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Form 10K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 (fee required)
For the Year Ended December 31, 1999
OR
|_| Transition report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934 (no fee
required) For the transition period from ____ to
____
Commission File number 333-62477
ATEL Capital Equipment Fund VIII, LLC
California 94-3307404
- ---------- ----------
(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
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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 |_|
State the aggregate market value of voting stock held by non-affiliates of the
registrant. Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE
Prospectus dated December 7, 1998, filed pursuant to Rule 424(b) (Commission
File No. 33-62477) is hereby incorporated by reference into Part IV hereof.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
1
PART I
Item 1: BUSINESS
General Development of Business
ATEL Capital Equipment Fund VIII, LLC (the Company), was formed under the laws
of the State of California in July 1998. The Company was formed for the purpose
of acquiring equipment to engage in equipment leasing and sales activities. The
Managing Member of the Company is ATEL Financial Corporation (ATEL), a
California corporation.
The Company is conducting a public offering of 15,000,000 of Limited Liability
Company Units (Units), at a price of $10 per Unit. As of December 31, 1998, the
Company had received subscriptions for 77,900 ($779,000) Units in addition to
the Initial Members' Units. No Units, in addition to the Initial Members' Units,
were issued or outstanding as of December 31, 1998. At December 31, 1998, all of
the subscriptions received were held in escrow.
On January 13, 1999, subscriptions for the minimum number of Units (120,000,
$1,200,000) had been received and ATEL requested that the subscriptions, except
those received from Pennsylvania investors (7,500 Units, $75,000), be released
to the Company. On that date, the Company commenced operations in its primary
business (leasing activities). As of February 18, 1999, the Company had received
subscriptions for 775,777 Units ($7,757,770) and ATEL requested that the
remaining funds in escrow (from Pennsylvania investors) be released to the
Company. As of December 31, 1999, the Company had received and accepted
subscriptions for 7,744,276 Units ($77,442,760) in addition to the Initial
Members' Units. As of that date, 7,744,326 Units were issued and outstanding.
The Company's principal objectives are to invest in a diversified portfolio of
equipment which will (i) preserve, protect and return the Company's invested
capital; (ii) generate 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, ending 72 months after the end of the year in which the
Final Closing occurs and (iii) provide additional distributions following the
reinvestment period and until all equipment has been sold. The Company is
governed by its Limited Liability Company Operating Agreement (Operating
Agreement).
Narrative Description of Business
The Company has acquired and intends to acquire various types of equipment and
to lease such equipment pursuant to "Operating" leases and "High Payout" leases,
where "Operating" leases are defined as being leases in which the minimum lease
payments during the initial lease term do not recover the full cost of the
equipment and "High Payout" leases recover at least 90% of such cost. It is the
intention of ATEL that a majority of the aggregate purchase price of equipment
will represent equipment leased under "High Payout" leases upon final investment
of the Net Proceeds of the Offering and that no more than 20% of the aggregate
purchase price of equipment will be invested in equipment acquired from a single
manufacturer.
The Company will only purchase equipment for which a lease exists or for which a
lease will be entered into at the time of the purchase.
As of December 31, 1999, the Company had purchased equipment with a total
acquisition price of $142,792,186.
The Company's objective is to lease a minimum of 75% of the equipment acquired
with the net proceeds of the offering to lessees which (i) have an aggregate
credit rating by Moody's Investor service, Inc. of Baa or better, or the credit
equivalent as determined by ATEL, with the aggregate rating weighted to account
for the original equipment cost for each item leased or (ii) are established
hospitals with histories of profitability or municipalities. The balance of the
original equipment portfolio may include equipment leased to lessees which,
although deemed creditworthy by the Managing Member, would not satisfy the
general credit rating criteria for the portfolio. In excess of 75% of the
equipment acquired with the net proceeds of the offering (based on original
purchase cost) has been leased to lessees with an aggregate credit rating of Baa
or better or to such hospitals or municipalities.
2
During 1999 certain lessees generated significant portions of the Company's
total lease revenues as follows:
Lessee Type of Equipment
Transamerica Leasing Inc. Intermodal containers 31%
Staples, Inc. Point of sale / materials handling 12%
Stewart & Stevenson Services, Inc. Gas Compressors 12%
Seamex International Ltd. Anchor Handler Tug Supply Vessel 10%
These percentages are not expected to be comparable in future periods.
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease term and type of equipment. The ability of the Company to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depends on various factors (many of which are not in
the control of ATEL or the Company), such as general economic conditions,
including the effects of inflation or recession, and fluctuations in supply and
demand for various types of equipment resulting from, among other things,
technological and economic obsolescence.
ATEL will seek to limit the amount invested in equipment to any single lessee to
not more than 20% of the aggregate purchase price of equipment owned at any time
during the reinvestment period.
The business of the Company is not seasonal.
The Company has no full time employees.
Equipment Leasing Activities
The Company has acquired a diversified portfolio of equipment. The equipment has
been leased to lessees in various industries. The following tables set forth the
types of equipment acquired by the Company through December 31, 1999 and the
industries to which the assets have been leased. The Company has purchased
certain assets subject to existing non-recourse debt. For financial statement
purposes, non-recourse debt has been offset against the investment in certain
direct finance leases where the right of setoff exists.
Purchase price excluding Percentage of total
Asset types acquisition fees acquisitions
----------- ---------------- ------------
Transportation, rail $38,224,944 26.75%
Aircraft 24,411,837 17.10%
Transportation, intermodal
containers 21,228,750 14.87%
Manufacturing 19,969,858 13.99%
Transportation, other 10,766,885 7.54%
Point of sale / office automation 7,621,181 5.34%
Gas compressors 7,298,694 5.11%
Marine vessels 3,952,500 2.77%
Other * 9,317,537 6.53%
---------------- -----------------
$142,792,186 100.00%
================ =================
* Individual asset types included in "Other" represent less than 2.5% of the
total.
3
Purchase price excluding Percentage of total
Industry of lessee acquisition fees acquisitions
------------------ ---------------- ------------
Transportation, rail $38,224,944 26.77%
Transportation, air 24,411,837 17.10%
Transportation, containers 21,228,750 14.87%
Manufacturing 20,922,705 14.65%
Transportation, other 14,199,765 9.94%
Retail 11,242,250 7.87%
Other * 12,561,935 8.80%
---------------- -----------------
$142,792,186 100.00%
================ =================
* Individual lessee industries included in "Other" represent less than 5% of the
total.
For further information regarding the Company's equipment lease portfolio as of
December 31, 1999, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Company does not own or lease any real property, plant or materially
important physical properties other than the equipment held for lease as set
forth in Item 1.
Item 3. LEGAL PROCEEDINGS
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED LIABILITY COMPANY UNITS
AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Company and its investment objectives, to the
ATEL's knowledge, no established public secondary trading market has developed
and it is unlikely that a public trading market will develop in the future.
