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, 2000
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission File Number 0-24175
ATEL Capital Equipment Fund VII, L.P.
(Exact name of registrant as specified in its charter)
California 94-3248318
---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X|
No |_|
DOCUMENTS INCORPORATED BY REFERENCE
None
1
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
2
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
ASSETS
2000 1999
---- ----
Cash and cash equivalents $ 5,083,837 $ 1,674,372
Accounts receivable 6,774,456 5,626,105
Other assets 100,010 130,007
Investments in leases 152,452,585 183,993,816
----------------- -----------------
Total assets $164,410,888 $191,424,300
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Long-term debt $ 48,704,000 $ 53,181,000
Non-recourse debt 15,581,752 21,780,420
Line of credit - 11,150,000
Accounts payable:
General Partner 720,696 1,435,651
Other 855,064 425,896
Accrued interest payable 328,156 714,697
Unearned operating lease income 1,663,062 1,422,852
----------------- -----------------
Total liabilities 67,852,730 90,110,516
Partners' capital:
General Partner (1,514,601) (1,514,601)
Limited Partners 98,072,759 102,828,385
----------------- -----------------
Total partners' capital 96,558,158 101,313,784
----------------- -----------------
Total liabilities and partners' capital $164,410,888 $191,424,300
================= =================
See accompanying notes.
3
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
INCOME STATEMENTS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Leasing activities:
<S> <C> <C> <C> <C>
Operating leases $ 28,720,782 $27,434,445 $ 7,928,336 $ 9,384,429
Direct financing 1,108,390 1,426,625 498,323 450,491
Leveraged leases 195,693 107,616 - 35,872
Gain on sales of assets 1,552,711 778,259 1,302,399 31,065
Interest 91,129 42,405 54,191 8,501
Other 58,164 15,743 21,167 2,938
------------------ ------------------ ----------------- -----------------
31,726,869 29,805,093 9,804,416 9,913,296
Expenses:
Depreciation 19,496,912 18,352,622 6,244,786 6,188,566
Interest expense 4,126,058 4,594,693 1,299,542 1,491,892
Equipment and incentive management fees to
General Partner 1,364,126 1,329,633 485,338 445,045
Other 728,658 1,086,341 277,984 390,943
Administrative cost reimbursements to General
Partner 477,104 418,021 172,499 167,943
Professional fees 86,617 146,774 9,673 27,358
Provision for losses - 750,000 - 750,000
------------------ ------------------ ----------------- -----------------
26,279,475 26,678,084 8,489,822 9,461,747
------------------ ------------------ ----------------- -----------------
Income before extraordinary item 5,447,394 3,127,009 1,314,594 451,549
Extraordinary gain on early extinguishment of
debt 2,056,574 - 2,056,574 -
------------------ ------------------ ----------------- -----------------
Net income $ 7,503,968 $ 3,127,009 $ 3,371,168 $ 451,549
================== ================== ====================================
Net income:
General Partner $ 916,420 $ 234,526 $ 311,775 $ 33,866
Limited Partners 6,587,548 2,892,483 3,059,393 417,683
------------------ ------------------ ----------------- -----------------
$ 7,503,968 $ 3,127,009 $ 3,371,168 $ 451,549
================== ================== ================= =================
Income before extraordinary item per limited
partnership unit $ 0.32 $ 0.19 $ 0.08 $ 0.03
Extraordinary gain on early extinguishment of
debt per limited partnership unit 0.12 - 0.12 -
------------------ ------------------ ----------------- -----------------
Net income per limited partnership unit $ 0.44 $ 0.19 $ 0.20 $ 0.03
================== ================== ================= =================
Weighted average number of Units outstanding 14,996,050 14,996,050 14,996,050 14,996,050
</TABLE>
See accompanying notes.
4
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partner Total
<S> <C> <C> <C> <C>
Balance December 31, 1999 6,716,896 $102,828,385 $(1,514,601) $101,313,784
Distributions to partners (11,343,174) (916,420) (12,259,594)
Net income 6,587,548 916,420 7,503,968
------------------ ------------------ ----------------- -----------------
Balance September 30, 2000 6,716,896 $98,072,759 $(1,514,601) $ 96,558,158
================== ================== ================= =================
</TABLE>
See accompanying notes.
