Form 10K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 (fee required)
For the Year Ended December 31, 2000
OR
|_| Transition report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934 (no fee
required) For the transition period from ____ to
____
Commission File number 333-62477
ATEL Capital Equipment Fund VIII, LLC
California 94-3307404
- ---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
State the aggregate market value of voting stock held by non-affiliates of the
registrant. Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE
Prospectus dated December 7, 1998, filed pursuant to Rule 424(b) (Commission
File No. 33-62477) is hereby incorporated by reference into Part IV hereof.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
1
PART I
Item 1: BUSINESS
General Development of Business
ATEL Capital Equipment Fund VIII, LLC (the Company) was formed under the laws of
the State of California in July 1998. The Company was formed for the purpose of
acquiring equipment to engage in equipment leasing and sales activities. The
Managing Member of the Company is ATEL Financial Corporation (ATEL), a
California corporation.
The Company conducted a public offering of 15,000,000 of Limited Liability
Company Units (Units), at a price of $10 per Unit. On January 13, 1999,
subscriptions for the minimum number of Units (120,000, $1,200,000) had been
received and ATEL requested that the subscriptions, except those received from
Pennsylvania investors (7,500 Units, $75,000), be released to the Company. On
that date, the Company commenced operations in its primary business (leasing
activities). As of February 18, 1999, the Company had received subscriptions for
775,777 Units ($7,757,770) and ATEL requested that the remaining funds in escrow
(from Pennsylvania investors) be released to the Company. As of November 30,
2000, the Company had received subscriptions for 13,570,138 ($135,701,380) Units
in addition to the Initial Members' Units and the offering was terminated. All
of the Units were issued and outstanding as of December 31, 2000.
The Company's principal objectives are to invest in a diversified portfolio of
equipment which will (i) preserve, protect and return the Company's invested
capital; (ii) generate regular distributions to the partners of cash from
operations and cash from sales or refinancing, with any balance remaining after
certain minimum distributions to be used to purchase additional equipment during
the reinvestment period, ending 72 months after the end of the year in which the
Final Closing occurs (which will be December 31, 2006) and (iii) provide
additional distributions following the reinvestment period and until all
equipment has been sold. The Company is governed by its Limited Liability
Company Operating Agreement (Operating Agreement).
Narrative Description of Business
The Company has acquired and intends to acquire various types of equipment and
to lease such equipment pursuant to "Operating" leases and "High Payout" leases,
where "Operating" leases are defined as being leases in which the minimum lease
payments during the initial lease term do not recover the full cost of the
equipment and "High Payout" leases recover at least 90% of such cost. It is the
intention of ATEL that a majority of the aggregate purchase price of equipment
will represent equipment leased under "High Payout" leases upon final investment
of the Net Proceeds of the Offering and that no more than 20% of the aggregate
purchase price of equipment will be invested in equipment acquired from a single
manufacturer.
The Company will only purchase equipment for which a lease exists or for which a
lease will be entered into at the time of the purchase.
As of December 31, 2000, the Company had purchased equipment with a total
acquisition price of $218,076,236.
The Company's objective is to lease a minimum of 75% of the equipment acquired
with the net proceeds of the offering to lessees which (i) have an aggregate
credit rating by Moody's Investor service, Inc. of Baa or better, or the credit
equivalent as determined by ATEL, with the aggregate rating weighted to account
for the original equipment cost for each item leased or (ii) are established
hospitals with histories of profitability or municipalities. The balance of the
original equipment portfolio may include equipment leased to lessees which,
although deemed creditworthy by the Managing Member, would not satisfy the
general credit rating criteria for the portfolio. In excess of 75% of the
equipment acquired with the net proceeds of the offering (based on original
purchase cost) has been leased to lessees with an aggregate credit rating of Baa
or better or to such hospitals or municipalities.
2
During 2000 and 1999, certain lessees generated significant portions of the
Company's total lease revenues as follows:
Lessee Type of Equipment 2000 1999
------ ----------------- ---- ----
Burlington Northern Santa Fe Railroad Locomotives and Auto Racks 10% *
Transamerica Leasing Inc. Intermodal containers * 31%
Staples, Inc. Point of sale / materials handling * 12%
Stewart & Stevenson Services, Inc. Gas Compressors * 12%
Seamex International Ltd. Anchor Handler Tug Supply Vessel * 10%
* Less than 10%
These percentages are not expected to be comparable in future periods.
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease term and type of equipment. The ability of the Company to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depends on various factors (many of which are not in
the control of ATEL or the Company), such as general economic conditions,
including the effects of inflation or recession, and fluctuations in supply and
demand for various types of equipment resulting from, among other things,
technological and economic obsolescence.
ATEL will seek to limit the amount invested in equipment to any single lessee to
not more than 20% of the aggregate purchase price of equipment owned at any time
during the reinvestment period.
The business of the Company is not seasonal.
The Company has no full time employees.
Equipment Leasing Activities
The Company has acquired a diversified portfolio of equipment. The equipment has
been leased to lessees in various industries. The following tables set forth the
types of equipment acquired by the Company through December 31, 2000 and the
industries to which the assets have been leased. The Company has purchased
certain assets subject to existing non-recourse debt. For financial statement
purposes, non-recourse debt has been offset against the investment in certain
direct finance leases where the right of setoff exists.
Purchase Price Excluding Percentage of Total
Asset Types Acquisition Fees Acquisitions
----------- ---------------- ------------
Transportation, rail $43,246,086 19.83%
Manufacturing 42,857,769 19.65%
Aircraft 31,614,874 14.50%
Transportation, other 25,903,287 11.88%
Transportation, intermodal
containers 21,228,750 9.73%
Gas compressors 13,841,998 6.35%
Materials handling 9,531,096 4.37%
Point of sale / office automation 8,028,510 3.68%
Storage tanks 6,712,090 3.08%
Marine vessels 3,952,500 1.81%
Other * 11,159,276 5.12%
---------------- ---------
$218,076,236 100.00%
================ =========
* Individual asset types included in "Other" represent less than 2% of the
total.
3
Purchase Price Excluding Percentage of Total
Industry of Lessee Acquisition Fees Acquisitions
------------------ ---------------- ------------
Transportation, rail $43,246,086 19.84%
Manufacturing, other 33,698,769 15.45%
Transportation, air 31,614,874 14.50%
Transportation, other 27,390,656 12.56%
Transportation, containers 21,228,750 9.73%
Manufacturing, electronics 20,901,071 9.58%
Retail 15,919,503 7.30%
Natural gas 13,841,998 6.35%
Other * 10,234,529 4.69%
---------------- ---------
$218,076,236 100.00%
================ =========
* Individual lessee industries included in "Other" represent less than 2% of the
total.
For further information regarding the Company's equipment lease portfolio as of
December 31, 2000, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Company does not own or lease any real property, plant or materially
important physical properties other than the equipment held for lease as set
forth in Item 1.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED LIABILITY COMPANY UNITS
AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Company and its investment objectives, to the
ATEL's knowledge, no established public secondary trading market has developed
and it is unlikely that a public trading market will develop in the future.
Holders
As of December 31, 2000, a total of 3,612 investors were record holders of Units
in the Company.
Dividends
The Company does not make dividend distributions. However, the Members of the
Company are entitled to certain distributions as provided under the Operating
Agreement.
4
ATEL shall have sole discretion in determining the amount of distributions;
provided, however, that the Managing Member will not reinvest in equipment, but
will distribute, subject to payment of any obligations of the Company, such
available cash from operations and cash from sales or refinancing as may be
necessary to cause total distributions to the Members for each year during the
reinvestment period to equal an as yet to be determined amount between $0.80 and
$1.00 per Unit.
The rate for monthly distributions from 1999 operations was $0.0667 per Unit.
The distributions were made in February 1999 through December 1999 and in
January 2000. For each quarterly distribution (made in April, July and October
1999 and in January 2000) the rate was $0.20 per Unit. Distributions were from
1999 cash flows from operations. An additional distribution from 1999 cash flows
was made in January 2000. The amount of the distribution was calculated for each
Unit so as to bring the average of all monthly distributions received to a total
of $.075 per month per Unit and to $0.225 per Unit per quarter for those
receiving distributions on a quarterly basis. The total distributions represent
a distribution rate of 9% per annum on the original invested capital. The
amounts paid to holders of Units were adjusted based on the length of time
within the previous calendar month, quarter or year that the Units were
outstanding.
The rate for monthly distributions from 2000 operations was $0.75 for January
through October 2000. The distributions were made in February through November
2000. The rate for the distribution for November 2000 was $0.79167. The rate for
the distribution for December 2000 was $0.07667. An additional distribution was
made in December 2000. The amount of the distribution was calculated for each
Unit so as to bring the average of all monthly distributions received to a total
of $0.079167 per Unit per month for the period from February through November
2000. For each quarterly distribution (made in April, July and October 2000) the
rate was $0.225 per Unit. For the quarterly distribution made in January 2001,
the rate was $0.235. An additional distribution was made in December 2000. The
amount of the distribution was calculated for each Unit so as to bring the
average of all quarterly distributions received to a total of $0.2375 per Unit
per quarter for the period from February through October 2000. Distributions
were from 2000 cash flows from operations.
The following table presents summarized information regarding distributions to
Other Members:
2000 1999
---- ----
Distributions of net (loss) income $ (0.2900) $ 0.0600
Return of investment 1.2100 0.5500
----------- -----------
Distributions per unit 0.9200 0.6100
Differences due to timing of distributions 0.0275 0.2900
----------- -----------
Nominal distribution rates from above $ 0.9475 $ 0.9000
=========== ===========
Information provided pursuant to ss. 228.701 (Item 701(f)) (formerly included in
Form SR):
(1) Effective date of the offering: December 7, 1998; File Number: 333-62477
(2) Offering commenced: December 7, 1998
(3) The offering did not terminate before any securities were sold.
(4) The offering was terminated prior to the sale of all of the securities.
(5) The managing underwriter is ATEL Securities Corporation.
(6) The title of the registered class of securities is "Limited Liability
Company Units"
5
(7) Aggregate amount and offering price of securities registered and sold as of
November 30, 2000.
Aggregate Aggregate
price of price of
offering offering
Amount amount Amount amount
Title of Security Registered registered sold sold
- ----------------- ---------- ---------- ---- ----
Limited Liability Company Units 15,000,000 $150,000,000 13,568,635 $ 135,686,350
(8) Costs incurred for the issuers account in connection with the issuance and
distribution of the securities registered for each category listed below:
Direct or indirect payments to
directors, officers, managing
member of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
---------- ------ -----
Underwriting discounts and
commissions $ 1,837,533 $ 11,052,670 $ 12,890,203
Other expenses - 6,355,886 6,355,886
-
---------------- ----------------- -----------------
Total expenses $ 1,837,533 $ 17,408,556 $ 19,246,089
================ ================= =================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $ 116,440,261
(10) The amount of net offering proceeds to the issuer used for each of the
purposes listed below:
Direct or indirect payments
to directors, officers, general
partners of the issuer or their
associates; to persons
owning ten percent or more Direct or
of any class of equity indirect
securities of the issuer; and payments to
to affiliates of the issuer others Total
--------------------------- ------ -----
Purchase and installation of
machinery and equipment $ - $115,761,829 $ 115,761,829
Working capital - 678,432 678,432
---------------- ----------------- -----------------
$ - $116,440,261 $ 116,440,261
================ ================= =================
(11) The use of the proceeds in Item 10 does not represent a material change in
the uses of proceeds described in the prospectus.
6
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company at December
31, 2000, 1999 and 1998. This financial data should be read in conjunction with
the financial statements and related notes included under Item 8 of this report.
2000 1999 1998
---- ---- ----
Gross revenues $ 31,047,485 $ 8,660,653 $ -
Net (loss) income $ (2,305,631) $ 438,835 $ -
Weighted average Units 10,634,792 4,031,294 50
Net (loss) income per Unit, based on weighted average Units outstanding $ (0.29) $ 0.06 $ -
Distributions per Unit, based on weighted average Units outstanding $ 0.92 $ 0.61 $ -
Total Assets $198,832,652 $145,663,336 $ 600
Non-recourse and long-term debt $ 93,993,744 $ 71,848,617 $ -
Total Members' Capital $101,338,501 $ 64,130,010 $ 600
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Company commenced its offering on December 7, 1998. On January 13, 1999, the
Company commenced operations in its primary business (leasing activities). The
offering was terminated on November 30, 2000. Total proceeds of the offering was
$135,701,880. Until the Company's initial portfolio of equipment has been
purchased, funds which have been received, but which have not yet been invested
in leased equipment, are invested in interest-bearing accounts or
high-quality/short-term commercial paper. The Company's public offering provides
for a total maximum capitalization of $150,000,000.
During the funding period, the Company's primary source of liquidity was
subscription proceeds from the public offering of Units. The liquidity of the
Company will vary in the future, increasing to the extent cash flows from leases
and proceeds of asset sales exceed expenses, and decreasing as lease assets are
acquired, as distributions are made to the other members and to the extent
expenses exceed cash flows from leases and proceeds from asset sales.
As another source of liquidity, the Company is expected to have contractual
obligations with a diversified group of lessees for fixed lease terms at fixed
rental amounts. As the initial lease terms expire, the Company will re-lease or
sell the equipment. The future liquidity beyond the contractual minimum rentals
will depend on ATEL's success in re-leasing or selling the equipment as it comes
off lease.
The Company participates with ATEL and certain of its affiliates in a
$77,500,000 revolving line of credit with a financial institution that includes
certain financial covenants. The line of credit expires on July 28, 2001. As of
December 31, 2000, the Company had no borrowings under the line of credit. At
December 31, 2000, $39,969,040 was available under the line of credit.
The Company anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to the Managing Member
and providing for cash distributions to the Other Members. At December 31, 2000,
there were commitments to purchase lease assets totaling approximately
$45,939,000.
