Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v359296_ex31x1.htm |
EX-32.1 - EXHIBIT 32.1 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v359296_ex32x1.htm |
EX-31.2 - EXHIBIT 31.2 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v359296_ex31x2.htm |
EX-32.2 - EXHIBIT 32.2 - ATEL CAPITAL EQUIPMENT FUND VIII LLC | v359296_ex32x2.htm |
EXCEL - IDEA: XBRL DOCUMENT - ATEL CAPITAL EQUIPMENT FUND VIII LLC | Financial_Report.xls |
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, 2013
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)
Registrants telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x
The number of Limited Liability Company Units outstanding as of October 31, 2013 was 13,560,188.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
Index
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
(In Thousands)
September 30, 2013 | December 31, 2012 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents | $ | 4,438 | $ | 516 | ||||
Accounts receivable, net of allowance for doubtful accounts of $3 as of September 30, 2013 and $10 as of December 31, 2012 | 670 | 836 | ||||||
Prepaid expenses and other assets | 23 | 19 | ||||||
Investments in equipment and leases, net of accumulated depreciation of $33,093 as of September 30, 2013 and $35,621 as of December 31, 2012 |
5,927 | 6,959 | ||||||
Total assets | $ | 11,058 | $ | 8,330 | ||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
Accounts payable and accrued liabilities: |
||||||||
Managing Member | $ | 328 | $ | 780 | ||||
Other | 104 | 172 | ||||||
Unearned operating lease income | 70 | 86 | ||||||
Total liabilities | 502 | 1,038 | ||||||
Commitments and contingencies |
||||||||
Members capital: |
||||||||
Managing Member | | | ||||||
Other Members | 10,556 | 7,292 | ||||||
Total Members capital | 10,556 | 7,292 | ||||||
Total liabilities and Members capital | $ | 11,058 | $ | 8,330 |
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2013 AND 2012
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues: |
||||||||||||||||
Leasing activities: |
||||||||||||||||
Operating leases | $ | 888 | $ | 1,363 | $ | 3,030 | $ | 4,180 | ||||||||
Direct financing leases | | 11 | | 41 | ||||||||||||
Gain on sales of assets | 131 | 89 | 1,690 | 112 | ||||||||||||
Other revenue | 67 | 1 | 175 | 2 | ||||||||||||
Total revenues | 1,086 | 1,464 | 4,895 | 4,335 | ||||||||||||
Expenses: |
||||||||||||||||
Depreciation of operating lease assets | 154 | 276 | 530 | 847 | ||||||||||||
Asset management fees to Managing Member | 25 | 45 | 86 | 134 | ||||||||||||
Vessel maintenance | | 252 | 107 | 675 | ||||||||||||
Railcar maintenance | 101 | 128 | 288 | 366 | ||||||||||||
Cost reimbursements to Managing Member | 77 | 72 | 229 | 361 | ||||||||||||
Other management fees | 22 | 40 | 72 | 115 | ||||||||||||
Railcar storage fees | 25 | 26 | 62 | 61 | ||||||||||||
Professional fees | 27 | 47 | 108 | 128 | ||||||||||||
Insurance | 13 | 14 | 12 | 40 | ||||||||||||
Provision (reversal of provision) for doubtful accounts |
3 | | (7 | ) | (22 | ) | ||||||||||
Taxes on income and franchise fees | | | 26 | 41 | ||||||||||||
Postage | 7 | 1 | 13 | 10 | ||||||||||||
Printing and photocopying | 3 | 1 | 11 | 15 | ||||||||||||
Freight and shipping | 2 | 1 | 14 | 10 | ||||||||||||
Other | 30 | 35 | 80 | 100 | ||||||||||||
Total operating expenses | 489 | 938 | 1,631 | 2,881 | ||||||||||||
Net income | $ | 597 | $ | 526 | $ | 3,264 | $ | 1,454 | ||||||||
Net income: |
||||||||||||||||
Managing Member | $ | | $ | | $ | | $ | | ||||||||
Other Members | 597 | 526 | 3,264 | 1,454 | ||||||||||||
$ | 597 | $ | 526 | $ | 3,264 | $ | 1,454 | |||||||||
