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EX-31.2 - EXHIBIT 31.2 - ATEL CAPITAL EQUIPMENT FUND VIII LLCv392934_ex31x2.htm
EX-31.1 - EXHIBIT 31.1 - ATEL CAPITAL EQUIPMENT FUND VIII LLCv392934_ex31x1.htm
EX-32.1 - EXHIBIT 32.1 - ATEL CAPITAL EQUIPMENT FUND VIII LLCv392934_ex32x1.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, 2014

 
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.)

The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(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 October 31, 2014 was 13,560,188.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VIII, LLC
 
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, September 30, 2014 and December 31, 2013     3  
Statements of Income for the three and nine months ended September 30, 2014 and 2013     4  
Statements of Changes in Members’ Capital for the year ended December 31, 2013 and for the nine months ended September 30, 2014     5  
Statements of Cash Flows for the three and nine months ended September 30, 2014 and 2013     6  
Notes to the Financial Statements      7  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    14  

Item 4.

Controls and Procedures

    18  

Part II.

Other Information

    19  

Item 1.

Legal Proceedings

    19  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    19  

Item 3.

Defaults Upon Senior Securities

    19  

Item 4.

Mine Safety Disclosures

    19  

Item 5.

Other Information

    19  

Item 6.

Exhibits

    19  

2


 
 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND VIII, LLC
  
BALANCE SHEETS

SEPTEMBER 30, 2014 AND DECEMBER 31, 2013
(In Thousands)

   
  September 30,
2014
  December 31,
2013
     (Unaudited)  
ASSETS
                 
Cash and cash equivalents   $     3,794     $     1,641  
Accounts receivable, net of allowance for doubtful accounts of $0 as of September 30, 2014 and $3 as of December 31, 2013     537       574  
Prepaid expenses and other assets     21       19  
Investments in equipment and leases, net of accumulated depreciation of $28,878 as of September 30, 2014 and $31,907 as of December 31, 2013     4,655       5,521  
Total assets   $ 9,007     $ 7,755  
LIABILITIES AND MEMBERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 17     $ 369  
Other     200       99  
Unearned operating lease income     51       74  
Total liabilities     268       542  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     8,739       7,213  
Total Members’ capital     8,739       7,213  
Total liabilities and Members’ capital   $ 9,007     $ 7,755  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VIII, LLC
 
STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2014 AND 2013
(In Thousands Except for Units and Per Unit Data)
(Unaudited)

       
  Three Months Ended September 30,   Nine Months Ended
September 30,
     2014   2013   2014   2013
Revenues:
                                   
Leasing activities:
                                   
Operating leases   $ 1,013     $ 888     $ 2,649     $ 3,030  
Gain on sales of assets     54       131       235       1,690  
Interest     1             1        
Other revenue     3       67       3       175  
Total revenues     1,071       1,086       2,888       4,895  
Expenses:
                                   
Depreciation of operating lease assets     104       154       362       530  
Asset management fees to Managing
Member
    25       25       68       86  
Vessel maintenance                       107  
Railcar maintenance     90       101       270       288  
Cost reimbursements to Managing Member     59       77       186       229  
Other management fees     28       22       74       72  
Railcar storage fees     13       25       83       62  
Professional fees     36       27       150       108  
Insurance     5       13       31       12  
Provision for (reversal of) credit losses           3       (3 )      (7 ) 
Taxes on income and franchise fees                 2       26  
Postage           7       5       13  
Printing and photocopying           3       11       11  
Freight and shipping     7       2       54       14  
Other     24       30       69       80  
Total expenses     391       489       1,362       1,631  
Net income   $ 680     $ 597     $ 1,526     $ 3,264  
Net income:
                                   
Managing Member   $     $     $     $  
Other Members     680       597       1,526       3,264  
     $ 680     $ 597     $ 1,526     $ 3,264  
Net income per Limited Liability Company Unit (Other Members)   $ 0.05     $ 0.04     $ 0.11     $ 0.24  
Weighted average number of Units outstanding     13,560,188       13,560,188       13,560,188       13,560,188  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VIII, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2013
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2014
(In Thousands Except for Units and Per Unit Data)

       
  Other Members   Managing
Member
  Total
  Units   Amount
Balance December 31, 2012     13,560,188     $    7,292     $      —     $    7,292  
Distributions to Other Members ($0.25 per Unit)           (3,390 )            (3,390 ) 
Distributions to Managing Member                 (275 )      (275 ) 
Net income           3,311       275       3,586  
Balance December 31, 2013     13,560,188       7,213             7,213  
Net income           1,526             1,526  
Balance September 30, 2014 (Unaudited)     13,560,188     $ 8,739     $     $ 8,739  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND VIII, LLC
 
