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, 1999
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 0-24175
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: Limited Partnership
Units
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|
1
<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 General Partner of the Partnership is ATEL Financial Corporation
(ATEL).
The Partnership conducted a public offering of 15,000,000 Units of Limited
Partnership Interest (Units), at a price of $10 per Unit. On January 7, 1997,
the Partnership commenced operations in its primary business (leasing
activities). As of November 27, 1998, the Partnership had received subscriptions
for 15,000,000 ($150,000,000) Limited Partnership Units and the offering was
terminated. As of December 31, 1999, 14,996,050 Units were issued and
outstanding.
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 December 31, 2004 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, 1999, the Partnership had purchased equipment with a total
acquisition price of $287,743,680.
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 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. In excess of 75% of the
equipment acquired with the net proceeds of the offering (based on original
purchase cost) had been leased to lessees with an aggregate credit rating of Baa
or better or to such hospitals or municipalities.
2
<PAGE>
During 1999, 1998 and 1997 certain lessees generated significant portions of the
Partnership's total lease revenues as follows:
<TABLE>
<CAPTION>
Lessee Type of Equipment 1999 1998 1997
------ ----------------- ---- ---- ----
<S> <C> <C> <C>
Burlington Northern Santa Fe Railroad Locomotives & intermodal 10% 17% 24%
Company containers
NYK Lines Intermodal containers * 10% *
Cargill, Incorporated Covered Rail Hopper Cars * * 15%
</TABLE>
* Less than 10%.
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, 1999, 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 *
--------- -------------- ---------- ----------
Manufacturing $ 1,720,610 $ 1,490,905 $ 634,582
Food processing 1,420,480 1,209,890 806,349
Transportation 1,222,741 1,050,765 1,531,438
Office automation 966,157 291,835 533,510
Aircraft 954,124 1,306,203 357,158
Mining 816,729 888,685 173,808
Furniture and fixtures 653,727 765,339 156,911
Other 346,984 266,445 228,860
Materials handling 31,237 17,594 18,296
---------------- ----------------- -----------------
$ 8,132,789 $ 7,287,661 $ 4,440,912
================ ================= =================
* Includes only those expenses directly related to
the production of the related rents.
3
<PAGE>
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, 1999 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.
Purchase price excluding Percentage of total
Asset types acquisition fees acquisitions
----------- ---------------- ------------
Transportation, rail cars $ 64,328,409 29.43%
Manufacturing 45,427,770 15.79%
Mining 30,756,101 10.69%
Transportation, other 26,723,940 9.29%
Transportation, intermodal
containers 26,631,519 9.26%
Marine vessels 22,335,250 7.76%
Motor Vehicles 12,437,158 4.32%
Office automation 11,449,934 3.98%
Medical 9,133,951 3.17%
Aircraft 6,310,979 2.19%
Materials handling 6,840,192 2.38%
Railroad locomotives 5,010,960 1.74%
Other * 20,357,517 7.07%
---------------- ----------------
$ 287,743,680 100.00%
================ ================
Purchase price excluding Percentage of total
Industry of lessee acquisition fees acquisitions
------------------ ---------------- ------------
Transportation, rail $ 73,779,368 35.17%
Municipalities 45,050,058 15.66%
Transportation, other 43,079,361 14.97%
Manufacturing, other 28,408,803 9.87%
Electronics 24,418,734 8.49%
Mining 17,194,252 5.98%
Business services 15,093,493 5.25%
Primary metals 13,251,254 4.61%
Other * 27,468,357 9.55%
---------------- ----------------
$ 287,743,680 100.00%
================ ================
* Individual amounts included in "Other" represent less than 2.5% of the total.
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 1999, 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.
4
<PAGE>
Item 3. 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. Procedures are under
way for the liquidation of the Partnership's leased equipment. The Committee is
also evaluating: (i) a liquidation of the lessee's assets to pay off creditors;
or (ii) receiving an equity stake in a new venture undertaken by the lessee.
Recoveries by the Partnership, resulting from this default, are fairly certain
in the range of 10% to 20% due to the liquidation of the Partnership's
equipment. Recoveries above this amount are more uncertain; however, the
Partnership anticipates an additional 6% to 15% to be recoverable through the
liquidation or reorganization of the lessee's business. Any recoveries above
these amounts are highly uncertain and speculative. See Note 11 to the financial
statements included in Item 8 of this report.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
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, 1999, a total of 5,563 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 reinvestment period ends December 31, 2004.
The rate for monthly distributions from 1999 operations was $0.0833 per Unit.
The distributions were made in February 1999 through December 1999 and in
January 2000. For each quarterly distribution (made in April, July and October
1999 and in January 2000) the rate was $0.25 per Unit. Distributions were from
1999 cash flows from operations.
The rate for monthly distributions from 1998 operations was $0.0833 per Unit.
The distributions were made in February 1998 through December 1998 and in
January 1999. For each quarterly distribution (made in April, July and October
1998 and in January 1999) the rate was $0.25 per Unit. Distributions were from
1998 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.
5
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Distributions of net income (loss) $ (0.17) $ 0.46 $ (0.20)
Return of investment 1.17 0.45 0.99
----------------- ---------------- -----------------
Distributions per Unit 1.00 0.91 0.79
Differences due to timing of distributions 0.00 0.09 0.21
----------------- ---------------- -----------------
Nominal distribution rates from above $ 1.00 $ 1.00 $ 1.00
================= ================ =================
</TABLE>
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership at
December 31, 1999, 1998, 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.