Net income per Limited Liability Company Unit (Other Members) | $ | 0.04 | $ | 0.04 | $ | 0.24 | $ | 0.11 | ||||||||
Weighted average number of Units outstanding | 13,560,188 | 13,560,188 | 13,560,188 | 13,560,188 |
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2012
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2013
(In Thousands Except for Units and Per Unit Data)
Other Members | Managing Member | Total | ||||||||||||||
Units | Amount | |||||||||||||||
Balance December 31, 2011 | 13,560,188 | $ | 8,850 | $ | | $ | 8,850 | |||||||||
Distributions to Other Members ($0.24 per Unit) | | (3,186 | ) | | (3,186 | ) | ||||||||||
Distributions to Managing Member | | | (258 | ) | (258 | ) | ||||||||||
Net income | | 1,628 | 258 | 1,886 | ||||||||||||
Balance December 31, 2012 | 13,560,188 | 7,292 | | 7,292 | ||||||||||||
Net income | | 3,264 | | 3,264 | ||||||||||||
Balance September 30, 2013 (Unaudited) | 13,560,188 | $ | 10,556 | $ | | $ | 10,556 |
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2013 AND 2012
(In Thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Operating activities: |
||||||||||||||||
Net income | $ | 597 | $ | 526 | $ | 3,264 | $ | 1,454 | ||||||||
Adjustment to reconcile net income to cash provided by operating activities: |
||||||||||||||||
Gain on sales of assets | (131 | ) | (89 | ) | (1,690 | ) | (112 | ) | ||||||||
Depreciation of operating lease assets | 154 | 276 | 530 | 847 | ||||||||||||
Provision (reversal of provision) for doubtful accounts | 3 | | (7 | ) | (22 | ) | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable | 70 | (46 | ) | 173 | (17 | ) | ||||||||||
Prepaid expenses and other assets | (9 | ) | (7 | ) | (4 | ) | (18 | ) | ||||||||
Accounts payable, Managing Member | 12 | 13 | (452 | ) | (285 | ) | ||||||||||
Accounts payable, other | 18 | 60 | (68 | ) | 60 | |||||||||||
Unearned operating lease income | 24 | 5 | (16 | ) | (4 | ) | ||||||||||
Net cash provided by operating activities | 738 | 738 | 1,730 | 1,903 | ||||||||||||
Investing activities: |
||||||||||||||||
Proceeds from sales of lease assets | 384 | 134 | 2,144 | 195 | ||||||||||||
Principal payments received on direct financing leases | | 37 | 48 | 123 | ||||||||||||
Improvements to lease assets | | (24 | ) | | (24 | ) | ||||||||||
Net cash provided by investing activities | 384 | 147 | 2,192 | 294 | ||||||||||||
Financing activities: |
||||||||||||||||
Net cash provided by financing activities | | | | | ||||||||||||
Net increase in cash and cash equivalents | 1,122 | 885 | 3,922 | 2,197 | ||||||||||||
Cash and cash equivalents at beginning of period | 3,316 | 2,237 | 516 | 925 | ||||||||||||
Cash and cash equivalents at end of period | $ | 4,438 | $ | 3,122 | $ | 4,438 | $ | 3,122 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid during the period for taxes | $ | | $ | 5 | $ | 17 | $ | 38 |
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund VIII, LLC (the Company 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 Members personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and assets of the Company.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On January 13, 1999, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date the Company commenced operations in its primary business. Gross contributions in the amount of $135.7 million (13,570,188 units) were received as of November 30, 2000, inclusive of $500 of initial Members capital investment and $100 of AFS capital investment. The offering was terminated on November 30, 2000. As of September 30, 2013, 13,560,188 Units remain issued and outstanding.
