Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 1998
|_| 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
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
1998 1997
---- ----
Cash and cash equivalents $2,135,476 $2,014,706
Accounts receivable 3,105,516 917,219
Other assets 180,002 200,000
Investments in leases 165,961,183 101,284,861
----------------- ------------------
Total assets $171,382,177 $104,416,786
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Lines of credit $10,777,660 $40,390,460
Long-term debt 44,017,000 -
Non-recourse debt 12,054,387 8,127,374
Accounts payable:
General Partner 274,319 334,256
Other 618,087 535,621
Accrued interest payable 609,569 197,664
Unearned operating lease income 1,173,302 930,997
----------------- ------------------
Total liabilities 69,524,324 50,516,372
Partners' capital:
General Partner (542,304) ($247,461)
Limited Partners 102,400,157 54,147,875
----------------- ------------------
Total partners' capital 101,857,853 53,900,414
----------------- ------------------
Total liabilities and partners' capital $171,382,177 $104,416,786
================= ==================
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF OPERATIONS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Leasing activities:
<S> <C> <C> <C> <C>
Operating leases $20,536,470 $4,937,599 $7,423,969 $1,972,346
Direct financing 1,226,303 92,429 417,267 77,409
Leveraged leases 98,636 - 32,879 -
Gain on sales of assets 1,485,935 3,156 642,142 3,452
Interest 34,690 43,131 12,294 31,335
Other 11,254 1,154 7,791 786
----------------- ----------------- ----------------- ------------------
23,393,288 5,077,469 8,536,342 2,085,328
Expenses:
Depreciation 13,928,035 3,545,071 5,234,029 1,369,811
Interest expense 3,127,366 444,015 1,165,166 35,659
Administrative cost reimbursements to General
Partner 763,032 387,375 317,641 190,190
Other 474,886 237,459 192,284 92,302
Equipment and incentive management fees to
General Partner 1,026,501 183,280 380,780 72,900
Professional fees 101,790 38,957 64,580 19,741
Provision for losses 56,954 14,738 - -
----------------- ----------------- ----------------- ------------------
19,478,564 4,850,895 7,354,480 1,780,603
----------------- ----------------- ----------------- ------------------
Net income $3,914,724 $226,574 $1,181,862 $304,725
================= ================= ================= ==================
Net income:
General Partner $293,604 $16,993 $88,640 $22,854
Limited Partners 3,621,120 209,581 1,093,222 281,871
----------------- ----------------- ----------------- ------------------
$3,914,724 $226,574 $1,181,862 $304,725
================= ================= ================= ==================
Net income per Limited Partnership Unit $0.38 $0.08 $0.09 $0.07
Weighted average number of Units outstanding 9,554,273 2,531,520 11,635,928 4,260,107
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partner Total
<S> <C> <C> <C> <C>
Balance December 31, 1997 6,716,896 54,147,875 ($247,461) $53,900,414
Capital contributions 5,930,392 59,303,920 - 59,303,920
Less selling commissions to affiliates (5,633,872) - (5,633,872)
Other syndication costs to affiliates (2,512,374) - (2,512,374)
Distributions to partners (6,526,512) (588,447) (7,114,959)
Net income 3,621,120 293,604 3,914,724
----------------- ----------------- ----------------- ------------------
Balance September 30, 1998 12,647,288 $102,400,157 ($542,304) $101,857,853
================= ================= ================= ==================
</TABLE>
See accompanying notes.
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
Operating activities: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $3,914,724 $226,574 $1,181,862 $304,725
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Leveraged lease income (98,636) - (32,879) -
Depreciation 13,928,035 3,545,071 5,234,029 1,369,811
Gain on sales of assets (1,485,935) (3,156) (642,142) (3,452)
Provision for losses 56,954 14,738 - -
Changes in operating assets and liabilities:
Accounts receivable (2,188,297) (630,198) 528,597 91,877
Other assets 19,998 - 19,998 -
Accounts payable, General Partner (59,937) 91,510 104,144 64,693
Accounts payable, other 82,466 67,934 (21,024) 59,761
Accrued interest expense 411,905 - 234,440 -
Unearned lease income 242,305 42,086 36,581 19,808
----------------- ----------------- ----------------- ------------------
Net cash provided by operations 14,823,582 3,354,559 6,643,606 1,907,223
----------------- ----------------- ----------------- ------------------
Investing activities:
Purchases of equipment on operating leases (77,120,556) (39,935,005) (47,227,759) (11,843,068)
Purchases of equipment on direct financing leases (5,618,148) (3,694,810) (207,553) -
Proceeds from sales of assets 5,213,023 35,740 2,882,830 3,452
Reduction in net investment in direct financing leases 924,120 99,225 52,855 90,250
Purchases of equipment held for sale or lease (441,187) - - -
Payment of initial direct costs (33,992) - (33,988) -
----------------- ----------------- ----------------- ------------------
Net cash used in investing activities (77,076,740) (43,494,850) (44,533,615) (11,749,366)
----------------- ----------------- ----------------- ------------------
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
(Continued)
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Six Months Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Financing activities:
<S> <C> <C> <C> <C>
Repayments of borrowings under line of credit (66,977,843) (14,564,930) (23,200,436) (3,291,240)
Borrowings under line of credit 37,365,043 14,564,930 19,230,336 1,218,000
Proceeds of long-term debt 46,770,000 - 25,000,000 -
Repayments of long-term debt (2,753,000) - (2,012,000) -
Repayments of non-recourse debt (2,160,402) (52,160) (650,553) (22,780)
Proceeds of non-recourse debt 6,087,415 4,780,911 4,630,831 4,227,345
Capital contributions received 59,303,920 51,054,260 20,852,300 17,317,990
Payment of selling commissions to affiliate of
General Partner (5,633,872) (4,850,155) (1,980,968) (1,645,209)
Payment of syndication costs to General Partner (2,512,374) (2,419,760) (917,841) (680,960)
Distributions to partners (7,114,959) (1,411,405) (3,088,703) (884,015)
----------------- ----------------- ----------------- ------------------
Net cash provided by financing activities 62,373,928 47,101,691 37,862,966 16,239,131
----------------- ----------------- ----------------- ------------------
Net increase (decrease) in cash and cash
equivalents 120,770 6,961,400 (27,043) 6,396,988
Cash and cash equivalents at beginning of
period 2,014,706 600 2,162,519 565,012
----------------- ----------------- ----------------- ------------------
Cash and cash equivalents at end of period $2,135,476 $6,962,000 $2,135,476 $6,962,000
================= ================= ================= ==================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $2,715,461 $444,015 $930,726 $35,659
================= ================= ================= ==================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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
Balance Expense or Reclassi- Balance
December 31, Amortization fications or June 30,
1997 Additions of Leases Dispositions 1998
---- --------- --------- - ------------- ----
<S> <C> <C> <C> <C> <C>
Net investment in operating
leases $83,268,573 $77,120,556 ($13,923,077) ($4,199,505) $142,266,547
Net investment in direct
financing leases 16,609,199 5,618,148 (924,120) - 21,303,227
Net investment in leveraged
leases 1,449,068 - 98,636 - 1,547,704
Assets held for sale or lease - 441,187 - 472,417 913,604
Reserve for losses (74,277) (56,954) - - (131,231)
Initial direct costs, net of
accumulated amortization 32,298 33,992 (4,958) - 61,332
------------------- ----------------- ----------------- ----------------- ------------------
$101,284,861 $83,156,929 ($14,753,519) ($3,727,088) $165,961,183
=================== ================= ================= ================= ==================
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
<TABLE>
<CAPTION>
Balance Balance
December 31, Acquisitions & Dispositions June 30,
1997 1st Quarter 2nd Quarter 3rd Quarter 1998
---- ----------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
Transportation $51,120,754 $4,638,526 $10,317,167 ($123,174) $65,953,273
Mining 6,275,273 1,286,210 171,528 15,240,394 22,973,405
Manufacturing 14,342,104 709,848 3,271,467 451,790 18,775,209
Materials handling 3,127,344 216,900 1,735,842 11,248,694 16,328,780
Marine vessels - - - 15,000,000 15,000,000
Motor vehicles 5,454,671 - - - 5,454,671
Other 2,601,605 220,887 2,326,005 (128,988) 5,019,509
Office automation 1,624,385 3,328,775 (1,768,484) 1,300,557 4,485,233
Furniture and fixtures 1,132,479 1,148,627 215,380 1,472,239 3,968,725
Aircraft 3,430,000 - - (633,424) 2,796,576
------------------- ----------------- ----------------- ----------------- ------------------
89,108,615 11,549,773 16,268,905 43,828,088 160,755,381
Less accumulated depreciation (5,840,042) (2,899,753) (5,176,945) (4,572,094) (18,488,834)
------------------- ----------------- ----------------- ----------------- ------------------
$83,268,573 $8,650,020 $11,091,960 $39,255,994 $142,266,547
=================== ================= ================= ================= ==================
</TABLE>
As of September 30, 1998, investment in direct financing leases consists of fuel
trucks and a sputtering system. The following lists the components of the
Partnership's investment in direct financing leases as of September 30, 1998:
Total minimum lease payments receivable $19,323,285
Estimated residual values of leased equipment (unguaranteed) 7,809,915
------------------
Investment in direct financing leases 27,133,200
Less unearned income (5,829,973)
------------------
Net investment in direct financing leases $21,303,227
==================
All of the property on leases was acquired in 1997 and 1998.
