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EX-31.2 - EXHIBIT 31.2 - ATEL CAPITAL EQUIPMENT FUND VII LPv229610_ex31x2.htm
EX-31.1 - EXHIBIT 31.1 - ATEL CAPITAL EQUIPMENT FUND VII LPv229610_ex31x1.htm
EX-32.1 - EXHIBIT 32.1 - ATEL CAPITAL EQUIPMENT FUND VII LPv229610_ex32x1.htm

  

  

 

  

Form 10-Q

UNITED STATES
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, 2011

 
o   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 000-24175

ATEL Capital Equipment Fund VII, L.P.

(Exact name of registrant as specified in its charter)

 
California   94-3248318
(State or other jurisdiction of
Incorporation or organization)
  (I. R. S. Employer
Identification No.)

600 California Street, 6th Floor, San Francisco, California 94108-2733
(Address of principal executive offices)

Registrant’s telephone number, including area code (415) 989-8800

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Limited Partnership Units

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o    Accelerated filer o    Non-accelerated filer o    Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The number of Limited Partnership Units outstanding as of July 31, 2011 was 14,985,550.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L. P.
  
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, June 30, 2011 and December 31, 2010     3  
Statements of Operations for the three and six months ended June 30, 2011 and 2010     4  
Statements of Changes in Partners’ Capital for the year ended December 31, 2010 and for the six months ended June 30, 2011     5  
Statements of Cash Flows for the three and six months ended June 30, 2011 and 2010     6  
Notes to the Financial Statements     7  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    17  

Item 4.

Controls and Procedures

    22  

Part II.

Other Information

    23  

Item 1.

Legal Proceedings

    23  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    23  

Item 3.

Defaults Upon Senior Securities

    23  

Item 4.

[Removed and Reserved]

    23  

Item 5.

Other Information

    23  

Item 6.

Exhibits

    23  

2


 
 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
BALANCE SHEETS
  
JUNE 30, 2011 AND DECEMBER 31, 2010

(in thousands)
(Unaudited)

   
  June 30,
2011
  December 31,
2010
ASSETS
                 
Cash and cash equivalents   $      3,680     $      2,637  
Accounts receivable, net of allowance for doubtful accounts of $54 as of June 30, 2011 and $11 as of December 31, 2010     225       311  
Investments in equipment and leases, net of accumulated depreciation of $40,472 as of June 30, 2011 and $41,618 as of December 31, 2010     8,144       8,760  
Other assets     1       7  
Total assets   $ 12,050     $ 11,715  
LIABILITIES AND PARTNERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
General Partner   $ 729     $ 504  
Other     569       271  
Unearned operating lease income     231       102  
Total liabilities     1,529       877  
Partners’ capital:
                 
General Partner            
Limited Partners     10,521       10,838  
Total Partners’ capital     10,521       10,838  
Total liabilities and Partners’ capital   $ 12,050     $ 11,715  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
STATEMENTS OF OPERATIONS
  
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2011 AND 2010

(in thousands except units and per unit data)
(Unaudited)

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2011   2010   2011   2010
Revenues:
                                   
Leasing activities:
                                   
Operating leases   $      1,196     $       674     $     1,951     $       1,299  
Direct financing leases     70       83       145       171  
Gain on sales of assets     51       57       79       123  
Other     1             11       6  
Total revenues     1,318       814       2,186       1,599  
Expenses:
                                   
Depreciation of operating lease assets     223       411       609       823  
Marine vessel maintenance and other operating costs     153       48       159       103  
Cost reimbursements to General Partner                 750       750  
Equipment and incentive management fees to General Partner     32       16       62       37  
Railcar and equipment maintenance     137       110       280       218  
Professional fees     7       44       64       139  
Insurance     (23 )      24       (18 )      71  
Outside services     14       20       25       36  
Other management fees     37       77       51       151  
Equipment storage     16       50       53       76  
Franchise fees and state taxes     23             42       (10 ) 
Freight and shipping     10       1       244       3  
Provision (reversal of provision) for doubtful accounts     43       (1 )      43       11  
Property taxes     27       3       56       42  
Other     42       42       76       74  
Total operating expenses     741       845       2,496       2,524  
Income (loss) from operations     577       (31 )      (310 )      (925 ) 
Other loss, net           (2 )      (7 )      (10 ) 
Net income (loss)   $ 577     $ (33 )    $ (317 )    $ (935 ) 
Net income (loss):
                                   
General Partner   $     $     $     $ 182  
Limited Partners     577       (33 )      (317 )      (1,117 ) 
     $ 577     $ (33 )    $ (317 )    $ (935 ) 
Net income (loss) per Limited Partnership Unit   $ 0.04     $ (0.00 )    $ (0.02 )    $ (0.07 ) 
Weighted average number of Units outstanding     14,985,550       14,985,550       14,985,550       14,985,550  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
  
FOR THE YEAR ENDED DECEMBER 31, 2010
AND FOR THE SIX MONTHS ENDED
JUNE 30, 2011

(in thousands except units and per unit data)
(Unaudited)

       
  Limited Partners   General
Partner
  Total
     Units   Amount
Balance December 31, 2009     14,985,550     $    14,247     $      —     $    14,247  
Distributions to Limited Partners ($0.25 per Unit)           (3,747 )            (3,747 ) 
Distributions to General Partner                 (304 )      (304 ) 
Net income           338       304       642  
Balance December 31, 2010     14,985,550       10,838             10,838  
Net loss           (317 )            (317 ) 
Balance June 30, 2011     14,985,550     $ 10,521     $     $ 10,521  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
STATEMENTS OF CASH FLOWS
  
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2011 AND 2010

(in thousands)
(Unaudited)

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2011   2010   2011   2010
Operating activities:
                                   
Net income (loss)   $       577     $       (33 )    $      (317 )    $       (935 ) 
Adjustments to reconcile net income (loss) to cash provided by operating activities:
                                   
Gain on sales of assets     (51 )      (57 )      (79 )      (123 ) 
Depreciation of operating lease assets     223       411       609       823  
Provision (reversal of provision) for doubtful accounts     43       (1 )      43       11  
Changes in operating assets and liabilities:
                                   
Accounts receivable     (65 )      (37 )      43       38  
Other assets     3       4       6       9  
Accounts payable:
                                   
General Partner     (78 )      (100 )      225       276  
Other     118       85       148       161  
Affiliates           55             53  
Unearned lease income     27       (82 )      129       (48 ) 
Net cash provided by operating activities     797       245       807       265  
Investing activities:
                                   
Proceeds from sales of lease assets     126       98       187       222  
Principal payments received on direct financing leases     26       14       49       33  
Net cash provided by investing activities     152       112       236       255  
Financing activities:
                                   
Distributions:
                                   
General Partner                       (182 ) 
Limited Partners                       (2,248 ) 
Net cash used in financing activities                       (2,430 ) 
Net increase (decrease) in cash and cash equivalents     949       357       1,043       (1,910 ) 
Cash and cash equivalents at beginning of period     2,731       1,631       2,637       3,898  
Cash and cash equivalents at end of period   $ 3,680     $ 1,988     $ 3,680     $ 1,988  
Supplemental disclosures of cash flow information:
                                   
Cash paid during the period for taxes   $ 62     $ 43     $ 62     $ 45  
Schedule of non-cash transactions:
                                   
Improvements to operating lease equipment   $     $     $ 150     $  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Partnership matters:

ATEL Capital Equipment Fund VII, L.P. (the “Partnership” or the “Fund”) was formed under the laws of the State of California on May 17, 1996 for the purpose of acquiring equipment to engage in equipment leasing and sales activities, primarily in the United States. The Partnership may continue until December 31, 2017. The General Partner of the Partnership is ATEL Financial Services, LLC (“AFS”), a California limited liability company. Prior to converting to a limited liability company structure, AFS was formerly known as ATEL Financial Corporation.

The Partnership conducted a public offering of 15,000,000 Units of Limited Partnership Interest (“Units”), at a price of $10 per Unit. On January 7, 1997, subscriptions for the minimum number of Units (120,000, $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Partnership. On that date, the Partnership commenced operations in its primary business. Gross contributions in the amount of $150 million (15,000,000 units) were received as of November 27, 1998, exclusive of $500 of Initial Partners’ capital investment and $100 of AFS’ capital investment. The offering was terminated on November 27, 1998. As of June 30, 2011, 14,985,550 Units remain issued and outstanding.

The Partnership’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Partnership’s invested capital; (ii) generates regular distributions to the partners of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended December 31, 2004 and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Partnership is governed by its Limited Partnership Agreement (“Partnership Agreement”).

Pursuant to the Partnership Agreement, AFS receives compensation for services rendered and reimbursements for costs incurred on behalf of the Partnership (Note 5). The Partnership is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

As of June 30, 2011, the Partnership continues to be in the liquidation phase of its life cycle as defined in the Partnership Agreement.

These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the General Partner, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year.

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported financial position or results from operations.

Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.

In preparing the accompanying unaudited financial statements, the General Partner has reviewed events that have occurred after June 30, 2011, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, or adjustments thereto.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term, expected future cash flows used for impairment analysis purposes, and determination of the allowance for doubtful accounts.

Segment reporting:

The Partnership is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly the Partnership operates in one reportable operating segment in the United States.

However, certain of the Partnership’s lessee customers may have international operations. In these instances, the Partnership is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Partnership to track, on an asset-by-asset and day-by-day basis, where these assets are deployed. The primary geographic regions in which the Partnership sought leasing opportunities were North America and Europe. The table below summarizes geographic information relating to the sources, by nation, of the Partnership’s total revenues for six months ended June 30, 2011 and 2010 and long-lived tangible assets as of June 30, 2011 and December 31, 2010 (dollars in thousands):

       
  For The Six Months Ended June 30,
     2011   % of Total   2010   % of Total
Revenue
                                   
United States   $     2,036              93 %    $     1,583               99 % 
United Kingdom     16       1 %      16       1 % 
Canada     134       6 %            0 % 
Total International     150       7 %      16       1 % 
Total   $   2,186         100 %    $   1,599         100 % 

  

       
  As of June 30,   As of December 31,
     2011   % of Total   2010   % of Total
Long-lived assets
                                   
United States   $     7,904              97 %    $     8,727              100 % 
United Kingdom           0 %      33       0 % 
Canada     240       3 %            0 % 
Total International     240       3 %      33       0 % 
Total   $   8,144         100 %    $   8,760         100 % 

Other loss, net:

Other loss, net consists of losses on foreign currency transactions. The table below details the Partnership’s other loss, net for the three and six months ended June 30, 2011 and 2010 (in thousands):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2011   2010   2011   2010
Foreign currency loss   $      —     $      (2 )    $      (7 )    $       (10 ) 

Per Unit data:

Net income (loss) and distributions per Unit are based upon the weighted average number of Limited Partnership Units outstanding during the period.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

Recent accounting pronouncements:

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies guidance on a creditor’s evaluation of whether it has granted a concession to a borrower and a creditor’s evaluation of whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. In addition, an entity should disclose the information required by Accounting Standards Codification paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01, for interim and annual periods beginning on or after June 15, 2011. The Partnership anticipates that adoption of this update will not have a material impact on its financial position or results of operations.

In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. The guidance will be effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Partnership anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations.

3. Provision for credit losses:

Activity in the allowance for doubtful accounts consists of the following (in thousands):

       
  Accounts Receivable
Allowance for
Doubtful Accounts
  Valuation
Adjustments
on Financing
Receivables
  Total Allowance for Credit Losses
     Finance
Leases
  Operating
Leases
  Finance
Leases
Balance December 31, 2009   $ 1     $     $     $ 1  
Provision for credit losses     9       1             10  
Balance December 31, 2010     10       1             11  
Provision for credit losses           43             43  
Balance June 30, 2011   $      10     $      44     $        —     $       54  

Accounts Receivable

Accounts receivable represent the amounts billed under operating and direct financing lease contracts which are currently due to the Partnership.

Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.

Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease payments outstanding less than 90 days. Based upon management’s judgment, such leases may be placed in

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Provision for credit losses: - (continued)

non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, all payments received are applied only against outstanding principal balances.

Financing Receivables

In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on direct financing leases.

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly.

As of June 30, 2011 and December 31, 2010, the Partnership did not record an allowance for credit losses related to its financing receivables. The Partnership’s recorded net investment in financing receivables at June 30, 2011 and December 31, 2010 are as follows (in thousands):

   
June 30, 2011   Finance
Leases
  Total
Allowance for credit losses:
                 
Ending balance   $     $  
Ending balance: individually evaluated for impairment   $     $  
Ending balance: collectively evaluated for impairment   $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $  
Financing receivables, net:
                 
Ending balance   $ 473     $ 473  
Ending balance: individually evaluated for impairment   $      473     $        473  
Ending balance: collectively evaluated for impairment   $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $  

  

   
December 31, 2010   Finance
Leases
  Total
Allowance for credit losses:
                 
Ending balance   $     $  
Ending balance: individually evaluated for impairment   $     $  
Ending balance: collectively evaluated for impairment   $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $  
Financing receivables, net:
                 
Ending balance   $ 522     $ 522  
Ending balance: individually evaluated for impairment   $      522     $        522  
Ending balance: collectively evaluated for impairment   $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $  

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Provision for credit losses: - (continued)

The Partnership evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass – Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the General Partner to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the General Partner and the account is not considered by the Chief Credit Officer of the General Partner to fall into one of the three risk profiles below.

Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.

Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the General Partner’s Credit Watch List.

Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the General Partner’s Credit Watch List, and has been declared in default and the General Partner has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired leases as applicable.

At June 30, 2011 and December 31, 2010, the Partnership’s financing receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):

   
  Finance Leases
     June 30,
2011
  December 31,
2010
Pass   $ 473     $ 522  
Special mention            
Substandard            
Doubtful            
Total   $      473     $       522  

At June 30, 2011 and December 31, 2010, net investment in financing receivables is aged as follows (in thousands):

             
June 30, 2011   30 – 59 Days
Past Due
  60 – 89 Days
Past Due
  Greater Than
90 Days
  Total
Past Due
  Current   Total
Financing
Receivables
  Recorded
Investment>90
Days and
Accruing
Finance leases   $     $     $ 80     $ 80     $ 393     $ 473     $ 80  
Total   $       —     $       —     $       80     $       80     $      393     $      473     $        80  

  

             
December 31, 2010   30 – 59 Days
Past Due
  60 – 89 Days
Past Due
  Greater Than
90 Days
  Total
Past Due
  Current   Total
Financing
Receivables
  Recorded
Investment>90
Days and
Accruing
Finance leases   $     $     $     $     $ 522     $ 522     $  
Total   $       —     $       —     $       —     $       —     $      522     $      522     $        —  

The Partnership did not carry an impairment reserve on its financing receivables at June 30, 2011 and December 31, 2010. At June 30, 2011, certain net investments in financing receivables with related accounts receivable past due more

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ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Provision for credit losses: - (continued)

than 90 days are still on an accrual basis based on management’s assessment of the collectability of such receivables. However, these accounts receivable are fully reserved and included in the allowance for doubtful accounts presented above. At December 31, 2010, there were no accounts receivable related to net investments in financing receivables placed in non-accrual status.

4. Investment in equipment and leases, net:

The Partnership’s investments in equipment and leases consist of the following (in thousands):

       
  Balance
December 31,
2010
  Reclassifications
& Additions/
Dispositions
  Depreciation/
Amortization
Expense or
Amortization of
Leases
  Balance
June 30,
2011
Net investment in operating leases   $ 7,817     $ 331     $ (608 )    $ 7,540  
Net investment in direct financing leases     522             (49 )      473  
Assets held for sale or lease, net     421         (289 )      (1 )      131  
Total   $       8,760     $         42     $       (658 )    $       8,144  

Impairment of investments in leases and assets held for sale or lease:

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. Impairment losses are recorded as an adjustment to the net investment in operating leases. No impairment losses were recorded during the three and six months ended June 30, 2011 and 2010.

The Partnership utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Partnership’s equipment was approximately $223 thousand and $411 thousand for the three months ended June 30, 2011 and 2010, and was $609 thousand and $823 thousand for the respective six months ended June 30, 2011 and 2010.

All of the property subject to leases was acquired in the years 1997 through 2002.

Operating leases:

Property on operating leases consists of the following (in thousands):

       
  Balance
December 31,
2010
  Additions   Reclassifications
or Dispositions
  Balance
June 30,
2011
Transportation   $      26,526     $          —     $       3,291     $      29,817  
Marine vessels     16,638       150       (1,111 )      15,677  
Construction     431                   431  
Materials handling     83                   83  
Other     135             (135 )       
       43,813       150       2,045       46,008  
Less: accumulated depreciation     (35,996 )      (608 )      (1,864 )      (38,468 ) 
Total   $ 7,817     $ (458 )    $ 181     $ 7,540  

The average estimated residual value for assets on operating leases was 14% and 15% of the assets’ original cost at June 30, 2011 and December 31, 2010, respectively.

The Partnership earns revenues from its marine vessels and certain lease assets based on utilization of such assets or through fixed term leases. Contingent rentals (i.e., short-term, operating charter hire payments) and the associated

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ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Investment in equipment and leases, net: - (continued)

expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of Operating Lease Revenues, and totaled $149 thousand and $80 thousand for the respective three months ended June 30, 2011 and 2010, and was $178 thousand and $154 thousand for the respective six months ended June 30, 2011 and 2010.

There were no operating leases in non-accrual status at June 30, 2011 and December 31, 2010.

Direct financing leases:

As of June 30, 2011 and December 31, 2010, investment in direct financing leases consists of various transportation, ground support and manufacturing equipment. The following lists the components of the Partnership’s investment in direct financing leases as of June 30, 2011 and December 31, 2010 (in thousands):

   
  June 30,
2011
  December 31,
2010
Total minimum lease payments receivable   $        727     $         921  
Estimated residual values of leased equipment (unguaranteed)     75       75  
Investment in direct financing leases     802       996  
Less unearned income     (329 )      (474 ) 
Net investment in direct financing leases   $ 473     $ 522  

There were no net investments in direct financing leases in non-accrual status as of June 30, 2011 and December 31, 2010.

At June 30, 2011, the aggregate amounts of future minimum lease payments are as follows (in thousands):

     
  Operating
Leases
  Direct Financing
Leases
  Total
Six months ending December 31, 2011   $ 1,820     $ 194     $ 2,014  
Year ending December 31, 2012     2,489       368       2,857  
2013     1,054       165       1,219  
2014     320             320  
2015     320             320  
2016     27             27  
     $       6,030     $        727     $        6,757  

5. Related party transactions:

The terms of the Partnership Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Partnership.

The Partnership Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as disposition of equipment. The Partnership would be liable for certain future costs to be incurred by AFS to manage the administrative services provided to the Partnership.

Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Partnership. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications services and general administrative services are performed by AFS.

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ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Related party transactions: - (continued)

Cost reimbursements to the General Partner are based on its costs incurred in performing administrative services for the Partnership. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred, subject to limitations as described below.

Incentive management fees are computed as 4.0% of distributions of cash from operations, as defined in the Partnership Agreement and equipment management fees are computed as 3.5% of gross revenues from operating leases, as defined in the Partnership Agreement plus 2.0% of gross revenues from full payout leases, as defined in the Partnership Agreement.

During the three and six months ended June 30, 2011 and 2010, AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Partnership Agreement as follows (in thousands):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2011   2010   2011   2010
Equipment and incentive management fees to General Partner   $ 32     $ 16     $ 62     $ 37  
Cost reimbursements to General Partner and/or affiliates                 750       750  
     $      32     $      16     $     812     $      787  

The Fund’s Limited Partnership Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. Accordingly, the Partnership has recorded neither an obligation nor an expense for such contingent reimbursement of the approximate $248 thousand and $560 thousand excess reimbursable administrative expenses at June 30, 2011 and December 31, 2010, respectively.

6. Gain contingencies:

The Partnership’s vessel activity in the Gulf of Mexico was severely impacted by the British Petroleum (“BP”) “Deep Water Horizon” oil spill of 2010 which severely adversely impacted charter activity in the Gulf region. BP established a program to compensate those businesses and individuals suffering economic hardship and loss as a result of the Deep Water Horizon oil spill. The Partnership has submitted a claim to the BP program administrator seeking an approximate $2.8 million for loss of revenues during the period of the vessel’s diminished activity commencing at the time of the oil spill and continuing through 2010. While BP’s claim administrator reviews the Partnership’s claim, and the Partnership believes such claim to be of merit, the amount of any compensation or award from BP is currently extremely difficult to determine. As such, the potential for compensation or award has not been recorded on the Partnership’s books and records.

ATEL has chosen to litigate a claim on behalf of certain of its Funds for the under-reporting of revenue by a previous fleet manager of its marine vessels. Litigation continues relative to ATEL’s plaintiff position, seeking to recover an estimated total of $2.8 million, of which the Partnership’s portion approximates $1.4 million, of under-remitted revenues from marine vessel leasing covering years 2005 – 2007. Such amounts are not considered material to any of the Funds in any given year. While the Funds’ recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. Originally scheduled to begin in March 2011, court proceedings have been re-scheduled to commence in September 2011. However, the outcome, either via negotiation or court mandate, is currently indeterminable.

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ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Guarantees:

The Partnership enters into contracts that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The General Partner knows of no facts or circumstances that would make the Partnership’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Partnership believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Partnership’s similar commitments is remote. Should any such indemnification obligation become payable, the Partnership would separately record and/or disclose such liability in accordance with GAAP.

8. Partners’ capital:

As of June 30, 2011 and December 31, 2010, 14,985,550 Units were issued and outstanding. The Partnership had been authorized to issue up to 15,000,050 Units, including the 50 Units issued to the Initial Limited Partners, as defined.

The Partnership has the right, exercisable at the General Partner’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Partnership is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Agreement of Limited Partnership. The repurchase would be at the discretion of the General Partner on terms it determines to be appropriate under given circumstances, in the event that the General Partner deems such repurchase to be in the best interest of the Partnership; provided, the Partnership is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.

As defined in the Partnership Agreement, the Partnership’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Limited Partners and 7.5% to AFS.

As defined in the Partnership Agreement, available Cash from Operations shall be distributed as follows:

First, Distributions of Cash from Operations shall be 88.5% to the Limited Partners, 7.5% to AFS and 4% to AFS 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 Partnership Agreement.

Second, 85% to the Limited Partners, 7.5% to AFS and 7.5% to AFS or its affiliate designated as the recipient of the Incentive Management Fee.

As defined in the Partnership Agreement, available Cash from Sales or Refinancing are to be distributed as follows:

First, Distributions of Sales or Refinancing shall be 92.5% to the Limited Partners and 7.5% to AFS, 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 AFS and 7.5% to AFS or its affiliate designated as the recipient of the Incentive Management Fee.

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ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

8. Partners’ capital: - (continued)

Distributions to Limited Partners were as follows (in thousands, except per Unit data):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2011   2010   2011   2010
Distributions declared   $         —     $         —     $         —     $        2,248  
Weighted average number of Units outstanding     14,985,550       14,985,550       14,985,550       14,985,550  
Weighted average distributions per Unit   $     $     $     $ 0.15  

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (“MD&A”) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Partnership’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Partnership’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.

