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 March 31, 2001
|_| 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 0-24175
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
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
2
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(Unaudited)
ASSETS
2001 2000
---- ----
Cash and cash equivalents $ 1,058,500 $ 1,321,417
Accounts receivable, net of allowance for
doubtful accounts of none in 2001 and
$724,906 in 2000 4,873,284 6,222,311
Other assets 80,012 90,011
Investments in leases 145,798,941 149,967,007
----------------- ------------------
Total assets $151,810,737 $157,600,746
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $13,890,839 $15,452,741
Other long-term debt 39,937,000 44,877,000
Lines of credit 4,500,000 -
Accounts payable:
General Partner 274,980 605,684
Other 514,116 703,761
Accrued interest expense 464,131 533,858
Unearned operating lease income 1,220,823 1,264,094
----------------- ------------------
Total liabilities 60,801,889 63,437,138
Partners' capital:
General Partner (1,514,601) (1,514,601)
Limited Partners 92,523,449 95,678,209
----------------- ------------------
Total partners' capital 91,008,848 94,163,608
----------------- ------------------
Total liabilities and partners' capital $151,810,737 $157,600,746
================= ==================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
INCOME STATEMENTS
THREE MONTH PERIODS ENDED
MARCH 31, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
Revenues:
Leasing activities:
Operating leases $ 8,292,884 $ 9,978,190
Direct financing leases 278,843 197,918
Leveraged leases - 195,693
(Loss) gain on sales of assets (80,962) 686,551
Interest 22,392 13,208
Other 2,574 5,535
----------------- ------------------
8,515,731 11,077,095
Expenses:
Depreciation and amortization 5,592,378 4,504,188
Interest expense 1,110,475 1,434,395
Other 426,046 237,000
Equipment and incentive management fees to General Partne 326,986 540,844
Cost reimbursements to General Partner 195,377 123,850
Professional fees 54,290 19,416
----------------- ------------------
7,705,552 6,859,693
----------------- ------------------
Net income $ 810,179 $ 4,217,402
================= ==================
Net income:
General Partner $ 214,901 $ 810,179
Limited Partners 595,278 3,407,223
----------------- ------------------
$ 810,179 $ 4,217,402
================= ==================
Net income per Limited Partnership Unit $ 0.04 $ 0.23
Weighted average number of Units outstanding 14,996,050 14,996,050
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
THREE MONTH PERIOD ENDED
MARCH 31, 2001
(Unaudited)
Limited Partners General
Units Amount Partner Total
Balance December 31, 2000 14,996,050 $ 95,678,209 $(1,514,601) $ 94,163,608
Distributions to partners (3,750,038) (214,901) (3,964,939)
Net income 595,278 214,901 810,179
----------------- ----------------- ----------------- ------------------
Balance March 31, 2001 14,996,050 $ 92,523,449 $(1,514,601) $ 91,008,848
================= ================= ================= ==================
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF CASH FLOWS
THREE MONTH PERIODS ENDED
MARCH 31, 2001 AND 2000
2001 2000
---- ----
Operating activities:
Net income $ 810,179 $ 4,217,402
Adjustments to reconcile net income to cash
provided by operating activities:
Leveraged lease income - (195,693)
Loss (gain) on sales of assets 80,962 (686,551)
Depreciation and amortization 5,592,378 4,504,188
Changes in operating assets and liabilities:
Accounts receivable 1,349,027 118,478
Other assets 9,999 9,999
Accounts payable, General Partner (330,704) (958,885)
Accounts payable, other (189,645) 296,266
Accrued interest expense (69,727) (148,087)
Unearned lease income (43,271) (23,145)
----------------- ------------------
Net cash provided by operations 7,209,198 7,133,972
----------------- ------------------
Investing activities:
Proceeds from sales of assets 447,351 3,543,679
Reduction of net investment in direct financing leases 466,134 1,024,401
Purchases of equipment on operating leases (1,950,111) -
Purchases of equipment on direct financing leases (451,922) -
Initial direct costs paid to General Partner (16,726)
----------------- ------------------
Net cash (used in) provided by investing activities (1,505,274) 4,568,080
----------------- ------------------
Financing activities:
Repayments of other long-term debt (4,940,000) (7,804,000)
Borrowings under line of credit 4,500,000 -
