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. |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
(Exact name of registrant as specified in its charter)
California | 94-3307404 | |
(State or other jurisdiction of Incorporation or organization) |
(I. R. S. Employer Identification No.) |
600 California Street, 6th Floor, San Francisco, California 94108-2733
(Address of principal executive offices)
Registrants telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of Limited Liability Company Units outstanding as of April 30, 2011 was 13,560,188.
None.
2
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
BALANCE SHEETS
MARCH 31, 2011 AND DECEMBER 31, 2010
(in thousands)
(Unaudited)
March 31, 2011 |
December 31, 2010 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents | $ | 2,244 | $ | 1,818 | ||||
Accounts receivable, net of allowance for doubtful accounts of $8 as of March 31, 2011 and December 31, 2010 | 821 | 745 | ||||||
Prepaid expenses | 4 | 7 | ||||||
Investments in equipment and leases, net of accumulated depreciation of $34,309 as of March 31, 2011 and $34,471 as of December 31, 2010 | 9,440 | 9,405 | ||||||
Total assets | $ | 12,509 | $ | 11,975 | ||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
Accounts payable and accrued liabilities: |
||||||||
Managing Member | $ | 1,091 | $ | 902 | ||||
Affiliates | 2 | 2 | ||||||
Other | 548 | 301 | ||||||
Unearned operating lease income | 99 | 105 | ||||||
Total liabilities | 1,740 | 1,310 | ||||||
Commitments and contingencies |
||||||||
Members capital: |
||||||||
Managing Member | | | ||||||
Other Members | 10,769 | 10,665 | ||||||
Total Members capital | 10,769 | 10,665 | ||||||
Total liabilities and Members capital | $ | 12,509 | $ | 11,975 |
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 2011 AND 2010
(in thousands except for units and per unit data)
(Unaudited)
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Leasing activities: |
||||||||
Operating leases | $ | 1,366 | $ | 1,542 | ||||
Direct financing leases | 32 | 33 | ||||||
Gain on sales of assets | 190 | | ||||||
Other revenue | | 2 | ||||||
Total revenues | 1,588 | 1,577 | ||||||
Expenses: |
||||||||
Depreciation of operating lease assets | 331 | 343 | ||||||
Interest expense | | 5 | ||||||
Asset management fees to Managing Member | 44 | 53 | ||||||
Vessel maintenance | 165 | 185 | ||||||
Railcar maintenance | 138 | 83 | ||||||
Cost reimbursements to Managing Member | 679 | 679 | ||||||
Professional fees | 48 | 69 | ||||||
Insurance | 2 | 20 | ||||||
Reversal of provision for doubtful accounts | | (1 | ) | |||||
Taxes on income and franchise fees | | (25 | ) | |||||
Other | 77 | 111 | ||||||
Total operating expenses | 1,484 | 1,522 | ||||||
Net income | $ | 104 | $ | 55 | ||||
Net income: |
||||||||
Managing Member | $ | | $ | 44 | ||||
Other Members | 104 | 11 | ||||||
$ | 104 | $ | 55 | |||||
Net income per Limited Liability Company Unit (Other Members) | $ | 0.01 | $ | 0.00 | ||||
Weighted average number of Units outstanding | 13,560,188 | 13,560,188 |
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2010
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2011
(in thousands except for units and per unit data)
(Unaudited)
Other Members | Managing Member |
Total | ||||||||||||||
Units | Amount | |||||||||||||||
Balance December 31, 2009 | 13,560,188 | $ | 12,091 | $ | | $ | 12,091 | |||||||||
Distributions to Other Members ($0.24 per Unit) |
| (3,254 | ) | | (3,254 | ) | ||||||||||
Distributions to Managing Member | | | (264 | ) | (264 | ) | ||||||||||
Net income | | 1,828 | 264 | 2,092 | ||||||||||||
Balance December 31, 2010 | 13,560,188 | 10,665 | | 10,665 | ||||||||||||
Net income | | 104 | | 104 | ||||||||||||
Balance March 31, 2011 | 13,560,188 | $ | 10,769 | $ | | $ | 10,769 |
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2011 AND 2010
(in thousands)
(Unaudited)
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Operating activities: |
||||||||
Net income | $ | 104 | $ | 55 | ||||
Adjustment to reconcile net income to cash provided by operating activities: |
||||||||
Gain on sales of assets | (190 | ) | | |||||
Depreciation of operating lease assets | 331 | 343 | ||||||
Reversal of provision for doubtful accounts | | (1 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable | (76 | ) | (41 | ) | ||||
Prepaid expenses | 3 | 4 | ||||||
Accounts payable, Managing Member | 189 | 254 | ||||||
Accounts payable, affiliates | | 2 | ||||||
Accounts payable, other | 247 | (181 | ) | |||||