Overview

ATEL Capital Equipment Fund VII, L.P. (the “Partnership” or the “Fund”) is a California partnership that was formed in May 1996 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States.

The Partnership conducted a public offering of 15,000,000 Units of Limited Partnership Interest (“Units”), at a price of $10 per Unit. The offering was terminated in November 1998. During early 1999, the Partnership completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, throughout the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Partnership reinvested cash flow in excess of certain amounts required to be distributed to the Limited Partners and/or utilized its credit facilities to acquire additional equipment.

The Partnership may continue until December 31, 2017. However, pursuant to the guidelines of the Limited Partnership Agreement (“Partnership Agreement”), the Partnership began to liquidate its assets and distribute the proceeds thereof after the end of the Reinvestment Period which ended in December 2004.

As of June 30, 2011, the Partnership continues in its liquidation phase. Accordingly, assets that mature will be returned to inventory and most likely will be subsequently sold, which will result in decreasing revenue as earning assets decrease. Periodic distributions are paid at the discretion of the General Partner.

Results of Operations

The three months ended June 30, 2011 versus the three months ended June 30, 2010

The Partnership had net income of $577 thousand and net loss of $33 thousand for the three months ended June 30, 2011 and 2010, respectively. The results for the second quarter of 2011 reflect an increase in total revenues and a decrease in total operating expenses when compared to the prior year period.

Revenues

Total revenues for the second quarter of 2011 increased by $504 thousand, or 62%, as compared to the prior year period largely as a result of increased operating lease revenues.

The increase in operating lease revenues totaled $522 thousand and was primarily attributable to income derived from an approximate $3.8 million of off-lease equipment (at original equipment cost) that were re-leased under operating leases during the second quarter of 2011, and a period over period increase in marine vessel activity. Formerly on usage-based rentals, both marine vessels are now on fixed term leases.

Expenses

Total operating expenses for the second quarter of 2011 decreased by $104 thousand, or 12%, as compared to the prior year period. The net decrease in expenses was primarily a result of decreases in depreciation expense, insurance costs, and other management fees offset, in part, by increases in marine vessel maintenance and other operating costs, and the provision for doubtful accounts.

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Depreciation expense was reduced by $188 thousand mainly due to continued run-off of the lease asset portfolio as well as sales of terminating lease assets. Insurance costs related to the Partnership’s marine vessels decreased by $47 thousand primarily as (i) the responsibility for such expenses pertaining to both vessels was assumed by its lessee under a “bareboat charter” provision, and (ii) lower insurance costs were negotiated under a new policy. The bareboat charter provision transfers possession and full control of the vessels, including all legal and financial responsibility, to the lessee. Under this type of arrangement, the lessee pays for all operating expenses, including fuel, crew, port expenses and all required insurance coverage. Other management fees declined by $40 thousand as the usage-based vessels formerly managed by a third party manager are now under fixed-term leases.

Partly offsetting the aforementioned decreases in expenses were increases in marine vessel maintenance and other operating costs, and the provision for doubtful accounts totaling $105 thousand and $44 thousand, respectively. The increase in vessel maintenance and operating costs was primarily due to incremental costs incurred to prepare the marine vessels for new lessees. The provision for doubtful accounts increased as certain accounts receivable became delinquent (over 90 days) during the second quarter of 2011.

Other

During the second quarter of 2010, the Partnership recorded other loss, net totaling $2 thousand which represents a net loss from foreign currency transactions. Such net loss was primarily a result of the strength of the U.S. currency against the British pound at the time of the transactions. The British pound comprises the majority of the Partnership’s foreign currency transactions. There was no other income or loss recorded during the current year quarter.

The six months ended June 30, 2011 versus the six months ended June 30, 2010

The Partnership had net losses of $317 thousand and $935 thousand for the six months ended June 30, 2011 and 2010, respectively. The results for the first half of 2011 reflect an increase in total revenues and a slight decrease in total operating expenses when compared to the prior year period.

Revenues

Total revenues for the first half of 2011 increased by $587 thousand, or 37%, as compared to the prior year period. The net increase in total revenues was mostly attributable to an increase in operating lease revenues offset, in part, by decreases in gain on sales of assets and in direct financing lease revenues.

The growth in operating lease revenues totaled $652 thousand and was largely due to income derived from an approximate $3.8 million of off-lease equipment (at original equipment cost) that were re-leased under operating leases during the first half of 2011, coupled with a period over period increase in marine vessel activity. Formerly on usage-based rentals, both marine vessels are now on fixed term leases.

