-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MyOUGUgGqRMkFsYt8Zxkb/OHtQWKGNngn9116O8k2PTjEYHvylvvSFVOPIA+nD2K /ytIB/a4ybH6dXEdpcZNcw== 0001019542-98-000004.txt : 19981113 0001019542-98-000004.hdr.sgml : 19981113 ACCESSION NUMBER: 0001019542-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATEL CAPITAL EQUIPMENT FUND VII LP CENTRAL INDEX KEY: 0001019542 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943248318 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24175 FILM NUMBER: 98743690 BUSINESS ADDRESS: STREET 1: 235 PINE STREET 6TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4159898800 MAIL ADDRESS: STREET 1: 235 PINE STREET STREET 2: SIXTH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 10-Q 1 REPORT FOR THE THIRD QUARTER ENDED 9/30/98 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 1998 |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _______ to _______ Commission File Number 0-24175 ATEL Capital Equipment Fund VII, L.P. (Exact name of registrant as specified in its charter) California 94-3248318 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 235 Pine Street, 6th Floor, San Francisco, California 94104 (Address of principal executive offices) Registrant's telephone number, including area code: (415) 989-8800 Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| DOCUMENTS INCORPORATED BY REFERENCE None Part I. FINANCIAL INFORMATION Item 1. Financial Statements. ATEL CAPITAL EQUIPMENT FUND VII, L.P. BALANCE SHEETS SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (Unaudited) ASSETS 1998 1997 ---- ---- Cash and cash equivalents $2,135,476 $2,014,706 Accounts receivable 3,105,516 917,219 Other assets 180,002 200,000 Investments in leases 165,961,183 101,284,861 ----------------- ------------------ Total assets $171,382,177 $104,416,786 ================= ================== LIABILITIES AND PARTNERS' CAPITAL Lines of credit $10,777,660 $40,390,460 Long-term debt 44,017,000 - Non-recourse debt 12,054,387 8,127,374 Accounts payable: General Partner 274,319 334,256 Other 618,087 535,621 Accrued interest payable 609,569 197,664 Unearned operating lease income 1,173,302 930,997 ----------------- ------------------ Total liabilities 69,524,324 50,516,372 Partners' capital: General Partner (542,304) ($247,461) Limited Partners 102,400,157 54,147,875 ----------------- ------------------ Total partners' capital 101,857,853 53,900,414 ----------------- ------------------ Total liabilities and partners' capital $171,382,177 $104,416,786 ================= ================== See accompanying notes. ATEL CAPITAL EQUIPMENT FUND VII, L.P. STATEMENT OF OPERATIONS NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Nine Months Three Months Ended September 30, Ended September 30, 1998 1997 1998 1997 Revenues: Leasing activities: Operating leases $20,536,470 $4,937,599 $7,423,969 $1,972,346 Direct financing 1,226,303 92,429 417,267 77,409 Leveraged leases 98,636 - 32,879 - Gain on sales of assets 1,485,935 3,156 642,142 3,452 Interest 34,690 43,131 12,294 31,335 Other 11,254 1,154 7,791 786 ----------------- ----------------- ----------------- ------------------ 23,393,288 5,077,469 8,536,342 2,085,328 Expenses: Depreciation 13,928,035 3,545,071 5,234,029 1,369,811 Interest expense 3,127,366 444,015 1,165,166 35,659 Administrative cost reimbursements to General Partner 763,032 387,375 317,641 190,190 Other 474,886 237,459 192,284 92,302 Equipment and incentive management fees to General Partner 1,026,501 183,280 380,780 72,900 Professional fees 101,790 38,957 64,580 19,741 Provision for losses 56,954 14,738 - - ----------------- ----------------- ----------------- ------------------ 19,478,564 4,850,895 7,354,480 1,780,603 ----------------- ----------------- ----------------- ------------------ Net income $3,914,724 $226,574 $1,181,862 $304,725 ================= ================= ================= ================== Net income: General Partner $293,604 $16,993 $88,640 $22,854 Limited Partners 3,621,120 209,581 1,093,222 281,871 ----------------- ----------------- ----------------- ------------------ $3,914,724 $226,574 $1,181,862 $304,725 ================= ================= ================= ================== Net income per Limited Partnership Unit $0.38 $0.08 $0.09 $0.07 Weighted average number of Units outstanding 9,554,273 2,531,520 11,635,928 4,260,107
See accompanying notes. ATEL CAPITAL EQUIPMENT FUND VII, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 (Unaudited)