Accrued interest payable | | (1 | ) | |||||
Unearned operating lease income | (6 | ) | (53 | ) | ||||
Net cash provided by operating activities | 602 | 381 | ||||||
Investing activities: |
||||||||
Proceeds from sales of assets | 257 | 64 | ||||||
Principal payments received on direct financing leases | 27 | 23 | ||||||
Purchases and additions to equipment on operating leases | (460 | ) | | |||||
Net cash (used in) provided by investing activities | (176 | ) | 87 | |||||
Financing activities: |
||||||||
Repayments of non-recourse debt | | (197 | ) | |||||
Distributions to Other Members | | (542 | ) | |||||
Distributions to Managing Member | | (44 | ) | |||||
Net cash used in financing activities | | (783 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 426 | (315 | ) | |||||
Cash and cash equivalents at beginning of period | 1,818 | 2,306 | ||||||
Cash and cash equivalents at end of period | $ | 2,244 | $ | 1,991 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for taxes | $ | 2 | $ | 2 | ||||
Cash paid during the period for interest | $ | | $ | 6 |
See accompanying notes.
6
ATEL Capital Equipment Fund VIII, LLC (the Company) was formed under the laws of the State of California on July 31, 1998. The Company was formed for the purpose of acquiring equipment to engage in equipment leasing and sales activities. The Managing Member or Manager of the Company is ATEL Financial Services, LLC (AFS), a California limited liability company. The Company may continue until December 31, 2019. Each Members personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and assets of the Company.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On January 13, 1999, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date the Company commenced operations in its primary business. Gross contributions in the amount of $135.7 million (13,570,188 units) were received as of November 30, 2000, inclusive of $500 of Initial Members capital investment and $100 of AFS capital investment. The offering was terminated on November 30, 2000. As of March 31, 2011, 13,560,188 Units remain issued and outstanding.
The Companys principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Companys invested capital; (ii) generates regular distributions to the Members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), which ended December 31, 2006, and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by its Limited Liability Company Operating Agreement (Operating Agreement), as amended.
Pursuant to the Operating Agreement, AFS and/or its affiliates receive compensation for services rendered and reimbursements for costs incurred on behalf of the Company (see Note 5). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.
As of March 31, 2011, the Company continues in the liquidation phase of its life cycle as defined in the Operating Agreement.
These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported financial position or results of operations.
Note and tabular amounts are presented in thousands, except as to Units and per Unit data.
7
In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after March 31, 2011 up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, or adjustments thereto.
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.
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
Certain of the Companys lessee customers have international operations. In these instances, the Company is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Company to track, on an asset-by-asset, day-by-day basis, where these assets are deployed.
The primary geographic regions in which the Company sought leasing opportunities were North America and Europe. Currently, 100% of the Companys operating revenues are from customers domiciled in North America.
Net income and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 clarifies guidance on a creditors evaluation of whether it has granted a concession to a borrower and a creditors evaluation of whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. In addition, an entity should disclose the information required by Accounting Standards Codification paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01, for interim and annual periods beginning on or after June 15, 2011. The Company anticipates that adoption of this update will not have a material impact on its financial position or results of operations.
In January 2011, the FASB issued ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The Company anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations.
