Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 1999
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission File Number 333-62477
ATEL Capital Equipment Fund VIII, LLC
(Exact name of registrant as specified in its charter)
California 94-3307404
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X|
No |_|
DOCUMENTS INCORPORATED BY REFERENCE
None
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
ASSETS
1999 1998
---- ----
Cash and cash equivalents $4,777,792 $ 600
Accounts receivable 991,095 -
Investments in leases 28,628,809 -
----------------- ----------------
Total assets $34,397,696 $ 600
================= ================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable $ 242,835
Unearned operating lease income 49,766
-----------------
Total liabilities 292,601
Members' capital:
Managing member (17,793) $ 100
Other members 34,122,888 500
----------------- ----------------
Total members' capital 34,105,095 600
----------------- ----------------
Total liabilities and members' capital $34,397,696 $ 600
================= ================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF OPERATIONS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1999
(Unaudited)
Six Months Three Months
Revenues:
Leasing activities:
Operating leases $1,481,475 $1,462,724
Direct financing leases 125,488 59,493
Interest 19,089 18,944
Other 207 (44)
----------------- ----------------
1,626,259 1,541,117
Expenses:
Depreciation 1,043,220 908,378
Interest expense 422,582 317,034
Administrative cost reimbursements to
Managing Member 276,123 236,010
Asset management fees to Managing Member 78,988 62,124
Professional fees 27,611 22,317
Other 16,306 10,685
----------------- ----------------
1,864,830 1,556,548
----------------- ----------------
Net loss $ (238,571) $ (15,431)
================= ================
Net loss:
Managing member $ (17,893) $ (1,157)
Other members (220,678) (14,274)
----------------- ----------------
$ (238,571) $ (15,431)
================= ================
Net loss per Limited Liability Company Unit $ (0.11) $ (0.00)
Weighted average number of Units outstanding 1,934,557 2,855,581
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
SIX MONTH PERIOD ENDED
JUNE 30, 1999
(Unaudited)
Other Members Managing
Units Amount Member Total
Balance December 31, 1998 50 $ 500 $ 100 $ 600
Capital contributions 4,058,545 40,585,450 - 40,585,450
Less selling commissions to affiliates (3,855,618) - (3,855,618)
Other syndication costs to affiliates (1,957,345) - (1,957,345)
Distributions to members (429,421) - (429,421)
Net loss (220,678) (17,893) (238,571)
----------------- ----------------------------------- ----------------
Balance June 30, 1999 4,058,595 $34,122,888 $ (17,793) $ 34,105,095
================= =================================== ================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 1999
(Unaudited)
Six Months Three Months
Operating activities:
Net loss $ (238,571) $ (15,431)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation 1,043,220 908,378
Changes in operating assets and liabilities:
Accounts receivable (991,095) (631,121)
Accounts payable, Managing Member - (16,864)
Accounts payable, other 242,835 209,906
Unearned lease income 49,766 14,648
----------------- ----------------
Net cash used in operations 106,155 469,516
----------------- ----------------
Investing activities:
Purchases of equipment on operating leases (24,638,437) (15,864,946)
Purchases of equipment on direct financing leases (5,341,088) (1,156,384)
Reduction of net investment in direct financing leases 340,869 262,323
Payment of initial direct costs (33,373) (33,373)
----------------- ----------------
Net cash used in investing activities (29,672,029) (16,792,380)
----------------- ----------------
Financing activities:
Capital contributions received 40,585,450 23,234,030
Payment of syndication costs to managing member (5,812,963) (3,273,955)
Distributions to members (429,421) (381,755)
----------------- ----------------
Net cash provided by financing activities 34,343,066 19,578,320
----------------- ----------------
Net increase in cash and cash equivalents 4,777,192 3,255,456
Cash and cash equivalents at beginning of period 600 1,522,336
----------------- ----------------
Cash and cash equivalents at end of period $4,777,792 $4,777,792
================= ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 422,582 $ 317,034
================= ================
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
1. Summary of significant accounting policies:
Interim financial statements:
The unaudited interim financial statements reflect all adjustments which are, in
the opinion of the managing member, necessary to a fair statement of financial
position and results of operations for the interim periods presented. All such
adjustments are of a normal recurring nature. These unaudited interim financial
statements should be read in conjunction with the most recent report on Form
10K.
2. Organization and Company matters:
ATEL Capital Equipment Fund VIII, LLC. (the Company), was formed under the laws
of the State of California on July 31 , 1998, for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. Contributions in
the amount of $600 were received as of October 7, 1998, $100 of which
represented the Managing Member's (ATEL Financial Corporation's) continuing
interest, and $500 of which represented the Initial Members' capital investment.
Upon the sale of the minimum amount of Units of Limited Liability Company
interest (Units) of $1,200,000 and the receipt of the proceeds thereof on
January 13, 1999, the Company commenced operations.
The Company does not make a provision for income taxes since all income and
losses will be allocated to the Partners for inclusion in their individual tax
returns.
3. Investment in leases:
The Company's investment in leases consists of the following:
Depreciation
Expense or Balance
Amortization June 30,
Additions of Leases 1999
Net investment in operating leases $24,638,437 $ (1,038,644) $23,599,793
Net investment in direct financing leases 5,341,088 (340,869) 5,000,219
Initial direct costs, net of accumulated amortization 33,373 (4,576) 28,797
----------------- -----------------------------------
$29,979,525 $ (1,379,513) $28,628,809
================= ===================================
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
3. Investment in leases (continued):
Operating leases:
Property on operating leases consists of the following:
Balance
Acquisitions June 30,
1st Quarter 2nd Quarter 1999
Transportation $7,404,130 $ 9,160,425 $16,564,555
Marine vessel - 3,952,500 3,952,500
Materials handling 594,748 987,960 1,582,708
Manufacturing 494,113 952,267 1,446,380
Other 280,500 811,794 1,092,294
--------------- ---------------- --------------
8,773,491 15,864,946 24,638,437
Less accumulated depreciation (134,842) (903,802) (1,038,644)
--------------- ---------------- --------------
$8,638,649 $14,961,144 $23,599,793
=============== ================ ==============
Direct financing leases:
As of June 30, 1999, investment in direct financing leases consists office
automation equipment. The following lists the components of the Company's
investment in direct financing leases as of June 30, 1999:
Total minimum lease payments receivable $5,027,357
Estimated residual values of leased equipment (unguaranteed) 565,388
-----------------
Investment in direct financing leases 5,592,745
Less unearned income (592,526)
-----------------
Net investment in direct financing leases $5,000,219
=================
All of the property on leases was acquired in 1999. There were no dispositions
of such property.
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
3. Investment in leases (continued):
At June 30, 1999, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
1999 $1,919,921 $ 723,707 $2,643,628
2000 3,844,756 1,447,413 5,292,169
2001 3,844,756 1,306,797 5,151,553
2002 3,555,531 804,873 4,360,404
2003 2,303,980 708,252 3,012,232
Thereafter 8,300,164 36,315 8,336,479
----------------- ------------------ ----------------
$23,769,108 $ 5,027,357 $28,796,465
================= ================== ================
4. Related party transactions:
The terms of the Limited Company Operating Agreement provide that the Managing
Member and/or Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Company.
The Limited Liability Company Operating Agreement allows for the reimbursement
of costs incurred by the Managing Member in providing administrative services to
the Company. Administrative services provided include Company accounting,
investor relations, legal counsel and lease and equipment documentation. The
Managing Member is not reimbursed for services where it is entitled to receive a
separate fee as compensation for such services, such as acquisition and
management of equipment. Reimbursable costs incurred by the Managing Member are
allocated to the Company based upon actual time incurred by employees working on
Company business and an allocation of rent and other costs based on utilization
studies.
Substantially all employees of the Managing Member record time incurred in
performing administrative services on behalf of all of the Companies serviced by
the Managing Member. The Managing Member believes that the costs reimbursed are
the lower of (i) actual costs incurred on behalf of the Company or (ii) the
amount the Company would be required to pay independent parties for comparable
administrative services in the same geographic location and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
The Managing Member and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
Selling commissions (equal to 9.5% of the selling price of
the Limited Liability Company units, deducted from Other
Members' capital) $3,855,618
Reimbursement of other syndication costs to Managing Member 1,957,345
Administrative costs reimbursed to Managing Member 276,123
Asset management fees to Managing Member 78,988
------------
$6,168,074
============
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
5. Member's capital:
As of June 30, 1999, 4,058,595 Units ($40,585,950) were issued and outstanding.
The Company's registration statement with the Securities and Exchange Commission
became effective December 7, 1998. The Company is authorized to issue up to
15,000,050 Units, including the 50 Units issued to the initial members.
The Company's Net Income, Net Losses, and Distributions are to be allocated
92.5% to the Members and 7.5% to the Managing Member.
6. Line of credit:
The Company participates with the Managing Member and certain of its Affiliates
in a $95,000,000 revolving credit agreement with a group of financial
institutions which expires on January 31, 2000. The agreement includes an
acquisition facility and a warehouse facility which are used to provide bridge
financing for assets on leases. Draws on the acquisition facility by any
individual borrower are secured only by that borrower's assets, including
equipment and related leases. Borrowings on the warehouse facility are recourse
jointly to certain of the Affiliates, the Company and the Managing Member.
At June 30, 1999, the Company had no borrowings under the line of credit.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of June 30, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first half of 1999, the Company's primary activities were raising
funds through its offering of Limited Liability Company Units (Units) and
engaging in equipment leasing activities. Through June 30, 1999, the Company had
received subscriptions for 4,058,595 Units ($40,585,950) all of which were
issued and outstanding.
During the funding period, the Company's primary source of liquidity is
subscription proceeds from the public offering of Units. The liquidity of the
Company will vary in the future, increasing to the extent cash flows from leases
exceed expenses, and decreasing as lease assets are acquired, as distributions
are made to the members and to the extent expenses exceed cash flows from
leases.
As another source of liquidity, the Company has contractual obligations with a
diversified group of lessees for fixed lease terms at fixed rental amounts. As
the initial lease terms expire the Company will re-lease or sell the equipment.
The future liquidity beyond the contractual minimum rentals will depend on the
Managing Member's success in re-leasing or selling the equipment as it comes off
lease.
The Company participates with the Managing Member and certain of its affiliates
in a $95,000,000 revolving line of credit with a financial institution. The line
of credit expires on January 31, 2000.
The Company anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to the Managing Member
and providing for cash distributions to the Limited Partners.
The Company currently has available adequate reserves to meet contingencies, but
in the event those reserves were found to be inadequate, the Company would
likely be in a position to borrow against its current portfolio to meet such
requirements. The Managing Member envisions no such requirements for operating
purposes.
No commitments of capital have been or are expected to be made other than for
the acquisition of additional equipment. Such commitments totaled approximately
$16,158,000 as of June 30, 1999.
If inflation in the general economy becomes significant, it may affect the
Company inasmuch as the residual (resale) values and rates on re-leases of the
Company's leased assets may increase as the costs of similar assets increase.
However, the Company's revenues from existing leases would not increase, as such
rates are generally fixed for the terms of the leases without adjustment for
inflation.
If interest rates increase significantly, the lease rates that the Company can
obtain on future leases will be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
Cash Flows
During the first two quarters of 1999, the Company's primary source of liquidity
was the proceeds of its offering of Units.
Sources of cash flows from operating activities consisted primarily of direct
financing lease revenues.
Rents from direct financing leases were the only source of cash from investing
activities. Uses of cash for investing activities consisted of cash used to
purchase operating and direct financing lease assets and payment of initial
direct costs related to lease asset purchases.
The only source of cash from financing activities was the proceeds of the
Company's public offering of Units of Limited Liability Company interest.
Financing uses of cash included payments of syndication costs associated with
the offering and distributions to the members.
Results of operations
On January 13, 1999, the Company commenced operations. Operations resulted in a
net loss of $238,571 for the first half of the year and $15,431 for the second
quarter. The Company's primary source of revenues is from operating leases. In
future periods, operating leases are also expected to be the most significant
source of revenues. Depreciation is related to operating lease assets and thus,
to operating lease revenues. It is expected to increase in future periods as
acquisitions continue.
Asset management fees are based on the gross lease rents of the Company plus
proceeds from the sales of lease assets. They are limited to certain percentages
of lease rents, distributions to members and certain other items. As assets are
acquired, lease rents are collected and distributions are made to the members,
these fees are expected to increase.
Interest expense for the first half of 1999 related to the borrowings under the
line of credit incurred by an affiliate of the Managing Member. It included all
amounts related to those borrowings, going back as far as November 1998 when the
Managing Member started to fund the related transactions on behalf of the
Company. All of the revenues and related carrying costs for these transactions
were attributed to the Company in the first half of 1999.
Results of operations in future periods are expected to vary considerably from
those of the first half of 1999 as the Company continues to acquire significant
amounts of lease assets.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Inapplicable.
Item 2. Changes In Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Information provided pursuant to ss. 228.701 (Item 701(f))(formerly
included in Form SR):
(1) Effective date of the offering: December 7,
1998; File Number: 333-62477 (2) Offering
commenced: December 7, 1998 (3) The offering did
not terminate before any securities were sold. (4)
The offering has not been terminated prior to the
sale of all of the securities. (5) The managing
underwriter is ATEL Securities Corporation. (6) The
title of the registered class of securities is
"Units of Limited Liability Company
interest"
(7) Aggregate amount and offering price of
securities registered and sold as of July 31, 1999
Aggregate Aggregate
price of price of
offering offering
Amount amount Amount amount
Title of Security Registered registered sold sold
Limited Company units 15,000,000 $150,000,000 4,592,168 $ 45,921,680
(8) Costs incurred for the issuers account in
connection with the issuance and distribution
of the securities registered for each category
listed below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
Underwriting discounts and
commissions $ - $4,362,560 $4,362,560
Other expenses 2,316,476 2,316,476
----------------- ----------------- ----------------
Total expenses $ - $6,679,035 $6,679,035
================= ================= ================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $ 39,242,645
(10) The amount of net offering proceeds to the
issuer used for each of the purposes listed
below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
Purchase and installation of
machinery and equipment $ - $39,013,036 $ 39,013,036
Working capital 229,608 229,608
----------------- ----------------- ----------------
$ - $39,242,645 $ 39,242,645
================= ================= ================
(11) The use of the proceeds in Item 10 does not
represent a material change in the uses of
proceeds described in the prospectus.
Item 6. Exhibits And Reports On Form 8-K.
(a)Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, June 30, 1999 and December 31,
1998.
Statements of operations for the six and three
month periods ended June 30, 1999.
Statement of changes in partners' capital for the
six month period ended June 30, 1999.
Statements of cash flows for the six and three
month periods ended June 30, 1999.
Notes to the Financial Statements
2. Financial Statement Schedules
All other schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable,
and therefore have been omitted.
(b) Report on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
August 13, 1999
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)
By: ATEL Financial Corporation
Managing Member of Registrant
By: /s/ A. J. BATT
------------------------------------
A. J. Batt
President and Chief Executive Officer
of Managing Member
By: /s/ DEAN L. CASH
------------------------------------
Dean L. Cash
Executive Vice President
of Managing Member
By: /s/ PARITOSH K. CHOKSI
-----------------------------------
Paritosh K. Choksi
Principal financial officer
of registrant
By: /s/ DONALD E. CARPENTER
-----------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant