Form 10K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required) For
the Year Ended December 31, 1997
OR
|_| Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 (no fee required)
For the transition period from ____ to ____
Commission File number 333-08879
ATEL Capital Equipment Fund VII, L.P.
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
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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 |_|
State the aggregate market value of voting stock held by non-affiliates of the
registrant: Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
<PAGE>
PART I
Item 1: BUSINESS
General Development of Business
ATEL Capital Equipment Fund VII, L.P. (the Partnership), was formed under the
laws of the State of California in May 1996. The Partnership was formed for the
purpose of acquiring equipment to engage in equipment leasing and sales
activities.
The Partnership is conducting a public offering of 15,000,000 units of Limited
Partnership interest (Units), at a price of $10 per Unit. As of December 31,
1997, the Partnership had received subscriptions for 6,716,846 ($67,168,460)
Limited Partnership Units, all of which were issued or outstanding as of
December 31, 1997. On January 6, 1997, subscriptions for the minimum number of
Units (120,000, $1,200,000) had been received and the General Partner requested
that the subscriptions, except those received from Pennsylvania investors (400
units, $4,000), be released to the Partnership. On that date, the Partnership
commenced operations in its primary business (leasing activities). As of
February 13, 1997, the Partnership had received subscriptions for 774,425 units
($7,744,250) and the General Partner requested that the remaining funds in
escrow (from Pennsylvania investors) be released to the Partnership.
The Partnership's principal objectives are to invest in a diversified portfolio
of equipment which will (i) preserve, protect and return the Partnership's
invested capital; (ii) generate regular distributions to the partners of cash
from operations and cash from sales or refinancing, with any balance remaining
after certain minimum distributions to be used to purchase additional equipment
during the reinvestment period, ending 72 months after the end of the year in
which the Final Closing occurs and (iii) provide additional distributions
following the reinvestment period and until all equipment has been sold. The
Partnership is governed by its Limited Partnership Agreement.
Narrative Description of Business
The Partnership has acquired and intends to acquire various types of equipment
and to lease such equipment pursuant to "Operating" leases and "High Payout"
leases, where "Operating" leases are defined as being leases in which the
minimum lease payments during the initial lease term do not recover the full
cost of the equipment and "High Payout" leases recover at least 90% of such
cost. It is the intention of the General Partner that a majority of the
aggregate purchase price of equipment will represent equipment leased under
"High Payout" leases upon final investment of the Net Proceeds of the Offering
and that no more than 20% of the aggregate purchase price of equipment will be
invested in equipment acquired from a single manufacturer.
The Partnership will generally only purchase equipment for which a lease exists
or for which a lease will be entered into at the time of the purchase.
As of December 31, 1997, the Partnership had purchased equipment with a total
acquisition price of $142,385,311.
The Partnership's objective is to lease a minimum of 75% of the equipment
acquired with the net proceeds of the offering to lessees which (i) have an
aggregate credit rating by Moody's Investor service, Inc. of Baa or better, or
the credit equivalent as determined by the General Partner, with the aggregate
rating weighted to account for the original equipment cost for each item leased;
or (ii) are established hospitals with histories of profitability or
municipalities. The balance of the original equipment portfolio may include
equipment leased to lessees which, although deemed creditworthy by the General
Partner, would not satisfy the general credit rating criteria for the portfolio.
<PAGE>
During 1997 certain lessees generated significant portions of the Partnership's
total lease revenues as follows:
Lessee Type of Equipment
- ------ ------------------
Burlington Northern Santa Locomotives &
Fe Railroad Company intermodal containers 24%
Cargill, Incorporated Covered Rail Hopper Cars 15%
These percentages are not expected to be comparable in future periods.
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease term and type of equipment. The ability of the Partnership to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depends on various factors (many of which are not in
the control of the General Partner or the Partnership), such as general economic
conditions, including the effects of inflation or recession, and fluctuations in
supply and demand for various types of equipment resulting from, among other
things, technological and economic obsolescence.
The General Partner will seek to limit the amount invested in equipment to any
single lessee to not more than 20% of the aggregate purchase price of equipment
owned at any time during the reinvestment period.
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
Equipment Leasing Activities:
Through December 31, 1997, the Partnership has disposed of certain leased assets
as set forth below:
Excess of
Type of Original Rents Over
Equipment Equipment Cost Sale Price Expenses *
- --------
Tractors $35,000 $33,666 $6,119
Railcars 99,000 96,747 9,415
--------------- ----------------- -----------------
$134,000 $130,413 $15,534
=============== ================= =================
* Includes only those expenses directly related to the production of the related
rents.
The Partnership has acquired a diversified portfolio of equipment. The equipment
has been leased to lessees in various industries. The following tables set forth
the types of equipment acquired by the Partnership through December 31, 1997 and
the industries to which the assets have been leased. The Partnership has
purchased certain assets subject to existing non-recourse debt. For financial
statement purposes, non-recourse debt has been offset against the investment in
certain direct finance leases where the right of setoff exists.
<PAGE>
Purchase price excluding Percentage of total
Asset types acquisition fees acquisitions
----------- ---------------- ------------
Transportation, intermodal containers $26,631,519 18.71%
Manufacturing 24,849,113 17.45%
Transportation, rail cars 21,649,412 15.20%
Other 16,640,192 11.69%
Motor Vehicles 12,407,749 8.71%
Transportation, other 10,903,940 7.66%
Medical 7,152,721 5.02%
Mining 6,275,273 4.41%
Railroad locomotives 5,010,960 3.52%
Office automation 3,948,070 2.77%
Aircraft 3,754,018 2.64%
Materials handling 3,162,344 2.22%
---------------- -----------------
$142,385,311 100.00%
================ =================
Purchase price excluding Percentage of total
Industry of lessee acquisition fees acquisitions
------------------ ---------------- ------------
Municipalities $36,825,777 25.88%
Transportation, other 25,092,815 17.62%
Electronics 21,605,944 15.17%
Transportation, rail 21,270,099 14.94%
Manufacturing, other 12,220,882 8.58%
Primary metals 8,718,938 6.12%
Business services 6,141,076 4.31%
Oil & gas 2,902,773 2.04%
Other 7,607,007 5.34%
---------------- -----------------
$142,385,311 100.00%
================ =================
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 1997, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or materially
important physical properties other than the equipment held for lease as set
forth in Item 1.
Item 3. LEGAL PROCEEDINGS
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS
AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Partnership and its investment objectives, to
the General Partner's knowledge, no established public secondary trading market
has developed and it is unlikely that a public trading market will develop in
the future.
Holders
As of December 31, 1997, a total of 2,683 investors were record holders of Units
in the Partnership.
Dividends
The Partnership does not make dividend distributions. However, the Limited
Partners of the Partnership are entitled to certain distributions as provided
under the Limited Partnership Agreement.
The General Partner shall have sole discretion in determining the amount of
distributions; provided, however, that the General Partner will not reinvest in
equipment, but will distribute, subject to payment of any obligations of the
Partnership, such available cash from operations and cash from sales or
refinancing as may be necessary to cause total distributions to the Limited
Partners for each year during the reinvestment period to equal $1.00 per Unit.
The rate for monthly distributions from 1997 operations was $0.0833 per Unit.
The distributions were made in February 1997 through December 1997 and in
January 1998. For each quarterly distribution (made in April, July and October
1997 and in January 1998) the rate was $0.25 per Unit. Distributions were from
1997 cash flows from operations. The amounts paid to holders of Units were
adjusted based on the length of time within the previous calendar month or
quarter that the Units were outstanding.
The following table presents summarized information regarding distributions to
Limited Partners:
1997
----
Distributions of net loss $ (0.20)
Return of investment 1.00
------------
Distributions per unit 0.79
Differences due to timing of distributions 0.21
------------
Nominal distribution rates from above $1.00
============
<PAGE>
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
December 31, 1997.
<TABLE>
<CAPTION>
Aggregate Aggregate
price of price of
offering offering
Amount amount Amount amount
Title of Security Registered registered sold sold
<S> <C> <C> <C> <C>
Limited Partnership units 15,000,000 $ 150,000,000 6,716,846 $ 67,168,460
</TABLE>
(8) Costs incurred for the issuers account in
connection with the issuance and distribution of the
securities registered for each category listed below:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
Underwriting discounts and
commissions $ 944,377 $ 5,436,627 $ 6,381,004
Other expenses - 3,272,580 3,272,580
---------------- ----------------- -----------------
Total expenses $ 944,377 $ 8,709,207 $ 9,653,584
================ ================= =================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $ 57,514,876
<PAGE>
(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 Direct or
of any class of equity indirect
securities of the issuer; and payments to
to affiliates of the issuer others Total
Purchase and installation of
machinery and equipment $ - $ 57,179,034 $ 57,179,034
Working capital - 335,842 335,842
---------------- ----------------- -----------------
$ - $ 57,514,876 $ 57,514,876
================ ================= =================
</TABLE>
(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. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership at
December 31, 1997 and 1996. This financial data should be read in conjunction
with the financial statements and related notes included under Item 8 of this
report.
1997 1996
---- ----
Gross revenues $ 7,373,981 $ -
Net loss ($738,233) $ -
Weighted average Limited Partner Units
outstanding 3,380,442 50
Net loss per Unit, based on weighted average
Units outstanding $ (0.20) $ -
Distributions per Unit, based on weighted average
Units outstanding $ 0.79 $ -
Total Assets $ 104,416,786 $ 600
Non-recourse Debt $ 8,127,374 $ -
Total Partners' Capital $ 53,900,414 $ 600
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership commenced its offering on November 29, 1996. As of December 31,
1996, all of the proceeds of the offering were held by the escrow agent. Upon
sale of the minimum amount of Units (120,000 Units) ($1,200,000) and the receipt
of the proceeds thereof on January 7, 1997, the Partnership commenced
operations. During the funding period and until the Partnership's initial
portfolio of equipment has been purchased, funds which have been received, but
which have not yet been invested in leased equipment, are invested in
interest-bearing accounts or high-quality/short-term commercial paper. The
Partnership's public offering provides for a total maximum capitalization of
$150,000,000.
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 and proceeds of asset sales 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 and proceeds from asset sales.
