Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 1997
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission File Number 333-08879
ATEL Capital Equipment Fund VII, L.P.
(Exact name of registrant as specified in its charter)
California 94-3248318
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
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 |_|
DOCUMENTS INCORPORATED BY REFERENCE
None
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
ASSETS
1997 1996
---- ----
Cash and cash equivalents $565,012 $600
Accounts receivable 722,075 -
Investments in leases 29,555,190 -
----------------- ------------------
Total assets $30,842,277 $600
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Lines of credit $2,073,240
Non-recourse debt $524,186
Accounts payable:
General Partner 26,817
Other 8,173
Unearned operating lease income 22,278
-----------------
Total liabilities 2,654,694
Partners' capital:
General Partner (28,556) $100
Limited Partners 28,216,139 500
----------------- ------------------
Total partners' capital 28,187,583 600
----------------- ------------------
Total liabilities and partners' capital $30,842,277 $600
================= ==================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF OPERATIONS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1997
(Unaudited)
Six Months Three Months
Revenues:
Leasing activities:
Operating leases $2,965,253 $1,449,708
Direct financing 15,020 15,020
Loss on sales of assets (296) (296)
Interest 11,796 9,150
Other 368 251
----------------- ------------------
2,992,141 1,473,833
Expenses:
Depreciation 2,175,260 1,156,537
Interest expense 408,356 104,373
Administrative cost reimbursements to General Partner 197,185 110,022
Other 145,157 92,463
Equipment and incentive management fees to General Partner 110,380 53,051
Professional fees 19,216 10,871
Provision for losses 14,738 14,738
----------------- ------------------
3,070,292 1,542,055
----------------- ------------------
Net loss ($78,151) ($68,222)
================= ==================
Net loss:
General Partner ($5,861) ($5,117)
Limited Partners (72,290) (63,105)
----------------- ------------------
($78,151) ($68,222)
================= ==================
Net loss per Limited Partnership Unit ($0.04) ($0.03)
Weighted average number of Units outstanding 1,652,902 2,507,661
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
SIX MONTH PERIOD
ENDED JUNE 30, 1997
(Unaudited)
Limited Partners General
Units Amount Partner Total
Balance December 31, 1996 50 $500 $100 $600
Capital contributions 3,373,627 33,736,270 - 33,736,270
Less selling commissions to affiliates (3,204,946) - (3,204,946)
Other syndication costs to affiliates (1,738,800) - (1,738,800)
Distributions to partners (504,595) (22,795) (527,390)
Net loss (72,290) (5,861) (78,151)
----------------- ----------------- ----------------- ------------------
Balance June 30, 1997 3,373,677 $28,216,139 ($28,556) $28,187,583
================= ================= ================= ==================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1997
Six Months Three Months
Operating activities:
Net loss ($78,151) ($68,222)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation 2,175,260 1,156,537
Loss on sales of assets 296 296
Provision for losses 14,738 14,738
Changes in operating assets and liabilities:
Accounts receivable (722,075) (505,857)
Accounts payable, General Partner 26,817 (27,262)
Accounts payable, other 8,173 (45,806)
Unearned lease income 22,278 (102,936)
----------------- ------------------
Net cash provided by operations 1,447,336 421,488
----------------- ------------------
Investing activities:
Purchases of equipment on operating leases (28,091,937) (6,945,886)
Purchases of equipment on direct financing leases (3,694,810) (2,934,810)
Reduction in net investment in direct financing leases 8,975 8,975
Proceeds from sales of assets 32,288 32,288
----------------- ------------------
Net cash used in investing activities (31,745,484) (9,839,433)
----------------- ------------------
Financing activities:
Borrowings under line of credit 13,346,930 4,073,240
Repayments of borrowings under line of credit (11,273,690) (10,788,690)
Proceeds of non-recourse debt 553,566 553,566
Repayments of non-recourse debt (29,380) (29,380)
Capital contributions received 33,736,270 18,169,180
Payment of syndication costs to General Partner (4,943,746) (2,662,202)
Distributions to partners (527,390) (451,163)
----------------- ------------------
Net cash provided by financing activities 30,862,560 8,864,551
----------------- ------------------
Net increase (decrease) in cash and cash equivalents 564,412 (553,394)
Cash and cash equivalents at beginning of period 600 1,118,406
----------------- ------------------
Cash and cash equivalents at end of period $565,012 $565,012
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $408,356 $104,373
================= ==================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
1. Summary of significant accounting policies:
Interim financial statements:
The unaudited interim financial statements reflect all adjustments which are, in
the opinion of the general partners, necessary to a fair statement of financial
position and results of operations for the interim periods presented. All such
adjustments are of a normal recurring nature. These unaudited interim financial
statements should be read in conjunction with the most recent report on Form
10K.
2. Organization and partnership matters:
ATEL Capital Equipment Fund VII, L.P. (the Fund), was formed under the laws of
the State of California on July 17 , 1996, for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. Contributions in
the amount of $600 were received as of July 17, 1996, $100 of which represented
the General Partner's (ATEL Financial Corporation's) continuing interest, and
$500 of which represented the Initial Limited Partners' capital investment.
Upon the sale of the minimum amount of Units of Limited Partnership interest
(Units) of $1,200,000 and the receipt of the proceeds thereof on January 7,
1997, the Partnership commenced operations.
The Partnership does not make a provision for income taxes since all income and
losses will be allocated to the Partners for inclusion in their individual tax
returns.
3. Investment in leases:
The Partnership's investment in leases consists of the following:
Depreciation
Expense or Reclass- Balance
Amortization ifications & June 30,
Additions of Leases Dispositions 1997
--------- --------- - ------------- ----
Net investment in operating leases $28,091,937 ($2,175,260) ($32,584) $25,884,093
Net investment in direct financing leases 3,694,810 (8,975) - 3,685,835
Reserve for losses (14,738) - - (14,738)
----------------- ----------------- ----------------- ------------------
$31,772,009 ($2,184,235) ($32,584) $29,555,190
================= ================= ================= ==================
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
Acquisitions & Balance
Dispositions June 30,
1st Quarter 2nd Quarter 1997
Transportation $18,907,388 ($33,000) $18,874,388
Manufacturing 906,370 2,973,240 3,879,610
Data processing - 3,666,101 3,666,101
Materials handling 982,293 - 982,293
Construction 350,000 - 350,000
Research - 306,546 306,546
----------------- ----------------- ------------------
21,146,051 6,912,887 28,058,938
Less accumulated depreciation (1,018,723) (1,156,122) (2,174,845)
----------------- ----------------- ------------------
$20,127,328 $5,756,765 $25,884,093
================= ================= ==================
As of June 30, 1997, investment in direct financing leases consists of fuel
trucks and a sputtering system. The following lists the components of the
Partnership's investment in direct financing leases as of June 30, 1997:
Total minimum lease payments receivable $4,289,412
Estimated residual values of leased equipment (unguaranteed) 573,601
------------------
Investment in direct financing leases 4,863,013
Less unearned income (1,177,178)
------------------
Net investment in direct financing leases $3,685,835
==================
All of the property on leases was acquired in 1997. There were no significant
dispositions of such property.
At June 30, 1997, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
1997 $2,763,989 $373,753 $3,137,742
1998 4,535,997 747,507 5,283,504
1999 3,206,268 747,507 3,953,775
2000 2,408,750 747,507 3,156,257
2001 2,190,517 747,507 2,938,024
Thereafter 1,482,615 925,631 2,408,246
----------------- ----------------- -----------------
$16,588,136 $4,289,412 $20,877,548
================= ================= =================
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
4. Non-recourse debt:
Note payable to financial institution is due in quarterly installments of
principal and interest. The note is secured by an assignment of lease payments
and a pledge of the assets which were purchased with the proceeds of the note.
Interest on the note is at 8.828%.
Future minimum principal payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
1997 $45,914 $21,919 $67,833
1998 97,583 37,819 135,402
1999 106,198 29,204 135,402
2000 115,573 19,829 135,402
2001 125,776 9,626 135,402
Thereafter 33,142 708 33,850
----------------- ----------------- -----------------
$524,186 $119,105 $643,291
================= ================= =================
5. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partner
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 the General Partner in providing administrative services to the Partnership.
Administrative services provided include Partnership accounting, investor
relations, legal counsel and lease and equipment documentation. The General
Partner is not reimbursed for services where it is entitled to receive a
separate fee as compensation for such services, such as acquisition and
management of equipment. Reimbursable costs incurred by the General Partner are
allocated to the Partnership based upon actual time incurred by employees
working on Partnership business and an allocation of rent and other costs based
on utilization studies.
Substantially all employees of the General Partner record time incurred in
performing administrative services on behalf of all of the Partnerships serviced
by the General Partner. The General Partner believes that the costs reimbursed
are the lower of (i) actual costs incurred on behalf of the Partnership or (ii)
the amount the Partnership would be required to pay independent parties for
comparable administrative services in the same geographic location and are
reimbursable in accordance with the Limited Partnership Agreement.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
5. Related party transactions (continued):
The General Partner and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Partnership Agreement as follows:
Selling commissions (equal to 9.5% of the selling price
of the Limited Partnership units, deducted
from Limited Partners' capital) $3,204,946
Reimbursement of other syndication costs 1,738,800
Administrative costs reimbursed to General Partner 197,185
Incentive management fees (computed as 4% of
distributions of cash from operations, as defined in
the Limited Partnership Agreement) and equipment
management fees (computed as 3.5% of gross revenues from
operating leases, as defined in the Limited Partnership
Agreement plus 2% of gross revenues from full payout leases,
as defined in the Limited Partnership Agreement). 110,380
------------------
$5,251,311
==================
6. Partner's capital:
As of June 30, 1997, 3,373,677 Units ($33,736,770) were issued and outstanding.
The Fund's registration statement with the Securities and Exchange Commission
became effective November 29, 1996. The Fund is authorized to issue up to
15,000,050 Units, including the 50 Units issued to the initial limited partners.
Available Cash from Operations, as defined in the Limited Partnership Agreement,
shall be distributed as follows:
First, Distributions of Cash from Operations shall be 88.5% to the Limited
Partners, 7.5% to the General Partner and 4% to the General Partner or its
affiliate designated as the recipient of the Incentive Management Fee, 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, as defined in the
Limited Partnership Agreement.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
Available Cash from Sales or Refinancing, as defined in the Limited Partnership
Agreement, shall be distributed as follows:
First, Distributions of Sales or Refinancings shall be 92.5% to the Limited
Partners and 7.5% to the General Partner, 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.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
7. Line of credit:
The Partnership participates with the General Partner and certain of its
Affiliates in a $90,000,000 revolving credit agreement with a group of financial
institutions which expires on October 28, 1997. The agreement includes an
acquisition facility and a warehouse facility which are used to provide bridge
financing for assets on leases. Draws on the acquisition facility by any
individual borrower are secured only by that borrower's assets, including
equipment and related leases. Borrowings on the warehouse facility are recourse
jointly to certain of the Affiliates, the Partnership and the General Partner.
At June 30, 1997, the Partnership had $2,073,240 of borrowings under the line of
credit.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of June 30,
1997.
8. Commitments:
As of June 30, 1997, the Partnership had outstanding commitments to purchase
lease equipment totaling approximately $24,031,000.
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Capital Resources and Liquidity
During the first and second quarters of 1997, the Partnership's primary
activities were raising funds through its offering of Limited Partnership Units
(Units) and engaging in equipment leasing activities. Through June 30, 1997, the
Partnership had received subscriptions for 3,373,677 Units ($33,736,770) all of
which were issued and outstanding.
During the funding period, the Partnership's primary source of liquidity is
subscription proceeds from the public offering of Units. The liquidity of the
Partnership will vary in the future, increasing to the extent cash flows from
leases exceed expenses, and decreasing as lease assets are acquired, as
distributions are made to the limited partners and to the extent expenses exceed
cash flows from leases.
As another source of liquidity, the Partnership has contractual obligations with
a diversified group of lessees for fixed lease terms at fixed rental amounts. As
the initial lease terms expire the Partnership will re-lease or sell the
equipment. The future liquidity beyond the contractual minimum rentals will
depend on the General Partner's success in re-leasing or selling the equipment
as it comes off lease.
The Partnership participates with the General Partner and certain of its
affiliates in a $90,000,000 revolving line of credit with a financial
institution. The line of credit expires on October 28, 1997.
The Partnership anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to the General Partner
and providing for cash distributions to the Limited Partners.
The Partnership currently has available adequate reserves to meet contingencies,
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. The General Partner envisions no such requirements for
operating purposes.
No commitments of capital have been or are expected to be made other than for
the acquisition of additional equipment. Such commitments totaled approximately
$24,031,000 as of June 30, 1997.
If inflation in the general economy becomes significant, it may affect the
Partnership inasmuch as the residual (resale) values and rates on re-leases of
the Partnership's leased assets may increase as the costs of similar assets
increase. However, the Partnership's revenues from existing leases would not
increase, as such rates are generally fixed for the terms of the leases without
adjustment for inflation.
If interest rates increase significantly, the lease rates that the Partnership
can obtain on future leases will be expected to increase as the cost of capital
is a significant factor in the pricing of lease financing. Leases already in
place, for the most part, would not be affected by changes in interest rates.
During the first quarter of 1997, the Partnership's primary sources of liquidity
were the proceeds of its offering of Units and funds borrowed on the line of
credit or on a non-recourse basis.
Cash from operating activities was almost entirely from operating lease rents.
Sources of cash from investing activities consisted of proceeds from sales of
assets ($32,288) and direct financing lease rents ($8,975) and were not
significant. Cash was used in investing activities to purchase assets on
operating and direct financing leases.
Cash from financing sources consisted primarily of cash received for
subscriptions for Units and borrowings under the line of credit. The purchase of
lease assets was primarily funded with borrowings on this line of credit and the
proceeds of the Partnership's public offering of Units.
Results of operations
Operations resulted in a net loss of $78,151 (six months) and $68,222 (three
months). The Partnership's primary source of revenues is from operating leases.
This is expected to remain true in future periods although the amounts are
expected to increase as a result of additional equipment acquisitions.
Depreciation expense is the single largest expense of the Partnership and is
expected to remain so in future periods although at a higher amount. Equipment
management fees are based on the Partnership's rental revenues and are expected
to increase in relation to expected increases in the Partnership's revenues from
leases. Incentive management fees are based on the levels of distributions to
limited partners. As the effective distribution rate increases and as the number
of units outstanding increases (as a result of the continuing offering of such
units), the incentive management fee is expected to increase. Interest expense
in 1997 related primarily to the borrowings under the line of credit. It
included all amounts related to those borrowings, going back as far as November
1996 when the General Partner started to fund the related transactions on behalf
of the Partnership. All of the revenues and related carrying costs for these
transactions have been attributed to the Partnership in 1997 operations.
As of June 30, 1997, the Partnership's public offering was continuing. During
the offering period, the Partnership expects to purchase significant amounts of
lease assets. Because of this, operations in 1997 are not expected to be
comparable to future periods.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Inapplicable.
Item 2. Changes In Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits And Reports On Form 8-K.
(a) Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, June 30, 1997 and December 31, 1996.
Statement of changes in partners' capital for the six
months ended June 30, 1997.
Statements of operations for the six and three month
periods ended June 30, 1997.
Statement of cash flows for the six and three month
periods ended June 30, 1997.
Notes to the Financial Statements.
2. Financial Statement Schedules
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(b) Report on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
August 14, 1997
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
(Registrant)
By: ATEL Financial Corporation
General Partner of Registrant
By: /s/ A. J. Batt
-----------------------------------
A. J. Batt
President and Chief Executive
Officer of General Partner
By: /s/ Dean L. Cash
-----------------------------------
Dean L. Cash
Executive Vice President
of General Partner
By: /s/ F. Randall Bigony
------------------------------------------
F. Randall Bigony
Principal financial officer
of registrant
By: /s/ Donald E. Carpenter
------------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant