of rental payments that these assets currently command. Management has recorded a provision for the decline in value of those assets in the amount of $397,872 for the year ended December 31, 2002. 8 Recent Accounting Pronouncement In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB 51." The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest in a variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the FASB issued FIN No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special purpose entities ("SPEs") created prior to February 1, 2003. The company must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether a SPE, that were created subsequent to January 31, 2003. The provisions of FIN 46 were applicable for variable interests in entities obtained after January 31, 2003. The Partnership is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have a material impact on the Partnership's financial statements. The Partnership is currently evaluating the impact of adopting FIN 46-R applicable to Non-SPEs created prior to February 1, 2003 but does not expect a material impact. In April 2002, the FASB issued FASB Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (Statement No. 145). Among other things, Statement No. 145 rescinds Statement No. 4, which required that all gains and losses from extinguishment of debt be reported as an extraordinary item. The adoption of Statement No. 145, effective January 1, 2003, did not have any effect on the Partnership's consolidated financial position, consolidated results of operations, or liquidity. Critical Accounting Policies The policies discussed below are considered by management of the Partnership to be critical to an understanding of the Partnership's financial statements because their application requires significant complex or subjective judgments, decisions, or assessments, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. The Partnership also states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and analysis. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. 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 lives of the related leases. Direct financing leases: Income from direct financing lease transactions is reported using the financing method of accounting, in which the Partnership's investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding. Allowances for losses on direct financing leases are typically established based on historical charge offs and collections experience and are usually determined by specifically identified lessees and billed and unbilled receivables. Direct financing leases are placed in a non-accrual status based on specifically identified lessees. Such leases are only returned to an accrual status based on a case by case review of AFS. Direct financing leases are charged off on specific identification by AFS. 9 Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term. Asset Valuation: Recorded values of the Company's asset portfolio are periodically reviewed for impairment in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset's expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by the discounted estimated future cash flows) of the asset and its carrying value on the measurement date. The Partnership adopted SFAS 144 as of January 1, 2002. The adoption of the Statement did not have a significant impact on the Partnership's financial position and results of operations. Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership, like most other companies, is exposed to certain market risks, including primarily changes in interest rates. The Partnership believes its exposure to other market risks including foreign currency exchange rate risk, commodity risk and equity price risk are insignificant to both its financial position and results of operations. In general, the Partnership manages its exposure to interest rate risk by obtaining fixed rate debt. The fixed rate debt is structured so as to match the cash flows required to service the debt to the payment streams under fixed rate lease receivables. The payments under the leases are assigned to the lenders in satisfaction of the debt. Furthermore, the Partnership has historically been able to maintain a stable spread between its cost of funds and lease yields in both periods of rising and falling rates. Nevertheless, the Partnership frequently funds leases with its floating rate 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, 2003, there was no outstanding balance 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, 2003, no swaps or other derivative financial instruments were held by the Partnership. The Partnership does not hold or issue derivative financial instruments for speculative purposes. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Report of Independent Auditors, Financial Statements and Notes to Financial Statements attached hereto at pages 11 through 27. 10 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Partners ATEL Cash Distribution Fund V, L.P. We have audited the accompanying balance sheets of ATEL Cash Distribution Fund V, L.P. (Partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ATEL Cash Distribution Fund V, L.P. at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP San Francisco, California February 20, 2004 11 ATEL CASH DISTRIBUTION FUND V, L.P. BALANCE SHEETS DECEMBER 31, 2003 AND 2002 ASSETS 2003 2002 ---- ---- Cash and cash equivalents $ 2,440,803 $ 3,806,560 Accounts receivable, net of allowance for doubtful accounts of $99,285 in 2003 and $75,285 in 2002 378,720 420,737 Investments in equipment and leases 12,519,771 15,647,718 ---------------- ---------------- Total assets $15,339,294 $ 19,875,015 ================ ================ LIABILITIES AND PARTNERS' CAPITAL Non-recourse debt $ 463,614 $ 667,460 Accounts payable and accruals: General Partner 171,952 115,390 Other 166,626 195,877 Accrued interest payable 2,561 3,603 Unearned lease income 23,539 27,680 ---------------- ---------------- Total liabilities 828,292 1,010,010 Partners' capital: General Partner 193,742 202,907 Limited Partners 14,317,260 18,662,098 ---------------- ---------------- Total Partners' capital 14,511,002 18,865,005 ---------------- ---------------- Total liabilities and Partners' capital $15,339,294 $ 19,875,015 ================ ================ See accompanying notes. 12 ATEL CASH DISTRIBUTION FUND V, L.P. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001 ---- ---- ---- Revenues: Leasing activities: Operating leases $ 2,563,288 $ 4,254,501 $ 5,850,367 Direct financing leases 293,287 307,915 384,516 Leveraged leases 2,356 11,387 51,029 Gain on sales of assets 127,423 940,473 388,512 Interest income 22,516 15,392 23,678 Other 10,570 2,011,614 1,241,371 ---------------- --------------- ---------------- 3,019,440 7,541,282 7,939,473 Expenses: Depreciation of operating lease assets 1,405,433 3,114,722 4,228,238 Cost reimbursements to General Partner 609,519 688,441 845,318 Impairment losses 543,426 487,872 - Railcar maintenance 497,751 230,683 233,989 Equipment and incentive management fees to General Partner 195,683 301,303 485,965 Other management fees 106,639 69,650 83,563 Provision for (recovery of) doubtful accounts 102,000 (90,000) 64,680 Professional fees 100,656 115,178 260,007 Interest expense 32,249 583,106 1,144,360 Amortization of initial direct costs 21,518 397,549 203,908 Other 321,070 187,511 218,687 ---------------- --------------- ---------------- 3,935,944 6,086,015 7,768,715 ---------------- --------------- ---------------- Net (loss) income $ (916,504) $ 1,455,267 $ 170,758 ================ =============== ================ Net (loss) income: General Partner $ (9,165) $ 14,553 $ 1,708 Limited Partners (907,339) 1,440,714 169,050 ---------------- --------------- ---------------- $ (916,504) $ 1,455,267 $ 170,758 ================ =============== ================ Net (loss) income per Limited Partnership unit $ (0.07) $ 0.12 $ 0.01 Weighted average number of units outstanding 12,471,600 12,478,700 12,497,000
See accompanying notes. 13 ATEL CASH DISTRIBUTION FUND V, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Limited Partners General Units Amount Partner Total Balance December 31, 2000 12,497,000 $31,229,930 $ 186,646 $ 31,416,576 Distributions to Limited Partners ($1.04 per Unit) (13,040,909) - (13,040,909) Net income 169,050 1,708 170,758 ---------------- ---------------- --------------- ---------------- Balance December 31, 2001 12,497,000 18,358,071 188,354 18,546,425 Distributions to Limited Partners ($0.09 per Unit) (1,088,393) - (1,088,393) Limited Partnership Units repurchased (25,400) (48,294) - (48,294) Net income 1,440,714 14,553 1,455,267 ---------------- ---------------- --------------- ---------------- Balance December 31, 2002 12,471,600 18,662,098 202,907 18,865,005 Distributions to Limited Partners ($0.28 per Unit) (3,437,499) - (3,437,499) Net loss (907,339) (9,165) (916,504) ---------------- ---------------- --------------- ---------------- Balance December 31, 2003 12,471,600 $14,317,260 $ 193,742 $ 14,511,002 ================ ================ =============== ================
See accompanying notes. 14 ATEL CASH DISTRIBUTION FUND V, L.P. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001 ---- ---- ---- Operating activities: Net income $ (916,504) $ 1,455,267 $ 170,758 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation of operating lease assets 1,405,433 3,114,722 4,228,238 Amortization of initial direct costs 21,518 397,549 203,908 Leveraged lease income (2,356) (11,387) (51,029) Gain on sales of assets (127,423) (940,473) (388,512) Impairment losses 543,426 487,872 - Provision for (recovery of) doubtful accounts 102,000 (90,000) 64,680 Changes in operating assets and liabilities: Accounts receivable (59,983) 918,666 985,225 Other receivables - - 1,309,783 Accounts payable, General Partner 56,562 (30,690) 67,842 Accounts payable, other (29,251) 39,469 (704,241) Accrued interest payable (1,042) (17,998) (40,265) Unearned lease income (4,141) (99,376) (67,197) ---------------- --------------- ---------------- Net cash provided by operating activities 988,239 5,223,621 5,779,190 Investing activities: Proceeds from sales of assets 821,919 15,369,490 3,733,992 Reduction of net investment in direct financing leases 465,430 1,402,177 1,625,595 ---------------- --------------- ---------------- Net cash provided by investing activities 1,287,349 16,771,667 5,359,587 Financing activities: Distributions to Limited Partners (3,437,499) (1,088,393) (13,040,909) Repayments of non-recourse debt (421,442) (10,995,813) (4,726,039) Proceeds of non-recourse debt 217,596 - - Repayments of borrowings under line of credit - (7,000,000) (2,700,000) Borrowings under line of credit - 500,000 8,200,000 Repurchases of limited partnership units - (48,294) - ---------------- --------------- ---------------- Net cash used in financing activities (3,641,345) (18,632,500) (12,266,948) ---------------- --------------- ---------------- Net (decrease) increase in cash and cash equivalents (1,365,757) 3,362,788 (1,128,171) Cash and cash equivalents at beginning of year 3,806,560 443,772 1,571,943 ---------------- --------------- ---------------- Cash and cash equivalents at end of year $ 2,440,803 $ 3,806,560 $ 443,772 ================ =============== ================ Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 33,291 $ 601,104 $ 1,184,625 ================ =============== ================
See accompanying notes. 15 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 1. Organization and Partnership matters: ATEL Cash Distribution Fund V, L.P. (the Partnership) was formed under the laws of the state of California in September 1992 for the purpose of acquiring equipment to engage in equipment leasing and sales activities, primarily in the United States. The Partnership may continue until December 31, 2013. 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 March 19, 1993, the Partnership commenced operations. The General Partner of the Partnership is ATEL Financial Services LLC (AFS). Prior to converting to a limited liability company structure, AFS was formerly known as ATEL Financial Corporation. AFS is a wholly owned subsidiary of ATEL Capital Group. The Partnership's business consists of leasing various types of equipment. As of December 31, 2003, the original terms of the leases ranged from one to ten years. The Reinvestment Period ended December 31, 2000 and the Partnership is now in the final stages of its liquidation phase. Pursuant to the Limited Partnership Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Partnership (See Notes 5 and 6). AFS 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: Cash and cash equivalents: Cash and cash equivalents include cash in banks and cash equivalent investments with original maturities of ninety days or less. Accounts receivable: Accounts receivable represent the amounts billed under lease contracts and currently due to the Partnership. Allowances for doubtful accounts are typically established based on historical charge offs and collection experience and are usually determined by specifically identified lessees and invoiced amounts. Equipment on operating leases: Equipment on operating leases is stated at cost. Depreciation is being provided by use of the straight-line method over the terms of the related leases to the equipment's estimated residual values at the end of the leases. Revenues from operating leases are recognized evenly over the lives of the related leases. 16 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 2. Summary of significant accounting policies (continued): Direct financing leases: Income from direct financing lease transactions is reported using the financing method of accounting, in which the Partnership's investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding. Allowances for losses on direct financing leases are typically established based on historical charge offs and collections experience and are usually determined by specifically identified lessees and billed and unbilled receivables. Direct financing leases are placed in a non-accrual status based on specifically identified lessees. Such leases are only returned to an accrual status based on a case by case review of AFS. Direct financing leases are charged off on specific identification by AFS. Investment in leveraged leases: Leases that are financed principally with non-recourse debt at lease inception and that 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. Initial direct costs: The Partnership capitalizes initial direct costs associated with the acquisition of lease assets. The costs are amortized over a five year period using a straight line method. 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 at December 31 (unaudited): 2003 2002 ---- ---- Financial statement basis of net assets $14,511,002 $ 18,865,005 Tax basis of net assets 17,765,499 23,293,593 ---------------- ---------------- Difference $ 3,254,497 $ 4,428,588 ================ ================ 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. 17 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 2. Summary of significant accounting policies (continued): The following reconciles the net income reported in these financial statements to the loss reported on the Partnership's federal tax return (unaudited) for each of the years ended December 31:
2003 2002 2001 ---- ---- ---- Net (loss) income per financial statements $ (916,504) $ 1,455,267 $ 170,758 Adjustment to depreciation expense 323,733 2,160,483 (379,786) Provisions for losses and doubtful accounts 645,426 487,872 64,680 Adjustments to revenues (2,143,250) 3,631,306 4,963,156 ---------------- --------------- ---------------- Net income per federal tax return $(2,090,595) $ 7,734,928 $ 4,818,808 ================ =============== ================
Per unit data: Net income and distributions per unit are based upon the weighted average number of units outstanding during the period. Asset valuation: Recorded values of the Company's asset portfolio are periodically reviewed for impairment in accordance with Statement of binancial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset's expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by the discounted estimated future cash flows) of the asset and its carrying value on the measurement date. The Partnership adopted SFAS 144 as of January 1, 2002. The adoption of the Statement did not have a significant impact on the Partnership's financial position and results of operations. Credit risk: Financial instruments that potentially subject the Partnership to concentrations of credit risk include cash and cash equivalents, accounts receivable, direct finance lease receivables and other receivables. The Partnership places its cash deposits and temporary cash investments with creditworthy, high quality financial institutions. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Partnership. Accounts receivable represent amounts due from lessees in various industries, related to equipment on operating and direct financing leases. See Note 7 for a description of lessees by industry as of December 31, 2003. 18 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 2. Summary of significant accounting policies (continued): Derivative financial instruments: In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which established new accounting and reporting standards for derivative instruments. SFAS No. 133 has been amended by SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000. SFAS No. 133, as amended, requires the Partnership to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair value of the derivative instruments. The Partnership does not utilize derivative financial instruments. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term. Basis of presentation: The accompanying financial statements as of December 31, 2003 and 2002 and for the three years ended December 31, 2003 have been prepared in accordance with accounting principles generally accepted in the United States. Certain prior year amounts have been reclassified to conform to the current year presentation. Recent accounting pronouncements: In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB 51." The primary objectives of this interpretation are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities") and how to determine when and which business enterprise (the "primary beneficiary") should consolidate the variable interest entity. This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant variable interest in a variable interest entity, make additional disclosures. Certain disclosure requirements of FIN 46 were effective for financial statements issued after January 31, 2003. ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 2. Summary of significant accounting policies (continued): Recent accounting pronouncements (continued): In December 2003, the FASB issued FIN No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN 46-R are as follows: (i) Special purpose entities ("SPEs") created prior to February 1, 2003. The company must apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003. The company is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) All entities, regardless of whether a SPE, that were created subsequent to January 31, 2003. The provisions of FIN 46 were applicable for variable interests in entities obtained after January 31, 2003. The Partnership is required to adopt FIN 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have a material impact on the Partnership's financial statements. The Partnership is currently evaluating the impact of adopting FIN 46-R applicable to Non-SPEs created prior to February 1, 2003 but does not expect a material impact. In April 2002, the FASB issued FASB Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (Statement No. 145). Among other things, Statement No. 145 rescinds Statement No. 4, which required that all gains and losses from extinguishment of debt be reported as an extraordinary item. The adoption of Statement No. 145, effective January 1, 2003, did not have any effect on the Partnership's consolidated financial position, consolidated results of operations, or liquidity. 19 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 3. Investments in equipment and leases: The Partnership's investments in equipment and leases consist of the following:
Depreciation / Amortization Expense or Amortization of Reclassi- December 31, Impairment Direct Financing fications or December 31, 2002 Losses Leases Dispositions 2003 ---- ------ ------ -------------- ---- Net investment in operating leases $10,771,761 (225,427) $(1,405,433) $ 1,886,560 $ 11,027,461 Net investment in direct financing leases 1,180,081 - (465,430) (70,000) 644,651 Net investment in leveraged leases 140,012 - 2,356 (142,368) - Assets held for sale or lease, net of accumulated depreciation of $719,138 in 2003 and $3,080,643 in 2002 3,523,627 (317,999) - (2,368,688) 836,940 Initial direct costs, net of accumulated amortization of $99,285 in 2003 and $544,354 in 2002 32,237 - (21,518) - 10,719 --------------- ---------------- ---------------- --------------- ---------------- $15,647,718 $ (543,426) $(1,890,025) $ (694,496) $ 12,519,771 =============== ================ ================ =============== ================
Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. As a result of that review, management determined that the value of a fleet of jumbo covered hopper cars had declined in value to the extent that the carrying values had become impaired. This decline is the result of decreased long-term demand for these types of assets and a corresponding reduction in the amounts of rental payments that these assets currently command. Management has recorded provisions for the declines in value of those assets in the amounts of $543,426 and $487,872 for the years ended December 31, 2003 and 2002, respectively. Impairment losses are recorded as an addition to accumulated depreciation of the impaired assets. Depreciation expense and impairment losses on property subject to operating leases and assets held for lease or sale consist of the following for the years ended December 31: 2003 2002 ---- ---- Depreciation of operating lease assets $ 1,405,433 $3,114,722 Impairment losses 543,426 487,872 ---------------- ---------------- $ 1,948,859 $ 3,602,594 ================ ================ All of the property on leases was acquired in the years 1993 through 1997. 20 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 3. Investments in equipment and leases (continued): Operating leases: Property on operating leases consists of the following:
Reclassi- December 31, Impairment fications or December 31, 2002 Losses Additions Dispositions 2003 ---- ------ --------- -------------- ---- Transportation $20,593,171 $ - $ - $ 2,385,244 $ 22,978,415 Manufacturing 2,666,354 - - (1,196,354) 1,470,000 Construction 2,172,807 - - (594,719) 1,578,088 Materials handling 49,550 - - (13,926) 35,624 --------------- ---------------- ---------------- --------------- ---------------- 25,481,882 - - 580,245 26,062,127 Less accumulated depreciation (14,710,121) (225,427) (1,405,433) 1,306,315 (15,034,666) --------------- ---------------- ---------------- --------------- ---------------- $10,771,761 $ (225,427) $(1,405,433) $ 1,886,560 $ 11,027,461 =============== ================ ================ =============== ================
Direct financing leases: As of December 31, 2003, investment in direct financing leases consists of mining and materials handling equipment. As of December 31, 2002, investment in direct financing leases consists of railroad auto racks, railroad tank cars and retail store fixtures. The following lists the components of the Partnership's investment in direct financing leases as of December 31, 2003 and 2002:
2003 2002 ---- ---- Total minimum lease payments receivable $ 750,000 $ 33,510 Estimated residual values of leased equipment (unguaranteed) 401 1,148,968 ---------------- --------------- Investment in direct financing leases 750,401 1,182,478 Less unearned income (105,750) (2,397) ---------------- --------------- Net investment in direct financing leases $ 644,651 $ 1,180,081 ================ ===============
At December 31, 2003, the aggregate amounts of future minimum lease payments under operating and direct financing leases are as follows: Direct Year ending Operating Financing December 31, Leases Leases Total ------------ ------ ------ ----- 2004 $ 1,198,804 $ 750,000 $ 1,948,804 2005 580,887 - 580,887 2006 263,322 - 263,322 --------------- ---------------- ---------------- $ 2,043,013 $ 750,000 $ 2,793,013 =============== ================ ================ 21 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 3. Investments in equipment and leases (continued): Leveraged leases: As of December 31, 2003, the Partnership had no investments in leveraged leases. As of December 31, 2002, investment in leveraged leases consists of materials handling equipment. The following lists the components of the Partnership's investment in leveraged leases as of December 31, 2002: 2002 ---- Aggregate rentals receivable $ 46,368 Less aggregate principal and interest payable on non-recourse loans - Estimated residual value of leased assets 96,000 Less unearned income (2,356) ------------ Net investment in leveraged leases $ 140,012 ============ 4. Non-recourse debt: At December 31, 2003, non-recourse debt consists of notes payable to financial institutions. The notes are due in varying monthly and quarterly payments. Interest on the notes is at fixed rates ranging from 5.5% to 7.1%. The notes are secured by assignments of lease payments and pledges of assets. At December 31, 2003, the carrying value of the pledged assets is approximately $687,747. The notes mature from 2004 through 2006. As of December 31, 2002, future minimum payments of non-recourse debt are as follows: Year ending December 31, Principal Interest Total 2004 $ 287,409 $ 20,264 $ 307,673 2005 162,167 7,301 169,468 2006 14,038 83 14,121 --------------- ---------------- ---------------- $ 463,614 $ 27,648 $ 491,262 =============== ================ ================ 22 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 5. Related party transactions: The terms of the Limited Partnership Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment acquisition, management and resale and for management of the Partnership. The Limited Partnership Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as acquisition and disposition of equipment. Reimbursable costs incurred by AFS are allocated to the Partnership based upon estimated time incurred by employees working on Partnership business and an allocation of rent and other costs based on utilization studies. Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"), ATEL Investor Services ("AIS") and ATEL Financial Services LLC is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Partnership. Acquisition services are performed for the Partnership by ALC, equipment management, lease administration and asset disposition services are performed by AEC, investor relations and communications services are performed by AIS and general administrative services for the Partnership are performed by AFS. Substantially all employees of AFS record time incurred in performing administrative services on behalf of all of the Partnerships serviced by AFS. AFS believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Partnership or (ii) the amount the Partnership would be required to pay independent parties for comparable administrative services in the same geographic location and are reimbursable in accordance with the Limited Partnership Agreement. Incentive management fees are computed as 5% of distributions of cash from operations, as defined in the Limited Partnership Agreement. Equipment management fees are computed as 5% of gross revenues from operating leases, as defined in the Limited Partnership Agreement plus 2% of gross revenues from full payout leases, as defined in the Limited Partnership Agreement. AFS and/or affiliates earned fees, commissions and reimbursements pursuant to the Limited Partnership Agreement as follows during 2003, 2002 and 2001:
2003 2002 2001 ---- ---- ---- Costs reimbursed to General Partner $ 609,519 $ 688,441 $ 845,318 Incentive and equipment management fees to General Partner 195,683 301,303 485,965 ---------------- --------------- ---------------- $ 805,202 $ 989,744 $ 1,331,283 ================ =============== ================
23 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 6. Partners' capital: As of December 31, 2003 and 2002, 12,471,600 Units were issued and outstanding (in addition to the Units issued to the Initial Limited Partners). The Partnership is authorized to issue up to 12,500,000 Units of Limited Partnership interest in addition to those issued to the initial Limited Partners. As defined in the Limited Partnership Agreement, the Partnership's Net Profits, Net Losses, and Tax Credits are to be allocated 99% to the Limited Partners and 1% to AFS. Available Cash from Operations and Cash from Sales and Refinancing are to be distributed as follows: First, 5% of Distributions of Cash from Operations to AFS as Incentive 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, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital. Third, AFS will receive as Incentive Management Compensation, the following: (A) 10% of remaining Cash from Operations and (B) 15% of remaining Cash from Sales or Refinancing. Fourth, the balance to the Limited Partners. 7. Concentration of credit risk and major customers: The Partnership has leased equipment to lessees in diversified industries. Leases are subject to AFS's credit committee review. The leases provide for the return of the equipment upon default. The Partnership is no longer acquiring equipment. As assets have been sold upon maturity of the related leases, concentrations have arisen in certain industries due to the decreasing number of remaining leases and assets. As of December 31, 2003, 2002 and 2001, there were concentrations (defined as greater than 10%) of equipment leased to lessees in certain industries (as a percentage of total equipment cost) as follows: 2003 2002 2001 ---- ---- ---- Rail transportation 67% 53% 41% Mining 18% 21% 10% Manufacturing, other * 15% 26% Construction * * 13% * Less than 10%. 24 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 7. Concentration of credit risk and major customers (continued): During 2003, two customers each comprised 22% and 13% of the Partnership's revenues from leases. During 2002, four customers each comprised 19%, 18%, 14% and 10% of the Partnership's revenues from leases. During 2001, three customers each comprised 16%, 13% and 13% of the Partnership's revenues from leases. 8. Fair value of financial instruments: The recorded amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable and accruals at December 31, 2003 approximate fair value because of the liquidity and short-term maturity of these instruments. Non-recourse debt: The fair value of the Partnership's non-recourse debt is estimated using discounted cash flow analyses, based on the Partnership's current incremental borrowing rates for similar types of borrowing arrangements. The estimated fair value of the Partnership's non-recourse debt at December 31, 2003 is $468,360. 9. Contingencies: On September 11, 2000, Republic Transportation Finance, Inc. and its parent, Republic Financial Corporation (collectively, "Republic"), filed suit against the Partnership, claiming relief in the amount of $1,110,770, representing Republic's interpretation of their share of the proceeds to a residual sharing arrangement. The Partnership did not dispute that sums were owed to Republic, merely the amount. The Partnership believed that Republic was only entitled to $587,317 (which amount was included in accounts payable in the Partnership's financial statements at December 31, 2000), based upon the Partnership's interpretation of the underlying contract. Although the Partnership believed it had a reasonable basis for prevailing, it settled this matter for a total of $750,000 in 2001. The additional $162,683 is included in other expenses in 2001. 10. Selected quarterly data (unaudited):
March 31, June 30, September 30, December 31, Quarter ended 2002 2002 2002 2002 ---- ---- ---- ---- Total revenues $ 1,615,661 $ 3,430,489 $ 1,814,699 $ 680,433 Net Income (loss) $ (98,057) $ 1,761,800 $ 410,056 $ (618,532) Net income (loss) per limited partnership unit $ (0.01) $ 0.14 $ 0.03 $ (0.04)
March 31, June 30, September 30, December 31, Quarter ended 2003 2003 2003 2003 ---- ---- ---- ---- Total revenues $ 757,866 $ 909,216 $ 688,736 $ 663,622 Net loss $ (635,616) $ (35,339) $ (27,452) $ (218,097) Net loss per limited partnership unit $ (0.05) $ (0.00) $ (0.00) $ (0.02)
25 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 11. Revolving line of credit: The Partnership participates with AFS and certain of its affiliates in a $58,627,656 revolving line of credit (comprised of an acquisition facility and a warehouse facility) with a financial institution that includes certain financial covenants. As of December 31, 2003, the Partnership was no longer a qualified borrower under the line of credit as the Partnership's equity had fallen below the $15,000,000 minimum required in order to borrow. The Partnership was still contingently liable for any borrowings under the warehouse facility. As of December 31, 2003, there were no borrowings under the warehouse facility by any of the Partnership's affiliates. The line of credit expires on June 28, 2004. As of December 31, 2003, borrowings under the facility were as follows: Amount borrowed by the Partnership under the acquisition facility $ - Amounts borrowed by affiliated partnerships and limited liability companies under theacquisition facility 23,000,000 ------------- Total borrowings under the acquisition facility 23,000,000 Amounts borrowed by AFS and its sister corporation under the warehouse facility - ------------- Total outstanding balance $ 23,000,000 ============= Total available under the line of credit $ 58,627,656 Total outstanding balance 23,000,000) ------------- Remaining availability $ 35,627,656 ============= Draws on the acquisition facility by any individual borrower are secured only by that borrower's assets, including equipment and related leases. Borrowings on the warehouse facility are recourse jointly to certain of the affiliated partnerships and limited liability companies, the Partnership and AFS. Effective January 2004, the revolving line of credit was extended. The revolving line of credit now expires on June 28, 2005. In addition, the total amount available under the revolving line of credit has been increased to $65,700,000. 26 ATEL CASH DISTRIBUTION FUND V, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 12. Reserves, impairment losses and provisions for doubtful accounts: Allowance for Allowance for doubtful doubtful Reserve for accounts - accounts - losses and Other Accounts impairments Receivables Receivables Balance December 31, 2000 $ 2,224,816 $ 100,605 $ - Charge offs (100,605) 100,605 Provision - - 64,680 ---------------- ---------------- --------------- Balance December 31, 2001 2,224,816 - 165,285 Provision (recovery) 487,872 - (90,000) Charge offs (2,712,688) - - ---------------- ---------------- --------------- Balance December 31, 2002 - - 75,285 Provision 543,426 - 102,000 Charge offs (543,426) (78,000) ---------------- ---------------- --------------- Balance December 31, 2003 $ - $ - $ 99,285 ================ ================ =============== In 2003 it came to the Company's attention that the amounts recorded for impairments of covered rail hopper cars as of December 31, 2002 was understated by $539,000. During the three months ended March 31, 2003, the Company recorded additional impairment losses of $539,000 to correct the accounting for the transaction. The Company does not believe that this amount is material to the period in which it should have been recorded, nor that it is material to the Company's operating results for the year ending December 31, 2003. The impact on 2002 would be a reduction of members' equity and of net income of $539,000 ($0.04 per Limited Liability Company unit). Net loss for the year ended December 31, 2003 would be decreased by $539,000 ($0.04 per Limited Liability Company unit). 27 Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. Item 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures Under the supervision and with the participation of our management (ATEL Financial Services, LLC as General Partner of the registrant, including the chief executive officer and chief financial officer), an evaluation of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures [as defined in Rules 240.13a-14(c) under the Securities Exchange Act of 1934] was performed as of a date within ninety days before the filing date of this annual report. Based upon this evaluation, the chief executive officer and the chief financial officer concluded that, as of the evaluation date, except as noted below, our disclosure controls and procedures were effective for the purposes of recording, processing, summarizing, and timely reporting information required to be disclosed by us in the reports that we file under the Securities Exchange Act of 1934; and that such information is accumulated and communicated to our management in order to allow timely decisions regarding required disclosure. Due to the increased scrutiny and reporting requirements of Sarbanes-Oxley, it came to the attention of the chief executive officer and the chief financial officer of the Partnership in connection with the audit of the Partnership for the year ended December 31, 2003, that enhanced internal controls were needed to facilitate a more effective closing of the Partnership's financial statements, and that this would require additional skilled personnel. To address this issue the Partnership has taken steps to upgrade the accounting staff and will take additional steps in 2004 to add personnel to its accounting department to ensure that the Partnership's ability to execute internal controls in accounting and reconciliation in the closing process will be adequate in all respects. It should be noted that the control issues affecting the closing process and disclosure did not materially affect the accuracy and completeness of the Partnership's financial reporting and disclosure reflected in this report, and the audited financial statements included herein contain no qualification or limitation on the scope of the auditor's opinion. Changes in internal controls There have been no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the evaluation date nor were there any significant deficiencies or material weaknesses in our internal controls, except as described in the prior paragraphs. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS The registrant is a Limited Partnership and, therefore, has no officers or directors. All of the outstanding capital stock of ATEL Financial Services LLC (the General Partner) is held by ATEL Capital Group ("ACG"), a holding company formed to control ATEL and affiliated companies. The outstanding voting capital stock of ATEL Capital Group is owned 5% by A. J. Batt and 95% by Dean Cash. Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"), ATEL Investor Services ("AIS") and ATEL Financial Services LLC ("AFS") is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services are performed for the Company 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 Company are performed by AFS. ATEL Securities Corporation ("ASC") is a wholly-owned subsidiary of AFS. The officers and directors of ATEL Capital Group and its affiliates are as follows: Dean L. Cash Chairman of the Board of Directors of ACG, AFS, ALC, AEC, AIS and ASC; President and Chief Executive Officer of ACG, AFS and AEC Paritosh K. Choksi Director, Executive Vice President, Chief Operating Officer and Chief Financial Officer of ACG, AFS, ALC, AEC and AIS Donald E. Carpenter Vice President and Controller of ACG, AFS, ALC, AEC and AIS; Chief Financial Officer of ASC Vasco H. Morais Senior Vice President, Secretary and General Counsel for ACG, AFS, ALC, AIS and AEC 28 Dean L. Cash, age 53, joined ATEL as director of marketing in 1980 and has been a vice president since 1981, executive vice president since 1983 and a director since 1984. He has been President and CEO since April 2001. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A. degree with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association. Paritosh K. Choksi, age 50, joined ATEL in 1999 as a director, senior vice president and its chief financial officer. He became its executive vice president and COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services and management company, where he held various positions during his tenure, and was senior vice president, chief financial officer and director when he left the company. Mr. Choksi was involved in all corporate matters at Phoenix and was responsible for Phoenix's capital market needs. He also served on the credit committee overseeing all corporate investments, including its venture lease portfolio. Mr. Choksi was a part of the executive management team which caused Phoenix's portfolio to increase from $50 million in assets to over $2 billion. Mr. Choksi received a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the University of California, Berkeley. Donald E. Carpenter, age 55, joined ATEL in 1986 as controller. Prior to joining ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified public accountants in San Francisco, California, from 1983 to 1986. From 1979 to 1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells, certified public accountants, in San Jose, California. From 1971 to 1975, Mr. Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a B.S. degree in mathematics (magna cum laude) from California State University, Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter has been a California certified public accountant since 1981. Vasco H. Morais, age 45, joined ATEL in 1989 as general counsel to provide legal support in the drafting and reviewing of lease documentation, advising on general corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of America's equipment leasing subsidiaries, providing in-house legal support on the documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in the corporate and securities legal department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais has been an active member of the State Bar of California since 1986. Audit Committee ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC. ATEL Financial Services LLC is the General Partner of the registrant. The board of directors of ATEL Leasing Corporation acts as the audit committee of the registrant. Dean L. Cash and Paritosh K. Choksi are members of the board of directors of ALC and are deemed to be financial experts. They are not independent of the Partnership. Code of Ethics ACG on behalf of AFS and ALC has adopted a code of ethics for its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The Code of Ethics is included as Exhibit 14.1 to this report. Item 11. EXECUTIVE COMPENSATION The registrant is a Limited Partnership and, therefore, has no officers or directors. Set forth hereinafter is a description of the nature of remuneration paid and to be paid to AFS and its Affiliates. The amount of such remuneration paid for the years ended December 31, 2003, 2002 and 2001 is set forth in Item 8 of this report under the caption "Financial Statements and Supplementary Data - Notes to the Financial Statements - Related party transactions," at Note 5 thereof, which information is hereby incorporated by reference. Selling Commissions The Partnership paid selling commissions in the amount of 9.5% of Gross Proceeds, as defined, ($11,875,000) to ATEL Securities Corporation, an affiliate of AFS. Of this amount, $10,170,534 was reallowed to other broker/dealers. None have been paid since 1994, nor will any additional amounts be paid in future periods. 29 Acquisition Fees Acquisition fees were paid to AFS for services rendered in finding, reviewing and evaluating equipment to be purchased by the Partnership and rejecting equipment not to be purchased by the Partnership. The total amount of acquisition fees to be paid to AFS or their Affiliates was not to exceed 3.5% of the aggregate purchase piece of equipment acquired, not to exceed approximately 4.75% of the Gross Proceeds of the Offering. The maximum amount of such fees to be paid was $5,929,583, all of which had been paid as of December 31, 1996. No such fees have been paid subsequent to that date. Equipment Management Fees As compensation for its services rendered generally in managing or supervising the management of the Partnership's equipment and in supervising other ongoing services and activities including, among others, arranging for necessary maintenance and repair of equipment, collecting revenue, paying operating expenses, determining the equipment is being used in accordance with all operative contractual arrangements, property and sales tax monitoring and preparation of financial data, AFS or its affiliates are entitled to receive management fees which are payable for each fiscal quarter and are to be in an amount equal to (i) 5% of the gross lease revenues from "operating" leases and (ii) 2% of gross lease revenues from "full payout" leases which contain net lease provisions. See Note 5 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, AFS is entitled to receive the 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 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 shall be 15% of all distributions of cash from operations, sales or refinancing. See Notes 5 and 6 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, AFS is entitled to receive an amount equal to the lesser of (i) 3% of the sales price of the equipment, or (ii) one-half the normal competitive