Attached files
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EXCEL - IDEA: XBRL DOCUMENT - ATEL CAPITAL EQUIPMENT FUND VIII LLC | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v238426_ex32x1.htm |
EX-31.1 - EXHIBIT 31.1 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v238426_ex31x1.htm |
EX-31.2 - EXHIBIT 31.2 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v238426_ex31x2.htm |
EX-32.2 - EXHIBIT 32.2 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v238426_ex32x2.htm |
Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended September 30, 2011
o | 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)
Registrants 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 o
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 x No o
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 o Accelerated filer o Non-accelerated filer o 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 o No x
The number of Limited Liability Company Units outstanding as of October 31, 2011 was 13,560,188.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
Index
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(in thousands)
(Unaudited)
September 30, 2011 |
December 31, 2010 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents | $ | 3,940 | $ | 1,818 | ||||
Accounts receivable, net of allowance for doubtful accounts of $8 as of September 30, 2011 and $8 as of December 31, 2010 | 844 | 745 | ||||||
Prepaid expenses | 9 | 7 | ||||||
Investments in equipment and leases, net of accumulated depreciation of $34,851 as of September 30, 2011 and $34,471 as of December 31, 2010 | 8,645 | 9,405 | ||||||
Total assets | $ | 13,438 | $ | 11,975 | ||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
Accounts payable and accrued liabilities: |
||||||||
Managing Member | $ | 948 | $ | 902 | ||||
Affiliates | | 2 | ||||||
Other | 277 | 301 | ||||||
Unearned operating lease income | 51 | 105 | ||||||
Total liabilities | 1,276 | 1,310 | ||||||
Commitments and contingencies |
||||||||
Members capital: |
||||||||
Managing Member | | | ||||||
Other Members | 12,162 | 10,665 | ||||||
Total Members capital | 12,162 | 10,665 | ||||||
Total liabilities and Members capital | $ | 13,438 | $ | 11,975 |
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2011 AND 2010
(in thousands except for units and per unit data)
(Unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Leasing activities: |
||||||||||||||||
Operating leases | $ | 1,574 | $ | 1,280 | $ | 4,451 | $ | 4,385 | ||||||||
Direct financing leases | 28 | 33 | 90 | 98 | ||||||||||||
Gain on sales of assets | 31 | 14 | 242 | 19 | ||||||||||||
Other revenue | 13 | 11 | 14 | 17 | ||||||||||||
Total revenues | 1,646 | 1,338 | 4,797 | 4,519 | ||||||||||||
Expenses: |
||||||||||||||||
Depreciation of operating lease assets | 327 | 304 | 1,019 | 989 | ||||||||||||
Interest expense | | | | 7 | ||||||||||||
Asset management fees to Managing Member | 52 | 45 | 144 | 162 | ||||||||||||
Vessel maintenance | 202 | 200 | 545 | 562 | ||||||||||||
Railcar maintenance | 266 | 116 | 564 | 322 | ||||||||||||
Cost reimbursements to Managing Member | | | 679 | 679 | ||||||||||||
Professional fees | 20 | 22 | 85 | 136 | ||||||||||||
Insurance | 14 | 19 | 34 | 58 | ||||||||||||
Provision for doubtful accounts | | | | 3 | ||||||||||||
Taxes on income and franchise fees | 1 | 2 | 4 | (7 | ) | |||||||||||
Other | 66 | 75 | 226 | 297 | ||||||||||||
Total operating expenses | 948 | 783 | 3,300 | 3,208 | ||||||||||||
Net income | $ | 698 | $ | 555 | $ | 1,497 | $ | 1,311 | ||||||||
Net income: |
||||||||||||||||
Managing Member | $ | | $ | | $ | | $ | 44 | ||||||||
Other Members | 698 | 555 | 1,497 | 1,267 | ||||||||||||
$ | 698 | $ | 555 | $ | 1,497 | $ | 1,311 | |||||||||
Net income per Limited Liability Company Unit (Other Members) | $ | 0.05 | $ | 0.04 | $ | 0.11 | $ | 0.09 | ||||||||
Weighted average number of Units outstanding | 13,560,188 | 13,560,188 | 13,560,188 | 13,560,188 |
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2010
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2011
(in thousands except for units and per unit data)
(Unaudited)
Other Members | Managing Member |
Total | ||||||||||||||
Units | Amount | |||||||||||||||
