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 September 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
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
ASSETS
1997 1996
---- ----
Cash and cash equivalents $6,962,000 $600
Accounts receivable 630,198 -
Investments in leases 39,938,197 -
----------------- ------------------
Total assets $47,530,395 $600
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $4,728,751
Accounts payable:
General Partner 91,510
Other 67,934
Unearned operating lease income 42,086
-----------------
Total liabilities 4,930,281
Partners' capital:
General Partner (5,703) $100
Limited Partners 42,605,817 500
----------------- ------------------
Total partners' capital 42,600,114 600
----------------- ------------------
Total liabilities and partners' capital $47,530,395 $600
================= ==================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF OPERATIONS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1997
(Unaudited)
Nine Months Three Months
----------- ------------
Revenues:
Leasing activities:
Operating leases $4,937,599 $1,972,346
Direct financing 92,429 77,409
Gain on sales of assets 3,156 3,452
Interest 43,131 31,335
Other 1,154 786
----------------- ------------------
5,077,469 2,085,328
Expenses:
Depreciation 3,545,071 1,369,811
Interest expense 444,015 35,659
Administrative cost reimbursements
to General Partner 387,375 190,190
Other 237,459 92,302
Equipment and incentive management
fees to General Partner 183,280 72,900
Professional fees 38,957 19,741
Provision for losses 14,738 -
----------------- ------------------
4,850,895 1,780,603
----------------- ------------------
Net income $226,574 $304,725
================= ==================
Net income:
General Partner $16,993 $22,854
Limited Partners 209,581 281,871
----------------- ------------------
$226,574 $304,725
================= ==================
Net income per Limited Partnership Unit $0.08 $0.07
Weighted average number of Units
outstanding 2,531,520 4,260,107
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1997
(Unaudited)
Limited Partners
---------------- General
Units Amount Partner Total
----- ------ ------- -----
Balance December 31, 1996 50 $500 $100 $600
Capital contributions 5,105,426 51,054,260 - 51,054,260
Less selling commissions to affiliates (4,850,155) - (4,850,155)
Other syndication costs to affiliates (2,419,760) - (2,419,760)
Distributions to partners (1,388,609) (22,796) (1,411,405)
Net income 209,581 16,993 226,574
----------------- ----------------- ----------------- ------------------
Balance September 30, 1997 5,105,476 $42,605,817 ($5,703) $42,600,114
================= ================= ================= ==================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1997
Nine Months Three Months
----------- ------------
Operating activities:
Net income $226,574 $304,725
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation 3,545,071 1,369,811
Gain on sales of assets (3,156) (3,452)
Provision for losses 14,738 -
Changes in operating assets and liabilities:
Accounts receivable (630,198) 91,877
Accounts payable, General Partner 91,510 64,693
Accounts payable, other 67,934 59,761
Unearned lease income 42,086 19,808
----------------- ------------------
Net cash provided by operations 3,354,559 1,907,223
----------------- ------------------
Investing activities:
Purchases of equipment on operating leases (39,935,005) (11,843,068)
Purchases of equipment on direct financing leases (3,694,810) -
Reduction in net investment in direct financing
leases 99,225 90,250
Proceeds from sales of assets 35,740 3,452
----------------- ------------------
Net cash used in investing activities (43,494,850) (11,749,366)
----------------- ------------------
Financing activities:
Borrowings under line of credit 14,564,930 1,218,000
Repayments of borrowings under line of credit (14,564,930) (3,291,240)
Proceeds of non-recourse debt 4,780,911 4,227,345
Repayments of non-recourse debt (52,160) (22,780)
Capital contributions received 51,054,260 17,317,990
Payment of syndication costs to General Partner (7,269,915) (2,326,169)
Distributions to partners (1,411,405) (884,015)
----------------- ------------------
Net cash provided by financing activities 47,101,691 16,239,131
----------------- ------------------
Net increase in cash and cash equivalents 6,961,400 6,396,988
Cash and cash equivalents at beginning of period 600 565,012
----------------- ------------------
Cash and cash equivalents at end of period $6,962,000 $6,962,000
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $444,015 $35,659
================= ==================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 & September 30,
Additions of Leases Dispositions 1997
--------- --------- ------------ ----
Net investment in operating leases $39,935,005 ($3,545,071) ($32,584) $36,357,350
Net investment in direct financing leases 3,694,810 (99,225) - 3,595,585
Reserve for losses (14,738) - - (14,738)
----------------- ----------------- ----------------- ------------------
$43,615,077 ($3,644,296) ($32,584) $39,938,197
================= ================= ================= ==================
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
Acquisitions & Balance
Dispositions September 30,
1st Quarter 2nd Quarter 3rd Quarter 1997
----------- ----------- ----------- ----
Transportation $18,907,388 ($33,000) $10,663,472 $29,537,860
Manufacturing 906,370 2,973,240 674,910 4,554,520
Data processing - 3,666,101 - 3,666,101
Materials handling 982,293 - - 982,293
Construction 350,000 - 498,698 848,698
Research - 306,546 - 306,546
----------------- ----------------- ----------------- ------------------
21,146,051 6,912,887 11,837,080 39,896,018
Less accumulated depreciation (1,018,723) (1,156,122) (1,363,823) (3,538,668)
----------------- ----------------- ----------------- ------------------
$20,127,328 $5,756,765 $10,473,257 $36,357,350
================= ================= ================= ==================
As of September 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 September 30, 1997:
Total minimum lease payments receivable $4,122,945
Estimated residual values of leased equipment (unguaranteed) 575,884
-------------
Investment in direct financing leases 4,698,829
Less unearned income (1,103,244)
-------------
Net investment in direct financing leases $3,595,585
=============
All of the property on leases was acquired in 1997. There were no significant
dispositions of such property.
At September 30, 1997, the aggregate amounts of future minimum lease payments
are as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
1997 $1,789,278 $187,951 $1,977,229
1998 9,802,189 751,803 10,553,992
1999 8,484,849 751,803 9,236,652
2000 7,095,710 751,803 7,847,513
2001 5,569,907 751,803 6,321,710
Thereafter 4,578,028 927,782 5,505,810
----------------- ----------------- -----------------
$37,319,961 $4,122,945 $41,442,906
================= ================= =================
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 $23,133 $10,718 $33,851
1998 97,583 37,819 135,402
1999 547,920 782,232 1,330,152
2000 930,986 399,166 1,330,152
2001 1,022,900 307,252 1,330,152
Thereafter 2,106,229 317,254 2,423,483
----------------- ----------------- -----------------
$4,728,751 $1,854,441 $6,583,192
================= ================= =================
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
SEPTEMBER 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) $4,850,155
Reimbursement of other syndication costs 2,419,760
Administrative costs reimbursed to General Partner 387,375
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). 183,280
------------------
$7,840,570
==================
6. Partner's capital:
As of September 30, 1997, 5,105,476 Units ($51,054,760) 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
SEPTEMBER 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 September 30, 1997, the Partnership had no 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 September
30, 1997.
8. Commitments:
As of September 30, 1997, the Partnership had outstanding commitments to
purchase lease equipment totaling approximately $83,191,000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first three 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 September 30, 1997, the
Partnership had received subscriptions for 5,105,476 Units ($51,054,760) 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 which consist primarily of 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, 1998.
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
$83,191,000 as of September 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 three quarters 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 ($99,225) and were not
significant by comparison. 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 net income of $226,574 (nine months) and $304,725 (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 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 September 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.
Information provided pursuant to ss. 228.701 (Item 701(f))(formerly
included in Form SR):
(1) Effective date of the offering: November 29, 1996;
File Number: 33388
(2) Offering commenced: November 29, 1996
(3) The offering did not terminate before any securities
were sold.
(4) The offering has not been terminated prior to the sale
of all of the securities.
(5) The managing underwriter is ATEL Securities
Corporation.
(6) The title of the registered class of securities is
"Units of limited partnership interest"
(7) Aggregate amount and offering price of securities
registered and sold as of September 30, 1997.
Aggregate Aggregate
price of price of
offering offering
Amount amount Amount amount
Title of Security Registered registered sold sold
Limited Partnership units 15,000,000 $150,000,000 5,105,426 $51,054,260
(8) Costs incurred for the issuers account in connection
with the issuance and distribution of the
securities registered for each category listed below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
-------------------------------- ----------- -----
Underwriting discounts and
commissions $638,987 $4,211,168 $4,850,155
Other expenses - 2,419,760 2,419,760
----------------- ----------------- ------------------
Total expenses $638,987 $6,630,928 $7,269,915
================= ================= ==================
(9) Net offering proceeds to the issuer after the total expenses in
item 8: $43,784,345
(10) The amount of net offering proceeds to the issuer
used for each of the purposes listed below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
-------------------------------- ------------ -----
Purchase and installation of
machinery and equipment $ - $43,529,074 $43,529,074
Working capital - 255,271 255,271
----------------- ----------------- ------------------
$ - $43,784,345 $43,784,345
================= ================= ==================
(11) The use of the proceeds in Item 10 does not represent a material
change in the uses of proceeds described in the prospectus.
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, September 30, 1997 and December 31, 1996.
Statement of changes in partners' capital for the six
months ended September 30, 1997.
Statements of operations for the six and three month
periods ended September 30, 1997.
Statement of cash flows for the six and three month
periods ended September 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:
November 12, 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