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 March 31, 2012

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 000-51858

ATEL Capital Equipment Fund XI, LLC

(Exact name of registrant as specified in its charter)

California		20-1357935
(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 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 April 30, 2012 was 5,209,307.

DOCUMENTS INCORPORATED BY REFERENCE

None.

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
Index

Part I. Financial Information			3
Item 1. Financial Statements (Unaudited)			3
Balance Sheets, March 31, 2012 and December 31, 2011			3
Statements of Income for the three months ended March 31, 2012 and 2011			4
Statements of Changes in Members’ Capital for the year ended December 31, 2011 and for the three months ended March 31, 2012			5
Statements of Cash Flows for the three months ended March 31, 2012 and 2011			6
Notes to the Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 4. Controls and Procedures			27
Part II. Other Information			28
Item 1. Legal Proceedings			28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 3. Defaults Upon Senior Securities			28
Item 4. [Removed and Reserved]			28
Item 5. Other Information			28
Item 6. Exhibits			28

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
BALANCE SHEETS
  
MARCH 31, 2012 AND DECEMBER 31, 2011
(In Thousands)
(Unaudited)

		March 31, 2012				December 31, 2011
ASSETS
Cash and cash equivalents		$	1,682			$	1,416
Accounts receivable, net of allowance for doubtful accounts of $60 as of March 31, 2012 and $58 as of December 31, 2011			296				411
Notes receivable, net of unearned interest income of $169 and allowance for credit losses of $10 at March 31, 2012 and net of unearned interest income of $191 and allowance for credit losses of $2 at December 31, 2011			1,007				1,095
Investment in securities			221				200
Investments in equipment and leases, net of accumulated depreciation of $27,367 as of March 31, 2012 and $27,956 as of December 31, 2011			14,905				16,144
Prepaid expenses and other assets			7				10
Total assets		$	18,118			$	19,276
LIABILITIES AND MEMBERS’ CAPITAL
Accounts payable and accrued liabilities:
Managing Member		$	115			$	111
Accrued distributions to Other Members			551				551
Other			315				321
Non-recourse debt			5,029				5,542
Unearned operating lease income			174				166
Total liabilities			6,184				6,691
Commitments and contingencies
Members’ capital:
Managing Member			—				—
Other Members			11,934				12,585
Total Members’ capital			11,934				12,585
Total liabilities and Members’ capital		$	18,118			$	19,276

See accompanying notes.

3

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
STATEMENTS OF INCOME
  
FOR THE THREE MONTHS ENDED
MARCH 31, 2012 AND 2011
(In Thousands Except for Units and Per Unit Data)
(Unaudited)

		Three Months Ended March 31,
		2012				2011
Revenues:
Leasing and lending activities:
Operating leases		$	1,656			$	1,852
Direct financing leases			12				27
Interest on notes receivable			22				29
Gain of sales of lease assets and early termination of notes			123				5
Gain on sales or dispositions of securities			—				7
Unrealized gain on securities			53				—
Other			21				23
Total revenues			1,887				1,943
Expenses:
Depreciation of operating lease assets			803				1,301
Asset management fees to Managing Member			88				90
Acquisition expense			12				23
Cost reimbursements to Managing Member			113				120
Provision for credit losses			10				36
Provision for losses on investment in securities			32				55
Amortization of initial direct costs			7				16
Interest expense			80				117
Professional fees			49				58
Outside services			8				8
Other			35				34
Total operating expenses			1,237				1,858
Other income, net			1				—
Net income		$	651			$	85
Net income (loss):
Managing Member		$	97			$	97
Other Members			554				(12	)
		$	651			$	85
Net income (loss) per Limited Liability Company Unit (Other Members)		$	0.11			$	(0.00	)
Weighted average number of Units outstanding			5,209,307				5,209,307

See accompanying notes.

4

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
  
FOR THE YEAR ENDED DECEMBER 31, 2011
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2012
(In Thousands Except for Units and Per Unit Data)
(Unaudited)

		Other Members								Managing Member				Total
		Units				Amount
Balance December 31, 2010			5,209,307			$	16,384			$	—			$	16,384
Distributions to Other Members ($0.93 per Unit)			—				(4,819	)			—				(4,819	)
Distributions to Managing Member			—				—				(391	)			(391	)
Net income			—				1,020				391				1,411
Balance December 31, 2011			5,209,307				12,585				—				12,585
Distributions to Other Members ($0.23 per Unit)			—				(1,205	)			—				(1,205	)
Distributions to Managing Member			—				—				(97	)			(97	)
Net income			—				554				97				651
Balance March 31, 2012			5,209,307			$	11,934			$	—			$	11,934

See accompanying notes.

5

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
STATEMENTS OF CASH FLOWS
  
FOR THE THREE MONTHS ENDED
MARCH 31, 2012 AND 2011
(In Thousands)
(Unaudited)

		Three Months Ended March 31,
		2012				2011
Operating activities:
Net income		$	651			$	85
Adjustment to reconcile net income to cash provided by operating activities:
Gain on sales of lease assets and early termination of notes			(123	)			(5	)
Depreciation of operating lease assets			803				1,301
Amortization of initial direct costs			7				16
Provision for credit losses			10				36
Provision for losses on investment in securities			32				55
Gain on sales or dispositions of securities			—				(7	)
Unrealized gain on securities			(53	)			—
Changes in operating assets and liabilities:
Accounts receivable			113				(137	)
Prepaid expenses and other assets			3				3
Accounts payable, Managing Member			4				(138	)
Accounts payable, other			(6	)			71
Unearned operating lease income			8				126
Net cash provided by operating activities			1,449				1,406
Investing activities:
Proceeds from sales of lease assets and early termination of notes			509				77
Principal payments received on direct financing leases			43				36
Proceeds from sales or dispositions of securities			—				47
Principal payments received on notes receivable			80				85
Net cash provided by investing activities			632				245
Financing activities:
Repayments under non-recourse debt			(513	)			(713	)
Distributions to Other Members			(1,205	)			(1,205	)
Distributions to Managing Member			(97	)			(97	)
Net cash used in financing activities			(1,815	)			(2,015	)
Net increase (decrease) in cash and cash equivalents			266				(364	)
Cash and cash equivalents at beginning of period			1,416				2,992
Cash and cash equivalents at end of period		$	1,682			$	2,628
Supplemental disclosures of cash flow information:
Cash paid during the period for interest		$	82			$	115
Schedule of non-cash transactions:
Distributions payable to Other Members at period-end		$	551			$	551
Distributions payable to Managing Member at period-end		$	45			$	45
Securities acquired through conversion of warrants		$	53			$	—

See accompanying notes.

6

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

ATEL Capital Equipment Fund XI, LLC (the “Company”) was formed under the laws of the State of California on June 25, 2004. The Company was formed for the purpose of acquiring equipment to engage in equipment leasing, lending and sales activities. Also, from time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements. 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, 2025. 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 May 31, 2005, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business (acquiring equipment to engage in equipment leasing, lending and sales activities). As of July 13, 2005, the Company had received subscriptions for 958,274 Units ($9.6 million), thus exceeding the $7.5 million minimum requirement for Pennsylvania, and AFS requested that the remaining funds in escrow (from Pennsylvania investors) be released to the Company. The Company terminated sales of Units effective April 30, 2006. Life-to-date net contributions through June 2010 totaled $52.2 million, consisting of approximately $52.8 million in gross contributions from Other Members purchasing Units under the public offering less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable) of $636 thousand. As of March 31, 2012, 5,209,307 Units were issued and outstanding.

The Company’s principal objectives are 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 ends December 31, 2012, 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 terms of the Operating Agreement, AFS receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 6). 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.

The Company’s 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, 2011, 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 months ended March 31, 2012 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.

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

7

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after March 31, 2012 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.

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 primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.

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.

The primary geographic regions in which the Company seeks leasing opportunities are North America and Europe. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the three months ended March 31, 2012 and 2011 and long-lived assets as of March 31, 2012 and December 31, 2011 (dollars in thousands):

		For The Three Months Ended March 31,
		2012				% of Total				2011				% of Total
Revenue
United States		$	1,759				93	%		$	1,765				91	%
United Kingdom			128				7	%			178				9	%
Total International			128				7	%			178				9	%
Total		$	1,887				100	%		$	1,943				100	%

		As of March 31,								As of December 31,
		2012				% of Total				2011				% of Total
Long-lived assets
United States		$	14,559				98	%		$	15,782				98	%
United Kingdom			346				2	%			362				2	%
Total International			346				2	%			362				2	%
Total		$	14,905				100	%		$	16,144				100	%

Investment in securities:

From time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements.

Purchased securities

Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. During the first quarters of 2012 and 2011, the Company deemed certain investment securities to be impaired and recorded fair value adjustments

8

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

totaling $32 thousand and $55 thousand which reduced the cost basis of the investments at March 31, 2012 and 2011, respectively. An additional $2 thousand adjustment was recorded to reduce the cost basis of an impaired security at June 30, 2011. No additional fair value adjustment was deemed necessary through December 31, 2011.

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried at an estimated fair value, as determined by the Managing Member, on the balance sheet as assets or liabilities. At March 31, 2012 and December 31, 2011, the Managing Member estimated the fair value of the warrants to be nominal in amount. During the first quarter of 2012, the Company recorded an unrealized gain of $53 thousand relative to the conversion of warrants associated with shares of a venture company. During the first quarter of 2011, the Company recognized gains of $7 thousand relative to the net exercise of warrants. There was no such net exercise during the current year quarter.

Foreign currency transactions:

Foreign currency transaction gains and losses are reported in the results of operations as “other income” or “other loss” in the period in which they occur. Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments as the foreign currency transactions risks to date have not been significant. The Company recognized net foreign currency translation gains of $1 thousand for the three months ended March 31, 2012. By comparison, the Company did not record other income or loss on a net basis during the prior year period as its currency gains were fully offset by foreign currency losses of the same amount.