Holders
As of December 31, 1999, a total of 2,073 investors were record holders of Units
in the Company.
Dividends
The Company does not make dividend distributions. However, the Members of the
Company are entitled to certain distributions as provided under the Operating
Agreement.
4
ATEL shall have sole discretion in determining the amount of distributions;
provided, however, that the Managing Member will not reinvest in equipment, but
will distribute, subject to payment of any obligations of the Company, such
available cash from operations and cash from sales or refinancing as may be
necessary to cause total distributions to the Members for each year during the
reinvestment period to equal an as yet to be determined amount between $0.80 and
$1.00 per Unit.
The rate for monthly distributions from 1999 operations was $0.0667 per Unit.
The distributions were made in February 1999 through December 1999 and in
January 2000. For each quarterly distribution (made in April, July and October
1999 and in January 2000) the rate was $0.20 per Unit. Distributions were from
1999 cash flows from operations. An additional distribution from 1999 cash flows
was made in January 2000. The amount of the distribution was calculated for each
Unit so as to bring the average of all monthly distributions received to a total
of $.075 per month per Unit and to $0.225 per Unit per quarter for those
receiving distributions on a quarterly basis. The total distributions represent
a distribution rate of 9% per annum on the original invested capital. The
amounts paid to holders of Units were adjusted based on the length of time
within the previous calendar month, quarter or year that the Units were
outstanding.
The following table presents summarized information regarding distributions to
Other Members:
1999
Distributions of net income $ 0.06
Return of investment 0.55
-----------------
Distributions per unit 0.61
Differences due to timing of distributions 0.29
-----------------
Nominal distribution rates from above $ 0.90
=================
Information provided pursuant to ss. 228.701 (Item 701(f)) (formerly included in
Form SR):
(1) Effective date of the offering: December 7, 1998; File Number: 333-62477
(2) Offering commenced: December 7, 1998
(3) The offering did not terminate before any securities were sold.
(4) The offering has not been terminated prior to the sale of all of the
securities.
(5) The managing underwriter is ATEL Securities Corporation.
(6) The title of the registered class of securities is "Limited Liability
Company Units"
(7) Aggregate amount and offering price of securities registered and sold as
of February 29, 2000.
5
Aggregate Aggregate
price of price of
offering offering
Amount amount Amount amount
Title of Security Registered registered sold sold
----------------- ---------- ---------- ---- ----
Limited Liability Company
Units 15,000,000 $ 150,000,000 8,634,635 $ 86,346,350
(8) Costs incurred for the issuers account in
connection with the issuance and distribution of
the securities registered for each category listed
below:
Direct or indirect payments to
directors, officers, managing
member of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
---------- ------ -----
Underwriting discounts and
commissions $ 1,170,064 $ 7,032,839 $ 8,202,903
Other expenses - 4,135,586 4,135,586
---------------- ----------------- ----------------
Total expenses $ 1,170,064 $ 11,168,425 $ 12,338,489
================ ================= ================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $ 74,007,861
(10) The amount of net offering proceeds to the
issuer used for each of the purposes listed
below:
Direct or indirect payments
to directors, officers, general
partners of the issuer or their
associates; to persons
owning ten percent or more Direct or
of any class of equity indirect
securities of the issuer; and payments to
to affiliates of the issuer others Total
--------------------------- ------ -----
Purchase and installation of
machinery and equipment $ - $ 73,576,129 $ 73,576,129
Working capital - 431,732 431,732
---------------- ----------------- ----------------
$ - $ 74,007,861 $ 74,007,861
================ ================= ================
(11) The use of the proceeds in Item 10 does not
represent a material change in the uses of
proceeds described in the prospectus.
6
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company at December
31, 1999 and 1998. This financial data should be read in conjunction with the
financial statements and related notes included under Item 8 of this report.
1999 1998
---- ----
Gross revenues $ 8,660,653 $ -
Net income $ 438,835 $ -
Weighted average Units 4,031,294 50
Net income per Unit, based on weighted average Units outstanding $ 0.06 $ -
Distributions per Unit, based on weighted average Units outstanding $ 0.61 $ -
Total Assets $ 145,663,336 $ 600
Non-recourse & Long-term Debt $ 71,848,617 $ -
Total Partners' Capital $ 64,130,010 $ 600
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Company commenced its offering on December 7, 1998. As of December 31, 1998,
all of the proceeds of the offering were held by the escrow agent. On January
13, 1999, the Company commenced operations in its primary business (leasing
activities). During the funding period and until the Company's initial portfolio
of equipment has been purchased, funds which have been received, but which have
not yet been invested in leased equipment, are invested in interest-bearing
accounts or high-quality/short-term commercial paper. The Company's public
offering provides for a total maximum capitalization of $150,000,000.
During the funding period, the Company's primary source of liquidity is
subscription proceeds from the public offering of Units. The liquidity of the
Company will vary in the future, increasing to the extent cash flows from leases
and proceeds of asset sales 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 and proceeds from asset sales.
As another source of liquidity, the Company is expected to have contractual
obligations with a diversified group of lessees for fixed lease terms at fixed
rental amounts. As the initial lease terms expire, the Company will re-lease or
sell the equipment. The future liquidity beyond the contractual minimum rentals
will depend on ATEL's success in re-leasing or selling the equipment as it comes
off lease.
The Company participates with ATEL and certain of its affiliates in a
$95,000,000 revolving line of credit with a financial institution that includes
certain financial covenants. The line of credit expires on April 30, 2000. As of
December 31, 1999, the Company had borrowed $7,500,000 under the line of credit
and used the proceeds to purchase assets under lease to several lessees. At
December 31, 1999, $21,857,103 was available under the line of credit.
The Company anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to the Managing Member
and providing for cash distributions to the Other Members. At December 31, 1999,
there were commitments to purchase lease assets totaling approximately
$25,400,000.
7
ATEL or an Affiliate may purchase equipment in its own name, the name of an
Affiliate or the name of a nominee, a trust or otherwise and hold title thereto
on a temporary or interim basis for the purpose of facilitating the acquisition
of such equipment or the completion of manufacture of the equipment or for any
other purpose related to the business of the Company, provided, however that:
(i) the transaction is in the best interest of the Company; (ii) such equipment
is purchased by the Company for a purchase price no greater than the cost of
such equipment to ATEL or Affiliate (including any out-of-pocket carrying
costs), except for compensation permitted by the Operating Agreement; (iii)
there is no difference in interest terms of the loans secured by the equipment
at the time acquired by ATEL or Affiliate and the time acquired by the Company;
(iv) there is no benefit arising out of such transaction to ATEL or its
Affiliate apart from the compensation otherwise permitted by the Operating
Agreement; and (v) all income generated by, and all expenses associated with,
equipment so acquired shall be treated as belonging to the Company.
The Company currently has available adequate reserves to meet its immediate cash
requirements, but in the event those reserves were found to be inadequate, the
Company would likely be in a position to borrow against its current portfolio to
meet such requirements. ATEL envisions no such requirements for operating
purposes.