<TABLE>
<CAPTION>
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenues $ 39,634,771 $ 37,195,090 $ 7,373,981 $ -
Net (loss) income $ (2,159,370) $ 5,279,496 $ (738,233) $ -
Weighted average Units outstanding 14,996,050 10,729,510 3,380,442 50
Net (loss) income per Unit, based on weighted average
Units outstanding $ (0.17) $ 0.46 $ (0.20) $ -
Distributions per Unit, based on weighted average
Units outstanding $ 1.00 $ 0.91 $ 0.79 $ -
Total Assets $ 191,424,300 $ 212,456,902 $ 104,416,786 $ 600
Non-recourse Debt $ 21,780,420 $ 16,599,347 $ 8,127,374 $ -
Other long-term debt $ 53,181,000 $ 61,553,000 $ - $ -
Total Partners' Capital $ 101,313,784 $ 119,711,246 $ 53,900,414 $ 600
</TABLE>
6
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership's public offering provided for a total maximum capitalization of
$150,000,000. As of November 27, 1998, the offering was concluded. As of that
date, subscriptions for 15,000,000 Units had been received and accepted.
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 $95,000,000 revolving line of credit with a financial
institution that includes certain financial covenants. The line of credit
expires on April 30, 2000. As of December 31, 1999, the Partnership had
$11,150,000 of borrowings under this line of credit and the remaining
availability was $21,857,103.
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,
1999, there were no commitments to purchase lease assets.
As of December 31, 1999, all cash balances consisted of amounts reserved for
distributions in January 2000, generated from operations in 1999.
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 1998, the Partnership established a $65 million 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 received 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 lessees which, in the opinion of the General
Partner, have a relatively lower potential risk of lease default than 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.
7
<PAGE>
The General Partner expects that aggregate borrowings in the future will be
approximately 50% of aggregate equipment cost. In any event, the Limited
Partnership Agreement limits such borrowings to 50% of the total cost of
equipment, in aggregate.
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
1999 vs. 1998:
Cash flows from operations increased from $21,650,163 in 1998 to $29,817,476 in
1999. The primary source of cash flows from operations is operating lease
revenues. Operating lease revenues increased from $33,655,697 in 1998 to
$36,784,290 in 1999.
Sources of cash flows from investing activities consists of direct financing
lease rents and the proceeds from sales of lease assets. Cash flows from direct
financing leases increased from $2,345,113 in 1998 to $3,406,564 in 1999.
Proceeds from sales of lease assets decreased from $4,742,122 in 1998 to
$2,469,199 in 1999. The most significant use of cash in investing activities was
for the purchase of operating lease assets.
Borrowings on the line of credit ($15,822,824), proceeds of non-recourse debt
($9,520,748) and proceeds of other long-term debt ($9,000,000) were the only
sources of cash from financing activities in 1999. Financing uses of cash
consisted of repayments on the line of credit, non-recourse debt and other
long-term debt and distributions to the Partners. Payments of long-term debt and
non-recourse debt increased compared to 1998 as scheduled debt payments
increased. Distributions to the Limited Partners increased as the average number
of outstanding Units increased from 10,729,510 in 1998 to 14,996,050 in 1999.
1998 vs. 1997:
Cash flows from operations increased from $6,061,438 in 1997 to $21,650,163 in
1998, an increase of $15,558,725. Rents from operating leases is the primary
source of operating cash flows. Purchases of operating lease assets in 1997 and
1998 led to an increase in operating lease revenues of $26,516,153 compared to
1997.
In 1998, sources of cash from investing activities consisted of proceeds from
the sales of lease assets and rents from direct financing leases. In late 1997,
the Partnership purchased a portfolio of lease transactions. This portfolio
included a number of leases which were scheduled to mature in 1998. As these
leases matured, certain of the assets were sold. This gave rise to an increase
in sales proceeds of $4,611,709 compared to 1997. Sales proceeds are not
expected to be comparable from one period to another. Rents from direct
financing leases increased by $2,112,641 as a result of purchases of direct
financing lease assets in 1997 and in 1998.
8
<PAGE>
In 1998, the Partnership's primary sources of cash were generated by financing
activities. Capital contributions provided $82,831,540 in 1998. The capital
contributions were used primarily to purchase assets on operating and direct
financing leases. Borrowings under the line of credit provided $53,029,261,
which was also used to purchase lease assets. Proceeds of other long-term debt
($66,770,000) were used to pay down the amounts borrowed on the line of credit.
Proceeds of non-recourse debt ($11,165,217) was also used to reduce the balances
outstanding on the line of credit. Distributions to the limited partners
increased by $7,113,487 compared to 1997 as a result of the larger number of
Units outstanding in 1998 compared to 1997.
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. After the Partnership's public
offering and its initial asset acquisition stage terminate, the results of
operations are expected to change significantly.
1999 vs. 1998:
Revenues increased from $37,195,090 in 1998 to $39,634,771 in 1999. The increase
was the result of operating lease acquisitions in 1998 and in 1999. As a result
of those additions to operating lease assets, depreciation expense increased
from $22,691,501 in 1998 to $24,532,198 in 1999. Operating leases are expected
to remain as the Partnership's primary source of revenues in future periods and
depreciation is expected to continue as the single largest of the Partnership's
expenses.
Interest expense has increased from $5,473,480 in 1998 to $6,082,904 in 1999 as
a result of higher average debt balances in 1999 compared to 1998. Most of the
debt was incurred in 1998 in relation to the acquisition of the Partnership's
portfolio of lease assets.
In 1999, Applied Magnetics, one of the Partnership's lessees defaulted on its
lease obligations to the Partnership. The General Partner does not expect to
recover any of the uncollected rentals outstanding under the leases. The
Partnership has written down the related lease assets to their net realizable
value as of December 31, 1999. All accounts receivable for amounts billed and
outstanding under the leases have been fully reserved. In 1999, a provision
lease losses of $6,054,134 was provided in relation to this lessee. In addition,
a provision for doubtful accounts of $724,906 was made against trade
receivables.
1998 vs. 1997:
In 1998, operations resulted in net income of $5,279,496 compared to a net loss
of $738,233 in 1997.
The Partnership's offering was in progress through all of 1997 and most of 1998.
During both years, the Partnership was acquiring its portfolio of lease assets.
Because of these factors, results of operations in 1998 are not comparable to
those of 1997 and are not expected to be comparable to future periods.
As a result of purchases of lease assets in both 1997 and 1998, operating lease
rents increased from $7,139,544 in 1997 to $33,655,697 in 1998. For the same
reason, direct financing lease revenues increased from $171,026 in 1997 to
$1,532,235 in 1998. Asset purchases also led to the increase of $17,013,342 in
depreciation and amortization expense compared to 1997.
Management fees are based primarily on lease rents and increased as a result of
the increases in rents noted above.
9
<PAGE>
Impact of the Year 2000
To date, the Partnership has experienced no significant year 2000 problems and
the General Partner believes it does not have continued exposure to the year
2000 problem.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Partnership believes its
exposure to other market risks including foreign currency exchange rate risk,
commodity risk and equity price risk are insignificant to both its financial
position and results of operations.
In general, the Partnership manages its exposure to interest rate risk by
obtaining fixed rate debt. The fixed rate debt is structured so as to match the
cash flows required to service the debt to the payment streams under fixed rate
lease receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. Furthermore, the Partnership has historically been
able to maintain a stable spread between its cost of funds and lease yields in
both periods of rising and falling rates. Nevertheless, the Partnership
frequently funds leases with its floating rate line of credit and is therefore
exposed to interest rate risk until fixed rate financing is arranged, or the
floating rate line of credit is repaid. As of December 31, 1999, $11,150,000 was
outstanding on the floating rate line of credit. Also, as described in the
caption "Capital Resources and Liquidity," the Partnership entered into a
receivables funding facility in 1998. Since interest on the outstanding balances
under the facility varies, the Partnership is exposed to market risks associated
with changing interest rates.
To hedge its interest rate risk, the Partnership enters into interest rate swaps
which effectively modify the underlying interest characteristic on the facility
from floating to fixed. Under the swap agreements, the Partnership makes or
receives variable interest payments to or from the counterparty based on a
notional principal amount. The net differential paid or received by the
Partnership is recognized as an adjustment to interest expense related to the
facility balances. The amount paid or received represents the difference between
the payments required under the variable rate facility and the amounts due under
facility at the fixed (hedged) rate. As of December 31, 1999, borrowings on the
facility were $53,181,000 and the associated variable rate was 6.2476%. The
average fixed rate achieved with the swap agreements was 5.96%.
In general, these swap agreements eliminate the Partnership's interest rate risk
associated with variable rate borrowings. However, the Partnership is exposed to
and manages credit risk associated with the counterparty by dealing only with
institutions it considers financially sound. If these agreements were not in
place, based on the Partnership's facility borrowings at December 31, 1999, a
hypothetical 1.00% increase or decrease in market interest rates, would increase
or decrease the Partnership's 2000 variable interest expense by approximately
$447,000.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 11 through 27.
10
<PAGE>
REPORT OF ERNST & YOUNG LLP, 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, 1999 and 1998, and the related statements of
operations, changes in partners' capital and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations,
changes in its partners' capital and its cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California
February 2, 2000
11
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---- ----
Cash and cash equivalents $ 1,674,372 $ 1,576,029
Accounts receivable, net of allowance for
doubtful accounts of $724,906 in 1999,
none in 1998 5,626,105 6,380,886
Other assets 130,007 170,003
Investments in equipment and leases 183,993,816 204,329,984
---------------- -----------------
Total assets $ 191,424,300 $212,456,902
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $ 21,780,420 $ 16,599,347
Other long-term debt 53,181,000 61,553,000
Line of credit 11,150,000 11,781,707
Accounts payable and accruals:
General Partner 1,435,651 377,955
Other 425,896 684,475
Accrued interest payable 714,697 805,753
Unearned lease income 1,422,852 943,419
---------------- -----------------
90,110,516 92,745,656
Partners' capital (deficit):
General Partner (1,514,601) (717,165)
Limited Partners 102,828,385 120,428,411
---------------- -----------------
Total partners' capital 101,313,784 119,711,246
---------------- -----------------
Total liabilities and partners' capital $ 191,424,300 $212,456,902
================ =================
See accompanying notes.
12
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Leasing activities:
Operating leases $ 36,784,290 $ 33,655,697 $ 7,139,544
Direct financing leases 1,852,614 1,532,235 171,026
Leveraged leases 143,488 131,515 -
Gain on sales of assets 784,853 1,795,336 3,752
Interest income 49,225 67,313 56,642
Other 20,301 12,994 3,017
----------------- ---------------- -----------------
39,634,771 37,195,090 7,373,981
Expenses:
Depreciation and amortization 24,868,782 22,861,169 5,847,827
Interest 6,082,904 5,473,480 714,701
Provision for losses and impairments 6,054,134 56,955 74,277
Equipment and incentive management fees to affiliates 1,892,306 1,559,090 358,846
Other 1,467,738 756,971 380,821
Provision for doubtful accounts 724,9 - -
Administrative cost reimbursements to General Partner 556,577 1,056,746 645,437
Professional fees 146,794 151,183 90,305
----------------- ---------------- -----------------
41,794,141 31,915,594 8,112,214
----------------- ---------------- -----------------
Net (loss) income $ (2,159,370) $ 5,279,496 $ (738,233)
================= ================ =================
Net (loss) income:
General Partner $ 463,626 $ 395,962 $ (55,367)
Limited Partners (2,622,996) 4,883,534 (682,866)
----------------- ---------------- -----------------
$ (2,159,370) $ 5,279,496 $ (738,233)
================= ================ =================
Net (loss) income per Limited Partnership unit $ (0.17) $ 0.46 $ (0.20)
Weighted average number of units outstanding 14,996,050 10,729,510 3,380,442
</TABLE>
See accompanying notes.
