Form 10-K
UNITED STATES
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, 2004
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.)
600 California Street, 6th Floor, San Francisco, California 94108
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark 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|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
State the aggregate market value of voting stock held by non-affiliates of the
registrant: Inapplicable
The number of Limited Liability Company Units outstanding as of December 31,
2004 was 13,570,188.
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.
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 Services LLC (AFS), a
California limited liability corporation. Prior to converting to a limited
liability company structure, AFS was formerly known as ATEL Financial
Corporation.
The Company conducted a public offering of 15,000,000 of Limited Liability
Company Units (Units), at a price of $10.00 per Unit. On January 13, 1999,
subscriptions for the minimum number of Units (120,000, $1,200,000) had been
received and AFS 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 November 30, 2000, the Company had received subscriptions for
13,570,188 ($135,701,880) 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, 2004.
The Company's principal objectives are to invest in a diversified portfolio of
equipment that will (i) preserve, protect and return the Company's invested
capital; (ii) generate regular distributions to the members of cash from
operations and cash from sales or refinancing, with any balance remaining after
certain minimum distributions to be used to purchase additional equipment during
the reinvestment period ("Reinvestment Period"), ending 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,
whereby "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 AFS 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, 2004, the Company had purchased equipment with a total
acquisition price of $245,736,450.
The Company's objective is to lease a minimum of 75% of the equipment acquired
with the net proceeds of the offering to lessees that (i) have an aggregate
credit rating by Moody's Investor service, Inc. of Baa or better, or the credit
equivalent as determined by AFS, 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 AFS, 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 (as described above).
During 2004, 2003 and 2002, certain lessees generated significant portions of
the Company's total lease revenues as follows:
Lessee Type of Equipment 2004 2003 2002
TAL International Container Tank container 11% * *
Overnite Transportation Company Tractors and trailers 10% 10% 10%
GE Aircraft Engines Manufacturing 10% * *
Emery Worldwide Airlines Aircraft * 13% *
* Less than 10%
These percentages are not expected to be comparable in future periods.
2
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 that 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 AFS 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.
AFS 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, 2004 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 offset exists.
Purchase Price Excluding Percentage of Total
Asset Types Acquisition Fees Acquisitions
Transportation, rail $59,769,940 24.32%
Manufacturing 44,048,583 17.93%
Aircraft 38,535,439 15.68%
Transportation, other 46,986,721 19.12%
Gas compressors 13,848,465 5.64%
Materials handling 11,018,547 4.48%
Point of sale / office automation 8,677,566 3.53%
Storage tanks 6,712,090 2.73%
Marine vessels 3,952,500 1.61%
Other * 12,186,599 4.96%
--------------- ----------------
$245,736,450 100.00%
=============== ================
* Individual asset types included in "Other" represent less than 2% of the
total.
Purchase Price Excluding Percentage of Total
Industry of Lessee Acquisition Fees Acquisitions
Transportation, rail $59,769,940 24.31%
Transportation, air 38,535,439 15.68%
Manufacturing, other 34,889,583 14.20%
Transportation, other 27,245,340 11.09%
Transportation, containers 21,228,750 8.64%
Manufacturing, electronics 20,901,071 8.51%
Retail 18,056,010 7.35%
Natural gas 13,848,465 5.64%
Other * 11,261,852 4.58%
--------------- ----------------
$245,736,450 100.00%
=============== ================
* Individual lessee industries included in "Other" represent less than 2% of the
total.
3
Through December 31, 2004, the Company has disposed of certain leased assets as
set forth below:
Excess of
Asset Original Rents Over
Types Equipment Cost Sale Price Expenses *
Materials handling $ 6,748,331 $ 2,008,953 $ 6,438,521
Transportation, rail 14,199,087 13,889,782 5,716,661
Point of sale / office automation 10,764,080 2,392,537 11,337,335
Manufacturing 34,112,740 18,185,894 32,248,861
Transportation, other 19,308,178 7,577,611 17,506,246
Storage tanks 6,712,090 6,800,000 1,035,726
Aircraft 14,123,602 3,980,000 5,829,737
Other 2,431,379 1,073,070 2,112,604
--------------- ---------------- ----------------
$ 108,399,487 $ 55,907,847 $ 82,225,691
=============== ================ ================
* Includes only those expenses directly related to the production of the related
rents.
For further information regarding the Company's equipment lease portfolio as of
December 31, 2004, see Note 3 to the financial statements, Investments in
equipment and leases, as set forth in Part II, Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Company does not own or lease any real property, plant or material physical
properties other than the equipment held for lease as set forth in Item 1.
Item 3. LEGAL PROCEEDINGS
In the ordinary course of conducting business, there may be certain claims,
suits, and complaints filed against the Company. In the opinion of management,
the outcome of such matters, if any, will not have a material impact on the
Company's consolidated financial position or results of operations. No material
legal proceedings are currently pending against the Company or against any of
its assets. The following is a discussion of legal matters involving the
Company, but which do not represent claims against the Company or its assets.
Solectron:
This is a matter whereby the Company has declared a lessee in default for
failure to pay rent in a timely manner, and for other various defaults. A claim
was filed on August 29, 2002, by AFS on behalf of the Company. The lessee filed
a counter-claim against the Company asserting unfair business practices. In
2003, the Company elected to dismiss its suit and subsequently obtained a
corresponding dismissal of Solectron's counter-claim. The Company settled this
matter in 2004 for $406,348.
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
There are certain material conditions and restrictions on the transfer of Units
imposed by the terms of the Limited Liability Company Operating Agreement.
Consequently, there is no public market for Units and it is not anticipated that
a public market for Units will develop. In the absence of a public market for
the Units, there is no currently ascertainable fair market value for the Units.
Holders
As of December 31, 2004, a total of 3,635 investors were holders of record of
Units in the Company.
ERISA Valuation
In order to permit ERISA fiduciaries who hold Units to satisfy their annual
reporting requirements, AFS estimated the value per Unit of the Company's assets
as of September 30, 2004. AFS calculated the estimated liquidation proceeds that
would be realized by the Company, assuming an orderly disposition of all of the
Company's assets as of January 1, 2005. The estimates were based on the amount
of remaining lease payments on existing Company leases, and the estimated
residual values of the equipment held by the Company upon the termination of
those leases. This valuation was based solely on AFS's perception of market
conditions and the types and amounts of the Company's assets. No independent
valuation was sought.
4
After calculating the aggregate estimated disposition proceeds, AFS then
calculated the portion of the aggregate estimated value of the Company assets
that would be distributed to Unit holders on liquidation of the Company, and
divided the total so distributable by the number of outstanding Units. As of
September 30, 2004, the value of the Company's assets, calculated on this basis,
was approximately $6.10 per Unit. The foregoing valuation was performed solely
for the ERISA purposes described above. There is no market for the Units, and,
accordingly, this value does not represent an estimate of the amount a Unit
holder would receive if he were to seek to sell his Units. Furthermore, there
can be no assurance as to the amount the Company may actually receive if and
when it seeks to liquidate its assets, or the amount of lease payments and
equipment disposition proceeds it will actually receive over the remaining term
of 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.
AFS has sole discretion in determining the amount of distributions; provided,
however, that AFS 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 amount between $0.80 and $1.00 per Unit, which was to be determined by
AFS. In 2001, AFS determined that amount to be $0.91 per Unit. The Company's
Reinvestment Period ends December 31, 2006.
Investors may elect to receive distributions either on a monthly or quarterly
basis.
The rate for distributions from 2004 operations was $0.0758 per Unit per month.
The distributions were paid in February through December 2004 and in January
2005. For each quarterly distribution (paid in April, July and October 2004 and
in January 2005) the rate was $0.2275 per Unit. Distributions were from 2004
cash flows from operations.
The rate for distributions from 2003 operations was $0.0758 per Unit per month.
The distributions were paid in February through December 2003 and in January
2004. For each quarterly distribution (paid in April, July and October 2003 and
in January 2004) the rate was $0.2275 per Unit. Distributions were from 2003
cash flows from operations.
The rate for distributions from 2002 operations was $0.0758 per Unit per month.
The distributions were paid in February through December 2002 and in January
2003. For each quarterly distribution (paid in April, July and October 2002 and
in January 2003) the rate was $0.2275 per Unit. Distributions were from 2002
cash flows from operations.
The following table presents summarized information regarding distributions to
members other than AFS (Other Members)
2004 2003 2002 2001 2000
Net income (loss) per Unit, based on
weighted average Units outstanding $ 0.3100 $ (0.6300) $ (0.2800) $ (0.0600) $ (0.2900)
Return of investment 0.6000 1.5400 1.1900 0.9700 1.2100
--------------- --------------- ---------------- ---------------- ----------------
Distributions per unit 0.9100 0.9100 0.9100 0.9100 0.9200
Differences per Unit due to timing
of distributions - - - 0.0050 0.0275
--------------- --------------- ---------------- ---------------- ----------------
Actual distribution rates per Unit $ 0.9100 $ 0.9100 $ 0.9100 $ 0.9150 $ 0.9475
=============== =============== ================ ================ ================
5
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company at December
31, 2004, 2003, 2002, 2001 and 2000 and for the years then ended. This financial
data should be read in conjunction with the financial statements and related
notes included under Item 8 of this report.
2004 2003 2002 2001 2000
Gross revenues $ 28,002,368 $28,549,271 $ 32,929,975 $ 43,794,097 $ 31,047,485
Net income (loss) $ 5,222,252 $ (7,521,261) $ (2,805,544) $ 132,672 $ (2,305,631)
Weighted average Units 13,570,188 13,570,188 13,570,188 13,570,188 10,634,792
Net income (loss) allocated to
Other Members $ 4,221,097 $ (8,522,240) $ (3,806,713) $ (872,244) $ (3,100,640)
Net income (loss) per Unit, based on
weighted average Units outstanding $ 0.31 $ (0.63) $ (0.28) $ (0.06) $ (0.29)
Distributions per Unit, based on
weighted average Units outstanding $ 0.91 $ 0.91 $ 0.91 $ 0.91 $ 0.92
Total Assets $ 64,249,180 $110,222,744 $153,464,672 $ 184,421,674 $ 198,832,652
Non-recourse and Other Long-term Debt $ 19,231,946 $46,555,335 $ 68,614,855 $ 91,383,964 $ 93,993,744
Total Members' Capital $ 42,188,041 $47,897,118 $ 66,526,763 $ 83,361,952 $ 101,338,501
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements contained in this Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form 10-K,
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 form those projected. In particular, economic
recession and changes in general economic conditions, including, fluctuations in
demand for equipment, lease rates, and interest rates, may result in delays in
investment and reinvestment, delays in leasing, re-leasing, and disposition of
equipment, and reduced returns on invested capital. The Company's performance is
subject to risks relating to lessee defaults and the creditworthiness of its
lessees. The Fund's performance is also subject to risks relating to the value
of its equipment at the end of its leases, which may be affected by the
condition of the equipment, technological obsolescence and the markets for new
and used quipment at the end of lease terms. Investors are cautioned not to
attribute undue certainty to these forward-looking statements, which speak only
as of the date of this Form 10-K. 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-K or to reflect the occurrence of
unanticipated events, other than as required by law.
Capital Resources and Liquidity
The Company commenced its offering of Units 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. The Company's public offering provided for a
total maximum capitalization of $150,000,000.
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 AFS's success in re-leasing or selling the equipment as it comes
off lease.
The Company participates with AFS and certain of its affiliates in a financing
arrangement (comprised of a term loan to AFS, an acquisition facility and a
warehouse facility) with a group of financial institutions that includes certain
financial covenants. The financial arrangement is $75,000,000 and expires in
June 2006. The availability of borrowings available to the Company under this
financing arrangement is reduced by the amount AFS has outstanding as a term
loan. As of December 31, 2004 borrowings under the facility were as follows:
Total amount available under the financing arrangement $ 75,000,000
Term loan to AFS as of December 31, 2004 (2,027,636)
----------------
Total available under the acquisition and warehouse facilities 72,972,364
Amount borrowed by the Company under the acquisition facility - Amounts borrowed
by affiliated partnerships and limited liability companies under the
acquisition facility (30,500,000)
----------------
Total remaining available under the acquisition and warehouse facilities $ 42,472,364
================
6
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 limited
partnerships and limited liability companies, the Company and AFS.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of December 31,
2004.
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 fees to AFS and providing for cash
distributions to the Other Members. At December 31, 2004, there were no
commitments to purchase lease assets.
AFS 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 AFS 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 AFS or affiliate and the time acquired by the Company; (iv) there is
no benefit arising out of such transaction to AFS 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
will be treated as belonging to the Company.
The Company currently has available adequate reserves to meet its immediate cash
requirements and those of the next twelve months, but in the event those
reserves were found to be inadequate, the Company would likely be in a position
to borrow against its current portfolio to meet such requirements. AFS 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 Poor's 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 provided for borrowing at a variable interest rate and
required AFS on behalf of the Company to enter into interest rate swap
agreements with certain counterparties (also rated A1/P1) to mitigate the
interest rate risk associated with a variable rate note. AFS believes that this
program allowed the Company to avail itself of lower cost debt than that
available for individual non-recourse debt transactions. The program expired as
to new borrowings in April 2002.
See Item 7a and Note 5 to the financial statements, Other long-term debt, as set
forth in Part II, Item 8, Financial Statements and Supplementary Data, for
additional information regarding this program and related interest rate swaps.
The Company will continue to use its sources of non-recourse secured debt
financing on a transaction basis as a means of mitigating credit risk.
AFS 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.
See Note 4 to the financial statements, Non-recourse debt, as set forth in Part
II, Item 8, Financial Statements and Supplementary Data, for additional
information regarding non-recourse debt.
The Company commenced regular distributions, based on cash flows from
operations, beginning with the month of January 1999. See Item 5 and 6 for
additional information regarding distributions.
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.
7
Cash Flows
2004 vs. 2003:
In 2004 and 2003, our primary source of cash flows was rents we received from
operating lease activities. In both years, this was also our largest source of
cash flows from operating activities.
In both 2004 and 2003, we had two sources of cash flows from investing
activities, proceeds from sales of lease assets and cash flows from direct
financing leases. Proceeds from sales of lease assets increased from $13,964,820
in 2003 to $38,125,051 in 2004, an increase of $24,160,231. Assets sold in 2004
comprised of manufacturing, trucks and trailers, materials handling, and storage
facility, totaling $70,370,000 in original costs. Assets sold in 2003 consisted
largely of aircraft, rail transportation and manufacturing equipment, totaling
$24,469,000 in original costs. It was this increase that gave rise to the
increase in cash flows from asset sales. Investing activities also included cash
flows from direct financing leases in both 2003 and 2004. Cash received on these
leases increased from $1,793,351 in 2003 to $1,843,290 in 2004.
There were no new sources of cash from financing activities in 2004. In 2003,
our sources of cash from financing activities consisted of borrowings on the
line of credit ($9,500,000) and the proceeds of a new $2,563,149 non-recourse
note payable. The Company used cash in investing activities in both 2003 and
2004 to make payments on the line of credit, non-recourse debt and other
long-term debt and to make distributions to the members. The entire balance of
$9,500,000 on the line of credit was repaid in 2004. An additional $26,754,000
payment was made to reduce the long term debt in 2004. Payments of $569,389 were
made to reduce the non-recourse debt in 2004.
2003 vs. 2002:
In 2003 and 2002, our primary source of cash flows was rents we received from
operating leases. In both years, this was also our largest source of cash flows
from operating activities.
In both 2003 and 2002, we had two sources of cash flows from investing
activities, proceeds from sales of lease assets and cash flows from direct
financing leases. Proceeds from sales of lease assets increased from $2,403,934
in 2002 to $13,964,820 in 2003, an increase of $11,560,886. Assets sold in 2003
consisted largely of aircraft, rail transportation and manufacturing equipment.
Assets sold in 2002, consisted primarily of office automation equipment. In
2002, assets with an original cost of approximately $5,585,000 were sold. In
2003, that increased to approximately $24,469,000. It was this increase that
gave rise to the increase in cash flows from asset sales. Investing activities
also included cash flows from direct financing leases in both 2002 and 2003.
Cash received on these leases decreased from $2,134,026 in 2002 to $1,793,351 in
2003, a decrease of $340,675.
In 2002, our financing sources of cash were borrowings on the line of credit
($12,400,000) and the proceeds of other long-term debt ($3,900,000). We used
cash in investing activities in 2002 to make payments on the line of credit,
non-recourse debt and other long-term debt and to make distributions to the
members.