STATEMENTS OF CASH FLOWS

FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2014 AND 2013
(In Thousands)
(Unaudited)

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2014   2013   2014   2013
Operating activities:
                                   
Net income   $     680     $     597     $     1,526     $     3,264  
Adjustment to reconcile net income to cash provided by operating activities:
                                   
Gain on sales of assets     (54 )      (131 )      (235 )      (1,690 ) 
Depreciation of operating lease assets     104       154       362       530  
Provision for (reversal of) credit losses           3       (3 )      (7 ) 
Changes in operating assets and liabilities:
                                   
Accounts receivable     (16 )      70       40       173  
Prepaid expenses and other assets     (7 )      (9 )      (2 )      (4 ) 
Accounts payable, Managing Member     (6 )      12       (352 )      (452 ) 
Accounts payable, other     (21 )      18       (6 )      (68 ) 
Unearned operating lease income     26       24       (23 )      (16 ) 
Net cash provided by operating activities     706       738       1,307       1,730  
Investing activities:
                                   
Proceeds from sales of lease assets     143       384       846       2,144  
Principal payments received on direct financing leases                       48  
Net cash provided by investing activities     143       384       846       2,192  
Financing activities:
                                   
Net cash provided by financing activities                        
                                      
Net increase in cash and cash equivalents     849       1,122       2,153       3,922  
Cash and cash equivalents at beginning of period     2,945       3,316       1,641       516  
Cash and cash equivalents at end of period   $ 3,794     $ 4,438     $ 3,794     $ 4,438  
Supplemental disclosures of cash flow information:
                                   
Cash paid during the period for taxes   $     $     $ 15     $ 17  
Improvements to equipment on operating leases   $ 107     $     $ 107     $  

See accompanying notes.

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TABLE OF CONTENTS

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” or the “Fund”) 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 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, 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 (acquiring equipment to engage in equipment leasing and sales activities). Gross contributions in the amount of $135.7 million (13,570,188 units) were received as of November 30, 2000, inclusive of $500 of initial Member’s capital investment and $100 of AFS’ capital investment. The offering was terminated on November 30, 2000. As of September 30, 2014, 13,560,188 Units remain issued and outstanding.

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

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

As of September 30, 2014, 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, 2013, 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, 2014 are not necessarily indicative of the results to be expected for the full year.

Certain prior period amounts may 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.

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TABLE OF CONTENTS

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

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

In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after September 30, 2014, up until the issuance of the financial statements. No events were noted which would require additional 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 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.

Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with ASC 840-20-35-3, over the periods of the lease terms contained in each asset’s respective lease contract to the estimated residual value at the end of the lease contract. All lease assets are purchased only concurrent with the execution of a lease commitment by the lessee. Thus, the original depreciation period corresponds with the term of the original lease. Once the term of an original lease contract is completed, the subject property is typically sold to the existing user, re-leased to the existing user, or, when off-lease, is held for sale. Assets which are re-leased continue to be depreciated using the terms of the new lease agreements and the estimated residual values at the end of the new lease terms, adjusted downward as necessary. Assets classified as held-for-sale are carried at the lower of carrying amount, or the fair value less cost to sell (ASC 360-10-35-43).

The Company does not use the equipment held in its portfolio, but holds it solely for lease and ultimate sale. In the course of marketing equipment that has come off-lease, management may determine at some point that re-leasing the assets may provide a superior return for investors and would then execute another lease. Upon entering into a new lease contract, management will estimate the residual value once again and resume depreciation. If, and when, the Company, at any time, determines that depreciation in value may have occurred with respect to an asset held-for-sale, the Company would review the value to determine whether a material reduction in value had occurred and recognize any appropriate impairment. All lease assets, including off-lease assets, are subject to the Company’s quarterly impairment analysis, as described in Note 3. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms vary as to the type of equipment subject to the leases; the needs of the lessees and the terms to be negotiated, but initial leases were generally from 24 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Operating leases 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 considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on 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 lease payments is probable. Until such time, revenues are recognized on a cash basis.

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TABLE OF CONTENTS

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

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

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 and the associated expenses are recorded when earned and/or incurred. From time to time, the Company incurs “drydocking” costs on its vessel. Drydocking costs include labor and material costs related to refurbishing, overhauling and/or replacing engine and other major mechanical components of the vessel, hull maintenance and other repairs that bring the vessel into seaworthy compliance with U.S. marine codes in order to have it certified as available for charter. Such drydocking costs are capitalized and depreciated over the period between scheduled drydockings, which generally occur every 24 to 30 months. The Company’s marine vessel was last placed in drydock for scheduled maintenance during 2011.