13
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partner Total
----- ------ ------- -----
<S> <C> <C> <C> <C>
Balance December 31, 1996 50 $ 500 $ 100 $ 600
Capital contributions received 6,716,846 67,168,460 - 67,168,460
Less selling commissions paid to affiliates (6,381,004) - (6,381,004)
Other syndication costs paid 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
Capital contributions received 8,283,154 82,831,540 - 82,831,540
Less selling commissions paid to affiliates (7,868,996) - (7,868,996)
Other syndication costs paid to affiliates (3,727,420) - (3,727,420)
Recission of investment (4,000) (40,000) - (40,000)
Distributions to Limited Partners ($0.91 per Unit) (9,798,122) - (9,798,122)
Distributions to General Partner - (865,666) (865,666)
Net income 4,883,534 395,962 5,279,496
---------------- ----------------- ---------------- -----------------
Balance December 31, 1998 14,996,050 120,428,411 (717,165) 119,711,246
Distributions to Limited Partners ($1.00 per Unit) (14,977,030) - (14,977,030)
Distributions to General Partner - (1,261,062) (1,261,062)
Net (loss) income (2,622,996) 463,626 (2,159,370)
---------------- ----------------- ---------------- -----------------
Balance December 31, 1999 14,996,050 $ 102,828,385 $ (1,514,601) $101,313,784
================ ================= ================ =================
</TABLE>
See accompanying notes.
14
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Operating activities:
<S> <C> <C> <C>
Net (loss) income $ (2,159,370) $ 5,279,496 $ (738,233)
Adjustment to reconcile net (loss) income to net cash provided by
operating activities:
Leveraged lease income (143,488) (131,515) -
Depreciation and amortization 24,868,782 22,861,169 5,847,827
Provision for losses and impairments 6,054,134 56,955 74,277
Provision for doubtful accounts 724,906 - -
Gain on sales of assets (784,853) (1,795,336) (3,752)
Changes in operating assets and liabilities:
Accounts receivable 29,875 (5,463,667) (917,219)
Other assets 39,996 29,997 (200,000)
Accounts payable, General Partner 1,057,696 43,699 334,256
Accounts payable, other (258,579) 148,854 535,621
Accrued interest payable (91,056) 608,089 197,664
Unearned lease income 479,433 12,422 930,997
----------------- ---------------- -----------------
Net cash provided by operating activities 29,817,476 21,650,163 6,061,438
----------------- ---------------- -----------------
Investing activities:
Purchases of equipment on operating leases (13,793,316) (120,126,565) (89,242,615)
Purchases of equipment on direct financing leases (860,492) (10,800,420) (16,841,671)
Purchases of equipment on leveraged leases - - (1,449,068)
Reduction of net investment in direct financing leases 3,406,564 2,345,113 232,472
Proceeds from sales of assets 2,469,199 4,742,122 130,413
Initial direct lease costs (880,362) (196,646) (32,744)
----------------- ---------------- -----------------
Net cash used in investing activities (9,658,407) (124,036,396) (107,203,213)
----------------- ---------------- -----------------
Financing activities:
Distributions to Limited Partners (14,977,030) (9,798,122) (2,684,635)
Distributions to General Partner (1,261,062) (865,666) (192,194)
Borrowings under line of credit 15,822,824 53,029,261 59,174,080
Repayments of borrowings under line of credit (16,454,531) (81,638,014) (18,783,620)
Proceeds of long-term debt 9,000,000 66,770,000 -
Repayments of long-term debt (17,372,000) (5,217,000) -
Proceeds of non-recourse debt 9,520,748 11,165,217 8,324,416
Repayments of non-recourse debt (4,339,675) (2,693,244) (197,042)
Capital contributions received - 82,831,540 67,168,460
Payment of selling commissions and other syndication
costs to General Partner - (11,596,416) (9,653,584)
Recission of investment - (40,000) -
----------------- ---------------- -----------------
Net cash (used in) provided by financing activities (20,060,726) 101,947,556 103,155,881
----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 98,343 (438,677) 2,014,106
Cash and cash equivalents at beginning of period 1,576,029 2,014,706 600
----------------- ---------------- -----------------
Cash and cash equivalents at end of period $ 1,674,372 $ 1,576,029 $ 2,014,706
================= ================ =================
</TABLE>
15
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 6,173,960 $ 4,865,391 $ 517,037
================= ================ =================
</TABLE>
See accompanying notes.
16
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Partnership matters:
ATEL Capital Equipment Fund VII, L.P. (the Partnership), 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.
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 General Partner of the Partnership is ATEL Financial Corporation (ATEL).
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 borne 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, 1999, the original terms of the leases ranged from six months 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 6). 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:
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.
Revenues from operating leases are recognized evenly over the life of the
related 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.
Investment in leveraged leases:
Leases which are financed principally with non-recourse debt at lease inception
and which meet certain other criteria are accounted for as leveraged leases.
Leveraged lease contracts receivable are stated net of the related non-recourse
debt service (which includes unpaid principal and aggregate interest on such
debt) plus estimated residual values. Unearned income represents the excess of
anticipated cash flows (after taking into account the related debt service and
residual values) over the investment in the lease and is amortized using a
constant rate of return applied to the net investment when such investment is
positive.
17
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
2. Summary of significant accounting policies (continued):
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.
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):
1999 1998
---- ----
Financial statement basis of net assets $ 101,313,784 $ 119,711,246
Tax basis of net assets 54,867,781 102,049,780
----------------- ----------------
Difference $ 46,446,003 $ 17,661,466
================= ================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the result of differences in 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 income (loss) reported in these financial
statements to the loss reported on the Partnership's federal tax return
(unaudited):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net (loss) income per financial statements $ (2,159,370) $ 5,279,496 $ (738,233)
Adjustment to depreciation expense (38,503,336) (34,679,816) (6,820,550)
Adjustments to lease revenues 3,664,666 2,840,660 (382,993)
Provision for losses 6,054,134 56,955 74,277
----------------- ---------------- -----------------
Net loss per federal tax return $ (30,943,906) $(26,502,705) $ (7,867,499)
================= ================ =================
</TABLE>
Reclassifications:
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
18
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
2. Summary of significant accounting policies (continued):
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 8 for a description of lessees
by industry as of December 31, 1999, 1998 and 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. Such estimates primarily
relate to the determination of residual values at the end of the lease term.
Reserve for losses and impairments:
The Partnership maintains a reserve on its investments in equipment and leases
for losses and impairments which are inherent in the portfolio as of the balance
sheet date. The General Partner's evaluation of the adequacy of the allowance is
a judgmental estimate that is based on a review of individual leases, past loss
experience and other factors. While the General Partner believes the allowance
is adequate to cover known losses, it is reasonably possible that the allowance
may change in the near term. However, such change is not expected to have a
material effect on the financial position or future operating results of the
Partnership. It is the Partnership's policy to charge off amounts which, in the
opinion of the General Partner, are not recoverable from lessees or the
disposition of the collateral. See Note 11.
3. Investments in equipment and leases:
As of December 31, 1999, the Partnership's investments in equipment and leases
consist of the following:
<TABLE>
<CAPTION>
Depreciation
Expense or Reclass-
December 31, Amortization ifications or December 31,
1998 Additions of Leases Dispositions 1999
---- --------- --------- ------------ ----
<S> <C> <C> <C> <C> <C>
Net investment in operating leases $177,401,763 $ 13,793,316 $ (24,532,198) $ (1,691,209) $164,971,672
Net investment in direct financing
leases 25,063,961 860,492 (3,406,564) (129,262) 22,388,627
Net investment in leveraged leases 1,580,583 - 143,488 - 1,724,071
Reserve for losses and impairments (131,232) (6,054,134) - - (6,185,366)
Assets held for sale or lease 355,633 - - 136,125 491,758
Initial direct costs, net of
accumulated amortization of
$344,698 in 1999 and $170,114 in 1998 59,276 880,362 (336,584) - 603,054
---------------- ---------------- ----------------- ---------------- -----------------
$204,329,984 $ 9,480,036 $ (28,131,858) $ (1,684,346) $183,993,816
================ ================ ================= ================ =================
</TABLE>
19
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
3. Investments in equipment and leases (continued):
Operating leases:
Property on operating lease consists of the following as of December 31, 1998,
additions and dispositions during 1999 and as of December 31, 1999:
<TABLE>
<CAPTION>
Reclass-
December 31, ifications or December 31,
1998 Additions Dispositions 1999
---- --------- ------------ ----
<S> <C> <C> <C> <C>
Transportation $ 101,572,089 $ 29,409 $ (1,017,411) $100,584,087
Marine vessels / barges 27,609,897 - - 27,609,897
Construction 20,394,865 2,922,698 (315,000) 23,002,563
Manufacturing 19,024,335 3,529,547 (45,876) 22,508,006
Office automation 10,098,613 1,249,375 (247,445) 11,100,543
Other 8,886,794 416,571 (1,447,635) 7,855,730
Mining 8,536,249 - - 8,536,249
Materials handling 4,532,911 1,554,400 (179,787) 5,907,524
Communications 3,701,246 4,091,316 (51,576) 7,740,986
---------------- ----------------- ---------------- -----------------
204,356,999 13,793,316 (3,304,730) 214,845,585
Less accumulated depreciation (26,955,236) (24,532,198) 1,613,521 (49,873,913)
---------------- ----------------- ---------------- -----------------
$ 177,401,763 $ (10,738,882) $ (1,691,209) $164,971,672
================ ================= ================ =================
</TABLE>
Direct financing leases:
As of December 31, 1999, 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, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total minimum lease payments receivable $ 20,333,222 $ 24,791,553
Estimated residual values of leased equipment (unguaranteed) 8,775,528 8,774,768
----------------- ----------------
Investment in direct financing leases 29,108,750 33,566,321
Less unearned income (6,720,123) (8,502,360)
----------------- ----------------
Net investment in direct financing leases $ 22,388,627 $ 25,063,961
================= ================
</TABLE>
All of the property on leases was acquired in 1999, 1998 and 1997.
20
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
3. Investments in equipment and leases (continued):
At December 31, 1999, 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
------------ ------ ------ -----
2000 $36,863,372 $ 4,688,888 $ 41,552,260
2001 29,459,908 4,467,049 33,926,957
2002 21,271,696 3,519,696 24,791,392
2003 12,349,254 2,252,958 14,602,212
2004 8,008,636 2,006,916 10,015,552
Thereafter 7,593,962 3,397,715 10,991,677
---------------- ---------------- -----------------
$115,546,828 $ 20,333,222 $ 135,880,050
================ ================ =================
Leveraged leases:
As of December 31, 1999, 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, 1999 and 1998:
1999 1998
Aggregate rentals receivable $ 1,291,272 $ 1,499,042
Less aggregate principal and interest payable
on non-recourse loans (1,083,503) (1,291,273)
Estimated residual value of leased assets 1,672,855 1,672,855
Less unearned income (156,553) (300,041)
----------------- ----------------
Net investment in leveraged leases $ 1,724,071 $ 1,580,583
================= ================
Reserves for losses and impairments:
Activity in the reserve for losses and impairments consists of the following:
Balance 12/31/96 $ -
Provision 74,277
----------------
Balance 12/31/97 74,277
Provision 56,955
----------------
Balance 12/31/98 131,232
Provision 6,054,134
----------------
Balance 12/31/99 $ 6,185,366
================
At December 31, 1999, there were no commitments to purchase lease assets.
21
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
4. Non-recourse debt:
At December 31, 1999, 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 7.1% to 16.9%. The notes are
secured by assignments of lease payments and pledges of assets. At December 31,
1999, the carrying value of the pledged assets is approximately $37,962,776. The
notes mature from 2000 through 2008.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
2000 $ 5,593,849 $ 1,882,038 $ 7,475,887
2001 6,244,536 1,360,960 7,605,496
2002 6,129,675 778,708 6,908,383
2003 3,175,482 250,880 3,426,362
2004 203,561 38,209 241,770
Thereafter 433,317 40,374 473,691
---------------- ---------------- -----------------
$21,780,420 $ 4,351,169 $ 26,131,589
================ ================ =================
5. Other long-term debt:
In 1998, the Partnership entered into a $65 million receivables funding program
(the Program) with a receivables financing company that issues commercial paper
rated A1 by Standard and Poors and P1 by Moody's Investor Services. Under the
Program, the receivables financing company receives a general lien against all
of the otherwise unencumbered assets of the Partnership. The Program provides
for borrowing at a variable interest rate (6.2476% at December 31, 1999).
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 December 31,
1999, the Partnership receives or pays interest on a notional principal of
$53,181,000, based on the difference between nominal rates ranging from 5.55% to
6.22% 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.
22
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
5. Other long-term debt (continued):
Borrowings under the Program are as follows:
Variable Interest
Original Balance Rate on Rate at
Amount December 31, Interest Swap December 31,
Date Borrowed Borrowed 1999 Agreement 1999
------------- -------- ---- --------- ----
4/1/98 $21,770,000 $ 14,039,000 6.220% 6.2476%
7/1/98 25,000,000 16,120,000 6.155% 6.2476%
10/1/98 20,000,000 15,306,000 5.550% 6.2476%
4/16/99 9,000,000 7,716,000 5.890% 6.2476%
-------------- ----------------
$75,770,000 $ 53,181,000
============== ================
The long-term debt borrowings mature from 2004 through 2008. Future minimum
principal payments of long-term debt are as follows:
Year ending
December 31, Principal Interest Total
--------- -------- -----
2000 $16,760,000 $ 2,664,354 $ 19,424,354
2001 12,868,000 1,752,333 14,620,333
2002 10,269,000 1,069,178 11,338,178
2003 5,365,000 619,417 5,984,417
2004 3,603,000 363,580 3,966,580
Thereafter 4,316,000 266,803 4,582,803
---------------- ---------------- -----------------
$53,181,000 $ 6,735,665 $ 59,916,665
================ ================ =================
6. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partner
and/or Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Partnership.
The Limited Partnership Agreement allows for the reimbursement of costs incurred
by the General Partner in providing 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.
23
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
6. Related party transactions (continued):
The General Partner and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Partnership Agreement as follows during
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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). $ 1,892,306 $ 1,559,090 $ 358,846
Administrative cost reimbursements to General Partner 556,577 1,056,746 645,437
Selling commissions (equal to 9.5% of the selling price of the Limited
Partnership units, deduc-ed from 7,868,996artners' c6,381,004
Reimbursement of other syndication costs - 3,727,420 3,272,580
--------------- --------------- ---------------
$ 2,448,883 $ 14,212,252 $ 10,657,867
=============== =============== ===============
</TABLE>
The General Partner or an Affiliate may purchase equipment in its own name, the
name of an Affiliate or the name of a nominee, a trust or otherwise and hold
title thereto on a temporary or interim basis (generally not in excess of six
months) for the purpose of facilitating the acquisition of such equipment or the
completion of manufacture of the equipment or for any other purpose related to
the business of the Partnership, provided, however that: (i) the transaction is
in the best interest of the Partnership; (ii) such equip-
ment is purchased by the Partnership for a purchase price no greater than the
cost of such equipment to the General Partner or Affiliate (including any
out-of-pocket carrying costs), except for compensation permitted by the
Agreement of Limited Partnership; (iii) there is no difference in interest terms
of the loans secured by the equipment at the time acquired by the General
Partner or Affiliate and the time acquired by the Partnership; (iv) there is no
benefit arising out of such transaction to the General Partner or its Affiliate
apart from the compensation otherwise permitted by the Agreement of Limited
Partnership; and (v) all income generated by, and all expenses associated with,
equipment so acquired shall be treated as belonging to the Partnership.