The Companys principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Companys invested capital; (ii) generates regular distributions to the Members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), which ended December 31, 2006, and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by its Limited Liability Company Operating Agreement (Operating Agreement), as amended.
Pursuant to the Operating Agreement, AFS and/or its affiliates receive compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 5). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.
As of September 30, 2013, 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, 2012, 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, 2013 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 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, 2013, 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 relate primarily to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.
Segment reporting:
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
Certain of the Companys lessee customers have international operations. In these instances, the Company is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Company to track, on an asset-by-asset, day-by-day basis, where these assets are deployed.
The primary geographic 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 Companys total revenues for the nine months ended September 30, 2013 and 2012 and long-lived tangible assets as of September 30, 2013 and December 31, 2012 (dollars in thousands):
For The Nine Months Ended September 30, | ||||||||||||||||
2013 | % of Total | 2012 | % of Total | |||||||||||||
Revenue |
||||||||||||||||
United States | $ | 4,821 | 98 | % | $ | 4,210 | 97 | % | ||||||||
Canada | 74 | 2 | % | 125 | 3 | % | ||||||||||
Total International | 74 | 2 | % | 125 | 3 | % | ||||||||||
Total | $ | 4,895 | 100 | % | $ | 4,335 | 100 | % |
As of September 30, | As of December 31, | |||||||||||||||
2013 | % of Total | 2012 | % of Total | |||||||||||||
Long-lived assets |
||||||||||||||||
United States | $ | 5,903 | 100 | % | $ | 6,935 | 100 | % | ||||||||
Canada | 24 | 0 | % | 24 | 0 | % | ||||||||||
Total International | 24 | 0 | % | 24 | 0 | % | ||||||||||
Total | $ | 5,927 | 100 | % | $ | 6,959 | 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.
8
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
Recent accounting pronouncements:
Recent accounting standards updates as issued by the Financial Accounting Standards Board (FASB) were evaluated and determined to be not applicable to the Company.
3. Allowance for credit losses:
The Partnerships allowance for credit losses are as follows (in thousands):
Accounts Receivable Allowance for Doubtful Accounts |
Valuation Adjustments on Financing Receivables | Total Allowance for Credit Losses |
||||||||||||||
Finance Leases | Operating Leases | Finance Leases | ||||||||||||||
Balance December 31, 2011 | $ | | $ | 22 | $ | | $ | 22 | ||||||||
Reversal of provision | | (12 | ) | | (12 | ) | ||||||||||
Balance December 31, 2012 | | 10 | | 10 | ||||||||||||
Reversal of provision | | (7 | ) | | (7 | ) | ||||||||||
Balance September 30, 2013 | $ | | $ | 3 | $ | | $ | 3 |
The allowance for credit losses at both September 30, 2013 and December 31, 2012 were related to delinquent operating lease receivables.
As of September 30, 2013, the Partnership had no financing lease receivables, as its remaining finance lease matured on July 1, 2013. By comparison, at December 31, 2012, finance lease receivables totaled $100 thousand, all of which were current.
4. Investment in equipment and leases, net:
The Companys investment in leases consists of the following (in thousands):
Balance December 31, 2012 | Reclassifications & Additions/ Dispositions |
Depreciation/Amortization Expense or Amortization of Leases |
Balance September 30, 2013 |
|||||||||||||
Net investment in operating leases | $ | 6,230 | $ | (1,104 | ) | $ | (492 | ) | $ | 4,634 | ||||||
Net investment in direct financing leases | 100 | (52 | ) | (48 | ) | | ||||||||||
Assets held for sale or lease, net | 629 | 702 | (38 | ) | 1,293 | |||||||||||
Total | $ | 6,959 | $ | (454 | ) | $ | (578 | ) | $ | 5,927 |
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. There were no impairment losses recorded during the three and nine months ended September 30, 2013 and 2012.