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
Operating activities: 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 7,503,968 $ 3,127,009 $ 3,371,168 $ 451,549
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Leveraged lease income (195,693) (107,616) - (35,872)
Depreciation 19,496,912 18,352,622 6,244,786 6,188,566
Gain on sales of assets (1,552,711) (778,259) (1,302,399) (31,065)
Provision for losses - 750,000 - 750,000
Extraordinary gain on early extinguishment of
debt (2,056,574) - (2,056,574) -
Changes in operating assets and liabilities:
Accounts receivable (1,148,351) 1,573,175 637,815 (834,103)
Other assets 29,997 29,997 9,999 9,999
Accounts payable, General Partner (714,955) (6,883) (79,235) 32,235
Accounts payable, other 429,168 (114,922) (414,342) 136,062
Accrued interest expense (386,541) (369,856) (103,274) (126,604)
Unearned lease income 240,210 134,325 349,761 (108,903)
------------------ ------------------ ----------------- -----------------
Net cash provided by operations 21,645,430 22,589,592 6,657,705 6,431,864
------------------ ------------------ ----------------- -----------------
Investing activities:
Proceeds from sales of assets 9,538,556 2,162,469 5,170,197 888,599
Reduction in net investment in direct financing leases 4,254,167 2,587,209 1,668,053 844,906
Purchases of equipment on operating leases - (6,617,689) - (1,924,811)
Purchases of equipment on direct financing leases - (812,462) - (34,520)
------------------ ------------------ ----------------- -----------------
Net cash provided by (used in) investing activities 13,792,723 (2,680,473) 6,838,250 (225,826)
------------------ ------------------ ----------------- -----------------
</TABLE>
5
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
(Continued)
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
Financing activities:
<S> <C> <C> <C> <C>
Distributions to partners (12,259,594) (12,159,142) (4,156,898) (4,054,389)
Borrowings under line of credit 450,000 6,672,824 450,000 2,000,000
Repayments of borrowings under line of credit (11,600,000) (16,454,531) (2,500,000) -
Proceeds of long-term debt 11,700,000 9,000,000 - -
Repayments of long-term debt (16,177,000) (13,476,000) (4,370,000) (4,206,000)
Proceeds of non-recourse debt - 9,520,748 - -
Repayments of non-recourse debt (4,142,094) (3,517,821) (1,024,137) (1,287,603)
------------------ ------------------ ----------------- -----------------
Net cash used in financing activities (32,028,688) (20,413,922) (11,601,035) (7,547,992)
------------------ ------------------ ----------------- -----------------
Net increase (decrease) in cash and cash
equivalents 3,409,465 (504,803) 1,894,920 (1,341,954)
Cash and cash equivalents at beginning of
period 1,674,372 1,576,029 3,188,917 2,413,180
------------------ ------------------ ----------------- -----------------
Cash and cash equivalents at end of period $ 5,083,837 $ 1,071,226 $ 5,083,837 $ 1,071,226
================== ================== ================= =================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 4,512,599 $ 4,964,549 $ 1,402,816 $ 1,618,496
================== ================== ================= =================
</TABLE>
See accompanying notes.
6
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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 September 30,
1999 of Leases Dispositions 2000
---- --------- ------------ ----
<S> <C> <C> <C> <C>
Net investment in operating leases $164,971,672 $ (19,356,675) $(7,057,840) $138,557,157
Net investment in direct financing leases 22,388,627 (4,254,167) (613,445) 17,521,015
Net investment in leveraged leases 1,724,071 195,693 (1,919,764) -
Assets held for sale or lease 491,758 - (310,286) 181,472
Reserve for losses (6,185,366) - 1,915,490 (4,269,876)
Initial direct costs, net of accumulated amortization 603,054 (140,237) - 462,817
------------------ ------------------ ----------------- -----------------
$183,993,816 $ (23,555,386) $ (7,985,845) $152,452,585
================== ================== ================= =================
</TABLE>
7
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
<TABLE>
<CAPTION>
Balance Balance
December 31, Acquisitions, Dispositions & Reclassifications September 30,
----------------------------------------------
1999 1st Quarter 2nd Quarter 3rd Quarter 2000
---- ----------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
Transportation $ 100,584,087 $ 3,575,639 $ (514,038) $ (1,749,047) $101,896,641
Marine vessels/barges 27,609,897 (333,418) - - 27,276,479
Construction 23,002,563 - - - 23,002,563
Manufacturing 22,508,006 - (2,093,102) (6,799,934) 13,614,970
Office automation 11,100,543 - - (533,697) 10,566,846
Mining 8,536,249 - - - 8,536,249
Materials handling 5,907,524 (95,598) (212,836) 212,836 5,811,926
Other 7,855,730 (1,589,844) 665,164 (1,617,409) 5,313,641
Communications 7,740,986 (3,235,940) (3,370) 3,370 4,505,046
----------------------- ------------------ ------------------ ----------------- -----------------
214,845,585 (1,679,161) (2,158,182) (10,483,881) 200,524,361
Less accumulated depreciation (49,873,913) (3,496,378) (7,371,187) (1,225,726) (61,967,204)
----------------------- ------------------ ------------------ ----------------- -----------------
$ 164,971,672 $ (5,175,539) $ (9,529,369) $(11,709,607) $138,557,157
======================= ================== ================== ================= =================
</TABLE>
All of the property on leases was acquired in 1997, 1998 and 1999.
At September 30, 2000, 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, 2000 $ 7,023,653 $ 796,876 $ 7,820,529
Year ending December 31, 2001 27,556,507 2,998,058 30,554,565
2002 20,219,539 2,376,469 22,596,008
2003 12,370,559 2,015,803 14,386,362
2004 8,028,875 1,966,212 9,995,087
Thereafter 7,597,614 3,256,052 10,853,666
------------------ ------------------ -----------------
$ 82,796,747 $ 13,409,470 $ 96,206,217
================== ================== =================
</TABLE>
8
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
4. Non-recourse debt:
Notes payable to financial institutions are due in varying monthly, quarterly
and semi-annual installments of principal and interest. The notes are secured by
assignments of lease payments and pledges of the assets which were purchased
with the proceeds of the particular notes. Interest rates on the notes vary from
7.4% to 8.828%.
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, 2000 $ 596,095 $ 125,941 $ 722,036
Year ending December 31, 2001 5,406,043 1,285,919 6,691,962
2002 5,766,175 772,941 6,539,116
2003 3,175,482 250,880 3,426,362
2004 203,560 38,208 241,768
Thereafter 434,397 40,373 474,770
------------------ ------------------ -----------------
$ 15,581,752 $ 2,514,262 $ 18,096,014
================== ================== =================
</TABLE>
5. Long-term debt:
In 1998, the Partnership entered into a $65 million receivables funding program
(the Program) with a receivables financing company that issues commercial paper
rated A1 by Standard and Poors and P1 by Moody's Investor Services. Under the
Program, the receivables financing company receives a general lien against all
of the otherwise unencumbered assets of the Partnership. The Program provides
for borrowing at a variable interest rate (6.7087% at September 30, 2000).
The Program requires the General Partner to enter into various interest rate
swaps with a financial institution (also rated A1/P1) to manage interest rate
exposure associated with variable rate obligations under the Program by
effectively converting the variable rate debt to fixed rates. As of September
30, 2000, the Partnership receives or pays interest on a notional principal of
$48,704,000, based on the difference between nominal rates ranging from 5.55% to
7.58% and the variable rate under the Program. No actual borrowing or lending is
involved. The last of the swaps terminates in 2008. The differential to be paid
or received is accrued as interest rates change and is recognized currently as
an adjustment to interest expense related to the debt.
Through hedge agreements, the interest rates have been effectively fixed.
Borrowings under this facility are as follows:
Original Balance Rate on
Date Amount September 30, Interest Swap
Borrowed Borrowed 2000 Agreement
-------- -------- ---- ---------
4/1/1998 $ 21,770,000 $ 10,111,000 6.22000%
7/1/1998 25,000,000 10,834,000 6.15500%
10/1/1998 20,000,000 12,787,000 5.55000%
4/16/1999 9,000,000 4,367,000 5.89000%
1/26/2000 11,700,000 10,605,000 7.58000%
----------------------- ------------------
$ 87,470,000 $ 48,704,000
======================= ==================
9
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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, 2000 $ 3,827,000 $ 757,361 $ 4,584,361
Year ending December 31, 2001 13,724,000 2,410,467 16,134,467
2002 11,131,000 1,640,179 12,771,179
2003 7,200,000 1,075,640 8,275,640
2004 5,422,000 676,854 6,098,854
Thereafter 7,400,000 701,275 8,101,275
------------------ ------------------ -----------------
$ 48,704,000 $ 7,261,776 $ 55,965,776
================== ================== =================
</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 actual costs incurred on behalf of the Partnership or 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.
