Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of
1934. For the quarterly period ended March
31, 2003
|_| 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 333-62477
ATEL Capital Equipment Fund VIII, LLC
(Exact name of registrant as specified in its charter)
California 94-3307404
---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) 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: 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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
The number of Limited Partnership Units outstanding as of March 31, 2003 was
13,570,188
DOCUMENTS INCORPORATED BY REFERENCE
None
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
2
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
(Unaudited)
ASSETS
2003 2002
---- ----
Cash and cash equivalents $ 1,054,517 $ 2,263,479
Accounts receivable, net of allowance for
doubtful accounts of $260,115 in 2003
and $516,365 in 2002 3,120,412 1,874,311
Due from Managing Member - 171,119
Other assets 47,500 55,000
Investments in equipment and leases 139,614,152 149,100,763
------------------ --------------------
Total assets $143,836,581 $ 153,464,672
================== ====================
LIABILITIES AND MEMBERS' CAPITAL
Long-term debt $57,491,000 $ 62,912,000
Non-recourse debt 5,702,855 5,702,855
Line of credit 12,600,000 10,600,000
Accounts payable:
Managing Member 260,648 -
Other 672,300 697,720
Accrued interest payable 124,330 96,179
Interest rate swap contracts 5,070,512 5,381,342
Unearned operating lease income 1,794,206 1,547,813
------------------ --------------------
Total liabilities 83,715,851 86,937,909
Members' capital 60,120,730 66,526,763
------------------ --------------------
Total liabilities and members' capital $143,836,581 $ 153,464,672
================== ====================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF OPERATIONS
THREE MONTH PERIODS ENDED
MARCH 31, 2003 AND 2002
(Unaudited)
Revenues: 2003 2002
---- ----
Leasing activities:
Operating leases $ 7,378,891 $ 8,690,358
Direct financing leases 172,311 216,017
Gain (loss) on sales of assets 154,414 (16,455)
Interest 2,012 5,989
Other 17,696 175,768
------------------ --------------------
7,725,324 9,071,677
Expenses:
Depreciation and amortization 5,430,967 6,025,093
Interest expense 2,022,644 1,601,370
Impairment losses 1,910,861 -
Railcar maintenance 672,087 -
Cost reimbursements to Managing Member 656,763 514,608
Asset management fees to Managing Member 300,571 417,414
Provision for (recovery of) doubtful accounts (200,000) 400,000
Professional fees 181,096 56,545
Other 130,036 135,655
------------------ --------------------
11,105,025 9,150,685
------------------ --------------------
Net loss $ (3,379,701) $ (79,008)
================== ====================
Net (loss) income:
Managing member $ 250,287 $ 250,296
Other members (3,629,988) (329,304)
------------------ --------------------
$ (3,379,701) $ (79,008)
================== ====================
Net loss per Limited Liability Company Unit $ (0.27) $ (0.02)
Weighted average number of Units outstanding 13,570,188 13,570,188
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
THREE MONTH PERIOD ENDED
MARCH 31, 2003
(Unaudited)
Accumulated
Other
Other Members Managing Comprehensive
-------------
Units Amount Member Income (Loss) Total
Balance December 31, 2002 13,570,188 $71,908,105 $ - $ (5,381,342) $ 66,526,763
Distributions to members - (3,086,875) (250,287) - (3,337,162)
Unrealized decrease in value of
interest rate swap contracts - - - 310,830 310,830
Net income (loss) - (3,629,988) 250,287 - (3,379,701)
------------------ ------------------ ------------------ ------------------ --------------------
Balance March 31, 2003 13,570,188 $65,191,242 $ - $ (5,070,512) $ 60,120,730
================== ================== ================== ================== ====================
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED
MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
---- ----
Operating activities:
Net loss $ (3,379,701) $ (79,008)
Adjustments to reconcile net loss to cash provided by operating activities:
(Gain) loss on sales of assets (154,414) 16,455
Depreciation and amortization 5,430,967 6,025,093
Impairment losses 1,910,861 -
Provision for (recovery of) doubtful accounts (200,000) 400,000
Changes in operating assets and liabilities:
Accounts receivable (1,046,101) (358,422)
Due from Managing Member 171,119 -
Other assets 7,500 7,500
Accounts payable, Managing Member 260,648 376,446
Accounts payable, other (25,420) (420,983)
Accrued interest expense 28,151 61,432
Unearned lease income 246,393 615,029
------------------ --------------------
Net cash provided by operations 3,250,003 6,643,542
------------------ --------------------
Investing activities:
Reduction of net investment in direct financing leases 278,040 409,321
Proceeds from sales of assets 2,021,157 76,050
------------------ --------------------
Net cash provided by investing activities 2,299,197 485,371
------------------ --------------------
Financing activities:
Repayments of long-term debt (5,421,000) (8,804,000)
Proceeds of long-term debt - 3,900,000
Borrowings on line of credit 3,900,000 3,800,000
Repayments of line of credit (1,900,000) (3,500,000)
Distributions to other members (3,086,875) (3,086,981)
Distributions to managing member (250,287) (250,296)
------------------ --------------------
Net cash used in financing activities (6,758,162) (7,941,277)
------------------ --------------------
Net decrease in cash and cash equivalents (1,208,962) (812,364)
Cash and cash equivalents at beginning of period 2,263,479 2,269,137
------------------ --------------------
Cash and cash equivalents at end of period $ 1,054,517 $ 1,456,773
================== ====================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,994,493 $ 1,662,802
================== ====================
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
1. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation S-X. The
unaudited interim financial statements reflect all adjustments which are, in the
opinion of the Managing Member, necessary to a fair statement of financial
position and results of operations for the interim periods presented. All such
adjustments are of a normal recurring nature. These unaudited interim financial
statements should be read in conjunction with the financial statements and notes
thereto contained in the report on Form 10-K for the year ended December 31,
2002, filed with the Securities and Exchange Commission.
2. Organization and 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.
Upon the sale of the minimum amount of Units of Limited Liability Company
interest (Units) of $1,200,000 and the receipt of the proceeds thereof on
January 13, 1999, the Company commenced operations.
The Company does not make a provision for income taxes since all income and
losses will be allocated to the Partners for inclusion in their individual tax
returns.
ATEL Financial Services, LLC, an affiliated entity, acts as the Managing Member
of the Company.
3. Investment in equipment and leases:
The Company's investment in leases consists of the following:
Depreciation
Balance Expense and Reclass- Balance
December 31, Impairment Amortization ifications and March 31,
2002 Losses of Leases Dispositions 2003
---- ------ --------- ------------ ----
Net investment in operating
leases $119,404,269 $ (1,910,861) $ (5,336,930) $ 5,081,817 $ 117,238,295
Net investment in direct
financing leases 11,233,604 - (278,040) (10,616) 10,944,948
Assets held for sale or lease 20,401,035 - - (9,550,444) 10,850,591
Reserves for losses (2,612,500) - - 2,612,500 -
Initial direct costs, net of
accumulated amortization of
$1,169,724 in 2003 and
$1,075,687 in 2002 674,355 - (94,037) - 580,318
------------------ ------------------ ------------------ ------------------ --------------------
$149,100,763 $ (1,910,861) $ (5,709,007) $ (1,866,743) $ 139,614,152
================== ================== ================== ================== ====================
7
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
3. Investment in equipment and leases (continued):
Operating leases:
Property on operating leases consists of the following:
Balance Reclass- Balance
December 31, Impairment Depreciation ifications and March 31,
2002 Losses Expense Dispositions 2003
---- ------ ------- ------------ ----
Manufacturing $ 49,700,635 $ - $ - $ (3,611,588) $ 46,089,047
Transportation, rail 21,054,669 - - 12,618,467 33,673,136
Aircraft 32,810,139 - - - 32,810,139
Transportation, other 23,438,156 - - (135,378) 23,302,778
Containers 21,207,500 - - - 21,207,500
Other 14,118,402 - - (20,150) 14,098,252
Natural gas compressors 14,051,601 - - - 14,051,601
Materials handling 7,380,720 - - - 7,380,720
------------------ ------------------ ------------------ ------------------ --------------------
183,761,822 - - 8,851,351 192,613,173
Less accumulated depreciation (64,357,553) (1,910,861) (5,336,930) (3,769,534) (75,374,878)
------------------ ------------------ ------------------ ------------------ --------------------
$119,404,269 $ (1,910,861) $ (5,336,930) $ 5,081,817 $ 117,238,295
================== ================== ================== ================== ====================
Direct financing leases:
As of March 31, 2003, investment in direct financing leases consists office
automation equipment, point of sale equipment, over the road trailers and hotel
laundry equipment. The following lists the components of the Company's
investment in direct financing leases as of March 31, 2003:
Total minimum lease payments receivable $ 8,184,301
Estimated residual values of leased equipment (unguaranteed) 4,499,906
------------------
Investment in direct financing leases 12,684,207
Less unearned income (1,739,259)
------------------
Net investment in direct financing leases $10,944,948
==================
All of the property on leases was acquired in 1999, 2000, 2001 and 2002.
