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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended September 30, 2009

 

¨	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 000-33103

ATEL Capital Equipment Fund VIII, LLC

(Exact name of registrant as specified in its charter)

 

California		94-3307404
(State or other jurisdiction of Incorporation or organization)		(I. R. S. Employer 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: Limited Liability Company Units

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨		Accelerated filer  ¨		Non-accelerated filer  ¨		Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The number of Limited Liability Company Units outstanding as of October 31, 2009 was 13,560,188.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

Index

 

Part I.		Financial Information		3
Item 1.		Financial Statements (Unaudited)		3
		Balance Sheets, September 30, 2009 and December 31, 2008		3
		Statements of Income for the three and nine months ended September 30, 2009 and 2008		4
		Statements of Changes in Members’ Capital for the year ended December 31, 2008 and for the nine months ended September 30, 2009		5
		Statements of Cash Flows for the three and nine months ended September 30, 2009 and 2008		6
		Notes to the Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 4T.		Controls and Procedures		20
Part II.		Other Information		21
Item 1.		Legal Proceedings		21
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3.		Defaults Upon Senior Securities		21
Item 4.		Submission of Matters to a Vote of Security Holders		21
Item 5.		Other Information		21
Item 6.		Exhibits		21

 

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PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

ATEL CAPITAL EQUIPMENT FUND VIII, LLC

BALANCE SHEETS

SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

(In Thousands)

(Unaudited)

 

		September 30, 2009			December 31, 2008
ASSETS
Cash and cash equivalents		$	3,726		$	1,748
Accounts receivable			741			1,225
Prepaid expenses			12			12
Investments in equipment and leases, net of accumulated depreciation of $33,928 as of September 30, 2009 and $35,115 as of December 31, 2008			11,341			12,386
Total assets		$	15,820		$	15,371
LIABILITIES AND MEMBERS’ CAPITAL
Accounts payable and accrued liabilities:
Managing Member		$	1,385		$	818
Affiliates			2			—
Other			291			584
Accrued interest payable			2			3
Non-recourse debt			592			1,154
Interest rate swap contracts			—			12
Unearned operating lease income			79			93
Total liabilities			2,351			2,664
Commitments and contingencies
Members’ capital:
Managing Member			—			—
Other Members			13,469			12,707
Total Members’ capital			13,469			12,707
Total liabilities and Members’ capital		$	15,820		$	15,371

See accompanying notes.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2009 AND 2008

(In Thousands Except for Units and Per Unit Data)

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2009				2008				2009				2008
Revenues:
Leasing activities:
Operating leases		$	1,466			$	2,080			$	4,603			$	5,470
Direct financing leases			15				—				26				4
Gain (loss) on sales of assets			12				56				(25	)			3,522
Interest			1				15				2				56
Other revenue			2				41				4				44
Total revenues			1,496				2,192				4,610				9,096
Expenses:
Depreciation of operating lease assets			325				539				1,220				1,920
Interest expense			11				51				57				181
Asset management fees to Managing Member			50				83				138				219
Vessel maintenance			189				280				643				465
Railcar maintenance			148				215				444				536
Cost reimbursements to Managing Member			—				—				679				679
Amortization of initial direct costs			1				—				1				2
Professional fees			31				23				125				168
Insurance			20				21				65				42
Reversal of provision for doubtful accounts			(52	)			(4	)			—				(4	)
Taxes on income and franchise fees			38				—				226				—
Other			85				74				262				172
Total operating expenses			846				1,282				3,860				4,380
Net income from operations			650				910				750				4,716
Other income, net			—				23				12				64
Net income		$	650			$	933			$	762			$	4,780
Net income:
Managing Member		$	—			$	—			$	—			$	—
Other Members			650				933				762				4,780
		$	650			$	933			$	762			$	4,780
Net income per Limited Liability Company Unit (Other Members)		$	0.05			$	0.07			$	0.06			$	0.35
Weighted average number of Units outstanding			13,560,188				13,560,188				13,560,188				13,560,188