Balance December 31, 2009 | 13,560,188 | $ | 12,091 | $ | | $ | 12,091 | |||||||||
Distributions to Other Members ($0.24 per Unit) | | (3,254 | ) | | (3,254 | ) | ||||||||||
Distributions to Managing Member | | | (264 | ) | (264 | ) | ||||||||||
Net income | | 1,828 | 264 | 2,092 | ||||||||||||
Balance December 31, 2010 | 13,560,188 | 10,665 | | 10,665 | ||||||||||||
Net income | | 1,497 | | 1,497 | ||||||||||||
Balance September 30, 2011 | 13,560,188 | $ | 12,162 | $ | | $ | 12,162 |
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2011 AND 2010
(in thousands)
(Unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating activities: |
||||||||||||||||
Net income | $ | 698 | $ | 555 | $ | 1,497 | $ | 1,311 | ||||||||
Adjustment to reconcile net income to cash provided by operating activities: |
||||||||||||||||
Gain on sales of assets | (31 | ) | (14 | ) | (242 | ) | (19 | ) | ||||||||
Depreciation of operating lease assets | 327 | 304 | 1,019 | 989 | ||||||||||||
Provision for doubtful accounts | | | | 3 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable | 42 | 98 | (99 | ) | 16 | |||||||||||
Prepaid expenses | (8 | ) | (9 | ) | (2 | ) | (2 | ) | ||||||||
Accounts payable, Managing Member | (72 | ) | (115 | ) | 46 | 58 | ||||||||||
Accounts payable, affiliates | | | (2 | ) | 2 | |||||||||||
Accounts payable, other | 106 | (5 | ) | (24 | ) | (204 | ) | |||||||||
Accrued interest payable | | | | (1 | ) | |||||||||||
Unearned operating lease income | (28 | ) | 3 | (54 | ) | (55 | ) | |||||||||
Net cash provided by operating activities | 1,034 | 817 | 2,139 | 2,098 | ||||||||||||
Investing activities: |
||||||||||||||||
Proceeds from sales of lease assets | 57 | 30 | 356 | 121 | ||||||||||||
Principal payments received on direct financing leases | 32 | 23 | 87 | 69 | ||||||||||||
Improvements to equipment on operating leases | | | (460 | ) | | |||||||||||
Net cash provided by (used in) investing activities | 89 | 53 | (17 | ) | 190 | |||||||||||
Financing activities: |
||||||||||||||||
Repayments of non-recourse debt | | | | (398 | ) | |||||||||||
Distributions to Other Members | | | | (542 | ) | |||||||||||
Distributions to Managing Member | | | | (44 | ) | |||||||||||
Net cash used in financing activities | | | | (984 | ) | |||||||||||
Net increase in cash and cash equivalents | 1,123 | 870 | 2,122 | 1,304 | ||||||||||||
Cash and cash equivalents at beginning of period | 2,817 | 2,740 | 1,818 | 2,306 | ||||||||||||
Cash and cash equivalents at end of period | $ | 3,940 | $ | 3,610 | $ | 3,940 | $ | 3,610 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid during the period for taxes | $ | 12 | $ | 2 | $ | 46 | $ | 29 | ||||||||
Cash paid during the period for interest | $ | | $ | | $ | | $ | 8 |
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 and sales activities. The Managing Member or Manager of the Company is ATEL Financial Services, LLC (AFS), a California limited liability company. The Company may continue until December 31, 2019. Each Members 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 Members capital investment and $100 of AFS capital investment. The offering was terminated on November 30, 2000. As of September 30, 2011, 13,560,188 Units remain issued and outstanding.
The Companys principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Companys 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 for services rendered and reimbursements for costs incurred on behalf of the Company (see Note 5). 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, 2011, 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, 2010, filed with the Securities and Exchange Commission.
2. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q as mandated by 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. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.
Note and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after September 30, 2011 up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, or adjustments thereto.
7
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
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 Companys 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 Companys operating revenues are from customers domiciled in North America.
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:
In April 2011, the FASB issued ASU No. 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 clarifies guidance on a creditors evaluation of whether it has granted a concession to a borrower and a creditors evaluation of whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. In addition, an entity should disclose the information required by Accounting Standards Codification paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01, for interim and annual periods beginning on or after June 15, 2011. The amendments in this update were adopted by the Company on July 1, 2011, and for purposes of measuring impairment, were applied retrospectively to January 1, 2011. The Company evaluated the guidance included in 2011-02 and has determined that it does not result in any new troubled debt restructurings that should be reported.
In January 2011, the FASB issued ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. The guidance became effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of this update did not have a material effect on the Companys financial position or results of operations.
8
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Provision for credit losses:
The Companys provision for credit losses are as follows (in thousands):
Accounts Receivable Allowance for Doubtful Accounts |
Valuation Adjustments on Financing Receivables |
Total Allowance for Credit Losses |
||||||||||||||
Finance Leases |
Operating Leases |
Finance Leases |
||||||||||||||
Balance December 31, 2009 | $ | | $ | 4 | $ | | $ | 4 | ||||||||
Provision | | 4 | | 4 | ||||||||||||
Balance December 31, 2010 | | 8 | | 8 | ||||||||||||
Provision | | | | | ||||||||||||
Balance September 30, 2011 | $ | | $ | 8 | $ | | $ | 8 |
Accounts Receivable
Accounts receivable represent the amounts billed under operating and direct financing lease contracts which are currently due to the Company.
Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received. Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease payments outstanding less than 90 days. Based upon managements judgment, such leases may be placed in non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, all payments received are applied only against outstanding principal balances.
Financing Receivables
In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on direct financing leases.
The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the assets expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly.
9
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Provision for credit losses: - (continued)
As of September 30, 2011 and December 31, 2010, the Companys allowance for credit losses (related solely to financing receivables) and its recorded investment in financing receivables were as follows (in thousands):
September 30, 2011 | Finance Leases |
Total | ||||||
Allowance for credit losses: |
||||||||
Ending balance | $ | | $ | | ||||
Ending balance: individually evaluated for impairment | $ | | $ | | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | ||||
Financing receivables: |
||||||||
Ending balance | $ | 294 | $ | 294 | ||||
Ending balance: individually evaluated for impairment | $ | 294 | $ | 294 | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | |
December 31, 2010 | Finance Leases |
Total | ||||||
Allowance for credit losses: |
||||||||
Ending balance | $ | | $ | | ||||
Ending balance: individually evaluated for impairment | $ | | $ | | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | ||||
Financing receivables: |
||||||||
Ending balance | $ | 381 | $ | 381 | ||||
Ending balance: individually evaluated for impairment | $ | 381 | $ | 381 | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | |
The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:
Pass Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moodys or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.
Special Mention Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve managements close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Funds receivable at some future date.
Substandard Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Managers Credit Watch List.
10
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Provision for credit losses: - (continued)
Doubtful Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Managers Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired leases as applicable.
At September 30, 2011 and December 31, 2010, the Companys financing receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):
Finance Leases | ||||||||
September 30, 2011 | December 31, 2010 | |||||||
Pass | $ | 294 | $ | 381 | ||||
Special mention | | | ||||||
Substandard | | | ||||||
Doubtful | | | ||||||
Total | $ | 294 | $ | 381 |
At September 30, 2011 and December 31, 2010, net investment in financing receivables is aged as follows (in thousands):
September 30, 2011 | 30 59 Days Past Due |
60 89 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment>90 Days and Accruing |
|||||||||||||||||||||
Finance leases | $ | 90 | $ | | $ | | $ | 90 | $ | 204 | $ | 294 | $ | |
December 31, 2010 | 30 59 Days Past Due |
60 89 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment>90 Days and Accruing |
|||||||||||||||||||||
Finance leases | $ | 94 | $ | | $ | | $ | 94 | $ | 287 | $ | 381 | $ | |
There were no impaired financing receivables at both September 30, 2011 and December 31, 2010. Likewise, there were no financing receivables placed in non-accrual status as of September 30, 2011 and December 31, 2010.