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).
Because of the timing of the commencement of operations and the fact that the
initial portfolio acquisitions were not been completed until 2001, the results
of operations in 2001 are not expected to be comparable to future periods.
Cost reimbursements to Managing Member are based on costs incurred by AFS in
performing administrative services for the Company that are allocated to each
Company that AFS manages based on certain criteria such as existing or new
leases, number of investors or equity depending on the type of cost incurred..
AFS 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.
As of December 31, 2004 and 2003 there were concentrations (defined as greater
than 10%) of equipment leased to lessees in certain industries (as a percentage
of total equipment cost) as follows:
2004 2003
Transportation, rail 38% 20%
Transportation, containers 17% 11%
Transportation, air 12% *
Natural gas 11% *
Manufacturing, other 10% 18%
Transportation, other * 13%
* Less than 10%
8
2004 vs. 2003:
Our operations resulted in a net income of $5,222,252 in 2004 versus a net loss
of $7,521,261 in 2003. The change in the results were based on the contributions
of lower depreciation expenses, lower provision for impairment and losses, lower
interest expense, and lower railcar maintenance expense. Our primary source of
revenues in both years was rents from operating leases. Rents from operating
leases have continued to decrease from $26,938,424 in 2003 to $18,125,770 in
2004, a decrease of $8,812,654. Our operating lease rents have decreased as a
result of asset sales over the last two years, consistent with the Company's
maturing lease portfolio. Offsetting this decline in operating lease revenues
were recognized gains on sale of assets in the amount of $8,168,151 in 2004
compared to $595,299 in 2003.
Our largest expense is depreciation of operating lease assets. Depreciation has
decreased from $20,337,442 in 2003 to $14,770,807 in 2004, a decrease of
$5,566,635. This decrease is a result of the asset sales as noted above.
Railcar maintenance costs have declined from $1,008,874 in 2003 to $476,682 in
2004, a decrease of $532,192. Most of the decrease in 2003 related to costs
incurred in order to prepare existing rail cars to be placed on a lease that was
eventually sold in 2004.
Interest expense has decreased from $5,270,675 in 2003 to $3,467,624 in 2004, a
decrease of $1,803,051. The decrease resulted from scheduled repayments of our
non-recourse and other long-term debt. The reduction in interest expense
attributable to reduced average outstanding balances was partially offset by
additional interest charges related to prior period asset acquisitions as more
fully described in Note 6 in the financial statements included in Part II, Item
8 of this report.
In 2002 we provided $475,000 for an allowance for doubtful accounts. A large
portion of the allowance provided for in 2002 related to the bankruptcy of
National Steel Corporation, a lessee of the Company. The Company recovered
$180,000 and $173,000 in 2004 and 2003, respectively.
Management periodically reviews the carrying values of its assets on leases and
assets held for lease or sale. As a result of the review, management determined
that the fair value of an aircraft had declined in value to the extent that the
carrying value had become impaired. The fair value of the asset was determined
based on the sum of the discounted estimated future cash flows of the assets. A
charge to operations was recorded for the decline in value of the aircraft in
the amount of $1,050,000 for the year ended December 31, 2004.
2003 vs. 2002:
Our operations resulted in net losses of $7,521,261 in 2003 and $2,805,544 in
2002.The primary reason for the increased loss is due to additional impairment
losses of $5,290,639 in 2003, an increase of $3,179,046 compared to 2002. Our
primary source of revenues in both years was rents from operating leases. Rents
from operating leases have continued to decrease from $31,638,196 in 2002 to
$26,938,424 in 2003, a decrease of $4,699,772. Our operating lease rents have
decreased as a result of asset sales over the last two years, consistent with
the Company's maturing lease portfolio.
Our largest expense is depreciation of operating lease assets. Depreciation has
decreased from $22,784,103 in 2002 to $20,337,442 in 2003, a decrease of
$2,446,661. This decrease is a result of the asset sales we noted above.
Railcar maintenance costs have increased from $215,009 in 2002 to $1,008,874 in
2003, an increase of $793,865. Most of the increase (approximately $722,000)
related to costs incurred in order to prepare rail cars to be placed on new
leases.
Interest expense has decreased from $6,148,759 in 2002 to $5,270,675 in 2003, a
decrease of $878,084. The decrease resulted from scheduled repayments of our
non-recourse and other long-term debt. The reduction in interest expense
attributable to reduced average outstanding balances was partially offset by
additional interest charges related to prior period asset acquisitions as more
fully described in Note 6 in the financial statements included in Part II, Item
8 of this report.
In 2002 we provided $475,000 for an allowance for doubtful accounts. A large
portion of the allowance provided for in 2002 related to the bankruptcy of
National Steel Corporation, a lessee of the Company. In 2003, we recovered
$180,000 of the amounts we had provided for in 2002.
Management periodically reviews the carrying values of its assets on leases and
assets held for lease or sale. As a result of the review, management determined
that the fair values of a fleet of diesel electric locomotives, railroad auto
racks, manufacturing equipment and an aircraft had declined in value to the
extent that the carrying values had become impaired. The fair value of the
assets was determined based on the sum of the discounted estimated future cash
flows of the assets. A charge to operations was recorded for the decline in
value of those assets in the amount of $5,679,271 for the year ended December
31, 2003.
9
Derivative Financial Instruments
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, by SFAS No. 138, issued in June 2000 and by
SFAS No. 149, issued in June 2003.
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.
The Company adopted SFAS No. 133, as amended, on January 1, 2001. Upon adoption,
the Company recorded interest rate swap hedging instruments at fair value in the
balance sheet and recognized the offsetting gains or losses in net income or
other comprehensive income, as appropriate. See Note 5 to the financial
statements, Other long-term debt, as set forth in Part II, Item 8, Financial
Statements and Supplementary Data, for additional information.
Recent Accounting Pronouncements
On October 13, 2004, the FASB concluded that SFAS No. 123R, Share-Based Payment
("SFAS 123R"), which requires all companies to measure compensation cost for all
share-based payments (including stock options and employee stock purchase plans)
at fair value, will be effective for public companies for interim or annual
periods beginning after June 15, 2005. Nonpublic companies will be required to
adopt the new statement at the beginning of the first annual period beginning
after December 15, 2005. The Company does not expect the adoption of SFAS 123R
to have a material impact on its financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." The
primary objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities") and how to determine
when and which business enterprise (the "primary beneficiary") should
consolidate the variable interest entity. This new model for consolidation
applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises with a
significant variable interest in a variable interest entity, make additional
disclosures. Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows:
(i) Special purpose entities ("SPEs") created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first interim or annual reporting period ending
after December 15, 2003.
(ii) Non-SPEs created prior to February 1, 2003. The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.
(iii) All entities, regardless of whether a SPE, that were created subsequent to
January 31, 2003. The provisions of FIN 46 were applicable for variable
interests in entities obtained after January 31, 2003.
The Company adopted FIN 46-R as of March 31, 2004. The adoption of FIN 46-R did
not have a material impact on the Company's position, results of operations or
liquidity.
Critical Accounting Policies
The policies discussed below are considered by management of the Company to be
critical to an understanding of the Company's financial statements because their
application requires significant complex or subjective judgments, decisions, or
assessments, with financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. The
Company also states these accounting policies in the notes to the financial
statements and in relevant sections in this discussion and analysis. For all of
these policies, management cautions that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment.
10
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.
Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.
Direct financing leases are placed in a non-accrual status based on specifically
identified lessees. Such leases are only returned to an accrual status based on
a case by case review by AFS. Direct financing leases are charged off on
specific identification by AFS.
Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Asset Valuation:
Recorded values of the Company's asset portfolio are periodically reviewed for
impairment in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An
impairment loss is measured and recognized only if the estimated undiscounted
future cash flows of the asset are less than their net book value. The estimated
undiscounted future cash flows are the sum of the estimated residual value of
the asset at the end of the asset's expected holding period and estimates of
undiscounted future rents. The residual value assumes, among other things, that
the asset is utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of the
assets, if held in quantity, simultaneously or to dispose of the asset quickly.
Impairment is measured as the difference between the fair value (as determined
by the discounted estimated future cash flows) of the assets and its carrying
value on the measurement date.
The Company adopted SFAS 144 as of January 1, 2002. The adoption of the
Statement did not have a significant impact on the Company's financial position
and results of operations.
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 interest rates. Nevertheless, the Company
frequently funds leases with its floating rate revolving line of credit and is,
therefore, exposed to interest rate risk until fixed rate financing is arranged,
or the floating rate revolving line of credit is repaid. As of December 31,
2004, there was no outstanding amount on the floating rate revolving line of
credit .
11
Also, as described in Item 7 in the caption "Capital Resources and Liquidity,"
the Company entered into a receivables funding facility in 1999. Since interest
on the outstanding balances under the facility varies, the Company is exposed to
market risks associated with changing interest rates. To hedge its interest rate
risk, the Company enters into interest rate swaps that effectively convert the
underlying interest characteristic on the facility from floating to fixed. Under
the swap agreements, the Company makes or receives variable interest payments to
or from the counterparty based on a notional principal amount. The net
differential paid or received by the Company is recognized as an adjustment to
interest expense related to the facility balances. The amount paid or received
represents the difference between the payments required under the variable
interest rate facility and the amounts due under the facility at the fixed
(hedged) interest rate. As of December 31, 2004, borrowings on the facility were
$13,192,000 and the associated variable interest rate was 2.860%. The average
fixed interest rate achieved with the swap agreements was 6.878% at December 31,
2004.
In general, these swap agreements eliminate the Company's interest rate risk
associated with variable interest rate borrowings. However, the Company is
exposed to and manages credit risk associated with the counterparty to the swap
agreement 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, 2004, a hypothetical 1.00% increase or decrease in market
interest rates would increase or decrease the Company's 2004 variable interest
expense by approximately $103,714.
See the Notes to the financial statements as set forth in Part II, Item 8 for
additional information.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Registered Public Accounting Firm, Financial
Statements and Notes to Financial Statements attached hereto at pages 13 through
31.
12
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members
ATEL Capital Equipment Fund VIII, LLC
We have audited the accompanying balance sheets of ATEL Capital Equipment Fund
VIII, LLC (Company) as of December 31, 2004 and 2003, and the related statements
of operations, changes in members' capital and cash flows for each of the three
years in the period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
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, 2004 and 2003, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Francisco, California
March 9, 2005
13
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
ASSETS
2004 2003
Cash and cash equivalents $ 2,569,911 $ 508,584
Accounts receivable, net of allowance for
doubtful accounts of$52,115 in 2004
and $225,115 in 2003 1,611,290 2,124,902
Other assets 378,264 25,000
Investments in equipment and leases 59,689,715 107,564,258
---------------- ----------------
Total assets $ 64,249,180 $ 110,222,744
================ ================
LIABILITIES AND MEMBERS' CAPITAL
Long-term debt $ 13,192,000 $ 39,946,000
Non-recourse debt 6,039,946 6,609,335
Line of credit - 9,500,000
Accounts payable and accruals:
Managing Member 613,310 889,555
Other 239,038 820,799
Accrued interest payable 105,336 115,844
Interest rate swap contracts 1,435,454 3,207,595
Unearned operating lease income 436,055 1,236,498
---------------- ----------------
Total liabilities 22,061,139 62,325,626
Members' capital:
Accumulated other comprehensive income (725,935) (3,143,144)
Members' capital 42,913,976 51,040,262
---------------- ----------------
Total Members' capital 42,188,041 47,897,118
---------------- ----------------
Total liabilities and Members' capital $ 64,249,180 $ 110,222,744
================ ================
See accompanying notes.
14
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 2004, 2003 AND 2002
Revenues: 2004 2003 2002
Leasing activities:
Operating leases $ 18,125,770 $ 26,938,424 $ 31,638,196
Direct financing leases 1,178,202 864,509 807,678
Gain on sales of assets 8,168,151 595,299 271,751
Interest 6,194 5,717 15,547
Other 524,051 145,322 196,803
---------------- ---------------- -----------------
28,002,368 28,549,271 32,929,975
Expenses:
Depreciation of operating lease assets 14,770,807 20,337,442 22,784,103
Provision for losses and impairments 1,086,312 5,679,271 2,612,500
Interest expense 3,467,624 5,270,675 6,148,759
Asset management fees to Managing Member 1,057,355 1,517,259 1,481,576
Railcar maintenance 476,682 1,008,874 215,009
Cost reimbursements to Managing Member 752,161 820,571 832,539
Amortization of initial direct costs 217,234 356,920 378,445
Professional fees 243,438 506,698 179,562
Insurance 185,193 186,393 -
(Recovery of) provision for doubtful accounts (173,000) (180,000) 475,000
Aircraft inspection and maintenance - 137,510 211,268
Franchise fees and taxes on income 94,061 124,239 72,843
Other 602,249 304,680 343,915
---------------- ---------------- -----------------
22,780,116 36,070,532 35,735,519
---------------- ---------------- -----------------
Net income (loss) $ 5,222,252 $ (7,521,261) $ (2,805,544)
================ ================ =================
Net income (loss):
Managing Member $ 1,001,155 $ 1,000,979 $ 1,001,169
Other Members 4,221,097 (8,522,240) (3,806,713)
---------------- ---------------- -----------------
$ 5,222,252 $ (7,521,261) $ (2,805,544)
================ ================ =================
Net income (loss) per Limited Liability Company Unit (Other Members) $ 0.31 $ (0.63) $ (0.28)
Weighted average number of Units outstanding 13,570,188 13,570,188 13,570,188
See accompanying notes.
15
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEARS ENDED
DECEMBER 31, 2004, 2003 AND 2002
Accumulated
Other
Comprehensive
Other Members Managing Income
Units Amount Member (Loss) Total
Balance December 31, 2001 13,570,188 $88,062,574 $ - $ (4,700,622) $ 83,361,952
Distributions to Managing Member - (1,001,169) - (1,001,169)
Distributions to Other Members
($0.91 per Unit) (12,347,756) - - (12,347,756)
Unrealized increase in interest rate
swap liability - - (680,720) (680,720)
Net income (loss) (3,806,713) 1,001,169 - (2,805,544)
--------------- --------------- ---------------- ---------------- ----------------
Balance December 31, 2002 13,570,188 71,908,105 - (5,381,342) 66,526,763
Distributions to Managing Member - (1,000,979) - (1,000,979)
Distributions to Other Members
($0.91 per Unit) (12,345,603) - - (12,345,603)
Unrealized decrease in interest rate
swap liability - - 2,173,747 2,173,747
Reclassification adjustment for
portion of swap liability charged to
net loss - - 64,451 64,451
Net income (loss) (8,522,240) 1,000,979 - (7,521,261)
--------------- --------------- ---------------- ---------------- ----------------
Balance December 31, 2003 13,570,188 $51,040,262 $ - $ (3,143,144) $ 47,897,118
Distributions to Managing Member - (1,001,155) - (1,001,155)
Distributions to Other Members
($0.91 per Unit) (12,347,383) - - (12,347,383)
Unrealized decrease in interest rate
swap liability - - 1,772,141 1,772,141
Reclassification adjustment for
portion of swap liability charged to
net loss - - 645,068 645,068
Net income 4,221,097 1,001,155 - 5,222,252
--------------- --------------- ---------------- ---------------- ----------------
Balance December 31, 2004 13,570,188 $42,913,976 $ - $ (725,935) $ 42,188,041
=============== =============== ================ ================ ================
See accompanying notes.
16
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
Operating activities:
Net income (loss) $ 5,222,252 $ (7,521,261) $ (2,805,544)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Gain on sales of assets (8,168,151) (595,299) (271,751)
Depreciation of operating lease assets 14,770,807 20,337,442 22,784,103
Amortization of initial direct costs 217,234 356,920 378,445
Interest rate swap contracts 645,068 64,451 -
(Recovery of) provision for doubtful accounts (173,000) (180,000) 475,000
Provision for losses and impairments 1,086,312 5,679,271 2,612,500
Changes in operating assets and liabilities:
Accounts receivable 686,612 (70,591) 907,216
Due from Managing Member - 171,119 (171,119)
Other assets (353,264) 30,000 30,000
Accounts payable, Managing Member (276,245) 889,555 -
Accounts payable, other (581,761) 123,079 48,182
Accrued interest payable (10,508) 19,665 19,199
Unearned lease income (800,443) (311,315) (200,805)
---------------- ---------------- ----------------
Net cash provided by operating activities 12,264,913 18,993,036 23,805,426
---------------- ---------------- ----------------
Investing activities:
Proceeds from sales of lease assets 38,125,051 13,964,820 2,403,934
Reduction of net investment in direct financing leases 1,843,290 1,793,351 2,134,026
Purchases of equipment on direct financing leases - - (293,570)
Payment of initial direct costs to Managing Member - - (37,440)
---------------- ---------------- ----------------
Net cash provided by investing activities 39,968,341 15,758,171 4,206,950
---------------- ---------------- ----------------
Financing activities:
Repayments of other long-term debt (26,754,000) (22,966,000) (26,357,000)
Repayments of line of credit (9,500,000) (20,600,000) (4,300,000)
Borrowings under line of credit - 19,500,000 12,400,000
Distributions to Other Members (12,347,383) (12,345,603) (12,347,756)
Proceeds of non-recourse debt - 2,563,149 -
Repayments of non-recourse debt (569,389) (1,656,669) (312,109)
Distributions to Managing Member (1,001,155) (1,000,979) (1,001,169)
Proceeds of other long-term debt - - 3,900,000
---------------- ---------------- ----------------
Net cash used in financing activities (50,171,927) (36,506,102) (28,018,034)
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 2,061,327 (1,754,895) (5,658)
Cash and cash equivalents at beginning of year 508,584 2,263,479 2,269,137
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 2,569,911 $ 508,584 $ 2,263,479
================ ================ ================
17
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED
DECEMBER 31, 2004, 2003 AND 2002
2004 2003 2002
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 3,478,132 $ 5,251,010 $ 6,129,560
================ ================ ================
Schedule of non-cash transactions:
Change in fair value of interest rate swaps contracts $ 1,772,141 $ 2,173,747 $ (680,720)
================ ================ ================
See accompanying notes.
18
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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, primarily in the United
States. The Company may continue until December 31, 2019. The Managing Member of
the Company is ATEL Financial Services LLC (AFS), a California limited liability
company. Prior to converting to a limited liability company structure, AFS was
formerly known as ATEL Financial Corporation. 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's business consists of leasing various types of equipment. As of
December 31, 2004, the original terms of the leases ranged from one to ten
years.
Pursuant to the Operating Agreement, AFS receives compensation and
reimbursements for services rendered on behalf of the Company (see Note 6). AFS
is required to maintain in the Company reasonable cash reserves for working
capital, the repurchase of Units and contingencies.
The Company's principal objectives are to invest in a diversified portfolio of
equipment that will (i) preserve, protect and return the Company's invested
capital; (ii) generate regular distributions to the members 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 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).
2. Summary of significant accounting policies:
Cash and cash equivalents:
Cash and cash equivalents includes cash in banks and cash equivalent investments
with original maturities of ninety days or less.
Accounts receivable:
Accounts receivable represent the amounts billed under lease contracts and
currently due to the Company. Allowances for doubtful accounts are typically
established based on historical charge offs and collection experience and are
usually determined by specifically identified lessees and invoiced amounts.
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.
19
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
2. Summary of significant accounting policies (continued):
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.
Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.
Direct financing leases are placed in a non-accrual status based on specifically
identified lessees. Such leases are only returned to an accrual status based on
a case by case review of AFS. Direct financing leases are charged off on
specific identification by AFS.
Initial direct costs:
The Company capitalizes initial direct costs associated with the acquisition of
lease assets. The costs are amortized over a five year period using a straight
line method.
Income taxes:
The Company does not provide for income taxes since all income and losses are
the liability of the individual members and are allocated to the members 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 as of December 31:
2004 2003
Financial statement basis of net assets $ 42,188,041 $ 47,897,118
Tax basis of net assets (unaudited) 19,582,706 2,409,944
---------------- ----------------
Difference $ 22,605,335 $ 45,487,174
================ ================
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 bad debts, impairment losses, 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 (loss) reported in these financial
statements to the income (loss) reported on the Company's federal tax return
(unaudited) for each of the years ended December 31:
2004 2003 2002
Net income (loss) per financial statements $ 5,222,252 $ (7,521,261) $ (2,805,544)
Adjustment to depreciation expense 335,960 (4,676,068) (14,111,240)
Provisions for doubtful accounts and losses (422,738) 5,499,271 3,087,500
Adjustments to lease revenues 22,178,232 (1,150,757) 1,616,517
---------------- ---------------- ----------------
Net income (loss) per federal tax return $ 27,313,706 $ (7,848,815) $ (12,212,767)
================ ================ ================
20
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
2. Summary of significant accounting policies (continued):
Per unit data:
Net income (loss) and distributions per unit are based upon the weighted average
number of units outstanding during the period.
Asset valuation:
Recorded values of the Company's asset portfolio are periodically reviewed for
impairment in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An
impairment loss is measured and recognized only if the estimated undiscounted
future cash flows of the asset are less than their net book value. The estimated
undiscounted future cash flows are the sum of the estimated residual value of
the asset at the end of the asset's expected holding period and estimates of
undiscounted future rents. The residual value assumes, among other things, that
the asset is utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of the
assets, if held in quantity, simultaneously or to dispose of the asset quickly.
Impairment is measured as the difference between the fair value (as determined
by the discounted estimated future cash flows) of the assets and its carrying
value on the measurement date.
The Company adopted SFAS 144 as of January 1, 2002. The adoption of the
Statement did not have a significant impact on the Company's financial position
and results of operations.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of
credit risk include cash and cash equivalents, direct finance lease receivables
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, 2004 and 2003.
Derivative financial instruments:
In June 1998, the Financial Accounting Standards Board (FASB) issued 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, by SFAS No.
138, issued in June 2000 and by SFAS No 149, issued in June 2003.
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 on January 1, 2001, the Company recorded its interest
rate swap hedging instruments at fair value in the balance sheet, designated the
interest rate swaps as cash flow hedges, and recognized the offsetting gains or
losses as adjustments to be reported in net income or other comprehensive
income, as appropriate. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in current earnings during the
period of change. Such interest rate swaps are linked to and adjust effectively
the interest rate sensitivity of specific long-term debt.
21
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
2. Summary of significant accounting policies (continued):
Derivative financial instruments (continued):
The effective portion of the change in fair value of the interest rate swaps is
recorded in Accumulated Other Comprehensive Income (AOCI) and the ineffective
portion (if any) directly in earnings. Amounts in AOCI are reclassified into
earnings in a manner consistent with the earnings pattern of the underlying
hedged item (generally reflected in interest expense). If a hedged item is
dedesignated prior to maturity, previous adjustments to AOCI are recognized in
earnings to match the earnings recognition pattern of the hedged item (e.g.,
level yield amortization if hedging an interest bearing instruments). Interest
income or expense on most hedging derivatives used to manage interest rate
exposure is recorded on an accrual basis as an adjustment to the yield of the
link exposures over the periods covered by the contracts. This matches the
income recognition treatment of the exposure (i.e., the liabilities, which are
carried at historical cost, with interest recorded on an accrual basis).
Credit exposure from derivative financial instruments, which are assets, arises
from the risk of a counterparty default on the derivative contract. The amount
of the loss created by the default is the replacement cost or current positive
fair value of the defaulted contract.
Use of estimates:
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles require 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.
Basis of presentation:
The accompanying financial statements as of December 31, 2004 and 2003 and for
the three years ended December 31, 2004 have been prepared in accordance with
U.S. generally accepted accounting principles. Certain prior year amounts have
been reclassified to conform to the current year presentation.
Recent accounting pronouncements:
On October 13, 2004, the FASB concluded that SFAS No. 123R, Share-Based Payment
("SFAS 123R"), which requires all companies to measure compensation cost for all
share-based payments (including stock options and employee stock purchase plans)
at fair value, will be effective for public companies for interim or annual
periods beginning after June 15, 2005. Nonpublic companies will be required to
adopt the new statement at the beginning of the first annual period beginning
after December 15, 2005. The Company does not expect the adoption of SFAS 123R
to have a material impact on its financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." The
primary objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities") and how to determine
when and which business enterprise (the "primary beneficiary") should
consolidate the variable interest entity. This new model for consolidation
applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises with a
significant variable interest in a variable interest entity, make additional
disclosures. Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows:
(i) Special purpose entities ("SPEs") created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first interim or annual reporting period ending
after December 15, 2003.
22
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
2. Summary of significant accounting policies (continued):
Recent accounting pronouncements (continued):
(ii) Non-SPEs created prior to February 1, 2003. The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.
(iii) All entities, regardless of whether a SPE, that were created subsequent to
January 31, 2003. The provisions of FIN 46 were applicable for variable
interests in entities obtained after January 31, 2003.
The Company adopted FIN 46-R as of March 31, 2004. The adoption of FIN 46-R did
not have a material impact on the Company's position, results of operations or
liquidity.
3. Investments in equipment and leases:
The Company's investments in equipment and leases consist of the following:
Depreciation /
Amortization
Expense or
Amortization of Reclassi-
December 31, Impairment Direct Financing fications or December 31,
2003 Losses Leases Dispositions 2004
Net investment in operating leases $ 87,112,340 $ - $ (14,770,807) $ (21,249,587) $ 51,091,946
Net investment in direct financing leases 11,497,801 (36,312) (1,843,290) (6,526,128) 3,092,071
Assets held for sale or lease, net of
accumulated depreciation of
$16,086,674 in 2004 and $16,874,083
in 2003 8,636,682 (1,050,000) - (2,181,185) 5,405,497
Initial direct costs, net of accumulated
amortization of $1,389,906 in 2004 and
$249,737 in 2003 317,435 - (217,234) - 100,201
--------------- --------------- ---------------- ---------------- ----------------
$ 107,564,258 $ (1,086,312) $ (16,831,331) $ (29,956,900) $ 59,689,715
=============== =============== ================ ================ ================
23
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
3. Investments in equipment and leases (continued):
Management periodically reviews the carrying values of its assets on leases and
assets held for lease or sale. As a result of those reviews, management
determined that the fair values of a fleet of diesel electric locomotives, rail
car auto racks, manufacturing equipment and an aircraft had, as detailed below,
declined in value to the extent that the carrying values had become impaired.
The fair value of the assets was determined based on the sum of the discounted
estimated future cash flows of the assets. Charges to operations were recorded
for the declines in value of those assets in the amounts of $1,086,312,
$5,679,271, and $2,612,500 for the years ended December 31, 2004, 2003, and
2002, respectively.
Impairment of investments in leases and assets held for sale or lease:
Impairment losses are recorded as an addition to accumulated depreciation of the
impaired assets. Depreciation expense and impairment losses on property subject
to operating leases and assets held for sale or lease consist of the following
for the years ended December 31:
2004 2003 2002
Depreciation expense $14,770,807 $ 20,337,442 $ 22,784,103
Impairment losses 1,086,312 5,679,271 2,612,500
--------------- ---------------- ----------------
$15,857,119 $ 26,016,713 $ 25,396,603
=============== ================ ================
Due to continued declines in markets for certain types of assets, during 2003
and 2004, management determined that the values of certain assets were impaired.
The Company recorded impairment losses as follows for each of the years ended
December 31:
2004 2003
Aircraft $ 1,050,000 $ 4,401,397
Office automation 36,312 -
Locomotives - 760,000
Rail car auto racks - 268,373
Manufacturing equipment - 249,501
--------------- ----------------
$ 1,086,312 $ 5,679,271
=============== ================
All of the property on leases was acquired in 2002, 2001, 2000 and 1999.
Operating leases:
Property on operating leases consists of the following:
Reclassi-
December 31, Depreciation fications or December 31,
2003 Expense Dispositions 2004
Transportation, rail $34,295,402 $ - $ 10,852,772 $ 45,148,174
Containers 21,165,000 - - 21,165,000
Aircraft 15,448,037 - - 15,448,037
Natural gas compressors 13,677,449 - (136,146) 13,541,303
Manufacturing 41,079,479 - (36,479,656) 4,599,823
Transportation, other 23,302,778 - (20,194,790) 3,107,988
Materials handling 7,313,238 - (6,222,959) 1,090,279
Other 10,991,981 - (5,678,927) 5,313,054
--------------- ---------------- ---------------- ----------------
167,273,364 - (57,859,706) 109,413,658
Less accumulated depreciation (80,161,024) (14,770,807) 36,610,119 (58,321,712)
--------------- ---------------- ---------------- ----------------
$ 87,112,340 $ (14,770,807) $ (21,249,587) $ 51,091,946
=============== ================ ================ ================
24
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
3. Investments in equipment and leases (continued):
Direct financing leases:
As of December 31, 2004 and 2003, investment in direct financing leases consists
of rail cars, 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, 2004 and 2003:
2004 2003
Total minimum lease payments receivable $ 2,399,904 $ 10,461,599
Estimated residual values of leased equipment (unguaranteed) 986,704 4,496,939
---------------- ----------------
Investment in direct financing leases 3,386,608 14,958,538
Less unearned income (294,537) (3,460,737)
---------------- ----------------
Net investment in direct financing leases $ 3,092,071 $ 11,497,801
================ ================
At December 31, 2004, the aggregate amounts of future minimum lease payments are
as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
2005 $ 6,868,038 $ 1,224,256 $ 8,092,294
2006 2,595,791 846,888 3,442,679
2007 1,984,626 279,959 2,264,585
2008 1,165,740 48,801 1,214,541
2009 997,480 - 997,480
Thereafter 651,810 - 651,810
--------------- ---------------- ----------------
$ 14,263,485 $ 2,399,904 $ 16,663,389
=============== ================ ================
4. Non-recourse debt:
At December 31, 2004, 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 fixed rates ranging from 4.96% to 6.85%. The notes
are secured by assignments of lease payments and pledges of assets. At December
31, 2004, the carrying value of the pledged assets is $10,630,160. The notes
mature from 2004 through 2007.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
2005 $ 4,715,234 $ 180,430 $ 4,895,664
2006 646,128 57,792 703,920
2007 678,584 25,337 703,921
--------------- --------------- ----------------
$ 6,039,946 $ 263,559 $ 6,303,505
=============== =============== ================
25
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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 Poor's
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 (2.860% at December 31, 2004), based on an index of A1
commercial paper. The Program expired as to new borrowings in April 2002. The
Company had $13,192,000 outstanding under this program as of December 31, 2004.
The Program requires AFS on behalf of the Company 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. The interest rate
swaps were designated as cash flow hedges of the interest payment on the long
term debt. As of December 31, 2004, the Company receives or pays interest on a
notional principal of $25,972,400, based on the difference between nominal rates
ranging from 4.35% to 7.72% and the variable rate under the Program. No actual
borrowing or lending is involved. The termination of the swaps were to coincide
with the maturity of the debt. 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.
During the year, Accumulated Other Comprehensive Income ("AOCI") decreased by
approximately $2,417,000 of which approximately $1,772,000 was related to the
decrease in the fair value of the interest rate swap and approximately $645,000
was related to the reclassification of AOCI to earnings (included in interest
expense) due to hedge ineffectiveness and upon the discontinuance of the cash
flow hedges because of debt prepayments. The Company redesignated a
proportionate share of the interest rate swaps as cash flow hedges in relation
to the remaining outstanding long-term debt. The change in fair value of the
portion of interest rate swaps not designated as hedges will be recognized in
earnings.
Borrowings under the Program are as follows:
Notional Swap Payment Rate
Original Balance Balance Value on Interest
Amount December 31, December 31, December 31, Swap
Date Borrowed Borrowed 2004 2004 2004 Agreement
11/11/1999 $ 20,000,000 $ 902,000 $ 1,910,401 $ (50,511) 6.84%
12/21/1999 20,000,000 7,078,000 10,716,966 (841,499) 7.41%
12/24/1999 25,000,000 257,000 1,415,061 (57,390) 7.44%
4/17/2000 6,500,000 1,236,000 1,591,400 (61,361) 7.45%
4/28/2000 1,900,000 47,000 199,236 (8,633) 7.72%
8/3/2000 19,000,000 682,000 5,930,389 (314,143) 7.50%
10/31/2000 7,500,000 1,002,000 2,044,528 (88,478) 7.13%
1/29/2001 8,000,000 - 525,229 (1,331) 5.91%
6/1/2001 2,000,000 - - - 5.04%
9/1/2001 9,000,000 909,000 1,639,190 (12,108) 4.35%
1/31/2002 3,900,000 1,079,000 - - *
--------------- --------------- ---------------- ----------------
$ 122,800,000 $13,192,000 $ 25,972,400 $ (1,435,454)
=============== =============== ================ ================
* Under the terms of the Program, no interest rate swap agreement was required
for this borrowing.
26
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
5. Other long-term debt (continued):
The long-term debt borrowings mature from 2004 through 2007. Future minimum
principal payments of long-term debt and annual swap notional reductions are as
follows:
Debt Debt Rates on
Year ending Principal Principal Interest Swap
December 31, Swapped Not Swapped Interest Total Agreements*
2005 $ 5,700,000 $ 973,000 $ 724,594 $ 7,397,594 6.878%-7.172%
2006 3,362,000 60,000 377,593 3,799,593 7.338%-7.348%
2007 3,051,000 46,000 18,932 3,115,932 7.336%-7.346%
--------------- --------------- ---------------- ----------------
$ 12,113,000 $ 1,079,000 $ 1,121,119 $ 14,313,119
=============== =============== ================ ================
* 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 (2.860% at December 31, 2004).
In 2004, 2003 and 2002, the net effect of the interest rate swaps was to
increase interest expense by $1,801,788, $2,780,673, and $1,818,380,
respectively.
6. Related party transactions:
The terms of the Limited Liability Company Operating Agreement provide that AFS
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 AFS in providing administrative services to the Company.
Administrative services provided include Company accounting, investor relations,
legal counsel and lease and equipment documentation. AFS 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 AFS are allocated to the Company based upon estimated time incurred
by employees working on Company business and an allocation of rent and other
costs based on utilization studies.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and AFS 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 AFS.
Cost reimbursements to Managing Member are based on costs incurred by AFS in
performing administrative services for the Company that are allocated to each
Company that AFS manages based on certain criteria such as existing or new
leases, number of investors or equity depending on the type of cost incurred..
AFS 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.
27
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
6. Related party transactions (continued):
AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to
the Limited Liability Company Agreement as follows:
2004 2003 2002
Asset management fees to Managing Member $ 1,057,355 $ 1,517,259 $ 1,481,576
Costs reimbursements to Managing Member 752,161 820,571 869,979
---------------- ---------------- ----------------
$ 1,809,516 $ 2,337,830 $ 2,351,555
================ ================ ================
The Managing Member makes certain payments to third parties on behalf of the
Company for convenience purposes. During the years ended December 31, 2004,
2003, and 2002, the Managing Member made such payments of $455,634, $341,269,
and $193,851, respectively.
In 2003 it came to the Company's attention that an affiliated company had under
billed the Company in a prior year for interest costs associated with the
financing of an asset acquired on its behalf. During the three months ended
March 31, 2003, the Company recorded additional interest expense of $742,000 to
correct the accounting for the transaction. The Company does not believe that
this amount is material to the periods in which it should have been recorded,
nor that it is material to the Company's operating results for the year ending
December 31, 2003. The effect of the additional interest expense recorded in
2003 was to increase the loss in 2003 by $0.05 per Unit.
The Limited Partnership Agreement places an annual and a cumulative limit for
cost reimbursements to AFS. The cumulative limit increases annually. Any
reimbursable costs incurred by AFS during the year exceeding the annual and/or
cumulative limits cannot be reimbursed in the current year, though may be
reimbursable in future years. As of December 31, 2004, AFS had incurred
approximately $1,357,000 of costs that are expected to be reimbursed to AFS by
the Partnership in 2005 and 2006.
7. Members' capital:
As of December 31, 2004, 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).
As defined in the Company's Operating Agreement, the Company's Net Income, Net
Losses, and Distributions are to be allocated 92.5% to the Other Members and
7.5% to AFS. In accordance with the terms of the Operating Agreement, additional
allocations of income were made to AFS in 2004, 2003 and 2002. The amounts
allocated were determined so as to bring AFS's ending capital account balance to
zero at the end of each year.
28
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
8. Concentration of credit risk and major customers:
The Company leases equipment to lessees in diversified industries. Leases are
subject to AFS's credit committee review. The leases provide for the return of
the equipment upon default.
As of December 31, 2004, 2003 and 2002 there were concentrations (defined as
greater than 10%) of equipment leased to lessees in certain industries (as a
percentage of total equipment cost) as follows:
2004 2003
Transportation, rail 38% 20%
Transportation, containers 17% 11%
Transportation, air 12% *
Natural gas 11% *
Manufacturing, other 10% 18%
Transportation, other * 13%
* Less than 10%
During 2004, three customers comprised 11%, 10%, and 10% of the Company's
revenues from leases. During 2003, two customers comprised 13% and 10% of the
Company's revenues. During 2002, one customer comprised 10% of the Company's
revenues from leases.
9. Line of credit:
The Company participates with AFS and certain of its affiliates in a financing
arrangement (comprised of a term loan to AFS, an acquisition facility and a
warehouse facility) with a group of financial institutions that includes certain
financial covenants. The financial arrangement is $75,000,000 and expires in
June 2006. The availability of borrowings available to the Company under this
financing arrangement is reduced by the amount AFS has outstanding as a term
loan. As of December 31, 2004 borrowings under the facility were as follows:
Total amount available under the financing arrangement $ 75,000,000
Term loan to AFS as of December 31, 2004 (2,027,636)
----------------
Total available under the acquisition and warehouse facilities 72,972,364
Amount borrowed by the Company under the acquisition facility - Amounts borrowed
by affiliated partnerships and limited liability companies under the
acquisition facility (30,500,000)
----------------
Total remaining available under the acquisition and warehouse facilities $ 42,472,364
================
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
Companies and limited liability companies, the Company and AFS.
The Company borrowed $19,500,000 and $12,400,000 under the line of credit during
2003 and 2002, respectively. In 2004, there were no borrowings under the line of
credit. Repayments on the line of credit were $9,500,000, $20,600,000 and
$4,300,000 during 2004, 2003 and 2002, respectively. At December 31, 2004, no
amount remained outstanding. Interest on the line of credit is based on either
the thirty day LIBOR rate or the bank's prime rate.
29
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
9. Line of credit (continued):
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of December 31,
2004.
10. Fair value of financial instruments:
The recorded amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accruals at December 31, 2004 approximate fair
value because of the liquidity and 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, 2004 is $5,924,305.
Other long-term debt:
The carrying value of the Company's other long-term debt approximates its fair
value at December 31, 2004 as borrowings are at a variable interest rate that
adjusts to current market interest rates.
Line of credit:
The carrying amounts of the Company's variable interest rate line of credit
approximates fair value.
Interest rate swaps:
The fair value of interest rate swaps is estimated by management based on
independent valuations or discounting the fixed cash flows paid under each swap
using the rate at which the Company could enter into new swaps of similar
maturities. Swaps are recorded on the balance sheet at fair value at December
31, 2004.
11. Comprehensive loss:
For the years ended December 31, 2004, 2003 and in 2002, other comprehensive
income (loss) consisted of the following:
2004 2003 2002
Net income (loss) $ 5,222,252 $ (7,521,261) $ (2,805,544)
Other comprehensive income (loss):
Change in value of interest rate swap contracts during the year 1,772,141 2,173,747 (680,720)
Reclassification adjustment for portion of swap liability
charged to net loss 645,068 64,451 -
---------------- ---------------- ----------------
Comprehensive income (loss) $ 7,639,461 $ (5,283,063) $ (3,486,264)
================ ================ ================
There were no other sources of comprehensive net loss.
30
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
12. Selected quarterly data (unaudited):
March 31, June 30, September 30, December 31,
Quarter ended 2003 2003 2003 2003
Total revenues $ 7,725,324 $ 7,610,699 $ 6,737,293 $ 6,475,955
Net income (loss) $ (3,379,701) $ 345,679 $ (3,372,590) $ (1,114,649)
Net income (loss) per Limited Liability Company unit $ (0.27) $ 0.01 $ (0.27) $ (0.10)
March 31, June 30, September 30, December 31,
Quarter ended 2004 2004 2004 2004
Total revenues $ 6,750,433 $ 7,224,091 $ 7,771,649 $ 6,256,195
Net income (loss) $ (418,943) $ 1,520,704 $ 1,125,926 $ 2,994,565
Net income (loss) per Limited Liability Company unit $ (0.05) $ 0.09 $ 0.06 $ 0.21
13. Commitments:
At December 31, 2004, the Company had no commitments to purchase lease assets.
14. Reserves, impairment losses and provisions for doubtful accounts:
Activity in the reserve for losses and impairments and allowances for doubtful
accounts consists of the following:
Allowance for
doubtful
Impairments accounts
Balance December 31, 2001 $ - $ 41,365
Provision 2,612,500 475,000
Charge offs (2,612,500) -
--------------- ----------------
Balance December 31, 2002 - 516,365
Provision (recoveries) 5,679,271 (180,000)
Charge offs (5,679,271) (111,250)
--------------- ----------------
Balance December 31, 2003 - 225,115
Provision (recoveries) 1,086,312 (173,000)
Charge offs (1,086,312) -
--------------- ----------------
Balance December 31, 2004 $ - $ 52,115
=============== ================
15. Guarantees:
The Company enters into contracts that contain a variety of indemnifications.
The Company's maximum exposure under these arrangements is unknown. However, the
Company has not had prior claims or losses pursuant to these contracts and
expects the risk of loss to be remote.
31
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management (ATEL
Financial Services, LLC as Managing Member of the registrant, including the
chief executive officer and chief financial officer), 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) under the Securities Exchange
Act of 1934] was performed as of a date within ninety days before the filing
date of this annual report. Based upon this evaluation, the chief executive
officer and the chief financial officer 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.
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.
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 Services LLC (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 100% by Dean Cash.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC ("AFS") 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 AFS. ATEL
Securities Corporation ("ASC") is a wholly-owned subsidiary of AFS.
The officers and directors of ATEL Capital Group and its affiliates are as
follows:
Dean L. Cash Chairman of the Board of Directors of ACG, AFS, ALC,
AEC, AIS and ASC; President and Chief Executive
Officer of ACG, AFS and AEC
Paritosh K. Choksi Director, Executive Vice President, Chief Operating
Officer and Chief Financial Officer of ACG, AFS,
ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFS, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General Counsel
for ACG, AFS, ALC, AIS and AEC
Dean L. Cash, age 54, 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. He has been President and CEO since April 2001. 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.
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Paritosh K. Choksi, age 51, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. He became its executive vice
president and COO in April 2001. 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 56, 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 46, 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.
Audit Committee
ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC.
ATEL Financial Services LLC is the Managing Member of the registrant. The board
of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Dean L. Cash and Paritosh K. Choksi are members of the board of
directors of ALC and are deemed to be financial experts. They are not
independent of the Company.
Code of Ethics
ACG on behalf of AFS and ALC has adopted a code of ethics for its Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer. The
Code of Ethics is included as Exhibit 14.1 to this report.
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 AFS and its Affiliates. The amount of such remuneration paid in 2004,
2003 and 2001 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.
Asset Management Fee
The Company pays AFS an Asset Management Fee in an amount equal to 4% of
Operating Revenues, which includes Gross Lease Revenues and Cash From Sales or
Refinancing. The Asset Management Fee are paid on a monthly basis. The amount of
the Asset Management Fee payable in any year is reduced for that year to the
extent it would otherwise exceed the Asset Management Fee Limit, as described
below. The Asset Management Fee is paid for services rendered by AFS 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.
33
AFS supervises 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. AFS 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 is subject to the Asset Management Fee Limit. The Asset
Management Fee Limit is calculated each year during the Company's term by
calculating the total fees that would be paid to AFS if AFS 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 AFS's Carried Interest, as described below. To the extent that the amount
paid to AFS 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 is 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 AFS 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 AFS 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 AFS or its Affiliate, then the amount so
calculated shall be 1% of Gross Revenues from such Operating Leases.
An Incentive Management Fee will be calculated to equal 4% of Distributions of
Cash from Operations until Holders have received a return of their Original
Invested Capital plus a Priority Distribution, and, thereafter, to equal a total
of 7.5% of Distributions from all sources, including Sale or Refinancing
Proceeds. In subordinating the increase in the Incentive Management Fee to a
cumulative return of a Holder's Original Invested Capital plus a Priority
Distribution, a Holder would be deemed to have received Distributions of
Original Invested Capital only to the extent that Distributions to the Holder
exceed the amount of the Priority Distribution.
An Equipment Resale/Re-Leasing Fee will be calculated in an amount equal to the
lesser of (i) 3% of the sale price of the Equipment, or (ii) one-half the normal
competitive equipment sale commission charged by unaffiliated parties for resale
services. Such fee would apply only after the Holders have received a return of
their Original Invested Capital plus a Priority Distribution. In connection with
the releasing of Equipment to lessees other than previous lessees or their
Affiliates, the fee would be in an amount equal to the lesser of (i) the
competitive rate for comparable services for similar equipment, or (ii) 2% of
the gross rental payments derived from the re-lease of such Equipment, payable
out of each rental payment received by the Company from such re-lease.
A Carried Interest equal to 7.5% of all Distributions of Cash from Operations
and Cash from Sales or Refinancing.
See Note 6 to the financial statements included in Part II, Item 8 for amounts
paid.
Managing Member's Interest in Operating Proceeds
As defined in the Limited Liability Company Operating Agreement, the Company's
Net Income, Net Losses, and Distributions are to be allocated 92.5% to the
Members and 7.5% to AFS. In accordance with the terms of the of Operating
Agreement, additional allocations of income were made to AFS in 2004, 2003 and
2002. The amounts allocated were determined to bring AFS's ending capital
account balance to zero at the end of each year. See financial statements
included in Item 8, Part I of this report for amounts allocated to AFS in 2004,
2003 and 2002.
34
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 2004, no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
Security Ownership of Management
The ultimate shareholder of AFS is the beneficial owner 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 Dean Cash Initial Limited Liability 0.0002%
600 California Street, 6th Floor Company Units
San Francisco, CA 94108 25 Units ($250)
(owned by wife)
Changes in Control
The Members have the right, by vote of the Members owning more than 50% of the
outstanding Limited Liability Company Units, to remove a Managing Member.
AFS 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.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
During the most recent two years, the Company incurred audit, audit related, tax
and other fees with its principal auditors as follows:
2004 2003
Audit fees $ 177,899 $ 70,025
Audit related fees - -
Tax fees 23,219 33,700
Other - -
--------------- ----------------
$ 201,118 $ 103,725
=============== ================
ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC.
ATEL Financial Services LLC is the Managing Member of the registrant. The board
of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Engagements for audit services, audit related services and tax
services are approved in advance by the Chief Financial Officer of ATEL Leasing
Corporation acting on behalf the board of directors of ATEL Leasing Corporation
in its role as the audit committee of the Company.
35
PART IV
Item 15. 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 Registered Public Accounting Firm
Balance Sheets at December 31, 2004 and 2003
Statements of Operations for the years ended December 31, 2004, 2003
and 2002
Statements of Changes in Members' Capital for the years ended December
31, 2004, 2003 and 2002
Statements of Cash Flows for the years ended December 31, 2004, 2003
and 2002
Notes to Financial Statements
2. Financial Statement Schedules
Allschedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore,
have been omitted.
(b) Reports on Form 8-K for the fourth quarter of 2004 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)
(14.1) Code of Ethics
(31.1) Certification of Paritosh K. Choksi
(31.2) Certification of Dean L. Cash
(32.1) Certification Pursuant to 18 U.S.C. section 1350 of Dean L.
Cash
(32.2) Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K.
Choksi
36
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: 3/29/2005
ATEL Capital Equipment Fund VIII, LLC
(Registrant)
By: ATEL Financial Services LLC,
Managing Member of Registrant
By: /s/ Dean Cash
------------------------------------------------
Dean Cash,
President and Chief Executive Officer of ATEL Financial
Services LLC (Managing Member)
By: /s/ Paritosh K. Choksi
------------------------------------------------
Paritosh K. Choksi
Executive Vice President of ATEL Financial Services
LLC (Managing Member)
37
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/ Dean Cash President, Chairman and Chief Executive 3/29/2005
- ------------------------- Officer of ATEL Financial Services LLC
Dean Cash
/s/ Paritosh K. Choksi Executive Vice President and director of 3/29/2005
- ------------------------- ATEL Financial Services LLC, Principal
Paritosh K. Choksi financial officer of registrant; principal
financial officer and director of ATEL
Financial Services LLC
/s/ Donald E. Carpenter Principal accounting officer of registrant; 3/29/2005
- ------------------------- principal accounting officer of ATEL
Donald E. Carpenter Financial Services LLC
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.
38