See accompanying notes.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2008

AND FOR THE

NINE MONTHS ENDED

SEPTEMBER 30, 2009

(In Thousands Except for Units and Per Unit Data)

(Unaudited)

 

		Other Members						Managing Member				Total
		Units		Amount
Balance December 31, 2007		13,560,188		$	11,598			$	—			$	11,598
Distributions to Other Members ($0.30 per Unit)		—			(4,067	)			—				(4,067	)
Distributions to Managing Member		—			—				(330	)			(330	)
Net income		—			5,176				330				5,506
Balance December 31, 2008		13,560,188			12,707				—				12,707
Net income		—			762				—				762
Balance September 30, 2009		13,560,188		$	13,469			$	—			$	13,469

See accompanying notes.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

STATEMENTS OF CASH FLOWS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2009 AND 2008

(In Thousands)

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2009				2008				2009				2008
Operating activities:
Net income		$	650			$	933			$	762			$	4,780
Adjustment to reconcile net income to cash provided by operating activities:
(Gain) loss on sales of assets			(12	)			(56	)			25				(3,522	)
Depreciation of operating lease assets			325				539				1,220				1,920
Amortization of unearned income on direct finance leases			(15	)			—				(26	)			(4	)
Amortization of initial direct costs			1				—				1				2
Change in fair value of interest rate swap contracts			—				(23	)			(12	)			(64	)
Reversal of provision for doubtful accounts			(52	)			(4	)			—				(4	)
Changes in operating assets and liabilities:
Accounts receivable			180				(200	)			484				(163	)
Due to affiliates			1				2				2				2
Prepaid expenses			(10	)			(12	)			—				(1	)
Accounts payable, Managing Member			590				2				567				56
Accounts payable, other			(394	)			(8	)			(293	)			(143	)
Accrued interest payable			—				—				(1	)			(2	)
Unearned operating lease income			20				42				(14	)			12
Net cash provided by operating activities			1,284				1,215				2,715				2,869
Investing activities:
Proceeds from sales of lease assets			23				240				107				5,200
Payments received on direct financing leases			40				—				98				49
Purchases of equipment on operating leases			—				—				(380	)			(16	)
Net cash provided by (used in) investing activities			63				240				(175	)			5,233
Financing activities:
Repayments of non-recourse debt			(190	)			(178	)			(562	)			(597	)
Distributions to Other Members			—				—				—				(6,448	)
Distributions to Managing Member			—				—				—				(523	)
Net cash used in financing activities			(190	)			(178	)			(562	)			(7,568	)
Net increase in cash and cash equivalents			1,157				1,277				1,978				534
Cash and cash equivalents at beginning of period			2,569				3,966				1,748				4,709
Cash and cash equivalents at end of period		$	3,726			$	5,243			$	3,726			$	5,243
Supplemental disclosures of cash flow information:
Cash paid during the period for taxes		$	13			$	—			$	232			$	39
Cash paid during the period for interest		$	11			$	52			$	58			$	183

See accompanying notes.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

1. Organization and Limited Liability Company matters:

ATEL Capital Equipment Fund VIII, LLC (the “Company”) was formed under the laws of the State of California on July 31, 1998. The Company was formed for the purpose of acquiring equipment to engage in equipment leasing, lending and sales activities. The Managing Member of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company. The Company may continue until December 31, 2019. Each Member’s personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and assets of the Company.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. On January 13, 1999, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date the Company commenced operations in its primary business. Gross contributions in the amount of $135.7 million (13,570,188 units) were received as of November 30, 2000, inclusive of $500 of Initial Member’s capital investment and $100 of AFS’ capital investment. The offering was terminated on November 30, 2000. As of September 30, 2009, 13,560,188 Units were issued and outstanding.

The Company’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular distributions to the Members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended December 31, 2006, and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by its Limited Liability Company Operating Agreement (“Operating Agreement”), as amended.

Pursuant to the Operating Agreement, AFS and/or its affiliates receive compensation and reimbursements for services rendered on behalf of the Company (see Note 4). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

As of September 30, 2009, the Company continues in the liquidation phase of its life cycle as defined in the Operating Agreement.

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, 2008, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The Company has prepared the accompanying unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on equity or net income.

Note and tabular amounts are presented in thousands, except as to Units and per Unit data.

In preparing the accompanying unaudited financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after September 30, 2009, up until the issuance of the financial statements, which occurred on November 13, 2009. No events were noted which would require disclosure in the footnotes to the financial statements.

Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates relate primarily to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.

Segment reporting:

The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.

Certain of the Company’s lessee customers have international operations. In these instances, the Company is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Company to track, on an asset-by-asset, day-by-day basis, where these assets are deployed.

The primary geographic regions in which the Company sought leasing opportunities were North America and Europe. Currently, 100% of the Company’s operating revenues are from customers domiciled in North America.

Other income, net:

Other income, net consists of fair value adjustments on interest rate swap contracts.

Per Unit data:

Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period.

Recent Accounting Pronouncements:

The Generally Accepted Accounting Principles Topic of the FASB Accounting Standards Codification identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the guidance for its third quarter 2009 interim reporting period. The adoption of the guidance did not have a significant impact on the Company’s financial position, results of operations or cash flows.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

The Subsequent Events Topic of the FASB Accounting Standards Codification establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted the guidance for its second quarter 2009 interim reporting period. The adoption of the guidance did not have a significant impact on the Company’s financial position, results of operations or cash flows.

The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales. The guidance is effective for interim and annual periods ending after June 15, 2009 and has been adopted by the Company for its second quarter 2009 interim reporting period with no impact on its financial position, results of operations or cash flows.

The Financial Instruments Topic of the FASB Accounting Standards Codification increases the frequency of fair value disclosures for financial instruments within the scope of the Topic from an annual basis to a quarterly basis. The guidance is effective for interim reporting periods ending after June 15, 2009. The Company adopted the guidance for its second quarter 2009 interim reporting period without significant effect on the Company’s financial position, results of operations or cash flows.

The Derivatives and Hedging Topic of the FASB Accounting Standards Codification requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The fair value of derivative instruments and their gains and losses will need to be presented in tabular format in order to present a more complete picture of the effects of using derivative instruments. The guidance is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company adopted the provisions of the guidance on January 1, 2009. The adoption did not have a significant effect on the Company’s financial position, results of operations or cash flows.

The Business Combinations Topic of the FASB Accounting Standards Codification establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The guidance also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. The guidance is effective for fiscal years beginning after December 15, 2008 and will impact the Company only if it elects to enter into a business combination subsequent to December 31, 2008.

The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. The guidance was to be effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB deferred the effective date of the guidance as it pertains to fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. On January 1, 2008, the Company adopted the provisions of the guidance except as it applies to its investment in equipment and leases, and other nonfinancial assets and nonfinancial liabilities. The deferred provisions of the guidance were implemented effective January 1, 2009 without significant effect on the Company’s financial position, results of operations or cash flows.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

 

3. Investment in equipment and leases, net:

The Company’s investment in leases consists of the following (in thousands):

 

		Balance December 31, 2008				Reclassifications & Additions / Dispositions				Depreciation/ Amortization Expense or Amortization of Leases				Balance September 30, 2009
Net investment in operating leases		$	11,741			$	(275	)		$	(1,220	)		$	10,246
Net investment in direct financing leases			443				40				(72	)			411
Assets held for sale or lease, net			272				412				—				684
Impairment loss reserve			(70	)			70				—				—
Total		$	12,386			$	247			$	(1,292	)		$	11,341

Impairment of investments in leases and assets held for sale or lease:

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. The fair value of assets is determined based on the sum of the discounted estimated future cash flow of the assets. Impairment losses are recorded as an adjustment to the net investment in operating leases. There were no impaired lease assets at September 30, 2009. As of December 31, 2008, the Company carried an impairment loss reserve of $70 thousand which was recorded in 2007. The reserve was related to railcars which were subsequently sold during the first quarter of 2009.