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 May 2011, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in US GAAP. ASU 2011-04 is effective for the first interim or annual reporting period beginning after December 15, 2011 and shall be applied prospectively. The Company adopted the provisions of ASU 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU 2011-04 had no material impact on the Company’s financial position or results of operations.

3. Notes receivable, net:

The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. The terms of the notes receivable are generally up to 120 months and bear interest at rates ranging from 8.42% to 11.58%. The notes are secured by the equipment financed, and mature from 2012 through 2016.

The Company had a note in non-accrual status at March 31, 2012 and December 31, 2011. The note was originally placed in non-accrual status in 2010, at which time, its term was modified to defer the repayment of principal until April 2012 while maintaining interest-only payments at the original rate of 11.58%. As of March 31, 2012, the aforementioned note reflects a principal balance outstanding of $18 thousand. As of the same date, such note was current with respect to its restructured terms. However, the Company deemed it necessary to record an $8 thousand fair value adjustment at March 31, 2012 to reflect the fair value of the non-accrual notes. Such fair value adjustment was in addition to a $2 thousand adjustment previously recorded at September 30, 2011.

9

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Notes receivable, net: - (continued)

The minimum future payments receivable as of March 31, 2012 are as follows (in thousands):

Nine months ending December 31, 2012		$	316
Year ending December 31, 2013			295
2014			221
2015			166
2016			188
			1,186
Less: portion representing unearned interest income			(169	)
			1,017
Less: Reserve for impairment			(10	)
Notes receivable, net		$	1,007

Initial direct costs (“IDC”) amortization expense related to notes receivable and the Company’s operating and direct financing leases for the three months ended March 31, 2012 and 2011 are as follows (in thousands):

		Three Months Ended March 31,
		2012				2011
IDC amortization – notes receivable		$	—			$	1
IDC amortization – lease assets			7				15
Total		$	7			$	16

4. Allowance for credit losses:

The Company’s 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
		Notes Receivable				Finance Leases				Operating Leases				Notes Receivable				Finance Leases
Balance December 31, 2010		$	6			$	—			$	18			$	—			$	—			$	24
(Reversal of provision) provision for credit losses			(6	)			—				40				2				—				36
Balance December 31, 2011			—				—				58				2				—				60
Provision for credit losses			—				—				2				8				—				10
Balance March 31, 2012		$	—			$	—			$	60			$	10			$	—			$	70

10

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

Accounts receivable

Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable 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 borrowers, 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 or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or notes 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, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases contracts and notes receivable 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 notes receivable and direct financing leases.

Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.

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 asset’s 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.

Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.

11

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

As of March 31, 2012 and December 31, 2011, the Company’s allowance for credit losses (related solely to financing receivables) and its recorded investment in financing receivables were as follows (in thousands):

March 31, 2012		Notes Receivable				Finance Leases				Total
Allowance for credit losses:
Ending balance		$	10			$	—			$	10
Ending balance: individually evaluated for impairment		$	10			$	—			$	10
Ending balance: collectively evaluated for impairment		$	—			$	—			$	—
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—			$	—
Financing receivables:
Ending balance		$	1,017			$	198			$	1,215
Ending balance: individually evaluated for impairment		$	1,017			$	198			$	1,215
Ending balance: collectively evaluated for impairment		$	—			$	—			$	—
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—			$	—

December 31, 2011		Notes Receivable				Finance Leases				Total
Allowance for credit losses:
Ending balance		$	2			$	—			$	2
Ending balance: individually evaluated for impairment		$	2			$	—			$	2
Ending balance: collectively evaluated for impairment		$	—			$	—			$	—
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—			$	—
Financing receivables:
Ending balance		$	1,097			$	237			$	1,334
Ending balance: individually evaluated for impairment		$	1,097			$	237			$	1,334
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 Moody’s 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 management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s 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 Manager’s Credit Watch List.

12

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance 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 Manager’s 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 notes and leases as applicable.

At March 31, 2012 and December 31, 2011, the Company’s financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):

		Notes Receivable								Finance Leases
		March 31, 2012				December 31, 2011				March 31, 2012				December 31, 2011
Pass		$	—			$	—			$	158			$	188
Special mention			999				1,097				40				49
Substandard			—				—				—				—
Doubtful			18				—				—				—
Total		$	1,017			$	1,097			$	198			$	237

As of March 31, 2012 and December 31, 2011, the Company’s impaired loans were as follows (in thousands):

		Impaired Loans
March 31, 2012		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded
Notes receivable		$	—			$	—			$	—			$	—			$	—
With an allowance recorded
Notes receivable			18				18				10				19				—
Total		$	18			$	18			$	10			$	19			$	—

		Impaired Loans
December 31, 2011		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
With no related allowance recorded
Notes receivable		$	—			$	—			$	—			$	—			$	—
With an allowance recorded
Notes receivable			20				20				2				20				—
Total		$	20			$	20			$	2			$	20			$	—