equipment sales commission charged by unaffiliated parties for such services. Such fee is payable only after the Limited Partners have received a return of their adjusted invested capital (as defined in the Limited Partnership Agreement) plus 10% of their adjusted invested capital per annum calculated on a cumulative basis, compounded daily, commencing the last day of the quarter in which the limited partner was admitted to the Partnership. To date, none have been accrued or paid. Equipment Re-lease Fee As compensation for providing re-leasing services, AFS is entitled to receive fees equal to 2% of the gross rentals or the comparable competitive rate for such services relating to comparable equipment, whichever is less, derived from the re-lease provided that (i) AFS or their affiliates have and will maintain adequate staff to render such services to the Partnership, (ii) no such re-lease fee is payable in connection with the re-lease of equipment to a previous lessee or its affiliates, (iii) AFS or its affiliates have rendered substantial re-leasing services in connection with such re-lease and (iv) AFS or its affiliates are compensated for rendering equipment management services. To date, none have been accrued or paid. General Partner's Interest in Operating Proceeds Net income, net loss and investment tax credits are allocated 99% to the Limited Partners and 1% to AFS. See the statements of income included in Item 8 of this report for the amounts allocated to the General and Limited Partners in 2003, 2002 and 2001. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners At December 31, 2003, no investor is known to the Partnership to hold beneficially more than 5% of the issued and outstanding Units. 30 Security Ownership of Management The ultimate shareholders of AFS are beneficial owners of Limited Partnership Units as follows:
(1) (2) (3) (4) Name and Address of Amount and Nature of Percent Title of Class Beneficial Owner Beneficial Ownership of Class Limited Partnership Units A. J. Batt Initial Limited Partner Units 0.0002% 600 California Street, 6th Floor 25 Units ($250) San Francisco, CA 94108 (owned by wife) Limited Partnership Units Dean Cash Initial Limited Partner Units 0.0002% 600 California Street, 6th Floor 25 Units ($250) San Francisco, CA 94108 (owned by wife)
Changes in Control The Limited Partners have the right, by vote of the Limited Partners owning more than 50% of the outstanding limited Partnership units, to remove a General Partner. AFS may at any time call a meeting of the Limited Partners or a vote of the Limited Partners without a meeting, on matters on which they are entitled to vote, and shall call such meeting or for vote without a meeting following receipt of a written request therefore of Limited Partners holding 10% or more of the total outstanding Limited Partnership units. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The responses to Item 1 of this report under the caption "Equipment Leasing Activities," Item 8 of this report under the caption "Financial Statements and Supplemental Data - Notes to the Financial Statements - Related party transactions" at Note 5 thereof, and Item 11 of this report under the caption "Executive Compensation," are hereby incorporated by reference. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES During the most recent two years, the Partnership incurred audit, audit related, tax and other fees with its principal auditors as follows: 2003 2002 ---- ---- Audit fees $ 30,302 $ 25,017 Audit related fees - - Tax fees 32,550 31,561 Other - - --------------- ---------------- $ 62,852 $ 56,578 =============== ================ ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC. ATEL Financial Services LLC is the General Partner of the registrant. The board of directors of ATEL Leasing Corporation acts as the audit committee of the registrant. Engagements for audit services, audit related services and tax services are approved in advance by the Chief Financial Officer of ATEL Leasing Corporation acting as a member of the board of directors of that company. 31 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules 1. Financial Statements Included in Part II of this report: Report of Independent Auditors Balance Sheets at December 31, 2003 and 2002 Statements of Operations for the years ended December 31, 2003, 2002 and 2001 Statements of Changes in Partners' Capital for the years ended December 31, 2003, 2002 and 2001 Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 Notes to Financial Statements 2. Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (b) Reports on Form 8-K for the fourth quarter of 2003 None (c) Exhibits (3) and (4) Agreement of Limited Partnership, included as Exhibit B to Prospectus (Exhibit 28.1), is incorporated herein by reference to the Report on Form 10K for the period ended December 31, 1993 (File No. 33-53162) (14.1) Code of Ethics (31.1) Certification of Paritosh K. Choksi (31.2) Certification of Dean L. Cash (32.1) Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash (32.2) Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: 3/26/2004 ATEL Cash Distribution Fund V, L.P. (Registrant) By: ATEL Financial Services, LLC General Partner of Registrant By: /s/ Dean Cash ------------------------------------------- Dean Cash, President and Chief Executive Officer of ATEL Financial Services, LLC (General Partner) By: /s/ Paritosh K. Choksi ------------------------------------------- Paritosh K. Choksi, Executive Vice President of ATEL Financial Services, LLC (General Partner) 33 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons in the capacities and on the dates indicated. SIGNATURE CAPACITIES DATE /s/ Dean Cash President, Chairman and Chief Executive 3/26/2004 ----------------------- Officer of ATEL Financial Services, LLC Dean Cash /s/ Paritosh K. Chok Executive Vice President and director of 3/26/2004 ----------------------- ATEL Financial Services, LLC, Principal Paritosh K. Choksi financial officer of registrant; principal financial officer and director of ATEL Financial Services, LLC /s/ Donald E. Carpent Principal accounting officer of 3/26/2004 ----------------------- registrant; principal accounting officer Donald E. Carpenter of ATEL Financial Services, LLC Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act: No proxy materials have been or will be sent to security holders. An annual report will be furnished to security holders subsequent to the filing of this report on Form 10-K, and copies thereof will be furnished supplementally to the Commission when forwarded to the security holders. 34