Gain on sales of lease assets decreased by $44 thousand largely due to lower volume and the change in the mix of assets sold during the current year period. Direct financing lease revenues declined by $26 thousand mainly due to run-off of the portfolio.

Expenses

Total operating expenses for the first half of 2011 decreased by $28 thousand as compared to the prior year period. The net decrease in expenses was primarily a result of decreases in depreciation expense, other management fees, insurance costs and professional fees offset, in part, by increases in freight and shipping costs, railcar and equipment maintenance expenses, marine vessel maintenance and other operating costs, franchise fees and state taxes, and the provision for doubtful accounts.

Depreciation expense was lower by $214 thousand primarily as a result of continued run-off and sales of lease assets. Other management fees declined by $100 thousand as the usage-based vessels formerly managed by a third party manager are now under fixed-term leases.

Moreover, insurance costs related to the Partnership’s marine vessels decreased by $89 thousand as (i) the responsibility for such expenses pertaining to both vessels was assumed by its lessee under a “bareboat charter” provision as previously discussed, and (ii) lower insurance costs were negotiated under a new policy. Finally,

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professional fees declined by $75 thousand primarily due to lower legal and audit related fees. Legal fees declined as the prior year period amount included a contingent legal fee agreement with the Fund’s prior law firm representing the Fund with respect to the Fund’s claim against its former marine vessel management company due to an alleged under-reporting of revenue.

Partially offsetting the aforementioned decreases in expenses was a $241 thousand increase in freight and shipping costs, a $62 thousand increase in railcar and equipment maintenance costs, a $56 thousand increase in marine vessel maintenance and other operating costs, a $52 thousand increase in franchise fees and state taxes, and a $32 thousand increase in the provision for doubtful accounts.

The increase in freight and shipping expenses reflects costs reimbursed to a rail management company for transferring certain railcars from the United States to Canada as part of a lease deal restructuring during first quarter of 2011. Railcar and equipment maintenance expenses increased largely due to costs associated with certain off-lease railcars which were re-leased under operating leases during the current year period. Likewise, vessel maintenance and operating costs increased primarily due to incremental costs incurred to prepare the marine vessels for new lessees. In addition, franchise and state taxes increased primarily as a result of a period over period increase in estimated tax payments and liabilities; and, the provision for doubtful accounts increased as certain accounts receivable became delinquent (over 90 days) during the current year period.

Other

The Partnership recorded other loss, net totaling $7 thousand and $10 thousand for the six months ended June 30, 2011 and 2010, respectively. Both amounts represent losses from foreign currency transactions during the respective periods, resulting from the strength of the U.S. currency against the British pound at the time of the transactions. The British pound comprises the majority of the Partnership’s foreign currency transactions.

Capital Resources and Liquidity

At June 30, 2011 and December 31, 2010, the Partnership’s cash and cash equivalents totaled $3.7 million and $2.6 million, respectively. The liquidity of the Partnership varies, increasing to the extent cash flows from leases and proceeds from lease asset sales exceed expenses and decreasing as distributions are made to the partners and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The primary source of liquidity for the Partnership has been its cash flow from leasing activities. As the initial lease terms have expired, the Partnership ventured to re-lease or sell the equipment. Future liquidity will depend on the Partnership’s success in remarketing or selling the equipment as it comes off rental.

In a normal economy, if inflation in the general economy becomes significant, it may affect the Partnership in as much 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. In addition, if interest rates increase significantly under such circumstances, 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.

The Partnership currently believes it has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, 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. AFS envisions no such requirements for operating purposes.

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Cash Flows

The following table sets forth summary cash flow data (in thousands):

       
  Three Months Ended June 30,   Six Months Ended June 30,
     2011   2010   2011   2010
Net cash provided by (used in):
                                   
Operating activities   $    797     $    245     $ 807     $ 265  
Investing activities     152       112       236       255  
Financing activities                       (2,430 ) 
Net increase (decrease) in cash and cash equivalents   $ 949     $ 357     $   1,043     $   (1,910 ) 

The three months ended June 30, 2011 versus the three months ended June 30, 2010

Operating Activities

Cash provided by operating activities during the second quarter of 2011 increased by $552 thousand as compared to the prior year period. The net increase in cash flow was mainly attributable to the current period net income and an increase in prepaid rents received during the current year quarter offset, in part, by a period over period reduction in depreciation of lease assets (a non-cash item added back to net income).

Investing Activities

Cash provided by investing activities during the second quarter of 2011 increased by $40 thousand as compared to the prior year period. The net increase in cash flow was comprised of a $28 thousand increase in proceeds from sales of lease assets and a $12 thousand increase in principal payments received on direct financing leases.

Proceeds from sales of lease assets increased primarily due to the period over period change in the mix of assets sold; and, principal payments received on direct financing leases increased as a greater portion of total monthly payments were applied to principal on mid- to late-term leases.