13

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

At March 31, 2012 and December 31, 2011, net investment in financing receivables is aged as follows (in thousands):

March 31, 2012		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
Notes receivable		$	—			$	—			$	—			$	—			$	1,017			$	1,017			$	—
Finance leases			1				—				—				1				197				198				—
Total		$	1			$	—			$	—			$	1			$	1,214			$	1,215			$	—

December 31, 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
Notes receivable		$	—			$	—			$	—			$	—			$	1,097			$	1,097			$	—
Finance leases			12				6				41				59				178				237				41
Total		$	12			$	6			$	41			$	59			$	1,275			$	1,334			$	41

As discussed in Note 3, one of the Company’s note receivable continues to be in non-accrual status at March 31, 2012 and was considered impaired relative to its payment terms. While, as of the same date, the note was current with respect to its restructured terms, management has determined that an additional $8 thousand adjustment was necessary to reflect fair value. The Company had previously recorded a $2 thousand fair value adjustment to reduce the cost basis of the aforementioned impaired note at September 30, 2011. No incremental adjustment was necessary at December 31, 2011.

As of March 31, 2012, there were no accounts receivable related to net investments in financing receivables placed in non-accrual status. As of December 31, 2011, certain investments in financing receivables with related accounts receivable past due more than 90 days are still on an accrual basis based on management’s assessment of the collectability of such receivables. However, these accounts receivable are fully reserved and included in the allowance for doubtful accounts presented above.

5. Investment in equipment and leases, net:

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

		Balance December 31, 2011				Reclassifications & Additions/ Dispositions				Depreciation/ Amortization Expense or Amortization of Leases				Balance March 31, 2012
Net investment in operating leases		$	15,578			$	(455	)		$	(803	)		$	14,320
Net investment in direct financing leases			237				4				(43	)			198
Assets held for sale or lease, net			287				65				—				352
Initial direct costs, net of accumulated amortization of $128 at March 31, 2012 and $137 at December 31, 2011			42				—				(7	)			35
Total		$	16,144			$	(386	)		$	(853	)		$	14,905

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. The Company had no impairment losses during each of the three months ended March 31, 2012 and 2011.

The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. Depreciation expense on the Company’s equipment was approximately $803 thousand and $1.3 million for the respective three months ended March 31, 2012 and 2011.

14

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

All of the leased property was acquired during the years 2005 through 2011.

Operating leases:

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

		Balance December 31, 2011				Additions				Reclassifications or Dispositions				Balance March 31, 2012
Transportation, rail		$	11,723			$	—			$	(21	)		$	11,702
Materials handling			11,374				—				(1,716	)			9,658
Transportation, other			9,656				—				—				9,656
Mining			2,893				—				—				2,893
Construction			2,241				—				—				2,241
Aviation			1,658				—				—				1,658
Marine vessels			1,415				—				—				1,415
Manufacturing			953				—				—				953
Logging and lumber			781				—				(376	)			405
Other			—				—				4				4
			42,694				—				(2,109	)			40,585
Less accumulated depreciation			(27,116	)			(803	)			1,654				(26,265	)
Total		$	15,578			$	(803	)		$	(455	)		$	14,320

The average estimated residual value for assets on operating leases was 21% of the assets’ original cost at both March 31, 2012 and December 31, 2011.

There were no operating lease contracts placed in non-accrual status at March 31, 2012 and December 31, 2011. As of the same dates, the Company has certain other leases that have related accounts receivables aged 90 days or more that have not been placed on non-accrual status. In accordance with Company policy, such receivables are fully reserved. Management continues to closely monitor these leases for any actual change in collectability status and indication of necessary valuation adjustments.

Direct financing leases:

As of March 31, 2012 and December 31, 2011, investment in direct financing leases primarily consists of materials handling, furniture and fixtures, and research equipment. The components of the Company’s investment in direct financing leases as of March 31, 2012 and December 31, 2011 are as follows (in thousands):

		March 31, 2012				December 31, 2011
Total minimum lease payments receivable		$	205			$	261
Estimated residual values of leased equipment (unguaranteed)			42				46
Investment in direct financing leases			247				307
Less unearned income			(49	)			(70	)
Net investment in direct financing leases		$	198			$	237

There were no investments in direct financing lease assets in non-accrual status at March 31, 2012 and December 31, 2011.

15

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

At March 31, 2012, the aggregate amounts of future minimum lease payments to be received are as follows (in thousands):

		Operating Leases				Direct Financing Leases				Total
Nine months ending December 31, 2012		$	2,892			$	139			$	3,031
Year ending December 31, 2013			2,678				66				2,744
2014			1,823				—				1,823
2015			835				—				835
2016			158				—				158
2017			158				—				158
Thereafter			79				—				79
		$	8,623			$	205			$	8,828

6. 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 in providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, 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 and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; and investor relations, communications services 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.

The Operating Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or 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 of the cumulative limit. As of March 31, 2012, the Company has not exceeded the annual and/or cumulative limitations discussed above.

AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Operating Agreement as follows during each of the three months ended March 31, 2012 and 2011 (in thousands):

		Three Months Ended March 31,
		2012				2011
Costs reimbursed to Managing Member and/or affiliates		$	113			$	120
Asset management fees to Managing Member and/or affiliates			88				90
Acquisition and initial direct costs paid to Managing Member			12				23
		$	213			$	233

16

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Non-recourse debt:

At March 31, 2012, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at fixed rates ranging from 4.33% to 5.95%. The notes are secured by assignments of lease payments and pledges of assets. At March 31, 2012, gross lease rentals totaled approximately $5.4 million over the remaining lease terms; and the carrying value of the pledged assets is approximately $7.8 million. The notes mature from 2012 through 2015.

The non-recourse debt does not contain any material financial covenants. The debt is secured by liens granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have 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 the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company’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 such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.

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

		Principal				Interest				Total
Nine months ending December 31, 2012		$	1,377			$	175			$	1,552
Year ending December 31, 2013			1,700				155				1,855
2014			1,313				73				1,386
2015			639				17				656
		$	5,029			$	420			$	5,449

8. Borrowing facilities:

The Company participates with AFS and certain of its affiliates in a revolving credit facility (the “Credit Facility”) comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate with a syndicate of financial institutions which Credit Facility includes certain financial covenants. The Credit Facility is for an amount up to $75 million and expires in June 2012. Negotiations are currently in process of extending the facility at $60 million through June 2013. The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility.

17

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

8. Borrowing facilities: - (continued)

As of March 31, 2012 and December 31, 2011, borrowings under the facility were as follows (in thousands):

		March 31, 2012				December 31, 2011
Total available under the financing arrangement		$	75,000			$	75,000
Amount borrowed by the Company under the acquisition facility			—				—
Amounts borrowed by affiliated partnerships and Limited Liability Companies under the venture, acquisition and warehouse facilities			—				(7,476	)
Total remaining available under the venture, acquisition and warehouse facilities		$	75,000			$	67,524

The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of March 31, 2012, the aggregate amount of the Credit Facility is potentially available to the Company, subject to certain sub-facility and borrowing-base limitations. However, as amounts are drawn on the Credit Facility by each of the Company and the affiliates who are borrowers under the Credit Facility, the amount remaining available to all borrowers to draw under the Credit Facility is reduced. As the Warehousing Facility is a short term bridge facility, any amounts borrowed under the Warehousing Facility, and then repaid by the affiliated borrowers (including the Company) upon allocation of an acquisition to a specific purchaser, become available under the Warehouse Facility for further short term borrowing.

As of March 31, 2012, the Company’s Tangible Net Worth requirement under the Credit Facility was $10 million, the permitted maximum leverage ratio was not to exceed 1.25 to 1, and the required minimum interest coverage ratio was not to be less than 2 to 1. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and interest coverage ratio, as calculated per the Credit Facility agreement of $11.9 million, 0.42 to 1, and 21.33 to 1, respectively, as of March 31, 2012. As such, as of March 31, 2012, the Company was in compliance with all material financial covenants, and with all other material conditions of the Credit Facility. The Company does not anticipate any covenant violations nor does it anticipate that any of these covenants will restrict its operations or its ability to procure additional financing.

Fee and interest terms

The interest rate on the Credit Facility is based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the bank’s Prime rate, which re-prices daily. Principal amounts of loans made under the Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility. At both March 31, 2012 and December 31, 2011, the Company had no outstanding borrowings under the acquisition facility.

Warehouse facility

To hold the assets under the Warehousing Facility prior to allocation to specific investor programs, a Warehousing Trust has been entered into by the Company, AFS, ALC, and certain of the affiliated partnerships and limited liability companies. The Warehousing Trust is used by the Warehouse Facility borrowers to acquire and hold, on a short-term basis, certain lease transactions that meet the investment objectives of each of such entities. Each of the leasing programs sponsored by AFS and ALC currently in its acquisition stage is a pro rata participant in the Warehousing Trust, as described below. When a program no longer has a need for short term financing provided by the Warehousing Facility, it is removed from participation, and as new leasing investment entities are formed by AFS and ALC and commence their acquisition stages, these new entities are added.

As of March 31, 2012, the investment program participants were ATEL Capital Equipment Fund X, LLC, the Company, ATEL 12, LLC and ATEL 14, LLC. Pursuant to the Warehousing Trust, the benefit of the lease transaction assets, and the corresponding liabilities under the Warehouse Facility, inure to each of such entities based upon each entity’s pro-rata share in the Warehousing Trust estate. The “pro-rata share” is calculated as a ratio of the net worth of each entity over the aggregate net worth of all entities benefiting from the Warehousing Trust estate, excepting that the trustees, AFS and ALC, are both jointly and severally liable for the pro rata portion of the obligations of each of the affiliated partnerships and limited liability companies participating under the Warehouse Facility. Transactions are

18

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

8. Borrowing facilities: - (continued)

financed through this Warehouse Facility only until the transactions are allocated to a specific program for purchase or are otherwise disposed by AFS and ALC. When a determination is made to allocate the transaction to a specific program for purchase by the program, the purchaser repays the debt associated with the asset, either with cash or by means of proceeds of a draw under the Acquisition Facility, and the asset is removed from the Warehouse Facility collateral, and ownership of the asset and any debt obligation associated with the asset are assumed solely by the purchasing entity.

As of March 31, 2012, there were no borrowings under the Warehouse Facility. As of December 31, 2011, borrowings of $5.6 million were outstanding under such facility. The Company’s maximum contingent obligation on the outstanding warehouse balances at December 31, 2011 was approximately $590 thousand.

9. Commitments:

At March 31, 2012, the Company had no commitments to either purchase lease assets or fund loans.

10. 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.

11. Members’ capital:

A total of 5,209,307 Units were issued and outstanding as of March 31, 2012 and December 31, 2011. The Fund was authorized to issue up to 15,000,000 Units. The Company terminated sales of Units effective April 30, 2006.

The Company has the right, exercisable in the Manager’s 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 holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s 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 Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager 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.

Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):

		Three Months Ended March 31,
		2012				2011
Distributions		$	1,205			$	1,205
Weighted average number of Units outstanding			5,209,307				5,209,307
Weighted average distributions per Unit		$	0.23			$	0.23

19

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements:

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, generally on a national exchange.

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 March 31, 2012 and December 31, 2011, the Company had no assets or liabilities that require measurement at fair value on a recurring basis. During the first quarter of 2012, the Company recorded non-recurring adjustments to reflect the fair value of impaired notes receivable and investment securities at March 31, 2012. During the first three quarters of 2011, the Company recorded non-recurring adjustments to impaired notes receivable and investment securities. Amounts at December 31, 2011 reflect the fair value of the then existing impaired assets.

The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.

Such fair value adjustments utilized the following methodology:

Impaired notes receivable

The fair value of the Company’s notes receivable is estimated using either third party appraisals of collateral or discounted cash flow analyses based upon current market rates for similar types of lending arrangements, with adjustments for impaired loans as deemed necessary. At March 31, 2012, the Company recorded an additional $8 thousand fair value adjustment which further reduced the cost basis of an impaired note. The Company originally deemed such note impaired in 2011 and had previously recorded a $2 thousand non-recurring adjustment at September 30, 2011. The adjustments were based upon an independent appraisal of the underlying collateral. No additional adjustment was deemed necessary at December 31, 2011. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired notes receivable was classified within Level 3 of the valuation hierarchy. Such valuation utilized a market approach technique and used inputs from third party appraisers that utilize current market transactions as adjusted for certain factors specific to the underlying collateral.

Impaired investment securities

The Company’s investment securities are not registered for public sale and are carried at cost. The investment securities are adjusted for impairment, if any, based upon factors which include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. During the three months ended March 31, 2012, the Company recorded a $32 thousand non-recurring fair value adjustment which reduced the cost basis of an investment security as of March 31, 2012. The adjustment was based on an approximate 66% reduction in valuation as determined by the cash burn rate of the investee, current liquidity, and potential necessity for additional capital infusion by other venture investors.

20

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

The Company had no fair value adjustments relative to impaired investment securities as of December 31, 2011. During the first three quarters of 2011, the Company had recorded fair value adjustments of $2 thousand and $55 thousand which reduced the cost basis of investments deemed impaired at June 30, 2011 and March 31, 2011, respectively. The non-recurring fair value adjustment at June 30, 2011 was based on an approximate 25% reduction in valuation based on the expected value of shares of the venture company as contemplated in its merger agreement terms; and, the non-recurring fair value adjustment at March 31, 2011 was based on an approximate 87% reduction in valuation as determined by the cash burn rate of the investee, current liquidity, and potential necessity for additional capital infusion by other venture investors.

Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair values of the impaired investment securities are classified within Level 3 of the valuation hierarchy at both measurement periods due to the significant inputs that are unobservable in the market.

The following tables presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at March 31, 2012 and December 31, 2011 (in thousands):

		March 31, 2012				Level 1 Estimated Fair Value				Level 2 Estimated Fair Value				Level 3 Estimated Fair Value
Assets measured at fair value on a non-recurring basis
Impaired notes receivable, net		$	8			$	—			$	—			$	8
Impaired investment securities			32				—				—				32

		December 31, 2011				Level 1 Estimated Fair Value				Level 2 Estimated Fair Value				Level 3 Estimated Fair Value
Assets measured at fair value on a non-recurring basis
Impaired notes receivable, net		$	18			$	—			$	—			$	18
Impaired investment securities			15				—				—				15

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.

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. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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.

Notes receivable

The fair value of the Company’s notes receivable is estimated using either third party appraisals of collateral or discounted cash flow analyses based upon current market rates for similar types of lending arrangements, with adjustments for impaired loans as deemed necessary.

21

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

Investment in securities

The Company’s investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.

Non-recourse debt

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

Commitments and Contingencies

Management has determined that no recognition for the fair value of the Company’s loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Company’s credit requirements at the time of funding.

The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.

The following table presents a summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company’s balance sheet at March 31, 2012 and December 31, 2011 (in thousands):

		Fair Value Measurements at March 31, 2012
		Carrying Amount				Level 1				Level 2				Level 3				Total
Financial assets:
Cash and cash equivalents		$	1,682			$	1,682			$	—			$	—			$	1,682
Notes receivable, net			1,007				—				—				1,007				1,007
Investment in securities			221				—				—				221				221
Financial liabilities:
Non-recourse debt			5,029				—				—				5,266				5,266

		December 31, 2011
		Carrying Amount				Estimated Fair Value
Financial assets:
Cash and cash equivalents		$	1,416			$	1,416
Notes receivable, net			1,095				1,095
Investment in securities			200				200
Financial liabilities:
Non-recourse debt			5,542				5,825

22

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 investment and reinvestment, 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 Company’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 market 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 XI, LLC (the “Company”) is a California limited liability company that was formed in June 2004 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to generate revenues from equipment leasing, lending 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 April 2006. During 2006, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Company has 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. Throughout the Reinvestment Period, which ends December 31, 2012, the Company anticipates continued reinvestment of cash flow in excess of minimum distributions and other obligations. The Company is governed by its Limited Liability Company Operating Agreement (“Operating Agreement”), as amended.

The Company may continue until December 31, 2025. Periodic distributions are paid at the discretion of the Managing Member.

Results of Operations

The three months ended March 31, 2012 versus the three months ended March 31, 2011

The Company had net income of $651 thousand and $85 thousand for the three months ended March 31, 2012 and 2011, respectively. Results for the first quarter of 2012 reflect a decrease in total operating expenses offset, in part, by a reduction in total revenues when compared with results for the prior year period.

Revenues

Total revenues for the first quarter of 2012 declined by $56 thousand, or 3%, as compared to the prior year period. The net reduction in total revenues was largely attributable to decreases in revenues from both operating and direct financing leases offset, in part, by increases in gain on sales of lease assets and early termination of notes, and in unrealized gain on investment securities.

Total operating lease revenues declined by $196 thousand primarily as a result of continued run-off and sales of lease assets. Likewise, direct financing lease revenues was reduced by $15 thousand largely due to continued run-off of the portfolio.

Partially offsetting the aforementioned decreases in revenue was a $118 thousand increase in gain on sales of lease assets and early termination of notes. Such increase was largely due to a period over period increase in volume and a change in the mix of assets sold. In addition, the Company recorded a $53 thousand unrealized gain relative to the conversion of warrants associated with shares of a venture company.

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Expenses

Total expenses for the first quarter of 2012 decreased by $621 thousand, or 33%, as compared to the prior year period. The net reduction in total expenses was primarily due to decreases in depreciation expense and interest expense.

Depreciation expense decreased by $498 thousand, or 38%, largely due to run-off and sales of lease assets; and, interest expense was reduced by $37 thousand mainly due to a $2.3 million decline in outstanding borrowings since March 31, 2011.

Capital Resources and Liquidity

At March 31, 2012 and December 31, 2011, the Company’s cash and cash equivalents totaled $1.7 million and $1.4 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

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

Throughout the Reinvestment Period (as defined in the Operating Agreement), the Company anticipates reinvesting a portion of lease payments from assets owned, and/or payments received on notes receivable, in new leasing or financing transactions. Such reinvestment will occur only after the payment of all obligations, including debt service (both principal and interest), the payment of management fees to AFS and providing for cash distributions to the Members.

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 and notes would not increase as such rates are generally fixed for the terms of the leases and notes without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the rates that the Company can obtain on future lease or financing transactions will be expected to increase as the cost of capital is a significant factor in the pricing of leases and investments in notes receivable. Leases and notes 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 March 31,
		2012				2011
Net cash provided by (used in):
Operating activities		$	1,449			$	1,406
Investing activities			632				245
Financing activities			(1,815	)			(2,015	)
Net increase (decrease) in cash and cash equivalents		$	266			$	(364	)

The three months ended March 31, 2012 versus the three months ended March 31, 2011

During the three months ended March 31, 2012 and 2011, the Company’s primary sources of liquidity were cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. In addition, the Company also realized $509 thousand and $124 thousand of cash flows from the sale or disposition of equipment and early termination of certain notes, and the disposition of investment securities.

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During the same periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling a combined $1.3 million for each of the respective three-month periods ended March 31, 2012 and 2011. In addition, cash was also used to partially pay down $513 thousand and $713 thousand of debt during the respective three months ended March 31, 2012 and 2011; and, to pay invoices related to other payables.

Revolving credit facility

The Company participates with AFS and certain of its affiliates in a revolving credit facility (the “Credit Facility”) comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions.

Compliance with covenants

The Credit Facility includes certain financial and non-financial covenants applicable to each borrower, including the Company. Such covenants include covenants typically found in credit facilities of the size and nature of the Credit Facility, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company and affiliates were in compliance with all covenants under the Credit Facility as of March 31, 2012. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below.

Material financial covenants

Under the Credit Facility, the Company is required to maintain a specific tangible net worth, to comply with a leverage ratio and an interest coverage ratio, and to comply with other terms expressed in the Credit Facility, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies.

The material financial covenants are summarized as follows:

Minimum Tangible Net Worth: $10 million
Leverage Ratio (leverage to Tangible Net Worth): Not to exceed 1.25 to 1
Collateral Value: Collateral value under the Warehouse Facility must be no less than the outstanding
borrowings under that facility.
EBITDA to Interest Ratio: Not to be less than 2 to 1 for the four fiscal quarters just ended.

“EBITDA” is defined under the Credit Facility as, for the relevant period of time (1) gross revenues (all payments from leases and notes receivable) for such period minus (2) expenses deducted in determining net income for such period plus (3) to the extent deducted in determining net income for such period (a) provision for income taxes and (b) interest expense, and (c) depreciation, amortization and other non-cash charges. Extraordinary items and gains or losses on (and proceeds from) sales or dispositions of assets outside of the ordinary course of business are excluded in the calculation of EBITDA. “Tangible Net Worth” is defined as, as of the date of determination, (i) the net worth of the Company, after deducting therefrom (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under GAAP, (U.S Generally Accepted Accounting Principles) and after certain other adjustments permitted under the agreements.

The financial covenants referred to above are applicable to the Company only to the extent that the Company has borrowings outstanding under the Credit Facility. As of March 31, 2012, the Company’s Tangible Net Worth requirement under the Credit Facility was $10 million, the permitted maximum leverage ratio was 1.25 to 1, and the required minimum interest coverage ratio (EBITDA/interest expense) was 2 to 1. The Company was in compliance with each of these financial covenants with a minimum Tangible Net Worth, leverage ratio and (EBITDA) interest coverage ratio, as calculated per the Credit Facility agreement of $11.9 million, 0.42 to 1, and 21.33 to 1, respectively, as of March 31, 2012. As such, as of March 31, 2012, the Company was in compliance with all such material financial covenants.

Reconciliation to GAAP of EBITDA

For purposes of compliance with the Credit Facility covenants, the Company uses a financial calculation of EBITDA, as defined therein, which is a non-GAAP financial performance measure. The EBITDA is utilized by the Company to calculate its debt covenant ratios.

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The following is a reconciliation of net income to EBITDA for the three months ended March 31, 2012 (in thousands):

Net income – GAAP basis		$	651
Interest expense			80
Depreciation and amortization			803
Amortization of initial direct costs			7
Provision for credit losses			10
Provision for losses on investment securities			32
Principal payments received on direct finance leases			43
Principal payments received on notes receivable			80
EBITDA (for Credit Facility financial covenant calculation only)		$	1,706

Events of default, cross-defaults, recourse and security

The terms of the Credit Facility include standard events of default by the Company which, if not cured within applicable grace periods, could give lenders remedies against the Company, including the acceleration of all outstanding borrowings and a demand for repayment in advance of their stated maturity. If a breach of any material term of the Credit Facility should occur, the lenders may, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the facility, or by operation of law. The lenders also retain the discretion to waive a violation of any covenant at the Company’s request.

The Company is currently in compliance with its obligations under the Credit Facility. In the event of a technical default (e.g., the failure to timely file a required report, or a one-time breach of a financial covenant), the Company believes it has ample time to request and be granted a waiver by the lenders, or, alternatively, cure the default under the existing provisions of its debt agreements, including, if necessary, arranging for additional capital from alternate sources to satisfy outstanding obligations.

The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility.

The Acquisition Facility is generally recourse solely to the Company, and is not cross-defaulted to any other obligations of affiliated companies under the Credit Facility, except as described in this paragraph. The Credit Facility is cross-defaulted to a default in the payment of any debt (other than non-recourse debt) or any other agreement or condition beyond the period of grace (not exceeding 30 days), the effect of which would entitle the lender under such agreement to accelerate the obligations prior to their stated maturity in an individual or aggregate principal amount in excess of 15% of the Company’s consolidated Tangible Net Worth. Also, a bankruptcy of AFS will trigger a default for the Company under the Credit Facility.

Non-Recourse Long-Term Debt

As of March 31, 2012, the Company had non-recourse long-term debt totaling $5.0 million. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items.

For detailed information on the Company’s debt obligations, see Notes 7 and 8 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).

Distributions

The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of June 2005. Such distributions have been consistently made through March 31, 2012.

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Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At March 31, 2012, the Company had no commitments to purchase lease assets or fund loans.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

Information regarding relevant 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 Company’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes to the Company’s critical accounting policies since December 31, 2011.

Item 4. 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 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 March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it 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.

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:

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.

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: May 10, 2012

ATEL CAPITAL EQUIPMENT FUND XI, 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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