4. Investment in equipment and leases, net:
The Companys investment in leases consists of the following (in thousands):
Balance December 31, 2010 |
Reclassifications & Additions/ Dispositions |
Depreciation/ Amortization Expense or Amortization of Leases |
Balance September 30, 2011 |
|||||||||||||
Net investment in operating leases | $ | 8,820 | $ | 397 | $ | (1,019 | ) | $ | 8,198 | |||||||
Net investment in direct financing leases | 381 | | (87 | ) | 294 | |||||||||||
Assets held for sale or lease, net | 204 | (51 | ) | | 153 | |||||||||||
Total | $ | 9,405 | $ | 346 | $ | (1,106 | ) | $ | 8,645 |
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. Impairment losses are recorded as an adjustment to the net investment in operating leases. No impairment losses were recorded during the three and nine months ended September 30, 2011 and 2010.
The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Companys equipment was approximately $327 thousand and $304 thousand for the respective three months ended September 30, 2011 and 2010, and was $1.0 million and $989 thousand for the respective nine months ended September 30, 2011 and 2010.
11
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Investment in equipment and leases, net: - (continued)
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, 2010 |
Additions | Reclassifications or Dispositions |
Balance September 30, 2011 |
|||||||||||||
Containers | $ | 20,038 | $ | | $ | (276 | ) | $ | 19,762 | |||||||
Transportation, rail | 16,098 | | 218 | 16,316 | ||||||||||||
Marine vessel | 4,333 | 460 | | 4,793 | ||||||||||||
Other | 640 | | | 640 | ||||||||||||
41,109 | 460 | (58 | ) | 41,511 | ||||||||||||
Less: accumulated depreciation | (32,289 | ) | (1,019 | ) | (5 | ) | (33,313 | ) | ||||||||
Total | $ | 8,820 | $ | (559 | ) | $ | (63 | ) | $ | 8,198 |
The average estimated residual value for assets on operating leases was 10% of the assets original cost at both September 30, 2011 and December 31, 2010.
The Company earns revenues from its containers, marine vessel and certain other assets based on utilization of such assets or through fixed term leases. 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 $658 thousand and $537 thousand for the respective three months ended September 30, 2011 and 2010, and was $1.8 million and $1.7 million for the respective nine months ended September 30, 2011 and 2010.
As of September 30, 2011 and December 31, 2010, the Company had no operating leases in non-accrual status.
Direct financing leases:
As of September 30, 2011, investment in direct financing leases primarily consists of railcars as well as construction and manufacturing equipment. At December 31, 2010, such investment primarily consists of manufacturing equipment.
The components of the Companys investment in direct financing leases as of September 30, 2011 and December 31, 2010 are as follows (in thousands):
September 30, 2011 |
December 31, 2010 |
|||||||
Total minimum lease payments receivable | $ | 311 | $ | 487 | ||||
Estimated residual values of leased equipment (unguaranteed) | 54 | 54 | ||||||
Investment in direct financing leases | 365 | 541 | ||||||
Less unearned income | (71 | ) | (160 | ) | ||||
Net investment in direct financing leases | $ | 294 | $ | 381 |
There were no net investments in direct financing leases in non-accrual status as of September 30, 2011 and December 31, 2010.
12
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Investment in equipment and leases, net: - (continued)
At September 30, 2011, the aggregate amount of future lease payments is as follows (in thousands):
Operating Leases |
Direct Financing Leases |
Total | ||||||||||
Three months ending December 31, 2011 | $ | 891 | $ | 63 | $ | 954 | ||||||
Year ending December 31, 2012 | 1,676 | 200 | 1,876 | |||||||||
2013 | 544 | 48 | 592 | |||||||||
2014 | 287 | | 287 | |||||||||
2015 | 179 | | 179 | |||||||||
2016 | 179 | | 179 | |||||||||
Thereafter | 254 | | 254 | |||||||||
$ | 4,010 | $ | 311 | $ | 4,321 |
5. 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 managed assets, number of investors or contributed capital based upon the type of cost incurred.
