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, 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
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(Unaudited)
ASSETS
1997 1996
---- ----
Cash and cash equivalents $1,118,406 $600
Accounts receivable 216,218
Investments in leases 20,887,328
----------------- ------------------
Total assets $22,221,952 $600
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Lines of credit $8,788,690
Accounts payable:
General Partner 54,079
Other 53,979
Unearned operating lease income 125,214
-----------------
Total liabilities 9,021,962
Partners' capital:
General Partner (645) $100
Limited Partners 13,200,635 500
----------------- ------------------
Total partners' capital 13,199,990 600
----------------- ------------------
Total liabilities and partners' capital $22,221,952 $600
================= ==================
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF OPERATIONS
THREE MONTH PERIOD ENDED
MARCH 31, 1997
(Unaudited)
Revenues:
Leasing activities:
Operating leases $1,515,545
Interest 2,646
Other 117
------------------
1,518,308
Expenses:
Depreciation 1,018,723
Interest expense 303,983
Administrative cost reimbursements to General Partner 87,163
Equipment and incentive management fees to General Partner 57,329
Other 52,694
Professional fees 8,345
------------------
1,528,237
------------------
Net loss ($9,929)
==================
Net loss:
General Partner ($745)
Limited Partners (9,184)
------------------
($9,929)
==================
Net loss per Limited Partnership Unit ($0.01)
Weighted average number of Units outstanding 788,645
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
THREE MONTH PERIOD
ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partner Total
<S> <C> <C> <C> <C>
Balance December 31, 1996 50 $500 $100 $600
Capital contributions 1,556,709 15,567,090 - 15,567,090
Less selling commissions to affiliates (1,478,874) - (1,478,874)
Other syndication costs to affiliates (802,670) - (802,670)
Distributions to partners (76,227) - (76,227)
Net loss (9,184) (745) (9,929)
----------------- ----------------- ----------------- ------------------
Balance March 31, 1997 1,556,759 $13,200,635 ($645) $13,199,990
================= ================= ================= ==================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF CASH FLOWS
THREE MONTH PERIOD ENDED
MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Operating activities:
Net loss ($9,929)
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 1,018,723
Changes in operating assets and liabilities:
Accounts receivable (216,218)
Accounts payable, General Partner 54,079
Accounts payable, other 53,979
Unearned lease income 125,214
------------------
Net cash provided by operations 1,025,848
------------------
Investing activities:
Purchases of equipment on operating leases (21,146,051)
Purchases of equipment on direct financing leases (760,000)
------------------
Net cash used in investing activities (21,906,051)
------------------
Financing activities:
Borrowings under line of credit 9,273,690
Repayments of borrowings under line of credit (485,000)
Capital contributions received 15,567,090
Payment of syndication costs to General Partner (2,281,544)
Distributions to partners (76,227)
------------------
Net cash provided by financing activities 21,998,009
------------------
Net increase in cash and cash equivalents 1,117,806
Cash and cash equivalents at beginning of period 600
------------------
Cash and cash equivalents at end of period $1,118,406
==================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $303,983
==================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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:
<TABLE>
<CAPTION>
Depreciation
Expense or Balance
Amortization March 31,
Additions of Leases 1997
<S> <C> <C> <C>
Net investment in operating leases $21,146,051 ($1,018,723) $20,127,328
Net investment in direct financing leases 760,000 - 760,000
----------------- ----------------- -----------------
$21,906,051 ($1,018,723) $20,887,328
================= ================= =================
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
Transportation $18,907,388
Construction 350,000
Materials handling 982,293
Manufacturing 906,370
-----------------
21,146,051
Less accumulated depreciation (1,018,723)
-----------------
$20,127,328
=================
As of March 31, 1997, investment in direct financing leases consists of fuel
trucks. The following lists the components of the Partnership's investment in
direct financing leases as of March 31, 1997:
Total minimum lease payments receivable $1,055,768
Estimated residual values of leased equipment (unguaranteed) 133,380
------------------
Investment in direct financing leases 1,189,148
Less unearned income (429,148)
------------------
Net investment in direct financing leases $760,000
==================
All of the property on leases was acquired in 1997. There were no dispositions
of such property.
At March 31, 1997, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
1997 $3,154,244 $71,984 $3,226,228
1998 3,792,878 95,979 3,888,857
1999 2,463,148 95,979 2,559,127
2000 1,665,631 95,979 1,761,610
2001 1,447,397 95,979 1,543,376
Thereafter 1,135,699 599,868 1,735,567
----------------- ----------------- -----------------
$13,658,997 $1,055,768 $14,714,765
================= ================= =================
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
4. 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.
<TABLE>
<CAPTION>
<S> <C>
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) $1,478,874
Reimbursement of other syndication costs 802,670
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). 57,329
Administrative costs reimbursed to General Partner 87,163
------------------
$2,426,036
==================
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
5. Partner's capital:
As of March 31, 1997, 1,556,759 Units ($15,567,590) 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.
6. 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 March 31, 1997, the Partnership had $8,788,690 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 March 31,
1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first quarter 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 March 31, 1997, the
Partnership had received subscriptions for 1,556,759 Units ($15,567,590) 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
$4,669,000 as of May 1, 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.
<PAGE>
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.
There were no sources of cash from investing activities during the quarter. The
primary investing use of cash was the purchase of assets on operating and direct
financing leases.
Cash from financing sources consisted 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 $178,604. 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 for the first quarter of 1997 related 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 the first quarter of 1997.
<PAGE>
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, March 31, 1997 and December 31, 1996.
Statement of changes in partners' capital for the three
months ended March 31, 1997.
Statement of operations for the three month period ended
March 31, 1997.
Statement of cash flows for the three month period ended
March 31, 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
<PAGE>
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 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,118,406
<SECURITIES> 0
<RECEIVABLES> 216,218
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,221,952
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,199,990
<TOTAL-LIABILITY-AND-EQUITY> 22,221,952
<SALES> 0
<TOTAL-REVENUES> 1,518,308
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,224,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,983
<INCOME-PRETAX> (9,929)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,929)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