Depreciation expense on property subject to operating leases and property held for lease or sale totaled $325 thousand and $539 thousand for the respective three months ended September 30, 2009 and 2008, and $1.2 million and $1.9 million for the respective nine months ended September 30, 2009 and 2008.

All of the leased property was acquired during the period from 1999 through 2002.

Operating leases:

Property on operating leases consists of the following (in thousands):

 

		Balance December 31, 2008				Additions				Reclassifications or Dispositions				Balance September 30, 2009
Containers		$	20,846			$	—			$	(106	)		$	20,740
Transportation, rail			18,046				—				(3,579	)			14,467
Marine vessels			5,020				380				(1,067	)			4,333
Materials handling			940				—				(867	)			73
Other			640				—				—				640
			45,492				380				(5,619	)			40,253
Less: accumulated depreciation			(33,751	)			(1,220	)			4,964				(30,007	)
Total		$	11,741			$	(840	)		$	(655	)		$	10,246

The average estimated residual value for assets on operating leases was 11% and 21% of the assets’ original cost at September 30, 2009 and December 31, 2008, respectively. The decrease reflects the impact of adjustments made to the residual values of certain assets as a result of a new estimate of their respective useful lives which were defined as the associated leases expired.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

3. Investment in equipment and leases, net (continued):

 

The Company earns revenues from its fleet of marine vessels and certain lease assets based on utilization of such assets. Such contingent rentals (i.e., short-term, operating charter hire payments) and the associated expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of Operating Lease Revenues, and totaled $856 thousand and $1.0 million for the respective three months ended September 30, 2009 and 2008; and $2.3 million and $2.5 million for the respective nine months ended September 30, 2009 and 2008.

Direct financing leases:

As of September 30, 2009 and December 31, 2008, investment in direct financing leases consists of manufacturing equipment. The following lists the components of the Company’s investment in direct financing leases as of September 30, 2009 and December 31, 2008 (in thousands):

 

		September 30, 2009				December 31, 2008
Total minimum lease payments receivable		$	521			$	435
Estimated residual values of leased equipment (unguaranteed)			10				10
Investment in direct financing leases			531				445
Less unearned income			(120	)			(2	)
Net investment in direct financing leases		$	411			$	443

There were no net investments in direct financing leases in nonaccrual status as of September 30, 2009 and December 31, 2008.

At September 30, 2009, the aggregate amount of future lease payments is as follows (in thousands):

 

				Operating Leases			Direct Financing Leases			Total
Three months ending December 31, 2009				$	881		$	40		$	921
Year ending December 31, 2010					2,981			158			3,139
2011					1,693			158			1,851
2012					722			117			839
2013					409			48			457
2014					243			—			243
Thereafter					613			—			613
				$	7,542		$	521		$	8,063

The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of lease transactions. The useful lives for investment in leases by category are as follows (in years):

 

Equipment category		Useful Life
Transportation, rail		30 - 35
Containers		20 - 30
Transportation, other		20 - 30
Materials handling		7 - 10
Other		7 - 10

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

 

4. Related party transactions:

The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.

The Operating Agreement allows for the reimbursement of costs incurred by AFS for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment.

Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group, Inc. and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications and general administrative services are performed by AFS.

Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.

During the three and nine months ended September 30, 2009 and 2008, AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to the Operating Agreement as follows (in thousands):

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2009			2008			2009			2008
Asset management fees to Managing Member		$	50		$	83		$	138		$	219
Cost reimbursements to Managing Member			—			—			679			679
		$	50		$	83		$	817		$	898

The Fund’s Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. Accordingly, the Company has recorded neither an obligation nor an expense for such contingent reimbursement of the approximate $1.4 million excess reimbursable administrative expenses as of September 30, 2009.

5. Non-recourse debt:

At September 30, 2009 and December 31, 2008, non-recourse debt consists of a note payable to a financial institution. The note is due in monthly installments. Interest on the note is at a fixed rate of 6.90% per annum. The note is secured by assignments of lease payments and pledges of assets. At September 30, 2009, gross lease rentals totaled approximately $691 thousand over the remaining lease terms; and the carrying value of the pledged assets is $856 thousand. The note matures in 2010.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

5. Non-recourse debt (continued):

 

The non-recourse note payable does not contain any material financial covenant. The note is secured by a lien granted by the registrant to the non-recourse lender on (and only on) the discounted lease transaction. The lender has recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of this specific security and the registrant does not guarantee (nor is the registrant otherwise contractually responsible for) the payment of non-recourse note as a general obligation or liability of the registrant. Although the registrant does not have any direct general liability in connection with the non-recourse note apart from the security granted, the registrant is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lender, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the lease chattel paper or the transaction as a whole, or as to the registrant’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by the such industry as being consistent with a non-recourse discount financing obligation. Accordingly, as there are no financial covenants or ratios imposed on the registrant in connection with this non-recourse obligation, the registrant does not believe there are any material covenants that warrant footnote disclosure.

Future minimum payments of non-recourse debt are as follows (in thousands):

 

				Principal			Interest			Total
Three months ending December 31, 2009				$	194		$	9		$	203
Year ending December 31, 2010					398			8			406
				$	592		$	17		$	609

6. Receivables funding program:

In 1999, the Company entered into a receivables funding program (the “RF Program”) with a receivables financing company that issues commercial paper rated A1 from Standard and Poor’s and P1 from Moody’s Investors Service. The RF Program provided for borrowing at a variable interest rate and required the Company to enter into interest rate swap agreements with certain counterparties (also rated A1/P1) to mitigate the interest rate risk associated with a variable rate note. The RF Program expired as to new borrowings in January 2002 and was terminated in January 2007 with the interest rate swap agreements remaining in effect through March 2009. The interest rate swap agreements had effectively fixed the variable interest rates on the Company’s borrowings. As of March 31, 2009, all such agreements have terminated. At September 30, 2008, the Company had interest rate swap agreements with a notional principal totaling $1.4 million, based on the difference between a nominal rate of 7.41% and a variable rate of 2.58% at September 30, 2008. No actual borrowing or lending was involved. The interest paid or received on the swap contracts was accrued as interest rates changed. The interest rate swaps were carried at fair value on the balance sheet with unrealized gain/loss included in the statement of operations in other income or loss.

7. Guarantees:

The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The Managing Member knows of no facts or circumstances that would make the Company’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Company’s similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

 

8. Members’ capital:

As of September 30, 2009 and December 31, 2008, 13,560,188 Units were issued and outstanding. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial members (50 Units).

As defined in the Operating Agreement, the Company’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Other Members and 7.5% to AFS.

There were no distributions declared during the three and nine months ended September 30, 2009 and 2008. However, distributions declared and accrued at year-end 2007 totaling $6.4 million were paid to Other Members during the three months ended March 31, 2008.

9. Fair value of financial instruments:

Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.

Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.

At September 30, 2009, the Company had no financial assets or liabilities that require measurement on a recurring or non-recurring basis.

The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize or has realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.

Cash and cash equivalents

The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.

Non-recourse debt

The fair value of the Company’s non-recourse debt is estimated using discounted cash flow analyses, based upon current market borrowing rates for similar types of borrowing arrangements.