Segment reporting:

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

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

The primary geographic region in which the Company sought leasing opportunities was North America. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the nine months ended September 30, 2014 and 2013 and long-lived tangible assets as of September 30, 2014 and December 31, 2013 (dollars in thousands):

       
  For The Nine Months Ended September 30,
     2014   % of Total   2013   % of Total
Revenue
                                   
United States   $    2,888           100 %    $    4,821          98 % 
Canada           0 %      74       2 % 
Total International           0 %      74       2 % 
Total   $ 2,888       100 %    $ 4,895       100 % 

       
  As of September 30,   As of December 31,
     2014   % of Total   2013   % of Total
Long-lived assets
                                   
United States   $    4,655          100 %    $    5,497          100 % 
Canada           0 %      24       0 % 
Total International           0 %      24       0 % 
Total   $ 4,655       100 %    $ 5,521       100 % 

Per Unit data:

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

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TABLE OF CONTENTS

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

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

Recent accounting pronouncements:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company has evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases, which comprise the majority of the Company’s revenues.

In August 2014, the FASB issued Accounting Standards Update 2014 – 15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.

3. Investment in equipment and leases, net:

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

       
  Balance
December 31,
2013
  Reclassifications
& Additions/
Dispositions
  Depreciation/
Amortization
Expense or
Amortization
of Leases
  Balance
September 30,
2014
Net investment in operating leases   $      4,231     $      (12 )    $      (362 )    $      3,857  
Assets held for sale or lease, net     1,290       (492 )            798  
Total   $ 5,521     $ (504 )    $ (362 )    $ 4,655  

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

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract. 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 marketplace 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. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.

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TABLE OF CONTENTS

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

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

As a result of these reviews, management determined that no impairment losses existed during the three and nine months ended September 30, 2014 and 2013.

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 Company’s equipment totaled $104 thousand and $154 thousand for the respective three months ended September 30, 2014 and 2013, and $362 thousand and $530 thousand for the respective nine months ended September 30, 2014 and 2013.

All of the remaining property on lease was acquired during the years 1999 through 2001.

Operating leases:

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

       
  Balance
December 31,
2013
  Additions   Reclassifications
or Dispositions
  Balance
September 30,
2014
Transportation, rail   $     11,353     $      107     $      2,828     $      14,288  
Containers     15,874             (3,868 )      12,006  
Other     640                   640  
       27,867       107       (1,040 )      26,934  
Less accumulated depreciation     (23,636 )      (362 )      921       (23,077 ) 
Total   $ 4,231     $ (255 )    $ (119 )    $ 3,857  

The average estimated residual value for assets on operating leases was 11% of the assets’ original cost at both September 30, 2014 and December 31, 2013. There were no operating leases in non-accrual status at September 30, 2014 and December 31, 2013.

The Company may earn 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 $396 thousand and $392 thousand for the respective three months ended September 30, 2014 and 2013, and $1.1 million and $1.4 million for the respective nine months ended September 30, 2014 and 2013.

Direct financing leases:

As of September 30, 2014 and December 31, 2013, the Company had no investment in direct financing leases, as its remaining finance lease matured on July 1, 2013.

At September 30, 2014, the aggregate amount of future lease payments associated with operating leases is as follows (in thousands):

 
  Operating
Leases
Three months ending December 31, 2014   $       459  
Year ending December 31, 2015     1,127  
2016     752  
2017     432  
2018     78  
2019     4  
Thereafter     2  
     $ 2,854  

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TABLE OF CONTENTS

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

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

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of September 30, 2014 and December 31, 2013, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):

 
Equipment category   Useful Life
Transportation, rail   35 – 40
Containers   20 – 30

4. Related party transactions:

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

The Operating Agreement allows for the reimbursement of costs incurred by AFS for providing administrative services to the Company. Administrative services provided include Company accounting, 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; 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 total assets, number of investors or contributed capital based upon the type of cost incurred.

During the three and nine months ended September 30, 2014 and 2013, AFS and/or affiliates earned fees and billed for reimbursements, pursuant to the Operating Agreement as follows (in thousands):

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2014   2013   2014   2013
Asset management fees to Managing Member   $       25     $       25     $       68     $       86  
Cost reimbursements to Managing Member     59       77       186       229  
     $ 84     $ 102     $ 254     $ 315  

The Fund’s Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self-liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. For the year ending December 31, 2014, it is not anticipated that any further billings to the Fund will equal or exceed the annual or cumulative reimbursable expense limitation. Such is reflective of the continued diminishing Fund asset base over which reimbursements are calculated.