10
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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>
2000 1999
---- ----
<S> <C> <C>
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). $ 1,364,126 $ 1,329,633
Administrative costs reimbursed to General Partner 477,104 418,021
----------------- -----------------
$ 1,841,230 $ 1,747,654
================= =================
</TABLE>
7. Partner's capital:
As of September 30, 1999, 14,996,050 Units ($149,960,050) 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.
11
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
8. Line of credit:
The Partnership participates with the General Partner and certain of its
Affiliates in a $77,500,000 revolving credit agreement with a group of financial
institutions which expires on July 28, 2001. 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, 2000, the Partnership had no borrowings under the line of
credit.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was incompliance with its covenants as of September
30, 2000.
12
<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 2000 and 1999, the Partnership's primary
activity was engaging in equipment leasing activities.
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 $77,500,000 revolving line of credit with a group of financial
institutions. The line of credit expires on July 28, 2001.
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. There were no such commitments as of
September 30, 2000.
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 2000 and 1999, the Partnership's primary source of liquidity was rents
from operating leases.
Cash from operating activities was almost entirely from operating lease rents in
both 2000 and in 1999 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. Rents from direct financing leases
increased significantly compared to 1999 as a result of asset acquisitions over
the last year. Proceeds from sales of assets are not expected to be consistent
from one period to another. In 1999, cash was used in investing activities to
purchase assets on operating and direct financing leases.
In 2000, the only sources of cash from financing sources was borrowings on the
line of credit and proceeds of long-term debt. In 1999, sources of cash from
financing activities consisted of borrowings (from the line of credit or in the
form of either non-recourse or long-term debt).
Distributions to partners have not changed significantly compared to 1999.
Repayments of non-recourse debt increased for the none month period as a result
of borrowings in the first half of 1999. Repayments decreased for the three
month periods as a result of scheduled debt payments.
13
<PAGE>
Results of operations
Operations in 2000 resulted in a net income of $7,503,968 (nine months) and
$3,371,009 (three months). Operations in 1999 resulted in a net income of
$3,877,009 (nine months) and $1,201,549 (three months). The Partnership's
primary source of revenues is from operating leases. Lease revenues and
depreciation expenses have increased compared to 1999 as a result of asset
acquisitions over the last two years. Equipment management fees are based on the
Partnership's rental revenues and have increased due to increases in the
Partnership's revenues from leases. Incentive management fees are based on the
levels of distributions to limited partners. Lease revenues and distributions
increased very slightly compared to 1999, and as a result, management fees also
increased by only a small amount. Interest expense has decreased as a result of
scheduled debt payments.
In December 1999, one of the Partnership's lessees (Applied Magnetics) defaulted
on its leases and sought protection under the Bankruptcy Act. As a result,
reserves were established related to those assets which had been leased to
Applied Magnetics as of December 31, 1999. During the third quarter of 2000,
most of the lease assets were sold at auction and the non-recourse debt which
had been used to finance a significant portion of the assets was extinguished,
giving rise to an extraordinary gain.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In January 2000, Applied Magnetics Corporation, a lessee of the Partnership,
filed for protection from creditors under Chapter 11 of the U. S. Bankruptcy
Act. The Partnership has assets with a total net book value of $8,048,095 leased
to Applied Magnetics Corporation. On January 31, 2000, the General Partner was
appointed to the Official Committee of Unsecured Creditors and currently serves
as the Chairperson of the Committee. Procedures were quickly undertaken for the
liquidation of the Partnership's leased equipment, which has resulted in
recoveries of $1,773,798 or 21.7% of original equipment cost. Additional
recoveries by the Partnership, resulting from this default, are fairly
speculative, other than the proceeds received from the liquidation of the
Partnership's equipment.
The Partnership anticipates additional amounts to be recoverable through the
reorganization of the lessee's business, however, any recoveries above the
amounts received upon liquidation of the Partnership's equipment are highly
uncertain and speculative. As of November 1, 2000, liquidation of the assets was
completed.
14
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Item 2. Changes In Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits And Reports On Form 8-K.
(a)Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, September 30, 2000 and December 31, 1999.
Statements of operations for the nine and three month
periods ended September 30, 2000 and 1999.
Statement of changes in partners' capital for the nine
months ended September 30, 2000.
Statement of cash flows for the nine and three month
periods ended September 30, 2000 and
1999.
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
15
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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 9, 2000
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/ PARITOSH K. CHOKSI
-------------------------------------
Paritosh K. Choksi
Principal financial officer
of registrant
By: /s/ DONALD E. CARPENTER
-------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant
16