 

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ATEL CAPITAL EQUIPMENT FUND VIII, LLC

NOTES TO FINANCIAL STATEMENTS

9. Fair value of financial instruments (continued):

 

Limitations

The fair value estimates presented herein were based on pertinent information available to the Company as of September 30, 2009 and December 31, 2008. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following table presents estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at September 30, 2009 and December 31, 2008 (in thousands):

 

		September 30, 2009						December 31, 2008
		Carrying Amount			Estimated Fair Value			Carrying Amount			Estimated Fair Value
Financial assets:
Cash and cash equivalents		$	3,726		$	3,726		$	1,748		$	1,748
Financial liabilities:
Non-recourse debt			592			603			1,154			1,191
Interest rate swap contracts			—			—			12			12

 

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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. In particular, the economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Fund’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-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.

Overview

ATEL Capital Equipment Fund VIII, LLC (the “Company”) is a California limited liability company that was formed in July 1998 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. The offering was terminated in November 2000. Total proceeds of the offering were $135.7 million. During early 2001, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, throughout the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Company reinvested cash flow in excess of certain amounts required to be distributed to the Other Members and/or utilized its credit facilities to acquire additional equipment.

The Company may continue until December 31, 2019. However, pursuant to the guidelines of the Operating Agreement, the Company began to liquidate its assets and distribute the proceeds thereof after the end of the Reinvestment Period which ended in December 2006.

As of September 30, 2009, the Company continues in its liquidation phase. Accordingly, assets related to leases that mature will be returned to inventory and most likely will be subsequently sold, which will result in decreasing revenue as earning assets decrease. Periodic distributions will be paid at the discretion of the Managing Member.

Results of Operations

The three months ended September 30, 2009 versus the three months ended September 30, 2008

The Company had net income of $650 thousand and $933 thousand for the third quarters of 2009 and 2008, respectively. The results for the third quarter of 2009 reflect a reduction in total revenues offset, in part, by a decrease in total operating expenses when compared to the prior year period.

Revenues

Total revenues for the third quarter of 2009 decreased by $696 thousand, or 32%, as compared to the prior year period. The net decline in total revenues was primarily a result of a $614 thousand decrease in operating lease revenues, which declined mainly due to continued run-off of the lease portfolio, sales of lease assets and the period over period decline in rental revenues from the Company’s marine vessels.

Expenses

Total operating expenses for the third quarter of 2009 decreased by $436 thousand, or 34%, as compared to the prior year period. The net decrease in total operating expenses was primarily due to decreases in depreciation expense, vessel maintenance, railcar maintenance expense and the provision for doubtful accounts.

 

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The decrease in depreciation expense totaled $214 thousand and was primarily due to continued run-off of the lease portfolio and sales of lease assets. Vessel maintenance costs were reduced by $91 thousand mostly due to a period over period decrease in vessel activity. Likewise, railcar maintenance expense declined by $67 thousand due to a decrease in railcars in service; and the provision for doubtful accounts decreased by $48 thousand as a previously reserved for delinquent property tax receivable was collected during the third quarter of 2009.

Other

For the third quarter of 2008, the Company recorded other income, net totaling $23 thousand related to the change in the fair value of its interest swap contracts. Such interest swap contracts all terminated during the first quarter of 2009.

The nine months ended September 30, 2009 versus the nine months ended September 30, 2008

The Company had net income of $762 thousand and $4.8 million for the first nine months of 2009 and 2008, respectively. The results for the first nine months of 2009 reflect a significant reduction in total revenues partially offset by a decrease in operating expenses when compared to the prior year period.

Revenues

Total revenues for the first nine months of 2009 decreased by $4.5 million, or 49%, as compared to the prior year period. The net decline in total revenues was primarily a result of a $3.5 million decrease in net gains on sales of lease assets and an $867 thousand decrease in operating lease revenues.