The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Companys equipment totaled $154 thousand and $276 thousand for the respective three months ended September 30, 2013 and 2012, and $530 thousand and $847 thousand for the respective nine months ended September 30, 2013 and 2012.
All of the remaining property on lease was acquired during the years 1999 through 2001.
9
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Investment in equipment and leases, net: - (continued)
Operating leases:
Property on operating leases consists of the following (in thousands):
Balance December 31, 2012 | Additions | Reclassifications or Dispositions | Balance September 30, 2013 | |||||||||||||
Containers | $ | 19,380 | $ | | $ | (1,976 | ) | $ | 17,404 | |||||||
Transportation, rail | 13,125 | | (1,731 | ) | 11,394 | |||||||||||
Marine vessel | 4,793 | | (4,793 | ) | | |||||||||||
Other | 640 | | | 640 | ||||||||||||
37,938 | | (8,500 | ) | 29,438 | ||||||||||||
Less accumulated depreciation | (31,708 | ) | (492 | ) | 7,396 | (24,804 | ) | |||||||||
Total | $ | 6,230 | $ | (492 | ) | $ | (1,104 | ) | $ | 4,634 |
The average estimated residual value for assets on operating leases was 11% and 10% of the assets original cost at September 30, 2013 and December 31, 2012, respectively. As of September 30, 2013 and December 31, 2012, the Company had no operating leases in non-accrual status.
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 $392 thousand and $596 thousand for the respective three months ended September 30, 2013 and 2012, and $1.4 million and $1.8 million for the respective nine months ended September 30, 2013 and 2012.
Direct financing leases:
As of September 30, 2013, the Partnership had no investment in direct financing leases, as its remaining finance lease matured on July 1, 2013. At December 31, 2012, such investment primarily consisted of railcars and manufacturing equipment. The components of the Companys investment in direct financing leases as of December 31, 2012 are as follows (in thousands):
December 31, 2012 | ||||
Total minimum lease payments receivable | $ | 48 | ||
Estimated residual values of leased equipment (unguaranteed) | 52 | |||
Investment in direct financing leases | 100 | |||
Less unearned income | | |||
Net investment in direct financing leases | $ | 100 |
10
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Investment in equipment and leases, net: - (continued)
At September 30, 2013, the aggregate amount of future lease payments associated with operating leases is as follows (in thousands):
Operating Leases | ||||
Three months ending December 31, 2013 | $ | 386 | ||
Year ending December 31, 2014 | 1,199 | |||
2015 |
568 | |||
2016 |
280 | |||
2017 |
263 | |||
2018 | 75 | |||
$ | 2,771 |
5. Related party transactions:
The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by AFS for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment.
Each of ATEL Leasing Corporation (ALC) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications and general administrative services are performed by AFS.
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated among all managed entities based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred.
During the three and nine months ended September 30, 2013 and 2012, AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Operating Agreement as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Asset management fees to Managing Member | $ | 25 | $ | 45 | $ | 86 | $ | 134 | ||||||||
Cost reimbursements to Managing Member | 77 | 72 | 229 | 361 | ||||||||||||
$ | 102 | $ | 117 | $ | 315 | $ | 495 |
The Funds Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self-liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its
11
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. Related party transactions: - (continued)
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, 2013, 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.
6. Guarantees:
The Company enters into contracts that contain a variety of indemnifications. The Companys maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
The Managing Member knows of no facts or circumstances that would make the Companys contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Companys similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.
7. Gain contingencies:
ATEL filed a claim on behalf of 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 Companys 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 courts decision and is hopeful for a recovery of all or portion of its asserted claims, but the outcome of the litigation remains uncertain as of such date. As a result of the ruling, the defendants have filed a claim for legal fees and costs, of which the Companys portion would amount to approximately $88 thousand, however, this claim remains in dispute pending the outcome of the appeal, and a final award in favor of either party remains uncertain at this time.
