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 June 30, 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.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
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 June 30, 2003 was
13,570,188
DOCUMENTS INCORPORATED BY REFERENCE
None
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
2
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
(Unaudited)
ASSETS
2003 2002
Cash and cash equivalents $ 1,203,803 $ 2,263,479
Accounts receivable, net of allowance for doubtful accounts of $210,115 in 2003
and $516,365 in 2002 1,569,779 1,874,311
Due from Managing Member - 171,119
Other assets 40,000 55,000
Investments in leases 124,144,668 149,100,763
------------------ -------------------
Total assets $126,958,250 $ 153,464,672
================== ===================
LIABILITIES AND MEMBERS' CAPITAL
Long-term debt $ 48,009,000 $ 62,912,000
Line of credit 8,500,000 10,600,000
Non-recourse debt 5,535,001 5,702,855
Accounts payable:
Managing member 111,073 -
Other 1,040,193 697,720
Accrued interest payable 82,184 96,179
Interest rate swap contracts 4,196,582 5,381,342
Unearned operating lease income 1,478,771 1,547,813
------------------ -------------------
Total liabilities 68,952,804 86,937,909
Members' capital 58,005,446 66,526,763
------------------ -------------------
Total liabilities and members' capital $126,958,250 $ 153,464,672
================== ===================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF OPERATIONS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2003 AND 2002
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Revenues:
Leasing activities:
Operating leases $14,277,413 $16,369,513 $ 6,898,522 $ 7,679,155
Direct financing leases 333,758 413,236 161,448 197,219
Gain on sales of assets 689,655 256,871 535,240 273,326
Interest 3,652 9,035 1,640 3,046
Other 31,545 183,150 13,849 7,382
------------------ ------------------ ------------------ -------------------
15,336,023 17,231,805 7,610,699 8,160,128
Expenses:
Depreciation and amortization 10,589,670 11,924,692 5,158,703 5,899,599
Interest expense 3,154,480 3,258,213 1,131,836 1,656,843
Impairment losses (recoveries) 1,890,861 - (20,000) -
Aircraft and railcar maintenance 851,680 - 139,593 -
Asset management fees to Managing Member 775,954 770,623 475,384 353,209
Cost reimbursements to Managing Member 753,733 757,879 96,970 243,271
Professional fees 286,000 110,555 104,904 54,010
(Recoveries of) provision for doubtful accounts (250,000) 475,000 (50,000) 75,000
Franchise fees and income taxes 124,239 62,902 124,239 62,902
Other 193,425 316,948 103,391 181,293
------------------ ------------------ ------------------ -------------------
18,370,042 17,676,812 7,265,020 8,526,127
------------------ ------------------ ------------------ -------------------
Net (loss) income $ (3,034,019) $ (445,007) $ 345,679 $ (365,999)
================== ================== ================== ===================
Net (loss) income:
Managing member $ 500,404 $ 500,592 $ 250,117 $ 250,296
Other members (3,534,423) (945,599) 95,562 (616,295)
------------------ ------------------ ------------------ -------------------
$ (3,034,019) $ (445,007) $ 345,679 $ (365,999)
================== ================== ================== ===================
Net (loss) income per Limited Liability
Company Unit $ (0.26) $ (0.07) $ 0.01 $ (0.08)
Weighted average number of Units outstanding 13,570,188 13,570,188 13,570,188 13,570,188
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
SIX MONTH PERIOD ENDED
JUNE 30, 2003
(Unaudited)
Accumulated
Other
Comprehensive
Other Members Managing Income
Units Amount Member (Loss) Total
Balance December 31, 2002 13,570,188 $71,908,105 $ - $(5,381,342) $ 66,526,763
Distributions to members (6,171,654) (500,404) (6,672,058)
Unrealized change in value of
interest rate swap contracts - - 1,184,760 1,184,760
Net (loss) income (3,534,423) 500,404 (3,034,019)
----------------- ------------------ ------------------ ------------------ -------------------
Balance June 30, 2003 13,570,188 $62,202,028 $ - $(4,196,582) $ 58,005,446
================= ================== ================== ================== ===================
See accompanying notes.
5
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2003 AND 2002
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Operating activities:
Net (loss) income $ (3,034,019) $ (445,007) $ 345,679 $ (365,999)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization 10,589,670 11,924,692 5,158,703 5,899,599
Gain on sales of assets (689,655) (256,871) (535,240) (273,326)
Impairment losses (recoveries) 1,890,861 - (20,000) -
(Recovery of) provision for doubtful accounts (250,000) 475,000 (50,000) 75,000
Changes in operating assets and liabilities:
Accounts receivable 554,532 887,517 1,600,635 1,245,939
Due from Managing Member 171,119 - - -
Other assets 15,000 15,000 7,500 7,500
Accounts payable, Managing Member 111,073 263,652 (149,575) (112,794)
Accounts payable, other 342,473 (345,364) 367,893 75,619
Accrued interest expense (13,995) 23,188 (42,146) (38,244)
Unearned lease income (69,042) (74,502) (315,435) (689,531)
------------------ ------------------ ------------------ -------------------
Net cash provided by operations 9,618,017 12,467,305 6,368,014 5,823,763
------------------ ------------------ ------------------ -------------------
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
(Continued)
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2003 AND 2002
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Investing activities:
Reduction of net investment in direct financing
leases 908,384 2,037,467 630,344 1,628,146
Proceeds from sales of assets 12,256,835 1,145,326 10,235,678 1,069,276
------------------ ------------------ ------------------ -------------------
Net cash provided by investing activities 13,165,219 3,182,793 10,866,022 2,697,422
------------------ ------------------ ------------------ -------------------
Financing activities:
Borrowings on line of credit 8,200,000 5,800,000 4,300,000 2,000,000
Repayments of line of credit (10,300,000) (4,300,000) (8,400,000) (800,000)
Proceeds of long-term debt - 3,900,000 - -
Repayments of long-term debt (14,903,000) (14,706,000) (9,482,000) (5,902,000)
Repayments of non-recourse debt (167,854) (152,248) (167,854) (152,248)
Distributions to other members (6,171,654) (6,173,970) (3,084,779) (3,086,989)
Distributions to Managing Member (500,404) (500,592) (250,117) (250,296)
------------------ ------------------ ------------------ -------------------
Net cash provided by financing activities (23,842,912) (16,132,810) (17,084,750) (8,191,533)
------------------ ------------------ ------------------ -------------------
Net (decrease) increase in cash and cash
equivalents (1,059,676) (482,712) 149,286 329,652
Cash and cash equivalents at beginning of
period 2,263,479 2,269,137 1,054,517 1,456,773
------------------ ------------------ ------------------ -------------------
Cash and cash equivalents at end of period $ 1,203,803 $ 1,786,425 $ 1,203,803 $ 1,786,425
================== ================== ================== ===================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 3,168,475 $ 3,235,025 $ 1,173,982 $ 1,539,938
================== ================== ================== ===================
Schedule of non-cash transactions:
Change in fair value of interest rate swap contracts $ 1,184,760 $ 716,027 $ 873,930 $ 518,473
================== ================== ================== ===================
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
1. Summary of significant accounting policies:
Interim financial statements:
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 Members 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 leases:
The Company's investment in leases consists of the following:
Depreciation
Balance Expense or Reclassi- Balance
December 31, Impairment Amortization fications or June 30,
2002 Losses of Leases Dispositions 2003
Net investment in operating
leases $119,404,269 $ (1,890,861) $ (10,401,597) $ (7,169,271) $ 99,942,540
Net investment in direct
financing leases 11,233,604 - (908,384) 2,150,693 12,475,913
Assets held for sale or lease 20,401,035 - - (9,161,102) 11,239,933
Reserves for losses (2,612,500) - - 2,612,500 -
Initial direct costs, net of
accumulated amortization 674,355 - (188,073) - 486,282
----------------- ------------------ ------------------ ------------------ -------------------
$149,100,763 $ (1,890,861) $ (11,498,054) $(11,567,180) $ 124,144,668
================= ================== ================== ================== ===================
7
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
3. Investment in leases (continued):
Operating leases:
Property on operating leases consists of the following:
Depreciation
Balance Expense and Acquisitions, Dispositions & Balance
December 31, Impairment Reclassifications June 30,
2002 Losses 1st Quarter 2nd Quarter 2003
Manufacturing $ 49,700,635 $ - $ (3,611,588) $ (1,388,346) $ 44,700,701
Transportation, rail 21,054,669 - 12,618,467 179,679 33,852,815
Transportation, other 23,438,156 - (135,378) - 23,302,778
Containers 21,207,500 - - - 21,207,500
Aircraft 32,810,139 - (17,362,102) 15,448,037
Natural gas compressors 14,051,601 - - (374,152) 13,677,449
Materials handling 7,380,720 - - - 7,380,720
Other 14,118,402 - (20,150) (2,700,242) 11,398,010
----------------- ------------------ ------------------ ------------------ -------------------
183,761,822 - 8,851,351 (21,645,163) 170,968,010
Less accumulated depreciation (64,357,553) (12,292,458) (3,769,534) 9,394,075 (71,025,470)
----------------- ------------------ ------------------ ------------------ -------------------
$ 119,404,269 $ (12,292,458) $ 5,081,817 $(12,251,088) $ 99,942,540
================= ================== ================== ================== ===================
In 2003, there were charges to net income for impairments of operating lease
assets in the amount of $517,926. The charges related to an aircraft on lease to
Emery Worldwide. The impairment resulted from decreased estimated cash flows
expected to be generated by the assets upon sale to the lessee.
Direct financing leases:
As of June 30, 2003, investment in direct financing leases consists primarily
office automation equipment. The following lists the components of the Company's
investment in direct financing leases as of June 30, 2003:
Total minimum lease payments receivable $ 11,900,323
Estimated residual values of leased equipment (unguaranteed) 4,576,911
--------------
Investment in direct financing leases 16,477,234
Less unearned income (4,001,321)
--------------
Net investment in direct financing leases $ 12,475,913
==============
All of the property on leases was acquired in 1999, 2000 and 2001.
8
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
3. Investment in leases (continued):
At June 30, 2003, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Operating Financing
Leases Leases Total
Six months ending December 31, 2003 $12,121,117 $ 1,384,244 $ 13,505,361
Year ending December 31, 2004 15,061,852 2,627,548 17,689,400
2005 12,450,336 2,591,233 15,041,569
2006 8,308,771 2,342,138 10,650,909
2007 6,354,948 908,388 7,263,336
Thereafter 5,230,766 2,046,772 7,277,538
------------------ ------------------ -------------------
$59,527,790 $ 11,900,323 $ 71,428,113
================== ================== ===================
4. Non-recourse debt:
At June 30, 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 2002
through 2006.
Future minimum payments of non-recourse debt are as follows:
Principal Interest Total
Six months ending December 31, 2003 $ 230,061 $ 342,563 $ 572,624
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
------------------ ------------------ -------------------
$ 5,535,001 $ 625,602 $ 6,160,603
================== ================== ===================
9
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 (1.6178% at June 30, 2003), based on an index of A1
commercial paper. As of June 30, 2002, the Program was closed as to 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 June 30,
2002, the Company receives or pays interest on a notional principal of
$48,009,000, 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 June 30, Interest Swap
Date Borrowed Borrowed 2003 Agreement
11/11/1999 $20,000,000 $ 4,529,000 6.840%
12/21/1999 20,000,000 13,817,000 7.410%
12/24/1999 25,000,000 5,673,000 7.440%
4/17/2000 6,500,000 3,223,000 7.450%
4/28/2000 1,900,000 444,000 7.720%
8/3/2000 19,000,000 10,503,000 7.500%
10/31/2000 7,500,000 3,682,000 7.130%
1/29/2001 8,000,000 - 5.910%
6/1/2001 2,000,000 357,000 5.040%
9/1/2001 9,000,000 3,333,000 4.350%
1/31/2002 3,900,000 2,448,000 3.600%
------------------ ------------------
$122,800,000 $48,009,000
================== ==================
10
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
5. Other long-term debt (continued):
Other long-term debt borrowings mature from 2004 through 2009. Future minimum
principal payments of long-term debt are as follows:
Rates on
Interest Swap
Principal Interest Total Agreements*
Six months ending December 31, 2003 $ 9,151,000 $ 1,539,808 $ 10,690,808 6.964% - 6.974%
Year ending December 31, 2004 13,051,000 2,282,699 15,333,699 6.965% - 6.996%
2005 10,402,000 1,497,000 11,899,000 7.022% - 7.133%
2006 6,950,000 884,435 7,834,435 7.166% - 7.198%
2007 4,701,000 439,685 5,140,685 7.108% - 7.164%
2008 3,025,000 169,486 3,194,486 6.175% - 6.870%
2009 729,000 9,149 738,149 4.980% - 5.006%
------------------ ------------------ ------------------
$48,009,000 $ 6,822,262 $ 54,831,262
================== ================== ==================
* 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 (1.6178% at June 30, 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 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 (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 and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
11
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
6. Related party transactions (continued):
The Managing Member and/or affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement during the
six and three month periods ended June 30, 2003 and 2002 as follows:
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Asset management fees to Managing Member $ 775,954 $ 770,623 $ 475,384 $ 353,209
Administrative costs reimbursed to Managing
Member 753,733 757,879 96,970 243,271
------------------ ------------------ ------------------ -------------------
$ 1,529,687 $ 1,528,502 $ 572,354 $ 596,480
================== ================== ================== ===================
7. Member's capital:
As of June 30, 2003, 13,570,188 Units were issued and outstanding. The Company's
registration statement with the Securities and Exchange Commission became
effective December 7, 1998. The offering was concluded on November 30, 2000. The
Company is authorized to issue up to 15,000,050 Units, including the 50 Units
issued to the initial members.
The Company's Net Income, Net Losses, and Distributions as defined in the
Limited Liability Company Operating Agreement are to be allocated 92.5% to the
Members and 7.5% to the Managing Member.
8. Line of credit:
The Company participates with the Managing Member and certain of its affiliates
in a $56,736,746 revolving line of credit with a financial institution that
includes certain financial covenants. The line of credit expires on June 28,
2004. As of June 30, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition
facility $ 8,500,000
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 18,000,000
-------------------
Total borrowings under the acquisition facility 26,500,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
-------------------
Total outstanding balance $ 26,500,000
===================
Total available under the line of credit $ 56,736,746
Total outstanding balance (26,500,000)
-------------------
Remaining availability $ 30,236,746
===================
12
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
8. Line of credit (continued):
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 fund 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 June 30, 2003.
9. Commitments:
As of June 30, 2003, the Company had no outstanding commitments to purchase
lease equipment.
10. Other comprehensive income:
In 2003 and 2002, other comprehensive income consisted of the following:
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Net (loss) income $ (3,034,019) $ (445,007) $ 345,679 $ (365,999)
Other comprehensive income:
Change in fair value of interest rate swap contracts 1,184,760 716,027 873,930 518,473
------------------ ------------------ ------------------ -------------------
Comprehensive net (loss) income $ (1,849,259) $ 271,020 $ 1,219,609 $ 152,474
================== ================== ================== ===================
There were no other sources of comprehensive net income.
13
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 half of 2003 and 2002, the Company's primary activity was
engaging in equipment leasing activities.
During 2003, the Company's primary sources of liquidity were rents from
operating leases and proceeds from the sales of lease assets. During 2002, the
Company's primary source of liquidity was rents from operating leases. 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 $56,736,746 revolving line of credit with a financial institution that
includes certain financial covenants. The line of credit expires on June 28,
2004. As of June 30, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition
facility $ 8,500,000
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 18,000,000
-------------------
Total borrowings under the acquisition facility 26,500,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
-------------------
Total outstanding balance $ 26,500,000
===================
Total available under the line of credit $ 56,736,746
Total outstanding balance (26,500,000)
-------------------
Remaining availability $ 30,236,746
===================
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 members.
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
June 30, 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.
14
Cash Flows
During the first half of 2003, the Company's primary sources of liquidity was
operating lease rents and proceeds from the sales of lease assets. During the
first half of 2002, the Company's primary source of liquidity was operating
lease rents.
Sources of cash flows from operating activities consisted primarily of operating
lease revenues in both years.
Rents from direct financing leases were the most significant source of cash from
investing activities in 2002. In 2003, the most significant source of cash flows
from investing activities was proceeds from the sales of lease assets.
Sources of cash from financing activities consisted of borrowings on the line of
credit (2003 and 2002) and proceeds of long-term debt (2002). Financing uses of
cash included repayments of long-tern debt, repayments of non-recourse debt,
repayments of borrowings under the line of credit and distributions to the
members.
Results of operations
Operations resulted in a net loss of $3,034,019 for the six month period ended
June 30, 2003 and net income of $345,679 for the three month period ended June
30, 2003. In 2002, operations resulted in a net loss of $445,007 for the six
month period ended June 30 and a net loss of $365,999 for the second quarter
then ended. The Company's primary source of revenues is from operating leases.
In future periods, operating leases are also expected to be the most significant
source of revenues. Depreciation is related to operating lease assets and thus,
to operating lease revenues. It is expected to decrease in future periods as
leases mature and lease assets are sold.
Asset management fees are based on the gross lease rents of the Company plus
proceeds from the sales of lease assets. Such fees are limited to certain
percentages of lease rents, distributions to members and certain other items. As
lease assets are sold and as revenues decline, these fees are expected to
decrease.
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 half of 2002.
In the six months ended June 30, 2003, the Company incurred $806,180 of
maintenance costs relating to railcars. In the second quarter of 2003, the
Company incurred $134,093 of such costs. 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 comparable periods ended June 30, 2002.
Interest expense has decreased compared to 2002 due to debt repayments over the
last year, thereby decreasing the average balances of outstanding interest
bearing debt.
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 June 30, 2003, there was
$8,500,000 outstanding on the floating rate line of credit.
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.
15
As of June 30, 2003, borrowings on the facility were $48,009,000 and the
associated variable interest rate was 1.2178%. The average fixed interest rate
achieved with the swap agreements was 6.965% at June 30, 2003. As of June 30,
2003, the estimated fair value of the interest rate swaps was $4,196,582.
Item 4. Controls and procedures.
Internal Controls
As of June 30, 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 June 30, 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 June 30, 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.
Burlington Northern Santa Fe Corporation:
On July 2, 2003, a claim was filed by the Managing Member, on behalf of the
Company, against the lessee in San Francisco due to a dispute over the return
condition of the leased equipment. Contemporaneous with the filing of its claim,
the lessee filed a claim against the Company in Texas. Notwithstanding the
respective filed claims, the Company is seeking a resolution with the lessee
outside of litigation. The Company feels that there is a reasonable basis for it
to resolve its claims satisfactorily with the lessee. It is too early in the
process to determine if any liability will be incurred as a result of this
litigation.
Solectron:
This is a matter where 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 Managing Member, on behalf of the Company, in
the amount of $13,332,328.10. The lessee filed a counter-claim against the
Company asserting unfair business practices. An additional demand letter was
issued on March 27, 2003, alleging the failure of the lessee to properly
maintain the equipment it leased from the Company. The Company continues to seek
resolution of its claims with the lessee. The Company feels that it has a
reasonable basis for success of some, if not all, of its claims in this matter.
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.
16
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, June 30, 2003 and December 31, 2002.
Statements of operations for the six and three month periods
ended June 30, 2003 and 2002.
Statement of changes in partners' capital for the six month
period ended June 30, 2003.
Statements of cash flows for the six and three month periods
ended June 30, 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
17
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10Q of ATEL Capital Equipment
Fund VIII, LLC, (the "Company") for the period ended June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), and
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL
Financial Services, LLC, 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.
/s/ Dean L. Cash
- ----------------------------------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
August 12, 2003
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10Q of ATEL Capital Equipment
Fund VIII, LLC, (the "Company") for the period ended June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), and
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of
ATEL Financial Services, LLC, 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.
/s/ Paritosh K. Choksi
- ----------------------------------------------
Paritosh K. Choksi
Executive Vice President of Managing
Member, Principal financial officer of registrant
August 12, 2003
18
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: August 12, 2003
/s/ Paritosh K. Choksi
- ---------------------------
Paritosh K. Choksi
Principal Financial Officer of Registrant,
Executive Vice President of Managing Member
19
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: August 12, 2003
/s/ Dean L. Cash
- ---------------------------
Dean L. Cash
President and Chief Executive Officer of
Managing Member
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
August 12, 2003
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)
By: ATEL Financial Services, LLC
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
Executive Vice President of
Managing Member, Principal
financial officer of registrant
By: /s/ Donald E. Carpenter
-------------------------------------
Donald E. Carpenter
Principal accounting officer of
registrant
21