The period over period decrease in net gain on sales of lease assets was primarily due to first quarter 2008 gains of $3.0 million recognized on the sale of railcars to a major railway customer coupled with reduced demand for Company assets as a result of the current weak economic environment. The decline in operating lease revenue was mainly attributable to run-off of the lease portfolio, sales of lease assets and the period over period decline in rental revenues from the Partnership’s marine vessels and other usage-based assets.

Expenses

Total operating expenses for the first nine months of 2009 decreased by $520 thousand, or 12%, as compared to the prior year period. The net decrease in total operating expenses was primarily due to reductions in depreciation expense, interest expense, railcar maintenance and management fees paid to AFS. These decreases were offset, in part, by increases in taxes and franchise fees, vessel maintenance costs and other expense.

Depreciation expense decreased by $700 thousand as a result of continued run-off of the Company’s lease portfolio and sales of lease assets; and interest expense declined by $124 thousand as the Company continued to pay down its non-recourse debt. Moreover, railcar maintenance expense was reduced by $92 thousand primarily due to a decline in railcars in service; and management fees paid to AFS declined by $81 thousand as a result of the continued decrease in managed assets and related rents.

The aforementioned decreases in operating expenses were offset, in part, by increases in taxes and franchise fees, vessel maintenance costs and other expense totaling $226 thousand, $178 thousand and $90 thousand, respectively. The increase in taxes and franchise fees reflects a period over period increase in state franchise and income tax liability and estimated tax payments; and the increase in vessel maintenance costs reflect costs incurred to prepare a vessel for a new lessee. Other expense increased mostly due to higher property taxes and management fees associated with the marine vessel as well as higher storage, freight and shipping costs related to the Company’s railcars.

Other

The Company recorded other income, net totaling $12 thousand and $64 thousand for the first nine months of 2009 and 2008, respectively, related to the change in the fair value of its interest swap contracts. Such interest swap contracts all terminated during the first quarter of 2009.

 

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Capital Resources and Liquidity

The liquidity of the Company varies, increasing to the extent that cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Other Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The primary source of liquidity for the Company is its cash flow from leasing activities. As initial lease terms expire, the Company re-leases or sells the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Company’s success in remarketing or selling the equipment as it comes off rental.

The changes in the Company’s cash flow for the three and nine months ended September 30, 2009 when compared to the three and nine months ended September 30, 2008 are as follows:

The three months ended September 30, 2009 versus the three months ended September 30, 2008

 

•

Operating Activities

Cash provided by operating activities increased by $69 thousand, or 6%, for the third quarter of 2009 as compared to the prior year period. The net increase in cash flow was primarily due to a favorable change in accounts receivable and accounts payable and accrued liabilities balances offset, in part, by a decline in net operating results, as adjusted for non-cash revenue and expense items such as gains on sales of assets and depreciation expense.

The decrease in outstanding receivables improved cash flow by $380 thousand and was largely due to unpaid receivables related to marine vessel rental revenue that were included in the third quarter 2008 amount. Likewise, the increase in accounts payable and accrued liabilities improved cash flow by $202 thousand. The increase was primarily a result of period-end accruals of administrative costs reimbursable to AFS.

Partially offsetting the aforementioned increases in cash was a decrease, totaling $492 thousand, resulting from the reduction in net operating results, as adjusted for non cash items. The decline was mainly due to decreased operating lease revenues.

 

•

Investing Activities

Net cash provided by investing activities decreased by $177 thousand, or 74%, for the third quarter of 2009 as compared to the prior year period. The net decrease in cash was primarily due to a $217 thousand period over period decline in proceeds from the sale of lease assets which was mainly attributable to reduced demand for the Company’s assets as a result of the current weak economic environment

 

•

Financing Activities

Net cash used in financing activities increased by $12 thousand, or 7%, for the third quarter of 2009 as compared to the prior year period. The increase in cash used (decline in cash flow) was mainly due to the higher amount of scheduled principal payments made on the Partnership’s non-recourse debt.