At September 30, 1998, the aggregate amounts of future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
Direct
Year ending Operating Financing
December 31, Leases Leases Total
<S> <C> <C> <C>
Three months ending December 31, 1998 $7,105,294 $1,067,996 $8,173,290
Year ending December 31, 1999 31,865,574 3,963,381 35,828,955
2000 28,818,538 3,315,288 32,133,826
2001 21,747,002 3,163,622 24,910,624
2002 15,245,077 2,699,401 17,944,478
Thereafter 16,306,967 5,113,597 21,420,564
----------------- ----------------- -----------------
$121,088,452 $19,323,285 $140,411,737
================= ================= =================
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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
6.00% to 10.02%.
Future minimum principal payments of non-recourse debt are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Principal Interest Total
<S> <C> <C> <C>
Three months ending December 31, 1998 $301,170 $111,222 $412,392
Year ending December 31, 1999 1,924,423 1,326,027 3,250,450
2000 2,348,625 827,104 3,175,729
2001 2,541,134 612,672 3,153,806
2002 2,617,116 389,416 3,006,532
Thereafter 2,321,919 256,403 2,578,322
----------------- ----------------- -----------------
$12,054,387 $3,522,844 $15,577,231
================= ================= =================
</TABLE>
5. Long-term debt:
The Partnership has established 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.
Through hedge agreements, the interest rates have been effectively fixed.
Borrowings under this facility are as follows:
Amount Current
Date Borrowed Borrowed Balance Rate
April 1998 $21,770,000 $19,930,000 6.22%
July 1998 25,000,000 24,087,000 5.75%
----------------- -----------------
$46,770,000 $44,017,000
================= =================
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
5. Long-term debt (continued):
Future minimum principal payments of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Principal Interest Total
<S> <C> <C> <C>
Three months ending December 31, 1998 $2,363,000 $669,874 $3,032,874
Year ending December 31, 1999 11,595,000 2,217,677 13,812,677
2000 11,483,000 1,500,148 12,983,148
2001 8,078,000 861,802 8,939,802
2002 5,709,000 444,639 6,153,639
Thereafter 4,789,000 570,159 5,359,159
----------------- ----------------- -----------------
$44,017,000 $6,264,299 $50,281,299
================= ================= =================
</TABLE>
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 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 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.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Selling commissions (equal to 9.5% of the selling price of the Limited Partnership
units, deducted from Limited Partners' capital) $5,633,872 $4,850,155
Reimbursement of other syndication costs 2,512,374 2,419,760
Administrative costs reimbursed to General Partner 763,032 387,375
Incentive management fees (computed as 4% of distributions of cash from
operations, as defined in the Limited Partnership Agreement) and equipment
management fees (computed as 3.5% of gross revenues from operating leases, as
defined in the Limited Partnership Agreement plus 2% of gross revenues from
full payout leases, as defined in the Limited Partnership Agreement). 1,026,501 183,280
----------------- ------------------
$9,935,779 $7,840,570
================= ==================
</TABLE>
7. Partner's capital:
As of September 30, 1998, 12,647,338 Units ($126,473,380) 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.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
8. 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 November 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.
At September 30, 1998, the Partnership had $10,777,660 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 September
30, 1998. At September 30, 1998, $32,612,740 was available under this agreement.
9. Commitments:
As of September 30, 1998, the Partnership had outstanding commitments to
purchase lease equipment totaling approximately $10,878,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first three quarters of 1998, the Partnership's primary activities
were raising funds through its offering of Limited Partnership Units (Units) and
engaging in equipment leasing activities. Through September 30, 1998, the
Partnership had received subscriptions for 12,647,288 Units ($126,472,880) 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 November 28, 1998.
The Partnership anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management 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
$10,878,000 as of September 30, 1998.
If inflation in the general economy becomes significant, it may affect the
Partnership inasmuch as the residual (resale) values and rates on re-leases of
the Partnership's leased assets may increase as the costs of similar assets
increase. However, the Partnership's revenues from existing leases would not
increase, as such rates are generally fixed for the terms of the leases without
adjustment for inflation.
If interest rates increase significantly, the lease rates that the Partnership
can obtain on future leases will be expected to increase as the cost of capital
is a significant factor in the pricing of lease financing. Leases already in
place, for the most part, would not be affected by changes in interest rates.
During 1998, the Partnership's primary sources of liquidity were the proceeds of
its offering of Units and funds borrowed on the line of credit and funds
borrowed long term on either a non-recourse or recourse basis.
<PAGE>
Cash from operating activities was almost entirely from operating lease rents in
both 1998 and in 1997 for both the three and nine month periods.
Sources of cash from investing activities consisted of proceeds from sales of
assets and direct financing lease rents. Proceeds from sales of lease assets and
rents from direct financing leases increased significantly compared to 1997.
Cash was used in investing activities to purchase assets on operating and direct
financing leases.
Cash from financing sources consisted primarily of cash received for
subscriptions for Units, borrowings under the line of credit and proceeds of
non-recourse and other long-term debt. The purchase of lease assets was
primarily funded with borrowings on this line of credit, proceeds of the
Partnership's public offering of Units and proceeds of non-recourse and other
long-term debt.
Results of operations
Operations in 1998 resulted in a net income of $3,914,724 (nine months) and
$1,181,862 (three months). Operations in 1997 resulted in a net loss of $78,151
(nine months) and $68,222 (three months). The Partnership's primary source of
revenues is from operating leases. This is expected to remain true in future
periods although the amounts are expected to increase as a result of additional
equipment acquisitions. These revenues in fact increased from $4,937,599 (nine
months) and $1,972,346 (three months) in 1997 to $20,536,470 and $7,423,969,
respectively, in 1998. 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. These expenses have increased from 1997 to 1998 for both the three and
nine month periods as a result of these factors. Interest expense has increased
due to the higher debt balances in 1998 than in 1997.
As of September 30, 1998, the Partnership's public offering was continuing.
During the offering period, the Partnership expects to purchase significant
amounts of lease assets. Because of this, operations in 1998 are not expected to
be comparable to future periods.
Other
Year 2000 Issues
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 uses primarily third party software and is communicating with
key vendors to ensure that the Partnership's systems are year 2000 compliant.
Based on these discussions, 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 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.
<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.
<PAGE>
Item 5. Other Information.
Information provided pursuant to ss. 228.701 (Item 701(f))(formerly
included in Form SR):
(1) Effective date of the offering: November 29, 1996;
File Number: 33388 (2) Offering commenced: November 29,
1996 (3) The offering did not terminate before any
securities were sold. (4) The offering has not been
terminated prior to the sale of all of the securities. (5)
The managing underwriter is ATEL Securities Corporation.
(6) The title of the registered class of securities is
"Units of limited partnership interest" (7) Aggregate
amount and offering price of securities registered and
sold as of September 30,
1998
<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 12,647,238 $126,472,380
(8) Costs incurred for the issuers account in connection
with the issuance and distribution of the securities
registered for each category listed below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
Underwriting discounts and
commissions $3,360,658 $8,654,218 $12,014,876
Other expenses - 5,941,257 5,941,257
----------------- ----------------- ------------------
Total expenses $3,360,658 $14,595,475 $17,956,133
================= ================= ==================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $108,516,247
(10) The amount of net offering proceeds to the issuer
used for each of the purposes listed below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
Purchase and installation of
machinery and equipment $ - $107,883,885 $107,883,885
Working capital - 632,362 632,362
----------------- ----------------- ------------------
$ - $108,516,247 $108,516,247
================= ================= ==================
(11) The use of the proceeds in Item 10 does not
represent a material change in the uses of proceeds
described in the prospectus.
</TABLE>
<PAGE>
Item 6. Exhibits And Reports On Form 8-K.
(a) Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, September 30, 1998 and December 31, 1997.
Statement of changes in partners' capital for the nine
months ended September 30, 1998.
Statements of operations for the nine and three month
periods ended September 30, 1998 and 1997.
Statement of cash flows for the nine and three month
periods ended September 30, 1998 and 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:
November 10, 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 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> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 2,135,476
<SECURITIES> 0
<RECEIVABLES> 3,105,516
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,382,177
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 101,857,853
<TOTAL-LIABILITY-AND-EQUITY> 171,382,177
<SALES> 0
<TOTAL-REVENUES> 23,393,288
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,294,244
<LOSS-PROVISION> 56,954
<INTEREST-EXPENSE> 3,127,366
<INCOME-PRETAX> 3,914,724
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,914,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,914,724
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>