During the three and nine months ended September 30, 2011 and 2010, AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Operating Agreement as follows (in thousands):
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Asset management fees to Managing Member | $ | 52 | $ | 45 | $ | 144 | $ | 162 | ||||||||
Cost reimbursements to Managing Member | | | 679 | 679 | ||||||||||||
$ | 52 | $ | 45 | $ | 823 | $ | 841 |
The Funds 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
13
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. Related party transactions: - (continued)
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 $993 thousand and $1.3 million excess reimbursable administrative expenses at September 30, 2011 and December 31, 2010, respectively.
6. Guarantees:
The Company enters into contracts that contain a variety of indemnifications. The Companys 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 Companys 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 Companys 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.
7. Gain contingencies:
ATEL filed a claim on behalf of certain of its Funds for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate $2.8 million for the years 2005 2007 (of which the Companys portion is an approximate $350 thousand). Such amounts are not considered material to any of the Funds in any given year. While the Funds recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. The trial date for this matter has been rescheduled several times, and the suit has recently been assigned to a newly-appointed Federal Judge. The outcome of this claim remains uncertain.
8. Members capital:
As of September 30, 2011 and December 31, 2010, 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).
The Company has the right, exercisable at the Managing Members discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holders capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holders request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Managing Member on terms it determines to be appropriate under given circumstances, in the event that the Managing Member deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. Members capital: - (continued)
As defined in the Operating Agreement, the Companys Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Other Members and 7.5% to AFS. Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Distributions declared | $ | | $ | | $ | | $ | 542 | ||||||||
Weighted average number of Units outstanding | 13,560,188 | 13,560,188 | 13,560,188 | 13,560,188 | ||||||||||||
Weighted average distributions per Unit | $ | | $ | | $ | | $ | 0.04 |
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Statements contained in this Item 2, Managements 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 Companys performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Funds 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, 2011, 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 are paid at the discretion of the Managing Member.
Results of Operations
The three months ended September 30, 2011 versus the three months ended September 30, 2010
The Company had net income of $698 thousand and $555 thousand for the three months ended September 30, 2011 and 2010, respectively. The results for the third quarter of 2011 reflect increases in both total revenues and total operating expenses when compared to the prior year period.
Revenues
Total revenues for the third quarter of 2011 increased by $308 thousand, or 23%, as compared to the prior year period. The net increase in total revenues was largely due to a $294 thousand growth in operating lease revenues.
Operating lease revenues increased primarily as the prior year period rental income was unfavorably impacted by the termination of certain railcar leases in July 2010. Such leases were subsequently renewed during the fourth quarter of 2010. In addition, operating lease revenues increased due to an increase in usage-based rental revenues relative to railcars and containers.
16
Expenses
Total operating expenses for the third quarter of 2011 increased by $165 thousand, or 21%, as compared to the prior year period. The net increase in total operating expenses was primarily due to a $150 thousand increase in railcar maintenance costs and a $23 thousand increase in depreciation expense.
Railcar maintenance cost was higher as a result of a period over period increase in the number of railcars in service; and, depreciation expense increased largely due to capitalized drydock costs associated with the Funds marine vessel offset, in part, by continued run-off of the lease asset portfolio.
The nine months ended September 30, 2011 versus the nine months ended September 30, 2010
The Company had net income of $1.5 million and $1.3 million for the nine months ended September 30, 2011 and 2010, respectively. The results for the first nine months of 2011 reflect increases in total revenues and total operating expenses when compared to the prior year period.
Revenues
Total revenues for the first nine months of 2011 increased by $278 thousand, or 6%, as compared to the prior year period. The growth in total revenues was largely due to increases in gain on sales of assets and in operating lease revenues totaling $223 thousand and $66 thousand, respectively.
The period over period increase in gains recognized on sales of lease assets reflects a higher number and change in the mix of assets sold.
Operating lease revenues increased primarily as the prior year period rental income was unfavorably impacted by the termination of certain railcar leases in July 2010. Such leases were subsequently renewed during the fourth quarter of 2010. In addition, operating lease revenues increased due to an increase in usage-based rental revenues relative to railcars and containers. These were partially offset by the drydock status of the Funds marine vessel during the first quarter of 2011 and continued run-off and sales of lease assets.
