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, 2001
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission File Number 0-24175
ATEL Capital Equipment Fund VII, L.P.
(Exact name of registrant as specified in its charter)
California 94-3248318
- ---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X|
No |_|
DOCUMENTS INCORPORATED BY REFERENCE
None
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
2
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(Unaudited)
ASSETS
2001 2000
---- ----
Cash and cash equivalents $ 1,743,191 $ 1,321,417
Accounts receivable 5,443,540 6,222,311
Other assets 60,014 90,011
Investments in leases 133,524,660 149,967,007
----------------- -----------------
Total assets $140,771,405 $157,600,746
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Long-term debt $ 41,655,000 $ 44,877,000
Non-recourse debt 10,733,951 15,452,741
Accounts payable:
General Partner 312,397 605,684
Other 1,649,845 703,761
Accrued interest payable 233,202 533,858
Unearned operating lease income 1,196,709 1,264,094
----------------- -----------------
Total liabilities 55,781,104 63,437,138
Partners' capital:
General Partner (1,514,601) (1,514,601)
Limited Partners 86,504,902 95,678,209
----------------- -----------------
Total partners' capital 84,990,301 94,163,608
----------------- -----------------
Total liabilities and partners' capital $140,771,405 $157,600,746
================= =================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
INCOME STATEMENTS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2001 AND 2000
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
Revenues: 2001 2000 2001 2000
---- ---- ---- ----
Leasing activities:
Operating leases $ 24,013,337 $28,720,782 $ 7,679,508 $ 7,928,336
Direct financing 808,507 1,108,390 264,830 498,323
Leveraged leases - 195,693 - -
Gain on sales of assets (444,808) 1,552,711 (93,768) 1,302,399
Interest 47,234 91,129 10,464 54,191
Other 9,614 58,164 4,447 21,167
------------------ ------------------ ----------------- -----------------
24,433,884 31,726,869 7,865,481 9,804,416
Expenses:
Depreciation 15,399,088 19,496,912 4,627,209 6,244,786
Interest expense 3,128,713 4,126,058 969,202 1,299,542
Equipment and incentive management fees to
General Partner 943,372 1,364,126 254,201 485,338
Other 462,489 360,290 122,274 140,093
Cost reimbursements to General Partner 895,938 477,104 403,395 172,499
Professional fees 141,573 86,617 37,664 9,673
Railcar maintenance 563,293 368,368 138,102 137,891
------------------ ------------------ ----------------- -----------------
21,534,466 26,279,475 6,552,047 8,489,822
------------------ ------------------ ----------------- -----------------
Income before extraordinary item 2,899,418 5,447,394 1,313,434 1,314,594
Extraordinary gain on early extinguishment of
debt - 2,056,574 - 2,056,574
------------------ ------------------ ----------------- -----------------
Net income $ 2,899,418 $ 7,503,968 $ 1,313,434 $ 3,371,168
================== ================== ====================================
Net income:
General Partner $ 822,985 $ 2,899,418 $ 304,021 $ 2,294,773
Limited Partners 2,076,433 4,604,550 1,009,413 1,076,395
------------------ ------------------ ----------------- -----------------
$ 2,899,418 $ 7,503,968 $ 1,313,434 $ 3,371,168
================== ================== ================= =================
Income before extraordinary item per limited
partnership unit $ 0.14 $ 0.22 $ 0.07 $ 0.03
Extraordinary gain on early extinguishment of
debt per limited partnership unit - 0.09 - 0.04
------------------ ------------------ ----------------- -----------------
Net income per limited partnership unit $ 0.14 $ 0.31 $ 0.07 $ 0.07
================== ================== ================= =================
Weighted average number of Units outstanding 14,996,050 14,996,050 14,996,050 14,996,050
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2001
(Unaudited)
Limited Partners General
Units Amount Partner Total
Balance December 31, 2000 6,716,896 $95,678,209 $(1,514,601) $ 94,163,608
Distributions to partners (11,249,740) (822,985) (12,072,725)
Net income 2,076,433 822,985 2,899,418
------------------ ------------------ ----------------- -----------------
Balance September 30, 2001 6,716,896 $86,504,902 $(1,514,601) $ 84,990,301
================== ================== ================= =================
See accompanying notes.
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2001 AND 2000
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
Operating activities: 2001 2000 2001 2000
---- ---- ---- ----
Net income $ 2,899,418 $ 7,503,968 $ 1,313,434 $ 3,371,168
Adjustments to reconcile net income to
cash provided by operating activities:
Leveraged lease income - (195,693) - -
Depreciation 15,399,088 19,496,912 4,627,209 6,244,786
Gain on sales of assets 444,808 (1,552,711) 93,768 (1,302,399)
Extraordinary gain on early extinguishment of
debt - (2,056,574) - (2,056,574)
Changes in operating assets and liabilities:
Accounts receivable 778,771 (1,148,351) (685,685) 637,815
Other assets 29,997 29,997 9,999 9,999
Accounts payable, General Partner (293,287) (714,955) (471,314) (79,235)
Accounts payable, other 946,084 429,168 1,088,625 (414,342)
Accrued interest expense (300,656) (386,541) (90,529) (103,274)
Unearned lease income (67,385) 240,210 269,599 349,761
------------------ ------------------ ----------------- -----------------
Net cash provided by operations 19,836,838 21,645,430 6,155,106 6,657,705
------------------ ------------------ ----------------- -----------------
Investing activities:
Proceeds from sales of assets 1,483,557 9,538,556 661,693 5,170,197
Reduction in net investment in direct financing leases 1,574,719 4,254,167 219,377 1,668,053
Purchases of equipment on operating leases (1,950,111) - - -
Payment of initial direct costs to General Partner (16,726) - - -
Purchases of equipment on direct financing leases (492,988) - - -
------------------ ------------------ ----------------- -----------------
Net cash provided by investing activities 598,451 13,792,723 881,070 6,838,250
------------------ ------------------ ----------------- -----------------
5
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
(Continued)
SEPTEMBER 30, 2001 AND 2000
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Financing activities:
Distributions to partners (12,072,725) (12,259,594) (4,053,615) (4,156,898)
Borrowings under line of credit 8,500,000 450,000 3,000,000 450,000
Repayments of borrowings under line of credit (8,500,000) (11,600,000) (6,500,000) (2,500,000)
Proceeds of long-term debt 8,000,000 11,700,000 6,000,000 -
Repayments of long-term debt (11,222,000) (16,177,000) (3,108,000) (4,370,000)
Proceeds of non-recourse debt - - -
Repayments of non-recourse debt (4,718,790) (4,142,094) (1,511,753) (1,024,137)
------------------ ------------------ ----------------- -----------------
Net cash used in financing activities (20,013,515) (32,028,688) (6,173,368) (11,601,035)
------------------ ------------------ ----------------- -----------------
Net increase in cash and cash equivalents 421,774 3,409,465 862,808 1,894,920
Cash and cash equivalents at beginning of
period 1,321,417 1,674,372 880,383 3,188,917
------------------ ------------------ ----------------- -----------------
Cash and cash equivalents at end of period $ 1,743,191 $ 5,083,837 $ 1,743,191 $ 5,083,837
================== ================== ================= =================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 3,429,369 $ 4,512,599 $ 1,059,731 $ 1,402,816
================== ================== ================= =================
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(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 September 30,
2000 Additions of Leases Dispositions 2001
---- --------- --------- ------------ ----
Net investment in operating
leases $ 131,717,168 $ 1,950,111 $ (15,253,981) $(2,977,697) $115,435,601
Net investment in direct
financing leases 17,087,466 492,988 (1,574,719) (324,996) 15,680,739
Assets held for sale or lease 1,233,078 - - 1,374,328 2,607,406
Reserve for losses (504,227) - - - (504,227)
Initial direct costs, net of
accumulated amortization 433,522 16,726 (145,107) - 305,141
-------------------- ------------------ ------------------ ----------------- -----------------
$ 149,967,007 $ 2,459,825 $ (16,973,807) $ (1,928,365) $133,524,660
==================== ================== ================== ================= =================
7
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
Balance Balance
December 31, Acquisitions, Dispositions & Reclassifications September 30,
----------------------------------------------
2000 1st Quarter 2nd Quarter 3rd Quarter 2001
---- ----------- ----------- ----------- ----
Transportation $ 101,664,857 $ (5,900,528) $ 528,590 $ 21,499 $ 96,314,418
Marine vessels/barges 27,276,479 (628,843) 382,500 - 27,030,136
Construction 23,002,563 - - - 23,002,563
Manufacturing 11,801,318 (624,620) (330,230) - 10,846,468
Mining 8,536,249 476,716 (3,371,693) 3,371,693 9,012,965
Office automation 9,880,540 (1,604,082) 2,080,798 (4,326,973) 6,030,283
Other 5,108,831 - - 552,451 5,661,282
Materials handling 5,559,474 954,955 (271,005) (683,950) 5,559,474
Communications 4,387,819 - - - 4,387,819
-------------------- ------------------ ------------------ ----------------- -----------------
197,218,130 (7,326,402) (981,040) (1,065,280) 187,845,408
Less accumulated depreciation (65,500,962) 399,606 (3,713,835) (3,594,616) (72,409,807)
-------------------- ------------------ ------------------ ----------------- -----------------
$ 131,717,168 $ (6,926,796) $ (4,694,875) $ (4,659,896) $115,435,601
==================== ================== ================== ================= =================
All of the property on leases was acquired in 1997, 1998, 1999 and 2001.
At September 30, 2001, the aggregate amounts of future minimum lease payments
are as follows:
Direct
Operating Financing
Leases Leases Total
------ ------ -----
Three months ending December 31, 2001 $ 5,365,687 $ 882,214 $ 6,247,901
Year ending December 31, 2002 21,330,703 2,722,151 24,052,854
2003 12,824,809 2,329,486 15,154,295
2004 8,444,660 2,263,895 10,708,555
2005 5,848,757 2,219,444 8,068,201
Thereafter 2,131,651 1,701,567 3,833,218
------------------ ----------------- -----------------
$ 55,946,267 $ 12,118,757 $ 68,065,024
================== ================= =================
8
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
4. Non-recourse debt:
Notes payable to financial institutions are due in varying monthly, quarterly
and semi-annual installments of principal and interest. The notes are secured by
assignments of lease payments and pledges of the assets which were purchased
with the proceeds of the particular notes. Interest rates on the notes vary from
7.4% to 8.828%.
Future minimum principal payments of non-recourse debt are as follows:
Principal Interest Total
--------- -------- -----
Three months ending December 31, 2001 $ 762,728 $ 118,050 $ 880,778
Year ending December 31, 2002 5,757,071 799,843 6,556,914
2003 3,261,508 288,853 3,550,361
2004 298,403 69,364 367,767
2005 322,838 42,927 365,765
Thereafter 331,403 25,597 357,000
------------------ ----------------- -----------------
$ 10,733,951 $ 1,344,634 $ 12,078,585
================== ================= =================
5. Long-term debt:
In 1998, the Partnership entered into a $65 million receivables funding program
(the Program) with a receivables financing company that issues commercial paper
rated A1 by Standard and Poors and P1 by Moody's Investor Services. Under the
Program, the receivables financing company receives a general lien against all
of the otherwise unencumbered assets of the Partnership. The Program provides
for borrowing at a variable interest rate (6.3810% at September 30, 2001).
The Program requires the General Partner to enter into various interest rate
swaps with a financial institution (also rated A1/P1) to manage interest rate
exposure associated with variable rate obligations under the Program by
effectively converting the variable rate debt to fixed rates. As of September
30, 2001, the Partnership receives or pays interest on a notional principal of
$41,655,000, based on the difference between nominal rates ranging from 4.36% 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.
9
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
5. Long-term debt (continued):
Through hedge agreements, the interest rates have been effectively fixed.
Borrowings under this facility are as follows:
Original Balance Rate on
Date Amount September 30, Interest Swap
Borrowed Borrowed 2001 Agreement
-------- -------- ---- ---------
4/1/1998 $ 21,770,000 $ 5,651,000 6.22000%
7/1/1998 25,000,000 6,084,000 6.15500%
10/1/1998 20,000,000 9,790,000 5.55000%
4/16/1999 9,000,000 3,389,000 5.89000%
1/26/2000 11,700,000 8,863,000 7.58000%
5/25/2001 2,000,000 1,878,000 5.79000%
9/28/2001 6,000,000 6,000,000 4.36000%
-------------------- ------------------
$ 95,470,000 $ 41,655,000
==================== ==================
Future minimum principal payments of long-term debt are as follows:
Principal Interest Total
--------- -------- -----
Three months ending December 31, 2001 $ 3,115,000 $ 616,317 $ 3,731,317
Year ending December 31, 2002 12,860,000 1,954,451 14,814,451
2003 8,903,000 1,310,600 10,213,600
2004 7,186,000 830,105 8,016,105
2005 5,766,000 438,770 6,204,770
Thereafter 3,825,000 341,453 4,166,453
------------------ ----------------- -----------------
$ 41,655,000 $ 5,491,696 $ 47,146,696
================== ================= =================
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.
10
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
6. Related party transactions (continued):
Substantially all employees of the General Partner record time incurred in
performing administrative services on behalf of all of the Partnerships serviced
by the General Partner. The General Partner believes that the costs reimbursed
are the lower of actual costs incurred on behalf of the Partnership or the
amount the Partnership would be required to pay independent parties for
comparable administrative services in the same geographic location and are
reimbursable in accordance with the Limited Partnership Agreement.
The General Partner and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Partnership Agreement as follows:
2001 2000
---- ----
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). $ 943,372 $1,364,126
Cost reimbursements to General Partner 895,938 477,104
----------------- -----------------
$ 1,839,310 $ 1,841,230
================= =================
7. Partner's capital:
As of September 30, 2001, 14,996,050 Units ($149,960,050) were issued and
outstanding. 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:
11
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
7. Partner's capital (continued):
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.
8. Line of credit:
The Partnership participates with the General Partner and certain of its
Affiliates in a $62,000,000 revolving credit agreement with a group of financial
institutions which expires on April 12, 2002. 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, 2001, the Partnership had no borrowings under the line of
credit.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was incompliance with its covenants as of September
30, 2001.
9. Commitments:
As of September 30, 2001, the Company had no outstanding commitments to purchase
lease equipment.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first three quarters of 2001 and 2000, our primary activity was
engaging in equipment leasing activities.
Our liquidity 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, we have contractual obligations with a
diversified group of lessees for fixed lease terms at fixed rental amounts. As
the initial lease terms expire we will re-lease or sell the equipment. The
future liquidity beyond the contractual minimum rentals will depend on our
success in re-leasing or selling the equipment as it comes off lease.
We participate with the General Partner and certain of its affiliates in a
$62,000,000 revolving line of credit with a group of financial institutions. The
line of credit expires on April 12, 2002.
We anticipate reinvesting a portion of lease payments from assets owned in new
leasing transactions. These reinvestments 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.
We currently have available adequate reserves to meet contingencies, but in the
event those reserves were found to be inadequate, we would likely be in a
position to borrow against its current portfolio to meet such requirements. We
envision no such requirements for operating purposes.
We do not expect to make commitments of capital other than for the acquisition
of additional equipment. As of September 30, 2001, we had made none of these
commitments.
If inflation in the general economy becomes significant, it may affect us in
that the residual (resale) values and rates on re-leases of our leased assets
may increase as the costs of similar assets increase. However, our 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 we 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. Our leases already in
place, for the most part, would not be affected by changes in interest rates.
During 2001 and 2000, our primary source of liquidity was rents from operating
leases.
In both 2001 and in 2000, our cash flows from operating activities came almost
entirely from operating lease rents for both the three and nine month periods.
Our sources of cash from investing activities consisted of proceeds from sales
of assets and direct financing lease rents. Rents from direct financing leases
decreased compared to 2000 as a result of asset sales over the last year. We do
not expect that the amounts of proceeds from sales of assets will be consistent
from one period to another. In 2001, we used cash in investing activities to
purchase assets on operating and direct financing leases and to pay initial
direct costs to the Managing Member.
13
In 2000, borrowings on the line of credit and proceeds of long-term debt were
our only sources of cash from financing sources. In 2001, our sources of cash
from financing activities consisted of borrowings on the line of credit and
proceeds of long-term debt.
The amounts we distributed to our partners have not changed significantly
compared to 2000. The amounts of cash we used to repay non-recourse debt
decreased for the nine month period and the three month period as a result of
scheduled debt payments we have made.
Results of operations
In 2001, our operations resulted in a net income of $2,899,418 (nine months) and
$1,313,434 (three months). Our operations in 2000 resulted in a net income of
$7,503,968 (nine months) and $3,371,009 (three months). Our primary source of
revenues is from operating leases. These lease revenues and the related
depreciation expenses have decreased compared to 2000 as a result of asset sales
over the last year. Equipment management fees are based on our rental revenues
and have decreased due to decreases in our revenues from leases. Incentive
management fees are based on the levels of distributions of cash from operations
to limited partners. Our lease revenues and distributions of operating cash
flows decreased compared to 2000, and as a result, management fees also
decreased. Interest expense has decreased as a result of the scheduled debt
payments we have made over the last year.
In December 1999, one of our lessees (Applied Magnetics) defaulted on its leases
and sought protection under the Bankruptcy Act. As a result, we established
reserves related to those assets which had been leased to Applied Magnetics as
of December 31, 1999. During the third quarter of 2000, we sold most of the
lease assets at auction and the non-recourse debt which had been used to finance
a significant portion of the assets was extinguished. This resulted in an
extraordinary gain.
PART II. OTHER INFORMATION
Item 1. 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 Debtor filed a plan of reorganization, granting stock and warrants to a
newly reorganized debtor, which was voted upon and approved by the creditors in
October 2001 and confirmed by the Court in November 2001. The plan calls for the
Debtor to change its name to "Integrated Micro-Technology" and enter into a new
line of business, in the manufacture and production of "micro-machines". The
success of this new business plan is highly uncertain.
The Partnership anticipates additional amounts may be recoverable through its
equity interests in the reorganized lessee's business, however, any recoveries
above the amounts received upon liquidation of the Partnership's equipment are
highly uncertain and speculative.
14
Item 2. Changes In Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits And Reports On Form 8-K.
(a)Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, September 30, 2001 and December 31, 2000.
Statements of operations for the nine and three month
periods ended September 30, 2001 and 2000.
Statement of changes in partners' capital for the nine
months ended September 30, 2001.
Statement of cash flows for the nine and three month periods
ended September 30, 2001 and 2000.
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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
November 12, 2001
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
(Registrant)
By: ATEL Financial Corporation
General Partner of Registrant
By: /s/ DEAN L. CASH
-------------------------------------
Dean L. Cash
President and Chief Executive Officer
of General Partner
By: /s/ PARITOSH K. CHOKSI
-------------------------------------
Paritosh K. Choksi
Executive Vice President of
Managing Member and Principal
financial officer of registrant
By: /s/ DONALD E. CARPENTER
---------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant
16