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, 2000, 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, 2000, the Partnership had purchased equipment with a total acquisition price of $289,421,680.
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 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.
During 2000, no single lessee generated more than 10% of the Partnership's lease revenues. During 1999 and 1998 certain lessees generated significant portions of the Partnership's total lease revenues as follows:
Lessee Type of Equipment 1999 1998 ------ ----------------- ---- ---- Burlington Northern Santa Locomotives & intermodal 10% 17% Fe Railroad Company containers NYK Lines Intermodal containers * 10% * 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, 2000, 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 $15,089,798 $ 6,323,632 $ 8,851,236 Transportation 6,923,021 4,363,914 5,093,337 Aircraft 3,764,124 4,330,088 1,814,760 Other 1,808,916 311,239 1,041,063 Office automation 1,677,828 374,321 1,249,542 Food processing 1,612,852 1,243,592 980,308 Furniture and fixtures 1,350,493 765,340 1,068,345 Mining 816,729 888,685 173,808 Materials handling 481,128 17,595 610,889 ---------------- ----------------- ---------------- $33,524,889 $ 18,618,406 $ 20,883,288 ================ ================= ================
* Includes only those expenses directly related to the production of the related rents.
The Partnership has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries. The following tables set forth the types of equipment acquired by the Partnership through December 31, 2000 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 29.83% Manufacturing 45,427,770 15.70% Mining 30,756,101 10.63% Transportation, other 26,723,940 9.23% Transportation, intermodal containers 26,631,519 9.20% Marine vessels 22,335,250 7.72% Motor Vehicles 12,437,158 4.30% Office automation 11,449,934 3.96% Medical 9,133,951 3.16% Aircraft 6,310,979 2.18% Materials handling 6,840,192 2.36% Railroad locomotives 5,010,960 1.73% Other * 22,035,517 7.61% ---------------- ---------------- $ 289,421,680 100.00% ================ ================
Purchase Price Excluding Percentage of Total Industry of Lessee Acquisition Fees Acquisitions ------------------ ---------------- ------------ Transportation, rail $ 73,779,368 34.97% Municipalities 45,050,058 15.57% Transportation, other 43,079,361 14.88% Manufacturing, other 30,086,803 10.40% Electronics 24,418,734 8.44% Mining 17,194,252 5.94% Business services 15,093,493 5.22% Primary metals 13,251,254 4.58% Other * 27,468,357 9.49% ---------------- ---------------- $ 289,421,680 100.00% ================ ================
* 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, 2000, see Note 3 to the financial statements, Investments in equipment and leases, set forth in Item 8, Financial Statements and Supplementary Data.
Item 2.
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or materially important physical properties other than the equipment held for lease as set forth in Item 1.
Item 3.
Item 3. LEGAL PROCEEDINGS
No material legal proceedings are currently pending against the Partnership or against any of its assets. The following is a discussion of legal matters involving the Partnership but which do not represent claims against the Partnership or its assets.
In January 2000, Applied Magnetics Corporation filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The Partnership has assets with a total net book value of $8,048,095 leased to Applied Magnetics Corporation. On January 31, 2000, the General Partner was appointed to the Official Committee of Unsecured Creditors and currently serves as the Chairperson of the Committee. Procedures were quickly undertaken for the liquidation of the Partnership's leased equipment, which proceeds resulted in recoveries of $1,773,798 or 21.7% of original equipment cost. As of November 1, 2000, liquidation of the assets was completed.
The Partnership anticipates additional amounts may be recoverable through the reorganization of the lessee's business, however, any recoveries above the amounts received upon liquidation of the Partnership's equipment are highly uncertain and speculative.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5.
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, 2000, a total of 5,665 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 has 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 2000 operations was $0.0833 per Unit. The distributions were made in February 2000 through December 2000 and in January 2001. For each quarterly distribution (made in April, July and October 2000 and in January 2001) the rate was $0.25 per Unit. Distributions were from 2000 cash flows from operations.
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.
The following table presents summarized information regarding distributions to Limited Partners:
2000 1999 1998 1997 ---- ---- ---- ---- Distributions of net income (loss) $ 0.53 $ (0.17) $ 0.46 $ (0.20) Return of investment 0.48 1.17 0.45 0.99 --------- -------- -------- -------- Distributions per Unit 1.01 1.00 0.91 0.79 Differences due to timing of distributions (0.01) 0.00 0.09 0.21 --------- -------- -------- -------- Nominal distribution rates from above $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========= ======== ======== ========
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership at December 31, 2000, 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.
Item 7.
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 $77,500,000 revolving line of credit with a financial institution that includes certain financial covenants. The line of credit expires on July 28, 2001. As of December 31, 2000, the Partnership had no borrowings under this line of credit and the remaining availability was $39,969,040.
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, 2000, there were no commitments to purchase lease assets.
As of December 31, 2000, all cash balances consisted of amounts reserved for distributions in January 2001, generated from operations in 2000.
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 provided for borrowing at a variable interest rate and required 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 anticipated that this program would 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.
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
2000 vs. 1999:
Cash flows from operations decreased from $29,817,476 in 1999 to $28,382,888 in 2000, and decrease of $1,434,588. Rents from operating leases is the primary source of operating cash flows. Purchases of operating lease assets in 1999 led to the slight increase in operating lease revenues compared to 1999.
In 2000, sources of cash from investing activities consisted of proceeds from the sales of lease assets and from rents from direct financing leases. Proceeds from the sales of lease assets increased from $2,469,199 in 1999 to $10,439,849 in 2000, an increase of $7,970,650. Rents from direct financing leases decreased by $851,900 as a result of sales of lease assets in 1999 and 2000.
In 2000, financing sources of cash consisted of proceeds of long-term debt, proceeds of non-recourse debt and borrowings on the line of credit. The proceeds of long-term debt were used to repay the line of credit. The additional non-recourse debt was assumed as a part of the acquisition of leased assets in 2000.
Cash used for distributions to partners did not change significantly. Non-recourse debt payments increased as a result of the early repayment of the debt associated with the leases to Applied Magnetics.
Cash used to repay long-term debt decreased as a result scheduled payments, net of the effect of the additional borrowings in 2000. Overall, average balances were lower in 2000 than in 1999.
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.
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.
2000 vs. 1999:
Operations resulted in net income of $9,158,705 compared to a loss of $2,159,370 in 1999.
Revenues from leases increased from $38,780,392 in 1999 to $38,849,507 in 2000, an increase of $69,115. Increases resulting from asset purchases in 1999 and in 2000 were offset by the effects of assets sales. Gains on sales of assets increased from $784,853 in 1999 to $2,381,787 in 2000, an increase of $1,596,934. Such gains (and losses) are not expected to be consistent from one period to another.
Depreciation expense increased slightly (less than 2%) compared to 1999 as a result of asset acquisitions in 1999.
Interest expense declined as a result schedule debt payments and the early extinguishment of the Applied Magnetics debt. These repayments and extinguishments exceeded the amounts of new borrowings in 2000. Total debt, including the line of credit, decreased from $86,111,420 at December 31, 1999 to $60,329,741 at December 31, 2000.
In 2000, there were no new major lease defaults similar to the Applied Magnetics default in 1999. Consequently, there were no new provisions for losses or doubtful accounts in 2000.
The Partnership recognized an extraordinary gain on the early extinguishment of debt of $2,056,574. This was related to the non-recourse debt on the Applied Magnetics leases which was extinguished upon foreclosure by the lender in 2000.
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 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 did not expect to recover any of the uncollected rentals outstanding under the leases. The Partnership wrote 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 accounts receivable.
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.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, which established new accounting and reporting standards for derivative instruments. SFAS No. 133 has been amended by SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Partnership to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair value of the derivative instruments. Upon adoption, the Partnership will be required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate.
The Partnership will adopt SFAS No. 133, as amended, on January 1, 2001. The General Partner believes that the adoption of SFAS No. 133, will not have a material effect on the Partnership's results of operations or financial position.
Item 7a.
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, 2000, there was no outstanding balance 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, 2000, borrowings on the facility were $44,877,000 and the associated variable rate was 6.7527%. The average fixed rate achieved with the swap agreements was 6.31%.
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, 2000, a hypothetical 1.00% increase or decrease in market interest rates, would increase or decrease the Partnership's 2001 variable interest expense by approximately $378,000.
Item 8.
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.
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, 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, 2000, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California February 5, 2001
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999 ---- ---- Cash and cash equivalents $ 1,321,417 $ 1,674,372
Accounts receivable, net of allowance for doubtful accounts of $724,906 in 1999, none in 2000 6,222,311 5,626,105
Other assets 90,011 130,007
Investments in equipment and leases 149,967,007 183,993,816 ---------------- ----------------- Total assets $ 157,600,746 $191,424,300 ================ =================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $ 15,452,741 $ 21,780,420 Other long-term debt 44,877,000 53,181,000
Line of credit - 11,150,000
Accounts payable and accruals: General Partner 605,684 1,435,651 Other 703,761 425,896
Accrued interest payable 533,858 714,697
Unearned lease income 1,264,094 1,422,852 ---------------- ----------------- 63,437,138 90,110,516
Partners' capital (deficit): General Partner (1,514,601) (1,514,601) Limited Partners 95,678,209 102,828,385 ---------------- ----------------- Total partners' capital 94,163,608 101,313,784 ---------------- ----------------- Total liabilities and partners' capital $ 157,600,746 $191,424,300 ================ =================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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, 2000, the original terms of the leases ranged from eighteen 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 lives of the related leases.
Direct financing leases:
Income from direct financing lease transactions is reported using 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.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
2. Summary of significant accounting policies (continued):
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents include 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):
2000 1999 ---- ---- Financial statement basis of net assets $ 94,163,608 $ 101,313,784 Tax basis of net assets 28,061,745 54,867,781 ----------------- ---------------- Difference $ 66,101,863 $ 46,446,003 ================= ================
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):
Per unit data:
Net income and distributions per unit are based upon the weighted average number of units outstanding during the period.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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, 2000, 1999 and 1998.
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.
Recent Accounting Pronouncement:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, which established new accounting and reporting standards for derivative instruments. SFAS No. 133 has been amended by SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Partnership to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair value of the derivative instruments. Upon adoption, the Partnership will be required to adjust hedging instruments to fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate.
The Partnership will adopt SFAS No. 133, as amended, on January 1, 2001. The Partnership enters into interest rate swaps (see Note 5). The General Partner believes that the adoption of SFAS No. 133, will not have a material effect on the Partnership's results of operations or financial position.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
3. Investments in equipment and leases:
The Partnership's investments in equipment and leases consist of the following:
Operating leases:
Property on operating lease consists of the following:
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
3. Investments in equipment and leases (continued):
Direct financing leases:
As of December 31, 2000, 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, 2000 and 1999:
2000 1999 ---- ---- Total minimum lease payments receivable $ 14,005,112 $ 20,333,222 Estimated residual values of leased equipment (unguaranteed) 8,443,602 8,775,528 ----------------- ---------------- Investment in direct financing leases 22,448,714 29,108,750 Less unearned income (5,361,248) (6,720,123) ----------------- ---------------- Net investment in direct financing leases $ 17,087,466 $ 22,388,627 ================= ================
All of the property on leases was acquired in the years 1997 through 2000.
At December 31, 2000, 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 ------------ ------ ------ ----- 2001 $27,245,706 $ 3,235,027 $ 30,480,733 2002 20,002,060 2,613,437 22,615,497 2003 12,297,414 2,252,772 14,550,186 2004 7,995,002 2,203,182 10,198,184 2005 5,513,217 2,158,731 7,671,948 Thereafter 2,069,750 1,541,963 3,611,713 ---------------- ---------------- ----------------- $75,123,149 $ 14,005,112 $ 89,128,261 ================ ================ =================
Leveraged leases:
As of December 31, 1999, investment in leveraged leases consists of railroad box cars. There were no leveraged leases as of December 31, 2000. The following lists the components of the Partnership's investment in leveraged leases as of December 31, 1999:
Aggregate rentals receivable $ 1,291,272 Less aggregate principal and interest payable on non-recourse loans (1,083,503) Estimated residual value of leased assets 1,672,855 Less unearned income (156,553) ------------- Net investment in leveraged leases $ 1,724,071 =============
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
3. Investments in equipment and leases (continued):
Reserves for losses and impairments:
Activity in the reserve for losses and impairments consists of the following:
Balance December 31, 1997 $ 74,277 Provision 56,955 ---------------- Balance December 31, 1998 131,232 Provision 6,054,134 ---------------- Balance December 31, 1999 6,185,366 Charge offs (5,681,139) ---------------- Balance December 31, 2000 $ 504,227 ================
At December 31, 2000, there were no commitments to purchase lease assets.
4. Non-recourse debt:
At December 31, 2000, 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, 2000, the carrying value of the pledged assets is $31,318,509. The notes mature from 2001 through 2008.
Future minimum payments of non-recourse debt are as follows:
Year ending December 31, Principal Interest Total 2001 $ 5,476,816 $ 1,339,144 $ 6,815,960 2002 5,761,771 813,843 6,575,614 2003 3,261,508 288,853 3,550,361 2004 298,403 67,364 365,767 2005 322,838 42,927 365,765 Thereafter 331,405 25,597 357,002 ---------------- ---------------- ----------------- $15,452,741 $ 2,577,728 $ 18,030,469 ================ ================ =================
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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 (6.7527% at December 31, 2000).
The Program requires the General Partner to enter into various interest rate swaps with a financial institution (also rated A1/P1) to manage interest rate exposure associated with variable rate obligations under the Program by effectively converting the variable rate debt to fixed rates. As of December 31, 2000, the Partnership receives or pays interest on a notional principal of $44,877,000, based on the difference between nominal rates ranging from 5.55% to 7.58% and the variable rate under the Program. No actual borrowing or lending is involved. The last of the swaps terminates in 2008. The differential to be paid or received is accrued as interest rates change and is recognized currently as an adjustment to interest expense related to the debt.
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 2000 Agreement 2000 - ------------- -------- ---- --------- ---- 4/1/1998 $21,770,000 $ 9,323,000 6.220% 6.7527% 7/1/1998 25,000,000 9,307,000 6.155% 6.7527% 10/1/1998 20,000,000 11,974,000 5.550% 6.7527% 4/16/1999 9,000,000 4,092,000 5.890% 6.7527% 1/26/2000 11,700,000 10,181,000 7.580% 6.7527% --------------- --------------- $87,470,000 $ 44,877,000 =============== ===============
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 --------- -------- ----- 2001 $13,724,000 $ 2,410,467 $ 16,134,467 2002 11,131,000 1,640,179 12,771,179 2003 7,200,000 1,075,640 8,275,640 2004 5,422,000 676,854 6,098,854 2005 3,986,000 369,993 4,355,993 Thereafter 3,414,000 328,282 3,742,282 ---------------- ---------------- ----------------- $44,877,000 $ 6,501,415 $ 51,378,415 ================ ================ =================
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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.
The General Partner and/or Affiliates earned fees, commissions and reimbursements, pursuant to the Limited Partnership Agreement as follows during 2000, 1999 and 1998:
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 equipment 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.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
7. Partners' capital:
As of December 31, 2000, 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's Net Profits, Net Losses, and Tax Credits are to be allocated 92.5% to the Limited Partners and 7.5% to the General Partner.
Available Cash from Operations, as defined in the Limited Partnership Agreement, is to be distributed as follows:
First, Distributions of Cash from Operations are to 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, are to be distributed as follows:
First, Distributions of Sales or Refinancings are to 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.
Additional allocations of income were made to the General Partner in 1999 and 2000. 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.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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, 2000, 1999 and 1998 there were concentrations (greater than 10%) of equipment leased to lessees in certain industries (as a percentage of total equipment cost) as follows:
2000 1999 1998 ---- ---- ---- Transportation, rail 19% 19% 27% Municipalities 16% 15% 16% Transportation, other 12% * 16% Electronics * 12% * * Less than 10%
During 2000, no customers comprised in excess of 10% of the Partnership's revenues from leases. 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.
9. Line of credit:
The Partnership participates with the General Partner and certain of its Affiliates in a $77,500,000 revolving credit agreement with a group of financial institutions which expires on July 28, 2001. The agreement includes an acquisition facility and a warehouse facility which are used to provide bridge financing for assets on leases. Draws on the acquisition facility by any individual borrower are secured only by that borrower's assets, including equipment and related leases. Borrowings on the warehouse facility are recourse jointly to certain of the Affiliates, the Partnership and the General Partner.
The Partnership borrowed $450,000, $15,822,824 and $53,029,261 under the line of credit during 2000, 1999 and 1998, respectively. Repayments on the line of credit were $11,600,000, $16,454,331 and $1,638,014 during 2000, 1999 and 1998, respectively. There was no outstanding balance as of December 31, 2000. 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, 2000. At December 31, 2000, $39,969,040 was available under this agreement.
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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, 2000 is $15,783,034.
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, 2000 is $44,277,187.
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, 2000.
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 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 estimated that the proceeds from the future sales of those assets which were financed with non-recourse debt would not be sufficient to satisfy the non-recourse lender. The debt balance was $2,056,474 at December 31, 1999. As result, the Partnership fully reserved for those assets as of December 31, 1999. The portion of the assets not financed with non-recourse debt were 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 in 2000, the Partnership recognized an extraordinary gain on the extinguishment of the debt $2,056,474.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
Item 10.
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. The outstanding voting capital stock of ATEL Capital Group is owned 75% by A. J. Batt and 25% by Dean Cash.
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
A. J. Batt, age 64, 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 50, 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 47, 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 52, 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 42, 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.
Item 11.
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 its Affiliates. The amount of such remuneration paid in 2000, 1999 and 1998 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, is to be distributed as follows:
First, Distributions of Cash from Operations are to 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, are to be distributed as follows:
First, Distributions of Sales or Refinancings are to 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 is 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 2000, 1999 and 1998.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 2000, 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:
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 therefore of Limited Partners holding 10% or more of the total outstanding Limited Partnership units.
Item 13.
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.
PART IV
Item 14.
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, 2000 and 1999
Statements of Operations for the years ended December 31, 2000, 1999 and 1998
Statements of Changes in Partners' Capital for the years ended December 31, 2000, 1999 and 1998
Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998
Notes to Financial Statements
2. Financial Statement Schedules All 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) Reports on Form 8-K for the fourth quarter of 2000 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).
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: 3/23/2001
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)
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 and Chief Executive Officer of 3/23/2001 - -------------------------- ATEL Financial Corporation (General A. J. Batt Partner)
/s/ Dean Cash Executive Vice President of ATEL 3/23/2001 - -------------------------- Financial Corporation (General Partner) Dean Cash
/s/ Paritosh K. Choksi Principal financial officer of 3/23/2001 - -------------------------- registrant; principal financial officer Paritosh K. Choksi and director of ATEL Financial Corporation
/s/ Donald E. Carpenter Principal accounting officer of 3/23/2001 - -------------------------- 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.