10-Q 1 fund710q3q2001.txt REPORT FOR THE QUARTER ENDED 9/30/2001 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 15 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