As another source of liquidity, the Partnership is expected to have 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 (which has been increased
to $105,000,000 through March 31, 1998) with a financial institution that
includes certain financial covenants. The line of credit expires on October 28,
1998. As of December 31, 1997, the Partnership had $40,390,460 of borrowings
under this line of credit and the remaining availability was $17,754,812.
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. At December 31,
1997, commitments to purchase lease assets totaled $43,525,161. These amounts
are expected to be funded from the existing line of credit, additional offering
proceeds, additional non-recourse borrowings, existing cash balances and cash
flows generated by operations.
As of December 31, 1997, all cash balances consisted of amounts reserved for
distributions ($770,452) in January 1998, generated from operations in 1997 and
working capital.
The Partnership currently has available adequate reserves to meet its immediate
cash requirements, 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.
In the near future, the Partnership expects to establish a $65 million dollar
receivables funding program with a receivables financing company that issues
commercial paper rated A1 from Standard and Poors and P1 from Moody's Investor
Services. In this receivables funding program, the lenders will receive a
general lien against all of the otherwise unencumbered assets of the
Partnership. The program provides for borrowing at a variable interest rate and
requires the General Partner to enter into hedge agreements with certain hedge
counterparties (also rated A1/P1) to mitigate the interest rate risk associated
with a variable rate note. The General Partner anticipates that this program
will allow the Partnership to avail itself of lower cost debt than that
available for individual non-recourse debt transactions. It is the intention of
the Partnership to use the receivables funding program to finance assets leased
to those credits which, in the opinion of the General Partner, have a relatively
lower potential risk of lease default then those lessees with equipment financed
with non-recourse debt. The Partnership will continue to use its traditional
sources of non-recourse secured debt financing on a transaction basis as a means
of mitigating credit risk.
The General Partner expects that aggregate borrowings in the future will be
approximately 50% of aggregate equipment cost. In any event, the Agreement of
Limited Partnership limits such borrowings to 50% of the total cost of
equipment, in aggregate.
<PAGE>
The Partnership commenced regular distributions, based on cash flows from
operations, beginning with the month of January 1997. See Items 5 and 6 of this
report for additional information regarding distributions.
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 1997, the Partnership's primary source of cash was the proceeds of its
offering of Limited Partnership Units. Borrowings under the line of credit was
the other major source of cash in 1997. Once the offering is completed, the
initial portfolio of lease equipment is acquired and long-term financing is
finalized, the major source of cash is expected to be rents from operating
leases and proceeds from the sales of lease assets.
Cash flows from operating activities was for the most part generated by
operating lease rents.
The only sources of cash from investing activities were proceeds from sales of
lease assets and rents from direct financing leases. Neither was significant in
1997 compared to the financing sources of cash.
Results of Operations
As of January 7, 1997, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Partnership. As of that date,
the Partnership commenced operations in its primary business (leasing
activities). There were no operations in 1996. Because of the timing of the
commencement of operations and the fact that the initial portfolio acquisitions
have not been completed, the results of operations in 1997 are not expected to
be comparable to future periods. After the Partnership's public offering and its
initial asset acquisition stage terminate, the results of operations are
expected to change significantly.
In 1997, operations resulted in a net loss of $738,233. Operations commenced in
1997 and the Partnership's offering of Units will continue through most of 1998.
As a result, the Partnership's operations are expected to change considerably.
The results of 1998 operations are not expected to comparable to those of 1997.
The Partnership's primary source of revenues is rents generated by operating
leases. Such leases are expected to be the most significant source of revenues
in future periods, however, the amounts of such revenues are expected to
increase as a result of continuing asset purchases.
<PAGE>
Depreciation expense related to operating lease assets is the Partnership's
largest expense and it is expected to increase in future periods as assets on
operating leases are purchased.
Impact of the Year 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in similar normal
business activities.
The Partnership believes that it will not be required to modify or replace
significant portions of its software and that the year 2000 issue will not pose
significant operational problems for its computer systems. The Partnership does
not expect that the costs related to the year 2000 issue will be significant.
Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by businesses and other entities whose
financial condition or operational capability is important to the Partnership.
Therefore, the Partnership is communicating to these parties to ensure they are
aware of the year 2000 issue, to learn how they are addressing it, and to
evaluate any likely impact on the Partnership.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto at
pages 12 through 23.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
ATEL Capital Equipment Fund VII, L.P.
We have audited the accompanying balance sheets of ATEL Capital Equipment Fund
VII, L.P. as of December 31, 1997 and 1996 and the related statements of
operations, changes in partners' capital and cash flows for the year ended
December 31, 1997 and the related statements of changes in partners' capital and
cash flows for the period from May 17, 1996 (inception) through December
31,1996. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund
VII, L.P. at December 31, 1997 and 1996 and the results of its operations,
changes in its partners' capital and its cash flows for the year ended December
31, 1997 and its changes in partners' capital and cash flows for the period from
May 17, 1996 (inception) through December 31,1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
February 6, 1998
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---- ----
Cash and cash equivalents $2,014,706 $600
Accounts receivable 917,219 -
Other assets 200,000 -
Investments in equipment and leases 101,284,861 -
----------------- -----------------
Total assets $104,416,786 $600
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $8,127,374
Lines of credit 40,390,460
Accounts payable and accruals:
General Partner 334,256
Other 535,621
Accrued interest payable 197,664
Unearned lease income 930,997
-----------------
50,516,372
Partners' capital:
General Partner (247,461) $100
Limited Partners 54,147,875 500
----------------- -----------------
Total partners' capital 53,900,414 600
----------------- -----------------
Total liabilities and partners' capital $104,416,786 $600
================= =================
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Leasing activities:
Operating leases $7,139,544
Direct financing leases 171,026
Gain on sales of assets 3,752
Interest income 56,642
Other 3,017
-----------------
7,373,981
Expenses:
Depreciation and amortization 5,847,827
Interest 714,701
Administrative cost reimbursements to General Partner 645,437
Equipment and incentive management fees to affiliates 358,846
Provision for losses and impairments 74,277
Professional fees 90,305
Other 380,821
-----------------
8,112,214
-----------------
Net loss ($738,233)
=================
Net loss:
General Partner ($55,367)
Limited Partners (682,866)
-----------------
($738,233)
=================
Net loss per Limited Partnership unit ($0.20)
Weighted average number of units outstanding 3,380,442
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
AND FOR THE PERIOD FROM MAY 17, 1996 (INCEPTION)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partner Total
<S> <C> <C> <C> <C>
Capital contributions 50 $ 500 $ 100 $ 600
---------------- ----------------- ----------------- -----------------
Balance December 31, 1996 50 500 100 600
Capital contributions received 6,716,846 67,168,460 - 67,168,460
Less selling commissions to affiliates (6,381,004) - (6,381,004)
Other syndication costs to affiliates (3,272,580) - (3,272,580)
Distributions to Limited Partners ($0.79 per Unit) (2,684,635) - (2,684,635)
Distributions to General Partner - (192,194) (192,194)
Net loss (682,866) (55,367) (738,233)
---------------- ----------------- ----------------- -----------------
Balance December 31, 1997 6,716,896 $ 54,147,875 $ (247,461) $ 53,900,414
================ ================= ================= =================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
AND FOR THE PERIOD FROM MAY 17, 1996 (INCEPTION)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net loss ($738,233)
Adjustment to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 5,847,827
Provision for losses and impairments 74,277
Gain on sales of assets (3,752) Changes in operating assets and liabilities:
Accounts receivable (917,219)
Other assets (200,000)
Accounts payable, General Partner 334,256
Accounts payable, other 535,621
Accrued interest payable 197,664
Unearned lease income 930,997
-----------------
Net cash provided by operating activities 6,061,438
-----------------
Investing activities:
Purchases of equipment on operating leases (89,242,615)
Purchases of equipment on direct financing leases (16,841,671)
Purchases of equipment on leveraged leases (1,449,068)
Initial direct lease costs (32,744)
Reduction of net investment in direct financing leases 232,472
Proceeds from sales of assets 130,413
-----------------
Net cash used in investing activities (107,203,213)
-----------------
Financing activities:
Capital contributions received 67,168,460 $600
Payment of syndication costs to General Partner (9,653,584)
Distributions to Limited Partners (2,684,635)
Distributions to General Partner (192,194)
Borrowings under lines of credit 59,174,080
Repayments of borrowings under lines of credit (18,783,620)
Proceeds of non-recourse debt 8,324,416
Repayments of non-recourse debt (197,042)
----------------- -----------------
Net cash provided by financing activities 103,155,881 600
----------------- -----------------
Net increase in cash and cash equivalents 2,014,106 600
Cash and cash equivalents at beginning of period 600 -
----------------- -----------------
Cash and cash equivalents at end of period $2,014,706 $600
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 517,037
=================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Organization and Partnership matters:
ATEL Capital Equipment Fund VII, L.P. (the Fund), was formed under the laws of
the State of California on May 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) (ATEL'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) (120,000 Units) ($1,200,000) and the receipt of the proceeds thereof on
January 7, 1997, the Partnership commenced operations.
The Partnership or the General Partner on behalf of the Partnership, will incur
costs in connection with the organization, registration and issuance of the
Units. The amount of such costs to be born by the Partnership is limited to 15%
of Gross Proceeds of up to $25,000,000 and 14% of Gross Proceeds in excess of
$25,000,000.
The Partnership's business consists of leasing various types of equipment. As of
December 31, 1997, the original terms of the leases ranged from one to eleven
years.
Pursuant to the Limited Partnership Agreement, the General Partner receives
compensation and reimbursements for services rendered on behalf of the
Partnership (Note 5). The General Partner is required to maintain in the
Partnership reasonable cash reserves for working capital, the repurchase of
Units and contingencies.
2. Summary of significant accounting policies:
Equipment on operating leases:
Revenues from operating leases are recognized evenly over the life of the
related leases.
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Direct financing leases:
Income from direct financing lease transactions is reported on the financing
method of accounting, in which the Partnership's investment in the leased
property is reported as a receivable from the lessee to be recovered through
future rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
2. Summary of significant accounting policies (continued):
Income taxes:
The Partnership does not provide for income taxes since all income and losses
are the liability of the individual partners and are allocated to the partners
for inclusion in their individual tax returns.
The tax basis of the Partnership's net assets and liabilities varies from the
amounts presented in these financial statements (unaudited):
Financial statement basis of net assets $53,900,414
Tax basis of net assets 56,424,733
-------------
Difference $2,524,319
=============
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the accounting for syndication costs
and differences between the depreciation methods used in the financial
statements and the Partnership's tax returns.
The following reconciles the net loss reported in these financial statements to
the loss reported on the Partnership's federal tax return (unaudited):
Net loss per financial statements ($738,233)
Adjustment to depreciation expense (6,820,550)
Adjustments to lease revenues (382,993)
Provision for losses 74,277
-------------
Net loss per federal tax return ($7,867,499)
=============
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
Credit Risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk include cash and cash equivalents and accounts
receivable. The Partnership places its cash deposits and temporary cash
investments with creditworthy, high quality financial institutions. The
concentration of such deposits and temporary cash investments is not deemed to
create a significant risk to the Partnership. Accounts receivable represent
amounts due from lessees in various industries, related to equipment on
operating and direct financing leases. See Note 7 for a description of lessees
by industry as of December 31, 1997.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. Investments in equipment and leases:
As of December 31, 1997, the Partnership's investments in equipment and leases
consist of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
Amortization ifications or December 31,
Additions of Leases Dispositions 1997
--------- --------- ------------ ----
<S> <C> <C> <C> <C>
Net investment in operating leases $ 89,242,615 $ (5,847,381) $ (126,661) $ 83,268,573
Net investment in direct financing leases 16,841,671 (232,472) - 16,609,199
Net investment in leveraged leases 1,449,068 - - 1,449,068
Reserve for losses (74,277) - - (74,277)
Initial direct costs, net of accumulated amortization
of $446 in 1997 32,744 (446) - 32,298
---------------- ----------------- ----------------- -----------------
$ 107,491,821 $ (6,080,299) $ (126,661) $ 101,284,861
================ ================= ================= =================
</TABLE>
Operating leases:
Property on operating lease consists of the following additions and dispositions
during 1997 and as of December 31, 1997:
<TABLE>
<CAPTION>
Reclass-
ifications or December 31,
Additions Dispositions 1997
--------- ------------ ----
<S> <C> <C> <C>
Transportation $ 51,219,754 $ (99,000) $ 51,120,754
Manufacturing 14,342,104 - 14,342,104
Mining 6,275,273 - 6,275,273
Motor vehicles 5,454,671 - 5,454,671
Aircraft 3,430,000 - 3,430,000
Materials handling 3,162,344 (35,000) 3,127,344
Other 2,601,605 - 2,601,605
Office automation 1,624,385 - 1,624,385
Furniture and fixtures 1,132,479 - 1,132,479
----------------- ----------------- -----------------
89,242,615 (134,000) 89,108,615
Less accumulated depreciation (5,847,381) 7,339 (5,840,042)
----------------- ----------------- -----------------
$ 83,395,234 $ (126,661) $ 83,268,573
================= ================= =================
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
Direct financing leases:
As of December 31, 1997, investment in direct financing leases consist of
various transportation, manufacturing and medical equipment. The following lists
the components of the Partnership's investment in direct financing leases as of
December 31, 1997:
Total minimum lease payments receivable $ 14,612,091
Estimated residual values of leased equipment (unguaranteed) 7,106,748
--------------
Investment in direct financing leases 21,718,839
Less unearned income (5,109,640)
--------------
Net investment in direct financing leases $ 16,609,199
==============
All of the property on leases was acquired in 1997.
At December 31, 1997, the aggregate amounts of future minimum lease payments
under operating and direct financing leases are as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
1998 $ 16,890,991 $ 2,278,884 $ 19,169,875
1999 16,446,553 2,523,513 18,970,066
2000 13,957,704 2,523,513 16,481,217
2001 11,797,592 2,523,513 14,321,105
2002 8,521,950 2,116,959 10,638,909
Thereafter 6,240,298 2,645,709 8,886,007
--------------- ---------------- -----------------
$ 73,855,088 $ 14,612,091 $ 88,467,179
=============== ================ =================
Leveraged leases:
As of December 31, 1997, investment in leveraged leases consists of railroad box
cars. The following lists the components of the Partnership's investment in
leveraged leases as of December 31, 1997:
Aggregate rentals receivable $2,241,056
Less aggregate principal and interest payable on non-recourse loans (2,033,287)
Estimated residual value of leased assets 1,672,855
Less unearned income (431,556)
-------------
Net investment in leveraged leases $ 1,449,068
=============
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Non-recourse debt:
At December 31, 1997, non-recourse debt consists of notes payable to financial
institutions. The notes are due in varying monthly, quarterly and semi-annual
payments. Interest on the notes is at rates from 8.3% to 10.0%. The notes are
secured by assignments of lease payments and pledges of assets. At December 31,
1997, the carrying value of the pledged assets is approximately $9,596,682. The
notes mature from 2002 through 2004.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
1998 $ 752,125 $ 296,811 $ 1,048,936
1999 1,258,792 984,894 2,243,686
2000 1,703,036 540,650 2,243,686
2001 1,861,393 382,293 2,243,686
2002 1,466,096 219,272 1,685,368
Thereafter 1,085,932 108,820 1,194,752
---------------- ----------------- -----------------
$ 8,127,374 $ 2,532,740 $ 10,660,114
================ ================= =================
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
disposition 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.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. Related party transactions (continued):
The General Partner and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Partnership Agreement as follows during
1997:
Selling commissions (equal to 9.5% of the selling price of the
Limited Partnership units, deducted from Limited Partners' capital $6,381,004
Reimbursement of other syndication costs 3,272,580
Administrative costs reimbursed to General Partner 645,437
Incentive management fees (computed as 4.0% 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). 358,846
-------------
$10,657,867
=============
6. Partners' capital:
As of December 31, 1997, 6,716,896 Units ($67,168,960) were issued and
outstanding. The Fund is authorized to issue up to 15,000,050 Units, including
the 50 Units issued to the initial limited partners.
