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, 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
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(Unaudited)
ASSETS
2002 2001
---- ----
Cash and cash equivalents $ 1,919,683 $ 936,189
Accounts receivable, net of allowance for
doubtful accounts of $618,067 in 2002
and $118,067 in 2001 2,951,284 5,759,540
Other assets 20,018 108,015
Investments in leases 117,054,315 129,049,875
----------------- ------------------
Total assets $121,945,300 $135,853,619
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Long-term debt $ 36,837,000 $ 38,540,000
Line of credit 10,300,000 4,100,000
Non-recourse debt 5,183,252 9,971,225
Accounts payable:
General Partner - 580,916
Other 660,102 510,598
Accrued interest payable 129,937 355,458
Interest rate swap contracts 737,092 1,323,006
Unearned operating lease income 1,085,399 976,565
----------------- ------------------
Total liabilities 54,932,782 56,357,768
Partners' capital 67,012,518 79,495,851
----------------- ------------------
Total liabilities and partners' capital $121,945,300 $135,853,619
================= ==================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
INCOME STATEMENTS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Leasing activities:
Operating leases $ 19,066,158 $24,013,337 $ 6,522,507 $ 7,679,508
Direct financing 1,115,790 808,507 347,458 264,830
Loss on sales of assets (1,283,977) (444,808) (225,989) (93,768)
Interest 11,284 47,234 2,742 10,464
Other 156,438 9,614 66,379 4,447
------------------ ------------------ ----------------- ------------------
19,065,693 24,433,884 6,713,097 7,865,481
Expenses:
Depreciation 13,967,963 15,399,088 4,872,131 4,627,209
Interest expense 2,486,353 3,128,713 748,945 969,202
Equipment and incentive management fees to
General Partner 730,798 943,372 239,336 254,201
Provision for doubtful accounts 500,000 - 130,000 -
Provision for losses on lease assets 300,000 - 300,000 -
Other 531,084 462,489 213,176 122,274
Cost reimbursements to General Partner 755,205 895,938 82,796 403,395
Professional fees 153,614 141,573 5,134 37,664
Railcar maintenance 560,297 563,293 212,835 138,102
------------------ ------------------ ----------------- ------------------
19,985,314 21,534,466 6,804,353 6,552,047
------------------ ------------------ ----------------- ------------------
Net (loss) income $ (919,621) $ 2,899,418 $ (91,256) $ 1,313,434
================== ================== ================= ==================
Net (loss) income:
General Partner $ 899,824 $ 822,985 $ 303,240 $ 304,021
Limited Partners (1,819,445) 2,076,433 (394,496) 1,009,413
------------------ ------------------ ----------------- ------------------
$ (919,621) $ 2,899,418 $ (91,256) $ 1,313,434
================== ================== ================= ==================
Net (loss) income per limited partnership unit $ (0.12) $ 0.14 $ (0.03) $ 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, 2002
(Unaudited)
Accumulated
Other
Limited Partners General Comprehensive
----------------
Units Amount Partner Income Total
----- ------ ------- ------ -----
Balance December 31, 2001 14,996,050 $ 80,818,857 $ - $(1,323,006) $ 79,495,851
Unrealized decrease in value of 585,914 585,914
interest rate swap contracts - - -
Distributions to partners (11,249,802) (899,824) - (12,149,626)
Net (loss) income (1,819,445) 899,824 - (919,621)
-------------------- ------------------ ------------------ ----------------- ------------------
Balance September 30, 2002 14,996,050 $ 67,749,610 $ - $ (737,092) $ 67,012,518
==================== ================== ================== ================= ==================
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND 2001
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Operating activities:
Net (loss) income $ (919,621) $ 2,899,418 $ (91,256) $ 1,313,434
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 13,967,963 15,399,088 4,872,131 4,627,209
Loss on sales of assets 1,283,977 444,808 225,989 93,768
Provision for doubtful accounts 500,000 - 130,000 -
Provision for losses on lease assets 300,000 - 300,000 -
Changes in operating assets and liabilities:
Accounts receivable 2,308,256 778,771 389,813 (685,685)
Other assets 87,997 29,997 9,999 9,999
Accounts payable, General Partner (580,916) (293,287) - (471,314)
Accounts payable, other 149,504 946,084 (411,171) 1,088,625
Accrued interest expense (225,521) (300,656) (48,971) (90,529)
Unearned lease income 108,834 (67,385) 268,964 269,599
------------------ ------------------ ----------------- ------------------
Net cash provided by operations 16,980,473 19,836,838 5,645,498 6,155,106
------------------ ------------------ ----------------- ------------------
Investing activities:
Proceeds from sales of assets 2,703,781 1,483,557 1,778,351 661,693
Reduction in net investment in direct financing leases 859,894 1,574,719 (737,462) 219,377
Purchases of equipment on operating leases (3,959,522) (1,950,111) - -
Payment of initial direct costs to General Partner (107,961) (16,726) - -
Purchases of equipment on direct financing leases (3,052,572) (492,988) - -
------------------ ------------------ ----------------- ------------------
Net cash (used in) provided by investing
activities (3,556,380) 598,451 1,040,889 881,070
------------------ ------------------ ----------------- ------------------
6
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
(Continued)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Financing activities:
Distributions to partners (12,149,626) (12,072,725) (4,053,188) (4,053,615)
Borrowings under line of credit 16,500,000 8,500,000 3,300,000 3,000,000
Repayments of borrowings under line of credit (10,300,000) (8,500,000) - (6,500,000)
Proceeds of long-term debt 10,100,000 8,000,000 - 6,000,000
Repayments of long-term debt (11,803,000) (11,222,000) (3,692,000) (3,108,000)
Repayments of non-recourse debt (4,787,973) (4,718,790) (1,844,670) (1,511,753)
------------------ ------------------ ----------------- ------------------
Net cash used in financing activities (12,440,599) (20,013,515) (6,289,858) (6,173,368)
------------------ ------------------ ----------------- ------------------
Net increase in cash and cash equivalents 983,494 421,774 396,529 862,808
Cash and cash equivalents at beginning of
period 936,189 1,321,417 1,523,154 880,383
------------------ ------------------ ----------------- ------------------
Cash and cash equivalents at end of period $ 1,919,683 $ 1,743,191 $ 1,919,683 $ 1,743,191
================== ================== ================= ==================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 2,711,874 $ 3,429,369 $ 797,916 $ 1,059,731
================== ================== ================= ==================
See accompanying notes.
7
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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. 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,
2001 Additions of Leases Dispositions 2002
---- --------- --------- ------------ ----
Net investment in operating
leases $ 101,066,589 $ 3,959,522 $ (13,821,227) $(1,751,577) $ 89,453,307
Net investment in direct
financing leases 18,931,921 3,052,572 (859,894) (3,152,253) 17,972,346
Assets held for sale or lease 9,267,614 - - 411,845 9,679,459
Reserve for losses (504,227) (300,000) - 504,227 (300,000)
Initial direct costs, net of
accumulated amortization 287,978 107,961 (146,736) - 249,203
-------------------- ------------------ ------------------ ----------------- ------------------
$ 129,049,875 $ 6,820,055 $ (14,827,857) $ (3,987,758) $117,054,315
==================== ================== ================== ================= ==================
8
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
3. Investment in leases (continued):
Property on operating leases consists of the following:
Balance Balance
December 31, Acquisitions, Dispositions & Reclassifications September 30,
----------------------------------------------
2001 1st Quarter 2nd Quarter 3rd Quarter 2002
---- ----------- ----------- ----------- ----
Transportation $ 80,788,684 $ (180,106) $ (356,586) $ (3,448,074) $ 76,803,918
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
Communications 4,387,819 - - (77,934) 4,309,885
Office automation 5,297,632 (466,740) (1,119,362) - 3,711,530
Other 5,813,733 (120,237) 320,234 242,316 6,256,046
-------------------- ------------------ ------------------ ----------------- ------------------
170,131,387 2,745,871 (1,628,861) (3,283,692) 167,964,705
Less accumulated depreciation (69,064,798) (3,445,301) (3,236,625) (2,764,674) (78,511,398)
-------------------- ------------------ ------------------ ----------------- ------------------
$ 101,066,589 $ (699,430) $ (4,865,486) $ (6,048,366) $ 89,453,307
==================== ================== ================== ================= ==================
All of the property on leases was acquired in 1997, 1998, 1999, 2001 and 2002.
At September 30, 2002, the aggregate amounts of future minimum lease payments
are as follows:
Direct
Operating Financing
Leases Leases Total
Three months ending December 31, 2002 $ 4,589,199 $ 1,158,139 $ 5,747,338
Year ending December 31, 2003 16,526,171 3,935,864 20,462,035
2004 9,655,069 3,850,612 13,505,681
2005 6,430,497 3,779,344 10,209,841
2006 1,509,428 1,706,695 3,216,123
Thereafter 769,350 746,260 1,515,610
------------------ ------------------ -----------------
$ 39,479,714 $ 15,176,914 $ 54,656,628
================== ================== =================
9
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(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, 2002 $ 969,476 $ 65,782 $ 1,035,258
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
------------------ ------------------ -----------------
$ 5,183,252 $ 490,501 $ 5,673,753
================== ================== =================
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 (1.8105% at September 30, 2002).
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, 2002, the Partnership receives or pays interest on a notional principal of
$36,837,000, 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.
10
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(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 2002 Agreement
-------- -------- ---- ---------
4/1/98 $ 21,770,000 $ 1,709,000 6.22000%
7/1/98 25,000,000 3,913,000 6.15500%
10/1/98 20,000,000 6,839,000 5.55000%
4/16/99 9,000,000 2,640,000 5.89000%
1/26/00 11,700,000 7,143,000 7.58000%
5/25/01 2,000,000 1,500,000 5.79000%
9/28/01 6,000,000 4,574,000 4.36000%
1/31/02 4,400,000 3,716,000 4.10000%
2/19/02 5,700,000 4,803,000 5.49000%
------------------ ------------------
$105,570,000 $36,837,000
================== ==================
Future minimum principal payments of long-term debt are as follows:
Rates on
Interest Swap
Principal Interest Total Agreements*
--------- -------- ----- -----------
Three months ending December 31, 2002 $ 3,291,000 $ 527,060 $ 3,818,060 5.859%-5.870%
Year ending December 31, 2003 11,524,000 1,653,145 13,177,145 5.858%-5.878%
2004 9,458,000 1,041,833 10,499,833 5.871%-5.910%
2005 7,875,000 539,650 8,414,650 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%-7.480%
2009 341,000 12,229 353,229 7.580%
------------------ ------------------ -----------------
$ 36,837,000 $ 4,131,325 $ 40,968,325
================== ================== =================
* Represents the range of monthly weighted average fixed interest rates paid for
amounts maturing in the particular year. The receive-variable rate portion of
the swap represents commercial paper rates (1.8105% at September 30, 2002).
11
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
6. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partner
and/or Affiliates are entitled to receive certain fees for equipment management
and resale and for management of the Partnership.
The Limited Partnership Agreement allows for the reimbursement of costs incurred
by the General Partner in providing administrative services to the Partnership.
Administrative services provided include Partnership accounting, investor
relations, legal counsel and lease and equipment documentation. The General
Partner is not reimbursed for services where it is entitled to receive a
separate fee as compensation for such services, such as management of equipment.
Reimbursable costs incurred by the General Partner are allocated to the
Partnership based upon actual time incurred by employees working on Partnership
business and an allocation of rent and other costs based on utilization studies.
Substantially all employees of the General Partner record time incurred in
performing administrative services on behalf of all of the Partnerships serviced
by the General Partner. The General Partner believes that the costs reimbursed
are the lower of 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:
2002 2001
---- ----
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 $ 730,798 $ 943,372
Cost reimbursements to General Partner 755,205 895,938
----------------- ------------------
$ 1,486,003 $ 1,839,310
================= ==================
12
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
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:
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.
13
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 2002, borrowings under the
facility were as follows:
Amount borrowed by the Partnership under the acquisition
facility $ 10,300,000
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition
facility 21,900,000
------------------
Total borrowings under the acquisition facility 32,200,000
Amounts borrowed by the General Partner and its sister
corporation under the warehouse facility -
------------------
Total outstanding balance $ 32,200,000
==================
Total available under the line of credit $ 43,654,928
Total outstanding balance (32,200,000)
------------------
Remaining availability $ 11,454,928
==================
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 affiliated
partnerships and limited liability companies, the Partnership and the General
Partner.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of September
30, 2002.
9. Commitments:
As of September 30, 2002, the Company had no outstanding commitments to purchase
lease equipment.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first three quarters of 2002 and 2001, 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.
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 September 30, 2002, borrowings under the
facility were as follows:
Amount borrowed by the Partnership under the acquisition
facility $ 10,300,000
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition
facility 21,900,000
------------------
Total borrowings under the acquisition facility 32,200,000
Amounts borrowed by the General Partner and its sister
corporation under the warehouse facility -
------------------
Total outstanding balance $ 32,200,000
==================
Total available under the line of credit $ 43,654,928
Total outstanding balance (32,200,000)
------------------
Remaining availability $ 11,454,928
==================
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 affiliated
partnerships and limited liability companies, the Partnership and the General
Partner.
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, 2002, 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 2002 and 2001, our primary source of liquidity was rents from operating
leases.
In both 2002 and in 2001, 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 2001 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 2002 and 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.
15
In 2002 and 2001, borrowings on the line of credit and proceeds of long-term
debt were our only sources of cash from financing sources.
The amounts we distributed to our partners have not changed significantly
compared to 2001. The amounts of cash we used to repay non-recourse debt
increased slightly for the nine month period and the three month period as a
result of scheduled debt payments we have made. The portion of the debt payments
attributed principal payments, as opposed to interest payments, has increased.
Results of operations
Our operations in 2002 resulted in a net loss of $919,621 (nine months) and
$91,256 (three months). In 2001, our operations resulted in a net income of
$2,899,418 (nine months) and $1,313,434 (three months). Our primary source of
revenues is from operating leases. These lease revenues and the related
depreciation expenses have decreased compared to 2001 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 2001, 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No material legal proceedings are currently pending against the Partnership or
against any of its assets.
Applied Magnetics Corporation:
In January 2000, Applied Magnetics Corporation (the Debtor) 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
Partnership's claim due to duplication and an improper liquidated damages
provision. The Partnership disputed this and, as of July 26, 2002, agreement has
been reached between the Partnership and Debtor as to the amount of the
Partnership's claim, and the Debtor's objection to the Partnership's claim was
withdrawn.
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 continued to use and pay for the equipment under the lease on a
month-to-month basis. A letter agreement has been executed by the debtor to
formalize an understanding for debtor's continued use of the equipment under the
terms of the Lease on a month-to-month basis until the cars were returned. The
debtor has also objected to the Partnership's claim, which objection was being
disputed by the Partnership and is likely to be resolved via an amended Proof of
Claim. At this point, all equipment has been returned to the Partnership, and is
in the process of being re-leased and/or sold. The full extent of any recovery
is not known at this time.
16
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, 2002 and December 31, 2001.
Statements of operations for the nine and three month periods
ended September 30, 2002 and 2001.
Statement of changes in partners' capital for the nine months
ended September 30, 2002.
Statement of cash flows for the nine and three month periods
ended September 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
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:
November 7, 2002
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
18
CERTIFICATIONS
I, Paritosh K. Choksi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Cash Distribution
Fund VII, LP;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 7, 2002
/s/ PARITOSH K. CHOKSI
- --------------------------------------
Paritosh K. Choksi
Principal financial officer of registrant, Executive
Vice President of General Partner
19
CERTIFICATIONS
I, Dean L. Cash, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Cash Distribution
Fund VII, LP;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 7, 2002
/s/ DEAN L. CASH
- --------------------------------------
Dean L. Cash
President and Chief Executive
Officer of General Partner
20
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 10Q of ATEL Cash Distribution
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 Partnership.
Date: November 7, 2002
/s/ DEAN L. CASH
- --------------------------------------
Dean L. Cash
President and Chief Executive
Officer of General Partner
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 10Q of ATEL Cash Distribution
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 Partnership.
Date: November 7, 2002
/s/ PARITOSH K. CHOKSI
- --------------------------------------
Paritosh K. Choksi
Executive Vice President of General
Partner, Principal financial officer of registrant
21