Expenses
Total operating expenses for the first nine months of 2011 increased by $92 thousand, or 3%, as compared to the prior year period. The net increase in total operating expenses was primarily due to increases in railcar maintenance costs and depreciation expense offset, in part, by decreases in other expense and professional fees.
The increase in railcar maintenance costs totaled $242 thousand and was largely due to an increase in the number of railcars in service. Depreciation expense increased by $30 thousand largely due to capitalized drydock costs associated with the Funds marine vessel offset, in part, by continued run-off and sales of lease assets.
Partially offsetting the aforementioned increases in expenses were reductions in other expense and professional fees totaling $71 thousand and $51 thousand, respectively. The decrease in other expense was largely attributable to lower railcar storage fees as more railcars were in service during the current year period; and professional fees decreased primarily as a result of decreases in audit, legal and tax preparation fees.
Capital Resources and Liquidity
At September 30, 2011 and December 31, 2010, the Companys cash and cash equivalents totaled $3.9 million and $1.8 million, respectively. 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 Companys success in remarketing or selling the equipment as it comes off rental.
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 Companys leased assets may increase as the costs of similar assets increase. However, the Companys 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
17
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 believes it 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.
Cash Flows
The following table sets forth summary cash flow data (in thousands):
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net cash provided by (used in): |
||||||||||||||||
Operating activities | $ | 1,034 | $ | 817 | $ | 2,139 | $ | 2,098 | ||||||||
Investing activities | 89 | 53 | (17 | ) | 190 | |||||||||||
Financing activities | | | | (984 | ) | |||||||||||
Net increase in cash and cash equivalents | $ | 1,123 | $ | 870 | $ | 2,122 | $ | 1,304 |
The three months ended September 30, 2011 versus the three months ended September 30, 2010
During the third quarters of 2011 and 2010, the Companys primary source of liquidity was cash flow from its portfolio of operating and direct financing lease contracts. In addition, the Company realized proceeds from sales or dispositions of equipment totaling $57 thousand and $30 thousand during the respective three months ended September 30, 2011 and 2010.
During the same periods, cash was primarily used to pay invoices related to management fees and expenses, and other payables.
The nine months ended September 30, 2011 versus the nine months ended September 30, 2010
During the nine months ended September 30, 2011 and 2010, the Companys primary source of liquidity was cash flow from its portfolio of operating and direct financing lease contracts, and proceeds from sales or dispositions of lease equipment. Proceeds from sales or dispositions of lease equipment totaled $356 thousand and $121 thousand for the respective nine month periods ended September 30, 2011 and 2010.
During the same periods, cash was primarily used to pay invoices related to management fees and expenses, and other payables. During the current year period, cash totaling $460 thousand was used to pay for improvements on the Companys marine vessel. During the prior year period, cash was used to pay distributions to both the Other Members and the Managing Member totaling $542 thousand and $44 thousand, respectively, and to fully pay the $398 thousand of outstanding non-recourse debt.
As the Fund is in its liquidation phase, any future financing activity is anticipated to only include distributions to Members.
Distributions
The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1999. During its liquidation phase, the rates and frequency of periodic distributions paid by the Fund are solely at the discretion of the Managing Member.
18
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At September 30, 2011, the Company had no commitments to purchase lease assets. Pursuant to the Operating Agreement, the Company will no longer purchase any new lease assets.
Gain Contingency
ATEL filed a claim on behalf of certain of its Funds for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate $2.8 million for the years 2005 2007 (of which the Companys portion is an approximate $350 thousand). Such amounts are not considered material to any of the Funds in any given year. While the Funds recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. The trial date for this matter has been rescheduled several times, and the suit has recently been assigned to a newly-appointed Federal Judge. The outcome of this claim remains uncertain.
Off-Balance Sheet Transactions
None.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part I, Item 1, Financial Statements (Unaudited).
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Companys critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes to the Companys critical accounting policies since December 31, 2010.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
The Companys Managing Members President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (Management), evaluated the effectiveness of the Companys 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 Companys 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 Members disclosure controls and procedures, as 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 Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Managing Members internal control over financial reporting, as is applicable to the Company.
19
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 Companys 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. [Removed and Reserved].
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
20
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 14, 2011
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)
By: ATEL Financial Services, LLC |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
21