Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2001
|_| 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
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
2
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(Unaudited)
ASSETS
2001 2000
---- ----
Cash and cash equivalents $ 4,861,280 $ 2,484,785
Accounts receivable 4,063,885 5,339,569
Other assets 107,500 115,000
Investments in leases 204,689,972 190,893,298
------------------ -----------------
Total assets $213,722,637 $198,832,652
================== =================
LIABILITIES AND MEMBERS' CAPITAL
Long-term debt $90,415,000 $86,668,000
Non-recourse debt 6,298,057 7,325,744
Line of credit 11,223,497 -
Accounts payable:
Managing Member 612,706 695,548
Other 356,332 485,895
Accrued interest payable 215,367 267,823
Unearned operating lease income 2,385,323 2,051,141
------------------ -----------------
Total liabilities 111,506,282 97,494,151
Members' capital:
Managing member - -
Other members 102,216,355 101,338,501
------------------ -----------------
Total members' capital 102,216,355 101,338,501
------------------ -----------------
Total liabilities and members' capital $213,722,637 $198,832,652
================== =================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENT OF OPERATIONS
THREE MONTH PERIODS ENDED
MARCH 31, 2001 AND 2000
(Unaudited)
Revenues: 2001 2000
---- ----
Leasing activities:
Operating leases $13,818,603 $ 5,732,031
Direct financing leases 260,626 133,916
Gain on sales of assets 1,784,650 1,453
Interest 81,171 34,584
Other 16,603 810
------------------ -----------------
15,961,653 5,902,794
Expenses:
Depreciation and amortization 7,135,418 4,726,422
Interest expense 3,565,545 1,522,340
Asset management fees to Managing Member 602,965 302,452
Cost reimbursements to Managing Member 241,272 235,952
Professional fees 129,924 -
Other 61,355 23,384
------------------ -----------------
11,736,479 6,810,550
------------------ -----------------
Net income (loss) $ 4,225,174 $ (907,756)
================== =================
Net income (loss):
Managing member $ 250,320 $ 4,225,174
Other members 3,974,854 (5,132,930)
------------------ -----------------
$ 4,225,174 $ (907,756)
================== =================
Net income (loss) per Limited Liability Company Unit $ 0.29 $ (0.61)
Weighted average number of Units outstanding 13,570,188 8,414,352
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
THREE MONTH PERIOD ENDED
MARCH 31, 2001
(Unaudited)
Other Members Managing
-------------
Units Amount Member Total
Balance December 31, 2000 13,570,188 $101,338,501 $ - $101,338,501
Distributions to members (3,097,000) (250,320) (3,347,320)
Net income (loss) 3,974,854 250,320 4,225,174
------------------ ----------------- ------------------ -----------------
Balance March 31, 2001 13,570,188 $102,216,355 $ - $102,216,355
================== ================= ================== =================
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENT OF CASH FLOWS
THREE MONTH PERIODS ENDED
MARCH 31, 2001 AND 2000
(Unaudited)
Operating activities: 2001 2000
---- ----
Net income (loss) $ 4,225,174 $ (907,756)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Gain on sales of assets (1,784,650) (1,453)
Depreciation and amortization 7,135,418 4,726,422
Changes in operating assets and liabilities:
Accounts receivable 1,275,684 885,678
Other assets 7,500 7,500
Accounts payable, Managing Member (82,842) 27,300
Accounts payable, other (129,563) 420,862
Accrued interest expense (52,456) 91,461
Unearned lease income 334,182 455,925
------------------ -----------------
Net cash provided by operations 10,928,447 5,705,939
------------------ -----------------
Investing activities:
Purchases of equipment on operating leases (27,625,407) (5,620,336)
Proceeds from sales of assets 8,555,262 9,520
Reduction of net investment in direct financing leases 204,900 472,343
Payments of initial direct costs to managing member (107,990) (334,247)
Purchases of equipment on direct financing leases (174,207) (220,012)
------------------ -----------------
Net cash used in investing activities (19,147,442) (5,692,732)
------------------ -----------------
Financing activities:
Repayments of line of credit - (7,500,000)
Borrowings on line of credit 11,223,497 2,000,000
Proceeds of long-term debt 8,000,000 -
Repayments of long-term debt (4,253,000) (1,914,000)
Repayments of non-recourse debt (1,027,687) (1,107,396)
Distributions to other members (3,097,000) (1,944,832)
Distributions to managing member (250,320) (357,211)
Capital contributions received - 13,662,000
Payment of syndication costs to managing member - (1,804,139)
------------------ -----------------
Net cash provided by financing activities 10,595,490 1,034,422
------------------ -----------------
Net increase in cash and cash equivalents 2,376,495 1,047,629
Cash and cash equivalents at beginning of period 2,484,785 3,973,342
------------------ -----------------
Cash and cash equivalents at end of period $ 4,861,280 $ 5,020,971
================== =================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 3,513,089 $ 1,613,801
================== =================
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(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
Balance Expense and Reclass- Balance
December 31, Amortization ifications and March 31,
2000 Additions of Leases Dispositions 2001
---- --------- --------- ------------ ----
Net investment in operating leases $173,395,247 $27,625,407 $ (7,042,662) $ (6,490,187) $187,487,805
Net investment in direct financing
leases 16,253,263 174,207 (204,900) (243,504) 15,979,066
Initial direct costs 1,244,788 107,990 (92,756) (36,921) 1,223,101
----------------- ------------------ ----------------- ------------------ -----------------
$190,893,298 $27,907,604 $ (7,340,318) $ (6,770,612) $204,689,972
================= ================== ================= ================== =================
6
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
3. Investment in leases (continued):
Operating leases:
Property on operating leases consists of the following:
Balance Reclass- Balance
December 31, Additions and ifications and March 31,
2000 Depreciation Dispositions 2001
---- ------------ ------------ ----
Transportation, rail $ 39,634,498 $ 16,523,854 $ (6,782,075) $ 49,376,277
Manufacturing 48,027,279 533,851 - 48,561,130
Aircraft 31,614,874 6,920,565 - 38,535,439
Transportation, other 23,583,472 - (144,316) 23,439,156
Containers 21,228,750 - - 21,228,750
Natural gas compressors 14,045,134 6,467 - 14,051,601
Other 12,711,963 1,027,323 (1,018,422) 12,720,864
Materials handling 5,858,081 2,613,347 - 8,471,428
Marine vessel 4,314,031 - - 4,314,031
------------------ ----------------- ------------------ -----------------
201,018,082 27,625,407 (7,944,813) 220,698,676
Less accumulated depreciation (27,622,835) (7,042,662) 1,454,626 (33,210,871)
------------------ ----------------- ------------------ -----------------
$173,395,247 $ 20,582,745 $ (6,490,187) $187,487,805
================== ================= ================== =================
Direct financing leases:
As of March 31, 2001, investment in direct financing leases consists office
automation equipment, point of sale equipment, over the road trailers and hotel
laundry equipment. The following lists the components of the Company's
investment in direct financing leases as of March 31, 2001:
Total minimum lease payments receivable $14,529,379
Estimated residual values of leased equipment (unguaranteed) 4,836,824
------------------
Investment in direct financing leases 19,366,203
Less unearned income (3,387,137)
------------------
Net investment in direct financing leases $15,979,066
==================
All of the property on leases was acquired in 1999, 2000 and 2001.
7
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
3. Investment in leases (continued):
At March 31, 2001, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
2001 $25,835,431 $ 2,863,965 $28,699,396
2002 31,196,489 3,056,394 34,252,883
2003 24,910,294 2,749,336 27,659,630
2004 15,446,091 1,938,018 17,384,109
2005 11,080,700 1,901,704 12,982,404
Thereafter 15,973,149 2,019,962 17,993,111
------------------ ----------------- ------------------
$124,442,154 $14,529,379 $138,971,533
================== ================= ==================
4. Non-recourse debt:
At March 31, 2001, non-recourse debt consists of notes payable to financial
institutions. The notes are due in varying quarterly and semi-annual payments.
Interest on the notes is at rates from 7.98% to 14.0%. The notes are secured by
assignments of lease payments and pledges of assets. The notes mature from 2001
through 2004.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
2001 $ 283,092 $ 462,830 $ 745,922
2002 312,109 515,608 827,717
2003 397,915 483,017 880,932
2004 4,425,556 170,437 4,595,993
2005 418,256 77,737 495,993
Thereafter 461,129 34,866 495,995
------------------ ----------------- ------------------
$ 6,298,057 $ 1,744,495 $ 8,042,552
================== ================= ==================
8
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
5. Other long-term debt:
In 1999, the Company entered into a $70 million receivables funding program (the
Program) (which was subsequently increased to $125 million) with a receivables
financing company that issues commercial paper rated A1 by Standard and Poors
and P1 by Moody's Investor Services. Under the Program, the receivables
financing company receives a general lien against all of the otherwise
unencumbered assets of the Company. The Program provides for borrowing at a
variable interest rate (5.74571% at March 31, 2001).
The Program requires the Managing Member to enter into various interest rate
swaps with a financial institution (also rated A1/P1) to manage interest rate
exposure associated with variable rate obligations under the Program by
effectively converting the variable rate debt to fixed rates. As of March 31,
2001, the Company receives or pays interest on a notional principal of
$90,415,000, based on the difference between nominal rates ranging from 5.91% to
7.50% and the variable rate under the Program. No actual borrowing or lending is
involved. The last of the swaps terminates in 2009. The differential to be paid
or received is accrued as interest rates change and is recognized currently as
an adjustment to interest expense related to the debt.
Borrowings under the Program are as follows:
Original Balance Rate on
Amount December 31, Interest Swap
Date Borrowed Borrowed Agreement
------------- -------- ---------
11/11/1999 $20,000,000 $13,868,000 6.840%
12/21/1999 20,000,000 17,956,000 7.410%
12/24/1999 25,000,000 19,169,000 7.440%
4/17/2000 6,500,000 5,636,000 7.450%
4/28/2000 1,900,000 1,498,000 7.720%
8/3/2000 19,000,000 17,270,000 7.500%
10/31/2000 7,500,000 6,950,000 7.130%
1/29/2001 8,000,000 8,068,000 5.910%
----------------- ------------------
$107,900,000 $90,415,000
================= ==================
Other long-term debt borrowings mature from 2004 through 2009. Future minimum
principal payments of long-term debt are as follows:
Year ending
December 31, Principal Interest Total
------------ --------- -------- -----
2001 $14,966,000 $ 4,432,684 $19,398,684
2002 20,066,000 4,652,870 24,718,870
2003 17,871,000 3,276,353 21,147,353
2004 12,252,000 2,164,661 14,416,661
2005 8,404,000 1,398,583 9,802,583
Thereafter 16,856,000 1,403,642 18,259,642
------------------ ----------------- ------------------
$90,415,000 $17,328,793 $107,743,793
================== ================= ==================
9
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
6. Related party transactions:
The terms of the Limited Company Operating Agreement provide that the Managing
Member and/or Affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Company.
The Limited Liability Company Operating Agreement allows for the reimbursement
of costs incurred by the Managing Member in providing services to the Company.
Services provided include Company accounting, investor relations, legal counsel
and lease and equipment documentation. The Managing Member is not reimbursed for
services where it is entitled to receive a separate fee as compensation for such
services, such as acquisition and management of equipment. Reimbursable costs
incurred by the Managing Member are allocated to the Company based upon actual
time incurred by employees working on Company business and an allocation of rent
and other costs based on utilization studies.
Substantially all employees of the Managing Member record time incurred in
performing services on behalf of all of the Companies serviced by the Managing
Member. The Managing Member believes that the costs reimbursed are the lower of
(i) actual costs incurred on behalf of the Company or (ii) the amount the
Company would be required to pay independent parties for comparable services in
the same geographic location and are reimbursable in accordance with the Limited
Liability Company Operating Agreement.
The Managing Member and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
2001 2000
---- ----
Asset management fees to Managing Member $ 602,965 $ 302,452
Costs reimbursed to Managing Member 241,272 235,952
Selling commissions (equal to 9.5% of the selling price of the Limited Liability
Company units, deducted from Other Members' capital) - 1,297,890
Reimbursement of other syndication costs to Managing Member - 506,249
------------------ -----------------
$ 844,237 $ 2,342,543
================== =================
10
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
7. Member's capital:
As of March 31, 2001, 13,570,188 Units ($135,701,880) were issued and
outstanding. 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.
8. Line of credit:
The Company participates with the Managing Member and certain of its Affiliates
in a $62,000,000 revolving credit agreement with a group of financial
institutions which expires on April 12, 2002. 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 March 31, 2001, the Company had borrowings of $11,223,497 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 March 31, 2001.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first quarter of 2001, the Company's primary activities was engaging
in equipment leasing activities.
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 $62,000,000 revolving line of credit with a financial institution. The line
of credit expires on April 12, 2002.
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
$3,300,000 as of March 31, 2001.
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 quarter of 2001, the Company's primary source of liquidity was
rents from operating leases. During the first quarter of 2000, the Company's
primary source of liquidity was the proceeds of its offering of Units.
In 2001 and 2000, the primary source of cash from operations was rents from
operating leases. Operating leases are expected to remain as the primary source
of cash from operations in future periods.
12
In 2001, the Company sold a large rail car fleet. The proceeds from that sale
constituted the primary source of cash from investing activities in 2001. in
2000, rents from direct financing leases were the primary 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 payments of
initial direct costs associated with the lease asset purchases.
In 2001, the only sources of cash from financing activities were borrowings
under the line of credit and proceeds of long-term debt. In 2000, the primary
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,
repayments of debt and distributions to the members.
Results of operations
Operations resulted in net income of $4,225,174 in 2001 compared to a net loss
of $907,756 in 2000. In 2001 and 2000, the Company's primary source of revenues
was from operating leases. Depreciation is related to operating lease assets and
thus, to operating lease revenues. It has increased as a result of operating
lease asset acquisitions over the last year.
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 has increased from $1,522,340 in 2000 to $3,565,545 in 2001 as
a result of increased debt balances in 2001 compared to those in 2000.
13
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.
Inapplicable.
Item 6. Exhibits And Reports On Form 8-K.
(a)Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, March 31, 2001 and December 31,
2000.
Statement of operations for the three month periods
ended March 31, 2001 and 2000.
Statement of changes in partners' capital for the
three month period ended March 31, 2001.
Statements of cash flows for the three month periods
ended March 31, 2001 and 2000.
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
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
May 11, 2001
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)
By: ATEL Financial Corporation
Managing Member of Registrant
By: /s/ Dean L. Cash
------------------------------------
Dean L. Cash
President and Chief Executive Officer
of Managing Member
By: /s/ Paritosh K. Choksi
-------------------------------------
Paritosh K. Choksi
Principal financial officer
of registrant
By: /s/ Donald E. Carpenter
-------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant
15