8
The Companys provision for credit losses are as follows (in thousands):
Accounts Receivable Allowance for Doubtful Accounts | ||||
Balance December 31, 2009 | $ | 4 | ||
Adjustment to provision | 4 | |||
Balance December 31, 2010 | 8 | |||
Adjustment to provision | | |||
Balance March 31, 2011 | $ | 8 |
At March 31, 2011 and December 31, 2010, the entire allowance for doubtful accounts represents reserves against operating lease receivables.
For the three months ended March 31, 2011, the Company did not record an allowance for credit losses related to its financing receivables. The Companys recorded net investment in financing receivables at March 31, 2011 and December 31, 2010 is as follows (in thousands):
March 31, 2011 | Finance Leases |
Total | ||||||
Allowance for credit losses: |
||||||||
Ending balance | $ | | $ | | ||||
Ending balance: individually evaluated for impairment | $ | | $ | | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | ||||
Financing receivables, net: |
||||||||
Ending balance | $ | 354 | $ | 354 | ||||
Ending balance: individually evaluated for impairment | $ | 354 | $ | 354 | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | |
December 31, 2010 | Finance Leases | Total | ||||||
Allowance for credit losses: |
||||||||
Ending balance | $ | | $ | | ||||
Ending balance: individually evaluated for impairment | $ | | $ | | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | ||||
Financing receivables, net: |
||||||||
Ending balance | $ | 381 | $ | 381 | ||||
Ending balance: individually evaluated for impairment | $ | 381 | $ | 381 | ||||
Ending balance: collectively evaluated for impairment | $ | | $ | | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | |
9
The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:
Pass Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moodys or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.
Special Mention Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve managements close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Funds receivable at some future date.
Substandard Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Managers Credit Watch List.
Doubtful Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Managers Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired leases as applicable.
At March 31, 2011 and December 31, 2010, the Companys financing receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):
Finance Leases | Finance Leases | |||||||
March 31, 2011 | December 31, 2010 | |||||||
Pass | $ | 354 | $ | 381 | ||||
Special mention | | | ||||||
Substandard | | | ||||||
Doubtful | | | ||||||
Total | $ | 354 | $ | 381 |
At March 31, 2011 and December 31, 2010, net investment in financing receivables is aged as follows (in thousands):
March 31, 2011 | 30 59 Days Past Due |
60 89 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment>90 Days and Accruing |
|||||||||||||||||||||
Finance leases | $ | 93 | $ | | $ | | $ | 93 | $ | 261 | $ | 354 | $ | |
December 31, 2010 | 30 59 Days Past Due |
60 89 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment>90 Recorded Investment |
|||||||||||||||||||||
Finance leases | $ | 94 | $ | | $ | | $ | 94 | $ | 287 | $ | 381 | $ | |
There were no impaired financing receivables at both March 31, 2011 and December 31, 2010. Likewise, there were no financing receivables placed in non-accrual status as of March 31, 2011 and December 31, 2010.
10
The Companys investment in leases consists of the following (in thousands):
Balance December 31, 2010 |
Reclassifications & Additions/ Dispositions |
Depreciation/ Amortization Expense or Amortization of Leases |
Balance March 31, 2011 |
|||||||||||||
Net investment in operating leases | $ | 8,820 | $ | 396 | $ | (331 | ) | $ | 8,885 | |||||||
Net investment in direct financing leases | 381 | | (27 | ) | 354 | |||||||||||
Assets held for sale or lease, net | 204 | (3 | ) | | 201 | |||||||||||
Total | $ | 9,405 | $ | 393 | $ | (358 | ) | $ | 9,440 |
Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. Impairment losses are recorded as an adjustment to the net investment in operating leases. No impairment losses were recorded during the three months ended March 31, 2011 and 2010.
The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Companys equipment totaled $331 thousand and $343 thousand for the three months ended March 31, 2011 and 2010, respectively.
All of the leased property was acquired during the period from 1999 through 2002.
Property on operating leases consists of the following (in thousands):
Balance December 31, 2010 |
Additions | Reclassifications or Dispositions | Balance March 31, 2011 |
|||||||||||||
Containers | $ | 20,038 | $ | | $ | (128 | ) | $ | 19,910 | |||||||
Transportation, rail | 16,098 | | (432 | ) | 15,666 | |||||||||||
Marine vessel | 4,333 | 460 | | 4,793 | ||||||||||||
Other | 640 | | | 640 | ||||||||||||
41,109 | 460 | (560 | ) | 41,009 | ||||||||||||
Less accumulated depreciation | (32,289 | ) | (331 | ) | 496 | (32,124 | ) | |||||||||
Total | $ | 8,820 | $ | 129 | $ | (64 | ) | $ | 8,885 |
The average estimated residual value for assets on operating leases was 10% of the assets original cost at both March 31, 2011 and December 31, 2010.
The Company earns revenues from its containers, marine vessel and certain other assets based on utilization of such assets or through fixed term leases. Contingent rentals (i.e., short-term, operating charter hire payments) and the associated expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of Operating Lease Revenues, and totaled $591 thousand and $577 thousand for the three months ended March 31, 2011 and 2010, respectively.
As of March 31, 2011 and December 31, 2010, the Company had no operating leases in non-accrual status.
11
As of March 31, 2011 and December 31, 2010, investment in direct financing leases primarily consists of construction and manufacturing equipment. The following lists the components of the Companys investment in direct financing leases as of March 31, 2011 and December 31, 2010 (in thousands):
March 31, 2011 |
December 31, 2010 |
|||||||
Total minimum lease payments receivable | $ | 429 | $ | 487 | ||||
Estimated residual values of leased equipment (unguaranteed) | 54 | 54 | ||||||
Investment in direct financing leases | 483 | 541 | ||||||
Less unearned income | (129 | ) | (160 | ) | ||||
Net investment in direct financing leases | $ | 354 | $ | 381 |
There were no net investments in direct financing leases in non-accrual status as of March 31, 2011 and December 31, 2010.
At March 31, 2011, the aggregate amount of future lease payments is as follows (in thousands):
Operating Leases |
Direct Financing Leases |
Total | ||||||||||
Nine months ending December 31, 2011 | $ | 1,788 | $ | 181 | $ | 1,969 | ||||||
Year ending December 31, 2012 | 986 | 200 | 1,186 | |||||||||
2013 | 474 | 48 | 522 | |||||||||
2014 | 287 | | 287 | |||||||||
2015 | 179 | | 179 | |||||||||
2016 | 179 | | 179 | |||||||||
Thereafter | 254 | | 254 | |||||||||
$ | 4,147 | $ | 429 | $ | 4,576 |
The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by AFS for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment.
Each of ATEL Leasing Corporation (ALC) and AFS is a wholly-owned subsidiary of ATEL Capital Group, Inc. and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications and general administrative services are performed by AFS.
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred.
12
During the three months ended March 31, 2011 and 2010, AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Operating Agreement as follows (in thousands):
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Asset management fees to Managing Member | $ | 44 | $ | 53 | ||||
Cost reimbursements to Managing Member | 679 | 679 | ||||||
$ | 723 | $ | 732 |
The Funds Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. Accordingly, the Company has recorded neither an obligation nor an expense for such contingent reimbursement of the approximate $983 thousand and $1.3 million excess reimbursable administrative expenses at March 31, 2011 and December 31, 2010, respectively.
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.
ATEL has chosen to litigate a claim on behalf of certain of its Funds for the under-reporting of revenue by a previous fleet manager of its marine vessels. Litigation continues relative to ATELs plaintiff position, seeking to recover an estimated total of $2.8 million, of which the Companys portion approximates $350 thousand, of under-remitted revenues from marine vessel leasing covering years 2005-2007. Such amounts are not considered material to any of the Funds in any given year. While the Funds recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. Originally scheduled to begin in March 2011, court proceedings have been re-scheduled to commence in September 2011. However, the outcome, either via negotiation or court mandate, is currently indeterminable.