8. Members capital:
As of September 30, 2013 and December 31, 2012, 13,560,188 Units were issued and outstanding. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Members (50 Units).
The Company has the right, exercisable at the Managing Members discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holders capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holders request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Managing Member on terms it determines to be appropriate under given circumstances, in the event that the Managing Member deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a
12
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. Members capital: - (continued)
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 Companys 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, 2013 and 2012.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Statements contained in this Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Companys performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Funds performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
Overview
ATEL Capital Equipment Fund VIII, LLC (the Company 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 (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, 2013, the Company continues in its liquidation phase. Accordingly, assets related to leases that mature will be returned to inventory and most likely 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, 2013 versus the three months ended September 30, 2012
The Company had net income of $597 thousand and $526 thousand for the three months ended September 30, 2013 and 2012, respectively. The results for the third quarter of 2013 primarily reflect decreases in total operating expenses and total revenues when compared to the prior year period.
Revenues
Total revenues for the third quarter of 2013 decreased by $378 thousand, or 26%, as compared to the prior year period. The net decrease in total revenues was largely due to a decline in operating lease revenues offset in part by increases in other revenue and gain on sales of assets.
The decrease in operating lease revenues totaled $475 thousand and was primarily attributable to the December 2012 termination of a lease relative to the Funds marine vessel, the decrease in usage-based rental income during the current year period, and the impact of continued run-off and dispositions of lease assets since September 30, 2012.
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Partially offsetting the aforementioned decrease in revenues were increases in other revenue and gain on sales of assets totaling $66 thousand and $42 thousand, respectively. Gains on sales of assets increased largely due to the sale of equipment associated with the maturity of the Funds remaining direct financing lease in July 2013; and, other revenue increased primarily due to a tax refund received from the City of Philadelphia in September 2013.
Expenses
Total operating expenses for the third quarter of 2013 decreased by $449 thousand, or 48%, as compared to the prior year period. The net decrease in total operating expenses was primarily due to reductions in vessel maintenance costs, depreciation expense and railcar maintenance costs.
Vessel maintenance declined by $252 thousand primarily due to vessel inactivity since the end of the lease term in December 2012. Depreciation expense was reduced by $122 thousand largely due to continued run-off and sales of lease assets; and, railcar maintenance costs decreased by $27 thousand largely due to the continued decline in the number of railcars owned by the Company, consistent with a fund in liquidation.
The nine months ended September 30, 2013 versus the nine months ended September 30, 2012
The Company had net income of $3.3 million and $1.5 million for the nine months ended September 30, 2013 and 2012, respectively. The results for the first nine months of 2013 primarily reflect an increase in total revenues coupled with a decrease in total operating expenses when compared to the prior year period.
Revenues
Total revenues for the first nine months of 2013 increased by $560 thousand, or 13%, as compared to the prior year period. The net increase in total revenues was largely due to increases in gains recognized on sales of assets and in other revenue partially offset by a decline in operating lease revenues.
The increase in gains recognized on sales of assets totaled $1.6 million and was largely a result of increased volume and change in the mix of assets sold. During the current year period, the Fund sold a group of railcars which were in high demand resulting in a significant gain on the transaction. In addition, the Fund recognized a gain from the sales of equipment associated with the maturity of a direct financing lease.
Other revenue increased by $173 thousand primarily due to fees collected relative to the termination of the marine vessel lease and a tax refund received from the City of Philadelphia.
Partially offsetting the aforementioned increases in revenues was a $1.2 million decrease in operating lease revenues. The decrease in operating lease revenues was primarily attributable to the December 2012 termination of a lease relative to the Funds marine vessel, the decrease in usage-based rental income during the current year period, and the impact of continued run-off and dispositions of lease assets since September 30, 2012.