Distributions to limited partners (3,750,038) (3,748,957)
Distributions to general partner (214,901) (300,664)
Repayments of non-recourse debt (1,561,902) (1,396,812)
Proceeds of other long-term debt - 11,700,000
Repayments of borrowings under line of credit - (9,100,000)
----------------- ------------------
Net cash used in financing activities (5,966,841) (10,650,433)
----------------- ------------------
Net (decrease) increase in cash and cash equivalents (262,917) 1,051,619
Cash and cash equivalents at beginning of period 1,321,417 1,674,372
----------------- ------------------
Cash and cash equivalents at end of period $ 1,058,500 $ 2,725,991
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,180,202 $ 1,582,482
================= ==================
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(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
Balance Expense and Reclassi- Balance
December 31, Amortization fications and March 31,
2000 Additions of Leases Dispositions 2001
---- --------- --------- - ------------- ----
Net investment in operating leases $131,717,168 $ 1,950,111 $(5,544,205) $(3,332,702) $124,790,372
Net investment in direct financing
leases 17,087,466 451,922 (466,134) - 17,073,254
Assets held for sale or lease 1,233,078 - 2,804,389 4,037,467
Reserve for losses (504,227) - - (504,227)
Initial direct costs, net of
accumulated amortization 433,522 16,726 (48,173) - 402,075
------------------ ----------------- ----------------- ----------------- ------------------
$149,967,007 $ 2,418,759 $(6,058,512) $ (528,313) $145,798,941
================== ================= ================= ================= ==================
6
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
Balance Reclassi- Balance
December 31, fications and March 31,
2000 Additions Dispositions 2001
---- --------- ------------ ----
Transportation $101,664,857 $(5,900,528) $ 95,764,329
Marine vessels/barges 27,276,479 (628,843) 26,647,636
Construction 23,002,563 - 23,002,563
Manufacturing 11,801,318 $ 281,750 (906,370) 11,176,698
Mining 8,536,249 476,716 - 9,012,965
Office automation 9,880,540 - (1,604,082) 8,276,458
Other 5,108,831 1,191,645 (236,690) 6,063,786
Materials handling 5,559,474 - - 5,559,474
Communications 4,387,819 - - 4,387,819
----------------- ----------------- ----------------- ------------------
197,218,130 1,950,111 (9,276,513) 189,891,728
Less accumulated depreciation (65,500,962) $(5,544,205) 5,943,811 (65,101,356)
----------------- ----------------- ----------------- ------------------
$131,717,168 $(3,594,094) $(3,332,702) $124,790,372
================= ================= ================= ==================
All of the property on leases was acquired in 1997, 1998, 1999 and 2001.
At March 31, 2001, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
2001 $ 17,981,584 $ 2,547,148 $ 20,528,732
2002 20,580,116 2,690,350 23,270,466
2003 12,741,386 2,329,686 15,071,072
2004 8,399,613 2,280,094 10,679,707
2005 5,844,934 2,235,643 8,080,577
Thereafter 2,126,026 1,701,568 3,827,594
----------------- ----------------- -----------------
$ 67,673,659 $ 13,784,489 $ 81,458,148
================= ================= =================
7
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
4. Non-recourse debt:
Notes payable to financial institutions are due in varying monthly, quarterly
and semi-annual installments of principal and interest. The notes are secured by
assignments of lease payments and pledges of the assets which were purchased
with the proceeds of the particular notes. Interest rates on the notes vary from
7.1% to 16.9%.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
2001 $ 3,914,914 $ 911,706 $ 4,826,620
2002 5,761,771 799,842 6,561,613
2003 3,261,508 288,853 3,550,361
2004 298,403 67,364 365,767
2005 322,838 42,927 365,765
Thereafter 331,405 25,597 357,002
----------------- ----------------- -----------------
$ 13,890,839 $ 2,136,289 $ 16,027,128
================= ================= =================
5. Other long-term debt:
In 1998, the Partnership entered into a $65 million receivables funding program
(the Program) with a receivables financing company that issues commercial paper
rated A1 by Standard and Poors and P1 by Moody's Investor Services. Under the
Program, the receivables financing company receives a general lien against all
of the otherwise unencumbered assets of the Partnership. The Program provides
for borrowing at a variable interest rate (5.74571% at March 31, 2001).