The nine months ended September 30, 2009 versus the nine months ended September 30, 2008

 

•

Operating Activities

Cash provided by operating activities decreased by $154 thousand, or 5%, for the first nine months of 2009 as compared to the prior year period. The net decrease in cash was primarily due to a decline in net operating results, as adjusted for non-cash revenue and expense items such as gains on sales of assets and depreciation expense offset, in part, by a favorable change in accounts receivable and in accounts payable and accrued liabilities balances.

The decrease in net operating results, as adjusted for non-cash items, reduced cash by $1.1 million and was primarily due to the decline in operating lease revenues, higher taxes and franchise fees and increased vessel maintenance costs.

The aforementioned reduction in cash flow was partially offset by increases totaling $647 thousand and $361 thousand resulting from a decrease in accounts receivable balances and an increase in accounts payable and accrued liabilities, respectively. The decreased levels of accounts receivable was primarily due to unpaid receivables related to

 

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marine vessel rental revenue that were included in the 2008 amount; and the increase in accounts payable and accrued liabilities cash flow was largely due to period-end accruals related to administrative costs reimbursable to AFS.

 

•

Investing Activities

Net cash used in investing activities totaled $175 thousand for the first nine months of 2009 as compared to cash provided by investing activities of $5.2 million during the prior year period, a decrease of $5.4 million. The net decrease in cash was primarily due to a $5.1 million period over period decline in proceeds from the sale of lease assets combined with a $364 thousand increase in capital improvements to operating lease assets.

The decline in proceeds from sales of lease assets was primarily due to first quarter 2008 proceeds from the sale of approximately 200 railcars to a major railway customer in January 2008, combined with a reduced demand for Company assets as a result of the current weak economic environment; and the increase in capital improvements to operating lease assets represents refurbishing costs associated with the Company’s marine vessel.

 

•

Financing Activities

Net cash used in financing activities decreased by $7.0 million, or 93%, for the first nine months of 2009 as compared to the prior year period primarily due to the timing of payments of distributions to both Other Members and Managing Member. The annual distribution for 2007 was paid during the first quarter of 2008.

In a normal economy, if inflation in the general economy becomes significant, it may affect the Company in as much 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. In addition, if interest rates increase significantly under such circumstances, 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.

The Company currently has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. AFS envisions no such requirements for operating purposes. For detailed information on the Company’s debt obligations, see Note 5, Non-recourse debt, as set forth in Item 1. Financial Statements.

The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1999.

At September 30, 2009, the Company had no commitments to purchase lease assets. Pursuant to the Operating Agreement, the Company will no longer purchase any new lease assets.

 

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Item 4T.

Controls and procedures.

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.

The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, which is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as it is applicable to the Company, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as is applicable to the Company.

 

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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Company’s financial position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

 

Item 3.

Defaults Upon Senior Securities.

None.

 

Item 4.

Submission of Matters to a Vote of Security Holders.

None.

 

Item 5.

Other Information.

None.

 

Item 6.

Exhibits.

Documents filed as a part of this report:

 

1.

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 not applicable, and therefore have been omitted.

 

2.

Other Exhibits

31.1    Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash

31.2    Rule 13a-14(a)/ 15d-14(a) Certification of Paritosh K. Choksi

32.1    Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash

32.2    Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi

 

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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 13, 2009

 

						ATEL CAPITAL EQUIPMENT FUND VIII, LLC (Registrant)
By:		ATEL Financial Services, LLC
		Managing Member of Registrant
						By:		/s/ Dean L. Cash
								Dean L. Cash
								President and Chief Executive Officer of ATEL Financial Services, LLC (Managing Member)
						By:		/s/ Paritosh K. Choksi
								Paritosh K. Choksi
								Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (Managing Member)
						By:		/s/ Samuel Schussler
								Samuel Schussler
								Vice President and Chief Accounting Officer of ATEL Financial Services, LLC (Managing Member)

 

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