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
September 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
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
ASSETS
1999 1998
---- ----
Cash and cash equivalents $ 2,498,115 $ 600
Accounts receivable 1,966,818 -
Other assets 150,000 -
Investments in leases 55,896,235 -
----------------- ----------------
Total assets $60,511,168 $ 600
================= ================
LIABILITIES AND MEMBERS' CAPITAL
Line of credit $8,000,000
Accounts payable:
General Partner 128,459
Other 1,740,870
Unearned operating lease income 41,768
-----------------
Total liabilities 9,911,097
Members' capital:
Managing member (80,335) $ 100
Other members 50,680,406 500
----------------- ----------------
Total members' capital 50,600,071 600
----------------- ----------------
Total liabilities and members' capital $60,511,168 $ 600
================= ================
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
INCOME STATEMENTS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Revenues:
Leasing activities:
<S> <C> <C>
Operating leases $4,359,539 $2,878,064
Direct financing leases 212,286 86,798
Interest 72,585 53,496
Other 372 165
----------------- ----------------
4,644,782 3,018,523
Expenses:
Depreciation 2,792,084 1,748,864
Interest expense 764,541 341,959
Administrative cost reimbursements to Managing Member 516,568 240,445
Asset management fees to Managing Member 232,387 153,399
Professional fees 29,213 1,602
Other 40,006 23,700
----------------- ----------------
4,374,799 2,509,969
----------------- ----------------
Net income $ 269,983 $ 508,554
================= ================
Net income:
Managing member $ 20,249 $ 38,142
Other members 249,734 470,412
----------------- ----------------
$ 269,983 $ 508,554
================= ================
Net income per Limited Liability Company Unit $ 0.08 $ 0.09
Weighted average number of Units outstanding 3,014,585 4,998,549
</TABLE>
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Other Members Managing
Units Amount Member Total
<S> <C> <C> <C> <C>
Balance December 31, 1998 50 $ 500 $ 100 $ 600
Capital contributions 6,017,684 60,176,840 - 60,176,840
Less selling commissions to affiliates (5,716,800) - (5,716,800)
Other syndication costs to affiliates (2,788,098) - (2,788,098)
Distributions to members (1,241,770) (100,684) (1,342,454)
Net income 249,734 20,249 269,983
----------------- ------------------ ---------------- ----------------
Balance September 30, 1999 6,017,734 $50,680,406 $ (80,335) $ 50,600,071
================= ================== ================ ================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
<S> <C> <C>
Operating activities:
Net income $ 269,983 $ 508,554
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 2,792,084 1,748,864
Changes in operating assets and liabilities:
Accounts receivable (1,966,818) (975,723)
Other assets (150,000) (150,000)
Accounts payable, Managing Member 128,459 128,459
Accounts payable, other 1,740,870 1,498,035
Unearned lease income 41,768 (7,998)
----------------- ----------------
Net cash provided by operations 2,856,346 2,750,191
----------------- ----------------
Investing activities:
Purchases of equipment on operating leases (49,378,065) (24,739,628)
Purchases of equipment on direct financing leases (9,951,981) (4,610,893)
Reduction of net investment in direct financing leases 675,100 334,231
Payment of initial direct costs (33,373) -
----------------- ----------------
Net cash used in investing activities (58,688,319) (29,016,290)
----------------- ----------------
Financing activities:
Capital contributions received 60,176,840 19,591,390
Payment of syndication costs to managing member (8,504,898) (2,691,935)
Borrowings under line of credit 8,000,000 8,000,000
Distributions to members (1,342,454) (913,033)
----------------- ----------------
Net cash provided by financing activities 58,329,488 23,986,422
----------------- ----------------
Net increase (decrease) in cash and cash equivalents 2,497,515 (2,279,677)
Cash and cash equivalents at beginning of period 600 4,777,792
----------------- ----------------
Cash and cash equivalents at end of period $2,498,115 $2,498,115
================= ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 764,541 $ 341,959
================= ================
</TABLE>
See accompanying notes.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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:
<TABLE>
<CAPTION>
Depreciation
Expense or Balance
Amortization September 30,
Additions of Leases 1999
<S> <C> <C> <C>
Net investment in operating leases $49,378,065 $ (2,785,232) $46,592,833
Net investment in direct financing leases 9,951,981 (675,100) 9,276,881
Initial direct costs, net of accumulated amortization 33,373 (6,852) 26,521
----------------- ------------------ ----------------
$59,330,046 $ (3,460,332) $55,896,235
================= ================== ================
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
3. Investment in leases (continued):
Operating leases:
Property on operating leases consists of the following:
<TABLE>
<CAPTION>
Balance
Acquisitions September 30,
1st Quarter 2nd Quarter 3rd Quarter 1999
----------- ----------- ----------- ----
<S> <C> <C> <C> <C>
Transportation $ 7,404,130 $ 9,160,425 $ 14,675,893 $31,240,448
Natural gas compressors - - 6,272,782 6,272,782
Marine vessel - 3,952,500 - 3,952,500
Other 280,500 811,794 2,234,583 3,326,877
Manufacturing 494,113 952,267 1,177,406 2,623,786
Materials handling 594,748 987,960 378,964 1,961,672
---------------- ----------------- ------------------ ----------------
8,773,491 15,864,946 24,739,628 49,378,065
Less accumulated depreciation (134,842) (903,802) (1,746,588) (2,785,232)
---------------- ----------------- ------------------ ----------------
$ 8,638,649 $14,961,144 $ 22,993,040 $46,592,833
================ ================= ================== ================
</TABLE>
Direct financing leases:
As of September 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 September 30, 1999:
Total minimum lease payments receivable $ 9,871,322
Estimated residual values of leased equipment (unguaranteed) 1,233,142
-----------------
Investment in direct financing leases 11,104,464
Less unearned income (1,827,583)
-----------------
Net investment in direct financing leases $ 9,276,881
=================
All of the property on leases was acquired in 1999. There were no dispositions
of such property.
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
3. Investment in leases (continued):
At September 30, 1999, the aggregate amounts of future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
<S> <C> <C> <C>
Three months ending December 31, 1999 $ 1,836,999 $ 557,665 $ 2,394,664
Year ending December 31, 2000 7,330,462 2,230,662 9,561,124
2001 7,312,926 2,090,045 9,402,971
2002 6,902,229 1,569,838 8,472,067
2003 5,023,207 1,418,365 6,441,572
Thereafter 17,635,270 2,004,747 19,640,017
------------------ ---------------- ----------------
$ 46,041,093 $ 9,871,322 $ 55,912,415
================== ================ ================
</TABLE>
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 actual costs incurred on behalf of the Company or the amount the
Company would be required to pay independent parties for comparable
administrative services in the same geographic location and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
The Managing Member and/or Affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
<TABLE>
<CAPTION>
Selling commissions (equal to 9.5% of the selling price of the Limited Liability
<S> <C>
Company units, deducted from Other Members' capital) $5,716,800
Reimbursement of other syndication costs to Managing Member 2,788,098
Administrative costs reimbursed to Managing Member 516,568
Asset management fees to Managing Member 232,387
-----------------
$9,253,853
=================
</TABLE>
<PAGE>
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
5. Member's capital:
As of September 30, 1999, 6,017,734 Units ($60,177,340) 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 28, 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 September 30, 1999, the borrowings under the line of credit were $8,000,000.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of September 30,
1999.
7. Long-term debt:
The Company has established a $40 million dollar receivables funding program
with a receivables financing company that issues commercial paper rated A1 from
Standard and Poors and P1 from Moody's Investor Services. In this receivables
funding program, the lenders will receive a general lien against all of the
otherwise unencumbered assets of the Company. The program provides for borrowing
at a variable interest rate and requires the Managing Member to enter into hedge
agreements with certain hedge counterparties (also rated A1/P1) to mitigate the
interest rate risk associated with a variable rate note. The Managing Member
anticipates that this program will allow the Company to avail itself of lower
cost debt than that available for individual non-recourse debt transactions. It
is the intention of the Company to use the receivables funding program to
finance assets leased to those credits which, in the opinion of the Managing
Member, have a relatively lower potential risk of lease default then those
lessees with equipment financed with non-recourse debt. The Company will
continue to use its traditional sources of non-recourse secured debt financing
on a transaction basis as a means of mitigating credit risk.
There were no borrowings under the facility as of September 30, 1999.
8. Commitments:
As of September 30, 1999, the Company had outstanding commitments to purchase
lease equipment totaling approximately $33,852,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Capital Resources and Liquidity
During the first nine months 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 September 30, 1999, the
Company had received subscriptions for 6,017,734 Units ($60,177,340) 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 28, 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
$33,852,000 as of September 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.
<PAGE>
Cash Flows
During the first nine months 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 operating
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 primary source of cash from financing activities was the proceeds of the
Company's public offering of Units of Limited Liability Company interest.
Borrowings under the line of credit was the only other financing source of cash.
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
net income of $269,983 for the nine month period and $508,554 for the three
month period. 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 nine months of 1999 related largely 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 nine
months of 1999.
Results of operations in future periods are expected to vary considerably from
those of the first nine months of 1999 as the Company continues to acquire
significant amounts of lease assets.
<PAGE>
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 October
31, 1999.
<TABLE>
<CAPTION>
Aggregate Aggregate
price of price of
offering offering
Amount amount Amount amount
Title of Security Registered registered sold sold
<S> <C> <C> <C> <C>
Limited Company units 15,000,000 $150,000,000 6,631,651 $ 66,316,510
(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 $ - $6,300,068 $6,300,068
Other expenses - 3,234,243 3,234,243
----------------- ----------------- ----------------
Total expenses $ - $9,534,311 $9,534,311
================= ================= ================
</TABLE>
<PAGE>
(9) Net offering proceeds to the issuer after the total expenses
in item 8: $ 56,782,199
(10) The amount of net offering proceeds to the issuer used for
each of the purposes listed below:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
Purchase and installation of
machinery and equipment $ - $56,450,616 $ 56,450,616
Working capital - 331,583 331,583
----------------- ----------------- ----------------
$ - $56,782,199 $ 56,782,199
================= ================= ================
</TABLE>
(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, September 30, 1999 and December 31,
1998.
Income statements for the nine and three month
periods ended September 30, 1999.
Statement of changes in partners' capital for the
nine month period ended September 30, 1999.
Statements of cash flows for the nine and three
month periods ended September 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
<PAGE>
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:
November 12, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 2498115
<SECURITIES> 0
<RECEIVABLES> 1966818
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 60511168
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 50600071
<TOTAL-LIABILITY-AND-EQUITY> 60511168
<SALES> 0
<TOTAL-REVENUES> 4644782
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3610258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 764541
<INCOME-PRETAX> 269983
<INCOME-TAX> 0
<INCOME-CONTINUING> 269983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269983
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