8
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
3. Investment in equipment and leases (continued):
At March 31, 2003, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Operating Financing
Leases Leases Total
Nine months ending December 31, 2003 $20,049,697 $ 2,074,142 $22,123,839
Year ending December 31, 2004 17,169,912 2,063,877 19,233,789
2005 12,661,977 1,976,474 14,638,451
2006 8,480,604 1,727,379 10,207,983
2007 6,497,324 293,628 6,790,952
Thereafter 5,240,177 48,801 5,288,978
------------------ ------------------ ------------------
$70,099,691 $ 8,184,301 $78,283,992
================== ================== ==================
4. Non-recourse debt:
At March 31, 2003, 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 10.0%. The notes are secured by
assignments of lease payments and pledges of assets. The notes mature from 2003
through 2006.
Future minimum payments of non-recourse debt are as follows:
Principal Interest Total
Nine months ending December 31, 2003 $ 397,915 $ 401,822 $ 799,737
Year ending December 31, 2004 4,425,556 170,437 4,595,993
2005 418,256 77,737 495,993
2006 461,128 34,865 495,993
------------------ ------------------ ------------------
$ 5,702,855 $ 684,861 $ 6,387,716
================== ================== ==================
9
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
5. Other long-term debt:
In 1999, the Company entered into a $70 million receivables funding program (the
Program), (which was subsequently increased to $125 million), 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 (1.3447% at March 31, 2003). As of March 31, 2002, the
Program was closed as to any additional borrowings.
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 March 31,
2003, the Company receives or pays interest on a notional principal of
$57,491,000, based on the difference between nominal rates ranging from 3.60% to
7.72% and the variable rate under the Program. No actual borrowing or lending is
involved. The last of the swaps terminates in 2009. The differential to be paid
or received is accrued as interest rates change and is recognized currently as
an adjustment to interest expense related to the debt.
Borrowings under the Program are as follows:
Original Balance Rate on
Amount March 31, Interest Swap
Date Borrowed Borrowed 2003 Agreement
------------- -------- ---- ---------
11/11/99 $20,000,000 $ 5,220,000 6.84%
12/21/99 20,000,000 14,309,000 7.41%
12/24/99 25,000,000 7,007,000 7.44%
4/17/00 6,500,000 3,501,000 7.45%
4/28/00 1,900,000 483,000 7.72%
8/3/00 19,000,000 11,308,000 7.50%
10/31/00 7,500,000 4,069,000 7.13%
1/29/01 8,000,000 4,449,000 5.91%
6/1/01 2,000,000 567,000 5.04%
9/1/01 9,000,000 3,692,000 4.35%
1/31/02 3,900,000 2,886,000 3.60%
------------------ ------------------
$122,800,000 $57,491,000
================== ==================
10
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
5. Other long-term debt (continued):
Other long-term debt borrowings mature from 2003 through 2009. Future minimum
principal payments of long-term debt are as follows:
Rates on
Interest Swap
Principal Interest Total Agreements*
--------- -------- ----- -----------
Nine months ending December 31, 2003 $15,652,000 $ 2,592,673 $18,244,673 6.861%-6.901%
Year ending December 31, 2004 15,092,000 2,394,241 17,486,241 6.896%-6.962%
2005 11,351,000 1,507,894 12,858,894 6.985%-7.137%
2006 6,950,000 884,435 7,834,435 7.172%-7.203%
2007 4,701,000 439,685 5,140,685 6.896%-7.028%
2008 3,025,000 169,486 3,194,486 6.214%-6.887%
2009 720,000 9,149 729,149 5.042%-5.068%
------------------ ------------------ ------------------
$57,491,000 $ 7,997,563 $65,488,563
================== ================== ==================
* Represents the range of monthly weighted average fixed interest rates paid for
amounts maturing in the particular year. The receive-variable rate portion of
the swap represents commercial paper rates (1.3447% at March 31, 2003).
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 services to the Company.
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 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
(i) actual costs incurred on behalf of the Company or (ii) the amount the
Company would be required to pay independent parties for comparable services in
the same geographic location and are reimbursable in accordance with the Limited
Liability Company Operating Agreement.
During the three month periods ended March 31, 2003 and 2002, the Managing
Member and/or Affiliates earned fees, commissions and reimbursements, pursuant
to the Limited Liability Company Agreement as follows:
2003 2002
---- ----
Costs reimbursed to Managing Member $ 656,763 $ 514,608
Asset management fees to Managing Member 300,571 417,414
------------------ --------------------
$ 957,334 $ 932,022
================== ====================
11
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
7. Line of credit:
The Company participates with the Managing Member and certain of its affiliates
in a $56,191,292 revolving line of credit (comprised of an acquisition facility
and a warehouse facility) with a financial institution that includes certain
financial covenants. The line of credit expires on June 28, 2004. As of March
31, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ 12,600,000
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 4,600,000
------------------
Total borrowings under the acquisition facility 17,200,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
------------------
Total outstanding balance $ 17,200,000
==================
Total available under the line of credit $ 56,191,292
Total outstanding balance (17,200,000)
------------------
Remaining availability $ 38,991,292
==================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and the Managing
Member.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of March 31, 2003.
8. Other comprehensive income (loss):
For the three month periods ended March 31, 2003 and 2002, other comprehensive
income (loss) consisted of the following:
2003 2002
---- ----
Net loss $ (3,379,701) $ (79,008)
Other comprehensive income:
Change in value of interest rate swap contracts 310,830 197,554
--------------- ---------------
Comprehensive net income (loss) $ (3,068,871) $ 118,546
=============== ===============
12
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," 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. 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.
Capital Resources and Liquidity
During the first quarters of 2003 and 2002, the Company's primary activity was
engaging in equipment leasing activities.
The liquidity of the Company will vary in the future, increasing to the extent
cash flows from leases exceed expenses, and decreasing as lease assets are
acquired, as distributions are made to the members and to the extent expenses
exceed cash flows from leases.
As another source of liquidity, the Company has 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 the
Managing Member's success in re-leasing or selling the equipment as it comes off
lease.
The Company participates with the Managing Member and certain of its affiliates
in a $56,191,292 revolving line of credit (comprised of an acquisition facility
and a warehouse facility) with a financial institution that includes certain
financial covenants. The line of credit expires on June 28, 2004. As of March
31, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ 12,600,000
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 4,600,000
------------------
Total borrowings under the acquisition facility 17,200,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
------------------
Total outstanding balance $ 17,200,000
==================
Total available under the line of credit $ 56,191,292
Total outstanding balance (17,200,000)
------------------
Remaining availability $ 38,991,292
==================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and the Managing
Member.
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 Limited Partners.
The Company currently has available adequate reserves to meet contingencies, 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. The Managing Member envisions no such requirements for operating
purposes.
No commitments of capital have been or are expected to be made other than for
the acquisition of additional equipment. There were no such commitments as of
March 31, 2003.
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.
13
Cash Flows
During the first quarters of 2003 and 2002, the Company's primary source of
liquidity was rents from operating leases.
In the first quarters of 2003 and 2002, the primary source of cash from
operations was rents from operating leases. Operating leases are expected to
remain as the primary source of cash from operations in future periods.
In 2002, rents from direct financing leases were the primary source of cash from
investing activities. In 2003, proceeds from sales of assets was the primary
source of cash from investing activities. There were no investing uses of cash
in 2003 or in 2002.
In the first quarters of 2003 and 2002, the only sources of cash from financing
activities were borrowings under the line of credit and proceeds of long-term
debt (2002 only). Financing uses of cash included repayments of debt of
$7,321,000 and $12,304,000 in the first quarters of 2003 and 2002, respectively
and distributions to other members of $3,086,875 and $3,086,981 and to the
Managing Member of $250,287 and $250,296 in the first quarters of 2003 and 2002,
respectively. Repayments of debt for the quarter ended March 31, 2003 decreased
from the same period in the prior year as a result of the reduction in scheduled
repayments.
Results of operations
Operations resulted in a net loss of $3,379,701 in the quarter ended March 31,
2003 compared to $79,008 in the quarter ended March 31, 2002. In the first
quarters of 2003 and 2002, the Company's primary source of revenues was from
operating leases. Operating lease rents have decreased in 2003 compared to 2002
as a result of three factors: (1) a larger portion of the Company's assets were
off lease in the first quarter of 2003 than in 2002; (2) lease rates on renewals
entered into since 2002 were at lower rates than those on the same assets in
2002; and (3) there have been sales of assets over the last twelve months.
Depreciation is related to operating lease assets and thus, to operating lease
revenues. Consequently, depreciation decreased from $5,938,728 to $5,336,930
during the first quarters of 2002 and 2003, respectively, as a result of
operating lease asset sales over the last year.
During the first quarter of 2003, the Company entered into negotiations relating
to the early termination of an aircraft lease and the sale of the asset to the
lessee. The negotiations were concluded in early April 2003 and the asset was
sold. As a result, an impairment loss related to the aircraft has been recorded
in the first quarter of 2003 in the amount of $1,910,861. This provision is the
single largest factor in the increase in the loss realized in the first quarter
of 2003 compared to 2002. There were no similar impairments recognized in the
first quarter of 2002.
Asset management fees are based on the gross lease rents of the Company plus
proceeds from the sales of lease assets. They are limited to certain percentages
of lease rents, distributions to members and certain other items. The decrease
in asset management fees from $417,414 to $300,571 during the first quarters of
2002 and 2003, respectively, is a direct result of the decreases in lease
revenues.
Interest expense has increased from $1,601,370 in the quarter ended March 31,
2002 to $2,022,644 in the quarter ended March 31, 2003. Since March 31, 2002,
more of the Company's debt has been under the line of credit. The interest rates
on this program are considerably higher than those on the receivables funding
program. This shift to the line of credit has caused increases in interest
expense, which have only partially been offset by overall reductions in debt.
In the quarter ended March 31,2003, the Company incurred $672,087 of maintenance
costs relating to railcars. These costs were incurred in order to be able to
place the railcars on a new lease. The costs did not increase the useful life of
the assets or increase their value in the marketplace. No similar costs were
incurred during the quarter ended March 31, 2002.
Item 3. Quantitative and Qualitative Disclosures of 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 interest 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 March 31, 2003, there was
$12,600,000 outstanding on the floating rate line of credit.
14
Also, as described in Item 2 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. To hedge its interest rate
risk, the Company enters into interest rate swaps that effectively convert 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
interest rate facility and the amounts due under the facility at the fixed
(hedged) interest rate. As of March 31, 2003, borrowings on the facility were
$57,491,000 and the associated variable interest rate was 1.3447%. The average
fixed interest rate achieved with the swap agreements was 6.861% at March 31,
2003.
Item 4. Controls and procedures.
Internal Controls
As of March 31, 2003, an evaluation was performed under the supervision and with
the participation of the Company's management, including the CEO and CFO of the
Managing Member, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO of the Managing Member,
concluded that the Company's disclosure controls and procedures were effective
as of March 31, 2003. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to March 31, 2003.
Changes in internal controls
There have been no significant changes in our internal controls or in other
factors that could significantly affect our disclosure controls and procedures
subsequent to the evaluation date, nor were there any significant deficiencies
or material weaknesses in our internal controls.
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including
the CEO and CFO, an evaluation of the effectiveness of the design and operation
of the Company's disclosure controls and procedures, as defined in Rules
240.13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 was
performed as of a date within ninety days before the filing date of this
quarterly report. Based upon this evaluation, the CEO and CFO of the Managing
Member concluded that, as of the evaluation date, our disclosure controls and
procedures were effective for the purposes of recording, processing, summarizing
and timely reporting information required to be disclosed by us in the reports
that we file under the Securities Exchange Act of 1934 and that such information
is accumulated and communicated to our management in order to allow timely
decisions regarding required disclosure.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No material legal proceedings are currently pending against the Company or
against any of its assets. The following is a discussion of legal matters
involving the Company, but which do not represent claims against the Company or
its assets.
Emery Worldwide Airways, Inc.:
On January 25, 2002, the Company filed a complaint against its lessee, Emery
Worldwide Airways, Inc., for failure by the lessee to properly maintain the
condition and airworthiness of the aircraft on lease to the lessee, and for
certain other breaches and defaults by the lessee as alleged in the complaint.
The Company has claimed stipulated loss value damages in the amount of
$5,648,173 as a result of the breaches and defaults under the lease by the
lessee. A motion for summary judgment on the Company's claims was filed the
summer of 2002, and an unfavorable ruling to the Company on the motion was
handed down in the fourth quarter of 2002. A trial date for this matter had been
set for May 2003, but was delayed until September 2003. In March 2003, the
Company settled with Emery for an amount equal to $1,300,000, plus the value of
the aircraft. The Company is currently taking steps to remarket the aircraft.
Burlington Northern Santa Fe Corporation:
This complaint was filed for the recovery of $300,000 in damages for the "Agreed
Value" of a destroyed locomotive, where THE CIT Group/Equipment Financing, Inc.,
acting as agent for the Company, agreed to "swap" the locomotive unit with
Burlington Northern Santa Fe Corporation, without first obtaining the Company's
consent to do so, as required by the agreement. An additional claim for holdover
rent was informally asserted. A satisfactory agreement for settlement has been
reached in this matter and payment of $483,653 in the settlement was received in
the first quarter of 2003.
15
Solectron:
This is a matter whereby the Company has declared a lessee in default for
failure to pay rent in a timely manner, and for other various defaults. A claim
was filed on August 29, 2002, by the Manager on behalf of the Company in the
amount of $13,332,328. The lessee filed a counter-claim against the Company
asserting unfair business practices. The Company believes that it has a
reasonable basis for success of some, if not all, of its claims in this matter.
Ingersoll International:
At December 31, 2002, the Company had commenced action against Ingersoll
International (the "Lessee") as we had declared them in default for making an
unauthorized assignment of part of the leased equipment. Subsequent to December
31, 2002, the Company, the Lessee and the unauthorized party reached an
agreement in principal to have the unauthorized party assume the lease.
Documents have been prepared by the Company and sent to the other parties for
signature. This matter was resolved by March 31, 2003.
Item 2. Changes In Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits And Reports On Form 8-K.
(a) Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report: Balance Sheets, March 31, 2003 and
December 31, 2002.
Statements of Operations for the three month periods ended March 31,
2003 and 2002.
Statement of Changes in Partners' Capital for the three month period
ended March 31, 2003.
Statements of Cash Flows for the three month periods ended March 31,
2003 and 2002.
Notes to the Financial Statements
2. Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
(b) Report on Form 8-K
None
16
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:
May 13, 2003
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)
By: ATEL Financial Corporation
Managing Member of Registrant
By: /s/ Dean L. Cash
------------------------------
Dean L. Cash
President and Chief Executive Officer
of Managing Member
By: /s/ Paritosh K. Choksi
------------------------------
Paritosh K. Choksi
Principal Financial Officer
of Registrant
By: /s/ Donald E. Carpenter
------------------------------
------------------------------
Donald E. Carpenter
Principal Accounting
Officer of Registrant
17
CERTIFICATIONS
I, Paritosh K. Choksi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment
Fund VIII, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 13, 2003
/s/ Paritosh K. Choksi
- --------------------------
Paritosh K. Choksi
Principal Financial Officer of Registrant,
Executive Vice President of Managing Member
18
CERTIFICATIONS
I, Dean L. Cash, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment
Fund VIII, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 13, 2003
/s/ Dean L. Cash
- --------------------------
Dean L. Cash
President and Chief Executive Officer of
Managing Member
19
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10-Q of ATEL Capital Equipment
Fund VIII, LLC, (the "Company") for the period ended March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL
Financial Services, LLC, managing member of the Company, hereby certify that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: May 13, 2003
/s/ Dean L. Cash
- --------------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10-Q of ATEL Capital Equipment
Fund VIII, LLC, (the "Company") for the period ended March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of
ATEL Financial Services, LLC, managing member of the Company, hereby certify
that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: May 13, 2003
/s/ Paritosh K. Choksi
- --------------------------
Paritosh K. Choksi
Executive Vice President of Managing
Member, Principal Financial Officer of Registrant
20