The Partnership Net Profits, Net Losses, and Tax Credits are to be allocated
92.5% to the Limited Partners and 7.5% to the General Partner.
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:
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
6. Partners' capital (continued):
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.
7. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. Leases
are subject to the General Partner's credit committee review. The leases provide
for the return of the equipment upon default.
As of December 31, 1997 there were concentrations (greater than 10%) of
equipment leased to lessees in certain industries (as a percentage of total
equipment cost) as follows:
Municipalities 26%
Transportation, other 18%
Transportation, rail 15%
Electronics 15%
During 1997, two customers comprised 24% and 15% of the Partnership's revenues
from leases.
8. Lines of credit:
The Partnership participates with the General Partner and certain of its
Affiliates in a $90,000,000 revolving credit agreement (which has been increased
to $105,000,000 through March 31, 1998) with a group of financial institutions
which expires on October 28, 1998. 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.
During 1997, the Partnership borrowed $59,174,080 under the line of credit.
Repayments on the line of credit were $18,783,620 during 1997 and $40,390,460
remained outstanding as of December 31, 1997. At December 31, 1997, the rates on
such borrowings varied from 7.47% to 8.50%.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of December
31, 1997. At December 31, 1997, $17,754,812 was available under this agreement.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
9. Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
Non-recourse debt:
The fair value of the Partnership's non-recourse debt is estimated using
discounted cash flow analyses, based on the Partnership's current incremental
borrowing rates for similar types of borrowing arrangements. The estimated fair
value of the Partnership's non-recourse debt at December 31, 1997 is $8,534,223.
Line of credit:
The carrying amounts of the Partnership's variable rate lines of credit
approximate fair value.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Corporation (the General
Partner) is held by ATEL Capital Group ("ACG"), a holding company formed to
control the General Partner and affiliated companies pursuant to a corporate
restructuring completed in July 1994. The outstanding capital stock of ATEL
Capital Group is owned 75% by A. J. Batt and 25% by Dean Cash, and was obtained
in the restructuring in exchange for their capital interests in ATEL Financial
Corporation.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor services ("AIS") and ATEL Financial Corporation ("AFC") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Partnership. Acquisition services are performed for the Partnership by ALC,
equipment management, lease administration and asset disposition service are
performed by AEC, investor relations and communications service are performed by
AIS and general administrative service for the Partnership are performed by AFC.
ATEL Securities Corporation ("ASC"), is a wholly-owned subsidiary of ATEL
Financial Corporation.
The officers and directors of ATEL Capital Group, ATEL Financial Corporation and
their affiliates are as follows:
A. J. Batt Chairman of the Board of Directors of ACG, AFC, ALC,
AEC, AIS and ASC; President and Chief Executive
Officer of ACG, AFC and AEC
Dean L. Cash Director, Executive Vice President and Chief
Operating Officer of ACG, AFC, and AEC; Director,
President and Chief Executive Officer of ALC, AIS
and ASC
F. Randall Bigony Senior Vice President and Chief Financial Officer of
ACG, AFC, ALC, AIS and AEC
Donald E. Carpenter Vice President and Controller of ACG, AFC, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais General Counsel for ACG, AFC, ALC, AIS and AEC
William J. Bullock Director of Asset Management of AEC
Russell H. Wilder Vice President - Credit of AEC
John P. Scarcella Vice President of ASC
<PAGE>
A. J. Batt, age 61, founded ATEL in 1977 and has been its president and chairman
of the board of directors since its inception. From 1973 to 1977, he was
employed by GATX Leasing Corporation as manager-data processing and equity
placement for the lease underwriting department, which was involved in equipment
financing for major corporations. From 1967 to 1973 Mr. Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support services for computer time-sharing applications for corporations and
financial institutions. Prior to that time, he was employed by North American
Aviation as an engineer involved in the Apollo project. Mr. Batt received a
B.Sc. degree with honors in mathematics and physics from the University of
British Columbia in 1961.
Dean L. Cash, age 47, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing
representative for Martin Marietta Corporation, data systems division, from 1979
to 1980. From 1977 to 1979, he was employed by General Electric Corporation,
where he was an applications specialist in the medical systems division and a
marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was
involved in maintaining and developing software for commercial applications. Mr.
Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A.
degree with a concentration in finance in 1975 from Florida State University.
Mr. Cash is an arbitrator with the American Arbitration Association.
F. Randall Bigony, age 40, joined ATEL in 1992 to review administrative
operations within ATEL Financial Corporation and to develop and implement
functional plans to support company growth. He currently oversees ATEL's
accounting, MIS and treasury functions. From 1987 until joining ATEL, Mr. Bigony
was president of F. Randall Bigony & Co., a consulting firm that provided
financial and strategic planning services to emerging growth companies. From
1983 to 1987, he was a manager with the accounting firm of Ernst & Whinney,
serving clients in its management consulting practice. Mr. Bigony received a
B.A. degree in business from the University of Massachusetts and an M.B.A.
degree in finance from the University of California, Berkeley. He is a founding
board member and acting treasurer of the I Have a Dream Foundation Bay Area
Chapter.
Donald E. Carpenter, age 49, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 39, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the Corporate and Securities Legal Department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley and a J.D. degree in 1986 from Golden Gate University Law
School. Mr. Morais has been an active member of the State Bar of California
since 1986.
<PAGE>
William J. Bullock, age 34, joined ATEL in 1991, as the director of asset
management. He assumed responsibility for the disposition of off-lease equipment
and residual valuation analysis on new lease transactions. Prior to joining
ATEL, Mr. Bullock was a senior member of the equipment group at McDonnell
Douglas Finance Corporation ("MDFC") responsible for managing its $4 billion
portfolio of leases. Mr. Bullock was involved in negotiating sales and renewals
as well as preparing and inspecting equipment. Prior to joining MDFC in 1989,
Mr. Bullock was the Senior Negotiator at Equitable Leasing (a subsidiary of GE
Capital Equipment Corp.) in San Diego. At Equitable, he handled the end-of-lease
negotiations and equipment dispositions of a portfolio comprised of equipment
leased primarily to Fortune 200 companies. Mr. Bullock has been a member of the
Equipment Lessors Association ("ELA") since 1987 and has authored ELA industry
articles. He received a B.S. degree in Finance in 1987 from San Diego State
University and is pursuing his M.B.A.
Russell H. Wilder, age 42, joined ATEL in 1992 as Vice President of ATEL
Business Credit, a wholly-owned subsidiary of ACG. Immediately prior to joining
ATEL, Mr. Wilder was a personal property broker specializing in equipment
leasing and financing and an outside contractor in the areas of credit and
collections. From 1985 to 1990 he was Vice President and Manager of Leasing for
Fireside Thrift Co., a Teledyne subsidiary, and was responsible for all aspects
of setting up and managing the department, which operated as a small ticket
lease funding source. From 1983 to 1985 he was with Wells Fargo Leasing
Corporation as Assistant Vice President in the credit department where he
oversaw all credit analysis on transactions in excess of $2 million. From 1978
to 1983 he was District Credit Manager with Westinghouse Credit Corporation's
Industrial Group and was responsible for all non-marketing operations of various
district offices. Mr. Wilder holds a B.S. with Honors in Agricultural Economics
and Business Management from the University of California at Davis. He has been
awarded the Certified Lease Professional designation by the Western Association
of Equipment Lessors.
John P. Scarcella, age 35, joined ATEL Securities as vice president in 1992. He
is involved in the marketing of securities offered by ASC. Prior to joining ASC,
from 1987 to 1991, he was employed by Lansing Pacific Fund, a real estate
investment trust in San Mateo, California and acted as director of investor
relations. From 1984 to 1987, Mr. Scarcella acted as broker dealer
representative for Lansing Capital Corporation, where he was involved in the
marketing of direct participation programs and REITs. Mr. Scarcella received a
B.S.C. degree with emphasis in investment finance in 1983 and an M.B.A. degree
with a concentration in marketing in 1991 from Santa Clara University.
Item 11. EXECUTIVE COMPENSATION
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to the General Partner and their Affiliates. The amount of such
remuneration paid through December 31, 1997 is set forth in Item 8 of this
report under the caption "Financial Statements and Supplementary Data - Notes to
the Financial Statements - Related party transactions," at Note 5 thereof which
information is hereby incorporated by reference.
Selling Commissions
The Partnership will pay selling commissions in the amount of 9.5% of Gross
Proceeds, as defined, to ATEL Securities Corporation, an affiliate of the
General Partner. Of this amount, the majority is expected to be reallowed to
other broker/dealers.
<PAGE>
Through December 31, 1997, $6,381,004 of such commissions had been either
accrued or paid to the General Partner or its affiliates. Of that amount,
$5,436,627 was reallowed to other broker/dealers.
Equipment Management Fees
As compensation for its service rendered generally in managing or supervising
the management of the Partnership's equipment and in supervising other ongoing
service and activities including, among others, arranging for necessary
maintenance and repair of equipment, collecting revenue, paying operating
expenses, determining the equipment is being used in accordance with all
operative contractual arrangements, property and sales tax monitoring and
preparation of financial data, the General Partner or its affiliates are
entitled to receive management fees which are payable for each fiscal quarter
and are to be in an amount equal to (i) 3.5% of the gross revenues from
"operating" leases and (ii) 2% of gross revenues from "full payout" leases which
contain net lease provisions.
See Note to the financial statements included in Item 8 of this report for
amounts paid.
Incentive Management Fees
As compensation for its service rendered in establishing and maintaining the
composition of the Partnership's equipment portfolio and its acquisition and
debt strategies and supervising fund administration including supervision the
preparation of reports and maintenance of financial and operating data of the
Partnership, Securities and Exchange Commission and Internal Revenue service
filings, returns and reports, the General Partner shall be entitled to receive
the Incentive management fee which shall be payable for each fiscal quarter.
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.
<PAGE>
See Note to the financial statements included in Item 8 of this report for
amounts paid.
Equipment Resale Fees
As compensation for service rendered in connection with the sale of equipment,
the General Partner shall be entitled to receive an amount equal to the lesser
of (i) 3% of the sales price of the equipment, or (ii) one-half the normal
competitive equipment sales commission charged by unaffiliated parties for such
service. Such fee is payable only after the Limited Partners have received a
return of their adjusted invested capital (as defined in the Limited Partnership
Agreement) plus 10% of their adjusted invested capital per annum calculated on a
cumulative basis, compounded daily, commencing the last day of the quarter in
which the Limited Partner was admitted to the Partnership. To date, none have
been accrued or paid.
Equipment Re-lease Fee
As compensation for providing re-leasing service, the General Partner shall
receive fees equal to 2% of the gross rentals or the comparable competitive rate
for such service relating to comparable equipment, whichever is less, derived
from the re-lease provide that (i) the General Partner or their affiliates have
and will maintain adequate staff to render such service to the Partnership, (ii)
no such re-lease fee is payable in connection with the re-lease of equipment to
a previous lessee or its affiliates, (iii) the General Partner or its affiliates
have rendered substantial re-leasing service in connection with such re-lease
and (iv) the General Partner or its affiliates are compensated for rendering
equipment management service. To date, none have been accrued or paid.
General Partner's Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 92.5% to the
Limited Partners and 7.5% to the general partner. See financial statements
included in Item 8, Part I of this report for amounts allocated to the General
Partner in 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1997 no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
<PAGE>
Security Ownership of Management
The shareholders of the General Partner are beneficial owners of Limited
Partnership Units as follows:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
<S> <C>
Limited Partnership Units A. J. Batt Initial Limited Partner Units 0.00037%
235 Pine Street, 6th Floor 25 Units ($250)
San Francisco, CA 94104 (owned by wife)
Limited Partnership Units Dean Cash Initial Limited Partner Units 0.00037%
235 Pine Street, 6th Floor 25 Units ($250)
San Francisco, CA 94104 (owned by wife)
</TABLE>
Changes in Control
The Limited Partners have the right, by vote of the Limited Partners owning more
than 50% of the outstanding Limited Partnership units, to remove a General
Partner.
The General Partner may at any time call a meeting of the Limited Partners or a
vote of the Limited Partners without a meeting, on matters on which they are
entitled to vote, and shall call such meeting or for vote without a meeting
following receipt of a written request therefor of Limited Partners holding 10%
or more of the total outstanding Limited Partnership units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 1 of this report under the caption "Equipment Leasing
Activities," Item 8 of this report under the caption "Financial Statements and
Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 5 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 1997 and 1996
Statement of Operations for the year ended December
31, 1997
Statements of Changes in Partners' Capital for the
year ended December 31, 1997 and for the period
from May 17, 1996 (inception) through December 31,
1996
Statement of Cash Flows for the year ended December
31, 1997 and the period from May 17, 1996
(inception) through December 31, 1996
Notes to Financial Statements
2. Financial Statement Schedules
Allschedules for which provision is made in the
applicable accounting regulations of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K for the fourth quarter of 1997
None
(c) Exhibits
(3)and (4) Agreement of Limited Partnership,
included as Exhibit B to Prospectus (Exhibit
28.1), is incorporated herein by reference to the
report on Form 10K for the period ended December
31, 1996 (File No. 333-08879).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: 3/27/1998
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
ATEL Financial Corporation (General
Partner)
By: /s/ Dean Cash
--------------------------------------------------
Dean Cash,
Executive vice President of ATEL
Financial Corporation (General Partner)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ A. J. Batt President, chairman and chief 3/27/1998
- ---------------------------------- executive officer of ATEL
A. J. Batt Financial Corporation
/s/ Dean Cash Executive vice president and 3/27/1998
- ---------------------------------- director of ATEL Financial
Dean Cash Corporation
/s/ F. Randall Bigony Principal financial officer 3/27/1998
- ---------------------------------- of registrant; principal
F. Randall Bigony financial officer of ATEL
Financial Corporation
/s/ Donald E. Carpenter Principal accounting officer 3/27/1998
- ---------------------------------- of registrant; principal
Donald E. Carpenter accounting officer of ATEL
Financial Corporation
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No proxy materials have been or will be sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of this
report on Form 10-K, and copies thereof will be furnished supplementally to the
Commission when forwarded to the security holders.
<TABLE> <S> <C>
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