In 1999, the Company established a $70 million receivables funding program with
a receivables financing company that issues commercial paper rated A1 from
Standard and Poors and P1 from Moody's Investor Services. In this receivables
funding program, the lenders received a general lien against all of the
otherwise unencumbered assets of the Company. The program provides for borrowing
at a variable interest rate and requires the Managing Member to enter into hedge
agreements with certain hedge counterparties (also rated A1/P1) to mitigate the
interest rate risk associated with a variable rate note. The Managing Member
anticipates that this program will allow the Company to avail itself of lower
cost debt than that available for individual non-recourse debt transactions.
It is the intention of the Company to use the receivables funding program to
finance assets leased to those lessees which, in the opinion of the Managing
Member, have a relatively lower potential risk of lease default than those
lessees with equipment financed with non-recourse debt. The Company will
continue to use its traditional sources of non-recourse secured debt financing
on a transaction basis as a means of mitigating credit risk.
ATEL expects that aggregate borrowings in the future will be approximately 50%
of aggregate equipment cost. In any event, the Operating Agreement limits such
borrowings to 50% of the total cost of equipment, in aggregate.
The Company commenced regular distributions, based on cash flows from
operations, beginning with the month of January 1999. The distribution was made
in February 1999.
If inflation in the general economy becomes significant, it may affect the
Company inasmuch as the residual (resale) values and rates on re-leases of the
Company's leased assets may increase as the costs of similar assets increase.
However, the Company's 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 the Company 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.
8
Cash Flows
In 1999, the Company's primary sources of cash were various types of debt
proceeds and the proceeds of its public offering of Units.
The primary source of cash from operating activities in 1999 was operating lease
rents.
Rents from direct financing leases was the only significant source of cash from
investing activities. Uses of cash in investing activities consisted primarily
of purchases of assets on operating and direct financing leases. Cash was also
used to pay initial direct costs associated with those leases.
The primary source of cash from financing activities was the proceeds of the
Company's public offering. Proceeds from non-recourse and long-term debt and
borrowings under the line of credit also provided cash in 1999. Cash provided by
financing activities was used to purchase lease assets.
Results of Operations
As of January 13, 1999, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Company. As of that date, the
Company commenced operations in its primary business (leasing activities). There
were no operations in 1998. Because of the timing of the commencement of
operations and the fact that the initial portfolio acquisitions have not been
completed, the results of operations in 1999 are not expected to be comparable
to future periods. After the Company's public offering and its initial asset
acquisition stage terminate, the results of operations are expected to change
significantly.
Substantially all employees of ATEL track time incurred in performing
administrative services on behalf of the Company. ATEL believes that the costs
reimbursed are the lower of (i) actual costs incurred on behalf of the Company
or (ii) the amount the Company would be required to pay independent parties for
comparable administrative services in the same geographic location.
Operations in 1999 resulted in net income of $438,835. Operations in future
periods are not expected to be comparable to those in 1999.
Impact of the Year 2000
To date, the Company has experienced no significant year 2000 problems and the
Managing Member believes it does not have continued exposure to the year 2000
problem.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Company believes its exposure
to other market risks including foreign currency exchange rate risk, commodity
risk and equity price risk are insignificant to both its financial position and
results of operations.
In general, the Company manages its exposure to interest rate risk by obtaining
fixed rate debt. The fixed rate debt is structured so as to match the cash flows
required to service the debt to the payment streams under fixed rate lease
receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. Furthermore, the Company has historically been able to
maintain a stable spread between its cost of funds and lease yields in both
periods of rising and falling rates. Nevertheless, the Company frequently funds
leases with its floating rate line of credit and is therefore exposed to
interest rate risk until fixed rate financing is arranged, or the floating rate
line of credit is repaid. As of December 31, 1999, $7,500,000 was outstanding on
the floating rate line of credit. Also, as described in the caption "Capital
Resources and Liquidity," the Company entered into a receivables funding
facility in 1999. Since interest on the outstanding balances under the facility
varies, the Company is exposed to market risks associated with changing interest
rates.
9
To hedge its interest rate risk, the Company enters into interest rate swaps
which effectively modify the underlying interest characteristic on the facility
from floating to fixed. Under the swap agreements, the Company makes or receives
variable interest payments to or from the counterparty based on a notional
principal amount. The net differential paid or received by the Company is
recognized as an adjustment to interest expense related to the facility
balances. The amount paid or received represents the difference between the
payments required under the variable rate facility and the amounts due under
facility at the fixed (hedged) rate. As of December 31, 1999, borrowings on the
facility were $64,674,000 and the associated variable rate was 6.2476%. The
average fixed rate achieved with the swap agreements was 7.23%.
In general, these swap agreements eliminate the Company's interest rate risk
associated with variable rate borrowings. However, the Company is exposed to and
manages credit risk associated with the counterparty by dealing only with
institutions it considers financially sound. If these agreements were not in
place, based on the Company's facility borrowings at December 31, 1999, a
hypothetical 1.00% increase or decrease in market interest rates, would increase
or decrease the Company's 2000 variable interest expense by approximately
$604,000.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 11 through 22.
10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Members
ATEL Capital Equipment Fund VIII, LLC
We have audited the accompanying balance sheets of ATEL Capital Equipment Fund
VIII, LLC as of December 31, 1999 and 1998, and the related statements of
income, changes in members' capital and cash flows for the year ended December
31, 1999, and the related statements of changes in members' capital and cash
flows for the period from July 31, 1998 (inception) through December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund
VIII, LLC at December 31, 1999 and 1998, and the results of operations, changes
in members' capital and its cash flows for the year ended December 31, 1999, and
its changes in members' capital and cash flows for the period from July 31, 1998
(inception) through December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California
February 8, 2000
11
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---- ----
Cash and cash equivalents $ 3,973,342 $ 600
Accounts receivable 2,124,786 -
Other assets 145,000 -
Investments in equipment and leases 139,420,208 -
----------------- ----------------
Total assets $ 145,663,336 $ 600
================= ================
LIABILITIES AND MEMBERS' CAPITAL
Long-term debt $ 64,674,000
Non-recourse debt 7,174,617
Line of credit 7,500,000
Accounts payable:
Managing Member 811,287
Other 1,123
Accrued interest payable 114,602
Unearned operating lease income 1,257,697
-----------------
Total liabilities 81,533,326
Members' capital:
Managing Member - $ 100
Other members 64,130,010 500
----------------- ----------------
Total members' capital 64,130,010 600
----------------- ----------------
Total liabilities and members' capital $ 145,663,336 $ 600
================= ================
See accompanying notes.
12
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
Revenues:
Leasing activities:
Operating leases $ 8,212,649
Direct financing leases 347,764
Gain on sales of assets 3,017
Interest 95,948
Other 1,275
------------------
8,660,653
Expenses:
Depreciation and amortization 5,392,504
Interest expense 1,340,804
Administrative cost reimbursements to Managing Member 767,386
Asset management fees to Managing Member 443,943
Professional fees 155,743
Other 121,438
------------------
8,221,818
------------------
Net income $ 438,835
==================
Net income:
Managing Member $ 199,415
Other members 239,420
------------------
$ 438,835
==================
Net income per Limited Liability Company Unit $ 0.06
Weighted average number of Units outstanding 4,031,294
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM JULY 31, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998 AND FOR THE
YEAR ENDED DECEMBER 31, 1999
Other Members
------------- Managing
Units Amount Member Total
----- ------ ------ -----
Capital contributions 50 $ 500 $ 100 $ 600
---------------- ---------------- ----------------- ----------------
Balance December 31, 1998 50 500 100 600
Capital contributions 7,744,276 77,442,760 - 77,442,760
Less selling commissions to affiliates (7,357,062) - (7,357,062)
Other syndication costs to affiliates (3,734,924) - (3,734,924)
Distributions to Managing Member - (199,515) (199,515)
Distributions to other members ($0.61 per Unit) (2,460,684) - (2,460,684)
Net income 239,420 199,415 438,835
---------------- ---------------- ----------------- ----------------
Balance December 31, 1999 7,744,326 $ 64,130,010 $ - $ 64,130,010
================ ================ ================= ================
See accompanying notes.
13
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JULY 31, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998 AND FOR THE
YEAR ENDED DECEMBER 31, 1999
1999 1998
---- ----
Operating activities:
Net income $ 438,835
Adjustments to reconcile net income to cash provided
by operating activities:
Gain on sales of assets (3,017)
Depreciation and amortization 5,392,504
Changes in operating assets and liabilities:
Accounts receivable (2,124,786)
Other assets (145,000)
Accounts payable, Managing Member 811,287
Accounts payable, other 1,123
Accrued interest 114,602
Unearned lease income 1,257,697
-----------------
Net cash provided by operations 5,743,245
-----------------
Investing activities:
Purchases of equipment on operating leases (135,053,806)
Purchases of equipment on direct financing leases (9,992,009)
Reduction of net investment in direct financing leases 951,549
Payment of initial direct costs to Managing Member (753,607)
Proceeds from sales of assets 38,178
-----------------
Net cash used in investing activities (144,809,695)
-----------------
Financing activities:
Capital contributions received 77,442,760 $ 600
Payment of syndication costs to Managing Member (11,091,986) -
Proceeds of non-recourse debt 7,174,617 -
Proceeds of other long-term debt 65,000,000 -
Repayments of other long-term debt (326,000) -
Repayments of line of credit (69,141,662) -
Borrowings under line of credit 76,641,662 -
Distributions to other members (2,460,684) -
Distributions to Managing Member (199,515) -
----------------- -------
Net cash provided by financing activities 143,039,192 600
----------------- -------
Net increase in cash and cash equivalents 3,972,742 600
Cash and cash equivalents at beginning of period 600 -
----------------- -------
Cash and cash equivalents at end of period $ 3,973,342 $ 600
================= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,340,804 $ -
================= =======
See accompanying notes.
14
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund VIII, LLC (the Company), was formed under the laws
of the State of California on July 31, 1998, for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. The Company shall
continue until December 31, 2019. The Managing Member of the Company is ATEL
Financial Corporation (ATEL), a California corporation. Contributions in the
amount of $600 had been received as of December 31, 1998, $100 of which
represented the Managing Member's (ATEL Financial Corporation's) (ATEL's)
continuing interest, and $500 of which represented the Initial Members' capital
investment. Each Member's personal liability for obligations of the Company
generally will be limited to the amount of their respective contributions and
rights to undistributed profits and assets of the Company.
As of December 31, 1998, the Company had not commenced operations other than
those relating to organizational matters. The Company, or ATEL on behalf of the
Company, will incur costs in connection with the organization, registration and
issuance of the Limited Liability Company Units (Units). The amount of such
costs to be borne by the Company is limited by certain provisions of the Limited
Liability Company Operating Agreement (Operating Agreement). On January 13,
1999, subscriptions for the minimum number of Units (120,000, $1,200,000) had
been received. On that date, the Company commenced operations in its primary
business (leasing activities).
The Company, or the Managing Member on behalf of the Company, will incur costs
in connection with the organization, registration and issuance of the Units. The
amount of such costs to be borne by the Company is limited to 15% of Gross
Proceeds of up to $25,000,000 and 14% of Gross Proceeds in excess of $25,000,000
(see Note 6).
The Company's business consists of leasing various types of equipment. As of
December 31, 1999, the original terms of the leases ranged from fifteen months
to ten years.
Pursuant to the Operating Agreement, the Managing Member receives compensation
and reimbursements for services rendered on behalf of the Company (see Note 6).
The Managing Member is required to maintain in the Company reasonable cash
reserves for working capital, the repurchase of Units and contingencies.
2. Summary of significant accounting policies:
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the life of the
related leases.
Direct financing leases:
Income from direct financing lease transactions is reported on the financing
method of accounting, in which the Company's investment in the leased property
is reported as a receivable from the lessee to be recovered through future
rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
15
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. Summary of significant accounting policies (continued):
Investment in leveraged leases:
Leases which are financed principally with non-recourse debt at lease inception
and which meet certain other criteria are accounted for as leveraged leases.
Leveraged lease contracts receivable are stated net of the related non-recourse
debt service (which includes unpaid principal and aggregate interest on such
debt) plus estimated residual values. Unearned income represents the excess of
anticipated cash flows (after taking into account the related debt service and
residual values) over the investment in the lease and is amortized using a
constant rate of return applied to the net investment when such investment is
positive.
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
Income taxes:
The Company does not provide for income taxes since all income and losses are
the liability of the individual partners and are allocated to the partners for
inclusion in their individual tax returns.
The tax basis of the Partnership's net assets and liabilities varies from the
amounts presented in these financial statements (unaudited):
Financial statement basis of net assets $ 64,130,010
Tax basis of net assets 61,162,734
----------------
Difference $ 2,967,276
================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the result of differences in accounting
for syndication costs and differences between the depreciation methods used in
the financial statements and the Company's tax returns.
The following reconciles the net income reported in these financial statements
to the loss reported on the Company's federal tax return (unaudited):
Net income per financial statements $ 438,835
Adjustment to depreciation expense (16,401,065)
Adjustments to lease revenues 2,343,563
----------------
Net loss per federal tax return $ (13,618,667)
================
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
16
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. Summary of significant accounting policies (continued):
Credit Risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk include cash and cash equivalents and accounts receivable. The
Company places its cash deposits and temporary cash investments with
creditworthy, high quality financial institutions. The concentration of such
deposits and temporary cash investments is not deemed to create a significant
risk to the Company. Accounts receivable represent amounts due from lessees in
various industries, related to equipment on operating and direct financing
leases. See Note 8 for a description of lessees by industry as of December 31,
1999.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Reserve for losses and impairments:
The Company maintains a reserve on its investments in equipment and leases for
losses and impairments which are inherent in the portfolio as of the balance
sheet date. The Managing Member's evaluation of the adequacy of the allowance is
a judgmental estimate that is based on a review of individual leases, past loss
experience and other factors. While the Managing Member believes the allowance
is adequate to cover known losses, it is reasonably possible that the allowance
may change in the near term. However, such change is not expected to have a
material effect on the financial position or future operating results of the
Company. It is the Company's policy to charge off amounts which, in the opinion
of the Managing Member, are not recoverable from lessees or the disposition of
the collateral.
3. Investment in leases:
At December 31, 1999 the Company's investments in equipment and leases consist
of the following:
Depreciation
Expense or Reclass- Balance
Amortization ifications or December 31,
Additions of Leases Dispositions 1999
--------- --------- ------------ ----
Net investment in operating leases $135,053,806 $ (5,329,189) $ (35,161) $ 129,689,456
Net investment in direct financing leases 9,992,009 (951,549) - 9,040,460
Initial direct costs, net of accumulated
amortization of $65,075 753,607 (63,315) - 690,292
---------------- ---------------- ----------------- ----------------
$145,799,422 $ (6,344,053) $ (35,161) $ 139,420,208
================ ================ ================= ================
17
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. Investment in leases (continued):
Operating leases:
Property on operating leases consists of the following:
Reclass- Balance
ifications or December 31,
Additions Dispositions 1999
--------- ------------ ----
Transportation, rail $38,240,579 $ (15,635) $ 38,224,944
Aircraft 24,411,837 - 24,411,837
Containers 21,250,000 (21,250) 21,228,750
Manufacturing 21,949,691 - 21,949,691
Transportation, other 10,247,265 - 10,247,265
Natural gas compressors 7,863,922 - 7,863,922
Marine vessel 3,952,500 - 3,952,500
Materials handling 2,086,090 - 2,086,090
Other 5,051,922 - 5,051,922
---------------- --------------- -----------------
135,053,806 (36,885) 135,016,921
Less accumulated depreciation (5,329,189) 1,724 (5,327,465)
---------------- --------------- -----------------
$129,724,617 $ (35,161) $ 129,689,456
================ =============== =================
Direct financing leases:
As of December 31, 1999, investment in direct financing leases consists of
office automation equipment, point of sale equipment, refrigerated trailers and
laundry equipment. The following lists the components of the Company's
investment in direct financing leases as of December 31, 1999:
Total minimum lease payments receivable $ 9,500,631
Estimated residual values of leased equipment (unguaranteed) 1,247,559
-----------------
Investment in direct financing leases 10,748,190
Less unearned income (1,707,730)
-----------------
Net investment in direct financing leases $ 9,040,460
=================
All of the property on leases was acquired in 1999. There were no significant
dispositions of such property.
At December 31, 1999, the aggregate amounts of future minimum lease payments are
as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
2000 $ 22,716,273 $ 2,288,208 $ 25,004,481
2001 20,749,211 2,147,135 22,896,346
2002 17,747,183 1,623,000 19,370,183
2003 12,172,513 1,425,170 13,597,683
2004 5,284,853 751,048 6,035,901
Thereafter 14,479,350 1,266,070 15,745,420
---------------- ---------------- -----------------
$ 93,149,383 $ 9,500,631 $ 102,650,014
================ ================ =================
At December 31, 1999, there were commitments to purchase lease assets totaling
approximately $25,400,000.
18
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
4. Non-recourse debt:
At December 31, 1999, non-recourse debt consists of notes payable to financial
institutions. The notes are due in varying quarterly and semi-annual payments.
Interest on the notes is at rates from 7.98% to 14.0%. The notes are secured by
assignments of lease payments and pledges of assets. At December 31, 1999, the
carrying value of the pledged assets is approximately $28,281,234. The notes
mature from 2001 through 2004.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
2000 $ 2,046,929 $ 484,956 $ 2,531,885
2001 1,027,688 403,662 1,431,350
2002 - 331,724 331,724
2003 53,814 331,724 385,538
2004 4,046,186 53,814 4,100,000
--------------- ---------------- ----------------
$ 7,174,617 $ 1,605,880 $ 8,780,497
=============== ================ ================
5. Other long-term debt:
In 1999, the Company entered into a $70 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 Company. The Program provides for borrowing
at a variable interest rate (6.2476% at December 31, 1999).
The Program requires the Managing Member 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 December 31,
1999, the Company receives or pays interest on a notional principal of
$64,674,000, based on the difference between nominal rates ranging from 6.84% to
7.44% and the variable rate under the Program. No actual borrowing or lending is
involved. The last of the swaps terminates in 2008. The differential to be paid
or received is accrued as interest rates change and is recognized currently as
an adjustment to interest expense related to the debt.
19
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. Other long-term debt (continued):
Borrowings under the Program are as follows:
Variable Interest
Original Balance Rate on Rate at
Amount December 31, Interest Swap December 31,
Date Borrowed Borrowed 1999 Agreement 1999
- ------------- -------- ---- --------- ----
11/11/99 $ 20,000,000 $19,674,000 6.84% 6.2476%
12/21/99 20,000,000 20,000,000 7.41% 6.2476%
12/24/99 25,000,000 25,000,000 7.44% 6.2476%
-------------- ---------------
$ 65,000,000 $64,674,000
============== ===============
Other long-term debt borrowings mature from 2004 through 2009. Future minimum
principal payments of other long-term debt are as follows:
Year ending
December 31, Principal Interest Total
--------- -------- -----
2000 $ 10,618,000 $ 4,379,697 $ 14,997,697
2001 12,271,000 3,527,360 15,798,360
2002 12,187,000 2,637,302 14,824,302
2003 10,103,000 1,815,423 11,918,423
2004 5,538,000 1,226,662 6,764,662
Thereafter 13,957,000 2,064,266 16,021,266
--------------- ---------------- ----------------
$ 64,674,000 $15,650,710 $ 80,324,710
=============== ================ ================
6. Related party transactions:
The terms of the Limited Company Operating Agreement provide that the Managing
Member and/or Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Company.
The Limited Liability Company Operating Agreement allows for the reimbursement
of costs incurred by the Managing Member in providing administrative services to
the Company. Administrative services provided include Company accounting,
investor relations, legal counsel and lease and equipment documentation. The
Managing Member is not reimbursed for services where it is entitled to receive a
separate fee as compensation for such services, such as acquisition and
management of equipment. Reimbursable costs incurred by the Managing Member are
allocated to the Company based upon actual time incurred by employees working on
Company business and an allocation of rent and other costs based on utilization
studies.
Substantially all employees of the Managing Member record time incurred in
performing administrative services on behalf of all of the Companies serviced by
the Managing Member. The Managing Member believes that the costs reimbursed are
the lower of actual costs incurred on behalf of the Company or the amount the
Company would be required to pay independent parties for comparable
administrative services in the same geographic location and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
20
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
6. Related party transactions (continued):
The Managing Member and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
Selling commissions (equal to 9.5% of the selling price of
the Limited Liability Company units, deducted from Other
Members' capital) $ 7,357,062
Reimbursement of other syndication costs to Managing Member 3,734,924
Initial direct costs paid to Managing Member 753,607
Administrative costs reimbursed to Managing Member 767,386
Asset management fees to Managing Member 443,943
---------------
$ 13,056,922
===============
7. Members' capital:
As of December 31, 1999, 7,744,326 Units were issued and outstanding. The
Company is authorized to issue up to 15,000,000 Units in addition to the Units
issued to the initial members (50 Units).
The Company Net Income, Net Losses, and Distributions are to be allocated 92.5%
to the Members and 7.5% to ATEL.
An additional allocation of income has been made to the Managing Member. The
amount allocated was determined so as to bring the Managing Member's ending
capital account balance to the amount of capital contributions that the Managing
Member will be required to make in a future period.
8. Concentration of credit risk and major customers:
The Company leases equipment to lessees in diversified industries. Leases are
subject to the Managing Member's credit committee review. The leases provide for
the return of the equipment upon default.
As of December 31, 1999 there were concentrations (greater than 10%) of
equipment leased to lessees in certain industries (as a percentage of total
equipment cost) as follows:
Transportation, rail 27%
Transportation, air 17%
Transportation, containers 15%
Manufacturing 15%
During 1999, four customers comprised 31%, 12%, 12% and 10% of the Company's
revenues from leases.
9. Line of credit:
The Company participates with ATEL and certain of its Affiliates in a
$95,000,000 revolving credit agreement with a group of financial institutions
which expires on April 30, 2000. The agreement includes an acquisition facility
and a warehouse facility which are used to provide bridge financing for assets
on leases. Draws on the acquisition facility by any individual borrower are
secured only by that borrower's assets, including equipment and related leases.
Borrowings on the warehouse facility are recourse jointly to certain of the
Affiliates, the Company and the Managing Member.
21
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
9. Line of credit (continued):
During 1999, the Company borrowed $76,641,662 under the line of credit.
Repayments on the line of credit were $69,141,662 during 1999 and $7,500,000
remained outstanding as of December 31, 1999. At December 31, 1999, the rate on
such borrowings was 7.73%. Interest on the line of credit is based on either the
thirty day LIBOR rate or the bank's prime rate.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of December 31,
1999. At December 31, 1999, $21,857,103 was available under this agreement.
10. Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short-term maturity of these instruments.
Non-recourse debt:
The fair value of the Company's non-recourse debt is estimated using discounted
cash flow analyses, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The estimated fair value of the
Company's non-recourse debt at December 31, 1999 is $6,795,632.
Other long-term debt:
The fair value of the Company's other long-term debt is estimated using
discounted cash flow analyses, based on the Company's current variable borrowing
rate for the facility. The estimated fair value of the other long-term debt at
December 31, 1999 is $64,883,360.
Line of credit:
The carrying amounts of the Company's variable rate line of credit approximates
fair value.
Interest rate swaps:
The fair value of interest rate swaps is estimated by discounting the fixed cash
flows paid under each swap using the rate at which the Company could enter into
new swaps of similar maturities. The carrying amounts of the interest rate swaps
approximate fair value at December 31, 1999.
22
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Liability Company and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Corporation (the Managing
Member) is held by ATEL Capital Group ("ACG"), a holding company formed to
control ATEL and affiliated companies pursuant to a corporate restructuring
completed in July 1994. The outstanding capital stock of ATEL Capital Group is
owned 73.125% by A. J. Batt and 24.375% by Dean Cash, and was obtained in the
restructuring in exchange for their capital interests in ATEL Financial
Corporation. The remaining 2.5% is owned by Paritosh K. Choksi.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor services ("AIS") and ATEL Financial Corporation ("AFC") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Company. Acquisition services are performed for the Company by ALC, equipment
management, lease administration and asset disposition services are performed by
AEC, investor relations and communications services are performed by AIS and
general administrative services for the Company are performed by AFC. ATEL
Securities Corporation ("ASC"), is a wholly-owned subsidiary of ATEL Financial
Corporation.
The officers and directors of ATEL Capital Group and its affiliates are as
follows:
A. J. Batt Chairman of the Board of Directors of ACG, AFC,
ALC, AEC, AIS and ASC; President and Chief
Executive Officer of ACG, AFC and AEC
Dean L. Cash Director, Executive Vice President and Chief
Operating Officer of ACG, AFC, and AEC; Director,
President and Chief Executive Officer of ALC, AIS
and ASC
Paritosh K. Choksi Director, Senior Vice President and Chief
Financial Officer of ACG, AFC, ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFC, ALC,
AEC and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General
Counsel for ACG, AFC, ALC, AIS and AEC
Carl W. Magnuson Vice President - Syndication of ALC
Barbara F. Medwadowski Vice President - Syndication of ALC
James A. Kamradt Director of Pricing and Syndication of ALC
Thomas D. Sbordone Senior Vice President - Marketing of ALC
Russell H. Wilder Vice President - Credit of AEC
John P. Scarcella Vice President of ASC
23
A. J. Batt, age 63, founded ATEL in 1977 and has been its president and chairman
of the board of directors since its inception. From 1973 to 1977, he was
employed by GATX Leasing Corporation as manager-data processing and equity
placement for the lease underwriting department, which was involved in equipment
financing for major corporations. From 1967 to 1973 Mr. Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support services for computer time-sharing applications for corporations and
financial institutions. Prior to that time, he was employed by North American
Aviation as an engineer involved in the Apollo project. Mr. Batt received a
B.Sc. degree with honors in mathematics and physics from the University of
British Columbia in 1961.
Dean L. Cash, age 49, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing
representative for Martin Marietta Corporation, data systems division, from 1979
to 1980. From 1977 to 1979, he was employed by General Electric Corporation,
where he was an applications specialist in the medical systems division and a
marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was
involved in maintaining and developing software for commercial applications. Mr.
Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A.
degree with a concentration in finance in 1975 from Florida State University.
Mr. Cash is an arbitrator with the American Arbitration Association.
Paritosh K. Choksi, age 46, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. Prior to joining ATEL, Mr. Choksi was
chief financial officer at Wink Communications, Inc. from 1997 to 1999. From
1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial
services and management company, where he held various positions during his
tenure, and was senior vice president, chief financial officer and director when
he left the company. Mr. Choksi was involved in all corporate matters at Phoenix
and was responsible for Phoenix's capital market needs. He also served on the
credit committee overseeing all corporate investments, including its venture
lease portfolio. Mr. Choksi was a part of the executive management team which
caused Phoenix's portfolio to increase from $50 million in assets to over $2
billion. Mr. Choksi received a bachelor of technology degree in mechanical
engineering from the Indian Institute of Technology, Bombay; and an M.B.A.
degree from the University of California, Berkeley.
Donald E. Carpenter, age 51, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 41, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the corporate and securities legal department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law
School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais
has been an active member of the State Bar of California since 1986.
24
Carl W. Magnuson, age 56, joined ATEL in 1994 and is vice president -
syndication for ALC. Mr. Magnuson is responsible for acquiring third party lease
transactions and debt placement. Prior to joining ATEL he was a regional group
manager and portfolio sales manager for Bell Atlantic Systems Leasing for 10
years. From 1983 to 1984 he was vice president and chief financial officer of
the Handi-Kup Company, a plastics manufacturer, and from 1981 to 1982 he was
controller for the Cyclotron Corporation, engaged in nuclear medicine research
and development. From 1978 to 1981 he was executive vice president of Shannon
Financial Corporation, a middle market leasing corporation. From 1975 to 1978 he
was a deputy program manager for the Watkins Johnson Company. From 1968 to 1973
Mr. Magnuson was an engineering duty officer in the U. S. Navy. Mr. Magnuson
received a B.S. in Engineering Science and an M.S. in applied mathematics from
the Rensselaer Polytechnic Institute, an M.S. in industrial
engineering/operations research from Stanford University, and an M.B.A. from the
University of California at Berkeley.
Barbara F. Medwadowski, age 60, joined ATEL in 1997 and is vice president -
syndication for ALC. Ms. Medwadoski is responsible for acquiring third party
lease transactions. Prior to joining ATEL, she was a syndications manager for
Mellon US Leasing (successor to USL Capital and U.S. Leasing Corporation) for
nine years. From 1985 to 1987, she was a vice president with Great Western
Leasing where she acquired lease and loan transactions from intermediaries. From
1982 through 1984, she was a portfolio manager with U.S. Leasing Corporation.
Ms. Medwadowski received an M.B.A. degree from the University of California at
Berkeley in 1982. From 1964 through 1979, she was a senior researcher in lipids
and lipoproteins at the University of California at Berkeley. In 1964, she
earned an M.S. degree in nutrition and in 1961 a B.S. degree in child
development, each from the University of California at Berkeley.
James A. Kamradt, age 38, director of pricing and syndication for ALC, joined
ATEL in 1997. Mr. Kamradt is involved in the pricing of lease transactions and
the placement of debt to leverage certain transactions. From 1985 to 1997, Mr.
Kamradt managed his own private consulting business, providing underwriting and
operational services for numerous leasing companies. Prior to that, Mr. Kamradt
was the national operations officer for the computer leasing division of Phoenix
American; and regional credit manager for Dana Commercial Credit Corporation.
Mr. Kamradt received a B.S. from Michigan Technological University's Engineering
School of Business, and an M.B.A. from Haas School of Business of the University
of California, Berkeley.
Thomas D. Sbordone, age 41, senior vice president - marketing for ALC, joined
ATEL in 1993, as a regional vice president in the northeastern United States.
Mr. Sbordone is currently responsible for new business development within the
eastern U.S., including management of filed sales personnel and directly
interfacing with ATEL's existing and prospective clients to achieve the
company's lease investment objectives. Prior to joining ATEL, Mr. Sbordone was
employed, from 1985, by American Finance Group, a Boston-based equipment lessor.
While there, Mr. Sbordone's various responsibilities involved lease origination
of vendor finance relationships. Mr. Sbordone earned a B.S., with honors, in
finance and marketing from Northeastern University, and has attended Bentley
College Graduate School of Business.
Russell H. Wilder, age 45, joined ATEL in 1992 as vice president of ATEL
Business Credit, a wholly-owned subsidiary of ACG. Immediately prior to joining
ATEL, Mr. Wilder was a personal property broker specializing in equipment
leasing and financing and an outside contractor in the areas of credit and
collections. From 1985 to 1990 he was vice president and manager of leasing for
Fireside Thrift Co., a Teledyne subsidiary, and was responsible for all aspects
of setting up and managing the department, which operated as a small ticket
lease funding source. From 1983 to 1985 he was with Wells Fargo Leasing
Corporation as assistant vice president in the credit department where he
oversaw all credit analysis on transactions in excess of $2 million. From 1978
to 1983 he was district credit manager with Westinghouse Credit Corporation's
Industrial Group and was responsible for all non-marketing operations of various
district offices. Mr. Wilder holds a B.S. with honors in agricultural economics
and business management from the University of California, Davis. He has been
awarded the Certified Lease Professional designation by the Western Association
of Equipment Lessors.
25
John P. Scarcella, age 38, joined ATEL Securities as vice president in 1992. He
is involved in the marketing of securities offered by ASC. Prior to joining ASC,
from 1987 to 1991, he was employed by Lansing Pacific Fund, a real estate
investment trust in San Mateo, California and acted as director of investor
relations. From 1984 to 1987, Mr. Scarcella acted as broker dealer
representative for Lansing Capital Corporation, where he was involved in the
marketing of direct participation programs and REITs. Mr. Scarcella received a
B.S.C. degree with emphasis in investment finance in 1983 and an M.B.A. degree
with a concentration in marketing in 1991 from Santa Clara University.
Item 11. EXECUTIVE COMPENSATION
The registrant is a Limited Liability Company and, therefore, has no officers or
directors.
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to ATEL and their affiliates. The amount of such remuneration paid
through December 31, 1999 is set forth in Item 8 of this report under the
caption "Financial Statements and Supplementary Data - Notes to the Financial
Statements - Related party transactions," at Note 6 thereof, which information
is hereby incorporated by reference.
Selling Commissions
The Company will pay selling commissions in the amount of 9.5% of Gross
Proceeds, as defined, to ATEL Securities Corporation, an affiliate of ATEL. Of
this amount, the majority is expected to be reallowed to other broker/dealers.
Through December 31, 1999, $7,357,062 of such commissions had been either
accrued or paid to ATEL or its affiliates. Of that amount, $6,307,259 was
re-allowed to other broker/dealers.
Asset Management Fee
The Company will pay ATEL an Asset Management Fee in an amount equal to 4.5% of
Operating Revenues, which will include Gross Lease Revenues and Cash From Sales
or Refinancing. The Asset Management Fee will be paid on a monthly basis. The
amount of the Asset Management Fee payable in any year will be reduced for that
year to the extent it would otherwise exceed the Asset Management Fee Limit, as
described below. The Asset Management Fee will be paid for services rendered by
ATEL and its Affiliates in determining portfolio and investment strategies
(i.e., establishing and maintaining the composition of the Equipment portfolio
as a whole and the Company's overall debt structure) and generally managing or
supervising the management of the Equipment.
