10-Q 1 fund810q1q2003.txt REPORT FOR THE QUARTER ENDED MARCH 31, 2003 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, 2003 |_| 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.) 600 California Street, 6th Floor, San Francisco, California 94108-2733 (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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X| The number of Limited Partnership Units outstanding as of March 31, 2003 was 13,570,188 DOCUMENTS INCORPORATED BY REFERENCE None 1 Part I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited). 2 ATEL CAPITAL EQUIPMENT FUND VIII, LLC BALANCE SHEETS MARCH 31, 2003 AND DECEMBER 31, 2002 (Unaudited) ASSETS 2003 2002 ---- ---- Cash and cash equivalents $ 1,054,517 $ 2,263,479 Accounts receivable, net of allowance for doubtful accounts of $260,115 in 2003 and $516,365 in 2002 3,120,412 1,874,311 Due from Managing Member - 171,119 Other assets 47,500 55,000 Investments in equipment and leases 139,614,152 149,100,763 ------------------ -------------------- Total assets $143,836,581 $ 153,464,672 ================== ==================== LIABILITIES AND MEMBERS' CAPITAL Long-term debt $57,491,000 $ 62,912,000 Non-recourse debt 5,702,855 5,702,855 Line of credit 12,600,000 10,600,000 Accounts payable: Managing Member 260,648 - Other 672,300 697,720 Accrued interest payable 124,330 96,179 Interest rate swap contracts 5,070,512 5,381,342 Unearned operating lease income 1,794,206 1,547,813 ------------------ -------------------- Total liabilities 83,715,851 86,937,909 Members' capital 60,120,730 66,526,763 ------------------ -------------------- Total liabilities and members' capital $143,836,581 $ 153,464,672 ================== ==================== See accompanying notes. 3 ATEL CAPITAL EQUIPMENT FUND VIII, LLC STATEMENTS OF OPERATIONS THREE MONTH PERIODS ENDED MARCH 31, 2003 AND 2002 (Unaudited)
Revenues: 2003 2002 ---- ---- Leasing activities: Operating leases $ 7,378,891 $ 8,690,358 Direct financing leases 172,311 216,017 Gain (loss) on sales of assets 154,414 (16,455) Interest 2,012 5,989 Other 17,696 175,768 ------------------ -------------------- 7,725,324 9,071,677 Expenses: Depreciation and amortization 5,430,967 6,025,093 Interest expense 2,022,644 1,601,370 Impairment losses 1,910,861 - Railcar maintenance 672,087 - Cost reimbursements to Managing Member 656,763 514,608 Asset management fees to Managing Member 300,571 417,414 Provision for (recovery of) doubtful accounts (200,000) 400,000 Professional fees 181,096 56,545 Other 130,036 135,655 ------------------ -------------------- 11,105,025 9,150,685 ------------------ -------------------- Net loss $ (3,379,701) $ (79,008) ================== ==================== Net (loss) income: Managing member $ 250,287 $ 250,296 Other members (3,629,988) (329,304) ------------------ -------------------- $ (3,379,701) $ (79,008) ================== ==================== Net loss per Limited Liability Company Unit $ (0.27) $ (0.02) Weighted average number of Units outstanding 13,570,188 13,570,188
See accompanying notes. 4 ATEL CAPITAL EQUIPMENT FUND VIII, LLC STATEMENT OF CHANGES IN MEMBERS' CAPITAL THREE MONTH PERIOD ENDED MARCH 31, 2003 (Unaudited)
Accumulated Other Other Members Managing Comprehensive ------------- Units Amount Member Income (Loss) Total Balance December 31, 2002 13,570,188 $71,908,105 $ - $ (5,381,342) $ 66,526,763 Distributions to members - (3,086,875) (250,287) - (3,337,162) Unrealized decrease in value of interest rate swap contracts - - - 310,830 310,830 Net income (loss) - (3,629,988) 250,287 - (3,379,701) ------------------ ------------------ ------------------ ------------------ -------------------- Balance March 31, 2003 13,570,188 $65,191,242 $ - $ (5,070,512) $ 60,120,730 ================== ================== ================== ================== ====================
See accompanying notes. 5 ATEL CAPITAL EQUIPMENT FUND VIII, LLC STATEMENTS OF CASH FLOWS THREE MONTH PERIODS ENDED MARCH 31, 2003 AND 2002 (Unaudited)
2003 2002 ---- ---- Operating activities: Net loss $ (3,379,701) $ (79,008) Adjustments to reconcile net loss to cash provided by operating activities: (Gain) loss on sales of assets (154,414) 16,455 Depreciation and amortization 5,430,967 6,025,093 Impairment losses 1,910,861 - Provision for (recovery of) doubtful accounts (200,000) 400,000 Changes in operating assets and liabilities: Accounts receivable (1,046,101) (358,422) Due from Managing Member 171,119 - Other assets 7,500 7,500 Accounts payable, Managing Member 260,648 376,446 Accounts payable, other (25,420) (420,983) Accrued interest expense 28,151 61,432 Unearned lease income 246,393 615,029 ------------------ -------------------- Net cash provided by operations 3,250,003 6,643,542 ------------------ -------------------- Investing activities: Reduction of net investment in direct financing leases 278,040 409,321 Proceeds from sales of assets 2,021,157 76,050 ------------------ -------------------- Net cash provided by investing activities 2,299,197 485,371 ------------------ -------------------- Financing activities: Repayments of long-term debt (5,421,000) (8,804,000) Proceeds of long-term debt - 3,900,000 Borrowings on line of credit 3,900,000 3,800,000 Repayments of line of credit (1,900,000) (3,500,000) Distributions to other members (3,086,875) (3,086,981) Distributions to managing member (250,287) (250,296) ------------------ -------------------- Net cash used in financing activities (6,758,162) (7,941,277) ------------------ -------------------- Net decrease in cash and cash equivalents (1,208,962) (812,364) Cash and cash equivalents at beginning of period 2,263,479 2,269,137 ------------------ -------------------- Cash and cash equivalents at end of period $ 1,054,517 $ 1,456,773 ================== ==================== Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 1,994,493 $ 1,662,802 ================== ====================