The Program requires the General Partner to enter into various interest rate
swaps with a financial institution (also rated A1/P1) to manage interest rate
exposure associated with variable rate obligations under the Program by
effectively converting the variable rate debt to fixed rates. As of March 31,
2001, the Partnership receives or pays interest on a notional principal of
$39,937,000, based on the difference between nominal rates ranging from 5.55% to
7.58% and the variable rate under the Program. No actual borrowing or lending is
involved. The last of the swaps terminates in 2008. The differential to be paid
or received is accrued as interest rates change and is recognized currently as
an adjustment to interest expense related to the debt.
8
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
5. Other long-term debt (continued):
Borrowings under the Program are as follows:
Original Balance Rate on
Amount March 31, Interest Swap
Date Borrowed Borrowed 2001 Agreement
------------- -------- ---- ---------
4/1/1998 $ 21,770,000 $ 7,404,000 6.220%
7/1/1998 $ 25,000,000 $ 7,656,000 6.155%
10/1/1998 $ 20,000,000 $ 11,243,000 5.550%
4/16/1999 $ 9,000,000 $ 3,885,000 5.890%
1/26/2000 $ 11,700,000 $ 9,749,000 7.580%
------------------ -----------------
$ 87,470,000 $ 39,937,000
================== =================
The long-term debt borrowings mature from 2004 through 2008. Future minimum
principal payments of long-term debt are as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
2001 $ 8,784,000 $ 1,724,950 $ 10,508,950
2002 11,131,000 1,640,179 12,771,179
2003 7,200,000 1,075,640 8,275,640
2004 5,422,000 676,854 6,098,854
2005 3,986,000 369,993 4,355,993
Thereafter 3,414,000 331,282 3,745,282
----------------- ----------------- -----------------
$ 39,937,000 $ 5,818,898 $ 45,755,898
================= ================= =================
6. 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 services to the Partnership. 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 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 services
in the same geographic location and are reimbursable in accordance with the
Limited Partnership Agreement.
9
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
6. Related party transactions (continued):
The General Partner and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Partnership Agreement as follows:
2001 2000
---- ----
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). $ 326,986 $ 540,844
Costs reimbursed to General Partner 195,377 123,850
----------------- ------------------
$ 522,363 $ 664,694
================= ==================
7. Partner's capital:
As of March 31, 2001,14,996,050 Units ($149,960,500) were issued and
outstanding.
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.
10
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
8. Line of credit:
The Partnership participates with the General Partner and certain of its
Affiliates in a $62,000,000 revolving credit agreement with a group of financial
institutions which expires on April 12, 2002. 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 March 31, 2001, the Partnership had $4,500,000 of borrowings under the line
of credit.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was incompliance with its covenants as of March 31,
2001.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first quarter of 2001 and 2000, the Partnership's primary activity
was engaging in equipment leasing activities.
In 2001 and 2000, the Partnership's primary source of liquidity was operating
lease rents. 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 $62,000,000 revolving line of credit with a financial
institution. The line of credit expires on April 12, 2002.
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. There were no such commitments as of
March 31, 2001.