7
ATEL or an Affiliate may purchase equipment in its own name, the name of an
Affiliate or the name of a nominee, a trust or otherwise and hold title thereto
on a temporary or interim basis for the purpose of facilitating the acquisition
of such equipment or the completion of manufacture of the equipment or for any
other purpose related to the business of the Company, provided, however that:
(i) the transaction is in the best interest of the Company; (ii) such equipment
is purchased by the Company for a purchase price no greater than the cost of
such equipment to ATEL or Affiliate (including any out-of-pocket carrying
costs), except for compensation permitted by the Operating Agreement; (iii)
there is no difference in interest terms of the loans secured by the equipment
at the time acquired by ATEL or Affiliate and the time acquired by the Company;
(iv) there is no benefit arising out of such transaction to ATEL or its
Affiliate apart from the compensation otherwise permitted by the Operating
Agreement; and (v) all income generated by, and all expenses associated with,
equipment so acquired shall be treated as belonging to the Company.
The Company currently has available adequate reserves to meet its immediate cash
requirements, but in the event those reserves were found to be inadequate, the
Company would likely be in a position to borrow against its current portfolio to
meet such requirements. ATEL envisions no such requirements for operating
purposes.
In 1999, the Company established a $70 million receivables funding program
(which was subsequently increased to $125 million) with a receivables financing
company that issues commercial paper rated A1 from Standard and Poors and P1
from Moody's Investor Services. In this receivables funding program, the lenders
received a general lien against all of the otherwise unencumbered assets of the
Company. The program provides for borrowing at a variable interest rate and
requires the Managing Member to enter into hedge agreements with certain hedge
counter parties (also rated A1/P1) to mitigate the interest rate risk associated
with a variable rate note. The Managing Member anticipates that this program
will allow the Company to avail itself of lower cost debt than that available
for individual non-recourse debt transactions.
It is the intention of the Company to use the receivables funding program to
finance assets leased to those lessees which, in the opinion of the Managing
Member, have a relatively lower potential risk of lease default than those
lessees with equipment financed with non-recourse debt. The Company will
continue to use its traditional sources of non-recourse secured debt financing
on a transaction basis as a means of mitigating credit risk.
ATEL expects that aggregate borrowings in the future will be approximately 50%
of aggregate equipment cost. In any event, the Operating Agreement limits such
borrowings to 50% of the total cost of equipment, in aggregate.
The Company commenced regular distributions, based on cash flows from
operations, beginning with the month of January 1999. The distribution was made
in February 1999.
If inflation in the general economy becomes significant, it may affect the
Company inasmuch as the residual (resale) values and rates on re-leases of the
Company's leased assets may increase as the costs of similar assets increase.
However, the Company's revenues from existing leases would not increase, as such
rates are generally fixed for the terms of the leases without adjustment for
inflation.
If interest rates increase significantly, the lease rates that the Company can
obtain on future leases will be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
Cash Flows
In 2000 and 1999, the Company's primary sources of cash were various types of
debt proceeds and the proceeds of its public offering of Units.
8
The primary source of cash from operating activities in both 2000 and 1999 was
operating lease rents.
Rents from direct financing leases was the only significant source of cash from
investing activities in either 2000 or in 1999. In both years, uses of cash in
investing activities consisted primarily of purchases of assets on operating and
direct financing leases. Cash was also used to pay initial direct costs
associated with those leases.
In 2000 and 1999, the primary source of cash from financing activities was the
proceeds of the Company's public offering. Proceeds from non-recourse and
long-term debt and borrowings under the line of credit also provided cash in
2000 and 1999. Cash provided by financing activities was used to purchase lease
assets.
Results of Operations
As of January 13, 1999, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Company. As of that date, the
Company commenced operations in its primary business (leasing activities). There
were no operations in 1998. Because of the timing of the commencement of
operations and the fact that the initial portfolio acquisitions have not been
completed, the results of operations in 2000 and 1999 are not expected to be
comparable to future periods. After the Company's public offering and its
initial asset acquisition stage terminate, the results of operations are
expected to change significantly.
Substantially all employees of ATEL track time incurred in performing
administrative services on behalf of the Company. ATEL believes that the costs
reimbursed are the lower of (i) actual costs incurred on behalf of the Company
or (ii) the amount the Company would be required to pay independent parties for
comparable administrative services in the same geographic location.
Operations in 2000 resulted in a net loss of $2,305,631. Operations in 1999
resulted in net income of $438,835. Operations in future periods are not
expected to be comparable to those in 2000 and 1999.
Revenues from operating leases and direct finance leases increased significantly
in 2000 compared to 1999. These increases were the result of asset acquisitions
over the last two years. Revenues are expected to increase again in 2001, but
not as dramatically as in 2000.
Depreciation expense also increased as a result of the purchases of lease assets
in 2000 and 1999.
Average debt balances increased in 2000 compared to 1999. This led to the
increase in interest expense compared to 1999. The proceeds of the debt were
used to acquire additional lease assets.
Impact of the Year 2000
To date, the Company has experienced no significant Year 2000 problems and the
Managing Member believes it does not have continued exposure to the Year 2000
problem.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instruments. Upon adoption, the Company will be required to adjust hedging
instruments to fair value in the balance sheet and recognize the offsetting
gains or losses as adjustments to be reported in net income or other
comprehensive income, as appropriate.
9
The Company will adopt SFAS No. 133, as amended, on January 1, 2001. The
Managing Member believes that the adoption of SFAS No. 133, will not have a
material effect on the Company's results of operations or financial position.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Company believes its exposure
to other market risks, including foreign currency exchange rate risk, commodity
risk and equity price risk, are insignificant to both its financial position and
results of operations.
In general, the Company manages its exposure to interest rate risk by obtaining
fixed rate debt. The fixed rate debt is structured so as to match the cash flows
required to service the debt to the payment streams under fixed rate lease
receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. Furthermore, the Company has historically been able to
maintain a stable spread between its cost of funds and lease yields in both
periods of rising and falling rates. Nevertheless, the Company frequently funds
leases with its floating rate line of credit and is, therefore, exposed to
interest rate risk until fixed rate financing is arranged, or the floating rate
line of credit is repaid. As of December 31, 2000, there was no outstanding
balance on the floating rate line of credit. Also, as described in the caption
"Capital Resources and Liquidity," the Company entered into a receivables
funding facility in 1999. Since interest on the outstanding balances under the
facility varies, the Company is exposed to market risks associated with changing
interest rates.
To hedge its interest rate risk, the Company enters into interest rate swaps
which effectively modify the underlying interest characteristic on the facility
from floating to fixed. Under the swap agreements, the Company makes or receives
variable interest payments to or from the counterparty based on a notional
principal amount. The net differential paid or received by the Company is
recognized as an adjustment to interest expense related to the facility
balances. The amount paid or received represents the difference between the
payments required under the variable rate facility and the amounts due under the
facility at the fixed (hedged) rate. As of December 31, 2000, borrowings on the
facility were $86,668,000 and the associated variable rate was 6.7527%. The
average fixed rate achieved with the swap agreements was 7.32%.
In general, these swap agreements eliminate the Company's interest rate risk
associated with variable rate borrowings. However, the Company is exposed to and
manages credit risk associated with the counterparty by dealing only with
institutions it considers financially sound. If these agreements were not in
place, based on the Company's facility borrowings at December 31, 2000, a
hypothetical 1.00% increase or decrease in market interest rates, would increase
or decrease the Company's 2001 variable interest expense by approximately
$786,000.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 10 through 24.
10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Members
ATEL Capital Equipment Fund VIII, LLC
We have audited the accompanying balance sheets of ATEL Capital Equipment Fund
VIII, LLC as of December 31, 2000 and 1999, and the related statements of
operations, changes in members' capital and cash flows for the two years ended
December 31, 2000, and the related statements of changes in members' capital and
cash flows for the period from July 31, 1998 (inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund
VIII, LLC at December 31, 2000 and 1999, and the results of its operations, its
changes in members' capital and its cash flows for the two years ended December
31, 2000, and its changes in members' capital and its cash flows for the period
from July 31, 1998 (inception) through December 31, 1998, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California
January 29, 2001
11
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
---- ----
Cash and cash equivalents $ 2,484,785 $ 3,973,342
Accounts receivable 5,339,569 2,124,786
Other assets 115,000 145,000
Investments in equipment and leases 190,893,298 139,420,208
----------------- ----------------
Total assets $ 198,832,652 $ 145,663,336
================= ================
LIABILITIES AND MEMBERS' CAPITAL
Long-term debt $ 86,668,000 $ 64,674,000
Non-recourse debt 7,325,744 7,174,617
Line of credit - 7,500,000
Accounts payable:
Managing Member 695,548 811,287
Other 485,895 1,123
Accrued interest payable 267,823 114,602
Unearned operating lease income 2,051,141 1,257,697
----------------- ----------------
Total liabilities 97,494,151 81,533,326
Members' capital:
Managing Member - -
Other members 101,338,501 64,130,010
----------------- ----------------
Total members' capital 101,338,501 64,130,010
----------------- ----------------
Total liabilities and members' capital $ 198,832,652 $ 145,663,336
================= ================
See accompanying notes.
12
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenues: 2000 1999
---- ----
Leasing activities:
Operating leases $ 29,965,693 $ 8,212,649
Direct financing leases 810,501 347,764
Gain on sales of assets 1,453 3,017
Interest 175,029 95,948
Other 94,809 1,275
----------------- ----------------
31,047,485 8,660,653
Expenses:
Depreciation and amortization 22,588,276 5,392,504
Interest expense 7,365,041 1,340,804
Administrative cost reimbursements to
Managing Member 1,408,523 767,386
Asset management fees to Managing Member 1,465,566 443,943
Professional fees 127,345 155,743
Other 398,365 121,438
----------------- ----------------
33,353,116 8,221,818
----------------- ----------------
Net (loss) income $ (2,305,631) $ 438,835
================= ================
Net (loss) income:
Managing Member $ 795,009 $ 199,415
Other members (3,100,640) 239,420
----------------- ----------------
$ (2,305,631) $ 438,835
================= ================
Net (loss) income per Limited
Liability Company Unit $ (0.29) $ 0.06
Weighted average number of
Units outstanding 10,634,792 4,025,294
See accompanying notes.
13
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM JULY 31, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998 AND FOR THE
YEARS ENDED DECEMBER 31, 2000 AND 1999
Other Members Managing
-------------
Units Amount Member Total
----- ------ ------ -----
Capital contributions 50 $ 500 $ 100 $ 600
---------------- ----------------- ----------------- ----------------
Balance December 31, 1998 50 500 100 600
Capital contributions 7,744,276 77,442,760 - 77,442,760
Less selling commissions to affiliates (7,357,062) - (7,357,062)
Other syndication costs to affiliates (3,734,924) - (3,734,924)
Distributions to Managing Member - (199,515) (199,515)
Distributions to other members ($0.61 per Unit) (2,460,684) - (2,460,684)
Net income 239,420 199,415 438,835
---------------- ----------------- ----------------- ----------------
Balance December 31, 1999 7,744,326 64,130,010 - 64,130,010
Capital contributions 5,825,862 58,258,620 - 58,258,620
Less selling commissions to affiliates (5,534,569) - (5,534,569)
Other syndication costs to affiliates (2,619,534) - (2,619,534)
Distributions to Managing Member - (795,009) (795,009)
Distributions to other members ($0.92 per Unit) (9,795,386) - (9,795,386)
Net (loss) income (3,100,640) 795,009 (2,305,631)
---------------- ----------------- ----------------- ----------------
Balance December 31, 2000 13,570,188 $101,338,501 $ - $ 101,338,501
================ ================= ================= ================
See accompanying notes.
14
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JULY 31, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998 AND FOR THE
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 1998
---- ---- ----
Operating activities:
Net (loss) income $ (2,305,631) $ 438,835
Adjustments to reconcile net (loss) income to cash provided by
operating activities:
Gain on sales of assets (1,453) (3,017)
Depreciation and amortization 22,588,276 5,392,504
Changes in operating assets and liabilities:
Accounts receivable (3,214,783) (2,124,786)
Other assets 30,000 (145,000)
Accounts payable, Managing Member (115,739) 811,287
Accounts payable, other 484,772 1,123
Accrued interest 153,221 114,602
Unearned lease income 793,444 1,257,697
----------------- -----------------
Net cash provided by operating activities 18,412,107 5,743,245
----------------- -----------------
Investing activities:
Purchases of equipment on operating leases (66,010,813) (135,053,806)
Purchases of equipment on direct financing leases (9,367,277) (9,992,009)
Reduction of net investment in direct financing leases 2,154,474 951,549
Payment of initial direct costs to Managing Member (844,058) (753,607)
Proceeds from sales of assets 7,761 38,178
----------------- -----------------
Net cash used in investing activities (74,059,913) (144,809,695)
----------------- -----------------
Financing activities:
Capital contributions received 58,258,620 77,442,760 $ 600
Payment of selling commissions and other syndication costs to
Managing Member (8,154,103) (11,091,986) -
Proceeds of non-recourse debt 2,337,614 7,174,617 -
Repayments of non-recourse debt (2,186,487) - -
Proceeds of other long-term debt 34,900,000 65,000,000 -
Repayments of other long-term debt (12,906,000) (326,000) -
Repayments of line of credit (36,055,729) (69,141,662) -
Borrowings under line of credit 28,555,729 76,641,662 -
Distributions to other members (9,795,386) (2,460,684) -
Distributions to Managing Member (795,009) (199,515) -
----------------- ----------------- ----------------
Net cash provided by financing activities 54,159,249 143,039,192 600
----------------- ----------------- ----------------
Net (decrease) increase in cash and cash equivalents (1,488,557) 3,972,742 600
Cash and cash equivalents at beginning of period 3,973,342 600 -
----------------- ----------------- ----------------
Cash and cash equivalents at end of period $ 2,484,785 $ 3,973,342 $ 600
================= ================= ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 6,571,597 $ 1,340,804 $ -
================= ================= ================
See accompanying notes.
15
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund VIII, LLC (the Company) was formed under the laws of
the State of California on July 31, 1998 for the purpose of acquiring equipment
to engage in equipment leasing and sales activities. The Company may continue
until December 31, 2019. The Managing Member of the Company is ATEL Financial
Corporation (ATEL), a California corporation. Contributions in the amount of
$600 had been received as of December 31, 1998, $100 of which represented the
Managing Member's (ATEL Financial Corporation's) (ATEL's) continuing interest,
and $500 of which represented the Initial Members' capital investment. Each
Member's personal liability for obligations of the Company generally will be
limited to the amount of their respective contributions and rights to
undistributed profits and assets of the Company.
On January 13, 1999, subscriptions for the minimum number of Units (120,000,
$1,200,000) had been received. On that date, the Company commenced operations in
its primary business (leasing activities).
The Company, or the Managing Member on behalf of the Company, incurred costs in
connection with the organization, registration and issuance of the Units. The
amount of such costs to be borne by the Company was limited to 15% of Gross
Proceeds of up to $25,000,000 and 14% of Gross Proceeds in excess of $25,000,000
(see Note 6).
The Company's business consists of leasing various types of equipment. As of
December 31, 2000, the original terms of the leases ranged from six months to
nine years.
Pursuant to the Operating Agreement, the Managing Member receives compensation
and reimbursements for services rendered on behalf of the Company (see Note 6).
The Managing Member is required to maintain in the Company reasonable cash
reserves for working capital, the repurchase of Units and contingencies.
2. Summary of significant accounting policies:
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the lives of the
related leases.
Direct financing leases:
Income from direct financing lease transactions is reported using the financing
method of accounting, in which the Company's investment in the leased property
is reported as a receivable from the lessee to be recovered through future
rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
Investment in leveraged leases:
Leases which are financed principally with non-recourse debt at lease inception
and which meet certain other criteria are accounted for as leveraged leases.
Leveraged lease contracts receivable are stated net of the related non-recourse
debt service (which includes unpaid principal and aggregate interest on such
debt) plus estimated residual values. Unearned income represents the excess of
anticipated cash flows (after taking into account the related debt service and
residual values) over the investment in the lease and is amortized using a
constant rate of return applied to the net investment when such investment is
positive.
16
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
2. Summary of significant accounting policies (continued):
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
Income taxes:
The Company does not provide for income taxes since all income and losses are
the liability of the individual partners and are allocated to the partners for
inclusion in their individual tax returns.
The tax basis of the Company's net assets and liabilities varies from the
amounts presented in these financial statements (unaudited):
2000 1999
---- ----
Financial statement basis of net assets $101,338,501 $ 64,130,010
Tax basis of net assets 79,812,598 61,162,734
----------------- -----------------
Difference $ 21,525,903 $ 2,967,276
================= =================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the result of differences in accounting
for syndication costs and differences between the depreciation methods used in
the financial statements and the Company's tax returns.
The following reconciles the net income reported in these financial statements
to the loss reported on the Company's federal tax return (unaudited):
2000 1999
---- ----
Net (loss) income per financial statements $ (2,305,631) $ 438,835
Adjustment to depreciation expense (29,978,571) (16,401,065)
Adjustments to lease revenues 3,265,841 2,343,563
----------------- -----------------
Net loss per federal tax return $ (29,018,361) $ (13,618,667)
================= =================
Per unit data:
Net (loss) income and distributions per unit are based upon the weighted average
number of units outstanding during the period.
17
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
2. Summary of significant accounting policies (continued):
Credit risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk include cash and cash equivalents and accounts receivable. The
Company places its cash deposits and temporary cash investments with
creditworthy, high quality financial institutions. The concentration of such
deposits and temporary cash investments is not deemed to create a significant
risk to the Company. Accounts receivable represent amounts due from lessees in
various industries, related to equipment on operating and direct financing
leases. See Note 8 for a description of lessees by industry as of December 31,
2000 and 1999.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Such estimates primarily
relate to the determination of residual values at the end of the lease term.
Reserve for losses and impairments:
The Company maintains a reserve on its investments in equipment and leases for
losses and impairments which are inherent in the portfolio as of the balance
sheet date. The Managing Member's evaluation of the adequacy of the allowance is
a judgmental estimate that is based on a review of individual leases, past loss
experience and other factors. While the Managing Member believes the allowance
is adequate to cover known losses, it is reasonably possible that the allowance
may change in the near term. However, such change is not expected to have a
material effect on the financial position or future operating results of the
Company. It is the Company's policy to charge off amounts which, in the opinion
of the Managing Member, are not recoverable from lessees or the disposition of
the collateral.
Recent Accounting Pronouncement:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instruments. Upon adoption, the Company will be required to adjust hedging
instruments to fair value in the balance sheet and recognize the offsetting
gains or losses as adjustments to be reported in net income or other
comprehensive income, as appropriate.
The Company will adopt SFAS No. 133, as amended, on January 1, 2001. The Company
enters into interest rate swaps (see Note 5). The Managing Member believes that
the adoption of SFAS No. 133, will not have a material effect on the Company's
results of operations or financial position.
18
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
3. Investments in equipment and leases:
The Company's investments in equipment and leases consist of the following:
Depreciation
Expense or Reclass-
December 31, Amortization ifications or December 31,
1999 Additions of Leases Dispositions 2000
---- --------- --------- ------------ ----
Net investment in operating leases $ 129,689,456 $66,010,813 $ (22,298,714) $ (6,308) $ 173,395,247
Net investment in direct financing leases 9,040,460 9,367,277 (2,154,474) - 16,253,263
Initial direct costs, net of accumulated
amortization of $354,638 in 2000 and
$65,075 in 1999 690,292 844,058 (289,562) - 1,244,788
---------------- ---------------- ----------------- ----------------- ----------------
$ 139,420,208 $76,222,148 $ (24,742,750) $ (6,308) $ 190,893,298
================ ================ ================= ================= ================
Operating leases:
Property on operating leases consists of the following:
Reclass-
December 31, ifications or December 31,
1999 Additions Dispositions 2000
---- --------- ------------ ----
Manufacturing $ 21,949,691 $26,077,588 $ 48,027,279
Transportation, rail 38,224,944 1,409,554 39,634,498
Aircraft 24,411,837 7,203,037 31,614,874
Transportation, other 10,247,265 13,336,207 23,583,472
Containers 21,228,750 - 21,228,750
Natural gas compressors 7,863,922 6,181,212 14,045,134
Materials handling 2,086,090 3,771,991 5,858,081
Marine vessel 3,952,500 361,531 4,314,031
Other 5,051,922 7,669,693 $ (9,652) 12,711,963
---------------- ---------------- ----------------- -----------------
135,016,921 66,010,813 (9,652) 201,018,082
Less accumulated depreciation (5,327,465) (22,298,714) 3,344 (27,622,835)
---------------- ---------------- ----------------- -----------------
$ 129,689,456 $ 43,712,099 $ (6,308) $ 173,395,247
================ ================ ================= =================
Direct financing leases:
As of December 31, 2000 and 1999, investment in direct financing leases consists
of anhydrous ammonia storage tanks, office automation equipment, point of sale
equipment, refrigerated trailers and laundry equipment. The following lists the
components of the Company's investment in direct financing leases as of December
31, 2000 and 1999:
2000 1999
---- ----
Total minimum lease payments receivable $ 15,045,821 $ 9,500,631
Estimated residual values of leased equipment (unguaranteed) 4,810,693 1,247,559
----------------- -----------------
Investment in direct financing leases 19,856,514 10,748,190
Less unearned income (3,603,251) (1,707,730)
----------------- -----------------
Net investment in direct financing leases $ 16,253,263 $ 9,040,460
================= =================
All of the property on leases was acquired in 2000 and 1999. There were no
significant dispositions of such property.
19
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
3. Investments in equipment and leases (continued):
At December 31, 2000, the aggregate amounts of future minimum lease payments are
as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
2001 $ 31,944,886 $ 3,543,814 $ 35,488,700
2002 29,997,219 3,021,377 33,018,596
2003 24,191,024 2,714,320 26,905,344
2004 14,894,640 1,903,003 16,797,643
2005 10,544,506 1,866,689 12,411,195
Thereafter 15,583,110 1,996,618 17,579,728
---------------- ----------------- -----------------
$127,155,385 $ 15,045,821 $ 142,201,206
================ ================= =================
At December 31, 2000, there were commitments to purchase lease assets totaling
approximately $45,940,000.
4. Non-recourse debt:
At December 31, 2000, non-recourse debt consists of notes payable to financial
institutions. The notes are due in varying quarterly and semi-annual payments.
Interest on the notes is at rates from 7.98% to 14.0%. The notes are secured by
assignments of lease payments and pledges of assets. At December 31, 2000, the
carrying value of the pledged assets is $31,788,949. The notes mature from 2001
through 2004.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
2001 $ 1,310,780 $ 616,563 $ 1,927,343
2002 312,109 515,608 827,717
2003 397,915 483,617 881,532
2004 4,425,556 170,437 4,595,993
2005 418,256 77,737 495,993
Thereafter 461,128 34,866 495,994
---------------- ---------------- -----------------
$ 7,325,744 $ 1,898,828 $ 9,224,572
================ ================ =================
20
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
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 (6.7527% at December 31, 2000).
The Program requires the Managing Member to enter into various interest rate
swaps with a financial institution (also rated A1/P1) to manage interest rate
exposure associated with variable rate obligations under the Program by
effectively converting the variable rate debt to fixed rates. As of December 31,
2000, the Company receives or pays interest on a notional principal of
$86,668,000, based on the difference between nominal rates ranging from 6.84% to
7.50% and the variable rate under the Program. No actual borrowing or lending is
involved. The last of the swaps terminates in 2008. The differential to be paid
or received is accrued as interest rates change and is recognized currently as
an adjustment to interest expense related to the debt.
Borrowings under the Program are as follows:
Variable Interest
Original Balance Rate on Rate at
Amount December 31, Interest Swap December 31,
Date Borrowed Borrowed 2000 Agreement 2000
------------- -------- ---- --------- ----
11/11/1999 $ 20,000,000 $15,066,000 6.84% 6.7527%
12/21/1999 20,000,000 18,378,000 7.41% 6.7527%
12/24/1999 25,000,000 20,490,000 7.44% 6.7527%
4/17/2000 6,500,000 5,882,000 7.45% 6.7527%
4/28/2000 1,900,000 1,610,000 7.72% 6.7527%
8/3/2000 19,000,000 17,958,000 7.50% 6.7527%
10/31/2000 7,500,000 7,284,000 7.13% 6.7527%
---------------- ----------------
$ 99,900,000 $86,668,000
================ ================
Other long-term debt borrowings mature from 2004 through 2009. Future minimum
principal payments of long-term debt are as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
2001 $ 17,940,000 $ 5,757,526 $ 23,697,526
2002 18,263,000 4,433,150 22,696,150
2003 16,133,000 3,155,676 19,288,676
2004 11,174,000 2,131,491 13,305,491
Thereafter 8,537,000 1,425,790 9,962,790
Thereafter 14,621,000 1,420,623 16,041,623
---------------- ---------------- -----------------
$ 86,668,000 $18,324,256 $104,992,256
================ ================ =================
21
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
6. Related party transactions:
The terms of the Limited Company Operating Agreement provide that the Managing
Member and/or Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Company.
The Limited Liability Company Operating Agreement allows for the reimbursement
of costs incurred by the Managing Member in providing administrative services to
the Company. Administrative services provided include Company accounting,
investor relations, legal counsel and lease and equipment documentation. The
Managing Member is not reimbursed for services where it is entitled to receive a
separate fee as compensation for such services, such as acquisition and
management of equipment. Reimbursable costs incurred by the Managing Member are
allocated to the Company based upon actual time incurred by employees working on
Company business and an allocation of rent and other costs based on utilization
studies.
Substantially all employees of the Managing Member record time incurred in
performing administrative services on behalf of all of the Companies serviced by
the Managing Member. The Managing Member believes that the costs reimbursed are
the lower of actual costs incurred on behalf of the Company or the amount the
Company would be required to pay independent parties for comparable
administrative services in the same geographic location and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
The Managing Member and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
2000 1999
---- ----
Selling commissions (equal to 9.5% of the selling price of the Limited Liability
Company units, deducted from Other Members' capital) $ 5,534,569 $ 7,357,062
Reimbursement of other syndication costs to Managing Member 2,619,534 3,734,924
Initial direct costs paid to Managing Member 844,058 753,607
Administrative costs reimbursed to Managing Member 1,408,523 767,386
Asset management fees to Managing Member 1,465,566 443,943
----------------- ----------------
$ 11,872,250 $ 13,056,922
================= ================
7. Members' capital:
As of December 31, 2000, 13,570,188 Units were issued and outstanding. The
Company is authorized to issue up to 15,000,000 Units in addition to the Units
issued to the initial members (50 Units).
The Company's Net Income, Net Losses, and Distributions are to be allocated
92.5% to the Members and 7.5% to ATEL.
An additional allocation of income has been made to the Managing Member. The
amount allocated was determined so as to bring the Managing Member's ending
capital account balance to the amount of capital contributions that the Managing
Member will be required to make in a future period.
22
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
8. Concentration of credit risk and major customers:
The Company leases equipment to lessees in diversified industries. Leases are
subject to the Managing Member's credit committee review. The leases provide for
the return of the equipment upon default.
As of December 31, 2000 and 1999 there were concentrations (greater than 10%) of
equipment leased to lessees in certain industries (as a percentage of total
equipment cost) as follows:
2000 1999
---- ----
Transportation, rail 20% 27%
Manufacturing, other 15% 15%
Transportation, air 15% 17%
Transportation, other 13% *
Transportation, containers 10% 15%
Manufacturing, electronics 10% *
* Less than 10%
During 2000, one customer comprised 10% of the Company's revenues from leases.
During 1999, four customers comprised 31%, 12%, 12% and 10% of the Company's
revenues from leases.
9. Line of credit:
The Company participates with ATEL and certain of its Affiliates in a
$77,500,000 revolving credit agreement with a group of financial institutions
which expires on July 28, 2001. The agreement includes an acquisition facility
and a warehouse facility which are used to provide bridge financing for assets
on leases. Draws on the acquisition facility by any individual borrower are
secured only by that borrower's assets, including equipment and related leases.
Borrowings on the warehouse facility are recourse jointly to certain of the
Affiliates, the Company and the Managing Member.
The Company borrowed $28,555,729 and $76,641,662 under the line of credit during
2000 and 1999, respectively. Repayments on the line of credit were $36,055,729
and $69,141,662 during 2000 and 1999, respectively. At December 31, 2000, no
amounts remained outstanding. Interest on the line of credit is based on either
the thirty day LIBOR rate or the bank's prime rate.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of December 31,
2000. At December 31, 2000, $39,969,040 was available under this agreement.
23
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
10. Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short-term maturity of these instruments.
Non-recourse debt:
The fair value of the Company's non-recourse debt is estimated using discounted
cash flow analyses, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The estimated fair value of the
Company's non-recourse debt at December 31, 2000 is $7,301,244.
Other long-term debt:
The fair value of the Company's other long-term debt is estimated using
discounted cash flow analyses, based on the Company's current variable borrowing
rate for the facility. The estimated fair value of the other long-term debt at
December 31, 2000 is $87,094,049.
Line of credit:
The carrying amounts of the Company's variable rate line of credit approximates
fair value.
Interest rate swaps:
The fair value of interest rate swaps is estimated by discounting the fixed cash
flows paid under each swap using the rate at which the Company could enter into
new swaps of similar maturities. The carrying amounts of the interest rate swaps
approximate fair value at December 31, 2000.
24
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Liability Company and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Corporation (the Managing
Member) is held by ATEL Capital Group ("ACG"), a holding company formed to
control ATEL and affiliated companies. The outstanding voting capital stock of
ATEL Capital Group is owned 75% by A. J. Batt and 25% by Dean Cash.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Corporation ("AFC") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Company. Acquisition services are performed for the Company by ALC, equipment
management, lease administration and asset disposition services are performed by
AEC, investor relations and communications services are performed by AIS and
general administrative services for the Company are performed by AFC. ATEL
Securities Corporation ("ASC") is a wholly-owned subsidiary of ATEL Financial
Corporation.
The officers and directors of ATEL Capital Group and its affiliates are as
follows:
A. J. Batt Chairman of the Board of Directors of ACG, AFC,
ALC, AEC, AIS and ASC; President and Chief
Executive Officer of ACG, AFC and AEC
Dean L. Cash Director, Executive Vice President and Chief
Operating Officer of ACG, AFC, and AEC; Director,
President and Chief Executive Officer of ALC, AIS
and ASC
Paritosh K. Choksi Director, Senior Vice President and Chief Financial
Officer of ACG, AFC, ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFC, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General
Counsel for ACG, AFC, ALC, AIS and AEC
A. J. Batt, age 64, founded ATEL in 1977 and has been its president and chairman
of the board of directors since its inception. From 1973 to 1977, he was
employed by GATX Leasing Corporation as manager-data processing and equity
placement for the lease underwriting department, which was involved in equipment
financing for major corporations. From 1967 to 1973 Mr. Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support services for computer time-sharing applications for corporations and
financial institutions. Prior to that time, he was employed by North American
Aviation as an engineer involved in the Apollo project. Mr. Batt received a
B.Sc. degree with honors in mathematics and physics from the University of
British Columbia in 1961.
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Dean L. Cash, age 50, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing
representative for Martin Marietta Corporation, data systems division, from 1979
to 1980. From 1977 to 1979, he was employed by General Electric Corporation,
where he was an applications specialist in the medical systems division and a
marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was
involved in maintaining and developing software for commercial applications. Mr.
Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A.
degree with a concentration in finance in 1975 from Florida State University.
Mr. Cash is an arbitrator with the American Arbitration Association.
Paritosh K. Choksi, age 47, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. Prior to joining ATEL, Mr. Choksi was
chief financial officer at Wink Communications, Inc. from 1997 to 1999. From
1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial
services and management company, where he held various positions during his
tenure, and was senior vice president, chief financial officer and director when
he left the company. Mr. Choksi was involved in all corporate matters at Phoenix
and was responsible for Phoenix's capital market needs. He also served on the
credit committee overseeing all corporate investments, including its venture
lease portfolio. Mr. Choksi was a part of the executive management team which
caused Phoenix's portfolio to increase from $50 million in assets to over $2
billion. Mr. Choksi received a bachelor of technology degree in mechanical
engineering from the Indian Institute of Technology, Bombay; and an M.B.A.
degree from the University of California, Berkeley.
Donald E. Carpenter, age 52, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 42, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the corporate and securities legal department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law
School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais
has been an active member of the State Bar of California since 1986.
Item 11. EXECUTIVE COMPENSATION
The registrant is a Limited Liability Company and, therefore, has no officers or
directors.
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to ATEL and its Affiliates. The amount of such remuneration paid in 2000
and 1999 is set forth in Item 8 of this report under the caption "Financial
Statements and Supplementary Data - Notes to the Financial Statements - Related
party transactions," at Note 6 thereof, which information is hereby incorporated
by reference.
26
Selling Commissions
The Company paid selling commissions in the amount of 9.5% of Gross Proceeds, as
defined, to ATEL Securities Corporation, an affiliate of ATEL.
Through December 31, 2000, $12,891,631 of such commissions had been paid to ATEL
or its affiliates. Of that amount, $11,050,485 was re-allowed to other
broker/dealers.
Asset Management Fee
The Company will pay ATEL an Asset Management Fee in an amount equal to 4.5% of
Operating Revenues, which will include Gross Lease Revenues and Cash From Sales
or Refinancing. The Asset Management Fee will be paid on a monthly basis. The
amount of the Asset Management Fee payable in any year will be reduced for that
year to the extent it would otherwise exceed the Asset Management Fee Limit, as
described below. The Asset Management Fee will be paid for services rendered by
ATEL and its Affiliates in determining portfolio and investment strategies
(i.e., establishing and maintaining the composition of the Equipment portfolio
as a whole and the Company's overall debt structure) and generally managing or
supervising the management of the Equipment.
ATEL will supervise performance of among others activities, collection of lease
revenues, monitoring compliance by lessees with the lease terms, assuring that
Equipment is being used in accordance with all operative contractual
arrangements, paying operating expenses and arranging for necessary maintenance
and repair of Equipment in the event a lessee fails to do so, monitoring
property, sales and use tax compliance and preparation of operating financial
data. ATEL intends to delegate all or a portion of its duties and the Asset
Management Fee to one or more of its Affiliates who are in the business of
providing such services.
Asset Management Fee Limit:
The Asset Management Fee will be subject to the Asset Management Fee Limit. The
Asset Management Fee Limit will be calculated each year during the Company's
term by calculating the total fees that would be paid to ATEL if the Managing
Member were to be compensated on the basis of an alternative fee schedule, to
include an Equipment Management Fee, Incentive Management Fee, and Equipment
Resale/Re-Leasing Fee, plus ATEL's Carried Interest, as described below. To the
extent that the amount paid to ATEL as the Asset Management Fee plus its Carried
Interest for any year would exceed the aggregate amount of fees calculated under
this alternative fee schedule for the year, the Asset Management Fee and/or
Carried Interest for that year will be reduced to equal the maximum aggregate
fees under the alternative fee schedule.
To the extent any such fees are reduced, the amount of such reduction will be
accrued and deferred, and such accrued and deferred compensation would be paid
to ATEL in a subsequent period, but only if and to the extent that such deferred
compensation would be payable within the Asset Management Fee Limit for the
subsequent period. Any deferred fees which cannot be paid under the applicable
limitations in any subsequent period through the date of liquidation would be
forfeited by ATEL upon liquidation.
Alternative Fee Schedule:
For purposes of the Asset Management Fee Limit, the Company will calculate an
alternative schedule of fees, including a hypothetical Equipment Management Fee,
Incentive Management Fee, Equipment Resale/Re- Leasing Fee, and Carried Interest
as follows:
An Equipment Management Fee will be calculated to equal the lesser of (i) 3.5%
of annual Gross Revenues from Operating Leases and 2% of annual Gross Revenues
from Full Payout Leases which contain Net Lease Provisions), or (ii) the fees
customarily charged by others rendering similar services as an ongoing public
activity in the same geographic location and for similar types of equipment. If
services with respect to certain Operating Leases are performed by nonaffiliated
persons under the active supervision of ATEL or its Affiliate, then the amount
so calculated shall be 1% of Gross Revenues from such Operating Leases.
27
An Incentive Management Fee will be calculated to equal 4% of Distributions of
Cash from Operations until Holders have received a return of their Original
Invested Capital plus a Priority Distribution, and, thereafter, to equal a total
of 7.5% of Distributions from all sources, including Sale or Refinancing
Proceeds. In subordinating the increase in the Incentive Management Fee to a
cumulative return of a Holder's Original Invested Capital plus a Priority
Distribution, a Holder would be deemed to have received Distributions of
Original Invested Capital only to the extent that Distributions to the Holder
exceed the amount of the Priority Distribution.
An Equipment Resale/Re-Leasing Fee will be calculated in an amount equal to the
lesser of (i) 3% of the sale price of the Equipment, or (ii) one-half the normal
competitive equipment sale commission charged by unaffiliated parties for resale
services. Such fee would apply only after the Holders have received a return of
their Original Invested Capital plus a Priority Distribution. In connection with
the releasing of Equipment to lessees other than previous lessees or their
Affiliates, the fee would be in an amount equal to the lesser of (i) the
competitive rate for comparable services for similar equipment, or (ii) 2% of
the gross rental payments derived from the re-lease of such Equipment, payable
out of each rental payment received by the Company from such re-lease.
A Carried Interest equal to 7.5% of all Distributions of Cash from Operations
and Cash from Sales or Refinancing.
See Note 6 to the financial statements included in Item 8 for amounts paid.
Managing Member's Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 92.5% to the
Members and 7.5% to ATEL. See financial statements included in Item 8, Part I of
this report for amounts allocated to the Managing Member in 2000 and 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 2000, no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
Security Ownership of Management
The shareholders of ATEL are beneficial owners of Limited Liability Company
Units as follows:
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
-------------- ---------------- -------------------- --------
Limited Liability Company Units A. J. Batt Initial Limited Liability 0.0002%
235 Pine Street, 6th Floor Company Units
San Francisco, CA 94104 25 Units ($250)
(owned by wife)
Limited Liability Company Units Dean Cash Initial Limited Liability 0.0002%
235 Pine Street, 6th Floor Company Units
San Francisco, CA 94104 25 Units ($250)
(owned by wife)
28
Changes in Control
The Members have the right, by vote of the Members owning more than 50% of the
outstanding Limited Liability Company Units, to remove a Managing Member.
ATEL may at any time call a meeting of the Members or a vote of the Members
without a meeting, on matters on which they are entitled to vote, and shall call
such meeting or for vote without a meeting following receipt of a written
request therefore of Limited Partners holding 10% or more of the total
outstanding Limited Liability Company Units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 1 of this report under the caption "Equipment Leasing
Activities," Item 8 of this report under the caption "Financial Statements and
Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 6 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 2000 and 1999
Statements of Operations for the years ended
December 31, 2000 and 1999
Statements of Changes in Members' Capital for the
period from July 31, 1998 (inception) through
December 31, 1998 and for the years ended
December 31, 2000 and 1999
Statements of Cash Flows for the period from July
31, 1998 (inception) through December 31, 1998
and for the years ended December 31, 2000 and 1999
Notes to Financial Statements
2. Financial Statement Schedules
All 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)Reports on Form 8-K for the fourth quarter of 2000
None
(c)Exhibits
(3)and (4) Agreement of Limited Liability Company,
included as Exhibit B to Prospectus, is
incorporated herein by reference to the report
on Form 10K for the period ended December 31,
1998 (File Number 333-62477) (Exhibit 28.1)
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: 3/23/2001
ATEL Capital Equipment Fund VIII, LLC
(Registrant)
By: ATEL Financial Corporation,
Managing Member of Registrant
By: /s/ A. J. Batt
---------------------------------------------------
A. J. Batt,
President and Chief Executive Officer of ATEL Financial
Corporation (Managing Member)
By: /s/ Dean Cash
---------------------------------------------------
Dean Cash,
Executive vice President of ATEL Financial Corporation
(Managing Member)
30
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ A. J. Batt President and Chief Executive Officer of 3/23/2001
- -------------------------- ATEL Financial Corporation (Managing Member)
A. J. Batt
/s/ Dean Cash Executive Vice President of ATEL 3/23/2001
- -------------------------- Financial Corporation (Managing Member)
Dean Cash
/s/ Paritosh K. Choksi Principal financial officer of 3/23/2001
- -------------------------- registrant; principal financial officer
Paritosh K. Choksi and director of ATEL Financial
Corporation (Managing Member)
/s/ Donald E. Carpenter Principal accounting officer of 3/23/2001
- -------------------------- registrant; principal accounting officer
Donald E. Carpenter of ATEL Financial Corporation (Managing
Member)
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No proxy materials have been or will be sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of this
report on Form 10-K, and copies thereof will be furnished supplementally to the
Commission when forwarded to the security holders.
31