See accompanying notes. 6 ATEL CAPITAL EQUIPMENT FUND VIII, LLC NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) 1. Summary of significant accounting policies: Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. 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 financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission. 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. 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. ATEL Financial Services, LLC, an affiliated entity, acts as the Managing Member of the Company. 3. Investment in equipment and leases: The Company's investment in leases consists of the following:
Depreciation Balance Expense and Reclass- Balance December 31, Impairment Amortization ifications and March 31, 2002 Losses of Leases Dispositions 2003 ---- ------ --------- ------------ ---- Net investment in operating leases $119,404,269 $ (1,910,861) $ (5,336,930) $ 5,081,817 $ 117,238,295 Net investment in direct financing leases 11,233,604 - (278,040) (10,616) 10,944,948 Assets held for sale or lease 20,401,035 - - (9,550,444) 10,850,591 Reserves for losses (2,612,500) - - 2,612,500 - Initial direct costs, net of accumulated amortization of $1,169,724 in 2003 and $1,075,687 in 2002 674,355 - (94,037) - 580,318 ------------------ ------------------ ------------------ ------------------ -------------------- $149,100,763 $ (1,910,861) $ (5,709,007) $ (1,866,743) $ 139,614,152 ================== ================== ================== ================== ====================
7 ATEL CAPITAL EQUIPMENT FUND VIII, LLC NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) 3. Investment in equipment and leases (continued): Operating leases: Property on operating leases consists of the following:
Balance Reclass- Balance December 31, Impairment Depreciation ifications and March 31, 2002 Losses Expense Dispositions 2003 ---- ------ ------- ------------ ---- Manufacturing $ 49,700,635 $ - $ - $ (3,611,588) $ 46,089,047 Transportation, rail 21,054,669 - - 12,618,467 33,673,136 Aircraft 32,810,139 - - - 32,810,139 Transportation, other 23,438,156 - - (135,378) 23,302,778 Containers 21,207,500 - - - 21,207,500 Other 14,118,402 - - (20,150) 14,098,252 Natural gas compressors 14,051,601 - - - 14,051,601 Materials handling 7,380,720 - - - 7,380,720 ------------------ ------------------ ------------------ ------------------ -------------------- 183,761,822 - - 8,851,351 192,613,173 Less accumulated depreciation (64,357,553) (1,910,861) (5,336,930) (3,769,534) (75,374,878) ------------------ ------------------ ------------------ ------------------ -------------------- $119,404,269 $ (1,910,861) $ (5,336,930) $ 5,081,817 $ 117,238,295 ================== ================== ================== ================== ====================
Direct financing leases: As of March 31, 2003, 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, 2003: Total minimum lease payments receivable $ 8,184,301 Estimated residual values of leased equipment (unguaranteed) 4,499,906 ------------------ Investment in direct financing leases 12,684,207 Less unearned income (1,739,259) ------------------ Net investment in direct financing leases $10,944,948 ================== All of the property on leases was acquired in 1999, 2000, 2001 and 2002. 8 ATEL CAPITAL EQUIPMENT FUND VIII, LLC NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) 3. Investment in equipment and leases (continued): At March 31, 2003, the aggregate amounts of future minimum lease payments are as follows:
Direct Operating Financing Leases Leases Total Nine months ending December 31, 2003 $20,049,697 $ 2,074,142 $22,123,839 Year ending December 31, 2004 17,169,912 2,063,877 19,233,789 2005 12,661,977 1,976,474 14,638,451 2006 8,480,604 1,727,379 10,207,983 2007 6,497,324 293,628 6,790,952 Thereafter 5,240,177 48,801 5,288,978 ------------------ ------------------ ------------------ $70,099,691 $ 8,184,301 $78,283,992 ================== ================== ==================
4. Non-recourse debt: At March 31, 2003, 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 10.0%. The notes are secured by assignments of lease payments and pledges of assets. The notes mature from 2003 through 2006. Future minimum payments of non-recourse debt are as follows:
Principal Interest Total Nine months ending December 31, 2003 $ 397,915 $ 401,822 $ 799,737 Year ending December 31, 2004 4,425,556 170,437 4,595,993 2005 418,256 77,737 495,993 2006 461,128 34,865 495,993 ------------------ ------------------ ------------------ $ 5,702,855 $ 684,861 $ 6,387,716 ================== ================== ==================
9 ATEL CAPITAL EQUIPMENT FUND VIII, LLC NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (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 (1.3447% at March 31, 2003). As of March 31, 2002, the Program was closed as to any additional borrowings. 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, 2003, the Company receives or pays interest on a notional principal of $57,491,000, based on the difference between nominal rates ranging from 3.60% to 7.72% 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 March 31, Interest Swap Date Borrowed Borrowed 2003 Agreement ------------- -------- ---- --------- 11/11/99 $20,000,000 $ 5,220,000 6.84% 12/21/99 20,000,000 14,309,000 7.41% 12/24/99 25,000,000 7,007,000 7.44% 4/17/00 6,500,000 3,501,000 7.45% 4/28/00 1,900,000 483,000 7.72% 8/3/00 19,000,000 11,308,000 7.50% 10/31/00 7,500,000 4,069,000 7.13% 1/29/01 8,000,000 4,449,000 5.91% 6/1/01 2,000,000 567,000 5.04% 9/1/01 9,000,000 3,692,000 4.35% 1/31/02 3,900,000 2,886,000 3.60% ------------------ ------------------ $122,800,000 $57,491,000 ================== ================== 10 ATEL CAPITAL EQUIPMENT FUND VIII, LLC NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) 5. Other long-term debt (continued): Other long-term debt borrowings mature from 2003 through 2009. Future minimum principal payments of long-term debt are as follows:
Rates on Interest Swap Principal Interest Total Agreements* --------- -------- ----- ----------- Nine months ending December 31, 2003 $15,652,000 $ 2,592,673 $18,244,673 6.861%-6.901% Year ending December 31, 2004 15,092,000 2,394,241 17,486,241 6.896%-6.962% 2005 11,351,000 1,507,894 12,858,894 6.985%-7.137% 2006 6,950,000 884,435 7,834,435 7.172%-7.203% 2007 4,701,000 439,685 5,140,685 6.896%-7.028% 2008 3,025,000 169,486 3,194,486 6.214%-6.887% 2009 720,000 9,149 729,149 5.042%-5.068% ------------------ ------------------ ------------------ $57,491,000 $ 7,997,563 $65,488,563 ================== ================== ==================
* 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 (1.3447% at March 31, 2003). 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. During the three month periods ended March 31, 2003 and 2002, the Managing Member and/or Affiliates earned fees, commissions and reimbursements, pursuant to the Limited Liability Company Agreement as follows: 2003 2002 ---- ---- Costs reimbursed to Managing Member $ 656,763 $ 514,608 Asset management fees to Managing Member 300,571 417,414 ------------------ -------------------- $ 957,334 $ 932,022 ================== ==================== 11 ATEL CAPITAL EQUIPMENT FUND VIII, LLC NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (Unaudited) 7. Line of credit: The Company participates with the Managing Member and certain of its affiliates in a $56,191,292 revolving line of credit (comprised of an acquisition facility and a warehouse facility) with a financial institution that includes certain financial covenants. The line of credit expires on June 28, 2004. As of March 31, 2003, borrowings under the facility were as follows: Amount borrowed by the Company under the acquisition facility $ 12,600,000 Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition facility 4,600,000 ------------------ Total borrowings under the acquisition facility 17,200,000 Amounts borrowed by the Managing Member and its sister corporation under the warehouse facility - ------------------ Total outstanding balance $ 17,200,000 ================== Total available under the line of credit $ 56,191,292 Total outstanding balance (17,200,000) ------------------ Remaining availability $ 38,991,292 ================== 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 partnerships and limited liability companies, the Company and the Managing Member. The credit agreement includes certain financial covenants applicable to each borrower. The Company was in compliance with its covenants as of March 31, 2003. 8. Other comprehensive income (loss): For the three month periods ended March 31, 2003 and 2002, other comprehensive income (loss) consisted of the following: 2003 2002 ---- ---- Net loss $ (3,379,701) $ (79,008) Other comprehensive income: Change in value of interest rate swap contracts 310,830 197,554 --------------- --------------- Comprehensive net income (loss) $ (3,068,871) $ 118,546 =============== =============== 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Statements contained in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q, 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 from those projected. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. 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-Q or to reflect the occurrence of unanticipated events, other than as required by law. Capital Resources and Liquidity During the first quarters of 2003 and 2002, the Company's primary activity was engaging in equipment leasing activities. 