Financing Activities

The Partnership had no financing activities during the second quarters of 2011 and 2010.

The six months ended June 30, 2011 versus the six months ended June 30, 2010

Operating Activities

Cash provided by operating activities during the first half of 2011 increased by $542 thousand as compared to the prior year period. The net increase in cash flow was primarily attributable to a lower net loss and an increase in prepaid rents received during the current year period offset, in part, by the period over period reduction in depreciation of lease assets (a non-cash item added back to net income), and an increase in payments made against accrued liabilities related to amounts due to AFS and its affiliates.

Investing Activities

Cash provided by investing activities during the first half of 2011 decreased by $19 thousand as compared to the period year period. The net decrease in cash flow was attributable to a $35 thousand decrease in proceeds from sales of lease assets offset, in part, by a $16 thousand increase in principal payments received on direct financing leases.

The decrease in proceeds from sales of lease assets was primarily due to lower volume and the change in the mix of assets sold during the current year period; and, the increase in principal payments received on direct financing leases reflects a greater portion of total monthly payments applied to principal on mid- to late-term leases.

Financing Activities

The Partnership had no financing activities during the first half of 2011. Cash used in financing activities during the first half of 2010 represents distributions paid to both Limited Partners and the General Partner totaling $2.2 million and $182 thousand, respectively.

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Distributions

The Partnership commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1997. The rates and frequency of periodic distributions paid by the Fund during its liquidation phase are solely at the discretion of the General Partner.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At June 30, 2011, the Partnership had no commitments to purchase lease assets and pursuant to the Partnership Agreement, the Partnership will no longer purchase any new lease assets.

Gain Contingencies

The Partnership’s vessel activity in the Gulf of Mexico was severely impacted by the British Petroleum (“BP”) “Deep Water Horizon” oil spill of 2010 which severely adversely impacted charter activity in the Gulf region. BP established a program to compensate those businesses and individuals suffering economic hardship and loss as a result of the Deep Water Horizon oil spill. The Partnership has submitted a claim to the BP program administrator seeking an approximate $2.8 million for loss of revenues during the period of the vessel’s diminished activity commencing at the time of the oil spill and continuing through 2010. While BP’s claim administrator reviews the Partnership’s claim, and the Partnership believes such claim to be of merit, the amount of any compensation or award from BP is currently extremely difficult to determine. As such, the potential for compensation or award has not been recorded on the Partnership’s books and records.

Moreover, ATEL has chosen to litigate a claim on behalf of certain of its Funds for the under-reporting of revenue by a previous fleet manager of its marine vessels. Litigation continues relative to ATEL’s plaintiff position, seeking to recover an estimated total of $2.8 million, of which the Partnership’s portion approximates $1.4 million, of under-remitted revenues from marine vessel leasing covering years 2005 – 2007. Such amounts are not considered material to any of the Funds in any given year. While the Funds’ recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. Originally scheduled to begin in March 2011, court proceedings have been re-scheduled to commence in September 2011. However, the outcome, either via negotiation or court mandate, is currently indeterminable.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part I, Item 1, Financial Statements (Unaudited).

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Partnership evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.

The Partnership’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes to the Partnership’s critical accounting policies since December 31, 2010.

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Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

The Partnership’s General Partner’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Partnership’s disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.

The Partnership does not control the financial reporting process, and is solely dependent on the Management of the General Partner, which is responsible for providing the Partnership with financial statements in accordance with generally accepted accounting principles in the United States. The General Partner’s disclosure controls and procedures, as applicable to the Partnership, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Changes in internal control

There were no changes in the General Partner’s internal control over financial reporting, as it is applicable to the Partnership, during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the General Partner’s internal control over financial reporting, as it is applicable to the Partnership.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Partnership. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Partnership’s financial position or results of operations. No material legal proceedings are currently pending against the Partnership or against any of its assets.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved].

Item 5. Other Information.

None.

Item 6. Exhibits.

Documents filed as a part of this report:

1. 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 not applicable, and therefore have been omitted.

2. Other Exhibits

31.1 Rule 13a-14(a)/15d-14(a) Certification of Dean L. Cash
31.2 Rule 13a-14(a)/15d-14(a) Certification of Paritosh K. Choksi
32.1 Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 12, 2011

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 ATEL
Financial Services, LLC (General Partner)

    

By:

/s/ Paritosh K. Choksi
Paritosh K. Choksi
Executive Vice President and Chief Financial Officer
and Chief Operating Officer of ATEL Financial
Services, LLC (General Partner)

    

By:

/s/ Samuel Schussler
Samuel Schussler
Vice President and Chief Accounting Officer of
ATEL Financial Services, LLC (General Partner)

    

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