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

5. 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.

6. Gain contingencies:

ATEL filed a claim on behalf of the Company and certain affiliated entities in Federal court in New Orleans for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate amount of 10% of gross proceeds, which in the aggregate for all affiliated entities represents $2.8 million for the years 2005 – 2007 (of which the Company’s portion is an approximate $350 thousand). The annual allocable portion of the claim is not considered material to the Company in any given year. The trial was concluded during the first week of August 2012. In October 2012, the matter was remitted to the Federal Judge to render a decision on both the law and the facts. The decision of the Court was rendered at the end of June 2013 and the court found in favor of the defendants. The Company filed an appeal of the court’s decision and remained hopeful for a recovery of all or portion of its asserted claims. As a result of the ruling, the defendants filed a claim for legal fees and costs, however, this was denied. Oral arguments for the appeal of the case in substance were heard June 2, 2014, and on June 6, 2014, the Fifth Circuit Appellate Court rendered its decision denying the appeal.

7. Members’ capital:

As of September 30, 2014 and December 31, 2013, 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 Member’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 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.

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

There were no distributions declared or paid during the three and nine months ended September 30, 2014 and 2013.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (“MD&A”) 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, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The 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 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” or the “Fund”) 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, 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, 2014, the Company continues in its liquidation phase. Accordingly, assets that mature will be returned to inventory and most likely 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, 2014 versus the three months ended September 30, 2013

The Company had net income of $680 thousand and $597 thousand for the three months ended September 30, 2014 and 2013, respectively. The results for the third quarter of 2014 primarily reflect decreases in total expenses and total revenues when compared to the prior year period.

Revenues

Total revenues for the third quarter of 2014 decreased by $15 thousand, or 1%, as compared to the prior year period. The net reduction in total revenues was primarily a result of decreases in gain on sales of assets and other revenue partially offset by an increase in operating lease revenues.

Gains on sales of lease assets decreased by $77 thousand as a result of a reduction in volume and change in the mix of assets sold; and, other revenue declined by $64 thousand as the prior year period amount included a $67 thousand tax refund received from the City of Philadelphia.

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The net decrease in operating revenues was partially offset by a $125 thousand increase in operating lease revenues. Operating lease revenues increased primarily due to the 2014 re-leases of equipment previously held in inventory and an increase in receipt of month-to-month rentals which are only recognized as revenue upon receipt. Such increases were partially offset by the impact of continued run-off and sales of lease assets.

Expenses

Total expenses for the third quarter of 2014 decreased by $98 thousand, or 20%, as compared to the prior year period. The net decrease was primarily due to reductions in depreciation expense, cost reimbursements to AFS, railcar storage fees and railcar maintenance costs.

Depreciation expense decreased by $50 thousand as a result of continued run-off and sales of lease assets. Cost reimbursements to AFS declined by $18 thousand primarily due to lower costs allocated by the Manager based on the Company’s declining asset base and operations, consistent with a fund in liquidation.

In addition, railcar storage fees decreased by $12 thousand primarily due to the re-lease of 120 railcars previously held in inventory; and, railcar maintenance costs decreased by $11 thousand largely as a result of the continued decline in the number of railcars owned by the Company.

The nine months ended September 30, 2014 versus the nine months ended September 30, 2013

The Company had net income of $1.5 million and $3.3 million for the nine months ended September 30, 2014 and 2013, respectively. The results for the first nine months of 2014 primarily reflect decreases in total revenues and total expenses when compared to the prior year period.

Revenues

Total revenues for the first nine months of 2014 decreased by $2.0 million, or 41%, as compared to the prior year period. The net decline in total revenues was largely due to decreases in gains recognized on sales of assets, operating lease revenues and other revenue.

The decrease in gains recognized on sales of assets totaled $1.5 million and was largely a result of the change in the mix of assets sold. During the prior year period, the Fund sold a group of railcars which were in high demand resulting in a significant gain on the transaction.

The decline in operating lease revenues totaled $381 thousand and was attributable to the decrease in usage-based rental income and the impact of continued run-off and dispositions of lease assets since September 30, 2013. Other revenue decreased by $172 thousand primarily due to prior year period fees collected relative to the termination of the marine vessel lease and a tax refund received from the City of Philadelphia. There were no such fees realized or tax refunds received during the current year period.

Expenses

Total operating expenses for the first nine months of 2014 decreased by $269 thousand, or 16%, as compared to the prior year period. The net decrease in total operating expenses was primarily due to reductions in depreciation expense, vessel maintenance costs and cost reimbursements to AFS offset, in part, by increases in professional fees, and freight and shipping costs.

