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 June 30, 2002
|_| 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
JUNE 30, 2002 AND DECEMBER 31, 2001
(Unaudited)
ASSETS
2002 2001
---- ----
Cash and cash equivalents $ 1,523,154 $ 936,189
Accounts receivable, net of allowance for
doubtful accounts of $488,067 in 2002
and $118,067 in 2001 3,471,097 5,759,540
Other assets 30,017 108,015
Investments in leases 123,493,324 129,049,875
----------------- ------------------
Total assets $128,517,592 $ 135,853,619
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Long-term debt $40,529,000 $ 38,540,000
Non-recourse debt 7,027,922 9,971,225
Line of credit 7,000,000 4,100,000
Accounts payable:
General Partner 580,916
Other 1,071,273 510,598
Accrued interest payable 178,908 355,458
Interest rate swap contracts 698,178 1,323,006
Unearned operating lease income 816,435 976,565
----------------- ------------------
Total liabilities 57,321,716 56,357,768
Partners' capital 71,195,876 79,495,851
----------------- ------------------
Total partners' capital 71,195,876 79,495,851
----------------- ------------------
Total liabilities and partners' capital $128,517,592 $ 135,853,619
================= ==================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENT OF OPERATIONS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Leasing activities:
Operating leases $12,543,651 $16,333,829 $ 5,832,667 $ 8,040,945
Direct financing 768,332 543,677 364,652 264,834
Leveraged leases - - -
Loss on sales of assets (1,057,988) (351,040) (1,010,652) (270,078)
Interest 8,542 36,770 2,425 14,378
Other 90,059 5,167 87,948 2,593
----------------- ------------------ ----------------- ------------------
12,352,596 16,568,403 5,277,040 8,052,672
Expenses:
Depreciation and amortization 9,095,832 10,771,879 4,672,320 5,179,501
Interest expense 1,737,408 2,159,511 847,810 1,049,036
Equipment and incentive management fees to
General Partner 491,462 689,171 209,110 362,185
Provision for doubtful accounts 370,000 - 70,000 -
Cost reimbursements to General Partner 672,409 492,543 108,383 297,166
Railcar maintenance 347,462 425,191 194,252 188,344
Other 317,908 340,215 168,096 151,016
Professional fees 148,480 103,909 54,951 49,619
----------------- ------------------ ----------------- ------------------
13,180,961 14,982,419 6,324,922 7,276,867
----------------- ------------------ ----------------- ------------------
Net (loss) income $ (828,365) $ 1,585,984 $(1,047,882) $ 775,805
================= ================== ================= ==================
Net (loss) income:
General Partner $ 596,584 $ 518,964 $ 300,277 $ 303,981
Limited Partners (1,424,949) 1,067,020 (1,348,159) 471,824
----------------- ------------------ ----------------- ------------------
$ (828,365) $ 1,585,984 $(1,047,882) $ 775,805
================= ================== ================= ==================
Net (loss) income per Limited Partnership Unit ($0.10) $0.07 ($0.09) $0.03
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
SIX MONTH PERIOD ENDED
JUNE 30, 2002
(Unaudited)
Accumulated
Other
Comprehensive
Limited Partners General Income
----------------
Units Amount Partner (Loss) Total
Balance December 31, 2001 14,996,050 $80,818,857 $ - $(1,323,006) $ 79,495,851
Unrealized decrease in value of
interest rate swap contracts - - 624,828 624,828
Distributions to partners (7,499,854) (596,584) (8,096,438)
Net (loss) income (1,424,949) 596,584 - (828,365)
------------------- ----------------- ------------------ ----------------- ------------------
Balance June 30, 2002 14,996,050 $71,894,054 $ - $ (698,178) $ 71,195,876
=================== ================= ================== ================= ==================
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
-------------- --------------
Operating activities: 2002 2001 2002 2001
---- ---- ---- ----
Net (loss) income $ (828,365) $ 1,585,984 $(1,047,882) $ 775,805
Adjustments to reconcile net (loss) income to
cash provided by operating activities:
Depreciation 9,095,832 10,771,879 4,672,320 5,179,501
Loss on sales of assets 1,057,988 351,040 1,010,652 270,078
Provision for doubtful accounts 370,000 - 70,000 -
Changes in operating assets and liabilities:
Accounts receivable 1,918,443 1,464,456 580,491 115,429
Other assets 77,998 19,998 9,999 9,999
Accounts payable, General Partner (580,916) 178,027 (287,088) 508,731
Accounts payable, other 560,675 (142,541) 303,897 47,104
Accrued interest expense (176,550) (210,127) (105,079) (140,400)
Unearned lease income (160,130) (336,984) (204,262) (293,713)
----------------- ------------------ ----------------- ------------------
Net cash provided by operations 11,334,975 13,681,732 5,003,048 6,472,534
----------------- ------------------ ----------------- ------------------
Investing activities:
Purchases of equipment on operating leases (3,959,522) (1,950,111) - -
Reduction in net investment in direct financing
leases 1,597,356 1,355,342 787,491 889,208
Proceeds from sales of assets 925,430 821,864 684,549 374,513
Purchases of equipment on direct financing
leases (3,052,572) (492,988) 6,568 (41,066)
Payment of initial direct costs to General Partner (107,961) (16,726) - -
----------------- ------------------ ----------------- ------------------
Net cash (used in) provided by investing
activities (4,597,269) (282,619) 1,478,608 1,222,655
----------------- ------------------ ----------------- ------------------
Financing activities:
Distributions to partners (8,096,438) (8,019,110) (4,050,183) (4,054,171)
Repayments of long-term debt (8,111,000) (8,114,000) (3,515,000) (3,174,000)
Proceeds of long-term debt 10,100,000 2,000,000 - 2,000,000
Borrowings under line of credit 13,200,000 5,500,000 3,500,000 1,000,000
Repayments of borrowings under line of credit (10,300,000) (2,000,000) (500,000) (2,000,000)
Repayments of non-recourse debt (2,943,303) (3,207,037) (1,186,766) (1,645,135)
----------------- ------------------ ----------------- ------------------
Net cash used in financing activities (6,150,741) (13,840,147) (5,751,949) (7,873,306)
----------------- ------------------ ----------------- ------------------
Net increase (decrease) in cash and cash
equivalents 586,965 (441,034) 729,707 (178,117)
Cash and cash equivalents at beginning of
period 936,189 1,321,417 793,447 1,058,500
----------------- ------------------ ----------------- ------------------
Cash and cash equivalents at end of period $ 1,523,154 $ 880,383 $ 1,523,154 $ 880,383
================= ================== ================= ==================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 1,913,958 $ 2,369,638 $ 952,889 $ 1,189,436
================= ================== ================= ==================
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(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.
The Partnership does not make a provision for income taxes since all income and
losses will be allocated to the Partners for inclusion in their individual tax
returns.
3. Investment in leases:
The Partnership's investment in leases consists of the following:
Depreciation
Balance Expense or Reclassi- Balance
December 31, Amortization fications or June 30,
2001 Additions of Leases Dispositions 2002
---- --------- --------- - ------------- ----
Net investment in operating
leases $101,066,589 $ 3,959,522 $ (8,986,718) $ (537,720) $ 95,501,673
Net investment in direct
financing leases 18,931,921 3,052,572 (1,597,356) (1,283,606) 19,103,531
Assets held for sale or lease 9,267,614 - - (666,319) 8,601,295
Reserve for losses (504,227) - - 504,227 -
Initial direct costs, net of
accumulated amortization 287,978 107,961 (109,114) - 286,825
------------------- ----------------- ------------------ ----------------- ------------------
$129,049,875 $ 7,120,055 $ (10,693,188) $(1,983,418) $ 123,493,324
=================== ================= ================== ================= ==================
7
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
Balance Dispositions & Balance
December 31, Reclassifications June 30,
-----------------
2001 1st Quarter 2nd Quarter 2002
---- ----------- ----------- ----
Transportation $80,788,684 $ (180,106) $ (356,586) $ 80,251,992
Marine vessels / barges 27,030,136 - - 27,030,136
Construction 22,831,963 (417,700) - 22,414,263
Manufacturing 9,702,801 (28,868) (306,545) 9,367,388
Materials handling 5,265,654 3,959,522 (166,602) 9,058,574
Mining 9,012,965 - - 9,012,965
Other 5,813,733 (120,237) 320,234 6,013,730
Communications 4,387,819 - - 4,387,819
Office automation 5,297,632 (466,740) (1,119,362) 3,711,530
----------------- ------------------ ----------------- ------------------
170,131,387 2,745,871 (1,628,861) 171,248,397
Less accumulated depreciation (69,064,798) (3,445,301) (3,236,625) (75,746,724)
----------------- ------------------ ----------------- ------------------
$101,066,589 $ (699,430) $(4,865,486) $ 95,501,673
================= ================== ================= ==================
All of the property on leases was acquired in 1997, 1998, 1999, 2001 and 2002.
At June 30, 2002, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Operating Financing
Leases Leases Total
Six months ending December 31, 2002 $10,686,978 $ 2,141,528 $12,828,506
Year ending December 31, 2003 14,940,321 3,943,273 18,883,594
2004 9,664,461 3,857,280 13,521,741
2005 6,430,500 3,786,011 10,216,511
2006 1,509,428 1,713,362 3,222,790
Thereafter 769,347 756,133 1,525,480
----------------- ------------------ -----------------
$44,001,035 $16,197,587 $60,198,622
================= ================== =================
8
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
4. Non-recourse debt:
Notes payable to financial institutions are due in varying monthly and quarterly
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 7.40% to 8.828%.
Future minimum principal payments of non-recourse debt are as follows:
Principal Interest Total
Six months ending December 31, 2002 $ 2,814,146 $ 245,283 $ 3,059,429
Year ending December 31, 2003 3,261,130 288,831 3,549,961
2004 298,403 67,364 365,767
2005 322,838 42,927 365,765
2006 216,850 20,179 237,029
Thereafter 114,555 5,418 119,973
----------------- ------------------ -----------------
$ 7,027,922 $ 670,002 $ 7,697,924
================= ================== =================
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 (1.8539% at June 30, 2002). As of June
30, 2002, the program has been closed as to additional borrowings.
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 June 30,
2002, the Partnership receives or pays interest on a notional principal of
$40,529,000, based on the difference between nominal rates ranging from 4.10% to
7.58% and the variable rate under the Program. No actual borrowing or lending is
involved. The last of the swaps terminates in 2009. 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
JUNE 30, 2002
(Unaudited)
5. Long-term debt (continued):
Borrowings under the Program are as follows:
Original Balance Rate on
Date Amount June 30, Interest Swap
Borrowed Borrowed 2002 Agreement
-------- -------- ---- ---------
4/1/98 $21,770,000 $ 2,386,000 6.220%
7/1/98 25,000,000 4,543,000 6.155%
10/1/98 20,000,000 7,601,000 5.550%
4/16/99 9,000,000 2,772,000 5.890%
1/26/00 11,700,000 7,578,000 7.580%
5/25/01 2,000,000 1,596,000 5.790%
9/28/01 6,000,000 4,889,000 4.360%
1/31/02 4,400,000 3,974,000 4.100%
2/19/02 5,700,000 5,190,000 5.490%
----------------- ------------------
$105,570,000 $40,529,000
================= ==================
The long-term debt borrowings mature from 2004 through 2009. Future minimum
principal payments of long-term debt are as follows:
Rates on
Interest Swap
Principal Interest Total Agreements*
--------- -------- ----- -----------
Six months ending December 31, 2002 $ 6,983,000 $ 1,105,682 $ 8,088,682 5.859% - 5.876%
Year ending December 31, 2003 11,524,000 1,653,145 13,177,145 5.858% - 5.878%
2004 9,458,000 1,041,883 10,499,883 5.871% - 5.910%
2005 7,875,000 539,350 8,414,350 5.927% - 6.257%
2006 2,810,000 206,986 3,016,986 6.414% - 7.009%
2007 903,000 103,979 1,006,979 7.007% - 7.211%
2008 635,000 46,443 681,443 7.245% - 7.580%
2009 341,000 12,229 353,229 7.58%
----------------- ------------------ -----------------
$40,529,000 $ 4,709,697 $45,238,697
================= ================== =================
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 acquisition and
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
JUNE 30, 2002
(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 (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 during the six
month periods ended June 30, 2001 and 2000 as follows:
2002 2001
---- ----
Incentive management fees and equipment management fees $ 491,462 $ 689,171
Administrative costs reimbursed to General Partner 672,409 492,543
----------------- ------------------
$ 1,163,871 $ 1,181,714
================= ==================
7. Partner's capital:
As of June 30, 2002, 14,996,050 Units ($149,960,500) were issued and
outstanding.
First, Distributions of Cash from Operations shall be 88.5% to the Limited
Partners, 7.5% to the General Partner and 4% to the General Partner or its
affiliate designated as the recipient of the Incentive Management Fee, until the
Limited Partners have received Aggregate Distributions in an amount equal to
their Original Invested Capital, as defined, plus a 10% per annum cumulative
(compounded daily) return on their Adjusted Invested Capital, as defined in the
Limited Partnership Agreement.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
Available Cash from Sales or Refinancing, as defined in the Limited Partnership
Agreement, shall be distributed as follows:
First, Distributions of Sales or Refinancings shall be 92.5% to the Limited
Partners and 7.5% to the General Partner, until the Limited Partners have
received Aggregate Distributions in an amount equal to their Original Invested
Capital, as defined, plus a 10% per annum cumulative (compounded daily) return
on their Adjusted Invested Capital.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
11
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
8. Line of credit:
The Partnership participates with the General Partner and certain of its
affiliates in a $43,654,928 revolving line of credit with a financial
institution that includes certain financial covenants. The line of credit
expires on June 28, 2004. As of June 30, 2002, borrowings under the facility
were as follows:
Amount borrowed by the Partnership under the acquisition facility $ 7,000,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
facility 16,000,000
------------------
Total borrowings under the acquisition facility 23,000,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility -
------------------
Total outstanding balance $ 23,000,000
==================
Total available under the line of credit $ 43,654,928
Total outstanding balance (23,000,000)
------------------
Remaining availability $ 20,654,928
==================
9. Commitments:
As of June 30, 2002, the Partnership 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 and second quarters of 2002, the Partnership's primary activity
was engaging in equipment leasing activities.
The liquidity of the Partnership will vary in the future, increasing to the
extent cash flows from leases exceed expenses, and decreasing as lease assets
are acquired, as distributions are made to the limited partners and to the
extent expenses exceed cash flows from leases.
As another source of liquidity, the Partnership has contractual obligations with
a diversified group of lessees for fixed lease terms at fixed rental amounts. As
the initial lease terms expire the Partnership will re-lease or sell the
equipment. The future liquidity beyond the contractual minimum rentals will
depend on the General Partner's success in re-leasing or selling the equipment
as it comes off lease.
The Partnership participates with the General Partner and certain of its
affiliates in a $43,654,928 revolving line of credit with a financial
institution that includes certain financial covenants. The line of credit
expires on June 28, 2004. As of June 30, 2002, borrowings under the facility
were as follows:
Amount borrowed by the Partnership under the acquisition facility $ 7,000,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
facility 16,000,000
------------------
Total borrowings under the acquisition facility 23,000,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility -
------------------
Total outstanding balance $ 23,000,000
==================
Total available under the line of credit $ 43,654,928
Total outstanding balance (23,000,000)
------------------
Remaining availability $ 20,654,928
==================
The Partnership anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management fees to the General Partner and providing
for cash distributions to the Limited Partners.
The Partnership currently has available adequate reserves to meet contingencies,
but in the event those reserves were found to be inadequate, the Partnership
would likely be in a position to borrow against its current portfolio to meet
such requirements. The General Partner envisions no such requirements for
operating purposes.
No commitments of capital have been or are expected to be made other than for
the acquisition of additional equipment. There were no such commitments as of
June 30, 2002.
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.
13
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, 2002 vs. 2001:
During the first half of 2002 and 2001, the Partnership's primary sources of
liquidity was rents from assets on operating leases.
Cash from operating activities was almost entirely from operating lease rents in
both 2002 and in 2001 for both the three and six month periods.
Sources of cash from investing activities consisted of proceeds from sales of
assets and direct financing lease rents. Proceeds from sales of lease assets
increased significantly compared to 2001. In 2002 and 2001, cash was used in
investing activities to purchase assets on operating and direct financing leases
and to pay initial direct costs to the General Partner.
In 2002 and 2001, cash from financing sources consisted of proceeds of long-term
debt and borrowings under the line of credit. In both 2002 and 2001, proceeds of
long-term debt were used to repay amounts due on the line of credit. Repayments
of long-term debt have changed as a result of scheduled payments. Distributions
to partners did not change significantly compared to 2001.
Results of operations, 2002 vs. 2001:
Operations in 2002 resulted in a net loss of $828,365 (six months) and
$1,047,882 (three months). Operations in 2001 resulted in a net income of
$1,585,984 (six months) and $775,805 (three months). The losses in 2002 were
directly related to the losses incurred in sales of lease assets in the second
quarter of 2002. The Partnership's primary source of revenues is from operating
leases. This is expected to remain true in future periods. Operating lease
revenues for the six month periods decreased from $$16,333,829 in 2001 to
$12,543,651 in 2002. For the three month periods, they decreased from $8,040,945
in 2001 to $5,832,667 in 2002. The decreases were the result of asset sales in
2001 and in 2002.
Depreciation expense is the single largest expense of the Partnership and is
expected to remain so in future periods. As lease assets have been sol over the
last year, operating lease revenues have declined. This has also led to
decreases in depreciation expense. Total debt has remained almost constant
compared to June 30, 2001. However, more of the debt is being carried on the
receivables funding facility. This has helped to reduce average interest rates
and interest expense as the effective rates on the facility are lower than on
the Partnership's other borrowings. For the six month periods, interest
decreased by $422,103. For the three month period, the decrease was $201,226.
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.
14
Applied Magnetics Corporation:
In January 2000, Applied Magnetics Corporation filed for protection from
creditors under Chapter 11 of the U.S. Bankruptcy Code. The Partnership had
assets with a total net book value of $8,048,095 leased to Applied Magnetics
Corporation at the bankruptcy filing date. 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 (the "Plan"), which was approved by a
vote of the creditors of the debtor in October 2001. The Plan provided that the
Debtor change its name to "Integrated Micro-Technology", and enter into a new
line of business, the manufacture and production of "micro-machines". As part of
the Plan, the Partnership, along with the other unsecured creditors, receives a
proportionate share of their unsecured claims, in the form of ownership shares
and warrants in the newly formed business. The success of this new business plan
is highly uncertain.
On February 13, 2002, the reorganized Debtor filed a notice of objection to the
Funds claim due to duplication and an improper liquidated damages provision,
which the Funds intend to dispute.
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.
Pioneer Companies, Inc.:
On July 31, 2001, petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code were filed by the Pioneer Companies, Inc., et al. The
Partnership's Proof of Claim was timely filed on October 14, 2001, with the
Bankruptcy Clerk in Houston. The Partnership is the successor in interest to
First Union Rail Corporation (FURC) under four (4) tank car lease schedules for
36 tank cars with Pioneer Chlor-Alkali Company, Inc. n/k/a Pioneer Americas,
Inc. (together, the "Lease"). FURC manages the Lease for the Partnership. The
Order Confirming Debtor's Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code ("Plan") was entered on November 28, 2001. The Effective Date,
as defined in the Plan, was December 31, 2001. Pursuant to Schedules 6.1(a)(x)
and 6.1(a)(y) of the Plan, the Lease was rejected by the debtor.
Although the equipment was to be returned to FURC by December 31, 2001, the
debtor has continued to use and pay for the equipment under the lease on a
month-to-month basis. A letter agreement has been forwarded to executed by the
debtor to formalize an understanding for debtor's continued use of the equipment
under the terms of the Lease at least until March 31, 2002 on a month-to-month
basis until the cars are returned. The debtor has also objected to the Fund's
claim, which objection is being disputed by the Fund. The full extent of any
recovery is not known at this time.
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.
15
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, June 30, 2002 and December 31, 2001.
Statement of changes in partners' capital for the six
months ended June 30, 2002.
Statements of operations for the six and three month
periods ended June 30, 2002 and 2001.
Statement of cash flows for the six and three month
periods ended June 30, 2002 and 2001.
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
16
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10QSB of ATEL Capital Equipment
Fund VII, LP, (the "Partnership") for the period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL
Financial Services, LLC, general partner of the Partnership, hereby certify
that:
1. The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 ;
and
2. The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Company.
/s/ DEAN L. CASH
- ------------------------------------
Dean L. Cash President and Chief Executive
Officer of General Partner
August 14, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10QSB of ATEL Capital Equipment
Fund VII, LP, (the "Partnership") for the period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of
ATEL Financial Services, LLC, general partner of the Partnership, hereby certify
that:
1. The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 ;
and
2. The information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Company.
/s/ PARITOSH K. CHOKSI
- ------------------------------------
Paritosh K. Choksi Executive Vice President of General
Partner, Principal financial officer of registrant
August 14, 2002
17
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:
August 14, 2002
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
(Registrant)
By: ATEL Financial Services, LLC
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
General Partner, Principal
financial officer of registrant
By: /s/ DONALD E. CARPENTER
--------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant
18