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 $56,191,292 revolving line of credit (comprised of an acquisition facility and a warehouse facility) with a financial institution that includes certain financial covenants. The line of credit expires on June 28, 2004. As of March 31, 2003, borrowings under the facility were as follows: Amount borrowed by the Company under the acquisition facility $ 12,600,000 Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition facility 4,600,000 ------------------ Total borrowings under the acquisition facility 17,200,000 Amounts borrowed by the Managing Member and its sister corporation under the warehouse facility - ------------------ Total outstanding balance $ 17,200,000 ================== Total available under the line of credit $ 56,191,292 Total outstanding balance (17,200,000) ------------------ Remaining availability $ 38,991,292 ================== 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 partnerships and limited liability companies, the Company and the Managing Member. 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. There were no such commitments as of March 31, 2003. 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. 13 Cash Flows During the first quarters of 2003 and 2002, the Company's primary source of liquidity was rents from operating leases. In the first quarters of 2003 and 2002, 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. In 2002, rents from direct financing leases were the primary source of cash from investing activities. In 2003, proceeds from sales of assets was the primary source of cash from investing activities. There were no investing uses of cash in 2003 or in 2002. In the first quarters of 2003 and 2002, the only sources of cash from financing activities were borrowings under the line of credit and proceeds of long-term debt (2002 only). Financing uses of cash included repayments of debt of $7,321,000 and $12,304,000 in the first quarters of 2003 and 2002, respectively and distributions to other members of $3,086,875 and $3,086,981 and to the Managing Member of $250,287 and $250,296 in the first quarters of 2003 and 2002, respectively. Repayments of debt for the quarter ended March 31, 2003 decreased from the same period in the prior year as a result of the reduction in scheduled repayments. Results of operations Operations resulted in a net loss of $3,379,701 in the quarter ended March 31, 2003 compared to $79,008 in the quarter ended March 31, 2002. In the first quarters of 2003 and 2002, the Company's primary source of revenues was from operating leases. Operating lease rents have decreased in 2003 compared to 2002 as a result of three factors: (1) a larger portion of the Company's assets were off lease in the first quarter of 2003 than in 2002; (2) lease rates on renewals entered into since 2002 were at lower rates than those on the same assets in 2002; and (3) there have been sales of assets over the last twelve months. Depreciation is related to operating lease assets and thus, to operating lease revenues. Consequently, depreciation decreased from $5,938,728 to $5,336,930 during the first quarters of 2002 and 2003, respectively, as a result of operating lease asset sales over the last year. During the first quarter of 2003, the Company entered into negotiations relating to the early termination of an aircraft lease and the sale of the asset to the lessee. The negotiations were concluded in early April 2003 and the asset was sold. As a result, an impairment loss related to the aircraft has been recorded in the first quarter of 2003 in the amount of $1,910,861. This provision is the single largest factor in the increase in the loss realized in the first quarter of 2003 compared to 2002. There were no similar impairments recognized in the first quarter of 2002. 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. The decrease in asset management fees from $417,414 to $300,571 during the first quarters of 2002 and 2003, respectively, is a direct result of the decreases in lease revenues. Interest expense has increased from $1,601,370 in the quarter ended March 31, 2002 to $2,022,644 in the quarter ended March 31, 2003. Since March 31, 2002, more of the Company's debt has been under the line of credit. The interest rates on this program are considerably higher than those on the receivables funding program. This shift to the line of credit has caused increases in interest expense, which have only partially been offset by overall reductions in debt. In the quarter ended March 31,2003, the Company incurred $672,087 of maintenance costs relating to railcars. These costs were incurred in order to be able to place the railcars on a new lease. The costs did not increase the useful life of the assets or increase their value in the marketplace. No similar costs were incurred during the quarter ended March 31, 2002. Item 3. Quantitative and Qualitative Disclosures of 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 line of credit and is, therefore, exposed to interest rate risk until fixed rate financing is arranged, or the floating rate line of credit is repaid. As of March 31, 2003, there was $12,600,000 outstanding on the floating rate line of credit. 14 Also, as described in Item 2 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 March 31, 2003, borrowings on the facility were $57,491,000 and the associated variable interest rate was 1.3447%. The average fixed interest rate achieved with the swap agreements was 6.861% at March 31, 2003. Item 4. Controls and procedures. Internal Controls As of March 31, 2003, an evaluation was performed under the supervision and with the participation of the Company's management, including the CEO and CFO of the Managing Member, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO of the Managing Member, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to March 31, 2003. 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. Evaluation of disclosure controls and procedures Under the supervision and with the participation of our management, including the CEO and CFO, 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) and 15d-14(c) under the Securities Exchange Act of 1934 was performed as of a date within ninety days before the filing date of this quarterly report. Based upon this evaluation, the CEO and CFO of the Managing Member 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. PART II. OTHER INFORMATION Item 1. Legal Proceedings. 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. Emery Worldwide Airways, Inc.: On January 25, 2002, the Company filed a complaint against its lessee, Emery Worldwide Airways, Inc., for failure by the lessee to properly maintain the condition and airworthiness of the aircraft on lease to the lessee, and for certain other breaches and defaults by the lessee as alleged in the complaint. The Company has claimed stipulated loss value damages in the amount of $5,648,173 as a result of the breaches and defaults under the lease by the lessee. A motion for summary judgment on the Company's claims was filed the summer of 2002, and an unfavorable ruling to the Company on the motion was handed down in the fourth quarter of 2002. A trial date for this matter had been set for May 2003, but was delayed until September 2003. In March 2003, the Company settled with Emery for an amount equal to $1,300,000, plus the value of the aircraft. The Company is currently taking steps to remarket the aircraft. Burlington Northern Santa Fe Corporation: This complaint was filed for the recovery of $300,000 in damages for the "Agreed Value" of a destroyed locomotive, where THE CIT Group/Equipment Financing, Inc., acting as agent for the Company, agreed to "swap" the locomotive unit with Burlington Northern Santa Fe Corporation, without first obtaining the Company's consent to do so, as required by the agreement. An additional claim for holdover rent was informally asserted. A satisfactory agreement for settlement has been reached in this matter and payment of $483,653 in the settlement was received in the first quarter of 2003. 15 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 the Manager on behalf of the Company in the amount of $13,332,328. The lessee filed a counter-claim against the Company asserting unfair business practices. The Company believes that it has a reasonable basis for success of some, if not all, of its claims in this matter. Ingersoll International: At December 31, 2002, the Company had commenced action against Ingersoll International (the "Lessee") as we had declared them in default for making an unauthorized assignment of part of the leased equipment. Subsequent to December 31, 2002, the Company, the Lessee and the unauthorized party reached an agreement in principal to have the unauthorized party assume the lease. Documents have been prepared by the Company and sent to the other parties for signature. This matter was resolved by March 31, 2003. 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, 2003 and December 31, 2002. Statements of Operations for the three month periods ended March 31, 2003 and 2002. Statement of Changes in Partners' Capital for the three month period ended March 31, 2003. Statements of Cash Flows for the three month periods ended March 31, 2003 and 2002. 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 16 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 13, 2003 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 17 CERTIFICATIONS I, Paritosh K. Choksi, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment Fund VIII, LLC; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Paritosh K. Choksi -------------------------- Paritosh K. Choksi Principal Financial Officer of Registrant, Executive Vice President of Managing Member 18 CERTIFICATIONS I, Dean L. Cash, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment Fund VIII, LLC; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Dean L. Cash -------------------------- Dean L. Cash President and Chief Executive Officer of Managing Member 19 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report on Form 10-Q of ATEL Capital Equipment Fund VIII, LLC, (the "Company") for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL Financial Services, LLC, managing member of the Company, hereby certify that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 13, 2003 /s/ Dean L. Cash -------------------------- Dean L. Cash President and Chief Executive Officer of Managing Member CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report on Form 10-Q of ATEL Capital Equipment Fund VIII, LLC, (the "Company") for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of ATEL Financial Services, LLC, managing member of the Company, hereby certify that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 13, 2003 /s/ Paritosh K. Choksi -------------------------- Paritosh K. Choksi Executive Vice President of Managing Member, Principal Financial Officer of Registrant 20