The decrease in depreciation expense totaled $168 thousand and was attributable to continued run-off and sales of lease assets. Vessel maintenance costs decreased by $107 thousand largely due to prior year period costs of relocating the Fund’s marine vessel to a storage facility at the end of its charter in December 2012. There have been no maintenance costs relative to the Fund’s vessel since the first quarter of 2013.

In addition, cost reimbursements to AFS decreased by $43 thousand primarily due to lower costs allocated by the Manager based on the Company’s declining asset base and operations.

Partially offsetting the aforementioned decreases in expenses were increases of $42 thousand in professional fees and $40 thousand in freight and shipping costs. Professional fees were higher due to an increase in allocated audit fees; and, freight and shipping costs increased largely due to costs related to moving railcars to, and from, inventory.

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Capital Resources and Liquidity

At September 30, 2014 and December 31, 2013, the Company’s cash and cash equivalents totaled $3.8 million and $1.6 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 distributions are made to the Other Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

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

If inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Company’s leased assets may increase as the costs of similar assets increase. However, the Company’s revenues from existing leases would not increase; as such rates are generally fixed for the terms of the leases without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the lease rates that the Company can obtain on future leases will be expected to increase as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates.

The Company currently believes it has adequate reserves available 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,
     2014   2013   2014   2013
Net cash provided by:
                                   
Operating activities   $       706     $      738     $      1,307     $      1,730  
Investing activities     143       384       846       2,192  
Financing activities                        
Net increase in cash and cash equivalents   $ 849     $ 1,122     $ 2,153     $ 3,922  

The three months ended September 30, 2014 versus the three months ended September 30, 2013

During the three months ended September 30, 2014 and 2013, the Company’s primary source of liquidity had been cash flows from its portfolio of operating lease contracts. In addition, the Fund realized $143 thousand and $384 thousand of proceeds from sales of equipment during the respective three months ended September 30, 2014 and 2013.

During the same comparative periods, cash was primarily used to pay invoices related to management fees and expenses. As the Fund is in its liquidation phase, any future financing activity is anticipated to only include distributions to Members.

The nine months ended September 30, 2014 versus the nine months ended September 30, 2013

During the nine months ended September 30, 2014 and 2013, the Company’s primary source of liquidity had been cash flows from its portfolio of operating lease contracts. In addition, the Company realized proceeds from sales or dispositions of equipment totaling $846 thousand and $2.1 million during the nine months ended September 30, 2014 and 2013, respectively.

During the same comparative periods, cash was primarily used to pay invoices related to management fees and expenses.

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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. There were no distributions declared or paid during the three and nine months ended September 30, 2014 and 2013.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At September 30, 2014, 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 the Company and certain affiliated entities in Federal court in New Orleans for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate amount of 10% of gross proceeds, which in the aggregate for all affiliated entities represents $2.8 million for the years 2005 – 2007 (of which the Company’s portion is an approximate $350 thousand). The annual allocable portion of the claim is not considered material to the Company in any given year. The trial was concluded during the first week of August 2012. In October 2012, the matter was remitted to the Federal Judge to render a decision on both the law and the facts. The decision of the Court was rendered at the end of June 2013 and the court found in favor of the defendants. The Company filed an appeal of the court’s decision and remained hopeful for a recovery of all or portion of its asserted claims. As a result of the ruling, the defendants filed a claim for legal fees and costs, however, this was denied. Oral arguments for the appeal of the case in substance were heard June 2, 2014, and on June 6, 2014, the Fifth Circuit Appellate Court rendered its decision denying the appeal.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company has evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases, which comprise the majority of the Company’s revenues.

In August 2014, the FASB issued Accounting Standards Update 2014 – 15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.

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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, 2013. There have been no material changes to the Company’s critical accounting policies since December 31, 2013.

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) and 15d-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, who 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 they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as is applicable to the Company.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

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
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 13, 2014

ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)

 
    

By:

ATEL Financial Services, LLC
Managing Member of Registrant

 

By:

/s/ Dean L. Cash
Dean L. Cash
President and Chief Executive Officer of
ATEL Financial Services, LLC (Managing Member)

    

By:

/s/ Paritosh K. Choksi
Paritosh K. Choksi
Executive Vice President and Chief Financial Officer
and Chief Operating Officer of
ATEL Financial Services, LLC (Managing Member)

    

By:

/s/ Samuel Schussler
Samuel Schussler
Vice President and Chief Accounting Officer of
ATEL Financial Services, LLC (Managing Member)

    

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