Limited Partners General Units Amount Partner Total Balance December 31, 1997 6,716,896 54,147,875 ($247,461) $53,900,414 Capital contributions 5,930,392 59,303,920 - 59,303,920 Less selling commissions to affiliates (5,633,872) - (5,633,872) Other syndication costs to affiliates (2,512,374) - (2,512,374) Distributions to partners (6,526,512) (588,447) (7,114,959) Net income 3,621,120 293,604 3,914,724 ----------------- ----------------- ----------------- ------------------ Balance September 30, 1998 12,647,288 $102,400,157 ($542,304) $101,857,853 ================= ================= ================= ==================
See accompanying notes. STATEMENTS OF CASH FLOWS NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
Nine Months Three Months Ended September 30, Ended September 30, Operating activities: 1998 1997 1998 1997 ---- ---- ---- ---- Net income $3,914,724 $226,574 $1,181,862 $304,725 Adjustments to reconcile net income (loss) to cash provided by operating activities: Leveraged lease income (98,636) - (32,879) - Depreciation 13,928,035 3,545,071 5,234,029 1,369,811 Gain on sales of assets (1,485,935) (3,156) (642,142) (3,452) Provision for losses 56,954 14,738 - - Changes in operating assets and liabilities: Accounts receivable (2,188,297) (630,198) 528,597 91,877 Other assets 19,998 - 19,998 - Accounts payable, General Partner (59,937) 91,510 104,144 64,693 Accounts payable, other 82,466 67,934 (21,024) 59,761 Accrued interest expense 411,905 - 234,440 - Unearned lease income 242,305 42,086 36,581 19,808 ----------------- ----------------- ----------------- ------------------ Net cash provided by operations 14,823,582 3,354,559 6,643,606 1,907,223 ----------------- ----------------- ----------------- ------------------ Investing activities: Purchases of equipment on operating leases (77,120,556) (39,935,005) (47,227,759) (11,843,068) Purchases of equipment on direct financing leases (5,618,148) (3,694,810) (207,553) - Proceeds from sales of assets 5,213,023 35,740 2,882,830 3,452 Reduction in net investment in direct financing leases 924,120 99,225 52,855 90,250 Purchases of equipment held for sale or lease (441,187) - - - Payment of initial direct costs (33,992) - (33,988) - ----------------- ----------------- ----------------- ------------------ Net cash used in investing activities (77,076,740) (43,494,850) (44,533,615) (11,749,366) ----------------- ----------------- ----------------- ------------------
ATEL CAPITAL EQUIPMENT FUND VII, L.P. STATEMENTS OF CASH FLOWS (Continued) SEPTEMBER 30, 1998 AND 1997
Six Months Three Months Ended September 30, Ended September 30, 1998 1997 1998 1997 Financing activities: Repayments of borrowings under line of credit (66,977,843) (14,564,930) (23,200,436) (3,291,240) Borrowings under line of credit 37,365,043 14,564,930 19,230,336 1,218,000 Proceeds of long-term debt 46,770,000 - 25,000,000 - Repayments of long-term debt (2,753,000) - (2,012,000) - Repayments of non-recourse debt (2,160,402) (52,160) (650,553) (22,780) Proceeds of non-recourse debt 6,087,415 4,780,911 4,630,831 4,227,345 Capital contributions received 59,303,920 51,054,260 20,852,300 17,317,990 Payment of selling commissions to affiliate of General Partner (5,633,872) (4,850,155) (1,980,968) (1,645,209) Payment of syndication costs to General Partner (2,512,374) (2,419,760) (917,841) (680,960) Distributions to partners (7,114,959) (1,411,405) (3,088,703) (884,015) ----------------- ----------------- ----------------- ------------------ Net cash provided by financing activities 62,373,928 47,101,691 37,862,966 16,239,131 ----------------- ----------------- ----------------- ------------------ Net increase (decrease) in cash and cash equivalents 120,770 6,961,400 (27,043) 6,396,988 Cash and cash equivalents at beginning of period 2,014,706 600 2,162,519 565,012 ----------------- ----------------- ----------------- ------------------ Cash and cash equivalents at end of period $2,135,476 $6,962,000 $2,135,476 $6,962,000 ================= ================= ================= ================== Supplemental disclosures of cash flow information: Cash paid during the period for interest $2,715,461 $444,015 $930,726 $35,659 ================= ================= ================= ==================