7. Partners' capital:
As of December 31, 1999, 14,996,050 Units ($149,960,050) were issued and
outstanding. The Partnership 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.
24
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
7. Partners' capital (continued):
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.
An additional allocation of income has been made to the General Partner. The
amount allocated was determined so as to bring the General Partner's ending
capital account balance to the amount of capital contributions that the General
Partner will be required to make in a future period.
8. 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, 1999, 1998 and 1997 there were concentrations (greater than
10%) of equipment leased to lessees in certain industries (as a percentage of
total equipment cost) as follows:
1999 1998 1997
---- ---- ----
Transportation, rail 19% 27% 15%
Municipalities 15% 16% 26%
Electronics 12% * 15%
Transportation, other * 16% 18%
* Less than 10%
During 1999, one customer comprised 10% of the Partnership's revenues from
leases. During 1998, two customers comprised 17% and 10% of the Partnership's
revenues from leases. During 1997, two customers comprised 24% and 15% of the
Partnership's revenues from leases.
25
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
9. Line of credit:
The Partnership participates with the General Partner and certain of its
Affiliates in a $95,000,000 revolving credit agreement with a group of financial
institutions which expires on April 30, 2000. 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 1999, the Partnership borrowed $15,822,824 under the line of credit.
Repayments on the line of credit were $16,454,531 during 1999 and $11,150,000
remained outstanding as of December 31, 1999. At December 31, 1999, the rates on
such borrowings varied from 7.71% to 7.75%. Interest on the line of credit is
based on either the thirty day LIBOR rate or the bank's prime rate.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of December
31, 1999. At December 31, 1999, $21,857,103 was available under this agreement.
10. 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-term 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, 1999 is
$21,807,379.
Other long-term debt:
The fair value of the Partnership's other long-term debt is estimated using
discounted cash flow analyses, based on the Partnership's current variable
borrowing rate for the facility. The estimated fair value of the other long-term
debt at December 31, 1999 is $53,354,679.
Line of credit:
The carrying amounts of the Partnership's variable rate line of credit
approximates fair value.
Interest rate swaps:
The fair value of interest rate swaps is estimated by discounting the fixed cash
flows paid under each swap using the rate at which the Partnership could enter
into new swaps of similar maturities. The carrying amounts of the interest rate
swaps approximate fair value at December 31, 1999.
26
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
11. Provision for losses and impairments:
In January 2000, one of the Partnership's lessees filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. The Partnership has determined
that the assets under operating leases with a net book value of $8,048,095 at
December 31, 1999 leased to this particular lessee were impaired as of December
31, 1999. The Partnership has estimated that the proceeds from the future sales
of those assets which were financed with non-recourse debt will not be
sufficient to satisfy the non-recourse lender. The debt balance was $2,056,474
at December 31, 1999. As result, the Partnership has fully reserved for those
assets as of December 31, 1999. The portion of the assets not financed with
non-recourse debt have been written down to their expected net realizable value
as of December 31, 1999.
Upon foreclosure by the lender and upon sale of the financed assets, the
Partnership expects to report a gain on the sale of the assets, an extraordinary
gain on the extinguishment of the debt or a combination of the two totaling
$2,056,474.
27
<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 ATEL and affiliated companies pursuant to a corporate restructuring
completed in July 1994. The outstanding capital stock of ATEL Capital Group is
owned 73.125% by A. J. Batt and 24.375% by Dean Cash, and was obtained in the
restructuring in exchange for their capital interests in ATEL Financial
Corporation. The remaining 2.5% is owned by Paritosh K. Choksi.
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 services are
performed by AEC, investor relations and communications services are performed
by AIS and general administrative services 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 and its 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
Paritosh K. Choksi Director, Senior Vice President and Chief Financial
Officer of ACG, AFC, ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFC, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General
Counsel for ACG, AFC, ALC, AIS and AEC
Carl W. Magnuson Vice President - Syndication of ALC
Barbara F. Medwadowski Vice President - Syndication of ALC
James A. Kamradt Director of Pricing and Syndication of ALC
Thomas D. Sbordone Senior Vice President - Marketing of ALC
Russell H. Wilder Vice President - Credit of AEC
John P. Scarcella Vice President of ASC
28
<PAGE>
A. J. Batt, age 63, 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 49, 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.
Paritosh K. Choksi, age 46, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. Prior to joining ATEL, Mr. Choksi was
chief financial officer at Wink Communications, Inc. from 1997 to 1999. From
1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial
services and management company, where he held various positions during his
tenure, and was senior vice president, chief financial officer and director when
he left the company. Mr. Choksi was involved in all corporate matters at Phoenix
and was responsible for Phoenix's capital market needs. He also served on the
credit committee overseeing all corporate investments, including its venture
lease portfolio. Mr. Choksi was a part of the executive management team which
caused Phoenix's portfolio to increase from $50 million in assets to over $2
billion. Mr. Choksi received a bachelor of technology degree in mechanical
engineering from the Indian Institute of Technology, Bombay; and an M.B.A.
degree from the University of California, Berkeley.
Donald E. Carpenter, age 51, 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 41, 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, a J.D. degree in 1986 from Golden Gate University Law
School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais
has been an active member of the State Bar of California since 1986.
29
<PAGE>
Carl W. Magnuson, age 56, joined ATEL in 1994 and is vice president -
syndication for ALC. Mr. Magnuson is responsible for acquiring third party lease
transactions and debt placement. Prior to joining ATEL he was a regional group
manager and portfolio sales manager for Bell Atlantic Systems Leasing for 10
years. From 1983 to 1984 he was vice president and chief financial officer of
the Handi-Kup Company, a plastics manufacturer, and from 1981 to 1982 he was
controller for the Cyclotron Corporation, engaged in nuclear medicine research
and development. From 1978 to 1981 he was executive vice president of Shannon
Financial Corporation, a middle market leasing corporation. From 1975 to 1978 he
was a deputy program manager for the Watkins Johnson Company. From 1968 to 1973
Mr. Magnuson was an engineering duty officer in the U. S. Navy. Mr. Magnuson
received a B.S. in Engineering Science and an M.S. in applied mathematics from
the Rensselaer Polytechnic Institute, an M.S. in industrial
engineering/operations research from Stanford University, and an M.B.A. from the
University of California at Berkeley.
Barbara F. Medwadowski, age 60, joined ATEL in 1997 and is vice president -
syndication for ALC. Ms. Medwadoski is responsible for acquiring third party
lease transactions. Prior to joining ATEL, she was a syndications manager for
Mellon US Leasing (successor to USL Capital and U.S. Leasing Corporation) for
nine years. From 1985 to 1987, she was a vice president with Great Western
Leasing where she acquired lease and loan transactions from intermediaries. From
1982 through 1984, she was a portfolio manager with U.S. Leasing Corporation.
Ms. Medwadowski received an M.B.A. degree from the University of California at
Berkeley in 1982. From 1964 through 1979, she was a senior researcher in lipids
and lipoproteins at the University of California at Berkeley. In 1964, she
earned an M.S. degree in nutrition and in 1961 a B.S. degree in child
development, each from the University of California at Berkeley.
James A. Kamradt, age 38, director of pricing and syndication for ALC, joined
ATEL in 1997. Mr. Kamradt is involved in the pricing of lease transactions and
the placement of debt to leverage certain transactions. From 1985 to 1997, Mr.
Kamradt managed his own private consulting business, providing underwriting and
operational services for numerous leasing companies. Prior to that, Mr. Kamradt
was the national operations officer for the computer leasing division of Phoenix
American; and regional credit manager for Dana Commercial Credit Corporation.
Mr. Kamradt received a B.S. from Michigan Technological University's Engineering
School of Business, and an M.B.A. from Haas School of Business of the University
of California, Berkeley.
Thomas D. Sbordone, age 41, senior vice president - marketing for ALC, joined
ATEL in 1993, as a regional vice president in the northeastern United States.
Mr. Sbordone is currently responsible for new business development within the
eastern U.S., including management of filed sales personnel and directly
interfacing with ATEL's existing and prospective clients to achieve the
company's lease investment objectives. Prior to joining ATEL, Mr. Sbordone was
employed, from 1985, by American Finance Group, a Boston-based equipment lessor.
While there, Mr. Sbordone's various responsibilities involved lease origination
of vendor finance relationships. Mr. Sbordone earned a B.S., with honors, in
finance and marketing from Northeastern University, and has attended Bentley
College Graduate School of Business.
Russell H. Wilder, age 45, 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, Davis. He has been
awarded the Certified Lease Professional designation by the Western Association
of Equipment Lessors.
30
<PAGE>
John P. Scarcella, age 38, 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, 1999 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 6 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.
Through December 31, 1998, $14,250,000 of such commissions (the maximum
allowable amount) had been paid to the General Partner or its affiliates. Of
that amount, $12,327,297 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 lease revenues from
"operating" leases and (ii) 2% of gross lease revenues from "full payout" leases
which contain net lease provisions.
See Note 6 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 is 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:
31
<PAGE>
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.
See Note 6 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 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 is
entitled to 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 1999, 1998 and 1997.
32
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1999 no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
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> <C> <C>
Limited Partnership Units A. J. Batt Initial Limited Partner Units 0.00017%
235 Pine Street, 6th Floor 25 Units ($250)
San Francisco, CA 94104 (owned by wife)
Limited Partnership Units Dean Cash Initial Limited Partner Units 0.00017%
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 6 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated by reference.
33
<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, 1999, 1998 and 1997
Statement of Operations for the years ended
December 31, 1999, 1998 and 1997
Statements of Changes in Partners' Capital for
the years ended December 31, 1999, 1998 and 199
Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
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 1999
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).
34
<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: 3/22/2000
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
ATEL Financial Corporation (General
Partner)
By: /s/ Dean Cash
---------------------------------------------------
Dean Cash,
Executive vice President of ATEL
Financial Corporation (General Partner)
35
<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 3/22/2000
- ------------------------- Executive officer of ATEL Financial
A. J. Batt Corporation
/s/ Dean Cash Executive Vice President and director 3/22/2000
- ------------------------- of ATEL Financial Corporation
Dean Cash
/s/ Paritosh K. Choksi Principal financial officer of 3/22/2000
- ------------------------- registrant; principal financial officer
Paritosh K. Choksi and director of ATEL Financial
Corporation
/s/ Donald E. Carpenter Principal accounting officer of 3/22/2000
- ------------------------- registrant; principal accounting officer
Donald E. Carpenter 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.
37
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> dec-31-1999
<CASH> 1,674,372
<SECURITIES> 0
<RECEIVABLES> 6,351,011
<ALLOWANCES> 724,906
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 191,424,300
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 101,313,784
<TOTAL-LIABILITY-AND-EQUITY> 191,424,300
<SALES> 0
<TOTAL-REVENUES> 39,634,771
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,932,197
<LOSS-PROVISION> 6,779,040
<INTEREST-EXPENSE> 6,082,904
<INCOME-PRETAX> (2,159,370)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,159,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,159,370)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