If inflation in the general economy becomes significant, it may affect the
Partnership inasmuch as the residual (resale) values and rates on re-leases of
the Partnership's leased assets may increase as the costs of similar assets
increase. However, the Partnership's revenues from existing leases would not
increase, as such rates are generally fixed for the terms of the leases without
adjustment for inflation.
If interest rates increase significantly, the lease rates that the Partnership
can obtain on future leases will be expected to increase as the cost of capital
is a significant factor in the pricing of lease financing. Leases already in
place, for the most part, would not be affected by changes in interest rates.
Cash Flows
In 2001 and 2000, the primary source of liquidity was rents from operating
leases. Cash from operating activities was almost entirely from operating lease
rents in both years.
In the first quarter of 2001 and 2000, the only sources of cash from investing
activities was proceeds from sales of assets and rents from direct financing
leases. In 2001, proceeds from sales of lease assets decreased significantly
compared to 2000. Proceeds from such sales are not expected to be consistent
from one year to another. In 2001 the primary investing uses of cash were the
purchase of assets on operating and direct financing leases.
12
In 2001, the only source of cash from investing activities was borrowings under
the line of credit. In 2000, the only source of cash from operating activities
was proceeds of other long-term debt. Repayments of other long-term debt have
decreased as a result of scheduled debt payments. Results of operations
Operations resulted in a net income of $810,179 in 2001 compared to $4,217,402
in the same period in 2000. The Partnership's primary source of revenues is from
operating leases. This is expected to remain true in future periods.
Depreciation expense is the single largest expense of the Partnership.
Depreciation is related to operating lease assets and thus, to operating lease
revenues. Operating lease revenues and depreciation expense have increased over
the last year as a result of asset acquisitions.
Gains and losses recognized on sales of assets have decreased from a gain of
$686,551 in 2000 to a loss of $80,962 in 2001. Gains and losses are not expected
to be consistent from one period to another.
Equipment management fees are based on the Partnership's rental revenues and
have decreased in relation to decreases in the Partnership's revenues from
leases. Such fees decreased from $371,397 in 2000 to $311,703 in 2001. Incentive
management fees are based on the levels of distributions to limited partners and
the sources of the cash distributed. Such fees have decreased from $169,447 in
2000 to $15,283 in 2001.
The decrease in interest expense is related to the reduction of total
outstanding debt as the result of scheduled payments.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No material legal proceedings are currently pending against the Partnership or
against any of its assets. The following is a discussion of legal matters
involving the Partnership but which do not represent claims against the
Partnership or its assets.
In January 2000, Applied Magnetics Corporation filed for protection from
creditors under Chapter 11 of the U.S. Bankruptcy Code. The Partnership has
assets with a total net book value of $8,048,095 leased to Applied Magnetics
Corporation. On January 31, 2000, the General Partner was appointed to the
Official Committee of Unsecured Creditors and currently serves as the
Chairperson of the Committee. Procedures were quickly undertaken for the
liquidation of the Partnership's leased equipment, which proceeds resulted in
recoveries of $1,773,798 or 21.7% of original equipment cost. As of November 1,
2000, liquidation of the assets was completed.
The Partnership anticipates additional amounts may be recoverable through the
reorganization of the lessee's business, however, any recoveries above the
amounts received upon liquidation of the Partnership's equipment are highly
uncertain and speculative.
13
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.
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, March 31, 2001 and December 31,
2000.
Income statements for the three month periods ended
March 31, 2001 and 2000.
Statement of changes in partners' capital for the
three months ended March 31, 2001.
Statements of cash flows for the three month periods
ended March 31, 2001 and 2000.
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
14
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:
May 11, 2001
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
(Registrant)
By: ATEL Financial Corporation
General Partner of Registrant
By: /s/ Dean L. Cash
-----------------------------------
Dean L. Cash
President and Chief Executive Officer
of General Partner
By: /s/ Paritosh K. Choksi
-------------------------------------
Paritosh K. Choksi
Principal financial officer
of registrant
By: /s/ Donald E. Carpenter
-------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant
15