ATEL will supervise performance of among others activities, collection of lease
revenues, monitoring compliance by lessees with the lease terms, assuring that
Equipment is being used in accordance with all operative contractual
arrangements, paying operating expenses and arranging for necessary maintenance
and repair of Equipment in the event a lessee fails to do so, monitoring
property, sales and use tax compliance and preparation of operating financial
data. ATEL intends to delegate all or a portion of its duties and the Asset
Management Fee to one or more of its Affiliates who are in the business of
providing such services.
Asset Management Fee Limit:
The Asset Management Fee will be subject to the Asset Management Fee Limit. The
Asset Management Fee Limit will be calculated each year during the Company's
term by calculating the total fees that would be paid to ATEL if the Managing
Member were to be compensated on the basis of an alternative fee schedule, to
include an Equipment Management Fee, Incentive Management Fee, and Equipment
Resale/Re-Leasing Fee, plus ATEL's Carried Interest, as described below. To the
extent that the amount paid to ATEL as the Asset Management Fee plus its Carried
Interest for any year would exceed the aggregate amount of fees calculated under
this alternative fee schedule for the year, the Asset Management Fee and/or
Carried Interest for that year will be reduced to equal the maximum aggregate
fees under the alternative fee schedule.
26
To the extent any such fees are reduced, the amount of such reduction will be
accrued and deferred, and such accrued and deferred compensation would be paid
to ATEL in a subsequent period, but only if and to the extent that such deferred
compensation would be payable within the Asset Management Fee Limit for the
subsequent period. Any deferred fees which cannot be paid under the applicable
limitations in any subsequent period through the date of liquidation would be
forfeited by ATEL upon liquidation.
Alternative Fee Schedule:
For purposes of the Asset Management Fee Limit, the Company will calculate an
alternative schedule of fees, including a hypothetical Equipment Management Fee,
Incentive Management Fee, Equipment Resale/Re- Leasing Fee, and Carried Interest
as follows:
An Equipment Management Fee will be calculated to equal the lesser of (i) 3.5%
of annual Gross Revenues from Operating Leases and 2% of annual Gross Revenues
from Full Payout Leases which contain Net Lease Provisions), or (ii) the fees
customarily charged by others rendering similar services as an ongoing public
activity in the same geographic location and for similar types of equipment. If
services with respect to certain Operating Leases are performed by nonaffiliated
persons under the active supervision of ATEL or its Affiliate, then the amount
so calculated shall be 1% of Gross Revenues from such Operating Leases.
An Incentive Management Fee will be calculated to equal 4% of Distributions of
Cash from Operations until Holders have received a return of their Original
Invested Capital plus a Priority Distribution, and, thereafter, to equal a total
of 7.5% of Distributions from all sources, including Sale or Refinancing
Proceeds. In subordinating the increase in the Incentive Management Fee to a
cumulative return of a Holder's Original Invested Capital plus a Priority
Distribution, a Holder would be deemed to have received Distributions of
Original Invested Capital only to the extent that Distributions to the Holder
exceed the amount of the Priority Distribution.
An Equipment Resale/Re-Leasing Fee will be calculated in an amount equal to the
lesser of (i) 3% of the sale price of the Equipment, or (ii) one-half the normal
competitive equipment sale commission charged by unaffiliated parties for resale
services. Such fee would apply only after the Holders have received a return of
their Original Invested Capital plus a Priority Distribution. In connection with
the releasing of Equipment to lessees other than previous lessees or their
Affiliates, the fee would be in an amount equal to the lesser of (i) the
competitive rate for comparable services for similar equipment, or (ii) 2% of
the gross rental payments derived from the re-lease of such Equipment, payable
out of each rental payment received by the Company from such re-lease.
A Carried Interest equal to 7.5% of all Distributions of Cash from Operations
and Cash from Sales or Refinancing.
See Note 6 to the financial statements included in Item 8 for amounts paid.
Managing Member's Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 92.5% to the
Members and 7.5% to ATEL. See financial statements included in Item 8, Part I of
this report for amounts allocated to the General Partner in 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 1999 no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
27
Security Ownership of Management
The shareholders of ATEL are beneficial owners of Limited Liability Company
Units as follows:
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
-------------- ---------------- -------------------- --------
Limited Liability Company Units A. J. Batt Initial Limited Liability 0.0003%
235 Pine Street, 6th Floor Company Units
San Francisco, CA 94104 25 Units ($250)
(owned by wife)
Limited Liability Company Units Dean Cash Initial Limited Liability 0.0003%
235 Pine Street, 6th Floor Company Units
San Francisco, CA 94104 25 Units ($250)
(owned by wife)
Changes in Control
The Members have the right, by vote of the Members owning more than 50% of the
outstanding Limited Liability Company Units, to remove a Managing Member.
ATEL may at any time call a meeting of the Members or a vote of the Members
without a meeting, on matters on which they are entitled to vote, and shall call
such meeting or for vote without a meeting following receipt of a written
request therefor of Limited Partners holding 10% or more of the total
outstanding Limited Liability Company Units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 1 of this report under the caption "Equipment Leasing
Activities," Item 8 of this report under the caption "Financial Statements and
Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 6 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated by reference.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 1999 and 1998
Statement of Income for the year ended December
31, 1999
Statement of Changes in Members' Capital for the
period from July 31, 1998 (inception) through
December 31, 1998 and for the year ended
December 31, 1999
Statement of Cash Flows for the period from July
31, 1998 (inception) through December 31, 1998
and for the year ended December 31, 1999
Notes to Financial Statements
2. Financial Statement Schedules
Allschedules 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)Reports on Form 8-K for the fourth quarter of 1999
None
(c)Exhibits
(3)and (4) Agreement of Limited Liability
Company, included as Exhibit B to Prospectus,
is incorporated herein by reference to the
report on Form 10K for the period ended
December 31, 1998 (File Number 333-62477)
(Exhibit 28.1)
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: 3/22/2000
ATEL Capital Equipment Fund VIII, LLC
(Registrant)
By: ATEL Financial Corporation,
Managing Member of Registrant
By: /s/ A. J. Batt
-------------------------------------------------
A. J. Batt,
President and Chief Executive Officer of ATEL
Financial Corporation (Managing Member)
By: /s/ Dean Cash
-------------------------------------------------
Dean Cash,
Executive vice President of ATEL Financial Corporation
(Managing Member)
30
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ A. J. Batt President, Chairman and Chief Executive 3/22/2000
- ------------------------- Officer of ATEL Financial Corpor
A. J. Batt
/s/ Dean Cash Executive Vice President and director of 3/22/2000
- ------------------------- ATEL Financial Corporation
Dean Cash
/s/ Paritosh K. Choks Principal financial officer of 3/22/2000
- ------------------------- registrant; principal financial officer
Paritosh K. Choksi and director of ATEL Financial
Corporation
/s/ Donald E. Carpente Principal accounting officer of 3/22/2000
- ------------------------- registrant; principal accounting officer
Donald E. Carpenter of ATEL Financial Corporation
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No proxy materials have been or will be sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of this
report on Form 10-K, and copies thereof will be furnished supplementally to the
Commission when forwarded to the security holders.
31