See accompanying notes. ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (Unaudited) 1. Summary of significant accounting policies: Interim financial statements: The unaudited interim financial statements reflect all adjustments which are, in the opinion of the general partners, necessary to a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the most recent report on Form 10K. 2. Organization and partnership matters: ATEL Capital Equipment Fund VII, L.P. (the Fund), was formed under the laws of the State of California on July 17 , 1996, for the purpose of acquiring equipment to engage in equipment leasing and sales activities. Contributions in the amount of $600 were received as of July 17, 1996, $100 of which represented the General Partner's (ATEL Financial Corporation's) continuing interest, and $500 of which represented the Initial Limited Partners' capital investment. Upon the sale of the minimum amount of Units of Limited Partnership interest (Units) of $1,200,000 and the receipt of the proceeds thereof on January 7, 1997, the Partnership commenced operations. The Partnership does not make a provision for income taxes since all income and losses will be allocated to the Partners for inclusion in their individual tax returns. 3. Investment in leases: The Partnership's investment in leases consists of the following:
Depreciation Balance Expense or Reclassi- Balance December 31, Amortization fications or June 30, 1997 Additions of Leases Dispositions 1998 ---- --------- --------- - ------------- ---- Net investment in operating leases $83,268,573 $77,120,556 ($13,923,077) ($4,199,505) $142,266,547 Net investment in direct financing leases 16,609,199 5,618,148 (924,120) - 21,303,227 Net investment in leveraged leases 1,449,068 - 98,636 - 1,547,704 Assets held for sale or lease - 441,187 - 472,417 913,604 Reserve for losses (74,277) (56,954) - - (131,231) Initial direct costs, net of accumulated amortization 32,298 33,992 (4,958) - 61,332 ------------------- ----------------- ----------------- ----------------- ------------------ $101,284,861 $83,156,929 ($14,753,519) ($3,727,088) $165,961,183 =================== ================= ================= ================= ==================
ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (Unaudited) 3. Investment in leases (continued): Property on operating leases consists of the following:
Balance Balance December 31, Acquisitions & Dispositions June 30, 1997 1st Quarter 2nd Quarter 3rd Quarter 1998 ---- ----------- ----------- ----------- ---- Transportation $51,120,754 $4,638,526 $10,317,167 ($123,174) $65,953,273 Mining 6,275,273 1,286,210 171,528 15,240,394 22,973,405 Manufacturing 14,342,104 709,848 3,271,467 451,790 18,775,209 Materials handling 3,127,344 216,900 1,735,842 11,248,694 16,328,780 Marine vessels - - - 15,000,000 15,000,000 Motor vehicles 5,454,671 - - - 5,454,671 Other 2,601,605 220,887 2,326,005 (128,988) 5,019,509 Office automation 1,624,385 3,328,775 (1,768,484) 1,300,557 4,485,233 Furniture and fixtures 1,132,479 1,148,627 215,380 1,472,239 3,968,725 Aircraft 3,430,000 - - (633,424) 2,796,576 ------------------- ----------------- ----------------- ----------------- ------------------ 89,108,615 11,549,773 16,268,905 43,828,088 160,755,381 Less accumulated depreciation (5,840,042) (2,899,753) (5,176,945) (4,572,094) (18,488,834) ------------------- ----------------- ----------------- ----------------- ------------------ $83,268,573 $8,650,020 $11,091,960 $39,255,994 $142,266,547 =================== ================= ================= ================= ==================
As of September 30, 1998, investment in direct financing leases consists of fuel trucks and a sputtering system. The following lists the components of the Partnership's investment in direct financing leases as of September 30, 1998: Total minimum lease payments receivable $19,323,285 Estimated residual values of leased equipment (unguaranteed) 7,809,915 ------------------ Investment in direct financing leases 27,133,200 Less unearned income (5,829,973) ------------------ Net investment in direct financing leases $21,303,227 ================== All of the property on leases was acquired in 1997 and 1998. At September 30, 1998, the aggregate amounts of future minimum lease payments are as follows:
Direct Year ending Operating Financing December 31, Leases Leases Total Three months ending December 31, 1998 $7,105,294 $1,067,996 $8,173,290 Year ending December 31, 1999 31,865,574 3,963,381 35,828,955 2000 28,818,538 3,315,288 32,133,826 2001 21,747,002 3,163,622 24,910,624 2002 15,245,077 2,699,401 17,944,478 Thereafter 16,306,967 5,113,597 21,420,564 ----------------- ----------------- ----------------- $121,088,452 $19,323,285 $140,411,737 ================= ================= =================
ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (Unaudited) 4. Non-recourse debt: Notes payable to financial institutions are due in varying monthly, quarterly and semi-annual installments of principal and interest. The notes are secured by assignments of lease payments and pledges of the assets which were purchased with the proceeds of the particular notes. Interest rates on the notes vary from 6.00% to 10.02%. Future minimum principal payments of non-recourse debt are as follows:
Year ending December 31, Principal Interest Total Three months ending December 31, 1998 $301,170 $111,222 $412,392 Year ending December 31, 1999 1,924,423 1,326,027 3,250,450 2000 2,348,625 827,104 3,175,729 2001 2,541,134 612,672 3,153,806 2002 2,617,116 389,416 3,006,532 Thereafter 2,321,919 256,403 2,578,322 ----------------- ----------------- ----------------- $12,054,387 $3,522,844 $15,577,231 ================= ================= =================
5. Long-term debt: The Partnership has established a $65 million dollar receivables funding program with a receivables financing company that issues commercial paper rated A1 from Standard and Poors and P1 from Moody's Investor Services. In this receivables funding program, the lenders will receive a general lien against all of the otherwise unencumbered assets of the Partnership. The program provides for borrowing at a variable interest rate and requires the General Partner to enter into hedge agreements with certain hedge counterparties (also rated A1/P1) to mitigate the interest rate risk associated with a variable rate note. The General Partner anticipates that this program will allow the Partnership to avail itself of lower cost debt than that available for individual non-recourse debt transactions. It is the intention of the Partnership to use the receivables funding program to finance assets leased to those credits which, in the opinion of the General Partner, have a relatively lower potential risk of lease default then those lessees with equipment financed with non-recourse debt. The Partnership will continue to use its traditional sources of non-recourse secured debt financing on a transaction basis as a means of mitigating credit risk. Through hedge agreements, the interest rates have been effectively fixed. Borrowings under this facility are as follows: Amount Current Date Borrowed Borrowed Balance Rate April 1998 $21,770,000 $19,930,000 6.22% July 1998 25,000,000 24,087,000 5.75% ----------------- ----------------- $46,770,000 $44,017,000 ================= ================= ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (Unaudited) 5. Long-term debt (continued): Future minimum principal payments of long-term debt are as follows:
Year ending December 31, Principal Interest Total Three months ending December 31, 1998 $2,363,000 $669,874 $3,032,874 Year ending December 31, 1999 11,595,000 2,217,677 13,812,677 2000 11,483,000 1,500,148 12,983,148 2001 8,078,000 861,802 8,939,802 2002 5,709,000 444,639 6,153,639 Thereafter 4,789,000 570,159 5,359,159 ----------------- ----------------- ----------------- $44,017,000 $6,264,299 $50,281,299 ================= ================= =================
6. Related party transactions: The terms of the Limited Partnership Agreement provide that the General Partner and/or Affiliates are entitled to receive certain fees for equipment management and resale and for management of the Partnership. The Limited Partnership Agreement allows for the reimbursement of costs incurred by the General Partner in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and equipment documentation. The General Partner is not reimbursed for services where it is entitled to receive a separate fee as compensation for such services, such as management of equipment. Reimbursable costs incurred by the General Partner are allocated to the Partnership based upon actual time incurred by employees working on Partnership business and an allocation of rent and other costs based on utilization studies. Substantially all employees of the General Partner record time incurred in performing administrative services on behalf of all of the Partnerships serviced by the General Partner. The General Partner believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Partnership or (ii) the amount the Partnership would be required to pay independent parties for comparable administrative services in the same geographic location and are reimbursable in accordance with the Limited Partnership Agreement. ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (Unaudited) 6. Related party transactions (continued): The General Partner and/or Affiliates earned fees, commissions and reimbursements, pursuant to the Limited Partnership Agreement as follows:
1998 1997 ---- ---- Selling commissions (equal to 9.5% of the selling price of the Limited Partnership units, deducted from Limited Partners' capital) $5,633,872 $4,850,155 Reimbursement of other syndication costs 2,512,374 2,419,760 Administrative costs reimbursed to General Partner 763,032 387,375 Incentive management fees (computed as 4% of distributions of cash from operations, as defined in the Limited Partnership Agreement) and equipment management fees (computed as 3.5% of gross revenues from operating leases, as defined in the Limited Partnership Agreement plus 2% of gross revenues from full payout leases, as defined in the Limited Partnership Agreement). 1,026,501 183,280 ----------------- ------------------ $9,935,779 $7,840,570 ================= ==================
7. Partner's capital: As of September 30, 1998, 12,647,338 Units ($126,473,380) were issued and outstanding. The Fund's registration statement with the Securities and Exchange Commission became effective November 29, 1996. The Fund is authorized to issue up to 15,000,050 Units, including the 50 Units issued to the initial limited partners. Available Cash from Operations, as defined in the Limited Partnership Agreement, shall be distributed as follows: First, Distributions of Cash from Operations shall be 88.5% to the Limited Partners, 7.5% to the General Partner and 4% to the General Partner or its affiliate designated as the recipient of the Incentive Management Fee, until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital, as defined in the Limited Partnership Agreement. Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the General Partner or its affiliate designated as the recipient of the Incentive Management Fee. Available Cash from Sales or Refinancing, as defined in the Limited Partnership Agreement, shall be distributed as follows: First, Distributions of Sales or Refinancings shall be 92.5% to the Limited Partners and 7.5% to the General Partner, until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital. Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the General Partner or its affiliate designated as the recipient of the Incentive Management Fee. ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (Unaudited) 8. Line of credit: The Partnership participates with the General Partner and certain of its Affiliates in a $90,000,000 revolving credit agreement with a group of financial institutions which expires on November 28, 1998. The agreement includes an acquisition facility and a warehouse facility which are used to provide bridge financing for assets on leases. Draws on the acquisition facility by any individual borrower are secured only by that borrower's assets, including equipment and related leases. Borrowings on the warehouse facility are recourse jointly to certain of the Affiliates, the Partnership and the General Partner. At September 30, 1998, the Partnership had $10,777,660 of borrowings under the line of credit. The credit agreement includes certain financial covenants applicable to each borrower. The Partnership was in compliance with its covenants as of September 30, 1998. At September 30, 1998, $32,612,740 was available under this agreement. 9. Commitments: As of September 30, 1998, the Partnership had outstanding commitments to purchase lease equipment totaling approximately $10,878,000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Capital Resources and Liquidity During the first three quarters of 1998, the Partnership's primary activities were raising funds through its offering of Limited Partnership Units (Units) and engaging in equipment leasing activities. Through September 30, 1998, the Partnership had received subscriptions for 12,647,288 Units ($126,472,880) all of which were issued and outstanding. During the funding period, the Partnership's primary source of liquidity is subscription proceeds from the public offering of Units. The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from leases exceed expenses, and decreasing as lease assets are acquired, as distributions are made to the limited partners and to the extent expenses exceed cash flows from leases. As another source of liquidity, the Partnership has contractual obligations with a diversified group of lessees for fixed lease terms at fixed rental amounts. As the initial lease terms expire the Partnership will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on the General Partner's success in re-leasing or selling the equipment as it comes off lease. The Partnership participates with the General Partner and certain of its affiliates in a $90,000,000 revolving line of credit with a financial institution. The line of credit expires on November 28, 1998. The Partnership anticipates reinvesting a portion of lease payments from assets owned in new leasing transactions. Such reinvestment will occur only after the payment of all obligations, including debt service (both principal and interest), the payment of management fees to the General Partner and providing for cash distributions to the Limited Partners. The Partnership currently has available adequate reserves to meet contingencies, but in the event those reserves were found to be inadequate, the Partnership would likely be in a position to borrow against its current portfolio to meet such requirements. The General Partner envisions no such requirements for operating purposes. No commitments of capital have been or are expected to be made other than for the acquisition of additional equipment. Such commitments totaled approximately $10,878,000 as of September 30, 1998. If inflation in the general economy becomes significant, it may affect the Partnership inasmuch as the residual (resale) values and rates on re-leases of the Partnership's leased assets may increase as the costs of similar assets increase. However, the Partnership's revenues from existing leases would not increase, as such rates are generally fixed for the terms of the leases without adjustment for inflation. If interest rates increase significantly, the lease rates that the Partnership can obtain on future leases will be expected to increase as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates. During 1998, the Partnership's primary sources of liquidity were the proceeds of its offering of Units and funds borrowed on the line of credit and funds borrowed long term on either a non-recourse or recourse basis. Cash from operating activities was almost entirely from operating lease rents in both 1998 and in 1997 for both the three and nine month periods. Sources of cash from investing activities consisted of proceeds from sales of assets and direct financing lease rents. Proceeds from sales of lease assets and rents from direct financing leases increased significantly compared to 1997. Cash was used in investing activities to purchase assets on operating and direct financing leases. Cash from financing sources consisted primarily of cash received for subscriptions for Units, borrowings under the line of credit and proceeds of non-recourse and other long-term debt. The purchase of lease assets was primarily funded with borrowings on this line of credit, proceeds of the Partnership's public offering of Units and proceeds of non-recourse and other long-term debt. Results of operations Operations in 1998 resulted in a net income of $3,914,724 (nine months) and $1,181,862 (three months). Operations in 1997 resulted in a net loss of $78,151 (nine months) and $68,222 (three months). The Partnership's primary source of revenues is from operating leases. This is expected to remain true in future periods although the amounts are expected to increase as a result of additional equipment acquisitions. These revenues in fact increased from $4,937,599 (nine months) and $1,972,346 (three months) in 1997 to $20,536,470 and $7,423,969, respectively, in 1998. Depreciation expense is the single largest expense of the Partnership and is expected to remain so in future periods although at a higher amount. Equipment management fees are based on the Partnership's rental revenues and are expected to increase in relation to expected increases in the Partnership's revenues from leases. Incentive management fees are based on the levels of distributions to limited partners. As the effective distribution rate increases and as the number of units outstanding increases (as a result of the continuing offering of such units), the incentive management fee is expected to increase. These expenses have increased from 1997 to 1998 for both the three and nine month periods as a result of these factors. Interest expense has increased due to the higher debt balances in 1998 than in 1997. As of September 30, 1998, the Partnership's public offering was continuing. During the offering period, the Partnership expects to purchase significant amounts of lease assets. Because of this, operations in 1998 are not expected to be comparable to future periods. Other Year 2000 Issues The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs that have time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in similar normal business activities. The Partnership uses primarily third party software and is communicating with key vendors to ensure that the Partnership's systems are year 2000 compliant. Based on these discussions, the Partnership does not expect that the costs related to the year 2000 issue will be significant. Ultimately, the potential impact of the year 2000 issue will depend on the way in which the year 2000 issue is addressed by businesses and other entities whose financial condition or operational capability is important to the Partnership. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Inapplicable. Item 2. Changes In Securities. Inapplicable. Item 3. Defaults Upon Senior Securities. Inapplicable. Item 4. Submission Of Matters To A Vote Of Security Holders. Inapplicable. Item 5. Other Information. Information provided pursuant to ss. 228.701 (Item 701(f))(formerly included in Form SR): (1) Effective date of the offering: November 29, 1996; File Number: 33388 (2) Offering commenced: November 29, 1996 (3) The offering did not terminate before any securities were sold. (4) The offering has not been terminated prior to the sale of all of the securities. (5) The managing underwriter is ATEL Securities Corporation. (6) The title of the registered class of securities is "Units of limited partnership interest" (7) Aggregate amount and offering price of securities registered and sold as of September 30, 1998
Aggregate Aggregate price of price of offering offering Amount amount Amount amount Title of Security Registered registered sold sold Limited Partnership units 15,000,000 $150,000,000 12,647,238 $126,472,380 (8) Costs incurred for the issuers account in connection with the issuance and distribution of the securities registered for each category listed below: Direct or indirect payments to directors, officers, general partners of the issuer or their associates; to persons owning ten percent or more of any Direct or class of equity securities of indirect the issuer; and to affiliates of payments to the issuer others Total Underwriting discounts and commissions $3,360,658 $8,654,218 $12,014,876 Other expenses - 5,941,257 5,941,257 ----------------- ----------------- ------------------ Total expenses $3,360,658 $14,595,475 $17,956,133 ================= ================= ================== (9) Net offering proceeds to the issuer after the total expenses in item 8: $108,516,247 (10) The amount of net offering proceeds to the issuer used for each of the purposes listed below: Direct or indirect payments to directors, officers, general partners of the issuer or their associates; to persons owning ten percent or more of any Direct or class of equity securities of indirect the issuer; and to affiliates of payments to the issuer others Total Purchase and installation of machinery and equipment $ - $107,883,885 $107,883,885 Working capital - 632,362 632,362 ----------------- ----------------- ------------------ $ - $108,516,247 $108,516,247 ================= ================= ================== (11) The use of the proceeds in Item 10 does not represent a material change in the uses of proceeds described in the prospectus.
Item 6. Exhibits And Reports On Form 8-K. (a) Documents filed as a part of this report 1. Financial Statements Included in Part I of this report: Balance Sheets, September 30, 1998 and December 31, 1997. Statement of changes in partners' capital for the nine months ended September 30, 1998. Statements of operations for the nine and three month periods ended September 30, 1998 and 1997. Statement of cash flows for the nine and three month periods ended September 30, 1998 and 1997. Notes to the Financial Statements. 2. Financial Statement Schedules All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (b) Report on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 10, 1998 ATEL CAPITAL EQUIPMENT FUND VII, L.P. (Registrant) By: ATEL Financial Corporation General Partner of Registrant By: /s/ A. J. BATT ----------------------------------- A. J. Batt President and Chief Executive Officer of General Partner By: /s/ DEAN L. CASH ----------------------------------- Dean L. Cash Executive Vice President of General Partner By: /s/ F. RANDALL BIGONY ------------------------------------- F. Randall Bigony Principal financial officer of registrant By: /s/ DONALD E. CARPENTER ------------------------------------- Donald E. Carpenter Principal accounting officer of registrant EX-27 2 FDS --
5 9-MOS Dec-31-1998 Sep-30-1998 2,135,476 0 3,105,516 0 0 0 0 0 171,382,177 0 0 0 0 0 101,857,853 171,382,177 0 23,393,288 0 0 16,294,244 56,954 3,127,366 3,914,724 0 3,914,724 0 0 0 3,914,724 0 0
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