13
As of March 31, 2011 and December 31, 2010, 13,560,188 Units were issued and outstanding. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial members (50 Units).
The Company has the right, exercisable at the Managing Members discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holders capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holders request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Managing Member on terms it determines to be appropriate under given circumstances, in the event that the Managing Member deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.
As defined in the Operating Agreement, the Companys Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Other Members and 7.5% to AFS. Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Distributions | $ | | $ | 542 | ||||
Weighted average number of Units outstanding | 13,560,188 | 13,560,188 | ||||||
Weighted average distributions per Unit | $ | | $ | 0.04 |
14
Statements contained in this Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Companys performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Funds performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
ATEL Capital Equipment Fund VIII, LLC (the Company) is a California limited liability company that was formed in July 1998 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. The offering was terminated in November 2000. Total proceeds of the offering were $135.7 million. During early 2001, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, throughout the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), the Company reinvested cash flow in excess of certain amounts required to be distributed to the Other Members and/or utilized its credit facilities to acquire additional equipment.
The Company may continue until December 31, 2019. However, pursuant to the guidelines of the Operating Agreement, the Company began to liquidate its assets and distribute the proceeds thereof after the end of the Reinvestment Period which ended in December 2006.
As of March 31, 2011, the Company continues in its liquidation phase. Accordingly, assets related to leases that mature will be returned to inventory and most likely will be subsequently sold, which will result in decreasing revenue as earning assets decrease. Periodic distributions are paid at the discretion of the Managing Member.
The Company had net income of $104 thousand and $55 thousand for the three months ended March 31, 2011 and 2010, respectively. The results for the first quarter of 2011 primarily reflect a reduction in total operating expenses and a slight increase in total revenues when compared to the prior year period.
Total revenues for the first quarter of 2011 increased by $11 thousand compared to the prior year period. The net increase in revenues was largely due to a $190 thousand increase in gains recognized on sales of lease assets offset, in part, by a $176 thousand reduction in operating lease revenues.
The period over period increase in gains recognized on sales of lease assets reflects a higher number and change in the mix of assets sold.
The reduction in operating lease revenues was largely attributable to the drydock status of the Funds marine vessel during the first quarter of 2011 and continued run-off and sales of lease assets offset, in part, by a period over period increase in usage-based rental revenues relative to railcars and containers.
15
Total operating expenses for the first quarter of 2011 decreased by $38 thousand, or 2%, as compared to the prior year period. The net decrease in total operating expenses was primarily due to reductions in other expense, professional fees, vessel operating and maintenance costs, insurance costs and depreciation expense offset, in part, by increases in railcar maintenance costs and franchise fees and state taxes.
The decrease in other expense totaled $34 thousand and was primarily a result of lower railcar storage fees as more railcars were in service during the current year quarter. Professional fees decreased by $21 thousand largely as a result of a period over period decline in legal fees related to an ongoing claim against the Funds former marine vessel management company due to an alleged under-reporting of revenue, and lower tax preparation and audit-related fees. Moreover, vessel operating and maintenance cost declined by $20 thousand as the Funds marine vessel was placed in drydock status during the first quarter of 2011. Insurance costs decreased by $18 thousand due to lower re-negotiated rates on the Companys marine vessel; and, depreciation expense was reduced by $12 thousand largely as a result of continued run-off and sales of lease assets.
Partially offsetting the aforementioned decreases in expenses were increases in railcar maintenance costs and franchise fees and state taxes totaling $55 thousand and $25 thousand, respectively. Railcar maintenance cost was higher as a result of a period over period increase in the number of railcars in service; and franchise fees and state taxes increased largely due to a period over period increase in estimated state franchise and income tax liability.
At March 31, 2011 and December 31, 2010, the Companys cash and cash equivalents totaled $2.2 million and $1.8 million, respectively. The liquidity of the Company varies, increasing to the extent that cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Other Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The primary source of liquidity for the Company is its cash flow from leasing activities. As initial lease terms expire, the Company re-leases or sells the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Companys success in remarketing or selling the equipment as it comes off rental.
In a normal economy, if inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Companys leased assets may increase as the costs of similar assets increase. However, the Companys revenues from existing leases would not increase; as such rates are generally fixed for the terms of the leases without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the lease rates that the Company can obtain on future leases will be expected to increase as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates.
The Company currently believes it has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. AFS envisions no such requirements for operating purposes.
The following table sets forth summary cash flow data (in thousands):
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Net cash provided by (used in): |
||||||||
Operating activities | $ | 602 | $ | 381 | ||||
Investing activities | (176 | ) | 87 | |||||
Financing activities | | (783 | ) | |||||
Net increase (decrease) in cash and cash equivalents | $ | 426 | $ | (315 | ) |
16
Cash provided by operating activities during the first quarter of 2011 increased by $221 thousand as compared to the prior year period. The net increase in cash flow was largely due to increases in accrued expenses and prepaid rents offset, in part, by a decrease in depreciation of lease assets consistent with continued sales and dispositions of such assets. The increase in accrued expenses was primarily relative to marine vessel drydock expenses during the current year quarter.
Net cash used in investing activities totaled $176 thousand for the first quarter of 2011 as compared to net cash provided by investing activities totaling $87 thousand during the prior year period, a $263 thousand decrease. Cash flow declined as the current year quarter included $460 thousand of capitalized improvement costs associated with the Funds marine vessel. There were no such capitalized costs incurred during the prior year period. The aforementioned cash outflow was partially offset by a $193 thousand period over period increase in proceeds from sales of lease assets. Such increase reflects a higher number and change in the mix of assets sold.
The Company had no financing activities during the first quarter of 2011. By comparison, an approximate $783 thousand was used in financing activities during the prior year quarter, representing distributions paid to Other Members and the Managing Member totaling $542 thousand and $44 thousand, respectively, as well as a $197 thousand repayment of outstanding non-recourse debt which was fully repaid in June 2010.
The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1999.
At March 31, 2011, the Company had no commitments to purchase lease assets. Pursuant to the Operating Agreement, the Company will no longer purchase any new lease assets.
ATEL has chosen to litigate a claim on behalf of certain of its Funds for the under-reporting of revenue by a previous fleet manager of its marine vessels. Litigation continues relative to ATELs plaintiff position, seeking to recover an estimated total of $2.8 million, of which the Companys portion approximates $350 thousand, of under-remitted revenues from marine vessel leasing covering years 2005 2007. Such amounts are not considered material to any of the Funds in any given year. While the Funds recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. Originally scheduled to begin in March 2011, court proceedings have been re-scheduled to commence in September 2011. However, the outcome, either via negotiation or court mandate, is currently indeterminable.
None.
Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part I, Item 1, Financial Statements (Unaudited).
17
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Companys critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes to the Companys critical accounting policies since December 31, 2010.
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.
There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Managing Members internal control over financial reporting, as is applicable to the Company.
18
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.
None.
None.
None.
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
19
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 16, 2011
By: ATEL Financial Services, LLC |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
20
Exhibit 31.1
I, Dean L. Cash, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment Fund VIII, LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 16, 2011
/s/ Dean L. Cash Dean L. Cash President and Chief Executive Officer of ATEL Financial Services, LLC (Managing Member) |
Exhibit 31.2
I, Paritosh K. Choksi, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment Fund VIII, LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 16, 2011
/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) |
Exhibit 32.1
In connection with the Quarterly Report of ATEL Capital Equipment Fund VIII, LLC (the Company) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Dean L. Cash, President and Chief Executive Officer of ATEL Financial Services, LLC, Managing Member of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 16, 2011
/s/ Dean L. Cash Dean L. Cash President and Chief Executive Officer of ATEL Financial Services, LLC (Managing Member) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
In connection with the Quarterly Report of ATEL Capital Equipment Fund VIII, LLC (the Company) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Paritosh K. Choksi, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC, Managing Member of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 16, 2011
/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) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.