Expenses
Total operating expenses for the first nine months of 2013 decreased by $1.3 million, or 43%, as compared to the prior year period. The net decrease was primarily due to reductions in the following expenses: vessel maintenance costs, depreciation expense, costs reimbursed to the Managing Member, railcar maintenance costs, asset management fees to the Manager, and other management fees.
Vessel maintenance costs declined by $568 thousand primarily due to vessel inactivity since the end of the lease term in December 2012; and, depreciation expense was reduced by $317 thousand largely due to continued run-off and sales of lease assets.
Moreover, costs reimbursed to the Managing Member decreased by $132 thousand as the Fund no longer has the accumulation of reimbursable administrative expenses in excess of the limitations as defined in the Operating Agreement. As such, the costs reimbursed to AFS during the current year period only represent current period charges. It is not anticipated that any further billings to the Fund will equal or exceed the annual or cumulative reimbursable expense limitation.
The decrease in railcar maintenance costs totaled $78 thousand and was primarily due to the continued decline in the number of railcars owned by the Company. Asset management fees paid to the Manager declined by
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$48 thousand as a result of the decline in managed assets and related rents; and, other management fees decreased by $43 thousand primarily due to a refund received from the third party manager relative to prepaid marine vessel expenses. Such expenses were refunded as a result of the vessel lease termination.
Capital Resources and Liquidity
At September 30, 2013 and December 31, 2012, the Companys cash and cash equivalents totaled $4.4 million and $516 thousand, 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 Companys 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 Companys leased assets may increase as the costs of similar assets increase. However, the Companys revenues from existing leases would not increase; as such rates are generally fixed for the terms of the leases without adjustment for inflation. In addition, if interest rates increase 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, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net cash provided by: |
||||||||||||||||
Operating activities | $ | 738 | $ | 738 | $ | 1,730 | $ | 1,903 | ||||||||
Investing activities | 384 | 147 | 2,192 | 294 | ||||||||||||
Financing activities | | | | | ||||||||||||
Net increase in cash and cash equivalents | $ | 1,122 | $ | 885 | $ | 3,922 | $ | 2,197 |
The three months ended September 30, 2013 versus the three months ended September 30, 2012
During the three months ended September 30, 2013, the Partnerships primary source of liquidity had been cash flows from its portfolio of operating lease contracts. During the prior year period, liquidity was derived from cash flows from both the Partnerships portfolio of operating lease contracts and its direct financing leases. In addition, the Fund realized $384 thousand and $134 thousand of proceeds from sales of equipment during the respective three months ended September 30, 2013 and 2012.
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, 2013 versus the nine months ended September 30, 2012
During the nine months ended September 30, 2013 and 2012, the Companys primary source of liquidity was cash flow from its portfolio of operating and direct financing lease contracts. In addition, the Company realized proceeds from sales or dispositions of equipment totaling $2.1 million and $195 thousand during the nine months ended September 30, 2013 and 2012, respectively.
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During the same comparative periods, cash was primarily used to pay invoices related to management fees and expenses.
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, 2013 and 2012.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At September 30, 2013, 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 Companys 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 courts decision and is hopeful for a recovery of all or portion of its asserted claims, but the outcome of the litigation remains uncertain as of such date. As a result of the ruling, the defendants have filed a claim for legal fees and costs, of which the Companys portion would amount to approximately $88 thousand, however, this claim remains in dispute pending the outcome of the appeal, and a final award in favor of either party remains uncertain at this time.
Off-Balance Sheet Transactions
None.
Recent Accounting Pronouncements
Recent accounting standards updates as issued by the Financial Accounting Standards Board (FASB) were evaluated and determined to be not applicable to the Company.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Companys critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to the Companys critical accounting policies since December 31, 2012.
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Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
The Companys Managing Members President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (Management), evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Companys disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, which is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Members disclosure controls and procedures, as applicable to the Company, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Changes in internal control
There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Managing Members internal control over financial reporting, as is applicable to the Company.
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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 Companys financial position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. 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, 2013
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)
By: ATEL Financial Services, LLC |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
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